1. Summary of Collections of Information
    The amendments to Rule 18a-5 relate to the requirements that stand-
alone and bank SBS Entities make and keep current certain records.\693\
These amendments to Rule 18a-5 reduce the burden associated with Rule
18a-5 by providing generally that a stand-alone or bank SBS Entity need
not: (i) Make and keep current a questionnaire or application for
employment for an associated person if the SBS Entity is excluded from
the prohibition under Exchange Act Section 15F(b)(6) with respect to
such associated person (e.g., the exclusion in Rule of Practice
194(c)(2)), and (ii) include the information described in paragraphs
(a)(10)(i)(A) through (H) and (b)(8)(i)(A) through (H) of Rule 18a-5,
unless the SBS Entity (1) is required to obtain such information under
applicable law in the jurisdiction in which the associated person is
employed or located or (2) obtains such information in conducting a
background check that is customary for such firms in that jurisdiction,
and the creation or maintenance of records reflecting that information
would not result in a violation of applicable law in the jurisdiction
in which the associated person is employed or located. The security-
based swap dealer or major security-based swap participant still must
comply with Section 15F(b)(6) of the Exchange Act.
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    \693\ See 17 CFR 240.18a-5.
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2. Use of Information
    Rule 18a-5, as amended, is designed, among other things, to promote
the prudent operation of SBS Entities, and to assist the Commission,
SROs, and state securities regulators in conducting effective
examinations.\694\ Thus, the collections of information under Rule 18a-
5, as amended, are expected to facilitate inspections and examinations
of SBS Entities.
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    \694\ As noted above, Rule 18a-5 is patterned after Exchange Act
Rule 17a-3, the recordkeeping rule for registered broker-dealers.
See, e.g., Books and Records Requirements for Brokers and Dealers
Under the Securities Exchange Act of 1934, Exchange Act Release No.
47910 (Oct. 26, 2001), 66 FR 55818 (Nov. 2, 2001) (``The Commission
has required that broker-dealers create and maintain certain records
so that, among other things, the Commission, [SROs], and State
Securities Regulators . . . may conduct effective examinations of
broker-dealers'' (footnote omitted)).
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3. Respondents
    The Commission estimated the number of respondents in the Proposing
Release. The Commission received no comment on these estimates. The
Commission slightly modified its proposed estimates in the
Recordkeeping and Reporting Adopting Release.\695\ We continue to
believe the modified estimates are appropriate.
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    \695\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68607-09.
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    Consistent with the Recordkeeping and Reporting Adopting Release,
based on available data regarding the single-name CDS market--which the
Commission believes will comprise the majority of security-based
swaps--the Commission estimates that the number

of major security-based swap participants likely will be five or fewer
and, in actuality, may be zero.\696\ Therefore, to capture the likely
number of major security-based swap participants that may be subject to
the collections of information for purposes of this PRA, the Commission
estimates for purposes of this PRA that five entities will register
with the Commission as major security-based swap participants. Also
consistent with the Recordkeeping and Reporting Adopting Release, the
Commission estimates that approximately four major security-based swap
participants will be stand-alone entities.\697\
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    \696\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68607; see also Capital, Margin, and Segregation Adopting Release 84
FR at 43960, and Registration Adopting Release, 80 FR at 48990.
    \697\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68610.
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    Consistent with prior releases, the Commission estimates that 50 or
fewer entities ultimately may be required to register with the
Commission as security-based swap dealers, of which 16 are broker-
dealers that will likely seek to register as security-based swap-
dealers.\698\ The Commission continues to estimate that approximately
75% of the 34 non-broker-dealer security-based swap dealers (i.e., 25
firms) will register as bank security-based swap dealers, and the
remaining 25% (i.e., 9 firms) will register as stand-alone security-
based swap dealers.\699\
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    \698\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68607; see also Capital, Margin, and Segregation Adopting Release 84
FR at 43959-60, and Registration Adopting Release, 80 FR at 48990.
    \699\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68608; see also see also Capital, Margin, and Segregation Adopting
Release 84 FR at 43959-60. The Commission does not anticipate that
any firms will be dually registered as a broker-dealer and a bank.
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    Finally, as indicated in the Recordkeeping and Reporting Adopting
Release, the Commission estimates that three stand-alone SBSDs will
elect to operate under Rule 18a-10 which contains an alternative
compliance mechanism that allows a stand-alone SBSD that is registered
as a swap dealer and predominantly engages in a swaps business to elect
to comply with the recordkeeping and reporting requirements of the CEA
and the CFTC's rules in lieu of complying with Rule 18a-5 (among
others).\700\
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    \700\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68621.
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    Further, the Commission continues to estimate that each security-
based swap dealer will employ approximately 420 associated persons that
are natural persons and each major security-based swap participant will
employ approximately 62 associated persons that are natural
persons.\701\ The Commission has no data regarding how many associated
persons of SBS Entities who are non-U.S. natural persons may: (a) Not
effect or be involved in effecting security-based swap transactions
with or for counterparties that are U.S. persons (other than a
security-based swap transaction conducted through a foreign branch of a
counterparty that is a U.S. person); (b) effect or be involved in
effecting security-based swap transactions with or for counterparties
that are U.S. persons, but who may be employed or located in
jurisdictions where the receipt of information required by the
questionnaire or employment application, or the creation or maintenance
of records reflecting that information, would result in a violation of
applicable law; or (c) effect or be involved in effecting security-
based swap transactions with or for counterparties that are U.S.
persons, who are employed or located in jurisdictions where local law
would not restrict the receipt, creation or maintenance of information
required by the questionnaire or employment application. Given that,
the Commission estimates, for purposes of this Paperwork Reduction Act
analysis, that non-U.S. associated persons are evenly split into each
of these categories.
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    \701\ See Proposing Release, 84 at 24286; see also Rule of
Practice 194 Adopting Release, 84 FR at 4926. Commission staff also
checked with the staff at the National Futures Association regarding
an approximate number of associated persons employed by registered
swap dealers. NFA staff provided anecdotal information indicating
that the number of natural persons that are associated persons of
swap dealers is substantially similar to Commission staff estimates.
NFA staff further indicated that they believe about half of the
total number of natural persons that are associated persons of swap
dealers are located in the U.S. and the other half are located in
foreign jurisdictions.
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4. Total Initial and Annual Recordkeeping and Reporting Burden
    As indicated in the Recordkeeping and Reporting Adopting Release,
Rule 18a-5 will impose collection of information requirements that
result in initial and annual burdens for SBS Entities. The amendments
to Rule 18a-5 will decrease these burdens for certain SBS Entities.
    Rule 18a-5 requires that stand-alone SBS Entities make and keep
current 13 types of records, including records on associated
persons.\702\ The Commission estimated, in the Recordkeeping and
Reporting Adopting Release, that those 13 paragraphs would impose an
initial burden of 260 hours and an ongoing annual burden of 325 hours
on each stand-alone SBS Entity.\703\ In addition, Rule 18a-5 would
require that bank SBS Entities make and keep current 10 types of
records, including records on associated persons.\704\ The Commission
estimated, in the Recordkeeping and Reporting Adopting Release, that
these ten paragraphs will impose an initial burden of 200 hours and an
ongoing burden of 250 hours on each bank SBS Entity.\705\ The
Commission further stated that while Rule 18a-5 will impose a burden to
make and keep current these records, it would not require the firm to
perform the underlying task.\706\ The Commission continues to believe
these estimated burdens are appropriate.
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    \702\ 17 CFR 240.18a-5(a)(10).
    \703\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68610. Of these total initial and ongoing annual burdens for the 13
types of records a firm would be required to make and keep current
under paragraph (a)(10) of Rule 18a-5, Commission staff believes
that the burdens associated with making and keeping current
questionnaires or applications for employment would be an initial
burden of 20 hours (or 260/13) and an ongoing burden of 25 hours (or
325/13).
    \704\ 17 CFR 240.18a-5(b)(8).
    \705\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68611. Of these total initial and ongoing annual burdens for the 10
types of records a firm would be required to make and keep current
under paragraph (b)(8) of Rule 18a-5, Commission staff believes that
the burdens associated with making and keeping current
questionnaires or applications for employment would be an initial
burden of 20 hours (or 200/10) and an ongoing burden of 25 hours (or
250/10).
    \706\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68610. In estimating the burden associated with Rule 18a-5, the
Commission recognizes that entities that will register stand-alone
and bank SBS Entities likely already make and keep current some
records as a matter of routine business practice, but the Commission
does not have information about the records that such entities
currently keep. Therefore, the Commission assumes, solely for
purposes of estimating PRA burdens for these entities, that they
currently keep no records.
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    The amendments to paragraphs (a)(10) and (b)(8) of Rule 18a-5 (a)
exempt stand-alone and bank SBS Entities from the requirement to make
and keep current a questionnaire or application for employment for an
associated person if the SBS Entity is excluded from the prohibition in
section 15F(b)(6) of the Exchange Act with respect to the associated
person (e.g., the exclusion in Rule of Practice 194(c)(2)), and (b)
allow SBS Entities to exclude information from their associated person
records unless the SBS Entity (1) is required to obtain such
information under applicable law in the jurisdiction in which the
associated person is employed or located or (2) obtains such
information in conducting a background check that is customary for such
firms in that jurisdiction, and the creation or maintenance of records
reflecting that information would not result in a

