[Federal Register Volume 80, Number 53 (Thursday, March 19, 2015)]
[Rules and Regulations]
[Pages 14437-14562]
[FR Doc No: 2015-03127]

Vol. 80

Thursday,

No. 53

March 19, 2015

Part II

Securities and Exchange Commission

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17 CFR Parts 232, 240, 249

 Security-Based Swap Data Repository Registration, Duties, and Core
Principles; Final Rule

Federal Register / Vol. 80 , No. 53 / Thursday, March 19, 2015 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240, and 249

[Release No. 34-74246; File No. S7-35-10]
RIN 3235-AK79

Security-Based Swap Data Repository Registration, Duties, and
Core Principles

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to Section 763(i) of Title VII (``Title VII'') of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(``Dodd-Frank Act''), the Securities and Exchange Commission
(``Commission'') is adopting new rules under the Securities Exchange
Act of 1934 (``Exchange Act'') governing the security-based swap data
repository (``SDR'') registration process, duties, and core principles.
The Commission is also adopting a new registration form. Additionally,
the Commission is amending several of its existing rules and
regulations in order to accommodate SDRs. First, the Commission is
amending Regulation S-T and Exchange Act Rule 24b-2 to clarify that all
filings by SDRs, including any confidential portion, and their requests
for confidential treatment must be filed electronically. Second, the
Commission is amending Regulation S-T by, among other things, adding a
new rule that specifically applies to the electronic filing of SDRs'
financial reports.

DATES: Effective Date: May 18, 2015.
    Compliance Date: March 18, 2016.

FOR FURTHER INFORMATION CONTACT: Paula Jenson, Acting Chief Counsel; Jo
Anne Swindler, Assistant Director; Richard Vorosmarti, Branch Chief;
Angie Le, Special Counsel; or Kevin Schopp, Special Counsel, Division
of Trading and Markets, at<PHONE_NUMBER>, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549. For questions
regarding the SDR registration process, please contact Jeffrey Mooney,
Assistant Director, Stephanie Park, Senior Special Counsel, Andrew
Shanbrom, Special Counsel, or Elizabeth Fitzgerald, Special Counsel,
Division of Trading and Markets, at<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The Commission is taking several actions.
First, the Commission is adopting Rules 13n-1 to 13n-12 (``SDR Rules'')
under the Exchange Act governing SDRs and a new form for registration
as a security-based swap data repository (``Form SDR''). Second, the
Commission is adopting technical amendments to Regulation S-T and
Exchange Act Rule 24b-2 to clarify that all filings by SDRs, including
any confidential portion, and their requests for confidential treatment
must be filed electronically. Third, the Commission is amending
Regulation S-T, including adopting new Rule 407, as a technical
amendment related to Rule 13n-11, which is applicable to the electronic
filing of SDRs' financial reports.

Table of Contents

I. Introduction
    A. Proposed Rules Governing the SDR Registration Process,
Duties, and Core Principles, and Form SDR
    B. Related Commission Actions
    C. Public Comment
    D. Other Initiatives Considered in This Rulemaking
II. Broad Economic Considerations and Baseline
    A. Broad Economic Considerations
    B. Baseline
    1. Transparency in the SBS Market
    2. Current Security-Based Swap Market
    a. Security-Based Swap Market Participants
    b. Security-Based Swap Data Repositories
III. Definition, Scope of Registration, Services, and Business
Models of SDRs
    A. Definition of SDR: Core Services
    B. SDRs Required to Register With the Commission
    C. Ancillary Services
    D. Business Models of SDRs
IV. Number of SDRs and Consolidation of SBS Data
V. Implementation of the SDR Rules
    A. Prior Commission Action
    1. Effective Date Order
    2. Implementation Policy Statement
    B. Summary of Comments
    C. Sequenced Effective Date and Compliance Date for the SDR
Rules
VI. Discussion of Rules Governing SDRs
    A. Registration of SDRs (Rule 13n-1 and Form SDR)
    1. New Form SDR; Electronic Filing
    a. Proposed Form SDR
    b. Comments on Proposed Form SDR
    c. Final Form SDR
    2. Factors for Approval of Registration and Procedural Process
for Review (Rule 13n-1(c))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Temporary Registration (Rule 13n-1(d))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Amendment on Form SDR (Proposed Rule 13n-1(e)/Final Rule 13n-
1(d))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    5. Service of Process and Non-Resident SDRs (Proposed Rules 13n-
1(f) and 13n-1(g)/Final Rules 13n-1(e) and 13n-1(f))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    6. Definition of ``Report'' (Proposed Rule 13n-1(h)/Final Rule
13n-1(g))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    B. Withdrawal From Registration; Revocation and Cancellation
(Rule 13n-2)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    C. Registration of Successor to Registered SDR (Rule 13n-3)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    a. Succession by Application
    b. Succession by Amendment
    c. Scope and Applicability of Rule 13n-3
    D. Enumerated Duties and Core Principles (Rule 13n-4)
    1. Definitions (Rule 13n-4(a))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Enumerated Duties (Rule 13n-4(b))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    i. Inspection and Examination
    ii. Direct Electronic Access
    iii. Monitoring, Screening, and Analysis
    iv. Other Enumerated Duties
    c. Final Rule
    i. Inspection and Examination
    ii. Direct Electronic Access
    iii. Monitoring, Screening, and Analysis
    3. Implementation of Core Principles (Rule 13n-4(c))
    a. First Core Principle: Market Access to Services and Data
(Rule 13n-4(c)(1))
    i. Proposed Rule
    ii. Comments on the Proposed Rule
    (1) Rule 13n-4(c)(1)(i): Fair, Reasonable, and Not Unreasonably
Discriminatory Dues, Fees, Other Charges, Discounts, and Rebates
    (2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    (3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably
Discriminatory Access
    (4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    iii. Final Rule
    (1) Rule 13n-4(c)(1)(i): Fair, Reasonable, and Not Unreasonably
Discriminatory Dues, Fees, Other Charges, Discounts, and Rebates
    (2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    (3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably
Discriminatory Access
    (4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    b. Second Core Principle: Governance Arrangements (Rule 13n-
4(c)(2))
    i. Proposed Rule
    ii. Comments on the Proposed Rule
    iii. Final Rule
    c. Third Core Principle: Rules and Procedures for Minimizing and
Resolving Conflicts of Interest (Rule 13n-4(c)(3))
    i. Proposed Rule

    ii. Comments on the Proposed Rule
    iii. Final Rule
    4. Indemnification Exemption (Rule 13n-4(d))
    E. Data Collection and Maintenance (Rule 13n-5)
    1. Transaction Data (Rule 13n-5(b)(1))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Positions (Rule 13n-5(b)(2))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Maintain Accurate Data (Rule 13n-5(b)(3))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Data Retention (Rule 13n-5(b)(4))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    5. Controls to Prevent Invalidation (Rule 13n-5(b)(5))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    6. Dispute Resolution Procedures (Rule 13n-5(b)(6))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    7. Data Preservation After an SDR Ceases To Do Business (Rule
13n-5(b)(7))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    8. Plan for Data Preservation (Rule 13n-5(b)(8))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    F. Automated Systems (Rule 13n-6)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    G. SDR Recordkeeping (Rule 13n-7)
    1. Records To Be Made by SDRs (Rule 13n-7(a))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Records To Be Preserved by SDRs (Rule 13n-7(b))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Recordkeeping After an SDR Ceases To Do Business (Rule 13n-
7(c))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Applicability (Rule 13n-7(d))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    H. Reports To Be Provided to the Commission (Rule 13n-8)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
    I. Privacy of SBS Transaction Information and Disclosure to
Market Participants (Rules 13n-9 and 13n-10)
    1. Privacy Requirements (Rule 13n-9)
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Disclosure Requirements (Rule 13n-10)
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    J. Chief Compliance Officer of Each SDR; Compliance Reports and
Financial Reports (Rule 13n-11)
    1. In General (Rule 13n-11(a))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    2. Definitions (Rule 13n-11(b))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    3. Enumerated Duties of Chief Compliance Officer (Rule 13n-
11(c))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    4. Compliance Reports (Rules 13n-11(d) and 13n-11(e))
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rule
    5. Financial Reports and Filing of Reports (Exchange Act Rules
13n-11(f) and (g)/Rules 11, 305, and 407 of Regulation S-T)
    a. Proposed Rule
    b. Comments on the Proposed Rule
    c. Final Rules
    6. Additional Rule Regarding Chief Compliance Officer (Rule 13n-
11(h))
    K. Exemption from Requirements Governing SDRs for Certain Non-
U.S. Persons (Rule 13n-12)
    1. Proposed Rule
    2. Comments on the Proposed Rule
    3. Final Rule
VII. Paperwork Reduction Act
    A. Summary of Collection of Information
    1. Registration Requirements, Form SDR, and Withdrawal From
Registration SDR Duties, Data Collection and Maintenance, and Direct
Electronic Access
    2. Recordkeeping
    3. Reports
    4. Disclosure
    5. Chief Compliance Officer; Compliance Reports and Financial
Reports
    6. Other Provisions Relevant to the Collection of Information
    B. Use of Information
    1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    2. SDR Duties, Data Collection and Maintenance, and Direct
Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial
Reports
    7. Other Provisions Relevant to the Collection of Information
    C. Respondents
    1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    2. SDR Duties, Data Collection and Maintenance, and Direct
Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial
Reports
    7. Other Provisions Relevant to the Collection of Information
    D. Total Annual Reporting and Recordkeeping Burden
    1. Registration Requirements, Form SDR, and Withdrawal From
Registration 2. SDR Duties, Data Collection and Maintenance, and
Direct Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial
Reports
    7. Other Provisions Relevant to the Collection of Information
    E. Collection of Information is Mandatory
    1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    2. SDR Duties, Data Collection and Maintenance, and Direct
Electronic Access
    3. Recordkeeping
    4. Reports
    5. Disclosure
    6. Chief Compliance Officer; Compliance Reports and Financial
Reports
    7. Other Provisions Relevant to the Collection of Information
    F. Confidentiality
    G. Retention Period of Recordkeeping Requirements
VIII. Economic Analysis
    A. Introduction
    B. General Comments on the Costs and Benefits of the SDR Rules
    C. Consideration of Benefits, Costs, and the Effect on
Efficiency, Competition, and Capital Formation
    1. Assessment Costs
    2. Programmatic Costs and Benefits
    a. SDR Registration, Duties, and Core Principles
    b. Registration Requirements in the Cross-Border Context
    3. Consideration of Burden on Competition and Promotion of
Efficiency, Competition, and Capital Formation
    a. Potential Effects on Efficiency
    b. Potential Effects on Competition
    c. Potential Effects on Capital Formation
    D. Costs and Benefits of Specific Rules
    1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    a. Benefits
    b. Costs
    c. Alternatives
    2. SDR Duties, Data Collection and Maintenance, and Direct
Electronic Access
    a. Benefits
    b. Costs
    c. Alternatives
    3. Recordkeeping
    a. Benefits
    b. Costs
    4. Reports
    a. Benefits
    b. Costs
    5. Disclosure
    a. Benefits

