[Federal Register Volume 80, Number 53 (Thursday, March 19, 2015)]
[Proposed Rules]
[Pages 14739-14804]
[FR Doc No: 2015-03125]

Vol. 80

Thursday,

No. 53

March 19, 2015

Part IV

Securities and Exchange Commission

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17 CFR Part 242

Regulation SBSR--Reporting and Dissemination of Security-Based Swap
Information; Proposed Rule

Federal Register / Vol. 80 , No. 53 / Thursday, March 19, 2015 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-74245; File No. S7-03-15]
RIN 3235-AL71

Regulation SBSR--Reporting and Dissemination of Security-Based
Swap Information

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule; guidance.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is proposing certain new rules and rule amendments to
Regulation SBSR--Reporting and Dissemination of Security-Based Swap
Information (``Regulation SBSR''). Specifically, proposed Rule
901(a)(1) of Regulation SBSR would require a platform (i.e., a national
securities exchange or security-based swap execution facility (``SB
SEF'') that is registered with the Commission or exempt from
registration) to report to a registered security-based swap data
repository (``registered SDR'') a security-based swap executed on such
platform that will be submitted to clearing. Proposed Rule 901(a)(2)(i)
of Regulation SBSR would require a registered clearing agency to report
to a registered SDR any security-based swap to which it is a
counterparty. The Commission also is proposing certain conforming
changes to other provisions of Regulation SBSR in light the proposed
amendments to Rule 901(a), and a new rule that would prohibit
registered SDRs from charging fees for or imposing usage restrictions
on the users of the security-based swap transaction data that they are
required to publicly disseminate. In addition, the Commission is
explaining the application of Regulation SBSR to prime brokerage
transactions and proposing guidance for the reporting and public
dissemination of allocations of cleared security-based swaps. Finally,
the Commission is proposing a new compliance schedule for the portions
of Regulation SBSR for which the Commission has not specified a
compliance date.

DATES: Comments should be received on or before May 4, 2015.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-03-15 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-03-15. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the SEC's Web site. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Michael Gaw, Assistant Director, at
(202) 551-5602; Yvonne Fraticelli, Special Counsel, at<PHONE_NUMBER>;
George Gilbert, Special Counsel, at<PHONE_NUMBER>; David Michehl,
Special Counsel, at<PHONE_NUMBER>; Geoffrey Pemble, Special Counsel,
at<PHONE_NUMBER>; all of the Division of Trading and Markets,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-7010.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Reporting by Registered Clearing Agencies and Platforms--
Proposed Amendments to Rule 901(a) and Conforming Changes
    A. Clearing Process for Security-Based Swaps
    B. Summary of the Proposed Amendments to Rule 901(a) and
Conforming Changes
    1. Proposed Rule 901(a)(1)--Reporting by Platforms
    2. Proposed Reporting Obligations of Registered Clearing
Agencies
    C. Discussion of Comments and Further Explanation of the
Proposal
    1. Reporting Clearing Transactions
    a. Requirements for Reporting of Clearing Transactions to a
Registered SDR
    b. Determining the Reporting Side for Clearing Transactions
    c. Choice of Registered SDR for Clearing Transactions
    d. Reporting Whether an Alpha Transaction is Accepted for
Clearing
    2. Reporting by a Platform
    3. Additional Amendments to Account for Platforms and Registered
Clearing Agencies Incurring Duties to Report
    4. Examples
    D. Request for Comment
III. Reporting and Public Dissemination of Security-Based Swaps
Involving Allocation
    A. Examples
    1. Off-Platform Cleared Transaction
    a. Reporting the Bunched Order Alpha
    b. Reporting the Security-Based Swaps Resulting From Allocation
    2. Cleared Platform Transaction
    a. Reporting the Bunched Order Alpha
    b. Reporting the Security-Based Swaps Resulting From Allocation
    B. Request for Comment
IV. Reporting and Public Dissemination of Prime Brokerage
Transactions
    A. Application of Regulation SBSR as Adopted to Prime Brokerage
Transactions
    1. Regulatory Reporting Duties
    2. Public Dissemination of Prime Brokerage Transactions
    B. Example of the Application of the Adopted Rules
    C. Request for Comment
V. Additional Proposed Amendments
    A. Amendments to Rule 905(a)
    B. Amendments to Rules 906(b) and 907(a)(6)
    C. Extending the Applicability of Rule 906(c)
    D. Rule 908(b)--Limitations on Counterparty Reporting
Obligations
    E. Request for Comment
VI. Proposed Rule Prohibiting a Registered SDR from Charging Fees
for or Imposing Usage Restrictions on Publicly Disseminated Data
    A. Background
    B. Request for Comment
VII. Proposed Compliance Schedule for Regulation SBSR
    A. Initial Proposal
    1. Rule 910
    2. Rule 911
    B. New Proposed Compliance Schedule for Regulation SBSR
    1. Proposed Compliance Date 1
    2. Proposed Compliance Date 2
    3. Effect of Registration of Additional SDRs
    4. Proposed Changes to Certain Exemptions Related to the
Proposed Compliance Schedule
    C. Discussion of Comments Received in Response to the Initial
Proposal
    D. Request for Comment

VIII. Economic Analysis
    A. Broad Economic Considerations
    1. Security-Based Swap Market Infrastructure
    2. Competition Among Security-Based swap Service Providers
    B. Baseline
    1. Current Security-Based Swap Market
    2. Clearing Activity in Single-Name Credit Default Swaps
    3. Execution Methods in the Security-Based Swap Market
    4. Current Market Structure for Security-Based Swap
Infrastructure
    a. Exchanges and SB SEFs
    b. Clearing Agencies
    c. SDRs
    d. Vertical Integration of Security-Based Swap Market
Infrastructure
    C. Programmatic Cost of Proposed Amendments to Regulation SBSR
    1. Proposed Amendments to Rule 901
    a. For Platforms and Registered Clearing Agencies--Rule
901(a)(1) and Rule 901(a)(2)(i)
    b. For Platforms and Reporting Sides of Alphas--Rule 901(a)(3)
    c. Total Cost of Rule 901 Compliance for Platforms, Registered
Clearing Agencies, and Reporting Sides
    2. Proposed Amendment to Rule 905(a)
    3. Proposed Amendments to Rule 906(c)
    D. Economic Effects and Effects on Efficiency, Competition, and
Capital Formation
    1. Reporting of Clearing Transactions
    2. Reporting of Clearing Transactions Involving Allocation
    3. Alternative Approaches to Reporting Clearing Transactions
    a. Maintain Reporting Hierarchy as Adopted in Regulation SBSR
    b. Move Registered Clearing Agencies Within the Regulation SBSR
Reporting Hierarchy
    c. Require the Reporting Side for an Alpha to also Report Beta
and Gamma Transactions
    4. Reporting by Platforms
    5. Alternative Approaches to Reporting Platform-Executed
Transactions
    6. Application of Regulation SBSR to Prime Brokerage
Transactions
    7. Proposed Prohibition on Fees for Public Dissemination
    8. Proposed Compliance Schedule for Regulation SBSR
IX. Paperwork Reduction Act
    A. Definitions--Rule 900
    B. Reporting Obligations--Rule 901
    1. Rule 901--As Adopted
    2. Rule 901--Proposed Amendments
    a. Summary of Collection of Information
    b. Proposed Use of Information
    c. Respondents
    d. Total Initial and Annual Reporting and Recordkeeping Burdens
    i. Platforms and Registered Clearing Agencies
    ii. Platforms and Reporting Sides
    iii. Bunched Orders and Allocations
    iv. Prime Brokerage Transactions
    e. Recordkeeping Requirements
    f. Collection of Information is Mandatory
    g. Confidentiality of Responses to Collection of Information
    3. Rule 901--Aggregate Total PRA Burdens and Costs
    a. For Platforms
    b. For Registered Clearing Agencies
    c. For Reporting Sides
    d. For Registered SDRs
    C. Correction of Errors in Security-Based Swap Information--Rule
905
    1. Rule 905--As Adopted
    2. Rule 905--Proposed Amendments
    a. Summary of Collection of Information
    b. Proposed Use of Information
    c. Respondents
    d. Total Initial and Annual Reporting and Recordkeeping Burdens
    e. Recordkeeping Requirements
    f. Collection of Information is Mandatory
    g. Confidentiality of Responses to Collection of Information
    3. Rule 905--Aggregate Total PRA Burdens and Costs
    a. For Platforms
    b. For Non-Reporting Sides
    c. For Registered SDRs
    D. Other Duties of Participants--Rule 906
    1. Rule 906--As Adopted
    2. Rule 906--Proposed Amendments
    a. Rule 906(b) --Proposed Amendments
    b. Rule 906(c)--Proposed Amendments
    i. Summary of Collection of Information
    ii. Proposed Use of Information
    iii. Respondents
    iv. Total Initial and Annual Reporting and Recordkeeping Burdens
    v. Recordkeeping Requirements
    vi. Collection of Information is Mandatory
    vii. Confidentiality of Responses to Collection of Information
    3. Rule 906--Aggregate Total PRA Burdens and Costs
    a. For Platforms and Registered Clearing Agencies
    b. For Registered SDRs
    c. For Participants
    E. Policies and Procedures of Registered SDRs--Rule 907
    1. Rule 907--As Adopted
    2. Rule 907--Proposed Amendments
    3. Rule 907--Aggregate Total PRA Burdens and Costs
    F. Cross-Border Matters--Rule 908
    1. Rule 908--As Adopted
    2. Rule 908--Proposed Amendments
    3. Rule 908--Aggregate Total PRA Burdens and Costs
    G. Request for Comments
X. Consideration of Impact on the Economy
XI. Regulatory Flexibility Act Certification
XII. Statutory Basis and Text of Proposed Rules

I. Introduction

    Section 13A(a)(1) of the Exchange Act \1\ provides that each
security-based swap that is not accepted for clearing by any clearing
agency or derivatives clearing organization shall be subject to
regulatory reporting. Section 13(m)(1)(G) of the Exchange Act \2\
provides that each security-based swap (whether cleared or uncleared)
shall be reported to a registered SDR, and Section 13(m)(1)(C) of the
Exchange Act \3\ generally provides that transaction, volume, and
pricing data of security-based swaps shall be publically disseminated
in real time, except in the case of block trades.\4\
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    \1\ 15 U.S.C. 78m-1(a)(1). All references in this release to the
Exchange Act refer to the Securities Exchange Act of 1934.
    \2\ 15 U.S.C. 78m(m)(1)(G).
    \3\ 15 U.S.C. 78m(m)(1)(C).
    \4\ Section 13(m)(1)(E) of the Exchange Act, 15 U.S.C.
78m(m)(1)(E), provides that, with respect to cleared security-based
swaps, the rule promulgated by the Commission related to public
dissemination shall contain provisions, among others, that ``specify
the criteria for determining what constitutes a large notional
security-based swap transaction (block trade) for particular markets
and contracts'' and ``specify the appropriate time delay for
reporting large notional security-based swap transactions (block
trades) to the public.''
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    In a separate release, the Commission is adopting Regulation
SBSR,\5\ which contains several rules relating to regulatory reporting
and public dissemination of security-based swap transactions. The
Commission initially proposed Regulation SBSR in November 2010.\6\ In
May 2013, the Commission re-proposed the entirety of Regulation SBSR as
part of the Cross-Border Proposing Release, which proposed rules and
interpretations regarding the application of Title VII of the Dodd-
Frank Act to cross-border security-based swap activities.\7\ In this
release, the Commission is proposing certain new rules of Regulation
SBSR as well as amendments to, and guidance regarding Regulation SBSR,
as adopted. The Commission also is proposing a compliance schedule for
Regulation SBSR. The Commission seeks comment on all of the rules, rule
amendments, and guidance proposed in this release.\8\
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    \5\ Securities Exchange Act Release No. 74244 (February 11,
2015) (no Federal Register publication yet) (``Regulation SBSR
Adopting Release'').
    \6\ See Securities Exchange Act Release No. 63346 (November 19,
2010), 75 FR 75207 (December 2, 2010) (``Regulation SBSR Proposing
Release'').
    \7\ See Securities Exchange Act Release No. 69490 (May 1, 2013),
78 FR 30967 (May 23, 2013) (``Cross-Border Proposing Release'').
    \8\ With these proposed rules, rule amendments, and guidance,
the Commission is not re-opening comment on the rules adopted in
Regulation SBSR Adopting Release. The Commission received 86
comments that were specifically directed to the comment file (File
No. S7-34-10) for the Regulation SBSR Proposing Release, of which 38
were comments submitted in response to the re-opening of the comment
period. Of the comments directed to the comment file (File No. S7-
02-13) for the Cross-Border Proposing Release, six referenced
Regulation SBSR specifically, while many others addressed cross-
border issues generally, without specifically referring to
Regulation SBSR. As discussed in the Regulation SBSR Adopting
Release, the Commission also has considered other comments that are
relevant to regulatory reporting and/or public dissemination of
security-based swaps that were submitted in other contexts. The
comments discussed in this release are listed in the Appendix. For
ease of reference, this release identifies commenters using the same
naming convention as the Regulation SBSR Adopting Release, although
it does not discuss all of the comment letters included in the
Regulation SBSR Adopting Release. For example, this release refers
to a letter identified as ``ISDA IV,'' but does not discuss ISDA I,
ISDA II, or ISDA III because those letters are not relevant to the
current release.

