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

    \383\ See infra Section XI (discussing Rule 904, which deals
with hours of operation of registered SDRs and related operational
procedures).
---------------------------------------------------------------------------

3. Dissemination of Life Cycle Events
    Rule 902(a), as adopted, provides that, in addition to transaction
reports of security-based swaps, a registered SDR ``shall publicly
disseminate . . . a life cycle event or adjustment due to a life cycle
event.'' Rule 902(a), as proposed and re-proposed, did not specifically
refer to such information, but, as noted in the Regulation SBSR
Proposing Release, proposed Rule 907(a)(4) would have required a
registered SDR to ``establish and maintain written policies and
procedures describing how reporting parties shall report--and,
consistent with the enhancement of price discovery, how the registered
SDR shall publicly disseminate--reports of, and adjustments due to,
life cycle events.'' \384\ One commenter argued that the Commission
should limit public dissemination to new trading activity and should
exclude maintenance or life cycle events.\385\ The Commission
disagrees, and believes instead that, if information about a security-
based swap is publicly disseminated but subsequently one or more of the
disseminated data elements is revised due to a life cycle event (or an
adjustment due to a life cycle event), the revised information would
provide market observers a more accurate understanding of the market.
The Commission, therefore, is clarifying Rule 902(a) to make clear the
requirement to disseminate life cycle events. Final Rule 902(a)
provides, in relevant part, that a registered SDR ``shall publicly
disseminate a transaction report of the security-based swap or a life
cycle event or adjustment due to a life cycle event immediately upon
receipt.'' \386\
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    \384\ Regulation SBSR Proposing Release, 75 FR 75237.
    \385\ See ISDA/SIFMA I at 12. See also ISDA IV at 13 (arguing
that only life cycle events that result in a change to the price of
a security-based swap should be subject to public dissemination, and
requesting that ``any activity on a [security-based swap] that does
not affect the price of the reportable [security-based swap]'' be
excluded from public dissemination).
    \386\ To enhance the usefulness of a public transaction report
of a life cycle event, final Rule 907(a)(3) requires a registered
SDR to have policies and procedures for appropriately flagging
public reports of life cycle events. See infra Section XII(C). This
requirement is designed to promote transparency by allowing market
observers to distinguish original transactions from life cycle
events.
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4. Correction of Minor Drafting Error
    Rule 902(a), as initially proposed and re-proposed, provided that
the transaction report that is publicly disseminated ``shall consist of
all the information reported pursuant to Rule 901, plus any indicator
or indicators contemplated by the registered security-based swap data
repository's policies and procedures that are required by Rule 907''
(emphasis added). However, in the Regulation SBSR Proposing Release,
the Commission specified that the transaction report that is
disseminated should consist of all the information reported pursuant to
Rule

901(c).\387\ The statement from the preamble of the Regulation SBSR
Proposing Release is correct. The Commission did not intend for all of
the information reported pursuant to Rule 901 to be publicly
disseminated;\388\ this would include, for example, regulatory data
reported pursuant to Rule 901(d) and information about historical
security-based swaps reported pursuant to Rule 901(i). The Commission
is correcting this drafting error so that final Rule 902(a) explicitly
states that the ``transaction report shall consist of all the
information reported pursuant to Sec.  242.901(c), plus any condition
flags contemplated by the registered security-based swap data
repository's policies and procedures that are required by Sec.
242.907'' (emphasis added).
---------------------------------------------------------------------------

    \387\ See 75 FR 75212-13.
    \388\ Two comments specifically noted this lack of clarity. See
ISDA/SIFMA I at 12; ISDA IV at 14.
---------------------------------------------------------------------------

5. Use of Agents by a Registered SDR To Carry Out the Public
Dissemination Function
    One commenter discussed the appropriateness of third-party service
providers carrying out the public dissemination function on behalf of
registered SDRs.\389\ The Commission believes that, in the same way
that reporting sides may engage third-party agents to report
transactions on their behalf, registered SDRs may engage third-party
providers to carry out the public dissemination function on their
behalf. In both cases, the entity with the legal duty would remain
responsible for compliance with Regulation SBSR if its agent failed to
carry out the function in a manner stipulated by Regulation SBSR. Thus,
reporting sides and registered SDRs should engage only providers that
have the capacity and reliability to carry out those duties.
---------------------------------------------------------------------------

    \389\ See MarkitSERV I at 7-8.
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C. Definition of ``Publicly Disseminate''

    In the Regulation SBSR Proposing Release, the Commission defined
``publicly disseminate'' in Rule 900 to mean ``to make available
through the Internet or other electronic data feed that is widely
accessible and in machine-readable electronic format.'' The Commission
re-proposed this definition renumbering it Rule 900(y), in the Cross-
Border Proposing Release.
    The Commission received no comment letters directly discussing the
proposed definition, although as noted above many commenters commented
on various other aspects of public dissemination, including the format
of disseminated data \390\ and timing of public dissemination.\391\ The
Commission is adopting the definition of ``publicly disseminate'' as
proposed and re-proposed. The Commission continues to believe that, to
satisfy the statutory mandate for public dissemination, security-based
swap transaction data must be widely accessible in a machine-readable
electronic format. These data are too numerous and complex for direct
human consumption and thus will have practical use only if they can be
downloaded and read by computers. The definition of ``publicly
disseminate'' recognizes the Internet as one, but not the only,
possible electronic medium to make these data available to the public.
---------------------------------------------------------------------------

    \390\ See supra Section VII(B)(1).
    \391\ See supra Section VII(B)(2).
---------------------------------------------------------------------------

D. Exclusions From Public Dissemination--Rule 902(c)

 1. Discussion of Final Rule
    Rule 902(c), as proposed and re-proposed, set forth three kinds of
information that a registered SDR would be prohibited from
disseminating. First, in Rule 902(c)(1), the Commission proposed that a
registered SDR would be prohibited from disseminating the identity of
any counterparty to a security-based swap. This would implement Section
13(m)(1)(E)(i) of the Exchange Act,\392\ which requires the
Commission's rule providing for the public dissemination of security-
based swap transaction and pricing information to ensure that ``such
information does not identify the participants.'' The Commission
received three comments that generally urged the Commission to ensure
the anonymity of security-based swap counterparties, either through
non-dissemination of the identity of any counterparty or by limiting
public dissemination of other data elements they believed could lead to
disclosure of counterparties' identities.\393\ To address the
commenters' concerns, the Commission is adopting Rule 902(c)(1) as
proposed and re-proposed, with one conforming change.\394\ Final Rule
902(c)(1) explicitly prohibits a registered SDR from disseminating the
identity of any counterparty. Further, Rule 902(a) explicitly provides
for the public dissemination of a transaction report that consists only
of ``the information reported pursuant to Sec.  242.901(c), plus any
condition flags contemplated by the registered security-based swap data
repository's policies and procedures that are required by Sec.
242.907.'' Limiting the publicly disseminated trade report to these
specific data elements is designed to further avoid disclosure of any
counterparty's identity, including the counterparty ID of a
counterparty, even in thinly-traded markets.\395\
---------------------------------------------------------------------------

    \392\ 15 U.S.C. 13m(m)(1)(E)(i). This section is applicable to
security-based swaps that are subject to Sections 13(m)(1)(C)(i) and
(ii) of the Exchange Act--i.e., security-based swaps that are
subject to the mandatory clearing requirement in Section 3C(a)(1)
and security-based swaps that are not subject to the mandatory
clearing requirement in Section 3C(a)(1) but are cleared.
    \393\ See Deutsche Bank Letter at 6 (asking the SEC and CFTC to
impose strict requirements on an SDR's handling, disclosure, and use
of identifying information); DTCC II at 9 (noting that trading
volume in most single name credit derivatives is ``extremely thin''
and disclosing small data samples, particularly from narrow time
periods, may not preserve the anonymity of the trading parties);
ISDA/SIFMA I at 12; MFA I at 2 (arguing that participant IDs should
not be included in any publicly disseminated transaction report to
protect identities and proprietary trading strategies of security-
based swap market participants).
    \394\ Re-proposed Rule 902(c)(1) would have prohibited a
registered SDR from publicly disseminating the identity of either
counterparty to a security-based swap. Final Rule 902(c)(1)
prohibits a registered SDR from publicly disseminating the identity
of any counterparty to a security-based swap. Final Rule 900(i)
defines counterparty to mean ``a person that is a direct
counterparty or indirect counterparty of a security-based swap.''
This conforming change to Rule 902(c)(1) makes clear that a
registered SDR may not publicly disseminate the identity of any
counterparty--direct or indirect--of a security-based swap.
    \395\ See infra Section VI(D)(1)(f) (discussing public
dissemination of thinly-traded products).
---------------------------------------------------------------------------

    Second, the Commission proposed in Rule 902(c)(2) that, with
respect to a security-based swap that is not cleared at a clearing
agency and that is reported to a registered SDR, a registered SDR would
be prohibited from disseminating any information disclosing the
business transactions and market positions of any person. This would
implement Section 13(m)(1)(C)(iii) of the Exchange Act,\396\ which
provides that, with respect to the security-based swaps that are not
cleared and which are reported to an SDR or the Commission, ``the
Commission shall require real-time public reporting . . . in a manner
that does not disclose the business transactions and market positions
of any person.'' The Commission received no comments that directly
addressed proposed Rule 902(c)(2), although one commenter noted that
``all market participants have legitimate interests in the protection
of their confidential and identifying financial information.'' \397\ By
prohibiting a registered SDR from disseminating any information
disclosing the business transactions and market positions of any
person, the Commission believes that Rule 902(c)(2) will help preserve
the confidential information of market participants, in

addition to implementing Section 13(m)(1)(C)(iii) of the Exchange Act.
Accordingly, the Commission is adopting Rule 902(c)(2) as proposed and
re-proposed.
---------------------------------------------------------------------------

    \396\ 15 U.S.C. 13(m)(1)(C)(iii).
    \397\ Deutsche Bank Letter at 6.
---------------------------------------------------------------------------

    Third, the Commission preliminarily believed that it would be
impractical and unnecessary for a registered SDR to publicly
disseminate reports of historical security-based swaps reported
pursuant to Rule 901(i), and therefore included this exclusion in
proposed Rule 902(c)(3).\398\ The Commission received no comments
regarding proposed Rule 902(c)(3). The Commission continues to believe
that it would be impractical for a registered SDR to publicly
disseminate reports of historical security-based swaps reported
pursuant to Rule 901(i). Accordingly, the Commission is adopting Rule
902(c)(3) as proposed and re-proposed.
---------------------------------------------------------------------------

    \398\ 75 FR 75286.
---------------------------------------------------------------------------

    The Commission calls particular attention to the relationship
between Rules 901(i), 901(e), and 902. Rule 901(i) requires reporting
of historical security-based swaps to a registered SDR. Rule 902(c)(3)
provides that the initial transaction reported pursuant to Rule 901(i)
shall not be publicly disseminated. A historical security-based swap
might remain open after market participants are required to begin
complying with the requirement in Rule 901(e) to report life cycle
events.\399\ If a life cycle event of a historical security-based swap
relating to any of the primary trade information--i.e., the data
elements enumerated in Rule 901(c)--occurs after public dissemination
is required for security-based swaps in a particular asset class, Rule
902(a) would require the registered SDR to publicly disseminate a
report of that life cycle event, plus any condition flags required by
the registered SDR's policies and procedures under Rule 907. In other
words, Rule 902(c)(3)'s exclusion from public dissemination for
historical security-based swaps applies only to the initial
transaction, not to any life cycle event of that historical security-
based swap relating to the primary trade information that occurs after
public dissemination in that asset class is required. Therefore, life
cycle events relating to the primary trade information of historical
security-based swaps must, after the public dissemination requirement
goes into effect, be publicly disseminated.\400\
---------------------------------------------------------------------------

    \399\ See Regulation SBSR Proposed Amendments Release, Section
VII (proposing a new compliance schedule for Regulation SBSR).
    \400\ For example, a termination of a historical security-based
swap--occurring after public dissemination in that asset class
becomes required--would have to be publicly disseminated. A
termination represents the change in the notional amount of the
transaction from a positive amount to zero. Because the notional
amount is a Rule 901(c) element, the termination of the historical
security-based swap would have to be publicly disseminated.
---------------------------------------------------------------------------

