should impose on an SDR that requires an indemnification agreement even
if it can avail itself of the Indemnification Exemption?
     Should an SDR be required to make and keep records of its
decision to rely on the Indemnification Exemption?
     Are the Indemnification Exemption and the Commission's
proposed interpretive guidance sufficient to address the possibility
that SDRs may be registered with ESMA and national regulators at the
European Union (``EU'') member state level will obtain security-based
swap information from ESMA? Are there any regulatory regime or
circumstances that the Commission should take into consideration that
is not addressed by the Indemnification Exemption or the Commission's
interpretive guidance? Please explain.
     Will organizations such as FINRA and other self-regulatory
organizations, the National Futures Association, the IMF, and the
International Bank for Reconstruction and Development be able to meet
the three conditions of the Indemnification Exemption? Why or why not?
If not, should the Indemnification Exemption be modified to explicitly
exempt such organizations from the Indemnification Requirement? Why or
why not? If so, which organizations and why?
     Does the Indemnification Exemption adequately address the
concerns of relevant authorities with respect to the Indemnification
Requirement? Are there any circumstances that would warrant an
exemption from the Indemnification Requirement, but that would not
satisfy all the conditions in the Indemnification Exemption? If so, how
could the Indemnification Exemption be modified and narrowly tailored
to capture such circumstances so as not to have the effect of
nullifying the Indemnification Requirement?
     Is it appropriate to provide SDRs with the flexibility to
determine, on a case-by-case basis, whether a relevant authority that
is requesting security-based swap information is acting within the
scope of its regulatory mandate or legal responsibilities? Why or why
not?
     Should the Commission impose any additional requirements
on SDRs to confirm that a relevant authority is requesting security-
based swap

information for the purpose of fulfilling its regulatory mandate or
legal responsibilities? For example, should the Commission prescribe,
as a condition in the Indemnification Exemption, that the SDR obtain a
written confirmation from the requesting relevant authority that it is
acting within its regulatory mandate or legal responsibilities?
     Should the Commission impose any additional requirements
on SDRs to confirm that a relevant authority is requesting security-
based swap information that pertains to a person or financial product
subject to the jurisdiction, supervision, or oversight of the
authority? For example, should the Commission prescribe, as a condition
in the Indemnification Exemption, that the SDR obtain a written
confirmation from the requesting relevant authority that its request
pertains to a person or financial product subject to the jurisdiction,
supervision, or oversight of the authority?
     Would an MOU between the Commission and a relevant
authority in lieu of an indemnification agreement provide protection of
security-based swap information shared with the relevant authority
comparable to that of an indemnification agreement? If not, why not?
     Should the Commission specify in the Indemnification
Exemption any other matters that may be in a supervisory and
enforcement MOU or other arrangement? If so, what?
     On January 25, 2012, the European Commission proposed
reforms to strengthen online privacy rights and to modernize the
principles set forth in the EU's 1995 Data Protection Directive (``EU
Directive'') to protect personal data. Will the EU Directive affect the
ability of SDRs to provide security-based swap data to other relevant
authorities, including the Commission? If so, please explain. Will the
EU Directive affect the ability of the EU and its member countries to
provide reciprocal assistance in securities matters, as contemplated by
the supervisory and enforcement MOU or other arrangement discussed
above? If so, please explain.
     Should the Commission impose any additional conditions in
the Indemnification Exemption? If so, what? Are there any conditions in
the Indemnification Exemption that the Commission should not require?
If so, what conditions and why?
     For the purpose of satisfying the Indemnification
Exemption, should an SDR be required to maintain policies and
procedures setting forth how to determine (i) whether security-based
swap information being requested is needed to fulfill a regulatory
mandate and/or legal responsibility of the requesting entity, (ii)
whether a relevant authority's requests pertain to a person or
financial product subject to the authority's jurisdiction, supervision,
or oversight, or (iii) whether the requesting relevant authority has
entered into a supervisory and enforcement MOU or other arrangement
with the Commission? To the extent such policies and procedures require
each requesting relevant authority to provide a written representation
with respect to one or more of the conditions in the Indemnification
Exemption, should such written representations be considered sufficient
to satisfy the relevant conditions in the Indemnification Exemption?
     Are there better ways that the Commission could address
the Indemnification Requirement besides the Indemnification Exemption
that would be consistent with and further the goals of Title VII?
Please explain the costs and benefits of any alternative.
     What is the likely impact of the Indemnification Exemption
on the security-based swap market? Would the Indemnification Exemption
potentially promote or impede the establishment of SDRs?
     Is the Commission's proposed interpretation of how the
Indemnification Requirement applies to SDRs dually registered with the
Commission and a foreign regulator appropriate and sufficiently clear?
If not, why not? Should the Commission apply the Indemnification
Requirement when an SDR is registered with the Commission and is also
registered or licensed with a foreign authority and that foreign
authority is obtaining information from the SDR pursuant to its
regulatory regime? Why or why not? Should there be any additional
conditions in such instances? If so, what conditions and why?
     Should the Commission provide guidance on what it means
for a ``person or financial product'' to be ``subject to [an]
authority's jurisdiction, supervision, or oversight''? Why or why not?
     What would be the market impact of the proposed approach
to providing an exemption from the Indemnification Requirement? How
would the proposed application of the Indemnification Requirement,
including the proposed exemption, affect the competitiveness of U.S.
entities in the global marketplace (both in the United States as well
as in foreign jurisdictions)? Would the proposed approach place any
market participants at a competitive disadvantage or advantage? If so,
please explain. Would the proposed approach be a more general burden on
competition? If so, please explain. What other measures should the
Commission consider to implement the Indemnification Requirement? What
would be the market impacts and competitiveness effects of alternatives
to the proposed approach discussed in this release?

VII. Security-Based Swap Execution Facilities

A. Introduction

    As discussed throughout this release, the market for security-based
swaps is global in scope, with transactions in security-based swaps
often involving counterparties in different jurisdictions. The
Commission recognizes that, as a result, there may be uncertainty
regarding the application of our proposed SB SEF registration
requirements for a security-based swap market whose principal place of
business is outside of the United States. The Commission believes,
therefore, that guidance and clarification on the application of our
proposed registration requirements would be useful with respect to
security-based swap markets operating in the cross-border context.
    Under the Dodd-Frank Act, new Section 3D(a)(1) of the Exchange Act
provides that ``no person may operate a facility for the trading or
processing of security-based swaps, unless the facility is registered
as a security-based swap execution facility or as a national securities
exchange under this section.'' \831\ In our release proposing rules
governing SB SEFs,\832\ the Commission expressed the view that the
registration requirement of Section 3D(a)(1) would apply only to a
facility that meets the definition of ``security-based swap execution
facility'' in Section 3(a)(77) of the Exchange Act.\833\ The SB SEF
Proposing Release, however, did not explicitly address the
circumstances under which a foreign \834\

security-based swap market would be required to register with the
Commission under Section 3D of the Exchange Act.\835\ As discussed
below, the Commission herein proposes to interpret when the
registration requirements of Section 3D of the Exchange Act would apply
to a foreign security-based swap market.\836\ The Commission also
discusses below the circumstances under which it may consider granting
an exemption from registration for a foreign security-based swap
market.
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    \831\ 15 U.S.C. 78c-4(a)(1).
    \832\ See SB SEF Proposing Release, 76 FR 10948. The proposed
rules governing SB SEFs are contained in proposed Regulation SB SEF.
    \833\ See SB SEF Proposing Release, 76 FR 10949 n.10. Section
3(a)(77) of the Exchange Act defines ``security-based swap execution
facility'' to mean ``a trading system or platform in which multiple
participants have the ability to execute or trade security-based
swaps by accepting bids and offers made by multiple participants in
the facility or system, through any means of interstate commerce,
including any trading facility, that (A) facilitates the execution
of security-based swaps between persons and (B) is not a national
securities exchange.'' 15 U.S.C. 78c(a)(77).
    \834\ In using the terms ``foreign'' and ``non-resident'' in
connection with a security-based swap market, the Commission intends
that these terms refer to a security-based swap market that is not a
U.S. person.
    \835\ In the SB SEF Proposing Release, the Commission
contemplated that non-resident persons may apply for registration as
a SB SEF. In this regard, the Commission proposed Rule 801(f) of
Regulation SB SEF, which would require any non-resident person
applying for registration as a SB SEF to certify and provide an
opinion of counsel that it can, as a matter of law, provide the
Commission with prompt access to its books and records and submit to
onsite inspection and examination by representatives of the
Commission. See SB SEF Proposing Release, 76 FR 11001.
    \836\ Entities that do not meet the definition of SB SEF may
nonetheless be required to register in another capacity under the
Exchange Act.
---------------------------------------------------------------------------

    The proposed interpretations described below represent the
Commission's proposed approach to applying the SB SEF registration
requirements to foreign security-based swap markets. We recognize that
other approaches may achieve the goals of the Dodd-Frank Act, in whole
or in part. Accordingly, we invite comment regarding all aspects of the
proposal described below, and each proposed interpretation contained
therein, including potential alternative approaches. Data and comment
from market participants and other interested parties regarding the
likely effect of each proposed interpretation and potential alternative
approaches would be particularly useful to the Commission in evaluating
modifications to the proposals.

B. Registration of Foreign Security-Based Swap Markets

    As noted above, in our SB SEF Proposing Release, the Commission
expressed the view that the registration requirement of Section
3D(a)(1) would apply only to a facility that meets the definition of
``security-based swap execution facility'' in Section 3(a)(77) of the
Exchange Act.\837\ A ``security-based swap execution facility'' is
defined as ``a trading system or platform in which multiple
participants have the ability to execute or trade security-based swaps
by accepting bids and offers made by multiple participants in the
facility or system, through any means of interstate commerce, including
any trading facility, that (A) facilitates the execution of security-
based swaps between persons and (B) is not a national securities
exchange.'' \838\
---------------------------------------------------------------------------

    \837\ See note 833 and accompanying text, supra.
    \838\ 15 U.S.C. 78c(a)(77).
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    As outlined further below, the Commission preliminarily believes
that, when evaluating whether a foreign security-based swap market
would have to register under Section 3D(a)(1), activities by the
foreign security-based swap market that provide U.S. persons, or non-
U.S. persons located in the United States, the ability to directly
execute or trade security-based swaps on the foreign security-based
swap market or facilitate the execution or trading of security-based
swaps by U.S. persons, or non-U.S. persons located in the United
States, on the foreign security-based swap market should be
considered.\839\ The Commission also preliminarily believes that, if a
foreign security-based swap market takes affirmative actions to induce
the execution or trading of security-based swaps on its market by U.S.
persons, or non-U.S. persons located in the United States, including by
inducing such execution or trading through marketing its services
relating to the ability to execute or trade security-based swaps on its
market to U.S. persons, or non-U.S. persons located in the United
States, or otherwise initiating contact with such persons for the
purpose of inducing such execution or trading, then those activities
could be viewed as facilitating the execution or trading of security-
based swaps on its market and could cause the foreign security-based
swap market to fall within the scope of the registration requirements
of Section 3D of the Exchange Act.
---------------------------------------------------------------------------

    \839\ See id. Non-U.S. persons located in the United States
could include, for example, U.S. branches of foreign entities.
---------------------------------------------------------------------------

