Notification Requirement will not provide the Commission with actual
notice of all relevant authorities' requests for SDR Data prior to an
SDR fulfilling such requests. The Commission preliminarily believes,
however, that the benefits of receiving such notice does not justify
the additional costs that SDRs would incur in providing such notice and
the potential delay in relevant authorities receiving SDR Data that
they need to fulfill their regulatory mandates and legal
responsibilities.
ii. Determination of Appropriate Regulators
    The Commission is proposing an approach to determining whether an
authority, other than those expressly identified in Section 13(n)(5)(G)
of the

Exchange Act \1872\ and previously proposed Rule 13n-4(b)(9)
thereunder, should be determined to be appropriate for purposes of
requesting SDR Data. As described above, the Commission preliminarily
envisions that this process will involve consideration of, among other
things, the scope of the relevant authority's regulatory mandate and
legal responsibilities, the authority's ability to provide the
Commission with reciprocal assistance in securities matters within the
Commission's jurisdiction, and a supervisory and enforcement MOU or
other arrangement that would be designed to protect the confidentiality
of any SDR Data provided to the authority.\1873\
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    \1872\ 15 U.S.C. 78m(n)(5)(G) (permitting access to SDR Data by
``any other person that the Commission determines to be
appropriate''), as added by Section 763(i) of the Dodd-Frank Act.
    \1873\ See Section VI.C.3(b), supra.
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    The Commission preliminarily believes that our proposed approach
has the benefit of appropriately limiting access to SDR Data by
relevant authorities in order to seek to protect the confidentiality of
SDR Data.\1874\ The Commission expects that relevant authorities from a
wide range of jurisdictions may seek to obtain a determination by the
Commission that they may appropriately have access to SDR Data. Each of
these jurisdictions may have a distinct approach to supervision,
regulation, or oversight of its financial markets or market
participants and to the protection of proprietary and other
confidential information. The Commission preliminarily believes that
the process that it is contemplating has the benefit of enabling the
Commission to determine whether an authority has a legitimate interest
in the SDR Data, based on its regulatory mandate or legal
responsibilities, and whether the authority is capable of protecting
the confidentiality of SDR Data provided to it. In addition, the
Commission preliminarily believes that this process will allow the
Commission to be able to revoke its determination in certain instances,
including, for example, if a relevant authority fails to keep
confidential data that an SDR provides to the authority.
---------------------------------------------------------------------------

    \1874\ See ESMA Letter at 2 (noting that relevant authorities
must ensure the confidentiality of security-based swap data provided
to them).
---------------------------------------------------------------------------

    The Commission also preliminarily believes that our proposed
approach will reduce the potential for fragmentation of security-based
swap data among trade repositories because it will reduce the risks of
improper disclosure, misappropriation, or misuse of SDR Data. Concerns
about these risks could prompt relevant authorities to promote the
development and maintenance of SDRs in their own jurisdictions rather
than entrusting data reported by persons within their jurisdictions to
consolidated trade repositories. As described above, the Commission
envisions that any determination order by the Commission will likely be
conditioned on a relevant authority and the Commission entering into a
supervisory and enforcement MOU or other arrangement, which will likely
address the confidentiality of SDR Data obtained by the
authority.\1875\ Because the Commission's determination process will
likely address confidentiality concerns, the Commission preliminarily
believes that our proposed approach would increase relevant
authorities' confidence in the preservation of the confidentiality of
SDR Data shared with the authorities' counterparts in other
jurisdictions, and, in conjunction with the Commission's approach to
ensuring access to SDR Data by relevant authorities discussed
above,\1876\ may reduce incentives for relevant authorities to seek to
promote the establishment and maintenance of SDRs in other
jurisdictions. If concerns over confidentiality reduce relevant
authorities' incentives to promote the establishment and maintenance of
SDRs in their own jurisdictions and market participants operating in
those jurisdictions conclude that they may, under applicable foreign
law, use SDRs registered with the Commission for reporting purposes and
therefore do so, then the Commission preliminarily believes that this
will improve market transparency and regulatory efficiency.
---------------------------------------------------------------------------

    \1875\ See Section VI.C.3(b), supra.
    \1876\ See Section VI.C., supra.
---------------------------------------------------------------------------

    Furthermore, the Commission preliminarily believes that our
proposal represents an efficient approach to the determination process
that will promote the intended benefits of access by relevant
authorities to SDR Data, as discussed above in Section XV.H.2(a)i. The
Commission routinely negotiates MOUs or other arrangements with foreign
authorities in order to secure mutual assistance or for other purposes,
and the Commission preliminarily believes that the approach that it is
proposing is generally consistent with this practice. As such, the
Commission preliminarily believes that the burden of entering into
supervisory and enforcement MOUs or other arrangements with relevant
authorities during the Commission's determination process will be
outweighed by the benefits to relevant authorities in gaining access to
SDR Data to carry out their regulatory mandates or legal
responsibilities.
iii. Exemptive Relief From the Indemnification Requirement
    Finally, the Commission is proposing the Indemnification Exemption,
which would provide SDRs registered with the Commission with the option
of permitting relevant authorities to obtain SDR Data without agreeing
to indemnify the SDR and the Commission, subject to three conditions.
The first two conditions would limit the exemption to (1) requests by a
relevant authority for security-based swap information made to fulfill
a regulatory mandate and/or legal responsibility of the requesting
authority, and (2) requests pertaining to a person or financial product
subject to the jurisdiction, supervision, or oversight of the
requesting authority.\1877\ The third condition would require the
relevant authority to have entered into a supervisory and enforcement
MOU or other arrangement with the Commission that addresses the
confidentiality of the security-based swap information provided and any
other matters as determined by the Commission.\1878\ The Commission
preliminarily believes that the benefits of the Indemnification
Exemption would include the benefits associated with permitting
relevant authorities to access SDR Data, as discussed in Section
XV.H.2(a)i above.
---------------------------------------------------------------------------

    \1877\ See Section VI.C.3(c), supra.
    \1878\ See id.
---------------------------------------------------------------------------

    As discussed above, the Commission preliminarily believes that a
rigid application of the Indemnification Requirement could prevent some
relevant domestic authorities and some relevant foreign authorities
from obtaining security-based swap information from SDRs because they
cannot provide an indemnification agreement.\1879\ Effectively
prohibiting access to SDR Data by authorities other than the Commission
would greatly reduce the ability of an SDR to provide the market
transparency and regulatory efficiency benefits intended under Title
VII.\1880\ Although relevant authorities could obtain SDR Data from the
Commission,\1881\ it would likely be less efficient for relevant
authorities to do so than obtaining access to SDR Data directly from
SDRs, particularly in periods of market stress and particularly

since SDRs are likely to have expertise in, and business incentives
for, providing such data to relevant authorities efficiently.
---------------------------------------------------------------------------

    \1879\ See Section VI.C.3(c), supra.
    \1880\ See SDR Proposing Release, 75 FR 77307 (describing
expected benefits of SDRs, including the market transparency
benefits of access by regulators); id. at 77356 (``The ability of
the Commission and other regulators to monitor risk and detect
fraudulent activity depends on having access to market data.'').
    \1881\ See Section VI.C.1, supra; see also SDR Proposing
Release, 75 FR 77319.
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    The Commission also preliminarily believes that a rigid application
of the Indemnification Requirement could reduce the amount of data held
by SDRs registered with the Commission, thereby potentially reducing
the usefulness of such SDRs to relevant authorities and market
participants. To the extent that relevant foreign authorities are
effectively limited in obtaining SDR Data, the relevant authorities may
seek to promote the development and maintenance of SDRs in their own
jurisdictions, which would likely lead to fragmentation of security-
based swap data among trade repositories in multiple
jurisdictions.\1882\ Such fragmentation could result in higher
reporting costs for market participants,\1883\ who may be subject to
duplicative security-based swap transaction reporting requirements in
multiple jurisdictions, and would likely increase other costs that both
relevant authorities and market participants may incur, including, for
example, their inability to aggregate data across multiple SDRs.\1884\
---------------------------------------------------------------------------

    \1882\ Cf. Cleary Letter IV at 31 (The Indemnification
Requirement ``could be a significant impediment to effective
regulatory coordination, since non-U.S. regulators may establish
parallel requirements for U.S. regulators to access swap data
reported in their jurisdictions.'').
    \1883\ In the SDR Proposing Release, the Commission noted that
multiple SDRs per asset class would allow for market competition to
determine how data is collected. 75 FR 77358. Although the
Commission continues to recognize that multiple SDRs may in some
circumstances increase competition and lower costs associated with
reporting and other Title VII requirements, the Commission
preliminarily believes that fragmentation of security-based swap
data among trade repositories under the circumstances described here
would not likely increase competition or reduce costs. In a
jurisdictionally-fragmented global market, an increase in the number
of trade repositories in one jurisdiction may not increase the
number of alternative trade repositories in another jurisdiction to
which a counterparty may report. In such a market, counterparties to
security-based swap transactions occurring wholly within one
jurisdiction would likely not be free to choose to report to a trade
repository in another jurisdiction to satisfy applicable reporting
requirements. Similarly, cross-border transactions subject to the
reporting requirements of two or more jurisdictions would likely be
required to be reported to trade repositories in each of the
jurisdictions that require the transactions to be reported.
    \1884\ See SDR Proposing Release, 75 FR 77358. The costs
associated with aggregating the data of multiple SDRs would likely
be significantly higher under the circumstances described here, as
different jurisdictions are likely to impose different requirements
regarding how data is to be reported and maintained.
---------------------------------------------------------------------------

    The Commission preliminarily believes that, in addition to
addressing the concerns raised by a rigid application of the
Indemnification Requirement, the Indemnification Exemption is
beneficial because it would mitigate the risks associated with
permitting relevant authorities to obtain access to SDR Data, as
discussed above in Section XV.H.2(a)ii. The Indemnification Exemption
would be available only for requests that are consistent with each
requesting authority's regulatory mandate or legal responsibilities and
only for SDR Data pertaining to a person or financial product subject
to the requesting authority's jurisdiction, supervision, or oversight.
The Commission preliminarily believes that these conditions
significantly reduce the confidentiality concerns relating to relevant
authorities' access to SDR Data,\1885\ as authorities are likely to be
sensitive to the need for confidentiality of data, particularly if the
data pertains to matters in which they have an interest, i.e., data
within their own regulatory mandates or legal responsibilities and to
persons and financial products under their own jurisdiction,
supervision, or oversight. Similarly, because the Indemnification
Exemption is voluntary, the SDR may choose not to rely on the
Indemnification Exemption, such as under circumstances where the risks
associated with providing access to SDR Data may be unreasonably high--
for example, where a relevant authority has a previous history of weak
protections for preserving the confidentiality of SDR Data. Further,
even where the SDR opts to rely on the Indemnification Exemption, the
Commission will have an opportunity to evaluate the confidentiality
protections provided by the relevant authority in the context of
negotiations of a supervisory and enforcement MOU or other
arrangement.\1886\
---------------------------------------------------------------------------

    \1885\ See, e.g., ESMA Letter at 2 (noting that relevant
authorities must ensure the confidentiality of security-based swap
data provided to them).
    \1886\ For the Indemnification Exemption to apply to the
requests of a particular requesting authority, the Commission would
be required to enter into a supervisory and enforcement MOU or other
arrangement with such authority, which would enable the Commission
to determine, prior to operation of the Indemnification Exemption,
that the authority has a regulatory mandate or legal
responsibilities to access SDR Data, that it agrees to protect the
confidentiality of any security-based swap information provided to
it, and that it will provide reciprocal assistance in securities
matters within the Commission's jurisdiction. See Section VI.C.3(c),
supra. In addition, if an SDR determines that it would prefer not to
invoke the exemption, it would have the option to require an
indemnification agreement from a relevant authority that seeks to
access SDR Data. See Section VI.C.3(c), supra.
---------------------------------------------------------------------------