    b. Costs
    6. Chief Compliance Officer and Compliance Functions; Compliance
Reports and Financial Reports
    a. Benefits
    b. Costs
    c. Alternatives
    7. Other Policies and Procedures Relating to an SDR's Business
    a. Benefits
    b. Costs
    c. Alternatives
    8. Total Costs
IX. Regulatory Flexibility Act Certification
X. Statutory Authority

I. Introduction

A. Proposed Rules Governing the SDR Registration Process, Duties, and
Core Principles, and Form SDR

    Title VII of the Dodd-Frank Act provides for a comprehensive new
regulatory framework for security-based swaps (``SBSs''), including the
regulation of SDRs.\1\ SDRs are required to collect and maintain
accurate SBS transaction data so that relevant authorities can access
and analyze the data from secure, central locations, thereby putting
them in a better position to monitor for potential market abuse and
risks to financial stability. On November 19, 2010, the Commission
proposed new Rules 13n-1 to 13n-11 under the Exchange Act governing the
SDR registration process, duties, and core principles, and new Form
SDR, through which applicants would seek to register as SDRs.\2\
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    \1\ Public Law 111-203, section 761(a) (adding Exchange Act
Section 3(a)(75) (defining SDR)) and section 763(i) (adding Exchange
Act Section 13(n) (establishing a regulatory regime for SDRs)).
    \2\ See Security-Based Swap Data Repository Registration,
Duties, and Core Principles, Exchange Act Release No. 63347 (Nov.
19, 2010), 75 FR 77306 (Dec. 10, 2010), corrected at 75 FR 79320
(Dec. 20, 2010) and 76 FR 2287 (Jan. 13, 2011) (``Proposing
Release'').
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    Subsequently, on May 1, 2013, the Commission issued a proposing
release discussing cross-border SBS activities, including activities
involving SDRs.\3\ In that release, the Commission proposed guidance
regarding the application of certain SDR requirements in the cross-
border context; \4\ new Rule 13n-12 under the Exchange Act, which would
provide certain SDRs with an exemption from Exchange Act Section 13(n)
and the rules and regulations thereunder; \5\ and guidance to specify
how SDRs may comply with the notification requirement in the Exchange
Act and how the Commission proposes to determine whether a relevant
authority is appropriate for purposes of receiving SBS data from an
SDR.\6\ In addition, the Commission proposed an exemption from the
indemnification requirement in the Exchange Act.\7\
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    \3\ Cross-Border Security-Based Swap Activities; Re-Proposal of
Regulation SBSR and Certain Rules and Forms Relating to the
Registration of Security-Based Swap Dealers and Major Security-Based
Swap Participants, Exchange Act Release No. 69490 (May 1, 2013), 78
FR 30968 (May 23, 2013) (``Cross-Border Proposing Release'').
    \4\ Cross-Border Proposing Release, 78 FR at 31041-44, supra
note 3.
    \5\ Cross-Border Proposing Release, 78 FR at 31209, supra note
3.
    \6\ Cross-Border Proposing Release, 78 FR at 31046-48, supra
note 3.
    \7\ Cross-Border Proposing Release, 78 FR at 31209, supra note 3
(proposing Rule 13n-4(d)).
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B. Related Commission Actions

    In conjunction with issuing the Proposing Release on November 19,
2010, the Commission also proposed Regulation SBSR to implement the
Dodd-Frank Act's provisions relating to reporting SBS information to
SDRs, including standards for the data elements that must be provided
to SDRs.\8\ Subsequently, on June 15, 2011, the Commission issued an
exemptive order, which provided guidance and certain exemptions with
respect to the requirements under Title VII, including requirements
governing SDRs, which would have had to be complied with as of July 16,
2011 (i.e., the effective date of Title VII).\9\ Later, on June 11,
2012, the Commission issued a statement of general policy on the
anticipated sequencing of compliance dates of final rules to be adopted
under Title VII.\10\ On May 1, 2013, the Commission re-proposed
Regulation SBSR in the Cross-Border Proposing Release.\11\ At the same
time, the Commission reopened the comment period for certain rules
proposed under Title VII, including the SDR Rules and Form SDR, and the
Implementation Policy Statement.\12\
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    \8\ Regulation SBSR-Reporting and Dissemination of Security-
Based Swap Information, Exchange Act Release No. 63346 (Nov. 19,
2010), 75 FR 75208 (Dec. 2, 2010) (``Regulation SBSR Proposing
Release'').
    \9\ See Temporary Exemptions and Other Temporary Relief,
Together With Information on Compliance Dates for New Provisions of
the Securities Exchange Act of 1934 Applicable to Security-Based
Swaps, Exchange Act Release No. 64678 (June 15, 2011), 76 FR 36287
(June 22, 2011) (``Effective Date Order''). The Effective Date Order
included temporary exemptions from Exchange Act Sections
13(n)(5)(D)(i), 13(n)(5)(F), 13(n)(5)(G), 13(n)(5)(H), 13(n)(7)(A),
13(n)(7)(B), and 13(n)(7)(C), each of which will expire on the
earlier of (1) the date the Commission grants registration to the
SDR and (2) the earliest compliance date set forth in any of the
final rules regarding the registration of SDRs. Id. at 36306. In
addition, the Commission granted temporary exemptions from Exchange
Act Section 29(b) in connection with the above listed provisions of
the Exchange Act until such date as the Commission specifies. Id. at
36307. Section 29(b) generally provides that contracts made in
violation of any provision of the Exchange Act, or the rules
thereunder, shall be void ``(1) as regards the rights of any person
who, in violation of any such provision . . . shall have made or
engaged in the performance of any such contract, and (2) as regards
the rights of any person who, not being a party to such contract,
shall have acquired any right thereunder with actual knowledge of
the facts by reason of which the making or performance of such
contract was in violation of any such provision. . . .'' 15 U.S.C.
78cc(b).
    \10\ See Statement of General Policy on the Sequencing of the
Compliance Dates for Final Rules Applicable to Security-Based Swaps
Adopted Pursuant to the Securities Exchange Act of 1934 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange
Act Release No. 67177 (June 11, 2012), 77 FR 35625 (June 14, 2012)
(``Implementation Policy Statement'').
    \11\ Cross-Border Proposing Release, 78 FR at 31210-31216, supra
note 3. The Commission subsequently adopted certain aspects of the
Cross-Border Proposing Release, which, as discussed below, has
implications on this release. See Application of ``Security-Based
Swap Dealer'' and ``Major Security-Based Swap Participant''
Definitions to Cross-Border Security-Based Swap Activities, Exchange
Act Release No. 72472 (June 25, 2014), 79 FR 39068 (July 9, 2014)
republished at 79 FR 47278 (Aug. 12, 2014) (``Cross-Border Adopting
Release'').
    \12\ Reopening of Comment Periods for Certain Rulemaking
Releases and Policy Statement Applicable to Security-Based Swaps
Proposed Pursuant to the Securities Exchange Act of 1934 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange
Act Release No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013)
(``Reopening Release'').
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    The Commission is concurrently adopting Regulation SBSR in a
separate release.\13\ The Dodd-Frank Act requires the Commission to
engage in rulemaking for the public dissemination of SBS transaction,
volume, and pricing data,\14\ and provides the Commission with
discretion to determine an appropriate approach to implement this
important function. Regulation SBSR requires SDRs to undertake this
role.\15\
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    \13\ Regulation SBSR-Reporting and Dissemination of Security-
Based Swap Information, Exchange Act Release No. 74244 (Feb. 11,
2015) (``Regulation SBSR Adopting Release''). The Commission is also
concurrently proposing certain new rules and amendments to
Regulation SBSR. See Regulation SBSR-Reporting and Dissemination of
Security-Based Swap Information, Exchange Act Release No. 74245
(Feb. 11, 2015) (``Regulation SBSR Proposed Amendments Release'').
    \14\ Exchange Act Section 13(m)(1), 15 U.S.C. 78m(m)(1), as
added by Dodd-Frank Act Section 763(i).
    \15\ See Regulation SBSR Adopting Release, supra note 13. In a
separate proposal relating to implementation of Dodd-Frank Act
Section 763(i) (adding Exchange Act Section 13(n)(5)(E)), the
Commission proposed rules that would require SDRs to collect data
related to monitoring the compliance and frequency of end-user
clearing exemption claims. See End-User Exception to Mandatory
Clearing of Security-Based Swaps, Exchange Act Release No. 63556
(Dec. 15, 2010), 75 FR 79992 (Dec. 21, 2010) (``End-User Exception
Proposing Release'').
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    As discussed in the Proposing Release, when considered in
conjunction with Regulation SBSR, the rules that the Commission adopts
in this release seek to provide improved transparency to regulators and
the markets through comprehensive regulations for SBS transaction data
and

