regulated entities' DEAs in conducting effective examinations of these
entities. Additionally, the broker-dealer SBSD and broker-dealer MSBSP
reporting requirements related to their security-based swap activities
should promote transparency of the financial and operational condition
of the broker-dealer to the Commission and the firms' DEA. This may, in
turn, improve the Commission's ability to value the relevant
registrants' security-based swap exposures and assist the Commission in
assessing these entities' compliance with rules related to capital
requirements.
iii. Stand-Alone SBSDs and MSBSPs (New Rule 18a-7)
    As described in more detail above,\913\ stand-alone SBSDs and
MSBSPs will be required to file FOCUS Report Part II, as amended, with
the Commission or its designee on a monthly basis.\914\ With respect to
their security-based swap activities, stand-alone SBSDs and MSBSPs are
required to report information similar to that required of broker-
dealer SBSDs. However, these entities are not required to complete the
sections applicable only to broker-dealers.
---------------------------------------------------------------------------

    \913\ See section II.B.2. of this release.
    \914\ The Commission estimates that 9 of the approximately 50
entities that it anticipates to register with the Commission as
SBSDs will be stand-alone SBSDs.
---------------------------------------------------------------------------

    In addition, stand-alone MSBSPs will be required to complete a
simpler Computation of Tangible Net Worth, compared to the much longer
and more complex Computation of Net Capital and Computation of Minimum
Regulatory Capital Requirements sections that stand-alone SBSDs are
required to complete.\915\ Moreover, stand-alone MSBSPs will not be
required to complete the sections in FOCUS Report Part II, as amended,
that require firms to compute the amount that must be maintained in the
security-based swap customer reserve account or the section relating to
information for the possession or control requirements for security-
based swap customers because stand-alone MSBSPs generally will not be
subject to those requirements under Rule 18a-4.\916\ Furthermore,
stand-alone MSBSPs will not be required to complete and file a number
of sections of FOCUS Report Part II, as amended, that relate to the
operational data related to the firm; specifically, they will not be
required to complete and file the Capital Withdrawals, Capital
Withdrawals Recap, and the Financial and Operational Data sections of
FOCUS Report Part II, as amended.\917\ The Commission therefore
believes that the economic effects associated with the reporting
requirements on stand-alone MSBSPs will be significantly less than the
economic effects of the reporting requirements on stand-alone SBSDs.
---------------------------------------------------------------------------

    \915\ Compare FOCUS Report Part II, as amended, Computation of
Tangible Net Worth, with FOCUS Report Part II, as amended,
Computation of Net Capital (Filer Authorized to Use Models) and
FOCUS Report Part II, as amended, Computation of Minimum Regulatory
Capital Requirements (Non-Broker-Dealer SBSD).
    \916\ See Capital, Margin, and Segregation Adopting Release, 84
FR at 44071-76.
    \917\ See FOCUS Report Part II, as amended, Capital Withdrawals,
Capital Withdrawals--Recap, and Financial and Operational Data.
---------------------------------------------------------------------------

    In addition, stand-alone SBSDs and MSBSPs will be required to
generate and file their financial report and, in the case of stand-
alone SBSDs, compliance report or exemption report, with the Commission
on an annual basis.\918\ While the Commission expects that stand-alone
SBSDs and MSBSPs currently prepare financial statements that encompass
their security-based swap activity, under the new rules, these entities
will be required to prepare a financial report in a format consistent
with FOCUS Report Part II, as amended, which includes numerous entries,
computations, and schedules that a stand-alone SBSD may not currently
prepare as a part of its business practices.
---------------------------------------------------------------------------

    \918\ See paragraph (c) of Rule 18a-7, as adopted.
---------------------------------------------------------------------------

    For stand-alone SBSDs approved to use models, there will be a
number of additional monthly and quarterly reporting requirements,
independent of those on FOCUS Report Part II, as amended.\919\ The
additional reports required of stand-alone SBSDs approved to use models
are modeled on parallel reporting requirements for ANC broker-
dealers.\920\ Consequently, stand-alone SBSDs approved to use models
will be required to file the same types of additional reports relating
to their use of internal models as ANC broker-dealers, including ANC
broker-dealer SBSDs.
---------------------------------------------------------------------------

    \919\ See section II.B.3.a. of this release. See also paragraph
(a)(3) of Rule 18a-7, as adopted.
    \920\ Compare paragraph (a)(3) of Rule 18a-7, as adopted, with
paragraph (a)(5) of Rule 17a-5, as amended.
---------------------------------------------------------------------------

    The Commission believes that using the new reporting requirements
will help the Commission to evaluate whether stand-alone SBSDs and
MSBSPs are operating in compliance with the Exchange Act and the rules
thereunder. The Commission also believes that the availability of FOCUS
Report Part II, as amended, will greatly enhance the Commission's
ability to oversee the financial condition of the relevant registrants,
and that the public

availability of a firm's audited Statement of Financial Condition and
net capital computations will facilitate the public's evaluation of the
firm's financial health.
    In response to comments received to the proposing release, the
Commission is modifying Rule 18a-7 so that stand-alone SBSDs and
MSBSPs, as well as SBSDs also registered as an OTC derivatives dealers,
may engage an independent public accountant that is not registered with
the PCAOB, and that the accountant may prepare its reports in
accordance with GAAS in the United States or PCAOB standards.\921\ The
Commission estimates that of the 9 stand-alone SBSDs, 3 will make use
of the full alternative compliance mechanism.\922\ The Commission
estimates that of the 5 MSBSPs, one will also be registered as an FCM.
As with Commission registered broker-dealers, CFTC-registered FCMs are
required to use independent accountants that are registered with the
PCAOB.\923\
---------------------------------------------------------------------------

    \921\ See section II.B.3.a. of this release for a discussion of
why the Commission believes this option is appropriate for stand-
alone SBSDs and MSBSPs but not for SBSDs and MSBSPs that are also
registered as broker-dealers.
    \922\ See section IV.C. of this release.
    \923\ See 17 CFR 1.16(b).
---------------------------------------------------------------------------

    The Commission estimates that there will be 6 stand-alone SBSDs and
4 MSBSPs that may engage an independent public accountant as a result
of Rule 18a-7.\924\ The Commission estimates the total cost to these 10
entities to engage an accountant as required by Rule 18a-7 to be
$3,018,000.\925\ Providing these options to these types of SBSDs and
MSBSPs will not change the requirement to engage an independent public
accountant but will increase the number of accountants that could
potentially be hired. The Commission believes this could result in
lower costs to this group of firms.
---------------------------------------------------------------------------

    \924\ See section IV.C of this release.
    \925\ ($300,000 per stand-alone MSBSP x 4) + $303,000 per stand-
alone SBSD exempt from Rule 18a-4 x 6) = $3,018,000. See section
IV.D.3. of this release (PRA estimate of the total initial and
annual recordkeeping and reporting burden for amendments to Rule
17a-5, as amended, and Rule 18a-7, as adopted).
---------------------------------------------------------------------------

iv. Bank SBSDs and MSBSPs (New Rule 18a-7)
    As described above,\926\ bank SBSDs and MSBSPs will be required to
periodically complete and file FOCUS Report Part IIC with the
Commission. Relative to what broker-dealer SBSDs, broker-dealer MSBSPs,
stand-alone SBSDs, and stand-alone MSBSPs will report in FOCUS Report
Part II, as amended, bank SBSDs and MSBSPs will report less information
on FOCUS Report Part IIC because FOCUS Report Part IIC is tailored
specifically to a bank's activities as an SBSD or an MSBSP. Further,
FOCUS Report Part IIC elicits financial information that largely
derives from the information that banks already report on the call
reports that they file with their prudential regulators.\927\ Finally,
unlike broker-dealer SBSDs, broker-dealer MSBSPs, stand-alone SBSDs and
MSBSPs, bank SBSDs and MSBSPs will not be required to complete and file
an annual audited financial report because this set of potential
registrants are currently subject to the reporting requirements
administered by their prudential regulators. These reporting
requirements include filing of annual audited financial reports.
---------------------------------------------------------------------------

    \926\ See section II.B.2. of this release.
    \927\ See section II.B.2.b.ii. of this release. See also 12
U.S.C. 324; 12 U.S.C. 1817; 12 U.S.C. 161; 12 U.S.C. 1464.
---------------------------------------------------------------------------

    Consistent with the directive in Section 15F(f) of the Exchange
Act, bank SBSDs and MSBSPs will also be required to report, in FOCUS
Report Part IIC, details relating to their security-based swap
activities. To this end bank SBSDs and MSBSPs will be required to
create and maintain additional relevant details about their security-
based swap positions. In relation to reporting details about bank
SBSDs' or bank MSBSPs' security-based swap positions, the Commission
has limited the number of schedules required to be completed and filed
by these entities in FOCUS Report Part IIC to one schedule that elicits
details about their security-based swap positions. This schedule is
also largely derived from the banks' call report.
    The Commission believes that the reporting requirements for bank
SBSDs and MSBSPs will help the Commission and other regulators ensure
that registrants follow applicable capital, margin, and segregation
rules. The Commission believes that such capital, margin, and
segregation rules are an integral part of ensuring that security-based
swap activity is conducted in a financially responsible manner.
d. Notification Requirements
i. Broker-Dealer SBSDs and MSBSPs (Amendments to Rule 17a-11)
    The Commission is adopting amendments to existing Rule 17a-11--
which 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--to account for the security-based swap activities of broker-
dealer SBSDs and MSBSPs.\928\ Specifically, a broker-dealer SBSD will
be required to notify the Commission when it fails to make a deposit in
its security-based swap customer account.\929\
---------------------------------------------------------------------------

    \928\ See paragraphs (b)(5), (e), and (f) of Rule 17a-11, as
amended.
    \929\ See paragraph (f) of Rule 17a-11, as amended.
---------------------------------------------------------------------------

    The Commission believes that the amendments to Rule 17a-11 will
result in improving Commission and DEA oversight of broker-dealer
SBSDs' and broker-dealer MSBSPs' security-based swap activities,
including activities and financial conditions that suggest a material
level of risk to the firm.
ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-8)
    The Commission is adopting new Rule 18a-8--which is modeled on Rule
17a-11, as amended--to establish notification requirements for stand-
alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs.\930\ New
Rule 18a-8 is modeled closely upon the requirements applicable to
broker-dealer SBSDs and MSBSPs. For example, the Commission has
included a net capital deficiency and tentative net capital deficiency
notification requirement in paragraph (a)(1) of Rule 18a-8 applicable
to stand-alone SBSDs that is modeled on the notification requirements
applicable to broker-dealers, over-the-counter derivatives dealers, and
ANC broker-dealers that appear in paragraph (a) of Rule 17a-11, as
amended.\931\ The Commission has also included ``early warning''
notification requirements in paragraph (b) of Rule 18a-8 that will be
applicable to stand-alone SBSDs and MSBSPs and that are modeled after
the relevant early warning provisions applicable to broker-dealers in
paragraph (b) of Rule 17a-11, as amended.\932\ Likewise, the
requirement for a bank SBSD, bank MSBSP, stand-alone SBSD, or stand-
alone MSBSP to notify the Commission in the event that it fails to make
and keep current its required books and records is modeled on a similar
requirement for broker-dealers.\933\
---------------------------------------------------------------------------

    \930\ See Rule 18a-8, as adopted.
    \931\ Compare paragraph (a)(1) of Rule 18a-8, as adopted, with
paragraph (a) of Rule 17a-11, as amended.
    \932\ Compare paragraph (b) of Rule 18a-8, with paragraph (b) of
Rule 17a-11, as amended.
    \933\ Compare paragraph (d) of Rule 18a-8, as adopted, with
paragraph (c) Rule 17a-11, as amended.
---------------------------------------------------------------------------

    These notification requirements serve an important role in the
context of the reporting and recordkeeping rules for broker-dealer
SBSDs, broker-dealer

MSBSPs, stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank
MSBSPs because they serve to alert the Commission to the fact that
certain events are occurring at a registrant that are highly relevant
to the registrant's overall ability to continue to meet its obligations
to customers and counterparties. For example, a report of a capital
deficiency will alert the Commission to the fact that a registrant may
lack sufficient capital to continue to operate its business and to meet
its obligations to customers and counterparties. The notification
requirements are thus critical to helping the Commission fulfill its
statutory responsibility to monitor whether SBSDs and MSBSPs are
operating in compliance with the Exchange Act and the rules
thereunder.\934\
---------------------------------------------------------------------------

