(400 hours for the burden of Form SDR, as proposed) + (80 hours for
the burden of responding to additional provisions incorporated from
Form SIP) + (1 hour for the burden of responding to the revised
disclosure of business affiliations) x 10 SDRs = 4810.
    \1135\ See Proposing Release, 75 FR at 77348, supra note 2.
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    Under Rule 13n-1(f), a non-resident SDR must (i) certify that the
SDR can, as a matter of law, and will provide the Commission with
prompt access to the SDR's books and records and can, as a matter of
law, and will submit to onsite inspection and examination by the
Commission and (ii) provide an opinion of counsel that the SDR can, as
a matter of law, provide the Commission with access to the books and
records of such SDR and can, as a matter of law, submit to onsite
inspection and examination by the Commission. This creates an
additional burden for non-resident SDRs. The Commission estimates,
based on similar requirements of Form 20-F, that this additional burden
will add 1 hour and $900 in outside legal costs per respondent.\1136\
As stated above, the Commission believes that there will be three
respondents to this collection, for a total additional burden of 3
hours and $2,700 for non-resident SDRs to comply with Rule 13n-
1(f).\1137\
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    \1136\ Foreign Bank Exemption from the Insider Lending
Prohibition of Exchange Act Section 13(k), Exchange Act Release No.
49616 (Apr. 26, 2004), 69 FR 24016, 24022 (Apr. 30, 2004) (outlining
the Commission's calculations regarding the PRA burdens resulting
from having to provide a legal opinion and additional disclosure
required by Instruction 3 to Item 7.B to Form 20-F). The Commission
calculates that the certification and opinion of counsel would
result in an additional burden to non-resident SDRs of 3.25 hours,
of which approximately 1 hour would be incurred by the non-resident
SDRs themselves and 2.25 hours would be incurred by outside legal
counsel, which would cost approximately $900 ($900 = 2.25 hours
(portion of estimated burden incurred by outside legal counsel) x
$400 (hourly rate for an outside attorney)). The Commission
continues to estimate the hourly rate for an outside attorney at
$400 per hour, based on industry sources. See Registration of
Municipal Advisors, Exchange Act Release No. 70462 (Sep. 20, 2013),
78 FR 67468, 67593 n.1538 (Nov. 12, 2013) (estimating the cost of an
outside attorney to be $400 per hour). In the Proposing Release, the
Commission mistakenly estimated the burden to be 3 hours incurred by
each non-resident SDR (in addition to $900 incurred by each SDR in
connection with hiring outside legal counsel). Proposing Release, 75
FR at 77348, supra note 2.
    \1137\ See Section VII.C.1 of this release discussing
respondents to the registration requirements and Form SDR. The base
burden of 4,000 hours includes resident and non-resident SDRs. The 3
hour and $2700 figures are the additional costs as a result of Rule
13n-1(f) for non-resident SDRs not already accounted for in the
4,000 hour figure.
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    SDRs are also required to amend Form SDR pursuant to Rule 13n-1(d)
annually as well as when information in certain items is or becomes
inaccurate. Amendments are also permitted in certain situations
involving successor SDRs pursuant to Rule 13n-3(b).\1138\ The
Commission believes that these amendments represent the ongoing annual
burdens of Form SDR and Rules 13n-1(d) and 13n-3(b).\1139\ The
Commission estimates that the ongoing annualized burden for complying
with these registration amendment requirements will be approximately 12
burden hours for each SDR per amendment\1140\ and approximately 120
burden hours for all SDRs per amendment. Rule 13n-1(d) requires one
annual amendment on Form SDR as well as interim amendments on Form SDR
when certain reported information therein is or becomes inaccurate or,
under Rule 13n-3(b), in certain circumstances involving successor

SDRs, as discussed above.\1141\ When Form ADV was amended in 2010, the
Commission estimated that there were 2 amendments per year for that
form.\1142\ The Commission believes that 2 amendments will be a
reasonable estimate for the number of amendments per year to correct
inaccurate information or in situations involving successor SDRs
because amendments on Form ADV, like amendments on Form SDR, are
required annually as well as when certain information on Form ADV
becomes inaccurate.\1143\ Thus, the Commission estimates that
respondents will be required to file on average a total of 3 amendments
per year, 2 amendments plus the required annual amendment. Therefore,
the Commission estimates that each respondent will have an average
annual burden of 36 hours for a total estimated average annual burden
of 360 hours.\1144\ The Commission believes that SDRs will conduct this
work internally.
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    \1138\ See Section VI.C.3 of this release discussing Rule 13n-
3(b).
    \1139\ When estimating the burden associated with Form SIP, the
Commission did not separately estimate the burden associated with
amendments on Form SIP because the Commission believed that the
annual burden of Form SIP encompassed the burden of amending Form
SIP. SIP PRA Filing, 76 FR 30984, supra note 1129 (``This annual
reporting and recordkeeping burden does not include the burden hours
or cost of amending a Form SIP because the Commission has already
overstated the compliance burdens by assuming that the Commission
will receive one initial registration pursuant to Rule 609 on Form
SIP a year.'') Although the Commission is basing its estimate of the
burden of Form SDR on its estimate of the burden of Form SIP, the
Commission is separately estimating the burden of amendments on Form
SDR.
    \1140\ When amendments to Form ADV were proposed in 2008, the
Commission estimated the hour burden for amendments to be roughly 3%
of the initial burden. Amendments to Form ADV, Investment Advisers
Act Release No. 2711 (Mar. 3, 2008), 73 FR 13958, 13979 (Mar. 14,
2008). In that proposal, the initial burden was calculated to be
22.25 hours per respondent and 0.75 hours per respondent for
amendments. The Commission believes that a similar ratio will apply
to filers of Form SDR because filers of Form ADV, like filers of
Form SDR, are required to file amendments annually as well as when
certain information on Form ADV becomes inaccurate. See Form ADV:
General Instructions, available at http://www.sec.gov/about/forms/formadv-instructions.pdf. Thus, the Commission estimates that the
annual burden of filing one amendment on Form SDR will be 3% of the
400 hour initial burden, or 12 hours.
    \1141\ See Sections VI.A.4.c and VI.C.3 of this release
discussing Rule 13n-1(d) and Rule 13n-3(b), respectively.
    \1142\ Amendments to Form ADV, Investment Advisers Act Release
No. 3060 (July 28, 2010), 75 FR 49234, 49257 (Aug. 12, 2010).
Although this information is based upon investment adviser
statistics, the Commission believes that, for PRA purposes, the
differences between investment advisers and SDRs are minimal.
    \1143\ See Form ADV: General Instructions, available at http://www.sec.gov/about/forms/formadv-instructions.pdf.
    \1144\ The 36 hour figure is the result of the estimated burden
hour per SDR per amendment (12) times the estimated number of
amendments per year (3). The 360 hour figure is the result of the
estimated burden per SDR (36) times the number of SDRs (10).
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    SDRs may withdraw from registration by filing a withdrawal from
registration on Form SDR electronically in a tagged data format. An SDR
withdrawing from registration must designate on Form SDR a person to
serve as the custodian of the SDR's books and records. An SDR must also
update any inaccurate information. The Commission believes that an
SDR's withdrawal from registration on Form SDR will be substantially
similar to its most recently filed Form SDR. The Form SDR being filed
in this circumstance will therefore already be substantially complete
and as a result, the burden will not be as great as the burden of
filing an application for registration on Form SDR. Rather, the
Commission believes that the burden of filing a withdrawal from
registration on Form SDR will be akin to filing an amendment on Form
SDR. Thus, the Commission estimates that the one-time burden of filing
a Form SDR to withdraw from registration will be approximately 12
burden hours for each SDR and approximately 120 burden hours for all
SDRs.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic
Access
    As discussed above, Rules 13n-4(b)(2) and (4), and 13n-5 require
SDRs to accept and maintain data, including transaction data, received
from third parties and to calculate and maintain positions.\1145\ Rule
13n-4(b)(5) requires SDRs to provide direct electronic access to the
Commission or its designees. Rules 13n-4(b)(3) and 13n-5(b)(1)(iii)
require SDRs to confirm the accuracy of the data submitted and to
establish, maintain, and enforce written policies and procedures
reasonably designed to satisfy themselves that the transaction data
that has been submitted to the SDRs is complete and accurate. In
addition, Rule 13n-5(b)(4) requires SDRs to maintain the transaction
data and related identifying information for not less than five years
after the applicable SBS expires and historical positions for not less
than five years.\1146\ This obligation would continue even if an SDR
ceases to be registered or ceases doing business.\1147\ SDRs are
required to make and keep current a plan to ensure compliance with this
requirement.\1148\
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    \1145\ See Sections VI.D.2.c, VI.E, and VI.F.3 of this release
discussing Rules 13n-4(b)(2) and (4), 13n-5, and 13n-6,
respectively.
    \1146\ This data is required to be maintained in a place and
format that is readily accessible and usable to the Commission and
other persons with authority to access or view the information and
is also required to be maintained in an electronic format that is
non-rewritable and non-erasable.
    \1147\ Rule 13n-5(b)(7).
    \1148\ Rule 13n-5(b)(8).
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    The Commission estimates that the average one-time start-up burden
per SDR of establishing systems compliant with all of the requirements
described in this section, including the SBS data maintenance
requirements of Rules 13n-5(b)(4), (7), and (8), will be 42,000 hours
and $10 million in information technology costs. Based on the expected
number of respondents, the Commission estimates a total start-up cost
of 420,000 hours and $100 million in information technology costs. The
Commission further estimates that the average ongoing annual costs of
these systems to be 25,200 hours and $6 million per respondent or a
total of 252,000 hours and $60 million for a total ongoing annual
burden.
    Each SDR is also required to establish, maintain, and enforce
written policies and procedures, reasonably designed: (1) Under Rule
13n-5(b)(1), for the reporting of complete and accurate transaction
data to the SDR and to satisfy itself that such information is complete
and accurate; (2) under Rule 13n-5(b)(2), to calculate positions for
all persons with open SBSs for which the SDR maintains records; (3)
under Rule 13n-5(b)(3), to ensure transaction data and positions that
the SDR maintains are complete and accurate; (4) under Rule 13n-
5(b)(5), to prevent any provision in a valid SBS from being invalidated
or modified through the procedures or operations of the SDR; and (5)
under Rule 13n-6, with respect to those systems that support or are
integrally related to the performance of the SDR's activities, to
ensure that those systems provide adequate levels of capacity,
integrity, resiliency, availability, and security. While these policies
and procedures will vary in exact cost, the Commission estimates that
they will require an average of 210 hours per respondent per policy and
procedure to prepare and implement. The Commission further estimates
that these policies and procedures will require a total of $100,000 for
outside legal costs per SDR.\1149\ In sum, the Commission estimates the
initial burden for all respondents to be 10,500 hours and $1,000,000
for outside legal costs.\1150\ The Commission based these estimates
upon those estimates the Commission used with regards to establishing
policies and procedures regarding Regulation NMS.\1151\ Once these
policies and procedures are established, the Commission estimates that
it will take, on average, 60 hours annually to maintain each of these
policies and procedures per respondent, with a total estimated average
annual burden of 3,000 hours for all respondents.\1152\ The Commission

believes that SDRs will conduct this maintenance work internally.
---------------------------------------------------------------------------