    The Commission believes that it would be useful to provide some
discussion of the types of activities that it preliminarily believes
would place a foreign security-based swap market within the scope of
Section 3D of the Exchange Act under the Commission's proposed
interpretation. Given the constant innovation of trading mechanisms and
methods, as well as technological and communication developments,
however, it would not be possible to provide a comprehensive, final
discussion of every activity for which a foreign security-based swap
market would be considered to be providing U.S. persons or non-U.S.
persons located in the United States the ability to execute or trade
security-based swaps, or to be facilitating the execution or trading of
security-based swaps, on its market, thereby triggering the requirement
to register as a SB SEF under Section 3D(a)(1).
    The Commission preliminarily believes that when a foreign security-
based swap market provides U.S. persons, or non-U.S. persons located in
the United States, with the direct ability to trade or execute
security-based swaps on the foreign security-based swap market by
accepting bids and offers made by one or more participants on the
foreign security-based swap market, then such market would be required
to register as a SB SEF. The Commission notes that a foreign security-
based swap market could grant such direct access to U.S. persons, and
non-U.S. persons located in the United States, through a variety of
means, such as (i) providing proprietary electronic screens, market
terminals, monitors or other devices for trading security-based swaps
on its market; (ii) granting direct electronic access to the foreign
security-based swap market's trading system or network, including by
providing data feeds or codes for use with software operated through
the computer of a U.S. person, or non-U.S. person located in the United
States, or by allowing such persons to access the foreign security-
based swap market through third-party service vendors or public
networks (such as the Internet); or (iii) allowing its members or
participants to provide U.S. persons or non-U.S. persons located in the
United States with direct electronic access to trading in security-
based swaps on the foreign security-based swap market.
    The Commission also preliminarily believes that, if a foreign
security-based swap market were to grant membership or participation in
the foreign security-based swap market to U.S. persons, or non-U.S.
persons located in the United States, which would provide such persons
with the ability to directly execute or trade security-based swaps by
accepting bids and offers made by one or more participants on the
foreign security-based swap market, then such market would be required
to register as a SB SEF.
    Although the Commission preliminarily believes that the foregoing
activities are the types of activities that would warrant application
of the registration requirement of Section 3D, the Commission
emphasizes that these activities are not intended to be an exclusive or
exhaustive discussion of all the activities that could trigger the
registration requirements of Section 3D by a foreign security-based
swap market. In addition, as trading and

communication mechanisms and methods evolve, other activities that aim
at providing U.S. persons, or non-U.S. persons located in the United
States, the ability to directly execute or trade security-based swaps
by accepting bids and offers made by multiple participants on a foreign
security-based swap market, or that aim to facilitate the execution or
trading of security-based swaps by U.S. persons or non-U.S. persons
located in the United States on a trading platform or system operated
by a foreign security-based swap market, could cause a foreign
security-based swap market to fall within the ambit of the registration
requirements of Section 3D.\840\
---------------------------------------------------------------------------

    \840\ In the alternative, the foreign security-based swap market
could elect to apply for registration as a national securities
exchange. See 15 U.S.C. 78f.
---------------------------------------------------------------------------

    The Commission anticipates that some U.S. persons or non-U.S.
persons located in the United States may choose to transact on a
foreign security-based swap market on an indirect basis through a non-
U.S. person that is not located in the United States and that is a
member or participant of a foreign security-based swap market. The
Commission preliminarily believes that, to the extent that the U.S.
person, or non-U.S. person located in the United States, initiates the
contact and the foreign security-based swap market does not attempt to
solicit such business, such a transaction would not on its own warrant
requiring the foreign security-based swap market to register under
Section 3D of the Exchange Act.\841\ However, as discussed above, to
the extent that a foreign security-based swap market initiates contacts
with U.S. persons or non-U.S. persons located in the United States to
induce or facilitate the execution or trading of security-based swaps
by such persons on its market, such activity would trigger the
requirement to register under Section 3D.\842\
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    \841\ The U.S. person or non-U.S. person located in the United
States may, however, be required to register as a broker under
Section 15(a)(1) of the Exchange Act. See 15 U.S.C. 78o(a)(1).
    \842\ For example, if a foreign security-based swap market were
to allow its members or participants to provide U.S. persons, or
non-U.S. persons located in the United States with direct electronic
access to trading in security-based swaps on the foreign security-
based swap market, this access would be considered direct access by
a U.S. person, or a non-U.S. person located in the United States
and, as noted above, would require the foreign security-based swap
market to register.
---------------------------------------------------------------------------

    The Commission also anticipates that, given the global nature of
the security-based swap business, a foreign security-based swap market
could, at some point, seek to enter into a business combination with a
registered SB SEF. Under the Commission's proposed interpretation, such
business combination also could trigger the registration requirements
of Section 3D of the Exchange Act for the foreign security-based swap
market, depending on the nature and extent of integration of the
entities' operations and activities. In this regard, the Commission's
experience in recent years with national securities exchanges that have
engaged in cross-border combinations may be illustrative for these
purposes. Several national securities exchanges in recent years have
entered into transactions to combine under common ownership with
certain non-U.S. markets, such as NYSE Group, Inc.'s transaction with
Euronext N.V. to form NYSE Euronext in 2007; \843\ Eurex Frankfurt AG's
acquisition of the International Securities Exchange, LLC in 2007;
\844\ and The Nasdaq Stock Market, Inc.'s transaction with Borse Dubai
Limited to form NASDAQ OMX Group, Inc. in 2008.\845\ In each case, the
U.S. and the foreign markets, under their respective parent companies,
generally have continued to operate as separate legal entities,
maintained separate liquidity pools in their respective jurisdictions
without integrating trading interest among markets under common
ownership, and continued to be regulated subject to their own home
country's requirements. Similarly, a registered SB SEF and a foreign
security-based swap market could come under common ownership but
continue to be separate legal entities, maintain separate liquidity
pools for their security-based swap businesses without integrating
trading interest among affiliated markets, and be separately regulated
in their own home jurisdictions. However, if a registered SB SEF and
foreign security-based swap market were to integrate their security-
based swap trading facilities, for example, by the foreign security-
based swap market providing direct access to the SB SEF's participants,
or by the foreign security-based swap market and the registered SB SEF
integrating their liquidity pools,\846\ under the Commission's proposed
interpretation, such actions would trigger the registration
requirements of Section 3D of the Exchange Act for the foreign
security-based swap market because the market would then be operating a
facility for trading security-based swaps within the United States.
---------------------------------------------------------------------------

    \843\ See Exchange Act Release No. 55293 (Feb. 14, 2007), 72 FR
8033 (Feb. 22, 2007).
    \844\ See Exchange Act Release No. 56955 (Dec. 13, 2007), 72 FR
71979 (Dec. 19, 2007).
    \845\ See Exchange Act Release No. 57099 (Jan. 4, 2008), 73 FR
1901 (Jan. 10, 2008).
    \846\ An integrated trading pool for security-based swaps would
indicate that there is a unitary market for the security-based
swaps. In such a scenario, persons with direct access to or
membership in the registered SB SEF effectively would have the same
direct access or membership privileges in the foreign security-based
swap market by virtue of their access to the integrated trading
pool, and thus would have the ability to directly execute or trade
security-based swaps on the foreign security-based swap market.
---------------------------------------------------------------------------

C. Registration Exemption for Foreign Security-Based Swap Markets

    The prior section discusses when a foreign security-based swap
market would be required to register as a SB SEF under Section 3D of
the Exchange Act. The Commission recognizes, however, that the
security-based swap market is global in nature and therefore one or
more foreign security-based swap markets may seek relief from the
Commission to allow some of the activities discussed above that would
trigger the SB SEF registration requirement to continue without the
foreign security-based swap market having to register as a SB SEF under
Section 3D of the Exchange Act.
    Following the publication of the SB SEF Proposing Release, the
Commission received comments from the public expressing concerns about
the implications of the proposed rules and the requirements of Section
3D of the Exchange Act for foreign security-based swap markets and the
global markets for security-based swaps generally.\847\ Several
commenters urged the Commission to work with foreign regulators to
develop harmonized rules for the trading of security-based swaps.\848\
Some commenters believed that harmonization or flexibility with regard
to foreign security-based swap markets would help reduce the risk of
regulatory arbitrage.\849\ One commenter stated that such harmonization
would reduce the burdens of duplicative or conflicting requirements
that could be faced by security-based swap markets operating in
multiple jurisdictions.\850\
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    \847\ See, e.g., Thomson Letter at 3-4, Blackrock Letter at 12-
13, Bloomberg Letter at 6-7, ISDA/SIFMA II Letter at 2, WMBAA Letter
at 10-11, Cleary Letter III at 4, and Cleary Letter IV at 5, 13.
    \848\ See Thomson Letter, BlackRock Letter, ISDA/SIFMA Letter
II, and WMBAA Letter.
    \849\ See Thomson Letter, Bloomberg Letter, and WMBAA Letter.
    \850\ See Bloomberg Letter.
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    Although a number of foreign jurisdictions are in the process of
developing standards for the regulation of security-based swaps and
security-based swap markets, at this time few foreign jurisdictions
have enacted legislation or adopted standards for the regulation of
security-based swap

markets.\851\ The Commission, however, is in discussions with its
foreign counterparts to explore steps toward harmonizing standards for
such regulation in the future.\852\ In the meantime, the Commission is
considering how best to address commenters' concerns about the risks of
regulatory arbitrage and duplicative regulatory burdens on security-
based swap markets that operate on a cross-border basis, in a manner
consistent with the requirements of the Dodd-Frank Act and the federal
securities laws generally.
---------------------------------------------------------------------------

    \851\ See FSB Progress Report April 2013 at 1 (``While progress
has been made in moving [OTC derivatives] markets towards
centralized infrastructure, less than half of the FSB member
jurisdictions currently have legislative and regulatory frameworks
in place to implement the G20 commitments and there remains
significant scope for increases in trade reporting, central clearing
and exchange and electronic platform trading in global OTC
derivatives markets.'').
    \852\ See Section I.C, supra.
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    The Commission preliminarily believes that it may be appropriate to
consider an exemption as an alternative approach to SB SEF registration
depending on the nature or scope of the foreign security-based swap
market's activities in, or the nature or scope of the contacts the
foreign security-based swap market has with, the United States.
Exemptions that are carefully tailored to achieve the objectives of
Section 3D could help to improve security-based swap market supervision
overall by allowing the Commission to focus our resources on areas
where it has a substantial interest, while reducing duplication of
efforts in areas where our interests are aligned with those of other
regulators.
    The Commission could exempt from the registration requirements of
Section 3D a foreign security-based swap market that is subject to
comparable, comprehensive supervision and regulation under appropriate
governmental authorities in its home country.\853\ The availability of
such an exemption could serve to reduce any potential duplicative
regulatory burdens faced by security-based swap markets that operate on
a cross-border basis and that otherwise would be required to register
both in the United States and in a non-U.S. jurisdiction.
---------------------------------------------------------------------------

    \853\ Any such exemption would be issued by order pursuant to
the Commission's authority under Section 36 of the Exchange Act. 15
U.S.C. 78mm.
---------------------------------------------------------------------------

    Before the Commission would consider issuing an exemption from the
registration requirements of Section 3D for a particular foreign
security-based swap market, the Commission could consider whether the
foreign security-based swap market is subject to comparable,
comprehensive supervision and regulation by the appropriate
governmental authorities in its home country, as compared to the
supervision and regulation of SB SEFs under the Dodd-Frank Act and the
Commission's implementing regulations. This process could include a
review of the foreign jurisdiction's laws, rules, regulatory standards
and practices governing the foreign security-based swap market and
would entail consultation and cooperation with the foreign security-
based swap market's home country governmental authorities.
    The Commission expects that any such registration exemption could
be subject to appropriate conditions that could include, but not be
limited to, requiring a foreign security-based swap market to certify
that it would provide the Commission with prompt access to its books
and records, including, for example, data relating to orders, quotes,
and transactions, as well as provide an opinion of counsel that, as a
matter of law, it is able to provide such access. The Commission also
could require, as a condition to receiving an exemption from
registration, that a foreign security-based swap market would appoint
an agent for service of process in the United States who is not an
employee or official of the Commission. These potential conditions
would be consistent with the proposed requirements for non-resident
registered SB SEFs \854\ and would allow the Commission to exercise, as
necessary or appropriate, supervisory oversight of a foreign security-
based swap market that receives an exemption from Section 3D's
registration requirements. The Commission also could require that,
before issuing an exemption from registration, the Commission and the
appropriate financial regulatory authority or authorities in the
foreign security-based swap market's home jurisdiction enter into a MOU
that addresses the oversight and supervision of that market.
---------------------------------------------------------------------------

    \854\ See SB SEF Proposing Release, 76 FR 11001, proposed Rule
801(f), and proposed Form SB SEF.
---------------------------------------------------------------------------