    At the same time, correcting an error in the Rule 901(c)
information relating to a historical security-based swap would not
trigger public dissemination of a corrected report. Rule 905 applies to
all information reported pursuant to Regulation SBSR, including
historical security-based swaps that must be reported pursuant to Rule
901(i). Rule 905(b)(2) requires the registered SDR to publicly
disseminate a correction of a transaction only if the corrected
information falls within Rule 901(c) and the transaction previously was
subject to a public dissemination requirement. Historical security-
based swaps are not subject to the public dissemination requirement;
therefore, corrections to Rule 901(c) information in historical
security-based swaps are not subject to public dissemination either.
    Rule 902(a), as proposed, would have provided that a registered SDR
shall publicly disseminate a transaction report of a security-based
swap reported to it, ``[e]xcept in the case of a block trade.'' Rule
902(a), as re-proposed, would have retained the exception for block
trades and added a second exception, for ``a trade that is required to
be reported but not publicly disseminated.'' \401\ In final Regulation
SBSR, the Commission is revising Rules 902(a) and 902(c) to consolidate
into a single rule--Rule 902(c)--all the types of security-based swaps
and the kinds of information that a registered SDR is prohibited from
disseminating. Therefore, Rule 902(a), as adopted, now provides that a
registered SDR shall publicly disseminate a transaction report of a
security-based swap ``except as provided in paragraph (c) of this
section.''
---------------------------------------------------------------------------

    \401\ This second exception was necessitated by revisions to
Rule 908 made in the Cross-Border Proposing Release that would have
provided that certain cross-border security-based swaps would be
subject to regulatory reporting but not public dissemination. See 78
FR 31215.
---------------------------------------------------------------------------

    In addition to adopting subparagraphs (1), (2), and (3) of Rule
902(c), as proposed and re-proposed, the Commission is modifying Rule
902(c) to expand the number of exclusions from public dissemination
from three to seven. First, the Commission is adding Rule 902(c)(4),
which prohibits a registered SDR from disseminating a non-mandatory
report, and is adding a new Rule 900(r) to define ``non-mandatory
report'' as any information provided to a registered SDR by or on
behalf of a counterparty other than as required by Regulation SBSR.
Situations may arise when the same transaction may be reported to two
separate registered SDRs. This could happen, for example, if the
reporting side reports a transaction to one registered SDR, as required
by Rule 901, but the other side elects to submit the same transaction
information to a second registered SDR. The Commission has determined
that any non-mandatory report should be excluded from public
dissemination because the mandatory report of that transaction will
have already been disseminated, and the Commission seeks to avoid
distorting the market by having two public reports issued for the same
transaction.\402\
---------------------------------------------------------------------------

    \402\ See infra Section XIX (explaining how a registered SDR can
determine whether the report it receives is a non-mandatory report).
---------------------------------------------------------------------------

    Second, the Commission is adding Rule 902(c)(5), which prohibits a
registered SDR from disseminating any information regarding a security-
based swap that is subject to regulatory reporting but not public
dissemination under final Rule 908(a) of Regulation SBSR.\403\ Rule
902(a), as re-proposed, would have prohibited a registered SDR from
publicly disseminating information concerning a cross-border security-
based swap that is required to be reported but not publicly
disseminated. The Commission received no comments on this specific
provision, and is relocating it from re-proposed Rule 902(a) to final
Rule 902(c)(5). Rule 902(c)(5), as adopted, will prohibit a registered
SDR from disseminating ``[a]ny information regarding a security-based
swap that is required to be reported pursuant to Sec. Sec.  242.901 and
242.908(a)(1) but is not required to be publicly disseminated pursuant
to Sec.  242.908(a)(2).''
---------------------------------------------------------------------------

    \403\ See infra Section XV(A).
---------------------------------------------------------------------------

    Third, the Commission is adding Rule 902(c)(6), which prohibits a
registered SDR from disseminating any information regarding certain
types of clearing transactions.\404\ Regulation SBSR, as proposed and
re-proposed, did not provide any exemption from public dissemination
for clearing transactions. However, the Commission has determined that
publicly disseminating reports of clearing transactions that arise from
the acceptance of a security-based swap for clearing by a registered
clearing agency or that result from netting other clearing transactions
would be unlikely to further Title VII's transparency objectives. Any
security-based swap transaction, such as an

alpha, that precedes a clearing transaction must be publicly
disseminated. Clearing transactions, such as the beta and the gamma,
that result from clearing a security-based swap or from netting
clearing transactions together do not have price discovery value
because they are mechanical steps taken pursuant to the rules of the
clearing agency. Therefore, the Commission believes that non-
dissemination of these clearing transactions is appropriate in the
public interest and consistent with the protection of investors.
---------------------------------------------------------------------------

    \404\ Rule 900(f) defines ``clearing transaction'' as ``a
security-based swap that has a registered clearing agency as a
direct counterparty.''
---------------------------------------------------------------------------

    Fourth, the Commission is adding Rule 902(c)(7), which prohibits a
registered SDR from disseminating any information regarding the
allocation of a security-based swap. As discussed in more detail in
Section VIII, infra, the Commission has determined that, to comply with
this prohibition, a registered SDR will satisfy its public
dissemination obligations for a security-based swap involving
allocation by disseminating only the aggregate notional amount of the
executed bunched order that is subsequently allocated. The Commission
believes that this is an appropriate means of public dissemination,
because the price and size of the executed bunched order were
negotiated as if the transaction were a single large trade, rather than
as individual smaller trades. In the Commission's view, public
dissemination of the allocations would not enhance price discovery
because the allocations are not individually negotiated.\405\
Furthermore, although the Commission has taken the approach in other
situations of requiring public dissemination of the transaction but
with a condition flag to explain the special circumstances related to
the transaction,\406\ for the reasons stated above, the Commission does
not believe that this approach is appropriate here. Rule 902(c)(7)'s
exception to public dissemination for the individual allocations also
is designed to address commenter concerns that publicly disseminating
the sizes of individual allocations could reveal the identities or
business strategies of fund groups that execute trades on behalf of
multiple client funds.\407\ For similar reasons, Rule 902(c)(7), as
adopted, prohibits a registered SDR from publicly disseminating the
fact that an initial security-based swap has been terminated and
replaced with several smaller security-based swaps as part of the
allocation process.\408\ The Commission believes that any marginal
benefit of publicly disseminating this type of termination event would
not be justified by the potential risk to the identity or business
strategies of fund groups that execute trades on behalf of multiple
client funds.\409\
---------------------------------------------------------------------------

    \405\ The size in which a transaction is executed could
significantly affect the price of the security-based swap. Thus, all
other things being equal, the price negotiated for a large trade
could be significantly different from the price negotiated for a
small trade. Publicly disseminating the prices of small trades that
are allocated from the bunched order execution might not provide any
price discovery value for another small trade if it were to be
negotiated individually. Nor does the Commission believe that
publicly disseminating the prices and sizes of the allocations would
provide any more price discovery than a single print of the bunched
order execution, because the allocations result from a single
negotiation for the bunched order size. However, if ``child''
transactions of a larger ``parent'' transaction are priced
differently from the parent transaction, these child transactions
would not fall within the exclusion in Rule 902(c)(7).
    \406\ See infra Section IX (discussing requirements for public
dissemination of inter-affiliate security-based swaps).
    \407\ See MFA I at 2-3 (``we are concerned that post-allocation
[security-based swap] data, if publicly disseminated, will allow any
of the fund's counterparties to identify transactions that the fund
executed with others. Counterparties are often aware of an
investment manager's standard fund allocation methodology and
therefore, reporting transactions at the allocated level with trade
execution time will make evident an allocation scheme that other
participants can easily associate with a particular investment
manager'').
    \408\ Ordinarily, the termination of a security-based swap that
has been publicly disseminated would itself be an event that must be
publicly disseminated. See Rule 902(a) (generally providing that a
registered SDR shall publicly disseminate a transaction report of a
security-based swap ``or a life cycle event or adjustment due to a
life cycle event'' immediately upon receiving an appropriate
transaction report).
    \409\ For the reasons noted above, the Commission believes that
it is necessary or appropriate in the public interest, and is
consistent with the protection of investors, to exclude these types
of information from public dissemination under Regulation SBSR.
---------------------------------------------------------------------------

    Registered SDRs will need to rely on the information provided by
reporting sides to determine whether Rule 902(c) excludes a particular
report from public dissemination. As described in more detail in
Section VI(G), Rule 907(a)(4)(iv) requires a registered SDR, among
other things, to establish and maintain written policies and procedures
directing its participants to apply to the transaction report a
condition flag designated by the registered SDR to indicate when the
report of a transaction covered by Rule 902(c) should not be publicly
disseminated.\410\ A registered SDR would not be liable for a violation
of Rule 902(c) if it disseminated a report of a transaction that fell
within Rule 902(c) if the reporting side for that transaction failed to
appropriately flag the transaction as required by Rule 907(a)(4).
---------------------------------------------------------------------------

    \410\ Rule 907(a)(4) provides registered SDRs with some
discretion in determining how a reporting side must flag reported
data that will be excluded from public dissemination. See infra
Section VI(G).
---------------------------------------------------------------------------

 2. Other Exclusions From Public Dissemination Sought by Commenters
    Several commenters advanced arguments against public dissemination
of various types of security-based swaps. The Commission notes at the
outset that the statutory provisions that require public dissemination
of security-based swap transactions state that all security-based swaps
shall be publicly disseminated.
a. Customized Security-Based Swaps
    Several commenters expressed the view that transaction information
regarding customized security-based swaps should not be publicly
disseminated because doing so would not enhance price discovery, would
be of limited use to the public, or could be confusing or misleading to
market observers.\411\ However, one commenter urged the Commission to
require public dissemination of all of the information necessary to
calculate the price of a customized security-based swap.\412\
---------------------------------------------------------------------------

    \411\ See Barclays Letter at 3; Cleary II at 6, 16 (stating that
public reporting of customized security-based swaps would not aid
price discovery, and that the Commission should require the public
dissemination of key terms of a customized transaction and an
indication that it is customized); DTCC II at 9 (noting the
difficulty of comparing price data across transactions that are non-
standard and have different terms); ISDA/SIFMA I at 11 (stating that
customized security-based swaps provide little to no price discovery
value and should not be subject to public dissemination); MFA I at 3
(arguing that Congress did not intend to require public
dissemination of comprehensive information for customized security-
based swaps and that price discovery serves a purpose only if there
is a broad market for the relevant transaction, which is not the
case with customized security-based swaps).
    \412\ See Better Markets I at 7; Better Markets II at 3 (stating
that many transactions characterized as too complex for reporting or
dissemination are, in fact, composites of more straightforward
transactions, and that there should be disclosure of information
concerning these components to provide meaningful transparency and
to prevent market participants from avoiding disclosure by creating
composite transactions).
---------------------------------------------------------------------------

    Section 13(m)(1)(C) of the Exchange Act\413\ authorizes the
Commission to provide by rule for the public availability of security-
based swap transaction, volume, and pricing data for four types of
security-based swaps, which together comprise the complete universe of
potential security-based swaps. With respect to ``security-based swaps
that are not cleared at a registered clearing agency and which are
reported to a security-based swap data repository''--which category
would include customized or bespoke security-

based swaps--Section 13(m)(1)(C) provides that ``the Commission shall
require real-time public reporting for such transactions, in a manner
that does not disclose the business transactions and market positions
of any person'' (emphasis added).
---------------------------------------------------------------------------

    \413\ 15 U.S.C. 13(m)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission does not believe that the commenters who argued
against disseminating reports of bespoke transactions have provided
sufficient justification for an exception to public dissemination. To
the contrary, the Commission believes that dissemination of transaction
reports of customized security-based swaps could still provide useful
information to market observers. Although all of the material elements
of a bespoke transaction necessary to understand the market value might
not be publicly disseminated, it is an overstatement to argue
categorically that bespoke transactions would have no price discovery
value, as certain commenters suggested.\414\ The disseminated price
could, for example, still have an anchoring effect on price
expectations for future negotiations in similar or related products,
even in thinly-traded markets. Furthermore, even if it is difficult to
compare price data across customized transactions, by disseminating
reports of all bespoke transactions, market observers can understand
the relative number and aggregate notional amounts of transactions in
bespoke products versus standardized products.
---------------------------------------------------------------------------