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II. Reporting by Registered Clearing Agencies and Platforms--Proposed
Amendments to Rule 901(a) and Conforming Changes

    Section 13(m)(1)(F) of the Exchange Act \9\ provides that parties
to a security-based swap (including agents of parties to a security-
based swap) shall be responsible for reporting security-based swap
transaction information to the appropriate registered entity in a
timely manner as may be prescribed by the Commission. Section
13(m)(1)(G) of the Exchange Act \10\ provides that each security-based
swap (whether cleared or uncleared) shall be reported to a registered
SDR. Section 13A(a)(3) of the Exchange Act \11\ specifies the party
obligated to report a security-based swap that is not accepted for
clearing by any clearing agency or derivatives clearing organization.
Consistent with these statutory provisions, Rule 901(a) of Regulation
SBSR, as adopted, assigns the duty to report ``covered transactions,''
which include all security-based swaps except: (1) Clearing
transactions; \12\ (2) security-based swaps that are executed on a
platform and that will be submitted to clearing; (3) transactions where
there is no U.S. person, registered security-based swap dealer, or
registered major security-based swap participant on either side; and
(4) transactions where there is no registered security-based swap
dealer or registered major security-based swap participant on either
side and there is a U.S. person on only one side. This release proposes
to assign the duty to report security-based swaps in categories (1) and
(2) above. The Commission anticipates seeking additional public comment
in the future on the reporting obligations for security-based swaps in
categories (3) and (4) above.
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    \9\ 15 U.S.C. 78m(m)(1)(F).
    \10\ 15 U.S.C. 78m(m)(1)(G).
    \11\ 15 U.S.C. 78m-1(a)(3).
    \12\ Rule 900(g), as adopted, defines ``clearing transaction''
as ``a security-based swap that has a registered clearing agency as
a direct counterparty.'' This definition describes security-based
swaps that arise when a registered clearing agency accepts a
security-based swap for clearing as well as security-based swaps
that arise as part of a clearing agency's internal processes, such
as security-based swaps used to establish prices for cleared
products and security-based swaps that result from netting other
clearing transactions of the same product in the same account into
an open position. See Regulation SBSR Adopting Release, Section
V(B)(2).
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    Rule 901(a), as proposed and re-proposed, would have used a
hierarchy to assign reporting obligations for all security-based
swaps--including those in the four non-covered categories noted above--
without regard to whether a particular security-based swap was cleared
or uncleared. In the Regulation SBSR Proposing Release, the Commission
expressed a preliminary view that cleared and uncleared security-based
swaps should be subject to the same reporting hierarchy.\13\ In
addition, Rule 901(a), as proposed and as re-proposed, did not
differentiate between security-based swaps that are executed on a
platform and other security-based swaps. The Commission preliminarily
believed that security-based swap dealers and major security-based swap
participants generally should be responsible for reporting security-
based swap transactions of all types, because they would be more likely
than other persons to have appropriate systems in place to facilitate
reporting.\14\
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    \13\ See 75 FR 75211.
    \14\ See id.
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    The Commission requested comment on a range of issues related to
Rule 901(a), as proposed and as re-proposed. In particular, the
Commission sought comment on whether platforms or clearing agencies
should be required to report security-based swaps.\15\ The Commission
also asked whether counterparties to a security-based swap executed
anonymously on a platform and subsequently cleared would have the
information necessary to know which counterparty would incur the
reporting obligation under Rule 901(a).\16\ The comments that the
Commission received in response are discussed below.
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    \15\ See id. at 75212.
    \16\ See id.
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    In light of comments received and upon additional consideration of
the issues, the Commission is proposing two amendments to Rule 901(a)
of Regulation SBSR. First, the Commission is proposing a new
subparagraph (1) of Rule 901(a), which would provide that, if a
security-based swap is executed on a platform and will be submitted to
clearing, the platform on which the transaction was executed shall have
the duty to report the transaction to a registered SDR. Second, the
Commission is proposing a new subparagraph (2)(i) of Rule 901(a), which
would assign the reporting duty for a clearing transaction to the
registered clearing agency that is a counterparty to the security-based
swap. In connection with these proposed rules, the Commission also is
proposing several conforming rule amendments to Regulation SBSR. The
Commission describes each of these proposed rules and rule amendments
in more detail below, following a description of the process for
central clearing of security-based swap transactions.

A. Clearing Process for Security-Based Swaps

    As discussed in Section V of the Regulation SBSR Adopting Release,
two models of clearing--an agency model and a principal model--are
currently used in the swap markets. In the agency model, which
predominates in the U.S. swap market, a swap that is accepted for
clearing--often referred to in the industry as an ``alpha''--is
terminated and replaced with two new swaps, known as ``beta'' and
``gamma.'' The Commission understands that, under the agency model, one
of the direct counterparties to the alpha becomes a direct counterparty
to the beta, and the other direct counterparty to the alpha becomes a
direct counterparty to the gamma. The clearing agency would be a direct
counterparty to each of the beta and the gamma.\17\ This release uses
the terms ``alpha,'' ``beta,'' and ``gamma'' in the same way that they
are used in the agency model of clearing in the U.S. swap market.\18\
The Commission notes

that, under Regulation SBSR, an alpha is not a ``clearing
transaction,'' even though it is submitted for clearing, because it
does not have a registered clearing agency as a direct
counterparty.\19\
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    \17\ If both direct counterparties to the alpha are clearing
members, the direct counterparties would submit the transaction to
the clearing agency directly and the resulting beta would be between
the clearing agency and one clearing member, and the gamma would be
between the clearing agency and the other clearing member. The
Commission understands, however, that, if the direct counterparties
to the alpha are a clearing member and a non-clearing member (a
``customer''), the customer's side of the trade would be submitted
for clearing by a clearing member acting on behalf of the customer.
When the clearing agency accepts the alpha for clearing, one of the
resulting swaps--in this case, assume the beta--would be between the
clearing agency and the customer, with the customer's clearing
member acting as guarantor for the customer's trade. The other
resulting swap--the gamma--would be between the clearing agency and
the clearing member that was a direct counterparty to the alpha.
See, e.g., Byungkwon Lim and Aaron J. Levy, ``Contractual Framework
for Cleared Derivatives: The Master Netting Agreement Between a
Clearing Customer Bank and a Central Counterparty,'' 10 Pratt's J.
of Bankr. Law 509, 515-517 (LexisNexis A.S. Pratt) (describing the
clearing model for swaps in the United States).
    \18\ In the principal model of clearing, which the Commission
understands is used in certain foreign swap markets, a customer is
not a direct counterparty of the clearing agency. Under this model,
a clearing member would clear a swap for a customer by entering into
a back-to-back swap with the clearing agency: The clearing member
would become a direct counterparty to a swap with the customer, and
then would become a counterparty to an offsetting swap with the
clearing agency. In this circumstance, unlike in the agency model of
clearing, the swap between the direct counterparties might not
terminate upon acceptance for clearing. The Commission notes that
one commenter recommended that Regulation SBSR should clarify the
applicable reporting requirements under each of the agency and
principal clearing models. See ISDA IV at 6. Although this release
focuses on the agency model of clearing, which predominates in the
United States, the Commission is requesting comment regarding the
application of the principal model.
    \19\ This release does not address the application of Section 5
of the Securities Act of 1933, 15 U.S.C. 77a et seq. (``Securities
Act''), to security-based swap transactions that are intended to be
submitted to clearing (e.g., alphas, in the agency model of
clearing). Rule 239 under the Securities Act, 17 CFR 230.239,
provides an exemption for certain security-based swap transactions
involving an eligible clearing agency from all provisions of the
Securities Act, other than the Section 17(a) anti-fraud provisions.
This exemption does not apply to security-based swap transactions
not involving an eligible clearing agency, including a transaction
that is intended to be submitted to clearing, regardless of whether
the security-based swaps subsequently are cleared by an eligible
clearing agency. See Exemptions for Security-Based Swaps Issued By
Certain Clearing Agencies, Securities Act Release No. 33-9308 (March
30, 2012), 77 FR 20536 (April 5, 2012).
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B. Summary of the Proposed Amendments to Rule 901(a) and Conforming
Changes

    In a separate release, the Commission is adopting Regulation SBSR
under the Exchange Act. In light of comments received in response to
both the Regulation SBSR Proposing Release and the Cross-Border
Proposing Release (which re-proposed Regulation SBSR in its entirety),
the Commission in this release is proposing to amend Rule 901(a) of
Regulation SBSR to assign reporting duties for: (1) Platform-executed
security-based swaps that will be submitted to clearing; and (2)
clearing transactions.
1. Proposed Rule 901(a)(1)--Reporting by Platforms
    The Commission is proposing a new subparagraph (1) of Rule 901(a),
which would require a platform to report to a registered SDR any
security-based swap that is executed on that platform and that will be
submitted to clearing (i.e., any alpha executed on the platform).\20\
As the person with the duty to report the transaction, the platform
would be able to select the registered SDR to which it reports.\21\
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    \20\ If the execution occurs otherwise than on a platform, or if
the security-based swap is executed on a platform but will not be
submitted to clearing, the reporting hierarchy in Rule
901(a)(2)(ii), as adopted, will apply to the transaction.
    \21\ This is consistent with the Commission's guidance in
Section V(B) of the Regulation SBSR Adopting Release that, for
transactions subject to Rule 901(a)(2)(ii), the reporting side may
choose the registered SDR to which it makes the report required by
Rule 901: ``The reporting side may select the registered SDR to
which it makes the required report. However, with respect to any
particular transaction, all information required to be reported by
Rule 901(a)(2)(ii), as adopted, must be reported to the same
registered SDR.''
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2. Proposed Reporting Obligations of Registered Clearing Agencies
    The Commission is proposing a new subparagraph (2)(i) of Rule
901(a), which would designate a registered clearing agency as the
reporting side for all clearing transactions to which it is a
counterparty. In its capacity as the reporting side, the registered
clearing agency would be permitted to select the registered SDR to
which it reports a clearing transaction.
    The Commission also is proposing certain rules to address reporting
requirements for life cycle events arising from the clearing process.
Subparagraph (i) of Rule 901(e)(1), as adopted, provides that the
reporting side for a security-based swap must generally report a life
cycle event of that swap, ``except that the reporting side shall not
report whether or not a security-based swap has been accepted for
clearing.'' The Commission is proposing a new subparagraph (ii) of Rule
901(e)(1), which would require a registered clearing agency to report
whether or not it has accepted an alpha security-based swap for
clearing.\22\
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    \22\ If the alpha security-based swap is not required to be
reported to a registered SDR--which could occur if Rule 901(a) does
not assign a reporting obligation for the transaction or if the
person assigned under Rule 901(a) is not enumerated in Rule 908(b)--
the registered clearing agency would have no duty to report whether
or not it has accepted the alpha for clearing.
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    Rule 901(e)(2), as adopted, requires a life cycle event to be
reported ``to the entity to which the original security-based swap
transaction will be or has been reported.'' Thus, proposed Rule
901(e)(1)(ii) would require a registered clearing agency to report to
the registered SDR that received or will receive the transaction report
of the alpha (the ``alpha SDR'') whether or not it has accepted the
alpha for clearing. As discussed in Section II(C)(3), infra, the
Commission is proposing that this obligation to report whether or not
it has accepted the alpha for clearing would cause the registered
clearing agency to become a participant of the alpha SDR.
    If the registered clearing agency does not know the identity of the
alpha SDR, the registered clearing agency would be unable to report to
the alpha SDR whether or not it accepted the alpha transaction for
clearing, as would be required by proposed Rule 901(e)(1)(ii).
Therefore, the Commission is proposing a new subparagraph (3) of Rule
901(a), which would require a platform or reporting side for a
security-based swap that has been submitted to clearing to promptly
provide the relevant registered clearing agency with the identity of
the alpha SDR and the transaction ID of the alpha transaction that has
been submitted to clearing.

