[Federal Register Volume 77, Number 66 (Thursday, April 5, 2012)]
[Rules and Regulations]
[Pages 20536-20549]
[FR Doc No: 2012-8141]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 260

[Release Nos. 33-9308; 34-66703; 39-2484; File No. S7-22-11]
RIN 3235-AL16

Exemptions for Security-Based Swaps Issued by Certain Clearing
Agencies

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting exemptions under the Securities Act of 1933,
the Securities Exchange Act of 1934, and the Trust Indenture Act of
1939 for security-based swaps issued by certain clearing agencies
satisfying certain conditions. The final rules exempt transactions by
clearing agencies in these security-based swaps from all provisions of
the Securities Act, other than the Section 17(a) anti-fraud provisions,
as well as exempt these security-based swaps from Exchange Act
registration requirements and from the provisions of the Trust
Indenture Act, provided certain conditions are met.

DATES: Effective Date: The final rules are effective April 16, 2012.

FOR FURTHER INFORMATION CONTACT: Andrew Schoeffler, Special Counsel,
Office of Capital Markets Trends, Division of Corporation Finance, at
(202) 551-3860, U.S. Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting Rule 239 under the
Securities Act of 1933 (``Securities Act'').\1\ We are also adopting
Rule 12a-10 and an amendment to Rule 12h-1 under the Securities
Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 4d-11 under the
Trust Indenture Act of 1939 (``Trust Indenture Act'').\3\
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 77aaa et seq.
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I. Background and Summary

    On July 21, 2010, the President signed the Dodd-Frank Act into
law.\4\ Title VII of the Dodd-Frank Act (``Title VII'') provides the
Securities and Exchange Commission (``SEC'' or the ``Commission'') and
the Commodity Futures Trading Commission (``CFTC'') with the authority
to regulate over-the-counter (``OTC'') derivatives in light of the
recent financial crisis.
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    \4\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
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    Title VII provides that the CFTC will regulate ``swaps,'' the SEC
will regulate ``security-based swaps,'' and the CFTC and SEC will
jointly regulate ``mixed swaps.'' \5\ Title VII amends the Exchange Act
to require, among other things, the following: (1) Transactions in
security-based swaps must be submitted for clearing to a clearing
agency if such security-based swap is one that the Commission has
determined is required to be cleared, unless an exception from
mandatory clearing applies; \6\ (2) transactions in security-based
swaps must be reported to a registered security-based swap data
repository (``SDR'') or the Commission; \7\ and (3) if a security-based
swap is subject to mandatory clearing, transactions in security-based
swaps must be executed on an exchange or a registered or exempt
security-based swap execution facility (``security-based SEF''), unless
no exchange or security-based SEF makes such security-based swap
available for trading or the security-based swap transaction is subject
to the clearing exception in Exchange Act Section 3C(g).\8\
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    \5\ Section 712(d) of the Dodd-Frank Act provides that the
Commission and the CFTC, in consultation with the Board of Governors
of the Federal Reserve System, shall jointly further define the
terms ``swap,'' ``security-based swap,'' ``swap dealer,''
``security-based swap dealer,'' ``major swap participant,'' ``major
security-based swap participant,'' ``eligible contract
participant,'' and ``security-based swap agreement.'' These terms
are defined in Sections 721 and 761 of the Dodd-Frank Act and, with
respect to the term ``eligible contract participant,'' in Section
1a(18) of the Commodity Exchange Act (``CEA'') [7 U.S.C. 1a(18)], as
re-designated and amended by Section 721 of the Dodd-Frank Act. In
April 2011, the SEC and the CFTC jointly proposed rules and
interpretations to further define the terms ``swap,'' ``security-
based swap,'' and ``security-based swap agreement.'' See Further
Definition of ``Swap,'' ``Security-Based Swap,'' and ``Security-
Based Swap Agreement''; Mixed Swaps; Security-Based Swap Agreement
Recordkeeping, Release No. 33-9204 (Apr. 29, 2011), 76 FR 29818 (May
23, 2011), corrected in Release No. 33-9204A (June 1, 2011), 76 FR
32880 (June 7, 2011). In December 2010, the SEC and the CFTC jointly
proposed rules and interpretations to further define the terms
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant.'' See Further Definition of ``Swap
Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant'', Release No. 34-63452 (Dec. 7,
2010), 75 FR 80174 (Dec. 21, 2010) (``Intermediaries Definitions
Release'').
    \6\ See Public Law 111-203, Sec.  763(a) (adding Exchange Act
Section 3C [15 U.S.C. 78c-3]).
    \7\ See Public Law 111-203, Sec. Sec.  763(i) and 766(a) (adding
Exchange Act Sections 13(m)(1)(G) and 13A(a)(1) [15 U.S.C.
78m(m)(1)(G) and 78m-1(a)(1)], respectively).
    \8\ See Public Law 111-203, Sec.  763(a) (adding Exchange Act
Section 3C [15 U.S.C. 78c-3]). See also Public Law 111-203, Sec.
761 (adding Exchange Act Section 3(a)(77) [15 U.S.C. 78c(a)(77)]
(defining the term ``security-based swap execution facility'')), and
Registration and Regulation of Security-Based Swap Execution
Facilities, Release No. 34-63825 (Feb. 2, 2011) 76 FR 10948 (Feb.
28, 2011) (``Security-Based SEF Proposing Release''). See footnote
12 below for a discussion of the clearing exception in Exchange Act
Section 3C(g) [15 U.S.C. 78c-3(g)].
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    Title VII seeks to ensure that, wherever possible and appropriate,
security-based swaps are cleared.\9\

Paragraph (a)(1) of new Exchange Act Section 3C establishes a mandatory
clearing requirement for certain security-based swaps.\10\ Exchange Act
Section 3C(b) sets forth a process by which we would determine whether
a security-based swap or any group, category, type or class of
security-based swap that a clearing agency plans to accept for clearing
is required to be cleared.\11\ If we make a determination that a
security-based swap is required to be cleared, then parties may not
engage in such a security-based swap without submitting it for
clearing, unless an exception applies.\12\ If we make a determination
that a security-based swap is not required to be cleared, such
security-based swap may still be cleared on a non-mandatory basis by
the clearing agency if it has rules that permit it to clear such
security-based swap.\13\ Further, pending the adoption of rules
implementing the mandatory clearing requirement, a clearing agency may
clear security-based swaps that the clearing agency's rules permit it
to clear.\14\
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    \9\ See, e.g., Report of the Senate Committee on Banking,
Housing, and Urban Affairs regarding The Restoring American
Financial Stability Act of 2010, S. Rep. No. 111-176 at 34 (stating
that ``[s]ome parts of the OTC market may not be suitable for
clearing and exchange trading due to individual business needs of
certain users. Those users should retain the ability to engage in
customized, uncleared contracts while bringing in as much of the OTC
market under the centrally cleared and exchange-traded framework as
possible.'').
    \10\ Section 763(a) of the Dodd-Frank Act added Section 3C to
the Exchange Act. See 15 U.S.C. 78c-3. See also Process for
Submissions for Review of Security-Based Swaps for Mandatory
Clearing and Notice Filing Requirements for Clearing Agencies;
Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to All
Self-Regulatory Organizations, Release No. 34-63557 (Dec. 15, 2010),
75 FR 82490 (Dec. 30, 2010) (``Mandatory Clearing Proposing
Release'').
    \11\ See Exchange Act Section 3C(b) [15 U.S.C. 78c-3(b)] and
Mandatory Clearing Proposing Release. In the Mandatory Clearing
Proposing Release, we proposed rules to establish processes for (i)
clearing agencies registered with the Commission to submit for
review each security-based swap, or any group, category, type or
class of security-based swaps, that the clearing agency plans to
accept for clearing for a determination by the Commission of whether
the security-based swap, or group, category, type or class of
security-based swap is required to be cleared, and to determine the
manner of notice the clearing agency must provide to its members of
such submission, and (ii) how the Commission may stay the
requirement that a security-based swap is subject to mandatory
clearing.
    \12\ See Exchange Act Section 3C(g) [15 U.S.C. 78c-3(g)] and
Mandatory Clearing Proposing Release. Section 3C(g)(1) provides that
a security-based swap otherwise subject to mandatory clearing is not
required to be cleared if one party to the security-based swap is
not a financial entity, is using security-based swaps to hedge or
mitigate commercial risk, and notifies the Commission, in a manner
set forth by the Commission, how it generally meets its financial
obligations associated with entering into non-cleared security-based
swaps. See 15 U.S.C. 78c-3(g)(1).
    \13\ See 15 U.S.C. 78s(b) and 12 U.S.C. 5465(e). See also
Mandatory Clearing Proposing Release.
    \14\ Currently, three clearing agencies are permitted to clear
certain credit default swaps, which are security-based swaps. See
footnote 30 below. A clearing agency could begin clearing other
security-based swaps if its rules permit clearing of such other
security-based swaps.
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    Clearing agencies are broadly defined under the Exchange Act and
may undertake a variety of functions.\15\ One such function is to act
as a central counterparty (``CCP'').\16\ For example, when a security-
based swap between two counterparties that are members of a CCP is
executed and submitted for clearing, the original contract is
extinguished and is replaced by two new contracts where the CCP is the
buyer to the seller and the seller to the buyer. This process is known
as ``novation.'' \17\ At that point, the original counterparties are no
longer counterparties to each other. As a result, the creditworthiness
and liquidity of the CCP is substituted for the creditworthiness and
liquidity of the original counterparties.\18\
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    \15\ See Exchange Act Section 3(a)(23) [15 U.S.C. 78c(a)(23)].
    \16\ A CCP is an entity that interposes itself between the
counterparties to a securities transaction, acting functionally as
the buyer to every seller and the seller to every buyer. See
Clearing Agency Standards for Operation and Governance, Release No.
34-64017 (Mar. 3, 2011), 76 FR 14472 (Mar. 16, 2011) (``Clearing
Agency Standards Proposing Release'').
    \17\ ``Novation'' is a ``process through which the original
obligation between a buyer and seller is discharged through the
substitution of the CCP as seller to buyer and buyer to seller,
creating two new contracts.'' Committee on Payment and Settlement
Systems, Technical Committee of the International Organization of
Securities Commissioners, Recommendations for Central Counterparties
(November 2004) at 66.
    \18\ See Cecchetti, Gyntelberg and Hollanders, Central
counterparties for over-the-counter derivatives, BIS Quarterly
Review, September 2009, available at http://www.bis.org/publ/qtrpdf/r_qt0909f.pdf.
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    Under the rules we proposed regarding mandatory clearing, to meet
the clearing requirement in Exchange Act Section 3C, the parties would
be required to submit security-based swaps required to be cleared to a
clearing agency that functions as a CCP for central clearing.\19\ Those
proposed rules also would establish procedures for a clearing agency to
submit to us for a review each security-based swap, or group, category,
type or class of security-based swap that the clearing agency plans to
accept for clearing. We would review the submission and make a
determination about whether the security-based swap, or group,
category, type or class of security-based swap, is required to be
cleared.\20\ Under the statute and the proposed rules, the submission
would be publicly available and a public comment period would be
provided with respect to whether the clearing requirement will
apply.\21\
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    \19\ See Mandatory Clearing Proposing Release and proposed Rule
3Ca-2.
    \20\ See Mandatory Clearing Proposing Release and Public Law
111-203, Sec.  763(a) (adding Exchange Act Section 3C [15 U.S.C.
78c-3]).
    \21\ Id.
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    If we determine that a security-based swap, or group, category,
type, or class of security-based swap, is required to be cleared,
counterparties would be required to submit such security-based swaps
negotiated and entered into bilaterally to the clearing agency for
novation.\22\ If we determine that a security-based swap, or group,
category, type, or class of security-based swap, is not required to be
cleared, such security-based swap, or group, category, type, or class
of security-based swap, may still be cleared on a voluntary basis by a
clearing agency that functions as a CCP if the clearing agency has
rules that permit it to clear such security-based swap.\23\ For
security-based swaps submitted for novation, the CCP will be the issuer
of new security-based swaps.
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    \22\ See Exchange Act Section 3C [15 U.S.C. 78c-3]) and proposed
Exchange Act Rule 3Ca-2.
    \23\ See 15 U.S.C. 78s(b) and 12 U.S.C. 5465(e). As we note
above, this ability to clear security-based swaps exists even before
the adoption of rules implementing the mandatory clearing
requirement.
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    Because the definition of ``security'' in the Securities Act was
amended in Title VII to include security-based swaps,\24\ the novation
of a security-based swap by a clearing agency functioning as a central
counterparty involves an offer and sale by the clearing agency of a
security (the security-based swap) under the Securities Act. The
Securities Act requires that any offer and sale of a security must
either be registered under the Securities Act or made pursuant to an
exemption from registration.\25\ Certain provisions of the Exchange Act
relating to the registration of classes of securities and the indenture
qualification provisions of the Trust Indenture Act also potentially
will apply to security-based swaps. The provisions of Section 12 of the
Exchange Act could, without an exemption, require that security-based
swaps be registered before a transaction could be effected on a
national securities exchange.\26\ In addition, registration of a class
of security-based swaps under Section 12(g) of the Exchange Act will be
required if the security-based swap is considered an equity security
and there are more than 500 record holders of a

