[Federal Register: October 20, 2010 (Volume 75, Number 202)]
[Rules and Regulations]
[Page 64643-64654]
[DOCID:fr20oc10-6]

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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-63094; File No. S7-28-10]
RIN 3235-AK73

Reporting of Security-Based Swap Transaction Data

AGENCY: Securities and Exchange Commission.

ACTION: Interim final temporary rule; request for comments.

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

SUMMARY: Section 766 of Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act'') requires the
Securities and Exchange Commission (``Commission'') to adopt an interim
final rule for the reporting of security-based swaps entered into
before July 21, 2010, the terms of which had not expired as of that
date (``pre-enactment security-based swap transactions''), within 90
days of the enactment of the Dodd-Frank Act. Pursuant to this
requirement, the Commission today is adopting an interim final
temporary rule that requires specified counterparties to pre-enactment
security-based swap transactions to report certain information relating
to pre-enactment security-based swaps to a registered security-based
swap data repository or to the Commission by the compliance date
established in the security-based swap reporting rules required under
Sections 3C(e) and 13A(a) of the Securities Exchange Act of 1934
(``Exchange Act''),\1\ or within 60 days after a registered security-
based swap data repository commences operations to receive and maintain
data concerning such security-based swaps, whichever occurs first and
report information relating to pre-enactment security-based swaps to
the Commission upon request. The Commission also is issuing an
Interpretive Note to the rule that states that counterparties that may
be required to report to the Commission will need to preserve
information pertaining to the terms of these pre-enactment security-
based swaps.
---------------------------------------------------------------------------

    \1\ All references to the Exchange Act contained in this release
refer to the Securities Exchange Act of 1934, as amended by the
Dodd-Frank Act.

DATES: Effective Date: Sec.  240.13Aa-2T is effective October 20, 2010
and will remain in effect until January 12, 2012. If the Commission
publishes permanent recordkeeping and reporting rules for security-
based transactions before January 12, 2012, that rule will terminate
the effectiveness of Sec.  240.13Aa-2T.
    Comment Date: Comments on the interim final temporary rule should
be received on or before December 20, 2010.

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

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/final.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-28-10 on the subject line; or
     Use the Federal eRulemaking Portal (http://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

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

All submissions should refer to File Number S7-28-10. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/interim-final-temp.shtml).
Comments are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549 on official business days between the hours of 10 a.m. and 3 p.m.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.

FOR FURTHER INFORMATION CONTACT: David Michehl, Senior Special Counsel,
at<PHONE_NUMBER>, Sarah Albertson, Special Counsel, at<PHONE_NUMBER>,
Natasha Cowen, Special Counsel, at<PHONE_NUMBER>, Yvonne Fraticelli,
Special Counsel, at<PHONE_NUMBER>, Geoffrey Pemble, Special Counsel,
at<PHONE_NUMBER>, Brian Trackman, Special Counsel, at<PHONE_NUMBER>,
Mia Zur, Special Counsel, at<PHONE_NUMBER>, Kathleen Gray, Attorney,
at<PHONE_NUMBER>, Division of Trading and Markets, Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION: The Commission is adopting Rule 13Aa-2T
under the Exchange Act as an interim final temporary rule. We are
soliciting comments on all aspects of this interim final temporary
rule. We will carefully consider the comments that we receive and will
address them, if applicable, in connection with the permanent reporting
rules the Commission is required to adopt under the Dodd-Frank Act.

I. Introduction

    On July 21, 2010, the President signed into law the Dodd-Frank
Act.\2\ An important element of the Dodd-Frank Act is Title VII, the
Wall Street Transparency and Accountability Act of 2010, which directly
addresses regulation of over-the-counter derivatives (``OTC
derivatives''). Title VII of the Dodd-Frank Act establishes a
regulatory framework for OTC derivatives, and makes a number of
statutory revisions to the Commodity Exchange Act and the Exchange Act
(``Title VII Amendments''). The Title VII Amendments broadly categorize
covered products as either swaps, regulated primarily by the Commodity
Futures Trading Commission (``CFTC''), security-based swaps, regulated
primarily by the Commission, or mixed swaps, jointly regulated by the
Commission and the CFTC.
---------------------------------------------------------------------------

    \2\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act (Pub. L. 11-203, H.R. 4173).
---------------------------------------------------------------------------

    Pursuant to Section 761 of the Dodd-Frank Act, new Section 3(a)(68)
of the Exchange Act defines a security-based swap to include a swap, as
defined in Section 1a of the Commodity Exchange Act,\3\ that is based
on a narrow-based security index, or a single security or loan, or any
interest therein or on the value thereof, or the occurrence or non-
occurrence of an event relating to an issuer of a security or the
issuers of securities in a narrow-based index, provided that such event
directly affects the financial statements, financial condition, or
financial obligations of the issuer.\4\ Section 761 of the Dodd-Frank
Act also adds new definitions in Section 3(a) of the Exchange Act \5\
for entities involved in the security-based swaps markets, including,
among others, security-based swap dealer,\6\ major security-based swap
participant,\7\ security-based swap data repository,\8\ and security-
based swap execution facility.\9\ The Commission has issued an advance
notice of proposed rulemaking seeking comment on the definitions of key
terms relating to the regulation of swaps and security-based swaps.\10\
---------------------------------------------------------------------------

    \3\ 7 U.S.C. 1a. Section 721(b) of the Dodd-Frank Act amends
Section 1(a) of the Commodity Exchange Act to add paragraph (47)
defining swap, subject to enumerated exceptions, as any agreement,
contract, or transaction: (i) That is a put, call, cap, floor,
collar, or similar option of any kind that is for the purchase or
sale, or based on the value, of 1 or more interest or other rates,
currencies, commodities, securities, instruments of indebtedness,
indices, quantitative measures, or other financial or economic
interests or property of any kind; (ii) that provides for any
purchase, sale, payment, or delivery (other than a dividend on an
equity security) that is dependent on the occurrence, nonoccurrence,
or the extent of the occurrence of an event or contingency
associated with a potential financial, economic, or commercial
consequence; (iii) that provides on an executory basis for the
exchange, on a fixed or contingent basis, of 1 or more payments
based on the value or level of 1 or more interest or other rates,
currencies, commodities, securities, instruments of indebtedness,
indices, quantitative measures, or other financial or economic
interests or property of any kind, or any interest therein or based
on the value thereof, and that transfers, as between the parties to
the transaction, in whole or in part, the financial risk associated
with a future change in any such value or level without also
conveying a current or future direct or indirect ownership interest
in an asset (including any enterprise or investment pool) or
liability that incorporates the financial risk so transferred,
including any agreement, contract, or transaction commonly known as
(I) an interest rate swap; (II) a rate floor; (III) a rate cap; (IV)
a rate collar; (V) a cross-currency rate swap; (VI) a basis swap;
(VII) a currency swap; (VIII) a foreign exchange swap; (IX) a total
return swap; (X) an equity index swap; (XI) an equity swap; (XII) a
debt index swap; (XIII) a debt swap; (XIV) a credit spread; (XV) a
credit default swap; (XVI) a credit swap; (XVII) a weather swap;
(XVIII) an energy swap; (XIX) a metal swap; (XX) an agricultural
swap; (XXI) an emissions swap; and (XXII) a commodity swap; (iv)
that is an agreement, contract, or transaction that is, or in the
future becomes commonly known to the trade as a swap; (v) including
any security-based swap agreement which meets the definition of
`swap agreement' as defined in section 206A of the Gramm-Leach-
Bliley Act (15 U.S.C. 78c note) of which a material term is based on
the price, yield, value, or volatility of any security or any group
or index of securities, or any interest therein; or (vi) that is any
combination or permutation of, or option on, any agreement,
contract, or transaction described in any of clauses (i) through
(v).
    \4\ See 15 U.S.C. 78c(a)(68).
    \5\ 15 U.S.C. 78c(a).
    \6\ Security-based swap dealer is defined in Section 3(a)(71)(A)
of the Exchange Act, 15 U.S.C. 78c(a)(71)(A), to mean any person
who: (i) Holds themself out as a dealer in security-based swaps;
(ii) makes a market in security-based swaps; (iii) regularly enters
into security-based swaps with counterparties as an ordinary course
of business for its own account; or (iv) engages in any activity
causing it to be commonly known in the trade as a dealer or market
maker in security-based swaps. The term security-based swap dealer
does not include a person that enters into security-based swaps for
such person's own account, either individually or in a fiduciary
capacity, but not as a part of regular business. 15 U.S.C.
78c(a)(71)(C). In addition, the Commission shall exempt from
designation as a security-based swap dealer an entity that engages
in a de minimis quantity of security-based swap dealing in
connection with transactions with or on behalf of its customers. 15
U.S.C. 78c(a)(71)(D).
    \7\ Major security-based swap participant is defined in Section
3(a)(67)(A) of the Exchange Act, 15 U.S.C. 78c(a)(67)(A), as any
person: (i) Who is not a security-based swap dealer; and (ii)(I) who
maintains a substantial position in security-based swaps for any of
the major security-based swap categories, as such categories are
determined by the Commission, excluding both positions held for
hedging or mitigating commercial risk and positions maintained by
any employee benefit plan (or any contract held by such a plan) as
defined in paragraphs (3) and (32) of section 3 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1002) for the
primary purpose of hedging or mitigating any risk directly
associated with the operation of the plan; (II) whose outstanding
security-based swaps create substantial counterparty exposure that
could have serious adverse effects on the financial stability of the
United States banking system or financial markets; or (III) that is
a financial entity that (aa) is highly leveraged relative to the
amount of capital such entity holds and that is not subject to
capital requirements established by an appropriate Federal banking
regulator; and (bb) maintains a substantial position in outstanding
security-based swaps in any major security-based swap category, as
such categories are determined by the Commission. For purposes of
subparagraph (A), the Commission shall define, by rule or
regulation, the term `substantial position' at the threshold that
the Commission determines to be prudent for the effective
monitoring, management, and oversight of entities that are
systemically important or can significantly impact the financial
system of the United States. 15 U.S.C. 78c(a)(67)(B).
    \8\ Security-based swap data repository is defined in Section
3(a)(75) of the Exchange Act, 15 U.S.C. 78c(a)(75), as any person
that collects and maintains information or records with respect to
transactions or positions in, or the terms and conditions of,
security-based swaps entered into by third parties for the purpose
of providing a centralized recordkeeping facility for security-based
swaps.
    \9\ Security-based swap execution facility is defined in Section
3(a)(77) of the Exchange Act, 15 U.S.C. 78c(a)(77), as a trading
system or platform in which multiple participants have the ability
to execute or trade security-based swaps by accepting bids and
offers made by multiple participants in the facility or system,
through any means of interstate commerce, including any trading
facility, that (A) facilitates the execution of security-based swaps
between persons; and (B) is not a national securities exchange.
    The new definitions in Section 3(a) parallel amendments to
Section 1(a) of the Commodity Exchange Act pursuant to Section 721
of the Title VII Amendments.
    \10\ See Securities Exchange Act Release No. 62717 (August 13,
2010), 75 FR 51429 (August 20, 2010).
---------------------------------------------------------------------------