    \934\ See 15 U.S.C. 78o-10(f).
---------------------------------------------------------------------------

e. Quarterly Securities Count Requirement for Stand-Alone SBSDs (New
Rule 18a-9)
    As discussed in greater detail above,\935\ the Commission is
establishing a securities count program for SBSDs under Sections 15F
and 17(a) of the Exchange Act that is modeled on Rule 17a-13's
securities count program for broker-dealers. More specifically, stand-
alone SBSDs will be subject to new Rule 18a-9. For reasons explained
above, new Rule 18a-9 will not apply to stand-alone MSBSPs, bank SBSDs,
or bank MSBSPs.\936\ Rule 18a-9 applies substantially all the same
affirmative obligations to stand-alone SBSDs that apply to broker-
dealers under Rule 17a-13.\937\
---------------------------------------------------------------------------

    \935\ See section II.D.1. of this release.
    \936\ See id.
    \937\ Compare Rule 18a-9, as adopted, with Rule 17a-13. Rule
18a-9 omits the exemptions from applicability of the rule that
appear in paragraphs (a)(1) through (3) and (e) of Rule 17a-13
because those exemptions relate to broker-dealer-specific functions
and broker-dealer registration status.
---------------------------------------------------------------------------

    As discussed in the Recordkeeping and Reporting Proposing Release,
Rule 17a-13, the model for Rule 18a-9, arose in the aftermath of the
1967-1970 securities industry crisis where deficiencies in broker-
dealers' internal controls and procedures for, among other things,
adequately checking and counting securities created a serious
``paperwork crisis'' in the securities markets.\938\ The Commission
believes that instituting a parallel provision will help to avoid a
similar problem for stand-alone SBSDs. Moreover, the Commission
believes that to the extent a stand-alone SBSD has not invested in the
technology necessary to help ensure that it can accurately track and
safeguard securities, the rule will require such investments to be
made,\939\ which could improve the quality of such tracking and
safeguarding.
---------------------------------------------------------------------------

    \938\ See Recordkeeping and Reporting Proposing Release, 79 FR
at 25247.
    \939\ See section V.C.2. of this release.
---------------------------------------------------------------------------

2. Costs of the Recordkeeping, Reporting, Notification, and Securities
Count Requirements
    Compliance with the new rules and rule amendments will impose
certain implementation-related costs on SBSDs and MSBSPs, as well as on
stand-alone broker-dealers engaged in security-based swap activities.
These costs may include start-up costs, including other costs such as
those related to personnel and technology. The Commission understands
that entities that engage in security-based swap transactions currently
already incur costs during their normal business activities and that
the new rules and rule amendments will impose incremental costs on such
entities. While these incremental costs are not negligible, the
Commission believes that they are unlikely to be material.
    Based on section IV.D. of this release, the Commission has
estimated the implementation-related costs of the new rules and rule
amendments for SBSDs, MSBSPs, and stand-alone broker-dealers that
engage in security-based swap activities.\940\ The Commission estimates
that across all potential SBSDs and MSBSP registrants including stand-
alone broker dealers that engage in security-based swap transactions,
the initial implementation costs are approximately $10 million and the
ongoing annual costs of implementation are approximately $9 million.
---------------------------------------------------------------------------

    \940\ See section IV.D. of this release (discussing total
initial and annual recordkeeping and reporting burdens of the new
rules and rule amendments).
---------------------------------------------------------------------------

    The following is a breakdown of the estimates of the costs imposed
by the different rules and rule amendments being adopted in this
document on each of the affected parties.\941\
---------------------------------------------------------------------------

    \941\ The Commission is also adopting technical amendments which
it estimates will not impose material additional costs.
---------------------------------------------------------------------------

a. Requirements To Make and Keep Records
i. Broker-Dealer SBSDs, Broker-Dealer MSBSPs, and Stand-Alone Broker-
Dealers (Amendments to Rule 17a-3)
    Amendments to Rule 17a-3 are estimated to impose a one-time initial
cost of approximately $1,151,320 \942\ and an annual ongoing cost of
approximately $216,657 \943\ across the entire industry that includes
broker-dealer SBSDs, broker-dealer MSBSPs and stand-alone broker-
dealers engaged in security-based swap activities.
---------------------------------------------------------------------------

    \942\ 4,280 hours x $269 per hour national hourly rate for a
compliance manager = $1,151,320. See section IV.D.1. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for proposed amendments to Rule 17a-3). The $269
per hour figure for a compliance manager is from the Securities
Industry and Financial Market Association (``SIFMA'')'s Management &
Professional Earnings in the Securities Industry 2012, as modified
by Commission staff to account for an 1,800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead.
    \943\ 3,439 hours x $63 per hour national hourly rate for a
compliance clerk = $216,657. See section IV.D.1. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for amendments to Rule 17a-3). The $63 per hour
figure for a compliance clerk is from SIFMA's Management &
Professional Earnings in the Securities Industry 2012, as modified
by Commission staff to account for an 1,800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead.
---------------------------------------------------------------------------

ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-5)
    The Commission estimates that new Rule 18a-5 will result in a total
initial industry cost of $2,554,740 for non-broker-dealer SBSDs and
MSBSPs.\944\ On an ongoing annual basis, the Commission estimates that
new Rule 18a-5 will result in $791,475 of total industry costs for non-
broker-dealer SBSDs and MSBSPs.\945\
---------------------------------------------------------------------------

    \944\ (9,460 hours x $269 per hour national hourly rate for a
compliance manager) + $10,000 in external costs = $2,554,740. See
section IV.D.1. of this release (PRA estimate of the total initial
and annual recordkeeping and reporting burden for Rule 18a-5, as
adopted).
    \945\ (11,825 hours x $63 per hour national hourly rate for a
compliance clerk) + $46,500 in external costs = $791,475. See
section IV.D.1. of this release (PRA estimate of the total initial
and annual recordkeeping and reporting burden for Rule 18a-5, as
adopted).
---------------------------------------------------------------------------

    The Commission believes that requiring non-broker-dealer SBSDs and
MSBSPs to comply with more limited recordkeeping requirements relative
to broker-dealer SBSDs and MSBSPs, in keeping with the former entities'
more restricted SBS-related business activities, will reduce compliance
costs for these entities without compromising the effectiveness of the
regulatory oversight achieved by the adopted rules.
    Additionally, the Commission has attempted to reduce compliance
burdens and to allow firms subject to Rule 18a-5 to take advantage of
potential efficiencies by basing new Rule 18a-5 upon existing Rule 17a-
3 rather than starting with a wholly new rule. The Commission believes
that many non-broker-dealer SBSDs and non-broker-dealer MSBSPs will be
affiliates of broker-dealers that already have familiarity with Rule
17a-3 upon

which new Rule 18a-5 is modeled. Greater familiarity with the rule
should reduce compliance burdens and costs for these entities. However,
the Commission does acknowledge that with respect to entities not so
affiliated, this approach is much less likely to ease compliance
burdens.
b. Requirements To Preserve Records
i. Broker-Dealer SBSDs, Broker-Dealer MSBSPs, and Stand-Alone Broker-
Dealers (Amendments to Rule 17a-4)
    The Commission estimates that the amendments to Rule 17a-4 will
result in a total initial industry cost of $1,338,896 to broker-
dealers.\946\ On an ongoing annual basis, the Commission estimates that
the amendments to Rule 17a-4 will result in $164,704 in industry costs
to broker-dealers.\947\
---------------------------------------------------------------------------

    \946\ 4,264 hours x $314 per hour national hourly rate for a
senior database administrator = $1,338,896. See section IV.D.2. of
this release (PRA estimate of the total initial and annual
recordkeeping and reporting burden for amendments to Rule 17a-4).
The $314 per hour figure for a senior database administrator is from
SIFMA's Management & Professional Earnings in the Securities
Industry 2012, as modified by Commission staff to account for a
1,800-hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits, and overhead.
    \947\ (1,968 hours x $63 per hour national hourly rate for a
compliance clerk) + $40,720 in external costs = $164,704. See
section IV.D.2. of this release (PRA estimate of the total initial
and annual recordkeeping and reporting burden for amendments to Rule
17a-4, as amended).
---------------------------------------------------------------------------

ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-6)
    The Commission estimates that new Rule 18a-6 will result in
$3,634,864 in terms of initial costs to the industry \948\ and $750,615
in terms of annual ongoing costs to the industry.\949\
---------------------------------------------------------------------------

    \948\ 11,576 hours x $314 per hour national hourly rate for a
senior database administrator = $3,634,864.
    \949\ (8,770 hours x $63 per hour national hourly rate for a
compliance clerk) + (35 hours x $379 per hour for national hourly
rate for an attorney) + $184,840 in external costs = $750,615.
---------------------------------------------------------------------------

c. Reporting Requirements
i. Broker-Dealer SBSDs, Broker-Dealer MSBSPs, and Stand-Alone Broker-
Dealers (Amendments to Rule 17a-5)
    The Commission anticipates that there may be additional costs
associated with stand-alone broker dealers, broker-dealer SBSDs or
broker-dealer MSBSPs completing and filing the annual reports required
under paragraph (d) of Rule 17a-5, as amended. For example, the
amendments will increase the cost of completing the annual compliance
report filed by a broker-dealer SBSD because the compliance report for
such firms will include statements about the firms' compliance with
Rule 18a-4, the customer segregation rule that will apply to broker-
dealer SBSDs.\950\ Similarly, an ANC broker-dealer that currently files
FOCUS Report Part II CSE and that registers with the Commission as an
SBSD or MSBSP will experience a marginal impact on its reporting
obligations due to new line items and schedules tailored to
specifically elicit details about security-based swap activities.\951\
---------------------------------------------------------------------------

    \950\ See section II.B.3.a. of this release.
    \951\ See id.
---------------------------------------------------------------------------

    The Commission also anticipates that the cost of auditing the
annual reports filed by stand-alone broker-dealers, broker-dealer SBSDs
and MSBSPs will rise.\952\ Currently, and as described in more detail
above, broker-dealers are required to engage a PCAOB-registered
independent public accountant to conduct an annual audit of their
annual reports.\953\ The Commission believes the additional required
components of the financial report and the compliance report will
increase the costs of ongoing compliance as well as those of the annual
audit for these entities.
---------------------------------------------------------------------------

    \952\ See id.
    \953\ See section II.B.1. of this release.
---------------------------------------------------------------------------

    However, the Commission believes that overall the additional costs
imposed by the amendments will be insubstantial because the FOCUS
Report Part II, as amended, largely retains the same structure as it
existed prior to the amendments. This will reduce uncertainty and avoid
additional compliance costs that could stem from devising an entirely
new reporting form and rules. Furthermore, the scope of the additional
information--generally related to the firms' security-based swap
activities--requested in FOCUS Report Part II, as amended, is
circumscribed by what broker-dealer SBSDs and MSBSPs report currently
in FOCUS Report Part II, Part II CSE, or Part IIB. The Commission
believes that the economic effects associated with the requirement to
file FOCUS Report Part II, as amended, will accordingly be
circumscribed by the relevant registrants' current reporting
obligations.
    The Commission estimates that the amendments to Rule 17a-5 will
result in an initial total cost of $291,865 to broker-dealers.\954\ On
an ongoing annual basis, the Commission estimates that the amendments
to Rule 17a-5 will result in total costs of $1,862,556 per year to
broker-dealers.\955\
---------------------------------------------------------------------------

    \954\ 1,085 hours x $269 per hour national hourly rate for a
compliance manager = $291,865. See section IV.D.3. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for amendments to Rule 17a-5, as amended). The
majority of costs that broker-dealers will incur as a result of the
amendments to Rule 17a-5, as amended, are expected to result from
the additional information required in FOCUS Report Part II, as
amended, as compared to the parts of the FOCUS Report currently
being filed by broker-dealers. Because broker-dealers (other than
broker-dealers required to file Part IIA) will be required to file
FOCUS Report Part II, as amended, on an ongoing basis, it is
characterized as an annual cost, rather than an initial cost.
    \955\ 6,924 hours x $269 per hour national hourly rate for a
compliance manager = $ 1,862,556. See section IV.D.3. of this
release (PRA estimate of the total initial and annual recordkeeping
and reporting burden for amendments to Rule 17a-5, as amended).
---------------------------------------------------------------------------

ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-7)
    New Rule 18a-7 as adopted will require stand-alone SBSDs and MSBSPs
to file FOCUS Report Part II, as amended, with the Commission or its
designee on a monthly basis. Given that stand-alone SBSDs and MSBSPs
are not broker-dealers, these firms do not have experience filing the
FOCUS Report, and thus reporting on FOCUS Report Part II, as amended,
could represent a significant undertaking for them.
    Relative to the information these firms generate now, FOCUS Report
Part II, as amended, likely elicits greater detail about the
registrants' security-based swap positions. In order to be able to
provide the security-based swap information elicited by FOCUS Report
Part II, as amended, registrants will need to have the requisite
additional details regarding their security-based swap positions. While
the Commission expects that stand-alone SBSDs and MSBSPs currently
prepare financial statements that encompass their security-based swap
activity, reporting on FOCUS Report Part II, as amended, may require
these firms to establish new systems that facilitate their reporting of
the required information. While these upgrades are likely to entail
costs for firms, firms may also use these upgrades towards more
efficiently tracking their trading and security-based swap exposures.
    Moreover, since many of the entities that the Commission expects
will register as stand-alone SBSDs and MSBSPs are currently not
regulated, they are likely to be unaccustomed to completing and filing
detailed reports with financial regulators. Therefore the Commission
anticipates that stand-alone SBSDs and MSBSPs will bear substantial
costs in connection with completing and filing FOCUS Report Part II, as
amended.
    Rule 18a-7 as adopted further requires stand-alone SBSDs to
generate and file their financial report and their

compliance report or exemption report with the Commission on an annual
basis. The compliance report contains several statements and
descriptions related to the firms' compliance with the financial
responsibility rules. The exemption report contains several statements
regarding the firms' exemption from Rule 18a-4. These details will be
entirely new for most stand-alone SBSD registrants. Finally, Rule 18a-7
requires stand-alone SBSDs and MSBSPs to file an annual audited report
with the Commission. Stand-alone SBSDs and MSBSPs will be required to
hire an independent public accountant to perform the audit and to
prepare the annual audit report. The Commission is modifying Rule 18a-7
to permit stand-alone SBSDs and MSBSPs the option to engage an
independent public accountant that is not registered with the PCAOB,
and to permit the accountant to use GAAS in the United States or PCAOB
Standards.\956\
---------------------------------------------------------------------------

    \956\ See section II.B.3.a. of this release (discussing the
requirement to file annual reports and the qualifications of
independent public accountants).
---------------------------------------------------------------------------

    The Commission believes that this will entail compliance-related
costs for these entities. Specifically, the Commission believes that
stand-alone SBSDs approved to use models may incur compliance costs
related to, among other things, preparing and filing the additional
reports that will be required under the new rules. The Commission
estimates that all stand-alone MSBSPs will incur costs stemming from
the requirement to engage an auditor. The Commission anticipates that
stand-alone MSBSPs will incur fewer costs in complying with these
requirements as compared to stand-alone SBSDs because stand-alone
MSBSPs will not be required to file the compliance report or the
exemption report. The Commission believes the additional reports that
stand-alone SBSDs approved to use models will be required to file with
the Commission will give rise to less substantial compliance costs
relative to the other costs generated by the reporting requirements.
This is the case because the additional reporting obligations for
stand-alone SBSDs approved to use models are relatively few and are
generally closely related to their use of internal models approved by
the Commission to calculate market and credit risk. Stand-alone SBSDs
approved to use models will incur the majority of the costs associated
with these internal models in designing and operating the models
themselves rather than in filing the reports arising from these models.
    While the Commission understands that stand-alone SBSDs and MSBSPs
may not currently be registered as broker-dealers and thus may not
currently be filing the FOCUS Report (and thus have no familiarity with
it), many stand-alone SBSDs and MSBSPs may be affiliated with, or be
part of, a larger financial firm that contains a broker-dealer, thus
providing a source of experience with the FOCUS Report that is internal
to the firm and reducing compliance-related costs. Moreover, the
accounting and legal communities are familiar with the FOCUS Report so
the Commission believes that this familiarity should mitigate the
compliance costs for stand-alone SBSDs and MSBSPs insofar as they have
access to external assistance that has experience with the FOCUS
Report. At the same time, the Commission acknowledges that there may be
stand-alone SBSDs and MSBSPs affiliated with, for example, FCMs, and
such firms would conceivably benefit from rules based upon or similar
to CFTC rules.
    Furthermore, the information required to be reported by bank SBSDs
and MSBSPs on the FOCUS Report Part IIC largely would be information
that banks are already required to provide in call reports. Thus, the
Commission does not believe that FOCUS Report Part IIC will require
substantial additional effort to complete.\957\
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    \957\ Whenever possible, the Commission has adopted the same
line item numbers as are used for the call report (but appended with
the letter ``b'' in FOCUS Report Part IIC) to facilitate a bank
SBSD's or bank MSBSP's use of data from the call report.
---------------------------------------------------------------------------

    The Commission estimates that Rule 18a-7 will result in an initial
industry cost of $597,180.\958\ The Commission further estimates that
Rule 18a-7 will result in an ongoing annual industry cost of
$3,169,083.50.\959\
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    \958\ 2,220 hours x $269 per hour national hourly rate for a
compliance manager = $597,180. See section IV.D.3. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for amendments to Rule 17a-5, as amended, and Rule
18a-7, as adopted). The majority of the costs that SBSDs and MSBSPs
will incur as a result of Rule 18a-7 are expected to result from the
requirements to elicit information in Form SBS and to conduct an
annual audit. Because the additional information in the Form SBS and
the annual audit will be required on an ongoing basis, the
Commission is characterizing them as sources of ongoing costs.
    \959\ (2,397 hours x $63 per hour national hourly rate for a
compliance clerk) + $3,018,072.5 in external costs = $3,169,083.50.
See section IV.D.3. of this release (PRA estimate of the total
initial and annual recordkeeping and reporting burden Rule 18a-7, as
adopted).
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d. Notification Requirements
    The Commission believes that costs of the notification requirement
will be incidental to the related underlying substantive obligation.
i. Broker-Dealer MSBSPs and Stand-Alone Broker-Dealers (Amendments to
Rule 17a-11)
    The Commission believes that most of the costs stemming from the
notification requirements contained in amendments to Rule 17a-11 will
arise from preparing and filing the notices. In the aggregate, the
Commission estimates the amendments to Rule 17a-11 to result in an
ongoing annual industry cost of $28,245 to broker-dealer SBSDs and
MSBSPs.\960\
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    \960\ (105 hours) x $269 per hour national hourly rate for a
compliance manager = $28,245. See section IV.D.4. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for amendments to Rule 17a-11, as amended, and Rule
18a-8, as adopted).
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ii. Stand-Alone SBSDs, Stand-Alone MSBSPs, Bank SBSDs, and Bank MSBSPs
(New Rule 18a-8)
    The Commission estimates that the notification requirements
contained in new Rule 18a-8 for non-broker-dealer SBSDs and MSBSPs will
result in an ongoing annual industry-wide costs of $1,237.\961\
---------------------------------------------------------------------------

    \961\ 4.6 hours x $269 per hour national hourly rate for a
compliance manager = $1,237. See section IV.D.4. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for amendments to Rule 17a-11, as amended, and Rule
18a-8, as adopted).
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e. Quarterly Securities Count Requirement (New Rule 18a-9)
    The Commission believes that the costs and any larger economic
effects associated with new Rule 18a-9 should be similar to the costs
associated with existing Rule 17a-13 on which new Rule 18a-9 is
modeled. These costs will primarily be related to the development and
maintenance of internal procedures and controls and the investment in
technology. The Commission estimates that Rule 18a-9 will impose an
initial industry-wide cost of $51,150 \962\ and an industry-wide
ongoing annual cost of $75,600.\963\
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    \962\ 150 hours x $341 per hour national hourly rate for a
senior operations manager = $51,150. See section IV.D.5. of this
release (PRA estimate of the total initial and annual recordkeeping
and reporting burden for Rule 18a-9). The $341 per hour figure for a
senior operations manager is from SIFMA's Management & Professional
Earnings in the Securities Industry 2012, as modified by Commission
staff to account for an 1,800-hour work-year and multiplied by 5.35
to account for bonuses, firm size, employee benefits, and overhead.
    \963\ 600 hours x $126 per hour national hourly rate for an
operations specialist = $75,600. See section IV.D.5. of this release
(PRA estimate of the total initial and annual recordkeeping and
reporting burden for Rule 18a-9). The $126 per hour figure for an
operations specialist is from SIFMA's Management & Professional
Earnings in the Securities Industry 2012, as modified by Commission
staff to account for an 1,800-hour work-year and multiplied by 5.35
to account for bonuses, firm size, employee benefits, and overhead.

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3. Economic Effects of the Approach to Recordkeeping, Reporting,
Notification, and Securities Count Requirements
    In addition to the costs and benefits of the specific rules and
amendments discussed above, certain economic effects arise from the
Commission's overall approach in adopting recordkeeping, reporting,
notification, and securities count requirements. Generally, the new
requirements being adopted in this document are based upon the existing
comprehensive system of recordkeeping, reporting, notification, and
securities count rules applicable to broker-dealers, as modified to
capture and document the security-based swap activities of broker-
dealers, SBSDs, and MSBSPs. As discussed in Section II. above, the
current broker-dealer recordkeeping, reporting, notification, and
securities count requirements served as the template for the new rules
and rule amendments for several reasons. The financial markets in which
entities expected to register as SBSDs and MSBSPs operate are similar
to the financial markets in which broker-dealers currently operate in
that the markets are driven in significant part by dealers that buy and
sell on a regular basis and take principal risk.
    The Commission believes that adopting a similar regulatory approach
for similar markets is likely to mitigate the cost borne by market
participants. Broker-dealers and third-party service providers that
assist broker-dealers in meeting their recordkeeping, reporting, and
notification requirements are familiar with Commission recordkeeping,
reporting, and notification rules for broker-dealers. To the extent
that these entities become subject to these final rules or provide
services to entities that become subject to these final rules,
consistency with the existing recordkeeping, reporting, and
notification requirements for broker-dealers will likely reduce the
costs associated with compliance with these rules. The Commission
believes that these efficiencies could be realized even by firms that
are not currently registered as broker-dealers given that some of the
new registrants will likely be part of larger financial firms that have
a broker-dealer affiliate, thus providing a source of in-house
experience with the Commission's broker-dealer rules. However, the
Commission acknowledges that these reductions in compliance costs may
be much more limited for firms that are not currently broker-dealers
and are not affiliated with broker-dealers.
    In addition, Commission staff consulted with staff from fellow
regulators regarding the new rules and rule amendments, as those
regulators may have analogous regulations. The Commission believes the
final rules may benefit security-based swap markets by applying
recordkeeping and reporting requirements that are consistent with
similar requirements in other jurisdictions. In considering whether
there were other practicable regulatory alternatives, the Commission
also examined existing rules of the prudential regulators. For example,
the OCC has promulgated rules governing recordkeeping and confirmation
requirements for securities transactions effected by national
banks.\964\ Paragraph (a)(1) of the OCC rule governing the record that
a national bank effecting securities transactions for customers must
maintain (Rule 12.3) appears broadly consistent with paragraph (a)(6)
of Rule 17a-3, as amended, as well as with paragraph (b)(7) of Rule
18a-5.\965\ Consistency with prudential regulators' requirements may
mitigate compliance burdens for bank SBSDs and MSBSPs that become
subject to the adopted rules.
---------------------------------------------------------------------------

    \964\ See 12 CFR 12.3.
    \965\ Compare 12 CFR 12.3(a), with paragraph (a)(6) of Rule 17a-
3, as amended, and paragraph (b)(7) of Rule 18a-5, as adopted.
---------------------------------------------------------------------------

    The Commission also believes the new rules and rule amendments
herein are broadly consistent with the approach taken by the CFTC. The
CFTC's final rules were modeled on existing rules promulgated by both
the CFTC and the Commission.\966\ As noted above,\967\ entities that
are active participants in the security-based swap market also tend to
be active participants in the CFTC-regulated swap market, and the
Commission estimated that approximately 35 of the 50 expected SBSDs
will be dually registered with the CFTC and therefore be subject to
CFTC recordkeeping, reporting, and notification requirements.
---------------------------------------------------------------------------

    \966\ See CFTC, Swap Dealer and Major Swap Participant
Recordkeeping, Reporting, and Duties Rules, 77 FR at 20171 (stating
swap dealer and major swap participant rules are modeled on existing
rules as well as those of the Commission).
    \967\ See section V.B.2.a. of this release.
---------------------------------------------------------------------------