particular class of security-based swaps at the end of a fiscal year.
Further, without an exemption, the Trust Indenture Act requires
qualification of an indenture for security-based swaps considered to be
debt.\27\
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    \24\ See Public Law 111-203, Sec.  768(a)(1) (amending
Securities Act Section 2(a)(1) [15 U.S.C. 77b(a)(1)]). See also
Public Law 111-203, Sec.  761(a)(2) (amending Exchange Act Section
3(a)(10) [15 U.S.C. 78c(a)(10)]).
    \25\ See Securities Act Section 5 [15 U.S.C. 77e].
    \26\ We note that a registered security-based SEF would not be a
national securities exchange for purposes of the Exchange Act.
Therefore, Exchange Act Sections 12(a) and (b) would not be
applicable to transactions effected through such facilities.
    \27\ See 15 U.S.C. 77aaa et seq.
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    The provisions of Title VII do not contain an exemption from
Securities Act or Exchange Act registration, or from Trust Indenture
Act qualification, for security-based swaps. However, we believe that
compliance by the clearing agency with the registration and
qualification provisions of these Acts likely will be impracticable and
frustrate the purposes of Title VII. We have taken action in the past
to facilitate clearing of certain credit default swaps by clearing
agencies functioning as CCPs. For example, prior to enactment of the
Dodd-Frank Act, we permitted five clearing agencies to clear certain
credit default swaps (``eligible CDS'') on a temporary conditional
basis.\28\ To facilitate the operation of clearing agencies as CCPs for
eligible CDS, we also adopted temporary exemptions from certain
provisions of the Securities Act, the Exchange Act and the Trust
Indenture Act, subject to certain conditions.\29\ In the adopting
release, we noted that we believed that the existence of CCPs for CDS
would be important in helping to reduce counterparty risks inherent in
the CDS market.\30\ In addition to those actions with respect to
eligible CDS, as discussed further below, we adopted exemptions under
the Securities Act and the Exchange Act for certain standardized
options.\31\
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    \28\ See Order Granting Temporary Exemptions under the
Securities Exchange Act of 1934 in Connection with Request on Behalf
of ICE Clear Europe Limited Related to Central Clearing of Credit
Default Swaps, and Request for Comments, Release No. 34-60372 (Jul.
23, 2009), 74 FR 37748 (Jul. 29, 2009); Order Granting Temporary
Exemptions under the Securities Exchange Act of 1934 in Connection
with Request on Behalf of Eurex Clearing AG Related to Central
Clearing of Credit Default Swaps, and Request for Comments, Release
No. 34-60373 (Jul. 23, 2009), 74 FR 37740 (Jul. 29, 2009); Order
Granting Temporary Exemptions Under the Securities Exchange Act of
1934 in Connection With Request of Chicago Mercantile Exchange Inc.
and Citadel Investment Group, L.L.C. Related to Central Clearing of
Credit Default Swaps, and Request for Comments, Release No. 34-59578
(Mar. 13, 2009), 74 FR 11781 (Mar. 19, 2009); Order Granting
Temporary Exemptions Under the Securities Exchange Act of 1934 in
Connection With Request on Behalf of ICE US Trust LLC Related to
Central Clearing of Credit Default Swaps, and Request for Comments,
Release No. 34-59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009);
and Order Granting Temporary Exemptions Under the Securities
Exchange Act of 1934 in Connection with Request of LIFFE
Administration and Management and LCH.Clearnet Ltd. Related to
Central Clearing Of Credit Default Swaps, and Request for Comments,
Release No. 34-59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009). The
Commission subsequently extended and, in certain cases, modified
certain of these temporary exemptive orders. See Release No. 34-
61973 (Apr. 23, 2010), 75 FR 22656 (Apr. 29, 2010) and Release No.
34-63389 (Nov. 29, 2010), 75 FR 75520 (Dec. 3, 2010) (extending the
order granted to ICE Clear Europe, Limited); Release No. 34-61975
(Apr. 23, 2010), 75 FR 22641 (Apr. 29, 2010) and Release No. 34-
63390 (Nov. 29, 2010), 75 FR 75518 (Dec. 3, 2010) (extending and
modifying the order granted to Eurex Clearing AG); Release No. 34-
61164 (Dec. 14, 2009), 74 FR 67258 (Dec. 18, 2009), Release No. 34-
61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5, 2010), and Release No.
34-63388 (Nov. 29, 2010), 75 FR 75522 (Dec. 3, 2010) (extending and
modifying the order granted to Chicago Mercantile Exchange Inc.);
and Release No. 34-61119 (Dec. 4, 2009), 74 FR 65554 (Dec. 10,
2009), Release No. 34-61662 (Mar. 5, 2010), 75 FR 11589 (Mar. 11,
2010), and Release No. 34-63387 (Nov. 29, 2010), 75 FR 75502 (Dec.
3, 2010) (extending and modifying the order granted to ICE US Trust
LLC). LIFFE A&M and LCH.Clearnet Ltd. allowed their temporary
exemptive orders to lapse without seeking an extension.
    \29\ See Temporary Exemptions for Eligible Credit Default Swaps
to Facilitate Operation of Central Counterparties to Clear and
Settle Credit Default Swaps, Release No. 33-8999 (Jan. 14, 2009), 74
FR 3967 (Jan. 22, 2009) (``Temporary CDS Exemptions Release''). The
temporary rules exempt eligible credit default swaps from all
provisions of the Securities Act, other than the Section 17(a) anti-
fraud provisions, the Exchange Act registration requirements, and
the provisions of the Trust Indenture Act, provided certain
conditions were met (``temporary exemptions for eligible CDS''). We
subsequently extended the expiration date of the temporary rules
until April 16, 2012. See Extension of Temporary Exemptions for
Eligible Credit Default Swaps to Facilitate Operation of Central
Counterparties to Clear and Settle Credit Default Swaps, Release No.
33-9232 (Jul. 1, 2011), 76 FR 40223 (Jul. 8, 2011) (``Temporary CDS
Exemptions Extension Release'').
    \30\ Title VII contains provisions that ``deem registered'' as a
clearing agency for the purposes of clearing security-based swaps
clearing agencies that met certain conditions. See Public Law 111-
203, Sec.  763(b) (adding Exchange Act Section 17A(l) [15 U.S.C.
78q-1(l)]. Three clearing agencies that had temporary exemptive
orders permitting them to clear eligible CDS were deemed registered
under this provision and currently are performing the functions of a
CCP for eligible CDS. These clearing agencies are ICE Clear Credit
LLC (f/k/a ICE U.S. Trust LLC), ICE Clear Europe, Ltd., and Chicago
Mercantile Exchange Inc. As a result of the deemed registered
provision, we had to grant a temporary exemptive order to these
clearing agencies only relating to Sections 5 and 6 of the Exchange
Act. This temporary exemptive order will expire upon the earliest
compliance date set forth in any of the final Title VII rules
regarding registration of security-based SEFs. See Order Granting
Temporary Exemptions under the Securities Exchange Act of 1934 in
Connection with the Pending Revision of the Definition of
``Security'' to Encompass Security-Based Swaps, and Request for
Comment, Release No. 34-64795 (Jul. 1, 2011). The new temporary
exemptive order contains conditions similar to those set forth in
the temporary exemptive orders in effect prior to the deemed
registered provisions pursuant to which certain clearing agencies
were permitted to clear eligible CDS. See footnote 28 above.
    \31\ See Exemption for Standardized Options From Provisions of
the Securities Act of 1933 and From the Registration Requirements of
the Securities Exchange Act of 1934, Release No. 33-8171 (Dec. 23,
2002), 68 FR 1 (Jan. 2, 2003) (``Standardized Options Release'').
See also Securities Act Rule 238 [17 CFR 230.238] and Exchange Act
Rule 12h-1(d) [17 CFR 240.12h-1(d)].
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    On June 9, 2011, we proposed exemptions from the registration
requirements of the Securities Act and the Exchange Act, and from the
qualification requirements of the Trust Indenture Act, for security-
based swaps issued by certain clearing agencies satisfying certain
conditions to facilitate the intent of Dodd-Frank Act with respect to
mandatory clearing of security-based swaps.\32\ The proposed rules
would exempt certain transactions by clearing agencies in these
security-based swaps from all provisions of the Securities Act, other
than the Section 17(a) anti-fraud provisions, as well as exempt these
security-based swaps from the Exchange Act registration requirements
and from the provisions of the Trust Indenture Act, provided certain
conditions are met.\33\
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    \32\ See Exemptions For Security-Based Swaps Issued By Certain
Clearing Agencies, Release No. 33-9222 (June 9, 2011), 76 FR 34920
(June 15, 2011) (``Proposing Release'').
    \33\ In July 2011, the Commission adopted interim exemptions
under the Securities Act, the Exchange Act and the Trust Indenture
Act for uncleared security-based swaps that prior to July 16, 2011
were ``security-based swap agreements'' and not securities but
became securities due to the provisions of Title VII. See Exemptions
for Security-Based Swaps, Release No. 33-9231 (Jul. 1, 2011), 76 FR
40605 (Jul. 11, 2011) (``Interim SBS Exemptions Release''). These
interim exemptions will expire upon the compliance date for the
final rules the Commission may adopt further defining both the terms
``security-based swap'' and ``eligible contract participant.''
Further, the Division of Corporation Finance issued a no-action
letter that addressed the availability of these interim exemptions
to offers and sales of security-based swaps that are based on or
reference only loans or indexes only of loans. See Cleary Gottlieb
Steen & Hamilton LLP (July 15, 2011). We understand that the staff
intends to withdraw this no-action letter upon the compliance date
for the final rules the Commission may adopt further defining both
the terms ``security-based swap'' and ``eligible contract
participant.''
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    The Proposing Release requested comment on a variety of significant
aspects of the proposed exemptions. We received seven comment letters
in connection with the Proposing Release, of which six commented on the
proposed exemptions.\34\ Most

commentators supported the proposed exemptions and did not suggest any
changes to the exemptions as they applied to security-based swaps
issued by a registered or exempt clearing agency in its function as a
CCP.\35\ As discussed below, a few commentators suggested additional
exemptions for security-based swaps. We have reviewed and considered
all of the comments that we received relating to the proposed
exemptions.
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    \34\ The Commission received the following letters that
commented specifically on the proposed exemptions: Letter from
Richard M. Whiting, Executive Director and General Counsel,
Financial Services Roundtable, Robert Pickel, Chief Executive
Officer, International Swaps and Derivatives Association, and
Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy and
Advocacy, Securities Industry and Financial Markets Association
(``FSR/ISDA/SIFMA Letter''); letter from Bruce Bolander, Gibson,
Dunn & Crutcher LLP, dated Aug. 22, 2011 (``Gibson Dunn Letter'');
letter from Scott Pintoff, General Counsel, GFI Group Inc., dated
Jul. 25, 2011 (``GFI Letter''); letter from Lawrence J. Kramer,
dated Jun. 22, 2011 (``Kramer Letter''); letter from Thomas A.
Prentice, Ph.D., dated Jun. 21, 2011 (``Prentice Letter''); and
letter from William Michael Cunningham, Creative Investment
Research, Inc., dated Jul. 4, 2011 (``CIR Letter''). The letter from
Scott C. Goebel, Senior Vice President, General Counsel, Fidelity
Investments, dated Dec. 8, 2011, did not address the proposed
exemptions but commented on rules the Commodity Futures Trading
Commission proposed relating to collateral posted in connection with
cleared derivatives trades.
    \35\ See FSR/ISDA/SIFMA Letter; Gibson Dunn Letter; GFI Letter;
and CIR Letter. We also received comments that disagreed with CDS
trading or the SBS exemptions generally. One individual commentator
did not believe the Commission should adopt the proposed exemptions
because this commentator believes they would facilitate trading in
CDS, which this commentator objected to in some circumstances. See
Kramer Letter. Another individual commentator opposed the proposed
exemptions, but did not provide any explanation for the reason. See
Prentice Letter.
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    As described in detail below, we are adopting the rules as proposed
without modification. The exemptions we are adopting in this release
cover all security-based swaps that may be cleared, including eligible
CDS that currently are being issued in reliance on the temporary
exemptions for eligible CDS that expire on April 16, 2012.