    \1149\ This figure is the result of an estimated $400 an hour
cost for outside legal services (as discussed in supra note 1136)
times 50 hours of outside legal consulting per policy and procedure,
times 5 policies and procedures.
    \1150\ The 10,500 hour figure is the result of the number of
hours per policy and procedure (210) times the number of policies
and procedures required by these provisions (5), times the number of
respondents (10). The $1,000,000 figure is the result of the outside
dollar cost per respondent ($100,000) times the number of
respondents (10).
    \1151\ Regulation NMS, Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37577 (June 29, 2005) (``Regulation NMS Adopting
Release''). The Commission based these estimates on those for non-
SRO trading centers rather than for SRO trading centers because the
Commission believes that, for PRA purposes, non-SRO trading centers'
burdens are more like those that SDRs will face under the SDR Rules.
Like non-SRO trading centers, SDRs are not SROs and handle data
regarding trades.
    \1152\ The 3,000 hour figure is the result of the estimated
average hourly burden to maintain each policy and procedure (60),
times the total number of policies and procedures required under
this requirement (5), times the total number of SDRs (10).
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    As discussed above, the Commission is not adopting the more
specific requirements of proposed Rule 13n-6(b)(1), but is instead
adopting the core policies and procedures requirement.\1153\ The
Commission continues to believe, however, that the 210 hour per
respondent estimate for adopting policies and procedures is applicable
because Rule 13n-6 continues to require SDRs to adopt policies and
procedures. The Commission believes that the 210 hour estimate is a
reasonable estimate because the estimate is used in other contexts to
estimate the burdens of creating policies and procedures and the
Commission expects that the policies and procedures required by Rule
13n-6 would result in a comparable burden to SDRs.\1154\ Also as
discussed above, the Commission is not adopting proposed Rules 13n-
6(b)(3) and (4).\1155\ Thus, the Commission is no longer including the
estimated burden of those proposed rules in the overall burdens
discussed in this release.
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    \1153\ See Section VI.F.3 of this release discussing Rule 13n-6.
    \1154\ See supra note 1151 discussing Regulation NMS.
    \1155\ See Section VI.F.3 of this release discussing Rule 13n-6.
---------------------------------------------------------------------------

3. Recordkeeping
    Every SDR is required, under Rule 13n-7(a)(1), to make and keep
current a record for each office listing, by name or title, each person
who, without delay, can explain the types of records the SDR maintains
at that office. Also, under Rule 13n-7(a)(2), every SDR is required to
make and keep current a record listing officers, managers, or persons
performing similar functions with responsibility for establishing the
policies and procedures of the SDR that are reasonably designed to
ensure compliance with the Exchange Act and the rules and regulations
thereunder. The Commission estimates that these records will create an
initial burden, at a maximum, of 1 hour per respondent, for a total
initial burden of 10 hours. The Commission estimates that the ongoing
annual burden will be 0.17 hours (10 minutes) per respondent to keep
these records current and to store these documents based on the
Commission's estimates for similar requirements for broker-
dealers.\1156\ This results in a total ongoing annual burden of 1.7
hours. The Commission believes that SDRs will conduct this work
internally.
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    \1156\ See Books and Records Requirements for Brokers and
Dealers Under the Securities Exchange Act of 1934, Exchange Act
Release No. 44992 (Oct. 26, 2001), 66 FR 55818, 55836 (Nov. 2, 2001)
(regarding the collection of information pursuant to Rules 17a-
3(a)(21) and (22)).
---------------------------------------------------------------------------

    Rule 13n-7(b) requires each SDR to keep and preserve at least one
copy of all documents made or received by it in the course of its
business as such, other than the transaction data and positions
collected and maintained pursuant to Rule 13n-5. These records are
required to be kept for a period of not less than five years, the first
two years in a place that is immediately available to representatives
of the Commission for inspection and examination.\1157\ Upon the
request of any representative of the Commission, an SDR is required to
furnish promptly documents required to be kept and preserved by it
pursuant to Rules 13n-7(a) or (b) to such a representative. As
discussed above, Rule 13n-7(b) is intended to set forth the
recordkeeping obligations of SDRs and thereby facilitate implementation
of the inspection and examination of SDRs by representatives of the
Commission.\1158\ Based on the Commission's experience with
recordkeeping costs and consistent with prior burden estimates for
similar provisions,\1159\ the Commission estimates that this
requirement will create an initial burden of 345 hours and $1800 in
information technology costs per respondent, for a total initial burden
of 3450 hours and $18,000 for all respondents. The Commission further
estimates that the ongoing annual burden will be 279 hours per
respondent and a total ongoing annual burden of 2790 hours for all
respondents.
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    \1157\ This obligation will continue even if an SDR withdraws
from registration or ceases doing business. See Rule 13n-7(c).
    \1158\ See Section VI.G.2.c of this release discussing Rule 13n-
7(b).
    \1159\ See Amendments to Rules for Nationally Recognized
Statistical Rating Organizations, Exchange Act Release No. 59342
(Feb. 2, 2009), 74 FR 6456, 6472 (Feb. 9, 2009).
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4. Reports
    Under Rule 13n-8, SDRs are required to report promptly to the
Commission, in a form and manner acceptable to the Commission, such
information as the Commission determines necessary or appropriate for
the Commission to perform the duties of the Commission. For PRA
purposes only, the Commission estimates that it will request these
reports a maximum of once per year, per respondent. For PRA purposes
only, the Commission estimates that these reports will be limited to
information that will have been already compiled under the SDR Rules
and thus require only 1 hour per response to compile and transmit.
Thus, the Commission estimates, for PRA purposes only, that the total
annual burden for these reports to be 10 hours for all respondents. The
Commission believes that SDRs will conduct this work internally.
    As discussed above, the Commission is not adopting proposed Rule
13n-6(b)(2).\1160\ Thus, the Commission is no longer including the
estimated burden of that proposed rule in the overall burdens discussed
in this release.
---------------------------------------------------------------------------

    \1160\ See Section VI.F.3 of this release discussing Rule 13n-6.
---------------------------------------------------------------------------

5. Disclosure
    As discussed above, pursuant to Rule 13n-10, SDRs are required to
provide certain disclosures to certain market participants.\1161\ The
Commission estimates that the average one-time start-up burden per SDR
of preparing this disclosure document is 97.5 hours and $4,400 of
external legal costs and $5,000 of external compliance consulting
costs, resulting in a total initial burden of 975 hours and $94,000 for
all respondents. This estimate reflects the Commission's experience
with and burden estimates for similar disclosure document requirements
applied to investment advisers with 1000 or fewer employees and as a
result of its discussions with market participants.\1162\ Because the
Commission expects that SDRs will be able to provide this disclosure
document electronically, the Commission expects that this requirement
will result in an average annual burden, after the initial creation of
the disclosure document, of 1 hour per respondent, with a total annual
burden of 10 hours for all respondents. The Commission believes that
SDRs will conduct this ongoing annual work internally.
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    \1161\ See Section VI.I.2.c of this release discussing Rule 13n-
10.
    \1162\ See Amendments to Form ADV, Investment Advisers Act
Release No. 3060 (July 28, 2010), 75 FR 49234, 49255-49256 (Aug. 12,
2010) (finding that average initial annual burden associated with
Form ADV for each medium-sized investment adviser, meaning an
adviser with between 11 and 1,000 employees, to be 97.5 hours).
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6. Chief Compliance Officer; Compliance Reports and Financial Reports
    Under Rules 13n-11(c)(6) and (7), an SDR's CCO is responsible for,
among other things, establishing procedures for the remediation of
noncompliance issues identified by the CCO, and establishing and
following appropriate procedures for the handling, management response,
remediation, retesting, and closing of noncompliance issues. Based on
the Commission's estimates regarding Regulation

NMS,\1163\ it estimates that on average these two provisions will
require 420 hours to implement and 120 hours to administer per year per
respondent, for a total burden of 4200 hours initially and, on average,
1200 hours annually for all respondents.\1164\ Also based on the
estimates regarding Regulation NMS, the Commission estimates that SDRs
will incur a total of $40,000 in initial outside legal costs to
establish the required procedures as a result of this burden per
respondent, for a total outside cost burden of $400,000 for all
respondents.\1165\
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    \1163\ See Regulation NMS Adopting Release, supra note 1151.
    \1164\ The 420 hour figure is the result of the estimated
average burden hours to create one policy and procedure (210) times
the 2 policies and procedures required by these provisions. The 120
hour figure is the result of the estimated average burden hours to
administer one policy and procedure (60) times the 2 policies and
procedures required by these provisions. The 4200 hour figure is the
result of the estimated average burden hours per respondent to
create these policies and procedures (420) times the number of SDRs
(10). The 1200 hour figure is the result of the estimated average
burden hours per respondent to maintain these policies and
procedures (120) times the number of SDRs (10).
    \1165\ $400,000 figure is the result of an estimated $400 an
hour cost for outside legal services (as discussed in supra note
1136) times 50 hours per policy and procedure, times 2 policies and
procedures, times the number of SDRs (10).
---------------------------------------------------------------------------

    A CCO is also required under Rules 13n-11(d), (e), and (g) to
prepare and submit annual compliance reports to the SDR's board for
review before the annual compliance reports are filed with the
Commission. Based upon the Commission's estimates for similar annual
reviews by CCOs of investment companies,\1166\ the Commission estimates
that these reports will require on average 5 hours per respondent per
year. Thus, the Commission estimates a total annual burden of 50 hours
for all respondents. The Commission believes that these costs will be
internal costs.
---------------------------------------------------------------------------

    \1166\ See Compliance Programs of Investment Companies and
Investment Advisers, Investment Company Act Release No. 25925 (Feb.
5, 2003), 68 FR 7038, 7047 (Feb. 11, 2003).
---------------------------------------------------------------------------

    Rules 13n-11(f) and (g) require that financial reports be prepared
and filed with the Commission as an official filing in accordance with
the EDGAR Filer Manual and include, as part of the official filing, an
Interactive Data Financial Report filed in accordance with Rule 407 of
Regulation S-T. The Commission estimates, based on its experience with
entities of similar size to the respondents to this collection, that
preparing and filing the financial reports will generally require on
average 500 hours per respondent and cost $500,000 for independent
public accounting services. Thus, the Commission estimates a total
annual burden of 5000 hours and $5,000,000 for all respondents.
    One commenter suggested that ``[i]n an attempt to harmonize final
[SDR] rules with the CFTC's final [swap data repository] rules, the
Commission should consider removing Proposed Rule 240.13n-11(f)(2)'s
requirement that each financial report filed with a compliance report
is audited in accordance with the standards of the Public Company
Accounting Oversight Board by a registered public accounting firm that
is qualified and independent unless the [SDR] is under a separate
obligation to provide financial statements.'' \1167\ The commenter
believed that ``[t]his requirement imposes an additional burden for an
[SDR] and is not justified in relation to the risks that an [SDR] would
pose to its members'' and that ``[u]nlike clearing agencies or other
entities supervised by the Commission, an [SDR] does not have financial
exposure to its users or participants that would justify the imposition
of this requirement.'' \1168\ The commenter suggested that the
Commission consider ``adopting [instead] the CFTC's approach in its
final [swap data repository] rules, which require [a swap data
repository's] financial statements be prepared in conformity with
generally accepted accounting principles. . . .'' \1169\
---------------------------------------------------------------------------

    \1167\ DTCC 5, supra note 19.
    \1168\ DTCC 5, supra note 19.
    \1169\ DTCC 5, supra note 19.
---------------------------------------------------------------------------

    As discussed further below, although the Commission understands
that SDRs will incur costs in hiring and retaining qualified public
accounting firms, the Commission believes that obtaining audited
financial reports from SDRs is important given the significant role the
Commission believes that SDRs will play in the SBS market.\1170\ Given
this significant role, the Commission believes that it is important to
obtain audited financial reports from SDRs in order to determine
whether or not they have sufficient financial resources to continue
operations. While the Commission recognizes that Rule 13n-11(f)(2) may,
in some cases, be more costly than the CFTC's requirement of quarterly
unaudited financial statements, the Commission believes that the
additional burden, where it exists, is justified by the benefits of
requiring audited financial statements.
---------------------------------------------------------------------------

    \1170\ See Section VIII.D.6.c of this release discussing
economic alternatives to Rule 13n-11(f)(2).
---------------------------------------------------------------------------

    The compliance reports and financial reports filed with the
Commission are required to be filed in a tagged data format. The
compliance reports must be filed in a tagged data format in accordance
with the instructions contained in the EDGAR Filer Manual,\1171\ and
the financial reports must be provided as an official filing in
accordance with the EDGAR Filer Manual and include, as part of the
official filing, an Interactive Data Financial Report filed in
accordance with Rule 407 of Regulation S-T.\1172\ These requirements
will create an additional burden on respondents beyond the preparation
of these reports. The Commission estimates, based on its experience
with other tagged data initiatives, that these requirements will add a
burden of an average of 54 hours and $22,772 in outside software and
other costs per respondent per year, creating an estimated total annual
burden of 540 hours and $227,720 for all respondents to tag the data
for both the compliance reports and financial reports that are required
under Rule 13n-11.
---------------------------------------------------------------------------