SDRs.\16\ In combination, these rules represent a significant step
forward in providing a regulatory framework that promotes transparency
and efficiency in the OTC derivatives markets and creates important
infrastructure to assist relevant authorities in performing their
market oversight functions.
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    \16\ Proposing Release, 75 FR at 77307, supra note 2.
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C. Public Comment

    In each of the releases discussed above, the Commission requested
comment on a number of issues related to the proposed SDR Rules. In
addition, Commission staff and Commodity Futures Trading Commission
(``CFTC'') staff conducted joint public roundtables, including, for
example, a joint public roundtable on implementation issues raised by
Title VII (``Implementation Joint Roundtable'') \17\ and a joint public
roundtable on international issues relating to the implementation of
Title VII (``International Joint Roundtable'').\18\
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    \17\ See Joint Public Roundtable on Issues Related to the
Schedule for Implementing Final Rules for Swaps and Security-Based
Swaps Under the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Exchange Act Release No. 64314 (Apr. 20, 2011), 76
FR 23221 (Apr. 26, 2011). Transcripts for the public roundtable are
available on the Commission's Web site at http://www.sec.gov/news/press/2011/2011-90-transcript.pdf.
    \18\ See Joint Public Roundtable on International Issues
Relating to the Implementation of Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Exchange Act Release No.
64939 (July 21, 2011); 76 FR 44507 (July 26, 2011). The transcript
for the public roundtable is available on the Commission's Web site
at: http://www.sec.gov/news/press/2011/2011-151-transcript.pdf.
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    The Commission received twenty comment letters in response to the
Proposing Release and the Reopening Release \19\ as well as six letters
submitted with respect to SDRs prior to the Proposing Release.\20\ The
Commission also received three comment letters that address issues
related to SDRs, among others, after the Proposing Release through the
Commission's solicitation for comments,\21\ which will be addressed in
this release. In addition, the Commission received one letter in
response to the Implementation Policy Statement,\22\ two letters in
response to the Implementation Joint Roundtable \23\ and a letter in
response to the International Joint Roundtable,\24\ all of which are
relevant to the Proposing Release and are addressed in this
release.\25\ The Commission also received four comment letters in
response to the Cross-Border Proposing Release relating directly to the
proposed SDR Rules.\26\
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    \19\ See letters from The Bank of New York Mellon Corporation
(``BNY Mellon''); Better Markets, Inc. dated January 24, 2011
(``Better Markets 1''); Better Markets, Inc. dated July 22, 2013
(``Better Markets 2''); Better Markets, Inc. dated October 18, 2013
(``Better Markets 3''); Chris Barnard (``Barnard''); Depository
Trust & Clearing Corporation dated January 24, 2011 (``DTCC 2'');
Depository Trust & Clearing Corporation dated June 3, 2011 (``DTCC
3''); Depository Trust & Clearing Corporation dated July 21, 2011
(``DTCC 4''); Depository Trust & Clearing Corporation dated July 22,
2013 (``DTCC 5''); Ethics Metrics (``Ethics Metrics''); European
Securities and Markets Authority (``ESMA''); International Swaps and
Derivatives Association dated June 28, 2013 (``ISDA''); Managed
Funds Association dated January 24, 2011 (``MFA 1''); Managed Funds
Association dated March 24, 2011 (``MFA 2''); Markit North America
Inc. (``Markit''); MarkitSERV LLC (``MarkitSERV''); Ralph S. Saul
(``Saul''); and TriOptima AB (``TriOptima''). Two of these comment
letters did not raise issues relating to the SDR Rules. See letters
from the Chicago Mercantile Exchange, Inc. and ICE Trade Vault, LLC
dated November 19, 2013 (relating to Regulation SBSR) and Financial
Services Roundtable, Futures Industry Association, Institute of
International Bankers, International Swaps and Derivatives
Association, Investment Company Institute, Securities Industry and
Financial Markets Association dated May 21, 2013 (requesting 90-day
extension of the comment period for the Cross-Border Proposing
Release). The comments that the Commission received on the Proposing
Release and the Reopening Release are available on the Commission's
Web site at http://www.sec.gov/comments/s7-35-10/s73510.shtml.
    \20\ See letters from Benchmark Solutions (``Benchmark*'');
Coalition for Derivatives End-Users (``CDEU*''); Depository Trust &
Clearing Corporation dated November 15, 2010 (``DTCC 1*''); Morgan
Stanley (``Morgan Stanley*''); Robin McLeish (``McLeish*''); and
Securities Industry and Financial Markets Association (``SIFMA*''),
available on the Commission's Web site at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swap-data-repositories.shtml. To facilitate public input on the Dodd-Frank
Act, the Commission provided a series of email links, organized by
topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml.
    \21\ See letters from Barclays Capital Inc. (``Barclays*'');
Financial Services Forum, Futures Industry Association,
International Swaps and Derivatives Association, and Securities
Industry and Financial Markets Association (``FSF*''); and Futures
Industry Association, The Financial Services Roundtable, Institute
of International Bankers, Insured Retirement Institute,
International Swaps and Derivatives Association, Securities Industry
and Financial Markets Association, and U.S. Chamber of Commerce
(``FIA*''), available on the Commission's Web site at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swap-data-repositories.shtml.
    \22\ See letter from Securities Industry and Financial Markets
Association (``SIFMA Implementation''), available on the
Commission's Web site at http://www.sec.gov/comments/s7-05-12/s70512-11.pdf.
    \23\ See letters from The Financial Services Roundtable (``FSR
Implementation''), available on the Commission's Web site at http://www.sec.gov/comments/4-625/4625-1.pdf; and Association of
Institutional Investors (``AII Implementation''), available on the
Commission's Web site at http://www.sec.gov/comments/4-625/4625-5.pdf.
    \24\ See letter from Bank of America Merrill Lynch, Barclays
Capital, BNP Paribas, Citi, Cr[eacute]dit Agricole Corporate and
Investment Bank, Credit Suisse Securities (USA), Deutsche Bank AG,
HSBC, Morgan Stanley, Nomura Securities International, Inc.,
Soci[eacute]t[eacute] G[eacute]n[eacute]rale, and UBS Securities LLC
(``US & Foreign Banks''), available on the Commission's Web site at
http://www.sec.gov/comments/4-636/4636-4.pdf; Joint Public
Roundtable on International Issues Relating to the Implementation of
Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Exchange Act Release No. 64939 (July 21, 2011); 76
FR 44507 (July 26, 2011).
    \25\ One commenter recommended that the Commission ``encourage
the formation of a planning group composed of market participants''
to address the questions in the Proposing Release. Saul, supra note
19. The Commission believes that market participants have had
sufficient opportunities to comment on the Proposing Release and
market participants have taken advantage of these opportunities.
Therefore, the Commission does not believe that a planning group
composed of market participants is necessary.
    \26\ See letters from Better Markets, Inc. dated August 21, 2013
(``Better Markets CB''); Depository Trust & Clearing Corporation
dated August 21, 2013 (``DTCC CB''); ICE Trade Vault, LLC (``ICE
CB''); and Institute of International Bankers (``IIB CB''). The
comments that the Commission received on the Cross-Border Proposing
Release are available on the Commission's Web site at http://sec.gov/comments/s7-02-13/s70213.shtml. The Commission addressed
comment letters in response to the Cross-Border Proposing Release
that address Title VII generally and do not relate directly to the
proposed SDR Rules in the Cross-Border Adopting Release. See Cross-
Border Adopting Release, 79 FR at 47281-2, supra note 11.
---------------------------------------------------------------------------

    The Commission also considered relevant comments submitted with
respect to proposed Regulation SBSR,\27\ the interim temporary final
rule for reporting of SBS transaction data,\28\ and proposed rules for
the registration and regulation of security-based swap execution
facilities (``SB SEFs'').\29\
---------------------------------------------------------------------------

    \27\ Regulation SBSR Proposing Release, supra note 8. See
letters from Bank of America, Merrill Lynch et al. (``BofA SBSR'');
Barclays Bank PLC, BNP Paribas S.A., Deutsche Bank AG, Royal Bank of
Canada, The Royal Bank of Scotland Group PLC, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, and UBS AG (``Foreign Banks SBSR'');
Depository Trust & Clearing Corporation (``DTCC SBSR''); Financial
Industry Regulatory Authority (``FINRA SBSR''); International Swaps
and Derivatives Association & Securities Industry and Financial
Markets Association (``ISDA SIFMA SBSR''); Managed Funds Association
(``MFA SBSR''); Soci[eacute]t[eacute] G[eacute]n[eacute]rale
(``Soci[eacute]t[eacute] G[eacute]n[eacute]rale SBSR''); The Bank of
Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., and
Sumitomo Mitsui Banking Corporation (``Bank of Tokyo SBSR'');
Tradeweb (``Tradeweb SBSR''); and Wholesale Markets Brokers'
Association, Americas (``WMBAA SBSR''). The comments that the
Commission received on the Regulation SBSR Proposing Release are
available on the Commission's Web site at http://www.sec.gov/comments/s7-34-10/s73410.shtml. See also Cross-Border Proposing
Release, 78 FR at 31210-6, supra note 3 (re-proposing Regulation
SBSR).
    \28\ Reporting of Security-Based Swap Transaction Data, Exchange
Act Release No. 63094 (Oct. 13, 2010), 75 FR 64643 (Oct. 20, 2010)
(``Temporary Rule Release''). See letters from International Swaps
and Derivatives Association (``ISDA Temp Rule'') and Deutsche Bank
AG (``Deutsche Temp Rule''). The comments that the Commission
received on the Temporary Rule Release are available on the
Commission's Web site at http://www.sec.gov/comments/s7-28-10/s72810.shtml.
    \29\ Registration and Regulation of Security-Based Swap
Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011),
76 FR 10948 (Feb. 28, 2011) (``SB SEF Proposing Release''). See
letter from Tradeweb Markets LLC (``Tradeweb SB SEF''). The comments
that the Commission received on the SB SEF Proposing Release are
available on the Commission's Web site at http://www.sec.gov/comments/s7-06-11/s70611.shtml.