    \414\ See supra note 411.
---------------------------------------------------------------------------

    The Commission recognizes, however, that market observers should
have information that permits them to readily distinguish transactions
in standardized products from transactions in bespoke security-based
swaps. Accordingly, Rule 901(c)(1)(v) provides that, when reporting a
transaction to a registered SDR, the reporting side must attach a flag
to indicate whether a security-based swap is customized to the extent
that the other information provided pursuant to Rule 901(c) does not
provide all of the material information necessary to identify the
security-based swap or does not contain the data elements necessary to
calculate the price of the security-based swap. In addition, final Rule
907(a)(4) requires a registered SDR to establish policies and
procedures concerning the use of appropriate flags on disseminated
transaction reports that are designed to assist market observers in
interpreting the relevance of a transaction.
b. Inter-Affiliate Transactions
    Several commenters argued that the Commission should not require
public dissemination of inter-affiliate security-based swaps. Issues
relating to regulatory reporting and public dissemination of inter-
affiliate transactions are discussed in Section IX, infra.
c. Security-Based Swaps Entered Into in Connection With a Clearing
Member's Default
    One commenter argued that reports of security-based swaps effected
in connection with a clearing agency's default management processes
following the default of a clearing member should not be publicly
disseminated in real time.\415\ This commenter believed that public
dissemination of these transactions could undermine a clearing agency's
default management processes and have a negative effect on market
stability, particularly because a default likely would occur during
stressed market conditions. Accordingly, the commenter recommended that
reports of security-based swaps entered into in connection with a
clearing agency's default management processes be made available to the
Commission in real time but not publicly disseminated until after the
default management processes have been completed, as the Commission
determines appropriate.
---------------------------------------------------------------------------

    \415\ See LCH.Clearnet Letter at 2 (explaining that, to manage a
defaulting clearing member's portfolio, a clearing agency would rely
on its non-defaulting members to provide liquidity for a small
number of large transactions that would be required to hedge the
defaulting member's portfolio, and the ability of non-defaulting
members to provide liquidity for these transactions would be
impaired if the transactions were reported publicly before the
members had an opportunity to mitigate the risks of the
transactions).
---------------------------------------------------------------------------

    The Commission believes that, at present, the commenter's concerns
are addressed by the Commission's approach for the interim phase of
Regulation SBSR, which offers reporting sides up to 24 hours after the
time of execution to report a security-based swap.\416\ The Commission
believes that this approach strikes an appropriate balance between
promoting post-trade transparency and facilitating the default
management process, and is broadly consistent with the commenter's
suggestion to allow for public dissemination after the default
management process has been completed. Further, the commenter suggested
that such transactions typically occur in large size; thus,
transactions entered into by surviving clearing members might qualify
for any block exception, if the Commission were to promulgate such an
exception in the future. The Commission intends to revisit the
commenter's concern in connection with its consideration of block
thresholds and other potential rules relating to block trades.
---------------------------------------------------------------------------

    \416\ See Rule 901(j); Section VII(B), infra. If 24 hours after
the time of execution would fall on a day that is not a business
day, reporting would be required by the same time on the next day
that is a business day.
---------------------------------------------------------------------------

d. Total Return Security-Based Swaps
    Three commenters argued that there should be no public
dissemination of total return security-based swaps (``TRSs''), which
offer risks and returns proportional to a position in a security,
securities, or loan(s) on which a TRS is based.\417\ One of these
commenters argued that ``TRS pricing information is of no value to the
market because it is driven by many considerations including the
funding levels of the counterparties to the TRS and therefore may not
provide information about the underlying asset for the TRS.'' \418\
Another commenter suggested that the fact that TRSs are hedged in the
cash market, where trades are publicly disseminated, would mitigate the
incremental price discovery benefit of public dissemination of the
TRSs.\419\ Similarly, a third commenter argued that requiring public
dissemination of an equity TRS transaction would not enhance
transparency, and could confuse market participants, because the
hedging transactions are already publicly disseminated.\420\
---------------------------------------------------------------------------

    \417\ See Barclays Letter at 2-3; Cleary II at 13-14; ISDA/SIFMA
I at 13.
    \418\ ISDA/SIFMA I at 13.
    \419\ See Cleary II at 13-14. The primary concern of this
commenter with respect to equity TRSs was the proposed exclusion of
equity TRSs from the reporting delay for block trades. See id. The
Commission expects to consider this comment in connection with its
consideration of rules for block trades.
    \420\ See Barclays Letter at 3. The commenter also expressed
more general concerns regarding the potential consequences of
reduced liquidity in the equity TRS market, noting that if liquidity
in the equity TRS market is impaired, liquidity takers could migrate
away from a diversified universe of security-based swap
counterparties to a more concentrated group of prime brokers, which
could increase systemic risk by concentrating large risk positions
with a small number of prime brokers. See Barclays Letter at 8.
---------------------------------------------------------------------------

    The Commission has carefully considered these comments but believes
that these commenters have not provided sufficient justification to
support a blanket exclusion from public dissemination for TRSs. The
Commission believes, rather, that market observers should be given an
opportunity to decide how to interpret the relevance of a disseminated
trade to the state of the market, and reiterates that relevant
statutory provisions state that all security-based swaps shall be
publicly disseminated. These statutory provisions do not by their terms
distinguish such public dissemination

based on particular characteristics of a security-based swap.
    The Commission also has considered the argument advanced by one of
the commenters that requiring instantaneous public dissemination of an
equity TRS transaction could confuse market participants, because the
hedging transactions are already publicly disseminated.\421\ The
Commission disagrees that dissemination of both transactions (i.e., the
initial transaction and the hedge) would cause confusion. In other
securities markets, public dissemination of initial transactions and
their hedges occur on a regular basis.\422\ Valuable information could
be obtained by observing whether transactions in related products
executed close in time have the same or different prices.\423\ The
commenter who expressed concerns about potential negative consequences
of reduced liquidity in the equity TRS market provided no evidence to
support its claim.\424\
---------------------------------------------------------------------------

    \421\ See Barclays Letter at 3.
    \422\ For example, a trade in a listed single-stock option is
frequently hedged by a trade in the underlying stock. Each trade is
disseminated via the relevant consolidated tape.
    \423\ For example, a difference in prices between an equity TRS
and the underlying securities might suggest mispricing of either leg
of the trade, signaling to market participants the existence of
economic rents they could subsequently compete away. Additionally,
price discrepancies also could be related to fees or liquidity
premiums charged by equity TRS dealers. See infra Section
XXII(B)(2)(a).
    \424\ See Barclays Letter at 8.
---------------------------------------------------------------------------

e. Transactions Resulting From Portfolio Compression
    One group of commenters argued that transactions resulting from
portfolio compression exercises do not reflect trading activity,
contain no market information, and thus should be excluded from public
dissemination.\425\ One member of that group requested clarification
that only trades representing the end result of a netting or
compression would need to be reported. This commenter expressed the
view that publicly disseminating original transactions as well as the
transactions that result from netting or compression would result in
double-counting and could present a distorted view of the market.\426\
---------------------------------------------------------------------------

    \425\ See ISDA/SIFMA I at 12. See also DTCC II at 20 (stating,
with respect to portfolio compression activities, that ``an exact
pricing at individual trade level between parties is not meaningful
and, therefore, these transactions should not be disseminated'');
ISDA IV at 13.
    \426\ See ISDA I at 4-5.
---------------------------------------------------------------------------

    The Commission recognizes that portfolio compression is designed to
mitigate risk between counterparties by reducing gross exposures, and
any new security-based swaps executed as a result reflect existing net
exposures and might not afford market participants an opportunity to
negotiate new terms. Nevertheless, there may be some value in allowing
market observers to see how often portfolio compressions occur and how
much net exposure is left after much of the gross exposure is
terminated. Furthermore, it is possible that new positions arising from
a compression exercise could be repriced, and thus offer new and useful
pricing information to market observers. Therefore, the Commission is
not convinced that there would be so little value in disseminating such
transactions that they all should be excluded from public
dissemination, even though the original transactions that are netted or
compressed may previously have been publicly disseminated. With respect
to the commenter's concern regarding double-counting, the Commission
notes that Rule 907(a)(4) requires a registered SDR to have policies
and procedures for flagging special circumstances surrounding certain
transactions, which could include transactions resulting from portfolio
compression. The Commission believes that market observers should have
the ability to assess reports of transactions resulting from portfolio
compressions, and that a condition flag identifying a transaction as
the result of a portfolio compression exercise would help to avoid
double-counting.
f. Thinly Traded Products
    Three commenters expressed concern about the potential impact of
real-time public dissemination on thinly traded products.\427\ One of
these commenters suggested that ``security-based swaps traded by fewer
than ten market makers per month should be treated as illiquid and
subject to public reporting only on a weekly basis.'' \428\ The
Commission disagrees with this suggestion. In other classes of
securities--e.g., listed equity securities, OTC equity securities,
listed options, corporate bonds, municipal bonds--all transactions are
disseminated in real time, and there is no delayed reporting for
products that have only a limited number of market makers. The
Commission is not aware of characteristics of the security-based swap
market that are sufficiently different from those other markets to
warrant delayed reporting because of the number of market makers.
Furthermore, given the high degree of concentration in the U.S.
security-based swap market, many products have fewer than ten market
makers. Thus, the commenter's suggestion--if accepted by the
Commission--could result in delayed reporting for a substantial
percentage of security-based swap transactions, which would run counter
to Title VII's goal of having real-time public dissemination for all
security-based swaps (except for block trades). Finally, as noted
above, the Title VII provisions that mandate public dissemination on a
real-time basis do not make any exception for security-based swaps
based on the number of market makers.
---------------------------------------------------------------------------

    \427\ See Bachus/Lucas Letter at 2; ISDA IV at 14; UBS Letter at
1. These comments also are discussed in Section VII(B) infra.
    \428\ UBS Letter at 1, note 5.
---------------------------------------------------------------------------

    Another commenter expressed concern that mandating real-time
reporting of thinly-traded products and illiquid markets could increase
the price of entering into a derivatives contract to hedge risk by
facilitating speculative front-running.\429\ Another commenter
expressed concern about the impact of real-time post-trade transparency
for illiquid security-based swaps on pre-trade transparency that
currently exists in the form of indicative prices provided by dealers
to their clients (known as ``runs'').\430\ This commenter requested
that the Commission provide illiquid security-based swaps with an
exception from real-time reporting and instead allow for delays roughly
commensurate with the trading frequency of the security-based
swap.\431\ Under the adopted rules, counterparties generally will have
up to 24 hours after the time of execution to report security-based
swap transactions. This reporting timeframe is designed, in part, to
minimize the potential for market disruption resulting from public
dissemination of any security-based swap transaction during the interim
phase of Regulation SBSR. The Commission anticipates that, during the
interim period, it will collect and analyze data concerning the sizes
of transactions that potentially affect liquidity in different segments
of the market in connection with considering block thresholds.
---------------------------------------------------------------------------

    \429\ See Bachus/Lucas Letter at 2.
    \430\ See ISDA IV at 14 (expressing concern that the combination
of name-attributed runs and a rapidly disseminated set of post-trade
information would make it relatively easy for many participants to
reconstruct the identity of parties to a particular transaction,
which may reduce dealers' willingness to disseminate pre-trade price
information in the form of runs, thereby reducing pre-trade
transparency).
    \431\ See id.

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

E. Dissemination of Block Transactions--Rule 902(b)

    Rule 902(b), as proposed and re-proposed, would have required a
registered SDR to publicly disseminate a transaction report for a block
trade (except for the notional amount of the transaction) immediately
upon receipt of the information about the block trade from the
reporting party, along with the transaction ID and an indicator that
the report represented a block trade. Rule 902(b) would further have
required the registered SDR to disseminate a complete transaction
report for the block trade, including the full notional amount of the
transaction, within specified timeframes ranging from eight to 26 hours
after execution, depending on the time when the security-based swap was
executed. Thus, under Rule 902(b), as proposed and re-proposed, market
participants would learn the price of a security-based swap block trade
in real time, and would learn the full notional amount of the
transaction on a delayed basis.\432\
---------------------------------------------------------------------------

    \432\ The only difference between Rule 902(b) as proposed and as
re-proposed was that the term ``reporting party'' was changed to
``reporting side.''
---------------------------------------------------------------------------

    For the reasons discussed in detail in Section VII(B), infra, the
Commission is not adopting Rule 902(b).