    \1171\ See 17 CFR 232.301.
    \1172\ See Section VI.J.5.c of this release discussing Rule 407
of Regulation S-T.
---------------------------------------------------------------------------

7. Other Provisions Relevant to the Collection of Information
    Rule 13n-4(c)(1)(iii) requires an SDR to establish, monitor on an
ongoing basis, and enforce clearly stated objective criteria that would
permit fair, open, and not unreasonably discriminatory access to
services offered and data maintained by the SDR as well as fair, open,
and not unreasonably discriminatory participation by market
participants and others that seek to connect to or link with the SDRs.
For PRA purposes only, the Commission believes that this should be a
lesser burden than for written policies and procedures because such
criteria may not need to be as detailed or intricate as written
policies and procedures. Thus, the Commission estimates that this
provision will require 157.5 hours to implement, with an associated
outside legal cost of $15,000 per respondent.\1173\ This results in an
estimate of an initial burden for this requirement for all respondents
of 1575 hours and

$150,000. The Commission estimates that the average annual burden will
be 45 hours per respondent, for a total estimated average annual burden
of 450 hours for all respondents.\1174\ The Commission believes that
SDRs will conduct this work internally.
---------------------------------------------------------------------------

    \1173\ These numbers are based on 75% of the 210 hour and
$20,000 (50 hours of outside legal costs at $400 an hour) estimates
to create one set of written policies and procedures under
Regulation NMS for non-SRO trading centers. See Regulation NMS
Adopting Release, supra note 1151. This is based on an estimate that
this requirement will create 75% of the burden of creating written
policies and procedures under Regulation NMS. The Commission
believes that the 75% assumption is appropriate because the
Commission believes that Rule 13n-4(c)(1)(iii) imposes a lesser
burden than the written policies and procedures required by other
SDR Rules because it requires only written criteria and not full
policies and procedures.
    \1174\ These numbers are 75% of the 60 hour estimates of the
ongoing burden regarding one set of written policies and procedures
under Regulation NMS for non-SRO trading centers. See Regulation NMS
Adopting Release, supra note 1151. This is based on an estimate that
this requirement will create 75% of the ongoing burden of written
policies and procedures under Regulation NMS. The Commission
believes that the 75% assumption is appropriate because the
Commission believes that Rule 13n-4(c)(1)(iii) imposes a lesser
burden than the written policies and procedures required by other
SDR Rules because it requires only written criteria and not full
policies and procedures.
---------------------------------------------------------------------------

    Rule 13n-4(c)(1)(iv) requires an SDR to establish, maintain, and
enforce written policies and procedures reasonably designed to review
any prohibition or limitation of any person with respect to access to
services offered, directly or indirectly, or data maintained by the SDR
and to grant such person access to such services or data if such person
has been discriminated against unfairly. Based on the Commission's
estimates regarding Regulation NMS,\1175\ it estimates that, on
average, this provision will require 210 hours to implement and 60
hours to administer per year per respondent, for a total burden of 2100
hours initially and 600 hours on average, annually. The Commission also
estimates, based on this earlier estimate, that SDRs will incur a total
of $20,000 in initial outside legal costs to establish the required
policies and procedures as a result of this provision per respondent
for a total outside cost burden of $200,000 for all respondents.\1176\
---------------------------------------------------------------------------

    \1175\ See Regulation NMS Adopting Release, supra note 1151.
These estimates are based on 100% of the 210 hour estimate to create
one set of written policies and procedures and 100% of the 60 hour
estimate of the ongoing burden regarding one set of written policies
and procedures under Regulation NMS for non-SRO trading centers. The
Commission believes that the 100% assumption is appropriate because
Rule 13n-4(c)(1)(iv) requires written policies and procedures.
    \1176\ This figure is the result of an estimated $400 an hour
cost for outside legal services (as discussed in supra note 1136)
times 50 hours per policy and procedure, times 1 policy and
procedure, times the number of SDRs (10). The Commission believes
that SDRs will use outside counsel to initially create these
policies and procedures because SDRs just beginning operations may
not have sufficient in-house legal staff.
---------------------------------------------------------------------------

    Rule 13n-4(c)(2)(iv) requires an SDR to establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
that the SDR's senior management and each member of the board or
committee that has the authority to act on behalf of the board possess
requisite skills and expertise to fulfill their responsibilities in the
management and governance of the SDR, to have a clear understanding of
their responsibilities, and to exercise sound judgment about the SDR's
affairs. Based on the Commission's estimates regarding similar
requirements in Regulation NMS,\1177\ it estimates that, on average,
this provision will require 210 hours to implement and 60 hours to
administer per year per respondent, for a total burden of 2100 hours
initially and 600 hours on average, annually. The Commission also
estimates, based on this earlier estimate, that SDRs will initially
incur a total of $20,000 in outside legal costs to establish the
required policies and procedures as a result of this provision per
respondent for a total outside cost burden of $200,000 for all
respondents.\1178\ The Commission believes that SDRs will conduct the
ongoing administration of this provision internally.
---------------------------------------------------------------------------

    \1177\ See Regulation NMS Adopting Release, supra note 1151.
    \1178\ This figure is the result of an estimated $400 an hour
cost for outside legal services (as noted in supra note 1136) times
50 hours per policy and procedure, times 1 policy and procedure,
times the number of SDRs (10).
---------------------------------------------------------------------------

    Rule 13n-4(c)(3) addresses the conflict of interest requirements
governing SDRs. In particular, each SDR is required to establish and
enforce written policies and procedures reasonably designed to minimize
conflicts of interest. This includes establishing, maintaining, and
enforcing written policies and procedures reasonably designed to
identify and mitigate potential and existing conflicts of interest in
the SDR's decision-making process on an ongoing basis. It also includes
establishing, maintaining, and enforcing written policies and
procedures regarding the SDR's non-commercial and commercial use of the
SBS transaction information that it receives. Based on the Commission's
estimates regarding Regulation NMS,\1179\ it estimates that on average
these two requirements will require 420 hours to implement and 120
hours to administer per year per respondent, for a total burden of 4200
hours initially and 1200 hours on average annually.\1180\ Also based on
the Regulation NMS estimates regarding policies and procedures, the
Commission estimates that SDRs will incur a total of $40,000 in initial
outside legal costs to establish the required policies and procedures
as a result of this provision per respondent for a total outside cost
burden of $400,000 for all respondents.\1181\
---------------------------------------------------------------------------

    \1179\ See Regulation NMS Adopting Release, supra note 1151.
    \1180\ The 420 hour figure is the result of the estimated
average burden hours to create one policy and procedure (210) times
the 2 policies and procedures required by these provisions. The 120
hour figure is the result of the estimated average burden hours to
administer one policy and procedure (60) times the 2 policies and
procedures required by these provisions. The 4200 hour figure is the
result of the estimated average burden hours per respondent to
create these policies and procedures (420) times the number of SDRs
(10). The 1200 hour figure is the result of the estimated average
burden hours per respondent to maintain these policies and
procedures (120) times the number of SDRs (10).
    \1181\ This $400,000 figure is the result of an estimated $400
an hour cost for outside legal services (as discussed in supra note
1136) times 50 hours, times 2 policies and procedures, times the
number of SDRs (10).
---------------------------------------------------------------------------

    Rule 13n-5(b)(6) requires that every SDR establish procedures and
provide facilities reasonably designed to effectively resolve disputes
over the accuracy of the transaction data and positions that are
recorded in the SDR. For PRA purposes only, the Commission believes
that this is a greater burden than that for written policies and
procedures alone because SDRs will also be required to provide
facilities. Thus, the Commission estimates that Rule 13n-5(b)(6) will
require 315 hours for each respondent to implement.\1182\ There will
likely be a need for a respondent to consult with outside legal
counsel, which the Commission estimates will cost $30,000 per
respondent.\1183\ Thus, the Commission estimates a total initial burden
for all respondents of 3150 hours and $300,000 in outside costs. The
Commission estimates the ongoing average annual burden of this
requirement to be 90 hours per respondent for a total of 900 hours for
the estimated total annual burden for all respondents.\1184\ The

Commission believes that SDRs will conduct this ongoing work
internally.
---------------------------------------------------------------------------

    \1182\ This number is 150% of the 210 hour estimate to create
one set of written policies and procedures under Regulation NMS for
non-SRO trading centers. See Regulation NMS Adopting Release, supra
note 1151. This is based on an estimate that Rule 13n-5(b)(6) will
create 150% of the burden of creating written policies and
procedures under Regulation NMS because, in addition to establishing
procedures, SDRs will also be required to provide facilities
reasonably designed to effectively resolve disputes over the
accuracy of the transaction data and positions that are recorded in
the SDR.
    \1183\ This number is 150% of the estimate of outside legal
costs (50 hours) to create one set of written policies and
procedures under Regulation NMS for non-SRO trading centers, at an
estimate of $400 per hour. See Regulation NMS Adopting Release,
supra note 1151. This is based on an estimate that Rule 13n-5(b)(6)
will create 150% of the burden of creating written policies and
procedures under Regulation NMS because, in addition to establishing
procedures, SDRs will also be required to provide facilities
reasonably designed to effectively resolve disputes over the
accuracy of the transaction data and positions that are recorded in
the SDR.
    \1184\ These numbers are based on 150% of the 60 hour estimate
of the ongoing burden regarding one set of written policies and
procedures under Regulation NMS for non-SRO trading centers. See
Regulation NMS Adopting Release, supra note 1151. This is based on
an estimate that Rule 13n-5(b)(6) will create 150% of the ongoing
burden of written policies and procedures under Regulation NMS
because, in addition to establishing procedures, SDRs will also be
required to provide facilities reasonably designed to effectively
resolve disputes over the accuracy of the transaction data and
positions that are recorded in the SDR.
---------------------------------------------------------------------------

    Rules 13n-4(b)(8) and 13n-9 address privacy requirements for SDRs.
Rule 13n-4(b)(8) requires SDRs to maintain the privacy of any and all
SBS transaction information that the SDR receives from a SBS dealer,
counterparty, or any registered entity as prescribed in Rule 13n-9.
Rule 13n-9(b)(1) requires each SDR to establish, maintain, and enforce
written policies and procedures reasonably designed to protect the
privacy of any and all SBS transaction information that the SDR
receives from any SBS dealer, counterparty, or any registered entity.
Based on the Commission's estimates regarding Regulation NMS,\1185\ it
estimates that, on average, these provisions will require 420 hours to
implement and 120 hours to administer per year per respondent, for a
total burden of 4200 hours initially and 1200 hours on average,
annually.\1186\ Also based on the Regulation NMS estimates,\1187\ the
Commission estimates that SDRs will incur a total of $40,000 in initial
outside legal costs to establish the required policies and procedures
as a result of these provisions per respondent for a total outside cost
burden of $400,000 for all respondents.\1188\
---------------------------------------------------------------------------

    \1185\ See Regulation NMS Adopting Release, supra note 1151.
    \1186\ The 420 hour figure is the result of the estimated
average burden hours to create one policy and procedure (210) times
the 2 policies and procedures required by these provisions. The 120
hour figure is the result of the estimated average burden hours to
administer one policy and procedure (60) times the 2 policies and
procedures required by these provisions. The 4200 hour figure is the
result of the estimated average burden hours per respondent to
create these policies and procedures (420) times the number of SDRs
(10). The 1200 hour figure is the result of the estimated average
burden hours per respondent to maintain these policies and
procedures (120) times the number of SDRs (10).
    \1187\ See Regulation NMS Adopting Release, supra note 1151.
    \1188\ This $400,000 figure is the result of an estimated $400
an hour cost for outside legal services (as discussed in supra note
1136) times 50 hours per policy and procedure, times 2 policies and
procedures, times the number of SDRs (10).
---------------------------------------------------------------------------