violation of applicable law in the jurisdiction in which the associated
person is employed or located.
(a) Addition of Paragraphs (a)(10)(iii)(A) and (b)(8)(iii)(A)
    The Commission estimates that the amendment to add paragraphs
(a)(10)(iii)(A) and (b)(8)(iii)(A) to Rule 18a-5 would eliminate the
paperwork burden for stand-alone and bank SBS Entities associated with
making and keeping current questionnaires or applications for
employment records, otherwise required by Rule 18a-5, with respect to
any associated person if the SBS Entity is excluded from the
prohibition in Exchange Act Section 15F(b)(6), including the exclusion
in Rule of Practice 194(c)(2) with respect to a natural person who is
(i) not a U.S. person and (ii) does not effect and is not involved in
effecting security-based swap transactions with or for counterparties
that are U.S. persons (other than a security-based swap transaction
conducted through a foreign branch of a counterparty that is a U.S.
person).
    As indicated above, the Commission estimates that there will be
approximately 4 stand-alone major security-based swap participants, 6
stand-alone security-based swap dealers and 25 bank security-based swap
dealers. Further, as indicated above, we estimate that each security-
based swap dealer will have approximately 420 associated persons and
half of those associated persons, or 210, would not be employed or
located in the U.S. The Commission estimates that stand-alone and bank
SBS dealers would not need to obtain the questionnaire or application
for employment for one third of those associated persons, or 70,
because Rule of Practice 194(c)(2) provides an exclusion from the
prohibition in Section 15F(b)(6) of the Exchange Act with respect to
associated persons who are not located in the U.S. and do not effect
and are not involved in effecting security-based swap transactions with
or for counterparties that are U.S. persons (other than a security-
based swap transaction conducted through a foreign branch of a
counterparty that is a U.S. person).\707\ Similarly, as indicated
above, each major security-based swap participant would have
approximately 62 associated persons and half of those associated
persons, or 31, would not be employed or located in the U.S. The
Commission estimates that stand-alone major security-based swap
participants would not need to obtain the questionnaire or application
for employment for one third of those associated persons, or 10,
because Rule of Practice 194(c)(2) provides an exclusion from the
prohibition in Section 15F(b)(6) of the Exchange Act with respect to
those associated persons.\708\
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    \707\ 70 associated persons/420 associated persons per security-
based swap dealer = a reduction of approximately 16.7%. Security-
based swap dealers would be able to utilize this paragraph relative
to other exclusions from the requirements of Exchange Act Section
15F(b)(6) that the Commission may provide, however the analysis is
focusing solely on the exclusion provided by the addition of
paragraph (c)(2) to Rule of Practice 194 for purposes of the
Paperwork Reduction Act estimate.
    \708\ 10 associated persons/62 associated persons per major
security-based swap participant = a reduction of approximately
16.1%. Major security-based swap participants would be able to
utilize this paragraph relative to other exclusions from the
requirements of Exchange Act Section 15F(b)(6) that the Commission
may provide, however the analysis is focusing solely on the
exclusion provided by the addition of paragraph (c)(2) to Rule of
Practice 194 for purposes of this Paperwork Reduction Act estimate.
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    Given this, the addition of paragraphs (a)(10)(iii)(A) and
(b)(8)(iii)(A) to Rule 18a-5 will reduce the initial burden associated
with Rule 18a-5 by 117 hours \709\ and it will reduce the ongoing
burden associated with Rule 18a-5 by 145 hours.\710\
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    \709\ Initial burden hours associated with paragraphs (a)(10)
and (b)(8) of Rule 18a-5 for stand-alone and bank security-based
swap dealers and major security-based swap participants--
    20 hours x (6 stand-alone security-based swap dealers + 25 bank
security-based swap dealers) = 20 hours x 31 security-based swap
dealers = 620 initial burden hours for security-based swap dealers.
    20 hours x 4 stand-alone major security-based swap participants
= 80 initial burden hours for major security-based swap
participants.
    Initial burden hour reduction:
    620 initial burden hours for security-based swap dealers x 16.7%
(see n.707, supra) = 104 hours. 80 initial burden hours for major
security-based swap participants x 16.1% (see n.708, supra) = 13
hours. A 104 hour reduction in the initial burden for security-based
swap dealers + a 13 hour reduction in the initial burden for major
security-based swap participants = a 117 hour reduction in initial
burden hours across all entities able to rely on Rule 18a-5(a)(10)
and (b)(8).
    \710\ Ongoing burden hours associated with paragraph (a)(10) and
(b)(8) of Rule 18a-5 for stand-alone and bank security-based swap
dealers and major security-based swap participants--
    25 hours x (6 stand-alone security-based swap dealers + 25 bank
security-based swap dealers) = 25 hours x 31 security-based swap
dealers = 775 ongoing burden hours for security-based swap dealers.
    25 hours x 4 stand-alone major security-based swap participants
= 100 ongoing burden hours for major security-based swap
participants.
    Ongoing burden hour reduction:
    775 ongoing burden hours for security-based swap dealers x 16.7%
(see n.707, supra) = 129 hours. 100 ongoing burden hours for major
security-based swap participants x 16.1% (see n.708, supra) = 16
hours. A 129 hour reduction in the ongoing burden for security-based
swap dealers + a 16 hour reduction in the ongoing burden for major
security-based swap participants = a 145 hour reduction in ongoing
burden hours across all entities able to rely on Rule 18a-5(a)(10)
and (b)(8).
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(b) Addition of Paragraphs (a)(10)(iii)(B) and (b)(8)(iii)(B)
    The Commission estimates that the amendment to add paragraphs
(a)(10)(iii)(B) and (b)(8)(iii)(B) to Rule 18a-5 will decrease the
paperwork burden for stand-alone and bank SBS Entities by permitting
the exclusion of information mandated by the questionnaire requirement
with respect to associated natural persons who effect or are involved
in effecting security-based swap transactions with U.S. counterparties,
unless the SBS Entity (1) is required to obtain such information under
applicable law in the jurisdiction in which the associated person is
employed or located or (2) obtains such information in conducting a
background check that is customary for such firms in that jurisdiction,
and the creation or maintenance of records reflecting that information
would not result in a violation of applicable law in the jurisdiction
in which the associated person is employed or located.
    As indicated above, the Commission estimates that there will be
approximately 4 stand-alone major security-based swap participants, 6
stand-alone security-based swap dealers and 25 bank security-based swap
dealers. Further, as indicated above, each security-based swap dealer
would have approximately 420 associated persons and half of those
associated persons, or 210, would not be employed or located in the
U.S. The Commission estimates that these new paragraphs will permit
stand-alone and bank security-based swap dealers to exclude certain
information mandated by the questionnaire requirement for approximately
one third of those associated persons, or 70.\711\ Similarly, as
indicated above, each major security-based swap participant would have
approximately 62 associated persons and half of those associated
persons, or 31, would not be employed or located in the U.S. The
Commission estimates that these new paragraphs will permit stand-alone
major security-based swap participants to exclude certain information
mandated by the questionnaire requirement for approximately one third
of those associated persons, or 10.\712\
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    \711\ See text accompanying note 707, supra.
    \712\ See text accompanying note 708, supra.
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    The Commission estimates that this will reduce the burdens
associated with obtaining the information specified in the
questionnaire requirement by 50% for the affected associated persons.
Given this, the addition of paragraphs (a)(10)(iii)(B) and
(b)(8)(iii)(B) to Rule

18a-5 will reduce the initial burden associated with Rule 18a-5 by 58
hours \713\ and will reduce the ongoing burden associated with Rule
18a-5 by 73 hours.\714\
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    \713\ Initial burden hours associated with paragraphs (a)(10)
and (b)(8) of Rule 18a-5 for stand-alone and bank security-based
swap dealers and major security-based swap participants--
    20 hours x (6 stand-alone security-based swap dealers + 25 bank
security-based swap dealers) = 20 hours x 31 security-based swap
dealers = 620 initial burden hours for security-based swap dealers.
    20 hours x 4 stand-alone major security-based swap participants
= 80 initial burden hours for major security-based swap
participants.
    Initial burden hour reduction:
    (620 initial burden hours for security-based swap dealers x
16.7% (see n.707, supra) x 50%) = 52 hours. (80 initial burden hours
for major security-based swap participants x 16.1% (see n.708,
supra) x 50%) = 6 hours. A 52 hour reduction in the initial burden
for security-based swap dealers + a 6 hour reduction in the initial
burden for major security-based swap participants = a 58 hour
reduction in initial burden hours across all entities able to rely
on Rule 18a-5(a)(10) and (b)(8).
    \714\ Ongoing burden hours associated with paragraph (a)(10) and
(b)(8) of Rule 18a-5 for stand-alone and bank security-based swap
dealers and major security-based swap participants--
    25 hours x (6 stand-alone security-based swap dealers + 25 bank
security-based swap dealers) = 20 hours x 34 security-based swap
dealers = 775 ongoing burden hours for security-based swap dealers.
    25 hours x 4 stand-alone major security-based swap participants
= 100 ongoing burden hours for major security-based swap
participants.
    Ongoing burden hour reduction:
    (775 ongoing burden hours for security-based swap dealers x
16.7% (see n.707 supra) x 50%) = 65 hours. (100 ongoing burden hours
for major security-based swap participants x 16.1% (see n.708 supra)
x 50%) = 8 hours. A 65 hour reduction in the ongoing burden for
security-based swap dealers + a 8 hour reduction in the ongoing
burden for major security-based swap participants = a 73 hour
reduction in ongoing burden hours across all entities able to rely
on Rule 18a-5(a)(10) and (b)(8).
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    Thus, in total, the addition of both paragraphs (a)(10)(iii)(A) and
(b)(8)(iii)(A) and paragraphs (a)(10)(iii)(B) and (b)(8)(iii)(B) will
reduce the initial burden associated with the questionnaire requirement
in Rule 18a-5 by 175 hours,\715\ and the ongoing burden associated with
the questionnaire requirement in Rule 18a-5 by 218 hours.\716\
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    \715\ A 127 hour reduction in initial burden hours associated
with the addition of paragraphs (a)(10)(iii)(A) and (b)(8)(iii)(A)
and a 63 hour reduction in initial burden hours associated with the
addition of paragraphs (a)(10)(iii)(B) and (b)(8)(iii)(B) = a 190
hour reduction in initial burden hours.
    \716\ A 158 hour reduction in ongoing burden hours associated
with the addition of paragraphs (a)(10)(iii)(A) and (b)(8)(iii)(A)
and a 79 hour reduction in ongoing burden hours associated with the
addition of paragraphs (a)(10)(iii)(B) and (b)(8)(iii)(B) = a 237
hour reduction in ongoing burden hours.
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5. Collection of Information Is Mandatory
    The collections of information pursuant to Rule 18a-5, as amended,
are mandatory for SBS Entities.
6. Confidentiality
    Information that an SBS Entity is required to make and keep current
under Rule 18a-5 will be maintained by the firm. To the extent that the
Commission collects such records during an inspection or examination of
a registered SBS Entity, or through some other means, such records
would generally be kept confidential, subject to the provisions of
applicable law.\717\
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    \717\ See, e.g., 5 U.S.C. 552 et seq.; 15 U.S.C. 78x (governing
the public availability of information obtained by the Commission).
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7. Retention Period for Recordkeeping Requirements
    Rule 18a-6 establishes the required retention periods for SBS
Entities to maintain records collected in accorded with Rule 18a-
5.\718\ Under paragraph (d)(1) of Rule 18a-6, an SBS Entity is required
to maintain and preserve in an easily accessible place the records
required under paragraphs (a)(10) and (b)(8) of Rule 18a-5 until at
least three years after the associated person's employment and any
other connection with the SBS Entity has terminated.
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    \718\ See 17 CFR 240.18a-6(d)(1).
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VIII. Other Matters