F. The Embargo Rule--Rule 902(d)

    Rule 902(d), as proposed, would have provided that ``[n]o person
other than a registered security-based swap data repository shall make
available to one or more persons (other than a counterparty)
transaction information relating to a security-based swap before the
earlier of 15 minutes after the time of execution of the security-based
swap; or the time that a registered security-based swap data repository
publicly disseminates a report of that security-based swap.'' In other
words, the information about the security-based swap transaction would
be ``embargoed'' until a registered SDR has in fact publicly
disseminated a report of the transaction (or until such time as a
transaction should have been publicly disseminated). Rule 902(d) is
also referred to as the ``Embargo Rule.'' Rule 902(d) was not revised
as part of the Cross-Border Proposing Release, and was re-proposed in
exactly the same form as had been initially proposed.
    Under Regulation SBSR, only registered SDRs must publicly
disseminate security-based swap transaction data to the public.
However, other persons with knowledge of a transaction--the
counterparties themselves or the venue on which a transaction is
executed--also might wish to disclose information about the transaction
to third parties (whether for commercial benefit or otherwise). An
unfair competitive advantage could result if some market participants
could obtain security-based swap transaction information before others.
Regulation SBSR, by carrying out the Congressional mandate to publicly
disseminate all security-based swap transactions, is intended to reduce
information asymmetries in the security-based swap market and to
provide all market participants with better information--and better
access to information--to make investment decisions. Therefore, the
Commission proposed Rule 902(d), which would have imposed a partial and
temporary restriction on sources of security-based swap transaction
information other than registered SDRs.
    Three commenters supported the view that market participants
(including SB SEFs) should not be permitted to distribute their
security-based swap transaction information before such information is
disseminated by a registered SDR.\433\ However, three other commenters
strongly opposed the proposed Embargo Rule.\434\ Other commenters
expressed a concern that the proposed Embargo Rule would make it more
difficult for SB SEFs to offer ``work-up'' \435\ functionality.\436\
This ``work-up'' process, according to one of the commenters, is
designed to foster liquidity in the security-based swap market and to
facilitate the execution of larger-sized transactions.\437\
---------------------------------------------------------------------------

    \433\ See Markit II at 4 (stating that if SB SEFs were permitted
to disseminate data elements of a security-based swap transaction,
confusion and data fragmentation would inevitably result, which
would ultimately undermine the goal of increased transparency);
Barnard I at 4 (stating that market participants should be
prohibited from distributing their market data prior to the
dissemination of that data by a registered SDR to prevent the
development of a two-tier market); ISDA IV at 17 (stating that ``it
is unclear why any person should be allowed to make the data
available to another market data source ahead of the time that [an
SDR] is allowed to publicly disseminate such transaction,'' and
recommending that proposed Rule 902(d) be revised to refer only to
the time that an SDR disseminates a report of the security-based
swap).
    \434\ See GFI Letter at 2; SDMA II at 4; WMBAA Letter at 8-9.
    \435\ See GFI Letter at 3 (``A typical workup transaction begins
when two market participants agree to transact at a certain price
and quantity. The transaction does not necessarily end there,
however, and the two participants then have the opportunity to
transact further volume at the already-established price.
Thereafter, other market participants may join the trade and
transact with either the original counterparties to the trade or
with other firms if they agree to trade further volume at the
established price''); SDMA II at 3 (``Trade work ups are a common
practice in which the broker looks for additional trading interest
at the same time a trade is occurring--or ``flashing'' on the
screen--in the same security at the same price. The ability to view
the price of a trade as it is occurring is critical to broker's
ability to locate additional trading interest. The immediate flash
to the marketplace increases the probability that additional buyers
and sellers, of smaller or larger size, will trade the same security
at the same time and price''); WMBAA II at 3 (``Work-up enables
traders to assess the markets in real-time and make real-time
decisions on trading activity, without the fear of moving the market
one way or another'').
    \436\ See GFI Letter at 3; SDMA II at 3 (if ``the SB SEF is
prohibited from `flashing' the price of a trade as it occurs and the
brokers must wait until after the SB SDR has disclosed the price,
the broker's window of opportunity to locate additional trading
interest will close''); WMBAA II at 3.
    \437\ See GFI Letter at 3.
---------------------------------------------------------------------------

    The Commission has carefully reviewed the comments received and has
determined to revise the Embargo Rule to provide that the act of
sending a report to a registered SDR--not the act of the registered SDR
actually disseminating it--releases the embargo. Rule 902(d), as
adopted, provides: ``No person shall make available to one or more
persons (other than a counterparty or a post-trade processor)
transaction information relating to a security-based swap before the
primary trade information about the security-based swap is sent to a
registered security-based swap data repository'' (emphasis added).
    The Commission agrees with the majority of commenters that it would
be beneficial for security-based swap market participants to have the
ability to disseminate and receive transaction data without being
constrained by the time when a registered SDR disseminates the
transaction information. The Commission understands that, in some
cases, entities that are likely to become SB SEFs may want to broadcast
trades executed electronically across their platforms to all
subscribers, because knowing that two counterparties have executed a
trade at a particular price can, in some cases, catalyze trading by
other counterparties at the same price. Allowing dissemination of
transaction information to occur simultaneously

with transmission to a registered SDR will allow SB SEF participants to
see last-sale information for the particular markets on which they are
trading, which could facilitate the work-up process and thus enhance
price discovery.
    One commenter expressed concern, however, that permitting the
distribution of market data prior to dissemination of the information
by a registered SDR could result in the development of a two-tier
market.\438\ Although the Commission generally shares the commenter's
concern about information asymmetries, the Commission does not believe
that Rule 902(d), as adopted, raises that concern. Certain market
participants might learn of a completed transaction before others who
rely on public dissemination through a registered SDR. However, the
time lag is likely to be very small because Rule 902(a) requires a
registered SDR to publicly disseminate a transaction report
``immediately upon receipt of information about the security-based
swap.'' The Commission understands that, under the current market
structure, trading in security-based swaps occurs for the most part
manually (rather than through algorithmic means) and infrequently.
Thus, obtaining knowledge of a completed transaction through private
means a short time before others learn of the transaction from a
registered SDR is unlikely, for the foreseeable future, to provide a
significant advantage. Furthermore, as discussed above regarding the
``work-up'' process, the most likely recipients of direct information
about the completed transaction are other participants of the SB SEF.
Thus, an important segment of the market--i.e., competitors of the
counterparties to the original transaction in the work up who are most
likely to have an interest in trading the same or similar products--are
still benefitting from post-trade transparency, even if it comes via
the work-up process on the SB SEF rather than through a registered SDR.
---------------------------------------------------------------------------

    \438\ See Barnard I at 4.
---------------------------------------------------------------------------

    Two commenters raised arguments related to the ownership of the
security-based swap transaction data and were concerned that the
proposed Embargo Rule would place improper restrictions on the use of
security-based swap market data.\439\ One of these commenters
recommended that the Commission revise the Embargo Rule ``in such a way
that . . . the security-based swap counterparties and SB SEFs [would]
continue to have the ability to market and commercialize their own
proprietary data.'' \440\ The other commenter recommended that the
Commission make clear that nothing in the final rules is intended ``to
impose or imply any limit on the ability of market participants . . .
to use and/or commercialize data they create or receive in connection
with the execution or reporting of swap data.'' \441\
---------------------------------------------------------------------------

    \439\ See WMBAA II at 8; Tradeweb Letter II at 6.
    \440\ WMBAA II at 8.
    \441\ Tradeweb Letter II at 6.
---------------------------------------------------------------------------

    The Commission declines to revise Rule 902(d) in the manner
suggested by these commenters. As the Commission notes in the SDR
Adopting Release, ``the issue of who owns the data is not particularly
clear cut, particularly when value is added to it.'' \442\ If the
Commission were to revise the rule in the manner suggested by
commenters, it would seem to make a presumption about who owns the
data, which may be viewed as the Commission favoring one business model
over another. As further noted in the SDR Adopting Release, the
Commission does not support any particular business model \443\ and,
therefore, does not believe it is necessary or appropriate to revise
the rule as suggested by these commenters.
---------------------------------------------------------------------------

    \442\ SDR Adopting Release, Section VI(D)(3)(c)(iii) (citing
difficulties associated with determining ownership of data as one of
several reasons for not adopting, at this time, a rule prohibiting
an SDR and its affiliates from using, for commercial purposes,
security-based swap data that the SDR maintains without obtaining
express written consent from both counterparties to the security-
based swap transaction or the reporting party). See also Securities
Exchange Act Release 63825 (February 2, 2011), 76 FR 10948 (February
28, 2011) at 10961-7 (``SB SEF Proposing Release'') (discussing the
proposed imposition of certain requirements on SB SEFs with respect
to services provided and fees charged).
    \443\ See SDR Adopting Release, Section III(D) (discussing
business models of SDRs).
---------------------------------------------------------------------------

    As originally proposed, the Embargo Rule had an exception for
disseminating the transaction information to counterparties, as the
counterparties to the transaction should be allowed to receive
information about their own security-based swap transactions
irrespective of whether such information has been reported to or
disseminated by a registered SDR. However, two commenters noted that SB
SEFs also will need to provide transaction data to entities involved in
post-trade processing, irrespective of whether the embargo has been
lifted.\444\ The Commission recognizes that, after a trade is executed,
there are certain entities that perform post-trade services--such as
matching, confirmation, and reporting--that may need to receive the
transaction information before it is sent to a registered SDR. For
example, a third party could not act as agent in reporting a
transaction to a registered SDR on behalf of a reporting side if it
could not receive information about the executed transaction before it
was submitted to the registered SDR. In the Regulation SBSR Proposing
Release, the Commission stated that counterparties to a security-based
swap could rely on agents to report security-based swap data on their
behalf.\445\ Without an exception, such use of agents could be impeded,
an action the Commission did not intend. Accordingly, the Commission is
revising the Embargo Rule to add an explicit exception for ``post-trade
processors.'' The Commission is also adding a new paragraph (x) to
final Rule 900, which defines ``post-trade processor'' as ``any person
that provides affirmation, confirmation, matching, reporting, or
clearing services for a security-based swap transaction.''
---------------------------------------------------------------------------

    \444\ See BlackRock Letter at 9; ISDA IV at 17 (recommending a
carve-out from Rule 902(d) for third-party service providers that
one or both counterparties use for execution, confirmation, trade
reporting, portfolio reconciliation and other services that do not
include the public dissemination of security-based swap data).
    \445\ See 75 FR 75211-12.
---------------------------------------------------------------------------

    Finally, one commenter recommended a carve-out from Rule 902(d) not
only for counterparties, but also for their affiliates, ``to allow for
internal communication of SBS data.'' \446\ Rule 902(d)--as proposed,
re-proposed, and adopted--includes a carve-out for counterparties,
which could include affiliates, to the extent that an affiliate is an
indirect counterparty as defined in Rule 900. The Commission continues
to believe that it is necessary for counterparties to know when they
have executed a trade. The Commission further notes that Rule 902(d),
as adopted, contains an exception for post-trade processors,\447\ which
could include post-trade processors that are affiliates of the
counterparties. Thus, Rule 902(d) would not prohibit a counterparty to
a security-based swap transaction from providing the transaction
information to an affiliate before providing it to a registered SDR, if
that affiliate will serve as the counterparty's agent for reporting the
transaction to the registered SDR. However, Rule 902--as proposed, re-
proposed, and adopted--includes no broad carve-out for all affiliates
of the counterparties. The Commission does not see a basis for allowing
such a broad

exception for all affiliates, which could undermine the purpose of Rule
902(d), as discussed above.
---------------------------------------------------------------------------