    The recordkeeping rules the Commission is adopting are similar to
those of the CFTC in terms of their level of prescriptiveness. For
example, paragraph (a)(1) of existing Rule 17a-3 sets forth the
requirement that a broker-dealer make and keep current a trade blotter,
while paragraphs (a)(1) and (b)(1) of Rule 18a-5 include parallel
blotter requirements for stand-alone SBSDs and MSBSPs and bank-SBSDs
and bank-MSBSPs respectively.\968\ In comparison, the CFTC's rule 202
(``Daily Trading Records''), which corresponds to the Commission's
Rules 17a-3 and 18a-5, prescribes that swap dealers and major swap
participants must make and keep trade execution records that are very
similar to the records required to be made and kept by Rules 17a-3 and
18a-5.\969\ Because the Commission is adopting requirements that are
similar to CFTC requirements, entities that are already registered with
the CFTC may experience relatively lower costs to become compliant with
the adopted rules.
---------------------------------------------------------------------------

    \968\ See section II.A.2.a. of this release.
    \969\ See 17 CFR 23.202(a)(2) (Rule 202).
---------------------------------------------------------------------------

    Further, as the Commission has noted in other releases, regulatory
consistency can also reduce the likelihood of regulatory arbitrage. The
new requirements applicable to stand-alone SBSDs and MSBSPs seek to
regulate these firms' security-based swap activity in a manner
consistent with the regulation of security-based swap activities
conducted at broker-dealers and at banks, while reflecting the business
model of such entities.\970\ As a result, the final rules mitigate the
risk that bank SBSDs and MSBSPs restructure their activities in order
to take advantage of differences in prudential regulators'
recordkeeping and reporting requirements and those adopted by the
Commission.
---------------------------------------------------------------------------

    \970\ In this regard, the Commission notes the new rules exclude
a number of recordkeeping requirements for bank SBSDs and MSBSPs. As
discussed above in section I of this release, Section 15F(f)(1)(B)
of the Exchange Act requires such institutions to keep only those
books and records of all activities related to the conduct of
business as an SBSD or MSBSP.
---------------------------------------------------------------------------

    The Commission believes that applying consistent requirements
across all entities that engage in security-based swap activity will
facilitate competition between these entities on similar terms insofar
as firms operating in different jurisdictions will incur similar
compliance costs. The Commission is seeking to provide all security-
based swap activity, irrespective of the entity within which such
activity is conducted, a level regulatory playing field while being
cognizant of the fact that firms with a more limited security-based
swap business should also be subject to an appropriately circumscribed
set of regulations.

    In response to a commenter's concerns regarding harmonization with
the CFTC's recordkeeping requirements as well as to promote
harmonization with CFTC requirements,\971\ the Commission is also
adopting a limited alternative compliance mechanism that--subject to
certain requirements \972\--allows registrants to employ a single
recordkeeping system for swap and security-based swap transactions and
positions and to follow a single set of recordkeeping requirements
while helping to ensure that the requisite records are promptly
available to the Commission staff in a format that readily permits
examination. The limited alternative compliance mechanism could thereby
ease compliance burdens--particularly initial burdens--for registrants
that have already devoted substantial resources towards complying with
the CFTC's recordkeeping requirements for swap transactions and
positions and will not be required to incur afresh the costs of the
recordkeeping system software needed to comply with the Commission's
new recordkeeping requirements for security-based swap transactions and
positions. The limited alternative compliance mechanism should also
afford the relevant registrants greater flexibility in the manner in
which they record security-based swap transactions and positions.\973\
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    \971\ See Nomura Letter.
    \972\ See section II.A.1. of this release.
    \973\ See section II.A.2. of this release. As stated above,
however, the Commission is making the conservative estimate that no
firms will use the limited alternative compliance mechanism.
However, the Commission believes that providing the limited
alternative compliance mechanism could ease compliance burdens for
some firms already registered with the CFTC.
---------------------------------------------------------------------------

    Finally, 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. The
Commission believes the availability of the full alternative compliance
mechanism will promote harmonization with CFTC requirements and reduce
compliance costs for eligible SBSDs and MSBSPs. The Commission
estimates that in the absence of the full alternative compliance
mechanism, the initial industry compliance costs could be as much as
$827,715 higher and the ongoing annual industry compliance could be as
much as $1,292,637 higher.\974\
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    \974\ This estimate is based on the Commission's estimate that 3
stand-alone SBSDs will take advantage of the full alternative
compliance mechanism. See section IV.D.7 of this release. The
increase in initial industry compliance costs in the absence of full
alternative compliance for Rules 18a-5, 18a-6, 18a-7, 18a-8, and
18a-9 are $261,240, $395,640, $145,260, $0.00, and $25,575,
respectively. The corresponding increases in ongoing compliance
costs are $89,550, $79,088, $1,114,549, $0.00, and $9,450,
respectively. See section IV.D.1. through section IV.D.4. and
section IV.D.6. of this release.
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4. Cross-Border Application and Substituted Compliance
    As discussed above,\975\ the Commission treats the adopted
recordkeeping and reporting requirements as entity-level requirements.
Entity-level requirements apply to all the security-based swap
transactions of the registered entity regardless of the U.S. person
status of the entity or the U.S. person status of the entity's
counterparty to any particular transactions. The Commission believes
that the concentration of global security-based swap activity within a
small group of large entities makes entity level regulation--thereby
not exempting certain transactions from the recordkeeping, reporting,
notification, and securities count requirements being adopted in this
document--critical to advancing the policy objectives of Title VII.
---------------------------------------------------------------------------

    \975\ See section II.F.1. of this release.
---------------------------------------------------------------------------

    Classifying security-based swap recordkeeping and reporting
requirements as entity-level requirements may facilitate and strengthen
Commission oversight of registered SBSDs and enhance compliance with
the full range of obligations under Federal securities laws and
Commission rules regardless of the location of counterparties or
personnel. Title VII security-based swap recordkeeping and reporting
requirements may enhance the Commission's ability to evaluate foreign
SBSDs and MSBSPs' records for evidence of market manipulation or other
abusive practices within the United States. Moreover, since the
marginal cost of keeping daily trading records and confirmations is
likely to be low for SBSDs and MSBSPs, the Commission does not believe
that the savings associated with limited application of these
requirements to a subset of an SBSD's or MSBSP's transactions is likely
to be high.
    In considering the scope of the entities that will be included
within the ambit of the new recordkeeping, reporting, notification, and
securities count requirements being adopted in this document, the
Commission is aware that market participants may respond to entity-
level requirements by restructuring their business or exiting markets
to reduce the likelihood of incurring an obligation to register with
the Commission. Compliance with the recordkeeping and reporting
requirements will increase costs for SBSDs and MSBSPs, including those
that are non-U.S. persons. To the extent that foreign SBSDs and MSBSPs
have market power, they may pass the costs of these requirements
through to U.S. persons in the form of higher transaction costs.
Furthermore, to the extent that non-U.S. persons avoid transacting with
U.S. persons to avoid registration requirements, U.S. persons may
implicitly bear the costs of compliance through reduced access to
liquidity provided by non-U.S. persons.\976\
---------------------------------------------------------------------------

    \976\ See Application of ``Security-Based Swap Dealer'' and
``Major Security-Based Swap Participant'' Definitions to Cross-
Border Security-Based Swap Activities, 79 FR at 47343.
---------------------------------------------------------------------------

    Given that security-based swap markets are global and the
Commission expects registered SBSDs and MSBSPs to transact across
multiple jurisdictions, some registered SBSDs may be subject to
duplicative or mutually conflicting recordkeeping and reporting
requirements in multiple foreign jurisdictions. This may impede the
entry of foreign SBSDs and MSBSPs into the U.S. security-based swap
market, disrupt existing business relationships, and, more generally,
reduce competition and market efficiency. As discussed above, the
Commission is amending Rule 3a71-6 to provide non-U.S. SBSDs and non-
U.S. 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.\977\
---------------------------------------------------------------------------

    \977\ See section II.F.2. of this release.
---------------------------------------------------------------------------

    Allowing for the possibility of substituted compliance is expected
to help achieve the benefits of the recordkeeping and reporting
requirements being adopted in this document in a manner that avoids the
costs that foreign registrants would have

to bear due to regulatory duplication or conflict. A substituted
compliance determination could thus preserve the access of foreign
registrants into U.S. security-based swap markets and hence promote
market efficiency and enhance competition therein while also generally
facilitating a well-functioning global security-based swap market.
Further, as the availability of substituted compliance lowers the
potential costs to non-U.S. SBSDs and non-U.S. MSBSPs of complying with
the rules being adopted in this document, the costs of completing
security-based swap transactions may be lower, relative to the case
where substituted compliance is not available and counterparties,
including non-dealer counterparties, may bear lower transactions costs
as a result. At the same time, the process of making substituted
compliance requests may cause foreign registrants to incur additional
costs of applying for a substituted compliance determination. These
substituted compliance requests will be made on a voluntary basis, and
foreign registrants will only make such requests when the anticipated
costs of relying on substituted compliance are lower than the costs of
complying directly with the final rules being adopted in this document.
Further, after a substituted compliance determination is made, foreign
registrants will choose substituted compliance only if their expected
private benefits from participating in U.S. security-based swap markets
exceed expected private costs, including any conditions the Commission
may attach to the substituted compliance determination.
    The Commission also recognizes that these costs and the overall
economic effects of allowing substituted compliance for the final
recordkeeping and reporting rules will depend on, among other things:
Whether and to what extent substituted compliance requests will be
granted for jurisdictions in which some of the most active foreign
registrants are currently regulated and supervised; the costs of
potential relocation, business restructuring, or direct compliance by
foreign registrants that may be denied substituted compliance requests;
the relevant information required to demonstrate consistency between
the foreign regulatory requirements and the Commission's recordkeeping
and reporting rules; the relevant information required to demonstrate
the adequacy of the foreign regime's compliance and enforcement
mechanisms; the fraction of foreign registrants in a given jurisdiction
that may choose to make substituted compliance requests; and whether
substituted compliance determinations for subsequent applications are
more likely to be granted after an initial affirmative substituted
compliance determination for the first applicant from a given
jurisdiction. Nevertheless, the potential for the duplication of
recordkeeping and reporting compliance costs on foreign registrants may
be more significant in cases where the foreign jurisdictions'
regulatory regimes impose less stringent recordkeeping and reporting
requirements than the requirements being adopted in this document or
when other prerequisites for substituted compliance have not been
satisfied. The Commission thus recognizes that there will be limits to
the availability of substituted compliance, including the possibility
that substituted compliance may be permitted with regard to some
requirements and not with regard to others, or that, in certain
circumstances, substituted compliance may not be permitted with respect
to any requirements of a particular jurisdiction.