    If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
    Pursuant to the Congressional Review Act,\719\ the Office of
Information and Regulatory Affairs has designated these rules as a
major rule, as defined by 5 U.S.C. 804(2).
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    \719\ 5 U.S.C. 801 et seq.
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IX. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act of 1980 (``RFA'') \720\ requires the
Commission to consider the impact of the rules on ``small entities,''
\721\ a term that includes ``small businesses,'' ``small
organizations,'' and ``small governmental jurisdictions.'' \722\ In the
Proposing Release, the Commission certified, pursuant to Section 605(b)
of the RFA,\723\ that the proposed amendments to Exchange Act Rules
3a71-3, 15Fb2-1, 0-13, 18a-5 and Rule of Practice 194 would not have a
significant economic impact on a substantial number of small
entities.\724\ The Commission received no comments on this
certification.
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    \720\ 5 U.S.C. 601-612.
    \721\ 5 U.S.C. 605(b).
    \722\ 5 U.S.C. 601(3)-(6).
    \723\ 5 U.S.C. 605(b).
    \724\ See Proposing Release, 84 FR at 24290.
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    For purposes of Commission rulemaking in connection with the
RFA,\725\ a small business or small organization includes: (1) When
used with reference to an ``issuer'' or a ``person,'' other than an
investment company, an ``issuer'' or ``person'' that, on the last day
of its most recent fiscal year, had total assets of $5 million or less;
\726\ or (2) a broker-dealer with total capital (net worth plus
subordinated liabilities) of less than $500,000 on the date in the
prior fiscal year as of which its audited financial statements were
prepared pursuant to Rule 17a-5(d) under the Exchange Act,\727\ or, if
not required to file such statements, a broker-dealer with total
capital (net worth plus subordinated liabilities) of less than $500,000
on the last day of the preceding fiscal year (or in the time that it
has been in business, if shorter); and is not affiliated with any
person (other than a natural person) that is not a small business or
small organization.\728\ The Commission has not adopted a definition
for the term ``small governmental jurisdiction,'' so the RFA's default
definition of the term applies; accordingly, the term includes
``governments of cities, counties, towns, townships, villages, school
districts, or special districts, with a population of less than fifty
thousand.'' \729\ The Small Business Administration defines small
businesses in the finance and insurance industry to include the
following: (i) For depository credit intermediation and credit card
issuing, business concerns with $600 million or less in assets; \730\
(ii) for non-depository credit

intermediation and certain other activities related to credit
intermediation, business concerns with annual receipts not exceeding a
threshold between $8 million and $41.5 million depending on the type of
business; \731\ (iii) for financial investments and related activities,
business concerns with $41.5 million or less in annual receipts; \732\
(iv) for insurance carriers and related activities, business concerns
with annual receipts not exceeding a threshold between $8 million and
$41.5 million depending on the type of business; \733\ and (v) for
funds, trusts, and other financial vehicles, business concerns with $35
million or less in annual receipts.\734\
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    \725\ Although the RFA, 5 U.S.C. 601(3)-(6), defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the
terms ``small business'' and ``small organization'' for the purposes
of Commission rulemaking in accordance with the RFA. Those
definitions, as relevant to this proposed rulemaking, are set forth
in Rule 0-10 under the Exchange Act, 17 CFR 240.0-10. See Exchange
Act Release No. 18451 (Jan. 28, 1982), 47 FR 5215 (Feb. 4, 1982)
(File No. AS-305).
    \726\ See 17 CFR 240.0-10(a).
    \727\ See 17 CFR 240.17a-5(d).
    \728\ See 17 CFR 240.0-10(c).
    \729\ 5 U.S.C. 601(5).
    \730\ See 13 CFR 121.201 (Subsector 522). A financial
institution's assets are determined by averaging the assets reported
on it four quarterly financial statements for the preceding year.
See id. at n.8.
    \731\ See id. at Subsector 522.
    \732\ See id. at Subsector 523.
    \733\ See id. at Subsector 524.
    \734\ See id. at Subsector 525. In the Proposing Release, the
Commission erroneously reported outdated thresholds in the Small
Business Administration's definition of small businesses engaged in
the finance and insurance industry. See Proposing Release, 84 FR at
24289. This error did not impact the Commission's certification that
the proposed rules would not have a significant impact on a
substantial number of small entities.
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    For purposes of the exception to Exchange Act Rule 3a71-3, the
Commission continues to believe, based on feedback from market
participants and information about the security-based swap markets,
that the types of entities that would engage in more than a de minimis
amount of dealing activity involving security-based swaps are part of
large financial institutions that exceed the thresholds defining
``small entities'' as set forth above. Accordingly, the Commission
expects that all of the firms that are likely to make use of the
exception to Rule 3a71-3 would not be ``small entities'' for purposes
of the RFA.\735\ The exception to Exchange Act Rule 3a71-3 is subject
to conditions requiring arranging, negotiating, or executing activity
to be conducted by registered security-based swap dealers or by
registered brokers, in each case that are affiliated with the non-U.S.
persons relying on the exception. It is possible that some non-U.S.
persons may set up new security-based swap dealers or new brokers to
make use of the exception, while other non-U.S. persons that seek to
make use of the exception instead may make use of an existing
affiliated registered security-based swap dealer or existing affiliated
registered broker.\736\ By definition, any such affiliated existing or
new broker would not be a ``small entity.'' \737\ Moreover, even in the
unlikely event that some non-U.S. persons were to satisfy the
exception's conditions via the use of affiliated registered security-
based swap dealers that fall within the definition of ``small entity''
for purposes of the RFA,\738\ the Commission continues to believe that
there would not be a substantial number of such entities.\739\
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    \735\ See also ANE Adopting Release, 81 FR at 8636; Application
of Certain Title VII Requirements to Security-Based Swap
Transactions Connected With a Non-U.S. Person's Dealing Activity
That A Arranged, Negotiated, or Executed by Personnel Located in a
U.S. Branch or Office or in a U.S. Branch or Office of an Agent,
Exchange Act Release No. 74834 (April 29, 2015), 80 FR 27443, 27503
(May 13, 2015) (``ANE Proposing Release''); Cross-Border Adopting
Release, 79 FR at 47368.
    \736\ See Part VI.A.7, supra (discussing likely broker or
security-based swap dealer affiliates of persons expected to rely on
the exception).
    \737\ The ``small entity'' definition applied to brokers
excludes brokers that are affiliated with a person that is not a
``small entity.'' See Exchange Act Rule 0-10(c)(2), (i)(1), 17 CFR
240.0-10(c)(2), (i)(1) (basing affiliation on an 25 percent
ownership standard that is narrower than the majority ownership
standard used in connection with this conditional exception).
Because the non-U.S. persons relying on this exception would not be
``small entities,'' see note 735, supra, and accompanying text, any
such affiliated broker also would not be a ``small entity.''
    \738\ As noted above, the Commission continues to believe, based
on feedback from market participants and information about the
security-based swap markets, that the types of entities that would
engage in more than a de minimis amount of dealing activity
involving security-based swaps are part of large financial
institutions that do not qualify as ``small entities.'' If the
affiliated registered security-based swap dealer itself engages in
security-based swap dealing activity above the de minimis
thresholds, then the Commission accordingly believes that this
affiliated registered security-based swap dealer would not be a
``small entity.''
    \739\ Similarly, the Commission believes that there would not be
a significant number of ``small entities'' that may file ``listed
jurisdiction'' applications pursuant to the proposed amendments to
Exchange Act Rule 0-13. This conclusion reflects the same reasons,
as well as the expectation that the majority of such applications
would be filed by foreign authorities that do not qualify as ``small
entities.''
---------------------------------------------------------------------------

    Based on feedback from industry participants about the security-
based swap markets, the Commission continues to believe that entities
that will qualify as SBS Entities exceed the thresholds defining
``small entities.'' Thus, the Commission believes that any SBS Entities
that may seek to rely on the proposed amendment to Rule 15Fb2-1 would
not be ``small entities'' for purposes of the RFA.\740\
---------------------------------------------------------------------------

    \740\ See Registration Adopting Release, 80 FR at 49013.
---------------------------------------------------------------------------

    The Commission also continues to believe that any SBS Entities--
i.e., registered security-based swap dealers and registered major
security-based swap participants--with associated persons that may be
the subject of the proposed amendments to Rule of Practice 194 would
not be ``small entities'' for purposes of the RFA.\741\
---------------------------------------------------------------------------

    \741\ We previously have concluded, based on feedback from
market participants and the Commission's information regarding the
security-based swap market, that the types of entities that may have
security-based swap positions above the level required to register
as SBS Entities would not be ``small entities'' for purposes of the
RFA. See Cross-Border Adopting Release, 79 FR at 47368; see also
Applications by Security-based Swap Dealers or Major Security-Based
Participants for Statutorily Disqualified Associated Persons to
Effect or Be Involved in Effecting Security-Based Swaps, Exchange
Act Release No. 75612 (Aug. 5, 2015), 80 FR 51684, 51718 (Aug. 25,
2015) and Rule of Practice 194 Adopting Release, 84 FR at 4944.
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    The Commission further continues to believe that it is unlikely
that the requirements applicable to SBS Entities that would be
established under the amendments to Rule 18a-5 would have a significant
economic impact on any small entity because no SBS Entity will be a
small entity.\742\
---------------------------------------------------------------------------

    \742\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68645.
---------------------------------------------------------------------------

    Accordingly, the Commission believes that it is unlikely that the
rule amendments would have a significant economic impact on a
substantial number of small entities.\743\
---------------------------------------------------------------------------

    \743\ See also Parts VI (Economic Analysis) and VII (Paperwork
Reduction Act) (discussing, among other things, the economic impact
of the rules, including estimated compliance costs and burdens).
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission certifies that the
amendments to Exchange Act Rules 3a71-3, 15Fb2-1, 0-13, and 18a-5, and
Rule of Practice 194 would not have a significant economic impact on a
substantial number of small entities for purposes of the RFA.

X. Effective Date and Compliance Dates

A. Effective Date

    These final rules will be effective on the later of March 1, 2020,
or 60 days following publication of this release in the Federal
Register (the ``Effective Date''). The Commission is setting the
Effective Date not to occur before March 1, 2020, to provide certainty
for market participants regarding the timing of both the Effective Date
and the compliance dates discussed below.