    The Dodd-Frank Act requires, among other things, that security-
based swaps be reported to a registered security-based swap data
repository or the Commission.\11\ In particular, the Dodd-Frank Act
added Section 13A(a)(2)(A) of the Exchange Act, which requires that
pre-enactment security-based swaps be reported to a registered
security-based swap data repository or the Commission by a date that is
not later than: (i) 30 days after issuance of the interim final rule;
or (ii) such other period as the Commission determines to be
appropriate.\12\ Section 13A(a)(2)(B) of the Exchange Act \13\ requires
the Commission to promulgate an interim final rule providing for the
reporting of these pre-enactment security-based swaps within 90 days of
the enactment of the Dodd-Frank Act.\14\ Consistent

with its responsibilities under Section 13A(a)(2) of the Exchange Act,
the Commission is today adopting Rule 13Aa-2T, an interim final
temporary rule governing reporting of pre-enactment security-based
swaps.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78m-1(a)(2)(A).
    \12\ See id.
    \13\ 15 U.S.C. 78m-1(a)(2)(B).
    \14\ The Commission notes that Section 3C of the Exchange Act,
added by Section 763(a) of the Dodd-Frank Act, also requires the
Commission to adopt rules that provide for the reporting of data for
security-based swaps entered into before the date of enactment of
the Dodd-Frank Act to a registered security-based data repository or
to the Commission no later than 180 days after the effective date of
the Dodd-Frank Act (thus, by January 12, 2012). See 15 U.S.C. 78c-
3(e). Section 3C is not effective until 360 days after enactment of
the Dodd-Frank Act. The Commission believes that its action today is
consistent with both Section 13A and Section 3C of the Exchange Act.
---------------------------------------------------------------------------

II. Interim Final Temporary Exchange Act Rule 13Aa-2T

    The Commission is adopting Rule 13Aa-2T under the Exchange Act to
specify the reporting requirements applicable to pre-enactment
security-based swaps. Rule 13Aa-2T requires specified counterparties to
a pre-enactment security-based swap transaction to: (1) Report certain
information relating to pre-enactment security-based swaps to a
registered security-based swap data repository or to the Commission by
the compliance date established in the security-based swap reporting
rules required by Sections 3C(e) and 13A(a)(1) of the Exchange Act, or
within 60 days after a registered security-based swap data repository
commences operations to receive and maintain data concerning such
security-based swaps, whichever occurs first; and (2) report
information relating to pre-enactment security-based swaps to the
Commission upon request during an interim period. In addition, the
Commission is issuing an Interpretive Note to Rule 13Aa2-T that
reflects what information the Commission believes reporting parties
should retain in order to meet the reporting obligation contained in
the rule. Specifically, the Commission believes that counterparties
will need to preserve information pertaining to the terms of such pre-
enactment security-based swaps, to the extent and in such form as it
currently exists.
    We have included several requests for comment in this release. We
will carefully consider the comments that we receive and will address
them, if applicable, in connection with the permanent reporting rules,
which will be published for notice and comment.
    As explained above, the Dodd-Frank Act revises Section 3(a) of the
Exchange Act to define key terms related to the new regulatory
framework for security-based swaps.\15\ Rule 13Aa-2T(a) incorporates
the definitions of ``major security-based swap participant,''
``security-based swap,'' ``security-based swap dealer,'' and
``security-based swap data repository'' from the Dodd-Frank Act. The
statutory language reserves to the Commission authority to further
define these terms,\16\ which the Commission expects to do as rules are
developed relating to the regulation of security-based swaps and in
response to input from market participants. In addition, the Commission
notes that rules governing the registration of security-based swap data
repositories will be the subject of another Commission rulemaking. As a
result, there currently are no registered security-based swap data
repositories able to accept security-based swap data as required under
the Dodd-Frank Act.
---------------------------------------------------------------------------

    \15\ See supra Section I.
    \16\ The Title VII Amendments enable the Commission to further
define certain terms jointly with the CFTC, in consultation with the
Board of Governors of the Federal Reserve System. See Section 712(d)
of the Dodd-Frank Act.
---------------------------------------------------------------------------

A. Reporting Obligations

    Rule 13Aa-2T(b)(1) requires that a counterparty to a pre-enactment
security-based swap transaction shall report, with respect to a pre-
enactment security-based swap transaction, to a registered security-
based swap data repository or to the Commission: (1) A copy of the
transaction confirmation, in electronic form, if available, or in
written form, if there is no electronic copy; and (2) the time, if
available, the transaction was executed.\17\ Rule 13Aa-2T(b)(1) also
establishes the compliance deadline for reporting pre-enactment
security-based swap transactions. Pursuant to Rule 13Aa-2T(b)(1), a
reporting party shall report the pre-enactment security-based swap
transaction by the compliance date established in the reporting rules
required under Sections 3C(e) and 13A(a)(1) of the Exchange Act \18\ or
within 60 days after a registered security-based swap data repository
commences operations to receive and maintain data concerning such
security-based swaps, whichever occurs first.\19\ The Commission
believes it is appropriate to delay the reporting of such transaction
information until the time detailed above because, until the
registration rule is adopted and implemented, there will not be a
registered security-based swap data repository able to accept security-
based swap data as required under the Dodd-Frank Act. Rule 13Aa-
2T(a)(4) defines a pre-enactment security-based swap transaction as a
security-based swap that was entered into prior to, and that had not
expired as of, July 21, 2010.\20\
---------------------------------------------------------------------------

    \17\ See Rule 13Aa-2T(b)(1). See infra Section II.B for a
discussion of which counterparty has the reporting obligation.
    \18\ The Commission notes that Section 3C(e) of the Exchange Act
requires that security-based swaps entered into before the date of
enactment shall be reported no later than 180 days after the
effective date of the section, i.e., January 12, 2012.
    \19\ See Rule 13Aa-2T(b)(1). The Commission notes that
rulemaking regarding registered security-based swap repositories
must be completed within 360 days after the date of enactment of the
Dodd-Frank Act.
    \20\ See Rule 13Aa-2T(a)(4).
---------------------------------------------------------------------------

    In addition, pursuant to Rule 13Aa-2T(b)(2), a counterparty to a
pre-enactment security-based swap transaction is required to report to
the Commission upon request any information relating to these pre-
enactment security-based swap transactions during the time that the
interim final temporary rule is in effect.\21\ The information that the
Commission would request to be reported may vary depending upon the
needs of the Commission, and may include actual trade data as well as
summary trade data. Such summary data may include a description of the
types of a security-based swap dealer's counterparties or types of
reference entities, or the total number of pre-enactment security-based
swap transactions entered into by the dealer and some measure of the
frequency and duration of those contracts.\22\
---------------------------------------------------------------------------

    \21\ See infra Section II.B for a discussion of which
counterparty has the reporting obligation.
    \22\ See infra Section II.D for a discussion of the treatment of
post-enactment security-based swaps.
---------------------------------------------------------------------------

    The Commission anticipates that Rule 13Aa-2T(b) will facilitate the
Commission's ability to understand and evaluate the current market for
security-based swaps, and may inform the Commission's analysis of the
other required rulemakings under the Dodd-Frank Act. In addition,
information requested by the Commission may be used to facilitate other
activities of the Commission, such as examinations.