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

    While commenters generally supported the Commission's approach set
forth in the Proposing Release and the Cross-Border Proposing Release
with respect to the proposed SDR Rules,\30\ they set forth a range of
opinions addressing issues raised by the proposed rules and provided
information regarding industry practices. In particular, commenters
discussed SDRs' registration, enumerated duties, market access to
services and data, governance arrangements, conflicts of interest, data
collection and maintenance, privacy and disclosure requirements, and
chief compliance officers (``CCOs''). The Commission has carefully
reviewed and considered all of the comments that it received relating
to the proposed rules.\31\ As adopted, the SDR Rules and new Form SDR
have been modified from the proposal, in part to respond to these
comments.\32\ The revisions to each proposed rule are described in more
detail throughout this release. The following are among the most
significant changes from the Commission's proposed rules:
---------------------------------------------------------------------------

    \30\ See, e.g., Barnard, supra note 19 (generally supporting the
proposed SDR Rules and agreeing that establishing SDRs will enhance
transparency and promote standardization in the SBS market); MFA 1,
supra note 19 (fully supporting the objectives of the Dodd-Frank Act
and the proposed rules to enhance transparency in the SBS market);
Markit, supra note 19 (supporting the Commission's objectives of
increasing transparency and efficiency in the OTC derivatives
markets and of reducing both systemic and counterparty risk); DTCC
2, supra note 19 (supporting the Commission's efforts to establish a
comprehensive new framework for the regulation of SDRs and noting
that ``[i]mposing requirements on [SDRs] would promote safety and
soundness for all U.S. markets by bringing increased transparency
and oversight to [the SBS market]''); IIB CB, supra note 26
(believing that ``the Commission has appropriately sought to take
into account the greater extent to which the SBS markets are
globally interconnected, as well as the role that foreign regulators
therefore must play as the primary supervisors of SBS market
participants based abroad'').
    \31\ The Commission also considered certain comments submitted
with respect to other proposed Commission rulemakings, related CFTC
rulemakings, and international initiatives. See Sections I.C and I.D
discussing other comments and initiatives considered in this
rulemaking.
    \32\ As discussed below, comments relating to relevant
authorities' access to SBS data will be addressed in a separate
release.
---------------------------------------------------------------------------

     Form SDR: In the Proposing Release, the Commission asked
whether it should combine Form SDR and Form SIP such that an SDR would
register as an SDR and a securities information processer (``SIP'')
using only one form.\33\ After further consideration and in response to
comments received, the Commission has determined that Form SDR should
be modified from the proposal to allow an SDR to register as both an
SDR and SIP on one form.\34\
---------------------------------------------------------------------------

    \33\ Proposing Release, 75 FR at 77313, supra note 2.
    \34\ See Section VI.A.1.c of this release discussing the
combination of Form SDR and Form SIP.
---------------------------------------------------------------------------

     Access by Relevant Authorities: The Commission proposed
Rules 13n-4(b)(9) and (10) and Rule 13n-4(d) relating to relevant
authorities' access to SBS data maintained by SDRs. The Commission has
determined not to adopt these rules at this time and anticipates
soliciting additional public comment regarding such relevant
authorities' access.
     Automated Systems: The Commission proposed Rule 13n-6 to
provide standards for SDRs with regard to their automated systems'
capacity, resiliency, and security. After further consideration, and as
explained more fully below, the Commission has determined to adopt an
abbreviated version of proposed Rule 13n-6.\35\
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    \35\ See Section VI.F of this release discussing Rule 13n-6.
---------------------------------------------------------------------------

     CCO: In the Proposing Release, the Commission asked
whether it should prohibit officers, directors, or employees of an SDR
from, directly or indirectly, taking any action to coerce, manipulate,
mislead, or fraudulently influence the SDR's CCO in the performance of
his responsibilities. The Commission has decided to adopt new Rule 13n-
11(h).

D. Other Initiatives Considered in This Rulemaking

    The Commission also recognizes the CFTC's companion efforts in
promulgating rules governing swap data repositories pursuant to Dodd-
Frank Act Section 728. The CFTC adopted final rules on swap data
repositories on August 4, 2011.\36\ The CFTC also adopted rules
regarding swap data recordkeeping and reporting requirements, some of
which pertain to subjects covered in this release.\37\ Commission staff
consulted with CFTC staff with respect to the rules applicable to swap
data repositories and SDRs, as well as with prudential regulators,\38\
and the Commission has taken into consideration comments received
supporting harmonization of the CFTC's rules for swap data repositories
with the SDR Rules.\39\ The Commission believes that the final SDR
Rules are largely consistent with the rules adopted by the CFTC.\40\
While one commenter recommended adopting joint rules with the CFTC,\41\
the Commission has not done so. Congress did not require the two
agencies to engage in joint rulemakings on this topic.\42\ In addition,
the CFTC has already adopted its final rules for swap data
repositories.\43\ The Commission does not believe that the differences
between the rules adopted herein and the CFTC's rules regarding

swap data repositories will place undue burdens on persons that
register as both SDRs and swap data repositories.\44\
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    \36\ See Swap Data Repositories: Registration Standards, Duties
and Core Principles, 76 FR 54538 (Sept. 1, 2011) (``CFTC Part 49
Adopting Release''). See also Swap Data Repositories--Access to SDR
Data by Market Participants, 79 FR 16672 (Mar. 26, 2014) (CFTC
adopting interim final rule regarding access to swap data
repositories' data).
    \37\ See Swap Data Recordkeeping and Reporting Requirements, 77
FR 2136 (Jan. 13, 2012) (``CFTC Part 45 Adopting Release''). See
also Review of Swap Data Recordkeeping and Reporting Requirements,
79 FR 16689 (Mar. 26, 2014) (CFTC requesting comment on specific
swap data reporting and recordkeeping rules).
    \38\ See Dodd-Frank Act Section 712(a)(2) (requiring the
Commission to consult and coordinate to the extent possible with the
CFTC and prudential regulators for ``the purposes of assuring
regulatory consistency and comparability, to the extent possible'').
    \39\ See DTCC 2, supra note 19 (recommending that to the extent
that there are any differences, ``the Commission and the CFTC should
harmonize the regimes that oversee SDRs'' and noting that
``harmonization is a more important priority than the exact nature
of the consistent standard, as SDRs can adjust to meet a single
standard but not multiple, inconsistent standards''); DTCC 5, supra
note 19 (urging the Commission to harmonize its rules with the
CFTC's rules by working, to the extent possible, with the CFTC to
minimize the number of regulatory inconsistencies between the two
agencies); DTCC CB, supra note 26 (``Given the significant number of
registered entities (execution platforms, clearinghouses, SDRs,
dealers, and major swap participants) that will face dual oversight,
unnecessary distinctions in the registration and regulation of these
entities risk jeopardizing regulatory compliance, add confusion to
Dodd-Frank Act implementation, and ultimately impose unnecessary
costs.''); Better Markets CB, supra note 26 (recommending that the
Commission ``promote harmony with the CFTC's cross-border guidance,
subject to its primary duty and recognizing that its statutory
authority and jurisdiction is distinct from that of the CFTC'' and
that the Commission ``adopt rules that are at least as strong as the
CFTC's guidance, consistent with its statutory authority, but should
go further than the CFTC wherever necessary, and again consistent
with its statutory authority, to better fulfill the goals of the
Dodd-Frank Act''). But see Better Markets 2, supra note 19
(recommending that ``all of the substantive rule provisions proposed
[as of July 22, 2013] must remain as strong as possible,
irrespective of . . . the CFTC's approach to the implementation of
Title VII'').
    \40\ See DTCC 2, supra note 19 (observing that, with respect to
the Commission's proposed rules and the CFTC's proposed rules for
swap data repositories, ``[t]here appear to be relatively narrow
differences between the Commission's and the CFTC's approaches to
the regulation of SDRs'').
    \41\ FSR Implementation, supra note 23 (supporting a Title VII-
wide harmonization process and recommending adopting joint SEC-CFTC
rules in areas, such as SDRs, where they are not required to do so).
The commenter stated that the ``process of jointly adopting final
rules would ensure consistency on the most critical points. It would
also ensure that final rules are adopted at the same time, so that
market participants do not have to bear the cost of complying with
one set of rules before they know whether their actions will be
consistent with the other rules to which they will be subject.'' Id.
    \42\ Cf., e.g., Dodd-Frank Act Section 712(d) (requiring joint
rulemaking regarding certain definitions).
    \43\ CFTC Part 49 Adopting Release, supra note 36; CFTC Part 45
Adopting Release, supra note 37.
    \44\ See Section VIII of this release discussing economic
analysis.
---------------------------------------------------------------------------

    Finally, Commission staff has consulted and coordinated with
foreign regulators through bilateral and multilateral discussions,
including in groups that have prepared reports related to SDRs.\45\ For
example, the Committee on Payments and Market Infrastructures
(``CPMI''), formerly known as the Committee on Payment and Settlement
Systems (``CPSS''),\46\ and the International Organization of
Securities Commissions (``IOSCO,'' \47\ jointly, ``CPSS-IOSCO'') have
issued several reports applicable to SDRs. First, in May 2010, CPSS and
the Technical Committee of IOSCO issued a consultative report that
presented a set of factors for trade repositories in the OTC
derivatives markets to consider in designing and operating their
services and for relevant authorities to consider in regulating and
overseeing trade repositories (``CPSS-IOSCO Trade Repository
Report'').\48\ Second, in January 2012, CPSS and the Technical
Committee of IOSCO issued a final report on OTC derivatives data
reporting and aggregation requirements.\49\ Third, in April 2012, CPSS-
IOSCO issued a final report that sets forth risk management and related
standards applicable to financial market infrastructures, including
trade repositories (``PFMI Report'').\50\ Fourth, in August 2013, CPSS
and the Board of IOSCO issued a report on authorities' access to trade
repository data (``CPSS-IOSCO Access Report'').\51\ The Commission has
taken these discussions and reports into consideration in developing
the final SDR Rules and Form SDR.\52\
---------------------------------------------------------------------------