D. Impact on Efficiency, Competition, and Capital Formation

    Section 3(f) of the Exchange Act provides that whenever the
Commission engages in rulemaking under the Exchange Act and is required
to consider or determine whether an action is necessary or appropriate
in the public interest, the Commission shall also consider, in addition
to the protection of investors, whether the action will promote
efficiency, competition, and capital formation. In addition, Section
23(a)(2) of the Exchange Act requires the Commission, when making rules
under the Exchange Act, to consider the impact such rules would have on
competition.\978\ Section 23(a)(2) of the Exchange Act also prohibits
the Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.
---------------------------------------------------------------------------

    \978\ See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    In the aggregate, the recordkeeping, reporting, and notification
rules are an integral part of the financial responsibility rules
governing security-based swaps which, in turn, are part of the
regulatory regime for OTC derivatives markets established by Title VII
of the Dodd Frank Act. As stated above, the Commission believes that
the recordkeeping, reporting, notification, and securities count rules
and rule amendments being adopted in this document address, among other
things, the documentation, reporting, and evidence of compliance with
the capital, margin, and segregation rules. Thus, 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.\979\
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    \979\ See Capital, Margin, and Segregation Adopting Release, 84
FR at 43968-44040.
---------------------------------------------------------------------------

    Similarly, while the Commission expects that the adoption of these
rules and rule amendments, and their attendant benefits and costs, will
affect competition, efficiency, and capital formation, the Commission
believes that such impact will be more limited than the impact from the
capital, margin, and segregation rules. In most instances, the
Commission believes the costs of the new rules and rule amendments will
be implementation-related and the benefits will stem from enabling the
Commission to evaluate whether SBSDs and MSBSPs are in compliance with
the financial responsibility rules governing security-based swap
activities. The Commission's belief that the costs of the rule and rule
amendments will be implementation-related is supported by the results
of a broker-dealer survey conducted prior to the finalization of the
OTC derivatives rules.\980\ According to this survey even though the
majority, i.e., 57.5% of surveyed broker-dealers, stated that they
expected to be ``highly impacted'' by the regulation of OTC derivatives
markets under Title VII of the Dodd Frank Act,\981\ the specific areas
that were anticipated as representing top operational challenges were
all implementation-related. Thus, the majority, i.e., 61.9% of surveyed
broker-dealers, indicated that their top anticipated challenge from
Title VII regulations for OTC derivatives markets was ``documenting
compliance with suitability requirements when making recommendations to
counterparties'' followed by 59.5%, who cited the ``need for subject
matter expertise to derivatives and the disclosure obligations set
forth in the CFTC's recently proposed rules.'' In terms of the areas
that the survey respondents anticipated would represent the most
significant operational challenges emerging from the Dodd-Frank Act,
45.3% indicated ``regulatory inquiries and exams'' followed by 35.7%
for

``trade reporting'' and 19% for ``disclosures and reporting
requirements.''
---------------------------------------------------------------------------

    \980\ See Harvard Law School Forum on Corporate Governance and
Financial Regulation, Broker-Dealers Respond to Dodd-Frank and FINRA
(Oct. 8, 2011), available at https://corpgov.law.harvard.edu/2011/10/08/broker-dealers-respond-to-dodd-frank-and-finra/.
    \981\ The survey considered the following specific initiatives
of the Dodd-Frank Act: (1) The uniform fiduciary standard; (2) the
Volcker Rule regulating proprietary trading under Dodd-Frank Title
VI and (iii) the regulation of the OTC derivatives markets under
Title VII of the Dodd-Frank Act.
---------------------------------------------------------------------------

    The rules are designed to provide greater regulatory transparency
into the business activities of firms that engage in security-based
swap activities and to assist the Commission and other regulators in
reviewing and determining compliance with the capital, margin, and
segregation requirements. As the Commission has discussed in its
associated release,\982\ the capital, margin, and segregation
requirements have the potential to enhance efficiency and capital
formation in financial markets through their impact on competition. In
general, the Commission believes that the new rules and rule amendments
will thus help ensure that firms that engage in security-based swap
activities do so in a financially responsible manner. The Commission
further believes that the new rules and rule amendments, by improving
its ability to monitor the financial condition of the relevant
registrants, could increase the willingness of market participants that
value regulatory oversight of the security-based swap market to engage
in security-based swap activities. Additional participation in the
security-based swap market could lead to increased competition between
suppliers of security-based swap liquidity and increased efficiency,
through both lower transactions costs and reduced search costs. These,
in turn, may have a positive effect on capital formation, to the extent
that they improve opportunities for risk sharing using security-based
swaps.
---------------------------------------------------------------------------

    \982\ See Capital, Margin, and Segregation Adopting Release, 84
FR at 44033-40.
---------------------------------------------------------------------------

    The Commission is cognizant, however, that it must be sensitive to
the costs and burdens imposed by its rules on both individual firms and
financial markets as a whole. For example, overly restrictive or costly
recordkeeping requirements could reduce the willingness of firms to
engage in security-based swap trading. This could, in turn, increase
transaction costs for market participants and dampen liquidity in the
market. Even if the costs of overly restrictive recordkeeping,
reporting, notification, and securities count requirements were
shouldered only by those market participants that are subject to them,
the regulations will impose additional costs on capital markets at
large since the resources used to comply with the regulations will not
be available for potentially more efficient uses, thereby distorting
capital allocation and, in turn, adversely affecting capital formation.
Similarly, the additional costs of the new recordkeeping, reporting,
securities count, and notification requirements could represent
barriers to entry for potential market participants; however, the
Commission believes that these rules and rule amendments are unlikely
to increase the barriers to entry in this market in a material way.
Notwithstanding this belief, the Commission has taken steps, where
appropriate, to reduce compliance costs for some SBSDs and MSBSPs by
establishing the limited and full alternative compliance mechanisms.
    As described in more detail above, broker-dealers historically have
not participated in a significant way in security-based swap trading,
in part, because the existing broker-dealer capital requirements make
it relatively costly to conduct these activities in broker-
dealers.\983\ Thus, from among the 3,893 stand-alone broker-dealers
registered with the Commission as of December 31, 2017, the Commission
estimates that approximately twenty-five (or only 0.62%) will be
engaged in security-based swap activities while not being required to
register as SBSDs or MSBSPs.\984\
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    \983\ See section IV.C. of this release.
    \984\ See id.
---------------------------------------------------------------------------

    To the extent that the new rules or rule amendments are burdensome
or costly, they may induce market participants to scale back their
activities or exposures to avoid incurring the obligation to register
as SBSDs or MSBSPs. This reduction in scale could adversely impact
competition between liquidity suppliers leading to lower liquidity,
impeded price discovery, and higher transaction costs, all of which are
characteristics of reduced levels of efficiency in the market.
Moreover, it is possible that increased costs could lead certain market
participants to cease engaging altogether in security-based swap
trading or to restructure their activities in ways that allow them to
avoid registration with the Commission and entity-level requirements
under Title VII.
    The Commission is particularly cognizant of the impacts of
restructuring in financial markets that are global in scope.
Competitive disparities in regulations across different jurisdictions
coupled with SBSDs' flexibility to restructure their businesses and
operations may result in market fragmentation.\985\ The outcome of such
restructuring could be a large pool of security-based swap liquidity
consisting of transactions that are carried out by unregistered non-
U.S.-person dealers with non-U.S.-person counterparties using personnel
outside of the United States and a smaller pool consisting of
transactions involving U.S. persons or using personnel located in a
U.S. branch or office. Such fragmentation could make it more difficult
for U.S. persons to find liquidity in the United States, and those U.S.
persons that might otherwise use security-based swaps to hedge
financial and commercial risks may reduce their hedging activity and
assume an inefficient amount of risk, or engage in precautionary
savings by accumulating capital to mitigate the effects of market
risks, which would inhibit capital formation. The Commission notes,
however, that the type of restructuring necessary to avoid counting
security-based swap dealing activity towards de minimis thresholds
which will trigger requirements to register as an SBSD will likely be
costly for non-U.S. persons,\986\ and these costs may reduce the
likelihood that non-U.S. persons restructure in response to the
requirements being adopted in this release. In particular, to the
extent that the costs of restructuring are larger than the costs of
complying with Commission recordkeeping, reporting, and notification
rules, they may reduce the likelihood of market fragmentation and the
associated impacts on competition, efficiency, and capital formation
that might otherwise result from counterparties seeking to avoid
complying with these rules.
---------------------------------------------------------------------------

    \985\ Analysis of TIW data shows that 79.5% of North American
corporate single-name CDS transactions in 2014 involved either two
ISDA-recognized dealers or an ISDA-recognized dealer and a non-U.S.-
person non-dealer. The Commission believes that restructuring as a
response to competitive disparities stemming from Title VII
regulation is more likely to occur within this subset of the market
because these dealers currently operate from locations throughout
the world and enjoy a volume of business that is more likely to make
such restructuring profitable.
    \986\ 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 at 8633.
---------------------------------------------------------------------------

    In addition to the competitive effects of compliance burdens
discussed above, the approach to substituted compliance may impact
competition between U.S. and non-U.S. entities. Substituted compliance
for recordkeeping and reporting requirements may reduce burdens for
foreign SBSDs and MSBSPs and may promote competition if it reduces the
likelihood that foreign SBSDs and MSBSPs exit the U.S. security-based
swap market. Moreover, substituted compliance could improve efficiency
by reducing the potential that a fragmented market develops, in which

U.S. persons cannot easily access liquidity provided by foreign SBSDs
and MSBSPs.

E. Alternatives to the Adopted Recordkeeping, Reporting, Notification,
and Securities Count Rules

    The Commission recognizes that there may be other appropriate
approaches to establishing recordkeeping, reporting, and notification
requirements. In the course of preparing and considering the new rules
and rule amendments it is adopting in this document, Commission staff
reviewed and analyzed analogous rule sets utilized by the Commission's
fellow Federal regulators, with a view towards determining whether
there may be other practicable alternatives.
    One alternative would be for all SBSDs and MSBSPs to keep and
report the same records and other financial reports. While technically
possible and arguably simpler to implement and administer, the
Commission does not believe such a requirement would be justified given
the different capital, margin, and segregation requirements that apply
to each participant. For example, since a stand-alone MSBSP is not
subject to a minimum net capital requirement under the capital rules
applicable to SBSDs and MSBSPs (it is subject to a positive tangible
net worth standard instead),\987\ it may be unduly burdensome to
require stand-alone MSBSPs to calculate and report in FOCUS Report Part
II, as amended, the amount of net capital they hold. Hence, while the
Commission considered this approach, the Commission believes that such
an approach would be confusing and unduly burdensome for firms required
to complete and file FOCUS Report Part II, as amended, and would
introduce significant compliance challenges beyond those imposed by the
new rules and rule amendments.
---------------------------------------------------------------------------

    \987\ See Capital, Margin, and Segregation Adopting Release, 84
FR at 43906-08.
---------------------------------------------------------------------------

    Another alternative to the new rules and rule amendments the
Commission is adopting would be rules that are less prescriptive. Under
such rules, detailed record production and retention requirements could
be replaced by more general references to the types of information the
firm needs to document and retain for examination purposes. This
approach could promote a consistent view and management of
recordkeeping and reporting obligations within a large financial firm
that has numerous subsidiaries. This approach would also likely have
the advantage of being less costly, as the firm would be more able to
bring recordkeeping practices at its subsidiaries into conformity with
existing recordkeeping practices at the parent. While this approach has
its benefits, the financial markets and transactions in which SBSDs and
MSBSPs are expected to operate and engage in, respectively, are similar
to the financial markets and transactions in which broker-dealers
operate, and the Commission believes these similarities argue for a
consistent regulatory approach.\988\ In addition, as discussed above,
the objectives of these broker-dealer requirements are similar to the
objectives underlying the new rules and rule amendments regarding
security-based swaps.\989\
---------------------------------------------------------------------------

    \988\ See Capital, Margin, and Segregation Adopting Release, 84
FR at 43881 (stating a similar rationale for basing the proposed
capital, margin, and segregation requirements for SBSDs on the
broker-dealer capital, margin, and segregation requirements).
    \989\ See section I of this release.
---------------------------------------------------------------------------

    The Commission considered modifying the electronic storage
requirements in Rule 17a-4 to remove the requirement that the
electronic storage system preserve records exclusively in a non-
rewriteable and non-erasable format similar to the modification made to
Rule 18a-6 in response to comments that it received. The Commission
concluded that any such modification to Rule 17a-4 would affect a large
number of broker-dealers that are not likely to register either as
SBSDs or MSBSPs and may raise issues that are distinct from those
raised by stand-alone or bank SBSDs and MSBSPs. Accordingly, the
Commission believes that any change to these requirements should be
addressed in a separate rulemaking.\990\
---------------------------------------------------------------------------

    \990\ See section II.A.3.a. of this release.
---------------------------------------------------------------------------

    The Commission has also considered alternatives to the financial
reporting rules being adopted. For example, with respect to bank SBSDs
and MSBSPs, one alternative would be to permit these firms to use the
existing financial reports made with their respective prudential
regulators. This approach would allow the firms to avoid creating and
filing an additional financial report with the Commission, and would
likely result in fewer compliance-related costs. The Commission is
aware of the burdens and costs associated with preparing an additional
regulatory submission such as FOCUS Report Part IIC, but Rule 18a-7(a)
is designed to lower burdens that bank SBSDs and MSBSPs may face to
meet reporting requirements by aligning certain Commission reporting
requirements with requirements these entities already face because they
are subject to prudential regulators' reporting requirements. While
FOCUS Report Part IIC seeks certain specific transaction and position
data regarding bank SBSDs' and bank MSBSPs' security-based swap
activities, the other required financial data in FOCUS Report Part IIC
for bank SBSDs and MSBSPs are likely readily available because these
come directly from the filings these firms are already required to make
with their respective prudential regulators.\991\
---------------------------------------------------------------------------

    \991\ See section II.B.2.b.ii. of this release.
---------------------------------------------------------------------------