B. Reporting Party

    Section 13A(a)(3) to the Exchange Act \23\ specifies the party
obligated to report a security-based swap--either a security-based swap
dealer, a major security-based swap participant, or a counterparty to
the swap. These provisions apply for purposes of reporting pursuant to
the interim final temporary rule.\24\ Specifically, Section 13A(a)(3)
of the Exchange Act provides that with respect to a security-based swap
in which only one counterparty is a security-based swap dealer or major
security-based swap participant, the security-based swap dealer or
major security-based swap participant shall report the security-based
swap; with respect to a security-based swap in which one counterparty
is a security-based swap dealer and the other counterparty is a major
security-based swap participant, the security-based

swap dealer shall report the security-based swap; and with respect to
any other security-based swap, the counterparties to the security-based
swap shall select a counterparty to report the security-based swap.\25\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78m-1(a)(3).
    \24\ See id.
    \25\ See id.
---------------------------------------------------------------------------

    Rule 13Aa-2T(c) incorporates these provisions. Specifically, Rule
13Aa-2T(c) provides that where only one counterparty to a security-
based swap transaction is a security-based swap dealer or a major
security-based swap participant, the security-based swap dealer or
major security-based swap participant shall report the transaction;
where one counterparty to a security-based swap transaction is a
security-based swap dealer and the other counterparty is a major
security-based swap participant, the security-based swap dealer shall
report the transaction; and where neither counterparty to a security-
based swap transaction is security-based swap dealer or a major
security-based swap participant, the counterparties to the transaction
shall select the counterparty who will report the transaction.\26\
---------------------------------------------------------------------------

    \26\ See Rule 13Aa-2T(c).
---------------------------------------------------------------------------

C. Interpretive Note on Record Retention

    Pre-enactment security-based swaps that must be reported pursuant
to Section 13A(a)(2) of the Exchange Act \27\ and new interim final
temporary Rule 13Aa-2T thereunder have already occurred prior to
enactment of the Dodd-Frank Act.\28\ Thus, to support the reporting
requirements in Rule 13Aa-2T(b), a Note to paragraphs (b)(1) and (2) of
Rule 13Aa-2T requires each counterparty to a pre-enactment security-
based swap transaction that may be required to report such transaction
to retain information and documents relating to the terms of the
transaction.\29\ Specifically, the Note requires a counterparty to a
pre-enactment security-based swap transaction that may be required to
report such transaction to retain in its existing format all
information and documents, if available, to the extent and in such form
as they currently exist, relating to the terms of the security-based
swap transaction, including but not limited to: Any information
necessary to identify and value the transaction; the date and time of
execution of the transaction; all information from which the price of
the transaction was derived; whether the transaction was accepted for
clearing by any clearing agency or derivatives clearing organization,
and, if so, the identity of such clearing agency or derivatives
clearing organization; any modification(s) to the terms of the
transaction; and the final confirmation of the transaction. The
Commission believes that it is necessary for a counterparty that may be
required to report such transaction to retain all information relating
to the terms of pre-enactment security-based swaps in order for that
counterparty to be able to comply with the reporting requirements of
Rule 13Aa-2T. The specific information identified in the Note, as
outlined above, is designed to encompass material information about
pre-enactment security-based swap transactions that may be the subject
of a request by the Commission to report pursuant to Rule 13Aa-
2T(b)(2), as well as the information required to be reported pursuant
to Rule 13Aa-2T(b)(1). The Commission believes that the information
identified above will provide the Commission with access to relevant
information to help the Commission perform its oversight functions
under the Federal securities laws.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78m-1(a)(2).
    \28\ Pre-enactment security-based swaps are those security-based
swaps that were entered into before July 21, 2010, the terms of
which had not expired as of that date. See Section 13A(a)(2)(A).
    \29\ See Note to paragraphs (b)(1) and (2) of Rule 13Aa-2T.
---------------------------------------------------------------------------

    The time of execution of a security-based swap transaction is the
point at which the parties become irrevocably bound under applicable
law.\30\ For example, in the context of security-based swaps, an oral
agreement over the phone will create an enforceable contract, and the
time of execution will be when the parties to the telephone call agree
to the material terms.\31\ The Commission also understands that the
``price'' of a security-based swap may be expressed differently for
different asset classes.
---------------------------------------------------------------------------

    \30\ The Commission understands that time of execution is not a
data element that is consistently captured with respect to security-
based swap transactions.
    \31\ On the effective date of the Dodd-Frank Act, security-based
swaps will be securities and the execution of the transaction will
be the sale for Federal securities law purposes. For an explanation
of when a sale occurs under the Securities Act of 1933 see
Securities Act Release No. 8591 and Securities Exchange Act Release
No. 52056 (July 19, 2005), 70 FR 44722 (August 3, 2005), notes 391
and 394.
---------------------------------------------------------------------------

    The Commission envisions that documentation retained pursuant to
the need to preserve all information from which the price of the
transaction was derived should reflect all information necessary to
determine the price including, among other things, the quoting
convention (for example, the economic spread, which is variously
referred to as the traded spread, quote spread or composite spread,
expressed as a number of basis points per annum, for CDS
transactions,\32\ or the LIBOR-based Floating Rate Payment, expressed
as a floating rate plus a fixed number of basis points multiplied by
the notional amount, for equity or loan total return swaps).
---------------------------------------------------------------------------

    \32\ Dealers quote prices for entering into credit default swaps
as a fixed number of basis points per annum they require to be paid
(if they are quoting to sell protection) or that they are willing to
pay (if they are quoting to buy protection). This number is
variously referred to as the ``running spread,'' ``quoted spread''
or ``traded spread.'' It will be higher to sell protection than to
buy protection, allowing the dealer to earn a profit on offsetting
transactions for the same reference entity--e.g., 510 basis points
bid, 530 basis points asked.
    On execution, the running spread is converted, using a standard,
publicly available, industry-accepted formula, into an upfront
payment plus a standardized coupon--generally 100 basis points for
investment grade reference entities, and 500 basis points for high
yield reference entities. This conversion does not affect the market
value or economics of the transaction, and is done simply to make
CDS more fungible, which makes them easier to clear, among other
benefits. Because of this conversion, the running spread itself does
not appear in the terms of the contract, but is replaced by its
economic equivalent.
---------------------------------------------------------------------------

    The interpretation to retain information does not require any
counterparty to a pre-enactment security-based swap transaction that
may be required to report such transaction to create new records with
respect to transactions that occurred in the past. By allowing such
records to be retained in their existing format, the interpretation is
designed to assure that important information relating to the terms of
pre-enactment security-based swap transactions is preserved without
unnecessary burden on the counterparties. Likewise, to the extent that
any information required to be retained pursuant to the Note and
reported pursuant to Rule 13Aa-2T(b)(1) or (b)(2) is not information
that the counterparty already has prior to the effective date of this
proposal, such as the time of execution, the Commission understands
that such information could not be retained pursuant to the Note or
reported pursuant to Rule 13Aa-2T(b)(1) or (b)(2).

D. Post-Enactment Security-Based Swaps

    As noted above, Rule 13Aa-2T applies solely to security-based swap
transactions entered into before July 21, 2010, the terms of which had
not expired as of that date, and thus does not cover security-based
swap transactions entered into on or after July 21, 2010. The Dodd-
Frank Act, however, also requires the Commission to adopt reporting
rules covering such post-enactment security-based swaps.