C. Discussion of Comments and Further Explanation of the Proposal

    The Commission requested and received comment on a wide range of
issues related to Rules 901(a) and 901(e), as initially proposed in the
Regulation SBSR Proposing Release and as re-proposed in the Cross-
Border Proposing Release. For example, in the Regulation SBSR Proposing
Release, the Commission asked commenters about the types of entities
that should have the duty to report security-based swaps and the
practicability of the proposed reporting hierarchy in certain cases
where the counterparties might not know each other's identities.\23\
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    \23\ See 75 FR 75212.
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1. Reporting Clearing Transactions
    Six commenters addressed the Commission's proposal to treat cleared
security-based swaps the same as uncleared security-based swaps for
purposes of assigning reporting obligations under Rule 901(a). Two
commenters generally supported the Commission's proposal, noting that
it would allow security-based swap counterparties, rather than clearing
agencies, to choose the registered SDR that receives data about their
security-based swaps.\24\ However, three other commenters objected to
the proposal on statutory or operational grounds.\25\ One commenter
argued that Title VII's security-based swap reporting provisions and
Regulation SBSR should not extend to clearing transactions.\26\ Two
commenters stated that the reporting hierarchy in Regulation SBSR is
appropriate for OTC bilateral markets, but that it should not be
applied to cleared transactions because the clearing model
substantially differs from OTC bilateral markets.\27\ These commenters
argued that, in the alternative, if the Commission requires clearing
transactions to be reported to a registered SDR, the clearing agency
that

clears the alpha should have the duty to report the associated clearing
transactions to a registered SDR of its choice.\28\ Another commenter
expressed the view that a clearing agency is best-positioned to report
cleared security-based swaps.\29\
---------------------------------------------------------------------------

    \24\ See DTCC VI at 8-9; MarkitSERV III at 3-5.
    \25\ See CME/ICE Letter at 2-4; ICE Letter at 2-5; CME II at 4;
ISDA IV at 5-6.
    \26\ See CME II at 5 (stating that ``a choice by the Commission
to require that data on cleared SBS be reported to a third-party SDR
would impose substantial costs on market participants which greatly
outweigh the benefits (if any). . . . The Commission already has
access to this data via the clearing agency.'')
    \27\ See ICE Letter at 2; CME/ICE Letter at 2.
    \28\ See CME II at 4-5; CME/ICE Letter at 2-4; ICE Letter at 2-
3.
    \29\ ISDA IV at 5 (stating further that . . .''[I]f the
Commission assigns responsibility to clearing agencies for the
reporting of cleared [security-based swaps], the clearing agency
should be the sole party responsible for reporting all the trade
data for cleared swaps.'') See also ICE Letter at 2-3 (stating that
``The Clearing Agency is best positioned to have the sole
responsibility to report . . . required swap data, including
valuation data'').
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a. Requirements for Reporting of Clearing Transactions to a Registered
SDR
    Two commenters argued that the Exchange Act does not require data
on clearing transactions to be reported to a registered SDR for
regulatory reporting purposes.\30\ They noted that Section 13A(a)(1) of
the Exchange Act \31\ provides that ``[e]ach security-based swap that
is not accepted for clearing by any clearing agency or derivatives
clearing organization shall be reported'' to a registered SDR or the
Commission. In the view of these commenters, Section 13A(a)(1) is
intended to ensure that the Commission has access to data for uncleared
security-based swaps. Section 13A(a)(1) does not, according to these
commenters, apply to clearing transactions, because complete data for
these security-based swaps already would be collected, maintained, and
made available to the Commission by the relevant clearing agency.\32\
Accordingly, these commenters contend that ``any system that would
require a Clearing Agency to make duplicative reports to an outside
third party regarding [security-based swaps] it clears would be costly
and unnecessary.'' \33\
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    \30\ See CME/ICE Letter at 4; CME II at 4.
    \31\ 15 U.S.C. 78m-1(a)(1).
    \32\ See CME/ICE Letter at 2, 4; CME II at 4.
    \33\ CME/ICE Letter at 4.
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    The Commission does not agree with the commenters' reading of the
Exchange Act. While Section 13A(a) of the Exchange Act requires all
uncleared security-based swaps to be reported to a registered SDR and
specifies who must report an uncleared security-based swap, it does not
address whether cleared security-based swaps must be reported to a
registered SDR. However, Section 13(m)(1)(G) of the Exchange Act \34\
provides that ``[e]ach security-based swap (whether cleared or
uncleared) shall be reported to a registered security-based swap data
repository.'' This section explicitly requires reporting of each
security-based swap to a registered SDR, including a security-based
swap that is a clearing transaction, because all security-based swaps
necessarily are either cleared or uncleared.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78m(m)(1)(G).
---------------------------------------------------------------------------

    Furthermore, the Commission preliminarily believes that having data
for all security-based swaps reported to registered SDRs will provide
the Commission and other relevant authorities with the most efficient
access to security-based swap information.\35\ If data for clearing
transactions were not reported to registered SDRs, the Commission would
have to obtain transaction information from multiple types of
registered entities--i.e., registered clearing agencies as well as
registered SDRs--to obtain a complete picture of the security-based
swap market. Obtaining transaction data separately from additional
types of registrants would exacerbate concerns about fragmentation of
the data that could be reduced by requiring all security-based swap
transactions to be reported to registered SDRs. For example, registered
clearing agencies might store, maintain, and furnish data to the
Commission in a format different from the data provided by registered
SDRs, which would force the Commission to expend greater resources
harmonizing the data sets.
---------------------------------------------------------------------------

    \35\ Section 13(n)(5)(G) of the Exchange Act, 15 U.S.C.
78m(n)(5)(G), provides specified authorities other than the
Commission with access to security-based swap data held by SDRs, but
does not grant similar access to security-based swap data held by
registered clearing agencies. If the Commission relied exclusively
on registered clearing agencies to store data for clearing
transactions, the ability of other relevant authorities to access
the information could be impaired.
---------------------------------------------------------------------------

b. Determining the Reporting Side for Clearing Transactions
    Two commenters supported the Commission's original proposal to
assign reporting obligations for all security-based swaps, including
clearing transactions, through the reporting hierarchy in all
circumstances.\36\ One of these commenters expressed the view that
counterparty choice would ``ensure that a party to the transaction
(instead of a platform or clearinghouse) can chose [sic] the most
efficient manner of performing its reporting across all of the regions
and asset classes that it is active in.'' \37\ This commenter further
stated that permitting a platform or clearing agency to report
security-based swaps would impose costs on market participants by
obligating them to establish connectivity to multiple trade
repositories.\38\
---------------------------------------------------------------------------

    \36\ See DTCC VI at 8-9; DTCC VIII (recommending that the
Commission should not assign reporting obligations to clearing
agencies because Regulation SBSR, as proposed and re-proposed, would
not have required reporting by clearing agencies); MarkitSERV III at
4.
    \37\ MarkitSERV III at 4.
    \38\ See id.
---------------------------------------------------------------------------

    Three other commenters objected to this aspect of Regulation SBSR,
as proposed and re-proposed. Two of these commenters argued that, if
clearing transactions are subject to Regulation SBSR, they should be
reported by the clearing agency that clears the alpha: ``In contrast to
uncleared [security-based swaps], the Clearing Agency is the sole party
who holds the complete and accurate record of transactions and
positions for cleared [security-based swaps] and in fact is the only
entity capable of providing accurate and useful positional information
on cleared [security-based swaps] for systemic risk monitoring
purposes.'' \39\ The other commenter stated that the clearing agency is
best positioned to report cleared security-based swaps timely and
accurately as an extension of the clearing process, and that the
clearing agency should be the sole party responsible for reporting all
the trade data for cleared swaps, including valuation data.\40\
---------------------------------------------------------------------------

    \39\ CME/ICE Letter at 3-4.
    \40\ ISDA IV at 5. The Commission notes that Regulation SBSR as
adopted does not require the reporting of the market value of a
security-based swap. See Regulation SBSR Adopting Release, Section
II(B)(3)(e) and Section II(B)(3)(k).
---------------------------------------------------------------------------

    After careful consideration of the comments, the Commission now
preliminarily believes that a registered clearing agency should have
the duty to report any clearing transaction to which it is a
counterparty. The Commission believes that, because the registered
clearing agency creates the clearing transactions to which it is a
counterparty, the registered clearing agency is in the best position to
provide complete and accurate information for the clearing transactions
resulting from the security-based swaps that it clears.\41\
---------------------------------------------------------------------------

    \41\ One commenter urged the Commission to be clear which party
is responsible for reporting a clearing transaction in the event
that reporting commences before security-based swap clearing
agencies are required to register with the Commission or in the
event that a security-based swap is cleared through a clearing
agency that is not required to register, exempted from registration,
or granted relief. See ISDA IV at 6. This commenter further
recommended that the reporting requirement for a clearing agency
should apply equally to clearing agencies required to register and
those that may be exempted from the requirement but which clear
security-based swaps subject to reporting. See id. The Commission
believes that the proposed rules are clear as to which side would
have the responsibility for reporting a clearing transaction. The
Commission notes that proposed Rule 901(a)(2)(i) would impose the
duty to report clearing transactions on registered clearing
agencies. It is possible that a non-U.S. person could register with
the Commission as a clearing agency under Section 17A of the
Exchange Act, 15 U.S.C. 78q-1. The Commission generally believes
that, if a person registers with the Commission as a clearing
agency, it should assume the same obligations as all other persons
that register as clearing agencies. Proposed Rule 901(a)(2)(i) would
not apply to unregistered clearing agencies (i.e., persons that act
as clearing agencies outside the United States that are not required
to, and choose not to, register with the Commission). If in the
future the Commission contemplates a process for exempting clearing
agencies from registration or considers an application for relief
from clearing agency registration requirements, the Commission could
at that time consider the issue of whether to extend the duty to
report clearing transactions to an exempt clearing agency.