II. Discussion of the Final Rules and Amendments

A. Exemption From Securities Act Registration--Securities Act Rule 239

1. Proposed Rule
    We proposed Securities Act Rule 239 to exempt the offer and sale of
security-based swaps that are or will be issued to eligible contract
participants by, and in a transaction involving, a clearing agency that
is registered under Section 17A of the Exchange Act or exempt from such
registration by rule, regulation or order of the Commission in its
function as a CCP, from all provisions of the Securities Act, except
the anti-fraud provisions of Section 17(a), subject to certain
conditions.
2. Comments
    Commentators generally supported proposed Securities Act Rule
239.\36\ We received only one specific comment on the proposed
rule.\37\ This commentator suggested that the Commission provide an
exemption under the Securities Act similar to the proposed rule for
transactions in uncleared security-based swaps entered into between
eligible contract participants and effected through any trading
platform.\38\ This commentator did not provide any explanation as to
why such exemption was needed, including how security-based swap
trading platforms operate, that would enable us to evaluate whether
another exemption under the Securities Act is necessary or appropriate.
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    \36\ See FSR/ISDA/SIFMA Letter; Gibson Dunn Letter; GFI Letter;
and CIR Letter.
    \37\ See GFI Letter.
    \38\ Id.
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    We requested comment in the Proposing Release and in the Interim
SBS Exemptions Release as to whether security-based swaps are or will
be transacted in a manner that would not permit the parties to rely on
existing exemptions under the Securities Act.\39\ We also requested
comment in these releases on whether the Commission should consider
additional exemptions under the Securities Act for security-based swaps
traded on a national securities exchange or security-based SEF with
eligible contract participants.\40\ This commentator's suggestion
related to exemptions affecting transactions that do not involve
registered or exempt clearing agencies and appears responsive to the
request for whether additional exemptions should be considered. Thus,
we believe that this commentator's suggestion relating to uncleared
security-based swaps is more appropriate to be considered in connection
with the Interim SBS Exemptions Release and, therefore, we are not
adopting rules at this time providing exemptions that would apply to
uncleared security-based swaps, including those that may be effected on
or through trading platforms.\41\
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    \39\ See Proposing Release at 30; and Interim SBS Exemptions
Release at 16.
    \40\ Id.
    \41\ The Commission received one comment letter on the Interim
SBS Exemptions Release from an individual that opposed the interim
exemptions; however, this commentator did not provide any
explanation for the reason.
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3. Final Rule
    We are adopting Securities Act Rule 239 without any changes from
the proposal. The final rule exempts the offer and sale of security-
based swaps that are or will be issued to eligible contract
participants by, and in a transaction involving, a clearing agency that
is registered under Section 17A of the Exchange Act \42\ or exempt from
such registration \43\ by rule, regulation or order of the Commission
(``registered or exempt clearing agency'') in its function as a CCP,
from all provisions of the Securities Act, except the anti-fraud
provisions of Section 17(a), subject to the conditions described
below.\44\ Thus, Securities Act Rule 239 as adopted permits the offer
and sale of security-based swaps to eligible contract participants that
are or will be issued by, and in a transaction involving, a registered
or exempt clearing agency in its function as a CCP without requiring
compliance with Section 5 of the Securities Act.\45\
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    \42\ See footnote 30 above for a discussion of the clearing
agencies that are deemed registered for purposes of clearing
security-based swaps. As noted above, three clearing agencies that
had temporary exemptive orders relating to the clearing of eligible
CDS were deemed registered under this provision and currently are
performing the functions of a CCP for eligible CDS.
    \43\ The Dodd-Frank Act contains provisions permitting the
Commission to provide exemptions from clearing agency registration
with respect to security-based swaps in limited instances. See
footnote 49 below. The final rules cover security-based swaps,
including mixed swaps, issued by clearing agencies that the
Commission specifically exempts from registration as a clearing
agency by rule, regulation, or order.
    \44\ 15 U.S.C. 77q. This exemption is similar to the Securities
Act exemptions for standardized options and security futures
products. See Securities Act Rule 238 [17 CFR 230.238] and
Securities Act Section 3(a)(14) [15 U.S.C. 77c(a)(14)].
    \45\ The exemption for the security-based swap transaction from
Securities Act registration will not apply to any securities that
may be delivered in settlement or payment of any obligations under
the security-based swap (e.g. a physically settled credit default
swap). With respect to such securities transactions, the parties to
the security-based swap must either be able to rely on another
exemption from the registration requirements of the Securities Act
or must register such transaction. In evaluating the availability of
an exemption from the Securities Act registration requirements, if
such a security-based swap may be settled or paid through the
delivery of a security, then the transaction in the underlying or
referenced security will be considered to occur at the same time as
the transaction in the related security-based swap. In this
connection, we note that the Dodd-Frank Act amended Securities Act
Section 2(a)(3) to provide that security-based swaps could not be
used by an issuer, its affiliates, or underwriters to circumvent the
registration requirements of Securities Act Section 5 with respect
to the issuer's securities underlying the security-based swap. See
15 U.S.C. 77b(a)(3). As amended, Section 2(a)(3) provides that
``[a]ny offer or sale of a security-based swap by or on behalf of
the issuer of the securities upon which such security-based swap is
based or is referenced, an affiliate of the issuer, or an
underwriter, shall constitute a contract for sale of, sale of, offer
for sale, or offer to sell such securities.'' As a result, such
issuer, affiliate, or underwriter would have to comply with the
registration requirements of the Securities Act with respect to such
underlying or referenced security, unless another exemption from
registration was available.
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    Consistent with the proposal, under Securities Act Rule 239 as
adopted, the offer and sale of a security-based swap is exempt from the
provisions of the Securities Act, other than Section 17(a), if the
following conditions are satisfied:
     The security-based swap is or will be issued by a clearing
agency that is registered with us under Section 17A of the Exchange Act
or exempt from such registration by rule, regulation or order of the
Commission;

     The Commission has determined that the security-based swap
is required to be cleared or the registered or exempt clearing agency
is permitted to clear the security-based swap pursuant to its rules;
     The security-based swap is sold only to an eligible
contract participant (as defined in Section 1a(18) of the Commodity
Exchange Act) in a transaction involving the registered or exempt
clearing agency in its function as a CCP with respect to the security-
based swap; \46\ and
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    \46\ Eligible contract participant is defined in CEA Section
1a(18) (as re-designated and amended by Section 721 of the Dodd-
Frank Act). See also Public Law 111-203, Sec.  761(a) (adding
Exchange Act Section 3(a)(65) [15 U.S.C. 78c(a)(65)], which refers
to the definition of eligible contract participant in the CEA). The
definition of eligible contract participant contained the CEA (as
amended by the Dodd-Frank Act) includes: Financial institutions;
insurance companies; investment companies; commodity pools; business
entities, such as corporations, partnerships, and trusts; employee
benefit plans; government entities, such as the United States, a
State or local municipality, a foreign government, a multinational
or supranational government entity, or an instrumentality, agency or
department of such entities; market professionals, such as broker
dealers, futures commission merchants, floor brokers, and investment
advisors; and natural persons with a specified dollar amount
invested on a discretionary basis. For certain of the entities and
market professionals, the definition also contains certain
conditions relating to the amount of assets or amount of monies
invested on a discretionary basis. For a complete description of the
definition, see CEA Section 1a(18) and Section 721 of the Dodd-Frank
Act. Further, the Dodd-Frank Act authorized the CFTC and the SEC to
jointly further define the definition of eligible contract
participant. See Section 712(d)(1) of the Dodd-Frank Act. In
December 2010, the CFTC and the SEC jointly proposed rules to
further define the definition of eligible contract participant
primarily relating to commodity pools and foreign exchange
transactions. See Intermediaries Definitions Release.
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     For each security-based swap that is offered or sold in
reliance upon this exemption, the following information is included in
an agreement covering the security-based swap the registered or exempt
clearing agency provides to, or makes available to, its counterparty or
is posted on a publicly available Web site maintained by the registered
or exempt clearing agency:
     A statement identifying any security, issuer, loan, or
narrow-based security index underlying the security-based swap;
     A statement indicating the security or loan to be
delivered (or class of securities or loans), or if cash settled, the
security, loan or narrow-based security index (or class of securities
or loans) whose value is to be used to determine the amount of the
settlement obligation under the security-based swap; and
     A statement of whether the issuer of any security or loan,
each issuer of a security in a narrow-based security index, or each
referenced issuer underlying the security-based swap is subject to the
reporting requirements of Exchange Act Section 13 or Section 15(d) and,
if not subject to such reporting requirements, whether public
information, including financial information, about any such issuer is
available and where the information is available.
    We believe this exemption will further the goal in the Dodd-Frank
Act of central clearing of security-based swaps. Without exempting the
offers and sales of such security-based swaps by a registered or exempt
clearing agency in its function as a CCP from the Securities Act (other
than Section 17(a)), we believe that a registered or exempt clearing
agency may not be able to clear security-based swaps in the manner
contemplated by the Dodd-Frank Act and our proposed rules implementing
its provisions. Therefore, we believe that with the above conditions,
an exemption from the Securities Act is necessary and appropriate in
the public interest and consistent with the protection of investors.
i. Registered or Exempt Clearing Agency Issuing Security-Based Swaps in
Its Function as a CCP
    Consistent with the proposal, the Securities Act exemption applies
only to offers and sales of security-based swaps that are or will be
issued by, and in a transaction involving, a clearing agency in its
function as a CCP that is either registered with us or exempt from such
registration by rule, regulation or order of the Commission. Registered
clearing agencies are regulated by us under the Exchange Act and must
comply with the standards in the Exchange Act, including the
requirements of Section 17A.\47\ The activities of such clearing
agencies relating to the clearing or submission for clearing of
security-based swaps are subject to regulation under the Exchange Act
and applicable rules thereunder.\48\ The Securities Act exemption also
is available for security-based swaps that are issued by a clearing
agency that we have exempted from registration with us by rule,
regulation, or order, subject to such terms and conditions contained in
any exemption.\49\ We believe it is appropriate to make the Securities
Act exemption available to security-based swaps issued by exempt
clearing agencies because in granting an exemption the Commission could
impose appropriate conditions to the availability of the exemption that
would provide protection to investors.
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    \47\ 15 U.S.C. 78q-1. See also discussion in Mandatory Clearing
Proposing Release.
    \48\ Id.
    \49\ Section 763(b) of the Dodd-Frank Act amended the Exchange
Act and added Section 17(k) [15 U.S.C. 78q(k)], which provides that
``[t]he Commission may exempt, conditionally or unconditionally, a
clearing agency from registration under this section for the
clearing of security-based swaps if the Commission determines that
the clearing agency is subject to comparable, comprehensive
supervision and regulation by the Commodity Futures Trading
Commission or the appropriate government authorities in the home
country of the agency. Such conditions may include, but are not
limited to, requiring that the clearing agency be available for
inspection by the Commission and make available all information
requested by the Commission.'' Thus, although we have the authority
under the Exchange Act, as amended by the Dodd-Frank Act, to provide
exemptions from clearing agency registration, our authority to grant
an exemption from registration for clearing agencies that clear
security-based swaps is different than it is for other clearing
agencies.
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    The Securities Act exemption applies to the extent the clearing
agency will issue or is issuing the security-based swap in its function
as a CCP and applies to transactions involving such clearing
agency.\50\ We note that a clearing agency's role as a CCP and an
issuer of security-based swaps is similar to a clearing agency's role
with respect to standardized options.\51\ We believe that a clearing
agency's role as a CCP for security-based swaps, similar to a clearing
agency's role with respect to standardized options, is fundamentally
different from a conventional issuer that registers transactions in its
securities under the Securities Act.\52\ For example, the purchaser of
a security-based swap does not, except in the most formal sense, make
an investment decision regarding the clearing agency.\53\ Rather, the
security-based swap investment decision is based on the referenced
security, loan, narrow-based security index, or issuer. In this
circumstance, coupled with the other conditions to the Securities Act
exemption, we do not believe that Securities Act registration of the
offer and sale of security-based swaps by a clearing agency in its

function as a CCP to eligible contract participants is necessary.
---------------------------------------------------------------------------