    The Commission envisions that, to meet the first two conditions in
the Indemnification Exemption, an SDR may incur costs in determining
whether a relevant authority's request for data falls within its
regulatory mandate or legal responsibilities and pertains to a person
or financial product subject to the authority's jurisdiction,
supervision, or oversight. The Commission preliminarily believes,
however, that an SDR's costs for meeting the first two conditions in
the Indemnification Exemption would be minimal, if any, in light of the
burden already imposed by an SDR's statutory duty to maintain the
privacy of security-based swap information that it receives.\1887\ With
respect to the third condition in the Indemnification Exemption, the

Commission preliminarily believes that the costs for an SDR to confirm
whether the Commission and a relevant authority have entered into a
supervisory and enforcement MOU or other arrangement would be minimal
because such information should generally be readily available.\1888\
---------------------------------------------------------------------------

    \1887\ See Section 13(n)(5)(F) of the Exchange Act, 15 U.S.C.
78m(n)(5)(F), as added by Section 763(i) of the Dodd-Frank Act; see
also proposed Rule 13n-4(b)(8) under the Exchange Act (requiring
SDRs to maintain the privacy of any and all security-based swap
transaction information that the SDR receives from a security-based
swap dealer, counterparty, or certain registered entity) and
proposed Rule 13n-9 under the Exchange Act (requiring an SDR to
protect the privacy of security-based swap transaction information
that the SDR receives by, among other things, establishing
safeguards, policies, and procedures that are reasonably designed to
protect such information and that address, without limitation, the
SDR limiting access to confidential information, material, nonpublic
information, and intellectual property). The Commission
preliminarily believes that in order to comply with an SDR's
statutory privacy duty, the SDR will most likely decide that it is
reasonable to consider whether a relevant authority's request for
security-based swap information is within its regulatory mandate or
legal responsibilities and pertains to a person or financial product
within the authority's jurisdiction, supervision, or oversight
before the SDR provides the information. If so, then the Commission
preliminarily believes that the SDR's costs for meeting the first
two conditions in the Indemnification Exemption would be minimal, if
any, because these conditions will most likely be already addressed
in the SDR's policies and procedures required by previously proposed
Rule 13n-9 under the Exchange Act. As discussed in the SDR Proposing
Release, the Commission anticipated that the primary costs to SDRs
for complying with proposed Rule 13n-9 would be derived from
developing, maintaining, and ensuring compliance with the required
policies and procedures. 75 FR 77363. Based upon data from SIFMA's
Management & Professional Earnings in the Securities Industry 2012
(modified by the SEC staff to account for an 1800-hour-work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead), the Commission now estimates that the
average initial paperwork cost associated with proposed Rule 13n-9
would be 630 hours and $60,000 in outside legal costs for each SDR.
The Commission also estimates that the average ongoing paperwork
cost would be 180 hours per year for each SDR and that assuming a
maximum of ten SDRs, the aggregate one-time estimated dollar cost to
comply with proposed Rule 13n-9 would be $2,553,000, which is
calculated as follows: ($60,000 for outside legal services +
(Compliance Attorney at $310 per hour for 630 hours)) * 10
registrants = $2,553,000. The Commission further estimates that the
aggregate ongoing estimated dollar cost per year to comply with
proposed Rule 13n-9 would be $558,000, which is calculated as
follows: (Compliance Attorney at $310 per hour for 180 hours) * 10
registrants = $558,000.
    \1888\ As a general matter, the Commission provides a list of
MOUs and other arrangements, which are available at the following
link: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml.
---------------------------------------------------------------------------

    Even if all the conditions in the Indemnification Exemption are
satisfied, SDRs would have the option to seek to obtain an
indemnification agreement from a relevant authority. The Commission
recognizes that the conditions in the Indemnification Exemption would
not necessarily provide SDRs that invoke the exemption with the same
level of protection that an indemnification agreement would provide
(i.e., coverage for any expenses arising from litigation relating to
information provided to a relevant authority) and thus, SDRs may decide
to weigh the potential risks in not seeking an indemnification
agreement from a relevant authority with the benefits of invoking the
exemption.
    The Commission preliminarily believes, however, that the conditions
in the exemption would provide an additional layer of protection of the
confidentiality of SDR Data--albeit different from the protection
provided by an indemnification agreement--and that in cases where SDRs
choose the exemption, such SDRs presumably believe that the benefits of
the exemption, as discussed above, justify the costs of invoking the
exemption. However, even in cases where the exemption is not chosen,
the availability of the option is valuable to SDRs because the
exemption would provide SDRs with an alternative to the Indemnification
Requirement and an opportunity to choose the lower cost alternative.
(c) Alternatives to Proposed Guidance and Exemptive Relief
i. Notification Requirement
    The Commission considered requiring SDRs to provide actual notice
to the Commission of all requests for SDR Data by relevant authorities
prior to SDRs fulfilling such requests. The Commission preliminarily
believes, however, that the benefits of receiving actual notice for
each and every request does not justify the additional costs imposed on
SDRs to provide such notice and the potential delay in relevant
authorities receiving SDR Data that they need to fulfill their
regulatory mandates and legal responsibilities. The Commission also
preliminarily believes that our proposed approach is the most efficient
way to interpret the Notification Requirement and would allow the
Commission access to the information needed.
ii. Determination of Appropriate Regulators
    The Commission considered prescribing by rule a specific process to
determine whether a relevant authority is appropriate for purposes of
receiving security-based swap data directly from SDRs that would
require, for example, a supervisory and enforcement MOU or other
arrangement.\1889\ The Commission preliminarily believes, however, that
such a rule is not necessary because our process for determining an
appropriate authority provides the Commission and relevant authorities
greater flexibility to consult on appropriate terms of access to SDR
Data, confidentiality commitments, and reciprocal access commitments on
a case-by-case basis.
---------------------------------------------------------------------------

    \1889\ See, e.g., CFTC Rule 49.17(b), 17 CFR 49.17(b) (requiring
``Appropriate Foreign Regulators'' to have an MOU or similar type of
information sharing agreement, or as the CFTC determines on a case-
by-case basis).
---------------------------------------------------------------------------

iii. Exemptive Relief From the Indemnification Requirement
    The Commission considered whether to not propose any exemptive
relief from the Indemnification Requirement. For the reasons discussed
below, the Commission believes that the Indemnification Exemption is a
better, and more appropriate, alternative to a rigid application of the
Indemnification Requirement.\1890\
---------------------------------------------------------------------------

    \1890\ See also Section VI.C.3(c), supra (discussing how a rigid
application of the Indemnification Requirement would frustrate the
purposes of the Dodd-Frank Act).
---------------------------------------------------------------------------

    The Commission preliminarily believes that a rigid application of
the Indemnification Requirement may reduce the expected benefits
associated with relevant authorities' access to SDR Data, as discussed
in Section XV.H.2(a)i above. In particular, the Indemnification
Requirement may prevent some relevant authorities from accessing SDR
Data directly from SDRs registered with the Commission.\1891\ Although
relevant authorities could obtain SDR Data from the Commission,\1892\
it would likely be less efficient for relevant authorities to do so
than obtaining SDR Data access directly from SDRs, particularly in
periods of market stress and particularly since SDRs are likely to have
expertise in, and business incentives for, providing such data to
relevant authorities efficiently.
---------------------------------------------------------------------------

    \1891\ See, e.g., DTCC Letter I at 3 (discussing how the
Indemnification Requirement would result in the reduction of
information accessible to regulators on a timely basis and would
greatly diminish regulators' ability to carry out oversight
functions).
    \1892\ See Section VI.C.1, supra; see also SDR Proposing
Release, 75 FR 77319.
---------------------------------------------------------------------------

    Moreover, the inability of relevant foreign authorities to obtain
direct access to SDR Data from SDRs registered with the Commission
would likely increase the risk of data fragmentation among trade
repositories, as many foreign authorities may require establishment and
maintenance of trade repositories in their jurisdictions if such
authorities determine that they are unable to satisfy the
Indemnification Requirement; such fragmentation may lead to higher
reporting costs for market participants and less transparency in the
security-based swap market.\1893\
---------------------------------------------------------------------------

    \1893\ See, e.g., Cleary Letter IV at 31 (The Indemnification
Requirement ``could be a significant impediment to effective
regulatory coordination, since non-U.S. regulators may establish
parallel requirements for U.S. regulators to access swap data
reported in their jurisdictions.'').
---------------------------------------------------------------------------

    The Commission also considered whether to prescribe additional
conditions in or limitations to the Indemnification Exemption, but
decided against it. Any additional conditions or limitations to the
Indemnification Exemption would likely impose additional costs on SDRs
that the Commission preliminarily believes are not warranted at this
time. The Commission presently believes that the Indemnification
Exemption strikes the right balance in furthering the goals of the
Dodd-Frank Act by providing relevant authorities with access to SDR
Data to fulfill their regulatory mandates and legal requirements while
incorporating appropriate limitations to such access to guard against
over-broad or unfettered access to all SDR Data as well as certain
mechanisms to seek to preserve the confidentiality of the SDR Data.
Request for Comment
    The Commission requests comments on all aspects of the economic
analysis of our proposed interpretive guidance, Indemnification
Exemption, and alternatives to our proposed approach. Interested
persons are encouraged to provide supporting data and analysis and,
when appropriate, suggest modifications to the Commission's proposed
interpretive guidance and Indemnification Exemption. Responses that are
supported by data and analysis provide great assistance to the
Commission in considering the benefits and costs of proposed
alternatives, as well as considering the practicality and effectiveness
of the proposed alternatives. In addition, the

Commission requests commenters' views on the following:
     Has the Commission appropriately considered the expected
programmatic benefits and costs of our proposed interpretative guidance
and Indemnification Exemption? If not, please explain why and provide
information on how such benefits and costs should be assessed.
     Are the programmatic benefits and costs discussed above
accurate? If not, why not and how can the Commission more accurately
describe such benefits and costs?
     Are there quantifiable programmatic benefits or costs
associated with the Commission's proposed interpretive guidance and
Indemnification Exemption that are not discussed above, but that the
Commission should consider? If so, please discuss, analyze, and supply
relevant data, information, or statistics regarding any such benefits
or costs. For example, how many relevant authorities will likely
request SDR Data from SDRs? What is the average number of requests for
SDR Data that an SDR may receive from relevant authorities per year?
     Are there costs in fulfilling any of the conditions in the
Indemnification Exemption that the Commission has not discussed above?
If so, what?
     Do you agree that an SDR's costs for meeting the first two
conditions in the Indemnification Exemption would be minimal, if any,
because these conditions will most likely be already addressed in the
SDR's policies and procedures required by previously proposed Rule 13n-
9 under the Exchange Act? If not, please explain.
     Do SDRs have appropriate incentives to rely on the
Indemnification Exemption? Are there circumstances in which an SDR may
rely on an Indemnification Exemption when it is inappropriate to do so?
Conversely, would SDRs have incentives to require indemnification
despite the availability of the Indemnification Exemption? Please
explain.
     What kinds of legal frameworks will relevant authorities
operate under? Will some relevant authorities operate under legal
frameworks that do not impose confidentiality restrictions on the use
of data that are comparable to those governing SDRs and those
applicable to the Commission?
     Do the benefits of the Commission's proposed interpretive
guidance and Indemnification Exemption justify the costs? If not, why
not?
     Has the Commission appropriately considered the benefits
and costs of the alternative approaches to the Commission's
interpretive guidance and Indemnification Exemption? If not, why not?
3. Economic Analysis of the Re-proposal of Regulation SBSR
    As discussed above, although the Commission is re-proposing all of
Regulation SBSR, the new elements of the re-proposal relate directly to
cross-border issues, are conforming changes necessitated by those
larger changes, or are technical changes designed to facilitate
understanding of those other changes. However, since Regulation SBSR
was proposed but has not yet been adopted, the discussion below will
include costs and benefits of the initial proposal from a pre-statutory
baseline and then consider the changes to the initial assessments of
costs and benefits implied by the re-proposal.
    Broadly, the Commission continues to believe, as described in the
Regulation SBSR Proposing Release, that Regulation SBSR taken as a
whole would result in improved market quality, improved risk
management, greater efficiency, and improved Commission
oversight.\1894\ Today's re-proposal of Regulation SBSR is intended to
further these goals while further limiting, to the extent practicable,
the overall costs associated with security-based swap reporting and
public dissemination in cross-border situations. As described in more
detail below, the proposed revisions were suggested by many commenters
to the initial proposal and are designed, among other things, to better
align reporting duties with larger entities that have greater resources
and capability to report \1895\ and to reduce the potential for
duplicative reporting.\1896\ These revisions should help to maximize
the benefits and minimize the potential costs of regulatory reporting
and public dissemination of security-based swaps faced by market
participants.
---------------------------------------------------------------------------