    \45\ See Dodd-Frank Act Section 752 (relating to international
harmonization); DTCC 3, supra note 19 (``The global SDR framework
emerging from the Dodd-Frank Act and European regulatory processes
must provide comprehensive data for all derivatives markets
globally. If the global regulatory process is not harmonized, both
the published and regulator-only accessible data will be fragmented,
resulting in misleading reporting of exposures, uncertain risk
concentration reports and a decreased ability to identify systemic
risk.'').
    \46\ CPMI is an international standard setting body for payment,
clearing, and securities settlement systems. It serves as a forum
for central banks to monitor and analyze developments in domestic
payment, clearing, and settlement systems as well as in cross-border
and multicurrency settlement schemes. See http://www.bis.org/cpmi/.
    \47\ IOSCO is an international standard setting body for
securities regulation. It serves as a forum to review regulatory
issues related to international securities and futures transactions.
See http://www.iosco.org.
    \48\ See Considerations for Trade Repositories in OTC
Derivatives Markets, CPSS-IOSCO (May 2010), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD321.pdf.
    \49\ See Report on OTC Derivatives Data Reporting and
Aggregation Requirements, CPSS-IOSCO (Jan. 2012), available at
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD366.pdf.
    \50\ See Principles for Financial Market Infrastructures, CPSS-
IOSCO (Apr. 2012), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD377.pdf. The PFMI Report incorporated feedback
received on the CPSS-IOSCO Trade Repository Report. Commission
representatives participated in the development and drafting of the
PFMI Report. In particular, Commission staff co-chaired the
Editorial Team, a working group within CPSS-IOSCO that drafted both
the consultative and final versions of the PFMI Report. The
Commission believes that the standards applicable to trade
repositories set forth in the PFMI Report are generally consistent
with the final SDR Rules.
    \51\ See Authorities' Access to Trade Repository Data, CPSS-
IOSCO (Aug. 2013), available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD417.pdf.
    \52\ If any provision of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such
invalidity shall not affect other provisions or application of such
provisions to other persons or circumstances that can be given
effect without the invalid provision or application.
---------------------------------------------------------------------------

II. Broad Economic Considerations and Baseline

    This section describes the most significant economic considerations
that the Commission has taken into account in adopting Form SDR and the
SDR Rules, as well as the baseline for evaluating the economic effects
of the final SDR Rules. The Commission is sensitive to the economic
consequences and effects, including the costs and benefits, of Form SDR
and the SDR Rules. A detailed analysis of the particular economic
effects--including the costs and benefits and the impact on efficiency,
competition, and capital formation--that may result from Form SDR and
the final SDR Rules is discussed in Section VIII of this release.

A. Broad Economic Considerations

    The SBS market prior to the passage of the Dodd-Frank Act has been
described as being opaque,\53\ in part because price and volume data
for SBS transactions were not publicly available. In opaque markets,
price and volume information is difficult or impossible to obtain, and
access to price and volume information confers a competitive advantage
on market participants with such access. In the SBS market, for
example, SBS dealers currently gain access to proprietary transaction-
level price and volume information by observing order flow. Large SBS
dealers and other large market participants with a large share of order
flow have an informational advantage over smaller SBS dealers and non-
dealers who, in the absence of pre-trade transparency, observe a
smaller subset of the market. As the Commission highlights in Section
II.B below, the majority of SBS market activity, and therefore
information about market activity, is concentrated in a small number of
SBS dealers and widely dispersed among other market participants.
Greater access by SBS dealers to non-public information about order
flow enables better assessment of current market values by SBS dealers,
permitting them to extract economic rents from counterparties who are
less informed.\54\ Non-dealers are aware of this information asymmetry,
and certain non-dealers--particularly larger entities who transact with
many dealers--may be able to obtain access to competitive pricing or
otherwise demand a price discount that reflects the information
asymmetry. Typically, however, the market participants with an
information advantage will earn economic rents from their non-public
information. In the SBS market, it is predominantly SBS dealers who
observe the greatest order flow and benefit from market opacity.
---------------------------------------------------------------------------

    \53\ With respect to one type of SBS, credit default swaps
(``CDSs''), the Government Accountability Office found that
``comprehensive and consistent data on the overall market have not
been readily available,'' ``authoritative information about the
actual size of the [CDS] market is generally not available,'' and
regulators currently are unable ``to monitor activities across the
market.'' Government Accountability Office, GAO-09-397T, Systemic
Risk: Regulatory Oversight and Recent Initiatives to Address Risk
Posed by Credit Default Swaps, at 2, 5, 27, (2009) available at
http://www.gao.gov/new.items/d09397t.pdf; see also Robert E. Litan,
The Derivatives Dealers' Club and Derivatives Market Reform: A Guide
for Policy Makers, Citizens and Other Interested Parties, Brookings
Institution (Apr. 7, 2010), http://www.brookings.edu/~/media/
research/files/papers/2010/4/07%20derivatives%20litan/
0407_derivatives_litan.pdf; Michael Mackenzie, Era of an Opaque
Swaps Market Ends, Financial Times, June 25, 2010, http://www.ft.com/intl/cms/s/0/f49f635c-8081-11df-be5a-00144feabdc0.html#axzz3HLUjYNI7.
    \54\ In this situation, economic rents are the profits that SBS
dealers earn by trading with counterparties who are less informed.
In a market with competitive access to information, there is no
informational premium; SBS dealers only earn a liquidity premium.
The difference between the competitive liquidity premium and the
actual profits that SBS dealers earn is the economic rent.
---------------------------------------------------------------------------

    The Commission expects that SDRs will play a critical role in
enhancing transparency and competitive access to information in the SBS
market. In order to increase the transparency of the OTC derivatives
market, Title VII requires the Commission to undertake a number of
rulemakings, including the SDR Rules and Regulation SBSR,\55\ to
establish a framework for the regulatory reporting of SBS transaction
information to SDRs, public dissemination of transaction-level
information, and a framework for SDRs to provide access to the

information to the Commission. Persons that meet the definition of an
SDR will be required, absent an exemption, to comply with all SDR
obligations, including the SDR Rules requiring SDRs to collect and
maintain accurate data and the requirements under Regulation SBSR to
publicly disseminate transaction-level information. Reporting of SBS
transaction information and public dissemination of accurate
transaction price and volume information should promote price discovery
and lessen the informational advantage enjoyed by SBS dealers with
access to order flow.\56\ By requiring SDRs to collect SBS transaction,
volume, and pricing information and publicly disseminate information,
the SDR Rules and Regulation SBSR may promote transparency in the SBS
market.\57\
---------------------------------------------------------------------------

    \55\ See Regulation SBSR Adopting Release, supra note 13.
    \56\ Price discovery refers to the process by which buyers seek
the lowest available prices and sellers seek the highest available
prices. This process reveals the prices that best match buyers to
sellers. See Larry Harris, Trading & Exchanges: Market
Microstructure for Practitioners 94 (2003). Price discovery may be
hindered by such things as a scarcity of buyers or sellers or an
asymmetry of information between potential buyers and sellers. For
example, when traders are asymmetrically informed, liquidity
suppliers set their prices far from the market to recover from
uninformed traders what they lose to well-informed traders. See id.
at 312.
    \57\ Regulation SBSR requires that the economic terms of the
transaction, with the exception of the identities of the
counterparties, be publicly disseminated. These terms include the
product ID, date and time of execution, price, and notional amount
of an SBS. See Regulation SBSR Adopting Release, supra note 13
(Rules 901(c) and 902).
---------------------------------------------------------------------------

    In addition to lessening the informational advantage currently
available to SBS dealers, increased transparency of the SBS market
could have other widespread benefits. Public availability of SBS price
and volume information could lower the costs of SBS trading by reducing
implicit trading costs.\58\ To the extent that implicit costs of SBS
trading are reduced and the availability of the data necessary to
evaluate the performance of a market participant's SBS dealer using
transaction cost analysis, more market participants may be inclined to
trade in the SBS market.\59\
---------------------------------------------------------------------------

    \58\ Implicit trading cost is the difference between the price
at which a market participant can enter into an SBS and the
theoretical fundamental value of that SBS. Post-trade transparency
has been shown to lower implicit trading costs in US corporate bond
markets, which, prior to the introduction of FINRA's Trade Reporting
and Compliance Engine (TRACE), was a dealer-centric over-the-counter
(``OTC'') market characterized by limited transparency, similar to
the SBS market. See, e.g., Amy K. Edwards, Lawrence Harris, &
Michael S. Piwowar, Corporate Bond Market Transparency and
Transaction Costs, 62 Journal of Finance 1421 (2007); Hendrik
Bessembinder, William F. Maxwell, & Kumar Venkataraman, Market
Transparency, Liquidity, Externalities and Institutional Trading
Costs in Corporate Bonds, 82 Journal of Financial Economics 251
(2006).
    \59\ Transaction cost analysis refers to an evaluation of the
price received by a market participant relative to prevailing market
prices at the time the decision to transact was made as well as
transaction prices received by other market participants just before
and just after the transaction.
---------------------------------------------------------------------------