    \446\ ISDA IV at 17.
    \447\ See Rule 900(x) (defining ``post-trade processor'' as
``any person that provides affirmation, confirmation, matching,
reporting, or clearing services for a security-based swap
transaction'').
---------------------------------------------------------------------------

G. Condition Flags--Rule 907(a)(4)

    Rule 907(a)(4), as originally proposed, would have required a
registered SDR to establish and maintain written policies and
procedures ``describing how reporting parties shall report and,
consistent with the enhancement of price discovery, how the registered
security-based swap depository shall publicly disseminate, reports of,
and adjustments due to, life cycle events; security-based swap
transactions that do not involve an opportunity to negotiate any
material terms, other than the counterparty; and any other security-
based swap transactions that, in the estimation of the registered
security-based swap data depository, do not accurately reflect the
market.'' The Commission re-proposed Rule 907(a)(4) in the Cross-Border
Proposing Release with only minor technical revisions.\448\
---------------------------------------------------------------------------

    \448\ The Commission changed the words ``reporting parties'' to
``reporting sides'' and ``depository'' to ``repository.''
---------------------------------------------------------------------------

    One commenter expressed the view that a registered SDR should have
the flexibility to determine and apply special indicators.\449\ Another
commenter suggested that, to be meaningfully transparent, security-
based swap transaction data should include ``condition flags''
comparable to those used in the bond market.\450\ As discussed more
fully below, the Commission agrees that such ``condition flags'' could
provide additional transparency to the security-based swap market. The
Commission believes that the condition flags that registered SDRs will
develop pursuant to final Rule 907(a)(4) could provide information
similar to the information provided by the condition flags used in the
bond market. The registered SDR's condition flags could include, for
example, flags indicating that a security-based swap was an inter-
affiliate transaction or a transaction entered into as part of a trade
compression.
---------------------------------------------------------------------------

    \449\ See Barnard I at 3.
    \450\ See MarkitSERV I at 10.
---------------------------------------------------------------------------

    A third commenter suggested that a registered SDR should not have
discretion to determine whether a particular transaction reflects the
market, as the registered SDR may not have sufficient information to
make such a determination.\451\ The Commission agrees with the
commenter that a registered SDR may not have sufficient information to
ascertain whether a particular transaction ``do[es] not accurately
reflect the market,'' as would have been required under Rule 907(a)(4),
as originally proposed. Therefore, the Commission will not require the
registered SDR to have policies and procedures for attaching an
indicator that merely conveys that the transaction, in the estimation
of the registered SDR, does not accurately reflect the market.
---------------------------------------------------------------------------

    \451\ See DTCC II at 20.
---------------------------------------------------------------------------

    Instead, the Commission believes that requiring the registered SDR
to provide information about any special circumstances associated with
a transaction report could help market observers better understand the
report and enhance transparency. For example, Rule 901(c)(1)(v), as
adopted, requires a reporting side to attach a flag if a security-based
swap is customized to the extent that other information provided for
the swap does not provide all of the material information necessary to
identify the customized security-based swap or does not contain the
data elements necessary to calculate the price.\452\ In addition, Rule
905(b)(2), as adopted, requires a registered SDR that receives a
correction to information that it previously disseminated publicly to
publicly disseminate a corrected transaction report with an indication
that the report relates to a previously disseminated transaction.\453\
---------------------------------------------------------------------------

    \452\ See supra Section II(B)(2)(b)(vi).
    \453\ See infra Section XX(B).
---------------------------------------------------------------------------

    The Commission, therefore, is adopting Rule 907(a)(4) with certain
additional language to respond to the comments and to clarify how Rule
907(a)(4) should apply in circumstances contemplated by but not fully
addressed in the original proposal or the re-proposal. The Commission
has revised Rule 907(a)(4) as follows: New subparagraph (i) requires
the registered SDR to have policies and procedures for ``identifying
characteristic(s) of a security-based swap, or circumstances associated
with the execution or reporting of the security-based swap, that could,
in the fair and reasonable estimation of the registered security-based
swap data repository, cause a person without knowledge of these
characteristic(s) or circumstances to receive a distorted view of the
market.'' This language retains the idea that the appropriate
characteristics or circumstances remain ``in the estimation of'' the
registered SDR, but requires the SDR's exercise of this discretion to
be ``fair and reasonable'' to emphasize that the estimation should not
result in flags that would not allow market observers to better
understand the transaction reports that are publicly disseminated. Rule
907(a)(4)(i), as adopted, also widens the scope of transactions to
which the provision applies.\454\ This provision grants a registered
SDR the flexibility to determine which special circumstances require
flags and to change that determination over time, if warranted.\455\
Subparagraph (ii) provides that the registered SDR's policies and
procedures must ``establish[ ] flags to denote such characteristic(s)
or circumstance(s),'' explicitly incorporating the concept of condition
flags suggested by the commenter.\456\ Subparagraph (iii) requires
policies and procedures ``directing participants to apply such flags,
as appropriate, in their reports'' to the registered SDR. Finally,
subparagraph (iv) requires these policies and procedures to address, in
part, ``applying such flags to disseminated reports to help to prevent
a distorted view of the market.''
---------------------------------------------------------------------------

    \454\ This revision to Rule 907(a)(4) also removes the
references to public dissemination of life cycle events that were
proposed and re-proposed. These references have been relocated to
final Rule 907(a)(3). Rule 907(a)(3), as proposed and re-proposed,
addressed only the reporting and public dissemination of error
reports. Life cycle events are similar to error reports in that they
reflect new information that relates to a previously executed
security-based swap. Therefore, Rule 907(a)(3), as adopted, now
requires a registered SDR to have policies and procedures for
``specifying procedures for reporting life cycle events and
corrections to previously submitted information, making
corresponding updates or corrections to transaction records, and
applying an appropriate flag to the transaction report to indicate
that the report is an error correction required to be disseminated
by [Rule 905(b)(2)] or is a life cycle event, or any adjustment due
to a life cycle event, required to be disseminated by [Rule
902(a)].'' See infra Section XII(C).
    \455\ See Barnard I at 3.
    \456\ See MarkitSERV I at 10.
---------------------------------------------------------------------------

    The Commission also is adopting Rule 907(a)(4) with certain
additional language in subparagraph (iv) that clarifies the handling of
security-based swap information that is required to be reported under
Rule 901 but which a registered SDR is required by Rule 902(c) not to
publicly disseminate. As noted above, even in the initial proposal, the
Commission contemplated that certain information would fall into this
category.\457\ Rule 907(a), as originally proposed, would have required
a registered SDR to establish and maintain policies and procedures that
addressed, among other things, the public dissemination of security-
based swap data. Carrying out that duty in a manner consistent with
Rule 902--and, in particular, with Rule 902(c)--will necessarily
require a registered SDR to differentiate reported information that is
required to be publicly disseminated from reported information that is

required not to be publicly disseminated.\458\ The new language in
final Rule 907(a)(4)(iv)(B) calls attention to this particular
requirement. Rule 907(a)(4)(iv)(B), as adopted, requires the registered
SDR to have policies and procedures for suppressing from public
dissemination a transaction referenced in Rule 902(c).\459\
---------------------------------------------------------------------------

    \457\ See Regulation SBSR Proposing Release, 75 FR 75234-35.
    \458\ One commenter noted its view that Rule 907(a)(4), as
proposed, seemed to delegate to the discretion of the SDR whether
and how certain security-based swap activity would be publicly
disseminated, and requested that the Commission clearly establish in
Regulation SBSR that certain security-based swap activity is not
subject to public dissemination. See ISDA IV at 13. The Commission
believes that the rules as adopted do clearly establish what
security-based swap activity is not subject to public dissemination.
Rule 902(a), as adopted, requires the registered SDR to publicly
disseminate a transaction report of a security-based swap, or a life
cycle event or adjustment due to a life cycle event, immediately
upon receipt of information about the security-based swap, except as
provided in Rule 902(c). Rule 902(c) provides a list of information
and types of security-based swap transactions that a registered
security-based swap shall not disseminate. See supra Section VI(D).
    \459\ Under Rule 907(a)(4)(iv), the registered SDR's policies
and procedures must direct the reporting side to apply appropriate
flags to transaction reports. In the case of a report falling within
Rule 902(c), the reporting side for the relevant transaction is
required to use the flag that signals to the registered SDR that the
report should not be publicly disseminated. The Commission notes
that Rule 907(a)(4) affords registered SDRs some discretion to
determine precisely how a reporting side must flag reported data
that will be excluded from public dissemination under Rule 902(c).
For example, a registered SDR may determine not to require a
specific ``do not disseminate'' tag for historical security-based
swaps if it is clear from context that they are historical security-
based swaps and not current transactions. As described in Section
VI(D) above, the Commission does not believe that a registered SDR
would violate Rule 902(c) if it disseminated a report of a
transaction that fell within Rule 902(c) if the reporting side fails
to appropriately flag the transaction.
---------------------------------------------------------------------------

    In addition to the requirements for indications in the case of
error reports or bespoke transactions, the Commission believes that
registered SDRs generally should include the following in its list of
condition flags:
     Inter-affiliate security-based swaps. As discussed in
detail in Section VI(D), infra, the Commission is not exempting inter-
affiliate transactions from public dissemination. However, the
Commission believes it could be misleading if market observers did not
understand that a transaction involves affiliated counterparties.
     Transactions resulting from netting or compression
exercises.\460\ The Commission believes that market observers should be
made aware that these transactions are related to previously existing
transactions and generally do not represent new risks being assumed by
the counterparties.
---------------------------------------------------------------------------

    \460\ This applies only to transactions resulting from netting
or compression exercises other than through a registered clearing
agency. Security-based swaps resulting from netting or compression
exercises carried out by a registered clearing agency are not
subject to public dissemination. See Rule 902(c)(6). See also supra
Section VI(D)(1) (explaining Rule 902(c)(6)); Section VI(D)(2)(v)
(explaining why the Commission believes that transactions resulting
from portfolio compression--other than clearing transactions--should
be publicly disseminated).
---------------------------------------------------------------------------

     Transactions resulting from a ``forced trading session''
conducted by a clearing agency.\461\ The Commission believes that it
would be helpful for market observers to understand that such
transactions may not be available to market participants outside of the
forced trading session.
---------------------------------------------------------------------------

    \461\ Entities that the Commission previously exempted from
certain Exchange Act requirements, including clearing agency
registration, have informed the Commission that they undertake
``forced trading'' sessions in order to promote accuracy in the end-
of-day valuation process. See, e.g., Securities Exchange Act Release
No. 59527 (March 6, 2009), 74 FR 10791, 10796 (March 12, 2009)
(Order Granting Temporary Exemptions Under the Securities Exchange
Act of 1934 in Connection With Request on Behalf of ICE U.S. Trust
LLC Related to Central Clearing of Credit Default Swaps, and Request
for Comments) (describing ``forced trading sessions'' conducted by a
clearing agency as follows: ``ICE Trust represents that, in
connection with its clearing and risk management process, it will
calculate an end-of-day settlement price for each Cleared CDS in
which an ICE Trust Participant has a cleared position, based on
prices submitted by ICE Trust Participants. As part of this mark-to-
market process, ICE Trust will periodically require ICE Trust
Participants to execute certain CDS trades at the applicable end-of-
day settlement price. Requiring ICE Trust Participants to trade CDS
periodically in this manner is designed to help ensure that such
submitted prices reflect each ICE Trust Participant's best
assessment of the value of each of its open positions in Cleared CDS
on a daily basis'').
---------------------------------------------------------------------------

     Transactions reported more than 24 hours after execution.
The Commission believes that there is price discovery value in
disseminating the transaction report, particularly in cases where there
are few or no other recent last-sale reports in that product. However,
all market observers should understand that the report is no longer
timely and thus may not reflect the current market at the time of
dissemination.
     Transactions resulting from default of a clearing member.
The Commission believes that the fact that the transaction was
necessitated by a clearing agency's need to have surviving clearing
members assume the positions of a defaulting clearing member is
important information about understanding the transaction and market
conditions generally.
     Package trades. ``Package trade'' is a colloquial term for
a multi-legged transaction of which a security-based swap constitutes
one or more legs. Market observers should be made aware that the
reported price of a security-based swap that is part of a package trade
might reflect other factors--such as the exchange of an instrument that
is not a security-based swap--that are not reflected in the transaction
report of the security-based swap itself.
    This list is by way of example and not of limitation. There are
likely to be other types of transactions or circumstances associated
with particular transactions that may warrant a condition flag. The
Commission anticipates that each registered SDR will revise its list
over time as the security-based swap market evolves and registered SDRs
and market participants gain greater insight into how to maximize the
effectiveness of publicly disseminated transaction reports.