    \1894\ See Regulation SBSR Proposing Release, 75 FR 75261-62.
    \1895\ See, e.g., SIFMA AMG Letter at 2 (stating that, due to
their commercial interests and technological expertise, non-U.S.
security-based swap dealers and major security-based swap
participants would be as likely as U.S. security-based swap dealers
and major security-based swap participants to comply with the
reporting obligations, or would be best positioned to develop at the
lowest cost the necessary technological infrastructure or
relationships with third party service providers); Vanguard Letter
at 6 (stating that requiring U.S. end users to report security-based
swaps would be costly and burdensome for end users, particularly for
end users that enter into security-based swaps on an isolated
basis); MarkitSERV Letter I at 9 (noting that, in light of end
users' resources and the operational and technical challenges of
security-based swap reporting, it will often be most efficient for a
U.S. end user to delegate reporting to its non-U.S. security-based
swap dealer or major security-based swap participant counterparty);
DTCC Letter II at 27 (stating that the Commission's failure to
encourage arrangements through which non-U.S. dealers could submit
transaction reports for customers that are U.S. persons would impose
significant burdens and costs on U.S. money managers, which likely
would be passed to individual investors, pension funds, and state
and local governments); Cleary Letter IV at 28 (stating that
requiring U.S. end users to report security-based swaps entered into
with non-U.S. security-based swap dealers would be unduly burdensome
for end users and could negatively impact the competitiveness of
affected U.S. markets); ISDA/SIFMA Letter I at 19 (the end-user
reporting requirement could result in the inadvertent exclusion of
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 (end users and
other unregistered counterparties might refuse to enter into
security-based swaps with foreign security-based swap dealers or
major security-based swap participants to avoid the costs of
developing the necessary reporting systems, thereby potentially
reducing price competition).
    \1896\ See notes 1136-1141, supra.
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    The Commission seeks public comment on the costs and benefits that
re-proposed Regulation SBSR would entail. The Commission encourages
commenters to identify, discuss, analyze, and supply relevant data,
information, or statistics regarding any such costs or benefits. In
particular, the Commission seeks comment on the following:
     Taken together, what are the costs and benefits of re-
proposed Regulation SBSR?
     Would the revisions contained in re-proposed Regulation
SBSR result in benefits or costs not identified by the Commission? If
so, please describe.
     Has the Commission accurately identified and described all
relevant benefits and costs associated with re-proposed Regulation
SBSR?
     Could re-proposed Regulation SBSR be further enhanced,
consistent with the Dodd-Frank Act, to maximize aggregate benefits and
minimize costs to the security-based swap market?
(a) Modifications to ``Reporting Party'' Rules and Jurisdictional Reach
of Regulation SBSR--Re-proposed Rules 901(a) and 908(a)
i. Initial Proposal
    Rule 901(a), as initially proposed, set forth three scenarios for
assigning the duty to report a security-based swap transaction.
Proposed Rule 901(a)(1) would provide that, where only one counterparty
to a security-based swap is a U.S. person, the U.S. person would be the
reporting party. Proposed Rule 901(a)(2) would assign reporting
responsibilities as follows:
     With respect to a security-based swap in which only one
counterparty is a security-based swap dealer or major

security-based swap participant, the security-based swap dealer or
major security-based swap participant would be the reporting party;
     With respect to a security-based swap in which one
counterparty is a security-based swap dealer and the other counterparty
is a major security-based swap participant, the security-based swap
dealer would be the reporting party; and
     With respect to any other security-based swap not
described in the first two cases, the counterparties to the security-
based swap would select a counterparty to be the reporting party.
    Proposed Rule 901(a)(3), as originally proposed, would provide
that, if neither party is a U.S. person but the security-based swap is
executed in the United States or through any means of interstate
commerce, or is cleared through a clearing agency having its principal
place of business in the United States, the counterparties to the
security-based swap would be required to select a counterparty to be
the reporting party.
    Rule 908(a), as initially proposed, would delineate the scope of
the security-based swap market that would be subject to regulatory
reporting and public dissemination under Regulation SBSR. Proposed Rule
908(a) provided that a security-based swap would be subject to these
requirements if the security-based swap: (1) has at least one
counterparty that is a U.S. person; (2) is executed in the United
States or through any means of interstate commerce; or (3) is cleared
through a registered clearing agency having its principal place of
business in the United States. If a security-based swap met any of the
tests in proposed Rule 908(a), the counterparties would then look to
proposed Rule 901(a) to determine which of them would be required to
report the security-based swap. Rule 908(a), as initially proposed,
would not impose reporting requirements in connection with a security-
based swap solely because one of the counterparties is guaranteed by a
U.S. person.
    Rule 902, as initially proposed, would require the public
dissemination of security-based swaps that met the scope requirements
of proposed Rule 908(a). Proposed Rule 902(a) set out the core
requirement that a registered SDR, immediately upon receiving a
transaction report of a security-based swap, would be required to
publicly disseminate information about that security-based swap
consisting of all the information reported by the reporting party
pursuant to proposed Rule 901(c), plus any indicator(s) contemplated by
the registered SDR's policies and procedures that would be required by
proposed Rule 907.\1897\
---------------------------------------------------------------------------

    \1897\ Block trades would be subject to special dissemination
rules. 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.'' 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.
---------------------------------------------------------------------------

a. Programmatic Benefits of Initial Proposal
    The Regulation SBSR Proposing Release discussed various benefits
that could result from proposed Rule 901.\1898\ For example, the
Commission anticipated that proposed Rule 901 would provide the
Commission with a better understanding of the security-based swap
market generally, including the size and scope of that market, as the
Commission would have access to data held by SDRs.\1899\ Such access is
designed to promote more effective systemic regulation, and provide the
Commission with better information to examine for improper market
behavior and to take enforcement actions. Furthermore, specifying
general types of information to be reported and publicly disseminated
could increase the efficiency and level of standardization in the
security-based swap market. Proposed Rule 901 also could facilitate the
reports about the security-based swap marketplace that the Commission
is required to provide to Congress.\1900\
---------------------------------------------------------------------------

    \1898\ See id. at 75262-64.
    \1899\ See, e.g., 15 U.S.C. 78m(n)(5)(D) (requiring SDRs to
provide the Commission with direct electronic access to their data).
    \1900\ See Section 719 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    The Commission anticipated that proposed Rule 901 would likely
require reporting parties to establish and maintain order management
systems (``OMSs'') for capturing and transmitting data about their
security-based swap transactions. Such systems would be necessary to
report data within the timeframes set forth in proposed Rules 901(c)
and 901(d), because it is unlikely that manual processes could capture
and report in real time the numerous required data elements relating to
a security-based swaps. There could be substantial benefits in the form
of reduced operational risk in requiring all reporting parties to have
such capability, as more timely capture and storage at firm level of
all security-based swap transaction information would support effective
risk management. Counterparties, SDRs, clearing agencies (in some
cases), and regulators would obtain accurate knowledge of new security-
based swap transactions more quickly. Reporting parties that obtain
such systems could see additional benefits in being able to process and
manage risk or to exploit operational efficiency gains to expand their
participation in the security-based swap market.
    The information reported by reporting parties pursuant to proposed
Rule 901(c) would be used by registered SDRs to publicly disseminate
real-time reports of security-based swap transactions under proposed
Rule 902. In the Regulation SBSR Proposing Release, the Commission
highlighted numerous benefits of the public dissemination requirement
in proposed Rule 902. Among other things, the Commission stated 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.'' \1901\ The Commission noted the opacity of the current
security-based swap market and stated that ``[m]arket participants,
even dealers, lack an effective mechanism to learn the prices at which
other market participants transact.'' \1902\ Requiring prompt
dissemination of last-sale information would provide all market
participants with more extensive and more accurate information on which
to make trading and valuation determinations. Moreover, the Commission
noted that post-trade pricing and volume information ``could allow
valuation models to be adjusted to reflect how [security-based swap]
counterparties have valued a [security-based swap] instrument at a
specific moment in time'' \1903\ and that public, real-time
dissemination of last-sale information ``also could aid dealers in
deriving better quotations, because they would know the prices at which
other market participants have recently traded.'' \1904\ Post-trade
transparency of security-based swap transactions also could improve
market participants' ability to value security-based swaps, especially
in opaque markets or markets with low liquidity where recent quotations
or last-sale prices may not

exist or, if they do exist, may not be widely available. Better
valuations could create a benefit in the form of more efficient capital
allocation and ultimately could reduce systemic risks.\1905\
---------------------------------------------------------------------------

    \1901\ See Regulation SBSR Proposing Release, 75 FR 75267.
    \1902\ Id.
    \1903\ Id.
    \1904\ Id.
    \1905\ See id. at 75268.
---------------------------------------------------------------------------

b. Programmatic Costs of Initial Proposal
    The proposed security-based swap reporting requirements would also
impose initial and ongoing costs on reporting parties. In the
Regulation SBSR Proposing Release, the Commission stated our
preliminarily belief that certain of these costs would be a function of
the number of reportable events \1906\ and the data elements required
to be submitted for each reportable event. The Commission preliminarily
estimated that security-based swap market participants would face three
categories of costs to comply with proposed Rule 901. First, each
reporting party would have to develop an internal OMS capable of
capturing relevant security-based swap transaction information so that
it could be reported. Second, each reporting party would have to
implement a reporting mechanism. Third, each reporting party would have
to establish an appropriate compliance program and support for
operating the OMS and reporting mechanism.\1907\ The Commission
preliminarily estimated that up to 1,000 entities could be reporting
parties under proposed Rule 901(a) and that the first-year aggregate
costs associated with proposed Rule 901 would be $511,013 per reporting
party, for a total of $511,013,000 for all reporting parties.\1908\ The
Commission preliminarily estimated that the ongoing aggregate
annualized costs associated with proposed Rule 901 would be $316,116
per reporting party, for a total of $316,116,000 for all reporting
parties.\1909\ These cost estimates all relied on the Commission's
preliminary estimate of 1,000 reporting parties. In the Regulation SBSR
Proposing Release, the Commission did not break down the costs of Rule
901 by each paragraph of Rule 901, but instead calculated costs arising
from proposed Rule 901 as a whole.
---------------------------------------------------------------------------

    \1906\ A reportable event would include both an initial
security-based swap transaction, required to be reported pursuant to
proposed Rule 901(b) and the data elements of which would be set
forth in proposed Rule 901(c), as well as a life cycle event, the
reporting of which is governed by proposed Rule 901(e). See id. at
75264-66.
    \1907\ See id. at 75264.
    \1908\ See id. at 75266.
    \1909\ See id.
---------------------------------------------------------------------------