B. Compliance Dates

    As explained in the Recordkeeping and Reporting Adopting Release,
the compliance date for registration of SBS Entities (the
``Registration Compliance Date'') will be 18 months after the Effective
Date set forth above in Part X.A. As the Commission noted in its
adopting releases for rules regarding SBS Entity registration \744\ and
treatment of non-U.S. persons' security-based swap dealing transactions
that are arranged, negotiated, or executed by U.S. personnel,\745\
``for purposes of

complying with the [SBS Entity] registration and other requirements,
persons are not required to begin calculating whether their activities
meet or exceed [registration thresholds] until two months prior to the
Registration Compliance Date.'' \746\ Accordingly, the compliance date
for the amendments to Exchange Act Rule 3a71-3 will be two months prior
to the Registration Compliance Date. The compliance date for the
amendments to Exchange Act Rules 18a-5 and 15Fb2-1 will be the same as
the Registration Compliance Date. Finally, the compliance date for the
amendments to Exchange Act Rule 0-13 and Rule of Practice 194 will be
the same as the Effective Date.
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    \744\ See Registration Adopting Release, 80 FR at 48988.
    \745\ See ANE Adopting Release, 81 FR at 8637.
    \746\ Registration Adopting Release, 80 FR at 48988; see also
ANE Adopting Release, 81 FR at 8637.
---------------------------------------------------------------------------

    In addition, the Commission has coordinated the compliance dates
for several additional rules relevant to SBS Entities with the
Registration Compliance Date: (1) SBS Entity segregation requirements
and nonbank SBS Entity capital and margin requirements; \747\ (2) SBS
Entity recordkeeping and reporting requirements; \748\ (3) SBS Entity
business conduct standards; \749\ and (4) SBS Entity trade
acknowledgment and verification requirements.\750\ Compliance with each
of these rules will be required beginning on the Registration
Compliance Date.
---------------------------------------------------------------------------

    \747\ See Capital, Margin, and Segregation Adopting Release, 84
FR at 43954.
    \748\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68600-01.
    \749\ See Business Conduct Adopting Release, 81 FR at 30081-82.
    \750\ See Trade Acknowledgment and Verification Adopting
Release, 81 FR at 39828-29.
---------------------------------------------------------------------------

    One commenter stated that, if the Commission determines to retain
requirements that a non-U.S. person count against security-based swap
dealer registration thresholds its dealing transactions with a non-U.S.
counterparty that were arranged, negotiated, or executed by U.S.
personnel, potential registrants would need an additional 18 months
beyond 18 months after the Effective Date to come into compliance.\751\
Two commenters stated that the Commission should delay the Registration
Compliance Date for SBS Entities until 18 months after the Commission
issues substituted compliance decisions for all relevant
jurisdictions.\752\ By contrast, two other commenters urged the
Commission to implement Title VII without further delay.\753\
---------------------------------------------------------------------------

    \751\ See ISDA letter at 5.
    \752\ See IIB/SIFMA letter at 31-32; Credit Suisse/UBS letter at
3.
    \753\ See Better Markets letter at 4; Citadel letter at 6.
---------------------------------------------------------------------------

    The Commission believes that the Registration Compliance date
previously adopted in the Capital, Margin, and Segregation Adopting
Release will allow sufficient time to prepare for and come in to
compliance with the requirements for SBS Entities noted above,
including the requirements for counting of transactions that are
arranged, negotiated, or executed by U.S. personnel.\754\ The
Commission adopted in February 2016 its final rules regarding counting
of security-based swap transactions that are arranged, negotiated, or
executed by U.S. personnel, and has not proposed to eliminate these
requirements. The Commission does not believe it is necessary to
further delay the Registration Compliance Date until the Commission has
acted on any substituted compliance applications. The Commission
considered the need for action with respect to applications for
substituted compliance when it set the extended Registration Compliance
Date \755\ and continues to believe that 18 months after the Effective
Date should afford the Commission and potential registrants with
sufficient time. As noted above in Part III.H.2, the Commission
welcomes requests for substituted compliance ahead of the Registration
Compliance Date and encourages potential applicants to begin the
process of requesting substituted compliance as soon as
practicable.\756\
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    \754\ One commenter also suggested that the compliance date for
Regulation SBSR should be extended for non-U.S. SBS Entities who are
part of non-U.S. financial groups. See IIB/SIFMA letter at 33. As
discussed in Part X.C, infra, the Commission is issuing a statement
regarding compliance with Regulation SBSR. This statement takes
account of these comments.
    \755\ See Recordkeeping and Reporting Adopting Release, 84 FR at
68600-01.
    \756\ See also Capital, Margin, and Segregation Adopting
Release, 84 FR at 43957.
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C. Compliance With Rules for Security-Based Swap Data Repositories and
Regulation SBSR

    The issuance of this release has certain implications for the
compliance schedule for Regulation SBSR, which governs regulatory
reporting and public dissemination of security-based swap (``SBS'')
transactions.\757\ Under Regulation SBSR, the first compliance date
(``Compliance Date 1'') for affected persons with respect to an SBS
asset class is the first Monday that is the later of: (1) Six months
after the date on which the first SBS data repository (``SDR'') that
can accept transaction reports in that asset class registers with the
Commission; or (2) one month after the Registration Compliance
Date.\758\ As explained in the Recordkeeping and Reporting Adopting
Release, the Registration Compliance Date will be 18 months after the
Effective Date set forth above in Part X.A of this release. Although
the second condition precedent of Regulation SBSR compliance has now
been determined, the first condition precedent remains undetermined, as
no SDR has registered with the Commission.
---------------------------------------------------------------------------

    \757\ In 2015, the Commission adopted Regulation SBSR. See 17
CFR 242.900 to 242.909; Regulation SBSR--Reporting and Dissemination
of Security-Based Swap Information, Exchange Act Release No. 74244
(Feb. 11, 2015), 80 FR 14564 (Mar. 19, 2015) (``Regulation SBSR
Adopting Release''). Also in 2015, the Commission adopted rules that
establish registration standards, duties, and core principles for
SDRs. See 17 CFR 240.13n-1 to 240.13n-12; SDR Rules and Core
Principles Adopting Release, 80 FR 14438. In 2016, the Commission
adopted additional provisions of Regulation SBSR. See Regulation
SBSR Amendments Adopting Release, 81 FR 53546. Regulation SBSR and
the SDR rules are hereinafter referred to collectively as the ``SBS
reporting rules.''
    \758\ See Regulation SBSR Amendments Adopting Release, 81 FR at
53603. There could be different compliance dates for different asset
classes, depending on whether the first SDR that registers with the
Commission can accept transaction reports in all SBS asset classes
or only certain asset classes.
---------------------------------------------------------------------------

    In issuing this release and in light of the completion of many
other Title VII rulemakings as well as the changing regulatory
landscape since the Commission's consideration of Regulation SBSR and
the SDR rules, the Commission has considered how all of the Title VII
rules will work on full implementation and, in particular, the role of
SDRs. The Commission recognizes that the CFTC rules analogous to the
SBS reporting rules have been in force for several years \759\

and multiple entities have registered with the CFTC as swap data
repositories.\760\ Most of the participants in the SBS market are also
participants in the swap market, including the two entities that
previously sought registration with the Commission as SDRs.\761\ The
Commission understands that these market participants and swap data
repositories have invested in systems and developed policies and
procedures to comply with the CFTC's swap reporting rules. Although
Regulation SBSR's Compliance Date 1 has not yet been determined,
certain persons subject to both the swap and SBS reporting rules have
identified operational inefficiencies that could arise from differences
between these rules. For example, two commenters have argued that
differences among the data fields, reporting mechanics, and cross-
border application of the swap and SBS reporting rules limit the
ability of affected entities to use common systems across the two
rulesets.\762\
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    \759\ In 2011, the CFTC adopted its Part 49 rules that establish
registration standards, duties, and core principles for swap data
repositories. See 17 CFR part 49; Swap Data Repositories:
Registration Standards, Duties and Core Principles, 76 FR 54538
(Sept. 1, 2011) (adopting release). In 2012, the CFTC adopted its
Part 43 rules, 17 CFR part 43, that provide for real-time public
dissemination of swap transactions. See Real-Time Public Reporting
of Swap Transaction Data, 77 FR 1182 (Jan. 9, 2012) (adopting
release). Also in 2012, the CFTC adopted its Part 45 rules, 17 CFR
part 45, that provide for regulatory reporting of swap transactions.
See Swap Data Recordkeeping and Reporting Requirements, 77 FR 2136
(Jan. 13, 2012) (adopting release). The Part 45 rules were
subsequently amended to provide for regulatory reporting of pre-
enactment and transition swaps, see Amendments to Swap Data
Recordkeeping and Reporting Requirements, 77 FR 35200 (Jun. 12,
2012) (adopting release), and to establish recordkeeping and
reporting requirements for cleared swaps, see Swap Data
Recordkeeping and Reporting Requirements: Pre-Enactment and
Transitions Swaps, 81 FR 41736 (Jun. 27, 2016) (adopting release).
The Part 43 rules were subsequently amended to provide for the
public dissemination of block transactions. See Procedures to
Establish Appropriate Minimum Block Sizes for Large Notional Off-
Facility Swaps and Block Trades, 78 FR 32866 (May 31, 2013)
(adopting release). The Part 43, Part 45, and Part 49 rules, as
amended, are hereinafter referred to collectively as the ``swap
reporting rules.''
    \760\ See https://sirt.cftc.gov/sirt/sirt.aspx?Topic=DataRepositories.
    \761\ See Exchange Act Release No. 77699 (April 22, 2016), 81 FR
25475 (April 28, 2016) (notice of filing of SDR application of ICE
Trade Vault); Exchange Act Release No. 78216 (June 30, 2016), 81 FR
44379 (July 7, 2016) (notice of filing of SDR application of DDR).
    \762\ See Memorandum prepared by Institute of International
Bankers and Securities Industry and Financial Markets Associated
(June 21, 2018), available at: https://www.sec.gov/comments/s7-05-14/s70514-3938974-167037.pdf.
---------------------------------------------------------------------------

    The Commission also is cognizant that the CFTC has announced a
review of the swap reporting rules with a ``focus on changes to the
existing regulations and guidance with two goals in mind: (a) To ensure
that the CFTC receives accurate, complete, and high quality data on
swaps transactions for its regulatory oversight role; and (b) to
streamline reporting, reduce messages that must be reported, and right-
size the number of data elements that are reported to meet the agency's
priority use-cases for swaps data.'' \763\ As part of that effort, the
CFTC earlier in 2019 proposed amendments to its rules for swap data
repositories \764\ and indicated that this was the first of three
anticipated rulemakings to revise the swap reporting rules.\765\
---------------------------------------------------------------------------

    \763\ CFTC Letter 17-33 (July 10, 2017), available at<EMAIL_ADDRESS>    \764\ See Certain Swap Data Repository and Data Reporting
Requirements, 84 FR 21044 (May 13, 2019) (proposing release).
    \765\ See id. at 21045-46.
---------------------------------------------------------------------------

    The Commission is mindful of the time and costs that may be
incurred by swap data repositories and swap market participants to
implement aspects of the SBS reporting rules that have no analog in, or
are not wholly consistent with, the swap reporting rules.
Implementation of SEC-specific requirements could require changes to
the systems, policies, and procedures currently utilized to comply with
the swap reporting rules. These burdens could be exacerbated if
affected parties must begin complying with the SBS reporting rules at
or near the same time that they are making changes to their systems,
policies, and procedures to accommodate amendments made by the CFTC to
the swap reporting rules.
    The Commission believes that implementation of the SBS reporting
rules can and should be done in a manner that carries out the
fundamental policy goals of the SBS reporting rules while minimizing
burdens as much as practicable. The Commission continues to believe
that this should be done pursuant to the compliance schedule noted
above.\766\ However, in light of the Commission's efforts to promote
harmonization, the CFTC's announced reconsideration of its swap
reporting rules, and ongoing concerns among market participants about
incurring unnecessary burdens, the Commission takes the following
position with respect to the SBS reporting rules for four years
following Regulation SBSR's Compliance Date 1 in each SBS asset class.
After the first SDR that can accept transaction reports in a particular
SBS class is registered by the Commission, certain actions with respect
to the SBS reporting rules will not provide a basis for a Commission
enforcement action, as set forth below:\767\
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    \766\ See note 719, supra.
    \767\ Unless specified otherwise, all terms shall have the
definitions set forth in Section 3(a) of the Exchange Act, 15 U.S.C.
78c, and the rules and regulations thereunder, including Regulation
SBSR.
---------------------------------------------------------------------------