    \50\ As we noted above, when functioning as a CCP, a clearing
agency's creditworthiness and liquidity are substituted for the
creditworthiness and liquidity of the original counterparties. See
footnote 18 above and accompanying text.
    \51\ See Standardized Options Release.
    \52\ Because the novation generally occurs after the
counterparties have agreed to enter into the bilateral security-
based swap being novated, the investment decision by the
counterparties already has occurred.
    \53\ We note, however, that a member or other user of a clearing
agency may have an interest in the financial condition of the
clearinghouse because the member or user will be relying on the
ability of the clearinghouse to meet its obligations with respect to
cleared transactions. We have proposed that registered clearing
agencies be required to make their audited financial statements and
other information about themselves publicly available. See Clearing
Agency Standards Proposing Release.
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ii. Security-Based Swaps the Commission Determines Are Required To Be
Cleared or That a Clearing Agency Is Permitted To Clear Pursuant to Its
Rules
    In the Mandatory Clearing Release, we proposed rules to implement
the provisions of the Dodd-Frank Act regarding mandatory and voluntary
clearing of security-based swaps, or groups, categories, or types or
classes of security-based swaps.\54\ Those proposed rules would
establish procedures for a clearing agency to submit for a review the
security-based swap, or group, category, type or class of security-
based swap, that the clearing agency plans to accept for clearing. As
proposed, we would review the submission and make a determination of
whether the security-based swap, or group, category, type or class of
security-based swap, is required to be cleared.\55\
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    \54\ See Mandatory Clearing Proposing Release.
    \55\ See Mandatory Clearing Proposing Release. For those
security-based swaps that are submitted and not required to be
cleared, the clearing agency in its function as a CCP may still
clear those security-based swaps if it is permitted by its rules.
---------------------------------------------------------------------------

    Consistent with the purposes of the Dodd-Frank Act, the Securities
Act exemption is intended to facilitate clearing of security-based
swaps that the Commission determines are subject to mandatory clearing,
or that are permitted to be cleared pursuant to the clearing agency's
rules. Consequently, under the Securities Act exemption a registered or
exempt clearing agency is entitled to rely on the exemption to issue,
in its function as a CCP, security-based swaps that we determine are
required to be cleared. In addition, the Securities Act exemption is
available to a registered or exempt clearing agency issuing a security-
based swap, in its function as a CCP, that is not subject to mandatory
clearing but is permitted to be cleared pursuant to the clearing
agency's rules. The Securities Act exemption is not available for
security-based swaps issued by a registered or exempt clearing agency
in its function as a CCP that are not required to be cleared or
permitted by its rules to be cleared.
    The Dodd-Frank Act also provides that if a security-based swap is
subject to the mandatory clearing requirement, it must be traded on an
exchange or a registered or exempt security-based SEF, unless no
security-based SEF makes such security-based swap available to
trade.\56\ Thus, it is possible that a security-based swap could be
subject to mandatory clearing without being traded on an exchange or
security-based SEF. The Securities Act exemption is available for
security-based swaps that are subject to the mandatory clearing
requirement or are permitted to be cleared pursuant to the clearing
agency's rules,\57\ regardless of whether such security-based swaps
also are traded on a national securities exchange or through a
security-based SEF.\58\ We believe that if the conditions to the
Securities Act exemption are satisfied, then the protections provided
for in the analogous exemptions for standardized options and security
futures arising from the requirement for exchange trading, such as
compliance with the statutory listing standards, are not needed
here.\59\ Unlike security future products that may be purchased by any
person, under the Dodd-Frank Act security-based swaps may only be
offered and sold to eligible contract participants either pursuant to
an exemption from the registration requirements of the Securities Act
and in transactions not effected on a national securities exchange or
in registered offerings effected on a national securities exchange. No
offers or sales of security-based swaps may be made to non-eligible
contract participants unless there is an effective registration
statement under the Securities Act covering transactions in such
security-based swap \60\ and any security-based swap transaction with a
non-eligible contract participant must be effected on a national
securities exchange.\61\ As a result, security-based swaps issued by a
registered or exempt clearing agency in its function as a CCP may only
be offered and sold to eligible contract participants, unless there is
an effective registration statement and the transaction is effected on
a national securities exchange. Thus, because only eligible contract
participants may enter into the security-based swaps not traded on a
national securities exchange, we do not believe it is necessary to
condition the Securities Act exemption on whether the security-based
swap is traded on a national securities exchange. In addition,
including such a provision could frustrate the goals of the Dodd-Frank
Act because the Dodd-Frank Act did not restrict transactions with
eligible contract participants to transactions on national securities
exchanges. Consequently, the Securities Act exemption does not include
such a requirement.
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    \56\ Exchange Act Section 3C(h) specifies that transactions in
security-based swaps that are subject to the clearing requirement of
Exchange Act Section 3C(a)(1) must be executed on an exchange or on
a security-based SEF registered with us (or a security-based SEF
exempt from registration), unless no exchange or security-based SEF
makes the security-based swap available to trade or the security-
based swap transaction is subject to the clearing exception in
Exchange Act Section 3C(g). See Public Law 111-203, Sec.  763
(adding Exchange Act Section 3C(h) [15 U.S.C. 78c-3(h)]). Exchange
Act Section 3D(e) allows the Commission to exempt a security-based
SEF from registration if the Commission finds that the security-
based SEF is subject to comparable comprehensive supervision and
regulation on a consolidated basis by the CFTC. See 15 U.S.C. 78c-
4(e). The Commission proposed (but has not yet adopted) Regulation
SB SEF under the Exchange Act that is designed to create a
registration framework for security-based SEFs, establish rules with
respect to Title VII's requirement that a security-based SEF must
comply with the fourteen enumerated core principles and enforce
compliance with those principles, and implement a process for a
security-based SEF to submit to the Commission proposed changes to
its rules. See footnote 8 above.
    \57\ The exemption would be limited to security-based swaps
issued by and in a transaction involving a registered or exempt
clearing agency in its function as a CCP.
    \58\ See Security-Based SEF Proposing Release.
    \59\ Standardized options and security futures products are only
traded on a national securities exchange and thus are subject to
listing standards. See Securities Act Section 3(a)(14) [15 U.S.C.
77c(a)(14)], Exchange Act Section 12(a) [15 U.S.C. 78l(a)], and
Exchange Act Rule 12h-1(e) [17 CFR 240.12h-1(e)]. See also footnote
31 above.
    \60\ See Public Law 111-203, Sec.  768(b) (adding Securities Act
Section 5(d) [15 U.S.C. 77e(d)]).
    \61\ See Public Law 111-203, Sec.  763(e) (adding Exchange Act
Section 6(l) [15 U.S.C. 78f(l)]).
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iii. Sales Only to Eligible Contract Participants
    Under the Dodd-Frank Act, only an eligible contract participant may
enter into security-based swaps other than on a national securities
exchange.\62\ In addition, security-based swaps that are not registered
pursuant to the Securities Act can only be sold to eligible contract
participants.\63\ New Securities Act Section 5(d) specifically provides
that it is unlawful to offer to buy, purchase, or sell a security-based
swap to any person that is not an eligible contract participant, unless
the transaction is registered under the Securities Act.\64\ Given that
Congress determined it is appropriate to limit the availability of
registration exemptions under the Securities Act to eligible contract
participants, consistent with the

proposal, we believe it is appropriate to limit the Securities Act
exemption to security-based swaps entered into with eligible contract
participants.
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    \62\ See also Public Law 111-203, Sec.  763(e) (adding Exchange
Act Section 6(l) [15 U.S.C. 78f(l)]).
    \63\ See Public Law 111-203, Sec.  768(b) (adding Securities Act
Section 5(d) [15 U.S.C. 77e(d)]).
    \64\ See Section 768(b) of the Dodd-Frank Act (adding new
Securities Act Section 5(d) [15 U.S.C. 77e(d)]) (``Notwithstanding
the provisions of section 3 or 4, unless a registration statement
meeting the requirements of section 10(a) is in effect as to a
security-based swap, it shall be unlawful for any person, directly
or indirectly, to make use of any means or instruments of
transportation or communication in interstate commerce or of the
mails to offer to sell, offer to buy or purchase or sell a security-
based swap to any person who is not an eligible contract participant
as defined in section 1a(18) of the Commodity Exchange Act [7 U.S.C.
1a(18)].'').
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iv. Disclosures Relating to the Security-Based Swaps
    The Securities Act exemption requires the registered or exempt
clearing agency to disclose, either in its agreement regarding the
security-based swap or on its publicly available Web site, certain
information with respect to the security-based swap. Consistent with
the proposal, this information includes the following:
     A statement identifying any security, issuer, loan, or
narrow-based security index underlying the security-based swap;
     A statement indicating the security or loan to be
delivered (or class of securities or loans), or if cash settled, the
security, loan, or narrow-based security index (or class of securities
or loans) whose value is to be used to determine the amount of the
settlement obligation under the security-based swap; and
     A statement of whether the issuer of any security or loan,
each issuer of a security in a narrow-based security index, or each
referenced issuer underlying the security-based swap is subject to the
reporting requirements of Exchange Act Section 13 or Section 15(d) and,
if not subject to such reporting requirements, whether public
information, including financial information, about any such issuer is
available, and, if so, the location where the information is available.