VII. Block Trades and the Interim Phase of Regulation SBSR

    Section 13m(1)(E) of the Exchange Act \462\ requires the Commission
rule for real-time public dissemination of security-based swap
transactions to: (1) ``Specify the criteria for determining what
constitutes a large notional security-based swap transaction (block
trade) for particular markets and contracts'' and (2) ``specify the
appropriate time delay for reporting large notional security-based swap
transactions (block trades) to the public.'' In addition, Section
13m(1)(E)(iv) of the Exchange Act \463\ requires the Commission rule
for real-time public dissemination of security-based swap transactions
to contain provisions that ``take into account whether the public
disclosure [of transaction and pricing data for security-based swaps]
will materially reduce market liquidity.'' \464\
---------------------------------------------------------------------------

    \462\ 15 U.S.C. 78m(m)(1)(E).
    \463\ 15 U.S.C. 78m(m)(1)(E)(iv).
    \464\ These statutory mandates apply only with respect to
cleared security-based swaps. The Dodd-Frank Act does not require
the Commission to specify block thresholds or dissemination delays
or to take into account how public disclosure will materially reduce
market liquidity with respect to uncleared security-based swaps. For
security-based swaps that are not cleared but are reported to an SDR
or the Commission under Section 3C(a)(6) of the Exchange Act, ``the
Commission shall require real-time public reporting for such
transactions, in a manner that does not disclose the business
transactions and market positions of any person.'' 15 U.S.C.
78m(1)(C)(iii).
---------------------------------------------------------------------------

    As discussed further below, the Commission is neither proposing nor
adopting rules relating to block trades at this time. However, the
rules, as adopted, establish an interim phase of Regulation SBSR.
During this first phase, as described below, reporting sides--with
certain minor exceptions--will have up to 24 hours (``T+24 hours'')
after the time of execution to report a transaction. The registered SDR
that receives the transaction information would then be required to
publicly

disseminate a report of the transaction immediately thereafter.
    The Commission recognizes that the introduction of mandated post-
trade transparency in the security-based swap market could have a
significant impact on market participant behavior and the provision of
liquidity. The interim phase is designed, among other things, to
generate information about how market participants behave in an
environment with post-trade transparency. Furthermore, once the first
phase is implemented, reporting sides will be required under Regulation
SBSR to report, among other things, the time of execution of their
security-based swap transactions. As described in a staff analysis of
the inventory management of dealers in the market for single-name CDS
based on transaction data from DTCC-TIW, security-based swap
transaction data currently stored in DTCC-TIW include the time of
reporting, but not the time of the execution.\465\ Having the execution
time instead of only the reporting time will enable staff to perform a
more robust and granular analysis of any hedging that may or may not
occur within the first 24-hour period after execution. After collecting
and analyzing data that are more granular and reflect the reactions of
market participants to T+24 hour post-trade transparency, the
Commission anticipates that it will undertake further rulemaking to
propose and adopt rules related to block trades and the reporting and
public dissemination timeframe for non-block trades.
---------------------------------------------------------------------------

    \465\ See ``Inventory risk management by dealers in the single-
name credit default swap market'' (October 17, 2014) at 5, available
at http://www.sec.gov/comments/s7-34-10/s73410-184.pdf (``Hedging
Analysis'').
---------------------------------------------------------------------------

A. Proposed Rules Regarding Block Trades

    The Commission did not propose specific thresholds for block trades
in the Regulation SBSR Proposing Release. Instead, the Commission
described general criteria that it would consider when setting specific
block trade thresholds in the future.\466\ The Commission stated that
it ``preliminarily believes that the general criteria for what
constitutes a large notional security-based swap transaction must be
specified in a way that takes into account whether public disclosure of
such transactions would materially reduce market liquidity, but
presumably should be balanced by the general mandate of Section
13(m)(1) of the Exchange Act, which provides that data on security-
based swap transactions must be publicly disseminated in real time, and
in a form that enhances price discovery.'' \467\ The Commission further
stated: ``For post-trade transparency to have a negative impact on
liquidity, market participants would need to be affected in a way that
either: (1) Impacted their desire to engage in subsequent transactions
unrelated to the first; or (2) impacted their ability to follow through
with further actions after the reported transaction has been completed
that they feel are a necessary consequence of the reported
transaction.'' \468\
---------------------------------------------------------------------------

    \466\ See Regulation SBSR Proposing Release, 75 FR 75228.
    \467\ Id. at 75228-29.
    \468\ Id. at 75229.
---------------------------------------------------------------------------

    The Commission noted, with respect to the first case, that post-
trade dissemination of transaction prices could lead to narrower
spreads and reduce participants' willingness to trade. However, the
Commission noted that liquidity could be enhanced if market
participants increased their trading activity as a result of the new
information. Because it would be difficult, if not impossible, to
estimate with certainty which factor would prevail in the evolving
security-based swap market, the Commission was guided by the general
mandate of Section 13(m)(1) and the Commission's preliminary belief
that even in illiquid markets, transaction prices form the foundation
of price discovery.\469\ Therefore, the Commission proposed that prices
for block trades be disseminated in the same fashion as prices for non-
block transactions.
---------------------------------------------------------------------------

    \469\ See id.
---------------------------------------------------------------------------

    The Commission noted that, in the second case, counterparties may
intend to take further action after an initial transaction for hedging
purposes. The Commission believed that, for a transaction that was
sufficiently large, disseminating the size of such a transaction could
signal to the market that there is the potential for another large
transaction in a particular security-based swap or related
security.\470\ Therefore, in order to give the market time to absorb
any subsequent transactions, the Commission stated that it
preliminarily believed that the size of a sufficiently large
transaction should be suppressed for a certain period of time to
provide time for subsequent transactions.\471\
---------------------------------------------------------------------------

    \470\ See id.
    \471\ See id.
---------------------------------------------------------------------------

    In the Regulation SBSR Proposing Release, the Commission noted a
variety of metrics that could be used to determine whether a security-
based swap transaction should be considered a block trade.\472\ They
included: (1) The absolute size of the transaction; (2) the size of the
transaction relative to other similar transactions; (3) the size of the
transaction relative to some measure of overall volume for that
security-based swap instrument; and (4) the size of the transaction
relative to some measure of overall volumes for the security or
securities underlying the security-based swap.\473\ The Commission
stated that the metric should be chosen in a way that minimizes
inadvertent signaling to the market of potential large follow-on
transactions.\474\
---------------------------------------------------------------------------

    \472\ The Commission considered several tests including a
percentage test (the top N-percent of trade would be considered
block) and set forth data from the Depository Trust Clearing
Corporation (``DTCC'') regarding single-name corporate CDS and
single name sovereign CDS. The Commission noted that the observed
trade sizes would suggest certain cut-off points when considering
single-name corporate CDS or sovereigns as a whole. The Commission
also noted, however, that there may still be differences in
liquidity between individual corporates and sovereigns, as well as
linkages between the underlying cash markets and the CDS markets
that a simple percentage or threshold test would not capture. In
addition, the Commission's Division of Risk, Strategy, and Financial
Innovation (which has been renamed the Division of Economic and Risk
Analysis) prepared an analysis of several different block trade
criteria in January 2011, based on the same DTCC data. The analysis
examined fixed minimum notional amount thresholds; dynamic volume-
based thresholds based on the aggregate notional amount of all
executions in a CDS instrument over the past 30 calendar days; and a
combination of dynamic volume-based thresholds and fixed minimum
thresholds of $10 and $25 million, respectively. See id. at 75230-
31.
    \473\ See id.
    \474\ See id.
---------------------------------------------------------------------------

    Although the Commission did not propose block thresholds, the
Commission did propose two ``waves'' of public dissemination of block
trades for when it had adopted block thresholds. Rule 902(b), as
proposed and re-proposed, would have required a registered SDR to
publicly disseminate a transaction report of a security-based swap that
constitutes a block trade immediately upon receipt of information about
the block trade from the reporting party. The transaction report would
have been required to consist of all the information reported pursuant
to Rule 901(c)--except for the notional amount--plus the transaction ID
and an indicator that the report represents a block trade. The second
wave would have required the registered SDR to publicly disseminate a
complete transaction report for the block trade (including the
transaction ID and the full notional amount) between 8 and 26 hours
after the execution of the block trade. Thus, under Rule 902(b), as
proposed and re-proposed, market participants would have learned the
price and all other primary trade

information (except notional amount) about a block trade in real time,
and the full notional amount of the transaction on a delayed
basis.\475\ Registered SDRs would have been responsible for calculating
the specific block thresholds based on the formula established by the
Commission and publicizing those thresholds, but the Commission
emphasized that a registered SDR would be performing ``mechanical, non-
subjective calculations'' when determining block trade thresholds.\476\
---------------------------------------------------------------------------

    \475\ Rule 902(b)(3), as proposed and re-proposed, would have
provided that, if a registered SDR was closed when it otherwise
would be required to disseminate information concerning a block
trade, the registered SDR would be required to disseminate the
information immediately upon re-opening.
    \476\ See Regulation SBSR Proposing Release, 75 FR 75228.
---------------------------------------------------------------------------

    The Commission proposed and re-proposed a variety of other
provisions related to block trades. Proposed Rule 900 defined ``block
trade'' to mean a large notional security-based swap transaction that
satisfied the criteria in Rule 907(b). Proposed Rule 907(b) would have
required a registered SDR to establish and maintain written policies
and procedures for calculating and publicizing block trade thresholds
for security-based swaps in accordance with the criteria and formula
for determining block size specified by the Commission. Proposed Rule
907(b)(2) also would have provided that a registered SDR should not
designate as a block trade: (1) Any security-based swap that is an
equity total return swap or is otherwise designed to offer risks and
returns proportional to a position in the equity security or securities
on which the security-based swap is based; or (2) any security-based
swap contemplated by Section 13(m)(1)(C)(iv) of the Exchange Act.\477\
---------------------------------------------------------------------------

    \477\ 15 U.S.C. 78m(m)(1)(C)(iv) (``With respect to security-
based swaps that are determined to be required to be cleared under
section 78c-3(b) of this title but are not cleared, the Commission
shall require real-time public reporting for such transactions'').
---------------------------------------------------------------------------

B. Potential Impact on Liquidity

    The Commission received several comments addressing the issue of
timing for public dissemination and the potential impact of public
dissemination on liquidity. The commenters vary significantly in their
views on this issue. One commenter stated that the proposed timeframes
for publicly disseminating security-based swap transaction reports
would not materially reduce market liquidity.\478\ Another commenter,
however, expressed the view that ``[t]here is insufficient liquidity in
the single-name credit default swap market to support real-time public
dissemination of non-block transaction data for all but a handful of
instruments without creating price moving events.'' \479\ A third
commenter expressed concern that real-time security-based swap
reporting, ``if implemented without adequate safeguards, could
unnecessarily increase the price of entering into a derivatives
contract to hedge risk'' \480\ and cautioned that requiring real-time
reporting of thinly traded products in illiquid markets in an effort to
compel derivatives to trade similarly to exchange-listed products
represented ``a fundamentally flawed approach that demonstrates a lack
of understanding of the existing market structure.'' \481\ A fourth
commenter expressed concern about the impact of real-time post-trade
transparency for illiquid security-based swaps on pre-trade
transparency that currently exists in the form of indicative prices
provided by dealers to their clients (known as ``runs'').\482\ This
commenter requested that the Commission provide illiquid security-based
swaps with an exception from real-time reporting and instead allow for
delays roughly commensurate with the trading frequency of the security-
based swap.\483\
---------------------------------------------------------------------------