    In certain cases, the Commission also could require, as a condition
to granting such an exemption, that a foreign security-based swap
market meet some of the requirements applicable to registered SB SEFs.
Such a condition may be useful where the Commission is unable to make a
determination regarding the broader comparability of the home
jurisdiction's regulation and supervision, but where there is
comparability with respect to some of the requirements applicable to
registered SB SEFs and to a foreign security-based swap market (or
class of security-based swap markets) in its home country. Therefore,
the terms and conditions of any exemption that the Commission may grant
to a foreign security-based swap market (or class of security-based
swap markets) could depend on the degree to which the foreign
jurisdiction's laws, rules, regulatory standards, and practices
governing security-based swaps ``compare'' to those of the United
States.
    In considering the above, the Commission may consider any
requirements of the home country that would conflict with the
requirements applicable to SB SEFs under the Dodd-Frank Act. For
example, Section 3D of the Exchange Act seeks to ensure fair and open
access to SB SEFs by requiring that a SB SEF establish and enforce
rules that include means to provide market participants with impartial
access to the market.\855\ The Commission also could consider whether a
home country regulator imposes a regulation or policy limiting fair and
open access to its security-based swap markets.
---------------------------------------------------------------------------

    \855\ 15 U.S.C. 78c-4(d)(2)(B).
---------------------------------------------------------------------------

    The Commission notes that security-based swap market structure and
security-based swap market supervision and regulation could vary in
other jurisdictions and could affect the Commission's ability to make a
comparability determination. In addition, such differences in
supervision and regulation would necessitate that each exemption
request be reviewed on a jurisdiction-by-jurisdiction basis by the
Commission. The conditions to any such exemption also would be based on
the differences in the market structure and supervisory regime in the
jurisdiction under consideration in comparison to U.S. oversight of SB
SEFs.
    As noted above, few foreign jurisdictions have adopted a
comprehensive framework for the regulation of security-based swap
markets and the Commission has not yet adopted rules governing SB SEFs.
Thus, the Commission believes that it is premature to specify the
precise criteria that the Commission may use for our evaluation and
comparison of the regulatory and supervision programs for foreign
security-based swap markets, should the Commission choose to consider
exempting from registration as a SB SEF a foreign security-based swap
market that becomes subject to regulation in its home country at a
future date. Nonetheless, the Commission believes that it is useful now
to elicit comment from interested

persons regarding our proposed approach, should it choose to consider
providing such an exemption.
    The Commission preliminarily believes that the proposed approach,
which may condition any exemption for a foreign security-based swap
market on the existence of comparable, comprehensive supervision and
regulation under the appropriate financial regulatory authority or
authorities in the foreign security-based swap market's home country,
should provide comparable regulatory oversight and supervision as that
afforded by the Commission's regulation and supervision of SB SEFs. The
standard of ``comparability'' discussed above should allow the
Commission sufficient flexibility to make exemption determinations
based on the similarity of the requirements and practices of the
foreign jurisdiction's regulatory program governing security-based
swaps. In this regard, the Commission preliminarily believes that the
comparability standard could extend not only to the written laws and
rules of the foreign jurisdiction, but also to the jurisdiction's
comprehensive supervision and regulation of its security-based swap
markets, including the jurisdiction's oversight of its markets and
enforcement of its laws and rules. The breadth of the proposed
comparability standard (i.e., to consider actual practices as well as
written laws and rules) could help ensure that the regulatory
protections provided in the foreign jurisdiction's security-based swap
markets are substantially realized by sufficiently vigorous supervision
and enforcement.
    Finally, as discussed below,\856\ the Commission proposes to permit
substituted compliance, under certain circumstances, with respect to
the mandatory trade execution requirement in Section 3C(h)(1) of the
Exchange Act, if the Commission finds that a foreign-based security-
based swap market (or class of security-based swap markets) is subject
to comparable, comprehensive supervision and regulation by a foreign
financial regulatory authority in such foreign jurisdiction.\857\ While
the proposed comparability standard for our granting an exemption from
SB SEF registration could be similar to the proposed comparability
standard for a substituted compliance determination with respect to the
mandatory trade execution requirement, which is discussed below, the
factors that the Commission could find relevant to a comparability
determination with respect to SB SEF registration would not necessarily
be the same factors that it would consider when making a comparability
determination with respect to mandatory trade execution. This is
because Section 3D of the Exchange Act is focused on the registration
of SB SEFs and compliance by registered SB SEFs with the 14 enumerated
core principles governing SB SEFs,\858\ whereas Section 3C(h)(1) of the
Exchange Act is focused on the circumstances where execution of a
security-based swap on a SB SEF (or an exchange) is required.\859\
However, the Commission solicits comment on the appropriateness or
feasibility of our proposed approach.
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    \856\ See Section XI.F, infra.
    \857\ See proposed Rule 3Ch-2 under the Exchange Act.
    \858\ See 15 U.S.C. 78c-4.
    \859\ See 15 U.S.C. 78c-3(h)(1).
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Request for Comment
    The Commission generally requests comment on the discussion
regarding SB SEFs, including the following:
     The Commission requests comment on all aspects of our
discussion regarding when a foreign security-based swap market would be
required to register as a SB SEF under Section 3D and on the non-
exhaustive discussion of the types of activities, noted above, that
would trigger registration of the foreign security-based swap market as
a SB SEF. The Commission also requests comment on all aspects of our
proposal to consider requests for an exemption from SB SEF registration
for a foreign security-based swap market under certain circumstances.
     The Commission seeks commenters' views on the potential
impact of applying the proposed SB SEF registration requirements to
foreign security-based swap markets that engage in activities that
would require such markets to register as a SB SEF. Are there aspects
of the proposed SB SEF rules and registration requirements that present
issues for foreign security-based swap markets that would be required
to register as a SB SEF? If so, please explain in detail.
     The Commission requests commenters' views on whether the
non-exhaustive discussion of the types of activities, noted above,
which would trigger the application of Section 3D registration
requirements to a foreign security-based swap market, is appropriate to
aid foreign security-based swap markets in assessing whether they would
be required to register as a SB SEF. Are there other activities that
foreign security-based swap markets currently engage in that should be
evaluated for consideration as to whether those activities would
trigger Section 3D registration requirements? If so, please describe
those activities in detail. Are there specific items set forth in the
non-exhaustive discussion of the types of activities noted above or any
other specific activities engaged in by foreign security-based swap
markets that should not trigger Section 3D registration requirements?
If so, commenters should describe those activities in detail and
explain their rationale. Does the proposed interpretation regarding the
application of Section 3D and the proposed non-exhaustive discussion of
the types of activities provide sufficient guidance for a foreign
security-based swap market to assess whether it would have to register,
or seek an exemption from registration, as a SB SEF? If not, what kind
of further guidance would be helpful for making that determination?
Does the proposed approach provide sufficient guidance to a foreign
security-based swap market that may seek an exemption? If not, what
kind of further guidance would be helpful?
     The Commission seeks comment on the appropriateness of the
proposed interpretation that the registration requirements of Section
3D should be triggered by certain activities directed at ``U.S.
persons, or non-U.S. persons located in the United States.'' Are the
categories of persons captured by this proposed approach too broad? Too
narrow? Please specify and explain. For example, foreign branches would
be included by the proposed approach, such that a foreign security-
based swap market's provision of direct access or participation in its
market to a foreign branch, or activities facilitating execution or
trading of security-based swaps on its market by such a foreign branch,
would trigger the Section 3D registration requirement. Do commenters
agree with this approach? If not, why not? What would be a better
approach? If so, how so?
     The Commission requests comment on what would be the
appropriate circumstances under which the Commission should consider
granting an exemption from the registration requirements of Section 3D.
Should the Commission consider granting an exemption from registration
for a foreign security-based swap market when the nature or scope of
its activities in the United States are limited? If so, why? Or should
the Commission also consider granting an exemption for a foreign
security-based swap market when the nature or scope of its activities
in the United States are more extensive? Why or why not? What would be
the advantages and disadvantages of either

approach? What would be the appropriate criteria for the Commission to
apply when it considers whether to grant an exemption from the
registration requirements of Section 3D? Please specify and explain.
     The Commission seeks comment on whether the proposed
standard of comparability is an appropriate standard for the Commission
to determine whether to grant an exemption from Section 3D's
registration requirements for a foreign security-based swap market.
Should a different standard be used? If so, what should be the standard
and why? Should it be stricter or more lenient than the proposed
standard? If it should be stricter or more lenient, in what respects
and in what manner? Why or why not? As proposed, when making a
comparability determination, the Commission would look not just at the
rules of a foreign jurisdiction, but also at the comprehensiveness of
the supervision and regulation by the appropriate governmental
authorities of that jurisdiction. Is the Commission's holistic approach
to making a comparability determination appropriate? Why or why not?
Comment also is requested regarding whether the Commission should put
in place a more detailed standard for granting an exemption, for
example, by providing specific criteria that the Commission would look
to in determining whether there is comparable, comprehensive regulation
and supervision of a foreign security-based swap market by the
appropriate financial regulatory authority or authorities in the home
country. If so, what criteria should the Commission include and why?
Commenters also are requested to explain how the Commission should
develop such criteria in the absence of existing regulations in other
jurisdictions at the present time. Are there specific procedures or
comparability considerations that commenters believe that the
Commission would find useful to incorporate in our proposed exemption
approach at this time? If so, please describe. What would be the
advantages of adopting such measures now? What would be the
disadvantages of adopting such measures now?
     The Commission solicits comment on the appropriateness or
feasibility of distinguishing between the comparability determination
for purposes of an exemption from registration as a SB SEF and for
purposes of substituted compliance for the mandatory trade execution
requirement. Should the Commission consider the same factors in making
a comparability determination for mandatory trade execution and a
comparability determination for SB SEF registration? If so, what
factors would be relevant and appropriate to both determinations?
Please describe. What factors, if any, would only be relevant or
appropriate to a comparability determination for SB SEF registration or
a comparability determination for mandatory trade execution,
respectively? Please describe.
     The Commission seeks comment on the proposed process for
granting an exemption from Section 3D's registration requirements for a
foreign security-based swap market. Is the process explained in a
sufficiently clear manner? Does the process provide foreign security-
based swap markets with an efficient method for obtaining exemptions?
If not, what aspects of the process would be burdensome for foreign
security-based swap markets? Are there other ways to streamline the
exemption process? Please describe.
     What would be the market impact of the proposed approach
to the registration of foreign security-based swap markets? How would
the proposed application of the SB SEF registration requirement affect
the competitiveness of U.S. entities in the global marketplace (both in
the United States as well as in foreign jurisdictions)? Would the
proposed approach place any market participants at a competitive
disadvantage or advantage? If so, please explain. Would the proposed
approach be a more general burden on competition? If so, please
explain. What other measures should the Commission consider to
implement the proposed approach to the registration of foreign
security-based swap markets? What would be the market impacts and
competitiveness effects of alternatives to the proposed approach
discussed in this release?