    The Commission has also considered alternative financial reporting
arrangements for stand-alone SBSDs or stand-alone MSBSPs. For example,
the Commission is aware that the CFTC proposed that stand-alone swap
dealers and stand-alone major swap participants be required to submit
monthly unaudited financial statements within 17 business days of the
end of the month, as well as GAAP financial statements within 60 days
of the end of the fiscal year.\992\ The Commission believes that the
information elicited by FOCUS Report Part II, as amended, should assist
the Commission and the firms' DEAs to conduct effective examinations of
broker-dealer SBSDs and MSBSPs. The broker-dealer SBSD and broker-
dealer MSBSP reporting requirements should promote transparency of the
financial and operational condition of these entities to both the
Commission and the public.
---------------------------------------------------------------------------

    \992\ See Capital Requirements of Swap Dealers and Major Swap
Participants, 81 FR 91252, 91276 (Dec. 16, 2016) (discussion of
proposed CFTC Regulation 23.105).
---------------------------------------------------------------------------

    The Commission has also considered alternatives to the notification
and securities count rules.\993\ An alternative to the notification
rule would be to not have such a rule, or to have fewer events give
rise to the requirement for a notification. Similarly, with respect to
the quarterly securities count rule, the Commission believes the
alternative would be to specify a less frequent count or to omit
altogether the requirement for securities count.
---------------------------------------------------------------------------

    \993\ See section II.D.1. of this release (summarizing rationale
underlying Rule 17a-13).
---------------------------------------------------------------------------

    The Commission adopted the notification and securities count rules
because it believes that the rules are an appropriate component of its
oversight of the financial responsibility of firms engaged in the
security-based swap business. The broker-dealer recordkeeping,
reporting, notification, and securities count requirements are part of
the broker-dealer financial responsibility rules.\994\ The financial
responsibility rules are designed to work together to establish a
comprehensive regulatory program designed to promote the prudent

operation of broker-dealers and the safeguarding of customer securities
and funds held by broker-dealers. In this regard, the notification and
securities count rules (in conjunction with the recordkeeping and
reporting rules) are designed to promote compliance with the capital,
margin, and segregation requirements for broker-dealers. The
recordkeeping, reporting, notification, and securities count
requirements applicable to SBSDs and MSBSPs, along with the capital,
margin, and segregation requirements for these registrants, are
designed to establish a comprehensive financial responsibility program
for SBSDs and MSBSPs. Like the broker-dealer rules, the recordkeeping,
reporting, notification, and securities count requirements applicable
to SBSDs and MSBSPs are designed to promote compliance with the
capital, margin, and segregation requirements applicable to SBSDs and
MSBSPs. Omitting such rules would create regulatory disparities between
broker-dealers, banks, stand-alone SBSDs, and stand-alone MSBSPs. For
these reasons, the Commission believes that alternative approaches
would not be as effective in helping to ensure compliance with the
capital, margin, and segregation requirements applicable to SBSDs and
MSBSPs.
---------------------------------------------------------------------------

    \994\ See 17 CFR 240.3a40-1.
---------------------------------------------------------------------------

VI. Other Matters

    If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
    Pursuant to the Congressional Review Act,\995\ the Office of
Information and Regulatory Affairs has designated these rules as ``[not
a major rule],'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \995\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \996\ requires Federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Pursuant to Section 605(b) of the RFA,\997\ the
Commission certified in the Proposing Release and the Cross-Border
Proposing Release that the proposed amendments to Rules 17a-3, 17a-4,
17a-5, and 17a-11 and new Rules 3a71-6 and 18a-5 through 18a-9 would
not have a significant economic impact on any ``small entity'' \998\
for purposes of the RFA.\999\
---------------------------------------------------------------------------

    \996\ See 5 U.S.C. 601 et seq.
    \997\ See 5 U.S.C. 605(b).
    \998\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
``small entity'' for the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as relevant to this
proposed rulemaking, are set forth in 17 CFR 240.0-10 (``Rule 0-
10''). See Statement of Management on Internal Accounting Control,
Exchange Act Release No. 18451 (Jan. 28, 1982), 47 FR 5215 (Feb. 4,
1982).
    \999\ See Recordkeeping and Reporting Proposing Release; Capital
Rule for Certain Security-Based Swap Dealers, 79 FR at 25296-25297;
Cross-Border Proposing Release, 78 FR at 31204-31205.
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the RFA, a
small entity includes: (1) When used with reference to an ``issuer'' or
a ``person,'' other than an investment company, an ``issuer'' or
``person'' that, on the last day of its most recent fiscal year, had
total assets of $5 million or less,\1000\ or (2) a broker-dealer with
total capital (net worth plus subordinated liabilities) of less than
$500,000 on the date in the prior fiscal year as of which its audited
financial statements were prepared pursuant to paragraph (d) of Rule
17a-5, or, if not required to file such statements, a broker-dealer
with total capital (net worth plus subordinated liabilities) of less
than $500,000 on the last day of the preceding fiscal year (or in the
time that it has been in business, if shorter); and is not affiliated
with any person (other than a natural person) that is not a small
business or small organization.\1001\
---------------------------------------------------------------------------

    \1000\ See 17 CFR 240.0-10(a).
    \1001\ See 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

    Based on available information about the security-based swap
market, the market, while broad in scope, is largely dominated by
entities such as those that will be covered by the SBSD and MSBSP
definitions. Based on feedback from industry participants about the
security-based swap markets, the Commission continues to believe that
(1) the types of entities that would engage in more than a de minimis
amount of dealing activity involving security-based swaps--which
generally would be large financial institutions--would not be ``small
entities'' for purposes of the RFA; \1002\ and (2) the types of
entities that may have security-based swap positions above the level
required to register as ``major security-based swap participants''
would not be ``small entities'' for purposes of the RFA. Thus, the
Commission believes that it is unlikely that the requirements
applicable to SBSDs and MSBSPs that are being established under the
amendments to Rules 3a71-6, 17a-3, 17a-4, 17a-5, 17a-11, and 17a-12 and
new Rules 18a-5, 18a-6, 18a-7, 18a-8, and 18a-9, will have a
significant economic impact on any small entity.
---------------------------------------------------------------------------

    \1002\ The amendments are discussed in detail in section II of
this release. The Commission discusses the economic impact,
including the compliance costs and burdens, of the amendments in
sections IV and V of this release.
---------------------------------------------------------------------------

    The Commission estimates that as of December 31, 2018 there are
approximately 996 broker-dealers that are ``small'' for the purposes
Rule 0-10. While the amendments to Rules 17a-3, 17a-4, and 17a-5
relating to making and keeping records that include details about
security-based swaps and swaps and reporting information about
security-based swaps and swaps will apply to all broker-dealers with
such positions, it is unlikely that these amendments will have any
impact on small broker-dealers, since most, if not all, of these firms
generally do not hold these types of positions. In addition, the
technical amendments to Rules 17a-3, 17a-4, 17a-5, 17a-11, and 17a-12
will apply to all broker-dealers, including broker-dealers that are
small. However, these amendments will have no impact on broker-dealers,
including small broker-dealers, because they will not establish new
substantive requirements.
    For the foregoing reasons, the Commission certifies that the
amendments to Rules 3a71-6, 17a-3, 17a-4, 17a-5, 17a-11, and 17a-12 and
new Rules 18a-5 through 18a-9, will not have a significant economic
impact on a substantial number of small entities for purposes of the
RFA.

VIII. Statutory Basis

    The Commission is revising Rules 30-3, 17a-3, 17a-4, 17a-5, 17a-11,
17a-12, and 3a71-6 under the Exchange Act (17 CFR 200.30-3, 17 CFR
240.17a-3, 17 CFR 240.17a-4, 17 CFR 240.17a-5, 17 CFR 240.17a-11, 17
CFR 240.17a-12, and 17 CFR 240.3a71-6), Part II of Form X-17A-5 and the
instructions thereto (17 CFR 249.617), and Part III of Form X-17A-5 (17
CFR 249.617), and adding new Rules 18a-5, 18a-6, 18a-7, 18a-8, and 18a-
9 under the Exchange Act (17 CFR 240.18a-5, 17 CFR 240.18a-6, 17 CFR
240.18a-7, 17 CFR 240.18a-8, and 17 CFR 240.18a-9), and Part IIC of
Form X-17A-5 and the instructions thereto (17 CFR 249.617) pursuant to
the authority conferred by the Exchange Act, including Sections 15F,
17, and 23(a).

List of Subjects

17 CFR Part 200

    Administrative practice and procedure, Authority delegations
(Government agencies), Civil rights, Classified information, Conflicts
of interest, Environmental impact

statements, Equal employment opportunity, Federal buildings and
facilities, Freedom of information, Government securities, Organization
and functions (Government agencies), Privacy, Reporting and
recordkeeping requirements, Sunshine Act.

17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and
recordkeeping requirements, Securities.

17 CFR Part 249

    Brokers, Recordkeeping and reporting requirements, Securities.

Text of Rules and Rule Amendments

    For the reasons set out in the preamble, the Commission is amending
title 17, chapter II, of the Code of Federal Regulations as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS

Subpart A--Organization and Program Management

0
1. The authority citation for part 200, subpart A, continues to read in
part as follows:

    Authority:  15 U.S.C. 77c, 77o, 77s, 77z-3, 77sss, 78d, 78d-1,
78d-2, 78o-4, 78w, 78ll(d), 78mm, 80a-37, 80b-11, 7202, and 7211 et
seq., unless otherwise noted.
* * * * *
    Section 200.30-3 is also issued under 15 U.S.C. 78b, 78d, 78f,
78k-1, 78q, 78s, and 78eee.
* * * * *

0
2. Section 200.30-3 is amended by revising paragraphs (a)(5) and (30)
and (a)(65)(i) to read as follows:

Sec.  200.30 3   Delegation of authority to Director of Division of
Trading and Markets.

* * * * *
    (a) * * *
    (5) Pursuant to Sec.  240.17a-5(m)(3) of this chapter (Rule 17a-
5(m)(3)), to consider applications by brokers and dealers for
exemptions from, and extension of time within which to file, reports
required by Sec.  240.17a-5 of this chapter (Rule 17a-5) and to grant,
and to authorize the issuance of orders denying, such applications,
provided such applicant is advised of his right to have such denial
reviewed by the Commission.
* * * * *
    (30) Pursuant to section 17(a) of the Act, 15 U.S.C. 78q, to
approve amendments to the plans which are consistent with the reporting
structure of Sec. Sec.  240.17a-5(a)(2) and 240.17a-10(b) of this
chapter (Rules 17a-5(a)(2) and 17a-10(b)) filed by self-regulatory
organizations pursuant to Sec. Sec.  240.17a-5(a)(3) and 240.17a-10(b)
of this chapter (Rules 17a-5(a)(3) and 17a-10(b)).
* * * * *
    (65) * * *
    (i) To authorize the issuance of orders requiring over-the-counter
(OTC) derivatives dealers to file, pursuant to Sec.  240.17a-
12(a)(1)(ii) of this chapter, monthly, or at least at such times as
shall be specified, Part II of Form X-17A-5 (Sec.  249.617 of this
chapter) and such other financial and operational information as shall
be specified.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
3. The general authority citation for part 240 continues to read, in
part, as follows:

     Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
 4. Amend Sec.  240.3a71-6 by adding paragraph (d)(6) to read as
follows:

Sec.  240.3a71-6  Substituted compliance for security-based swap
dealers and major security-based swap participants.

* * * * *
    (d) * * *
    (6) Recordkeeping and reporting. The recordkeeping and reporting
requirements of Section 15F of the Act (15 U.S.C. 78o-10) and
Sec. Sec.  240.18a-5 through 240.18a-9; provided, however, that prior
to making such a substituted compliance determination the Commission
intends to consider (in addition to any conditions imposed), whether
the foreign financial regulatory system's required records and reports,
the timeframes for recording or reporting information, the accounting
standards governing the records and reports, and the required format of
the records and reports are comparable to applicable provisions arising
under the Act and its rules and regulations and would permit the
Commission to examine and inspect regulated firms' compliance with the
applicable securities laws.