    \478\ See Barnard I at 2.
    \479\ UBS Letter at 1.
    \480\ Bachus/Lucas Letter at 2.
    \481\ Id.
    \482\ See ISDA IV at 14 (expressing concern that the combination
of name-attributed runs and a rapidly disseminated set of post-trade
information would make it relatively easy for many participants to
reconstruct the identity of parties to a particular transaction,
which might reduce dealers' willingness to disseminate pre-trade
price information in the form of runs, thereby reducing pre-trade
transparency).
    \483\ See id., note 21 (stating, for example, that a 24-hour
delay would be appropriate for a security-based swap that trades, on
average, once per day, and security-based swap that trades 10 times
per day could be reported in real time).
---------------------------------------------------------------------------

    In addition, several commenters raised concerns about the effect of
an improperly designed block trade regime.\484\ One commenter stated
that an appropriate block exemption is critical to the successful
implementation of Title VII.\485\ Several commenters expressed the view
that improper block thresholds or definitions would adversely impact
liquidity.\486\ One commenter noted that the SEC and CFTC's proposed
block trade rules would adversely impact liquidity.\487\ By contrast,
one commenter recommended that the Commission consider that increased
transparency of trades that are large relative to the liquidity of the
product may attract new entrants to the market and may result in
increased liquidity.\488\
---------------------------------------------------------------------------

    \484\ See Barclays Letter at 8; BlackRock Letter at 8, note 10;
Cleary I at 10-11; Cleary II at 2; Institutional Investors Letter at
4; ISDA/SIFMA I at 2; ISDA/SIFMA Block Trade Study at 6; ISDA/SIFMA
II at 8; J.P. Morgan Letter at 5; WMBAA I at 3.
    \485\ See ISDA/SIFMA I at 2.
    \486\ See Barclays Letter at 8 (stating that overly broad block
trade thresholds could adversely impact the liquidity and pricing of
security-based swaps); J.P. Morgan Letter at 5 (stating that
liquidity may be significantly reduced if too few trades receive
block treatment); BlackRock Letter at 8, note 10 (expressing concern
that it could become infeasible for market participants to enter
into block trades for some products if the Commissions fail to
balance liquidity and price transparency correctly); Institutional
Investors Letter at 4 (noting, with specific reference to the CFTC's
proposed rules, that the benefits of large trades could be negated,
and institutional investors' costs increased, if block trade sizes
were set too high); ISDA/SIFMA II at 8 (stating that an overly
restrictive definition of block trade has great potential to
adversely affect the ability to execute and hedge large
transactions); WMBAA I at 3 (expressing the view that block trade
thresholds ``be set at such a level that trading may continue
without impacting market participants' ability to exit or hedge
their trades'').
    \487\ See Cleary II at 2.
    \488\ See GETCO Letter at 1-2.
---------------------------------------------------------------------------

    The Commission has considered these comments as well as the
statutory requirement that the Commission rule for public dissemination
of security-based swap transactions contain provisions that ``take into
account whether the public disclosure [of transaction and pricing data
for security-based swaps] will materially reduce market liquidity.''
\489\ The Commission is adopting these final rules for regulatory
reporting and public dissemination of security-based swaps with a view
toward implementing additional rules in one or more subsequent phases
to define block thresholds and to revisit the timeframes for reporting
and public dissemination of block and non-block trades. This approach
is designed to increase post-trade transparency in the security-based
swap market--even in its initial phase--while generating new data that
could be studied in determining appropriate block thresholds after the
initial phase. The Commission also considered several comments related
to the timing of public dissemination and believes that at present the
commenters' concerns are appropriately addressed by the Commission's
adoption of T+24 hour reporting during the interim phase.
---------------------------------------------------------------------------

    \489\ 15 U.S.C. 78m(m)(1)(E). However, this mandate applies only
with respect to cleared security-based swaps. No provision of Title
VII requires the Commission to specify block thresholds or
dissemination delays, or to take into account how public disclosure
will materially reduce market liquidity, for uncleared security-
based swaps.
---------------------------------------------------------------------------

    During this phase, the reporting side will have up to 24 hours
after the time of execution of a security-based swap transaction to
report it to a registered

SDR, regardless of its notional amount.\490\ The registered SDR will be
required, for all dissemination-eligible transactions,\491\ to publicly
disseminate a report of the transaction immediately upon receipt of the
information. Even with the T+24 reporting of transactions, the
Commission anticipates being able to collect significant new
information about how market participants behave in an environment with
post-trade transparency, which will inform the Commission's analysis
and effort to determine what block thresholds and time delays may be
appropriate.
---------------------------------------------------------------------------

    \490\ For a security-based swap that is subject to regulatory
reporting and public dissemination solely by operation of Rule
908(a)(1)(ii), however, a reporting side is required to report the
information required under Rules 901(c) and 901(d) within 24 hours
of acceptance for clearing. See Rule 901(j); Section XV(C)(4),
infra.
    \491\ See Rule 902(c) (setting forth certain types of security-
based swaps that are not to be publicly disseminated).
---------------------------------------------------------------------------

    In developing a regulatory regime for post-trade transparency in
the security-based swap market, the Commission is cognizant of rules
adopted by the CFTC to provide for post-trade transparency in the swap
market. Commission staff analyzed the effect of the adoption of post-
trade transparency in the swap market, which is regulated by the
CFTC.\492\ That analysis shows no discernible empirical evidence of
economically meaningful effects of the introduction of post-trade
transparency in the swap market at this time. In particular, the study
did not find negative effects such as reduced trading activity. Based
on this analysis, the Commission believes that post-trade transparency
does not seem to have a negative effect on liquidity and market
activity in the swap market.\493\
---------------------------------------------------------------------------

    \492\ See ``Analysis of post-trade transparency under the CFTC
regime'' (October 17, 2014), available at http://www.sec.gov/comments/s7-34-10/s73410-183.pdf (``Analysis of Post-Trade
Transparency''). See also infra Sections XXII(C)(2)(b),
XXII(C)(2)(c), XXII(C)(3)(a), and XXII(D)(4)(b). The one comment
that the Commission received on the Analysis of Post-Trade
Transparency did not directly address the staff's analysis. This
comment is discussed in notes 688 and 1011, infra.
    \493\ See Analysis of Post-Trade Transparency at 1 (``While we
acknowledge that there are significant differences between the index
[credit default swap] market and the security-based swap market, the
data analysis presented here may enhance the Commission's
understanding of the potential economic effects of mandated
post[hyphen]trade transparency in the security[hyphen]based swap
market'').
---------------------------------------------------------------------------

1. T+24 Hour Reporting for All Transactions
    The Commission initially proposed to require reporting to a
registered SDR of the primary trade information of all security-based
swaps ``as soon as technologically practicable, but in no event later
than 15 minutes after the time of execution of the security-based swap
transaction.'' \494\ For all dissemination-eligible transactions other
than block trades, the registered SDR would have been required to
publicly disseminate a report of the transaction immediately and
automatically upon receipt of the transaction. As proposed, block
trades would have been subject to two-part dissemination: (1) An
initial report with suppressed notional amount disseminated in real-
time; and (2) a full report including notional amount disseminated
between 8 to 26 hours after execution.\495\
---------------------------------------------------------------------------

    \494\ See Rules 901(c) and 900 (definition of ``real time''), as
originally proposed.
    \495\ Rule 902(b)(1), as proposed and re-proposed, would have
provided: ``If the security-based swap was executed on or after
05:00 UTC and before 23:00 UTC of the same day, the transaction
report [for the block trade] (including the transaction ID and the
full notional amount) shall be disseminated at 07:00 UTC of the
following day.'' Proposed Rule 902(b)(2) would have provided: ``If
the security-based swap was executed on or after 23:00 UTC and up to
05:00 UTC of the following day, the transaction report (including
the transaction ID and the full notional size) shall be disseminated
at 13:00 UTC of that following day.'' Those block trades executed at
the end of each window would receive an 8 hour dissemination delay
and those blocks executed at 5:00 UTC would receive a 26 hour
dissemination delay. The delay for all other block trades would vary
between 8 and 26 hours, depending on the time of execution.
---------------------------------------------------------------------------

    Commenters expressed mixed views regarding the proposed reporting
timeframes. Two commenters generally supported them.\496\ However,
several commenters stated that, at least in the near term, it would be
difficult to comply with the reporting timeframes as proposed.\497\ One
of these commenters argued, for example, that the benefits of providing
security-based swap information within minutes of execution did not
outweigh the infrastructure costs of building a mechanism to report in
real time, particularly given the likelihood of errors.\498\ Another
commenter expressed concern that ``the 15 minute limit is not
technologically practicable under existing communications and data
infrastructure.'' \499\
---------------------------------------------------------------------------

    \496\ See FINRA Letter at 2 (supporting the Commission's
proposal to require reporting as soon as technologically
practicable, but in no event later than 15 minutes after the time of
execution); Barnard I at 3 (recommending full post-trade
transparency as soon as technologically and practicably feasible,
with an exemption permitting delayed reporting for block trades).
    \497\ See DTCC II at 9-10; ICI I at 4-5; ISDA III at 1 (``Not
all market participants have the ability to report within 15 or 30
minutes of execution''); MarkitSERV I at 9 (``complying with a
strict 15-minute deadline even for non-electronically executed or
confirmed trades will require significant additional implementation
efforts by the industry at a time when resources are already
stretched in order to meet other requirements under the [Dodd-Frank
Act]''); MFA I at 5.
    \498\ See MFA I at 5.
    \499\ ICI I at 4.
---------------------------------------------------------------------------

    Commenters also advocated that the Commission phase-in reporting
deadlines over time, similar to the implementation model for TRACE, to
allow regulators to assess the impact of post-trade transparency on the
security-based swap market.\500\ One commenter noted that phased-in
implementation would allow regulators to assess the impact of
transparency on the security-based swap market and make adjustments, if
necessary, to the timing of dissemination and the data that is
disseminated.\501\ Other commenters echoed the belief that a phased
approach would allow the Commission to assess the impact of public
reporting on liquidity in the security-based swap market, monitor
changes in the market, and adjust the reporting rules, if
necessary.\502\
---------------------------------------------------------------------------

    \500\ See Barnard I at 4; CCMR I at 2; Cleary II at 18-21; DTCC
II at 9-10, 24-25; DTCC III at 10; DTCC IV at 8-9; Roundtable Letter
at 4-9; FINRA Letter at 4-5; Institutional Investors Letter at 3;
ISDA/SIFMA I at 9-10; ISDA/SIFMA Block Trade Study at 2, 7;
MarkitSERV I at 9-10; MFA Recommended Timeline at 1; UBS Letter at
2-3; WMBAA III at 4-6. Based on its experience with industry-wide
processes, one commenter suggested that there could be a ``shake-
out'' period during which problems with reported data could surface.
The commenter urged the Commission to consider this possibility and
provide a means to assure that information is of high quality before
dissemination is permitted. See DTCC II at 9-10.
    \501\ See FINRA Letter at 5. See also ISDA/SIFMA Block Trade
Study at 2 (stating that phased implementation would provide
regulators with time to test and refine preliminary standards).
    \502\ See CCMR I at 2; Cleary II at 19; ISDA/SIFMA Block Trade
Study at 2; UBS Letter at 2.
---------------------------------------------------------------------------