    The Commission noted that the costs associated with required
reporting pursuant to proposed Regulation SBSR could represent a
barrier to entry for new, smaller firms that might not have the ability
to comply with the proposed reporting requirements or for whom the
expected benefits of compliance might not justify the costs of
compliance. To the extent that proposed Regulation SBSR might deter new
firms from entering the security-based swap market, this would be a
cost of the proposal and could negatively impact competition.
Nevertheless, the Commission preliminarily believed that the proposed
reporting requirements would not impose insurmountable barriers to
entry, as firms that were reluctant to acquire and build reporting
infrastructure would be able to engage with third-party service
providers that carry out any reporting duties that they incurred under
Regulation SBSR.\1910\
---------------------------------------------------------------------------

    \1910\ See id.
---------------------------------------------------------------------------

    In the Regulation SBSR Proposing Release, the Commission
preliminarily estimated that the initial one-time aggregate costs for
registered SDRs to develop and implement the systems needed to
disseminate the required transaction information would be $40,004,000,
which corresponds to $4,000,400 per SDR. Further, the Commission
preliminarily estimated that aggregate annual costs on registered SDRs
for systems and connectivity upgrades associated with real-time public
dissemination would be $24,002,400, which corresponds to $2,400,240 per
SDR. Overall, the initial aggregate costs associated with proposed Rule
901 for all SDRs were estimated to be $64,006,400, which corresponds to
$6,400,640 per registered SDR.\1911\
---------------------------------------------------------------------------

    \1911\ See id. at 75269.
---------------------------------------------------------------------------

ii. Re-Proposal
    For the reasons discussed above, the Commission is now re-proposing
certain provisions of Regulation SBSR that would extend the scope of
security-based swaps that would be subject to regulatory reporting and
public dissemination and, in some cases, to shift the duty to report to
a different counterparty. This re-proposal is being made, in part, to
reflect the Commission's preliminary belief that in many cases the
reporting and public dissemination requirements of Regulation SBSR
should extend to security-based swaps executed outside the United
States but having a U.S. person as an indirect counterparty. The
Commission also is revising our approach to assigning the duty to
report to minimize consideration of the domicile of the counterparties,
and to focus more on their registration status (i.e., whether or not a
counterparty is a security-based swap dealer or major security-based
swap participant).
    To facilitate these revisions, the Commission is proposing to add
certain new terms and definitions and to redefine other terms contained
in Rule 900. First, the Commission is now proposing to redefine the
term ``counterparty'' as ``a direct or indirect counterparty of a
security-based swap.'' Re-proposed Rule 900 would define ``direct
counterparty'' as ``a person that enters directly with another person
into a contract that constitutes a security-based swap'' and ``indirect
counterparty'' as ``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.'' Second, re-
proposed Rule 900 would eliminate the term ``reporting party'' and
replace it with ``reporting side,'' and define ``reporting side'' 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.'' ``Side'' would be defined as ``a direct
counterparty and any indirect counterparty that guarantees its
performance on the security-based swap.''
    The Commission's revisions would leave much of Rule 901, as
initially proposed, substantially unchanged. Importantly, the
Commission is not proposing to modify the basic duty to report
security-based swap transactions to a registered SDR, as set forth in
proposed Rule 901(b). Nor is the Commission proposing to add, delete,
or substantively change any of the specific data elements set forth in
proposed Rules 901(c) and 901(d) that reporting sides would be required
to report.\1912\ Rather, in this re-proposal, the Commission's
substantive revisions to Rule 901 occur only in paragraph (a), which
governs who must report security-based swap transactions. As described
in more detail below, these changes are intended to better align
reporting duties with larger entities that have greater resources and
capability to

report. Specifically, re-proposed Rule 901(a) would 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) would now provide
as follows:
---------------------------------------------------------------------------

    \1912\ However, re-proposed Rules 901(c) and 901(d) under the
Exchange Act include certain conforming changes due to the use of
new and revised terms in re-proposed Rule 900 under the Exchange
Act.
---------------------------------------------------------------------------

     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.
    In conjunction with the proposed changes to Rule 901(a), the
Commission also is now proposing to modify Rule 908(a) to extend the
reporting requirement to all security-based swaps that are guaranteed
by a U.S. person and all security-based swaps of security-based swap
dealers and major security-based swap participants, regardless of
whether or not they are U.S. persons.\1913\ To reflect these changes,
re-proposed Rule 908(a)(1) would provide that a security-based swap is
subject to regulatory reporting if:
---------------------------------------------------------------------------

    \1913\ However, the Commission also preliminarily believes that
certain of these security-based swaps need not be subject to public
dissemination. See Section VIII.C.1, supra.
---------------------------------------------------------------------------

     The security-based swap is a transaction conducted within
the United States;
     There is a direct or indirect counterparty that is a U.S.
person on either side of the transaction;
     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
     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)(2) would provide that a security-based swap
shall be subject to public dissemination if:
     The transaction is conducted within the United States;
     There is a direct or indirect counterparty that is a U.S.
person on each side of the transaction;
     At least one direct counterparty is a U.S. person (except
in the case of a transaction conducted through a foreign branch);
     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
     The security-based swap is cleared through a clearing
agency having its principal place of business in the United States.
    Taken together, these changes to Rule 901(a) and 908(a) would have
the cumulative effect of substantially preserving the reporting
hierarchy contemplated in Section 766 of the Dodd-Frank Act while also
taking into account the existence of indirect counterparties that could
affect how the reporting duty is allocated. Thus, the new approach set
forth in re-proposed Rule 901(a) would focus more on the status of an
entity (i.e., whether it is a security-based swap dealer or major
security-based swap participant), and less on whether or not the
counterparties are U.S. persons. Moreover, re-proposed Rule 908(a)(1)
would extend the requirement for regulatory reporting to all security-
based swaps that are guaranteed by a U.S. person or executed by
security-based swap dealers and major security-based swap participants,
regardless of whether or not they are U.S. persons.
    As discussed above, the Commission is re-proposing Rule 902(a) to
provide that certain security-based swaps would be subject to
regulatory reporting but not publically disseminated. Therefore, the
Commission is re-proposing Rule 902(a) to provide that a registered SDR
would have no obligation to publicly disseminate a transaction report
for any such security-based swap. The remainder of Rule 902 is
substantively unchanged.\1914\ However, as result of the modifications
to Rule 908(a)(2), certain transactions involving non-U.S. person
security-based swap dealers, non-U.S. person major swap participants,
and/or U.S. person indirect counterparties that would not have been
subject to public dissemination under the initial proposal would be
required to be publicly disseminated under re-proposed Regulation SBSR.
---------------------------------------------------------------------------

    \1914\ However, re-proposed Rule 902 under the Exchange Act
includes some conforming changes due to the use of new and revised
terms in re-proposed Rule 900 under the Exchange Act.
---------------------------------------------------------------------------

a. Programmatic Benefits
    Re-proposed Rule 901(a) would, relative to the initial proposal,
change which counterparty to a security-based swap transaction would be
required to report the transaction in some instances, as the Commission
is refocusing the reporting duty primarily on the status of the
counterparties, rather than on whether or not they are U.S. persons.
The remainder of the rule (aside from technical and conforming changes)
would remain unchanged from the original proposal. The Commission
preliminarily believes that the benefits identified in the Regulation
SBSR Proposing Release associated with proposed Rule 901 would continue
to be applicable to re-proposed Rule 901. These include providing a
means for the Commission to gain a better understanding of the
security-based swap market; facilitating public dissemination of
security-based swap transaction information, thus enabling market
participants and regulatory authorities to know the current state of
the security-based swap markets and track those markets over time; and
improving risk management by security-based swap counterparties, which
would need to capture and store their transactions in security-based
swaps to facilitate reporting.
    The Commission preliminarily believes that requiring reporting of
security-based swap transactions that are guaranteed by U.S. persons
would provide benefits beyond those under Rule 908(a), as originally
proposed. As discussed above, the Commission's access to such
additional information could facilitate more thorough and complete
monitoring of individual security-based swap market participants and
more accurate systemic risk monitoring across the security-based swap
market. In addition, expanding the reach of the security-based swap
reporting regime in this manner is designed to mitigate certain
unintended consequences of the original proposal, such as market
participants shifting business to other jurisdictions to avoid
reporting obligations.
    The Commission preliminarily believes that the benefits identified
in the Regulation SBSR Proposing Release associated with proposed Rule
902 would continue to be applicable to re-proposed Rule 902.
Specifically, the Commission continues to believe that 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.\1915\ Furthermore, the Commission continues to
believe that public, real-time dissemination of last-sale information
could aid dealers in deriving better quotations, because they would
know the prices at which other market participants have recently
traded.\1916\ In addition, the Commission continues to believe that
requiring prompt dissemination of last-sale information would provide
all market participants with more extensive and more accurate
information on which to make trading and valuation determinations and
could allow valuation models to be adjusted to reflect how security-
based swap counterparties have valued a security-based swap instrument
at a specific moment in time.\1917\ Such information, when made
publicly available, could enhance market participants' ability to value
security-based swaps, especially in opaque markets or markets with low
liquidity where recent quotations or last-sale prices may not exist or
are not widely available. Better valuations could create a benefit in
the form of more efficient capital allocation and ultimately could help
reduce systemic risks.\1918\
---------------------------------------------------------------------------

    \1915\ See Regulation SBSR Proposing Release, 75 FR 75267.
    \1916\ See id.
    \1917\ See id.
    \1918\ See id. at 75268.
---------------------------------------------------------------------------

b. Programmatic Costs
    Because the majority of proposed Rule 901 is not being revised and
the overall emphasis of the rule and the majority of its specific
provisions would not change under the re-proposal, the Commission
preliminarily believes that the infrastructure-related costs identified
in the Regulation SBSR Proposing Release associated with proposed Rule
901, on a per-entity basis, would not change. These include the costs
for each reporting party: (i) To develop an OMS capable of capturing
relevant security-based swap transaction information so that it can be
reported; (ii) to implement a reporting mechanism; and (iii) to
establish an appropriate compliance program and support for the
operation of the OMS and reporting mechanism.\1919\ The bulk of the
costs resulting from Regulation SBSR derive from the infrastructure-
related costs of complying with reporting obligations, which include
establishing and maintaining the systems necessary to capture, store,
and report transaction information; the establishment and maintenance
of appropriate policies and procedures; and employing and training the
necessary compliance personnel.\1920\ The Commission preliminarily
estimated and continues to believe that the marginal burden of
reporting additional transactions once a respondent's reporting
infrastructure and compliance systems are in place would be de minimis
when compared to the costs of putting those systems in place. This is
because the only additional costs of reporting an individual
transaction would be entering the required data elements into the
firm's OMS, which could subsequently deliver the required transaction
information to a registered SDR. In many cases, particularly with
standardized instruments and instruments traded electronically,
transaction information could be generated and maintained in electronic
form, which could then be provided to a registered SDR through wholly
automated processes.
---------------------------------------------------------------------------

    \1919\ The Commission's complete assessment of the costs
associated with proposed Rule 901 of Regulation SBSR is included in
Section XIV.B of the Regulation SBSR Proposing Release. See id. at
75264-66.
    \1920\ See id. at 75261-80.
---------------------------------------------------------------------------