    Rule 13n-9(b)(2) requires each SDR to establish and maintain
safeguards, policies, and procedures reasonably designed to prevent the
misappropriation or misuse, directly or indirectly, of (1) any
confidential information received by the SDR, (2) material, nonpublic
information, and/or (3) intellectual property. At a minimum, these
safeguards, policies and procedures must address limiting access to
that information and intellectual property, standards pertaining to the
trading by persons associated with the SDR for their personal benefit
or the benefit of others, and adequate oversight. Based on the
Commission's estimates regarding Regulation NMS,\1189\ it estimates
that on average this provision will require 210 hours to implement and
60 hours to administer per year per respondent, for a total burden of
2100 hours initially and 600 hours on average, annually. Also based on
the Regulation NMS estimates,\1190\ the Commission estimates that SDRs
will incur a total of $20,000 in initial outside legal costs to
establish the required policies and procedures as a result of this
provision per respondent for a total outside cost burden of $200,000
for all respondents.\1191\
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    \1189\ See Regulation NMS Adopting Release, supra note 1151.
    \1190\ See Regulation NMS Adopting Release, supra note 1151.
    \1191\ This figure is the result of an estimated $400 an hour
cost for outside legal services (as discussed in supra note 1136)
times 50 hours per policy and procedure, times 1 policy and
procedure, times the number of SDRs (10).
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E. Collection of Information Is Mandatory

1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    The collection of information relating to registration
requirements, Form SDR, and withdrawal from registration is mandatory
for all SDRs when registering with the Commission, amending their
applications for registration, or withdrawing from registration.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic
Access
    The collection of information relating to SDR duties, data
collection and maintenance, and direct electronic access is mandatory
for all SDRs, absent an exemption.\1192\
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    \1192\ See Section VI.K of this release discussing the SDR
Exemption.
---------------------------------------------------------------------------

3. Recordkeeping
    The collection of information relating to recordkeeping is
mandatory for all SDRs, absent an exemption.
4. Reports
    The collection of information relating to reports is mandatory for
all SDRs, absent an exemption.
5. Disclosure
    The collection of information relating to disclosure is mandatory
for all SDRs, absent an exemption.
6. Chief Compliance Officer; Compliance Reports and Financial Reports
    The collection of information relating to CCOs is mandatory for all
SDRs, absent an exemption.
7. Other Provisions Relevant to the Collection of Information
    The collection of information relating to other relevant provisions
is mandatory for all SDRs, absent an exemption.

F. Confidentiality

    As discussed above, the Commission expects that it will make any
information filed on, or in an exhibit or attachment to, an application
for registration on Form SDR available on its Web site, except in cases
where confidential treatment is requested by the applicant and granted
by the Commission.\1193\
---------------------------------------------------------------------------

    \1193\ See Section VI.A.1.c of this release discussing Form SDR.
---------------------------------------------------------------------------

    As discussed above, the Commission may make any information filed
on, or in an exhibit or attachment to, an amendment on Form SDR
available on its Web site, except in cases where confidential treatment
is requested by the applicant and granted by the Commission.\1194\
---------------------------------------------------------------------------

    \1194\ See Section VI.A.4.c of this release discussing
amendments on Form SDR.
---------------------------------------------------------------------------

    As discussed above, the Commission may make any information filed
on, or in an exhibit or attachment to, withdrawals on Form SDR
available on its Web site, except in cases where confidential treatment
is requested by the applicant and granted by the Commission.\1195\
---------------------------------------------------------------------------

    \1195\ See Section VI.B.3 of this release discussing withdrawal
from registration.
---------------------------------------------------------------------------

    Pursuant to Rules 13n-11(d), (f), and (g), SDRs must file an annual
compliance report and financial report with the Commission. One
commenter believed that the Commission should keep the annual
compliance report confidential.\1196\ As discussed above, the
Commission is not providing, by rule, that the annual compliance
reports and financial reports are automatically granted confidential
treatment, but an SDR may seek confidential treatment

pursuant to Exchange Act Rule 24b-2.\1197\ The Commission may make
filed annual compliance reports and financial reports available on its
Web site, except in cases where confidential treatment is requested by
the SDR and granted by the Commission.
---------------------------------------------------------------------------

    \1196\ DTCC 2, supra note 19 (``DTCC firmly believes [that] the
annual [compliance] report should be kept confidential by the
Commission'' and explained that ``[g]iven the level of disclosure
expected to be required . . . the report will likely contain
confidential and proprietary business information.'').
    \1197\ See Section VI.J.4.c of this release discussing
compliance reports.
---------------------------------------------------------------------------

G. Retention Period of Recordkeeping Requirements

    Rule 13n-5(b)(4) requires that SDRs maintain the transaction data
and related identifying information for not less than five years after
the applicable SBS expires and historical positions for not less than
five years. This data is required to be maintained in a place and
format that is readily accessible and usable to the Commission and
other persons with authority to access or view the information and is
also required to be maintained in an electronic format that is non-
rewritable and non-erasable.
    Pursuant to Rule 13n-7(b), an SDR is required to preserve at least
one copy of all documents as shall be made or received by it in the
course of its business as such, including all records required under
the Exchange Act and the rules and regulations thereunder, other than
the transaction data and positions collected and maintained pursuant to
Rule 13n-5. These records are required to be kept for a period of not
less than five years, the first two years in a place that is
immediately available to representatives of the Commission for
inspection and examination.

VIII. Economic Analysis

A. Introduction

    The Commission has considered the economic implications of the SDR
Rules and Form SDR as well as comments regarding the costs and benefits
of the SDR Rules and Form SDR.\1198\ The Commission is sensitive to the
economic consequences and effects of the SDR Rules and Form SDR,
including their costs and benefits. In adopting the SDR Rules and Form
SDR, the Commission has analyzed their costs and benefits, as set forth
below, and has been mindful of the economic consequences of its policy
choices. The SDR Rules and Form SDR fulfill the mandate of the Dodd-
Frank Act that the Commission adopt rules governing the registration,
duties, and core principles of SDRs.
---------------------------------------------------------------------------

    \1198\ See Further Definition of ``Swap,'' ``Security-Based
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps;
Security-Based Swap Agreement Recordkeeping, Securities Act Release
No. 9338 (July 18, 2012), 77 FR 48208, 48332 (Aug. 13, 2012) (noting
that ``[t]he programmatic costs and benefits associated with
substantive rules applicable to [SBSs] under Title VII are being
addressed in more detail in connection with the applicable
rulemakings implementing Title VII'').
---------------------------------------------------------------------------

    As discussed above, the SBS market developed as an opaque OTC
market without centralized trading venues or dissemination of pre- or
post-trade pricing and volume information.\1199\ SBS dealers, as
intermediaries in SBS transactions, observe order flow and have access
to pricing and volume information that is generally not available to
other market participants. With such access, SBS dealers generally have
an informational and competitive advantage over non-dealer
counterparties, granting SBS dealers some degree of market power, which
may enable them to extract economic rents in transactions with those
counterparties. This informational advantage may result in increased
transaction costs for less-informed counterparties relative to a market
where all participants have competitive access to information.
---------------------------------------------------------------------------

    \1199\ See Section II.A of this release discussing limited
information currently available to market participants.
---------------------------------------------------------------------------

    In addition to the advantages that an opaque SBS market may give to
SBS dealers, the opacity of the SBS market as described above may also
affect current participation levels in the SBS market.\1200\ Certain
market participants, including speculative traders who rely on
proprietary trading strategies, may wish to keep their trades anonymous
and may prefer to operate in an opaque SBS market. Hedgers and other
market participants that do not benefit from opacity, however, may be
dissuaded from participating in the SBS market by higher transaction
costs and their disadvantageous informational position.
---------------------------------------------------------------------------

    \1200\ See Section II.B of this release.
---------------------------------------------------------------------------

    Opacity in the SBS market also limits the ability of market
participants to form broad views of financial market conditions. In
capital markets, pricing and volume information provide signals about
liquidity and the quality of investments, including investments in
reference entities underlying derivatives. In the SBS market, where
pricing and volume information is not readily available, market
participants may have difficulty assessing investment opportunities as
well as the state of the broader market, or must form assessments with
a narrower set of information than SBS dealers. In an opaque SBS
market, difficulty in assessing investment opportunities and the state
of the SBS market may inhibit participation in the SBS market.
    While opacity may generally confer a competitive advantage to SBS
dealers who observe the largest share of order flow and limit
participation in the SBS market, some features of the market and market
participants may offset these effects. For example, large market
participants that often transact with many SBS dealers are aware of the
potential information asymmetries in the market. Furthermore, by virtue
of their high trading volume, these participants may also observe a
large share of the market, reducing the information advantage afforded
to SBS dealers. SBS dealers may wish to compete for SBS business with
the largest counterparties, and these participants may be able to
obtain access to competitive pricing.\1201\ Nevertheless, the
Commission generally expects that market participants with proprietary
access to information--in the case of SBS markets, SBS dealers who
observe order flow--can benefit from opacity and earn economic rents
from their less-informed counterparties.\1202\
---------------------------------------------------------------------------

    \1201\ As described in the Cross-Border Proposing Release, the
non-dealer market participants transact with four counterparties on
average. Cross Border Proposing Release, 78 FR at 31126 n.1329,
supra note 3. However, the largest market participants transact with
as many as 50 counterparties, suggesting that dealers compete for
business with these participants.
    \1202\ See, e.g., Richard C. Green, Burton Hollifield, and
Norman Schurhoff, Financial Intermediation and the Costs of Trading
in an Opaque Market, 20 Review of Financial Studies 275 (2007)
(estimating that, prior to the introduction of transparency measures
in the municipal bond market, dealers exercised substantial market
power, but that market power decreases with the size of the trade).
---------------------------------------------------------------------------

    It is in this context that the Commission analyzes the economic
effects of the SDR Rules and Form SDR. The Commission envisions that
registered SDRs will become an essential part of the infrastructure of
the SBS market. Persons that meet the definition of an SDR will be
required by the SDR Rules to maintain policies and procedures relating
to data accuracy and maintenance, and will be further required by
Regulation SBSR to publicly disseminate transaction-level data, thereby
promoting post-trade transparency in the SBS market. Transparency
stemming from the SDR Rules and Regulation SBSR should reduce the
informational advantage of SBS dealers and promote competition among
SBS dealers and other market participants.\1203\ This could reduce
implicit transaction costs and attract liquidity from those market
participants that do not benefit from opacity, providing more
opportunities for market participants with hedging needs to manage
their risks and providing more opportunities for market participants to

access liquidity. Similarly, public dissemination of SBS pricing and
volume information by SDRs pursuant to Regulation SBSR may allow market
participants to incorporate information from the SBS market into their
assessments of SBS and non-SBS investment opportunities, thereby
promoting price efficiency and efficient capital allocation.
---------------------------------------------------------------------------

    \1203\ See Section II.A of this release.
---------------------------------------------------------------------------

    At the same time, increased quality and quantity of pricing and
volume information and other information available to the Commission
about the SBS market may enhance the Commission's ability to respond to
market developments. As discussed above, DTCC-TIW voluntarily provides
to the Commission data on individual CDS transactions in accordance
with an agreement between the DTCC-TIW and the ODRF. In conjunction
with Regulation SBSR, the SDR Rules should assist the Commission in
fulfilling its regulatory mandates and legal responsibilities such as
detecting market manipulation, fraud, and other market abuses by
providing it with greater access to SBS information than that provided
under the voluntary reporting regime. In particular, without an SDR,
data on SBS transactions could be dispersed and might not be readily
available to the Commission and others. SDRs may be especially critical
during times of market turmoil, both by giving the Commission
information to monitor risk exposures taken by individual entities or
to particular referenced entities, and by promoting stability through
enhanced transparency. Additionally, more available data about the SBS
market should give the Commission better insight into how regulations
are affecting, or may affect, the SBS market, which may allow the
Commission to better craft regulations to achieve desired goals, and
therefore, increase regulatory effectiveness.
    In adopting the SDR Rules and Form SDR, the Commission has
attempted to balance different goals. For example, data fragmentation
resulting from multiple SDRs may make it more difficult for the
Commission and to the extent that SBS data is made public, the public,
to aggregate SBS data from multiple SDRs. The Commission could have
resolved issues related to data fragmentation by designating one SDR as
the recipient of the information from all other SDRs in order to
provide the Commission with a consolidated location from which to
access SBS data for regulatory monitoring and oversight purposes.
Designating one SDR as the data consolidator, however, could discourage
new market entrants, and interfere with competition. Designating one
SDR as data consolidator may also impose an additional cost on market
participants to cover the SDR's cost for acting as the data
consolidator. Similarly, the SDR Exemption,\1204\ which allows certain
non-U.S. persons to perform the functions of an SDR within the United
States without registering with the Commission, may reduce potentially
duplicative registration and operating costs by allowing these persons
to continue to receive data reported pursuant to the reporting
requirements of a foreign jurisdiction. The SDR Exemption, however,
also increases the risk of data fragmentation to the extent that
reporting requirements differ across jurisdictions and relevant
authorities have difficulty accessing data across jurisdictions. The
Commission has attempted to balance the considerations of competition,
data fragmentation, and avoidance of potentially duplicative
registration and operating costs in adopting the SDR Rules.
---------------------------------------------------------------------------

    \1204\ See Section VI.K of this release discussing Rule 13n-12.
---------------------------------------------------------------------------

    In assessing the economic impact of the SDR Rules and Form SDR, the
Commission refers to the broader costs and benefits associated with the
application of the rules and interpretations as ``programmatic'' costs
and benefits. These include the costs and benefits of applying the
substantive Title VII requirements to the reporting of transactions by
market participants, as well as to the functions performed by market
infrastructures, including SDRs, in the global SBS market. The
Commission's analysis also takes into consideration ``assessment
costs,'' which arise from current and future market participants
expending effort to determine whether they are subject to the SDR
Rules. Current and future market participants could incur expenses in
making this determination even if they ultimately are not subject to
the SDR Rules. Finally, the Commission's analysis considers
``compliance costs,'' which are the costs that SDRs will incur in
registering and complying with the SDR Rules.