VIII. Regulation SBSR--Regulatory Reporting and Public Dissemination of
Security-Based Swap Information

A. Background

    Section 13A(a)(1) of the Exchange Act \860\ provides that all
security-based swaps that are not accepted for clearing shall be
subject to regulatory reporting. Section 13(m)(1)(G) of the Exchange
Act \861\ provides that each security-based swap (whether cleared or
uncleared) shall be reported to a registered SDR, and Section
13(m)(1)(C) of the Exchange Act \862\ generally provides that
transaction, volume, and pricing data of all security-based swaps shall
be publicly disseminated in real time, except in the case of block
trades.\863\ On November 19, 2010, the Commission proposed Regulation
SBSR to implement these requirements.\864\
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    \860\ 15 U.S.C. 78m-1(a)(1).
    \861\ 15 U.S.C. 78m(m)(1)(G).
    \862\ 15 U.S.C. 78m(m)(1)(C).
    \863\ Section 13(m)(1)(E) of the Exchange Act, 15 U.S.C.
78(m)(1)(E), provides that, with respect to cleared security-based
swaps, the rule promulgated by the Commission related to public
dissemination shall contain provisions that ``specify the criteria
for determining what constitutes a large notional security-based
swap transaction (block trade) for particular market and contracts''
and ``specify the appropriate time delay for reporting large
notional security-based swap transactions (block trades) to the
public.''
    \864\ See Regulation SBSR Proposing Release, 75 FR 75208.
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    Rule 908 of Regulation SBSR as initially proposed was designed to
clarify the application of Regulation SBSR to cross-border security-
based swaps. Proposed Rule 908(a) would require a security-based swap
to be reported and publicly disseminated if the security-based swap:
(i) Has at least one counterparty that is a U.S. person; (ii) was
executed in the United States or through any means of interstate
commerce; or (iii) was cleared through a registered clearing agency
having its principal place of business in the United States. Proposed
Rule 908(b) provided that, notwithstanding any other provision of
Regulation SBSR, no counterparty to a security-based swap would incur
any obligation under Regulation SBSR unless it is: (i) A U.S. person;
(ii) a counterparty to a security-based swap executed in the United
States or through any means of interstate commerce; or (iii) a
counterparty to a security-based swap cleared through a clearing agency
having its principal place of business in the United States. Thus,
under the Commission's initial proposal, a security-based swap--
wherever it is executed or cleared--would be required to be reported
pursuant to Regulation SBSR if at least one counterparty were a U.S.
person. Furthermore, a security-based swap--even if both counterparties
were non-U.S. persons--would be required to be reported if the
security-based swap were executed in the United States or through any
means of interstate commerce, or cleared through a clearing agency
having its principal place of business in the United States.
    Rule 901(a)(1), as initially proposed, also provided that, where
only one counterparty to a security-based swap is a U.S. person, the
U.S. person would be the ``reporting party'' (i.e., the party that
incurs the duty to report the security-based swap pursuant to
Regulation SBSR). Rule 901(a)(3), as initially proposed, provided that,
where neither

counterparty to a security-based swap that must be reported is a U.S.
person, the counterparties must select which of them would be the
reporting party.
    To date, the Commission has received 48 comment letters
specifically in response to proposed Regulation SBSR, many of which
raised issues relating to the cross-border aspects of the proposal. The
Commission has received other letters that, while not specifically
referencing proposed Regulation SBSR, raised cross-border issues that
are germane to proposed Regulation SBSR.\865\ In response to these
comments--which are described further herein--and upon further
consideration of issues related to cross-border security-based swap
transactions across all of the various areas of Title VII, the
Commission is proposing various modifications to proposed Regulation
SBSR, particularly Rule 908 thereof, which address cross-border
transactions.
---------------------------------------------------------------------------

    \865\ All such letters are cited in Appendix D.
---------------------------------------------------------------------------

    One significant modification being proposed here would take into
account situations in which a U.S. person, although not a ``direct
counterparty,'' as defined below, to a security-based swap, guarantees
the performance of one of the direct counterparties. As discussed
above,\866\ the Commission is proposing to apply various Title VII
provisions to the security-based swap transactions of non-U.S. persons
that are guaranteed by U.S. persons--including the regulatory reporting
and public dissemination requirements of Regulation SBSR, as discussed
below.\867\ A second significant modification is to propose a
``substituted compliance'' regime. As explained in more detail below,
the Commission is now proposing a framework that would allow certain
Title VII requirements to be satisfied by compliance with the rules of
a foreign jurisdiction rather than the specific requirements under U.S.
rules. Below, the Commission describes the circumstances under which
compliance with the rules of such a foreign jurisdiction could, under
re-proposed Regulation SBSR, be ``substituted'' for compliance with the
specific regulatory reporting and public dissemination requirements of
Regulation SBSR.\868\
---------------------------------------------------------------------------

    \866\ See Section II.B.2(d), supra.
    \867\ See Sections VIII.C and VIII.D, infra.
    \868\ See Section XI.D, infra.
---------------------------------------------------------------------------

    A number of new definitions are being added to re-proposed Rule 900
in light of the changes being proposed.\869\ For example, new paragraph
(g) of Rule 900 would define the term ``counterparty'' to mean ``a
person that is a direct counterparty or indirect counterparty of a
security-based swap.'' A direct counterparty would be ``a person that
enters directly with another person into a contract that constitutes a
security-based swap.'' An indirect counterparty would be ``a person
that guarantees the performance of a direct counterparty to a security-
based swap or that otherwise provides recourse to the other side for
the failure of the direct counterparty to perform any obligation under
the security-based swap.'' Although a guarantor is not a direct
counterparty to the security-based swap, the duties to be performed
under the security-based swap, and thus the risks associated with the
security-based swap, ultimately fall to the guarantor.\870\ Therefore,
the Commission preliminarily believes that it is appropriate to deem a
guarantor to be a counterparty to the security-based swap for purposes
of the regulatory reporting requirements of Title VII and the rules
proposed thereunder. As discussed in detail below, the concept of
``reporting party'' used in Regulation SBSR as initially proposed would
be replaced by the newly proposed term ``reporting side,'' to reflect
the fact that reporting obligations could attach to both direct and
indirect counterparties.\871\
---------------------------------------------------------------------------

    \869\ In some cases, a definition used in Rule 900 would cross-
reference a term defined elsewhere in the Commission's Title VII
rules. In other cases, a definition might be specific to Regulation
SBSR and not be used elsewhere in the Commission's Title VII rules.
    \870\ See Section II.B.2(d), supra.
    \871\ Re-proposed Rule 900(ee) would define ``side'' as ``a
direct counterparty and any indirect counterparty that guarantees
the direct counterparty's performance of any obligation under a
security-based swap.'' Re-proposed Rule 900(cc) would define
``reporting side'' as ``the side of a security-based swap having the
duty to report information in accordance with [Regulation SBSR] to a
security-based swap data repository, or if there is no security-
based swap data repository that would receive the information, to
the Commission.''
---------------------------------------------------------------------------

    The Commission has received and continues to consider comments on
the Regulation SBSR Proposing Release that address areas other than
those relating to cross-border security-based swap activity. In this
release, the Commission is re-proposing only changes relating to cross-
border security-based swap activity, technical and conforming changes
necessitated by these larger revisions, and certain other minor changes
that would help to clarify these re-proposed revisions (such as
numbering each definition in re-proposed Rule 900, so that each defined
term can more readily be identified). Changes to Regulation SBSR in
other areas could, if appropriate, be addressed in a future
release.\872\
---------------------------------------------------------------------------

    \872\ For example, the Commission in the Regulation SBSR
Proposing Release did not propose how to define a ``block trade.''
As noted in Regulation SBSR Proposing Release, the Commission
intends to do so in a separate proposal. See Regulation SBSR
Proposing Release, 75 FR 75228.
---------------------------------------------------------------------------

    Regulation SBSR, as re-proposed today, represents the Commission's
preliminary views regarding the application of Title VII's provisions
relating to regulatory reporting and public dissemination of cross-
border security-based swap transactions, and how those provisions would
apply to non-U.S. persons who act in capacities regulated under the
Dodd-Frank Act. The Commission invites comment regarding all aspects of
the approaches taken by the Commission and each provision of re-
proposed Regulation SBSR, including potential alternative approaches.
In particular, data and comment from market participants and other
interested parties regarding the likely effect of each re-proposed rule
regarding application of a specific Title VII requirement, the effect
of such proposed application in the aggregate, and potential
alternative approaches will be particularly useful to the Commission in
evaluating possible modifications to re-proposed Regulation SBSR.

B. Modifications to the Definition of ``U.S. Person''

    Rule 900 of re-proposed Regulation SBSR contains a revised
definition of ``U.S. person.'' As initially proposed, ``U.S. person''
was defined as ``a natural person that is a U.S. citizen or U.S.
resident or a legal person that is organized under the corporate laws
of any part of the United States or has its principal place of business
in the United States.'' Two persons who commented specifically on the
Regulation SBSR proposal \873\ argued that ``U.S. person'' as used in
the Commission's Title VII rules should have the same definition as in
Regulation S.\874\
---------------------------------------------------------------------------

    \873\ See Cleary Letter III at 2, 6-9; Davis Polk Letter I at
note 6 (arguing that using the existing Regulation S definition,
rather than creating a new definition, ``would avoid confusion and
also provide consistency of application'').
    \874\ 17 CFR 230.901 to 230.905.
---------------------------------------------------------------------------

    Proposed Regulation SBSR was the only one of the Commission's
proposals for implementing Title VII to propose to use and define the
term ``U.S. person.'' Because the Commission is now addressing cross-
border issues across multiple Title VII rules, the Commission has given
further thought to the definition of ``U.S. person'' as initially

proposed in Regulation SBSR. The Commission now believes that using a
single definition of ``U.S. person'' in all Title VII rulemaking would
promote consistency and transparency in understanding and complying
with these various rules. However, as described above,\875\ the
Commission preliminarily believes that the Regulation S definition of
``U.S. person'' is not appropriate for Title VII rules. Proposed Rule
900(pp) would define ``U.S. person'' to have the same meaning as in
proposed Rule 3a71-3(a)(7) under the Exchange Act.\876\
---------------------------------------------------------------------------

    \875\ See Section III.B.10, supra.
    \876\ See Section III.B.5, supra.
---------------------------------------------------------------------------

    Under both the proposed and re-proposed definitions of ``U.S.
person,'' a natural person resident in the United States would be a
U.S. person, as would a legal person that is organized or incorporated
under the laws of the United States or having its principal place of
business in the United States. Furthermore, under both definitions, a
foreign branch of a U.S. person would not be recognized as having an
existence separate from the U.S. person.\877\ The proposed rule also
would cover partnerships, trusts, and other legal persons, as set forth
in proposed Rule 3a71-3(a)(7) under the Exchange Act. The re-proposed
definition of ``U.S. person'' also would clarify certain situations
that were not specifically addressed in the initial proposal. For
example, the initially proposed definition of ``U.S. person'' did not
address whether--and, if so, when--an account would be considered a
U.S. person. The re-proposed definition would provide that an account,
whether discretionary or non-discretionary, of a U.S. person would be a
U.S. person.
---------------------------------------------------------------------------

    \877\ See Regulation SBSR Proposing Release, 75 FR 75240 (``The
Commission intends for this proposed definition [of U.S. person] to
include branches and offices of U.S. persons''). See also Section
III.B.5(b)ii, supra (proposing that an entity's status as a U.S.
person would be determined at the legal-entity level and thus apply
to the entire legal entity, including any foreign operations such as
branches that are part of the U.S. legal entity).
---------------------------------------------------------------------------

    New paragraph (q) of re-proposed Rule 900 would define the term
``non-U.S. person'' as a person that is not a U.S. person.
Request for Comment
    The Commission requests comment on all aspects of the re-proposed
definition of ``U.S. person'' in Regulation SBSR. In particular:
     Should the definition of ``U.S. person'' in Regulation
SBSR be consistent with that proposed for the Commission's other Title
VII rules? Why or why not? If so, what should that definition be and
why? Would having a different definition of ``U.S. person'' in
Regulation SBSR create ambiguity or conflict with other Title VII rules
being issued by the Commission? If not, why not?