The purpose of the requirement relating to the availability of
information is to inform investors about whether there is publicly
available information about the issuer of the referenced security or
the referenced issuer.\65\ We are not conditioning the Securities Act
exemption on whether the issuer is subject to Exchange Act reporting or
whether there is publicly available financial information about such
issuer. As noted above, the Securities Act exemption for offers and
sales of security-based swaps issued by, and in a transaction
involving, a registered or exempt clearing agency in its function as a
CCP is limited to security-based swaps entered into with an eligible
contract participant. The Dodd-Frank Act did not restrict eligible
contract participants' ability to enter into security-based swaps based
on whether or not there is publicly-available information about the
issuer of the referenced security or loan or the referenced issuer.\66\
As a result, and in light of the nature of the other regulatory
safeguards,\67\ we are not conditioning the Securities Act exemption on
the actual availability or delivery of such information.
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    \65\ For issuers that are not subject to Exchange Act reporting
requirements, the following are some non-exclusive examples of
issuers that may have information publicly available, including
financial information about the issuer, or circumstances in which
public information about a security may be available: (1) An entity
that voluntarily files Exchange Act reports; (2) an entity that
makes Securities Act Rule 144(d)(4) information available to any
person; (3) a foreign private issuer whose securities are listed
outside the United States; (4) a foreign sovereign issuer with
outstanding debt; (5) for periods before July 21, 2010 an asset-
backed security issued in a registered transaction with publicly
available distribution reports (for periods after July 21, 2010,
asset-backed issuers will continue to be subject to reporting); and
(6) an asset-backed security issued or guaranteed by the Federal
National Mortgage Association (``Fannie Mae''), the Federal Home
Loan Mortgage Corporation (``Freddie Mac'') or the Government
National Mortgage Association (``Ginnie Mae'').
    \66\ We note that eligible contract participants may enter into
security-based swaps on a bilateral basis in reliance on an
available exemption from the registration requirements of the
Securities Act. The exemptions we are adopting in this release to
facilitate clearing of security-based swaps do not apply to these
bilateral transactions, even if they subsequently are novated or
otherwise cleared in transactions to which the exemptions we are
adopting in this release apply.
    \67\ As part of the process for submitting security-based swaps
to us for a determination of whether such security-based swaps are
subject to mandatory clearing, the Dodd-Frank Act requires us to
take into account several factors, such as the existence of
significant outstanding notional exposures, trading liquidity, and
adequate pricing data, when reviewing a submission to clear
security-based swaps by a clearing agency. Much of the information
that the registered or exempt clearing agency will be required to
include in its agreement or on its Web site, as a condition to the
exemption, likely will already be included in the description of the
security-based swaps that the clearing agency identifies publicly
that it is going to clear. In addition to the security-based swap
submission provisions, the Dodd-Frank Act and the rules proposed
under the Act relating to reporting requirements, trade
acknowledgments and verification, and business conduct would require
certain disclosures relating to security-based swaps, some of which
may potentially overlap with the information requirement we are
adopting in this release. See, e.g., Mandatory Clearing Proposing
Release, Regulation SBSR--Reporting and Dissemination of Security-
Based Swap Information, Release No. 63346 (Nov. 19, 2010), 75 FR
75207 (Dec. 2, 2010) (``SBSR Proposing Release''), Trade
Acknowledgment and Verification of Security-Based Swap Transactions,
Release No. 34-63727 (Jan. 14, 2011), 76 FR 3859 (Jan. 21, 2011)
(``Trade Acknowledgement and Verification Proposing Release''), and
Business Conduct Standards for Security-Based Swap Dealers and Major
Security-Based Swap Participants, Release No. 34-64766 (Jun. 29,
2011), 76 FR 42396 (Jul. 18, 2011).
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    While the Dodd-Frank Act does not condition clearing of security-
based swaps on the availability of such information, we believe it is
important for eligible contract participants to understand whether such
information is publicly available. The availability (or absence) of
public information is generally important to eligible contract
participants and the registered or exempt clearing agency in evaluating
and pricing the security-based swap. Therefore, the Securities Act
exemption requires disclosure about whether such information is
available.
    If the issuer of the referenced security or loan or the referenced
issuer is not subject to Exchange Act reporting, but there is publicly
available information about the issuer, the clearing agency is required
under the Securities Act exemption to disclose that fact and disclose
where the information is available. This disclosure could include, for
example, a statement that the issuer is listed on a particular foreign
exchange and where information about issuers on such exchange can be
found.
    Under the Securities Act exemption, the required information could
be provided in the agreement covering the security-based swap the
registered or exempt clearing agency provides or makes available to the
counterparty or on a publicly available Web site maintained by the
clearing agency. We understand that master agreements and related
schedules for security-based swaps generally contain detailed
information about the terms of the security-based swaps.\68\ In
addition, each registered clearing agency is required to post and
maintain a current and complete version of its rules on its Web site.
Thus, we believe that parties engaging in security-based swaps
transactions would be familiar with looking to the agreements or a
clearing agency's Web site to obtain information. Given that clearing
agencies generally provide information in agreements and maintain
publicly available Web sites, we believe that providing the information
we are requiring to be disclosed in the agreement for the security-
based swap or on the clearing agency's publicly available Web site
would not pose significant burdens for clearing agencies.
---------------------------------------------------------------------------

    \68\ In addition, the rules proposed in the Trade
Acknowledgement and Verification Proposing Release and the SBSR
Proposing Release would require information about the security-based
swap to be reported to the security-based swap data repository.
---------------------------------------------------------------------------

B. Exemptions From Exchange Act Section 12 Registration--Exchange Act
Rules 12a-10 and Rule 12h-1(h)

1. Proposed Rule and Amendment
    We proposed Exchange Act Rule 12a-10 to exempt security-based swaps
that are or have been issued by a registered or exempt clearing agency
in reliance on the proposed exemption under the Securities Act from the
registration

requirements of Section 12(a) of the Exchange Act under certain
conditions. We also proposed an amendment to Exchange Act Rule 12h-1 to
exempt security-based swaps that are or have been issued by a
registered or exempt clearing agency from the registration requirements
of Section 12(g) of the Exchange Act under certain conditions.
2. Comments
    Commentators generally supported the proposed rule and
amendment.\69\ We received only two specific comments on the proposed
rule and amendment.\70\ One commentator suggested that the Commission
provide exemptions under the Exchange Act similar to the proposed rule
and amendment for transactions in uncleared security-based swaps
entered into between eligible contract participants and effected
through any trading platform.\71\ This commentator did not provide any
explanation as to why such exemptions were needed, including how
security-based swap trading platforms operate, that would enable us to
evaluate whether other exemptions under the Exchange Act are necessary
or appropriate. Another commentator suggested that the Commission
provide an exemption under Section 12(g) of the Exchange Act similar to
the proposed amendment for uncleared security-based swaps transactions
entered into solely between eligible contract participants.\72\
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    \69\ See FSR/ISDA/SIFMA Letter; Gibson Dunn Letter; GFI Letter;
and CIR Letter.
    \70\ See GFI Letter; and FSR/ISDA/SIFMA Letter.
    \71\ See GFI Letter.
    \72\ See FSR/ISDA/SIFMA Letter. This commentator stated its view
that investors in security-based swaps are primarily concerned with
the referenced security or loan, issuer or narrow-based security
index, and not the counterparty that is issuing the swap and that
requiring an eligible contract participant to register a class of
security-based swaps would be burdensome and would not provide any
meaningful or useful information about the security-based swaps This
commentator stated its view that the ongoing periodic reporting
requirements and proxy rules, among other requirements, that are
triggered by registration under the Exchange Act would not make
sense to apply in the context of security-based swaps. Id.
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    We requested comment in the Proposing Release and in the Interim
SBS Exemptions Release as to whether security-based swaps are or will
be transacted in a manner that would not permit the parties to rely on
existing exemptions under the Exchange Act.\73\ We also requested
comment in these releases on whether the Commission should consider
additional exemptions under the Exchange Act for security-based swaps
traded on a national securities exchange or security-based SEF with
eligible contract participants.\74\ These commentators' suggestions
related to exemptions affecting transactions that do not involve
registered or exempt clearing agencies and appear responsive to the
request for whether additional exemptions should be considered. Thus,
we believe that these commentators' suggestions relating to uncleared
security-based swaps are more appropriate to be considered in
connection with the Interim SBS Exemptions Release and, therefore, we
are not adopting rules at this time providing exemptions that would
apply to uncleared security-based swaps, including those that may be
effected on or through trading platforms.\75\
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    \73\ See Proposing Release at 30; and Interim SBS Exemptions
Release at 16.
    \74\ Id.
    \75\ See footnote 41 above for a discussion of comments received
on the Interim SBS Exemptions Release.
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3. Final Rule and Amendment
    Section 12(a) of the Exchange Act makes it unlawful for any broker
or dealer to effect a transaction in a non-exempt security on a
national securities exchange unless the security has been registered
under Section 12(b) of the Exchange Act for trading on that exchange.
Section 12(g)(1) of the Exchange Act, as modified by rule, requires any
issuer with more than $10,000,000 in total assets and a class of equity
securities held by 500 or more persons to register such security with
us.\76\
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    \76\ 15 U.S.C. 78l(g) and Exchange Act Rule 12g-1 [17 CFR
240.12g-1].
---------------------------------------------------------------------------

    Rule 12b-1 under the Exchange Act prescribes the procedures for
registration under both Section 12(b) and Section 12(g) of the Exchange
Act. Absent an exemption, security-based swaps that will be traded on
national securities exchanges would be required to be registered under
Section 12(b) of the Exchange Act. A registered or exempt clearing
agency issuing a security-based swap would be required, without an
available exemption, to register the security-based swaps under Section
12(b) of the Exchange Act before such security-based swaps could be
traded on a national securities exchange. In addition, if the security-
based swaps were considered equity securities of the registered or
exempt clearing agency, the registration provisions of Section 12(g) of
the Exchange Act could apply.
    As noted above, just as a registered or exempt clearing agency is
different from a conventional issuer that registers transactions in its
securities under the Securities Act, it is also different with respect
to registering a class of its securities, in this case the security-
based swap issued by the registered or exempt clearing agency, under
the Exchange Act. Therefore, we are adopting two rules relating to
Exchange Act registration of security-based swaps that are or have been
issued by a registered or exempt clearing agency in its function as a
CCP.
    We are adopting new Rule 12a-10 under the Exchange Act without any
changes from the proposal to exempt security-based swaps that are or
have been issued by a registered or exempt clearing agency in reliance
on Securities Act Rule 239 from Section 12(a) of the Exchange Act under
certain conditions.\77\ Exchange Act Rule 12a-10 as adopted provides
that Exchange Act Section 12(a) does not apply to any security-based
swap that:
---------------------------------------------------------------------------

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

     Is or will be issued by a registered or exempt clearing
agency in its function as a CCP with respect to the security-based
swap;
     The Commission has determined is required to be cleared,
or that the clearing agency is permitted to clear pursuant to its
rules;
     Is sold to an eligible contract participant in reliance on
Securities Act Rule 239; and
     Is traded on a national securities exchange registered
pursuant to Section 6(a) of the Exchange Act.
    We also are adopting an amendment to Exchange Act Rule 12h-1
without any changes from the proposal to exempt security-based swaps
that are or have been issued by a registered or exempt clearing agency
from the provisions of Section 12(g) of the Exchange Act under certain
conditions.\78\ Exchange Act Rule 12h-1(h) as adopted exempts from
Section 12(g) of the Exchange Act security-based swaps that are issued
by a registered or exempt clearing agency in its function as a CCP,
whether or not such security-based swap is traded on a national
securities exchange registered pursuant to Section 6(a) of the Exchange
Act or a registered or exempt security-based SEF.\79\ In addition, the
security-based swaps being issued by the registered or exempt clearing
agency in its function as a CCP must be required to be cleared, or be
permitted to be cleared pursuant to the clearing agency's rules, and
may only be sold to eligible contract participants.
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 78l(g).
    \79\ Exchange Act Rules 12h-1(d) and 12h-1(e) provide similar
exemptions for options and futures, respectively. See 17 CFR
240.12h-1(d) and (e).
---------------------------------------------------------------------------

    As we noted in the discussion of Securities Act Rule 239, we
believe the

interest of investors in the security-based swap is primarily with
respect to the referenced security or loan, referenced issuer or
referenced narrow-based security index, and not with respect to the
registered or exempt clearing agency functioning as the CCP.\80\
Therefore, we believe that requiring registration of security-based
swaps under the Exchange Act would not provide additional useful
information or meaningful protection to investors with respect to the
security-based swap. In addition, the other consequences of Exchange
Act registration, such as requirements for ongoing periodic reporting
and application of the proxy rules to the clearing agency, would not be
meaningful in the context of security-based swaps. At the same time,
requiring such registration likely would impose burdens on clearing
agencies issuing security-based swaps.\81\ Therefore, based on the
discussion above, we believe that exempting the registered or exempt
clearing agency from the requirements of the Exchange Act arising from
Section 12(a) or 12(g) is necessary or appropriate in the public
interest and is not inconsistent with the public interest or the
protection of investors.
---------------------------------------------------------------------------

    \80\ As noted above, a member or other user of the clearing
agency may have an interest in the financial condition of the
clearinghouse.
    \81\ See Public Law 111-203 Sec.  763(b).
---------------------------------------------------------------------------