B. General Comments on the Costs and Benefits of the SDR Rules

    The Commission received two comments regarding the general costs
and benefits of the SDR Rules.\1205\
---------------------------------------------------------------------------

    \1205\ See US & Foreign Banks, supra note 24; IIB CB, supra note
26.
---------------------------------------------------------------------------

    One commenter offered general observations about the application of
the SDR Rules to non-resident SDRs, maintaining that the costs of an
extraterritorial application of U.S. law would be significant and not
estimable beforehand, and that the Commission should consider comity
and conflict with non-U.S. regulatory requirements when weighing the
costs and benefits of the SDR Rules.\1206\ The Commission agrees that
determining the costs and benefits of the application of the SDR Rules
to non-resident SDRs is difficult; nevertheless, the Commission has
analyzed the economic effects of the SDR Rules below.
---------------------------------------------------------------------------

    \1206\ See US & Foreign Banks, supra note 24.
---------------------------------------------------------------------------

    A second commenter recommended that ``the Commission should
generally seek to avoid any divergence from the CFTC's and
international regulators' frameworks that is likely to give rise to
undue costs or burdens.'' \1207\ The commenter believed that
``divergence is generally warranted only if the rule adopted by the
Commission is more flexible than those adopted by others (and therefore
would not preclude the voluntary adoption of consistent practices by
market participants).'' \1208\ The Commission acknowledges that there
are concerns regarding divergent regulatory frameworks. The economic
effects that could result from divergent regulatory frameworks, as well
as other comments regarding the costs and benefits of specific rules,
are discussed below. The Commission notes, however, that the SDR Rules
are largely consistent with the CFTC's rules. Furthermore, the
Commission has consulted and coordinated with foreign regulators
through bilateral and multilateral discussions and has taken these
discussions into consideration in developing the SDR Rules and Form
SDR.
---------------------------------------------------------------------------

    \1207\ IIB CB, supra note 26.
    \1208\ IIB CB, supra note 26.
---------------------------------------------------------------------------

C. Consideration of Benefits, Costs, and the Effect on Efficiency,
Competition, and Capital Formation

    The potential economic effects stemming from the SDR Rules can be
grouped into several categories. In this section, the Commission first
discusses assessment costs relating to the SDR Rules. The Commission
then discusses the SDR Rules' programmatic costs and benefits,
highlighting broader and more comprehensive economic effects that
result when the SDR Rules are considered as a part of other rules
resulting from Title VII of the Dodd Frank Act. Next, the Commission
discusses the effects of the SDR Rules on efficiency, competition, and
capital formation. In the next section, the Commission discusses the
compliance costs relating to certain of the SDR Rules.

1. Assessment Costs
    The Commission believes that persons will incur assessment costs in
determining whether they fall within the statutory definition of an
SDR. The Commission believes that the statutory definition in Exchange
Act Section 3(a)(75) describes the core services or functions of an
SDR. Whether a person falls within the statutory definition of an SDR
is fact-specific. The Commission believes that at least 10 persons
\1209\ will make the assessment of whether they fall within the
statutory definition of an SDR, which may result in a cost of $15,200
per person, for a total cost of $152,000 for all persons.\1210\
---------------------------------------------------------------------------

    \1209\ At a minimum, the Commission estimates that the same
persons who will register with the Commission as SDRs will make an
assessment as to whether they fall within the statutory definition
of an SDR. Therefore, the Commission estimates that at least 10
persons will make this assessment. See Section VII.C.1 of this
release discussing the number of respondents to the registration
requirements and Form SDR.
    \1210\ This estimate is based on an estimated 40 hours of in-
house legal or compliance staff's time to assess whether a person
falls within the statutory definition of an SDR. The Commission
estimates that a person will assign these responsibilities to an
Attorney. Data from SIFMA's Management & Professional Earnings in
the Securities Industry 2013, modified by Commission staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits, and overhead, suggest
that the cost of an Attorney is $380 per hour. Thus, the total one-
time estimated dollar cost is $15,200 per person and $152,000 for
all persons, calculated as follows: (Compliance Attorney at $380 per
hour for 40 hours) x 10 persons = $152,000.
---------------------------------------------------------------------------

    The Commission believes that certain non-U.S. persons may incur
assessment costs in determining whether they can rely on the SDR
Exemption. Under the Commission's approach, certain non-U.S. persons
that perform the functions of an SDR may incur certain assessment costs
in determining whether they fall within the statutory definition of an
SDR, and, if so, whether they perform the functions of an SDR within
the United States. If so, they may incur certain assessment costs in
determining whether they can rely on the SDR Exemption.\1211\
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    \1211\ The Commission recognizes that some non-U.S. persons that
perform the functions of an SDR may do so entirely outside the
United States, and thus, may determine that they do not need to
incur any assessment costs related to the Commission's approach.
---------------------------------------------------------------------------

    With respect to determining the availability of the SDR Exemption
for a non-U.S. person performing the function of an SDR within the
United States, the Commission believes that costs would arise from
confirming whether the Commission and each regulator with supervisory
authority over such non-U.S. person have entered into an MOU or other
arrangement. The Commission believes that because this information
generally should be readily available,\1212\ the cost involved in
making such assessment should not exceed one hour of in-house legal or
compliance staff's time or $380 per person,\1213\ for an aggregate one-
time cost of $7,600.\1214\
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    \1212\ The Commission provides a list of MOUs and other
arrangements on its public Web site, which are available at this
link: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml.
    \1213\ This estimate is based on an estimated one hour of in-
house legal or compliance staff's time to confirm whether the
Commission and each regulator with supervisory authority over such
non-U.S. person have entered into an MOU or other arrangement. The
Commission estimates that an SDR will assign these responsibilities
to an Attorney. Thus, the total one-time estimated dollar cost is
$380 per person, calculated as follows: (Attorney at $380 per hour
for 1 hour) = $380.
    \1214\ This total is based on the assumption that as many as 20
non-U.S. persons that perform the functions of an SDR would use in-
house legal or compliance staff, specifically, an Attorney, to
determine whether an applicable MOU or other arrangement is in
place. Thus, the total one-time estimated dollar cost for all 20
non-U.S. persons is $7,600, calculated as follows: (Attorney at $380
per hour for 1 hour) x 20 non-U.S. persons = $7,600.
---------------------------------------------------------------------------

    Assessment costs may also result from determining whether existing
policies and procedures will satisfy the requirements of the SDR Rules.
An SDR may have existing policies and procedures that it may use to
comply with the SDR Rules. In order to use such policies and procedures
to comply with the SDR Rules, the SDR will first have to assess whether
the policies and procedures will result in compliance with the SDR
Rules.
2. Programmatic Costs and Benefits
a. SDR Registration, Duties, and Core Principles
    Rules 13n-1 through 13n-3 and Form SDR establish the mechanism by
which SDRs must register as such pursuant to Exchange Act Section
13(n), absent an exemption. Rules 13n-4 through 13n-10 set forth the
duties and core principles of SDRs. Rule 13n-11 sets forth the
requirements for an SDR's CCO, annual compliance reports, and financial
reports. Finally, Rule 13n-12 provides an exemption from registration
and other requirements in certain circumstances.
    The Commission believes that it and market participants will enjoy
a number of programmatic benefits from the SDR Rules. For example,
because the final SDR Rules require SDRs to register with and provide
data to the Commission and require SDRs to take steps to facilitate
accurate data collection and retention with respect to SBSs, the SDR
Rules will increase the availability of SBS data relative to that in
the existing voluntary disclosure system.\1215\ The data provided by
SDRs will provide a window into SBS transactions and allow the
Commission to oversee the SBS market beyond that which is currently
available. Further, the SDR Rules requiring SDRs to provide information
to market participants about the nature and costs of SDRs' services are
intended to provide transparency about the costs of reporting, thereby
enabling market participants to make informed choices among competing
SDRs. Finally, by requiring SDRs to register with the Commission,
provide the Commission with access to their books and records, and
submit to inspections and examinations by representatives of the
Commission, the SDR Rules will allow the Commission to evaluate SDRs'
compliance with the Exchange Act and the rules and regulations
thereunder.
---------------------------------------------------------------------------

    \1215\ See Section II.B of this release discussing data that is
currently available to regulators and market participants.
---------------------------------------------------------------------------

    Persons that meet the definition of an SDR will also be required to
comply with the public dissemination requirements of Regulation SBSR.
Public dissemination is a core component of post-trade transparency in
the SBS market. As discussed below, enhanced transparency should
produce market-wide benefits in terms of a reduction in SBS dealers'
market power. Enhanced transparency could also lead to reduced trading
costs if competitive access to information and reduced SBS dealers'
market power reduce the premium that SBS dealers are able to charge for
intermediating SBS transactions.\1216\ Indeed, post-trade transparency
has been shown to reduce implicit trading costs (i.e., the difference
between the price at which a market participant can trade a security
and the fundamental value of that security) in other securities
markets. For example, post-trade transparency that followed the
introduction of TRACE and trade reporting in the corporate bond market
has been shown to lower implicit costs of trading corporate
bonds.\1217\ While there are differences between SBSs and corporate
bonds, there are similarities to how the markets are structured--both
markets evolved as dealer-centric OTC markets with limited pre- or
post-trade transparency. Thus, the Commission expects that some of the
benefits that result from transparency in the corporate bond market may
extend to SBS markets as well.
---------------------------------------------------------------------------

    \1216\ See Section VIII.C.3 of this release discussing the
potential effects on competition, efficiency, and capital formation.
    \1217\ See supra note 58.