C. Additional Modifications to Scope of Regulation SBSR

1. Revisions to Proposed Rule 908(a)
    Rule 908(a), as initially proposed, provided that a security-based
swap would be subject to regulatory reporting and public dissemination
under Regulation SBSR if the security-based swap: (i) Has at least one
counterparty that is a U.S. person; (ii) is executed in the United
States or through any means of interstate commerce; or (iii) is cleared
through a registered clearing agency having its principal place of
business in the United States. Thus, Rule 908(a), as originally
proposed, would not impose reporting or public dissemination
requirements in connection with a security-based swap solely because
the obligations of one of the direct counterparties is guaranteed by a
U.S. person. As noted above, the re-proposed definition of ``U.S.
person''--like the initially proposed definition--would not treat a
direct counterparty that is guaranteed by a U.S. person as itself,
solely due to the existence of the guarantee, a U.S. person. However,
as noted below, the Commission is concerned about instances where--
because of a guarantee extended by a U.S. person--the risk of a
transaction resides in the United States, even if the direct
counterparties of the transaction are domiciled outside the United
States. Thus, upon further consideration, the Commission is now
proposing to apply Title VII's regulatory reporting requirements to
security-based swaps having at least one counterparty, whether direct
or indirect, that is a U.S. person.
    Guarantees provided by U.S. persons to their foreign affiliates or
other non-U.S. persons could have the effect of concentrating
significant risks within the United States that may rise to the
systemic level. If a U.S. person guarantees the performance of a non-
U.S. person, the financial resources of that U.S. person could be
called upon to satisfy the contract. This activity is capable of posing
risks to the stability of the U.S. financial system. The Commission
preliminarily believes that, if it does not require regulatory
reporting of security-based swaps that are guaranteed by U.S. persons,
in addition to security-based swaps having a U.S. person direct
counterparty, the Commission and other federal financial regulators
would be less likely to detect the build-up of potentially significant
risks within individual institutions or more widespread systemic risks
to the U.S. financial system. The Dodd-Frank Act is intended to promote
the financial stability of the United States by, among other things,
reducing risks to the U.S. financial system by allowing regulators
better access to necessary market data.\878\
---------------------------------------------------------------------------

    \878\ See, e.g., S. Comm. on Banking, Hous., & Urban Affairs,
The Restoring American Financial Stability Act of 2010, S. Rep. No.
111-176, at 32 (``As a key element of reducing systemic risk and
protecting taxpayers in the future, protections must include
comprehensive regulation and rules for how the OTC derivatives
market operates. Increasing the use of central clearinghouses,
exchanges, appropriate margining, capital requirements, and
reporting will provide safeguards for American taxpayers and the
financial system as a whole'') (emphasis added); note 4, supra.
---------------------------------------------------------------------------

    In addition, the Commission is now proposing to require regulatory
reporting of all security-based swaps entered into by non-U.S. person
security-based swap dealers and major security-based swaps
participants, wherever they may be executed.\879\ This is a change from
how the initial proposal applied to a security-based swap executed by a
non-U.S. person security-based swap dealer or major security-based swap
participant. Under the initial proposal, such a security-based swap
would not be required to be reported solely based on an entity's status
as a security-based swap dealer or major security-based swap
participant, unless the security-based swap was executed in the United
States or through any means of interstate commerce, or was cleared by a
clearing agency having its principal place of business in the United
States.
---------------------------------------------------------------------------

    \879\ See re-proposed Rule 908(a)(1)(iii) of Regulation SBSR.
---------------------------------------------------------------------------

    A non-U.S. person security-based swap dealer or major security-
based swap participant generally would be subject to all rules
applicable to security-based swap dealers or major security-based swaps
participants, regardless of its principal place of business or where it
is organized.\880\ Having access to all of the security-based swap
transactions entered into by a security-based swap dealer or major
security-based swap participant is an important aspect of understanding
its compliance with the applicable Title VII requirements, including
without limitation, compliance with the capital, margin, and other
applicable entity-level and transaction-level requirements. The
Commission notes that Section 15F(f)(1)(a) of the Exchange Act provides
that each registered security-based swap dealer and major

security-based swap participant shall make such reports as are required
by the Commission, by rule or regulation, regarding the transactions
and financial condition of the registered security-based swap dealer or
major security-based swap participant.\881\ Therefore, the Commission
is now proposing to require that all security-based swaps of all
security-based swap dealers and major security-based swap participants,
regardless of where such security-based swaps are executed or where
these entities have their principal place of business or are organized,
be subject to regulatory reporting to a registered SDR.\882\
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    \880\ See Sections III.C and IV.D, supra.
    \881\ 15 U.S.C. 78o-8(f)(1)(A). The Commission further notes
that Section 15F(f)(2) of the Exchange Act, 15 U.S.C. 78o-8(f)(2),
requires the Commission to ``adopt rules governing reporting and
recordkeeping for security-based swap dealers and major security-
based swap participants.''
    \882\ As discussed below, however, the Commission is proposing
that certain security-based swaps of non-U.S. person security-based
swap dealers and major security-based swap participants would not be
subject to public dissemination. In addition, certain security-based
swaps that would otherwise be subject to regulatory reporting and
public dissemination under Regulation SBSR could qualify for
substituted compliance. See Section XI.D, infra.
---------------------------------------------------------------------------

    To reflect these changes and to reincorporate other provisions that
are not being substantially revised, the Commission is re-proposing
Rule 908(a) as follows. The rule would be divided into two
subparagraphs, (1) and (2), which would address regulatory reporting
and public dissemination, respectively. Specifically, re-proposed Rule
908(a)(1) would provide that a security-based swap transaction would be
subject to regulatory reporting if:
    (i) The security-based swap is a transaction conducted within the
United States;
    (ii) There is a direct or indirect counterparty that is a U.S.
person on either side of the transaction;
    (iii) There is a direct or indirect counterparty that is a
security-based swap dealer or major security-based swap participant on
either side of the transaction; or
    (iv) The security-based swap is cleared through a clearing agency
having its principal place of business in the United States.
    Re-proposed Rule 908(a)(1)(i) would preserve the principle from the
original proposal that a security-based swap would be subject to
regulatory reporting if it is executed in the United States.\883\ As
noted above,\884\ the concept of a security-based swap transaction
being solicited, negotiated, executed, or booked in the United States
has been integrated into the new term ``transaction conducted within
the United States,'' which also is being used in other Title VII
proposals of the Commission. Proposed Rule 3a71-3(a)(5) under the
Exchange Act would define ``transaction conducted within the United
States'' as ``a security-based swap transaction that is solicited,
negotiated, executed, or booked within the United States, by or on
behalf of either counterparty to the transaction, regardless of the
location, domicile, or residence status of either counterparty to the
transaction.'' \885\
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    \883\ See Rule 908(a)(2) of Regulation SBSR, as originally
proposed.
    \884\ See Section III.B.6, supra.
    \885\ See note 308, supra (explaining that the word
``counterparty'' as used within this term has the same meaning as
``direct counterparty'' in re-proposed Rule 900(j) of Regulation
SBSR).
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    The Commission received no comments that specifically addressed our
use of the phrase ``through any means of interstate commerce'' in three
places in Regulation SBSR, as initially proposed.\886\ However, upon
further consideration, the Commission is concerned that this language
could unduly require a security-based swap to be reported if it had
only the slightest connection with the United States. Therefore, the
Commission has decided to delete the phrase ``through any means of
interstate commerce'' from re-proposed Regulation SBSR. Instead, the
Commission is proposing to require reporting of a security-based swap
that falls within the definition of ``transaction conducted within the
United States,'' which would describe more precisely the nature of the
activities in the United States that could result in a security-based
swap becoming subject to Regulation SBSR. The Commission generally
believes that security-based swaps that are solicited, negotiated,
executed, or booked within the United States--by or on behalf of either
counterparty to the transaction, and regardless of the location,
domicile, or residence status of either counterparty to the
transaction--generally should be subject to Regulation SBSR.
---------------------------------------------------------------------------

    \886\ See Rules 900 (definition of ``participant''), 908(a), and
908(b) of Regulation SBSR, as initially proposed.
---------------------------------------------------------------------------

    Re-proposed Rule 908(a)(1)(ii)--which would require regulatory
reporting of any security-based swap if there is a direct or indirect
counterparty that is a U.S. person on either side of the transaction--
embodies the principle in the initial proposal that a security-based
swap, wherever executed, must be reported if it has at least one
counterparty that is a U.S. person. This revised prong, however, also
would apply the reporting requirement to any security-based swap,
wherever executed, that has at least one indirect counterparty \887\
that is a U.S. person, even when no direct counterparty is a U.S.
person. The original proposal, because it did not include guarantors as
counterparties, would not have required regulatory reporting in such
case. As discussed above, the Commission now preliminarily believes
that--to satisfy Congressional intent that security-based swaps be
subject to regulatory reporting, thereby informing the Commission and
other financial regulators of potential systemic risks--any security-
based swap having at least one direct counterparty that is a U.S.
person should be reported. The Commission also preliminarily believes
that, because guarantees extended by U.S. persons create risk to the
U.S. financial system, regulatory reporting of security-based swaps
should extend to any security-based swap transaction in which one or
both direct counterparties is guaranteed by a U.S. person. In the
absence of regulatory reporting of such security-based swaps, the
Commission's ability to detect and analyze potentially significant
sources of risk to the U.S. financial system could be limited.
---------------------------------------------------------------------------

    \887\ ``Indirect counterparty'' would be defined as ``a
guarantor of a direct counterparty's performance of any obligation
under a security-based swap.'' See re-proposed Rule 900(o) of
Regulation SBSR.
---------------------------------------------------------------------------

    Re-proposed Rule 908(a)(1)(iii) would, for reasons described above,
require regulatory reporting of any security-based swap executed by a
security-based swap dealer or major security-based swap participant,
regardless of the entity's place of domicile and regardless of the
place of execution.
    Re-proposed Rule 908(a)(1)(iv) would preserve the principle from
the original proposal that a security-based swap would be subject to
regulatory reporting if it is cleared through a clearing agency having
its principal place of business in the United States.\888\ As noted in
the Regulation SBSR Proposing Release, the Commission preliminarily
believes that, if a security-based swap is cleared by a clearing agency
having its principal place of business in the United States, U.S.
regulators should have access to information regarding the security-
based swap through a registered SDR.\889\ This approach is premised on
the view that, when a security-based swap is cleared through a clearing
agency, the initial transaction is novated and two new transactions
take its place, with the clearing agency becoming the seller to the
buyer and the buyer to the seller. If the clearing agency is located
within the

United States, the new transactions necessarily would be executed
within the United States.\890\
---------------------------------------------------------------------------

    \888\ See Rule 908(a)(3) of Regulation SBSR, as originally
proposed.
    \889\ See Regulation SBSR Proposing Release, 75 FR 75240.
    \890\ See id. (noting that the concept of being ``executed in
the United States or through any means of interstate commerce''
includes being cleared through a clearing agency having its
principal place of business in the United States).
---------------------------------------------------------------------------

    While subparagraph (1) of re-proposed Rule 908(a) would address
when a security-based swap would be subject to regulatory reporting,
subparagraph (2) would address when a security-based swap would be
subject to public dissemination. Re-proposed Rule 908(a)(2) would
provide that a security-based swap shall be subject to public
dissemination if:
    (i) The security-based swap is a transaction conducted within the
United States;
    (ii) There is a direct or indirect counterparty that is a U.S.
person on each side of the transaction;
    (iii) At least one direct counterparty is a U.S. person (except in
the case of a transaction conducted through a foreign branch \891\);
---------------------------------------------------------------------------

    \891\ The term ``foreign branch'' would be defined in re-
proposed Rule 900(n) of Regulation SBSR to cross-reference the
definition in proposed Rule 3a71-3(a)(1) under the Exchange Act. See
Section III.B.7, supra, for a definition of that term.
---------------------------------------------------------------------------

    (iv) One side includes a U.S. person and the other side includes a
non-U.S. person that is a security-based swap dealer; or
    (v) The security-based swap is cleared through a clearing agency
having its principal place of business in the United States.
    The Commission notes that Section 13(m)(1)(B) of the Exchange Act
\892\ ``authorize[s] the Commission to make security-based swap
transaction and pricing data available to the public in such form and
at such times as the Commission determines appropriate to enhance price
discovery.'' Re-proposed Rule 908(a)(2) reflects the Commission's
revised preliminary determination regarding an appropriate way to
enhance price discovery in the U.S. market for security-based swaps. As
noted below, since issuing the Regulation SBSR Proposing Release, the
Commission has obtained and analyzed more extensive data regarding the
overlap between the U.S. market and the global market for security-
based swaps.\893\ These data suggest that a vast majority of security-
based swap transactions directly involved at least one non-U.S.
domiciled counterparty.\894\ Furthermore, these transactions frequently
may be conducted with one direct counterparty located in one
jurisdiction with the other direct counterparty located in another
jurisdiction, further suggesting that no easy distinction can be made
between the U.S. market and foreign or global markets. The Commission
is concerned that limiting the application of Title VII's public
dissemination requirement only to transactions that are wholly
conducted within the United States or to transactions where both direct
counterparties are U.S. persons would significantly reduce the
potential benefits of post-trade transparency in the security-based
swap market. The Commission stated in the Regulation SBSR Proposing
Release that, ``[b]y reducing information asymmetries, post-trade
transparency has the potential to lower transaction costs, improve
confidence in the market, encourage participation by a larger number of
market participants, and increase liquidity in the [security-based
swap] market.'' \895\ The Commission also noted that, ``[i]n other
markets, greater post-trade transparency has increased competition
among market participants and reduced transaction costs.'' \896\
---------------------------------------------------------------------------