    1. With respect to Rule 901(a) of Regulation SBSR if a person with
a duty to report an SBS transaction (or a duty to participate in the
selection of the reporting side) under Rule 901(a) does not report the
transaction (or does not participate in the selection of the reporting
side) because, under the swap reporting rules in force at the time of
the transaction, a different person (or no person) would have the duty
to report a comparable swap transaction.
    2. With respect to Rules 901(c)(2)-(7) and 901(d) of Regulation
SBSR, if a person with a duty to report a data element of an SBS
transaction, as required by any provision of Rules 901(c)(2)-(7) and
901(d), does not report that data element because the swap reporting
rules in force at the time of the transaction do not require that data
element to be reported.
    3. With respect to Rule 901(e) of Regulation SBSR, if a person does
not report a life cycle event of an SBS transaction in a manner
consistent with Rule 901(e) and the person acts instead in a manner
consistent with the swap reporting rules for the reporting of life
cycle events that are in force at the time of the life cycle event.
    4. With respect to Rule 902 of Regulation SBSR, if a registered SDR
does not disseminate an SBS transaction in a manner consistent with
Rule 902 but instead disseminates (or does not disseminate) the SBS
transaction in a manner consistent with Part 43 of the CFTC's swap
reporting rules in force at the time of the transaction, provided that
for an SBS based on a single credit instrument or a narrow-based index
of credit instruments having a notional size of $5 million or greater,
the registered SDR that receives the report of the SBS transaction does
not utilize any capping or bucketing convention under Part 43 of the
CFTC's swap reporting rules but instead disseminates a capped size of
$5 million (e.g., ``$5MM+'' or similar) in lieu of the true notional
size.\768\
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    \768\ The Commission notes that the Financial Industry
Regulatory Authority applies a $5 million cap when disseminating
transaction reports of economically similar cash debt securities.
See, e.g., FINRA Regulatory Notice 12-39, available at https://www.finra.org/rules-guidance/notices/12-39.
---------------------------------------------------------------------------

    5. With respect to Rule 903(b), a registered SDR permits the
reporting or public dissemination of SBS transaction information that
includes codes in place of certain data elements even if the
information necessary to interpret such codes is not widely available
to users of the information on a non-fee basis.\769\
---------------------------------------------------------------------------

    \769\ An international initiative has been developing a system
for the assignment of unique product identifiers (``UPIs'') for
products involved in over-the-counter derivatives transactions. The
UPIs that would be assigned by a UPI Service Provider are
anticipated to serve as product IDs under Regulation SBSR. As this
initiative continues to develop, the Commission anticipates that it
will inform market participants of the availability of UPIs and
address any related issues raised under Rule 903(b) of Regulation
SBSR.
---------------------------------------------------------------------------

    6. With respect to Rule 906(a) of Regulation SBSR, if a registered
SDR does not send reports of missing unique identification codes to its
participants.
    7. With respect to Rule 906(b) of Regulation SBSR, if a registered
SDR does not collect ultimate parent and affiliate information from its
participants.
    8. With respect to Rule 907(a)(1) of Regulation SBSR, if a
registered SDR does not enumerate in its policies and procedures for
reporting transaction information one or more specific data elements
that are required by Rule 901(c) or 901(d) of Regulation SBSR,

because such data element(s) are not required under the swap reporting
rules, except that the registered SDR's policies and procedures must
set out how a participant must identify the SBS and any security
underlying the SBS and thereby comply with Rule 901(c)(1).
    9. With respect to Rule 907(a)(3) of Regulation SBSR, if a
registered SDR does not enumerate in its policies and procedures for
handling life cycle events provisions that are not required under swap
reporting rules that pertain to the reporting of life cycle events.
    10. With respect to Rule 907(a)(4) of Regulation SBSR, if a
registered SDR does not have policies and procedures for establishing
and directing its participants to use condition flags in the reporting
of SBS transactions, provided that the registered SDR instead complies
with analogous CFTC rules regarding condition flags or other trade
indicators.
    11. With respect to Rule 907(a)(5) of Regulation SBSR, if a
registered SDR does not have policies and procedures for assigning
UICs.
    12. With respect to Rule 907(a)(6) of Regulation SBSR, if a
registered SDR does not have policies and procedures for obtaining from
its participants information about each participant's ultimate parent
and affiliates.
    Notwithstanding the above, the Commission's position with respect
to Rule 901(a) of Regulation SBSR does not extend to instances where a
transaction falls within Rule 901(a)(2)(ii)(E) and one or both sides is
relying on the exception to the de minimis counting requirement for ANE
transactions (i.e., is a ``relying entity''). The Commission expects
that a foreign dealing entity that is a relying entity would utilize
staff of an affiliated U.S. registered SBS dealer or broker-dealer to
report an ANE transaction.\770\ Furthermore, the Commission's position
with respect to Rule 902(a) of Regulation SBSR does not extend to: (1)
A covered inter-dealer security-based swap transaction that at least
one side of the transaction arranges, negotiates, or executes in
reliance on the exception in Rule 3a71-3(d); or (2) a security based
swap transaction between a relying entity and a registered SBS dealer
(whether or not it is a U.S. person). All other aspects of the
Commission's position extend to the transactions described in this
paragraph.
---------------------------------------------------------------------------

    \770\ The Commission notes that Rule 906(c) of Regulation SBSR,
in relevant part, requires each participant of a registered SDR that
is a registered SBS dealer or a registered broker-dealer that incurs
reporting duties to establish, maintain, and enforce written
policies and procedures that are reasonably designed to ensure that
it complies with any obligation to report information to a
registered SDR in the manner consistent with Regulation SBSR. In
light of the rule amendments adopted today regarding ANE
transactions, the Commission expects a registered SBS dealer or
registered broker-dealer that arranges, negotiates, or executes SBS
transactions on behalf of a foreign affiliate that is a relying
entity to include in its Rule 906(c) policies and procedures a
mechanism for noting, with respect to a specific security-based swap
transaction, the foreign affiliate on whose behalf it is arranging,
negotiating, or executing the transaction; for ensuring that any
such transaction is reported to a registered SDR (or, as applicable,
ensuring that it engages with the other side to select which side
will incur the reporting duty); and for ensuring that inter-dealer
ANE transactions where it is acting on behalf of the reporting side
are publicly disseminated. The Commission may review the Rule 906(c)
policies and procedures of registered SBS dealers and registered
broker-dealers to evaluate whether the Commission's position is
being applied as set forth in this statement.
---------------------------------------------------------------------------

    Similarly, the Commission takes the position that, for a period of
four years following Regulation SBSR's Compliance Date 1 in a
particular SBS asset class, certain actions with respect to the SDR
rules will not provide a basis for a Commission enforcement action
against a registered SDR that can accept transaction reports in that
asset class, as set forth below.
    1. With respect to Section 13(n)(5)(B) of the Exchange Act \771\
and Rule 13n-4(b)(3) thereunder,\772\ if a registered SDR does not
confirm with both counterparties to the SBS the accuracy of the data
that was submitted to the SDR.
---------------------------------------------------------------------------

    \771\ 15 U.S.C. 78m(n)(5)(B).
    \772\ 17 CFR 240.13n-4(b)(3).
---------------------------------------------------------------------------

    2. With respect to Rule 13n-5(b)(1)(iii) under the Exchange Act, if
a registered SDR does not establish, maintain, and enforce written
policies and procedures reasonably designed to satisfy itself that the
transaction data that has been submitted to the SDR is complete and
accurate, and clearly identifies the source for each trade side and the
pairing method (if any) for each transaction in order to identify the
level of quality of the transaction data that was submitted to the SDR.
    3. A registered SDR does not adhere to any provision of Section
11A(b) of the Exchange Act \773\ pertaining to securities information
processors.
---------------------------------------------------------------------------

    \773\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    The Commission will assess an application to register as an SDR and
make applicable findings pursuant to Rule 13n-1(c) under the Exchange
Act \774\ in light of this position. Thus, an applicant will not need
to include materials in its application explaining how it would comply
with the provisions noted above, and could instead rely on its
discussion about how it complies with comparable CFTC requirements.
Specifically, an entity wishing to register with the Commission as an
SDR must still submit an application on Form SDR. However, the entity
need not provide an Exhibit S to describe its functions as a securities
information processor and may instead represent in its application that
it: (1) Is registered with the CFTC as an swap data repository; (2) is
in compliance with applicable requirements under the swap reporting
rules; (3) satisfies the standard for Commission registration of an SDR
under Rule 13n-1(c); and (4) intends to rely on this position for the
period set forth in this release with respect to any SBS asset
class(es) for which it intends to accept transaction reports.
Furthermore, an entity submitting an application to register would not
need to comply with the requirement in Rule 13n-1(b) and Rule 13n-
11(f)(5) to file Form SDR and all amendments ``electronically in a
tagged data format'' but instead would be able to submit such documents
to the Commission electronically as portable document format (PDF)
files, consistent with the CFTC SDR application procedures under Part
49.3(a)(1).\775\
---------------------------------------------------------------------------

    \774\ 17 CFR 240.13n-1(c) (``The Commission shall grant the
registration of a security-based swap data repository if the
Commission finds that such security-based swap data repository is so
organized, and has the capacity, to be able to assure the prompt,
accurate, and reliable performance of its functions as a security-
based swap data repository, comply with any applicable provision of
the federal securities laws and rules and regulations thereunder,
and carry out its functions in a manner consistent with the purposes
of section 13(n) of the [Exchange] Act and the rules and regulations
thereunder.'').
    \775\ Accordingly, compliance with General Instructions I on
Form SDR or the applicable provisions of Regulation S-T also would
not be required.
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    The Commission believes that the approach outlined above would
result in useful transaction data being made available to the
Commission, other relevant authorities, and the public while the
Commission assesses whether and, if so, how to take further steps
toward harmonization and the CFTC undertakes its review of swap
reporting rules.\776\
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    \776\ This relief is consistent with the Commission's efforts to
harmonize other of its Title VII requirements with the CFTC's. For
example, in the Capital, Margin, and Segregation Adopting Release,
the Commission adopted new Rule 18a-10 under the Exchange Act, 17
CFR 240.18a-10, which permits an SBS dealer that is also registered
with the CFTC as a swap dealer to comply with the capital, margin,
and segregation requirements of the CEA and the CFTC's rules--rather
than comparable SEC rules--provided that the firm's SBS business is
not a significant part of the SBS market and predominantly involves
dealing in swaps as compared to SBS. See Capital, Margin, and
Segregation Adopting Release, 84 FR at 43943-44. The Commission
stated that Rule 18a-10 was designed to ``address the concern raised
by the commenters that it would be inefficient to impose differing
requirements on a firm that is predominantly a swap dealer.'' Id. at
43944. Also, in the Recordkeeping and Reporting Adopting Release,
the Commission added the recordkeeping and reporting requirements to
that alternative compliance mechanism and crafted a ``limited
alternative compliance mechanism'' that allow an SBS dealer or major
SBS participant to comply with the recordkeeping requirements of the
CEA and the rules thereunder applicable to swap dealers and major
swap participants in lieu of complying with the requirements in
Rules 17a-3 and 18a-5 under the Exchange Act, 17 CFR 240.17a-3 and
240.18a-5, to make and keep current trade blotters, customer account
ledgers, and stock records solely with respect to information
required to be included in these records regarding SBS transactions
and positions, subject to certain conditions. See Recordkeeping and
Reporting Adopting Release, 84 FR at 68593-94.