Specifically, Section 3C(e)(2) of the Exchange Act requires the
reporting of security-based swaps entered into on or after such date of
enactment to a registered security-based swap data repository or the
Commission no later than the later of: (A) 90 days after such effective
date; or (B) such other time after entering into the security-based
swap as the Commission may prescribe by rule or regulation.\33\ In
addition, Section 13A(a)(1) of the Exchange Act requires that each
security-based swap that is not accepted for clearing by any clearing
agency or derivatives clearing organization shall be reported to: (A) A
security-based swap data repository described in Section 13(n) of the
Exchange Act; or (B) in the case in which there is no security-based
swap data repository that would accept the security-based swap, to the
Commission within such time period as the Commission may by rule or
regulation prescribe.\34\ The Commission is directed to adopt rules
under Sections 3C(e) and 13A(a) within 360 days of the enactment of the
Dodd-Frank Act.\35\ Parties to security-based swaps could be required
under those rules, if adopted, to report information relating to such
transactions. In that regard, counterparties could be expected to have
access to similar information in order to report post-enactment
security-based swaps.
---------------------------------------------------------------------------

    \33\ See 15 U.S.C. 78c-3(e)(2). Section 3(C)(e)(1) also states
that security-based swaps entered into before the date of the
enactment of this section shall be reported to a registered
security-based swap data repository or the Commission no later than
180 days after the effective date of that section.
    \34\ See 15 U.S.C. 78m-1(a)(1).
    \35\ See Sections 763(a) and 766(a) of the Dodd-Frank Act.
---------------------------------------------------------------------------

E. Effective Date

    Rule 13Aa-2T will be effective as of October 20, 2010 and will
remain in effect until the operative date of the permanent
recordkeeping and reporting rules for security-based swap transactions
to be adopted by the Commission or January 12, 2012, whichever occurs
first.\36\ The Commission believes it is appropriate to make the rule
effective upon publication in the Federal Register since the rule
applies to information parties to pre-enactment security-based swaps
would already have in their possession. In addition, this would provide
the Commission the ability to request information on such pre-enactment
security-based swaps immediately. Further, the Commission believes the
proposed sunset date is appropriate because it will allow the rule to
remain in effect until a permanent rule relating to the reporting of
pre-enactment security-based swaps has become effective and operative,
or until the date by which Section 3C of the Exchange Act requires
security-based swaps entered into before the date of enactment of the
Dodd-Frank Act to be reported to a registered security-based data
repository or the Commission.\37\
---------------------------------------------------------------------------

    \36\ See Rule 13Aa-2T(d).
    \37\ See 15 U.S.C. 78c-3(e).
---------------------------------------------------------------------------

III. Request for Comment

    We are requesting comments from all members of the public. We will
carefully consider the comments that we receive. We seek comment
generally on all aspects of the interim final temporary rule. In
addition, we seek comment on the following:
    1. Should the Commission clarify or modify any of the definitions
included in Rule 13Aa-2T? If so, which definitions and what specific
modifications are appropriate or necessary?
    2. The Commission seeks public comment on what specific information
is necessary to derive the ``price'' of a security-based swap
transaction. In other words, what specific information is needed for a
third party to value the transaction? How do these data elements vary
depending on the type or class of security-based swap? Do current
quoting conventions across classes and types of securities-based swaps
provide sufficient information from which to derive transaction prices?
    3. Is there an industry standard format for information and records
regarding security-based swaps? Are there different standard formats
depending on the type or class of security-based swap? Please answer
with specificity.
    4. Rule 13Aa-2T(c) details which counterparty to a security-based
swap transaction has the reporting obligation. In cases where
counterparties must select which counterparty will report the
transaction, is additional Commission guidance necessary or desirable?
Is there a mechanism to allocate the reporting obligation that the
Commission should implement in such cases?
    5. The Note to paragraphs (b)(1) and (2) of Rule 13Aa-2T provides
that counterparties shall retain, in their existing format, all
information and documents relating to the terms of a pre-enactment
security-based swap transaction, including but not limited to certain
specified data elements. What documents and data typically are kept by
security-based swap market participants to memorialize their
transactions? What documents and data typically are kept to memorialize
post-trade events such as novations, assignments, terminations and
other events? In what format? How long are such records currently
maintained by market participants? How often do market participants
record the time of execution of a security-based swap?
    6. The Commission requests comment on its interpretation of the
types of documents and data needed to be retained in order to satisfy
reporting required by the Note to paragraphs (b)(1) and (2) of Rule
13Aa-2T. What additional information, if any, should be retained and
what burdens or costs would the retention of such information entail?
What information and documents, if any, are not needed to be retained
while still providing for an understanding of the material terms of a
security-based swap?
    7. What are the technological or administrative burdens of
maintaining the information specified in the Note to paragraphs (b)(1)
and (2) of Rule 13Aa-2T?
    8. The Commission requests comment on the information that is
required to be reported pursuant to Rule 13Aa-2T(b)(1). What additional
information, if any, should be reported?
    9. Rule 13Aa-2T is a temporary rule and is set to expire no later
than January 12, 2012. Should we remove the expiration provision of the
rule and make the rule permanent? Should we extend the expiration date
of the rule? If so, for how long? Should we allow the rule to expire?
    Title VII of the Dodd-Frank Act requires that the Commission
consult and coordinate to the extent possible with the CFTC for the
purposes of assuring regulatory consistency and comparability, to the
extent possible,\38\ and states that in adopting rules, the CFTC and
Commission shall treat functionally or economically similar products or
entities in a similar manner.\39\
---------------------------------------------------------------------------

    \38\ Section 712(a)(2) of the Dodd-Frank Act.
    \39\ Section 712(a)(7) of the Dodd-Frank Act.
---------------------------------------------------------------------------

    The CFTC has adopted rules related to the reporting of swaps
entered into before July 21, 2010, the terms of which had not expired
as of that date (``pre-enactment swaps'') as required under Section 729
of the Dodd-Frank Act. Understanding that the Commission and the CFTC
regulate different products and markets, and as such, appropriately may
be proposing alternative regulatory requirements, we request comments
on the impact of any differences between the Commission and CFTC
approaches to the regulation of pre-enactment security-based swaps and
pre-enactment

swaps. Specifically, do the regulatory approaches under the
Commission's proposed rulemaking pursuant to Section 766 of the Dodd-
Frank Act and the CFTC's proposed rulemaking pursuant to Section 729 of
the Dodd-Frank Act result in duplicative or inconsistent efforts on the
part of market participants subject to both regulatory regimes or
result in gaps between those regimes? If so, in what ways do commenters
believe that such duplication, inconsistencies, or gaps should be
minimized? Do commenters believe the approaches proposed by the
Commission and the CFTC to regulate pre-enactment security-based swaps
and pre-enactment swaps are comparable? If not, why? Do commenters
believe there are approaches that would make the regulation of pre-
enactment security-based swaps and pre-enactment swaps more comparable?
If so,what? Do commenters believe that it would be appropriate for us
to adopt an approach proposed by the CFTC that differs from our
proposal? If so, which one? We request commenters to provide data, to
the extent possible, supporting any such suggested approaches.

IV. Other Matters

    The Administrative Procedure Act generally requires an agency to
publish notice of a proposed rulemaking in the Federal Register.\40\
This requirement does not apply, however, if the agency ``for good
cause finds * * * that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest.'' \41\ Further, the
Administrative Procedure Act also generally requires that an agency
publish an adopted rule in the Federal Register 30 days before it
becomes effective.\42\ This requirement, however, does not apply if the
agency finds good cause for making the rule effective sooner.\43\ The
Commission, for good cause, finds that notice and solicitation of
comment before the effective date of Rule 13Aa-2T is impracticable,
unnecessary, or contrary to the public interest.\44\ Section 766 of the
Dodd-Frank Act amended the Exchange Act to add a new Section 13A.
Section 13A(a)(2)(B) requires the Commission to adopt, within 90 days
of enactment of the Dodd-Frank Act, an interim final rule providing for
the reporting of each security-based swap entered into before the date
of enactment of the Dodd-Frank Act the terms of which were not expired
as of that date.\45\ The Commission is adopting Rule 13Aa-2T to fulfill
this requirement.
---------------------------------------------------------------------------

    \40\ See 5 U.S.C. 553(b).
    \41\ Id.
    \42\ See 5 U.S.C. 553(d).
    \43\ Id.
    \44\ This finding also satisfies the requirements of 5 U.S.C.
808(2), allowing the rules to become effective notwithstanding the
requirement of 5 U.S.C. 801 (if a Federal agency finds that notice
and public comment are ``impractical, unnecessary or contrary to the
public interest,'' a rule ``shall take effect at such time as the
Federal agency promulgating the rule determines.'').
    \45\ 15 U.S.C. 78m-1(a)(2)(B).
---------------------------------------------------------------------------

V. Paperwork Reduction Act

    Certain provisions of Rule 13Aa-2T contain ``collection of
information requirements'' within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\46\ The Commission has submitted the
information to the Office of Management and Budget (``OMB'') for review
in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. 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 of this collection is ``Rule 13Aa-2T--Reporting of
Pre-Enactment Security-Based Swap Transactions.'' We are applying for a
new OMB Control Number for this collection in accordance with 44 U.S.C.
3507(j) and 5 CFR 1320.13.
---------------------------------------------------------------------------

    \46\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

1. Summary of Collection of Information

    As required under Section 13A of the Exchange Act, as provided by
Section 766 of the Dodd-Frank Act, the Commission is adopting new Rule
13Aa-2T governing the reporting requirements applicable to security-
based swap transactions entered into before July 21, 2010, the terms of
which have not expired as of that date, i.e., pre-enactment security-
based swap transactions. Rule 13Aa-2T, by its terms, mandates three
separate data collections for entities covered by the rule. The
Commission believes that new Rule 13Aa-2T will impact more than 10
entities and thus meets the definition of a collection of information
under the PRA.
    First, pursuant to Rule 13Aa-2T(b)(1), pre-enactment security-based
swap transactions must be reported to a registered security-based swap
data repository or the Commission by the compliance date established in
the reporting rules required under Sections 3C(e) and 13A(a)(1) of the
Exchange Act, or within 60 days after a registered security-based swap
data repository commences operations to receive and maintain data
concerning such security-based swaps, whichever occurs first.\47\ The
rule specifies that the transaction report shall include a copy of the
transaction confirmation, in electronic form, if available, or in
written form, if there is no electronic copy, and the time, if
available, the transaction was executed.\48\
---------------------------------------------------------------------------