    Three commenters recommended a 24-hour delay for reporting block
trades,\503\ and one recommended a delay of at least five days with an
indefinite delay of full notional size.\504\ Of those commenters, two
also suggested that the delay could be reduced or refined after the
Commission gathers additional information about the security-based swap
market.\505\ In contrast, two commenters recommended block delays as
short as 15 minutes.\506\ In addition,

several commenters opposed two-part transaction reporting for block
trades. These commenters believed that all information about a block
trade, including the notional amount of the transaction, should be
subject to a dissemination delay to provide liquidity providers with
adequate time to hedge their positions.\507\ Two commenters recommended
initially setting block sizes low and over time collecting data to
determine an appropriate block trade size.\508\
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    \503\ See ICI I at 3; SIFMA I at 5 (``a 24-hour delay would
better ensure that block liquidity providers are able to offset
their risk regardless of the time during the trading day at which
the block is executed''); Vanguard Letter at 4; Viola Letter at 2
(``At a minimum, the data in question should be delayed from the
public reporting requirements at least one (1) day after the trade
date''). Cf. Phoenix Letter at 4 (recommending end-of-day
dissemination of block trades).
    \504\ See ISDA IV at 16.
    \505\ See ICI I at 3-4; Vanguard Letter at 4, note 3.
    \506\ See Better Markets I at 5-6 and at 4-5 (stating that no
compelling economic justification exists for delaying the immediate
public dissemination of any data regarding block trades, and that
the minimum duration of any delay in reporting block trades should
be ``far shorter'' than the delays included in Regulation SBSR);
Better Markets III at 4-5; SDMA Letter at 2.
    \507\ See Cleary II at 12 (even without disclosure of the
notional amount, observers may be able to infer information about a
trade and predict subsequent hedging activity); Goldman Sachs Letter
at 6 (disclosure of the fact that a block trade occurred could still
impact liquidity); ICI I at 2 (recommending a delay of all block
trade information); ISDA/SIFMA I at 3 (delaying disclosure of
notional amount is only a ``partial solution''); SIFMA I at 3-4 (all
block trade information should be delayed, otherwise immediate trade
signaling could harm end users); Vanguard Letter at 2, 4 (all block
trades should be delayed 24 hours, and establishment of a block
regime should be delayed until the Commission has had time to assess
how reporting affects the market).
    \508\ See Institutional Investors Letter at 4; MFA Recommended
Timeline at 4.
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    In addition, Commission staff has undertaken an analysis of the
inventory management of dealers in the market for single-name CDS based
on transaction data from DTCC-TIW.\509\ The analysis, in line with
prior studies of hedging in this market,\510\ shows that, after most
large transactions between a dealer and customer are executed, dealers
do not appear to hedge resulting exposures by executing offsetting
transactions (either with other dealers or other customers) in the same
single-name CDS. In instances where dealers appear to hedge resulting
exposures following a large trade in single-name CDS written on the
same reference entity, they generally do so within a maximum of 24
hours after executing the original trade.
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    \509\ See Hedging Analysis.
    \510\ See Kathryn Chen, et al., Federal Reserve Bank of New York
Staff Report, An Analysis of CDS Transactions: Implications for
Public Reporting (September 2011), available at http://www.newyorkfed.org/research/staff_reports/sr517.html, last visited
September 22, 2014. See also http://www.dtcc.com/repository-otc-data.aspx, last visited September 22, 2014. This study uses an
earlier sample of DTCC-TIW transaction data to identify hedging of
transactions in single-name CDS. They find little evidence of
hedging via offsetting trades in the same instrument and conclude by
saying that ``requiring same day reporting of CDS trading activity
may not significantly disrupt same day hedging activity, since
little such activity occurs in the same instrument.''
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    One commenter responded to this analysis, asserting that dealers,
rather than hedging security-based swap exposures using offsetting
transactions in the same instruments, might choose instead to hedge
their security-based swap exposures in related assets, and that these
types of hedging behaviors were not measured in the Commission staff
analysis. The commenter further suggested that the use of cross-market
hedges could be particularly important for transactions in single-name
CDS that are especially illiquid.\511\ The Commission acknowledges that
the staff's analysis was limited to same-instrument hedging.\512\
However, the Commission notes that, to the extent that security-based
swap positions can be hedged using other assets--as the commenter
suggests--these additional opportunities would suggest that dealers
would likely need less time to hedge than if hedging opportunities
existed only within the security-based swap market.
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    \511\ See ISDA IV at 15 (stating that ``participants may enter
into risk mitigating transactions using other products that are more
readily available at the time of the initial trade (for example CD
index product [sic], CDS in related reference entities, bonds or
loans issued by the reference entity or a related entity, equities
or equity options)''). In addition, the commenter stated that it
``interprets the data in the study to imply that such temporary
hedges in other asset classes (rather than offsetting transactions
in the precise reference entity originally traded) are the norm for
an illiquid market.'' See id.
    \512\ See Chen et al., supra note 510, at 6. Like the Chen et
al. report, which was cited by the commenter, the Commission staff
analysis did not incorporate data that would allow it to identify
hedging in corporate bonds or equities, because appropriate data
were not available. The commenter did not provide any analysis,
rationale, or data demonstrating how public dissemination of a
single-name CDS transaction within 24 hours would negatively impact
a dealer from being able to hedge this exposure in another market,
such as a broad-based CDS index.
---------------------------------------------------------------------------

    In view of these comments and the staff analysis, the Commission is
modifying Regulation SBSR's timeframes for reporting security-based
swap transaction information as follows. First, Rules 901(c) and
901(d), as adopted, require reporting sides to report the information
enumerated in those rules ``within the timeframe specified in paragraph
(j) of this section''--i.e., by Rule 901(j). Rule 901(j), as adopted,
provides that the reporting timeframe for Rules 901(c) and 901(d) shall
be ``within 24 hours after the time of execution (or acceptance for
clearing in the case of a security-based swap that is subject to
regulatory reporting and public dissemination solely by operation of
Sec.  242.908(a)(1)(ii)), or, if 24 hours after the time of execution
or acceptance for clearing, as applicable, would fall on a day that is
not a business day, by the same time on the next day that is a business
day.'' Under Rule 902(a), as adopted, the registered SDR that receives
the transaction report from the reporting side is required, as proposed
and re-proposed, to publicly disseminate a report of that transaction
immediately upon receipt. The Commission believes that this approach
will improve post-trade transparency and respond to commenters'
concerns. In particular, the Commission believes that this approach
addresses concerns relating to potential market impact, the ability to
report in real time, and the length of delay for dissemination of block
trade information.\513\ Thus, the T+24 hour approach is designed to
improve post-trade transparency in the security-based swap market in
the near term, while generating additional data that the Commission can
evaluate in considering appropriate treatment of block trades.
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    \513\ Although two commenters advocated shorter block trade
delays, the Commission believes that it would be prudent to allow
for the accumulation of additional data about the effect of post-
trade transparency on the security-based swap market before
considering shorter reporting and dissemination timeframes for block
trades. The Commission may consider shorter timeframes in the future
but believes that it is neither necessary nor appropriate to adopt
these commenters' recommendations at this time.
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    At this time, the Commission is not adopting the provisions of
proposed and re-proposed Rule 902 that would have provided for real-
time public dissemination of non-block trades. However, the Commission
is adopting, substantially as proposed and re-proposed, what was
originally designed to be the second wave of block dissemination--i.e.,
disseminating the full trade details, including the true notional
amount, at one of two points in the day (either 07:00 or 13:00 UTC)
after an initial report of the transaction (without the notional
amount) had been disseminated in real time.\514\ The Commission is now
simplifying that approach by eliminating the idea of ``batch
dissemination'' at two points during the day, and instead allowing for
T+24 hour reporting for all transactions, regardless of the time of
execution. Furthermore, in the absence of a standard to differentiate
block from non-block transactions, the Commission believes that it is
appropriate to require the same T+24 hour reporting for all
transactions.\515\
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    \514\ See Rule 902(b), as proposed and re-proposed.
    \515\ As discussed in more detail in Section VII(B)(3), infra,
if 24 hours after the time of execution would fall on a non-business
day (i.e., a Saturday, Sunday, or U.S. federal holiday), reporting
would instead be required by the same time on the next business day.
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    This interim phase is designed to allow the accumulation of
empirical

data and is consistent with various comments that emphasized the need
for further study and analysis of empirical data prior to establishing
block trading rules.\516\ Several commenters noted that implementing
the rules requiring reporting to registered SDRs prior to the block
trading rules would provide security-based swap transaction data (in
addition to historical data) that could be used in the formation of
block trade thresholds.\517\ One of these commenters stated, for
example, that it would be premature to adopt block trade thresholds
prior to the commencement of reporting to registered SDRs because SDR
reporting would increase the amount of information available across
various markets and asset classes.\518\ Commenters also recommended
several methods for obtaining and analyzing empirical data,\519\
including independent academic research\520\ and a review of a
statistically significant data set for each security-based swap
category.\521\
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    \516\ See ABC Letter at 7-8; CCMR I at 4 (``The Commission
should set the thresholds low at first in order to collect data that
will enable them to make informed decisions about the final delay
and threshold determinations''); Institutional Investors Letter at
4-5 (stating, in reference to the CFTC's proposed rules, that the
marketplace currently lacks sufficient collection and analysis of
swap trading data to establish block trade thresholds); ICI II at 8
(``We agree with the SEC that it should defer its proposed
rulemaking regarding block thresholds until after SDRs register with
the SEC and the SEC begins to receive and analyze data required to
be reported under the final rules or until after SB swap transaction
information begins to be publicly reported''); MFA I at 4
(recommending that the Commission study and obtain empirical
evidence to determine block trade definitions for each asset class
to assure that the final rules do not disrupt the markets or reduce
liquidity); ISDA/SIFMA I at 4-5 (recommending significant detailed
research, including independent academic research, before
determining block size thresholds and reporting delays for
particular security-based swap transactions); ISDA/SIFMA II at 8
(stating that market-based research and analysis should be employed
to provide the basis for the determination of well-calibrated block
trading exemption rules); SIFMA II at 8 (``Until a liquid SBS
trading market develops on SB-SEFs and exchanges, the Commission
will not be able to make informed decisions on the definition of a
block or an appropriate public reporting time frame. For the same
reason, real-time reporting should be implemented gradually. Block
trade thresholds should be set at a low level at first, such that
many trades are treated as blocks, and raised slowly by the
Commission when doing so is supported by market data''). But see
SDMA Letter at 3 (stating that swap transaction data are available
today and block trade thresholds could be established without
delay).
    \517\ See Institutional Investors Letter at 4 (recommending that
the CFTC collect market data for one year before adopting rules
relating to block trades); MFA II, Recommended Timeline at 4; WMBAA
III at 6; FIA/FSF/ISDA/SIFMA Letter at 6.
    \518\ See FIA/FSF/ISDA/SIFMA Letter at 6, note 6.
    \519\ See ISDA/SIFMA I at 4; Goldman Sachs Letter at 5.
    \520\ See ISDA/SIFMA I at 4.
    \521\ See Goldman Sachs Letter at 5 (stating that the Commission
could obtain the necessary data by asking large dealers to provide
information on a confidential basis and supplementing that
information with data obtained from a survey of other market
participants).
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    Although more data and analyses about executed transactions are now
available than when the Commission originally issued the Regulation
SBSR Proposing Release,\522\ these data provide limited insights into
how post-trade transparency might affect market behavior if executed
transactions were to become publicly known on a real-time or near-real-
time basis.\523\ The Commission has information from DTCC-TIW about
most CDS trades over the past few years \524\ and can analyze the
frequency of execution and the notional trade sizes. However, the
Commission believes that these data permit only speculative inferences
about the potential market impact of those trades being made public.
Currently, there is little post-trade transparency in the security-
based swap market, so the current trading generally is informed only
imperfectly, if at all, about earlier trading.
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    \522\ See, e.g., Chen et al., supra note 510.
    \523\ See ICI II at 8 (``Any data on which the SEC could rely
currently to develop a methodology for determining minimum block
trade sizes will not adequately represent or reflect the swaps
market once the Dodd-Frank requirements (including public reporting
of swap data) are fully implemented''). Two commenters pointed to
evidence suggesting negative effects of post-trade transparency in
other securities markets. See ISDA/SIFMA Block Trade Study at 4-5
(stating that some studies had concluded that transparency had
negatively impacted markets, including the Canadian stock markets
and the London Stock Exchange); J.P. Morgan Letter at 2-4 (stating
that anecdotal evidence reported in one study supported the view
that institutional customers experienced less deep markets as a
result of TRACE reporting, and that adverse impacts could be more
substantial for CDS).
    \524\ See http://www.dtcc.com/repository-otc-data.aspx (last
visited September 22, 2014) for a description of aggregated data
disseminated by DTCC. See also infra Section XXII(B)(1) for a
description of transaction data obtained by the Commission.
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    Several aspects of the Commission's adopted rules are designed to
help facilitate the collection of data relating to how post-trade
transparency affects market behavior. The Commission is adopting, as
re-proposed, the requirement that the trade report include the time of
execution and the requirement that the registered SDR mark the time