    \892\ 15 U.S.C. 78m(m)(1)(B).
    \893\ See Section XIV.F.2(d)ii, infra.
    \894\ See Section II.A.1, supra.
    \895\ Regulation SBSR Proposing Release, 75 FR 75224.
    \896\ Id. at 75225 (citing studies of the impact of TRACE (Trade
Reporting and Compliance Engine) on the corporate bond market).
---------------------------------------------------------------------------

    Re-proposed Rule 908(a)(2) eliminates use of the term `interstate
commerce'' and instead incorporates the new concept of ``transaction
conducted within the United States,'' which is being used throughout
the Commission's proposed Title VII cross-border rules, to help
delineate precisely the types of security-based swap transactions that
would be subject to public dissemination under Regulation SBSR.
Furthermore, re-proposed Rule 908(a)(2) is designed to achieve the goal
of improving the transparency, fairness, and efficiency of the U.S.
security-based swap market, as reflected in Section 13(m)(1)(B) of the
Exchange Act. Re-proposed Rule 908(a)(2) also is designed, as far as
practicable, to minimize competitive disparities that might result
under the proposed public dissemination regime, as well as to minimize
incentives for market participants to structure their operations for
the purpose of evading Regulation SBSR.\897\ Each individual
subparagraph of re-proposed Rule 908(a)(2) is discussed below.
---------------------------------------------------------------------------

    \897\ We preliminarily believe that the proposed approach with
respect to regulatory reporting and public dissemination is not
being applied to persons who are ``transact[ing] a business in
security-based swaps without the jurisdiction of the United
States,'' within the meaning of Section 30(c). See Sections
II.B.2(a)-II.B.2(d), supra. However, the Commission also
preliminarily believes that the proposed approach with respect to
regulatory reporting and public dissemination is necessary or
appropriate to help prevent the evasion of the particular provisions
of the Exchange Act that were added by the Dodd-Frank Act that are
being implemented by the approach and prophylactically will help
ensure that the purposes those provisions of the Dodd-Frank Act are
not undermined. See Section II.B.2(e), supra; see also Section
II.B.2(d), supra.
    For example, if the reporting requirements do not apply to
transactions among non-U.S. persons that receive guarantees from
U.S. persons and foreign branches of U.S. banks, then U.S. persons
would have an incentive to evade the reporting requirements by
conducting transactions with other U.S. persons through guaranteed
foreign affiliates or foreign branches. Altering the form of the
transaction in this manner would allow U.S. persons to continue to
avail themselves of transparency in the U.S. security-based swap
market while themselves evading the requirements intended to enhance
that transparency, even though the substance of the transaction
remains unchanged.
---------------------------------------------------------------------------

    Re-proposed Rule 908(a)(2)(i), similar to re-proposed Rule
908(a)(1)(i), generally would preserve the principle from the original
proposal that a security-based swap would be subject to public
dissemination if it were executed in the United States.\898\ That
concept has been integrated into the new term ``transaction conducted
within the United States,'' which also is being used in the
Commission's other Title VII proposals.
---------------------------------------------------------------------------

    \898\ See Rule 908(a)(2) of Regulation SBSR, as originally
proposed. See also Regulation SBSR Proposing Release, 75 FR 75239-
40.
---------------------------------------------------------------------------

    Re-proposed Rule 908(a)(2)(ii) would provide that a security-based
swap would be subject to public dissemination if there is a direct or
indirect counterparty that is a U.S. person on each side of the
transaction. Under the initial proposal, a security-based swap
involving two non-U.S. person direct counterparties, but where each
direct counterparty is guaranteed by a U.S. person, would not be
required to be publicly disseminated. The Commission now preliminarily
believes that, where U.S. persons have an interest on both sides of the
transaction, even if indirectly, the transaction generally should be
viewed as part of the U.S. security-based swap market and, as such,
should be subject to Title VII's public dissemination requirement.
Moreover, to the extent that U.S. persons might be incented to
structure their trading operations through guaranteed foreign
subsidiaries to avoid public dissemination that otherwise would apply
to trades executed between U.S. person direct counterparties, the
Commission seeks to minimize that incentive by re-proposing Rule
908(a)(2)(ii) to require public dissemination of a security-based swap
transaction if a U.S. person is present on

each side, whether directly or indirectly.
    Re-proposed Rule 908(a)(2)(iii) would provide that a security-based
swap would be subject to public dissemination if at least one direct
counterparty is a U.S. person (except in the case of a transaction
conducted through a foreign branch \899\). This prong generally
reincorporates the original proposal's approach that a security-based
swap executed anywhere in the world and having just one U.S. person
counterparty would be subject to public dissemination. The Commission
generally believes that a security-based swap transaction having even
just one U.S. person direct counterparty generally should be viewed as
part of the U.S. security-based swap market and, as such, should be
subject to Title VII's public dissemination requirement. The Commission
preliminarily believes that the benefits of requiring public
dissemination of all security-based swaps involving at least one U.S.
person direct counterparty would inure to other U.S. persons that
transact in the same or similar instruments.
---------------------------------------------------------------------------

    \899\ The term ``transaction conducted through a foreign
branch'' would be defined in re-proposed Rule 900(hh) of Regulation
SBSR to cross-reference the definition of that term in proposed Rule
3a71-3(a)(4) under the Exchange Act, as discussed in Section III.B.7
above.
---------------------------------------------------------------------------

    However, re-proposed Rule 908(a)(2)(iii) would provide a limited
exception to the general rule that any transaction involving a U.S.
person direct counterparty would be subject to public dissemination;
re-proposed Rule 908(a)(2)(iii) would not apply if the transaction is
conducted through a foreign branch.\900\ The Commission is concerned
that, if it did not take this approach, non-U.S. market participants
might avoid entering into security-based swaps with the foreign
branches of U.S. banks so as to avoid their security-based swaps being
publicly disseminated. The Commission notes that registration with the
local regulatory authority to engage in banking business is inherent in
the proposed definition of ``foreign branch.'' This approach would
restrict the proposed exception to public dissemination for
transactions conducted through a foreign branch.\901\ The Commission
further notes that the proposed exclusion for transactions conducted
through a foreign branch is equivalent to the proposed approach for
transactions conducted by foreign affiliates that are guaranteed by a
U.S. person. In the case of a security-based swap transaction executed
outside the United States between a non-U.S. person and either the
guaranteed foreign affiliate or the foreign branch of the U.S. bank,
re-proposed Rule 908(a)(2) would not require public dissemination of
the transaction. Re-proposed Rule 908(a)(2)(iii) would not require
public dissemination if the transaction were conducted through a
foreign branch. Re-proposed Rule 908(a)(2)(ii) would not require public
dissemination if the only U.S. person involved in the transaction were
the U.S. person providing the guarantee.
---------------------------------------------------------------------------

    \900\ However, a security-based swap having a direct
counterparty that is a foreign branch could be subject to public
dissemination for other reasons--e.g., if the transaction included a
U.S. person on the other side. See re-proposed Rule 908(a)(2)(ii) of
Regulation SBSR.
    \901\ Thus, for example, a security-based swap involving a U.S.
person that sends staff to a foreign country to negotiate and
execute the transaction but does not have a recognized foreign
branch in that country would be required to be publicly
disseminated, and would not qualify for the proposed exclusion in
re-proposed Rule 908(a)(2)(iii) for transactions conducted through a
foreign branch.
---------------------------------------------------------------------------

    Re-proposed Rule 908(a)(2)(iv) would provide that a security-based
swap would be subject to public dissemination if one side includes a
U.S. person and the other side includes a non-U.S. person that is a
security-based swap dealer, as defined in Section 3(a)(71) of the
Exchange Act and the rules and regulations thereunder. The Commission
notes that re-proposed Rule 908(a)(2)(ii) would require public
dissemination of a transaction if both sides include a U.S. person.
Under re-proposed Rule 908(a)(2)(iv), however, public dissemination
would be required when only one side includes a U.S. person, provided
the other side includes a non-U.S. person security-based swap dealer.
The Commission preliminarily believes that both types of transaction
generally should be considered part of the U.S. security-based swap
market and, as such, should be subject to Title VII's public
dissemination requirement. As the Commission has previously stated,
post-trade transparency of security-based swap transactions would
reduce information asymmetries and could have the potential to lower
transaction costs, improve confidence in the market, encourage
participation by a larger number of market participants, and increase
liquidity in the security-based swap market.\902\ Post-trade
transparency of security-based swap transactions also has the potential
to improve valuation models and thereby contribute to more efficient
capital allocation.\903\ The Commission preliminarily believes that not
subjecting transactions between U.S. persons (whether directly or
indirectly) or between a U.S. person and a non-U.S. person security-
based swap dealer to post-trade transparency would undermine these
goals. The fact that both sides of the transaction include a U.S.
person, or that one side includes a U.S. person and the other side
includes a person that conducts enough U.S. business to warrant
requiring it to register with the Commission, suggests that they are
engaging in the types of transactions that might be engaged in by other
U.S. persons or others who are required to register with the
Commission. Furthermore, in the absence of re-proposed Rule
908(a)(2)(iv), a non-U.S. person security-based swap dealer could
encourage foreign affiliates that are guaranteed by a U.S. parent to
transact business with it outside the United States in order to evade
the public dissemination requirement.\904\ If re-proposed Rule
908(a)(2)(iv) applied, all transactions between a security-based swap
dealer (regardless of whether it is a U.S. person) and a U.S. person
(whether as a direct or indirect counterparty), would be required to be
publicly disseminated, regardless of where such transactions are
conducted. Finally, the Commission notes that Section 13(m)(1)(D) of
the Exchange Act gives the Commission authority to require registered
entities--such as security-based swap dealers--regardless of whether or
not they are U.S. persons, to publicly disseminate security-based swap
transaction and pricing data.
---------------------------------------------------------------------------

    \902\ See Regulation SBSR Proposing Release, 75 FR 75267.
    \903\ See id. at 75267-68.
    \904\ The Commission notes that re-proposed Rule 908(a)(2)(iii)
of Regulation SBSR would require public dissemination if only one
direct counterparty is a U.S. person, regardless of the status,
nationality, or place of domicile of the other direct counterparty.
Thus, re-proposed Rule 908(a)(2)(iii) already would require public
dissemination in the case of a security-based swap between a non-
U.S. person security-based swap dealer and a U.S. person direct
counterparty. Re-proposed Rule 908(a)(2)(iv) of Regulation SBSR
would, in addition, require public dissemination in the case of a
security-based swap between a non-U.S. person security-based swap
dealer and a U.S. person indirect counterparty.
---------------------------------------------------------------------------

    However, the Commission notes that re-proposed Rule 908(a)(2) would
not require public dissemination of a security-based swap transacted
outside the United States between two non-U.S. persons that are
security-based swap dealers (assuming that neither side is guaranteed
by a U.S. person). Non-U.S. person security-based swap dealers are
likely to have significant operations in foreign security-based swap
markets. A transaction between two such non-U.S. person security-based
swap dealers conducted outside the United States is less likely than a
transaction conducted within the United States or a transaction

involving a U.S. person on the other side to affect the U.S. security-
based swap market. Therefore, the Commission is not proposing to
require public dissemination of transactions conducted outside the
United States between two non-U.S. person security-based swap dealers.
    Re-proposed Rule 908(a)(2)(v) would preserve the principle from the
original proposal that a security-based swap would be subject to public
dissemination if it is cleared through a clearing agency having its
principal place of business in the United States.\905\ As noted in the
Regulation SBSR Proposing Release, the Commission preliminarily
believes that, if non-U.S. persons determined to clear a security-based
swap transaction through a clearing agency having its principal place
of business in the United States, this suggests that the clearing
agency has made the security-based swap eligible for clearing because
at least some U.S. counterparties might wish to trade the security-
based swap as well.\906\ The Commission preliminarily believes,
therefore, that requiring public dissemination of the security-based
swap transaction would promote price discovery for market participants
in the United States and elsewhere.\907\
---------------------------------------------------------------------------