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

    Nevertheless, the extent to which trading cost reductions are
realized could be mitigated by additional factors. Trade reporting,
public dissemination, and providing direct electronic access are costly
in terms of establishing and maintaining infrastructure necessary to
report and store large volumes of trade-level transaction data. SDRs
may be able to pass the costs of complying with the SDR Rules and
public dissemination requirements onto reporting parties--e.g., SBS
dealers--who, in turn, may be able to pass costs on to their customers.
Therefore, the infrastructure costs associated with transparency may
partially offset the trade cost benefits that could accrue through the
reduction in asymmetric information and SBS dealers' market power.
    Enhanced transparency could produce additional market-wide benefits
by promoting stability in the SBS market, particularly during periods
of market turmoil,\1218\ and it should indirectly contribute to
improved stability in related financial markets, including equity and
bond markets.\1219\ In conjunction with Regulation SBSR, the SDR Rules
should assist the Commission in fulfilling its regulatory mandates and
legal responsibilities such as detecting market manipulation, fraud,
and other market abuses by providing it with greater access to SBS
information.\1220\ In particular, without an SDR, data on SBS
transactions would be dispersed and would not be readily available to
the Commission and others. SDRs may be especially critical during times
of market turmoil, both by giving the Commission information to monitor
risk exposures taken by individual entities or to particular referenced
entities, and by promoting stability through enhanced transparency.
Additionally, more available data about the SBS market should give the
Commission a better idea of how regulations are affecting, or may
affect, the SBS market, which may allow the Commission to better craft
regulation to achieve desired goals, and therefore, increase regulatory
effectiveness.
---------------------------------------------------------------------------

    \1218\ See Proposing Release, 75 FR at 77307, supra note 2
(``SDRs may be especially critical during times of market turmoil,
both by giving relevant authorities information to help limit
systemic risk and by promoting stability through enhanced
transparency. By enhancing stability in the SBS market, SDRs may
also indirectly enhance stability across markets, including equities
and bond markets.'').
    \1219\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy
Perspectives of OTC Derivatives Market Infrastructure, Federal
Reserve Bank of New York Staff Report No. 424 (Jan. 2010, as revised
Mar. 2010) (``Transparency can have a calming influence on trading
patterns at the onset of a potential financial crisis, and thus act
as a source of market stability to a wider range of markets,
including those for equities and bonds.'').
    \1220\ See Proposing Release, 75 FR at 77307, supra note 2
(``The enhanced transparency provided by an SDR is important to help
regulators and others monitor the build-up and concentration of risk
exposures in the SBS market.''); see also DTCC 1*, supra note 20
(``A registered SDR should be able to provide (i) enforcement agents
with necessary information on trading activity; (ii) regulatory
agencies with counterparty-specific information about systemic risk
based on trading activity; (iii) aggregate trade information for
publication on market-wide activity; and (iv) a framework for real-
time reporting from swap execution facilities and derivatives
clearinghouses.'').
---------------------------------------------------------------------------

    The Commission believes that U.S. persons performing the functions
of an SDR will play a key role in collecting and maintaining
information regarding SBS transactions, and making available such
information to the Commission and the public, all of which may affect
the transparency of the SBS market within the United States.\1221\
Requiring such U.S. persons to comply with the SDR Requirements will
help ensure that they maintain data and make it available in a manner
that advances the benefits that the requirements are intended to
produce.
---------------------------------------------------------------------------

    \1221\ See Proposing Release, 75 FR at 77356, supra note 2;
Cross-Border Proposing Release, 78 FR at 31184, supra note 3.
---------------------------------------------------------------------------

    The information provided by SDRs to the Commission pursuant to the
SDR Rules may assist it in advancing the goals of the Dodd-Frank Act.
The Dodd-Frank Act was designed, among other things, to promote the
financial stability of the United States by improving accountability
and transparency in the financial system and the SDR Rules, which
implement the statute, are a necessary and important component of
implementing this goal.\1222\ As discussed above, an SBS transaction
involves ongoing financial obligations between counterparties during
the life of the transaction, which can typically span several years,
and counterparties bear credit and market risk until the transaction is
terminated or expires. Because large market participants may have
ongoing obligations with many different counterparties, financial
markets may be particularly vulnerable to instability resulting from
the financial distress of a large market participant being transmitted
to counterparties and others through connections in the SBS market. In
extreme cases, the default of a large market participant could lead to
financial distress among the counterparties to SBSs, which could
introduce the potential for sequential counterparty failure and create
uncertainty in the SBS market, thereby reducing the willingness of
market participants to extend credit. A reduction in credit may result
in liquidity and valuation difficulties that could spill over into the
broader financial market.
---------------------------------------------------------------------------

    \1222\ See Dodd-Frank Act, Public Law 111-203 at Preamble.
---------------------------------------------------------------------------

    Thus, disruptions in the SBS market could potentially affect other
parts of the financial system. Increasing the availability and
reliability of information about the SBS market will improve the
Commission's ability to oversee and regulate this market. A more
complete understanding of activity in the SBS market, including
information on risk and connections between counterparties, should help
the Commission assess the risk in these markets and evaluate
appropriate regulatory responses to market developments. Appropriate
and timely regulatory responses to market developments could enhance
investor protection and confidence, which may encourage greater
investor participation in the SBS market.\1223\
---------------------------------------------------------------------------

    \1223\ See Section II.A of this release discussing broad
economic considerations.
---------------------------------------------------------------------------

b. Registration Requirements in the Cross-Border Context
    The Commission believes that there are a number of programmatic
benefits to requiring non-U.S. persons that perform the functions of an
SDR within the United States to register with the Commission and to
comply with the SDR Requirements. These requirements are intended to
help ensure that all persons that perform the functions of an SDR
within the United States function in a manner that will increase the
transparency and further other goals of the Dodd-Frank Act.\1224\ The
SDR Requirements, including requirements that SDRs register with the
Commission, retain complete records of SBS transactions, maintain the
integrity and confidentiality of those records, and disseminate
appropriate information to the public are intended to help ensure that
the data held by SDRs is reliable and that the SDRs provide information
that contributes to the transparency of the SBS market while protecting
the confidentiality of information provided by market
participants.\1225\
---------------------------------------------------------------------------

    \1224\ See Proposing Release, 75 FR at 77354, supra note 2
(noting that ``the proposed SDR rules will lead to a more robust,
transparent environment for the market for SBSs''); Cross-Border
Proposing Release, 78 FR at 31183, supra note 3 (discussing
programmatic benefits to requiring non-U.S. persons that perform the
functions of an SDR within the United States to register with the
Commission and to comply with the SDR Requirements). See also Dodd-
Frank Act, Public Law 111-203 at Preamble.
    \1225\ See Proposing Release, 75 FR at 77307, supra note 2
(noting that SDRs ``are intended to play a key role in enhancing
transparency in the SBS market'' and thus ``it is important that
SDRs are well-run and effectively regulated'').

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

    Non-U.S. persons performing the functions of an SDR within the
United States also may affect the transparency of the SBS market within
the United States, even if transactions involving U.S. persons or U.S.
market participants are being reported to such non-U.S. persons in
order to satisfy the reporting requirements of a foreign jurisdiction
(and not those of Title VII). The Commission believes that, to the
extent that non-U.S. persons are performing the functions of an SDR
within the United States, they will likely receive data relating to
transactions involving U.S. persons and other U.S. market participants.
Ensuring that such data is maintained and made available in a manner
consistent with the SDR Requirements would likely contribute to the
transparency of the U.S. market and reduce potential confusion that may
arise from discrepancies in transaction data due to, among other
things, differences in the operational standards governing persons that
perform the functions of an SDR in other jurisdictions (or the absence
of such standards for any such persons that are not subject to any
regulatory regime). Moreover, given the sensitivity of reported SBS
data and the potential for market abuse and subsequent loss of
liquidity in the event that a person performing the function of an SDR
within the United States fails to maintain the privacy of such
data,\1226\ the Commission believes that requiring non-U.S. persons
that perform the functions of an SDR within the United States to
register with the Commission will help ensure that data relating to
transactions involving U.S. persons or U.S. market participants is
handled in a manner consistent with the confidentiality protections
applicable to such data, thereby reducing the risk of the loss or
disclosure of proprietary or other sensitive data and of market abuse
arising from the misuse of such data.
---------------------------------------------------------------------------

    \1226\ See Proposing Release, 75 FR at 77307, supra note 2
(``The inability of an SDR to protect the accuracy and integrity of
the data that it maintains or the inability of an SDR to make such
data available to regulators, market participants, and others in a
timely manner could have a significant negative impact on the SBS
market.'').
---------------------------------------------------------------------------

    As noted above, the Commission is adopting Exchange Act Rule 13n-12
to provide an exemption from the SDR Requirements for non-U.S. persons
that perform the functions of an SDR within the United States, provided
that each regulator with supervisory authority over any such non-U.S.
person has entered into an MOU or other arrangement with the Commission
that addresses the confidentiality of data collected and maintained by
such non-U.S. person, access by the Commission to such data, and any
other matters determined by the Commission.
    The Commission believes that this SDR Exemption will not
significantly reduce the programmatic benefits associated with the SDR
Requirements. Although the approach could potentially reduce the number
of persons performing the functions of an SDR that are registered with
the Commission,\1227\ the Commission believes that there will be little
impact on reporting of transactions involving U.S. persons because data
relating to transactions involving U.S. persons and U.S. market
participants would still be required to be reported, pursuant to
Regulation SBSR, to an SDR registered with the Commission and subject
to all SDR Requirements, absent other exemptive relief from the
Commission.\1228\ Moreover, the SDR Exemption may have the benefit of
reducing the incentive for non-U.S. persons performing the functions of
an SDR within the United States to restructure their operations to
avoid registration with the Commission.
---------------------------------------------------------------------------

    \1227\ As of November 2014, there were several non-U.S. persons
performing the functions of an SDR or intending to do so in the
future. See OTC Derivatives Market Reforms Eighth Progress Report on
Implementation, Financial Stability Board (Nov. 2014), available at
http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf. The Commission, however, does not possess data
regarding how many, if any, of these persons perform the functions
of an SDR within the United States.
    \1228\ See Regulation SBSR Adopting Release, supra note 13 (Rule
908(c) setting forth ``substituted compliance'' regime).
---------------------------------------------------------------------------

    Moreover, the SDR Exemption is conditioned on an MOU or other
arrangement with each regulator with supervisory authority over the
non-U.S. person that seeks to rely on the SDR Exemption. This MOU or
arrangement will address the Commission's interest in having access to
SBS data involving U.S. persons and other U.S. market participants that
is maintained by non-U.S. persons that perform the functions of an SDR
within the United States and in protecting the confidentiality of such
data. Further, Rule 13n-12 should not impair the integrity and
accessibility of SBS data. The Commission, therefore, believes that
exempting certain non-U.S. persons performing the functions of an SDR
within the United States, subject to the condition described above,
will likely not significantly affect the programmatic benefits that the
SDR Requirements are intended to achieve.\1229\
---------------------------------------------------------------------------

    \1229\ The Commission also anticipates that non-U.S. persons
that avail themselves of the SDR Exemption will be subject to the
regulatory requirements of one or more foreign jurisdictions. The
SDR Exemption will help ensure that such persons do not incur costs
of compliance with duplicative regulatory regimes while also
ensuring, through the condition that each regulator with supervisory
authority enter into an MOU or other arrangement with the
Commission, that they are subject to regulatory requirements that
will prevent them from undermining the transparency and other
purposes of the SDR Requirements by, for example, failing to protect
the confidentiality of data relating to U.S. persons and other U.S.
market participants.
---------------------------------------------------------------------------

    Registering with the Commission and complying with the SDR
Requirements will impose certain costs on an SDR.\1230\ The Commission
believes that the SDR Exemption is likely to reduce the costs for
certain non-U.S. persons performing the functions of an SDR within the
United States without reducing the expected benefits of the SDR
Requirements.\1231\ As discussed in Section VI.K.3 of this release, the
Commission believes that such persons will likely be performing the
functions of an SDR in order to permit persons to satisfy reporting
requirements under foreign law. The exemption, if available, will allow
these non-U.S. persons to continue to perform this function within the
United States without incurring the costs of compliance with the SDR
Rules; such non-U.S. persons may pass along their cost savings to U.S.
market participants that report to the non-U.S. persons pursuant to the
market participants' reporting obligations under foreign law.
Additionally, the exemption may reduce the incentive for non-U.S.
persons performing the functions of an SDR within the United States to
restructure their operations to avoid registration with the Commission.
---------------------------------------------------------------------------

    \1230\ See Cross-Border Proposing Release, 78 FR at 31184-31185,
supra note 3 (discussing programmatic costs of SDRs registering with
the Commission and complying with the SDR Requirements).
    \1231\ As noted above, the data currently available to the
Commission does not indicate how many non-U.S. persons performing
the functions of an SDR perform such functions within the United
States. See supra note 1227. However, even if persons with reporting
obligations under Regulation SBSR report their transactions to a
non-U.S. person that performs the functions of an SDR within the
United States, but is exempt from registration, they will still be
required to report transactions under Regulation SBSR to an SDR
registered with the Commission, absent other exemptive relief from
the Commission. See Regulation SBSR Adopting Release, supra note 13
(Rule 908(c) setting forth ``substituted compliance'' regime).
---------------------------------------------------------------------------