    \47\ See Rule 13Aa-2T(b)(1).
    \48\ Id.
---------------------------------------------------------------------------

    Second, Rule 13Aa-2T(b)(2) requires reporting to the Commission
upon request of any information relating to pre-enactment security-
based swap-transactions.\49\ Finally, the Note to paragraphs (b)(1) and
(2) of Rule 13Aa-2T requires each counterparty to a pre-enactment
security-based swap transaction that may be required to report such
transaction to retain, in its existing format, all information and
documents, if available, to the extent and in such form as they
currently exist, relating to the terms of pre-enactment security-based
swap transactions.\50\ The rule specifies that such information shall
include, without limitation: Any information needed to identify and
value the transaction; the time, if available, of execution of the
transaction; all information from which the price of the transaction
was derived; whether the transaction was accepted for clearing by any
clearing agency or derivatives clearing organization, and, if so, the
identity of such clearing agency or derivatives clearing organization;
any modification(s) to the terms of the transaction; and the final
confirmation of the transaction.\51\
---------------------------------------------------------------------------

    \49\ See Rule 13Aa-2T(b)(2).
    \50\ See Note to paragraphs (b)(1) and (2) of Rule 13Aa-2T.
    \51\ Id.
---------------------------------------------------------------------------

2. Proposed Use of Information

    The rule makes information available to the Commission that can
provide insight into the size and operation of the OTC derivatives
market.\52\ The information will provide a starting benchmark against
which to assess the development of the security-based swap market over
time. The information collected pursuant to Rule 13Aa-2T also will
provide the Commission information to assist with its analysis of the
permanent reporting and other rules required by the Dodd-Frank Act.
Information related to pre-enactment security-based swap transactions
may also be used by the Commission to assess activities and risks in
the security-based swap markets or securities markets more generally.
Requiring such information be reported

also should facilitate general market oversight.
---------------------------------------------------------------------------

    \52\ For example, the information collected could provide the
Commission with insight as to the size (in notional value), number
of transactions, and number and type of participants of the
security-based swap market.
---------------------------------------------------------------------------

3. Respondents

    Rule 13Aa-2T requires reporting of all security-based swaps entered
into prior to July 21, 2010, the terms of which have not expired as of
that date. The rule thus will cover security-based swap dealers, major
security-based swap participants, each defined in Section 3(a) of the
Exchange Act, and other counterparties when there is no security-based
swap dealer or major security-based swap participant involved in the
pre-enactment security-based swap transaction.\53\
---------------------------------------------------------------------------

    \53\ See 15 U.S.C. 78c(a)(68) and (71).
---------------------------------------------------------------------------

    The Commission does not know the exact number of security-based
swap market participants. Based on the information currently available
to the Commission, there are roughly 1,000 entities regularly engaged
in the CDS marketplace, consisting primarily of banks, hedge funds, and
asset managers. The Commission believes that most of these same
entities would likely also participate in other security-based swap
markets and that few, if any, other entities engage in security-based
swaps that are not CDSs. Accordingly, the Commission preliminarily
believes that it is reasonable to use the figure of 1,000 potential
respondents covered by Rule 13Aa-2T for purposes of estimating
collection of information burdens under the PRA.
    The Commission seeks comment on what entities may be subject to
Rule 13Aa-2T, whether specific classes of entities may be impacted, how
many entities may be impacted, and whether any such entity or class of
entities may be impacted differently than others under the rule. The
Commission seeks comment on the accuracy of its estimates as to the
number of participants in the security-based swap market that will be
required to report information pursuant to Rule 13Aa-2T.

4. Total Initial and Annual Reporting and Recordkeeping Burdens

    As described above, pursuant to Rule 13Aa-2T(b)(1), pre-enactment
security-based swap transactions must be reported to a registered
security-based swap data repository or the Commission by the compliance
date established in the reporting rules required under Sections 3C(e)
and 13A(a)(1) of the Exchange Act, or within 60 days after a registered
security-based swap data repository commences operations to receive and
maintain data concerning such security-based swaps, whichever occurs
first. Additionally, Rule 13Aa-2T(b)(2) requires reporting to the
Commission upon request of any information relating to pre-enactment
security-based swap-transactions. Finally, the Note to paragraphs
(b)(1) and (2) of Rule 13Aa-2T requires each counterparty to a pre-
enactment security-based swap transaction that may be required to
report such transaction to retain, in its existing format, all
information and documents, if available, to the extent and in such form
as they currently exist, relating to the terms of pre-enactment
security-based swap transactions.
    Although a new obligation, the Commission does not believe that
Rule 13Aa-2T will require covered entities to materially change their
current practices or operations with respect to recordkeeping for pre-
enactment security-based swap transactions. The Commission believes
that any counterparty to a pre-enactment security-based swap
transaction that may be required to report such transaction, as part of
its regular business operations, would already maintain records of any
such transactions, and that such records likely include the minimum
information set out in the Note to paragraphs (b)(1) and (2) of Rule
13Aa-2T. Nonetheless, our interpretation that counterparties must
retain information relating to the terms of pre-enactment security-
based swaps in order to be able to satisfy their reporting obligation
is a new burden. Entities subject to the rule may have to implement new
document retention and reporting policies.\54\
---------------------------------------------------------------------------

    \54\ The Commission expects to issue permanent rules regarding
the retention and reporting of information about the terms of
security-based swaps within the next year in compliance with the
Dodd-Frank Act. Any PRA burden contained in those rules will be
taken into account in those rulemakings.
---------------------------------------------------------------------------

    Based on publicly available information and consultation with
industry sources, the Commission estimates there were approximately 2
million CDS contracts outstanding on the date of enactment.\55\ The
Commission believes that CDS transactions represent the majority of
security-based swap transactions. The Commission preliminarily
estimates that CDS transactions represent approximately 85 percent of
all security-based swap transactions open on the date of enactment of
the Dodd-Frank Act.\56\ Accordingly, the total number of security-based
swap transactions subject to Rule 13Aa-2T would be approximately
2,400,000.
---------------------------------------------------------------------------

    \55\ See, e.g., http://www.dtcc.com/products/derivserv/data_
table_i.php (data as of July 23, 2010).
    \56\ The Commission's estimate is based on internal analysis of
available security-based swap market data. The Commission is seeking
comment about the overall size of the security-based swap market,
and as discussed in this release, believes that Rule 13Aa-2T will,
among other things, provide insight about the number of pre-
enactment security-based swaps and the overall size of the security-
based swap market.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the requirement to
retain information and documents pursuant to the Note to paragraphs
(b)(1) and (2) of Rule 13Aa-2T would impose a burden on each respondent
of approximately 38 burden hours for an aggregate burden of
approximately 38,000 hours, which includes an estimate of the number of
potential burden hours required to amend internal procedures, reprogram
systems, and implement compliance processes to ensure that pre-
enactment security-based swap transaction data is preserved.\57\
---------------------------------------------------------------------------

    \57\ This figure is based on discussions with various market
participants. It is based on the following: [((Sr. Programmer at 2
hours) + (Sr. Systems Analyst at 4 hours) + (Compliance Manager at 5
hours) + (Compliance Clerk at 20 hours) + (Director of Compliance at
2 hours) + (Compliance Attorney at 5 hours)) x (1,000 reporting
entities)] = 38,000 burden hours, which is 38 hours per reporting
entity. As noted, the Commission preliminarily believes that, given
the current nature of the records to be retained, information on
security-based swap transactions is currently being retained by
market participants in the ordinary course of business, and as a
practical matter should not result in any significant new burdens.
Because the Commission expects to adopt permanent reporting rules
within one year, the Commission does not believe that Rule 13Aa-2T
will generate any ongoing burdens beyond the first 12 months.
Accordingly, our estimates do not distinguish initial and ongoing
burdens.
---------------------------------------------------------------------------

    Rule 13Aa-2T(b)(1) requires reporting entities to report pre-
enactment security-based swap transactions to a registered security-
based swap data repository or the Commission by the compliance date
established in the reporting rules required under Sections 3C(e) and
13A(a)(1) of the Exchange Act, or within 60 days after a registered
security-based swap data repository commences operations to receive and
maintain data concerning such security-based swaps, whichever occurs
first. Reporting entities may have initial costs to establish
connectivity with and report the pre-enactment security-based swaps to
a registered security-based swap data repository or the Commission. The
Commission preliminarily estimates that the cost to establish
connectivity to a security-based swap data repository to facilitate the
reporting required by Rule 13Aa-2T(b)(1) would impose a burden on each
respondent of approximately $25,000, for an aggregate burden of
approximately $25,000,000.\58\ In

addition, the Commission preliminarily estimates that complying with
Rule 13Aa-2T(b)(1) would impose a burden on each respondent of
approximately 480 hours, for an aggregate burden of approximately
480,000 burden hours.\59\
---------------------------------------------------------------------------