    Allowing competitive, impartial access to the most recent
transaction price and volume information may promote the efficiency of
SBS trading and increase opportunities for risk-sharing in other ways.
In particular, as in other securities markets, quoted bids and offers
should form and adjust according to the reporting of executed trades,
attracting liquidity from hedgers and other market participants that do
not observe customer order flow and do not benefit from opacity.
    Separately, the SDR Rules are designed to, among other things, make
available to the Commission SBS data that will provide a broad view of
the SBS market and help monitor for pockets of risk that might not
otherwise be observed by financial market regulators.\60\ Unlike most
other securities transactions, SBSs involve ongoing financial
obligations between counterparties during the life of transactions that
typically span several years. Counterparties to an SBS rely on each
other's creditworthiness and bear this credit risk and market risk
until the SBS terminates or expires. This can lead to market
instability when a large market participant, such as an SBS dealer,
major SBS market participant, or central counterparty (``CCP''),
becomes financially distressed. The default of a large market
participant could introduce the potential for sequential counterparty
failure; the resulting uncertainty could reduce the willingness of
market participants to extend credit, and substantially reduce
liquidity and valuations for particular types of financial
instruments.\61\ A broad view of the SBS market, including aggregate
market exposures to referenced entities (instruments), positions taken
by individual entities or groups, and data elements necessary for a
person to determine the market value of the transaction could provide
the Commission with a better understanding of the actual and potential
risks in the SBS market and promote better risk monitoring efforts. The
information provided by SDRs could also help the Commission detect
market manipulation, fraud, and other market abuses.
---------------------------------------------------------------------------

    \60\ See Exchange Act Section 13(n)(5)(D), 15 U.S.C.
78m(n)(5)(D), and Rule 13n-4(b)(5) (requiring SDRs to provide direct
electronic access to the Commission). See also 156 Cong. Rec. S5920
(daily ed. July 15, 2010) (statement of Sen. Lincoln) (``These new
`data repositories' will be required to register with the CFTC and
the SEC and be subject to the statutory duties and core principles
which will assist the CFTC and the SEC in their oversight and market
regulation responsibilities.'').
    \61\ See, e.g., Markus K. Brunnermeier and Lasse Heje Pedersen,
Market Liquidity and Funding Liquidity, 22 Review of Financial
Studies 2201 (2009); Denis Gromb and Dimitri Vayanos, A Model of
Financial Market Liquidity Based on Intermediary Capital, 8 Journal
of the European Economic Association 456 (2010).
---------------------------------------------------------------------------

    The extent of the benefits discussed above may be limited by the
inaccuracy or incompleteness of SBS data maintained by SDRs.\62\ The
Commission believes, however, that the SDR Rules relating to data
accuracy \63\ and maintenance \64\ will help minimize the inaccuracy or
incompleteness of SBS data maintained by SDRs. The benefits discussed
above may have associated costs for compliance with the SDR Rules and
Regulation SBSR. Persons that meet the definition of an SDR will be
required to invest in infrastructure necessary to comply with rules for
collecting, maintaining, and disseminating accurate data. Such
infrastructure costs may ultimately be reflected in the prices that SBS
dealers charge to customers, mitigating the reduction in indirect
trading costs that may accrue from reducing SBS dealers' information
advantage.
---------------------------------------------------------------------------

    \62\ The CFTC's experience with collecting swap data suggests
that the benefits of receiving information from trade repositories
may be reduced by inaccuracies or inconsistencies in information
maintained by trade repositories. See, e.g., Andrew Ackerman, CFTC
Seeks Comment on Improving Swaps Data Stream; Data Problems Have
Hobbled Efforts to See More Clearly Into Swaps Market, Wall Street
Journal Mar. 19, 2014, http://online.wsj.com/news/articles/SB10001424052702304026304579449552899867592 (noting that ``a series
of data problems . . . have hobbled efforts to see more clearly into
the multitrillion-dollar swaps market''). The CFTC has published a
request for comment on specific swap data reporting and
recordkeeping rules to determine how these rules were being applied
and whether or what clarifications, enhancements, or guidance may be
appropriate. See Review of Swap Data Recordkeeping and Reporting
Requirements, 79 FR 16689 (Mar. 26, 2014).
    \63\ See, e.g., Rule 13n-5(b)(3) (requiring an 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).
    \64\ See, e.g., Rule 13n-5(b)(4) (requiring an 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)(5) (requiring
an 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 SDR Rules permit the possibility of multiple SDRs within an
asset class.\65\ If there are multiple SDRs in any given asset class,
then differences in how each

SDR accepts, stores, and disseminates SBS data may cause fragmentation
in the SBS data, thereby making it more difficult for the Commission
and the public to compile, compare, and analyze market information. As
discussed below, the Commission anticipates that it will propose for
public comment detailed specifications of acceptable formats and
taxonomies that would facilitate an accurate interpretation,
aggregation, and analysis of SBS data by the Commission.\66\ The
Commission believes that these specifications may help reduce any
difficulties resulting from the fragmentation of data among multiple
SDRs by facilitating the clear, uniform reporting of SBS data to the
Commission.
---------------------------------------------------------------------------

    \65\ See Section IV of this release discussing number of SDRs
and consolidation of SBS data.
    \66\ See Section VI.D.2.c.ii of this release.
---------------------------------------------------------------------------

B. Baseline

    To assess the economic impact of the SDR Rules described in this
release, the Commission is using as a baseline the SBS market as it
exists today, including applicable rules that have already been adopted
and excluding rules that have been proposed, but not yet finalized. The
Commission acknowledges limitations in the degree to which the
Commission can quantitatively characterize the current state of the SBS
market. As described in more detail below, because the available data
on SBS transactions do not cover the entire market, the Commission has
developed an understanding of market activity using a sample that
includes only certain portions of the market.
1. Transparency in the SBS Market
    There currently is no robust, widely accessible source of
information about individual SBS transactions. Nevertheless, market
participants can gather certain limited information for the single-name
CDS market from a variety of sources. For example, some vendors provide
indicative quotes. Indicative quotes are not based on actual
transactions and, as such, they may not reflect the true value.
Moreover, these quotes do not represent firm commitments to buy or sell
protection on particular reference entities. However, market
participants can gather information from indicative quotes that may
inform their trading. In addition, one entity as part of its single-
name CDS clearing, makes its daily settlement prices on 5 year single-
name CDSs available to the public on its Web site.\67\ A more complete
database of current and historical settlement prices is available by
subscription.
---------------------------------------------------------------------------

    \67\ See https://www.theice.com/cds/MarkitSingleNames.shtml.
End-of-Day (``EOD'') prices are established for all cleared CDS
single name and index instruments using a price discovery process
developed for the CDS market. Clearing participants are required to
submit prices every business day, and the clearing house conducts a
daily auction-like process resulting in periodic trade executions
among clearing participants. This process determines the clearing
house EOD prices, which are used for daily mark-to-market purposes.
---------------------------------------------------------------------------

    In addition to the pricing data discussed above, there is limited,
publicly-disseminated information about aggregate SBS market activity.
The Depository Trust and Clearing Corporation--Trade Information
Warehouse (``DTCC-TIW'') publishes weekly transaction and position
reports for single-name CDSs. ICE Clear Credit also provides aggregated
volumes of clearing activity. Additionally, large multilateral
organizations periodically report measures of market activity. For
example, the Bank for International Settlements (``BIS'') reports gross
notional outstanding for single-name CDSs and equity forwards and swaps
semiannually.
    Market participants that are SBS dealers can also draw inferences
about SBS market activity by observing order flow. This source of
proprietary information is most useful for SBS dealers with large
market shares.
    Finally, DTCC-TIW voluntarily provides to the Commission data on
individual CDS transactions. This information is made available to the
Commission in accordance with an agreement between the DTCC-TIW and the
OTC Derivatives Regulators' Forum (``ODRF''), of which the Commission
is a member. While DTCC-TIW generally provides this information to
regulators that are members of the ODRF, DTCC-TIW does not make the
information available to the public.
2. Current Security-Based Swap Market
    The Commission's analysis of the current state of the SBS market is
based on data obtained from DTCC-TIW, particularly data regarding the
activity of market participants for single-name CDSs from 2008 to 2013.
While other repositories may collect data on transactions in total
return swaps on equity and debt, the Commission does not currently have
access to such data for these products (or other products that are
SBSs). Although the Commission has previously noted that the definition
of SBS is not limited to single-name CDSs, the Commission believes that
the single-name CDS data is sufficiently representative of the SBS
market and therefore can directly inform the analysis of the state of
the current SBS market.\68\ The Commission believes that DTCC-TIW's
data for single-name CDSs is reasonably comprehensive because it
includes data on almost all single-name CDS transactions and market
participants trading in single-name CDSs.\69\ The Commission notes that
the data that it receives from DTCC-TIW does not encompass CDS
transactions that both: (i) Do not involve any U.S. counterparty,\70\
and (ii) are not based on a U.S. reference entity. Notwithstanding this
limitation, the Commission believes that DTCC-TIW data provides
sufficient information to identify the types of market participants
active in the SBS market and the general pattern of dealing within that
market.\71\
---------------------------------------------------------------------------

    \68\ According to data published by BIS, the global notional
amount outstanding in equity forwards and swaps as of December 2013
was $2.28 trillion. The notional amount outstanding was
approximately $11.32 trillion for single-name CDSs, approximately
$9.70 trillion for multi-name index CDSs, and approximately $0.95
trillion for multi-name, non-index CDSs. See Bank of International
Settlement, BIS Quarterly Review, Statistical Annex, Table 19 (June
2014), available at http://www.bis.org/publ/qtrpdf/r_qt1406.htm. For
purposes of this analysis, the Commission assumes that multi-name
index CDSs are not narrow-based index CDSs, and therefore do not
fall within the definition of SBS. See Exchange Act Section
3(a)(68)(A), 15 U.S.C. 78c(a)(68)(A); see also Further Definition of
``Swap,'' ``Security-Based Swap,'' and ``Security-Based Swap
Agreement''; Mixed Swaps; Security-Based Swap Agreement
Recordkeeping, Exchange Act Release No. 67453 (July 18, 2012), 77 FR
48207 (Aug. 13, 2012). The Commission also assumes that instruments
reported as equity forwards and swaps include instruments such as
total return swaps on individual equities that fall with the
definition of SBS, potentially resulting in underestimation of the
proportion of the SBS market represented by single-name CDSs.
Although the BIS data reflects the global OTC derivatives market,
and not only the U.S. market, the Commission is not aware of any
reason to believe that these ratios differ significantly in the U.S.
market.
    \69\ See ISDA, CDS Marketplace, Exposures & Activity, http://www.isdacdsmarketplace.com/exposures_and_activity (``DTCC Deriv/
SERV's Trade Information Warehouse is the only comprehensive trade
repository and post-trade processing infrastructure for OTC credit
derivatives in the world. Its Deriv/SERV matching and confirmation
service electronically matches and confirms more than 98% of credit
default swaps transactions globally.'').
    \70\ The Commission notes that DTCC-TIW's entity domicile
determinations may not reflect the Commission's definition of ``U.S.
person'' in all cases.
    \71\ In 2013, DTCC-TIW reported on its Web site new trades in
single-name CDSs with gross notional of $12.0 trillion. DTCC-TIW
provided to the Commission data that included only transactions with
a U.S. counterparty or a U.S. reference entity. During the same
period, this data included new trades with gross notional equaling
$9.3 trillion, or 77% of the total reported by DTCC-TIW.
---------------------------------------------------------------------------