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

    The Commission understands that certain registered clearing
agencies that offer central clearing in swaps currently report their
clearing transactions to swap data repositories that are provisionally
registered with the CFTC. These registered clearing agencies have
adopted rules stating that they will comply with the CFTC's swap data
reporting rules by reporting beta and gamma swaps to a swap data
repository that is an affiliate or business unit of the registered
clearing agency. These current swap market practices evidence the
ability of registered clearing agencies to report clearing
transactions. The Commission's proposal to assign to registered
clearing agencies the duty to report clearing transactions is intended,
in part, to promote efficiency in the reporting process under
Regulation SBSR by leveraging these existing workflows.
    The Commission has considered the following alternatives to
proposed Rule 901(a)(2)(i):
    (1) Utilize the reporting hierarchy in Regulation SBSR, as re-
proposed. Under this approach, a registered clearing agency would
occupy the lowest spot in the hierarchy, along with other persons who
are neither registered security-based swap dealers nor registered major
security-based swap participants. Thus, in the case of a beta or gamma
transaction between a registered security-based swap dealer or
registered major security-based swap participant and a registered
clearing agency, the registered security-based swap dealer or
registered major security-based swap participant would be the reporting
side. In the case of a beta or gamma transaction between a non-
registered person and a registered clearing agency, the outcome would
depend on whether the non-clearing agency direct counterparty is
guaranteed by a registered security-based swap dealer or registered
major security-based swap participant. If the non-clearing agency
direct counterparty is guaranteed by a registered security-based swap
dealer or registered major security-based swap participant, that side
would be the reporting side. If the non-clearing agency direct
counterparty has no guarantor or is guaranteed by a person who is not a
registered security-based swap dealer or registered major security-
based swap participant, there would be a tie and the sides would be
required to select the reporting side.
    (2) Modify the re-proposed hierarchy to place registered clearing
agencies above other non-registered persons but below registered
security-based swap dealers and registered major security-based swap
participants. Thus, in a transaction between a registered clearing
agency and a registered security-based swap dealer (or a transaction
between a registered clearing agency and a non-registered person who is
guaranteed by a registered security-based swap dealer), the outcome
would be the same as in Alternative 1: The side with the registered
security-based swap dealer would have the duty to report. However, the
outcome would be different from Alternative 1 in the case of a beta or
gamma transaction between a registered clearing agency and a non-
registered person who is not guaranteed by a registered security-based
swap dealer or registered major security-based swap participant:
Instead of the sides choosing, the registered clearing agency would
have the duty to report.
    (3) Require the reporting side of the alpha to report both the beta
and gamma transaction. Under this approach, the reporting side of the
alpha transaction also would be the reporting side for the beta and
gamma transactions. Under this approach, the beta and gamma could be
viewed as life cycle events of the alpha, and thus should be treated
like other life cycle events of the alpha, which the reporting side of
the alpha has the duty to report.
    The Commission preliminarily believes that each of these three
alternatives for assigning the reporting duty for clearing transactions
would be less efficient and could result in less reliable reporting
than assigning to registered clearing agencies the duty to report all
clearing transactions. Two commenters have asserted that a clearing
agency is the only party that has complete information about clearing
transactions immediately upon their creation.\42\ Each of the three
alternatives could require a person who does not have information about
the clearing transaction at the time of its creation to report that
transaction. The only way such a person could discharge its reporting
duty would be to obtain the information from the registered clearing
agency or from the counterparty to the registered clearing agency. This
extra and unnecessary step could introduce more opportunities for data
discrepancies, errors, or delays in reporting. The Commission
preliminarily believes instead that a more efficient way to obtain a
regulatory report of each clearing transaction would be to require the
registered clearing agency to report each clearing transaction to a
registered SDR directly.
---------------------------------------------------------------------------

    \42\ See CME/ICE Letter at 3-4. Even the commenters who opposed
reporting by clearing agencies did not suggest that a clearing
agency lacks adequate information to report the beta and the gamma.
---------------------------------------------------------------------------

    Under Alternative 1, applying the reporting hierarchy to a
transaction between a registered clearing agency and a registered
security-based swap dealer or registered major security-based swap
participant would result in the side opposite the clearing agency being
the reporting side for the security-based swap. This approach would
comport with the suggestion of commenters who opposed placing reporting
obligations on registered clearing agencies.\43\ As discussed above,
however, the Commission believes that it would be more efficient to
require the registered clearing agency to report the transaction.
Furthermore, applying the reporting hierarchy to a transaction between
a registered clearing agency and another non-registered person
(assuming it is not guaranteed by a registered security-based swap
dealer or major security-based swap participant) would require the
sides to select the reporting side. While it is likely that the
counterparties in this case would select the registered clearing agency
as the reporting side, the Commission preliminarily believes that it
would be more efficient to obviate the need for registered clearing
agencies and non-registered persons to negotiate reporting duties. As
discussed in the Regulation SBSR Adopting Release, the Commission
designed Rule 901(a), in part, to minimize the possibility of reporting
obligations being imposed on non-registered counterparties.\44\
---------------------------------------------------------------------------

    \43\ See DTCC VI at 8-9; DTCC VIII (noting that Regulation SBSR,
as proposed and re-proposed, would not have required reporting by
clearing agencies); MarkitSERV III at 4.
    \44\ See Regulation SBSR Adopting Release, Section V. See also
Vanguard Letter at 6 (noting that clearing agencies, platforms,
security-based swap dealers, and major security-based swap
participants would be better situated to report security-based swaps
than other types of market participants, such as buy-side firms).

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

    Alternative 2 would assign the reporting obligation to a registered
security-based swap dealer or registered major security-based swap
participant when it is a counterparty to a registered clearing agency,
while avoiding the need for non-registered persons to negotiate
reporting obligations with registered clearing agencies. The Commission
preliminarily believes, however, that this alternative--like
Alternatives 1 and 3--would be less efficient than requiring the
registered clearing agency to report the transaction information
directly to a registered SDR, because the registered clearing agency is
the only person who has complete information about a clearing
transaction immediately upon its creation.
    Under Alternative 3, the reporting side for the alpha also would be
the reporting side for the beta and gamma. Alternative 3 would require
the reporting side for the alpha also to report information about a
security-based swap--the clearing transaction between the registered
clearing agency and the non-reporting side of the alpha--to which it is
not a counterparty. The Commission could require the non-reporting side
of the alpha to transmit information about its clearing transaction to
the reporting side of the alpha. In theory, this would allow the
reporting side of the alpha to report both the beta and the gamma. The
Commission believes, however, that this result could be difficult to
achieve operationally and, in any event, could create confidentiality
concerns, as an alpha counterparty may not wish to reveal information
about its clearing transactions except to the registered clearing
agency (and, if applicable, its clearing member). Moreover, all other
things being equal, having more steps in the reporting process--e.g.,
more data transfers between execution and reporting--introduces greater
opportunity for data discrepancies and delays than having fewer steps.
Also, because the reporting side of the alpha would have the duty to
report the beta and gamma, Alternative 3 is premised on the view that
the beta and gamma are life cycle events of the alpha. The Commission,
however, considered and rejected this approach in the Regulation SBSR
Adopting Release.\45\
---------------------------------------------------------------------------

    \45\ See Regulation SBSR Adopting Release, Section V(B)(2) at
note 267 (``Under Rule 900(g), a security-based swap that results
from clearing is an independent security-based swap and not a life
cycle event of a security-based swap that is submitted to clearing.
Thus, Rule 901(e), which addresses the reporting of life cycle
events, does not address what person has the duty to report the
clearing transactions that arise when a security-based swap is
accepted for clearing'').
---------------------------------------------------------------------------

    In sum, having considered these alternatives, the Commission
preliminarily believes that the most direct and efficient way of
reporting clearing transactions to a registered SDR is to assign to a
registered clearing agency the duty to report all clearing transactions
to which it is a counterparty. Therefore, the Commission is proposing
new subparagraph (i) of Rule 901(a)(2) to achieve this result. A
registered clearing agency has complete information about all clearing
transactions to which it is a counterparty, including betas and gammas
that arise from clearing alpha security-based swaps. The alternative
reporting regimes discussed above could result in less efficiencies in
reporting, and thus greater costs, because persons that are less likely
to have established infrastructure for reporting or that do not possess
the same degree of direct and complete access to the relevant data as
the registered clearing agency could have the duty to report.
Furthermore, these non-clearing agency counterparties would first have
to obtain information about executed clearing transactions from the
registered clearing agency before they, in turn, could provide the
transaction information to a registered SDR. This extra step in
reporting could result in delays, or create opportunities for errors
that could lead to a loss of data integrity. The Commission
preliminarily believes that data discrepancies, errors, and delays are
less likely to occur if the duty to report information about clearing
transactions were assigned to registered clearing agencies directly.
c. Choice of Registered SDR for Clearing Transactions
    The Commission has carefully considered how registered clearing
agencies would fulfill their reporting obligations under proposed Rule
901(a)(2)(i), including whether registered clearing agencies could
choose the registered SDR to which they report or whether they should
be required to report clearing transactions to the registered SDR that
received the report of the associated alpha transaction. Regulation
SBSR allows the reporting side to choose the registered SDR to which it
reports, subject to the requirement that reports of life cycle events
must be made to the same registered SDR that received the initial
report of the security-based swap.\46\
---------------------------------------------------------------------------

    \46\ See Regulation SBSR Adopting Release, Section V(B)(2)
(``The reporting side may select the registered SDR to which it
makes the required report'').
---------------------------------------------------------------------------

    As noted in the Regulation SBSR Adopting Release, a clearing
transaction is an independent security-based swap and not a life cycle
event of an alpha security-based swap that is submitted to
clearing.\47\ As discussed in the Regulation SBSR Adopting Release, the
Commission believes that, in general, the person with the duty to
report a security-based swap under Rule 901(a) should be permitted to
discharge this duty by reporting to a registered SDR of its choice.\48\
This approach is designed to promote efficiency by allowing the person
with the reporting duty to select the registered SDR that offers it the
greatest ease of use or the lowest fees. Under proposed Rule
901(a)(2)(i), a registered clearing agency would be the reporting side
for all clearing transactions to which it is a counterparty; because
the registered clearing agency would have the duty to report, it also
would have the ability to choose the registered SDR. The Commission
considered proposing that reports of betas and gammas go to the same
registered SDR that received the report of the associated alpha, but
has declined to do so, for the reasons discussed below.
---------------------------------------------------------------------------

    \47\ See Regulation SBSR Adopting Release, Section V(B).
However, the determination by a registered clearing agency of
whether or not to accept the alpha for clearing is a life cycle
event of the alpha. Proposed Rule 901(e)(1)(ii) would require
registered clearing agencies to report these life cycle events to
the alpha SDR.
    \48\ See Regulation SBSR Adopting Release, Section V(B).
---------------------------------------------------------------------------

    If Regulation SBSR were to require registered clearing agencies to
report betas and gammas to the registered SDR that received the report
of the associated alpha, the registered clearing agency would be
required to report to a registered SDR that might not offer it the
greatest ease of use or the lowest fees. As such, this result could be
less efficient for the registered clearing agency than the alternative
approach of permitting the registered clearing agency to choose the
registered SDR to which it reports the beta and gamma. Moreover, the
Commission preliminarily believes that it would have sufficient tools
to be able to track related transactions across SDRs,\49\ and thus that
it would be appropriate to allow a registered clearing agency to choose
where to report the beta and gamma, even if it chooses to report to

a registered SDR other than the alpha SDR.
---------------------------------------------------------------------------

    \49\ See Regulation SBSR Adopting Release, Section II(B)(3)(j)
(explaining that Rule 901(d)(10), as adopted, will facilitate the
Commission's ability to link transactions using the transaction ID);
Regulation SBSR Adopting Release, Section VIII (further describing
the ability of the Commission to link related transactions using the
transaction ID).
---------------------------------------------------------------------------

    One commenter asserted that allowing a registered clearing agency
to report betas and gammas to a registered SDR of the clearing agency's
choice, rather than to the alpha SDR, would impose substantial costs on
security-based swap counterparties because the non-clearing agency
counterparties would have to establish connectivity to multiple
SDRs.\50\ This comment appears premised on the idea that non-clearing
agency counterparties would have ongoing obligations to report
subsequent information--such as life cycle events or a daily mark of
the security-based swap--to registered SDRs not of their choosing,
which could force them to establish connections to multiple registered
SDRs. However, proposed Rule 901(a)(2)(ii) would assign the reporting
duty for a clearing transaction to the registered clearing agency, and
Regulation SBSR, as adopted, does not impose any duty on a non-
reporting side to report life cycle events or a daily mark.\51\
Therefore, the Commission does not believe that any duty under
Regulation SBSR, as adopted, or the amendments to Regulation SBSR
proposed herein, would cause non-clearing agency counterparties to
incur significant costs resulting from the ability of a registered
clearing agency to select the registered SDR to which it reports
clearing transactions.\52\
---------------------------------------------------------------------------