    \905\ See Rule 908(a)(3) of Regulation SBSR, as originally
proposed.
    \906\ See Regulation SBSR Proposing Release, 75 FR 75240.
    \907\ See id.
---------------------------------------------------------------------------

    A security-based swap transaction would need to meet only one prong
of re-proposed Rule 908(a)(2) to trigger the public dissemination
requirement. For example, assume a security-based swap is solicited,
negotiated, executed, and cleared in London between (A) the London
branch of a U.S. financial institution and (B) a London-based firm
(i.e., a non-U.S. person) that has registered with the Commission as a
security-based swap dealer. Re-proposed Rule 908(a)(2)(i) would not
apply, because the transaction is not conducted within the United
States. Re-proposed Rule 908(a)(2)(v) would not apply, because the
security-based swap is not cleared in the United States. Re-proposed
Rule 908(a)(2)(ii) would not apply, because there is not a direct or
indirect counterparty that is a U.S. person on both sides of the
transaction. Re-proposed Rule 908(a)(2)(iii) would not apply because
neither side includes a direct counterparty that is a U.S. person that
would trigger public dissemination; here, the U.S. person direct
counterparty is acting through a foreign branch, which is carved out of
re-proposed Rule 908(a)(2)(iii). However, this transaction would be
subject to public dissemination under re-proposed Rule 908(a)(2)(iv):
one side includes a U.S. person (in this case, the London branch of the
U.S. bank) and the other side includes a non-U.S. person security-based
swap dealer. The result would be the same if, instead of a London
branch of a U.S. financial institution, one of the direct
counterparties were the London-based affiliate of a U.S. person that
guarantees the performance of the London subsidiary (i.e., the
transaction is between, on one side, a security-based swap dealer and,
on the other side, an indirect counterparty that is a U.S. person).
Request for Comment
    The Commission requests comment on all aspects of the re-proposed
Rule 908(a), including the following:
     Do you agree with the approach taken in re-proposed Rule
908(a) that a security-based swap should be subject to regulatory
reporting and public dissemination regardless of the nationality or
place of domicile of the counterparties if it is a transaction
conducted in the United States? Why or why not? Do you agree with the
Commission's use of the term ``transaction conducted within the United
States'' in re-proposed Rule 908? Why or why not?
     Do you agree with the approach taken in re-proposed Rule
908(a) that a security-based swap cleared through a clearing agency
having its principal place of business in the United States should be
subject to the regulatory reporting and public dissemination
requirements? Why or why not?
     Do you agree with the Commission's general approach of
treating guarantors as counterparties for purposes of security-based
swap trade reporting requirements? Why or why not? Do you believe that
a security-based swap should be subject to regulatory reporting solely
because one side includes a guarantor that is a U.S. person? Why or why
not? Would the Commission's ability to exercise prudential and
regulatory oversight of the securities markets be compromised if it did
not have the ability to learn about all security-based swap positions
held by U.S. persons, including guarantors? Why or why not?
     Do you believe that a security-based swap should be
subject to regulatory reporting solely because one side includes a
security-based swap dealer or major security-based swap participant,
regardless of the nationality or place of domicile of that entity? Why
or why not? Would the Commission's ability to exercise prudential and
regulatory oversight of entities registered with it be compromised if
it did not have the ability to learn about all security-based swap
positions held by such entities? Why or why not?
     In general, do you agree with how re-proposed Rule 908(a)
would apply to security-based swaps entered into by non-U.S. person
security-based swap dealers and major security-based swap participants?
Why or why not?
     Do you agree with the requirement, in re-proposed Rule
908(a)(2)(ii), that a security-based swap should be subject to public
dissemination if there is a direct or indirect counterparty that is a
U.S. person on each side of the transaction? Why or why not? What would
be the benefits of requiring public dissemination in this scenario?
What would be the costs? Please be specific.
     Do you agree with the requirement, in re-proposed Rule
908(a)(2)(iii), that a security-based swap should be subject to public
dissemination if at least one direct counterparty is a U.S. person,
even if the transaction is not conducted within the United States? Why
or why not? What would be the benefits of requiring public
dissemination in this scenario? What would be the costs? Please be
specific. Do you agree with the exception to this general rule for
transactions conducted through a foreign branch of a U.S. person? Why
or why not? Should the exception be limited to foreign branches? Why or
why not? Are there any alternatives that the Commission should
consider? If so, what are they?
     Do you agree with the requirement, in re-proposed Rule
908(a)(2)(iv), that would provide that a security-based swap, even if
not a transaction conducted within the United States, would be subject
to public dissemination if one side includes a U.S. person and the
other side includes a non-U.S. person security-based swap dealer? Why
or why not? What would be the benefits of requiring public
dissemination in this scenario? What would be the costs? Please be
specific.
     Should the Commission require public dissemination of
security-based swaps cleared by any clearing agency registered with the
Commission, even if its principal place of business is outside the
United States? Why or why not?
     In general, do you agree the distinctions drawn in the
scenarios set forth in re-proposed Rule 908(a) regarding which
security-based swaps would be subject to the regulatory reporting and
public dissemination? Why or why not?

2. Revisions to Proposed Rule 908(b)
    In the initial proposal, the Commission explained when duties would
be imposed on non-U.S. person counterparties of security-based swaps
when some connection to the United States might be present. Rule
908(b), as initially proposed, provided that no duties would be imposed
on a counterparty unless one of the following conditions were true:
     The counterparty is a U.S. person;
     The security-based swap is executed in the United States
or through any means of interstate commerce; or
     The security-based swap is cleared through a clearing
agency having its principal place of business in the United States.
Under the initial proposal, if none of these conditions were true, a
foreign counterparty ``would not become a `participant' of an SDR and
would not become subject to proposed Regulation SBSR'' \908\--even if
the security-based swap itself and its counterparty were subject to
Regulation SBSR.
---------------------------------------------------------------------------

    \908\ Regulation SBSR Proposing Release, 75 FR 75240.
---------------------------------------------------------------------------

    In light of other revisions being made to Regulation SBSR discussed
above, the Commission is now proposing several conforming revisions to
proposed Rule 908(b). First, consistent with the other revisions
described above, Rule 908(b) is being re-proposed to account for the
possibility that a non-U.S. person security-based swap dealer or major
security-based swap participant could incur a duty to report. Second,
consistent with the broader conceptual framework set forth in this
release, the ``interstate commerce clause,'' used in the initial
proposal to describe a security-based swap that may generate reporting
duties for counterparties under Regulation SBSR,\909\ is being replaced
with the new concept of a ``transaction conducted within the United
States'' that is being used throughout the Commission's proposed cross-
border rules.\910\ Therefore, re-proposed Rule 908(b) would provide
that a direct or indirect counterparty to a security-based swap would
not incur any obligation under Regulation SBSR unless the counterparty
were:
---------------------------------------------------------------------------

    \909\ See Rule 908(b)(2) of Regulation SBSR, as originally
proposed.
    \910\ See Section III.B.6, supra (discussing the proposed
definition of ``transaction conducted within the Unites States'').
---------------------------------------------------------------------------

     A U.S. person;
     A security-based swap dealer or major security-based swap
participant; or
     A counterparty to a transaction conducted within the
United States.\911\
---------------------------------------------------------------------------

    \911\ In addition, the Commission is re-proposing the definition
of the term ``participant'' in Rule 900 to make changes conforming
to re-proposed Rule 908(b) of Regulation SBSR. The term
``participant'' was designed to include any counterparty to a
security-based swap that might incur duties under Regulation SBSR.
Rule 906(a) of Regulation SBSR, as proposed and re-proposed, would
impose certain duties on participants other than those required to
initially report the transaction. The originally proposed definition
of ``participant'' would track proposed Rule 908(b) and include a
U.S. person that is a counterparty to a security-based swap that is
required to be reported to a registered SDR, or a non-U.S. person
that is a counterparty to a security-based swap that is: (i)
Required to be reported to a registered SDR; or (ii) executed in the
United States or through any means of interstate commerce, or
cleared through a clearing agency having its principal place of
business in the United States. As re-proposed, ``participant'' would
be defined simply as ``a person that is a counterparty to a
security-based swap that meets the criteria of [Rule 908(b)].'' This
would include both direct and indirect counterparties.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the re-proposed
Rule 908(b), including the following:
     Do you agree with the removal of the ``interstate commerce
clause'' contained in Rules 908(a)(2) and 908(b)(2), as originally
proposed, and its replacement with the new concept of ``transaction
conducted within the United States''? Does this new concept provide
additional clarity? If not, what alternative formulations of the
concept should the Commission consider, and why? Please be specific.

D. Modifications to ``Reporting Party'' Rules and Assigning Duty To
Report

    The Commission also is re-proposing aspects of Regulation SBSR that
would specify who must report the security-based swap. Rule 900, as
initially proposed, would define ``reporting party'' as ``the
counterparty to a security-based swap with the duty to report
information in accordance with [Regulation SBSR] to a registered
security-based swap data repository, or if there is no registered
security-based swap data repository that would receive the information,
to the Commission.'' Because the Commission is now proposing to extend
the reporting requirement to security-based swaps executed outside the
United States if the performance of one or both direct counterparties
under the security-based swap is guaranteed by a U.S. person,\912\ the
Commission also is re-proposing the rules that would assign the duty to
report in a number of ways. Overall, these revisions are designed to
assign the responsibility to report a security-based swap transaction
to persons that the Commission preliminarily believes have greater
capacity to fulfill that responsibility, and in a manner consistent
with the reporting hierarchy set forth in Section 13A(a)(3) of the
Exchange Act.\913\
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    \912\ The Commission notes that, under both the initial and
current proposals, security-based swaps would be subject to
Regulation SBSR if they are executed within the United States,
regardless of who the counterparties are or whether they are
guaranteed by U.S. persons.
    \913\ 15 U.S.C. 78m-1(a)(3). Section 13A(a)(3) of the Exchange
Act assigns to specific kinds of counterparties the duty to report
uncleared security-based swaps to an SDR or to the Commission.
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    First, the Commission is revising the proposed term ``reporting
party'' to ``reporting side.'' A ``side'' would be defined in new
paragraph (ee) of re-proposed Rule 900 to mean ``a direct counterparty
and any indirect counterparty.'' ``Reporting side'' would be defined as
``the side of a security-based swap having the duty to report
information in accordance with Sec. Sec.  242.900-911 to a registered
security-based swap data repository, or if there is no registered
security-based swap data repository that would receive the information,
to the Commission.'' Under this formulation, if a side has the duty to
report a security-based swap transaction, any counterparty on that
side--direct or indirect--would have responsibility for carrying out
the reporting obligation. The Commission preliminarily believes that it
would be impractical and unnecessarily complicated to attempt to assign
the reporting duty to either the direct or indirect counterparty
specifically, and is instead proposing to assign the duty to the side
jointly.\914\
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    \914\ The Commission anticipates that the direct counterparty
and any indirect counterparty on the reporting side would decide
which of them would carry out the duty to report the transaction.
Alternately, the direct and indirect counterparties on the reporting
side could elect to have a third party carry out the duty to report
on their behalf, although the direct and indirect counterparties on
the reporting side--not the agent--would incur legal liability for
the agent's failure to report the transaction in a timely and
complete manner.
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    Furthermore, the Commission is revising our proposed approach to
assigning the reporting duty to minimize consideration of the domicile
of the counterparties, and to focus more on their status (i.e., whether
or not a counterparty is a security-based swap dealer or major
security-based swap participant). The initial proposal laid out three
scenarios for assigning the reporting duty: Both direct counterparties
are U.S. persons, only one direct counterparty is a U.S. person, and
neither direct counterparty is a U.S.