    In addition, we note that similar Exchange Act exemptions exist for
standardized options issued by a registered options clearing agency and
security futures products issued by a registered or exempt clearing
agency.\82\ We believe that it is appropriate to establish comparable
regulatory treatment for security-based swaps issued by a registered or
exempt clearing agency with respect to the applicability of Section 12
of the Exchange Act to security-based swaps issued by a registered or
exempt clearing agency. Moreover, we believe it is important to further
the goal of facilitating clearing of security-based swaps while
maintaining appropriate investor protection.
---------------------------------------------------------------------------

    \82\ See Exchange Act Section 12(a) [15 U.S.C. 78l(a)]; Exchange
Act Rule 12a-9 [17 CFR 240.12a-9]; and Exchange Act Rules 12h-1(d)
and (e) [17 CFR 240.12h-1(d) and (e)].
---------------------------------------------------------------------------

    Consistent with the proposal, security-based swaps that will not be
cleared by a registered or exempt clearing agency in its function as a
CCP but are listed for trading on a national securities exchange or
registered or exempt security-based SEF will not be able to rely on
these exemptions from registration under Section 12(b) or Section 12(g)
of the Exchange Act.\83\
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    \83\ We recognize that security-based swaps that will be issued
by a clearing agency, as well as security-based swaps that will not
be cleared, may be traded on or through a national securities
exchange or a security-based SEF. If the national securities
exchange or security-based SEF is acting only in its capacity as a
system or platform for trading securities, we do not believe it
would be offering or selling the security-based swaps that are being
traded or transacted by market participants on or through its system
or platform, for purposes of either the Securities Act or the
Exchange Act registration provisions applicable to security-based
swaps. If the security-based swap being traded on or through the
national securities exchange or security-based SEF will, by its
terms, be cleared by a clearing agency in its function as a CCP, the
security-based swap will be issued by such clearing agency, similar
to standardized options and security-future products that are traded
on national securities exchanges and cleared by registered clearing
agencies. For a security-based swap that will not, by its terms, be
cleared by a clearing agency in its function as a CCP, market
participants must evaluate the availability of exemptions under the
Securities Act and the Exchange Act for their security-based swap
transactions.
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C. Exemption From the Trust Indenture Act--Trust Indenture Act Rule 4d-
11

1. Proposed Rule
    We proposed Rule 4d-11 under Section 304(d) of the Trust Indenture
Act that would exempt any security-based swap offered and sold in
reliance on Securities Act Rule 239 from having to comply with the
provisions of the Trust Indenture Act.
2. Comments
    Commentators generally supported the proposed rule.\84\ We received
only two specific comments on the proposed rule.\85\ Consistent with
the comments noted above, these commentators suggested that the
Commission provide an exemption under the Trust Indenture Act similar
to the proposed rule for certain uncleared security-based swap
transactions involving eligible contract participants.\86\ As noted
above, these commentators' suggestions related to exemptions affecting
transactions that do not involve registered or exempt clearing agencies
and appear responsive to the request for whether additional exemptions
should be considered. Thus, we believe that these commentators'
suggestions relating to uncleared security-based swaps are more
appropriate to be considered in connection with the Interim SBS
Exemptions Release and, therefore, we are not adopting rules at this
time providing exemptions that would apply to uncleared security-based
swaps, including those that may be effected on or through trading
platforms.\87\
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    \84\ See FSR/ISDA/SIFMA Letter; Gibson Dunn Letter; GFI Letter;
and CIR Letter.
    \85\ See GFI Letter; and FSR/ISDA/SIFMA Letter.
    \86\ Id. One of these commentators stated its view that because
a security-based swap is a contract between two persons, security-
based swap counterparties would not meaningfully benefit from the
substantive and procedural protections of the Trust Indenture Act.
This commentator also stated its view that eligible contract
participants are capable of enforcing obligations under security-
based swaps without the protections of the Trust Indenture Act and,
therefore, that imposing the requirements of the Trust Indenture Act
on security-based swaps would not further the goals of the Trust
Indenture Act and would introduce unnecessary costs and burdens to
these transactions. See FSR/ISDA/SIFMA Letter.
    \87\ See footnote 41 above for a discussion of comments received
on the Interim SBS Exemptions Release.
---------------------------------------------------------------------------

3. Final Rule
    We are adopting Rule 4d-11 under Section 304(d) of the Trust
Indenture Act without any changes from the proposal. Final Rule 4d-11
exempts any security-based swap offered and sold in reliance on
Securities Act Rule 239 from having to comply with the provisions of
the Trust Indenture Act.\88\ We adopted a similar exemption on a
temporary basis for eligible CDS.\89\
---------------------------------------------------------------------------

    \88\ The Trust Indenture Act applies to debt securities sold
through the use of the mails or interstate commerce. Section 304 of
the Trust Indenture Act exempts from the Trust Indenture Act a
number of securities and transactions. Section 304(a) of the Trust
Indenture Act exempts securities that are exempt under Securities
Act Section 3(a) but does not exempt from the Trust Indenture Act
securities that are exempt by Commission rule. Accordingly, while
Securities Act Rule 239 exempts the offer and sale of security-based
swaps satisfying certain conditions from all the provisions of the
Securities Act (other than Section 17(a)), the Trust Indenture Act
would continue to apply absent Rule 4d-11.
    \89\ See Rule 4d-11T [17 CFR 260.4d-11T]. See also footnote 29
above.
---------------------------------------------------------------------------

    The Trust Indenture Act is aimed at addressing problems that
unregulated debt offerings pose for investors and the public,\90\ and
provides a mechanism for debtholders to protect and enforce their
rights with respect to the debt. We do not believe that the protections
contained in the Trust Indenture Act are needed to protect eligible
contract participants to whom a sale of a security-based swap is made
in reliance on Securities Act Rule 239. The identified problems that
the Trust Indenture Act is intended to address generally do not occur
in the offer and sale of security-based swaps.\91\ For example,
security-based swaps are contracts between two parties and, as a
result, do not raise the same problem regarding the ability of parties
to enforce their rights under the instruments as would, for example, a
debt offering to the public. Moreover, through novation, the clearing
agency functionally becomes the counterparty to the buyer and the
seller, and, in the case where

buyer and seller are both members of the CCP, each would look directly
to the clearing agency to satisfy the obligations under the security-
based swap. As a consequence, enforcement of contractual rights and
obligations under the security-based swap would occur directly between
such parties, and the Trust Indenture Act provisions would not provide
any additional meaningful substantive or procedural protections.
---------------------------------------------------------------------------

    \90\ See 15 U.S.C. 77bbb(a).
    \91\ 15 U.S.C. 77bbb(a).
---------------------------------------------------------------------------

    Accordingly, due to the nature of security-based swaps as contracts
that will be or have been issued by a registered or exempt clearing
agency in its function as a CCP, we do not believe the protections
contained in the Trust Indenture Act are needed with respect to these
instruments. Therefore, we believe the exemption is necessary or
appropriate in the public interest, consistent with the protection of
investors and the purposes fairly intended by the Trust Indenture Act.

D. Implications of Security-Based Swaps as Securities

    The exemptions we are adopting in this release are not available
for security-based swaps that are not cleared (``uncleared security-
based swaps''), including, for example, uncleared security-based swaps
entered into on organized markets, such as a security-based SEF or a
national securities exchange. It is our understanding that transactions
involving uncleared security-based swaps entered into between eligible
contract participants may occur today on organized platforms that would
likely register as security-based SEFs, and we understand that this
activity will likely continue after the full implementation of Title
VII.\92\ As noted above, security-based swaps are included in the
definition of security under the Securities Act and the Exchange Act
and are subject to the full panoply of the federal securities laws,
including the registration requirements of Section 5 of the Securities
Act and Section 12 of the Exchange Act. Because the exemptions we are
adopting in this release are not available with respect to uncleared
security-based swaps, counterparties that are eligible contract
participants and engaging in an uncleared security-based swap would
have to either rely on other available exemptions from the registration
requirements of the Securities Act, the Exchange Act, and, if
applicable, the Trust Indenture Act, or consider whether to register
such transaction and/or class of security.\93\
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    \92\ See Security-Based SEF Proposing Release (proposed rules
relating to security-based SEFs would allow for transactions in
uncleared security-based swaps to occur on registered security-based
SEFs).
    \93\ Counterparties engaging in an uncleared security-based swap
may rely upon the relief discussed in footnote 33 above, which is
not affected by this rulemaking. However, such relief will expire
upon the compliance date for the final rules the Commission may
adopt further defining both the terms ``security-based swap'' and
``eligible contract participant.''
---------------------------------------------------------------------------

    Further, as noted above, security-based swap transactions involving
persons that are not eligible contract participants, whether the
transaction is cleared or not cleared, must be registered under the
Securities Act and effected on a national securities exchange.\94\ One
commentator suggested that the Commission adopt a simplified disclosure
and registration scheme for those security-based swaps transactions
that may involve persons who are not eligible contract
participants.\95\ As the commentator's suggestions are outside the
scope of the proposed rules, we are not considering the suggestions as
part of this rulemaking. In the future, we may evaluate the need for a
simplified disclosure and registration scheme for security-based swaps
that may be offered and sold to persons who are not eligible contract
participants.
---------------------------------------------------------------------------

    \94\ See footnote 64 above and accompanying text.
    \95\ See Gibson Dunn Letter.
---------------------------------------------------------------------------

E. Expiration of Temporary Exemptions for Eligible CDS

    As noted above, we adopted the temporary exemptions for eligible
CDS to facilitate the operation of clearing agencies functioning as
CCPs for eligible CDS. Those exemptions expire on April 16, 2012. The
exemptions we are adopting in this release cover all security-based
swaps that may be cleared, including eligible CDS that currently are
being issued in reliance on the temporary exemptions for eligible CDS.
Clearing agencies that have been actively engaged as CCPs in clearing
eligible CDS transactions in reliance on the temporary exemptions for
eligible CDS will be required to comply with the conditions of the
exemptions we are adopting in this release upon the effective date of
the final rules.

III. Certain Administrative Law Matters

    The final rules will become effective on April 16, 2012. The
Administrative Procedure Act generally requires that an agency publish
an adopted rule in the Federal Register 30 days before it becomes
effective.\96\ This requirement, however, does not apply if a
substantive rule grants or recognizes an exemption or relieves a
restriction or if the Commission finds good cause not to delay the
effective date.\97\ The Commission finds that the final rules meet both
criteria.
---------------------------------------------------------------------------

    \96\ See 5 U.S.C. 553(d).
    \97\ See 5 U.S.C. 553(d)(1) and (3).
---------------------------------------------------------------------------

    The final rules provide exemptions under the Securities Act, the
Exchange Act and the Trust Indenture Act for security-based swaps
issued by a registered or exempt clearing agency in its function as a
CCP. In addition, as discussed above, we adopted the temporary
exemptions for eligible CDS to facilitate the operation of clearing
agencies as CCPs for eligible CDS. The exemptions we are adopting in
this release cover all security-based swaps that may be cleared,
including eligible CDS that currently are being issued in reliance on
the temporary exemptions for eligible CDS. Given that the temporary
exemptions for eligible CDS will expire on April 16, 2012, the final
rules are needed to be effective by that date in order to continue
facilitating the operation of CCPs in clearing eligible CDS.
    Although the final rules condition the exemptions on the registered
or exempt clearing agency disclosing certain information with respect
to the security-based swaps it clears, we believe that providing this
information will not pose significant transition burdens for the three
clearing agencies that have been actively engaged as CCPs in clearing
eligible CDS in reliance on the temporary exemptions for eligible CDS,
which expire on April 16, 2012.\98\ As noted above, these three
clearing agencies are deemed registered as clearing agencies for
purposes of clearing security-based swaps and are able to engage as
CCPs in clearing eligible CDS, in part, pursuant to the temporary
exemptive order relating to Sections 5 and 6 of the Exchange Act.\99\
The temporary exemptive order contains the conditions relating to,
among other things, available information about the eligible CDS and
the underlying reference entity of such eligible CDS. Since these
clearing agencies have been required to comply with these conditions,
they should have the information readily available regarding the
eligible CDS that they would need to comply with the conditions of the
final rules we are adopting in this release. The final rules provide
that these clearing agencies either make the information publicly

available on the clearing agency's Web site or in an agreement the
clearing agency provides or makes available to its counterparty to the
security-based swap transaction. As discussed below, we estimate that
each clearing agency will spend approximately 2 hours in order to
comply with this information disclosure requirement.\100\
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    \98\ Only the three clearing agencies that have been actively
engaged as CCPs in clearing eligible CDS in reliance on the
temporary exemptions for eligible CDS will initially be eligible to
rely upon the exemptions contained in the final rules because the
clearing agency rules currently only cover certain eligible CDS.
    \99\ See footnote 30 above.
    \100\ See discussion in Section V.C. below.
---------------------------------------------------------------------------