    \50\ See MarkitSERV III at 4, n. 11.
    \51\ Nor does Regulation SBSR require a non-reporting side to
alert a registered SDR if it becomes aware that any security-based
swap information has been reported erroneously. Under the proposed
amendments to Rule 905(a) discussed below, if an error is discovered
by a person other than the person having the duty to report a
security-based swap, the person who discovered the error would
report such error to the person who had the duty to report the
transaction, rather than to the registered SDR directly.
    \52\ Non-clearing agency counterparties to clearing transactions
might incur modest costs associated with reporting certain unique
identification code (``UIC'') information required by Rule 906(a),
e.g., their branch ID, broker ID, trader ID, and trading desk ID, as
applicable. See Regulation SBSR Adopting Release, Section
XXII(C)(6)(c) (discussing the costs of complying with Rule 906(a),
as adopted).
---------------------------------------------------------------------------

d. Reporting Whether an Alpha Transaction is Accepted for Clearing
    One commenter expressed the view that a clearing agency would be
well-positioned to issue a termination report for the alpha and
subsequently report the beta, gamma, and, if necessary, open positions
to a registered SDR.\53\ The Commission agrees with this commenter and
is therefore proposing a new subparagraph (ii) of Rule 901(e)(1), which
would require a registered clearing agency to report to the alpha SDR
whether or not it has accepted the alpha for clearing. Rule
901(e)(1)(i), as adopted, requires the reporting side of a security-
based swap to report--to the same entity to which it reported the
original transaction--any life cycle event (or adjustment due to a life
cycle event) except for whether or not the security-based swap has been
accepted for clearing. Proposed Rule 901(e)(1)(ii) would address the
reporting of whether or not the security-based swap has been accepted
for clearing, and would assign that duty to the registered clearing
agency to which the transaction is submitted for clearing, rather than
to the reporting side of the original transaction. Proposed Rule
901(e)(1)(ii) would ensure that all potential life cycle events (and
adjustments due to life cycle events) would be subject to regulatory
reporting, and that Regulation SBSR would specify the person who has
the duty to report each kind of life cycle event (or adjustment).
---------------------------------------------------------------------------

    \53\ See ICE Letter at 2-5.
---------------------------------------------------------------------------

    When an alpha is submitted for clearing, the registered clearing
agency will review the trade and decide whether or not to accept it.
Acceptance for clearing can result in the termination of the alpha and
the creation of the beta and gamma. Furthermore, rejection from
clearing is an important event in the life of the alpha--because
rejection could result in the voiding of the transaction or the
activation of credit support provisions that would alter the character
of the transaction--and thus is the kind of event that Rule 901(e) is
designed to capture for regulatory purposes. Accordingly, proposed Rule
901(e)(1)(ii) would require a registered clearing agency to report
whether or not it has accepted a security-based swap for clearing.
    The Commission preliminarily believes that requiring a registered
clearing agency, rather than the reporting side of the alpha, to report
whether or not the registered clearing agency has accepted an alpha for
clearing is consistent with the Commission's approach of assigning
reporting obligations to the person with the most complete and
efficient access to the required information. The registered clearing
agency would have the most complete and efficient access to information
about whether a particular alpha has been accepted for clearing because
the registered clearing agency determines whether to accept a submitted
alpha and knows the precise moment when the transaction is cleared.
Although it would be possible for the reporting side for the alpha
transaction to report whether a registered clearing agency has accepted
the alpha for clearing, the reporting side would need to learn this
information from the clearing agency. The Commission preliminarily
believes it is more efficient to require the registered clearing agency
to report to the alpha SDR whether or not the registered clearing
agency has accepted the alpha for clearing.
    Rule 901(e)(2), as adopted, requires whoever has the duty to report
a life cycle event to include in the report of the life cycle event the
transaction ID of the original transaction. If the Commission
ultimately adopts proposed Rule 901(e)(1)(ii), a registered clearing
agency that accepts or rejects an alpha transaction from clearing would
incur this duty under existing Rule 901(e)(2). The transaction ID of
the alpha transaction is information that the registered clearing
agency might not have, because the registered clearing agency is not
involved in the execution or reporting to a registered SDR of the alpha
transaction. Therefore, the Commission also is proposing a new
subparagraph (3) of Rule 901(a), which would provide that ``a person
who, under [Rule 901(a)(1) or 901(a)(2)(ii)] has a duty to report a
security-based swap that has been submitted to clearing at a registered
clearing agency shall promptly provide that registered clearing agency
with the transaction ID of the submitted security-based swap and the
identity of the registered security-based swap data repository to which
the transaction will be reported or has been reported.'' Proposed Rule
901(a)(3) would ensure that the registered clearing agency knows the
identity of the alpha SDR and the transaction ID of the alpha, so that
the registered clearing agency knows where to report whether or not it
accepts the alpha for clearing--as required under existing Rule
901(e)(2)--and so that this report can be linked to the alpha report.
    The Commission recognizes the potential for proposed Rules
901(e)(1)(ii) and 901(a)(3) to result in the registered clearing agency
reporting whether or not it accepted the alpha for clearing to the
alpha SDR before the alpha transaction itself has been reported to the
alpha SDR. This could occur during the interim phase for regulatory
reporting and public dissemination, which the Commission discussed in
Section VII of the Regulation SBSR Adopting Release. Rule 901(j), as
adopted, generally permits the person with the duty to report a
security-based swap up to 24 hours after the time of execution to
report to a registered SDR the transaction information required by
Rules 901(c) and 901(d). Accordingly,

an alpha could be submitted for clearing immediately after execution,
but not reported to a registered SDR for up to 24 hours (or, if 24
hours after the time of execution would fall on a day that is not a
business day, by the same time on the next day that is a business day).
If the registered clearing agency accepts the alpha for clearing, the
registered clearing agency might, pursuant to proposed Rule
901(e)(1)(ii), submit a report of this life cycle event to the alpha
SDR before the alpha SDR has received the transaction report of the
alpha transaction itself.\54\
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    \54\ To submit the report contemplated by proposed Rule
901(e)(1)(ii), the registered clearing agency would need to know the
transaction ID of the alpha. The person with the duty to report the
alpha might know the transaction ID of the alpha before it reports
the transaction to a registered SDR. Under Rules 903(a) and
907(a)(5), as adopted, there is no requirement that a registered SDR
itself assign a transaction ID. Under those rules, a registered SDR
may allow third parties--such as reporting sides or platforms--to
assign a transaction ID using a methodology endorsed by the
registered SDR. If the registered SDR allows third parties to assign
the transaction ID, the reporting side or platform could tell the
registered clearing agency the transaction ID, which in turn could
allow the registered clearing agency to report to the alpha SDR
whether or not the alpha has been accepted for clearing before the
alpha has been reported to the registered SDR. If, however, the
person with the duty to report the alpha does not obtain the
transaction ID until it reports the alpha to a registered SDR, the
person could not provide the transaction ID of the alpha to the
registered clearing agency, and the registered clearing agency could
not report whether or not it accepts the alpha for clearing until
after it received alpha's transaction ID.
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    To account for this possibility, the Commission is proposing a
minor amendment to Rule 901(e)(2). Rule 901(e)(2), as adopted, states
in relevant part that a life cycle event must be reported ``to the
entity to which the original security-based swap transaction was
reported'' (emphasis added). Under the proposed amendment to Rule
901(e)(2), a life cycle event would have to be reported ``to the entity
to which the original security-based swap transaction will be reported
or has been reported.'' This amendment mirrors the language in proposed
Rule 901(a)(3), which would require a person who reports an alpha to
provide the registered clearing agency to which the alpha is submitted
the transaction ID of the alpha and the identity of the registered SDR
to which the alpha ``will be reported or has been reported.''
    A registered SDR should consider--in formulating its policies and
procedures under Rule 907(a), as adopted--whether those policies and
procedures should address the situation where it receives a report from
a registered clearing agency stating whether or not it has accepted an
alpha (with a particular transaction ID) for clearing before the
registered SDR has received a transaction report of the alpha. For
example, the policies and procedures could provide that the registered
SDR would hold a report from a registered clearing agency that it
accepted the alpha for clearing in a pending state until it receives
the transaction report of the alpha, and then disseminate the security-
based swap transaction information and the fact that the alpha has been
terminated as a single report.
2. Reporting by a Platform
    Some commenters, responding to Rule 901(a) as initially proposed,
suggested that the Commission require a platform to report security-
based swaps executed on or through its facilities.\55\ One of these
commenters stated that a platform would have the technology to report a
security-based swap executed on its facilities and would be in the best
position to ensure that the transaction was reported accurately and on
a real-time basis.\56\ This commenter also stated that the
counterparties to a transaction executed on a platform should be
relieved of any reporting obligations because they would not be in a
position to control or confirm the accuracy of the information reported
or to control the timing of the platform's reporting.\57\ Another
commenter expressed the view that having platforms report security-
based swaps would facilitate economies in the marketplace because fewer
entities, including end users, would be required to build the systems
necessary to support security-based swap reporting.\58\ Four
commenters, however, raised concerns about imposing reporting
requirements on platforms.\59\
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    \55\ See ICI I at 5; Tradeweb Letter at 3-4; Vanguard Letter at
2, 7.
    \56\ See Tradeweb Letter at 3.
    \57\ See id. at 3-4. The commenter also noted that the CFTC's
proposed swap data reporting rules would require a SEF or designated
contract market to report a swap executed on its facilities. See id.
at 4. The CFTC has subsequently adopted a final rule that requires
SEFs and designated contract markets to report swaps executed on
their facilities. See 17 CFR 45.3.
    \58\ See Vanguard Letter at 7; ICI I at 5 (arguing that because
investment funds would need to spend significant time and resources
to build security-based swap reporting systems, platforms and
security-based swap dealers should be obligated to report security-
based swap data).
    \59\ See ISDA/SIFMA I at 18; ISDA IV at 7; MarkitSERV III at 4;
WMBAA II at 6.
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    After carefully considering these comments, the Commission is
proposing to require a platform to report any security-based swap that
is executed on the platform, but only if the security-based swap will
be submitted to clearing. Proposed Rule 901(a)(1) provides that, if a
security-based swap is executed on a platform and will be submitted to
clearing, the platform on which the transaction was executed shall
report to a registered SDR the information required by Rules 901(c)
(the primary trade information), 901(d)(1) (the participant ID or
execution agent ID for each counterparty, as applicable), and 901(d)(9)
(the platform ID). If the security-based swap will not be submitted to
clearing, the platform would have no reporting obligations under
Regulation SBSR. Instead, the reporting hierarchy in Rule
901(a)(2)(ii), as adopted, will determine which side is the reporting
side for such a platform-executed transaction.\60\ As discussed below,
proposed subparagraph (1) of Rule 901(a) is intended to maximize the
accuracy and completeness of data reported to registered SDRs, while
continuing to align the reporting duty with persons that are best able
to carry it out.
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    \60\ See Regulation SBSR Adopting Release, Section V.
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    The Commission understands that each counterparty to a platform-
executed transaction that will be submitted to clearing intends to
assume the credit risk of the clearing agency rather than any of the
other platform participants, so there is no need to have credit and
other documentation in place between itself and its counterparty. Thus,
such a transaction could be executed anonymously, as there might be no
mechanism by which one counterparty would learn the identity of the
other.\61\ The direct counterparties to such an alpha might not know
which side would be the reporting side (if the hierarchy in Rule
901(a)(2), as adopted,

applied) and there might be no mechanism for them to learn this
information because they would not be assuming each other's credit
risk.\62\ Even if the direct counterparties could agree that one side--
for example, the side selling protection in a single-name credit
default swap--would report the trade, the reporting side might not
learn the identity of its counterparty even though Rule 901(d)(1), as
adopted, requires the reporting side to report all counterparty
IDs.\63\
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    \61\ The Commission notes that the offer and sale of security-
based swaps, even if affected anonymously on a platform, must either
be registered under the Securities Act or be made pursuant to an
exemption from registration. The registration exemption in Section
4(a)(2) of the Securities Act, 15 U.S.C. 77d(a)(2), generally is
available for transactions by an issuer not involving any public
offering. One factor in determining the availability of the Section
4(a)(2) exemption is that the purchasers of the securities in the
transaction must be sophisticated investors. As previously noted by
the Commission, Congress determined that eligible contract
participants are sophisticated investors for purposes of security-
based swap transactions. See Exemptions for Security-Based Swaps
Issued By Certain Clearing Agencies, Securities Act Release No. 9308
(March 30, 2012), 77 FR 20536 (April 5, 2012); Exemptions for
Security-Based Swaps, Securities Act Release No. 9231 (July 1,
2011), 76 FR 40605 (July 11, 2011). The Commission believes that
Congressional determination of eligible contract participants as
sophisticated investors for purposes of security-based swap
transactions applies as well for purposes of Section 4(a)(2) of the
Securities Act. In addition, the exemption in Rule 240 under the
Securities Act, 17 CFR 230.240, also may be available for security-
based swap transactions involving eligible contract participants, to
the extent applicable.
    \62\ Cf. Cross-Border Adopting Release, 79 FR 47325 (creating an
exception, from having to be counted against the de minimis
thresholds, for certain security-based swap transactions that a non-
U.S. person enters into anonymously on a platform and that are
cleared through a clearing agency, because each counterparty would
not be in a position to know whether the other is a U.S. person).
    \63\ Rule 901(d)(1) requires the reporting side to provide the
counterparty ID or execution agent ID for each counterparty, as
applicable. If the execution occurs anonymously, neither side would
know the counterparty ID or execution agent ID of the other side.
---------------------------------------------------------------------------