    \58\ This estimate is based on discussions of Commission staff
with various market participants, as well as the Commission's
experience regarding connectivity between securities market
participants, including alternative trading systems and self-
regulatory organizations for data reporting purposes. The Commission
derived the total estimated expense from the following: ($25,000
relating to hardware- and software-related expenses) x (1,000
reporting entities) = $25,000,000. It is the Commission's
understanding that many reporting entities already have established
linkages to entities that may register as security-based swap data
repositories, which may impact the out-of-pocket costs associated
with Rule 13Aa-2T(b)(1).
    \59\ This figure is based on discussions of Commission staff
with various market participants, as well as the Commissions
experience regarding connectivity between securities market
participants, including alternative trading systems and self-
regulatory organizations for data reporting purposes. The Commission
derived the total estimated one-time burden from the following:
[(2,400,000 estimated total pre-enactment securities-based swap
transactions) x (75 percent automated, electronic reporting) x (0.1
hours/transaction)] + [2,400,000 estimated total pre-enactment
securities-based swap transactions) x (25 percent manual, electronic
reporting) x (Compliance Clerk 0.5 hours/transaction)] = 480,000
burden hours, which is 480 burden hours per respondent. Because the
Commission expects to adopt permanent reporting rules within one
year, the Commission does not believe that Rule 13Aa-2T will
generate any ongoing burdens beyond the first 12 months.
Accordingly, our estimates do not distinguish initial and ongoing
burdens.
---------------------------------------------------------------------------

    Rule 13Aa-2T(b)(2) requires reporting entities to report to the
Commission upon request any information relating to pre-enactment
security-based swap transactions. Because the Note to paragraphs (b)(1)
and (2) of Rule 13Aa-2T(d) requires reporting entities to retain their
documents and information relating to the terms of pre-enactment
security-based swap transactions, the Commission preliminarily believes
that responding to a Commission request for such information should not
impose a significant additional burden on reporting entities. A
reporting entity would need to review the request and gather responsive
transaction data and documents. Assuming the Commission requested one
report from each reporting entity,\60\ the Commission preliminarily
estimates that responding to Commission requests for information and
documents pursuant to Rule 13Aa-2T(b)(2) would impose a burden on each
respondent of approximately 34 hours, for an aggregate burden of
approximately 34,000 burden hours.\61\
---------------------------------------------------------------------------

    \60\ The Commission preliminarily believes it would not request
reports from every reporting entity. However, for purposes of
estimating the burden, the Commission is assuming it would request
one report from each reporting entity.
    \61\ This figure is based on discussions with various market
participants. It is based on the following: [(Compliance Manager at
5 hours) + (Compliance Attorney at 5 hours) + (Programmer Analyst at
1 hour) + (Compliance Clerk at 15 hours) + (Director of Compliance
at 3 hours) + (Sr. Database Administrator at 5 hours)] x (1,000
reporting entities) = 34,000 burden hours, which is 34 hours per
reporting entity.
---------------------------------------------------------------------------

    The Commission seeks comment on the recordkeeping and reporting
collection of information burdens associated with Rule 13Aa-2T. In
particular, what burdens, if any, will respondents incur with respect
to system design, programming, expanding systems capacity, and
establishing compliance programs to comply with Rule 13Aa-2T? Will
there be different or additional burdens associated with the collection
of information under Rule 13Aa-2T that a covered entity does not
currently undertake in the ordinary course of business that we have not
identified?

5. Retention Period of Recordkeeping Requirements

    A covered entity will be required by Rule 13Aa-2T to retain records
and information only until such information has been reported to a
registered security-based swap data repository or the Commission.\62\
Rule 13Aa-2T(b)(1) provides that the reporting shall occur by the
compliance date established in the reporting rules required under
Sections 3C(e) and 13A(a)(1) of the Exchange Act, or within 60 days
after a registered security-based swap data repository commences
operations to receive and maintain data concerning such security-based
swaps, whichever occurs first.
---------------------------------------------------------------------------

    \62\ The Commission notes that a respondent may well be subject
to additional record retention burdens for pre-enactment security-
based swaps pursuant to rules to be adopted by the Commission
pursuant to Section 3C(e) of the Exchange Act.
---------------------------------------------------------------------------

6. Collection of Information Is Mandatory

    Any collection of information pursuant to Rule 13Aa-2T will be a
mandatory collection of information to permit the Commission to collect
accurate information about security-based swap transactions entered
into prior to, and not expired as of, the date of enactment of the
Dodd-Frank Act.

7. Responses to Collection of Information May Not Be Confidential

    Other than information for which a reporting entity requests
confidential treatment and that may be withheld from the public in
accordance with the provisions of 5 U.S.C. 522 (The Freedom of
Information Act (``FOIA'')), the collection of information pursuant to
Rule 13Aa-2T will not be kept confidential and will be publicly
available. Among other things, FOIA recognizes the confidentiality of
commercial information under two exemptions. First, FOIA Exemption 4
provides an exemption for ``trade secrets and commercial or financial
information obtained from a person and privileged or confidential.''
\63\ Second, FOIA Exemption 8 provides an exemption for matters that
are ``contained in or related to examination, operating, or condition
reports prepared by, on behalf of, or for the use of an agency
responsible for the regulation or supervision of financial
institutions.'' \64\ The Commission will carefully consider any
requests for confidential treatment under either of these exemptions or
under other exemptions contained in 5 U.S.C. 522.
---------------------------------------------------------------------------

    \63\ See 5 U.S.C. 552(b)(4).
    \64\ See 5 U.S.C. 552(b)(8).
---------------------------------------------------------------------------

8. Request for Comment

    Pursuant to 44 U.S.C. 3505(c)(2)(B), the Commission solicits
comment to:
    1. Evaluate whether the proposed collection of information is
necessary for the performance of the functions of the agency, including
whether the information shall have practical utility;
    2. Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
    3. Enhance the quality, utility, and clarity of the information to
be collected; and
    4. Minimize the burden of collection of information on those who
are to respond, including through the use of automated collection
techniques or other forms of information technology.

VI. Cost-Benefit Analysis

    Earlier this year, Congress passed the Dodd-Frank Act. The far-
reaching legislation was a response to the recent financial crisis.
Among other things, it is designed to strengthen oversight, improve
consumer protections, and reduce systemic risks throughout the
financial system.\65\ Title VII of the Dodd-Frank Act specifically
addresses the OTC derivatives markets, including the market for
security-based swaps. The swap markets have been described as being
opaque.\66\ Transaction-level

data is not publicly available. A major source of information is the
semi-annual survey conducted by the Bank of International Settlements
(``BIS'') on the volume of swaps transaction by major categories of
swaps.\67\ One of the purposes of the Dodd-Frank Act is to improve the
transparency of the OTC derivatives market.\68\
---------------------------------------------------------------------------

    \65\ See H.R. Rep. No. 111-517, at 865 (2010). See, e.g., 156
Cong. Rec. S5878 (July 15, 2010) and 156 Cong. Rec. S5882 (July 15,
2010).
    \66\ With respect to CDS, for example, the Government
Accountability Office found that ``comprehensive and consistent data
on the overall market have not been readily available,'' that
``authoritative information about the actual size of the CDS market
is generally not available,'' and that regulators currently are
unable ``to monitor activities across the market.'' Government
Accountability Office, ``Systemic Risk: Regulatory Oversight and
Recent Initiatives to Address Risk Posed by Credit Default Swaps,''
GAO-09-397T (March 2009), at 2, 5, 27. See Robert E. Litan, ``The
Derivatives Dealers' Club and Derivatives Market Reform,'' Brookings
Institution (April 7, 2010) at 15-20. See also Michael Mackenzie,
June 25, 2010, Era of an opaque swaps market ends, Fin. Times, June
25, 2010.
    \67\ The BIS semi-annual report on the swap markets summarizes
developments in the OTC derivatives markets during the relevant
period. The report breaks down trading volumes and other statistics
for various classes of derivatives, including credit default swaps,
interest rate and foreign exchange derivatives, and equity and
commodity derivatives. The report covers derivatives trading within
the G10 countries. The most recent report, available at http://
www.bis.org/statistics/derstats.htm, covers the period through the
last quarter of 2009.
    \68\ See, e.g., 156 Cong. Rec. S5879 (July 15, 2010) and 156
Cong. Rec. H5252 (June 30, 2010).
---------------------------------------------------------------------------

    Title VII requires the Commission to undertake a large number of
rulemakings to implement the regulatory framework for security-based
swaps that is set forth in the Dodd-Frank Act, including the reporting
of security-based swap transactions. The interim final temporary rule
being issued today is the first step in that process and is designed to
provide for reporting of pre-enactment security-based swaps in the
framework set up by the Dodd-Frank Act. The rule will provide the
Commission the ability to obtain data on pre-enactment security-based
swaps. Rule 13Aa-2T also will provide for the preservation of data on
pre-enactment security-based swaps until the Commission issues
permanent recordkeeping and reporting rules for all security-based
swaps. By making records available to the Commission, Rule 13Aa-2T will
enable the Commission to begin its review of the size and scope of the
security-based swap marketplace. Today's action is designed to
ultimately lead to a more robust, transparent environment for the
market for security-based swaps.
    The Commission is sensitive to the costs and benefits associated
with Rule 13Aa-2T. The Commission requests comment on the costs and
benefits associated with the rule, and its cost-benefit analysis,
including identification and assessments of any costs and benefits not
discussed in this analysis. The Commission also seeks comments on the
accuracy of any of the benefits identified and also welcomes comments
on the accuracy of any of the cost estimates. Finally, the Commission
encourages commenters to identify, discuss, analyze, and supply
relevant data, information, or statistics regarding any such costs or
benefits.