IV. Economic Analysis

    As discussed above, we are adopting rules and amendments to
existing rules to provide certain exemptions under the Securities Act,
the Exchange Act, and the Trust Indenture Act for security-based swaps
issued by a registered or exempt clearing agency in its function as a
CCP. The final rules, which have not been changed from the proposal,
exempt security-based swaps that are or will be issued to eligible
contract participants by, and in a transaction involving, a registered
or exempt clearing agency in its function as a CCP from all provisions
of the Securities Act, other than the Section 17(a) antifraud
provision, as well as from the registration requirements under Exchange
Act Section 12 and the provisions of the Trust Indenture Act.
    We requested comment on the economic analysis included in the
Proposing Release, but we did not receive any comments.
    The final rules are intended to further the goal of central
clearing of security-based swaps by providing exemptions for the
issuance of security-based swaps by a registered or exempt clearing
agency in its function as a CCP from certain regulatory provisions that
might otherwise impair their ability to engage in such clearing
activities. Without an exemption, (1) a security-based swap transaction
involving a registered or exempt clearing agency functioning as a CCP
would have to be registered under the Securities Act; (2) the security-
based swaps that are or have been issued in a transaction involving a
registered or exempt clearing agency functioning as a CCP would have to
be registered as a class of securities under the Exchange Act; and (3)
the provisions of the Trust Indenture Act would apply. We believe that
requiring compliance with these provisions likely would unnecessarily
impede central clearing of security-based swaps and that the exemptions
are necessary to facilitate the intent of the Dodd-Frank Act with
respect to mandatory clearing of security-based swaps. Absent these
exemptions, we believe that registered or exempt clearing agencies
would incur additional costs due to compliance with the registration
requirements of the Securities Act and the Exchange Act solely because
of their clearing functions.\101\
---------------------------------------------------------------------------

    \101\ See, e.g., the discussion in the Mandatory Clearing
Proposing Release and the Clearing Agencies Proposing Release.
---------------------------------------------------------------------------

    The final rules should facilitate clearing of security-based swaps
by clearing agencies functioning as CCPs at minimal cost to the CCP.
Because reliance on the exemptions will not require any filing with or
submission to us, other than costs incurred to comply with the
information condition of Securities Act Rule 239, the costs of being
able to rely on such exemptions, we believe, are minimal.
    The exemptions would treat security-based swaps issued or cleared
by a registered or exempt clearing agency in its function as a CCP in
the same manner as similar types of securities, such as security
futures products and standardized options.\102\ The exemptions are
similar to the temporary exemptions for eligible CDS. A registered or
exempt clearing agency issuing security-based swaps in its function as
a CCP would benefit from the exemptions because it would not have to
file registration statements covering the offer and sale of the
security-based swaps. If a registered or exempt clearing agency is not
required to register the offer and sale of security-based swaps, it
would not have to incur the costs of such registration, including legal
and accounting costs. Some of these costs, such as the costs of
obtaining audited financial statements, may still be incurred by the
clearing agency as a result of other regulatory requirements for
clearing agencies.
---------------------------------------------------------------------------

    \102\ See, e.g., Securities Act Section 3(a)(14) [15 U.S.C.
77c(a)(14)]; Securities Act Rule 238 [17 CFR 230.238]; Exchange Act
Section 12(a) [15 U.S.C. 78l]; and Exchange Act Rules 12h-1(d) and
(e) [17 CFR 240.12h-1(d) and (e)].
---------------------------------------------------------------------------

    Exchange Act Rule 12a-10 provides that the Exchange Act Section
12(a) does not apply to any security-based swap that is issued by a
registered or exempt clearing agency in reliance on Securities Act Rule
239 and traded on a national securities exchange. In addition, Exchange
Act Rule 12h-1(h) exempts from Exchange Act Section 12(g) security-
based swaps that are issued by a registered or exempt clearing agency
in reliance on Securities Act Rule 239, whether or not such security-
based swap is traded on a national securities exchange or a registered
or exempt security-based SEF. Thus, the clearing agency will not incur
the costs of registration or the costs associated with Exchange Act
periodic reporting. The availability of exemptions under the Securities
Act, the Exchange Act, and the Trust Indenture Act means that
registered or exempt clearing agencies will not incur the costs
associated with registering transactions or classes of securities, such
as costs associated with preparing documents describing security-based
swaps, preparing indentures, or arranging for the services of a
trustee.
    The final rules we are adopting exempt offers and sales of
security-based swaps that are or will be issued to eligible contract
participants by, and in a transaction involving, a registered or exempt
clearing agency in its function as a CCP from all provisions of the
Securities Act, other than the Section 17(a) antifraud provision, as
well as from the registration requirements under Section 12 of the
Exchange Act and the provisions of the Trust Indenture Act.\103\
Because these exemptions are available to any registered or exempt
clearing agency offering and selling security-based swaps to an
eligible contract participant, in its function as a CCP, we do not
believe that the exemptions impose a burden on competition. In
contrast, we believe the exemptions as adopted will facilitate moving
security-based swaps into centralized clearing, furthering the goal of
the Dodd-Frank Act to reduce systemic risk while improving market
access to hedging instruments that can contribute to lower costs of
raising capital. In addition, we believe the exemptions will promote
efficiency by treating security-based swaps issued by clearing agencies
in a manner similar to standardized options and security futures issued
by clearing agencies. Harmonizing the regulatory treatment of these
securities under the Securities Act, Exchange Act, and the Trust
Indenture Act should reduce the potential for regulatory arbitrage
between such products.
---------------------------------------------------------------------------

    \103\ Section 23(a)(2) of the Exchange Act requires us, when
adopting rules under the Exchange Act, to consider the impact that
any new rule would have on competition. 15 U.S.C. 78w(a)(2). Section
23(a)(2) prohibits us from adopting any rule that would impose a
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Exchange Act. In addition,
Section 2(b) of the Securities Act and Section 3(f) of the Exchange
Act require us, when engaging in rulemaking where we are required to
consider or determine whether an action is necessary or appropriate
in the public interest, to also consider whether the action will
promote efficiency, competition, and capital formation. 15 U.S.C.
77b(b) and 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We also believe that the ability to novate security-based swaps
with registered or exempt clearing agencies functioning as CCPs will
improve the transparency of the security-based swap market and provide
greater assurance to

participants as to the capacity of the counterparty to perform its
obligations under the security-based swap. We believe that clearing
agencies providing the information required by Securities Act Rule
239(b)(3) may provide transparency among clearing agencies because it
will make it easier for clearing agencies and eligible contract
participants to determine what security-based swaps are being cleared.
We believe that increased transparency in the security-based swap
market could help to limit market turmoil and thereby facilitate the
capital formation process.
    We recognize that a consequence of the exemptions would be the
unavailability of certain remedies under the Securities Act and the
Exchange Act and certain protections under the Trust Indenture Act.
Absent an exemption, a clearing agency may have to file a registration
statement covering the offer and sale of the security-based swaps, may
have to register the class of eligible security-based swaps that it has
issued or cleared under the Exchange Act, and may have to satisfy the
applicable provisions of the Trust Indenture Act, which would provide
investors with civil remedies in addition to antifraud remedies. A
registration statement covering the offer and sale of security-based
swaps may provide certain information about the clearing agency,
security-based swap contract terms, and the identification of the
particular reference securities, issuers, and loans underlying the
security-based swap. However, it would not necessarily provide the type
of information necessary to assess the risk of the reference issuer,
security, narrow-based security index, or loan. Further, while a
registration statement would provide information to eligible contract
participants, as well as to the market as a whole, registered clearing
agencies already are required to make their audited financial
statements and other information about themselves publicly
available.\104\ While an investor would be able to pursue an antifraud
action in connection with the purchase and sale of security-based swaps
under Exchange Act Section 10(b),\105\ it would not be able to pursue
civil remedies under Securities Act Sections 11 or 12.\106\ We could
still pursue an antifraud action in the offer and sale of security-
based swaps issued by a clearing agency.\107\
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    \104\ See Regulation of Clearing Agencies, Release No. 34-16900
(Jun. 17. 1980), 45 FR 41920 (Jun. 23, 1980); and Exchange Act Rule
19b-4(l) and (m) [17 CFR 240.19b-4(l) and (m)].
    \105\ 15 U.S.C. 78j(b).
    \106\ 15 U.S.C. 77k and 77l.
    \107\ See 15 U.S.C. 77q and 15 U.S.C. 78j(b).
---------------------------------------------------------------------------

    Securities Act Rule 239(b)(3) requires a clearing agency availing
itself of the Securities Act exemption to include in an agreement
covering the security-based swap the clearing agency provides or makes
available to its counterparty or include on a publicly available Web
site maintained by the clearing agency:
     A statement identifying any security, issuer, loan, or
narrow-based security index underlying the security-based swap;
     A statement indicating the securities or loans to be
delivered (or class of securities or loans), or if cash settled, the
securities, loans or narrow-based security index (or class of
securities or loans) whose value will determine the settlement
obligation under the security-based swap; and
     A statement of whether the issuer of any security or loan,
each issuer of a security in a narrow-based security index, or each
referenced issuer underlying the security-based swap is subject to the
reporting requirements of Exchange Act Section 13 or Section 15(d) and,
if not subject to such reporting requirements, whether public
information, including financial information, about any such issuer is
available and where the information is available.
    We believe some of the information the clearing agency will make
available will be the same information the clearing agency collects and
analyzes in making its business decision to plan to accept the
security-based swap, or any group, category, type, or class of
security-based swaps, for clearing. A clearing agency may incur costs
in providing or making available this information in order to rely on
the exemption.\108\
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    \108\ We estimate that the total annual reporting burden for
clearing agencies to provide the information in their agreements
relating to security-based swaps or on their Web site to comply with
Securities Act Rule 239(b)(3) will be 240 hours. We also estimate
that 75% of the burden of preparation is carried by the clearing
agency internally and that 25% of the burden is carried by outside
professionals retained by the clearing agency at an average cost of
$400 per hour. See discussion in Section V.C. below.
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V. Paperwork Reduction Act

A. Background

    Certain provisions of Securities Act Rule 239 would result in
``collection of information requirements'' within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\109\ We published a notice
requesting comment on the collection of information requirements in the
Proposing Release for Securities Act Rule 239 and we submitted these
requirements to the Office of Management and Budget (``OMB'') for
review in accordance with the PRA. We requested comment on the
collection of information requirements included in the Proposing
Release for Securities Act Rule 239, but we did not receive any
comments.
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    \109\ 44 U.S.C. 3501 et seq.
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    An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number. The title for this collection of
information is:
     ``Rule 239'' (new collection of information).
    Rule 239 is a new collection of information under the Securities
Act. This new collection of information relates to the information
requirements for clearing agencies seeking to rely on the final rules.
There is no mandatory retention period for the information disclosed,
and the information disclosed will be made publicly available on the
clearing agency's Web site or in an agreement the clearing agency
provides or makes available to its counterparty to the security-based
swap transaction. The collection of information is mandatory and it
will not be kept confidential.