    Although some platform-executed transactions that will be submitted
to clearing might not be executed anonymously, the Commission
preliminarily believes that it would be more efficient to require the
platform to report all security-based swaps executed on that platform
that will be submitted to clearing, regardless of whether the
counterparties are, in fact, anonymous to each other. The Commission
preliminarily believes that assigning the duty to report to the
platform minimizes the number of reporting steps and thus minimizes the
possibility of data corruption and delays in reporting the transaction
to a registered SDR. Thus, the Commission preliminarily believes that
all platform-executed transactions that will be submitted to clearing
should be reported by the platform. This approach would be more
efficient than if the platform had to assess on a transaction-by-
transaction basis whether or not the counterparties are in fact unknown
to each other.
    As noted above,\64\ four commenters generally opposed assigning to
platforms the duty to report security-based swap transactions. One
commenter stated generally that ``the reporting party should be able to
choose which SDR to report to, while being allowed to delegate the
actual reporting to qualified third parties where it sees fit.'' \65\
The commenter appeared to suggest that a platform could be a qualified
third party acting as an agent for a reporting side.\66\ The Commission
agrees with the commenter that the platform is well-placed to carry out
the act of reporting, but, unlike the commenter, the Commission
preliminarily believes that the platform itself should have the legal
duty to report for the reasons discussed above.
---------------------------------------------------------------------------

    \64\ See supra note 59.
    \65\ MarkitSERV III at 4.
    \66\ See id. (stating that counterparties should be able to
choose the registered SDR ``regardless of whether the transaction is
executed on a SEF'').
---------------------------------------------------------------------------

    Three other commenters argued generally that platforms should not
be assigned the duty to report because they lack certain information
that would have to be reported. One of these commenters stated, for
example, that ``the SB SEF or national securities exchange may not
itself have access to all of the information required, such as whether
the trade has been accepted for clearing.'' \67\ The other commenter
argued that ``[t]he SB SEF would likely not be privy to all of the
terms required to be reported in accordance with proposed Regulation
SBSR, such as, but not limited to: (i) Contingencies of the payment
streams of each counterparty to the other; (ii) the title of any master
agreement or other agreement governing the transaction; (iii) data
elements necessary to calculate the market value of the transaction;
and (iv) other details not typically provided to the SB SEF by the
customer, such as the actual desk on whose behalf the transaction is
entered. Moreover, and quite critical, an SB SEF would not be in a
position or necessarily have the capabilities to report life cycle
event information. Indeed, even if an SB SEF were required to report
the transaction details as the proposed regulation requires, something
we do not think advisable, it would likely take at least 30 minutes to
gather and confirm the accuracy of that information.'' \68\
---------------------------------------------------------------------------

    \67\ ISDA/SIFMA I at 18. See also ISDA IV at 7 (stating that the
clearing agency should be responsible for reporting the alpha trade
once it has been accepted for clearing, and that one of the
counterparties should be responsible per the reporting hierarchy for
reporting a bilateral transaction that is not intended for
clearing). The last commenter also stated that certain aspects of
the CFTC regime for reporting bilateral swaps executed on a facility
have been challenging due to the difficulty for SEFs to know and
report certain trade data that is not essential to trade execution,
and because of the shared responsibility for reporting since the
SEF/DCM is responsible for the initial creation data reporting and
the SD/MSP is responsible for continuation data reporting. See id.
The Commission notes that Regulation SBSR, as adopted, applies the
reporting hierarchy in Rule 901(a) to a security-based swap executed
on a platform that is not intended to be cleared. See Regulation
SBSR Adopting Release, Section V(C)(4).
    \68\ WMBAA II at 6.
---------------------------------------------------------------------------

    The Commission shares the commenters' concern that it would not be
appropriate to require platforms to report information that they do not
have or that would be impractical to obtain. However, a close
examination of the data elements that must be reported under Rules
901(c) and 901(d), as adopted, suggests that a platform would not be
put in this position:
     Rule 901(c)(1) requires reporting of the product ID, if
available, or else other information that identifies the security-based
swap. Proposed Rule 901(a)(1) would apply only to platform-executed
security-based swaps submitted to clearing, which suggests that these
are products that would have a product ID. Even if these security-based
swaps did not have a product ID, the platform would have sufficient
information to identify a security-based swap traded on its facilities
to allow its subscribers to trade it; this same information would be
sufficient for the platform to report the information required by Rule
901(c)(1) to a registered SDR.
     Rules 901(c)(2), 901(c)(3), and 901(c)(4) require
reporting of the date and time of execution, the price, and the
notional amount, respectively, of the security-based swap. The platform
will know these data elements because they were determined on the
platform's facilities.
     Rule 901(c)(5) requires reporting of whether both sides of
the transaction include a registered security-based swap dealer. The
Commission anticipates that this information will be publicly
available, or the platform could easily obtain it from a platform
participant.
     Rule 901(c)(6) requires reporting of whether the direct
counterparties intend that the security-based swap will be submitted to
clearing. Rule 901(d)(6) requires reporting of the name of the clearing
agency to which the security-based swap will be submitted to clearing.
The fact that the transaction is intended to be cleared may be implicit
in the product ID (e.g., if the security-based swap traded has a
product ID of a ``made available to trade'' product). Alternatively,
the counterparties may inform the platform that the security-based swap
will be submitted to clearing; in some cases, the platform may provide
the mechanism for reporting the transaction to a clearing agency. The
Commission presumes that, if the platform knows that the security-based
swap will be submitted to clearing, the platform will also know the
name of the clearing agency. If the platform has no knowledge that the
transaction will be submitted to clearing, the platform would have no
duty to report it under proposed Rule 901(a)(1).
     Rule 901(c)(7) requires reporting, if applicable, of any
flags pertaining to the

transaction that are specified in the policies and procedures of the
registered SDR to which the transaction will be reported. The
Commission preliminarily believes that, because the transaction occurs
on the platform's facilities, the platform would have knowledge of any
circumstances that would require application of a flag.
     Rule 901(d)(1) requires reporting of the counterparty ID
or the execution agent ID of each counterparty, as applicable. A
platform will know the identity of each direct counterparty or the
execution agent for each direct counterparty because those market
participants will be using the platform's facilities to execute the
alpha transaction. To the extent that such alphas have an indirect
counterparty, the Commission presumes that the platform will be able to
obtain this information from the participant that is a direct
counterparty to the alpha.
     Rule 901(d)(2) requires the reporting side to report the
branch ID, broker ID, execution agent ID, trader ID, and trading desk
ID ``of the direct counterparty on the reporting side.'' Regardless of
whether a platform has these UICs for the counterparties to a security-
based swap executed on its facilities, the platform would not be the
reporting side for such a transaction because it is not a counterparty
to the security-based swap.\69\ Thus, when a platform has the duty to
report a transaction, there is no reporting side, and the registered
SDR to which the platform reports the security-based swap would be
required to obtain the branch ID, broker ID, execution agent ID, trader
ID, and trading desk ID, as applicable, from each direct counterparty
using the process in Rule 906(a), as adopted.\70\
---------------------------------------------------------------------------

    \69\ Under Rule 900(hh), as adopted, the sides are
counterparties to the security-based swap. Thus, the platform would
not be one of the sides (except possibly in unusual circumstances)
and thus could not be the reporting side.
    \70\ See Regulation SBSR Adopting Release, Section XIII
(describing Rule 906(a), as adopted). The Commission preliminarily
believes that relying on the Rule 906(a) process to obtain UIC
information from both sides to a platform-executed security-based
swap that will be submitted to clearing would not cause
counterparties to such transactions to incur significant additional
costs. See Regulation SBSR Adopting Release, Section XXII(C)(6)(c)
(estimating the costs of complying with Rule 906(a), as adopted, for
reporting sides). As noted above, assigning the reporting duty to
the platform should minimize the number of reporting steps and thus
the possibility of data corruption and delays in reporting the
transaction to a registered SDR because a platform will have
superior access to the economic terms of security-based swaps that
are executed on its facilities and will be submitted to clearing.
The Commission further notes that the platform could report the
branch ID, broker ID, execution agent ID, trader ID, and trading
desk ID, as applicable, as agent for a direct counterparty, if the
direct counterparty provided this information to the platform. See
Regulation SBSR Adopting Release, Section V(C)(2) (discussing use of
agents to carry out reporting duties).
---------------------------------------------------------------------------

     Rules 901(d)(3) and 901(d)(5) require reporting of the
terms of any fixed or floating rate payments and any other elements
included in the agreement necessary to calculate the value of the
contract, respectively, but only ``[t]o the extent not provided
pursuant to [Rule 901(c)].'' The Commission believes that all of the
identifying information would be contained in the product ID or
otherwise available to the platform and reported by the platform
pursuant to Rule 901(c).\71\ Therefore, the Commission preliminarily
believes that the information required under Rules 901(d)(3) and
901(d)(5) would be a null set for a transaction executed on a platform
that is submitted to clearing.
---------------------------------------------------------------------------

    \71\ For a platform to make a security-based swap eligible for
trading on its facilities, it must display a product in specific
enough detail for the platform participants to reach a meeting of
the minds about what they are trading. In other words, the platform
must provide information that identifies the security-based swap,
the effective date, the scheduled termination date, and the terms of
any standardized fixed or floating rate payments and the frequency
of such payments. The platform would be required to report these
elements, or a product ID that incorporates these elements, to a
registered SDR pursuant to Rule 901(c).
---------------------------------------------------------------------------

     Rule 901(d)(4) requires reporting of the titles and dates
of agreements that are ``incorporated by reference into the security-
based swap contract.'' The terms of the alpha security-based swap will
be established according to the rules of the platform and, potentially,
the rules of the registered clearing agency to which the security-based
swap will be submitted, and likely will not be written. Therefore, the
Commission presumes that there will be no agreements incorporated by
reference to such contracts, and the information required under Rule
901(d)(4) would be a null set for a transaction executed on a platform
that will be submitted to clearing.
     Rule 901(d)(7) would apply only if the direct
counterparties do not intend to submit the security-based swap to
clearing. Rule 901(d)(8) would apply only if the transaction is not
submitted to clearing. Because a platform would be required to report a
security-based swap executed on its facilities only if the transaction
will be submitted to clearing, Rules 901(d)(7) and 901(d)(8) would not
be applicable.
     Rule 901(d)(9) requires reporting of the platform ID. The
platform can provide this information.
     Rule 901(d)(10) would apply only if the security-based
swap arises from the allocation, termination, novation, or assignment
of one or more existing security-based swaps. To the extent that
platforms facilitate allocations, terminations, novations, or
assignments of existing security-based swaps, the platform participants
engaging in such exercises could provide the platform with the
transaction IDs of those existing security-based swaps,\72\ which the
platform would need to report pursuant to Rule 901(d)(10).
---------------------------------------------------------------------------

    \72\ For a platform to facilitate allocations, terminations,
novations, or assignments of existing security-based swaps, the
platform participants necessarily must provide a significant amount
of information to the platform regarding those existing security-
based swaps. Given that the platform participants must provide a
significant amount of information about the existing transactions to
the platform, the Commission preliminarily believes that the
platform participants also could provide the platform with the
transaction IDs of those existing security-based swaps.
---------------------------------------------------------------------------

    Two commenters who raised general issues about platforms having the
duty to report questioned, in particular, a platform's ability to
report subsequent events affecting the initial alpha transaction. One
commenter stated that ``an SB SEF would not be in a position or
necessarily have the capabilities to report life cycle event
information.'' \73\ The second commenter noted that ``the SB SEF or
national securities exchange may not itself have access to . . .
whether the trade has been accepted for clearing.'' \74\ This commenter
further noted that ``the relevant clearing agency . . . could report
the missing data in parallel.'' \75\ The Commission broadly agrees with
that suggestion and therefore is proposing a new subparagraph (ii) of
Rule 901(e)(1), which would require a registered clearing agency to
report whether or not it has accepted a security-based swap for
clearing. Proposed Rule 901(e)(1)(ii) reflects the Commission's
preliminary view that the registered clearing agency--and not a
platform or any other person--has the most direct access to that
information and, therefore, should have the duty to report it to the
alpha SDR.\76\ Similarly, the Commission generally agrees with the
first commenter that a platform is not in a good position to know about
life cycle events of security-based swaps executed on their facilities.
However, the Commission preliminarily believes that the only life cycle
event of a platform-executed security-based swap that will be submitted
to clearing will be whether the security-based swap is accepted for
clearing. Proposed Rule 901(e)(1)(ii) would require the registered
clearing

agency to report that information, not the platform.
---------------------------------------------------------------------------