a. Security-Based Swap Market Participants
    A key characteristic of SBS activity is that it is concentrated
among a relatively small number of entities that

engage in dealing activities.\72\ Based on DTCC-TIW data that the
Commission has received, thousands of other market participants appear
as counterparties to SBS transactions, including, but not limited to,
investment companies, pension funds, private (hedge) funds, sovereign
entities, and industrial companies. The Commission observes that most
end users of SBSs do not directly trade SBSs, but instead use dealers,
banks, or investment advisers as agents to establish the end users'
positions. Based on the Commission's analysis of DTCC-TIW data, there
were 1,800 entities engaged directly in trading CDSs between November
2006 and December 2013.\73\ Table 1 below highlights that of these
entities, there were 17, or approximately 0.9%, that were ISDA-
recognized dealers.\74\ The vast majority of transactions (84.1%)
measured by the number of counterparties (each transaction has two
counterparties or transaction sides) were executed by ISDA-recognized
dealers. Thus, a small set of dealers observe the largest share of the
market and potentially benefit the most from opacity.
---------------------------------------------------------------------------

    \72\ See Cross-Border Adopting Release, 79 FR at 47293, supra
note 11. All data in this section cites updated data from this
release and the accompanying discussion.
    \73\ These 1,800 transacting agents represent over 10,000
accounts representing principal risk holders. See Regulation SBSR
Adopting Release, supra note 13 and Cross Border Adopting Release,
79 FR at 47293-4, supra note 11 (discussing the number of
transacting agents and accounts of principal risk holders).
    \74\ For the purpose of this analysis, the ISDA-recognized
dealers are those identified by ISDA as a recognized dealer in any
year during the relevant period. Dealers are only included in the
ISDA-recognized dealer category during the calendar year in which
they are so identified. The complete list of ISDA recognized dealers
is: JP Morgan Chase NA (and Bear Stearns), Morgan Stanley, Bank of
America NA (and Merrill Lynch), Goldman Sachs, Deutsche Bank AG,
Barclays Capital, Citigroup, UBS, Credit Suisse AG, RBS Group, BNP
Paribas, HSBC Bank, Lehman Brothers, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, Credit Agricole, Wells Fargo, and Nomura.
See ISDA, Operations Benchmarking Surveys, available at http://www2.isda.org/functional-areas/research/surveys/operations-benchmarking-surveys.

   Table 1--The Number of Transacting Agents in the CDS Market by Counterparty Type and the Fraction of Total
       Trading Activity, From November 2006 Through December 2013, Represented by Each Counterparty Type.
----------------------------------------------------------------------------------------------------------------
                                                                                Transaction
                       Transacting agents                             Number          Percent       share  (%)
----------------------------------------------------------------------------------------------------------------
Investment Advisers.............................................           1,347            74.8             9.7
--SEC registered................................................             529            29.4             5.9
Banks...........................................................             256            14.2             5.0
Pension Funds...................................................              29             1.6             0.1
Insurance Companies.............................................              36             2.0             0.2
ISDA-Recognized Dealers.........................................              17             0.9            84.1
Other...........................................................             115             6.4             1.0
                                                                 -----------------------------------------------
    Total.......................................................           1,800           100.0           100.0
----------------------------------------------------------------------------------------------------------------

    Principal holders of CDS risk exposure are represented by accounts
in DTCC-TIW.\75\ As highlighted in Table 2 below, Commission staff's
analysis of these accounts in DTCC-TIW shows that the 1,800 transacting
agents (entities directly engaged in trading) described above
represented 10,054 principal risk holders (entities bearing the risk of
the CDS). In some cases, the principal risk holder may have been
represented by an investment adviser that served as the transacting
agent. In other cases, the principal risk holder may have participated
directly as the transacting agent. Each account does not necessarily
represent a separate legal person; one legal person may allocate
transactions across multiple accounts. For example, the 17 ISDA-
recognized dealers described above allocated transactions across 69
accounts.
---------------------------------------------------------------------------

    \75\ ``Accounts'' as defined in the DTCC-TIW context are not
equivalent to ``accounts'' in the definition of ``U.S. person''
provided by Exchange Act Rule 3a71-3(a)(4)(i)(C). They also do not
necessarily represent separate legal persons. One entity or legal
person may have multiple accounts. For example, a bank may have one
DTCC account for its U.S. headquarters and one DTCC account for one
of its foreign branches.
---------------------------------------------------------------------------

    Among the accounts, there are 1,086 Dodd-Frank Act-defined special
entities and 636 investment companies registered under the Investment
Company Act of 1940.\76\ Private funds comprise the largest type of
account holders that the Commission was able to classify, and although
not verified through a recognized database, most of the funds the
Commission was not able to classify appear to be private funds.\77\
While the Commission anticipates that some of these accounts may prefer
to operate in an opaque market (if, for example, they are relying on a
proprietary trading strategy and wish to keep their transactions
anonymous), the data suggest that the vast majority of principal risk
holders in CDS may benefit from the Dodd-Frank Act's transparency
requirements. As discussed above and in Section VIII below, dealers are
the category of market participants most likely to benefit from
opaqueness. As shown in Table 1, of the 1,800 transacting agents in the
2006-2013 sample, 17 (or 0.9%) are ISDA-recognized dealers. Similarly,
as shown in Table 2, of the 10,054 accounts with CDS transactions, 69
(or 0.7%) are accounts held by ISDA-recognized dealers. As many as 99%
of market participants may benefit from increasing transparency.
---------------------------------------------------------------------------

    \76\ There remain over 4,600 DTCC ``accounts'' unclassified by
type. Although unclassified, each was manually reviewed to verify
that it was not likely to be a special entity within the meaning of
the Dodd-Frank Act and instead was likely to be an entity such as a
corporation, an insurance company, or a bank.
    \77\ ``Private funds'' encompass various unregistered pooled
investment vehicles, including hedge funds, private equity funds,
and venture capital funds.

      Table 2--the Number and Percentage of Account Holders--by Type--Who Participate in the CDS Market Through a Registered Investment Adviser, an
                      Unregistered Investment Adviser, or Directly as a Transacting Agent From November 2006 Through December 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Account holders by type                        Number        Represented by a
                                                                   Represented by an
                                                                    Participant is
                                                                      transacting
                                                               ...........    registered investment
                                                                unregistered investment
                                                                      agent \78\
                                                               ...........           adviser
                                                                        adviser
--------------------------------------------------------------------------------------------------------------------------------------------------------
Private Funds................................................        2,914        1,395          48%        1,496          51%           23           1%
Dodd-Frank Act Special Entities..............................        1,086        1,050          97%           12           1%           24           2%
Registered Investment Companies..............................          636          620          97%           14           2%            2           0%
Banks (non-ISDA-recognized dealers)..........................          369           25           7%            5           1%          339          92%
Insurance Companies..........................................          224          144          64%           21           9%           59          26%
ISDA-Recognized Dealers......................................           69            0           0%            0           0%           69         100%
Foreign Sovereigns...........................................           63           45          71%            2           3%           16          25%
Non-Financial Corporations...................................           57           39          68%            3           5%           15          26%
Finance Companies............................................           10            5          50%            0           0%            5          50%
Other/Unclassified...........................................        4,626        3,131          68%        1,295          28%          200           4%
    All......................................................       10,054        6,454          64%        2,848          28%          752           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Although the SBS market is global in nature, 61% of the transaction
volume in the 2008-2013 period included at least one U.S.-domiciled
entity (see Figure 1). Moreover, 18% of the CDS transactions reflected
in DTCC-TIW data that include at least one U.S.-domiciled counterparty
or a U.S. reference entity were between U.S.-domiciled entities and
foreign-domiciled counterparties.
---------------------------------------------------------------------------

    \78\ This column reflects the number of participants who are
also trading for their own accounts.
[GRAPHIC] [TIFF OMITTED] TR19MR15.001

    The cross-border nature of the SBS market is growing over time.
Figure 2 below is a chart of (1) the percentage of new accounts with a
domicile in the United States,\79\ (2) the percentage of new accounts
with a domicile outside

the United States, and (3) the percentage of new accounts outside the
United States, but managed by a U.S. entity, foreign accounts that
include new accounts of a foreign branch of a U.S. bank, and new
accounts of a foreign subsidiary of a U.S. entity. Over time, a greater
share of accounts entering the DTCC-TIW data either have a foreign
domicile or have a foreign domicile while being managed by a U.S.
person. The increase in foreign accounts may reflect an increase in
participation by foreign accountholders and the increase in foreign
accounts managed by U.S. persons may reflect the flexibility with which
market participants can restructure their market participation in
response to regulatory intervention, competitive pressures, and other
factors. There are, however, alternative explanations for the shifts in
new account domicile in Figure 2. Changes in the domicile of new
accounts through time may reflect improvements in reporting by market
participants to DTCC-TIW. Additionally, because the data includes only
accounts that are domiciled in the United States, transact with U.S.-
domiciled counterparties, or transact in single-name CDSs with U.S.
reference entities, changes in the domicile of new accounts may reflect
increased transaction activity between U.S. and non-U.S.
counterparties.
---------------------------------------------------------------------------