A. Benefits

    Rule 13Aa-2T, which is being adopted as required by the Dodd-Frank
Act, will provide a means for the Commission to gain a better
understanding of the security-based swap markets, including the size
and scope of that market, by making available transaction data on pre-
enactment security-based swaps. In addition, having such data available
should help Commission staff to analyze the security-based swap market
as a whole and identify risks. In this way, Rule 13Aa-2T will support
the Commission's supervisory function over the security-based swap
markets as required by Congress in the Dodd-Frank Act. Further, the
rule should make available information to the Commission that could
inform its decision-making with respect to the rules that it is
required to implement under the Dodd-Frank Act. Rule 13Aa-2T also could
facilitate the reports the Commission is required to provide to
Congress on security-based swaps and the security-based swaps
marketplace.\69\
---------------------------------------------------------------------------

    \69\ See Section 719 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    Further, Rule 13Aa-2T will require market participants to inventory
their positions in swaps to determine what information needs to be
retained and reported. Potentially, this may encourage management
review of internal procedures and controls by those market
participants.
    The Commission's rules on reporting pre-enactment security-based
swap transaction data also may have benefits to the OTC derivatives
market. For example, the introduction of the Trade Reporting and
Compliance Engine (TRACE) system helped substantially increase the
transparency of, and decrease transaction costs in, the bond
market.\70\ This interim final temporary rule represents a first step
toward a more transparent market for security-based swaps. Market
participants also will be able to begin planning how security-based
swap data can be maintained, consolidated, and reported in anticipation
of permanent rules to be issued by the Commission pursuant to the
requirements set forth in the Dodd-Frank Act. The initial experience in
the context of Rule 13Aa-2T may help market participants and the
Commission assess alternatives for permanent security-based swap
transaction reporting requirements.
---------------------------------------------------------------------------

    \70\ Michael, Goldstein, Edith Hotchkiss and Erik Sirri,
Transparency and Liquidity: A Controlled Experiment on Corporate
Bonds, Review of Financial Standards (2007); Amy Edwards, Lawrence
Harris and Michael Piwowar, Corporate Bond Market Transaction Costs
and Transparency, J. of Fin. (2007).
---------------------------------------------------------------------------

B. Costs

    The Note to paragraphs (b)(1) and (2) of Rule 13Aa-2T requires the
retention of records relating to security-based swap transactions
entered into before July 21, 2010, the terms of which had not expired
as of that date. Although there are recordkeeping costs associated with
the retention of existing pre-enactment security-based swap transaction
information, the Commission preliminarily does not believe that they
will be significant. The information that is required to be reported
pursuant to Rule 13Aa-2T(b)(1)(i)--a copy of the transaction
confirmation--should be information that respondents already keep in
their normal course of business. In addition, that information can be
reported in the form in which it is kept, either electronic or written
form. Further, respondents must report the time of execution pursuant
to Rule 13Aa-2T(b)(1)(ii) only to the extent that the information is
available.
    The Commission preliminarily estimates that the interim final
temporary rule could affect more than 1,000 market participants and
cover approximately 2.4 million security-based swap transactions,
although identification of the exact number of respondents and covered
transactions is impossible to determine at this time.\71\ As stated
above, however, the Commission preliminarily believes that information
about open security-based swap transactions should already be
maintained by covered entities as part of their day-to-day operations.
Further, the rule does not require market participants to modify the
data that they have for retention purposes. Rule 13Aa-2T requires only
that parties retain records of the terms of the transactions in the
form and to the extent that they already exist; parties are not
required retroactively to supplement or otherwise alter transaction
information.
---------------------------------------------------------------------------

    \71\ See supra Section V.
---------------------------------------------------------------------------

    The Commission recognizes that the permanent reporting rules that
it is required to adopt under Section 3C(e) of the Exchange Act also
will apply to pre-enactment security-based swaps. Therefore, in
adopting Rule 13Aa-2T, the Commission sought to limit the burden on
potential respondents by not imposing substantial and potentially
conflicting affirmative reporting requirements that would require
respondents to make system and other changes that may be different from
the

changes they will need to make pursuant to the permanent reporting
rules.\72\
---------------------------------------------------------------------------

    \72\ The Commission believes that it is practical to require
this reporting after rules for registration of security-based data
repositories are in place, to allow the choice of reporting to an
entity that has experience receiving this type of information. The
Commission will have access to the data it determines is most useful
for understanding and analyzing the market for security-based swaps
as it develops final reporting and other rules required under the
Dodd-Frank Act by being able to require information to be reported
upon request to the Commission under Rule 13Aa-2T(b)(2).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that amending internal
procedures, reprogramming systems, and implementing compliance
processes to ensure that pre-enactment security-based swap transaction
data is preserved pursuant to the Note to paragraphs (b)(1) and (2) of
Rule 13Aa-2T could result in a cost to each respondent of approximately
$6,236 and an aggregate cost of approximately $6,236,000.\73\ The
Commission preliminarily does not believe that there will be additional
costs attributable to the record retention requirements of Rule 13Aa-2T
beyond the initial cost of ensuring that such records are maintained.
---------------------------------------------------------------------------

    \73\ This figure is based on discussions with various market
participants. The Commission derived the total estimated initial
annualized expense from the following: ((Sr. Programmer (2 hours) at
$292 per hour + (Sr. Systems Analyst (4 hours) at $244 per hour) +
(Compliance Manager (5 hours) at $258 per hour) + (Compliance Clerk
(20 hours) at $63 per hour) + (Director of Compliance (2 hours) at
$388 per hour) + (Compliance Attorney (5 hours) at $270 per hour)) x
(1000 reporting entities) = $6,236,000, which is $6,236 per
reporting entity. Hourly figures cited in this release are from
SIFMA's Management & Professional Earnings in the Securities
Industry 2008 and SIFMA's Office Salaries in the Securities Industry
2008, modified by Commission staff to account for an 1800-hour work-
year and multiplied by 5.35 or 2.93, as appropriate, to account for
bonuses, firm size, employee benefits, and overhead. Because the
Commission expects to adopt permanent reporting rules within one
year, the Commission does not believe that Rule 13Aa-2T will
generate any ongoing costs beyond the first 12 months. Accordingly,
our estimates do not distinguish initial and ongoing costs.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the requirement to
report the transaction confirmation and time, if available, of
execution pursuant to Rule 13Aa-2T(b)(1) could result in a cost to each
reporting entity of approximately $43,900 and an aggregate cost of
approximately $43,900,000.\74\ This cost figure includes two main
components. These are, first, an estimate of the cost to establish
connectivity to a security-based swap data repository; and second, an
estimate of the cost to complete the reporting process.
---------------------------------------------------------------------------

    \74\ This figure is based on discussions of Commission staff
with various market participants, as well as the Commission's
experience regarding connectivity between securities market
participants, including alternative trading systems and self-
regulatory organizations for data reporting purposes. The Commission
derived the total estimated one-time burdens from the following:
[($25,000/reporting entity to establish connectivity) x (1000
reporting entities)] + [2,400,000 estimated total pre-enactment
securities-based swap transactions) x (25 percent manual, electronic
reporting) x (Compliance Clerk (0.5 hours/transaction) at $63 per
hour)] = $43,900,000, which is $43,900 per reporting entity. This
estimate is intended to include the costs of system development that
will facilitate reporting the majority (estimated 75 percent) of
security-based swap transactions. Because the Commission expects to
adopt permanent reporting rules within one year, the Commission does
not believe that Rule 13Aa-2T will generate any ongoing costs beyond
the first 12 months. Accordingly, our estimates do not distinguish
initial and ongoing costs.
---------------------------------------------------------------------------

    As stated above, the Commission estimates that it may make one
request from each reporting entity pursuant to Rule 13Aa-2T(b)(2). The
Commission preliminarily estimates that responding to Commission
requests for information and documents could result in a cost to each
reporting entity of approximately $6,352 and an aggregate cost of
approximately $6,352,000.\75\
---------------------------------------------------------------------------

    \75\ This figure is based on the following: [((Compliance
Manager (5 hours) at $258 per hour) + (Compliance Attorney (5 hours)
at $271 per hour) + (Programmer Analyst (1 hour) at $193) +
(Compliance Clerk (15 hours) at $63 per hour) + (Director of
Compliance (3 hours) at $388 per hour) + (Sr. Database Administrator
(5 hours) at $281 per hour)) x (1 Commission request per reporting
entity) x (1000 reporting entities)] = $6,352,000, which is $6,352
per reporting entity. Hourly figures are from SIFMA's Management &
Professional Earnings in the Securities Industry 2008 and SIFMA's
Office Salaries in the Securities Industry 2008, modified by
Commission staff to account for an 1800-hour work-year and
multiplied by 5.35 or 2.93, as appropriate, to account for bonuses,
firm size, employee benefits, and overhead.
---------------------------------------------------------------------------

C. Request for Comment

    The Commission requests comment on the costs and benefits of Rule
13Aa-2T discussed above, as well as any costs and benefits not already
described that could result. The Commission also requests data to
quantify any potential costs or benefits.
     How can the Commission accurately estimate the costs and
benefits?
     What are the costs currently borne by entities covered by
this rule with respect to the retention of records on security-based
swap transactions?
     How many entities will be affected by the rule? How many
transactions will be subject to the rule?
     Are there additional costs involved in complying with the
rule that have not been identified? What are the types, and amounts, of
the costs?
     Are there additional benefits from the rule that have not
been identified?