    Re-proposed Rule 901(a) is designed to reduce the number of
instances where a counterparty that is not a security-based swap dealer
or major security-based swap participant would bear the responsibility
to report a security-based swap transaction under Regulation SBSR. In
other words, re-proposed Rule 901(a) is designed to assign the
reporting duty to the larger counterparties that have greater resources
and operational capability to carry out the reporting function.
Consequently, re-proposed Rule 901(a) could result in each reporting
counterparty being required to report, on average, more security-based
swap transactions than envisioned under the original proposal, although
smaller unregistered counterparties that previously would have been
required to report a small number of security-based swap transactions
under the original proposal would, under re-proposed Rule 901(a), be
less likely to have to incur reporting duties under Regulation SBSR,
and thus less likely to have to incur the initial infrastructure-
related costs of reporting.\1921\ The counterparties that would
continue to have the reporting duty under re-proposed Rule 901(a)--
primarily security-based swap dealers and major security-based swap
participants--would have the reporting duty for nearly all security-
based swap transactions. Security-based swap dealers and major
security-based swap participants, whether or not they are U.S. persons,
typically have greater resources and operational capability than non-
registered U.S. counterparties and are likely to already have the
reporting infrastructure, policies and procedures, and staff that could
be adapted to carry out the reporting obligations under Regulation
SBSR. The Commission preliminarily agrees with certain commenters
\1922\ that basing the reporting duty primarily on status as a
security-based swap dealer or major security-based swap participant
rather than on whether or not the entity is a U.S. person would, in the
aggregate, reduce costs to the security-based swap market, as discussed
in more detail below.
---------------------------------------------------------------------------

    \1921\ The Commission notes, however, that non-reporting sides
would be required to provide certain information about a reportable
transaction on a non-real-time basis. See Rule 906(a), as originally
proposed (requiring reporting, if applicable, of participant ID,
broker ID, desk ID, and trader ID). See also Regulation SBSR
Proposing Release, 75 FR 75221 (discussing rationale for proposed
Rule 906(a)).
    \1922\ See, e.g., DTCC I at 8; ICI Letter at 5; Multiple Firms
Letter at 31. See also Vanguard Letter at 6; Multiple Firms Letter
at 28 (stating that requiring U.S. end users to report security-
based swaps entered into with non-U.S. person security-based swap
dealers would be unduly burdensome for end users and could
negatively impact the competitiveness of affected U.S. markets).
---------------------------------------------------------------------------

    In addition, in re-proposing Rule 901(a), the Commission is
proposing to revise the term ``reporting party'' to ``reporting side.''
Under the re-proposal, a reporting side could consist of multiple
entities: the direct counterparty to the transaction and any guarantor
of the direct counterparty. Although this has the potential to increase
the number of counterparties that could incur a duty to report--by
placing such duty on both the direct counterparty and any indirect
counterparty--the Commission preliminarily believes that this would not
be the result. The Commission preliminarily believes instead that, in
practice, large groups that engage in security-based swaps transactions
would likely centralize the reporting function for all entities within
the group into a single operational unit. Thus, even if two
counterparties on the reporting side each incurred the legal duty under
re-proposed Rule 901(a) to report a security-based swap transaction,
only one entity (either one of the counterparties itself or one of its
affiliates) would in fact carry out the reporting function.
    Although the Commission preliminarily estimated that there

would be 1,000 reporting entities,\1923\ the Commission is now revising
that estimate to 300.\1924\ In the original proposal, the Commission
preliminarily estimated that the initial, aggregate annualized costs
associated with proposed Rule 901 would be $511,013 per reporting
party, and that the ongoing aggregate annualized costs associated with
proposed Rule 901 would be $316,116 per reporting party.\1925\ The
Commission continues to preliminarily believe that these per-respondent
costs are appropriate. Given the same per-respondent costs--but
adjusting for the decreased estimate of the number of respondents--the
Commission now preliminarily believes that the total one-time costs of
re-proposed Rule 901 would be $153,303,900,\1926\ and the annual
ongoing costs would be $94,834,800.\1927\ The Commission seeks comment
on and data to quantify these estimated costs.
---------------------------------------------------------------------------

    \1923\ See Regulation SBSR Proposing Release, 75 FR 75247.
    \1924\ See Section XIV.F.2(d)(ii), supra.
    \1925\ See Regulation SBSR Proposing Release, 75 FR 75266.
    \1926\ The Commission estimates: (300 reporting counterparties)
* $511,013) = $153,303,900.
    \1927\ The Commission estimates: (300 reporting counterparties)
* $316,116) = $94,834,800.
---------------------------------------------------------------------------

    It is possible that certain smaller market participants that are
currently active in the security-based swap market could reduce their
trading activity or exit the market completely, if they believed the
compliance costs of re-proposed Regulation SBSR to be too high. This
could result in adverse impacts on competition if there were fewer
participants competing in the market. However, the Commission
preliminarily believes that this outcome would be unlikely, given that
the re-proposal is designed to further limit the instances where non-
registered U.S. persons would be required to incur the infrastructure-
related costs of reporting. The Commission preliminarily believes
instead that, by focusing the reporting duty more on the status and
away from whether or not entities are U.S. persons, re-proposed Rule
901(a) would lower the incentive of non-registered U.S. persons to
reduce their participation in the market out of fear of incurring the
infrastructure-related costs of complying with Regulation SBSR.
    Furthermore, although the Commission is now proposing to extend the
reach of the security-based swap reporting requirements, as described
in re-proposed Rule 908(a), to all transactions guaranteed by a U.S.
person, the Commission preliminarily believes that this would not
result in a significant increase in the number of entities that incur
reporting duties. The Commission preliminarily believes that
organizations that operate through foreign subsidiaries that are
guaranteed by a U.S. parent are likely to be large financial
institutions that already were included in the Commission's estimate of
reporting parties in the Regulation SBSR Proposing Release.
Furthermore, these organizations are the most likely to have robust
risk management systems that extend across business units and across
geographic boundaries, and likely already have a presence in the United
States and currently are engaging in transactions that they are
reporting (on a voluntary basis) to the DTCC-TIW. Thus, such entities
were included in the Commission's initial estimate of reporting parties
in the Regulation SBSR Proposing Release. Re-proposing Rule 908(a) to
require non-U.S. person security-based swap dealers and major security-
based swap participants to report all of their transactions to a
registered SDR would likely not impose any additional infrastructure-
related costs beyond those that were already assessed in the Regulation
SBSR Proposing Release. However, this aspect of the re-proposal could
impose small additional costs on a per-reporting entity basis in the
form of having to report additional transactions using that existing
infrastructure.
    The Commission notes that there may be a small number of entities
that are in the business, or contemplate entering the business, of
guaranteeing security-based swaps. Such entities may not have been
included in the Commission's original analysis of potential reporting
parties, because as indirect counterparties they may not have appeared
in the TIW's records as counterparties. Under re-proposed Rule 908, any
U.S. person that guarantees a security-based swap could incur the duty
to report under re-proposed Regulation SBSR. However, based on
consultation with market participants, the Commission preliminarily
believes that the net effect on the number of reporting sides would be
de minimis and would not impact the Commission's revised estimate of
300 reporting counterparties, discussed above. To the extent that there
could be entities that act only as an indirect counterparty to
security-based swap transactions and would not otherwise have been
required to report their security-based swap transactions, the
Commission preliminarily believes that our estimate takes these
entities into account.
    In addition, the Commission preliminarily believes that there may
be a slight increase in costs for those reporting counterparties that
continue to incur the reporting duty, as each such reporting
counterparty would be required to report, on average, a larger
percentage of the total number of reportable events than under the
initial proposal. Under re-proposed Rule 901(a), smaller unregistered
counterparties that previously would have been required to report a
small number of security-based swap transactions under the original
proposal would, under the re-proposal, be less likely to incur the
reporting duty under re-proposed Rule 901(a). Under re-proposed Rules
901(a) and 908(a)(1)(iii), non-U.S. person security-based swap dealers
and major security-based swap participants, rather than unregistered
U.S. persons, would have the reporting duty for most of these
transactions. Nonetheless, under the re-proposal, the per-transaction
reporting cost should not change from what was originally proposed.
Moreover, the Commission preliminarily believes that the additional
cost for non-U.S. person security-based swap dealers and major
security-based swap participants absorbing the costs of reporting these
additional transactions should be de minimis, since these larger market
participants have likely already taken significant steps to establish
and maintain the systems, processes and procedures, and staff resources
to report security-based swap transactions to existing data
repositories.
    In the Regulation SBSR Proposing Release, the Commission
preliminarily estimated that 1,000 reporting parties would be required
to report approximately 15.5 million security-based swap transactions
at a total cost, exclusive of the infrastructure-related costs, of
approximately $5,400,000.\1928\ The Commission preliminarily believes
that nothing in the re-proposal would affect the initial estimate of
the cost of an individual reportable event. However, the Commission now
is revising our assumptions about the number of reportable events
covered by re-proposed Regulation SBSR. Since issuing the Regulation
SBSR Proposing Release, the Commission has obtained additional and more
granular data regarding participation in the security-based swap market
from DTCC-TIW. These historical data suggest that the Commission
overestimated the number of security-based swap transactions that would
be subject to regulatory reporting in the future. As a result, the
Commission now estimates that 300 reporting counterparties would be
required to report approximately 5

million security-based swap transactions per year.\1929\
---------------------------------------------------------------------------

    \1928\ See Regulation SBSR Proposing Release, 75 FR 75265.
    \1929\ Data provided by the DTCC-TIW indicate that there were
approximately 4,000,000 transactions in single-name CDS in 2012. The
Commission believes that the single-name CDS data are sufficiently
representative of the security-based swap market. See Section XV.B.2
and note 1301 and accompanying text, supra. The Commission believes
that single-name CDS transactions account for 82% of the security-
based swap market. As a result, the Commission preliminarily
estimates that there were 4.88 million (i.e., 4,000,000/0.82)
security-based swap transactions in 2012, and is basing its estimate
of the future number of transactions on recent historical activity.
---------------------------------------------------------------------------

    As discussed in the PRA section above, the Commission now
preliminarily estimates that each reporting side would incur, on
average, a burden of 83.3 hours per year--not including any
infrastructure-related costs--to report individual security-based swap
transactions to a registered SDR.\1930\ In the Regulation SBSR
Proposing Release, the Commission estimated that each reporting party
would spend $5,400 to report specific security-based swap transactions
to a registered SDR as required by proposed Rule 901.\1931\ Given the
Commission's revised estimate of the number of reportable events per
year, the Commission also now preliminarily estimates that each
reporting side would, on average, incur costs of $5,630 to report
specific security-based swap transactions and life cycle events to a
registered SDR.\1932\
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    \1930\ The Commission estimates: (5 million * 0.005)/(300
reporting sides) = 83.3 burden hours per reporting counterparty, or
25,000 total burden hours for all reporting counterparties.
    \1931\ See Regulation SBSR Proposing Release, 75 FR 75265. In
arriving at this figure, the Commission preliminarily estimated that
1,000 reporting parties would be responsible for reporting
15,458,824 security-based swap transactions at a total cost of
approximately $5,400,000. The Commission is not revising its initial
estimate of the average cost of reporting an individual security-
based swap transactions. However, the Commission now estimates that
approximately 300 reporting sides will have the duty to report
approximately 5 million security-based swap transactions per year.
    \1932\ The Commission estimates: ((Compliance Clerk (41.7 hours)
at $59 per hour) + (Sr. Computer Operator (41.7 hours) at $76 per
hour)) * 300 reporting sides = $1,688,850 for all reporting sides,
or $5,630 per reporting side. See also note 1270, supra.
---------------------------------------------------------------------------