0
5. Amend Sec.  240.17a-3 by:
0
a. Adding introductory text;
0
b. Revising paragraphs (a) introductory text, (a)(1) and (3),
(a)(4)(vi) and (vii), (a)(5) through (11), (a)(12)(i) introductory
text, and (a)(12)(i)(A) and (E) through (H);
0
 c. Removing the undesignated paragraph following paragraph (a)(12)(i);
0
d. Adding paragraph (a)(12)(i)(I);
0
e. Revising paragraph (a)(12)(ii);
0
 f. In paragraphs (a)(16)(ii)(A) and (B), removing the phrase ``shall
mean'' and adding in its place ``means'';
0
g. In paragraphs (a)(17)(i)(A) and (a)(17)(i)(B)(1), removing the word
``shall'' and adding in its place ``must'' wherever it appears;
0
h. In paragraphs (a)(17)(i)(C) and (D), removing the word ``shall'' and
adding in its place ``will'' wherever it appears;
0
 i. In paragraphs (a)(18)(i) and (a)(19)(i), removing the word
``shall'' and adding in its place ``must'' wherever it appears;
0
j. Adding paragraphs (a)(25) through (30);
0
k. Revising paragraphs (b) through (g); and
0
 l. Removing paragraph (h).
    The additions and revisions read as follows:

Sec.  240.17a-3  Records to be made by certain exchange members,
brokers and dealers.

    This section applies to the following types of entities: A member
of a national securities exchange who transacts a business in
securities directly with others than members of a national securities
exchange; a broker or dealer who transacts a business in securities
through the medium of a member of a national securities exchange; a
broker or dealer, including an OTC derivatives dealer as that term is
defined in Sec.  240.3b-12, registered pursuant to section 15 of the
Act (15 U.S.C. 78o); a security-based swap dealer registered pursuant
to section 15F of the Act (15 U.S.C. 78o-10) that is also a broker or
dealer, including an OTC derivatives dealer, registered pursuant to
section 15 of the Act; and a major security-based swap participant
registered pursuant to section 15F of the Act that is also a broker or
dealer, including an OTC derivatives dealer, registered pursuant to
section 15 of the Act. Section 240.18a-5 (rather than this section)
applies to the following types of entities: A security-based swap
dealer registered pursuant to section 15F of the Act that is not also a
broker or dealer, including an OTC derivatives dealer, registered
pursuant to section 15 of the Act; and a major security-based swap
participant registered pursuant to section 15F of the Act that is not
also a broker or dealer, including an OTC

derivatives dealer, registered pursuant to section 15 of the Act.
    (a) Every member of a national securities exchange who transacts a
business in securities directly with others than members of a national
securities exchange, every broker or dealer who transacts a business in
securities through the medium of any such member, and every broker or
dealer registered pursuant to section 15 of the Act (15 U.S.C. 78o)
must make and keep current the following books and records relating to
its business:
    (1) Blotters (or other records of original entry) containing an
itemized daily record of all purchases and sales of securities
(including security-based swaps), all receipts and deliveries of
securities (including certificate numbers), all receipts and
disbursements of cash and all other debits and credits. Such records
must show the account for which each such purchase or sale was
effected, the name and amount of securities, the unit and aggregate
purchase or sale price, if any (including the financial terms for
security-based swaps), the trade date, and the name or other
designation of the person from whom such securities were purchased or
received or to whom sold or delivered. For security-based swaps, such
records must also show, for each transaction, the type of security-
based swap, the reference security, index, or obligor, the date and
time of execution, the effective date, the scheduled termination date,
the notional amount(s) and the currenc(ies) in which the notional
amount(s) is expressed, the unique transaction identifier, and the
counterparty's unique identification code.
* * * * *
    (3) Ledger accounts (or other records) itemizing separately as to
each cash, margin, or security-based swap account of every customer and
of such member, broker or dealer and partners thereof, all purchases,
sales, receipts and deliveries of securities (including security-based
swaps) and commodities for such account, and all other debits and
credits to such account; and, in addition, for a security-based swap,
the type of security-based swap, the reference security, index, or
obligor, the date and time of execution, the effective date, the
scheduled termination date, the notional amount(s) and the currenc(ies)
in which the notional amount(s) is expressed, the unique transaction
identifier, and the counterparty's unique identification code.
    (4) * * *
    (vi) All long and all short securities record differences arising
from the examination, count, verification, and comparison pursuant to
Sec. Sec.  240.17a-5, 240.17a-12, 240.17a-13, and 240.18a-7, as
applicable (by date of examination, count, verification, and comparison
showing for each security the number of long or short count
differences); and
    (vii) Repurchase and reverse repurchase agreements.
    (5) A securities record or ledger reflecting separately for each:
    (i) Security, other than a security-based swap, as of the clearance
dates all ``long'' or ``short'' positions (including securities in
safekeeping and securities that are the subjects of repurchase or
reverse repurchase agreements) carried by such member, broker or dealer
for its account or for the account of its customers or partners, or
others, and showing the location of all securities long and the
offsetting position to all securities short, including long security
count differences and short security count differences classified by
the date of the physical count and verification in which they were
discovered, and in all cases the name or designation of the account in
which each position is carried.
    (ii) Security-based swap, the reference security, index, or
obligor, the unique transaction identifier, the counterparty's unique
identification code, whether it is a ``bought'' or ``sold'' position in
the security-based swap, whether the security-based swap is cleared or
not cleared, and if cleared, identification of the clearing agency
where the security-based swap is cleared.
    (6)(i) A memorandum of each brokerage order, and of any other
instruction, given or received for the purchase or sale of a security,
except for the purchase or sale of a security-based swap, whether
executed or unexecuted.
    (A) The memorandum must show the terms and conditions of the order
or instructions and of any modification or cancellation thereof, the
account for which entered, the time the order was received, the time of
entry, the price at which executed, the identity of each associated
person, if any, responsible for the account, the identity of any other
person who entered or accepted the order on behalf of the customer, or,
if a customer entered the order on an electronic system, a notation of
that entry; and, to the extent feasible, the time of execution or
cancellation. The memorandum need not show the identity of any person,
other than the associated person responsible for the account, who may
have entered or accepted the order if the order is entered into an
electronic system that generates the memorandum and if that system is
not capable of receiving an entry of the identity of any person other
than the responsible associated person; in that circumstance, the
member, broker or dealer must produce upon request by a representative
of a securities regulatory authority a separate record which identifies
each other person. An order entered pursuant to the exercise of
discretionary authority by the member, broker or dealer, or associated
person thereof, must be so designated. The term instruction must
include instructions between partners and employees of a member, broker
or dealer. The term time of entry means the time when the member,
broker or dealer transmits the order or instruction for execution.
    (B) The memorandum need not be made as to a purchase, sale or
redemption of a security on a subscription way basis directly from or
to the issuer, if the member, broker or dealer maintains a copy of the
customer's or non-customer's subscription agreement regarding a
purchase, or a copy of any other document required by the issuer
regarding a sale or redemption.
    (ii) A memorandum of each brokerage order, and of any other
instruction, given or received for the purchase or sale of a security-
based swap, whether executed or unexecuted. The memorandum must show
the terms and conditions of the order or instructions and of any
modification or cancellation thereof; the account for which entered;
the time the order was received; the time of entry; the price at which
executed; the identity of each associated person, if any, responsible
for the account; the identity of any other person who entered or
accepted the order on behalf of the customer, or, if a customer entered
the order on an electronic system, a notation of that entry; and, to
the extent feasible, the time of cancellation, if applicable. The
memorandum also must include the type of the security-based swap, the
reference security, index, or obligor, the date and time of execution,
the effective date, the scheduled termination, the notional amount(s)
and the currenc(ies) in which the notional amount(s) is expressed, the
unique transaction identifier, and the counterparty's unique
identification code. An order entered pursuant to the exercise of
discretionary authority must be so designated.
    (7)(i) A memorandum of each purchase or sale of a security, other
than for the purchase or sale of a security-based swap, for the account
of the member, broker or dealer showing the price and, to the extent
feasible, the time of execution; and, in addition, where the purchase
or sale is with a customer other than a broker or dealer,

a memorandum of each order received, showing the time of receipt; the
terms and conditions of the order and of any modification thereof; the
account for which it was entered; the identity of each associated
person, if any, responsible for the account; the identity of any other
person who entered or accepted the order on behalf of the customer, or,
if a customer entered the order on an electronic system, a notation of
that entry. The memorandum need not show the identity of any person
other than the associated person responsible for the account who may
have entered the order if the order is entered into an electronic
system that generates the memorandum and if that system is not capable
of receiving an entry of the identity of any person other than the
responsible associated person. In the circumstance in the preceding
sentence, the member, broker or dealer must produce upon request by a
representative of a securities regulatory authority a separate record
that identifies each other person. An order with a customer other than
a member, broker or dealer entered pursuant to the exercise of
discretionary authority by the member, broker or dealer, or associated
person thereof, must be so designated.
    (ii) A memorandum of each purchase or sale of a security-based swap
for the account of the member, broker or dealer showing the price; and,
in addition, where the purchase or sale is with a customer other than a
broker or dealer, a memorandum of each order received, showing the time
of receipt; the terms and conditions of the order and of any
modification thereof; the account for which it was entered; the
identity of any other person who entered or accepted the order on
behalf of the customer, or, if a customer entered the order on an
electronic system, a notation of that entry. The memorandum must also
include the type of security-based swap, the reference security, index,
or obligor, the date and time of execution, the effective date, the
scheduled termination date, the notional amount(s) and the currenc(ies)
in which the notional amount(s) is expressed, the unique transaction
identifier, and the counterparty's unique identification code. An order
entered pursuant to the exercise of discretionary authority must be so
designated.
    (8)(i) With respect to a security other than a security-based swap,
copies of confirmations of all purchases and sales of securities,
including all repurchase and reverse repurchase agreements, and copies
of notices of all other debits and credits for securities, cash and
other items for the account of customers and partners of such member,
broker or dealer.
    (ii) With respect to a security-based swap, copies of the security-
based swap trade acknowledgment and verification made in compliance
with Sec.  240.15Fi-2.
    (9) A record with respect to each cash, margin, and security-based
swap account with such member, broker or dealer indicating, as
applicable:
    (i) The name and address of the beneficial owner of such account;
    (ii) Except with respect to exempt employee benefit plan securities
as defined in Sec.  240.14a-1(d), but only to the extent such
securities are held by employee benefit plans established by the issuer
of the securities, whether or not the beneficial owner of securities
registered in the name of such members, brokers or dealers, or a
registered clearing agency or its nominee objects to disclosure of his
or her identity, address, and securities positions to issuers;
    (iii) In the case of a margin account, the signature of such owner;
provided that, in the case of a joint account or an account of a
corporation, such records are required only in respect of the person or
persons authorized to transact business for such account; and
    (iv) For each security-based swap account, a record of the unique
identification code of such counterparty, the name and address of such
counterparty, and a record of the authorization of each person the
counterparty has granted authority to transact business in the
security-based swap account.
    (10) A record of all puts, calls, spreads, straddles, and other
options in which such member, broker or dealer has any direct or
indirect interest or which such member, broker or dealer, has granted
or guaranteed, containing, at least, an identification of the security,
and the number of units involved. An OTC derivatives dealer must also
keep a record of all eligible OTC derivative instruments as defined in
Sec.  240.3b-13 in which the OTC derivatives dealer has any direct or
indirect interest or which it has written or guaranteed, containing, at
a minimum, an identification of the security or other instrument, the
number of units involved, and the identity of the counterparty.
    (11) A record of the proof of money balances of all ledger accounts
in the form of trial balances and a record of the computation of
aggregate indebtedness and net capital, as of the trial balance date,
pursuant to Sec.  240.15c3-1 or Sec.  240.18a-1, as applicable. The
computation need not be made by any member, broker or dealer
unconditionally exempt from Sec.  240.15c3-1 pursuant to Sec.
240.15c3-1(b)(1) or (3). Such trial balances and computations must be
prepared currently at least once a month.
    (12)(i) A questionnaire or application for employment executed by
each associated person as that term is defined in paragraph (g)(4) of
this section of the member, broker or dealer, which questionnaire or
application must be approved in writing by an authorized representative
of the member, broker or dealer and must contain at least the following
information with respect to the associated person:
    (A) The associated person's name, address, social security number,
and the starting date of the associated person's employment or other
association with the member, broker or dealer;
* * * * *
    (E) A record of any denial, suspension, expulsion, or revocation of
membership or registration of any member, broker or dealer with which
the associated person was associated in any capacity when such action
was taken;
    (F) A record of any permanent or temporary injunction entered
against the associated person, or any member, broker, dealer, security-
based swap dealer or major security-based swap participant with which
the associated person was associated in any capacity at the time such
injunction was entered;
    (G) A record of any arrest or indictment for any felony, or any
misdemeanor pertaining to securities, commodities, banking, insurance
or real estate (including, but not limited to, acting or being
associated with a broker or dealer, investment company, investment
adviser, futures sponsor, bank, or savings and loan association),
fraud, false statements or omissions, wrongful taking of property or
bribery, forgery, counterfeiting, or extortion, and the disposition of
the foregoing; and
    (H) A record of any other name or names by which the associated
person has been known or which the associated person has used.
    (I) Provided, however, that if such associated person has been
registered as a registered representative of such member, broker or
dealer with, or the associated person's employment has been approved by
a registered national securities association or a registered national
securities exchange, then retention of a full, correct, and complete
copy of any and all applications for such registration or approval will
be deemed to satisfy the requirements of this paragraph (a)(12)(i).
    (ii) A record listing every associated person of the member, broker
or dealer