    The Commission recognizes that conditioning the SDR Exemption may
delay the availability of the SDR Exemption to certain non-U.S.
persons. In some cases, the Commission may be unable to enter into an
MOU or other arrangement with each regulator with supervisory authority
over a non-U.S. person performing the functions of an SDR within the
United States. The

resulting delay or unavailability of the SDR Exemption may lead some of
these non-U.S. persons to exit the U.S. market by, for example,
restructuring their business so that they perform the functions of an
SDR entirely outside the United States, potentially resulting in
business disruptions in the SBS market. Despite the potential business
disruptions in the SBS market that could result from the delay or
unavailability of the SDR Exemption, the Commission believes that
conditioning the SDR Exemption on an MOU or other arrangement with each
regulator with supervisory authority over the non-U.S. person that
seeks to rely on the exemption is important because it will help ensure
the Commission's access to SBS data involving U.S. persons and other
U.S. market participants that may be maintained by such non-U.S.
person.
    Finally, in developing its approach to the application of the SDR
Requirements to non-U.S. persons that perform the functions of an SDR
within the United States, the Commission considered, as an alternative
to Rule 13n-12, requiring such non-U.S. persons to comply with the SDR
Requirements, including registering with the Commission, as well as
other requirements applicable to SDRs registered with the
Commission.\1232\ In such a scenario, a non-U.S. person performing the
functions of an SDR within the United States would be required to
register as an SDR and incur the costs associated with the SDR
Requirements, as well as other requirements applicable to SDRs
registered with the Commission.\1233\ The Commission believes that the
benefit of requiring all non-U.S. persons that perform the functions of
an SDR within the United States to register with the Commission, even
where similar objectives could be achieved through an exemption
conditioned on an MOU or other arrangement with each regulatory
authority with supervisory authority over such non-U.S. persons, would
be marginal, particularly in light of the costs that such non-U.S.
persons would incur in complying with the SDR Requirements, as well as
other requirements applicable to SDRs registered with the
Commission.\1234\
---------------------------------------------------------------------------

    \1232\ See Cross-Border Proposing Release, 78 FR at 31185-31186,
supra note 3 (discussing alternatives to proposed SDR Exemption).
    \1233\ See Cross-Border Proposing Release, 78 FR at 31185-31186,
supra note 3.
    \1234\ See Cross-Border Proposing Release, 78 FR at 31185-31186,
supra note 3.
---------------------------------------------------------------------------

3. Consideration of Burden on Competition and Promotion of Efficiency,
Competition, and Capital Formation
    In developing its approach to the registration, duties, and
implementation of the core principles of SDRs, the Commission has
focused on meeting the goals of Title VII, including promoting
financial stability and transparency in the United States financial
system.\1235\ The Commission has also considered the effects of its
policy choices on competition, efficiency, and capital formation as
mandated under Exchange Act Section 3(f).\1236\ That section requires
the Commission, whenever it engages in rulemaking pursuant to the
Exchange Act and is required to consider or determine whether an action
is necessary or appropriate in the public interest, to consider, in
addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation. In addition,
Exchange Act Section 23(a)(2) requires the Commission, when making
rules under the Exchange Act, to consider the impact such rules would
have on competition.\1237\ Section 23(a)(2) also prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.\1238\
---------------------------------------------------------------------------

    \1235\ Dodd-Frank Act, Public Law 111-203 at Title VII.
    \1236\ 15 U.S.C. 78c(f).
    \1237\ Exchange Act Section 23(a)(2), 15 U.S.C. 78w(a)(2).
    \1238\ Exchange Act Section 23(a)(2), 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    In Section II of this release, the Commission described the
baseline used to evaluate the economic impact of the SDR Rules,
including the impact on efficiency, competition, and capital formation.
In particular, the Commission noted that the current SBS market is
characterized by information asymmetries that confer a competitive
advantage on SBS dealers relative to their non-dealer counterparties
who may be less informed. The Commission also noted that the opacity of
the SBS market may lead to certain inefficiencies in the market
relative to a transparent market, including higher transaction costs
and wider spreads. Finally, the Commission noted that some of the
effects described below, such as the effects on capital formation, are
measured relative to a world without public dissemination requirements.
That is, in evaluating the effect of the SDR Rules on capital
formation, the Commission discusses how the final SDR Rules may enhance
or diminish capital formation relative to the current opaque SBS market
environment.
a. Potential Effects on Efficiency
    Two important economic characteristics of SDRs are the high fixed
costs and increasing economies of scale. Compliance with the SDR Rules
necessitates large investments in information technology
infrastructure, including storage infrastructure and technology for
electronic reporting and access to data, which results in high fixed
costs for SDRs. The Commission believes, however, that once the
infrastructure for operating as an SDR and compliance with the SDR
Rules is in place, the SDR's costs of accepting transactions are
minimal. Consequently, an SDR exhibits increasing economies of scale in
that the average total cost to the SDR per transaction reported, which
includes fixed costs, diminishes with the increase in volume of trades
reported as high fixed costs are spread over a larger number of trades.
    As a result, viewed in terms of minimizing the average SDR-related
cost per transaction, it may be efficient to limit the total number of
SDRs to one per asset class. In such a case, the SDR chosen for each
asset class would receive reports of all transactions in that asset
class, reducing inefficient duplication of fixed costs and potentially
giving that SDR a large number of transactions over which the SDR could
spread its high fixed costs. Furthermore, limiting the number of SDRs
to one per asset class would reduce the potential difficulties that may
arise when consolidating and aggregating data from multiple SDRs.\1239\
While such a limitation would resolve many of the challenges involved
in aggregating SBS data, the Commission is not limiting the number of
SDRs.\1240\ There are competitive benefits to having multiple SDRs, as
discussed below. Furthermore, the existence of multiple SDRs may reduce
operational risks, such as the risk that a catastrophic event or the
failure of an SDR leaves no registered SDR to which transactions can be
reported, impeding the functioning of the SBS market.
---------------------------------------------------------------------------

    \1239\ As discussed above, some commenters suggested limiting
the number of SDRs to one per asset class. However, their
suggestions concerning average total cost and data fragmentation
extend to one SDR that serves the entire SBS market. See Section IV
of this release discussing number of SDRs.
    \1240\ See Section IV of this release discussing number of SDRs.
---------------------------------------------------------------------------

    Nevertheless, the Commission believes that multiple SDRs may result
in certain inefficiencies relative to a market with a single SDR per
asset class,

as explained above.\1241\ In particular, the potential reporting of
transaction data to multiple SDRs may create a need to aggregate that
data by the Commission and other interested parties. If aggregation of
data is made difficult because identifiers or data field definitions
used by different SDRs are not compatible, then the cost and time
required by the Commission or any other interested party to aggregate
the data would increase, and the Commission's oversight of the SBS
market would be less efficient. The complications associated with
aggregation could be particularly costly when aggregation is required
across the same asset class and related transactions reside in
different SDRs.
---------------------------------------------------------------------------

    \1241\ See Sections II.A and IV of this release.
---------------------------------------------------------------------------

    On the other hand, by allowing the creation of multiple SDRs,
Exchange Act Section 13(n) \1242\ and the SDR Rules may result in
positive effects for market participants. Competition among SDRs may
lead to better services and may reduce the costs of those services for
market participants. As discussed above, there are currently four swap
data repositories for equity or credit swaps that are provisionally
registered with the CFTC and that may choose to register with the
Commission as SDRs. While some swap data repositories may ultimately
choose not to register and operate as an SDR, either because of
regulatory requirements that govern SDRs or for other reasons, the
Commission is not limiting the number of SDRs per asset class.
---------------------------------------------------------------------------

    \1242\ 15 U.S.C. 78m(n).
---------------------------------------------------------------------------

    Furthermore, the Commission believes that the SDR Exemption may
have positive effects on operational efficiency for SDRs, in terms of
cost savings relative to a scenario where the SDR Exemption does not
exist. The Commission believes that the exemption will allow certain
non-U.S. persons to continue to receive data reported pursuant to the
reporting requirements of a foreign jurisdiction without registering
with the Commission as an SDR, subject to a condition that helps ensure
that the privacy of the data and the Commission's access to the data is
maintained. The SDR Exemption may also reduce the incentives for SDRs
to restructure their operations to avoid triggering registration
requirements, thereby reducing potentially negative effects on
efficiency.\1243\ In particular, some persons may restructure solely
for the purposes of avoiding registration; in such restructurings,
persons expend resources that could potentially be put to more
productive uses.
---------------------------------------------------------------------------

    \1243\ See Section VI.K of this release discussing the SDR
Exemption.
---------------------------------------------------------------------------

    Viewed in the context of the broader transparency goals of Title
VII, the SDR Rules may provide additional informational (or price)
efficiency benefits in terms of asset valuation.\1244\ That is, by
improving the flow of information about SBSs and the reference entities
underlying SBSs, the SDR Rules may result in a market where prices of
SBSs and their underlying reference entities more accurately reflect
their fundamental value. The SDR Rules, together with the reporting and
public dissemination requirements of Regulation SBSR, should also
promote the process by which market participants seek the best
available price. Increased availability of information may lead to a
reduction in the spread between the price at which market participants
can enter into an SBS and the fundamental value of that SBS (referred
to as implicit trading costs in this release).\1245\ Real-time
transaction pricing and volume information provide signals to market
participants about the value of their investments. Market participants
may use these signals to update their assessment of the value of an
investment opportunity. In contrast to an opaque market, information
revealed through trades that are reported and publicly disseminated
allows market participants to make more-informed assessments of asset
valuations, promoting informational efficiency. This should be true for
the underlying assets or reference entities as well. That is,
information from SBS transactions provides signals not only about SBS
valuation, but also about the value of reference assets underlying
SBSs.
---------------------------------------------------------------------------

    \1244\ Informational or price efficiency refers to the degree to
which asset prices reflect available information about the value of
the asset. See, e.g., Eugene Fama, Efficient Capital Market II,
46(5) Journal of Finance 1575 (1991).
    \1245\ See Section II.A of this release.
---------------------------------------------------------------------------

b. Potential Effects on Competition
    The Commission believes that by allowing multiple SDRs to provide
data collection, maintenance, and recordkeeping services, the SDR Rules
should promote competition among SDRs. The Commission notes that, in an
analogous setting, there are currently four swap data repositories
provisionally registered with the CFTC, suggesting that multiple SDRs
competing in the SBS market is a likely outcome.\1246\ Increased
competition may lower costs for users of SDR services.
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    \1246\ See Section II.B of this release.
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    The Commission believes that because the SDR Rules do not preclude
an SDR from registering with the Commission and other foreign relevant
authorities, non-resident SDRs generally can take steps to comply with
both their home country requirements and the SDR Rules, and therefore
can register with the Commission. The Commission recognizes that a non-
resident SDR will incur additional burdens in making the certification
or providing the opinion of counsel required by Exchange Act Rule 13n-
1(f), and that these burdens may place non-resident SDRs at a
competitive disadvantage relative to resident SDRs.\1247\ The
Commission believes that by subjecting non-resident SDRs to the same
requirements as resident SDRs in all other respects--e.g., requiring
all SDRs to provide prompt access to books and records and submit to
onsite inspection and examination--the SDR Rules do not give a
significant competitive advantage to either resident or non-resident
SDRs. As a result, the Commission believes that the SDR Rules should
promote competition among SDRs both domestically and internationally.
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    \1247\ See Section VIII.D.1.b of the release discussing cost of
certification and opinion of counsel.
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    The Commission recognizes that there may be competitive effects due
to the jurisdictional divide between the CFTC and the Commission with
respect to swaps and SBSs. Swap data repositories that are registered
only with the CFTC may compete against SDRs that are registered only
with the Commission, and vice versa, for acceptance of mixed swaps. As
noted by commenters, divergent regulatory frameworks could lead to
``undue costs or burdens'' for SDRs and SBS market participants.\1248\
To the extent that the SDR Rules contain provisions that are more
burdensome than the CFTC's rules, the SDR Rules could hinder (1) an SDR
registered with only the Commission from competing against a swap data
repository registered with only the CFTC for acceptance of mixed swaps,
and (2) an SDR registered with both the Commission and the CFTC from
competing against a swap data repository registered with only the CFTC
for acceptance of CFTC-regulated swaps. On the other hand, if the SDR
Rules are less burdensome than the CFTC's rules, then an SDR registered
with only the Commission may enjoy a competitive advantage relative to
(1) a swap data repository registered with only the CFTC for acceptance
of mixed swaps, and (2) an SDR registered with both the Commission and
the CFTC for acceptance of SBSs.
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    \1248\ See IIB CB, supra note 26.