    The Commission further notes two factors that could serve to limit
the per-transaction costs across all affected entities. First, to the
extent that security-based swap instruments become more standardized
and trade more frequently on electronic platforms (rather than
manually), the act of reporting transactions to a registered SDR should
become less costly. Together, these trends are likely to reduce the
number of transactions that would necessitate the manual capture of
bespoke data elements, which is likely to take more time and be more
expensive than electronic capture. Second, the larger entities that
would incur additional reporting duties under re-proposed Rules 901(a)
and 908(a)(1)(iii)--i.e., non-U.S. person security-based swap dealers
and major security-based swap participants--can benefit from certain
economies of scale in carrying out reporting duties might elude
smaller, unregistered counterparties. The Commission preliminarily
believes that, all other things being equal, a larger reporting
counterparty is likely to handle a greater number of reportable events,
including those requiring manual data capture, than a smaller
counterparty and thus would develop greater expertise and greater speed
in reporting transactions. Moreover, a larger reporting counterparty is
likely to have greater incentive and ability to develop systems that
support the reporting function, and the fixed cost of this
infrastructure can be spread across the larger number of transactions
handled by the larger counterparty. The extent of these effects,
however, is difficult to quantify. The Commission seeks comments on the
extent of these effects and their impact on average per-transaction
reporting costs.
    The Commission preliminarily believes that re-proposed Rule 901(a)
would not increase the previously estimated costs for registered SDRs.
The Commission preliminarily believes, rather, that the estimated costs
for registered SDRs might be less than the original estimate, for two
reasons. First, given that the Commission now estimates that there
would be fewer entities incurring the duty to report (300 rather than
the original estimate of 1,000), there would be fewer entities that
would have to establish linkages to a registered SDR and thus fewer
relationships for a registered SDR to manage. Second, given the
Commission's reduced estimates of the number of reportable events, the
Commission preliminarily believes that registered SDRs could face
slightly lower costs because they would have fewer transactions to
process than originally estimated. The extent of these effects,
however, is difficult to quantify. The Commission seeks comments on the
extent of these effects and their impact on average per-transaction
costs. Finally, the Commission has no reason to believe and sees no
reason to expect that re-proposed Rules 901(a) and 908(a)(1)(iii) would
result in the registration of additional SDRs. Thus, given any fixed
costs than any entity registering as a registered SDR might incur under
re-proposed Regulation SBSR, the Commission is not increasing our cost
estimates to account for a larger number of entities anticipated to
incur those per-entity costs.
    Furthermore, the Commission preliminarily believes that extending
the scope of transactions that would be subject to public
dissemination, as reflected in re-proposed Rules 908(a)(2) and 902(a),
would not significantly increase or decrease the previously estimated
costs for registered SDRs identified in the Regulation SBSR Proposing
Release. The Commission preliminarily believes that these revisions
would not result in the registration of additional SDRs or require them
to bear the costs of connecting to additional reporting sides. Even if
there would be a slight increase in the percentage of security-based
swap transactions subject to public dissemination as a result of the
applicability of the re-proposed Regulation SBSR to a larger universe
of transactions involving non-U.S. entities and/or U.S. indirect
counterparties, given the Commission's reduced estimates of the overall
number of reportable events,\1933\ the Commission now estimates that
registered SDRs would be required to publicly disseminate fewer
transactions than estimated in the Regulation SBSR Proposing Release.
The Commission further notes that our original estimate of the costs of
public dissemination was not calculated on a per-transaction basis, but
represented instead the one-time aggregate estimated costs associated
with development and implementation of the necessary infrastructure, as
well as the aggregate annual estimated costs for supporting and
upgrading that infrastructure as necessary.\1934\
---------------------------------------------------------------------------

    \1933\ See notes 1267-1268, supra.
    \1934\ See Regulation SBSR Proposing Release, 75 FR 75269.
---------------------------------------------------------------------------

    The Commission continues to believe that the preliminary estimates
contained in the Regulation SBSR Proposing Release are valid, and that
implementing and complying with the real-time public dissemination
requirement of Rule 902 would add 20% to the start-up and ongoing
operational expenses that would otherwise be required of a registered
SDR.\1935\ In particular, the Commission continues to estimate that the
initial one-time aggregate costs for development and implementation of
the systems needed to disseminate the required transaction information
would

be $40,004,000, which corresponds to $4,000,400 per registered SDR.
Further, the Commission continues to estimate that aggregate annual
costs for systems and connectivity upgrades associated with real-time
public dissemination would be $24,002,400, which corresponds to
$2,400,240 per registered SDR. Thus the initial aggregate costs
associated with proposed Rule 902 are estimated to be $64,006,400,
which corresponds to $6,400,640 per registered SDR.
---------------------------------------------------------------------------

    \1935\ See SDR Proposing Release, 75 FR 77354-64. See also
Regulation SBSR Proposing Release, 75 FR 75269.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on the costs and benefits of re-
proposed Rules 901, 902, and 908(a) discussed above, as well as any
costs and benefits not already described that could result. The
Commission also requests data to quantify any potential costs or
benefits. In addition, the Commission requests comment on the
following:
     How can the Commission more accurately assess the costs
and benefits of re-proposed Rule 901?
     How many entities would be affected by re-proposed Rule
901? How many transactions would be subject to re-proposed Rule 901?
     Are there additional costs involved in complying with re-
proposed Rule 901 that have not been identified? What are the types and
amounts of those costs?
     Do the reporting requirements in re-proposed Rule 901(a),
by potentially placing the duty to report upon a security-based swap
dealer or major security-based swap participant that is not a U.S.
person, mitigate any barrier to entry that Rule 901, as originally
proposed, might have created? How can this benefit or reduction in
potential cost be tabulated?
     How should the Commission assess the benefits and costs
associated with re-proposed Rule 901(a), if any, compared to the
anticipated benefits from increased transparency to the security-based
swap market from the re-proposal?
     Would there be additional benefits or costs of re-proposed
Rule 901, 902, and 908(a) that have not been identified?
     Are there methods to minimize the costs associated with
re-proposed Rule 908(a)?
     Would re-proposed Rule 908(a) create any additional costs
not discussed here? If so, please identify and quantify these costs.
     Is the Commission's revised estimate of the number of
transactions subject to Regulation SBSR accurate? If not, how many
transactions would be impacted by re-proposed Regulation SBSR? Please
provide detailed information on the number and types of transactions
impacted.
     Would re-proposed Rule 902 result in benefits or costs
that the Commission has not considered? Are the Commissions estimates
of the costs and benefits of re-proposed Rule 902 accurate? If not,
please provide detailed information identifying and quantifies the
costs and benefits of re-proposed Rule 902.
(b) Proposed Modification of the Definition of ``U.S. Person''
    Regulation SBSR, as originally proposed, would have defined a
``U.S. person'' 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.'' In this re-proposal, the Commission is
proposing a new definition of ``U.S. person'' that is consistent with
usage in our other Title VII proposals.\1936\ The Commission
preliminarily believes that these Title VII rules would benefit from
having the same terms throughout and could, therefore, reduce
assessment costs for market participants that might be subject to the
proposed rules. Furthermore, the Commission preliminarily believes that
the revised definition of ``U.S. person'' is intended to clarify
application of Regulation SBSR and would not significantly change the
number of entities that would be subject to Regulation SBSR. The
Commission preliminarily believes that the revised definition of ``U.S.
person'' would not entail any material costs to market participants,
nor would it intrinsically impose any obligation or duty on market
participants. Therefore, the Commission preliminarily believes that the
new definition would not increase the aggregate compliance costs of re-
proposed Regulation SBSR.
---------------------------------------------------------------------------

    \1936\ Specifically, the re-proposed definition provides that
the term ``U.S. person'' would have the same meaning as set forth in
proposed Rule 3a71-3(a)(7) under the Exchange Act.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on the costs and benefits of the
re-proposed definition of ``U.S. person'' as used in re-proposed
Regulation SBSR, and data to support those comments. In particular, the
Commission requests comment on the following:
     Would the re-proposed definition of ``U.S. person'' as
used in Regulation SBSR result in any costs or benefits not discussed
here? Please distinguish any costs and benefits stemming from the re-
proposed definition itself, rather than any costs or benefits
attributable to other provisions of Regulation SBSR in which the term
appears, such as re-proposed Rules 901, 902, and 908(a).
(c) Revisions to Proposed Rule 908(b)
i. Initial Proposal
    Rule 908(b), as initially proposed, attempted to clarify when
reporting duties would be imposed on counterparties of security-based
swaps that are not U.S. persons when some connections to the United
States might be present. Proposed Rule 908(b) 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.
ii. Re-proposal
    As described above, the Commission now believes, in light of other
revisions being made to Regulation SBSR, that certain conforming
revisions to Rule 908(b) are appropriate. Specifically, 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. In addition, the ``interstate commerce
clause'' is being replaced with the new concept of a ``transaction
conducted within the United States.''
a. Programmatic Benefits
    The Commission now preliminarily believes that there are benefits
to requiring all security-based swap dealers and major security-based
swap participants, whether or not they are U.S. persons, to report
their security-based swap transactions pursuant to re-proposed
Regulation SBSR. Having access to security-based swaps of all such
entities through data reported to a registered SDR would give the
Commission greater ability to supervise such entities and assess the
overall security-based swap market. Furthermore, requiring all such
entities to report security-based swap information would help provide
the Commission and other regulators with detailed, up-to-date
information both about positions of particular entities and financial
groups, as well as positions held by multiple market participants in
particular instruments.
b. Programmatic Costs
    The Commission preliminarily believes that the revisions to Rule
908(b)

would not result in any significant increase in the overall cost of
compliance for affected entities. The Commission preliminarily
believes, rather, that many unregistered U.S. persons that participate
in the security-based swap market would face lower costs, as they could
be more likely to avoid entirely having to incur the infrastructure-
related costs of reporting security-based swap transactions.
Furthermore, to the extent that non-U.S. person security-based swap
dealers and major security-based swap participants would be required to
report security-based swap transactions, such entities were already
included in the estimate of 1,000 reporting parties used in the
Regulation SBSR Proposing Release and are also included in the new
estimate of 300 reporting sides becoming subject to re-proposed
Regulation SBSR. Although the number of security-based swap
transactions that these reporting sides would be required to report
would increase, the Commission preliminarily does not believe that they
would be required to expand their systems capabilities to account for
the additional transaction volume.
Request for Comment
    The Commission requests comment on the costs and benefits of re-
proposed Rule 908(b) and data to assess any potential costs or
benefits. In addition, the Commission requests comment on the
following:
     Would re-proposed Rule 908(b) result in any benefits or
costs that the Commission has not considered?
     Are there methods to minimize the costs associated with
re-proposed Rule 908(b)?
     Would re-proposed Rule 908(b) create any additional costs
not discussed here? If so, please identify and quantify these costs.
(d) Other Technical Revisions in Re-Proposed Regulation SBSR
    In addition to the revisions described above, the Commission is re-
proposing certain technical or conforming changes to other rules
contained in Regulation SBSR. Specifically, certain changes are
required to re-proposed Rules 901(c) and 901(d), which address the data
elements to be reported to a registered SDR, to reflect the re-
proposal's approach that certain security-based swaps may be subject to
regulatory reporting but not public dissemination. The introductory
language to Rule 901(c) is being re-proposed as follows: ``For any
security-based swap that must be publicly disseminated pursuant to
Sec. Sec.  242.902 and 242.908 and for which it is the reporting side,
the reporting side shall report the following information in real time.
If a security-based swap is required by Sec. Sec.  242.901 and 242.908
to be reported but not publicly disseminated, the reporting side shall
report the following information no later than the time that the
reporting side is required to comply with paragraph (d) of this
section:'' Re-proposed Rule 901(c) would be retitled ``Primary trade
information''--since not all information reported pursuant to Rule
901(c) would be required to be provided in real time--and re-proposed
Rule 901(d) would be retitled ``Secondary trade information.'' The
Commission also is re-proposing Rule 901(c)(10) as follows: ``If both
sides of the security-based swap include a security-based swap dealer,
an indication to that effect.'' The re-proposed rule clarifies that a
security-based swap dealer might be a direct or indirect counterparty
to a security-based swap. Rule 901(d)(1)(ii) is also being re-proposed
to require reporting of the broker ID, desk ID, and trader ID, as
applicable, only of the direct counterparty on the reporting side. Rule
901(d)(1)(iii) is being re-proposed to require reporting of a
description of the terms and contingencies of the payment streams only
of each direct counterparty to the other. The word ``direct'' is
necessary to avoid extending Rule 901(d)(1)(iii) to indirect
counterparty relationships, where payments might not (except in unusual
circumstances) flow to or from an indirect counterparty.
    Additional technical or conforming revisions include changes to
Rule 901(e), which sets forth provisions for reporting life cycle
events of a security-based swap. The Commission is re-proposing Rule
901(e) to provide that the duty to report would switch to the other
side only if the new side did not include a U.S. person (as in the
originally proposed rule) or a security-based swap dealer or major
security-based swap participant (references to which are being added to
Rule 901(e)). Re-proposed Rule 908 contemplates situations where a
security-based swap would be required to be reported to a registered
SDR but not publicly disseminated. Therefore, the Commission is re-
proposing Rule 902(a) to provide that a registered SDR would have no
obligation to publicly disseminate a transaction report for any such
security-based swap.
    Re-proposed Rules 903, 905, 906, 907, 910, and 911 are each
conformed to incorporate the use of the term ``side,'' while re-
proposed Rules 904, 905, 906, and 907 each replace ``Sec. Sec.  242.900
through 242.911'' with ``Sec. Sec.  242.900-911.''
    Rule 905(b)(2) is being re-proposed to clarify that, if a
registered SDR receives corrected information relating to a previously
submitted transaction report, it would be required to publicly
disseminate a corrected transaction report only if the initial
security-based swap was subject to public dissemination.
    As originally proposed, Rule 907(a)(6) would require a registered
SDR to establish and maintain written policies and procedures ``[f]or
periodically obtaining from each participant information that
identifies the participant's ultimate parent(s) and any other
participant(s) which the counterparty is affiliated, using ultimate
parent IDs and participant IDs.'' The Commission now is re-proposing
Rule 907(a)(6) with the word ``participant'' in place of the word
``counterparty.''
    Rule 910(b)(4), as originally 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, certain security-based
swaps would be subject to regulatory reporting but not public
dissemination. 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 handled consistent with
Sec. Sec.  242.902, 242.905, and 242.908.''
    Because the changes discussed above are technical in nature, the
Commission preliminarily believes that they would not have any
significant impact, negative or positive, on re-proposed Regulation
SBSR. Nonetheless, the Commission preliminarily believes that, to the
extent these changes clarify the application of certain aspects of
Regulation SBSR, they could enhance consistency, reduce potential
uncertainties related to the interpretation and application of
Regulation SBSR, and thus reduce assessment costs. The Commission
solicits comment on that preliminary view.
(e) Aggregate Total Quantifiable Costs
    Based on the foregoing, the Commission preliminarily estimates that
re-proposed Regulation SBSR would impose an estimated total first-year
cost of approximately $511,243 \1937\