    \73\ WMBAA II at 6.
    \74\ ISDA/SIFMA I at 18.
    \75\ Id.
    \76\ See supra Section II(C)(2)(d).
---------------------------------------------------------------------------

    The Commission notes that proposed Rule 901(a)(1) would require a
platform to report a security-based swap only if the security-based
swap will be submitted to clearing. If the platform-executed
transaction will not be submitted to clearing, Rule 901(a)(2)(ii), as
adopted, already requires the counterparties to apply the reporting
hierarchy to determine which side will have the duty to report the
transaction, as well as any life cycle event of that transaction. This
result is consistent with Section 13A(a)(3) of the Exchange Act,\77\
which sets out a reporting hierarchy under which one of the
counterparties, but not a platform, will have the duty to report a
security-based swap that is not accepted by any clearing agency.
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 78mA(a)(3).
---------------------------------------------------------------------------

3. Additional Amendments To Account for Platforms and Registered
Clearing Agencies Incurring Duties To Report
    Under Rule 901(h), as adopted, ``a reporting side'' must
electronically transmit the information required by Rule 901 in a
format required by the registered SDR.\78\ The Commission is now
proposing to replace the term ``reporting side'' in Rule 901(h) with
the phrase ``person having a duty to report'' because, under the
proposed amendments to Rule 901(a), platforms and registered clearing
agencies would have duties to report certain transaction information,
in addition to reporting sides. The Commission believes that all
persons who have a duty to report under Regulation SBSR--i.e.,
platforms, registered clearing agencies, and reporting sides--should
electronically transmit the information required by Rule 901 in a
format required by the registered SDR.
---------------------------------------------------------------------------

    \78\ Rule 907, as adopted, requires a registered SDR to
establish and maintain written policies and procedures to govern
various aspects of the registered SDR's operations, including the
manner and format in which the registered SDR will accept data from
its participants.
---------------------------------------------------------------------------

    Under Rule 900(u), as adopted, platforms and registered clearing
agencies would not be participants of registered SDRs solely as a
result of reporting security-based swap transaction information
pursuant to proposed Rule 901(a)(1) or 901(e)(1)(ii), respectively.\79\
However, consistent with the proposed amendment to Rule 901(h)
described immediately above, the Commission believes that platforms and
registered clearing agencies should be participants of any registered
SDR to which they report security-based swap transaction information.
Imposing participant status on platforms and registered clearing
agencies would explicitly require those entities to report security-
based swap transaction information to a registered SDR in a format
required by that registered SDR. If platforms and registered clearing
agencies were not participants of the registered SDR and were permitted
to report data in a format of their own choosing, it could be difficult
or impossible for the registered SDR to understand individual
transaction reports or aggregate them with other reports in a
meaningful way. This could adversely affect the ability of the
Commission and other relevant authorities to carry out their oversight
responsibilities and could interfere with the ability of a registered
SDR to publicly disseminate security-based swap transaction information
as required by Rule 902, as adopted. Therefore, the Commission is
proposing to amend the definition of ``participant'' in Rule 900(u) to
mean: (1) A person that is a counterparty to a security-based swap,
provided that the security-based swap is subject to regulatory
reporting under Regulation SBSR and is reported to a registered SDR
pursuant to Regulation SBSR; (2) a platform that is required to report
a security-based swap pursuant to Rule 901(a)(1); or (3) a registered
clearing agency that is required to report a life cycle event pursuant
to Rule 901(e).\80\
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    \79\ Rule 900(u), as adopted, provides that a ``[p]articipant,
with respect to a registered security-based swap data repository,
means a counterparty, that meets the criteria of [Rule 908(b)], of a
security-based swap that is reported to that registered security-
based swap data repository to satisfy an obligation under [Rule
901(a)].''
    \80\ A registered clearing agency that is required to report a
clearing transaction pursuant to proposed Rule 901(a)(2)(i) would be
a counterparty to a security-based swap and covered by the first
prong of the proposed definition of ``participant.''
---------------------------------------------------------------------------

4. Examples
    The following examples illustrate the proposed reporting process
for alpha, beta, and gamma security-based swaps, assuming an agency
model of clearing under which a non-clearing member counterparty
becomes a direct counterparty to a clearing transaction: \81\
---------------------------------------------------------------------------

    \81\ As noted in Section II(A), supra, because clearing of
security-based swaps in the United States is still evolving, other
models of clearing might emerge where customers would not become
direct counterparties of a registered clearing agency.
---------------------------------------------------------------------------

     Example 1. A registered security-based swap dealer enters
into a security-based swap with a private fund. The transaction is not
executed on a platform. The counterparties intend to clear the
transaction (i.e., the transaction is an alpha). Neither side has a
guarantor with respect to the alpha, and both direct counterparties are
U.S. persons.
    [cir] The registered security-based swap dealer is the reporting
side under Rule 901(a)(2)(ii), as adopted, and must report this alpha
transaction to a registered SDR (and may choose the registered SDR).
    [cir] Proposed Rule 901(a)(3) would require the registered
security-based swap dealer, as the reporting side of the alpha
transaction, to promptly provide to the registered clearing agency the
transaction ID of the alpha and the identity of the alpha SDR.
    [cir] If the registered clearing agency accepts the alpha for
clearing and terminates the alpha, two clearing transactions--a beta
(between the registered security-based swap dealer and the registered
clearing agency) and a gamma (between the registered clearing agency
and the private fund)--take its place.
    [cir] Proposed Rule 901(e)(1)(ii) would require the registered
clearing agency to report to the alpha SDR that it accepted the
transaction for clearing.
    [cir] Under proposed Rule 901(a)(2)(i), the registered clearing
agency would be the reporting side for each of the beta and the gamma.
Therefore, the registered clearing agency would be required to report
the beta and gamma to a registered SDR and could choose the registered
SDR to which it reports the beta and gamma. The report for each of the
beta and the gamma must include the transaction ID of the alpha, as
required by Rule 901(d)(10), as adopted.
     Example 2. Same facts as Example 1, except that the
private fund and the registered security-based swap dealer transact on
a SB SEF.
    [cir] Proposed Rule 901(a)(1) would require the SB SEF to report
the alpha transaction (and allow the SB SEF to choose the registered
SDR).
    [cir] Upon submission of the alpha for clearing, proposed Rule
901(a)(3) would require the SB SEF to promptly report to the registered
clearing agency the transaction ID of the alpha and the identity of the
alpha SDR.
    [cir] Once the alpha is submitted to clearing, the reporting
workflows are the same as in Example 1.

D. Request for Comment

    The Commission requests comment on all aspects of the proposed new
Rules 901(a)(1), 901(a)(2)(i), and 901(a)(3), as well as the proposed
amendment to Rule 901(e).
    1. Is the Commission's discussion of how Regulation SBSR--under the
amendments proposed in this release--would apply to different steps or
actions in the clearing process under the agency

model sufficiently clear and complete? If not, please provide detail
about the operation of the agency model of clearing (e.g., particular
steps or actions in the clearing process) that you believe the
Commission has not adequately addressed and how you believe they should
be treated under Regulation SBSR.
    2. Do you believe that the principal model of clearing is or is
likely to become sufficiently prevalent in the U.S. market that the
Commission should address how Regulation SBSR would apply to different
steps in the clearing process under the principal model? If so, do you
think that further guidance is necessary to apply Regulation SBSR
effectively to the principal model? What aspects of the principal model
should the Commission focus on for purposes of providing further
guidance?
    3. At the time that a security-based swap is accepted for clearing,
will any person other than the registered clearing agency have complete
information about the beta and the gamma that result from clearing?
    4. Do you agree with the Commission's preliminary assessment of the
data elements under Rules 901(c) and 901(d) that will be available to a
platform and required to be reported for a platform-executed security-
based swap that will be submitted to clearing? If not, what information
would the platform find difficult to obtain? For example, could a
platform reasonably be expected to know of guarantors of direct
counterparties transacting on its facilities (if the guarantors are
clearing members who guarantee platform participants who are not
themselves direct members of the clearing agency)?
    5. If the Commission were to adopt the basic requirement that a
platform must report transactions executed on its facilities that are
submitted to clearing but, as discussed above, would not require the
platform to report certain data elements in Rule 901(c) or 901(d), what
data elements should be excepted? Can you suggest an alternate
mechanism--besides requiring the platform to report--for such data
elements to be reported to the registered SDR?
    6. Would a platform have knowledge of any special circumstances of
a transaction executed on its facilities that might have to be flagged
pursuant to the policies and procedures of the registered SDR to which
the platform reports the transaction? Are there any special
circumstances that it would be difficult or impossible for a platform
to know? If so, please discuss and suggest how the transaction could be
appropriately flagged if the platform does not do so.
    7. Are there any potential life cycle events of a platform-executed
security-based swap that will be submitted to clearing, other than
acceptance or rejection from clearing? If so, what are they and who do
you think should have the duty of reporting such life cycle events to a
registered SDR? Why?
    8. What costs might platforms incur to report security-based swap
transactions pursuant to proposed Rule 901(a)(1)? Could other market
participants report these transactions more efficiently or cost
effectively?
    9. Would a registered clearing agency have the information
necessary to report a platform-executed alpha that will be submitted to
clearing? If so, should the registered clearing agency, rather than the
platform, be required to report the transaction? Why or why not? How
long does it typically take between the execution of a security-based
swap on a platform and submission to clearing? How long does it
typically take between submission to clearing and when the registered
clearing agency determines whether to accept or reject the transaction?
    10. Rule 901(d)(2), as adopted, requires the reporting side to
report--``as applicable''--the branch ID, broker ID, execution agent
ID, trader ID, and trading desk ID with respect to the direct
counterparty on the reporting side. As described above, the Commission
is proposing that the registered clearing agency would be the reporting
side for all clearing transactions to which it is a counterparty. Would
the branch ID, broker ID, execution agent ID, trader ID, or trading
desk ID ever be applicable to a registered clearing agency? Why or why
not?
    11. Rule 906(a), as adopted, provides a mechanism for a registered
SDR to obtain the branch ID, broker ID, execution agent ID, trading ID,
and trading desk ID--``as applicable''--for the non-reporting side of a
security-based swap. Thus, mechanisms exist under Regulation SBSR, as
adopted, for the Commission to learn the UICs, as applicable, for both
sides of the alpha transaction. Would these UICs be applicable to the
non-clearing agency side of a clearing transaction? Why or why not? If
not, do you believe that the Commission should provide guidance that
there is no requirement under Rule 906(a) to report the UICs for the
non-clearing agency counterparty of a clearing transaction?
    12. Will registered clearing agencies be able to leverage existing
reporting processes to report data to registered SDRs? What additional
reporting processes might registered clearing agencies need to develop
to ensure accurate reporting in accordance with the proposed amendments
to Rule 901? What costs might registered clearing agencies incur to
adopt these processes?
    13. Would other market participants be able to report clearing
transactions or terminations of transactions submitted to clearing more
efficiently or cost effectively than the registered clearing agency?
What costs might counterparties incur if one of the sides of the alpha
were assigned the duty to report a clearing transaction rather than the
registered clearing agency?
    14. Should the proposed reporting requirements for registered
clearing agencies apply only to registered clearing agencies having
their principal place of business in the United States rather than to
all registered clearing agencies (which could include registered
clearing agencies having their principal place of business outside the
United States)? Why or why not? Would U.S. persons, registered
security-based swap dealers, and registered major security-based swap
participants be in a better position to report transactions with non-
U.S. person registered clearing agencies? Why or why not?
    15. Under proposed Rule 901(e)(1)(ii), a registered clearing agency
would be required to report whether or not it has accepted a security-
based swap for clearing. Should this information be required to be
reported to the same registered SDR that receives the transaction
report of the alpha? If not, how would the Commission and other
relevant authorities be able to ascertain whether or not the alpha had
been cleared? If so, what costs would be imposed on registered clearing
agencies for having to report this transaction information to a
registered SDR not of their choosing?
    16. Is it appropriate to require a registered clearing agency to
become a participant of the alpha SDR solely as a result of reporting
whether or not it has accepted an alpha for clearing? What costs would
be imposed on registered clearing agencies as a result of this
requirement? If a registered clearing agency did not become a
participant of the alpha SDR solely by virtue of reporting the
disposition of an alpha, in what other way should the registered
clearing agency be required to report the disposition of an alpha such
that the systems of the alpha SDR can accept and understand that
report?
    17. What costs might platforms and reporting sides incur to comply
with proposed Rule 901(a)(3), which would require the person with the
duty to report a security-based swap that has been submitted to
clearing at a