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    As stated above, the Commission believes that the SDR Rules and the
CFTC's final rules governing swap data repositories' registration,
duties, and core principles are largely consistent.\1249\ Indeed, the
Commission believes that, on the whole, the SDR Rules are substantially
similar to those adopted by the CFTC for swaps, and that any
differences are not significant enough to reduce the ability of SEC-
registered SDRs to compete against CFTC-registered swap data
repositories for acceptance of mixed swaps.\1250\ Thus, the Commission
does not believe that the SDR Rules, as a result of the jurisdictional
divide between the Commission and the CFTC, will negatively affect
competition in the market for acceptance of mixed swaps.
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    \1249\ See Section I.D of this release.
    \1250\ See DTCC 2, supra note 19 (stating that ``[t]he
Commission's proposed required practices are generally consistent
with those of'' the commenter's trade repository).
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    Finally, in addition to affecting competition among SDRs, the SDR
Rules have implications for competition among market participants. As
discussed above, by observing order flow, SBS dealers may have access
to information not available to the broader market, and therefore may
enjoy a competitive advantage over their non-dealer
counterparties.\1251\ Because price and volume information (revealed to
SBS dealers through their observation of order flow) contains signals
about the value of investment opportunities, SBS dealers are able to
use private information about order flow to derive more-informed
assessments of current market values, allowing them to extract economic
rents from less-informed counterparties.\1252\ Impartial access to
pricing and volume information should allow market participants to
derive more-informed assessments of asset valuations, reducing SBS
dealers' market power over other market participants. Additionally,
price transparency should also promote competition among SBS dealers.
The Commission expects that, as in other securities markets, quoted
bids and offers should form and adjust according to reported, executed
trades.
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    \1251\ See Section II.A of this release.
    \1252\ See Martin D.D. Evans and Richard K. Lyons, Exchange Rate
Fundamentals and Order Flow, NBER Working Paper No. 13151 (June
2007), available at: http://<IP_ADDRESS>/media/files/evans_lyons.pdf (finding evidence, based on data regarding end-user
currency trades, that transaction flows forecast future
macroeconomic variables such as output growth, money growth, and
inflation).
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c. Potential Effects on Capital Formation
    The Commission believes that compliance with the SDR Rules will
promote data collection, maintenance, and recordkeeping. In conjunction
with Regulation SBSR, including its public dissemination requirements,
the SDR Rules will likely have a positive effect on transparency in
credit markets by increasing information about the SBS market. In
particular, the definition of an SDR, which identifies persons that may
be required to register with the Commission and thereby required to
comply with the public dissemination requirements of Regulation SBSR,
and the data accuracy and maintenance requirements in the SDR Rules,
should have a positive effect by making comprehensive, accurate
information available to all market participants. The increased
availability of information should enable persons that rely on the SBS
market to meet their hedging objectives to make better decisions about
capital formation in general, which may positively affect capital
formation in the broader capital market. In particular, improved
transparency in the SBS market should improve the quality and quantity
of price information available in the SBS market, so that SBS prices
more accurately reflect fundamental value and risk. Improved insight
into the relationship between price and risk could attract hedgers and
other market participants that do not benefit from opacity, improving
liquidity and increasing opportunities for market participants to
diversify and share risks through trading SBS.\1253\
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    \1253\ See Section II.A of this release discussing transparency
in the SBS market.
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    Similarly, the Commission expects increased transparency in the SBS
market to benefit the broader economy. Similar to the derivatives
markets providing signals about the valuation of underlying reference
entities, transparent SBS prices provide signals about the quality of a
reference entity's business investment opportunities. Because market
prices incorporate information about the value of underlying investment
opportunities, market participants can use their observations of price
and volume to derive assessments of the profitability of a reference
entity's business and investment opportunities. Furthermore, business
owners and managers can use information gleaned from the SBS market--
both positive and negative--to make more-informed investment decisions
in physical assets and capital goods, as opposed to investment in
financial assets, thereby promoting efficient resource allocation and
capital formation in the real economy. Finally, transparent SBS prices
may also make it easier for firms to obtain new financing for business
opportunities, by providing information and reducing uncertainty about
the value and profitability of a firm's investments.\1254\
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    \1254\ See Philip Bond, Alex Edmans, and Itay Goldstein, The
Real Effects of Financial Markets, 4 Annual Review of Financial
Economics 339 (2012) (reviewing the theoretical literature on the
feedback between financial market prices and the real economy).
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    The SDR Rules are intended to help the Commission perform its
oversight functions in a more effective manner. For example, a more
complete picture of the SBS market, including information on risk
exposures and asset valuations, should allow the Commission to better
assess risk in the SBS market and evaluate the effectiveness of the
Commission's regulation of the SBS market. Appropriate and timely
regulatory responses to market developments could enhance investor
protection, and could encourage greater participation in the SBS
market, thereby improving risk-sharing opportunities and efficient
capital allocation. In addition, the SBS data provided by SDRs to the
Commission should help it advance the goals of the Dodd-Frank Act,
thereby promoting stability in the overall capital markets. Increased
overall stability in the capital markets could promote investor
participation, thereby increasing liquidity and capital formation.
    Finally, to the extent that the SDR Rules promote competition among
SDRs, as discussed above, the SDR Rules may lower costs for users of
SDR services.\1255\ Decreased costs may promote capital formation by
increasing the amount of capital available for investment by users of
SDR services.
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    \1255\ See Section VIII.C.3.a of this release discussing the
effect of competition between SDRs on the prices of SDR services.
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D. Costs and Benefits of Specific Rules

1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    Rule 13n-1 and Form SDR describe the information that a person must
file to register as an SDR and also provide for interim amendments and
required annual amendments that must be filed within 60 days after the
end of each fiscal year of the SDR and that these filings must be in a
tagged data format. Each non-resident SDR is required to (i) certify on
Form SDR that the SDR can, as a matter of law, and will provide the
Commission with prompt access to the SDR's books and records and can,
as a matter of law, and will submit to onsite inspection and
examination by the Commission and (ii) provide an opinion of counsel
that the SDR can, as a matter

of law, provide the Commission with access to the books and records of
such SDR and can, as a matter of law, submit to onsite inspection and
examination by the Commission. Rule 13n-2 sets forth the process by
which a registered SDR would withdraw its registration or have its
registration revoked or cancelled.\1256\ Rule 13n-3 sets forth the
registration process for a successor to a registered SDR.\1257\ These
rules and Form SDR are adopted pursuant to the Commission's rulemaking
authority under Exchange Act Section 13(n).\1258\
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    \1256\ See Sections VI.B of this release discussing Rule 13n-2.
    \1257\ See Sections VI.C of this release discussing Rule 13n-3.
    \1258\ See 15 U.S.C. 78m(n).
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a. Benefits
    The rules and Form SDR described in this section provide for the
registration of SDRs, withdrawal from registration, revocation and
cancellation of the registration, and successor registration of SDRs.
Congress enacted the new registration requirements as part of the Dodd-
Frank Act in order to increase the transparency in the SBS market. The
registration process will further the Dodd-Frank Act's goals by
assisting the Commission in overseeing and regulating the SBS market.
The requirement that a non-resident SDR (i) certify that the SDR can,
as a matter of law, and will provide the Commission with prompt access
to the SDR's books and records and can, as a matter of law, and will
submit to onsite inspection and examination by the Commission and (ii)
provide an opinion of counsel that it can, as a matter of law, provide
the Commission with access to the SDR's books and records and can, as a
matter of law, submit to inspection and examination will allow the
Commission to evaluate an SDR's ability to meet the requirements for
registration and to conduct ongoing oversight.
    The information required to be provided in Form SDR is necessary to
enable the Commission to assess whether an applicant has the capacity
to perform the duties of an SDR and to comply with the duties, core
principles, and other requirements imposed on SDRs pursuant to Exchange
Act Section 13(n) and the rules and regulations thereunder.
    The requirement that SDRs file Form SDR in a tagged data format
will facilitate review and analysis of registration materials by
Commission staff and, to the extent such materials are made public, the
public This requirement is consistent with the Commission's
longstanding efforts to increase transparency and the usefulness of
information by requiring the data tagging of information contained in
electronic filings in order to improve the accuracy of submitted
information, including financial information, and facilitate its
analysis.\1259\
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    \1259\ See Regulation S-T, 17 CFR 232; see also Electronic
Filing and Revision of Form D, Securities Act Release No. 8891 (Feb.
6, 2008), 73 FR 10592 (Feb. 27, 2008); Interactive Data to Improve
Financial Reporting, Securities Act Release No. 9002 (Jan. 30,
2009), 74 FR 6776 (Feb. 10, 2009); Interactive Data for Mutual Fund
Risk/Return Summary, Securities Act Release No. 9006 (Feb. 11,
2009), 74 FR 7748 (Feb. 19, 2009); Amendments to Rules for National
Recognized Statistical Rating Organizations, Exchange Act Release
No. 61050 (Nov. 23, 2009), 74 FR 63832 (Dec. 4, 2009); Money Market
Fund Reform, Investment Company Release No. 29132 (Feb. 23, 2010),
75 FR 10060 (Mar. 4, 2010).
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    The Commission solicited comments on the benefits associated with
the registration-related rules and Form SDR.\1260\ The Commission did
not receive any comments specifically addressing these benefits.
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    \1260\ See Proposing Release, 75 FR at 77355, supra note 2.
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b. Costs
    The Commission anticipates that the primary costs to SDRs from the
registration-related rules and Form SDR result from the requirement to
complete Form SDR and any amendments thereto.
    As discussed above, the Commission estimates that the average
initial paperwork cost of SDR registration will be 481 hours per SDR
and the average ongoing paperwork cost of interim and annual updated
Form SDR will be 36 hours for each registered SDR.\1261\ Assuming a
maximum of ten SDRs, the aggregate one-time estimated dollar cost will
be $793,840 \1262\ and the aggregate ongoing estimated dollar cost per
year will be $55,440 \1263\ to comply with the rule.
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    \1261\ See Section VII.D.1 of this release discussing the cost
of SDR registration.
    \1262\ The Commission estimates that an SDR will assign these
responsibilities to a Compliance Attorney and a Compliance Clerk.
Data from SIFMA's Management & Professional Earnings in the
Securities Industry 2013, modified by Commission staff to account
for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead, suggest that
the cost of a Compliance Clerk is $64 per hour. Thus, the total one-
time estimated dollar cost of complying with the initial
registration-related requirements is $79,384 per SDR and $793,840
for all SDRs, calculated as follows: (Compliance Attorney at $334
per hour for 180 hours) + (Compliance Clerk at $64 per hour for 301
hours) x (10 registrants) = $793,840.
    \1263\ The Commission estimates that an SDR will assign these
responsibilities to a Compliance Attorney and a Compliance Clerk.
Thus, the total estimated dollar cost of complying with the ongoing
registration-related requirements is $5,544 per year per SDR and
$55,440 per year for all SDRs, calculated as follows: (Compliance
Attorney at $334 per hour for 12 hours) + (Compliance Clerk at $64
per hour for 24 hours) x (10 registrants) = $55,440.
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    As discussed above, the Commission estimates that the average
initial paperwork cost of filing a Form SDR to withdraw from
registration will be 12 hours per SDR.\1264\ Assuming that, at most,
one SDR per year would withdraw, the aggregate one-time estimated
dollar cost will be $4,008 \1265\ to comply with the rule.
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    \1264\ See Section VII.D.1 of this release discussing the cost
of filing Form SDR to withdraw from registration.
    \1265\ The Commission estimates that an SDR will assign these
responsibilities to a Compliance Attorney. Thus, the total estimated
dollar cost of complying with the requirements related to withdrawal
from registration is $4,008 per year per SDR and $4,008 per year for
all SDRs, calculated as follows: (Compliance Attorney at $334 per
hour for 12 hours) x (1 SDR withdrawing) = $4,008.
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    As discussed above, the Commission estimates that the average
initial paperwork cost for each non-resident SDR to (i) certify on Form