per reporting counterparty for a total first-year cost of
$153,372,900.\1938\ The Commission preliminarily estimates that re-
proposed Regulation SBSR would impose ongoing annualized aggregate
costs of approximately $316,346 \1939\ per reporting side, for a total
aggregate annualized cost of $94,903,800.\1940\
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    \1937\ The Commission derived its estimate from the following:
($511,013 (per entity total first-year cost of Regulation SBSR)--
($5,400 (entity transaction reporting cost of Regulation SBSR)--
$5,630 (revised reporting side transaction reporting cost))) = $511,
243. See notes 1908, 1931, and 1932 and accompanying text, supra.
    \1938\ The Commission derived its estimate from the following:
($511,243 * 300 reporting sides) = $153,372,900.
    \1939\ The Commission derived its estimate from the following:
($316,116 (per entity annualized cost of Regulation SBSR)--($5,400
(entity transaction reporting cost of Regulation SBSR)--$5,630
(revised reporting side transaction reporting cost))) = $316,346.
See notes 1909, 1931, and 1932 and accompanying text, supra.
    \1940\ The Commission derived its estimate from the following:
($316,346 * 300 reporting sides) = $94,903,800.
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    As noted above, the Commission preliminarily believes that re-
proposed Regulation SBSR would not significantly change the costs of
registered SDRs, as estimated in the Regulation SBSR Proposing Release.
The Commission preliminarily believes that the revisions contained in
re-proposed Rules 901, 902, and 908(a) would not result in the
registration of additional SDRs or require them to bear the costs of
connecting to additional reporting sides. To the extent that the re-
proposal would assign reporting responsibilities to fewer respondents,
registered SDRs could face lower costs to support their connectivity.
    In total, the Commission preliminarily estimates the total first-
year cost of re-proposed Regulation SBSR to be $681,307,400.\1941\ The
Commission preliminarily estimates the total ongoing annual cost of re-
proposed Regulation SBSR to be $481,935,340.\1942\ The compliance costs
attributable to re-proposed Regulation SBSR could be significantly
reduced to the extent that foreign jurisdictions are deemed comparable
in a substituted compliance order, which would enable market
participants to comply with the foreign jurisdiction's rules relating
to regulatory reporting and public dissemination and thus would relieve
them of their primary obligations--and the associated costs--under
Regulation SBSR.
---------------------------------------------------------------------------

    \1941\ The Commission derived its estimate from the following:
($1,038,947,500 (total first-year cost of Regulation SBSR)--
$511,013,000 (Regulation SBSR Rule 901 first-year costs on reporting
parties) + $153,372,900 (re-proposed Regulation SBSR Rule 901 first-
year costs on reporting sides)) = $681,372,900.
    \1942\ The Commission derived its estimate from the following:
($703,147,540 (total ongoing annualized cost of Regulation SBSR)--
$316,116,000 (Regulation SBSR Rule 901 annual ongoing costs on
reporting sides) + $94,903,800 (re-proposed Regulation SBSR Rule 901
annual ongoing costs on reporting sides)) = $481,935,340.
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I. Economic Analysis of Substituted Compliance

    The Commission is proposing a policy and procedural framework that
would allow for the possibility of substituted compliance with respect
to four categories of rules in recognition of the potential, in a
market as global as the security-based swap market, for security-based
swap market participants to be subject to conflicting or duplicative
compliance obligations. These four categories are: (i) Requirements
applicable to registered security-based swap dealers in Section 15F of
the Exchange Act and the rules and regulations thereunder; (ii)
requirements relating to regulatory reporting and public dissemination
of security-based swaps; (iii) requirements relating to clearing for
security-based swaps; and (iv) requirements relating to trade execution
for security-based swaps.\1943\ Specifically, the Commission is
proposing rules and interpretative guidance in this release to provide
that: (i) The Commission may, conditionally or unconditionally, by
order, make a substituted compliance determination with respect to a
foreign regulatory system that compliance with specific requirements
under such foreign regulatory system by a registered foreign security-
based swap dealer (or class thereof) may satisfy the corresponding
requirements in Section 15F of the Exchange Act,\1944\ and the rules
and regulations thereunder, that would otherwise apply to such foreign
security-based swap dealer (or class thereof); \1945\ (ii) the
Commission may, conditionally or unconditionally, by order, make a
substituted compliance determination regarding regulatory reporting and
public dissemination of security-based swaps in a foreign jurisdiction
if such foreign jurisdiction's requirements for the regulatory
reporting and public dissemination of security-based swaps are
comparable to otherwise applicable requirements under Section 13A(a)(1)
of the Exchange Act,\1946\ Section 13(m)(1)(G) of the Exchange Act
\1947\ and Section 13(m)(1)(C) of the Exchange Act,\1948\ and the rules
and regulations thereunder; \1949\ (iii) the Commission may exempt
persons from the mandatory clearing requirement in Section 3C(a)(1) of
the Exchange Act \1950\ if the relevant security-based swap transaction
is submitted to a foreign clearing agency that is the subject of a
substituted compliance determination by Commission order; \1951\ and
(iv) the Commission may, conditionally or unconditionally, by order,
make a substituted compliance determination with respect to a foreign
jurisdiction to permit a person subject to the mandatory trade
execution requirement in Section 3C(h) of the Exchange Act to execute
such transaction, or have such transaction executed on their behalf, on
a security-based swap market (or class of markets) that is neither
registered under the Exchange Act nor exempt from registration under
the Exchange Act if the Commission determines that such security-based
swap market (or class of markets) is subject to comparable,
comprehensive supervision and regulation by a foreign financial
regulatory authority or authorities in such foreign jurisdiction.\1952\
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    \1943\ See Section XI, supra (providing detailed discussions of
substituted compliance).
    \1944\ 15 U.S.C. 78o-10.
    \1945\ See proposed Rule 3a71-5 under the Exchange Act, as
discussed in Section XI.C, supra.
    \1946\ 15 U.S.C. 78m-1(a)(1).
    \1947\ 15 U.S.C. 78m(m)(1)(G).
    \1948\ 15 U.S.C. 78m(m)(1)(C).
    \1949\ See proposed Rule 908(c)(2) under the Exchange Act, as
discussed in Section XI.D, supra.
    \1950\ 15 U.S.C 78c-3(a)(1).
    \1951\ See Section XI.E, supra.
    \1952\ See proposed Rule 3Ch-2(b)(1) under the Exchange Act, as
discussed in Section XI.F, supra.
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1. Programmatic Benefits and Costs
    The Commission recognizes that the programmatic costs and benefits
of substituted compliance may vary depending on the specific nature of
a particular substituted compliance determination. If the Commission
imposes conditions on a substituted compliance determination, such
conditions may have effects on the programmatic costs and benefits. The
proposed rules and interpretive guidance regarding substituted
compliance described above provide that the Commission would only make
a determination that substituted compliance is permitted if the foreign
regulatory system in a particular area, taking into consideration any
relevant principles, regulations, or rules in other areas of the
foreign regulatory system to the extent they are relevant to the
analysis, achieves the regulatory outcomes that are comparable to the
regulatory outcomes of the relevant provisions of the Exchange Act.
    The Commission preliminarily believes that substituted compliance
would not substantially change the programmatic benefits intended by
the requirements in Section 15F of the Exchange Act, the programmatic
benefits intended by the regulatory

