dealer and major security-based swap participant ``shall make such
reports as are required by the Commission, by rule or regulation,
regarding the transactions and positions and financial condition of the
registered security-based swap dealer or major security-based swap
participant.'' \797\
---------------------------------------------------------------------------

    \796\ 15 U.S.C. 78o-10(f)(1)(A).
    \797\ In addition, Section 30(c) of the Exchange Act, 15 U.S.C.
78dd(c), authorizes the Commission to apply Title VII to persons
transacting a business ``without the jurisdiction of the United
States'' if they contravene rules that the Commission has prescribed
as ``necessary or appropriate to prevent the evasion of any
provision'' of Title VII. As the Commission stated in the Cross-
Border Adopting Release, Section 30(c) does not require a finding
that actual evasion has occurred or is occurring to invoke the
Commission's authority to reach activity ``without the jurisdiction
of the United States'' or to limit application of Title VII to
security-based swap activity ``without the jurisdiction of the
United States'' only to business that is transacted in a way that is
purposefully intended to evade Title VII. See 79 FR 47291. The focus
of this provision is not whether such rules impose Title VII
requirements only on entities engaged in activity that is
consciously evasive, but whether the rules are generally ``necessary
or appropriate'' to prevent potential evasion of Title VII. The
Commission therefore disagrees with the commenter who stated that
the Commission ``should not adopt an extraterritorial regulatory
framework premised on the assumption that activities conducted
outside the U.S. will be undertaken abroad for the purpose of
evasion.'' Cleary III at 5.
---------------------------------------------------------------------------

    Finally, the Commission seeks to minimize the potential for
duplicative or conflicting regulations. The Commission recognizes the
potential for market participants who engage in cross-border security-
based swap activity to be subject to regulation under Regulation SBSR
and parallel rules in foreign jurisdictions in which they operate. To
address this possibility, the Commission--as described in detail
below--is adopting a ``substituted compliance'' framework. The
Commission may issue a substituted compliance determination if it finds
that the corresponding requirements of the foreign regulatory system
are comparable to the relevant provisions of Regulation SBSR, and are
accompanied by an effective supervisory and enforcement program
administered by the relevant foreign authorities.\798\ The availability
of substituted compliance is designed to reduce the likelihood of
cross-border market participants being subject to potentially
conflicting or duplicative reporting requirements.
---------------------------------------------------------------------------

    \798\ See Rule 908(c). See also infra Section XV(E).
---------------------------------------------------------------------------

B. Definition of ``U.S. Person''

    In the Regulation SBSR Proposing Release, the Commission proposed
to define ``U.S. person'' as ``a natural person that is a U.S. citizen
or U.S. resident or a legal person that is organized under the
corporate laws of any part of the United States or has its principal
place of business in the United States.'' \799\ In the Cross-Border
Proposing Release, the Commission introduced a new definition of ``U.S.
person'' that it proposed to use in all Title VII rulemakings to
promote consistency and transparency, which differed from the initially
proposed definition in certain respects. Re-proposed Rule 900(pp) would
have defined ``U.S. person'' by cross-referencing proposed Rule 3a71-
3(a)(7), which would have defined ``U.S. person'' as:
---------------------------------------------------------------------------

    \799\ Rule 900 as initially proposed. See also Regulation SBSR
Proposing Release, 75 FR 75284.
---------------------------------------------------------------------------

    (i) Any natural person resident in the United States;
    (ii) any partnership, corporation, trust, or other legal person
organized or incorporated under the laws of the United States or having
its principal place of business in the United States; and
    (iii) any account (whether discretionary or non-discretionary) of a
U.S. person.\800\
---------------------------------------------------------------------------

    \800\ See Cross-Border Proposing Release, 78 FR 31207.
---------------------------------------------------------------------------

    The Commission received extensive comment on this proposed
definition of ``U.S. person'' and responded to those comments in the
Cross-Border Adopting Release.\801\
---------------------------------------------------------------------------

    \801\ See 79 FR 47303-13. These comments focused on the proposed
definition generally and did not address the application of the
definition to Regulation SBSR.
---------------------------------------------------------------------------

    The Commission adopted a definition of ``U.S. person'' in the
Cross-Border Adopting Release as Rule 3a71-3(a)(4) under the Exchange
Act, which reflects a territorial approach to the application of Title
VII.\802\ The Commission believes that using the same definition of
``U.S. person'' in multiple Title VII rules could benefit market
participants by eliminating complexity that might result from the use
of different definitions for different Title VII rules. Accordingly,
final Rule 900(ss) of Regulation SBSR defines ``U.S. person'' to have
the same meaning as in Rule 3a71-3(a)(4). Rule 3a71-3(a)(4)(i) defines
``U.S. person'' as: (1) A natural person resident in the United States;
\803\ (2) a partnership, corporation, trust, investment vehicle, or
other legal person organized, incorporated, or established under the
laws of the United States or having its principal place of business
\804\ in the

United States; (3) an account (whether discretionary or non-
discretionary) of a U.S. person; or (4) any estate of a decedent who
was a resident of the United States at the time of death. As discussed
in the Cross-Border Adopting Release, the Commission believes that a
definition of ``U.S. person'' that focused solely on whether a legal
person is organized, incorporated, or established in the United States
could encourage some entities to move their place of incorporation to a
non-U.S. jurisdiction to avoid complying with Title VII, while
maintaining their principal place of business in the United
States.\805\
---------------------------------------------------------------------------

    \802\ See Cross-Border Adopting Release, 79 FR 47308, note 255.
    \803\ Rule 3a71-3(a)(5) under the Exchange Act, 17 CFR 240.3a71-
3(a)(4), defines ``United States'' as the United States of America,
its territories and possessions, any State of the United States, and
the District of Columbia.
    \804\ Rule 3a71-3(a)(4)(ii) under the Exchange Act, 17 CFR
240.3a71-3(a)(4)(ii), defines ``principal place of business'' as the
location from which the officers, partners, or managers of the legal
person primarily direct, control, and coordinate the activities of
the legal person. With respect to an externally managed investment
vehicle, this location is the office from which the manager of the
vehicle primarily directs, controls, and coordinates the investment
activities of the vehicle. See also Cross-Border Adopting Release,
79 FR 47308 (discussing the Commission's rationale for adopting the
``principal place of business'' test).
    \805\ See id., 79 FR 47309, note 262 (``The final definition of
`principal place of business' will help ensure that entities do not
restructure their business by incorporating under foreign law while
continuing to direct, control, and coordinate the operations of the
entity from within the United States, which would enable them to
maintain a significant portion of their financial and legal
relationships within the United States while avoiding application of
Title VII requirements to such transactions'').
---------------------------------------------------------------------------

    By incorporating Rule 3a71-3(a)(4) by reference, Regulation SBSR
also incorporates subparagraph (iv) of Rule 3a71-3(a)(4), which allows
a person to rely on a counterparty's representation that the
counterparty is not a U.S. person, unless such person knows or has
reason to know that the representation is inaccurate. As explained in
the Cross-Border Adopting Release,\806\ Rule 3a71-3(a)(4)(iv) reflects
a constructive knowledge standard for reliance. Under this standard, a
counterparty is permitted to rely on a representation, unless such
person knows or has reason to know that it is inaccurate. A person
would have reason to know the representation is not accurate if a
reasonable person should know, under all of the facts of which the
person is aware, that it is not accurate.\807\ Expressly permitting
market participants to rely on such representations in the ``U.S.
person'' definition should help facilitate the determination of which
side to a security-based swap is the reporting side and mitigate
challenges that could arise in determining a counterparty's U.S.-person
status under the final rule.\808\ It permits the party best positioned
to make this determination to perform an analysis of its own U.S.-
person status and convey, in the form of a representation, the results
of that analysis to its counterparty. Such representations should help
reduce the potential for inconsistent classification and treatment of a
person by its counterparties and promote uniform application of Title
VII.\809\
---------------------------------------------------------------------------

    \806\ See id. at 47313.
    \807\ To the extent that a person has knowledge of facts that
could lead a reasonable person to believe that a counterparty may
not be a U.S. person under the definition, it might need to conduct
additional diligence before relying on the representation. See id.
at 47313, note 302.
    \808\ As discussed below, under Rule 908(a), the U.S.-person
status of the counterparties to a security-based swap is one factor
in determining whether the security-based swap is subject to
Regulation SBSR. If a security-based swap is subject to Regulation
SBSR, the U.S.-person status of the counterparties may influence the
determination of the reporting side under Rule 901(a)(2)(ii). See
supra Section V(B).
    \809\ The final rule permitting reliance on representations with
respect to a counterparty's U.S.-person status applies only to the
definition of ``U.S. person'' as used in Regulation SBSR and does
not apply to any determination of a person's U.S.-person status
under any other provision of the federal securities laws, including
Commission rules, regulations, interpretations, or guidance.
---------------------------------------------------------------------------

    Rule 3a71-3(a)(4)(iii)--and thus Regulation SBSR--provides that the
term ``U.S. person'' does not include the International Monetary Fund,
the International Bank for Reconstruction and Development, the Inter-
American Development Bank, the Asian Development Bank, the African
Development Bank, the United Nations; their agencies and pension plans;
and any other similar international organizations and their agencies
and pension plans. Therefore, a security-based swap involving any such
institution, for that fact alone, will not be subject to regulatory
reporting or public dissemination under Regulation SBSR.\810\ However,
as discussed in Section XVI(A), infra, a security-based swap
transaction involving such an institution could be subject to
regulatory reporting and/or public dissemination, depending on the
domicile and registration status of the other side of the transaction.
---------------------------------------------------------------------------

    \810\ See infra Section XV(C) (discussing when a security-based
swap is subject to regulatory reporting and public dissemination).
---------------------------------------------------------------------------

    Finally, similar to the approach taken by the Commission in the
Cross-Border Adopting Release for purposes of the de minimis
calculation,\811\ a change in a counterparty's U.S.-person status after
a security-based swap is executed would not affect the original
transaction's treatment under Regulation SBSR. However, if that person
were to enter into another security-based swap following its change in
status, any duties required by Regulation SBSR would be determined
according to the new status of that person at the time of the second
security-based swap.
---------------------------------------------------------------------------

    \811\ See 79 FR 47313, note 300.
---------------------------------------------------------------------------

C. Scope of Security-Based Swap Transactions Covered by Requirements of
Regulation SBSR--Rule 908(a)

1. Transactions Involving a Direct Counterparty That Is a U.S. Person
    Under both the proposal and re-proposal, any security-based swap
that had a direct counterparty that is a U.S. person would have been
subject to both regulatory reporting and public dissemination,
regardless of the registration status or domicile of any counterparty
on the other side of the transaction. Commenters generally did not
object to this aspect of the proposal and the re-proposal.\812\
---------------------------------------------------------------------------

    \812\ Some commenters supported a cross-border jurisdictional
regime that would apply security-based swap regulation on the basis
of whether a direct counterparty to a security-based swap is a U.S.
person. See, e.g., JFMC Letter at 5; JSDA Letter at 3-4; AFR Letter
at 4, 13-14. These commenters did not, however, raise this
suggestion specifically in the context of Regulation SBSR. See also
IIB Letter at 11 (observing that a status-based test for
jurisdictional application would be more appropriate than a
territorial approach based on the location of conduct). The Cross-
Border Adopting Release addressed these comments. See 79 FR 47302-
06.
---------------------------------------------------------------------------

    Final Rule 908(a)(1)(i) provides, in relevant part, that a
security-based swap shall be subject to regulatory reporting and public
dissemination if ``[t]here is a direct . . . counterparty that is a
U.S. person on either or both sides of the transaction.'' Thus, any
security-based swap that has a direct counterparty that is a U.S.
person is subject to both regulatory reporting and public
dissemination, regardless of the registration status or domicile of any
counterparty on the other side of the transaction. This determination
is consistent with the territorial application of Title VII described
above, because any security-based swap that has a U.S.-person direct
counterparty exists at least in part within the United States. One
purpose of the rule is to allow the Commission and other relevant
authorities to access, for regulatory and supervisory purposes, a
record of each such transaction. A second purpose of the rule is to
carry out the Title VII mandate for public dissemination of security-
based swap transactions. The transparency benefits of requiring public
dissemination of security-based swaps involving at least one U.S.-
person direct counterparty would inure to other U.S. persons and the
U.S. market generally, as other participants in the U.S. market are
likely to transact in the same or related instruments.

2. Transactions Conducted Through a Foreign Branch or Office
    Rule 908(a), as initially proposed, treated foreign branches and
offices of U.S. persons as integral parts of the U.S. person
itself.\813\ Therefore, Rule 908(a), as initially proposed, would not
have treated a security-based swap transaction executed by or through a
foreign branch or office of a U.S. person any differently than any
other transaction executed by the U.S. person.
---------------------------------------------------------------------------

    \813\ See Regulation SBSR Proposing Release, 75 FR 75240
(``Because a branch or office has no separate legal existence under
corporate law, the branch or office would be an integral part of the
U.S. person itself'').
---------------------------------------------------------------------------

    In the Cross-Border Proposing Release, the Commission revised its
approach to transactions conducted through a foreign branch. Although
all transactions conducted through a foreign branch or office would
have been subject to regulatory reporting, re-proposed Rule
908(a)(2)(iii) would have provided an exception to public dissemination
for transactions conducted through a foreign branch when the other side
is a non-U.S. person who is not a security-based swap dealer.\814\ In
proposing this exception to public dissemination for such transactions
conducted through a foreign branch, the Commission stated that it was
``concerned that, if it did not take this approach, non-U.S. market
participants might avoid entering into security-based swaps with the
foreign branches of U.S. banks so as to avoid their security-based
swaps being publicly disseminated.'' \815\ However, Rule 908(a)(2)
would have subjected a transaction conducted through a foreign branch
to public dissemination if there was, on the other side, a U.S. person
(including a foreign branch) \816\ or a security-based swap
dealer.\817\
---------------------------------------------------------------------------

    \814\ In the Cross-Border Proposing Release, the term
``transaction conducted through a foreign branch'' was defined in
re-proposed Rule 900(hh) to cross-reference the definition of that
term in proposed Rule 3a71-3(a)(4) under the Exchange Act, and the
term ``foreign branch'' was defined in re-proposed Rule 900(n) to
cross-reference the definition of foreign branch in proposed Rule
3a71-3(a)(1). In the Cross-Border Adopting Release, the Commission
adopted the term ``foreign branch'' as proposed and adopted the term
``transaction conducted through a foreign branch'' with certain
modifications. See 79 FR 47322.
    \815\ Cross-Border Proposing Release, 78 FR 31063.
    \816\ See re-proposed Rule 908(a)(2)(ii).
    \817\ See re-proposed Rule 908(a)(2)(iv).
---------------------------------------------------------------------------

    One commenter expressed the view that foreign branches should be
treated the same as non-U.S.-person security-based swap dealers for
purposes of public dissemination, and that security-based swaps between
two non-U.S. persons, between a non-U.S. person and a foreign branch,
and between two foreign branches should not be subject to public
dissemination.\818\ Another commenter, however, stated that ``it should
be expected that most jurisdictions would seek to apply their rules to
transactions between two of their own domiciled persons, despite some
of the activity being conducted abroad.'' \819\ A third commenter
recommended that the exception to public dissemination for foreign
branches be eliminated, so that security-based swaps between a foreign
branch and any non-U.S. person would be subject to public
dissemination.\820\
---------------------------------------------------------------------------

    \818\ See SIFMA/FIA/Roundtable Letter at A-43.
    \819\ IIB Letter at 9. The commenter also noted that ``EMIR [the
European Markets Infrastructure Regulation] would apply to
transactions between the U.S. branches of two entities established
in the EU,'' id., and thus appeared to suggest that U.S. regulation
should apply to transactions between two foreign branches of U.S.
persons.
    \820\ See Better Markets IV at 23.
---------------------------------------------------------------------------

    As noted above, the Commission is adopting the requirement that any
security-based swap transaction having a direct counterparty that is a
U.S. person, including a security-based swap conducted through a
foreign branch, shall be subject to regulatory reporting. The
Commission has determined not to adopt the proposed exception from
public dissemination for certain transactions conducted through a
foreign branch. Thus, under Rule 908(a)(1)(i), as adopted, any
security-based swap transaction conducted through a foreign branch is
subject to both regulatory reporting and public dissemination. Under
the territorial approach to the application of Title VII requirements
discussed above, a foreign branch has no separate existence from the
U.S. person itself. Therefore, any security-based swap transaction
conducted through a foreign branch is a security-based swap executed by
the U.S. person itself, and any security-based swap executed by a U.S.
person exists at least in part within the United States.\821\ The Title
VII requirements for regulatory reporting and public dissemination
apply to all security-based swap transactions that exist in whole or in
part within the United States, unless an exception applies.
---------------------------------------------------------------------------

    \821\ See Cross-Border Adopting Release, 79 FR 47289 (describing
the application of the security-based swap dealer de minimis
threshold with respect to foreign branches or offices of U.S.
persons). The Commission notes that a transaction conducted by a
U.S. person through any other office that does not have a separate
legal identity from the U.S. person, even if such office does not
meet the definition of ``foreign branch'' in Rule 3a71-3(a)(2) of
the Exchange Act, also is a transaction conducted by the U.S. person
directly, and thus is subject to regulatory reporting and public
dissemination under Rule 908(a)(1)(i), as adopted.
---------------------------------------------------------------------------

    Upon further consideration, the Commission believes that the
exception from public dissemination for foreign branches in Rule
908(a), as re-proposed, is not warranted. Granting an exception to
public dissemination for certain transactions conducted through a
foreign branch could have created incentives for some U.S. persons to
utilize foreign branches to evade Title VII's public dissemination
requirements.\822\ This could be the case particularly in a foreign
jurisdiction that does not apply rules for public dissemination to all
or some transactions conducted through foreign branches operating
within that jurisdiction. Thus, the Commission disagrees with the
commenter who expressed the view that foreign branches should be
treated the same as non-U.S. person security-based swap dealers for
purposes of public dissemination,\823\ and that security-based swaps
between two non-U.S. persons, between a non-U.S. person and a foreign
branch, and between two foreign branches should not be subject to
public dissemination.\824\
---------------------------------------------------------------------------

    \822\ Under Rule 908(a)(2)(iii), as re-proposed, public
dissemination would have applied to a security-based swap between a
U.S. person direct counterparty and a non-U.S. person (other than a
security-based swap dealer) unless the U.S. person conducted the
transaction through a foreign branch. Thus, the U.S. person could
have directed a non-U.S.-person counterparty to interact only with
its foreign branch staff, which would have made the transaction
eligible for the exception provided by re-proposed Rule
908(a)(2)(iii).
    \823\ As discussed in Section XV(C)(6), infra, if a transaction
involving a registered security-based swap dealer or registered
major security-based swap participant does not fall within Rule
908(a)(1), Rule 908(a)(2), as adopted, subjects that transaction to
regulatory reporting but not public dissemination.
    \824\ See SIFMA/FIA/Roundtable Letter at A-43.
---------------------------------------------------------------------------

 3. Transactions Guaranteed by a U.S. Person
    Regulation SBSR, as initially proposed, did not impose reporting
requirements based on whether a U.S. person acts as a guarantor of a
security-based swap. As re-proposed, however, Rule 908(a)(1)(ii) would
have required regulatory reporting of any security-based swap that had
a U.S.-person guarantor, even when no direct counterparty was a U.S.
person.\825\ In addition, Rule 908(a)(2), as re-proposed, would have
required public dissemination of some, but not all, transactions having
a U.S.-person indirect counterparty. Re-proposed Rule 908(a)(2)(ii)
would have provided, in

relevant part, that a security-based swap is subject to public
dissemination if there is an indirect counterparty that is a U.S.
person on each side of the transaction.\826\ Re-proposed Rule
908(a)(2)(iv) would have provided, in relevant part, that a transaction
where one side includes a U.S.-person (including an indirect
counterparty that is a U.S. person) and the other side includes a non-
U.S. person that is a security-based swap dealer would be subject to
public dissemination. However, a transaction would have been excepted
from public dissemination if one side consisted of a non-U.S.-person
direct counterparty and a U.S.-person guarantor, where neither is a
security-based swap dealer or major security-based swap participant,
and the other side includes no counterparty that is a U.S. person,
security-based swap dealer, or major security-based swap participant (a
``covered cross-border transaction'').\827\
---------------------------------------------------------------------------

    \825\ Also in the Cross-Border Proposing Release, the Commission
proposed new terms ``direct counterparty'' and ``indirect
counterparty'' to distinguish the primary obligor on the security-
based swap from the person who guarantees the primary obligor's
performance, respectively. The Commission also proposed the term
``side'' to refer to the direct counterparty and any guarantor of
the direct counterparty. See 78 FR 31211.
    \826\ The Commission noted in the Cross-Border Proposing Release
that, where U.S. persons have an interest on both sides of a
transaction, even if indirectly, the transaction generally should be
subject to Title VII's public dissemination requirement. See 78 FR
31062.
    \827\ As used in this release, a ``covered cross-border
transaction'' refers to a transaction that meets the description
above and will not be submitted to clearing at a registered clearing
agency having its principal place of business in the United States.
---------------------------------------------------------------------------

    Commenters generally did not object to the Commission's proposal to
subject transactions between direct counterparties who are U.S. persons
to regulatory reporting or public dissemination. However, commenters
expressed mixed views about extending regulatory reporting and public
dissemination requirements to transactions involving U.S.-person
guarantors.\828\ One of these commenters stated that a guarantee of a
security-based swap transaction by a U.S. person should not affect
whether the transaction is subject to regulatory reporting or public
dissemination, because there is too tenuous a nexus to justify applying
Regulation SBSR on the basis of the guarantee alone.\829\ Another
commenter recommended that a security-based swap between two non-U.S.
persons be subject to Commission regulation only where the transaction
is ``guaranteed by a U.S. person for a significant value.'' \830\ A
third commenter, however, recommended that the Commission apply Title
VII rules to transactions in which the risk flows back to a U.S.
entity, including transactions involving guaranteed foreign
subsidiaries and branches of U.S. entities.\831\
---------------------------------------------------------------------------

    \828\ See SIFMA/FIA/Roundtable Letter at A-41; ESMA Letter at 3;
AFR Letter at 4, 13-14.
    \829\ See SIFMA/FIA/Roundtable Letter at A-41.
    \830\ ESMA Letter at 3.
    \831\ See AFR Letter at 4, 13-14 (noting that the geographic
location of the entities ultimately responsible for security-based
swap liabilities should determine the application of the
Commission's rules implementing the Dodd-Frank Act). Another
commenter stated that the proposed definition of ``indirect
counterparty'' in Regulation SBSR implies that an indirect
counterparty can cause a trade to be subject to reporting even in
cases where the direct counterparties to the trade would not lead to
the conclusion that the trade is reportable. The commenter
recommended that the Commission amend the definition of ``indirect
counterparty'' to make it clear that its scope is limited to U.S.-
person guarantors and not all guarantors, to be consistent with the
intent demonstrated by the Commission in the preamble where
reference is made to U.S.-person guarantors. See ISDA IV at 4.
Although the Commission has not amended the definition of ``indirect
counterparty'' in this manner, such an amendment is not necessary
because Rule 908(a)(i), as adopted, effectively reaches the same
result. Rule 908(a)(i) provides that a security-based swap will be
subject to regulatory reporting and public dissemination if there is
a direct or indirect counterparty that is a U.S. person on either or
both sides of the transaction.
---------------------------------------------------------------------------

    The Commission is adopting, as re-proposed, in Rule 908(a)(1)(ii)
the requirement that any transaction involving a U.S.-person guarantor
is subject to regulatory reporting. The Commission has determined to
continue to consider whether to carve out covered cross-border
transactions from public dissemination. Thus, Rule 908(a)(1)(i), as
adopted, requires public dissemination of all security-based swap
transactions having a U.S.-person guarantor.\832\ This approach is
consistent with the territorial approach to applying Title VII
requirements, described above. A security-based swap with a U.S.-person
indirect counterparty is economically equivalent to a security-based
swap with a U.S.-person direct counterparty, and both kinds of
security-based swaps exist, at least in part, within the United States.
As the Commission observed in the Cross-Border Adopting Release, the
presence of a U.S. guarantor facilitates the activity of the non-U.S.
person who is guaranteed and, as a result, the security-based swap
activity of the non-U.S. person cannot reasonably be isolated from the
U.S. person's activity in providing the guarantee.\833\ The financial
resources of the U.S.-person guarantor could be called upon to satisfy
the contract if the non-U.S. person fails to meet its obligations.
Thus, the extension of a guarantee is economically equivalent to a
transaction entered into directly by the U.S.-person guarantor.
Accordingly, Rule 908(a)(1)(i), as adopted, provides that a security-
based swap shall be subject to regulatory reporting and public
dissemination if ``[t]here is a direct or indirect counterparty that is
a U.S. person on either or both sides of the transaction'' (emphasis
added). The Commission disagrees with the commenter who stated that a
guarantee of a security-based swap transaction by a U.S. person should
not affect whether the transaction is subject to regulatory reporting
or public dissemination, because there is too tenuous a nexus to
justify applying Regulation SBSR on the basis of the guarantee
alone.\834\ Under the territorial approach described above, any
security-based swap guaranteed by a U.S. person exists at least in part
within the United States, which triggers the application of Title VII
requirements. The Commission believes that this is true regardless of
whether a particular guarantee is ``for a significant value.'' \835\
Furthermore, if the Commission does not require regulatory reporting of
security-based swaps that are guaranteed by U.S. persons--in addition
to security-based swaps having a U.S.-person direct counterparty--the
Commission and other relevant authorities could be less likely to
detect potential market abuse or the build-up of potentially
significant risks within individual firms or groups or more widespread
systemic risks to the U.S. financial system.
---------------------------------------------------------------------------

    \832\ As discussed below, compliance with Rule 908(a)(1)(i) is
not required until the Commission establishes a compliance date for
this provision.
    \833\ See 79 FR 47289 (discussing dealing transactions of non-
U.S. persons that are subject to recourse guarantees by their U.S.
affiliates).
    \834\ See SIFMA/FIA/Roundtable Letter at A-41.
    \835\ See ESMA Letter at 3.
---------------------------------------------------------------------------

    The Commission anticipates seeking additional comment on whether or
not to except covered cross-border transactions from public
dissemination in the future. Furthermore, as discussed in the proposed
compliance schedule for Rules 901, 902, 903, 904, 905, 906, and 908 of
Regulation SBSR set forth in the Regulation SBSR Proposed Amendments
Release, the Commission is proposing to defer the compliance date for
Rule 908(a)(1)(i) with respect to the public dissemination of covered
cross-border transactions until such time as the Commission has
received and considered comment on such an exception. Thus, although
covered cross-border transactions are subject to public dissemination
under Rule 908(a)(1)(i), as adopted, there would be no public
dissemination of any such transaction until the Commission considers
whether these transactions should be excepted from public
dissemination.

4. Transactions Accepted for Clearing by a U.S. Clearing Agency
    Re-proposed Rules 908(a)(1)(iv) and 908(a)(2)(v) would have
required regulatory reporting and public dissemination, respectively,
of security-based swaps that are ``cleared through a clearing agency
having its principal place of business in the United States.'' One
commenter agreed that ``Dodd-Frank's reporting requirements should
apply to any transaction that . . . was cleared through a registered
clearing organization having its principal place of business in the
U.S.'' \836\ Two other commenters objected.\837\ One of these
commenters observed that Regulation SBSR could require regulatory
reporting and public dissemination of transaction information before
the transaction is submitted for clearing; as a result, circumstances
could arise where the sides would not know whether a particular
security-based swap is subject to regulatory reporting and public
dissemination until after reporting deadlines have passed.\838\ The
other commenter argued that the proposed requirement might discourage
market participants from clearing transactions in the United States,
which would be contrary to the objective of reducing systemic
risk.\839\ Another commenter argued that a transaction between two non-
U.S. persons that is cleared through a clearing agency having its
principal place of business in the United States should not be subject
to public dissemination, ``although the clearing agency can provide
information for regulatory purposes.'' \840\
---------------------------------------------------------------------------

    \836\ Id. at 4.
    \837\ See CME II at 5; SIFMA/FIA/Roundtable Letter at A-42.
    \838\ See CME II at 5.
    \839\ See SIFMA/FIA/Roundtable Letter at A-42.
    \840\ ISDA/SIFMA I at 19. The Regulation SBSR Proposed
Amendments Release addresses the issue of whether registered
clearing agencies should be required to report security-based swap
transaction information to a registered SDR.
---------------------------------------------------------------------------

    The Commission is adopting Rule 908(a)(1)(ii) with two
modifications. The rule, as adopted, provides that a security-based
swap shall be subject to regulatory reporting and public dissemination
if ``[t]he security-based swap is accepted for clearing by a clearing
agency having its principal place of business in the United States.''
Rule 908(a)(1)(ii), as adopted, is consistent with the territorial
approach discussed above. Just as a security-based swap to which a U.S.
person is a direct or indirect counterparty exists, at least in part,
within the United States, a security-based swap that is accepted for
clearing by a clearing agency having its principal place of business in
the United States also exists, at least in part, within the United
States. Such acceptance creates ongoing obligations that are borne by a
U.S. person and thus are properly viewed as existing within the United
States.\841\
---------------------------------------------------------------------------

    \841\ See Cross-Border Adopting Release, 79 FR 47302-03, note
186 (explaining that security-based swap activity that ``results in
a transaction involving a U.S. counterparty creates ongoing
obligations that are borne by a U.S. person, and thus is properly
viewed as occurring within the United States'').
---------------------------------------------------------------------------

    The Commission acknowledges the concerns of the commenter who
observed that Regulation SBSR, as re-proposed, could have required
regulatory reporting and public dissemination of transaction
information before the transaction is submitted for clearing.\842\
Currently, clearing in the security-based swap market is voluntary.
Therefore, counterparties--if they decide to clear a transaction at
all--might not submit the transaction to a clearing agency until some
time after it is executed. The final rule reflects the Commission's
view that, if a security-based swap is subject to regulatory reporting
and public dissemination solely because of Rule 908(a)(1)(ii),\843\ the
duty to report the trade is not triggered by the execution of the
security-based swap but rather by the registered clearing agency's
acceptance of the transaction for clearing.\844\ The Commission
believes that it would not be appropriate to link the reporting
requirement to the time of execution, because the registered clearing
agency's acceptance of the transaction for clearing might not take
place until several days after the time of execution.
---------------------------------------------------------------------------

    \842\ See CME II at 5.
    \843\ A transaction also could be subject to regulatory
reporting and public dissemination because it meets the first prong
of Rule 908(a)(1): It could have a U.S. person on either or both
sides of the transaction. Such a transaction must be reported within
24 hours after the time of execution, regardless of whether the
transaction is accepted for clearing. See Rule 901(j).
    \844\ See supra Sections II(A)(2)(a) and II(B)(2) (explaining
that Rule 901(j) provides that the reporting timeframes applicable
to Rules 901(c) and 901(d) are triggered by acceptance for clearing,
not the time of execution, if a security-based swap is subject to
regulatory reporting and public dissemination solely by operation of
Rule 908(a)(1)(ii)).
---------------------------------------------------------------------------

    The Commission disagrees with the commenter who argued that a
transaction between two non-U.S. persons that is cleared through a
clearing agency having its principal place of business in the United
States should not be subject to public dissemination, ``although the
clearing agency can provide information for regulatory purposes.''
\845\ The Commission believes that such transactions--subject to the
modifications to the rule text noted above--should be subject to both
regulatory reporting and public dissemination and therefore is not
adopting the this commenter's recommendation. For the reasons described
above, the Commission believes that such transactions exist at least in
part within the United States; therefore, Title VII's requirements for
both regulatory reporting and public dissemination properly apply to
such transactions. This approach will permit the Commission and other
relevant authorities the ability to observe in a registered SDR all of
the alpha transactions that have been accepted by a registered clearing
agency having its principal place of business in the United States and
to carry out oversight of security-based swaps that exist at least in
part within the United States. Furthermore, the Commission believes
that public dissemination of such transactions will have value to
participants in the U.S. security-based swap market, who are likely to
trade the same or similar products, as these products have been made
eligible for clearing by a registered clearing agency having its
principal place of business in the United States.\846\
---------------------------------------------------------------------------

    \845\ ISDA/SIFMA I at 19.
    \846\ Another commenter argued that, if the Commission applied
Regulation SBSR to security-based swaps involving non-U.S.
counterparties that nevertheless are cleared through a clearing
agency having its principal place of business in the United States,
the Commission could require reporting of such transactions to a
registered SDR ``without exercising further jurisdiction over'' the
transaction. Soci[eacute]t[eacute] G[eacute]n[eacute]rale Letter at
12. The commenter believed that ``[t]his solution would provide the
Commission and U.S. market participants with information about swaps
cleared in the United States without conflicting with foreign
regulatory schemes.'' Id. The Commission's decision to require such
transactions to be reported and publicly disseminated pursuant to
Regulation SBSR does not necessarily indicate that they will be
subjected to other requirements of Title VII. The Commission intends
to address the scope of each of those requirements, including their
applicability to the types of transactions identified by this
commenter, in subsequent rulemakings.
---------------------------------------------------------------------------

    Furthermore, the Commission disagrees with the commenter who argued
that requiring regulatory reporting and public dissemination of
transactions cleared through a U.S. clearing agency is likely to
discourage market participants from clearing transactions in the United
States.\847\ The Commission questions whether the commenters' assertion
would in fact come to pass. Market participants are likely to consider
multiple factors when deciding whether and where to clear a security-
based swap. These factors could include the cost of clearing, the

types of products that can be cleared, the safeguards that clearing
agencies put in place for customer funds, and clearing agency policies
on netting and margin. Commenters offered no support for the assertion
that the application of regulatory reporting and public dissemination
requirements to transactions that are accepted for clearing by a U.S.
clearing agency would be a deciding or even a significant factor in
whether to clear or the choice of clearing agency. Even if this
assertion were true, however, the Commission believes that it is
appropriate, for the reasons discussed above, to subject these
transactions to regulatory reporting and public dissemination.
---------------------------------------------------------------------------

    \847\ See SIFMA/FIA/Roundtable Letter at A-42.
---------------------------------------------------------------------------

    Finally, the Commission recognizes that the reporting hierarchy in
Rule 901(a)(2)(ii), as adopted, does not assign reporting obligations
for two kinds of cross-border transaction: (1) A transaction where
there is no U.S. person, registered security-based swap dealer, or
registered major security-based swap participant on either side; and
(2) a transaction where there is no registered security-based swap
dealer or registered major security-based swap participant on either
side and there is a U.S. person on only one side. If such a transaction
is accepted for clearing by a registered clearing agency having its
principal place of business in the United States, neither side--under
Regulation SBSR as adopted by the Commission--is required to report the
transaction to a registered SDR. However, as described in Section V(B),
supra, the Commission anticipates soliciting further comment on how
Regulation SBSR should be applied to transactions involving
unregistered non-U.S. persons, including how reporting duties should be
assigned for the two kinds of transaction noted above.
5. Transactions Involving a Registered Security-Based Swap Dealer or
Registered Major Security-Based Swap Participant That Is Not a U.S.
Person
    Under re-proposed Rule 908(a)(1)(iii), a security-based swap would
have been subject to regulatory reporting if there is a direct or
indirect counterparty that is a security-based swap dealer or major
security-based swap participant on either side of the transaction,
regardless of the counterparties' place of domicile and regardless of
the place of execution of the transaction. Under Rule 908(a), as
initially proposed, a counterparty's status as a security-based swap
dealer or major security-based swap participant would not by itself
have triggered reporting obligations for a particular security-based
swap.\848\
---------------------------------------------------------------------------

    \848\ See proposed Rule 908(a); Regulation SBSR Proposing
Release, 75 FR 75239-40.
---------------------------------------------------------------------------

    One commenter recommended expanding the public dissemination
requirement to include security-based swaps that occur outside the
United States between a non-U.S. person security-based swap dealer and
a non-U.S. person that is not guaranteed by a U.S. person,\849\ and
between two non-U.S. person security-based swap dealers.\850\
---------------------------------------------------------------------------

    \849\ See Better Markets IV at 23.
    \850\ See id. at 24.
---------------------------------------------------------------------------

    Rule 908(a)(2), as adopted, provides: ``A security-based swap that
is not included within paragraph (a)(1) of this section shall be
subject to regulatory reporting but not public dissemination if there
is a direct or indirect counterparty on either or both sides of the
transaction that is a registered security-based swap dealer or a
registered major security-based swap participant.'' \851\ Thus, a
security-based swap between a non-U.S. person registered security-based
swap dealer or registered major security-based swap participant and
another non-U.S. person (which could include another non-U.S. person
registered security-based swap dealer or registered major security-
based swap participant), and where neither direct counterparty is
guaranteed by a U.S. person, would be subject to regulatory reporting
but not public dissemination. This treatment of security-based swaps
involving non-U.S. person registered security-based swap dealers and
non-U.S. person registered major security-based swap participants is
generally consistent with re-proposed Rule 908(a); the language of
final Rule 908(a)(2) is designed to clarify that outcome.\852\
---------------------------------------------------------------------------

    \851\ A security-based swap involving a U.S.-person that is
registered as a security-based swap dealer or major security-based
swap participant is included in Rule 908(a)(1) and is thus subject
to both regulatory reporting and public dissemination. A security-
based swap between a non-U.S. person that is registered as a
security-based swap dealer or major security-based swap participant
and a U.S. person (including a foreign branch or office) also is
included in Rule 908(a)(1).
    \852\ Rule 908(a)(1)(iii), as re-proposed, would have required
regulatory reporting of a security-based swap having a direct or
indirect counterparty that is a registered security-based swap
dealer or registered major security-based swap participant on either
side of the transaction. However, Rule 908(a)(2), as re-proposed,
did not list the existence of a registered security-based swap
dealer or registered major security-based swap participant on either
side of the transaction, for that reason alone, as triggering public
dissemination.
---------------------------------------------------------------------------

    The Commission is not at this time taking the view that a security-
based swap involving a registered security-based swap dealer or
registered major security-based swap participant, for that reason
alone, exists within the United States. Therefore, the Commission is
not subjecting any transactions involving a non-U.S.-person registered
security-based swap dealer or registered major security-based swap
participant, for its registration status alone, to any requirement
under Regulation SBSR based on a territorial application of Title VII.
However, the Commission is requiring non-U.S.-person registered
security-based swap dealers and registered major security-based swap
participants to report their security-based swap transactions pursuant
to Rule 908(a)(2).\853\ Requiring reporting to a registered SDR of all
transactions entered into by registered security-based swap dealers and
registered major security-based swap participants will provide the
Commission and other relevant authorities with important information to
help with the assessment of their positions and financial
condition.\854\ Such information could in turn assist the Commission
and other relevant authorities in assessing and addressing potential
systemic risks caused by these security-based swap positions, or in
detecting insider trading or other market abuse.
---------------------------------------------------------------------------

    \853\ See Section 15F(f)(1)(A) of the Exchange Act, 15 U.S.C.
78o-10(f)(1)(A) (providing that each registered security-based swap
dealer and major security-based swap participant ``shall make such
reports as are required by the Commission, by rule or regulation,
regarding the transactions and positions and financial condition of
the registered security-based swap dealer or major security-based
swap participant'').
    \854\ In the Cross-Border Proposing Release, the Commission
noted its longstanding view that an entity that has registered with
the Commission subjects itself to the entire regulatory system
governing such regulated entities. See 78 FR 30986.
---------------------------------------------------------------------------

    The Commission notes that a non-U.S. person that is registered as a
security-based swap dealer or major security-based swap participant,
when reporting a transaction that falls within Rule 908(a)(2), must
comply with the policies and procedures of the registered SDR regarding
how to flag the transaction as not subject to public dissemination. The
Commission would not view a registered SDR as acting inconsistent with
Rule 902 for publicly disseminating a security-based swap that falls
within Rule 908(a)(2) if the reporting side had failed to appropriately
flag the transaction.
6. No Final Rule Regarding Transactions Conducted Within the United
States.
    Under re-proposed Rule 908(a)(1)(i), a security-based swap would
have been subject to regulatory reporting if it was a transaction
conducted within the

United States.\855\ Re-proposed Rule 908(a)(1)(i) preserved the
principle--but not the specific language--from the initial proposal
that a security-based swap would be subject to regulatory reporting if
it is executed in the United States.\856\ When the Commission re-
proposed Rule 908(a)(1)(i) in the Cross-Border Proposing Release, the
Commission expressed concern that the language in the Regulation SBSR
Proposing Release could have required a security-based swap to be
reported if it had only the slightest connection with the United
States.\857\
---------------------------------------------------------------------------

    \855\ A security-based swap would be a ``transaction conducted
within the United States'' if it is solicited, negotiated, executed,
or booked within the United States, by or on behalf of either
counterparty to the transaction, regardless of the location,
domicile, or residence status of either counterparty to the
transaction. See proposed Rule 240.3a71-3(a)(5) under the Exchange
Act; Cross-Border Proposing Release, 78 FR 31297; re-proposed Rule
900(ii). The word ``counterparty'' as used within this term would
have the same meaning as ``direct counterparty'' in re-proposed Rule
900(j) of Regulation SBSR. See Cross-Border Proposing Release, 78 FR
31061.
    \856\ Rule 908(a), as initially proposed, would have required
regulatory reporting of any security-based swap that is ``executed
in the United States or through any means of interstate commerce.''
See Regulation SBSR Proposing Release, 75 FR 75287.
    \857\ See 78 FR 31061.
---------------------------------------------------------------------------

    Re-proposed Rules 908(a)(1)(i) and 908(a)(2)(i) would have
subjected a security-based swap transaction to Regulation SBSR's
regulatory reporting and public dissemination requirements,
respectively, if the security-based swap was a ``transaction conducted
within the United States.'' Commenters expressed divergent views
regarding this provision \858\ and, after careful consideration, the
Commission has decided not to adopt re-proposed Rule 908(a)(1)(i) or
908(a)(2)(i) at this time. As discussed above, the Commission
anticipates seeking additional public comment on whether and, if so,
how regulatory reporting and public dissemination requirements should
be applied to transactions involving non-U.S. persons when they engage
in conduct within the United States.\859\
---------------------------------------------------------------------------

    \858\ See ABA Letter at 3; Citadel Letter at 1-2; Cleary III at
28; IAA Letter at 6; IIB Letter at 9; SIFMA/FIA/Roundtable Letter at
A-42; Pearson Letter at 2; FOA Letter at 7-8; JFMC Letter at 4-5;
ISDA IV at 18.
    \859\ In addition, the Commission has authority to promulgate
rules, including additional regulatory requirements, applicable to
persons transacting a business in security-based swaps ``without the
jurisdiction of the United States'' when ``necessary or
appropriate'' to prevent evasion of the provisions of Title VII of
the Dodd-Frank Act. The Commission is not necessarily exercising the
full extent of its authorities today but will be monitoring for gaps
in reporting of swaps outside the United States that could be an
evasion of the Commission's rules and regulations. See Section 30(c)
of the Exchange Act, 15 U.S.C. 78dd(c).
---------------------------------------------------------------------------

D. Limitations on Counterparty Reporting Obligations--Rule 908(b)

    As-proposed, Rule 908(b) would have provided that, notwithstanding
any other provision of Regulation SBSR, a direct or indirect
counterparty to a security-based swap would not incur any obligation
under Regulation SBSR unless the counterparty is:
    (1) A U.S. person;
    (2) a security-based swap dealer or major security-based swap
participant; or
    (3) a counterparty to a transaction conducted within the United
States.
    The Commission received no comments that specifically addressed re-
proposed Rule 908(b).\860\
---------------------------------------------------------------------------

    \860\ However, several commenters argued that specific
requirements under Regulation SBSR should not apply to certain kinds
of counterparties in certain circumstances. All of these comments
are discussed in relation to Rule 908(a) in the section immediately
above.
---------------------------------------------------------------------------

    At this time, the Commission is adopting only the first two prongs
of Rule 908(b). Thus, Rule 908(b), as adopted, provides that,
notwithstanding any other provision of Regulation SBSR, a person shall
not incur any obligation under Regulation SBSR unless it is a U.S.
person, a registered security-based swap dealer, or a registered major
security-based swap participant. As discussed above, U.S. persons can
be subjected to requirements under Title VII because their
transactions, whether undertaken directly or indirectly, exist at least
in part within the United States. Furthermore, registered security-
based swap dealers and registered major security-based swap
participants are required to report their security-based swap
transactions.\861\
---------------------------------------------------------------------------

    \861\ See supra Section XV(C)(5), note 853 and accompanying
text.
---------------------------------------------------------------------------

    Rule 908(b) is designed to specify the types of persons that will
incur duties under Regulation SBSR. If a person does not come within
any of the categories enumerated by Rule 908(b), it would not incur any
duties under Regulation SBSR. Under Rule 908(b), as adopted, a non-U.S.
person incurs no duties under Regulation SBSR unless it is a registered
security-based swap dealer or registered major security-based swap
participant. The Commission believes that this modification will reduce
assessment costs and provide greater legal certainty to counterparties
engaging in cross-border security-based swaps. The Commission
anticipates soliciting additional public comment on whether regulatory
reporting and/or public dissemination requirements should be extended
to transactions occurring within the United States between non-U.S.
persons and, if so, which non-U.S. persons should incur reporting
duties under Regulation SBSR.

E. Substituted Compliance--Rule 908(c)

1. General Considerations
    The security-based swap market is global in scope, and relevant
authorities around the globe are in the process of adopting security-
based swap reporting and public dissemination requirements within their
jurisdictions. Once these new requirements are finalized and take
effect, market participants that engage in security-based swap
transactions involving more than one jurisdiction could be subject to
conflicting or duplicative reporting or public dissemination
obligations. As initially proposed, Regulation SBSR did not contemplate
that the reporting and public dissemination requirements associated
with cross-border security-based swaps could be satisfied by complying
with the rules of a foreign jurisdiction instead of U.S. rules. Thus,
in many cases, counterparties to a security-based swap would have been
required to comply with proposed Regulation SBSR even if reporting of a
security-based swap also was required under the rules of a foreign
jurisdiction.
    As discussed in the Cross-Border Proposing Release,\862\ a number
of commenters urged the Commission to allow compliance with comparable
home country requirements to substitute for compliance with the
parallel U.S. requirements.\863\ In response to those comments and
recognizing that other jurisdictions may implement regulatory reporting
and public dissemination regimes for security-based swaps that are
comparable to the requirements set forth in Title VII and Regulation
SBSR, the Commission re-proposed Rule 908 in the Cross-Border Proposing
Release to include a new paragraph (c). Rule 908(c), as re-proposed,
would have permitted, under certain conditions, substituted compliance
for regulatory reporting and public dissemination requirements relating
to security-based swaps. The Commission preliminarily believed that the
availability of substituted compliance would reduce the likelihood that
market participants would be subject to potentially conflicting or
duplicative sets of rules while still meeting the statutory and policy
objectives of Title VII. Re-proposed Rule 908(c) would have

specified the security-based swaps that would be eligible for
substituted compliance and would have established procedures for market
participants to request, and for the Commission to issue, substituted
compliance orders.
---------------------------------------------------------------------------

    \862\ See 78 FR 31092.
    \863\ See, e.g., Cleary III at 15-16; Davis Polk I at 7, 11;
Davis Polk II at 21-22; Soci[eacute]t[eacute] G[eacute]n[eacute]rale
Letter at 11; CCMR II at 2. See also Cross-Border Adopting Release,
79 FR 47357-58 (discussing several comments relating to substituted
compliance issues generally).
---------------------------------------------------------------------------

    As discussed in detail below, the Commission is adopting Rule
908(c) substantially as re-proposed, with minor modifications also
described below. The Commission believes in general that, if a foreign
jurisdiction applies a comparable system for the regulatory reporting
and public dissemination of security-based swaps, it would be
appropriate to consider permitting affected market participants to
comply with the foreign requirements to satisfy the comparable
requirements of Regulation SBSR. Where the Commission finds that a
foreign jurisdiction's reporting and public dissemination requirements
are comparable to those implemented by the Commission, Rule 908(c)
provides that the Commission may make a substituted compliance
determination with respect to such jurisdiction for these requirements.
The Commission believes that permitting substituted compliance could
reduce the likelihood that market participants would be subject to
conflicting or duplicative regulation with respect to a security-based
swap transaction.
    In adopting Rule 908(c), the Commission is not making any
assessment at this time regarding whether any foreign jurisdiction's
requirements for regulatory reporting and public dissemination of
security-based swaps are comparable to Regulation SBSR. Furthermore,
because the analysis of any particular foreign jurisdiction would be
very fact specific, it is impractical for the Commission to opine at
this time on whether specific aspects of a foreign system would or
would not allow the Commission to make a comparability determination.
In view of the many technical differences that could exist between the
Commission's Title VII rules and parallel requirements in other
jurisdictions, the Commission stated in the Cross-Border Proposing
Release that ``the Commission would endeavor to take a holistic
approach in making substituted compliance determinations--that is, we
would ultimately focus on regulatory outcomes as a whole with respect
to the requirements within the same category rather than a rule-by-rule
comparison.'' \864\ The Commission continues to believe that this
approach to comparability is appropriate, and intends to focus on
regulatory outcomes as a whole when considering whether to make a
comparability determination.
---------------------------------------------------------------------------

    \864\ 78 FR 31085-86.
---------------------------------------------------------------------------

2. Substituted Compliance Procedure--Rule 908(c)(2)(i)
    Rule 908(c)(2)(i), as re-proposed, would have allowed the
Commission, conditionally or unconditionally, by order, to make a
substituted compliance determination regarding regulatory reporting and
public dissemination with respect to a foreign jurisdiction ``if that
foreign jurisdiction's requirements for regulatory reporting and public
dissemination of security-based swaps are comparable to otherwise
applicable requirements'' under Regulation SBSR.
    A number of commenters endorsed the Commission's proposal to permit
substituted compliance with Regulation SBSR.\865\ One of these
commenters noted, for example, that substituted compliance would reduce
burdens on businesses in the United States and elsewhere without
weakening oversight, thus allowing firms to use funds more
efficiently.\866\ However, two commenters recommended that the
Commission narrow the proposed availability of substituted compliance.
One of these commenters stated that the Commission's proposed controls
on substituted compliance would be inadequate.\867\ The commenter
further stated that, although substituted compliance potentially has a
legitimate role to play in a cross-border regulatory regime, the
greater the scope for substituted compliance, the stricter the controls
should be on the ability to substitute foreign rules for U.S.
rules.\868\ The other commenter stated that the Cross-Border Proposing
Release failed to provide an adequate legal or policy justification for
allowing substituted compliance.\869\ This commenter believed that,
rather than using substituted compliance, the Commission should
exercise its exemptive authority sparingly and only upon finding an
actual conflict exists with a particular foreign regulation.\870\
---------------------------------------------------------------------------

    \865\ See ESMA Letter at 2-3; FOA Letter at 2-3; IIF Letter at
1-2; JSDA Letter at 2; MFA/AIMA Letter at 5-7.
    \866\ See IIF Letter at 3.
    \867\ See AFR Letter at 8.
    \868\ See id.
    \869\ See Better Markets IV at 3, 24-25 (noting that the
Commission's duty is to protect investors and the public consistent
with congressional policy, not to minimize the costs, burdens, or
inconvenience that regulation imposes on industry).
    \870\ See id. at 26.
---------------------------------------------------------------------------

    The Commission has carefully considered these comments and
determined to adopt Rule 908(c)(2)(i) as re-proposed, with one
modification, as described in Section XV(E)(3), infra. Permitting
substituted compliance should reduce the likelihood that market
participants face duplicative or contradictory reporting or public
dissemination requirements, and thereby decrease costs and
administrative burdens on market participants without compromising the
regulatory goals of Title VII. The requirements for substituted
compliance are designed to ensure that the Title VII requirements for
regulatory reporting and public dissemination of security-based swaps
are being satisfied, albeit through compliance with the rules of a
foreign jurisdiction rather than the specific provisions of Regulation
SBSR.
3. Security-Based Swaps Eligible for Substituted Compliance--Rule
908(c)(1)
    Rule 908(c)(1), as re-proposed, would have provided that compliance
with the regulatory reporting and public dissemination requirements in
Sections 13(m) and 13A of the Exchange Act, and the rules and
regulations thereunder, may be satisfied by compliance with the rules
of a foreign jurisdiction that is the subject of a substituted
compliance order issued by the Commission, provided that at least one
of the direct counterparties to the security-based swap is either a
non-U.S. person or a foreign branch, and the transaction is not
solicited, negotiated, or executed within the United States. Thus,
under re-proposed Rule 908(c)(1), certain kinds of security-based swaps
would not have been eligible for substituted compliance even if they
were subject to reporting and public dissemination requirements in a
foreign jurisdiction.\871\ Specifically, a security-based swap between
two U.S. persons would not have been eligible for substituted
compliance with respect to regulatory reporting and public
dissemination, even if the security-based swap was solicited,
negotiated, and executed outside the United States.\872\ Furthermore,
re-proposed Rule 908(c)(1) would not have allowed for the possibility
of substituted compliance with respect to regulatory reporting and
public dissemination if the relevant direct counterparty that was

either a non-U.S. person or foreign branch (or its agent)--regardless
of place of domicile--solicited, negotiated, or executed a security-
based swap from within the United States.
---------------------------------------------------------------------------

    \871\ If the rules of a foreign jurisdiction did not apply to
the security-based swap, there would be no need to consider the
possibility of substituted compliance, because there would be no
foreign rules that could substitute for the applicable U.S. rules.
    \872\ As noted in the Cross-Border Proposing Release, this
assumed that neither U.S. person is acting through a foreign branch.
If either or both U.S. persons is acting through a foreign branch,
the security-based swap between those U.S. persons would have been
eligible for substituted compliance under Rule 908(c)(1), as re-
proposed. See 78 FR 31093-94, note 1149.
---------------------------------------------------------------------------

    The Commission received two comment letters in response to re-
proposed Rule 908(c)(1), both of which addressed the proposal to limit
substituted compliance availability to security-based swaps that are
not solicited, negotiated, or executed in the United States.\873\ One
of these commenters recommended that the Commission remove this
requirement altogether.\874\ The other commenter noted that, as a
general matter, it is virtually impossible to determine on a trade-by-
trade basis whether each specific contact with a counterparty or
potential counterparty has some nexus to the United States, and urged
the Commission to subject security-based swaps to Title VII regulation
solely according to whether counterparties are U.S. persons.\875\
---------------------------------------------------------------------------

    \873\ See ISDA II at 5; SIFMA/FIA/Roundtable Letter at 3-4. A
third commenter expressed the view that any swap involving a U.S.
person and a non-U.S. person should be eligible for substituted
compliance. See CCMR II at 2-3.
    \874\ See ISDA II at 5.
    \875\ See SIFMA/FIA/Roundtable Letter at 3-4. This commenter did
not raise this comment expressly in the context of Rule 908(c)(1),
however.
---------------------------------------------------------------------------

    In response to these comments, the Commission has decided to adopt
a modified version of Rule 908(c)(1) that does not condition
substituted compliance eligibility on the location of execution,
negotiation, or solicitation of a particular transaction.\876\ Under
Rule 908(c)(1), as adopted, a security-based swap is eligible for
substituted compliance with respect to regulatory reporting and public
dissemination if at least one of the direct counterparties to the
security-based swap is either a non-U.S. person or a foreign branch.
Thus, Rule 908(c)(1) permits a security-based swap between a U.S.
person and the New York branch of a foreign bank (i.e., a non-U.S.
person with operations inside the United States) to be eligible for
substituted compliance, provided that a substituted compliance order is
in effect with respect to the home country of the foreign bank that
operates the U.S. branch. The standard in Rule 908(c)(1), as adopted,
is consistent with the Commission's decision not to impose, at this
time, reporting or public dissemination requirements based solely on
whether a transaction is conducted within the United States.
---------------------------------------------------------------------------

    \876\ Rule 908(c)(1), as adopted, provides: ``Compliance with
the regulatory reporting and public dissemination requirements in
sections 13(m) and 13A of the Act (15 U.S.C. 78m(m) and 78m-1), and
the rules and regulations thereunder, may be satisfied by compliance
with the rules of a foreign jurisdiction that is the subject of a
Commission order described in paragraph (c)(2) of this section,
provided that at least one of the direct counterparties to the
security-based swap is either a non-U.S. person or a foreign
branch.''
---------------------------------------------------------------------------

    Regarding which security-based swaps are eligible for the
possibility of substituted compliance, the Commission believes that, if
at least one direct counterparty to a security-based swap is a foreign
branch or a non-U.S. person (even if the non-U.S. person is a
registered security-based swap dealer or registered major security-
based swap participant, or is guaranteed by a U.S. person), the
security-based swap should be eligible for consideration for a
substituted compliance determination under Regulation SBSR. This
approach recognizes that a transaction involving a foreign branch or a
non-U.S. person faces the possibility of being subject to reporting
requirements in multiple jurisdictions (the United States and another
jurisdiction whose rules may govern the transaction). The approach
adopted by the Commission of allowing any transaction involving a
foreign branch or non-U.S. person to be eligible to be considered for
substituted compliance is designed to limit disincentives for non-U.S.
persons to transact security-based swaps with U.S. persons by allowing
for the possibility that compliance with the rules of a foreign
jurisdiction could be substituted for compliance with the specific
provisions of Regulation SBSR when the non-U.S. person transacts with a
U.S. person. This approach also would allow for a reasonable
minimization of reporting burdens on foreign branches and non-U.S.
persons in situations where the local jurisdiction in which they
operate does not offer the possibility of substituted compliance.
4. Requests for Substituted Compliance--Rule 908(c)(2)(ii)
    Rule 908(c)(2)(ii), as re-proposed, would have established the
process for market participants to follow when applying for a
substituted compliance determination: ``Any person that executes
security-based swaps that would, in the absence of a substituted
compliance order, be required to be reported pursuant to [Regulation
SBSR] may file an application, pursuant to the procedures set forth in
Sec.  240.0-13 of this chapter, requesting that the Commission make a
substituted compliance determination regarding regulatory reporting and
public dissemination with respect to a foreign jurisdiction the rules
of which also would require reporting and public dissemination of those
security-based swaps. Such application shall include the reasons
therefor and such other information as the Commission may request.''
    A number of commenters recommended that the Commission permit
foreign regulators, as well as market participants, to file an
application for a substituted compliance determination.\877\ Some of
these commenters noted that foreign regulatory authorities would be
well-positioned to describe their regulatory frameworks and manner of
supervision, and, in any event, their involvement would be needed to
negotiate the memorandum of understanding that the Commission proposed
to require as a precondition of granting a substituted compliance
order.\878\ One commenter also stated that the CFTC's Cross-Border
Guidance \879\ contemplates accepting applications for substituted
compliance from non-U.S. regulators.\880\ Two commenters suggested that
substituted compliance applications should be submitted by foreign
regulatory authorities, rather than individual firms.\881\
---------------------------------------------------------------------------

    \877\ See ABA Letter at 5; ICI II at 11; IIB Letter at 27; IIF
Letter at 4; ISDA II at 4; JFMC Letter at 7-8; FOA Letter at 4
(noting that the Commission should begin discussions with the
European Commission to establish an agreed approach for the
coordinated oversight of the transatlantic security-based swap
markets); SIFMA/FIA/Roundtable Letter at A-36.
    \878\ See ICI II at 11; ISDA II at 4. Re-proposed Rule
908(c)(2)(iv), described below, would have required the Commission
to enter into a supervisory and enforcement memorandum of
understanding or other agreement with the relevant foreign
regulator(s) prior to issuing a substituted compliance order
covering a foreign jurisdiction.
    \879\ Interpretive Guidance and Policy Statement Regarding
Compliance with Certain Swap Regulations, 78 FR 45292 (July 26,
2013).
    \880\ See ISDA II at 4.
    \881\ See ESMA Letter at 3 (recommending that comparability
determinations should be requested at the European Union-level,
rather than by individual firms); JSDA Letter at 2. See also Pearson
Letter at 3 (recommending that the review of a foreign regime be
conducted in cooperation solely with the relevant foreign regulators
or legislators, not firms).
---------------------------------------------------------------------------

    The Commission is adopting Rule 908(c)(2)(ii) largely as re-
proposed, with a few minor revisions. First, consistent with the
adoption of Rule 0-13 in the Cross-Border Adopting Release, the
Commission has revised Rule 908(c)(2)(ii) to permit foreign financial
regulatory authorities to submit applications for substituted
compliance determinations on behalf of market participants subject to
their jurisdictions.\882\
---------------------------------------------------------------------------

    \882\ See 79 FR 47358 (``We are persuaded that allowing foreign
regulators to submit such requests would promote the completeness of
requests and promote efficiency in the process for considering such
requests, in light of foreign regulators' expertise regarding their
domestic regulatory system, including the effectiveness of their
compliance and enforcement mechanisms, and to allow for a single
point of contact to facilitate the consideration of substituted
compliance requests associated with the jurisdiction'').

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

    Second, Rule 908(c)(2)(ii), as re-proposed, would have permitted
filing by any ``person that executes security-based swaps.'' Read
literally, this language in the re-proposed rule could have permitted
persons who are not subject to Regulation SBSR to seek a substituted
compliance determination. The Commission seeks to limit the scope of
persons who can apply for substituted compliance determinations to
foreign financial regulators and parties that would be subject to
Regulation SBSR, because these persons have the greatest knowledge
about the foreign jurisdiction in question. Moreover, in the case of
market participants active in that jurisdiction, they will be directly
impacted by potentially overlapping rules and thus have the greatest
interest in making the strongest case for substituted compliance.
Accordingly, Rule 908(c)(2)(ii), as adopted, permits a ``party that
potentially would comply with requirements under [Regulation SBSR]
pursuant to a substituted compliance order,'' \883\ or the relevant
foreign financial regulatory authority or authorities in that
jurisdiction,\884\ to file an application requesting a substituted
compliance determination.\885\
---------------------------------------------------------------------------

    \883\ This could be either a U.S. person or a non-U.S. person
that engages in activity in that jurisdiction.
    \884\ This formulation of final Rule 908(c)(2)(ii) closely
follows the language of Rule 0-13(a) under the Exchange Act, 17 CFR
240.0-13(a), which provides in relevant part that an application for
substituted compliance must be submitted to the Commission ``by a
party that potentially would comply with requirements under the
Exchange Act pursuant to a substituted compliance order, or by the
relevant foreign financial regulatory authority or authorities.''
    \885\ Thus, the Commission disagrees with the commenters who
argued that substituted compliance applications should be submitted
only by foreign regulatory authorities, rather than individual
firms. See ESMA Letter at 3; JSDA Letter at 2. Although obtaining
information from foreign regulatory authorities could be an
important aspect of the substituted compliance review, the
Commission sees no basis for denying individual firms that might
comply with requirements of Regulation SBSR pursuant to a
substituted compliance order the ability to request substituted
compliance and thereby initiate that review. See Cross-Border
Adopting Release, 79 FR 47358 (``We are not . . . foreclosing the
ability of a market participant itself to submit a request that it
be able to comply with Exchange Act requirements pursuant to a
substituted compliance order'').
---------------------------------------------------------------------------

    Third, the Commission has determined not to include the final
sentence of re-proposed Rule 908(c)(2)(ii)--``[s]uch application shall
include the reasons therefor and such other information as the
Commission may request''--in final Rule 908(c)(2)(ii). Rule 0-13(e)
under the Exchange Act, as adopted in the Cross-Border Adopting
Release, provides detailed requirements regarding the information
required to be submitted (e.g., supporting documentation, including
information regarding applicable regulatory requirements, compliance
monitoring by foreign regulators, and applicable precedent).\886\ In
light of the cross-reference to Rule 0-13 in final Rule 908(c)(2)(ii),
the last sentence of re-proposed Rule 908(c)(2)(ii) is unnecessary and
therefore is not included in final Rule 908(c)(2)(ii).
---------------------------------------------------------------------------

    \886\ See id. In addition, Rule 0-13(h) requires the Commission
to publish in the Federal Register a notice that a complete
application has been submitted.
---------------------------------------------------------------------------

5. Findings Necessary for Substituted Compliance--Rule 908(c)(2)(iii)
    Rule 908(c)(2)(iii), as re-proposed, would have provided that, in
making a substituted compliance determination with respect to a foreign
jurisdiction, the Commission shall take into account such factors as it
determines are appropriate, such as the scope and objectives of the
relevant foreign regulatory requirements, as well as the effectiveness
of the supervisory compliance program administered, and the enforcement
authority exercised, by the foreign financial regulatory authority to
support oversight of its regulatory reporting and public dissemination
system for security-based swaps. Furthermore, Rule 908(c)(2)(iii), as
re-proposed, would have provided that the Commission would not make a
substituted compliance determination with respect to regulatory
reporting and public dissemination unless the Commission found that the
relevant foreign regulatory regime provided for the reporting and
public dissemination of comparable data elements in a manner and
timeframe comparable to those required by Regulation SBSR.\887\ As a
prerequisite to any substituted compliance determination, re-proposed
Rule 908(c)(2)(iii) also would have required that the Commission have
direct electronic access to the security-based swap data held by the
trade repository or foreign regulatory authority.\888\ Lastly, re-
proposed Rule 908(c)(2)(iii) would have required the Commission to find
that any trade repository or foreign regulatory authority in the
foreign jurisdiction is subject to requirements regarding data
collection and maintenance; systems capacity, resiliency, and security;
and recordkeeping that are comparable to the requirements imposed on
registered SDRs.\889\
---------------------------------------------------------------------------

    \887\ See Cross-Border Proposing Release, 78 FR 31215.
    \888\ See id.
    \889\ See id.
---------------------------------------------------------------------------

    The Commission has determined to adopt Rule 908(c)(2)(iii) as re-
proposed, subject to two minor changes, one in each of Rules
908(c)(2)(iii)(B) and 908(c)(2)(iii)(D), which are discussed below.
Final Rule 908(c)(2)(iii) provides that, in making a substituted
compliance determination, the Commission shall take into account such
factors that it determines are appropriate, which include but are not
limited to the scope and objectives of the relevant foreign regulatory
requirements, as well as the effectiveness of the supervisory
compliance program administered, and the enforcement authority
exercised, by the foreign financial regulatory authority to support
oversight of its regulatory reporting and public dissemination system
for security-based swaps. The rule further provides that the Commission
shall not make such a substituted compliance determination unless it
finds that:
    (A) The data elements that are required to be reported pursuant to
the rules of the foreign jurisdiction are comparable to those required
to be reported pursuant to Rule 901;
    (B) The rules of the foreign jurisdiction require the security-
based swap to be reported and publicly disseminated in a manner and a
timeframe comparable to those required by Regulation SBSR (or, in the
case of transactions that are subject to regulatory reporting but not
public dissemination, the rules of the foreign jurisdiction require the
security-based swaps to be reported in a manner and timeframe
comparable to those required by Regulation SBSR);
    (C) The Commission has direct electronic access to the security-
based swap data held by a trade repository or foreign regulatory
authority to which security-based swaps are reported pursuant to the
rules of that foreign jurisdiction; and
    (D) Any trade repository or foreign regulatory authority in the
foreign jurisdiction that receives and maintains required transaction
reports of security-based swaps pursuant to the laws of that foreign
jurisdiction is subject to requirements regarding data collection and
maintenance; systems capacity, integrity, resiliency, availability, and
security; and recordkeeping that are comparable to the requirements
imposed on security-based swap data

repositories by the Commission's rules and regulations.\890\
---------------------------------------------------------------------------

    \890\ See Rule 908(c)(2)(iii)(A)-(D), as adopted, and infra note
910.
---------------------------------------------------------------------------

    Although no commenters discussed the appropriateness of considering
the examination and enforcement practices of foreign regulators in
making a substituted compliance determination for Regulation SBSR
specifically, a number of commenters addressed the general concept of
considering actual practices in the foreign jurisdiction as part of the
substituted compliance determination. Certain commenters generally
supported the retention by the Commission of the authority to decline
to make a comparability finding based on the substantive enforcement of
foreign regulatory regimes.\891\ Two of these commenters noted,
however, that supervisory practices differ significantly among
jurisdictions.\892\ One of these commenters stated: ``This lack of
commonality should not be assumed to be a defect in supervisory
standards; common objectives may be reached through differing means.''
\893\ This commenter expressed the general view, however, that ``a
general, high-level inquiry into the existence of an examination and
enforcement process and institutions to support it arguably should
inform views about the comparability of outcomes.'' \894\
---------------------------------------------------------------------------

    \891\ See ABA Letter at 5; AFR Letter at 12; Better Markets IV
at 3, 29-32; ISDA II at 6.
    \892\ See FOA Letter at 6; ISDA II at 6.
    \893\ ISDA II at 6.
    \894\ Id.
---------------------------------------------------------------------------

    The Commission agrees that the examination and enforcement
practices of each foreign jurisdiction will need to be evaluated on a
case-by-case basis, and anticipates that it will consider whether the
regulatory protections provided in that jurisdiction's security-based
swap markets are substantially realized through sufficiently vigorous
supervision and enforcement. While the Commission believes that common
objectives may be reached through differing means, the Commission also
believes that compliance with a foreign jurisdiction's rules for
reporting and public dissemination of security-based swaps should be a
substitute for compliance with the U.S. rules only when the foreign
jurisdiction has a reporting and public dissemination regime comparable
to that of the United States. This determination must consider actual
practices and implementation as well as written laws and regulations of
the foreign jurisdiction.
a. Data Element Comparability--Rule 908(c)(2)(iii)(A)
    The Commission received several comments regarding the data element
comparability determination required by what is now final Rule
908(c)(2)(iii)(A). Two commenters recommended that the Commission
determine whether a foreign jurisdiction has comparable security-based
swap reporting requirements based on a holistic review of that
jurisdiction's regulations and the local market environment.\895\ Some
commenters suggested that the Commission should determine whether the
security-based swap reporting framework of a foreign jurisdiction is
designed to achieve the G-20 goals of transparency in the derivatives
markets.\896\
---------------------------------------------------------------------------

    \895\ See JFMC Letter at 7; ISDA II at 8. Other commenters
expressed a general preference for a holistic review of a relevant
jurisdiction's security-based swap regulatory regime but did not
expressly reference Regulation SBSR in this context. See, e.g.,
SIFMA/FIA/Roundtable Letter at A-37-A-38; Pearson Letter at 3; IIF
Letter at 5; ICI II at 11; JFMC Letter at 1; MFA/AIMA Letter at 5
(observing that a line-by-line or rule-by-rule analysis would place
a significant burden on the Commission, and potentially result in
disjointed regulation); ABA Letter at 5.
    \896\ See ICI II at 12; ISDA II at 8 (noting also that
jurisdictions may choose to establish goals and requirements that
are ancillary to the G-20 regulatory goals, but these ancillary
requirements should not become a barrier to an effective cross-
border compliance regime that furthers the G-20 goals). With respect
to security-based swap reporting, the ``G-20 goals'' referenced by
these commenters were articulated in the Leaders' Statement at the
Pittsburgh Summit (September 24-25, 2009), available at: https://www.g20.org/sites/default/files/g20_resources/library/Pittsburgh_Declaration.pdf, last visited September 22, 2014.
---------------------------------------------------------------------------

    The Commission is adopting re-proposed Rule 908(c)(2)(iii)(A)
without revision. Under the final rule, the foreign jurisdiction must
require reporting of data elements comparable to those required under
Rule 901 of Regulation SBSR for the Commission to make a comparability
determination. If the data elements required by the foreign
jurisdiction are not comparable, important information about a
security-based swap might not be captured by the foreign trade
repository or foreign regulatory authority. This could create gaps or
inconsistencies in the information available to the Commission and
impair the Commission's ability to monitor the security-based swap
market. As noted in Section XV(E)(1), supra, the Commission generally
agrees with the commenters who expressed the view that the Commission
should take a ``holistic'' or ``outcomes-based'' view of another
jurisdiction's rules when making a substituted compliance
determination, rather than conduct a ``line-by-line'' or ``rule-by-
rule'' analysis. At this time, the Commission does not believe that it
is sufficient to consider only whether the data elements required by
the foreign regulatory regime are designed to achieve the objectives of
the G-20 with respect to reporting. The G-20 objectives are a high-
level set of principles designed to guide jurisdictions in adopting
reforms for the OTC derivatives markets. Therefore, the Commission
believes that it is necessary and appropriate to consider whether the
data elements reported under that jurisdiction's rules are comparable
to those required under Rule 901 of Regulation SBSR--not whether they
are comparable to the G-20 standards--in deciding whether to grant a
substituted compliance determination. If the Commission took the
opposite view, it would be difficult to conclude that the oversight and
transparency goals of Title VII were being satisfied through compliance
with the rules of the foreign jurisdiction in lieu of Regulation
SBSR.\897\
---------------------------------------------------------------------------

    \897\ One commenter urged the Commission to ``replace the
apparently subjective `outcomes-based' standard for comparison with
a more rigorous and objective standard based on the underlying
rules.'' AFR Letter at 9. For the reasons noted above, the
Commission is adopting a ``comparable'' standard, rather than the
type of review suggested by the commenter. This commenter further
stated: ``Another reason that `outcomes-based' assessment may not be
adequate is that the inter-operability of different rule sets may be
critical to the effectiveness of the overall international regime .
. . this is the case for standardization of data formats in
reporting, and may also be true for various risk management elements
that must be standardized across a global financial institution.''
Id. at 10. The Commission intends to work with foreign regulatory
authorities to develop more uniform data standards to allow maximum
aggregability while minimizing market participant costs and burdens
that would result from having to report in different jurisdictions
using different data standards and formats.
---------------------------------------------------------------------------

b. Timeframe of Reporting and Public Dissemination--Rule
908(c)(2)(iii)(B)
    The Commission also is adopting Rule 908(c)(2)(iii)(B) as re-
proposed, subject to certain conforming changes.\898\ Rule
908(c)(2)(iii)(B), as adopted, provides that the Commission shall not
issue a substituted compliance determination unless the relevant
foreign jurisdiction requires security-based swaps to be reported and
publicly disseminated ``in

a manner and a timeframe comparable to those required by [Regulation
SBSR].'' Given the Title VII requirements that all security-based swaps
be reported to a registered SDR and that security-based swaps be
publicly disseminated in real time, the Commission believes that
allowing substituted compliance with the rules of a foreign
jurisdiction that has reporting timeframes and dissemination outcomes
not comparable to those in the United States would run counter to the
objectives and requirements of Title VII. If the Commission allowed
substituted compliance for such a jurisdiction, the Commission might
have access to less regulatory data about the security-based swap
market, or price discovery could be less efficient, than would have
been the case if Regulation SBSR applied in its entirety. Thus, for
example, the Commission generally does not anticipate permitting
substituted compliance with respect to regulatory reporting and public
dissemination under Rule 908(c) if a foreign jurisdiction does not
(among other things) impose public dissemination requirements for all
security-based swaps on a trade-by-trade basis.\899\ Thus, the
Commission disagrees with the commenter who suggested that a non-U.S.
public dissemination regime that disseminates data on an aggregate
basis should be deemed comparable to Regulation SBSR.\900\
---------------------------------------------------------------------------

    \898\ As re-proposed, this rule would have provided that the
Commission shall not make a substituted compliance determination
unless it finds that the ``rules of the foreign jurisdiction require
the security-based swap to be reported and publicly disseminated in
a manner and a timeframe comparable to those required by Sec. Sec.
242.900 through 242.911.'' As discussed previously, Regulation SBSR,
as adopted, consists of Rules 900 through 909 under the Exchange
Act. Therefore, the reference in re-proposed Rule 908(c)(2)(iii)(B)
to ``Sec. Sec.  242.900 through 242.911'' is being revised to read:
``Sec. Sec.  242.900 through 242.909.''
    \899\ Although the Commission is requiring reporting and public
dissemination of security-based swaps within 24 hours of the time of
execution during the first initial phase of Regulation SBSR, see
Rule 901(j), the Commission anticipates considering provisions to
implement the Title VII requirement for real-time public
dissemination. Therefore, the Commission would view a foreign
jurisdiction's regime for public dissemination of security-based
swaps as comparable only if it (1) had rules providing for real-time
public dissemination of all security-based swaps currently, or (2)
was following a comparable process of moving to real-time public
dissemination for all security-based swaps in phases.
    \900\ See JSDA Letter at 2. Another commenter requested that the
Commission determine that Japan has comparable security-based swap
reporting standards. See JFMC Letter at 8. This comment is beyond
the scope of this rulemaking. However, after Regulation SBSR becomes
effective, market participants in this jurisdiction that would rely
on a substituted compliance determination, or their regulators, may
submit a request for substituted compliance with respect to
regulatory reporting and public dissemination if they believe that
the rules in that jurisdiction satisfy the criteria for substituted
compliance described in Rule 908(c).
---------------------------------------------------------------------------

    One commenter stated that ``[c]omparability should be addressed
flexibly with respect to public dissemination, recognizing that in
certain jurisdictions' [sic] transparency obligations are linked to use
of a trading venue and fall on the venue.'' \901\ Another commenter
recommended that the Commission should not determine that a foreign
jurisdiction lacks comparable security-based swap reporting rules based
on technical differences in the timeframes for, or manner of,
reporting.\902\ Whether the Commission grants a substituted compliance
determination will depend on the facts and circumstances pertaining to
a particular request. Thus, it is difficult to address concerns such as
those raised by these two commenters in the abstract. As the Commission
noted in Section XV(E)(1), supra, it will assess comparability in a
holistic manner rather than on a rule-by-rule basis.
---------------------------------------------------------------------------

    \901\ ISDA II at 9.
    \902\ See ICI II at 12.
---------------------------------------------------------------------------

c. Direct Electronic Access--Rule 908(c)(2)(iii)(C)
    The Commission also is adopting Rule 908(c)(2)(iii)(C) as re-
proposed. Rule 908(c)(2)(iii)(C) provides that the Commission may not
issue a substituted compliance order with respect to regulatory
reporting and public dissemination in a foreign jurisdiction unless
``[t]he Commission has direct electronic access to the security-based
swap data held by a trade repository or foreign regulatory authority to
which security-based swaps are reported pursuant to the rules of that
foreign jurisdiction.'' \903\ Commenters expressed differing views
regarding the direct electronic access requirement in re-proposed Rule
908(c)(2)(iii)(C). One commenter expressed support for the proposed
requirement, believing that direct electronic access is a critical
element for adequate monitoring of risks to U.S. financial
stability.\904\ However, two commenters objected to the proposed direct
electronic access requirement.\905\ One of these commenters suggested
that the Commission should not require direct electronic access at this
time, but should instead wait for the ``FSB'' to develop plans ``to
produce and share globally aggregated trade repository data that
authorities need for monitoring systemic risks.'' \906\ Another
commenter ``urge[d] the Commission to take into account the issue of
foreign jurisdictions' privacy laws before imposing a blanket
requirement that [the Commission] have direct electronic access.''
\907\
---------------------------------------------------------------------------

    \903\ Under Rule 900(l), as adopted, ``direct electronic
access'' has the same meaning as in Rule 13n-4(a)(5) under the
Exchange Act, discussed in the SDR Adopting Release. Rule 13n-
4(a)(5) defines ``direct electronic access'' to mean access, which
shall be in a form and manner acceptable to the Commission, to data
stored by an SDR in an electronic format and updated at the same
time as the SDR's data is updated so as to provide the Commission or
any of its designees with the ability to query or analyze the data
in the same manner that the SDR can query or analyze the data.
    \904\ See AFR Letter at 9 (noting that the Commission should
seek to analyze data from foreign repositories in conjunction with
U.S.-sourced data to determine the swap exposure of an entity on a
global basis).
    \905\ See IIF Letter at 7; ISDA II at 8.
    \906\ Id. at 8. The second commenter did not offer a rationale
for its opposition to the proposed direct electronic access
requirement. See IIF Letter at 7.
    \907\ SIFMA/FIA/Roundtable Letter at A-46 (stating that over a
dozen jurisdictions have been identified where local law prohibits
the disclosure of client names to non-local regulators that do not
have an information-sharing treaty or agreement in place with the
local regulator, some of which cannot be satisfied by counterparty
consent).
---------------------------------------------------------------------------

    After carefully considering the comments received, the Commission
continues to believe that requiring direct electronic access to
security-based swap data held by a trade repository or foreign
regulatory authority is a necessary part of any substituted compliance
determination. Thus, the Commission does not believe that it should
rely instead on the FSB or other international bodies developing
arrangements for trade repositories and relevant authorities to share
information across jurisdictions. While these cross-border information-
sharing arrangements are important, and the Commission will continue to
participate in such efforts, granting substituted compliance without
direct electronic access would not be consistent with the underlying
premise of substituted compliance: That a comparable regulatory result
is reached through compliance with foreign rules rather than with the
corresponding U.S. rules. If the Commission were to grant substituted
compliance for a foreign jurisdiction where the Commission did not have
direct electronic access to the facility to which security-based swap
transactions of that jurisdiction are reported, the Commission might
not have access to transaction information for portions of the
security-based swap market that it otherwise would have the ability to
surveil.\908\ If the Commission were to rely solely on international
information-sharing agreements, it could face substantial delays before
a foreign trade repository or foreign regulatory authority, even acting
expeditiously, could compile and make available to the Commission data
relating to a substantial volume of transactions. Delays in obtaining
such data could compromise the ability of the Commission to supervise
security-based swap market participants, or to share information with
other relevant U.S. authorities in a timely fashion. Thus,

the Commission believes that direct electronic access to security-based
swap data held by the foreign trade repository or foreign regulatory
authority to which security-based swap transactions are reported in the
foreign jurisdiction must be a prerequisite to issuing a substituted
compliance order with respect to Regulation SBSR applying to that
jurisdiction.
---------------------------------------------------------------------------

    \908\ See supra note 788 (providing statistics regarding the
amount of cross-border trading in the security-based swap market).
---------------------------------------------------------------------------

    The Commission has taken into consideration the comment that
certain jurisdictions have privacy laws or blocking statutes that
could, in certain cases, render a foreign trade repository or foreign
regulatory authority unable to provide the Commission with direct
electronic access to transaction information that would include the
identity of the counterparties. The Commission is not persuaded that
this consideration should remove direct electronic access as a
requirement for substituted compliance under Regulation SBSR. Indeed,
if foreign privacy laws result in the Commission having less than
comparable access to the security-based swap transaction data held at a
foreign trade repository or foreign regulatory authority than the
Commission otherwise would have if no substituted compliance order were
in effect, then the premise of substituted compliance would not be met.
Although foreign regulatory authorities would likely have access to
information about security-based swap transactions that exist at least
in part in their jurisdictions, these authorities might lack the
ability to share this information with the Commission. As a result, it
could be difficult if not impossible for the Commission or any other
relevant authority, foreign or domestic, to observe the build-up of
systemic risks created by the global security-based swap activity of
U.S. persons. In sum, the Commission believes that, if it does not have
direct electronic access to the transaction information reported to the
foreign trade repository or foreign regulatory authority, substituted
compliance would not yield a comparable outcome and the requirements of
Rule 908(c)(2) would not be met.\909\ The Commission believes that, in
this situation, the specific requirements of Regulation SBSR should
continue to apply; if necessary supervisory information cannot be
obtained via direct electronic access to the security-based swap data
held by a foreign trade repository or foreign regulatory authority,
then such transactions must continue to be reported to a registered
SDR, from which the Commission can obtain such information.
---------------------------------------------------------------------------

    \909\ See also infra Section XVI(A) (addressing the impact of
foreign privacy laws on Regulation SBSR).
---------------------------------------------------------------------------

d. Trade Repository Capabilities--Rule 908(c)(2)(iii)(D)
    The Commission received no comments on Rule 908(c)(2)(iii)(D) and
is adopting that rule as re-proposed, with certain minor changes. Final
Rule 908(c)(2)(iii)(D) provides that the Commission shall not make a
substituted compliance determination with respect to regulatory
reporting and public dissemination unless it finds that ``[a]ny trade
repository or foreign regulatory authority in the foreign jurisdiction
that receives and maintains required transaction reports of security-
based swaps pursuant to the laws of that foreign jurisdiction is
subject to requirements regarding data collection and maintenance;
systems capacity, integrity, resiliency, availability, and security;
and recordkeeping that are comparable to the requirements imposed on
security-based swap data repositories by the Commission's rules and
regulations'' (emphasis added). In the re-proposed rule, the
highlighted language would have read ``. . . by Sec. Sec.  240.13n-5
through 240.13n-7 of this chapter.'' Because requirements imposed on
registered SDRs relating to data collection and maintenance; systems
capacity, integrity, resiliency, availability, and security; and
recordkeeping could be imposed by Commission rules and regulations
other than or in addition to Rules 13n-5 through 13n-7 under the
Exchange Act, the Commission believes that it would be more appropriate
to use the broader language in the text of final Rule
908(c)(2)(iii)(D). The Commission continues to believe that, to allow
substituted compliance for regulatory reporting and public
dissemination with respect to a foreign jurisdiction, any entity in
that foreign jurisdiction that is required to receive and maintain
security-based swap transaction data must have protections and
operability standards comparable to those imposed on SEC-registered
SDRs.
    In addition, the re-proposed rule would have required, in relevant
part, that--in connection with a substituted compliance determination--
the foreign trade repository or foreign regulatory authority must be
subject to requirements for ``systems capacity, resiliency, and
security'' that are comparable to parallel U.S. requirements. That
provision in final Rule 908(c)(2)(iii)(D) now states, ``systems
capacity, integrity, resiliency, availability, and security.'' The
addition of ``integrity'' and ``availability'' to characterize the
expected operational capability of the foreign trade repository or
foreign regulatory authority is derived from a parallel change that the
Commission made in adopting final Rule 13n-6 under the Exchange Act
that applies to SEC-registered SDRs.\910\ Because these standards apply
to SEC-registered SDRs, the Commission believes that it is appropriate
for Rule 908(c)(2)(iii)(D) to include them as elements necessary for a
finding that a foreign trade repository or foreign regulatory authority
is subject to comparable regulatory duties.
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    \910\ See SDR Adopting Release, note 831.
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e. Memoranda of Understanding--Rule 908(c)(2)(iv)
    Rule 908(c)(2)(iv), as re-proposed, would have required that,
before issuing a substituted compliance order relating to regulatory
reporting and public dissemination with respect to a foreign
jurisdiction, the Commission shall have entered into a supervisory and
enforcement memorandum of understanding (``MOU'') or other arrangement
with the relevant foreign financial regulatory authority or authorities
under such foreign financial regulatory system addressing oversight and
supervision of the applicable security-based swap market. No commenters
addressed this proposed requirement.
    The Commission is adopting Rule 908(c)(2)(iv) with certain minor
revisions. First, the Commission is modifying the rule to indicate that
a substituted compliance determination may require the Commission to
enter into more than one MOU or other arrangement with a foreign
authority. Second, the Commission has modified the rule to provide that
such MOUs or other arrangements would ``address[ ] supervisory and
enforcement cooperation and other matters arising under the substituted
compliance determination.'' \911\ These clarifications are designed to
facilitate discussions between the Commission and relevant foreign
regulators.
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    \911\ Rule 908(c)(2)(iv).
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    The Commission expects that any grant of substituted compliance
would be predicated on the presence of enforcement MOUs or other
arrangements that provide formal mechanisms by which the Commission can
request assistance and obtain documents and information from foreign
authorities regarding enforcement matters involving securities.
Substituted compliance also may be expected to be predicated on the
presence of supervisory MOUs or other

arrangements that provide formal mechanisms by which the Commission can
request assistance and obtain non-public information from foreign
authorities related to the oversight of dually regulated entities. As a
result, such MOUs or other arrangements should help the Commission
ensure compliance with Title VII requirements for regulatory reporting
and public dissemination.
    In addition, any grant of substituted compliance may be conditioned
upon the Commission entering into other MOUs or arrangements that
address additional matters specific to the substituted compliance
determination. Such MOUs or other arrangements, among other respects,
may be expected to help promote the effectiveness of substituted
compliance by providing mechanisms by which the Commission may request
information and/or monitor for circumstances where the foreign regime
may no longer be comparable to the counterpart Title VII requirements
(due, for example, to changes in the substantive legal framework of the
foreign regime that are inconsistent with the understandings that
underpinned the Commission's initial grant of substituted compliance).
In addition, such MOUs or other arrangements may provide mechanisms by
which the Commission could request information and monitor the
effectiveness of the enforcement and supervision capabilities of the
appropriate foreign regulator(s). More generally, such MOUs or other
arrangements can provide mechanisms by which the Commission could
obtain information relevant to the assessment of comparability.
f. Modification or Withdrawal of Substituted Compliance Order
    Rule 908(c)(2)(v), as re-proposed, would have provided that the
Commission may, on its own initiative, modify or withdraw a substituted
compliance order with respect to regulatory reporting and public
dissemination in a foreign jurisdiction, at any time, after appropriate
notice and opportunity for comment. The Commission is adopting Rule
908(c)(2)(v) as re-proposed, without revision.
    Situations can arise where it would be necessary or appropriate to
modify or withdraw a substituted compliance order. A modification or
withdrawal could be necessary if, after the Commission issues a
substituted compliance order, the facts or understandings on which the
Commission relied when issuing that order are no longer true. The
Commission believes, therefore, that it is appropriate to establish a
mechanism whereby it could, at any time and on its own initiative,
modify or withdraw a previously issued substituted compliance order
with respect to regulatory reporting and public dissemination, after
appropriate notice and opportunity for comment. Having made a
comparability determination, the Commission should have the ability to
periodically review the determination and decide whether the
substituted compliance determination should continue to apply.\912\ The
Commission could determine to condition a substituted compliance order
on an ongoing duty to disclose relevant information. Thus, the
Commission generally agrees with the commenter who argued that persons
making use of substituted compliance should be responsible for
informing the Commission if factors on which the Commission relied in
making the determination change in any material way.\913\
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    \912\ The Commission made a similar statement in the Cross-
Border Proposing Release. See 78 FR 31089. Three commenters agreed
with the statement. See AFR Letter at 12; Better Markets IV at 30;
IIF Letter at 4, 7.
    \913\ See Better Markets IV at 29, 32.
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    Two commenters generally supported the re-proposed Rule
908(c)(2)(v) requirement for the Commission to publish for comment
proposed withdrawals or modifications.\914\ Several commenters also
recommended that any final decision by the Commission to modify or
withdraw a comparability determination should include a phase-in period
to provide market participants adequate opportunity to make necessary
adjustments to their compliance systems and processes.\915\ The
Commission generally agrees with these comments, and believes that all
affected persons should have appropriate notice of the introduction,
withdrawal, or modification of a substituted compliance order so as to
minimize undue disruptions in the market. The Commission will address
phase-in issues and timeframes on a case-by-case basis--in the relevant
order that introduces, modifies, or withdraws substituted compliance--
depending on the facts and circumstances of the particular situation.
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    \914\ See ABA Letter at 6; ISDA II at 9.
    \915\ See FOA Letter at 5; IIF Letter at 7; SIFMA/FIA/Roundtable
Letter at A-37.
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6. Consideration of Regulatory Reporting and Public Dissemination in
the Commission's Analysis of Substituted Compliance
    When the Commission re-proposed Rule 908(c) in the Cross-Border
Proposing Release, it expressed a preliminary view that regulatory
reporting and public dissemination should be considered together in the
Commission's analysis of whether to permit substituted compliance.\916\
If the Commission were to adopt that approach, security-based swap
transactions would not be eligible for substituted compliance if there
were comparable foreign rules in one area but not the other. In other
words, a foreign jurisdiction that has comparable rules for regulatory
reporting of security-based swap transactions but not comparable rules
for public dissemination of such transactions would not have been
eligible for substituted compliance under Regulation SBSR.
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    \916\ See 78 FR 31096.
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    Three commenters suggested that the Commission consider making
separate substituted compliance determinations for regulatory reporting
and public dissemination.\917\ One of these commenters expressed the
view that making separate determinations is appropriate because
regulatory reporting and public dissemination serve distinct
goals.\918\ This commenter also argued that, due to the significant
costs associated with documentation, procedures, and technological
systems necessary to comply with reporting regimes, the possibility of
separate substituted compliance determinations for regulatory reporting
and public dissemination could substantially reduce costs for non-U.S.
market participants while still achieving the Commission's important
market surveillance and transparency goals.\919\ One of the other
commenters argued that ``[d]ifferences among jurisdictions in the
timing of reporting . . . should be evaluated in light of systemic risk
and market supervisory objectives, rather than policies of facilitating
price discovery.'' \920\ The commenter concluded, therefore, that
``[s]uch flexibility should include the potential for separate
determinations regarding

regulatory reporting and public dissemination requirements.'' \921\
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    \917\ See IIB Letter at 25; ISDA II at 9; SIFMA/FIA/Roundtable
Letter at A-45.
    \918\ See IIB Letter at 25 (``regulatory reporting provides the
Commission with the tools for market surveillance and oversight of
its regulated markets, while public dissemination is designed to
provide the market, rather than regulators, real-time price
transparency'').
    \919\ See id.
    \920\ ISDA II at 9.
    \921\ Id.
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    Notwithstanding these comments, the Commission continues to believe
that--subject to one exception described below--regulatory reporting
and public dissemination should be considered together for purposes of
substituted compliance under Rule 908(c). Even if regulatory reporting
and public dissemination serve different policy goals, the Commission
believes that treating regulatory reporting and public dissemination
separately would not further those goals as effectively as considering
these requirements together. The Commission agrees with the commenters
who argued that regulatory reporting serves important market oversight
goals.\922\ However, the Commission disagrees that these objectives
should be pursued ``rather than policies of facilitating price
discovery.'' \923\ Title VII requires the Commission to pursue both
sets of policy goals. If the Commission were to permit substituted
compliance for regulatory reporting but not for public dissemination,
certain transactions could be reported to a foreign trade repository or
a foreign regulatory authority in lieu of a registered SDR but would
(in theory) still be subject to the Regulation SBSR's public
dissemination requirements in Rule 902. Under Regulation SBSR,
registered SDRs are charged with publicly disseminating information
about security-based swap transactions. To carry out its public
dissemination function, a registered SDR must obtain data about
security-based swap transactions that Regulation SBSR requires it to
publicly disseminate. If this data were reported to a foreign trade
repository or foreign regulatory authority under the terms of a
substituted compliance order, it would be impractical, if not
impossible, for a registered SDR to disseminate that transaction data,
as required under Rule 902. In other words, because the registered SDR
needs a report of the transaction from the reporting side in order to
carry out public dissemination, no purpose would be served--and indeed
public dissemination could be compromised--by removing the duty to
report the transaction to a registered SDR in lieu of the duty to
report it to the foreign trade repository or foreign regulatory
authority.\924\ The Commission continues to believe that it is
impractical and unnecessary to devise an alternate method of public
dissemination for security-based swaps that are reported in a foreign
jurisdiction pursuant to a substituted compliance order. The Commission
concludes, therefore, that a foreign jurisdiction's regulatory
reporting and public dissemination requirements--subject to one
exception described immediately below--shall be considered together for
purposes of evaluating comparability for purposes of a substituted
compliance determination under Rule 908(c).
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    \922\ Id.; IIB Letter at 25.
    \923\ ISDA II at 9.
    \924\ The Commission specifically raised this issue in the
Cross-Border Proposing Release and asked how public dissemination
could be carried out if substituted compliance were in effect for
regulatory reporting but not for public dissemination. See 78 FR
31096.
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    One commenter argued that the Commission should be able to issue a
substituted compliance order solely in respect of regulatory reporting
that would apply to cross-border security-based swaps that are subject
to regulatory reporting but not public dissemination under Regulation
SBSR.\925\ Under Rule 908(a), as adopted, there is one kind of
security-based swap that is subject to regulatory reporting but not
public dissemination: A transaction with a non-U.S. person that is
registered as a security-based swap dealer or major security-based swap
participant on one side and no U.S. person on the other side. Upon
further consideration, the Commission agrees with the commenter and is
adopting Rule 908(c) with certain revisions that will allow the
Commission to issue a substituted compliance order with respect to
regulatory reporting but not public dissemination with respect to this
subset of cross-border transactions. The Commission has added a second
sentence to the language in re-proposed Rule 908(c)(2)(i) to carry out
this aim.\926\ The Commission also revised one prong of re-proposed
Rule 908(c)(iii) to exclude consideration of the reporting timeframes
for public dissemination in cases where the Commission is considering a
substituted compliance request with respect to cross-border
transactions that are, under Regulation SBSR, subject to regulatory
reporting but not public dissemination. The Commission believes that
offering the possibility of substituted compliance for these kinds of
cross-border transactions could reduce compliance burdens for affected
persons without reducing the capability of the Commission and other
relevant authorities to oversee the security-based swap market.
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    \925\ See IIB Letter at 25 (``the separate possibility of
substituted compliance for either regulatory reporting or public
dissemination could substantially reduce costs for non-U.S. market
participants while still achieving the Commission's important market
surveillance and transparency goals'').
    \926\ Rule 908(c)(2)(i).
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XVI. Other Cross-Border Issues

A. Foreign Public Sector Financial Institutions

    In response to the Regulation SBSR Proposing Release, six
commenters expressed concern about applying the requirements of Title
VII to the activities of foreign public sector financial institutions
(``FPSFIs''), such as foreign central banks and multilateral
development banks.\927\ One commenter, the European Central Bank
(``ECB''), noted that security-based swaps entered into by the Federal
Reserve Banks are excluded from the definition of ``swap'' in the
Commodity Exchange Act (``CEA'') \928\ and that the functions of
foreign central banks and the Federal Reserve are broadly comparable.
The ECB argued, therefore, that security-based swaps entered into by
foreign central banks should likewise be excluded from the definition
of ``swap.'' \929\ A second commenter, the World Bank (representing the
International Bank for Reconstruction and Development, the
International Finance Corporation, and other multilateral development
institutions of which the United States is a member) also argued
generally that the term ``swap'' should be defined to exclude any
transaction involving a multilateral development bank.\930\ The World
Bank further noted that EMIR--the E.U. counterpart to Title VII of the