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

    The Commission's position applies only to the exercise of its
enforcement discretion and is expressly limited to the Commission's SBS
reporting rules discussed above. Nothing in this position excuses
compliance with the other SBS reporting rules or any other Commission
rule, including a rule that implements one or more other provisions of
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010. This position will remain in effect until the earlier of
(1) four years following Regulation SBSR's Compliance Date 1 in a
particular SBS asset class, or (2) 12 months after the Commission
provides notice that the position will expire.

D. Effect on Existing Commission Exemptive Relief

    Compliance with certain provisions of the Exchange Act and certain
rules and regulations thereunder in connection with security-based swap
transactions, positions, and/or activity is currently subject to
temporary exemptive relief granted by the Commission.\777\ As set forth
in the Commission's prior releases, certain portions of this temporary
exemptive relief will expire on the Registration Compliance Date,\778\
while certain other portions of this relief are subject to conditions
that will be triggered upon the Registration Compliance Date.\779\
Other portions of this temporary relief are scheduled to expire on
February 5, 2020.\780\ Similarly, the Commission's 2018 statement of
position regarding certain actions with respect to provisions of the
Commission's business conduct rules for SBS Entities contains a sunset
provision that will begin to run starting on the Registration
Compliance Date.\781\
---------------------------------------------------------------------------

    \777\ See, e.g., Temporary Exemptions and Other Temporary
Relief, Together With Information on Compliance Dates for New
Provisions of the Securities Exchange Act of 1934 Applicable to
Security-Based Swaps, Exchange Act Release No. 64678 (June 15,
2011), 76 FR 36287 (June 22, 2011); Order Granting Temporary
Exemptions under the Securities Exchange Act of 1934 in Connection
with the Pending Revisions of the Definition of ``Security'' to
Encompass Security-Based Swaps, Exchange Act Release No. 64795 (July
1, 2011), 76 FR 39927 (July 7, 2011); Order Granting Conditional
Exemptions Under the Securities Exchange Act of 1934 in Connection
With Portfolio Margining of Swaps and Security-Based Swaps, Exchange
Act Release No. 68433 (Dec. 14, 2012), 77 FR 75211 (Dec. 19, 2012)
(``Portfolio Margining Order'').
    \778\ See, e.g., Order Pursuant to Sections 15F(b)(6) and 36 of
the Securities Exchange Act of 1934 Extending Certain Temporary
Exemptions and an Temporary and Limited Exception Related to
Security-Based Swaps, Exchange Act Release No. 75919 (Sept. 15,
2015), 80 FR 56519, 56522 (Sept. 18, 2015); Registration Adopting
Release, 80 FR at 49003; Business Conduct Adopting Release, 81 FR at
29967-68; Trade Acknowledgment and Verification Adopting Release, 81
FR at 39825 n.189; Capital, Margin, and Segregation Adopting
Release, 84 FR at 43955-57; Recordkeeping and Reporting Adopting
Release, 84 FR at 68001-02.
    \779\ See Portfolio Margining Order, 77 FR 75211; Capital,
Margin, and Segregation Adopting Release, 84 FR at 43956-57.
    \780\ See Order Granting a Limited Exemption From the Exchange
Act Definition of ``Penny Stock'' for Security-Based Swap
Transactions Between Eligible Contract Participants; Granting a
Limited Exemption From the Exchange Act Definition of ``Municipal
Securities'' for Security-Based Swaps; and Extending Certain
Temporary Exemptions Under the Exchange Act in Connection With the
Revision of the Definition of ``Security'' to Encompass Security-
Based Swaps, Exchange Act Release No. 84991, (Jan. 25, 2019), 84 FR
863 (Jan. 31, 2019).
    \781\ See Commission Statement on Certain Provisions of Business
Conduct Standards for Security-Based Swap Dealers and Major
Security-Based Swap Participants, Exchange Act Release No. 84511
(Oct. 31, 2018), 83 FR 55486 (Nov. 6, 2018).
---------------------------------------------------------------------------

XI. Statutory Basis and Text of the Rule Amendments

    Pursuant to the Exchange Act, 15 U.S.C. 78a et seq., and
particularly Sections 3(a)(71), 3(b), 15F (as added by Section 764(a)
of the Dodd-Frank Act), 17(a), 23(a) and 30(c) thereof, and Section
761(b) of the Dodd-Frank Act, the Commission is amending Rule of
Practice 194 and Rules 0-13, 3a71-3, 15Fb2-1 and 18a-5 under the
Exchange Act. Additionally, the Commission is adopting Rule 3a71-
3(d)(4) under the Exchange Act pursuant to Exchange Act Sections 15(a)
and 36 and Rule 3a71-3(d)(5) under the Exchange Act pursuant to
Exchange Act Section 36.

List of Subjects

17 CFR Part 201

    Administrative practice and procedure, Brokers, Claims,
Confidential business information, Equal access to justice, Lawyers,
Penalties, Securities.

17 CFR Part 240

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

Text of Final Rules

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

PART 201--RULES OF PRACTICE

0
1. The authority citation for subpart D is revised to read as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u,
77sss, 77ttt, 78(c)(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3,
78o-10(b)(6), 78s, 78u-2, 78u-3, 78v, 78w, 80a-8, 80a-9, 80a-37,
80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11, 80b-
12, 7202, 7215, and 7217.

0
2. Amend Sec.  201.194 by redesignating paragraph (c) as paragraph
(c)(1), adding paragraph (c) subject heading, and adding paragraph
(c)(2) to read as follows:

Sec.  201.194   Applications by security-based swap dealers or major
security-based swap participants for statutorily disqualified
associated persons to effect or be involved in effecting security-based
swaps.

* * * * *
    (c) Exclusions.
* * * * *
    (2) Exclusion for certain associated natural persons. A security-
based swap dealer or major security-based swap participant shall be
excluded from the prohibition in section 15F(b)(6) of the Exchange Act
(15 U.S.C. 78o-10(b)(6)) with respect to an associated person who is a
natural person who (i) is not a U.S. person (as defined in 17 CFR
240.3a71-3(a)(4)(i)(A)) and (ii) does not effect and is not involved in
effecting security-based swap transactions with or for counterparties
that are U.S. persons (as defined in 17 CFR 240.3a71-3(a)(4)), other
than a security-based swap transaction conducted through a foreign
branch (as that term is defined in 17 CFR 240.3a71-3(a)(3)) of a
counterparty that is a U.S. person; provided, however, that this
exclusion shall not be available if the associated person of that
security-based swap dealer or major security-based swap participant is
currently subject to any order described in subparagraphs (A) and (B)
of section 3(a)(39) of the Exchange Act, with the limitation that an
order by a foreign financial regulatory authority described in
subparagraphs (B)(i) and (B)(iii) of section 3(a)(39) (15 U.S.C.
78c(a)(39)(B)(i) and (B)(iii)) shall only apply to orders by a foreign
financial regulatory authority in the jurisdiction where the associated
person is employed or located.
* * * * *

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

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

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602,
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
4. Amend Sec.  240.0-13 by revising the section heading and paragraphs
(a), (b), and (e) to read as follows:

Sec.  240.0-13  Commission procedures for filing applications to
request a substituted compliance or listed jurisdiction order under the
Exchange Act.

    (a) The application shall be in writing in the form of a letter,
must include any supporting documents necessary to make the application
complete, and otherwise must comply with Sec.  240.0-3. All
applications must be submitted to the Office of the Secretary of the
Commission, by a party that potentially would comply with requirements
under the Exchange Act pursuant to a substituted compliance or listed
jurisdiction order, or by the relevant foreign financial regulatory
authority or authorities. If an application is incomplete, the
Commission may request that the application be withdrawn unless the
applicant can justify, based on all the facts and circumstances, why
supporting materials have not been submitted and undertakes to submit
the omitted materials promptly.
    (b) An applicant may submit a request electronically. The
electronic mailbox to use for these applications is described on the
Commission's website at www.sec.gov in the ``Exchange Act Substituted
Compliance and Listed Jurisdiction Applications'' section. In the event
electronic mailboxes are revised in the future, applicants can find the
appropriate mailbox by accessing the ``Electronic Mailboxes at the
Commission'' section.
* * * * *
    (e) Every application (electronic or paper) must contain the name,
address, telephone number, and email address of each applicant and the
name, address, telephone number, and email address of a person to whom
any questions regarding the application should be directed. The
Commission will not consider hypothetical or anonymous requests for a
substituted compliance or listed jurisdiction order. Each applicant
shall provide the Commission with any supporting documentation it
believes necessary for the Commission to make such determination,
including information regarding applicable requirements established by
the foreign financial regulatory authority or authorities, as well as
the methods used by the foreign financial regulatory authority or
authorities to monitor and enforce compliance with such rules.
Applicants should also cite to and discuss applicable precedent.
* * * * *

0
5. Amend Sec.  240.3a71-3 by adding paragraphs (a)(10) through (13),
revising paragraph (b)(1)(iii)(C), and adding paragraph (d) to read as
follows:

Sec.  240.3a71-3  Cross-border security-based swap dealing activity.