reporting and public dissemination requirements in Section 13(m)(1)(G),
Section 13(m)(1)(C), and Section 13A(a)(1) of the Exchange Act, the
programmatic benefits intended by the mandatory clearing requirement in
Sections 3C(a)(1) of the Exchange Act, or the programmatic benefits
intended by the mandatory trade execution requirement set forth in
Section 3C(h) of the Exchange Act. To the extent that substituted
compliance eliminates duplicative compliance costs, registered foreign
security-based swap dealers or market participants entering into
security-based swap transactions that are eligible for substituted
compliance may incur lower programmatic costs associated with
implementation or compliance with the specified Title VII requirements
than they would otherwise incur without the option of substituted
compliance available, either because such registered foreign security-
based swap dealers may have implemented or begun to implement the
foreign regulatory requirements that are determined comparable by the
Commission, or because parties to a security-based swap transaction
eligible for substituted compliance determination do not need to
duplicate compliance with two sets of comparable requirements.
    In the case of a substituted compliance determination made with
Commission-imposed conditions in order to achieve comparable
programmatic benefits intended by the applicable Title VII
requirements, we cannot preclude the possibility that substituted
compliance may increase programmatic costs because market participants
would be required to incur costs to satisfy those conditions. On the
other hand, substituted compliance also may enable certain foreign
market participants subject to comparable foreign regulation to enter
or stay in the U.S. security-based swap market. These are participants
that would, due to conflicting local laws, otherwise not be able to
participate under Title VII regulation in the absence of substituted
compliance. In such cases, substituted compliance may either increase
the number of market participants in the U.S. security-based swap
market or prevent certain existing market participants from exiting the
market, thereby contributing to the programmatic benefits and costs
that flow from Title VII requirements.
    The decision to request substituted compliance is purely voluntary.
Market participants would choose to make a request for a substituted
compliance determination only if, in their own assessment, compliance
with applicable requirements under a foreign regulatory system were
less costly than compliance with both the foreign regulatory regime and
the relevant Title VII requirement. Even after a substituted compliance
determination is made, market participants would only choose
substituted compliance if the private benefits they expect to receive
from participating in U.S. markets exceeds the private costs they
expect to bear, including any conditions the Commission may attach to
the substituted compliance determination. Therefore, the proposed rules
regarding substituted compliance are based on the consideration that
the net programmatic benefits associated with specific Title VII
requirements could be increased by the Commission making the
substituted compliance option available. Where substituted compliance
increases the number of market participants in the U.S. security-based
swap market or prevents existing participants from leaving the U.S.
security-based swap market, there may be contributions to both
programmatic benefits and costs associated with the applicable Title
VII requirements.
2. Alternatives
    The Commission could have proposed that substituted compliance
determinations with respect to regulatory reporting, public
dissemination and mandatory trade execution apply to all cross-border
transactions involving at least one foreign counterparty or foreign
branch of a U.S. bank. However, we propose in Rule 908(c)(2), the
interpretive guidance regarding substituted compliance with the
mandatory clearing requirement, and Rule 3Ch-2(b)(1) that substituted
compliance would not be available to a security-based swap transaction
that involves persons within the United States in executing, soliciting
or negotiating the terms of such transaction on both sides of a
transaction, even though at least one counterparty to the transaction
is a non-U.S. person or foreign branch.\1953\ In other words, if both
counterparties to a security-based swap transaction conduct such
transaction within the United States, it is a transaction in the United
States. One of the primary objectives of making substituted compliance
available to cross-border security-based swap transactions is to
accommodate the global nature of the security-based swap market and
cross-border security-based swap activity. In circumstances where both
parties to a security-based swap are transacting in the United States,
either from a U.S. office or U.S. branch, or using an affiliate or
agent, to conduct the security-based swap, we do not believe that
substituted compliance would be necessary or appropriate. Both parties
(or their respective agents) to the transaction are conducting a
transaction in the United States and should be able to satisfy the
applicable Title VII requirements by reporting the transaction to a
registered SDR or executing the transaction on a registered exchange of
SB SEF in the United States without the need to rely on substituted
compliance. In addition, because both parties (or their respective
agents) are conducting a transaction in the United States, there is a
strong public interest to subject such transaction to the Title VII
mandatory execution, regulatory reporting, and public dissemination
requirements. Therefore, the Commission does not believe that it would
be appropriate to provide substitute compliance with respect to a
transaction where both parties (or their agents) conduct the
transaction within the United States.
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    \1953\ See proposed Rule 908(c)(2) under the Exchange Act,
interpretive guidance regarding substituted compliance with the
mandatory clearing requirement, and proposed Rule 3Ch-2(b)(1) under
the Exchange Act, as discussed in Section XI.D-XI.F, supra.
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3. Assessment Costs
    The assessment costs associated with the proposed rules regarding
substituted compliance would, in part, flow from the assessment of
whether a registered security-based swap dealer is a foreign security-
based swap dealer and whether a transaction counterparty is a non-U.S.
person or a foreign branch and whether a transaction involves a person
within the United States in soliciting, negotiating, or execution. The
status of a foreign security-based swap dealer would be determined by
analyzing the U.S. person definition, which may be done by an in-house
counsel reviewing readily ascertainable information, such as the
foreign security-based swap dealer's certificate of incorporation or
formation or other internal documents evidencing residence, place of
incorporation, or principal business location. The Commission
preliminarily believes that the cost involved in making such assessment
should not exceed one hour of in-house counsel's time or $379.\1954\
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    \1954\ Based upon data from SIFMA's Management & Professional
Earnings in the Securities Industry 2012 (modified by the SEC staff
to account for an 1800-hour-work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits, and overhead),
the staff estimates that the average national hourly rate for an in-
house attorney is $379.

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    The assessment costs associated with proposed Rule 908(c), proposed
interpretive guidance with respect to substituted compliance with the
mandatory clearing requirement, and proposed Rule 3Ch-2(c)(2)(ii) would
involve costs of determining a transaction counterparty's U.S. person
status, as well as determining whether counterparty conducts the
security-based swap in the United States or involves any persons in the
United States to solicit, negotiate or execute a security-based swap
transaction.
    The Commission preliminarily believes that market participants
would likely incur costs arising from the need to identify and maintain
records concerning the U.S.-person status of their counterparties and
the location of their transactions. We anticipate that potential
applicants for substituted compliance are likely to request
representations from their transaction counterparties to determine the
counterparties' U.S.-person status and whether the transaction was
conducted within the United States. Therefore, the Commission
preliminarily believes that the assessment costs associated with
determining the status of counterparties and the location of
transactions should be primarily one-time costs of establishing a
practice or compliance procedure of requesting and collecting
representations from trading counterparties and maintaining the
representations collected as part of the recordkeeping procedures and
limited ongoing costs associated with requesting and collecting
representations. Consistent with the analysis of the assessment costs
associated with the de minimis exception relating to the security-based
swap dealer definition that involves determining the status of
counterparties and the location of transactions,\1955\ the Commission
preliminarily believes that such one-time costs would be approximately
$15,160.\1956\ The Commission preliminarily believes that requesting
and collecting representations would be part of the standardized
transaction process reflected in the policies and procedures regarding
security-based swap sales and trading practices and should not result
in separate assessment costs.\1957\ To the extent that market
participants have incurred costs relating to similar or same
assessments with respect to the counterparty status and location of the
transactions for other Title VII requirements, their assessment costs
with respect to substituted compliance may be less.
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    \1955\ See Section XV.D.2(a), supra.
    \1956\ This estimate is based on estimated 40 hours of in-house
legal or compliance staff's time to establish a procedure of
requesting and collecting representations from trading
counterparties, taking into account that such representation may be
built into form of standardized trading documentation. Based upon
data from SIFMA's Management & Professional Earnings in the
Securities Industry 2012 (modified by the SEC staff to account for
an 1800-hour-work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead), the staff
estimates that the average national hourly rate for an in-house
attorney is $379.
    \1957\ There will be ongoing costs associated with processing
representations received from counterparties, including additional
due diligence and verification to the extent that a counterparty's
representation is contrary to or inconsistent with the knowledge of
the collecting party. The Commission believes that these would be
compliance costs encompassed within the programmatic costs
associated with substituted compliance.
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    In addition, a registered security-based swap dealer or a security-
based swap transaction eligible for a substituted compliance
determination would incur costs in submitting a request to the
Commission for a substituted compliance determination. The Commission
preliminarily estimates the costs of submitting such request pursuant
to proposed Rule 3a71-5(c), proposed Rule 908(c), proposed interpretive
guidance with respect to substituted compliance with the mandatory
clearing requirement, or proposed Rule 3Ch-2(c)(2)(ii) would be
approximately $110,320.\1958\ Once such request is made, however, other
market participants that seek to request a substituted compliance
determination with respect to the same area of a foreign regulatory
system relevant to the requirements in Section 15F or regulatory
reporting and public dissemination, the same foreign clearing agency,
or the same foreign regulatory regime that a foreign exchange or SB SEF
is subject to, would be able to rely on the Commission's substituted
compliance determination. Accordingly, the assessment costs would only
need to be incurred once with respect to the same area of a foreign
regulatory system or the same foreign clearing agency.
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    \1958\ This estimate is based on information indicating that the
average costs associated with preparing and submitting an
application to the Commission for a Commission order for exemptive
relief under Section 36 of the Exchange Act in accordance with the
procedures set forth in 17 CFR 240.0-12. The Commission recognizes
that a substituted compliance determination request made pursuant to
proposed Rule 3a71-5(c), proposed Rule 908(c), proposed interpretive
guidance with respect to substituted compliance with the mandatory
clearing requirement, and proposed Rule 3Ch-2(c)(2)(ii) would be
made under proposed Rule 0-13 under the Exchange Act, which
establishes procedures similar to those used by the Commission in
considering exemptive order applications under Section 36 of the
Exchange Act. The staff estimates that costs associated with a
request pursuant to these proposed rules would be approximately
$110,320. The Commission estimates that preparation of the request
would require approximately 80 hours of in-house counsel time and
200 hours of outside counsel time. Such estimate takes into account
the time required to prepare supporting documents necessary for the
Commission to make a substituted compliance determination,
including, without limitation, information regarding applicable
requirements established by the foreign financial regulatory
authority or authorities, as well as the methods used by the foreign
financial regulatory authority or authorities to monitor compliance
with these rules. Based upon data from SIFMA's Management &
Professional Earnings in the Securities Industry 2012 (modified by
the SEC staff to account for an 1800-hour-work-year and multiplied
by 5.35 to account for bonuses, firm size, employee benefits, and
overhead), the staff estimates that the average national hourly rate
for an in-house attorney is $379. The Commission estimates the costs
for outside legal services to be $400 per hour. Accordingly, the
Commission estimates the cost to be $110,320 ($30,320 (based on 80
hours of in-house counsel time * $379) + $80,000 (based on 200 hours
of outside counsel time * $400)) to submit a request for a
substituted compliance determination.
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Request for Comment
    The Commission seeks comment on the costs and benefits associated
with substituted compliance in all aspects. Responses that are
supported by data and analysis provide great assistance to the
Commission in considering the benefits and costs of the substituted
compliance policy framework. In addition, the Commission seeks comment
on the following specific questions:
     Would substituted compliance reduce costs associated with
the applicable Title VII requirements? Would the analysis of the
benefits and costs of substituted compliance differ between the case of
regulatory duplication or overlap and the case of regulatory conflict?
     Does a substituted compliance determination based on
comparability achieve the same benefits intended by Title VII? Could
there be significant economic consequences if the Commission permitted
substituted compliance in cases in which the foreign requirements are
not identical, but, as contemplated, only comparable to the applicable
Title VII requirements? What would those effects be? In cases where
substituted compliance were granted but where requirements were
comparable and not identical, are there certain differences, or types
of differences, in regulation that would have more significant economic
effects than others? Are there particular areas of Title VII regulation
in which the effects of differences between comparable and identical
standards would be more pronounced than in others?
     Could there be significant economic consequences,
including effects on

competition, if a substituted compliance determination is made
conditionally? What would those effects be?
     Could market participants be prompted to restructure in
anticipation of substituted compliance determinations? What effects on
market structure and competition might result? Are there other
potential spillovers from strategic restructuring related to
substituted compliance determinations?
     Do commenters agree with the preliminary estimates of the
assessment costs and the costs to request a substituted compliance
determination discussed above? Are there any other assessment costs not
considered here? Specifically, the Commission requests comment on (i)
the assessment costs of determining whether a market participant or a
transaction is eligible for substituted compliance, and (ii) the costs
of preparing and submitting a request for a substituted compliance
determination.

J. General Request for Comments

    In responding to the specific requests above for comment on the
economic effects of our proposed rules, interested persons are
encouraged to provide supporting data and analysis and, when
appropriate, identify alternative models for assessing the costs and
benefits of our proposed rules, as well as their expected effect on
efficiency, competition and capital formation. Responses that are
supported by data and analysis provide great assistance to the
Commission in considering the economic effects of proposed new
requirements, including the associated benefits and costs.
    In addition to the specific requests for comment set forth above,
the Commission also seeks comment on the expected economic effects of
the interplay between our rules and those [adopted/proposed] by the
CFTC. In particular, to the extent that the Commission's proposed rules
and interpretations take a different approach from the CFTC's approach
to the application of Title VII requirements in the cross-border
context, what would be the economic impact, including the costs and
benefits, of these differences on market participants and the U.S.
security-based swap market as a whole? What effect would such
differences have on efficiency, competition and capital formation in
the U.S. security-based swap market? Commenters should provide analysis
and empirical data to support their views on the costs, benefits and
other economic effects associated with the differences between the