person.\915\ The definition of ``U.S. person''--as proposed and re-
proposed--does not include a security-based swap dealer or major
security-based swap participant that is organized under the laws of a
foreign jurisdiction and has its principal place of business outside
the United States, even though it is a security-based swap dealer or
major security-based swap participant under Title VII. Thus, under the
initial proposal, for a security-based swap between (A) an end user or
other counterparty that is a U.S. person and is not a security-based
swap dealer or major security-based swap participant (a ``non-
registered U.S. counterparty'') and (B) a security-based swap dealer or
major security-based swap participant that is a non-U.S. person, the
non-registered U.S. counterparty would have been the reporting party.
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    \915\ See Rules 901(a)(1), (2), and (3) of Regulation SBSR, as
originally proposed. See also Regulation SBSR Proposing Release, 75
FR 75211.
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    Several commenters argued that this requirement would unfairly
place the reporting burden on the non-registered U.S. counterparty.
These commenters generally argued that, due to their status as
security-based swap dealers and major security-based swap participants,
even security-based swap dealers and major security-based swap
participants that are not U.S. persons have greater technological
capability than non-registered U.S. counterparties to carry out the
reporting function.\916\ These commenters generally maintained that
non-registered U.S. counterparties would incur significant costs to
build the systems necessary to report security-based swaps.\917\
Certain commenters noted the unequal treatment and potential
consequences that could result if non-registered U.S. counterparties
incurred the reporting obligation for security-based swaps that they
entered into with non-U.S. security-based swap dealers and non-U.S.
major security-based swap participants.\918\ One commenter specifically
recommended that security-based swap dealers and major security-based
swap participants that are not U.S. persons be subject to the same
regulatory reporting responsibilities as security-based swap dealers
and major security-based swap participants that are U.S. persons, when
transacting with non-registered U.S. counterparties.\919\
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    \916\ See DTCC I at 8; ICI Letter at 5 (stating that security-
based swap dealers are the only market participants that currently
have the standardization necessary to report the required security-
based swap data); ISDA/SIFMA Letter I at 19; SIFMA Letter I at 3
(arguing that an end user should not incur higher transaction costs
or potential legal liabilities depending on the domicile of its
counterparty); Vanguard Letter at 6 (stating that non-U.S. security-
based swap dealers and major security-based swap participants would
be more likely to have appropriate systems in place to facilitate
reporting).
    \917\ See DTCC I at 27; ICI Letter at 5 (stating that investment
funds would incur significant costs to build the necessary systems);
Vanguard Letter at 6 (stating that end users would be required to
commit significant capital and resources to build out their
reporting systems). See also MarkitSERV Letter I at 9 (suggesting
that, in light of capacity and resource constraints, a non-
registered U.S. counterparty would seek to delegate any reporting
obligations).
    \918\ See ISDA/SIFMA Letter I at 19 (requiring end users to
report could result in end users declining to trade with non-U.S.
security-based swap dealers, which could increase systemic risk by
decreasing liquidity and further concentrating the U.S. security-
based swap market); Cleary Letter II at 18 (requiring end users to
report could result in their declining to trade with non-U.S.
security-based swap dealers, thereby potentially reducing price
competition).
    \919\ See SIFMA Letter I at 2.
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    The Commission generally agrees with these arguments. The
Commission preliminarily believes that non-U.S. person security-based
swap dealers and major security-based swap participants, like U.S.
person security-based swap dealers and major security-based swap
participants, have greater technological capability than non-registered
U.S. persons to carry out the reporting function. Furthermore, the
Commission preliminarily sees no reason not to assign the duty to
report to non-U.S. person security-based swap dealers and major
security-based swap participants in appropriate circumstances. Although
such entities are not U.S. persons, the fact that they are security-
based swap dealers and major security-based swap participants
necessarily implies that they have substantial contacts with the U.S.
security-based swap market and thus could incur significant regulatory
duties arising from their U.S. business. Accordingly, the Commission is
re-proposing Rule 901(a) to provide that a security-based swap dealer
or major security-based swap participant that is not a U.S. person
could incur the duty to report a security-based swap in various cases.
Re-proposed Rule 901(a) now provides as follows:
     If both sides of the security-based swap include a
security-based swap dealer, the sides would be required to select the
reporting side.
     If only one side of the security-based swap includes a
security-based swap dealer, that side would be the reporting side.
     If both sides of the security-based swap include a major
security-based swap participant, the sides would be required to select
the reporting side.
     If one side of the security-based swap includes a major
security-based swap participant and the other side includes neither a
security-based swap dealer nor a major security-based swap participant,
the side including the major security-based swap participant would be
reporting side.
     If neither side of the security-based swap includes a
security-based swap dealer or major security-based swap participant:
(i) if both sides include a U.S. person or neither side includes a U.S.
person, the sides would be required to select the reporting side; and
(ii) if only one side includes a U.S. person, that side would be the
reporting side.
    Re-proposed Rule 901(a)(2) would preserve the reporting hierarchy
of proposed Rule 901(a), while additionally taking into account the
possibility that a direct counterparty to a security-based swap might
have a guarantor that is better suited for carrying out the reporting
duty. Thus, the newly proposed approach set forth in re-proposed Rule
901(a) looks to the status of each person on a side (i.e., whether it
is a security-based swap dealer or major security-based swap
participant), not the status of only the direct counterparties. Under
the initial proposal, if a non-U.S. person were a direct counterparty
to a security-based swap executed outside the United States, that non-
U.S. person would under no circumstances have had a duty to report the
security-based swap, even if it were guaranteed by a U.S. person or if
it were a security-based swap dealer or major security-based swap
participant. The Commission is now proposing to refocus the reporting
duty primarily on the status of the counterparties, rather than on
their nationality or place of domicile.
    Under re-proposed Rule 901(a), the only time that the domicile of
the counterparties could determine who must report is if neither side
includes a security-based swap dealer or major security-based swap
participant. In such case, if one side includes a U.S. person while the
other side does not, the side with the U.S. person would be the
reporting side. Similar to the initial proposal, however, if both sides
include a U.S. person or neither side includes a U.S. person, the sides
would be required to select the reporting side.
    These proposed revisions to Regulation SBSR are designed to more
efficiently align the duty to report with the entities that the
Commission preliminarily believes are best suited to carrying out that
duty. The Commission has previously noted that it ``understands that
many reporting parties already have established linkages to entities
that may register as SDRs, which could significantly reduce the out-of-
pocket costs associated with

establishing the reporting function.'' \920\ These proposed revisions
also are designed to minimize the burdens faced by non-registered U.S.
counterparties that might enter into security-based swaps with non-U.S.
person security-based swap dealers or major security-based swap
participants, as well as to clarify and simplify the reporting rules
more generally.
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    \920\ Regulation SBSR Proposing Release, 75 FR 75265.
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    The following examples explain the operation of re-proposed Rule
901(a).
     Example 1. A non-registered U.S. counterparty executes a
security-based swap with a security-based swap dealer that is a non-
U.S. person. Neither side has a guarantor. The security-based swap
dealer would be the reporting side.
     Example 2. Same facts as Example 1, except that the non-
registered U.S. counterparty is guaranteed by a security-based swap
dealer. Because both sides include a person that is a security-based
swap dealer, the sides would be required to select which is the
reporting side.
     Example 3. A security-based swap is executed in London
between a foreign subsidiary of a U.S. person and a French hedge fund.
The performance of the foreign subsidiary is guaranteed by its U.S.
parent, a major security-based swap participant. The side consisting of
the major security-based swap participant and its foreign subsidiary
would be the reporting side.
     Example 4. The New York branch of a German bank executes,
in New York, a security-based swap with the New York branch of a
Brazilian bank. Neither foreign bank is a security-based swap dealer or
a major security-based swap participant and neither direct counterparty
is guaranteed by a U.S. person. The sides must select which would be
the reporting side.
     Example 5. A U.S. hedge fund executes a security-based
swap in London with a foreign bank that is registered as a dealer in
its home jurisdiction, but is not a security-based swap dealer or major
security-based swap participant under Title VII. Neither direct
counterparty is guaranteed by a U.S. person. The U.S. hedge fund would
be the reporting side, because its side includes the only U.S. person.
Request for Comment
    The Commission generally requests comment on all aspects of issues
regarding cross-border inter-affiliate transactions, including the
following:
     Do you agree with the proposed definitions for
``counterparty,'' ``direct counterparty,'' and ``indirect
counterparty''? Why or why not?
     Do you agree with the new proposed definitions of ``side''
and ``reporting side''? Why or why not? If you disagree with these
proposed definitions, what alternative formulations should the
Commission consider, and why?
     Do you believe that the re-proposed provisions would
appropriately reduce the potential reporting burdens of non-registered
U.S. counterparties? Why or why not?
     Do you agree with the shifting of reporting burdens as
detailed in re-proposed Rule 901(a)? Why or why not? Do you believe it
is appropriate to require a security-based swap dealer or major
security-based swap participant that is not a U.S. person to incur the
duty to report a security-based swap? Why or why not?
     Should re-proposed Rule 901(a) focus only on the status of
the direct counterparties (i.e., whether or not they are security-based
swap dealers or major security-based swap participants) rather than
also taking into account the status of any indirect counterparties? Why
or why not?
     Do you agree, as provided in re-proposed Rule 901(a), that
the domicile of the counterparties should determine who must report
only if neither side includes a security-based swap dealer or major
security-based swap participant? Why or why not?
     Do you believe that Rule 901(a), as re-proposed, would
more efficiently align the burdens of reporting with the entities
having the greatest technological capability to carry out the reporting
function? If not, how could the Commission more efficiently align the
burdens of reporting with the operational capabilities of security-
based swap counterparties? Please be specific.
     Are the examples provided sufficiently clear to inform
entities of their reporting obligations? Would additional examples be
helpful? If so, please provide specific examples that should be
addressed by the Commission.

E. Other Technical and Conforming Changes

    In connection with the new provisions of re-proposed Regulation
SBSR discussed above, the Commission is proposing to make various minor
technical and conforming changes to other parts of the regulation.
These changes are described below.
    Rule 902(a), as initially proposed, would require a registered SDRs
to publicly disseminate a transaction report of any security-based swap
immediately upon receipt of information about the security-based swap,
except in the case of a block trade. Re-proposed Rule 908, however,
contemplates situations where a security-based swap would be required
to be reported to a registered SDR but not publicly disseminated.\921\
Therefore, the Commission is re-proposing Rule 902(a) to provide that a
registered SDR would not have an obligation to publicly disseminate a
transaction report for any such security-based swap.
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    \921\ This could occur in the case of a security-based swap
between (i) a foreign branch of a U.S. bank, a non-U.S. person
security-based swap dealer, or a non-U.S. person that has a
guarantee from a U.S. person, and (ii) a non-U.S. person that is not
guaranteed by a U.S. person; and further provided that neither side
solicits, negotiates, executes, books, or submits to clear the
transaction within the United States. See Section VIII.C, supra.
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    Similarly, Rule 910(b)(4), as initially proposed, would provide
that, in Phase 4 of the Regulation SBSR compliance schedule, ``[a]ll
security-based swaps reported to the registered security-based swap
data repository shall be subject to real-time public dissemination as
specified in Sec.  242.902.'' As noted above, under the re-proposal of
Rule 908, certain security-based swaps would be subject to regulatory
reporting but not public dissemination requirements. Therefore, the
Commission is re-proposing Rule 910(b)(4) to provide that, ``All
security-based swaps received by the registered security-based swap
data repository shall be treated in a manner consistent with Sec. Sec.
242.902, 242.905, and 242.908.'' \922\
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    \922\ Re-proposed Rules 902 and 908 of Regulation SBSR, when
read together, would provide that certain security-based swaps
reported to a registered SDR would not be publicly disseminated. The
Commission also is adding the reference to Rule 905 here to provide
that, after Phase 4, a registered SDR must publicly disseminate not
only initial transaction reports (consistent with re-proposed Rules
902 and 908), but also corrected transaction reports (consistent
with re-proposed Rule 905).
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    In addition, the Commission is proposing certain changes to
proposed Rules 901(c) and 901(d), which address the data elements to be
reported to a registered SDR, to reflect that, under the re-proposal,
certain security-based swaps may be subject to regulatory reporting but
not public dissemination. Rule 901(c), as initially proposed, was
titled ``Information to be reported in real time.'' Under Rule 902(a),
as originally proposed, the registered SDR to which such information
was reported would be required to promptly disseminate to the public
such information (except in the

case of a block trade). However, the Commission preliminarily believes
that, if a security-based swap were subject to regulatory reporting but
not public dissemination, there is no need to require that information
about the security-based swap be reported in real time. Therefore, the
introductory language to Rule 901(c) is being re-proposed as follows: