``[e]nsuring the accuracy and quality of [data reported to SDRs] will
be critical for the Commission's achievement of the regulatory goals of
transparency, efficiency and systemic risk mitigation [and that] SDRs
will play a pivotal role in ensuring the accuracy of [SBS] data both
for public consumption and regulatory reporting purposes.'' \730\ The
commenter further noted that ``[t]he existence of a number of feedback
loops and distribution channels through which data will flow will
enable participants to identify, test and correct inaccuracies and
errors.'' \731\ This commenter also indicated that the ability to
ensure data accuracy would be influenced by the degree to which such
data is utilized by industry participants in other processes.
Therefore, that commenter stressed that ``SDRs and their affiliates
should be permitted to offer a range of ancillary services in addition
to their core services of data acceptance and data storage.'' \732\
---------------------------------------------------------------------------

    \729\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; see
also DTCC 1*, supra note 20.
    \730\ MarkitSERV, supra note 19.
    \731\ MarkitSERV, supra note 19.
    \732\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    Another commenter stated that ``the multiple bilateral
reconciliations performed between the parties to a trade throughout the
life of a trade (and often on an ad hoc basis or only following a
dispute), could be replaced by one single reconciliation framework with
a shared central record, increasing both [sic] operating efficiency as
well as reducing operational risks. The Commission's suggestion for
portfolio reconciliation seems well aligned with this, and this would
give the direct benefit of improved bilateral portfolio reconciliation
processes between the parties.'' \733\ The commenter also stated that
``[a]fter each recorded transaction is

consummated, the SDR can maintain the validity of the data for that
transaction by offering an asset servicing function.'' \734\
---------------------------------------------------------------------------

    \733\ DTCC 2, supra note 19. In the Proposing Release, the
Commission stated that the policies and procedures required by Rule
13n-5(b)(3) ``could include portfolio reconciliation.'' Proposing
Release, 75 FR at 77330, supra note 2.
    \734\ DTCC 1*, supra note 20.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-5(b)(3) as proposed, with one modification. Rule 13n-5(b)(3)
requires every SDR to establish, maintain, and enforce written policies
and procedures reasonably designed to ensure that the transaction data
and positions that it maintains are complete and accurate. As explained
in the Proposing Release, maintaining accurate records is an integral
function of an SDR.\735\ As further explained in the Proposing Release,
maintaining accurate records requires diligence on the part of an SDR
because, among other things, SBSs can be amended, assigned, or
terminated and positions change upon the occurrence of new events (such
as corporate actions).\736\
---------------------------------------------------------------------------

    \735\ Proposing Release, 75 FR at 77307 and 77329-30, supra note
2.
    \736\ Proposing Release, 75 FR at 77330, supra note 2.
---------------------------------------------------------------------------

    As proposed, the rule would require an SDR's policies and
procedures to address the accuracy of the transaction data and
positions. For purposes of clarification, the rule as adopted requires
that an SDR's policies and procedures address both the completeness and
accuracy of the transaction data and positions. For example, an SDR's
policies and procedures may not be reasonable if they allow data
elements required under Regulation SBSR to be blank.
    The Commission agrees with one commenter that the degree to which
industry participants use the data will influence the accuracy of the
data, and that the ability of participants to identify, test, and
correct inaccuracies and errors should be encouraged.\737\ The
Commission also agrees with another commenter that offering an asset
servicing function may assist an SDR in maintaining the validity of
transaction data and positions.\738\ Therefore, the Commission supports
the provision by SDRs of voluntary ancillary services, such as asset
servicing, that improve the quality of the SBS data in the SDRs.\739\
With regard to the comment acknowledging the value to portfolio
reconciliation,\740\ while portfolio reconciliation is a voluntary
ancillary service, the Commission believes, consistent with its
position in the Proposing Release,\741\ that it is a method that an SDR
can use to ensure reasonably the accuracy of the transaction data and
positions that the SDR maintains.
---------------------------------------------------------------------------

    \737\ See MarkitSERV, supra note 19.
    \738\ See DTCC 1*, supra note 20.
    \739\ See Section III.C of this release discussing ancillary
services.
    \740\ See DTCC 2, supra note 19.
    \741\ Proposing Release, 75 FR at 77330, supra note 2 (stating
that the policies and procedures required by proposed Rule 13n-
5(b)(3) ``could include portfolio reconciliation'').
---------------------------------------------------------------------------

4. Data Retention (Rule 13n-5(b)(4))
a. Proposed Rule
    Proposed Rule 13n-5(b)(4) would require every SDR to maintain
transaction data for not less than five years after the applicable SBS
expires and historical positions for not less than five years.
Alternatively, the Commission considered, but did not propose a rule,
requiring every SDR to maintain transaction data for not less than five
years after the applicable SBS expires or ten years after the
applicable SBS is executed, whichever is greater, and historical
positions for not less than five years.\742\ Under either alternative,
SDRs would be required to maintain the transaction data and historical
positions (i) in a place and format that is readily accessible to the
Commission and other persons with authority to access or view such
information; and (ii) in an electronic format that is non-rewriteable
and non-erasable.\743\
---------------------------------------------------------------------------

    \742\ See Proposing Release, 75 FR at 77330, supra note 2.
    \743\ Proposed Rule 13n-5(b)(4).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Four commenters submitted comments relating to this proposed
rule.\744\ The commenters generally agreed with the Commission's
proposal that SDRs should maintain SBS data for the life of the SBS
contract and a reasonable time period thereafter.\745\ Commenters
expressed various views on whether the Commission should require SBS
data to be maintained in a particular format.\746\ One commenter stated
that ``[t]he Proposed Rule should require the retention of electronic
records of transactions, including life cycle events. These should be
maintained for the life of the contract in order to provide an audit
trail to positions and for a reasonable retention period thereafter. An
SDR's records should be in an electronically readable format (where
available) that allows for application and analysis.'' \747\ The
commenter also stated that ``certain aggregate data should be
maintained beyond the maturity of contracts to provide public
availability of time series data.'' \748\
---------------------------------------------------------------------------

    \744\ See DTCC 2, supra note 19; Better Markets 1, supra note
19; ISDA Temp Rule, supra note 28; Barnard, supra note 19; see also
Better Markets 2, supra note 19.
    \745\ See, e.g., DTCC 2, supra note 19.
    \746\ See DTCC 2, supra note 19; Better Markets 1, supra note
19; ISDA Temp Rule, supra note 28.
    \747\ DTCC 2, supra note 19.
    \748\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    One commenter to the Temporary Rule Release believed that the
Commission should consider requiring SBS transaction data to be
recorded and reported pursuant to a single electronic data standard
because ``[t]his will enable transactions to be reported in an
efficient and timely manner in a form readily accessible to all
concerned parties.'' \749\ The commenter recommended using Financial
products Markup Language (FpML) \750\ as that standard.\751\ Another
commenter recommended that ``the Commission require that all SDRs
maintain [stored SBS data] in the same format.'' \752\ This commenter
further recommended that ``the Commission specifically require the SDR
to organize and index accurately the transaction data and positions so
that the Commission and other users of such information are easily able
to obtain the specific information that they require.'' \753\ Another
commenter stated that a ``registered SDR should have flexibility to
specify acceptable data formats, connectivity requirements and other
protocols for submitting information. Market practice, including
structure of confirmation messages and detail of economic fields,
evolve over time, and the SDR should have the capability to adopt and
set new formats.'' \754\
---------------------------------------------------------------------------

    \749\ ISDA Temp Rule, supra note 28.
    \750\ FpML is based on XML (eXtensible Markup Language), the
standard meta-language for describing data shared between
applications.
    \751\ ISDA Temp Rule, supra note 28.
    \752\ Better Markets 1, supra note 19; see also Better Markets
2, supra note 19 (recommending reported data be subject to uniform
formatting requirements).
    \753\ Better Markets 1, supra note 19.
    \754\ DTCC SBSR, supra note 27.
---------------------------------------------------------------------------

    Another commenter recommended that data be ``standardized and use a
common terminology.'' \755\ The commenter also recommended that records
at SDRs be kept indefinitely because the commenter believed that there
is ``no technological or practical reason for limiting the retention
period.'' \756\ The commenter further recommended that ``[a]ny original
documents should be scanned.'' \757\
---------------------------------------------------------------------------

    \755\ Barnard, supra note 19.
    \756\ Barnard, supra note 19.
    \757\ Barnard, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-

5(b)(4) as proposed, with two modifications. Rule 13n-5(b)(4) requires
every SDR to maintain transaction data and related identifying
information for not less than five years after the applicable SBS
expires and historical positions for not less than five years. Rule
13n-5(b)(4) also requires SDRs to maintain the transaction data and
historical positions (i) in a place and format that is readily
accessible and usable to the Commission and other persons with
authority to access or view such information; and (ii) in an electronic
format that is non-rewriteable and non-erasable.
    Time Period: As explained in the Proposing Release, a five-year
retention period is the current requirement for the records of clearing
agencies and other registered entities, and is the statutory
requirement for SB SEFs.\758\ Because an SBS transaction creates
obligations that continue for a specified period of time, the
Commission believes that the transaction data should be maintained for
the duration of the SBS, with the five years running after the SBS
expires. This requirement applies to all transaction data, including
life cycle events that are reported to an SDR pursuant to Regulation
SBSR.\759\ The Commission believes that transaction data and position
data that are older than their respective retention periods will not be
materially useful to the Commission or other relevant authorities.
---------------------------------------------------------------------------

    \758\ Proposing Release, 75 FR at 77330, supra note 2. See also
Exchange Act Rule 17a-1, 17 CFR 240.17a-1 (requiring recordkeeping
for national securities exchanges, national securities associations,
clearing agencies, and the Municipal Securities Rulemaking Board);
Exchange Act Section 3D(d)(9), 15 U.S.C. 78c-4(d)(9) (requiring
recordkeeping for SB SEFs).
    \759\ See Regulation SBSR Adopting Release, supra note 13 (Rules
901, 905, and 906(a)); see also DTCC 2, supra note 19 (recommending
requiring the retention of life cycle events).
---------------------------------------------------------------------------

    There may be transaction-specific identifying information assigned
or used by an SDR, such as a transaction ID \760\ or a time stamp,\761\
that are not included in the definition of ``transaction data.'' This
identifying information should also be maintained for the same time
period as the transaction data because it is necessary to understanding
the transaction data. Therefore, the Commission is revising the
proposed rule to require SDRs to maintain ``related identifying
information'' for not less than five years after the applicable SBS
expires. Positions are not tied to any particular SBS transaction;
therefore, the Commission requires positions, as calculated pursuant to
Rule 13n-5(b)(2), to be maintained for five years, similar to the
record retention requirement for clearing agencies.\762\
---------------------------------------------------------------------------

    \760\ See Regulation SBSR Adopting Release, supra note 13 (Rule
901(g) requiring a registered SDR to assign a transaction ID to each
SBS, or establish or endorse a methodology for transaction IDs to be
assigned by third parties).
    \761\ See Regulation SBSR Adopting Release, supra note 13 (Rule
901(f) requiring a registered SDR to time stamp, to the second, its
receipt of any information submitted to it pursuant to Rules 901(c),
(d), (e), or (i)).
    \762\ See Exchange Act Rule 17a-1, 17 CFR 240.17a-1 (requiring
clearing agencies to retain records for five years). See also
Exchange Act Section 13(n)(4)(C), 15 U.S.C. 78m(n)(4)(C) (requiring
``standards prescribed by the Commission under this subsection [to]
be comparable to the data standards imposed by the Commission on
clearing agencies in connection with their clearing of security-
based swaps''). Clearing Agency Standards Release, 77 FR at 66243
n.270, supra note 138 (``Clearing agencies may destroy or otherwise
dispose of records at the end of five years consistent with Exchange
Act Rule 17a-6.'').
---------------------------------------------------------------------------

    The Commission is not adopting the alternative time period that was
set forth in the Proposing Release. No comments supported the
alternative time period. The Commission is not adopting one commenter's
recommendation that data at SDRs be kept indefinitely \763\ because the
Commission believes that requiring transaction data to be maintained
for not less than five years after the applicable SBS expires is more
reasonable,\764\ and this approach is consistent with the record
retention period for other Commission registrants and the statutory
requirement for SB SEFs.
---------------------------------------------------------------------------

    \763\ See Barnard, supra note 19.
    \764\ See DTCC 2, supra note 19 (``[E]lectronic records of
transactions . . . should be maintained for the life of the contract
. . . and for a reasonable retention period thereafter.'').
---------------------------------------------------------------------------

    One commenter stated that ``certain aggregate data should be
maintained beyond the maturity of contracts to provide public
availability of time series data.'' \765\ Because the Commission is not
requiring an SDR to provide the public with historic data (aggregated
or otherwise) that it previously publicly disseminated, the Commission
does not believe that it is appropriate to require SDRs to maintain
aggregate data for public availability. However, SDRs may find it
useful to maintain such data if they intend to provide the public with
data sets beyond the public dissemination requirements of Regulation
SBSR.\766\ To the extent that the Commission requires the creation of
aggregate data, such as through reports requested pursuant to Rule 13n-
8, the data will be for regulatory purposes. Any aggregation of data
that is created by an SDR, either at the Commission's direction or
voluntarily, must be retained for five years pursuant to Rule 13n-
7(b).\767\
---------------------------------------------------------------------------

    \765\ DTCC 2, supra note 19.
    \766\ See Regulation SBSR Adopting Release, supra note 13 (Rule
902).
    \767\ See Section VI.G.2 of this release.
---------------------------------------------------------------------------

    Format: As explained in the Proposing Release, the Commission
believes that transaction data, including life cycle events, and
positions should be maintained in a place and format that is readily
accessible to the Commission and other persons with authority to access
or view such information.\768\ This requirement is important to ensure
that SDRs maintain the information in an organized and accessible
manner so that users, including relevant authorities and
counterparties, can easily obtain the data that would assist them in
carrying out their appropriate functions. The Commission also believes
that this requirement helps ensure that the information is maintained
in a common and easily accessible language, such as a language commonly
used in financial markets. The Commission agrees with one commenter's
recommendation that an SDR's records should ``be in an electronically
readable format (where available) that allows for application and
analysis,'' \769\ and therefore the Commission is modifying proposed
Rule 13n-5(b)(4) to provide that the information must be in a format
that is usable to (1) the Commission and (2) other persons with
authority to access or view such information.\770\ The Commission
believes that if the information is not in a usable format, then the
Commission and others would not have the ability to analyze the
information as needed.
---------------------------------------------------------------------------

    \768\ Proposing Release, 75 FR at 77330, supra note 2.
    \769\ See DTCC 2, supra note 19 (recommending that an SDR's
records ``be in an electronically readable format (where available)
that allows for application and analysis'').
    \770\ Rule 13n-5(b)(4). The Commission notes that this change is
consistent with other Commission rules. For example, Rule 605(a)(2)
of Regulation NMS, 17 CFR 242.605(a)(2), requires reports be ``in a
uniform, readily accessible, and usable electronic form.''
---------------------------------------------------------------------------

    Despite comments to the contrary,\771\ the Commission is not
establishing a specific, prescribed format in which an SDR must
maintain transaction data and positions. The Commission expects that
the ``readily accessible and usable'' requirement will be sufficient to
cause

the format and content of transaction data and historical positions
maintained by any individual SDR to be sufficiently robust and complete
for relevant persons to fully, accurately, and consistently process the
data. The Commission believes that SDRs, working with market
participants, will be in a better position to upgrade formats and data
elements as needed. Having the Commission establish a specific format
could impede the timely collection of data on new types of transactions
from the SDRs.\772\
---------------------------------------------------------------------------

    \771\ See Better Markets 1, supra note 19 (recommending that the
Commission require all SDRs to maintain stored SBS data in the same
format); ISDA Temp Rule, supra note 28 (recommending that the
Commission require SBS transaction data to be reported and recorded
pursuant to a single electronic data standard, and using FpML as
that standard); Barnard, supra note 19 (recommending that data be
``standardized and use a common terminology'' and that original
documents be scanned); see also Better Markets 2, supra note 19
(recommending that reported data be subject to uniform formatting
requirements).
    \772\ See DTCC SBSR, supra note 27 (stating that SDRs ``should
have flexibility to specify acceptable data formats, connectivity
requirements and other protocols for submitting information,'' and
that SDRs ``should have the capability to adopt and set new
formats'' as market practices evolve over time).
---------------------------------------------------------------------------

    However, in order to oversee the SBS market, it will be necessary
for the Commission to aggregate and analyze data across different
SDRs.\773\ As discussed above, the Commission anticipates that it will
propose for public comment detailed specifications of acceptable
formats and taxonomies for providing SBS data to the Commission in
order to facilitate an accurate interpretation, aggregation, and
analysis by the Commission of SBS data submitted to it by different
SDRs.\774\
---------------------------------------------------------------------------

    \773\ See Section VI.D.2.c.ii of this release discussing
aggregation of data across multiple registered SDRs by the
Commission.
    \774\ See Section VI.D.2.c.ii of this release discussing Rule
13n-4(b)(5) (direct electronic access).
---------------------------------------------------------------------------

    The requirement for transaction data and historical positions to be
maintained in an electronic format that is non-rewriteable and non-
erasable \775\ is consistent with the record retention format
applicable to electronic broker-dealer records.\776\ As explained in
the Proposing Release, this requirement would prevent the maintained
information from being modified or removed without detection.\777\
---------------------------------------------------------------------------

    \775\ Rule 13n-5(b)(4).
    \776\ See Exchange Act Rule 17a-4(f)(2)(ii)(A), 17 CFR 240.17a-
4(f)(2)(ii)(A). In Electronic Storage of Broker-Dealer Records,
Exchange Act Release No. 47806 (May 7, 2003), 68 FR 25281 (May 12,
2003), the Commission stated, among other things, that a broker-
dealer would not violate Exchange Act Rule 17a-4(f)(2)(ii)(A) ``if
it used an electronic storage system that prevents the overwriting,
erasing or otherwise altering of a record during its required
retention period through the use of integrated hardware and software
control codes.'' The Commission incorporates this interpretation
into Rule 13n-5(b)(4).
    \777\ Proposing Release, 75 FR at 77330, supra note 2.
---------------------------------------------------------------------------

    The Commission is not specifically requiring that SDRs organize and
index the transaction data and positions that they collect and
maintain.\778\ The Commission believes that the requirement in Rule
13n-5(b)(4) that each SDR must maintain transaction data and related
identifying information for not less than five years after the
applicable SBS expires and historical positions for not less than five
years, in a place and format that is ``readily accessible and usable to
the Commission and other persons with authority to access or view such
information'' incorporates the requirement that the data must be
organized in a way that allows the data to be readily obtained or
accessed by the Commission and other appropriate persons--data is not
readily accessible and usable if it is not organized in a way that
allows the data to be obtained quickly and easily. Further, whether
users of information maintained by an SDR, other than the Commission,
are able to easily obtain such information is also addressed by Rule
13n-4(c)(1)(iii), which requires, among other things, an SDR to
establish, monitor on an ongoing basis, and enforce clearly stated
objective criteria that would permit fair, open, and not unreasonably
discriminatory access to data maintained by the SDR.\779\
---------------------------------------------------------------------------

    \778\ See Proposing Release, 75 FR at 77331, supra note 2
(asking whether the Commission should adopt a requirement that SDRs
organize and index transaction data and positions ``so that the
Commission and other users of such information are easily able to
obtain the specific information that they require''); Better Markets
1, supra note 19.
    \779\ See Section VI.D.3.a of this release discussing Rule 13n-
4(c)(1)(iii).
---------------------------------------------------------------------------

    With respect to the Commission's ability to obtain the specific
information it requires, the Commission believes that several other
statutory and regulatory requirements under the Exchange Act also
address this issue. For example, the Commission will have direct
electronic access to the transaction data and positions pursuant to
Exchange Act Section 13(n)(5)(D) \780\ and Rule 13n-4(b)(5).\781\ The
Commission expects to be able to query and analyze the data as
necessary without imposing an indexing requirement at this time.\782\
In addition, Rule 13n-8, discussed below, requires each SDR to promptly
report to the Commission, in a form and manner acceptable to the
Commission, such information as the Commission determines to be
necessary or appropriate for the Commission to perform the duties of
the Commission under the Exchange Act and the rules and regulations
thereunder.\783\
---------------------------------------------------------------------------

    \780\ 15 U.S.C. 78m(n)(5)(D).
    \781\ See Sections VI.D.1 and VI.D.2 of this release discussing
Rules 13n-4(a)(5) and 13n-4(b)(5). Rule 13n-4(b)(5) requires each
SDR to provide direct electronic access to the Commission or its
designees; ``direct electronic access'' is defined in Rule 13n-
4(a)(5) 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 with the ability to query or
analyze the data in the same manner that the SDR can query or
analyze the data.
    \782\ Although the Commission is not imposing an indexing
requirement, SDRs are required under Regulation SBSR to utilize a
transaction ID for each SBS. The transaction ID is designed to allow
the Commission and other relevant persons to link related activity,
such as life cycle events, to the original transaction. See
Regulation SBSR Adopting Release, supra note 13 (Rule 901).
    \783\ See Section VI.H of this release discussing Rule 13n-8.
---------------------------------------------------------------------------

5. Controls to Prevent Invalidation (Rule 13n-5(b)(5))
a. Proposed Rule
    Proposed Rule 13n-5(b)(5) would require every SDR to establish,
maintain, and enforce written policies and procedures reasonably
designed to prevent any provision in a valid SBS from being invalidated
or modified through the procedures or operations of the SDR.
b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed
rule.\784\ Both commenters seemed to agree with this proposal.\785\ One
commenter stated that an SDR ``should be able to offer life cycle event
processing and asset servicing activities'' that may lead to ``an
update or modification to the records in the SDR,'' with the consent of
both parties.\786\
---------------------------------------------------------------------------

    \784\ See DTCC 2, supra note 19; MarkitSERV, supra note 19.
    \785\ DTCC 2, supra note 19 (supporting ``the approach that
records are not invalidated by the actions of the SDR'');
MarkitSERV, supra note 19.
    \786\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-5(b)(5) as proposed. Rule 13n-5(b)(5) requires every SDR to
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent any provision in a valid SBS from being
invalidated or modified through the procedures or operations of the
SDR. The terms of SBSs can be the result of negotiation between the
counterparties, and the Commission believes that these terms should not
be modified or invalidated without the full consent of the
counterparties.\787\
---------------------------------------------------------------------------

    \787\ See Proposing Release, 75 FR at 77331, supra note 2.
---------------------------------------------------------------------------

    The Commission agrees with one commenter's view that an SDR should
be able to offer life cycle event processing and asset servicing
activities that may lead to an updating of the records in the SDR, with
the consent of

both parties.\788\ In such a case, it is not the SDR that is modifying
the SBS, but the parties to the SBS who are doing so (or the parties
are submitting information regarding the SBS that relates to the terms
of the original contract); the SDR is simply updating its records to
reflect the changes to the SBS made by the parties to the SBS, or to
reflect life cycle events that have occurred and the parties to the SBS
agree should be reflected in the updated records of the SDR. However,
whenever an SDR updates its records, it must retain the data as it
existed prior to the update pursuant to Rule 13n-5(b)(4), which is
discussed above.\789\
---------------------------------------------------------------------------

    \788\ See DTCC 2, supra note 19.
    \789\ See Section VI.E.4 of this release discussing Rule 13n-
5(b)(4).
---------------------------------------------------------------------------

    If the reporting party reports inconsistent data, such as where the
reporting party reports that the SBS is a standard SBS, but also
reports a non-standard provision, the SDR can correct the inconsistency
if it gives appropriate notice to both parties.\790\ In formulating its
policies and procedures required by Rule 13n-5(b)(5), an SDR may want
to consider providing the parties with notice of the inconsistency as
soon as practicable.
---------------------------------------------------------------------------

    \790\ The Commission believes that an SDR's policies and
procedures would not necessarily be reasonable if they authorize the
SDR to ``deem'' a user to have effectively consented to the SDR's
changes if the user merely utilizes the SDR system after such
change. At a minimum, the SDR should inform both parties of the
change. The Commission notes that Rule 905 of Regulation SBSR
establishes procedures for correcting errors in data reported to an
SDR. See Regulation SBSR Adopting Release, supra note 13 (Rule 905).
Additionally, as discussed in Section VI.E.6 of this release, Rule
13n-5(b)(6) requires SDRs to establish procedures and provide
facilities reasonably designed to effectively resolve disputes over
the accuracy of the transaction data and positions that are recorded
in the SDR.
---------------------------------------------------------------------------

6. Dispute Resolution Procedures (Rule 13n-5(b)(6))
a. Proposed Rule
    Proposed Rule 13n-5(b)(6) would require every SDR to establish
procedures and provide facilities reasonably designed to effectively
resolve disputes over the accuracy of the transaction data and
positions that are recorded in the SDR.\791\
---------------------------------------------------------------------------

    \791\ In a separate release, the Commission is adopting rules
regarding the correction of errors in SBS information maintained by
an SDR in association with requirements under Dodd-Frank Act Section
763(i). See Regulation SBSR Adopting Release, supra note 13 (Rules
905 and 907(a)(3)).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed
rule.\792\ One commenter supported this proposed rule, stating that it
is a key step in the effort to have accurate data at the SDR.\793\ The
commenter stated that a reporting party and a non-reporting party may
disagree on the terms of a reported SBS transaction and the reporting
party may refuse to correct the erroneously reported transaction
information.\794\ The commenter urged the Commission to require the SDR
to review promptly the disputed data with the parties.\795\ The other
commenter stated that it believed that ``an SDR should be in a position
to identify disputes or unconfirmed data as part of its process to
confirm the data with both parties. However, only the parties to a
transaction can resolve any dispute as to the terms of the trade.''
\796\ Where a trade comes through a third party service provider that
``act[s] directly as an affirmation, confirmation or verification
platform and already utilizes dispute resolution workflows,'' the
commenter did ``not support a Proposed Rule that would require that the
SDR [build] processes to replicate these services.'' \797\ The
commenter stated that ``an SDR can make the quality of the data or
disputed trades visible to a firm's prudential regulator and this would
act as an incentive to timely resolution.'' \798\
---------------------------------------------------------------------------

    \792\ See DTCC 2, supra note 19; MFA 1, supra note 19; see also
MFA SBSR, supra note 27.
    \793\ MFA 1, supra note 19; see also MFA SBSR, supra note 27.
    \794\ MFA SBSR, supra note 27.
    \795\ MFA SBSR, supra note 27.
    \796\ DTCC 2, supra note 19.
    \797\ DTCC 2, supra note 19.
    \798\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-5(b)(6) as proposed. Rule 13n-5(b)(6) requires every SDR to
establish procedures and provide facilities reasonably designed to
effectively resolve disputes over the accuracy of the transaction data
and positions that are recorded in the SDR. As the Commission explained
in the Proposing Release, the data maintained by an SDR will be used by
relevant authorities and counterparties.\799\ Parties, therefore,
should have the ability to dispute the accuracy of the data maintained
by an SDR regarding their SBSs. SDRs providing the means to resolve
disputes should enhance data quality and integrity.
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    \799\ Proposing Release, 75 FR at 77331, supra note 2. In some
cases, the data maintained by the SDR may be considered by the
counterparties to be the legal or authoritative record of the SBS.
However, this is due to the consent of the counterparties. Simply
reporting an SBS to an SDR does not affect the legal terms of the
SBS. See Section III.A of this release discussing the service of
maintaining legally binding records.
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    The Commission agrees with one commenter that only the parties to a
dispute can resolve it,\800\ but the Commission believes that SDRs can
provide processes to facilitate resolution, which would improve the
quality and accuracy of SBS data. The Commission does not believe that
this requirement mandates that an SDR replicate the services of third
party service providers, such as providing matching platforms.\801\
Having both parties verify the SBS data through a third party service
provider prior to submitting it to an SDR will ensure a great deal of
accuracy in the data maintained by the SDR. However, there may be
instances where disputes still occur, such as where a party disagrees
with a position reflected in an SDR's records, where one party realizes
it mistakenly verified a transaction and the other party refuses to
submit or verify a correction, or where a transaction has been amended,
but one party refuses to report or verify the amendment. In such
instances, the Commission believes that the SDR should provide a party
with the ability to raise the dispute, and have some sort of process to
resolve the dispute. As with the other SDR Rules, an SDR could rely on
a third party service provider to perform the SDR's obligation to
provide a dispute resolution process. If it does so, in order for such
a process to be ``reasonably designed,'' the SDR would have to oversee
and supervise the performance of the third party service provider. The
Commission agrees with one commenter \802\ that to the extent that Rule
13n-5(b)(6) makes disputes visible to regulators, the rule should
incentivize parties to resolve them. In any event, the Commission
believes that the rule will further increase the quality and accuracy
of SBS data.
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    \800\ See DTCC 2, supra note 19.
    \801\ See DTCC 2, supra note 19
    \802\ See DTCC 2, supra note 19.
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7. Data Preservation After an SDR Ceases To Do Business (Rule 13n-
5(b)(7))
a. Proposed Rule
    Proposed Rule 13n-5(b)(7) would require an SDR, if it ceases to do
business, or ceases to be registered as an SDR, to continue to
preserve, maintain, and make accessible the transaction data and
historical positions required to be collected, maintained, and
preserved by Rule 13n-5 in the manner required by the Exchange Act and
the rules and regulations thereunder for the

remainder of the period required by this rule.\803\
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    \803\ As noted in the Proposing Release, this proposed
requirement was based on Exchange Act Rule 17a-4(g), 17 CFR 240.17a-
4(g), which applies to books and records of broker-dealers.
Proposing Release, 75 FR at 77332 n.128, supra note 2.
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b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-5(b)(7) as proposed. Rule 13n-
5(b)(7) requires an SDR, if it ceases to do business, or ceases to be
registered pursuant to Exchange Act Section 13(n) and the rules and
regulations thereunder, to continue to preserve, maintain, and make
accessible the transaction data and historical positions required to be
collected, maintained, and preserved by Rule 13n-5 in the manner
required by the Exchange Act and the rules and regulations thereunder
(including in a place and format that is readily accessible and usable
to the Commission and other persons with authority to access or view
such information, in an electronic format that is non-rewriteable and
non-erasable, and in a manner that protects confidentiality and
accuracy) for the remainder of the period required by Rule 13n-5 (i.e.,
not less than five years after the applicable SBS expires for
transaction data and not less than five years for historical
positions). As the Commission explained in the Proposing Release, given
the importance of the records maintained by an SDR to the functioning
of the SBS market, an SDR ceasing to do business could cause serious
disruptions in the market should the information it maintains becomes
unavailable.\804\
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    \804\ Proposing Release, 75 FR at 77332, supra note 2.
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8. Plan for Data Preservation (Rule 13n-5(b)(8))
a. Proposed Rule
    Proposed Rule 13n-5(b)(8) would require an SDR to make and keep
current a plan to ensure that the transaction data and positions that
are recorded in the SDR continue to be maintained in accordance with
proposed Rule 13n-5(b)(7).
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-5(b)(8) as proposed. Rule 13n-
5(b)(8) requires an SDR to make and keep current a plan to ensure that
the transaction data and positions that are recorded in the SDR
continue to be maintained in accordance with Rule 13n-5(b)(7), which
shall include procedures for transferring the transaction data and
positions to the Commission or its designee (including another
registered SDR).\805\ As the Commission explained in the Proposing
Release, given the importance of the records maintained by an SDR to
the functioning of the SBS market, if an SDR ceases to do business, the
absence of a plan to transfer information could cause serious
disruptions.\806\ The Commission expects that an SDR's plan would
establish procedures and mechanisms so that another entity would be in
the position to maintain this information after the SDR ceases to do
business or ceases to be registered pursuant to Exchange Act Section
13(n) \807\ and the rules and regulations thereunder.
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    \805\ In addition, Item 45 of Form SDR requires each SDR to
attach as an exhibit to its Form SDR ``a plan to ensure that the
transaction data and position data that are recorded in the
applicant continue to be maintained after the applicant withdraws
from registration as [an SDR], which shall include procedures for
transferring the transaction data and position data to the
Commission or its designee (including another registered [SDR]).''
This item implements Rule 13n-5(b)(8).
    \806\ Proposing Release, 75 FR at 77332, supra note 2.
    \807\ 15 U.S.C. 78m(n).
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F. Automated Systems (Rule 13n-6)

1. Proposed Rule
    The Commission proposed Exchange Act Rule 13n-6 to provide
standards for SDRs with regard to their automated systems' capacity,
resiliency, and security. The proposed rule was designed to be
comparable to the standards applicable to SROs, including exchanges and
clearing agencies,\808\ and market information dissemination systems,
pursuant to the Commission's Automation Review Policy (``ARP'') program
\809\ and rules applicable to significant-volume alternative trading
systems (``ATSs'').\810\
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    \808\ See Automated Systems of Self-Regulatory Organizations,
Exchange Act Release No. 27445 (Nov. 16, 1989), 54 FR 48703 (Nov.
24, 1989) (``ARP I Release''); Automated Systems of Self-Regulatory
Organizations, Exchange Act Release No. 29185 (May 9, 1991), 56 FR
22490 (May 15, 1991) (``ARP II Release'') (collectively, ``ARP
Policy Statements'').
    \809\ See ARP II Release, 56 FR at 22491 n.4, supra note 808
(stating that the Commission's automated review policies are
intended to ``encompass SRO systems that disseminate transaction and
quotation information''); see also ARP I Release, 54 FR at 48704,
supra note 808 (discussing that ``the SROs have developed and
continue to enhance automated systems for the dissemination of
transaction and quotation information'').
    \810\ See Regulation of Exchanges and Alternative Trading
Systems, Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844
(Dec. 22, 1998) (adopting Rule 301(b)(6) of Regulation ATS, 17 CFR
242.301(b)(6)). Rule 301(b)(6) has since been superseded in part by
Regulation SCI, 17 CFR 242.1000-1007.
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2. Comments on the Proposed Rule
    Three commenters submitted comments relating to proposed Rule 13n-
6.\811\ One commenter ``support[ed] the Commission's intent'' behind
the rule, but suggested several specific changes.\812\ The commenter
also stated that it ``has always placed a high priority on maintaining
business resiliency,'' including having ``in place multiple fully
staffed data and operations centers in diverse regions of the country,
each capable of handling [the commenter's] entire business.'' \813\ The
commenter stated that it ``performs both data center and operational
failover tests every year'' and ``[d]atacenter recovery tests are
performed at least six times a year in various configurations, and
there are more than two dozen operational failover tests each year,
ranging from a single department failover, to an operational recovery
involving more than 400 staff.'' \814\ The commenter believed that
``[t]hese capabilities are fundamental to any registration as an SDR.''
\815\ The commenter further stated that ``[g]iven the importance of
SDRs to the regulatory and systemic risk oversight of the financial
markets and the important role they will play in providing market
transparency, a lack of robust resiliency and redundancy in operations
should disqualify an entity from registering as an SDR.'' \816\
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    \811\ See DTCC 2, supra note 19; Deutsche Temp Rule, supra note
28; ISDA, supra note 19; see also DTCC 3, supra note 19; DTCC 5,
supra note 19.
    \812\ See DTCC 2, supra note 19 (stating that business
continuity provisions should include multiple redundant systems,
supporting ``the Commission in requiring robust operational
capabilities of an SDR,'' and stating that SDRs should ``maintain
multiple levels of operational redundancy''); DTCC 3, supra note 19
(recommending that SDRs ``maintain multiple levels of operational
redundancy and data security''); DTCC 5, supra note 19 (recommending
(1) granting an SDR flexibility to make contingency and disaster
recovery plans part of a parent's or affiliate's disaster recovery
operations, (2) revising proposed Rule 13n-6(b)(2) to require an
external audit only once every five years when the SDR's objective
review is performed by an internal department rather than every
year, and (3) revising proposed Rule 13n-6(b)(3) to be less
prescriptive in its time frames and grant more flexibility to an SDR
for reporting outages).
    \813\ DTCC 2, supra note 19.
    \814\ DTCC 2, supra note 19.
    \815\ DTCC 2, supra note 19.
    \816\ DTCC 2, supra note 19; see also DTCC 3, supra note 19
(recommending that ``a failure to demonstrate robust resiliency,
security and redundancy in operations should preclude an entity from
registering as an SDR'').

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    The second commenter suggested that the Commission ``take all
possible steps to ensure that identifying information is protected by
SDRs and the [Commission].'' \817\ The third commenter believed that
SDRs, among other entities, should ``have proper safeguards and
barriers in place in order to ensure the security of data, prevent
cyber-crime and safeguard against inappropriate access,'' and that such
entities should ``make the appropriate level of investment to design,
implement and continually review their information barriers . . . in
order to protect markets and market participants.'' \818\ The commenter
also believed that ``[i]t is equally important that regulators ensure
that the viability and rigor of these information barriers . . . are
reviewed and audited as they are at all other market participants.''
\819\
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    \817\ Deutsche Temp Rule, supra note 28 (stating that the
Commission should use its authority under Dodd-Frank Act Section 763
to ``impose strict requirements on the handling, disclosure and use
by the SDRs of identifying information and on the operational and
technological measures that must be employed by SDRs to protect such
information from disclosure (including by way of unauthorized
access)'').
    \818\ ISDA, supra note 19 (``[T]here is a real need for [SDRs]
to have robust policies, procedures and systems in place to address
the information barrier and privacy issue.'').
    \819\ ISDA, supra note 19.
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3. Final Rule
    After considering the comments received on this proposal, the
Commission is not adopting the more specific requirements of proposed
Rule 13n-6(b)(1),\820\ but is instead adopting the core policies and
procedures requirement. Thus, final Rule 13n-6 is consistent with, but
is more general and flexible than, proposed Rule 13n-6. Final Rule 13n-
6 provides in full that ``[e]very security-based swap data repository,
with respect to those systems that support or are integrally related to
the performance of its activities, shall establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
that its systems provide adequate levels of capacity, integrity,
resiliency, availability, and security.'' \821\ The Commission is not
adopting proposed Rules 13n-6(b)(2), (3), and (4).\822\
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    \820\ Rule 13n-6 is being promulgated under Exchange Act
Sections 13(n)(4)(B), 13(n)(7)(D), and 13(n)(9). See 15 U.S.C.
78m(n)(4)(B), 78m(n)(7)(D), and 78m(n)(9).
    \821\ Rule 13n-6 is similar to the first sentence in proposed
Rule 13n-6(b)(1). As adopted, the words ``integrity'' and
``availability'' have been added. The addition is consistent with,
and captures concepts in, the rule as proposed, which implicitly
addressed both integrity and availability. See Proposing Release, 75
FR at 77370, supra note 2 (proposing requirement that an SDR has
policies and procedures that, at a minimum, (i) establish reasonable
current and future capacity estimates; (ii) conduct periodic
capacity stress tests of critical systems to determine such systems'
ability to process transactions in an accurate, timely, and
efficient manner; (iii) develop and implement reasonable procedures
to review and keep current its system development and testing
methodology; (iv) review the vulnerability of its systems and data
center computer operations to internal and external threats,
physical hazards, and natural disasters; and (v) establish adequate
contingency and disaster recovery plans). These edits also make Rule
13n-6 more consistent with Rule 1001(a)(1) of Regulation SCI, 17 CFR
242.1000(a)(1) (requiring each SCI entity to ``establish, maintain,
and enforce written policies and procedures reasonably designed to
ensure that its SCI systems and, for purposes of security standards,
indirect SCI systems, have levels of capacity, integrity,
resiliency, availability, and security, adequate to maintain the SCI
entity's operational capability and promote the maintenance of fair
and orderly markets'').
    \822\ In addition, the Commission is not adopting proposed Rules
13n-6(a), (c), and (d) because they are not applicable without
proposed Rules 13n-6(b)(2), (3), and (4).
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    The Commission is not adopting Rule 13n-6 as proposed because,
after proposing Rule 13n-6, the Commission considered the need for an
updated regulatory framework for certain systems of the U.S. securities
trading markets and adopted Regulation Systems Compliance and Integrity
(``Regulation SCI'').\823\ Regulation SCI supersedes the Commission's
ARP Policy Statements and Rule 301(b)(6) of Regulation ATS (with
respect to significant-volume ATSs that trade NMS stocks \824\ and non-
NMS stocks), on which proposed Rule 13n-6 was largely based. The
Regulation SCI Adopting Release includes a discussion of comment
letters addressing the application of Regulation SCI to SDRs.\825\
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    \823\ See Regulation Systems Compliance and Integrity, Exchange
Act Release No. 73639 (Nov. 19, 2014), 79 FR 72252 (Dec. 5, 2014)
(``Regulation SCI Adopting Release'').
    \824\ See 17 CFR 242.600 (defining ``NMS stock'').
    \825\ Regulation SCI Adopting Release, 79 FR at 72363-4, supra
note 823.
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    In light of this development, the Commission believes that Rule
13n-6, as adopted, better sets an appropriate core framework for the
policies and procedures of SDRs with respect to automated systems.
While this framework responds to comments about the application of
Regulation SCI to SDRs and is broadly consistent with Regulation SCI,
Rule 13n-6 does not apply Regulation SCI and its specific obligations
to SDRs.\826\ In adopting Regulation SCI, the Commission explained that
it will ``monitor and evaluate the implementation of Regulation SCI,
the risks posed by the systems of other market participants, and the
continued evolution of the securities markets, such that it may
consider, in the future, extending the types of requirements in
Regulation SCI to additional categories of market participants.'' \827\
Consistent with this approach and in recognition of the importance of
SDRs as the primary repositories of SBS trade information, the
Commission may consider the application of any features of Regulation
SCI to SDRs in the future. In addition, to the extent that an SDR may
share systems with an SCI entity (e.g., an affiliated clearing agency),
such systems may meet the definition of ``indirect SCI systems'' of the
SCI entity, as defined in Regulation SCI, and certain provisions of
Regulation SCI may apply.\828\
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    \826\ In preparing their policies and procedures, SDRs may
consider whether to incorporate aspects of Regulation SCI that may
be appropriate for their particular implementation of Rule 13n-6,
including where an SDR is related by virtue of its corporate
structure to an entity subject to Regulation SCI.
    \827\ Regulation SCI Adopting Release, 79 FR at 72259, supra
note 823.
    \828\ See Regulation SCI, 17 CFR 242.1000-1007. Rule 1000 of
Regulation SCI defines ``indirect SCI systems'' as ``any systems of,
or operated by or on behalf of, an SCI entity that, if breached,
would be reasonably likely to pose a security threat to SCI
systems.''
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    Rule 13n-6 applies to ``systems that support or are integrally
related to the performance of [each SDR's] activities.'' \829\ This
includes automated systems that support or are integrally related to
performing both core and ancillary services, including functions that
may be required by Regulation SBSR, such as public dissemination of SBS
information.\830\ To the extent that an SDR uses a third party service
provider to perform the SDR's functions, the SDR's policies and
procedures required by Rule 13n-6 continue to apply; an SDR cannot
absolve itself of its responsibilities under this rule through the use
of a third party service provider.
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    \829\ Rule 13n-6.
    \830\ See Regulation SBSR Adopting Release, supra note 13; see
also ARP II Release, 56 FR at 22491 n.4, supra note 808 (stating
that ARP standards encompass ``systems that disseminate transaction
and quotation information'').
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    The Commission believes that Rule 13n-6 addresses commenters'
concerns about operational capabilities and protecting
information.\831\ With respect to comments suggesting specific
substantive requirements,\832\ the Commission believes that a more
measured approach is to adopt a rule that requires SDRs to adopt
policies and procedures reasonably designed to ensure that they have
adequate levels of

capacity, integrity, resiliency, availability, and security. Consistent
with the comments,\833\ an SDR may want to consider, in developing its
policies and procedures required by Rule 13n-6, whether to include the
establishment and maintenance of multiple redundant systems and data
and operations centers in diverse regions of the country,\834\ periodic
data center and operational failover tests,\835\ robust operational
capabilities,\836\ and multiple levels of operational redundancy and
data security.\837\ The Commission also believes that an SDR's policies
and procedures required by Rule 13n-6 can be ``a part of or consistent
with a parent or affiliate entity's disaster recovery operations.''
\838\ The Commission further believes that Rule 13n-6 is consistent
with one commenter's recommendation that SDRs should ``have proper
safeguards and barriers in place in order to ensure the security of
data, prevent cyber-crime and safeguard against inappropriate access.''
\839\ Additionally, the Commission believes that to comply with Rule
13n-6, SDRs will likely need to ``make the appropriate level of
investment to design, implement and continually review their
information barriers . . . in order to protect markets and market
participants.'' \840\
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    \831\ See DTCC 2, supra note 19; Deutsche Temp Rule, supra note
28; ISDA, supra note 19.
    \832\ See DTCC 2, supra note 19; DTCC 3, supra note 19; Deutsche
Temp Rule, supra note 28.
    \833\ See DTCC 2, supra note 19; DTCC 3, supra note 19; Deutsche
Temp Rule, supra note 28.
    \834\ See DTCC 2, supra note 19.
    \835\ See DTCC 2, supra note 19.
    \836\ See DTCC 2, supra note 19; Deutsche Temp Rule, supra note
28 (commenting on the need for ``strict requirements . . . on the
operational and technological measures . . . employed by SDRs to
protect [reported data] from disclosure (including by way of
unauthorized access)'').
    \837\ See DTCC 2, supra note 19; DTCC 3, supra note 19.
    \838\ DTCC 5, supra note 19.
    \839\ ISDA, supra note 19.
    \840\ ISDA, supra note 19.
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G. SDR Recordkeeping (Rule 13n-7)

    The Commission proposed Rule 13n-7 to specify the books and records
requirements applicable to SDRs. After receiving no comments on this
proposal, the Commission is adopting Rule 13n-7 as proposed, with some
technical modifications.
1. Records To Be Made by SDRs (Rule 13n-7(a))
a. Proposed Rule
    Proposed Rule 13n-7(a) would require every SDR to make and keep
current certain books and records relating to its business.
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(a)(1) as proposed. Rule 13n-
7(a)(1) requires every SDR to make and keep current ``a record for each
office listing, by name or title, each person at that office who,
without delay, can explain the types of records the security-based swap
data repository maintains at that office and the information contained
in those records.'' The Commission continues to believe that SDR
recordkeeping practices may vary in ways ranging from format and
presentation to the name of a record.\841\ Therefore, as explained in
the Proposing Release, the Commission believes that each SDR must be
able to promptly explain how it makes, keeps, and titles its
records.\842\ To comply with this rule, an SDR may identify more than
one person and list which records each person is able to explain.
Because it may be burdensome for an SDR to keep this record current if
it lists each person by name, an SDR may satisfy this requirement by
recording the persons capable of explaining the SDR's records by either
name or title.
---------------------------------------------------------------------------

    \841\ See Proposing Release, 75 FR at 77337, supra note 2.
    \842\ Proposing Release, 75 FR at 77337, supra note 2.
---------------------------------------------------------------------------

    The Commission is also adopting Rule 13n-7(a)(2) as proposed. Rule
13n-7(a)(2) requires every SDR to make and keep current ``a record
listing each officer, manager, or person performing similar functions
of the security-based swap data repository responsible for establishing
policies and procedures that are reasonably designed to ensure
compliance with the [Exchange] Act and the rules and regulations
thereunder.'' This rule is intended to assist securities regulators by
identifying individuals responsible for designing an SDR's compliance
policies and procedures.
    The purpose of both Rules 13n-7(a)(1) and 13n-7(a)(2) is to assist
the Commission in its inspection and examination function.\843\ These
two requirements are based on Exchange Act Rules 17a-3(a)(21) and (22),
respectively, which are applicable to broker-dealers.\844\ It is
important for the Commission's examiners to have the ability to find
quickly what records are maintained in a particular office and who is
responsible for establishing particular policies and procedures of an
SDR.
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    \843\ See Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2)
(stating that ``[e]ach registered security-based swap data
repository shall be subject to inspection and examination by any
representative of the Commission''); see also Rule 13n-4(b)(1)
(implementing same requirement).
    \844\ 17 CFR 240.17a-3(a)(21) and (22).
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2. Records To Be Preserved by SDRs (Rule 13n-7(b))
a. Proposed Rule
    Proposed Rule 13n-7(b) would require every SDR to keep and preserve
copies of its documents, keep such documents for a period of not less
than five years, the first two in a place that is immediately available
to Commission staff, and promptly furnish such documents to Commission
staff upon request.
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(b) as proposed, with one
technical modification. Rule 13n-7(b)(1) requires every SDR to ``keep
and preserve at least one copy of all documents, including all
documents and policies and procedures required by the [Exchange] Act
and the rules and regulations thereunder, correspondence, memoranda,
papers, books, notices, accounts, and other such records as shall be
made or received by it in the course of its business as such.'' Rule
13n-7(b)(2) requires every SDR to ``keep all such documents for a
period of not less than five years, the first two years in a place that
is immediately available to representatives of the Commission for
inspection and examination.'' \845\ Rule 13n-7(b)(3) requires every SDR
to, ``upon request of any representative of the Commission, promptly
furnish \846\ to the possession of such representative copies of any
documents required to be

kept and preserved by it pursuant to paragraphs (a) and (b) of this
[rule].''
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    \845\ The Commission is making a technical modification to Rule
13n-7(b)(2) from the proposal. As proposed, the rule referred to
``the staff of the Commission.'' As adopted, the rule instead refers
to ``representatives of the Commission'' for consistency with other
rules being adopted in this release. See Rule 13n-4(b)(1) and Rule
13n-7(b)(3) (both referring to ``any representative of the
Commission'').
    \846\ For purposes of Rule 13n-7(b)(3), the Commission
interprets the term ``promptly'' to mean making reasonable efforts
to produce records that are requested by Commission representatives
during an examination without delay. The Commission believes that in
many cases, an SDR could, and therefore will be required to, furnish
records immediately or within a few hours of a request. The
Commission expects that only in unusual circumstances would an SDR
be permitted to delay furnishing records for more than 24 hours.
Accord Registration of Municipal Advisors, Exchange Act Release No.
70462 (Sept. 20, 2013), 78 FR 67468, 67578-67579 n.1347 (Nov. 12,
2013) (interpreting the term ``prompt'' in the context of Exchange
Act Rule 15Ba1-8(d)).
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    Rule 13n-7(b) is based on Exchange Act Rule 17a-1, which is the
recordkeeping rule for national securities exchanges, national
securities associations, registered clearing agencies, and the
Municipal Securities Rulemaking Board.\847\ As explained in the
Proposing Release, Rule 13n-7(b) is intended to set forth the
recordkeeping obligation of SDRs and thereby facilitate implementation
of the broad inspection authority given to the Commission in Exchange
Act Section 13(n)(2).\848\ This rule includes all electronic documents
and correspondence, such as data dictionaries, emails and instant
messages, which should be furnished in their original electronic
format.
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    \847\ 17 CFR 240.17a-1.
    \848\ 15 U.S.C. 78m(n)(2); see also Rule 13n-4(b)(1)
(implementing same requirement); Proposing Release, 75 FR at 77338,
supra note 2.
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3. Recordkeeping After an SDR Ceases To Do Business (Rule 13n-7(c))
a. Proposed Rule
    Proposed Rule 13n-7(c) would require an SDR that ceases doing
business, or ceases to be registered as an SDR, to continue to
preserve, maintain, and make accessible the records/data required to be
collected, maintained, and preserved by Rule 13n-7 in the manner
required by this rule and for the remainder of the period required by
this rule.\849\
---------------------------------------------------------------------------

    \849\ This requirement is based on Exchange Act Rule 17a-4(g),
17 CFR 240.17a-4(g), which applies to books and records of broker-
dealers.
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(c) as proposed, with a
technical modification. Rule 13n-7(c) requires an SDR that ceases doing
business, or ceases to be registered pursuant to Exchange Act Section
13(n) and the rules and regulations thereunder, to continue to
preserve, maintain, and make accessible the records and data \850\
required to be collected, maintained, and preserved by Rule 13n-7 in
the manner required by this rule and for the remainder of the period
required by this rule. This requirement is intended to allow Commission
representatives to perform effective inspections and examinations of an
SDR pursuant to Exchange Act Section 13(n)(2).\851\ In addition, the
Commission notes that, as discussed in Section VI.B of this release
regarding Rule 13n-2, an SDR that ceases to exist or do business as an
SDR is required to file a withdrawal from registration on Form SDR
pursuant to Rule 13n-2(b) and designate on Item 12 of Form SDR a
custodian of books and records.
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    \850\ The Commission is making a technical amendment to Rule
13n-7(c) from the proposal. As proposed, the rule referred to
``records/data.'' The rule being adopted refers to ``records and
data'' for clarity.
    \851\ 15 U.S.C. 78m(n)(2); see also Rule 13n-4(b)(1)
(implementing same requirement).
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    An SDR may wish to consider establishing contingency plans so that
another entity will be in the position to maintain the SDR's records
and data after the SDR ceases to do business. The Commission notes that
the requirement in Rule 13n-5(b)(8) for an SDR to make and keep current
a plan to ensure that the SDR's transaction data and positions are
maintained after it ceases doing business or ceases to be registered
\852\ does not expressly extend to a plan for maintaining all of the
records and data required to be maintained pursuant to Rule 13n-7, but
that plan could also include such records and data.
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    \852\ See Section VI.E.8 of this release discussing Rule 13n-
5(b)(8).
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4. Applicability (Rule 13n-7(d))
a. Proposed Rule
    Proposed Rule 13n-7(d) provided that Rule 13n-7 ``does not apply to
data collected and maintained pursuant to Rule 13n-5.''
b. Comments on the Proposed Rule
    The Commission received no comments relating to this proposed rule.
c. Final Rule
    The Commission is adopting Rule 13n-7(d) as proposed, with a
technical modification. Rule 13n-7(d) states that Rule 13n-7 ``does not
apply to transaction data and positions collected and maintained
pursuant to Rule 13n-5 (Sec.  240.13n-5).'' \853\ As explained in the
Proposing Release, the purpose of this rule is to clarify that the
requirements in Rule 13n-7 are designed to capture those records of an
SDR other than the transaction data, positions, and market data that
would be required to be maintained in accordance with Rule 13n-5, as
discussed in Section VI.E of this release.\854\ The requirements of
Rule 13n-7 do apply to records that an SDR creates using the data
required to be maintained in accordance with Rule 13n-5, such as
aggregate reports.
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    \853\ The Commission is making a technical modification to Rule
13n-7(d) from the proposal, changing ``data'' to ``transaction data
and positions.'' This is to clarify that the data that Rule 13n-7
does not apply to is limited to transaction data and positions, both
of which are required to be maintained in accordance with Rule 13n-
5(b)(4). Rule 13n-7 applies to other information that may be created
pursuant to Rule 13n-5, but which is not required to be maintained
pursuant to Rule 13n-5(b)(4). For example, in order to assure itself
of compliance with Rule 13n-5(b)(1)(iv), an SDR could run tests to
determine how long it takes for it to record transaction data that
it receives. Data from such test would be required to be retained
pursuant to Rule 13n-7, not Rule 13n-5(b)(4). The Commission clearly
contemplated this distinction in the Proposing Release when it
stated that Rule 13n-7(d) was proposed to clarify that Rule 13n-7
was designed to capture those records other than the data required
to be maintained in accordance with proposed Rule 13n-5. See
Proposing Release, 75 FR at 77338, supra note 2.
    \854\ Proposing Release, 75 FR at 77338, supra note 2.
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H. Reports To Be Provided to the Commission (Rule 13n-8)

    The Commission proposed Rule 13n-8 to specify certain reports that
an SDR would be required to provide to the Commission. After
considering the two comments received on this proposal, the Commission
is adopting Rule 13n-8 as proposed.
1. Proposed Rule
    Proposed Rule 13n-8 would require every SDR to ``promptly report to
the Commission, in a form and manner acceptable to the Commission, such
information as the Commission determines to be necessary or appropriate
for the Commission to perform the duties of the Commission under the
[Exchange] Act and the rules and regulations thereunder.'' This
proposed rule was designed to provide the Commission with the necessary
information for it to fulfill its regulatory duties.
2. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed
rule.\855\ One commenter stated that it ``currently makes information
available directly to regulators, having created a web portal for
access to scheduled reports, and providing extracts from [the trade
repository's] database based on parameters set by regulators . . . .
Through this system, [the commenter] expects to be able to offer
acceptable access to the Commission.'' \856\ The other commenter
recommended that reports ``be standardized and use a common
terminology.'' \857\
---------------------------------------------------------------------------

    \855\ See DTCC 2, supra note 19; Barnard, supra note 19. In
addition, one commenter to the Temporary Rule Release suggested that
the Commission affirmatively state that it intends to keep
information furnished to the Commission pursuant to the rules in
that release, which could be information similar to that reported to
the Commission under Rule 13n-8, confidential under FOIA or to seek
a legislative solution. See Deutsche Temp Rule, supra note 28.
    \856\ DTCC 2, supra note 19.
    \857\ Barnard, supra note 19.

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3. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-8 as proposed. Rule 13n-8 requires every SDR to ``promptly report
to the Commission, in a form and manner acceptable to the Commission,
such information as the Commission determines to be necessary or
appropriate for the Commission to perform the duties of the Commission
under the [Exchange] Act and the rules and regulations thereunder.''
This requirement provides flexibility to the Commission to obtain
information on a case-by-case basis and in connection with fulfilling
its examination function.\858\
---------------------------------------------------------------------------

    \858\ One commenter describes its approach to addressing the
proposed rule's requirements. See DTCC 2, supra note 19. With
respect to the commenter to the Temporary Rule Release suggesting
that the Commission affirmatively state that it intends to keep
information furnished pursuant to the rules in that release
confidential under FOIA or to seek a legislative solution, the
Commission anticipates that it will keep reported data that SDRs
submit to the Commission (via Rule 13n-8 or any other means)
confidential, subject to the provisions of applicable law. See
Deutsche Temp Rule, supra note 28. Pursuant to Commission rules,
confidential treatment can be sought for information submitted to
the Commission. See 17 CFR 200.83 (regarding confidential treatment
procedures under FOIA). The Commission does not intend to
affirmatively seek any legislative action to protect further such
information. The commenter is not precluded from doing so on its own
initiative.
---------------------------------------------------------------------------

    Under Rule 13n-8, the Commission may request specific reports
related to the final SDR Rules.\859\ For example, in the Proposing
Release, the Commission stated that it may request a report on the
number of complaints an SDR has received pertaining to data
integrity.\860\ In addition, the Commission may request other reports
in the future based upon, for example, developments in the SBS markets
or a newly identified need for particular SBS information. The
Commission expects that an SDR will be able to promptly report any
information in its possession to the Commission pursuant to Rule 13n-8.
If the report involves provision of SBS data, then the Commission could
require an SDR to adhere to any formats and taxonomies required
pursuant to Rule 13n-4(b)(5).\861\ This approach is consistent with one
commenter's recommendation that reports ``be standardized and use
common terminology.'' \862\
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    \859\ In a separate release, the Commission is adopting a rule
requiring an SDR to provide the Commission, upon request,
information or reports related to the timeliness, accuracy, and
completeness of data reported to the SDR. See Regulation SBSR
Adopting Release, supra note 13 (Rule 907(e)).
    \860\ Proposing Release, 75 FR at 77339, supra note 2.
    \861\ See Section VI.D.2.c.ii of this release discussing
anticipated Commission proposal pursuant to Rule 13n-4(b)(5). With
regard to other types of reports, the Commission will seek to work
with SDRs to develop the form and the manner for the SDRs to provide
the Commission with the information it needs, while seeking to
minimize the SDRs' burdens.
    \862\ See Barnard, supra note 19.
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I. Privacy of SBS Transaction Information and Disclosure to Market
Participants (Rules 13n-9 and 13n-10)

1. Privacy Requirements (Rule 13n-9)
    Proposed Rule 13n-9 set forth requirements to implement an SDR's
statutory duty to ``maintain the privacy of any and all security-based
swap transaction information that the [SDR] receives from a security-
based swap dealer, counterparty, or any other registered entity.''
\863\ After considering the comments received on the proposal, the
Commission is adopting the rule as proposed.
---------------------------------------------------------------------------

    \863\ See Exchange Act Section 13(n)(5)(F), 15 U.S.C.
78m(n)(5)(F).
---------------------------------------------------------------------------

a. Proposed Rule
    Proposed Rule 13n-9 would require each SDR to establish, maintain,
and enforce written policies and procedures reasonably designed to
protect the privacy of any and all SBS transaction information that the
SDR receives from an SBS dealer, counterparty, or any registered
entity. Such policies and procedures would be required to include, but
not be limited to, policies and procedures to protect the privacy of
any and all SBS transaction information that the SDR shares with
affiliates and nonaffiliated third parties.\864\ The proposed rule
would also require each SDR to establish and maintain safeguards,
policies, and procedures reasonably designed to prevent the
misappropriation or misuse of (i) any confidential information received
by the SDR; (ii) material, nonpublic information; and/or (iii)
intellectual property, by the SDR or any person associated with the SDR
for their personal benefit or the benefit of others.\865\ Such
safeguards, policies, and procedures would be required to address,
without limitation, (1) limiting access to such confidential
information, material, nonpublic information, and intellectual
property, (2) standards pertaining to the trading by persons associated
with the SDR for their personal benefit or the benefit of others, and
(3) adequate oversight to ensure compliance of this provision.\866\
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    \864\ Proposed Rule 13n-9(b)(1).
    \865\ Proposed Rule 13n-9(b)(2).
    \866\ Id.
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b. Comments on the Proposed Rule
    Five commenters submitted comments relating to this proposed
rule.\867\ Two of the commenters supported the proposal.\868\ One
commenter ``fully support[ed] the Commission's efforts to protect the
privacy of any and all SBS transaction information received by an SDR''
and believed that ``no communication of data (other than to, or as
required by, applicable regulators) that could have the result of
disclosing the actual positions or specific business or trading
activity of a counterparty should be permitted without the consent of
that counterparty.'' \869\ The commenter suggested that the definition
of ``personally identifiable information'' in proposed Rule 13n-9(a)(6)
be limited to information that is not otherwise disclosed or made
available to the public.\870\ In making its suggestion, the commenter
stated that ``[b]ecause much of the information utilized to on-board
participants or to identify counterparties to an [SBS] will be publicly
available through Web sites issuing legal entity identifiers or similar
identifiers, this information should not be considered confidential
simply because it is required by an [SDR].'' \871\
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    \867\ See DTCC 2, supra note 19; MFA 1, supra note 19;
TriOptima, supra note 19; Deutsche Temp Rule, supra note 28; ISDA,
supra note 19; see also DTCC 5, supra note 19.
    \868\ See DTCC 2, supra note 19; MFA 1, supra note 19. The
Commission received no comments on proposed Rule 13n-9(a), which set
forth the definitions applicable to the rule, and is adopting each
of them as proposed. See supra note 247 (discussing a general
comment regarding the term ``affiliate'').
    \869\ DTCC 2, supra note 19; see also DTCC 5, supra note 19.
    \870\ DTCC 5, supra note 19.
    \871\ DTCC 5, supra note 19.
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    Another commenter also ``agree[d] with the Commission's concerns
about privacy of SBS data'' and ``strongly support[ed] imposing privacy
requirements on [SDRs].'' \872\ Specifically, the commenter supported
the Commission's proposed requirements related to policies and
procedures reasonably designed to protect the privacy of SBS
transaction information and noted that ``such privacy protections will
ensure that market participants utilize the services of registered
[SDRs] with confidence.'' \873\ The commenter made a number of
suggestions. First, the commenter suggested that the Commission add
safeguards related to ``confidentiality of trading positions'' to

the Commission's proposed rule because disclosure of position
information could reveal market participants' customized and
proprietary investment strategies in which they invest heavily and
``which form the foundation of their businesses.'' \874\ Second, the
commenter suggested that the Commission expand its proposed rules to
include a standard of care that would require SDRs to adopt policies
and procedures to ensure that any confidential information received
will be used solely for the purpose of fulfilling regulatory
obligations.\875\ Third, the commenter suggested that the Commission
require SDRs to adopt policies and procedures to limit access to
confidential information to directors, officers, employees, agents, and
representatives who need to know such information in order to fulfill
regulatory obligations.\876\ The commenter noted that ``[t]hose
policies and procedures should also have a mechanism in place for all
[SDR representatives] to be informed of, and required to follow, the
[SDR's] policies and procedures related to privacy of information
received.'' \877\ The commenter believed that such persons should be
liable for any breach of an SDR's policies and procedures related to
privacy of information.\878\
---------------------------------------------------------------------------

    \872\ MFA 1, supra note 19.
    \873\ MFA 1, supra note 19 (``Specifically, we recommend adding
to the information covered under [proposed Rule] 13n-9(b): (i)
information related to transactions of a market participant,
including the size and volume of such transactions; (ii) the
identity of each market participant; and (iii) the details of any
master agreement (to the extent provided) governing the relevant
SBS.'').
    \874\ MFA 1, supra note 19.
    \875\ MFA 1, supra note 19.
    \876\ MFA 1, supra note 19.
    \877\ MFA 1, supra note 19.
    \878\ MFA 1, supra note 19.
---------------------------------------------------------------------------

    Another commenter suggested that ``where trading counterparties
have given [written authorizations] in favor of a third party service
provider to access their [SBS transaction information], there is no
need to have the third party service provider observe the [SDR's]
privacy policies and procedures.'' \879\ The commenter stated that ``if
the counterparties to a trade authorize the third party service
provider to use their information, an [SDR] should not be able to
restrict or limit such use through privacy policies and procedures when
the owners of the information have provided appropriate consents and
authorizations.'' \880\
---------------------------------------------------------------------------

    \879\ TriOptima, supra note 19 (stating that ``establishment of
clear rights and obligations governing access to [SDR] Information''
is an important element in establishing ``fair, secure and efficient
market functioning for market participants,'' and believing that it
would ``be appropriate and helpful to the market if the SEC can
clarify in the final rule that [SDRs] shall provide third party
service providers, who have been authorized to access information by
the counterparties to the relevant trades under Written Client
Disclosure Consents, with access to [SDR] Information'').
    \880\ TriOptima, supra note 19 (asking the Commission to ``treat
a third party service provider with a disclosure consent as acting
as an `agent' for the owner of the trade information and provide the
third party service provider with the same type of access which the
owner of such data is entitled to, subject to any restrictions set
out in the disclosure consent'').
---------------------------------------------------------------------------

    Consistent with the commenters supporting proposed Rule 13n-9, a
commenter to the Temporary Rule Release stated that ``market
participants have legitimate interests in the protection of their
confidential and identifying financial information.'' \881\ In this
regard, the commenter suggested that the Commission ``take all possible
steps to ensure that identifying information is protected by SDRs and
the [Commission]'' and that the Commission use its statutory authority
under Dodd-Frank Act Section 763 to ``impose strict requirements on the
handling, disclosure and use by the SDRs of identifying information and
on the operational and technological measures that must be employed by
SDRs to protect such information from disclosure (including by way of
unauthorized access).'' \882\
---------------------------------------------------------------------------

    \881\ Deutsche Temp Rule, supra note 28.
    \882\ Deutsche Temp Rule, supra note 28.
---------------------------------------------------------------------------

    Another commenter believed that ``non-bank entities,'' including
SDRs, should ``make the appropriate level of investment to design,
implement and continually review their . . . data privacy policies and
procedures in order to protect markets and market participants.'' \883\
The commenter also believed that ``[i]t is equally important that
regulators ensure that the viability and rigor of these . . . privacy
policies are reviewed and audited as they are at all other market
participants.'' \884\
---------------------------------------------------------------------------

    \883\ ISDA, supra note 19 (``[T]here is a real need for [SDRs]
to have robust policies, procedures and systems in place to address
the information barrier and privacy issue.'').
    \884\ ISDA, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-9 as proposed, with two minor modifications.\885\ Specifically,
Rule 13n-9(b)(1) requires each SDR to establish, maintain, and enforce
written policies and procedures reasonably designed to protect the
privacy of any and all SBS transaction information that the SDR
receives from an SBS dealer, counterparty, or any registered entity.
The rule further provides that such policies and procedures shall
include, but are not limited to, policies and procedures to protect the
privacy of any and all SBS transaction information that the SDR shares
with affiliates \886\ and nonaffiliated third parties.\887\ As
mentioned above, the Exchange Act \888\ requires, and commenters
supported, the Commission's imposition of privacy requirements on
SDRs.\889\
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    \885\ See infra note 886 (discussing revised definition of
``control'') and note 890 (discussing revised definition of
``nonpublic personal information'').
    \886\ See supra notes 247 and 621 (defining ``affiliate'' and
``control''). The Commission is correcting a typographical error in
the proposed definition of ``control.'' Proposed Rule 13n-
9(a)(2)(ii) referred to the right to vote 25 percent ``of'' more of
a class of securities. See Proposing Release, 75 FR at 77371, supra
note 2. As adopted, Rule 13n-9(a)(2)(ii) refers to the right to vote
25 percent ``or'' more of a class of securities. See also Rule 13n-
4(a)(3).
    \887\ Rule 13n-9(b)(1); see also supra note 622 (defining
``nonaffiliated third party'').
    \888\ See Exchange Act Section 13(n)(5), 15 U.S.C. 78m(n)(5).
    \889\ See DTCC 2, supra note 19; MFA 1, supra note 19 (noting
that an SDR's protection of the privacy of SBS transaction
information ``will ensure that market participants utilize the
services of [a] registered [SDR] with confidence'').
---------------------------------------------------------------------------

    Additionally, Rule 13n-9(b)(2) requires each SDR to establish and
maintain safeguards, policies, and procedures reasonably designed to
prevent the misappropriation or misuse, directly or indirectly, of: (1)
Any confidential information received by the SDR, including, but not
limited to, trade data, position data, and any nonpublic personal
information \890\ about a market participant \891\ or any of its
customers; (2) material, nonpublic information; and/or (3) intellectual
property, such as trading strategies or portfolio positions, by the SDR
or any person associated

with the SDR \892\ for their personal benefit or the benefit of others.
Such safeguards, policies, and procedures shall address, without
limitation, (1) limiting access to such confidential information,
material, nonpublic information, and intellectual property, (2)
standards pertaining to the trading by persons associated with the SDR
for their personal benefit or the benefit of others, and (3) adequate
oversight to ensure compliance with Rule 13n-9(b)(2).\893\ As stated in
the Proposing Release, Rule 13n-9(b)(2) incorporates current
requirements regarding the treatment of proprietary information of
clearing members, which are contained in exemptive orders issued to SBS
clearing agencies,\894\ and draws from Exchange Act Section 15(g),
which requires broker-dealers to establish, maintain, and enforce
written policies and procedures reasonably designed to prevent the
misuse of material, nonpublic information by such broker or dealer or
any person associated with such broker or dealer.\895\
---------------------------------------------------------------------------

    \890\ In response to one commenter's suggestion, the Commission
is revising the definition of ``nonpublic personal information''
from the proposal to mean (1) personally identifiable information
that is not publicly available information and (2) any list,
description, or other grouping of market participants (and publicly
available information pertaining to them) that is derived using
personally identifiable information that is not publicly available
information. See Rule 13n-9(a)(5); DTCC 5, supra note 19 (suggesting
limiting the applicability of Rule 13n-9 to ``personally
identifiable information'' that is not otherwise disclosed or made
available to the public ``[b]ecause much of the information utilized
to on-board participants or to identify counterparties to an [SBS]
will be publicly available through Web sites issuing legal entity
identifiers or similar identifiers, this information should not be
considered confidential simply because it is required by an
[SDR]''). This revision, which limits personally identifiable
information to not publicly available information, is consistent
with the definition of ``nonpublic personal information'' in
Regulation SP, 17 CFR 248.3(t). The term ``personally identifiable
information'' is defined as any information (i) a market participant
provides to an SDR to obtain service from the SDR, (ii) about a
market participant resulting from any transaction involving a
service between the SDR and the market participant, or (iii) the SDR
obtains about a market participant in connection with providing a
service to that market participant. See Rule 13n-9(a)(6).
    \891\ See supra note 583 (defining ``market participant'').
    \892\ See supra note 621 (defining ``person associated with a
security-based swap data repository'').
    \893\ Id.
    \894\ See, e.g., Order Extending and Modifying Temporary
Exemptions Under the Securities Exchange Act of 1934 in Connection
with Request of ICE Trust U.S. LLC Related to Central Clearing of
Credit Default Swaps and Request for Comment, Exchange Act Release
No. 63387 (Nov. 29, 2010), 75 FR 75502 (Dec. 3, 2010) (``ICE Trust
shall establish and maintain adequate safeguards and procedures to
protect clearing members' confidential trading information. Such
safeguards and procedures shall include: (A) limiting access to the
confidential trading information of clearing members to those
employees of ICE Trust who are operating the system or responsible
for its compliance with this exemption or any other applicable
rules; and (B) establishing and maintaining standards controlling
employees of ICE Trust trading for their own accounts. ICE Trust
must establish and maintain adequate oversight procedures to ensure
that the safeguards and procedures established pursuant to this
condition are followed . . . .''); Exchange Act Release No. 61973
(Apr. 23, 2010), 75 FR 22656 (Apr. 29, 2010), and Exchange Act
Release No. 63389 (Nov. 29, 2010), 75 FR 75520 (Dec. 3, 2010)
(temporary exemptions in connection with CDS clearing by ICE Clear
Europe, Limited). See also Proposing Release, 75 FR at 77339 n.171,
supra note 2.
    \895\ See 15 U.S.C. 78o(g); see also Exchange Act Section
15F(j)(5), 15 U.S.C. 78o-10(j)(5) (requiring SBS dealers and major
SBS participants to ``establish structural and institutional
safeguards to ensure that the activities of any person within the
firm relating to research or analysis of the price or market for any
security-based swap or acting in a role of providing clearing
activities or making determinations as to accepting clearing
customers are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of persons
whose involvement in pricing, trading, or clearing activities might
potentially bias their judgment or supervision and contravene the
[enumerated] core principles of open access and the business conduct
standards'').
---------------------------------------------------------------------------

    The Commission anticipates that as a central recordkeeper of SBS
transactions, each SDR will receive proprietary and highly sensitive
information, which could disclose, for instance, a market participant's
trade information, trading strategy, or nonpublic personal
information.\896\ Rule 13n-9 is designed to ensure that an SDR has
reasonable safeguards, policies, and procedures in place to protect
such information from being misappropriated or misused by the SDR or
any person associated with the SDR. The Commission agrees with one
commenter's view that ``market participants have legitimate interests
in the protection of their confidential and identifying financial
information,'' and Rule 13n-9 sets forth requirements sufficient to
protect such information from disclosure, as the commenter
suggested.\897\
---------------------------------------------------------------------------

    \896\ See Proposing Release, 75 FR at 77339, supra note 2.
    \897\ See Deutsche Temp Rule, supra note 28.
---------------------------------------------------------------------------

    The Commission also believes that as part of an SDR's
responsibility to have adequate oversight to ensure compliance with
Rule 13n-9, an SDR's governance arrangements and organizational
structure should have adequate internal controls to protect against
misappropriation or misuse of a market participant's trade information,
trading strategy, or nonpublic personal information.\898\ For instance,
an SDR could limit access to the proprietary and sensitive information
by creating informational, technological, and physical barriers.
Consistent with one commenter's suggestion,\899\ an SDR could also
limit access to the data that it maintains to only those officers,
directors, employees, and agents who need to know the data to perform
their job responsibilities, including responsibilities to fulfill the
SDR's regulatory obligations. An SDR may want to consider limiting such
access to data only to the extent that such access is justified based
on the particular job responsibilities of the officers, directors,
employees, or agents. In preventing the misappropriation or misuse of
confidential information, material, nonpublic information, and
intellectual property pursuant to Rule 13n-9(b)(2), an SDR could have
controls to prevent unauthorized or unintentional access to its data.
An SDR may want to consider holding its officers, directors, employees,
and agents contractually liable for a breach of its privacy policies
and procedures, as suggested by one commenter.\900\ In order for an SDR
to enforce effectively its written policies and procedures to protect
the privacy of SBS transaction information, it is reasonable to expect
that the SDR must, as one commenter noted,\901\ properly convey these
policies and procedures to all those subject to its privacy
requirements.
---------------------------------------------------------------------------

    \898\ See Proposing Release, 75 FR at 77339, supra note 2.
    \899\ See MFA 1, supra note 19.
    \900\ See MFA 1, supra note 19.
    \901\ See MFA 1, supra note 19.
---------------------------------------------------------------------------

    Additionally, in establishing standards pertaining to the trading
by persons associated with an SDR in accordance with Rule 13n-9(b)(2),
the SDR should consider restricting the trading activities of
individuals who have access to proprietary or sensitive information
maintained by the SDR or implementing firm-wide restrictions on trading
certain SBSs, as well as underlying or related investment
instruments.\902\ Such restrictions could include, for example, a pre-
trade clearance requirement. An SDR should also have systems in place
to prevent and detect insider trading by the SDR or persons associated
with the SDR. Such systems could include a mechanism to monitor such
persons' access to the SDR's data, their trading activities, and their
emails.\903\
---------------------------------------------------------------------------

    \902\ See Proposing Release, 75 FR at 77339-77340, supra note 2.
    \903\ Cf., e.g., Janney Montgomery Scott LLC, Exchange Act
Release No. 64855, 2011 SEC LEXIS 3166 (July 11, 2011) (finding, in
a settled action, Exchange Act Section 15(g) violation where broker-
dealer failed to monitor its proprietary trading and employee
trading); Merrill Lynch, Pierce, Fenner & Smith, Inc., Exchange Act
Release No. 59555, 2009 SEC LEXIS 660 (Mar. 11, 2009) (finding, in a
settled action, Exchange Act Section 15(f) [subsequently renumbered
as Section 15(g)] violation where broker-dealer failed to limit or
monitor traders' access to the equity squawk box that broadcasts
material, nonpublic information).
---------------------------------------------------------------------------

    The Commission believes that to the extent that an SDR or any
person associated with the SDR shares information with the SDR's
affiliate or a nonaffiliated third party, the SDR's policies and
procedures pursuant to Rule 13n-9(b)(1) should be reasonably designed
to protect the privacy of the information shared.\904\ One option that
an SDR could choose to comply with this requirement would be to require
the affiliate or nonaffiliated party to consent to being subject to the
SDR's privacy policies and procedures as a condition of receiving any
sensitive information from the SDR.\905\
---------------------------------------------------------------------------

    \904\ See Proposing Release, 75 FR at 77340, supra note 2.
    \905\ The Commission notes that CFTC Rule 49.17(e) permits a
third party service provider to access swap data maintained by a
swap data repository on the condition that both the swap data
repository and the provider have strict confidentiality procedures
that protect data and information from proper disclosure and that
they execute a ``confidentiality agreement.'' See 17 CFR 49.17(e).

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

    Consistent with one commenter's view, the Commission agrees that an
SDR will likely need to make an appropriate level of investment to
design, implement, and periodically review its privacy policies and
procedures ``in order to protect markets and market participants,''
\906\ but that an SDR should have some flexibility to develop
reasonable policies and procedures to protect the privacy of the SBS
transaction information that the SDR receives. One approach, as one
commenter suggested,\907\ may be for an SDR's policies and procedures
to require consent of counterparties prior to communication of the SBS
transaction information to an SDR's affiliate or a nonaffiliated third
party.\908\ An SDR may, however, develop other reasonable policies and
procedures to protect the privacy of the SBS transaction information.
---------------------------------------------------------------------------

    \906\ See ISDA, supra note 19.
    \907\ See DTCC 2, supra note 19 (``[N]o communication of data
(other than to, or as required by, applicable regulators) that could
have the result of disclosing the actual positions or specific
business or trading activity of a counterparty should be permitted
without the consent of that counterparty.'').
    \908\ The Commission notes that CFTC Rule 49.17(g) requires a
swap data repository to obtain express written consent from the swap
dealer, counterparty, or any other registered entity that submits
the swap data maintained by the swap data repository before using
that swap data for commercial or business purposes. See 17 CFR
49.17(g).
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    With respect to one commenter's suggestion that the Commission add
safeguards related to ``confidentiality of trading positions,'' \909\
the Commission believes that its final rule broadly covers such
safeguards. Although not explicitly stated in Rule 13n-9, the
Commission also believes that its definitions of ``nonpublic personal
information'' \910\ and ``personally identifiable information'' \911\
overlap significantly with the information that the commenter
recommended the rule to explicitly cover.\912\ Certain information,
however, will be subject to public dissemination under Regulation
SBSR.\913\ The commenter further suggested that SDRs should be
permitted to use confidential information solely to fulfill their
regulatory obligations,\914\ but the Commission does not believe that
it is necessary or appropriate to impose such a narrow restriction on
SDRs. It could, for example, be in the public interest for SDRs to use
transaction-specific confidential SBS data to generate aggregated
reports for the public even though such reports are not mandated.
However, any such reports must be sufficiently anonymized so that the
trading positions or identities of market participants, or group of
market participants, cannot be derived from the reports.
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    \909\ See MFA 1, supra note 19.
    \910\ See Rule 13n-9(a)(5).
    \911\ See Rule 13n-9(a)(6).
    \912\ See MFA 1, supra note 19 (recommending adding to proposed
Rule 13n-9(b): (i) information related to transactions of a market
participant (including a market participant's trading positions),
(ii) the identity of each market participant, and (iii) details of
any master agreement governing the relevant SBS that are provided to
an SDR).
    \913\ See Regulation SBSR Adopting Release, supra note 13 (Rule
902).
    \914\ See MFA 1, supra note 19.
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    One commenter suggested that a third party service provider should
not be required to observe an SDR's privacy policies and procedures if
such third party service provider has received written authorization
from an SBS counterparty to access its SBS transaction
information.\915\ The Commission believes that an SDR's obligation to
provide fair, open, and not unreasonably discriminatory participation
to third party service providers \916\ would prohibit an SDR from
unreasonably imposing its privacy policies and procedures on third
party service providers. The Commission also believes that, generally,
a third party service provider, acting as an agent for a counterparty,
should be given the same rights to access SBS transaction information
as the counterparty for which it is acting as an agent. To the extent
that the counterparties to a transaction reach a confidentiality
agreement between themselves limiting the information that can be
provided to their agents, it is up to the parties to ensure that the
authorizations they provide to the SDR are appropriately limited.\917\
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    \915\ See TriOptima, supra note 19 (stating that ``if the
counterparties to a trade authorize the third party service provider
to use their information, an [SDR] should not be able to restrict or
limit such use through privacy policies and procedures when the
owners of the information have provided appropriate consents and
authorizations'').
    \916\ See Section VI.D.3.a of this release discussing fair,
open, and not unreasonably discriminatory access.
    \917\ To the extent that a transaction is executed anonymously
on an SB SEF or exchange, when the counterparties do not know each
other's identity or other reported information (e.g., the trader
ID), the SDR's policies and procedures under Rule 13n-9(b) must not
allow either counterparty to access this information relating to the
other counterparty.
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    With respect to one commenter's view that regulators should
``ensure that the viability and rigor of [an SDR's] privacy policies
are reviewed and audited as they are at all other market
participants,'' \918\ the Commission contemplates that its review of an
SDR's privacy policies and procedures will be sufficient.\919\ As a
general matter, the Commission will review an SDR's privacy policies
and procedures for compliance with the law in a manner similar to
reviews of other registrants' privacy policies and procedures. For
example, an SDR is required to file, as exhibits to Form SDR, its
policies and procedures to protect the privacy of any and all SBS
transaction information that the SDR receives from a market participant
or any registered entity.\920\ These policies and procedures are
subject to the Commission's review. As discussed in Section VI.A.2 of
this release, the Commission will review an SDR's application for
registration on Form SDR in determining whether the SDR is able to
comply with the federal securities laws and the rules and regulations
thereunder. The Commission will also review an SDR's comprehensive
annual amendment on Form SDR in determining whether the SDR continues
to be in compliance with the federal securities laws and the rules and
regulations thereunder. Additionally, an SDR (including its privacy
policies and procedures) are subject to inspection and examination by
any representative of the Commission.\921\ In addition, an SDR's CCO is
required to review the compliance of its policies and procedures at
least on an annual basis and include a description of such compliance
as well as the SDR's enforcement of its policies and procedures in the
SDR's annual compliance report that is filed with the Commission.\922\
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    \918\ ISDA, supra note 19.
    \919\ To the extent that the Commission addresses other market
participants' privacy policies and procedures, it will do so in
separate releases pertaining specifically to those market
participants.
    \920\ See Item 39 of Form SDR.
    \921\ Exchange Act Section 13(n)(2), 15 U.S.C. 78m(n)(2)
(stating that ``[e]ach registered security-based swap data
repository shall be subject to inspection and examination by any
representative of the Commission'').
    \922\ See Rules 13n-11(c)(2) and 13n-11(d)(1).
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2. Disclosure Requirements (Rule 13n-10)
a. Proposed Rule
    Proposed Rule 13n-10 would require each SDR to provide a disclosure
document to each market participant prior to accepting any SBS data
from the market participant or upon the market participant's request.
The disclosure document would include specific information designed to
enable a market participant to identify and evaluate the risks and
costs associated with using the SDR's services.

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed
rule.\923\ One commenter agreed with proposed Rule 13n-10(b)(8), which
would require disclosure of an SDR's updated schedule of any dues;
unbundled prices, rates, or other fees for all of its services,
including any ancillary services; any discounts or rebates offered; and
the criteria to benefit from such discounts or rebates.\924\ In
supporting the Commission's proposed rule, another commenter
``recognize[d] the importance of providing market participants with
disclosure documents outlining the SDR's policies regarding member
participant criteria and the safeguarding and privacy of data submitted
to the SDR.'' \925\
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    \923\ See Barnard, supra note 19; DTCC 2, supra note 19. The
Commission received no comments on proposed Rule 13n-10(a), which
set forth the definition applicable to the rule, and is adopting it
as proposed.
    \924\ See Barnard, supra note 19.
    \925\ DTCC 2, supra note 19.
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c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-10 as proposed. The Commission is adopting the rule to enhance
transparency in the SBS market, bolster market efficiency, promote
standardization, and foster competition.\926\ Specifically, the rule
provides that before accepting any SBS data from a market participant
\927\ or upon a market participant's request, each SDR must furnish to
the market participant a disclosure document that contains the
following written information, which must reasonably enable the market
participant to identify and evaluate accurately the risks and costs
associated with using the SDR's services: (1) The SDR's criteria for
providing others with access to services offered and data maintained by
the SDR, (2) the SDR's criteria for those seeking to connect to or link
with the SDR, (3) a description of the SDR's policies and procedures
regarding its safeguarding of data and operational reliability, as
described in Rule 13n-6, (4) a description of the SDR's policies and
procedures reasonably designed to protect the privacy of any and all
SBS transaction information that the SDR receives from an SBS dealer,
counterparty, or any registered entity, as described in Rule 13n-
9(b)(1), (5) a description of the SDR's policies and procedures
regarding its non-commercial and/or commercial use of the SBS
transaction information that it receives from a market participant, any
registered entity, or any other person, (6) a description of the SDR's
dispute resolution procedures involving market participants, as
described in Rule 13n-5(b)(6), (7) a description of all the SDR's
services, including any ancillary services, (8) the SDR's updated
schedule of any dues; unbundled prices, rates, or other fees for all of
its services, including any ancillary services; any discounts or
rebates offered; and the criteria to benefit from such discounts or
rebates, and (9) a description of the SDR's governance
arrangements.\928\
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    \926\ Rule 13n-10 is being promulgated under Exchange Act
Sections 13(n)(3), 13(n)(7)(D)(i), and 13(n)(9). See 15 U.S.C.
78m(n)(3), 78m(n)(7)(D)(i), and 78m(n)(9).
    \927\ See supra note 583 (defining ``market participant'').
    \928\ Rule 13n-10(b).
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    As stated in the Proposing Release, these disclosure requirements
are intended to promote competition and foster transparency regarding
SDRs' services by enabling market participants to identify the range of
services that each SDR offers and to evaluate the risks and costs
associated with using such services.\929\ The Commission also believes
that transparency regarding SDRs' services is particularly important in
light of the complexity of OTC derivatives products and their markets,
and that greater service transparency could improve market
participants' confidence in an SDR and result in greater use of the
SDR, which would ultimately increase market efficiency.
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    \929\ Proposing Release, 75 FR at 77340, supra note 2. See also
Barnard, supra note 19 (believing that the disclosure requirement in
Rule 13n-10(b)(8) would formalize ``the market practice and ensure
that informed decisions were being made'').
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J. Chief Compliance Officer of Each SDR; Compliance Reports and
Financial Reports (Rule 13n-11)

    Proposed Rule 13n-11 set forth the requirements for an SDR's CCO,
annual compliance reports, and financial reports. The Commission is
adopting the rule substantially as proposed with changes in response to
comments.
1. In General (Rule 13n-11(a))
a. Proposed Rule
    To implement the statutory requirement for each SDR to designate an
individual to serve as a CCO,\930\ the Commission proposed Rule 13n-
11(a), which would require each SDR to identify on Form SDR a person
who has been designated by the board to serve as a CCO of the SDR. In
addition, to promote the independence and effectiveness of the CCO, the
proposed rule would require that the compensation and removal of the
CCO be approved by a majority of the SDR's board.\931\
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    \930\ See Exchange Act Section 13(n)(6)(A), 15 U.S.C.
78m(n)(6)(A).
    \931\ Proposed Rule 13n-11(a).
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b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed
rule.\932\ Specifically, one commenter agreed that ``[w]ith respect to
compensation and termination of the CCO, the Proposed Rules
appropriately assign authority over those matters to the board, rather
than management,'' but believed that ``[t]he rules should go one step
further and confer that authority upon the independent board members.''
\933\ Additionally, the commenter suggested that ``the [SDR Rules]
should preclude the General Counsel or a member of that office from
serving as CCO, since those attorneys owe a duty of loyalty to the SDR
itself that may not be compatible with the watchdog function of the
CCO.'' \934\ The commenter also suggested ``[c]ompetency standards to
ensure that CCOs have the background and skills necessary to fulfill
their responsibilities.'' \935\ The commenter further suggested
requiring a group of affiliated or controlled entities to appoint the
CCO.\936\
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    \932\ See Better Markets 1, supra note 19; Barnard, supra note
19; see also Better Markets 3, supra note 19.
    \933\ Better Markets 1, supra note 19 (emphasis in the
original); see also Better Markets 3 supra note 19 (suggesting
``[t]he vesting of authority in the independent board members to
oversee the hiring, compensation, and termination of the CCO'').
    \934\ Better Markets 1, supra note 19.
    \935\ Better Markets 3, supra note 19.
    \936\ Better Markets 3, supra note 19.
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    Another commenter fully supported the intent of proposed Rule 13n-
11, but also suggested that the Commission ``restrict the CCO from
serving as the General Counsel or other attorney within the legal
department of the SDR.'' \937\ The commenter stated that the CCO's
remuneration must be designed so as to avoid potential conflicts of
interest with his compliance role.\938\ The commenter further suggested
that the Commission amend the rule so that ``the authority and sole
responsibility to appoint or remove the CCO, or to materially change
its duties and responsibilities[ ] only vests with the independent
public directors or `Independent Perspective' . . . and not the full
board.'' \939\
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    \937\ Barnard, supra note 19 (``[T]he CCO should have a single
compliance role and no other competing role or responsibility that
could create conflicts of interest or threaten [his] independence .
. . .'').
    \938\ Barnard, supra note 19.
    \939\ Barnard, supra note 19 (believing that the suggested
amendment would help ensure the CCO's independence and possibly
mitigate the Commission's need to promulgate additional measures to
adequately protect CCOs from undue influence or coercion).

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c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-11(a) as proposed, with one modification. Rule 13n-11(a) requires
that (1) each SDR identify on Form SDR a person who has been designated
by the board to serve as a CCO of the SDR and (2) the compensation and
removal of the CCO be approved by a majority of the SDR's board.\940\
The Commission is revising the rule from the proposal to require the
appointment of the CCO to be approved by the majority of the SDR's
board.\941\
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    \940\ See Barnard, supra note 19 (supporting the CCO's
compensation to be specifically designed to avoid potential
conflicts of interest with the CCO's compliance role).
    \941\ The Commission is also revising the heading of Rule 13n-11
from the proposal to describe the scope of the rule more accurately.
The proposed heading was ``Designation of chief compliance officer
of security-based swap data repository.'' As revised, the heading is
broader: ``Chief compliance officer of security-based swap data
repository; compliance reports and financial reports.''
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    In the Proposing Release, the Commission asked whether there are
other measures that would further enhance a CCO's independence and
effectiveness that should be prescribed in a rule.\942\ Two commenters
suggested that the Commission require the CCO's appointment, removal,
or compensation be approved by independent board members or
``independent public directors.'' \943\ The Commission has determined
not to adopt such a requirement at this time because, as discussed in
Section VI.D.3.b.iii of this release, the Commission is not requiring
SDRs to have independent directors.\944\ Based in part on these
comments, however, the Commission believes that requiring the
appointment of the CCO to be approved by a majority of the SDR's board
would be another measure to enhance the CCO's independence and
effectiveness. The Commission notes that the requirement that the
appointment of the CCO must be approved by a majority of the SDR's
board is consistent with the requirement that the designation of CCOs
at investment companies must be approved by the board of
directors.\945\ One commenter suggested requiring a group of affiliated
or controlled entities to appoint the CCO.\946\ The Commission believes
that this suggestion contravenes an SDR's statutory requirement to
designate the CCO.\947\
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    \942\ Proposing Release, 75 FR at 77341, supra note 2.
    \943\ See Better Markets 1, supra note 19 (discussing
independent board members); Barnard, supra note 19 (discussing
independent public directors); see also Better Markets 3, supra note
19.
    \944\ To the extent that an SDR has independent board members or
independent public directors, the SDR may want to consider requiring
the appointment, removal, or compensation of the CCO be approved by
the majority of independent board members or independent public
directors in addition to the majority of the board.
    \945\ See Rule 38a-1(a)(4)(i) under the Investment Company Act
of 1940 (``Investment Company Act''), 17 CFR 270.38a-1(a)(4)(i). The
Commission also notes that CFTC Rule 49.22(c) requires the
appointment, compensation, and removal of a CCO to be approved by
either a swap data repository's board or senior officer. See 17 CFR
49.22(c).
    \946\ Better Markets 3, supra note 19.
    \947\ See Exchange Act Section 13(n)(6)(A), 15 U.S.C.
78m(n)(6)(A).
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    The Commission is concerned that an SDR's commercial interests
might discourage its CCO from making forthright disclosure to the board
or senior officer about any compliance failures.\948\ The Commission
believes that to mitigate this potential conflict of interest, an SDR's
CCO should be independent from its management so as not to be
conflicted in reporting or addressing any compliance failures.
Accordingly, as discussed in Section VI.J.3 below, each CCO of an SDR
is required to report directly to the board or its senior officer,\949\
but only the board is able to approve the CCO's appointment, remove the
CCO from his or her responsibilities, and approve the CCO's
compensation.
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    \948\ See Proposing Release, 75 FR at 77341, supra note 2.
    \949\ See Exchange Act Section 13(n)(6)(B)(i), 15 U.S.C.
78m(n)(6)(B)(i).
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    Rule 13n-11(a) is intended to promote a CCO's independence and
effectiveness. The Commission is not extending the applicability of
this rule to an SDR's senior officer because the Commission believes
that this may unnecessarily create conflicts of interest for the CCO,
particularly if the CCO is subsequently responsible for reviewing the
senior officer's compliance with the Exchange Act and the rules and
regulations thereunder.
    In promoting a CCO's independence and effectiveness, the Commission
does not believe that it is necessary to adopt, as two commenters
suggested,\950\ a rule prohibiting a CCO from being a member of the
SDR's legal department or from serving as the SDR's general counsel. To
the extent that this poses a potential or existing conflict of
interest, the Commission believes that an SDR's written policies and
procedures can be designed to adequately identify and mitigate any
associated costs.\951\
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    \950\ See Barnard, supra note 19 (suggesting that the Commission
``restrict the CCO from serving as the General Counsel or other
attorney within the legal department of the SDR''); Better Markets
1, supra note 19 (suggesting that ``the [SDR Rules] should preclude
the General Counsel or a member of that office from serving as CCO,
since those attorneys owe a duty of loyalty to the SDR itself that
may not be compatible with the watchdog function of the CCO'').
    \951\ As discussed in Section VI.D.3.c of this release, Rule
13n-4(c)(3)(i) requires each SDR to establish, maintain, and enforce
written policies and procedures reasonably designed to identify and
mitigate potential and existing conflicts of interest in the SDR's
decision-making process on an ongoing basis.
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    With respect to one commenter's suggestion that there should be
``[c]ompetency standards to ensure that CCOs have the background and
skills necessary to fulfill their responsibilities,'' \952\ the
Commission notes that while it is not requiring such standards, Form
SDR requires an SDR to provide a brief account of the CCO's prior
business experience and business affiliations in the securities
industry or derivatives industry.\953\ In addition, as discussed above,
the Commission is adopting Rule 13n-4(c)(2)(iv) to require an SDR to
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that the SDR's senior management and each
member of the board or committee that has the authority to act on
behalf of the board possess requisite skills and expertise to fulfill
their responsibilities in the management and governance of the SDR,
have a clear understanding of their responsibilities, and exercise
sound judgment about the SDR's affairs.\954\ To the extent that a CCO
is considered to be in senior management of an SDR, Rule 13n-
4(c)(2)(iv) applies to the CCO, but even if the CCO is not in senior
management, the Commission does not believe that it is necessary to
prescribe competency standards for CCOs by rule, in part because it is
most likely that an SDR already has business incentives to retain a
competent CCO in light of the SDR's exposure to liability if its CCO
fails to comply with his or her statutory and regulatory