    (a) * * *
    (10) An entity is a majority-owned affiliate of another entity if
the entity directly or indirectly owns a majority interest in the
other, or if a third party directly or indirectly owns a majority
interest in both entities, where ``majority interest'' is the right to
vote or direct the vote of a majority of a class of voting securities
of an entity, the power to sell or direct the sale of a majority of a
class of voting securities of an entity, or the right to receive upon
dissolution, or the contribution of, a majority of the capital of a
partnership.
    (11) Foreign associated person means a natural person domiciled
outside the United States who--with respect to a non-U.S. person
relying on the exception set forth in paragraph (d) of this section--is
a partner, officer, director, or branch manager of such non-U.S. person
(or any person occupying a similar status or performing similar
functions), any person directly or indirectly controlling, controlled
by, or under common control with such non-U.S. person, or any employee
of such non-U.S. person.
    (12) Listed jurisdiction means any jurisdiction that the Commission
by order has designated as a listed jurisdiction for purposes of the
exception specified in paragraph (d) of this section.
    (13) Covered inter-dealer security-based swap means any security-
based swap between:
    (i) A non-U.S. person relying on the exception in paragraph (d) of
this section; and
    (ii) A non-U.S. person that is, or is an affiliate of, a registered
security-based swap dealer or registered broker that has filed with the
Commission a notice pursuant to paragraph (d)(1)(vi) of this section;
provided, however, that a covered inter-dealer security-based swap does
not include a security-based swap with a non-U.S. person that the non-
U.S. person relying on the exception in paragraph (d) of this section
reasonably determines at the time of execution of the security-based
swap is neither a registered security-based swap dealer or registered
broker that has filed with the Commission a notice pursuant to
paragraph (d)(1)(vi) of this section nor an affiliate of such a
registered security-based swap dealer or registered broker.
    (b) * * *
    (1) * * *
    (iii) * * *
    (C) Except as provided in paragraph (d) of this section, or unless
such person is a person described in paragraph (a)(4)(iii) of this
section, security-based swap transactions connected with such person's
security-based swap dealing activity that are arranged, negotiated, or
executed by personnel of such non-U.S. person located in a U.S. branch
or office, or by personnel of an agent of such non-U.S. person located
in a U.S. branch or office; and
* * * * *
    (d) Exception from counting certain transactions. The counting
requirement described by paragraph (b)(1)(iii)(C) of this section will
not apply to the security-based swap dealing transactions of a non-U.S.
person if the conditions of paragraph (d)(1) of this section have been
satisfied.
    (1) Conditions--(i) Entity conducting U.S. activity. All activity
that otherwise would cause a security-based swap transaction to be
described by paragraph (b)(1)(iii)(C) of this section--namely, all
arranging, negotiating or executing activity that is conducted by
personnel of the entity (or its agent) located in a branch or office in
the United States--is conducted by such U.S. personnel in their
capacity as persons associated with an entity that:
    (A) Is registered with the Commission as:
    (1) A broker registered under section 15 of the Act (15 U.S.C. 78o)
that is subject to and complies with Sec.  240.15c3-1(a)(7);
    (2) A broker registered under section 15 of the Act (15 U.S.C.
78o), other than a broker that is subject to Sec.  240.15c3-1(a)(7),
that complies with Sec.  240.15c3-1(a)(10), as if that entity were
registered with the Commission as a security-based swap dealer, if it
is not so registered; or
    (3) A security-based swap dealer; and

    (B) Is a majority-owned affiliate of the non-U.S. person relying on
this exception.
    (ii) Compliance with specified security-based swap dealer
requirements--(A) Compliance required. In connection with such
transactions, the registered entity described in paragraph (d)(1)(i) of
this section complies with the requirements described in paragraph
(d)(1)(ii)(B) of this section
    (1) As if the counterparties to the non-U.S. person relying on this
exception also were counterparties to that entity; and
    (2) As if that entity were registered with the Commission as a
security-based swap dealer, if it is not so registered.
    (B) Applicable requirements. The compliance obligation described in
paragraph (d)(1)(ii)(A) of this section applies to the following
provisions of the Act and the rules and regulations thereunder:
    (1) Section 15F(h)(3)(B)(i), (ii) and Sec.  240.15Fh-3(b),
including in connection with material incentives and conflicts of
interest associated with the non-U.S. person relying on the exception;
    (2) Section 240.15Fh-3(f)(1); provided, however, that if the
registered entity described in paragraph (d)(1)(i) of this section
reasonably determines that the counterparty to whom it recommends a
security-based swap or trading strategy involving a security-based swap
is an ``institutional counterparty'' as defined in Sec.  240.15Fh-
3(f)(4), the registered entity instead may fulfill its obligations
under Sec.  240.15Fh-3(f)(1)(ii) if it discloses to the counterparty
that it is not undertaking to assess the suitability of the security-
based swap or trading strategy involving a security-based swap for the
counterparty;
    (3) Section 15F(h)(3)(C) of the Act and Sec.  240.15Fh-3(g); and
    (4) Sections 240.15Fi-1 and 240.15Fi-2.
    (iii) Commission access to books, records and testimony. (A) The
non-U.S. person relying on this exception promptly provides
representatives of the Commission (upon request of the Commission or
its representatives or pursuant to a supervisory or enforcement
memorandum of understanding or other arrangement or agreement reached
between any foreign securities authority, including any foreign
government, as specified in section 3(a)(50) of the Act, and the
Commission or the U.S. Government) with any information or documents
within the non-U.S. person's possession, custody, or control, promptly
makes its foreign associated persons available for testimony, and
provides any assistance in taking the evidence of other persons,
wherever located, that the Commission or its representatives requests
and that relates to transactions subject to this exception; provided,
however, that if, after exercising its best efforts, the non-U.S.
person is prohibited by applicable foreign law or regulations from
providing such information, documents, testimony, or assistance, the
non-U.S. person may continue to rely on this exception until the
Commission issues an order modifying or withdrawing an associated
``listed jurisdiction'' determination pursuant to paragraph (d)(2)(iii)
of this section.
    (B) The registered entity described in paragraph (d)(1)(i) of this
section:
    (1) Creates and maintains books and records relating to the
transactions subject to this exception that are required, as
applicable, by Sec. Sec.  240.17a-3 and 240.17a-4, or by Sec. Sec.
240.18a-5 and 240.18a-6, including any books and records requirements
relating to the provisions specified in paragraph (d)(1)(ii)(B) of this
section;
    (2) Obtains from the non-U.S. person relying on the exception, and
maintains for not less than three years following the activity
described in paragraph (d)(1)(i) of this section, the first two years
in an easily accessible place, documentation regarding such non-U.S.
person's compliance with the condition in paragraph (d)(1)(vii) of this
section;
    (3) Obtains from the non-U.S. person relying on the exception, and
maintains for not less than three years following the activity
described in paragraph (d)(1)(i) of this section, the first two years
in an easily accessible place, documentation encompassing all terms
governing the trading relationship between the non-U.S. person and its
counterparty relating to the transactions subject to this exception,
including, without limitation, terms addressing payment obligations,
netting of payments, events of default or other termination events,
calculation and netting of obligations upon termination, transfer of
rights and obligations, allocation of any applicable regulatory
reporting obligations, governing law, valuation, and dispute
resolution; and
    (4) Obtains from the non-U.S. person relying on this exception, and
maintains for not less than three years following the activity
described in paragraph (d)(1)(i) of this section, the first two years
in an easily accessible place, written consent to service of process
for any civil action brought by or proceeding before the Commission,
providing that process may be served on the non-U.S. person by service
on the registered entity in the manner set forth in the registered
entity's current Form BD, SBSE, SBSE-A or SBSE-BD, as applicable.
    (iv) Counterparty notification In connection with the transaction,
the registered entity described in paragraph (d)(1)(i) of this section
notifies the counterparties of the non-U.S. person relying on this
exception that the non-U.S. person is not registered with the
Commission as a security-based swap dealer, and that certain Exchange
Act provisions or rules addressing the regulation of security-based
swaps would not be applicable in connection with the transaction,
including provisions affording clearing rights to counterparties. Such
notice shall be provided contemporaneously with, and in the same manner
as, the arranging, negotiating, or executing activity at issue;
provided, however, that during a period in which a counterparty is
neither a customer (as such term is defined in Sec.  240.15c3-3) of the
registered entity described in paragraph (d)(1)(i) of this section (if
such registered entity is a registered broker or dealer) nor a
counterparty to a security-based swap with the registered entity
described in paragraph (d)(1)(i) of this section, such notice need only
be provided contemporaneously with, and in the same manner as, the
first such arranging, negotiating, or executing activity during such
period. This disclosure will not be required if the identity of that
counterparty is not known to that registered entity at a reasonably
sufficient time prior to the execution of the transaction to permit
such disclosure.
    (v) Subject to regulation of a listed jurisdiction. The non-U.S.
person relying on this exception is subject to the margin and capital
requirements of a listed jurisdiction when engaging in the transactions
subject to this exception.
    (vi) Notice by registered entity. Before an associated person of
the registered entity described in paragraph (d)(1)(i) of this section
commences the activity described in paragraph (d)(1)(i) of this
section, such registered entity shall file with the Commission a notice
that its associated persons may conduct such activity. Such registered
entity shall file this notice by submitting it to the electronic
mailbox described on the Commission's website at www.sec.gov at the
``ANE Exception Notices'' section. The Commission shall publicly post
such notice on the same section of its website.