VII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation

    Section 3(f) of the Exchange Act \76\ requires the Commission,
whenever it engages in rulemaking and is required to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider whether the action would promote efficiency,
competition, and capital formation. In addition, Section 23(a)(2) of
the Exchange Act \77\ requires the Commission, when making rules under
the Exchange Act, to consider the impact of such rules on competition.
Section 23(a)(2) also prohibits the Commission from adopting any rule
that would impose a burden on competition not necessary or appropriate
in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78c(f).
    \77\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    As discussed above, Rule 13Aa-2T will require counterparties to a
pre-enactment security-based swap transaction to report: (1) To a
registered security-based swap data repository or the Commission by the
compliance date established in the reporting rules required under
Sections 3C(e) and 13A(a)(1) of the Exchange Act, or within 60 days
after a registered security-based swap data repository commences
operations to receive and maintain data concerning such security-based
swaps, whichever occurs first, a copy of the transaction confirmation,
in electronic form, if available, or in written form, if there is no
electronic copy, and the time, if available, the transaction was
executed; and (2) to the Commission upon request any information
relating to the security-based swap transactions.\78\ In addition,
pursuant to the Note to paragraphs (b)(1) and (2) of Rule 13Aa-2T, any
counterparty to a pre-enactment security-based swap transaction shall
retain, in its existing format, all information and documents, if
available, to the extent and in such form as they currently exist,
relating to the terms of a pre-enactment security-based swap
transaction.\79\
---------------------------------------------------------------------------

    \78\ See supra Section II.B for a discussion of which
counterparty has the reporting obligation.
    \79\ This information will include, but is not limited to: Any
information needed to identify and value the transaction; the date
and time of execution of the transaction; all information from which
the price of the transaction was derived; whether the transaction
was accepted for clearing by any clearing agency or derivatives
clearing organization and, if so, the identity of such clearing
agency or derivatives clearing organization; any modification(s) to
the terms of the transaction; and the final confirmation of the
transaction.
---------------------------------------------------------------------------

    Although the Commission is required to promulgate rules governing
the

reporting of pre-enactment security-based swap transactions, the
Commission believes that by requiring the reporting of information
about pre-enactment security-based swap transactions, this rule is an
important first step in providing increased transparency to the market
for security-based swaps, both to the participants or potential
participants in the market and to regulators charged with overseeing a
segment of the market that was previously not regulated. This increased
transparency ultimately should provide the opportunity for increased
competition among market participants and thus contribute to a more
efficient market. This added visibility also should aid the Commission
in carrying out its regulatory responsibilities by providing
information that can be used to better understand and analyze the
market. Further, a well-regulated security-based swap market may
increase the confidence of market participants in the soundness of the
market, potentially drawing additional participants into the market,
increasing efficiency. The Commission also notes that all similarly
situated respondents will be subject to the same requirements under the
rule, and thus no participant should be at an unfair competitive
advantage compared to others.
    The Commission requests comment on all aspects of this analysis
and, in particular, on whether Rule 13Aa-2T will place a burden on
competition, as well as the effect of the proposal on efficiency,
competition, and capital formation. Commenters are requested to provide
empirical data and other factual support for their views, if possible.

VIII. Regulatory Flexibility Certification

    The Commission hereby certifies that pursuant to 5 U.S.C. 605(b)
that the interim final temporary rules contained in this release will
not have a significant economic impact on a substantial number of small
entities. The interim final temporary rules apply only to
counterparties that may engage in security-based swap transactions.
Prior to the effective date of the Dodd-Frank Act, only an eligible
contract participant (as defined in Section 1(a)(12) of the Commodity
Exchange Act) may enter into security-based swap transactions. For this
reason, the interim final temporary rule should not have a significant
economic impact on a substantial number of small entities.

IX. Statutory Basis and Text of Amendments

    The Commission is adopting Rule 13Aa-2T pursuant to Section13A of
the Exchange Act, as amended.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

0
In accordance with the foregoing, the Securities and Exchange
Commission is amending Title 17, chapter II of the Code of Federal
Regulations as follows:

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

0
1. The authority citation for Part 240 is amended by adding authorities
for Sec.  240.13Aa-2T to read 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, 78o, 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.; and 18 U.S.C. 1350, unless otherwise
noted.
* * * * *
    Section 240.13Aa-2T is also issued under sec. 943, Public Law 111-
203, 124 Stat. 1376.
* * * * *
0
2. Section 240.13Aa-2T is added to read as follows:

Sec.  240.13Aa-2T  Interim rule for reporting pre-enactment security-
based swap transactions.

    (a) Definitions. For purposes of this rule, the following
definitions shall apply:
    (1) Clearing agency shall have the same meaning as set forth in
Section 3(a)(23) of the Exchange Act;
    (2) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended;
    (3) Major security-based swap participant shall have the meaning
provided in Section 3(a)(67) of the Exchange Act and any rules or
regulations thereunder;
    (4) Pre-enactment security-based swap transaction shall mean a
security-based swap that was entered into prior to, and that had not
expired as of, July 21, 2010;
    (5) Security-based swap shall have the meaning provided in Section
3(a)(68) of the Exchange Act and any rules or regulations thereunder;
    (6) Security-based swap dealer shall have the meaning provided in
Section 3(a)(71) of the Exchange Act and any rules or regulations
thereunder; and
    (7) Security-based swap data repository shall have the meaning
provided in Section 3(a)(75) of the Exchange Act and any rules or
regulations thereunder.
    (b) Reporting of pre-enactment security-based swap transactions. A
counterparty to a pre-enactment security-based swap transaction as
provided in paragraph (c) of this section shall:
    (1) Report to a registered security-based swap data repository or
the Commission by the compliance date established in the reporting
rules required under Sections 3C(e) and 13 A(a)(1) of the Exchange Act,
or within 60 days after a registered security-based swap data
repository commences operations to receive and maintain data concerning
such security-based swap, whichever occurs first, the following
information with respect to the pre-enactment security-based swap
transaction:
    (i) A copy of the transaction confirmation, in electronic form, if
available, or in written form, if there is no electronic copy; and
    (ii) The time, if available, the transaction was executed; and
    (2) Report to the Commission, in a form and manner as prescribed by
the Commission, upon request any information relating to the security-
based swap transaction.
    Note to paragraphs (b)(1) and (2): In order to comply with the
above reporting requirements, each counterparty to a pre-enactment
security-based swap transaction that may be required to report such
transaction shall retain, in its existing format, all information and
documents, if available, to the extent and in such form as they
currently exist, relating to the terms of a pre-enactment security-
based swap transaction, including but not limited to: any information
necessary to identify and value the transaction; the date and time of
execution of the transaction; all information from which the price of
the transaction was derived; whether the transaction was accepted for
clearing by any clearing agency or derivatives clearing organization
and, if so, the identity of such clearing agency or derivatives
clearing organization; any modification(s) to the terms of the
transaction; and the final confirmation of the transaction.
    (c) Reporting party. The counterparties to a pre-enactment
security-based swap transaction shall report the information required
under paragraph (b) of this section as follows:
    (1) Where only one counterparty to a pre-enactment security-based
swap transaction is a security-based swap dealer or a major security-
based swap

participant, the security-based swap dealer or major security-based
swap participant shall report the transaction;
    (2) Where one counterparty to a pre-enactment security-based swap
transaction is a security-based swap dealer and the other counterparty
is a major security-based swap participant, the security-based swap
dealer shall report the transaction; and
    (3) Where neither counterparty to a pre-enactment security-based
swap transaction is security-based swap dealer or a major security-
based swap participant, the counterparties to the transaction shall
select the counterparty who will report the transaction.
    (d) Effective Date. This section shall be effective beginning
October 20, 2010 until January 12, 2012. If the Commission publishes
permanent recordkeeping and reporting rules for security-based
transactions before January 12, 2012, that rule will terminate the
effectiveness of this section.

    Dated: October 13, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-26217 Filed 10-19-10; 8:45 am]
BILLING CODE 8011-01-P