registered clearing agency to promptly provide that registered clearing
agency with the transaction ID of the submitted security-based swap and
the identity of the alpha SDR? Is there a more efficient way of
ensuring that registered clearing agencies know the transaction ID of
the alpha and the identity of the alpha SDR? If so, please discuss.
    18. Should platforms and registered clearing agencies be
participants of the registered SDRs to which they report? If not, how
would a registered SDR ensure that these persons provide data in a
format required by the registered SDR?
    19. How might the policies and procedures of a registered SDR
address the circumstance where the registered SDR receives a
termination report of an alpha pursuant to proposed Rule 901(e)(1)(ii)
before it receives the initial report of the alpha? What costs would
registered SDRs incur to implement policies and procedures addressing
this scenario?
    20. Can anonymous trading occur on any other type of trading venue
besides a platform? If so, please describe where and how such activity
occurs and provide your view as to how Regulation SBSR should, if
necessary, be amended to require reporting of such transactions.

III. Reporting and Public Dissemination of Security-Based Swaps
Involving Allocation

    The Regulation SBSR Adopting Release provides guidance for the
reporting of certain security-based swaps executed by an asset manager
on behalf of multiple clients--transactions involving what are
sometimes referred to as ``bunched orders.'' \82\ Specifically, the
Regulation SBSR Adopting Release explains how Regulation SBSR applies
to executed bunched orders that are reported pursuant to the reporting
hierarchy in Rule 901(a)(2)(ii), as adopted, including bunched order
alphas. That release also explains how Regulation SBSR applies to the
security-based swaps that result from allocation of that executed
bunched order, if the resulting security-based swaps are uncleared.
This section explains how the Commission preliminarily believes
Regulation SBSR, as adopted and as proposed to be amended by this
release, would apply to a platform-executed bunched order that will be
submitted to clearing, and the security-based swaps that result from
the allocation of any bunched order execution, if the resulting
security-based swaps are cleared.
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    \82\ See Regulation SBSR Adopting Release, Section VIII. The
Commission recognizes that market participants may use a variety of
other terms to refer to such transactions, including ``blocks,''
``parent/child'' transactions, and ``splits.'' The Commission has
determined to use a single term, ``bunched orders,'' for purposes of
this release, as this appears to be a widely accepted term. See,
e.g., ``Bunched orders challenge SEFs,'' MarketsMedia (March 25,
2014), available at http://marketsmedia.com/bunched-orders-challenge-sefs/, (last visited September 22, 2014); ``Cleared
bunched trades could become mandatory rule,'' Futures and Options
World (October 31, 2013), available at http://www.fow.com/3273356/Cleared-bunched-trades-could-become-mandatory-rule.html,(last
visited September 22, 2014).
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    As described in the Regulation SBSR Adopting Release, to execute a
bunched order, an asset manager negotiates and executes a security-
based swap with a counterparty, typically a security-based swap dealer,
on behalf of multiple clients. The bunched order could be executed on-
or off-platform. After execution of the bunched order, the asset
manager would allocate a fractional amount of the aggregate notional
amount of the transaction to each of several clients, thereby creating
several new security-based swaps and terminating the bunched order
execution.\83\ By executing a bunched order, the asset manager avoids
having to negotiate the client-level transactions individually, and
obtains exposure for each client on the same terms (except, perhaps,
for size).
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    \83\ In aggregate, the notional amount of the security-based
swaps that result from the allocation is the same as the notional
amount of the executed bunched order.
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    In the Regulation SBSR Adopting Release, the Commission explained
that a bunched order execution and the security-based swaps resulting
from the allocation of the bunched order execution, if they are not
cleared, must be reported like other security-based swaps. Regulation
SBSR provides that the registered SDR to which the initial bunched
order execution is reported must disseminate a report of the bunched
order execution, including the full notional amount of the transaction.
The Commission observed that publicly disseminating bunched order
executions in this manner would allow the public to ``know the full
size of the bunched order execution and that this size was negotiated
at a single price.'' \84\ Rule 902(c)(7), as adopted, provides that the
registered SDR shall not publicly disseminate any information regarding
the allocation of a bunched order execution, which would include the
smaller security-based swaps resulting from the allocation of the
initial transaction as well as the fact that the initial transaction is
terminated following this allocation.
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    \84\ Regulation SBSR Adopting Release, Section VIII.
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A. Examples

    The following examples illustrate how Regulation SBSR would apply
to platform-executed bunched order alphas, and security-based swaps
that result from allocation of bunched order alphas, if the resulting
security-based swaps are cleared. The examples specify which actions
are addressed by Regulation SBSR, as adopted, and which actions would
be addressed by the new provisions of Regulation SBSR that are being
proposed in this release. The Commission notes that the proposed
amendments to Rule 901(a) and the conforming changes discussed in
Section II, supra, would not affect the examples describing the
reporting of bunched orders and the security-based swaps that result
from their allocation that the Commission provided in the Regulation
SBSR Adopting Release. Furthermore, the examples assume that the
bunched order alpha would be cleared using the agency model of
clearing.\85\ In the case of a bunched order alpha, the final placement
of risk will take the form of clearing transactions between: (1) The
client accounts of the asset manager and the registered clearing agency
that clears the bunched order alpha; and (2) the registered security-
based swap dealer and the registered clearing agency.
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    \85\ As noted in Section II(A), supra, the agency model of
clearing predominates in the United States.
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    The Commission understands that market participants may use a
variety of workflows for allocating a bunched order alpha. Regulation
SBSR, as adopted, provides that, regardless of the workflow employed, a
bunched order alpha that is executed off-platform shall be reported and
publicly disseminated as a single transaction, showing the full
notional amount.\86\ The proposed interpretation discussed below would
take the same approach to bunched order alphas that are executed on a
platform. Regulation SBSR, as adopted, further provides that the
security-based swaps that result from allocation of a bunched order
execution are subject to regulatory reporting but not public
dissemination, if these resulting security-based swaps are uncleared.
The proposed interpretation discussed below would take the same
approach to cleared security-based swaps that result from the
allocation of a bunched order alpha.\87\
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    \86\ See Regulation SBSR Adopting Release, Section VIII(A).
    \87\ See ISDA IV at 10 (recommending that bunched order
executions be subject to public dissemination instead of the
transactions resulting from the allocation).

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1. Example 1: Off-Platform Cleared Transaction
    Assume that an asset manager, acting on behalf of several advised
accounts, executes a bunched order alpha with a registered security-
based swap dealer. The execution does not occur on a platform, and
there are no indirect counterparties on either side of the bunched
order alpha. The transaction is submitted to a registered clearing
agency.
a. Reporting the Bunched Order Alpha
    The reporting hierarchy of Rule 901(a)(2)(ii), as adopted, applies
to the bunched order alpha because the execution does not occur on a
platform and the bunched order alpha is not a clearing transaction.
Under Rule 901(a)(2)(ii)(B), as adopted, the registered security-based
swap dealer is the reporting side for the bunched order alpha because
its side includes the only registered security-based swap dealer. As
the reporting side, the registered security-based swap dealer must
report the primary and secondary trade information for the bunched
order alpha to a registered SDR (the ``alpha SDR'') of its choice
within 24 hours after the time of execution. Rule 902(a), as adopted,
requires the alpha SDR to publicly disseminate a transaction report of
the bunched order alpha immediately upon receiving the report from the
registered security-based swap dealer.\88\
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    \88\ Pursuant to Rule 906(a), as adopted, the registered SDR
also would be required to obtain any missing UICs from the
counterparties.
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    When the registered security-based swap dealer submits the bunched
order alpha to a registered clearing agency for clearing, proposed Rule
901(a)(3) would require the registered security-based swap dealer
promptly to provide the registered clearing agency with the transaction
ID of the bunched order alpha and the identity of the alpha SDR. This
requirement would facilitate the registered clearing agency's ability
to report whether or not it accepts the bunched order alpha for
clearing pursuant to proposed Rule 901(e)(1)(ii).
b. Reporting the Security-Based Swaps Resulting From Allocation
    Proposed Rule 901(a)(2)(i) would require the registered clearing
agency to report all clearing transactions that arise as a result of
clearing the bunched order alpha, regardless of the workflows used to
clear the bunched order alpha.\89\
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    \89\ Like other clearing transactions that arise from the
acceptance of a security-based swap for clearing, these security-
based swaps would not be subject to public dissemination. See Rule
902(c)(6). See also Rule 902(c)(7) (exempting from public
dissemination any ``information regarding the allocation of a
security-based swap''); Regulation SBSR Adopting Release, Section
VI(D)(1) (describing final Rule 902(c)(7)).
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    If the asset manager provides allocation instructions prior to or
contemporaneous with the clearing of the bunched order alpha, clearing
could result in the creation of a beta (i.e., the clearing transaction
between the registered clearing agency and the security-based swap
dealer) and a ``gamma series'' (i.e., the gammas between the registered
clearing agency and each of the client funds selected by the asset
manager to receive a portion of the initial notional amount). The beta
and each security-based swap that comprises the gamma series would not
be treated differently under Regulation SBSR than any other clearing
transactions.\90\
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    \90\ See supra Section II(C)(1) (explaining the reporting
process for clearing transactions).
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    If the asset manager does not provide allocation instructions until
after the bunched order alpha is cleared, clearing could result in the
creation of a beta (i.e., the clearing transaction between the
registered clearing agency and the security-based swap dealer) and an
``intermediate gamma'' (i.e., the clearing transaction between the
clearing agency and the side representing the clients of the asset
manager). The beta would be the same--and would be treated the same--as
any other clearing transaction, while the intermediate gamma would
continue to exist until the registered clearing agency receives the
allocation information, which could come from the asset manager or its
clearing member and would allow for the creation of the gamma series.
As the registered clearing agency receives the allocation information,
it would terminate the intermediate gamma and create new security-based
swaps as part of the gamma series. The partial terminations of the
intermediate gamma would be life cycle events of the intermediate gamma
that the registered clearing agency must report under Rule
901(e)(1)(i), as adopted. Rule 901(e)(2), as adopted, would require the
registered clearing agency to report these life cycle events to the
same registered SDR to which it reported the intermediate gamma. Under
proposed Rule 901(a)(2)(i), the registered clearing agency also would
be required to report to a registered SDR each new security-based swap
comprising part of the gamma series. Because these security-based swaps
arise from the termination (or partial termination) of an existing
security-based swap (i.e., the gamma series), Rule 901(d)(10), as
adopted, requires the registered clearing agency to link each new
transaction in the gamma series to the intermediate gamma by including
the transaction ID of the intermediate gamma as part of the report of
each new security-based swap in the gamma series.
2. Example 2: Cleared Platform Transaction
    Assume the same facts as Example 1, except that the registered
security-based swap dealer and asset manager execute the bunched order
alpha on a SB SEF.
a. Reporting the Bunched Order Alpha
    Because the initial transaction is executed on a platform and will
be submitted to clearing, the platform would have the duty, under
proposed Rule 901(a)(1), to report the bunched order alpha to a
registered SDR. To satisfy this reporting obligation, the platform
would be required to provide all of the applicable information required
by proposed Rule 901(a)(1). Commission staff understands from
discussions with market participants that, even if the platform does
not know and thus cannot report the counterparty IDs of each account
that will receive an allocation, the platform would know the identity
of the execution agent who executed the bunched order alpha on behalf