B. Summary of Collection of Information

    As discussed above, one condition to the availability of the
exemption provided in Securities Act Rule 239 for offers and sales of
security-based swaps issued by, and in a transaction involving, a
registered or exempt clearing agency in its function as a CCP is that
such registered or exempt clearing agency has an agreement covering the
security-based swap that is provided or made available to its
counterparty or a publicly available Web site maintained by the
registered or exempt clearing agency that contains the following:
     A statement identifying any security, issuer, loan, or
narrow-based security index underlying the security-based swap;
     A statement indicating the security or loan to be
delivered (or class of securities or loans), or if cash settled, the
security, loan or narrow-based security index (or class of securities
or loans) whose value is to be used to determine the amount of the
settlement obligation under the security-based swap; and
     A statement of whether the issuer of any security or loan,
each issuer of a security in a narrow-based security index, or each
referenced issuer underlying the security-based swap is subject to the
reporting requirements of

Exchange Act Section 13 or Section 15(d) and, if not subject to such
reporting requirements, whether public information, including financial
information, about any such issuer is available and where the
information is available.

C. Paperwork Reduction Act Burden Estimates

    For purposes of the PRA, we estimate that there will be an annual
incremental increase in the paperwork burden for clearing agencies as
issuers of security-based swaps to comply with our new collection of
information requirements. The disclosure provisions of Securities Act
Rule 239 apply to registered or exempt clearing agencies relying on the
exemption from the registration requirements of the Securities Act.
These disclosure provisions will require those relying on the exemption
to make certain information about security-based swaps that may be
cleared by the registered or exempt clearing agency available to
eligible contract participants and other market participants. This
estimate is consistent with the estimate in the Proposing Release and
we received no comments on this estimate.
    Currently, three clearing agencies clear eligible CDS, which
include security-based swaps.\110\ The obligation to centrally clear
certain security-based swap transactions is a new requirement under
Title VII of the Dodd-Frank Act, and clearing agencies that are deemed
registered as clearing agencies are eligible to clear security-based
swaps. Based on the fact that there are currently three clearing
agencies authorized to clear security-based swaps and that there could
conceivably be a few more in the foreseeable future,\111\ we estimate
that three to six clearing agencies may plan to centrally clear
security-based swaps and seek to rely on the exemptions we are adopting
in this release, and therefore, would be subject to the collection of
information.\112\ For purposes of the PRA, we estimate six clearing
agencies would seek to rely on the exemptions we are adopting in this
release. This estimate is consistent with the estimate in the Proposing
Release and we received no comments on this estimate.
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    \110\ These clearing agencies are ICE Clear Credit LLC (f/k/a
ICE U.S. Trust LLC), ICE Clear Europe, Ltd., and the Chicago
Mercantile Exchange Inc. See footnote 30 above.
    \111\ We do not expect there to be a large number of clearing
agencies that clear security-based swaps, based on the significant
level of capital and other financial resources necessary for the
formation of a clearing agency.
    \112\ In the Proposing Release, we estimated that four to six
clearing agencies may plan to centrally clear security-based swaps
and seek to rely on the exemptions because at that time four
clearing agencies were authorized to clear eligible CDS pursuant to
certain temporary exemptive orders. See footnote 28 above. However,
subsequent to the Proposing Release, three of these clearing
agencies were deemed registered under Exchange Act Section 17A and
currently are performing the functions of a CCP for eligible CDS.
The fourth clearing agency was not deemed registered under Exchange
Act Section 17A and because its temporary exemptive order has
expired it is not currently performing the functions of a CCP for
eligible CDS. See footnote 30 above.
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    We believe that a registered or exempt clearing agency issuing
security-based swaps in its function as a CCP could incur some costs
associated with disclosing, or providing or making available, certain
information in accordance with Securities Act Rule 239, either in its
agreement regarding the security-based swap or on its publicly
available Web site, with respect to the security-based swap. A clearing
agency also could incur costs associated with updating the information
on its Web site or in its agreements, if necessary. The purpose of the
requirement is to inform investors about whether there is publicly
available information about the issuer of the referenced security or
referenced issuer and we believe that a clearing agency likely already
would be collecting and making public the type of information required
by the final rule.\113\
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    \113\ As noted above, three clearing agencies are deemed
registered as clearing agencies for purposes of clearing security-
based swaps and are able to engage as CCPs in clearing eligible CDS,
in part, pursuant to the temporary exemptive order relating to
Sections 5 and 6 of the Exchange Act. The temporary exemptive order
contains conditions to such relief relating to, among other things,
available information about the eligible CDS and the underlying
reference entity of such eligible CDS. See footnote 30 above. We
also note that we proposed rules in the Mandatory Clearing Proposing
Release and the SBSR Proposing Release that would require some of
the same information as the requirements adopted in this release. If
we adopt those rules with information collections similar to that
adopted in this release, we may adjust our PRA estimates.
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    We estimate that each registered or exempt clearing agency issuing
security-based swaps in its function as a CCP will spend approximately
2 hours each time it provides or updates the information in its
agreements relating to security-based swaps or on its Web site.\114\ We
estimate that each registered or exempt clearing agency will provide or
update the information 20 times per year.\115\ Therefore, we estimate
that the total annual reporting burden for clearing agencies to provide
the information in their agreements relating to security-based swaps or
on their Web site to comply with Securities Act Rule 239(b)(3) will be
240 hours (20 x 2 hours x 6 respondents). We estimate that 75% of the
burden of preparation is carried by the clearing agency internally and
that 25% of the burden is carried by outside professionals retained by
the clearing agency at an average cost of $400 per hour. These
estimates are consistent with the estimates in the Proposing Release
and we received no comments on these estimates.
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    \114\ In the Mandatory Clearing Proposing Release, we estimated
that four hours would be required by a clearing agency to post a
security-based swap submission on its Web site to comply with
proposed Rule 19b-4(o)(5). We believe that the information that
would be required to rely on the exemptions we are adopting in this
release is less extensive than the information that would be
required in a security-based swap submission. Therefore, we estimate
that the burden to include the information that would be required to
rely on the exemptions in an agreement or on the clearing agency's
Web site would be less than the burden to post a security-based swap
submission.
    \115\ In the Mandatory Clearing Proposing Release, we estimated
that each clearing agency will submit 20 security-based swap
submissions annually. Each submission will relate to a security-
based swap, or group, category, type or class of security-based swap
that the clearing agency plans to accept for clearing. We are using
that estimate as the basis for our estimate as to how many times per
year a clearing agency would be required to provide the information
in reliance on the exemptions.
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D. Recordkeeping Requirements

    There is no recordkeeping requirement associated with Securities
Act Rule 239.

VI. Regulatory Flexibility Act Certification

    Under Section 605(b) of the Regulatory Flexibility Act,\116\ we
certified that, when adopted, Rule 239 under the Securities Act, Rule
12a-10 under the Exchange Act, the amendment to Rule 12h-1 under the
Exchange Act, and Rule 4d-11 under the Trust Indenture Act would not
have a significant economic impact on a substantial number of small
entities. This certification, including our basis for the
certification, was included in Part VIII of the Proposing Release. We
solicited comments on the potential impact of these rules and amendment
on small entities, but received none. The final rules are identical to
the proposed rules. Accordingly, there have been no changes to the
proposal that would alter the basis upon which the certification was
made.
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    \116\ 5 U.S.C. 605(b).
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VII. Statutory Authority and Text of the Rules and Amendments

    The rules and amendments described in this release are being
adopted under the authority set forth in Sections 19 and 28 of the
Securities Act, Sections 3C, 12(h), 23(a) and 36 of the Exchange

Act and Section 304(d) of the Trust Indenture Act.

List of Subjects in 17 CFR Parts 230, 240 and 260

    Reporting and recordkeeping requirements, Securities.

Text of the Rules and Amendments

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

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for Part 230 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, unless otherwise noted.
* * * * *

0
2. Section 230.239 is added to read as follows:

Sec.  230.239  Exemption for offers and sales of certain security-based
swaps.

    (a) Provided that the conditions of paragraph (b) of this section
are satisfied and except as expressly provided in paragraph (c) of this
section, the Act does not apply to any offer or sale of a security-
based swap that:
    (1) Is issued or will be issued by a clearing agency that is either
registered as a clearing agency under Section 17A of the Securities
Exchange Act of 1934 (15 U.S.C. 78q-1) or exempt from registration
under Section 17A of the Securities Exchange Act of 1934 pursuant to a
rule, regulation, or order of the Commission (``eligible clearing
agency''), and
    (2) The Commission has determined is required to be cleared or that
is permitted to be cleared pursuant to the eligible clearing agency's
rules.
    (b) The exemption provided in paragraph (a) of this section applies
only to an offer or sale of a security-based swap described in
paragraph (a) of this section if the following conditions are
satisfied:
    (1) The security-based swap is offered or sold in a transaction
involving the eligible clearing agency in its function as a central
counterparty with respect to such security-based swap;
    (2) The security-based swap is sold only to an eligible contract
participant (as defined in Section 1a(18) of the Commodity Exchange Act
(7 U.S.C. 1a(18))); and
    (3) The eligible clearing agency posts on its publicly available
Web site at a specified Internet address or includes in its agreement
covering the security-based swap that the eligible clearing agency
provides or makes available to its counterparty the following:
    (i) A statement identifying any security, issuer, loan, or narrow-
based security index underlying the security-based swap;
    (ii) A statement indicating the security or loan to be delivered
(or class of securities or loans), or if cash settled, the security,
loan, or narrow-based security index (or class of securities or loans)
whose value is to be used to determine the amount of the settlement
obligation under the security-based swap; and
    (iii) A statement of whether the issuer of any security or loan,
each issuer of a security in a narrow-based security index, or each
referenced issuer underlying the security-based swap is subject to the
reporting requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m and 78o) and, if not subject to
such reporting requirements, whether public information, including
financial information, about any such issuer is available and where the
information is available.
    (c) The exemption provided in paragraph (a) of this section does
not apply to the provisions of Section 17(a) of the Act (15 U.S.C.
77q(a)).

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

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

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

0
4. Section 240.12a-10 is added to read as follows:

Sec.  240.12a-10  Exemption of security-based swaps from section 12(a)
of the Act.

    The provisions of Section 12(a) of the Act (15 U.S.C. 78l(a)) do
not apply to any security-based swap that:
    (a) Is issued or will be issued by a clearing agency registered as
a clearing agency under Section 17A of the Act (15 U.S.C. 78q-1) or
exempt from registration under Section 17A of the Act pursuant to a
rule, regulation, or order of the Commission, in its function as a
central counterparty with respect to the security-based swap;
    (b) The Commission has determined is required to be cleared or that
is permitted to be cleared pursuant to the clearing agency's rules;
    (c) Is sold to an eligible contract participant (as defined in
Section 1a(18) of the Commodity Exchange Act (7 U.S.C. 1a(18))) in
reliance on Rule 239 under the Securities Act of 1933 (17 CFR 230.239);
and
    (d) Is traded on a national securities exchange registered pursuant
to Section 6(a) of the Act (15 U.S.C. 78f(a)).

0
5. Section 240.12h-1 is amended by adding paragraph (h) to read as
follows:

Sec.  240.12h-1  Exemptions from registration under section 12(g) of
the Act.

* * * * *
    (h) Any security-based swap that is issued by a clearing agency
registered as a clearing agency under Section 17A of the Act (15 U.S.C.
78q-1) or exempt from registration under Section 17A of the Act
pursuant to a rule, regulation, or order of the Commission in its
function as a central counterparty that the Commission has determined
must be cleared or that is permitted to be cleared pursuant to the
clearing agency's rules, and that was sold to an eligible contract
participant (as defined in Section 1a(18) of the Commodity Exchange Act
(7 U.S.C. 1a(18))) in reliance on Rule 239 under the Securities Act of
1933 (17 CFR 230.239).
* * * * *

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF
1939

0
6. The authority citation for Part 260 continues to read as follows:

    Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3,
80b-4, and 80b-11.
* * * * *

0
7. Section 260.4d-11 is added to read as follows:

Sec.  260.4d-11  Exemption for security-based swaps offered and sold in
reliance on Rule 239 under the Securities Act of 1933 (17 CFR 230.239).

    Any security-based swap offered and sold in reliance on Rule 239
under the Securities Act of 1933 (17 CFR 230.239), whether or not
issued under an indenture, is exempt from the Act.

    Dated: March 30, 2012.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-8141 Filed 4-4-12; 8:45 am]
BILLING CODE P