    (vii) Limitation for covered inter-dealer security-based swaps. The
aggregate gross notional amount of covered inter-dealer security-based
swap positions connected with dealing activity subject to the exception
in this paragraph (d) engaged in by persons described in paragraph
(d)(6)(i) of this section over the course of the immediately preceding
12 months does not exceed $50 billion.
    (2) Order for listed jurisdiction designation. The Commission by
order, may conditionally or unconditionally determine that a foreign
jurisdiction is a listed jurisdiction for purposes of this section. The
Commission may make listed jurisdiction determinations in response to
applications, or upon the Commission's own initiative.
    (i) Applications. Applications for an order requesting listed
jurisdiction status may be made by a party or group of parties that
potentially would seek to rely on the exception provided by paragraph
(d) of this section, or by any foreign financial regulatory authority
or authorities supervising such a party or its security-based swap
activities. Applications must be filed pursuant to the procedures set
forth in Sec.  240.0-13.
    (ii) Criteria considered. In considering a foreign jurisdiction's
potential status as a listed jurisdiction, the Commission may consider
factors relevant for purposes of assessing whether such an order would
be in the public interest, including:
    (A) Applicable margin and capital requirements of the foreign
financial regulatory system; and
    (B) The effectiveness of the supervisory compliance program
administered by, and the enforcement authority exercised by, the
foreign financial regulatory authority in connection with such
requirements, including the application of those requirements in
connection with an entity's cross-border business.
    (iii) Withdrawal or modification of listed jurisdiction status. The
Commission may, on its own initiative, by order after notice and
opportunity for comment, modify or withdraw a jurisdiction's status as
a listed jurisdiction, if the Commission determines that continued
listed jurisdiction status no longer would be in the public interest,
based on:
    (A) The criteria set forth in paragraph (d)(2)(ii) of this section;
    (B) Any laws or regulations that have had the effect of preventing
the Commission or its representatives, on request, to promptly access
information or documents regarding the activities of persons relying on
the exception provided by this paragraph (d), to obtain the testimony
of their foreign associated persons, and to obtain the assistance of
persons relying on this exception in taking the evidence of other
persons, wherever located, as described in paragraph (d)(1)(iii)(A) of
this section; and
    (C) Any other factor the Commission determines to be relevant to
whether continued status as a listed jurisdiction would be in the
public interest.
    (3) Exception for person that engages in arranging, negotiating, or
executing activity as agent. The registered entity described in
paragraph (d)(1)(i) of this section need not count, against the de
minimis thresholds described in Sec.  240.3a71-2(a)(1), the
transactions described by paragraph (d) of this section.
    (4) Limited exemption from registration as a broker. A registered
security-based swap dealer and its associated persons who conduct the
activities described in paragraph (d)(1)(i) of this section shall not
be subject to registration as a broker pursuant to section 15(a)(1) of
the Act solely because the registered entity or the associated person
conducts any activity described in paragraph (d)(1)(i) of this section
with or for a person that is an eligible contract participant, provided
that:
    (i) The conditions of paragraph (d)(1) of this section are
satisfied in connection with such activities; and
    (ii) If Sec.  240.10b-10 would apply to an activity subject to the
exception in paragraph (d)(1)(i), such registered security-based swap
dealer provides to the customer the disclosures required by Sec.
240.10b-10(a)(2) (excluding Sec.  240.10b-10(a)(2)(i) and (ii)) and
Sec.  240.10b-10(a)(8) in accordance with the time and form
requirements set forth in Sec.  240.15Fi-2(b) and (c) or,
alternatively, promptly after discovery of any defect in the registered
security-based swap dealer's good faith effort to comply with such
requirements.
    (5) Exemption from Sec.  240.10b-10. A broker or dealer that is
also a registered security-based swap dealer or registered broker
described in paragraph (d)(1)(i) of this section shall be exempt from
the requirements of Sec.  240.10b-10 with respect to activity described
in paragraph (d)(1)(i) of this section, provided that such broker or
dealer:
    (i) Complies with paragraph (d)(1)(ii)(B)(4) of this section in
connection with such activity; and
    (ii) Provides to the customer the disclosures required by Sec.
240.10b-10(a)(2) (excluding Sec.  240.10b-10(a)(2)(i) and (ii)) and
Sec.  240.10b-10(a)(8) in accordance with the time and form
requirements set forth in Sec.  240.15Fi-2(b) and (c) or,
alternatively, promptly after discovery of any defect in the broker or
dealer's good faith effort to comply with such requirements.
    (6) Limitation for covered inter-dealer security-based swaps--(i)
Scope of limitation for covered inter-dealer security-based swaps. The
threshold described in paragraph (d)(1)(vii) of this section applies to
covered inter-dealer security-based swap positions connected with
dealing activity subject to the exception in this paragraph (d) engaged
in by any of the following persons:
    (A) The non-U.S. person relying on the exception in this paragraph
(d); and
    (B) Any affiliate of such person, except for an affiliate that is
deemed not to be a security-based swap dealer pursuant to Rule 3a71-
2(b).
    (ii) Impact of exceeding exception threshold. If the threshold
described in paragraph (d)(1)(vii) of this section is exceeded, then
    (A) As of the date the condition in paragraph (d)(1)(vii) of this
section is no longer satisfied, the non-U.S. person that is no longer
able to satisfy that condition may not rely on the exception in this
paragraph (d) for future security-based swap transactions.
    (B) For purposes of calculating the amount of security-based swap
positions connected with dealing activity under Sec.  240.3a71-2(a)(1),
the non-U.S. person that is no longer able to satisfy the condition in
paragraph (d)(1)(vii) of this section shall include all covered inter-
dealer security-based swap positions connected with dealing activity
subject to the exception in this paragraph (d) engaged in by persons
described in paragraph (d)(6)(i) of this section over the course of the
immediately preceding 12 months, such positions to be included in such
calculation as of the date that the condition in paragraph (d)(1)(vii)
of this section is no longer satisfied.
* * * * *

0
6. Section 240.15Fb2-1 is amended by revising paragraphs (d) and (e) to
read as follows:

Sec.  240.15Fb2-1   Registration of security-based swap dealers and
major security-based swap participants

* * * * *
    (d) Conditional registration. (1) An applicant that has submitted a
complete Form SBSE-C (Sec.  249.1600c of this chapter) and a complete
Form SBSE (Sec.  249.1600 of this chapter) or Form SBSE-A (Sec.
249.1600a of this chapter) or Form SBSE-BD (Sec.  249.1600b of this
chapter), as applicable, in accordance with paragraph (c) within the
time periods set forth in Sec.  240.3a67-8 (if the

person is a major security-based swap participant) or Sec.  240.3a71-
2(b) (if the person is a security-based swap dealer), and has not
withdrawn its registration shall be conditionally registered.
    (2) Notwithstanding paragraph (d)(1) of this section, an applicant
that is a nonresident security-based swap dealer or nonresident major
security-based swap participant (each as defined in Sec.  240.15Fb2-
4(a)) that is unable to provide the certification and opinion of
counsel required by Sec.  240.15Fb2-4(c)(1) shall instead provide a
conditional certification and opinion of counsel as discussed in
paragraph (d)(3) of this section, and upon the provision of such
conditional certification and opinion of counsel, shall be
conditionally registered, if the nonresident applicant submits a Form
SBSE-C (Sec.  249.1600c of this chapter) and a Form SBSE (Sec.
249.1600 of this chapter), SBSE-A (Sec.  249.1600a of this chapter) or
SBSE-BD (Sec.  249.1600b of this chapter), as applicable, in accordance
with paragraph (c) of this section within the time periods set forth in
Sec.  240.3a67-8 (if the person is a major security-based swap
participant) or Sec.  240.3a71-2(b) (if the person is a security-based
swap dealer), that is complete in all respects but for the failure to
provide the certification and the opinion of counsel required by Sec.
240.15Fb2-4(c)(1), and has not withdrawn from registration.
    (3) For purposes of this section, a conditional certification and
opinion of counsel means a certification as required by Sec.
240.15Fb2-4(c)(1)(i) and an opinion of counsel as required by Sec.
240.15Fb2-4(c)(1)(ii) that identify, and are conditioned upon, the
occurrence of a future action that would provide the Commission with
adequate assurances of prompt access to the books and records of the
nonresident security-based swap dealer or nonresident major security-
based swap participant, and the ability of the nonresident security-
based swap dealer or nonresident major security-based swap participant
to submit to onsite inspection and examination by the Commission. Such
future action could include:
    (i) Entry by the Commission and the foreign financial regulatory
authority of the jurisdiction(s) in which the nonresident security-
based swap dealer or nonresident major security-based swap participant
maintains the books and records that are addressed by the certification
and opinion of counsel required by Sec.  240.15Fb2-4(c)(1) into a
memorandum of understanding, agreement, protocol, or other regulatory
arrangement providing the Commission with adequate assurances of:
    (A) Prompt access to the books and records of the nonresident
security-based swap dealer or nonresident major security-based swap
participant; and
    (B) The ability of the nonresident security-based swap dealer or
nonresident major security-based swap participant to submit to onsite
inspection or examination by the Commission; or
    (ii) Issuance by the Commission of an order granting substituted
compliance in accordance with Sec.  240.3a71-6 to the jurisdiction(s)
in which the nonresident security-based swap dealer or nonresident
major security-based swap participant maintains the books and records
that are addressed by the certification and opinion of counsel required
by Sec.  240.15Fb2-4(c)(1); or
    (iii) Any other action that would provide the Commission with the
assurances required by Sec.  240.15Fb2-4(c)(1)(i) and by Sec.
240.15Fb2-4(c)(1)(ii).
    (e) Commission Decision. (1) The Commission may deny or grant
ongoing registration to a security-based swap dealer or major security-
based swap participant based on a security-based swap dealer's or major
security-based swap participant's application, filed pursuant to
paragraph (a) of this section. The Commission will grant ongoing
registration if it finds that the requirements of section 15F(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) are satisfied.
The Commission may institute proceedings to determine whether ongoing
registration should be denied if it does not or cannot make such
finding or if the applicant is subject to a statutory disqualification
(as described in sections 3(a)(39)(A) through (F) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(39)(A)-(F)), or the Commission
is aware of inaccurate statements in the application. Such proceedings
shall include notice of the grounds for denial under consideration and
opportunity for hearing. At the conclusion of such proceedings, the
Commission shall grant or deny such registration.
    (2) If an applicant that is a nonresident security-based swap
dealer or nonresident major security-based swap participant has become
conditionally registered in reliance on paragraph (d)(2) of this
section, the applicant will remain conditionally registered until the
Commission acts to grant or deny ongoing registration in accordance
with (e)(1) of this section. If none of the future actions in paragraph
(d)(3) that are included in an applicant's conditional certification
and opinion of counsel occurs within 24 months of the compliance date
for Sec.  240.15Fb2-1, and there is not otherwise a basis that would
provide the Commission with the assurances required by Sec.  240.15Fb2-
4(c)(1)(i) and by Sec.  240.15Fb2-4(c)(1)(ii), the Commission may
institute proceedings thereafter to determine whether ongoing
registration should be denied, in accordance with paragraph (e)(1) of
this section.

0
7. Section 240.18a-5 is amended by adding paragraphs (a)(10)(iii) and
(b)(8)(iii) to read as follows:

Sec.  240.18a-5   Records to be made by certain security-based swap
dealers and major security-based swap participants

* * * * *
    (a) * * *
    (10) * * *
    (iii) Notwithstanding paragraph (a)(10)(i) of this section:
    (A) A security-based swap dealer or major security-based swap
participant is not required to make and keep current a questionnaire or
application for employment executed by an associated person if the
security-based swap dealer or major security-based swap participant is
excluded from the prohibition in section 15F(b)(6) of the Exchange Act
(15 U.S.C. 78o-10(b)(6)) with respect to such associated person; and
    (B) A questionnaire or application for employment executed by an
associated person who is not a U.S. person (as that term is defined in
Sec.  240.3a71-3(a)(4)(i)(A)) need not include the information
described in paragraphs (a)(10)(i)(A) through (H) of this section,
unless the security-based swap dealer or major security-based swap
participant is required to obtain such information under applicable law
in the jurisdiction in which the associated person is employed or
located or obtains such information in conducting a background check
that is customary for such firms in that jurisdiction and the creation
or maintenance of records reflecting that information, would not result
in a violation of applicable law in the jurisdiction in which the
associated person is employed or located; provided, however, the
security-based swap dealer or major security-based swap participant
must comply with section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-
10(b)(6)).
* * * * *
    (b) * * *
    (8) * * *
    (iii) Notwithstanding paragraph (b)(8)(i) of this section;
    (A) A security-based swap dealer or major security-based swap
participant is not required to make and keep current a questionnaire or
application for employment executed by an associated

person if the security-based swap dealer or major security-based swap
participant is excluded from the prohibition in section 15F(b)(6) of
the Exchange Act (15 U.S.C. 78o-10(b)(6)) with respect to such
associated person; and
    (B) A questionnaire or application for employment executed by an
associated person who is not a U.S. person (as that term is defined in
Sec.  240.3a71-3(a)(4)(i)(A)) need not include the information
described in paragraphs (b)(8)(i)(A) through (H) of this section,
unless the security-based swap dealer or major security-based swap
participant is required to obtain such information under applicable law
in the jurisdiction in which the associated person is employed or
located or obtains such information in conducting a background check
that is customary for such firms in that jurisdiction and the creation
or maintenance of records reflecting that information would not result
in a violation of applicable law in the jurisdiction in which the
associated person is employed or located; provided, however, the
security-based swap dealer or major security-based swap participant
must comply with Section 15F(b)(6) of the Exchange Act (15 U.S.C. 78o-
10(b)(6)).
* * * * *

    By the Commission.

    Dated: December 18, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019-27760 Filed 2-3-20; 8:45 am]
 BILLING CODE 8011-01-P