which shows, for each associated person, every office of the member,
broker or dealer, where the associated person regularly conducts the
business of handling funds or securities or effecting any transactions
in, or inducing or attempting to induce the purchase or sale of any
security for the member, broker or dealer and the Central Registration
Depository number, if any, and every internal identification number or
code assigned to that person by the member, broker or dealer.
* * * * *
    (25) A record of the daily calculation of the current exposure and,
if applicable, the initial margin amount for each account of a
counterparty required under Sec.  240.18a-3(c).
    (26) A record of compliance with possession or control requirements
under Sec.  240.15c3-3(p)(2).
    (27) A record of the reserve computation required under Sec.
240.15c3-3(p)(3).
    (28) A record of each security-based swap transaction that is not
verified under Sec.  240.15Fi-2 within five business days of execution
that includes, at a minimum, the unique transaction identifier and the
counterparty's unique identification code.
    (29) A record documenting that the broker or dealer has complied
with the business conduct standards as required under Sec.  240.15Fh-6.
    (30) A record documenting that the broker or dealer has complied
with the business conduct standards as required under Sec. Sec.
240.15Fh-1 through 240.15Fh-5 and 240.15Fk-1.
* * * * *
    (b) A broker or dealer may comply with the recordkeeping
requirements of the Commodity Exchange Act and chapter I of this title
applicable to swap dealers and major swap participants in lieu of
complying with paragraphs (a)(1), (3), and (5) of this section solely
with respect to required information regarding security-based swap
transactions and positions if:
    (1) The broker or dealer is registered as a security-based swap
dealer or major security-based swap participant pursuant to section 15F
of the Act (15 U.S.C. 78o-10);
    (2) The broker or dealer is registered as a swap dealer or major
swap participant pursuant to section 4s of the Commodity Exchange Act
and chapter I of this title;
    (3) The broker or dealer is subject to 17 CFR 23.201, 23.202,
23.402, and 23.501 with respect to its swap-related books and records;
    (4) The broker or dealer preserves all of the data elements
necessary to create the records required by paragraphs (a)(1), (3), and
(5) of this section as they pertain to security-based swap and swap
transactions and positions;
    (5) The broker or dealer upon request furnishes promptly to
representatives of the Commission the records required by paragraphs
(a)(1), (3), and (5) of this section as well as the records required by
17 CFR 23.201, 23.202, 23.402, and 23.501 as they pertain to security-
based swap and swap transactions and positions in the format applicable
to that category of record as set forth in this section; and
    (6) The broker or dealer provides notice of its intent to utilize
this paragraph (b) by notifying in writing the Commission, both at the
principal office of the Commission in Washington, DC, and at the
regional office of the Commission for the region in which the
registrant has its principal place of business, as well as by notifying
in writing the registrant's designated examining authority.
    (c) A member of a national securities exchange, or a broker or
dealer registered pursuant to section 15 of the Act (15 U.S.C. 78o),
that introduces accounts on a fully-disclosed basis, is not required to
make or keep such records of transactions cleared for such member,
broker or dealer as are made and kept by a clearing broker or dealer
pursuant to the requirements of this section and Sec.  240.17a-4.
Nothing in this paragraph (c) will be deemed to relieve such member,
broker or dealer from the responsibility that such books and records be
accurately maintained and preserved as specified in this section and
Sec.  240.17a-4.
    (d) For purposes of transactions in municipal securities by
municipal securities brokers and municipal securities dealers,
compliance with Rule G-8 of the Municipal Securities Rulemaking Board
or any successor rule will be deemed to be in compliance with this
section.
    (e) The provisions of this section will not apply to security
futures product transactions and positions in a futures account (as
that term is defined in Sec.  240.15c3-3(a)(15)); provided, that the
Commodity Futures Trading Commission's recordkeeping rules apply to
those transactions and positions.
    (f) Every member, broker or dealer must make and keep current, as
to each office, the books and records described in paragraphs (a)(1),
(6), (7), (12), and (17), (a)(18)(i), and (a)(19) through (22) of this
section.
    (g) When used in this section:
    (1) The term office means any location where one or more associated
persons regularly conduct the business of handling funds or securities
or effecting any transactions in, or inducing or attempting to induce
the purchase or sale of, any security.
    (2) The term principal means any individual registered with a
registered national securities association as a principal or branch
manager of a member, broker or dealer or any other person who has been
delegated supervisory responsibility over associated persons by the
member, broker or dealer.
    (3) The term securities regulatory authority means the Commission,
any self-regulatory organization, or any securities commission (or any
agency or office performing like functions) of the States.
    (4) The term associated person means a ``person associated with a
broker or dealer'' or ``person associated with a security-based swap
dealer or major security-based swap participant'' as defined in
sections 3(a)(18) and (70) of the Act (15 U.S.C. 78c(a)(18) and (70))
respectively, but does not include persons whose functions are solely
clerical or ministerial.
* * * * *

0
6. Amend Sec.  240.17a-4 by:
0
 a. Adding introductory text;
0
 b. Revising paragraphs (a), (b) introductory text, (b)(1), (3) through
(5), and (7), (b)(8) introductory text, (b)(8)(i), (v) through (viii),
and (xii) through (xv);
0
c. Adding paragraphs (b)(8)(xvi) and (xvii);
0
d. Revising paragraph (b)(9);
0
 e. In paragraph (b)(11), removing the word ``shall'' and adding in its
place the word ``must'';
0
 f. Revising paragraphs (b)(12) and (13);
0
 g. Adding paragraphs (b)(14) through (16);
0
 h. Revising paragraphs (c), (d), (e) introductory text, and (e)(1)
through (4) and (6);
0
i. In the last sentence of paragraph (e)(8), removing the word
``shall'' and adding in its place the word ``must'';
0
j. In paragraph (f) introductory text, removing the word ``paragraph,''
and adding in its place the word ``section'';
0
k. In paragraphs (f)(2) introductory text and (f)(3) introductory text,
removing the word ``shall'' and adding in its place the word ``must'';
0
l. In paragraph (f)(3)(iv)(B), removing the phrase ``each index.'' and
adding in its place the phrase ``the index.'';
0
m. In paragraph (f)(3)(vi), removing the phrase ``the self-regulatory
organizations'' and adding in its place the phrase ``any self-
regulatory organization'';

0
n. Revising paragraphs (f)(3)(vii) and (g);
0
o. In paragraph (h), adding the phrase ``or any successor rule'' after
the word ``Board'';
0
p. Revising paragraph (i) and removing the undesignated paragraph
following paragraph (i);
0
q. In paragraph (j), removing the word ``shall'' and adding in its
place the word ``must'';
0
r. In paragraph (k)(1), removing the word ``shall'' and adding in its
place the word ``must'' wherever it appears;
0
s. In paragraph (l), removing ``Sec.  240.17a-3(g)'' and adding in its
place ``Sec.  240.17a-3(e)'';
0
t. Revising paragraphs (m)(1) through (4); and
0
u. Adding paragraph (m)(5).
    The additions and revisions read as follows:

Sec.  240.17a-4   Records to be preserved by certain exchange members,
brokers and dealers.

    This section applies to the following types of entities: A member
of a national securities exchange who transacts a business in
securities directly with others than members of a national securities
exchange; a broker or dealer who transacts a business in securities
through the medium of a member of a national securities exchange; a
broker or dealer, including an OTC derivatives dealer as that term is
defined in Sec.  240.3b-12, registered pursuant to section 15 of the
Act (15 U.S.C. 78o); a security-based swap dealer registered pursuant
to section 15F of the Act (15 U.S.C. 78o-10) that is also a broker or
dealer, including an OTC derivatives dealer, registered pursuant to
section 15 of the Act; and a major security-based swap participant
registered pursuant to section 15F of the Act that is also a broker or
dealer, including an OTC derivatives dealer, registered pursuant to
section 15 of the Act. Section 240.18a-6 (rather than this section)
applies to the following types of entities: A security-based swap
dealer registered pursuant to section 15F of the Act that is not also a
broker or dealer, including an OTC derivatives dealer, registered
pursuant to section 15 of the Act; and a major security-based swap
participant registered pursuant to section 15F of the Act that is not
also a broker or dealer, including an OTC derivatives dealer,
registered pursuant to section 15 of the Act.
    (a) Every member, broker or dealer subject to Sec.  240.17a-3 must
preserve for a period of not less than 6 years, the first two years in
an easily accessible place, all records required to be made pursuant to
Sec.  240.17a-3(a)(1) through (3), (5), and (21) and (22), and
analogous records created pursuant to Sec.  240.17a-3(d).
    (b) Every member, broker or dealer subject to Sec.  240.17a-3 must
preserve for a period of not less than three years, the first two years
in an easily accessible place:
    (1) All records required to be made pursuant to Sec.  240.17a-
3(a)(4), (6) through (11), (16), (18) through (20), and (25) through
(30), and analogous records created pursuant to Sec.  240.17a-3(e).
* * * * *
    (3) All bills receivable or payable (or copies thereof), paid or
unpaid, relating to the member, broker or dealer's business as such.
    (4) Originals of all communications received and copies of all
communications sent (and any approvals thereof) by the member, broker
or dealer (including inter-office memoranda and communications)
relating to its business as such, including all communications which
are subject to rules of a self-regulatory organization of which the
member, broker or dealer is a member regarding communications with the
public. As used in this paragraph (b)(4), the term communications
includes sales scripts and recordings of telephone calls required to be
maintained pursuant to section 15F(g)(1) of the Act (15 U.S.C. 78o-
10(g)(1)).
    (5) All trial balances, computations of aggregate indebtedness and
net capital (and working papers in connection therewith), financial
statements, branch office reconciliations, and internal audit working
papers, relating to the member, broker or dealer's business as such.
* * * * *
    (7) All written agreements (or copies thereof) entered into by such
member, broker or dealer relating to its business as such, including
agreements with respect to any account. Written agreements with respect
to a security-based swap customer or non-customer, including governing
documents or any document establishing the terms and conditions of the
customer's or non-customer's security-based swaps must be maintained
with the customer's or non-customer's account records.
    (8) Records which contain the following information in support of
amounts included in the report prepared as of the fiscal year end on
Part II or IIA of Form X-17A-5 (Sec.  249.617 of this chapter), as
applicable, and in the annual financial statements filed with the
Commission required by Sec.  240.17a-5(d), Sec.  240.17a-12(b), or
Sec.  240.18a-7(c), as applicable:
    (i) Money balance and position, long or short, including
description, quantity, price, and valuation of each security including
contractual commitments in customers' accounts, in cash and fully
secured accounts, partly secured accounts, unsecured accounts, and in
securities accounts payable to customers;
* * * * *
    (v) Description of futures commodity contracts or swaps, contract
value on trade date, market value, gain or loss, and liquidating equity
or deficit in customers' and non-customers' accounts;
    (vi) Description of futures commodity contracts or swaps, contract
value on trade date, market value, gain or loss, and liquidating equity
or deficit in trading and investment accounts;
    (vii) Description, money balance, quantity, price, and valuation of
each spot commodity, and swap position or commitments in customers' and
non-customers' accounts;
    (viii) Description, money balance, quantity, price, and valuation
of each spot commodity, and swap position or commitments in trading and
investment accounts;
* * * * *
    (xii) Description, settlement date, contract amount, quantity,
market price, and valuation for each aged failed to deliver requiring a
charge in the Computation of Net Capital pursuant to Sec.  240.15c3-1
or Sec.  240.18a-1, as applicable;
    (xiii) Detail relating to information for possession or control
requirements under Sec.  240.15c3-3 or Sec.  240.18a-4, as applicable
and reported in Part II or IIA of Form X-17A-5 (Sec.  249.617 of this
chapter), as applicable;
    (xiv) Detail relating to information for security-based swap
possession or control requirements under Sec.  240.15c3-3 or Sec.