    \79\ The domicile classifications in DTCC-TIW are based on the
market participants' own reporting and have not been verified by
Commission staff. Prior to enactment of the Dodd-Frank Act, account
holders did not formally report their domicile to DTCC-TIW because
there was no systematic requirement to do so. After enactment of the
Dodd-Frank Act, the DTCC-TIW has collected the registered office
location of the account. This information is self-reported on a
voluntary basis. It is possible that some market participants may
misclassify their domicile status because the databases in DTCC-TIW
do not assign a unique legal entity identifier to each separate
entity. It is also possible that the domicile classifications may
not correspond precisely to the definition of U.S. person under the
rules defined in Exchange Act Rule 3a71-3(a)(4), 17 CFR 240.3a71-
3(a)(4). Notwithstanding these limitations, the Commission believes
that the cross-border and foreign activity demonstrates the nature
of the single-name CDS market.
[GRAPHIC] [TIFF OMITTED] TR19MR15.002

b. Security-Based Swap Data Repositories
    No SDRs are currently registered with the Commission. The
Commission is aware of one entity in the market (i.e., the DTCC-TIW)
that has been accepting voluntary reporting of single-name and index
CDS transactions. In 2013, DTCC-TIW received approximately 3.1 million
records of CDS transactions, of which

approximately 800,000 were price forming.\80\
---------------------------------------------------------------------------

    \80\ Price-forming CDS transactions include all new
transactions, assignments, modifications to increase the notional
amounts of previously executed transactions, and terminations of
previously executed transactions. Transactions terminated or entered
into in connection with a compression exercise, and expiration of
contracts at maturity are not considered price-forming and are
therefore excluded, as are replacement trades and all bookkeeping-
related trades.
---------------------------------------------------------------------------

    The CFTC has provisionally registered four swap data
repositories.\81\ These swap data repositories are: BSDR LLC, Chicago
Mercantile Exchange Inc., DTCC Data Repository LLC, and ICE Trade
Vault, LLC. The Commission believes that most of these entities will
likely register with the Commission as SDRs and that other persons may
seek to register with both the CFTC and the Commission as swap data
repositories and SDRs, respectively. As stated above, the Commission
believes that the final SDR Rules are largely consistent with the
CFTC's rules governing swap data repositories.
---------------------------------------------------------------------------

    \81\ CFTC Rule 49.3(b) provides for provisional registration of
a swap data repository. 17 CFR 49.3(b).
---------------------------------------------------------------------------

    Efforts to regulate the swap and SBS market are underway not only
in the United States, but also abroad. In 2009, leaders of the G20--
whose members include the United States, 18 other countries, and the
European Union--called for global improvements in the functioning,
transparency, and regulatory oversight of OTC derivatives markets and
agreed, among other things, that OTC derivatives contracts should be
reported to trade repositories.\82\ Substantial progress has been made
in establishing the trade repository infrastructure to support the
reporting of all contracts.\83\ Currently, multiple trade repositories
operate, or are undergoing approval processes to do so, in a number of
different jurisdictions.\84\ The requirements for trade reporting
differ across jurisdictions. The result is that trade repository data
is fragmented across many locations, stored in a variety of formats,
and subject to many different rules for authorities' access. The data
in these trade repositories will need to be aggregated in various ways
if authorities are to obtain a comprehensive and accurate view of the
global OTC derivatives markets and to meet the original financial
stability objectives of the G20 in calling for comprehensive use of
trade repositories.
---------------------------------------------------------------------------

    \82\ See Leaders' Statement, The Pittsburgh Summit, September
24-25, 2009, available at http://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
    \83\ See OTC Derivatives Market Reforms Eighth Progress Report
on Implementation (Nov. 2014), available at http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf.
    \84\ Id.
---------------------------------------------------------------------------

III. Definition, Scope of Registration, Services, and Business Models
of SDRs

    The Proposing Release generally discussed the role, regulation, and
business models of SDRs,\85\ but it did not specifically address the
applicability of the statutory definition of an SDR.\86\ The Commission
received several comments that addressed broad issues regarding what
persons fall within the statutory definition of an SDR, what services
can or must be provided by SDRs, and what business models are
appropriate for SDRs. In light of these comments, the Commission
believes that it is useful to provide clarity on the definition of an
SDR and the services that are required or permitted to be provided by
SDRs. For purposes of this release, the Commission will refer to
services that are specifically included in the statutory definition of
an SDR \87\ as ``core'' services. All other services--both those
required by the Dodd-Frank Act and the rules and regulations
thereunder, and those not required, but which the Commission believes
are permissible for SDRs to perform--will be referred to as
``ancillary'' services.
---------------------------------------------------------------------------

    \85\ See Proposing Release, 75 FR at 77307-77308, supra note 2.
    \86\ In the Cross-Border Proposing Release, the Commission
discussed several examples of circumstances in which a person would
be performing the functions of an SDR in the cross-border context.
78 FR at 31041-31043, supra note 3. The Commission did not receive
any comments on this aspect of the Cross-Border Proposing Release.
    \87\ Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

A. Definition of SDR: Core Services

    Exchange Act Section 3(a)(75), enacted by Dodd-Frank Act Section
761, defines a ``security-based swap data repository'' to mean ``any
person that collects and maintains information or records with respect
to transactions or positions in, or the terms and conditions of,
security-based swaps entered into by third parties for the purpose of
providing a centralized recordkeeping facility for security-based
swaps.'' \88\
---------------------------------------------------------------------------

    \88\ Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

    One commenter requested that ``the Commission provide clear
guidance as to the scope of the entities covered within the [statutory]
definition of SDR in the Dodd-Frank Act.'' \89\ The commenter stated as
follows: ``The statutory duties required of an SDR are extensive and
can form a business in their own right. The requirements of an SDR
should not be imposed upon service providers looking to provide
targeted solutions to specific processes, as opposed to providers
looking more broadly to fulfill the role of an SDR. All third party
service providers have to perform a level of recordkeeping and often
retain data previously submitted by customers to offer services
efficiently. This should not transform them into an SDR unless there is
a corresponding policy reason for doing so. In fact, there is a strong
policy reason to exclude them, the goal of countering the risk of
fragmentation in data collection and dissemination on a global basis.''
\90\ Another commenter described an SDR's core functions as ``basic
receipt and storage of [SBS] data.'' \91\
---------------------------------------------------------------------------

    \89\ DTCC 2, supra note 19.
    \90\ DTCC 2, supra note 19.
    \91\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    The Commission believes that the statutory definition in Exchange
Act Section 3(a)(75) describes the core services or functions of an
SDR. Whether a person falls within the statutory definition of an SDR
is fact-specific. An example of a person that would likely meet the
statutory definition of an SDR is a person that provides the service of
maintaining a centralized repository of records of SBSs for
counterparties to SBS transactions that are intended to be relied on by
counterparties for legal purposes. Providing this service would cause
the person to meet the statutory definition of an SDR because the
person is ``collect[ing] and maintain[ing] information or records with
respect to transactions or positions in, or the terms and conditions
of, [SBSs] entered into by third parties for the purpose of providing a
centralized recordkeeping facility for [SBSs].'' \92\ In contrast, a
law firm, trustee, custodian, or broker-dealer that holds SBS records
likely would not meet the statutory definition of an SDR because those
persons would not be doing so ``for the purpose of providing a
centralized recordkeeping facility for [SBSs].'' \93\
---------------------------------------------------------------------------

    \92\ See Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
    \93\ See Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

    One commenter identified countering the risk of fragmentation in
data collection and dissemination as a policy reason to exclude certain
persons, such as certain third party service providers, from the
definition of an SDR.\94\ The Commission believes that while third
party service providers may collect and maintain SBS data, they
generally do not do so ``for the purpose of providing a centralized
recordkeeping facility.'' As such, third party service providers

generally would not fall within the statutory definition of an SDR.
Thus, they do not need to be excluded from the definition of an SDR, as
the commenter suggested. If, however, the third party service provider
collects and maintains the SBS data ``for the purpose of providing a
centralized recordkeeping facility,'' \95\ it would likely fall within
the definition of an SDR. The Commission does not believe that there
are any policy reasons, including countering the risk of fragmentation,
to warrant a broad-based exemption from registration for third party
service providers that collect and maintain SBS data ``for the purpose
of providing a centralized recordkeeping facility.''
---------------------------------------------------------------------------

    \94\ See DTCC 2, supra note 19.
    \95\ Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

B. SDRs Required To Register With the Commission

    To the extent that a person falls within the statutory definition
of an SDR, and makes use of the mails or any means or instrumentality
of interstate commerce to perform the functions of an SDR, then that
person is required to register with the Commission,\96\ absent an
exemption.\97\ As discussed in the Cross-Border Proposing Release,\98\
the Commission believes that U.S. persons \99\ that perform the
functions of an SDR are required to register with the Commission and
comply with Exchange Act Section 13(n) \100\ and the rules and
regulations thereunder, as well as other requirements applicable to
SDRs registered with the Commission.\101\ Requiring U.S. persons that
perform the functions of an SDR to be operated in a manner consistent
with the Title VII regulatory framework and subject to the Commission's
oversight, among other things, helps ensure that relevant authorities
are able to monitor the build-up and concentration of risk exposure in
the SBS market, reduce operational risk in that market, and increase
operational efficiency.\102\ SDRs themselves are subject to certain
operational risks that may impede the ability of SDRs to meet these
goals,\103\ and the Title VII regulatory framework is intended to
address these risks.
---------------------------------------------------------------------------

    \96\ See Exchange Act Section 13(n)(1), 15 U.S.C. 78m(n)(1).
    \97\ See Section VI.K of this release discussing Rule 13n-12.
    \98\ Cross-Border Proposing Release, 78 FR at 31042, supra note
3.
    \99\ The term ``U.S. person'' is defined in Rule 13n-12(a), as
discussed in Section VI.K.3 of this release, and cross-references to
the definition of ``U.S. person'' in Exchange Act Rule 3a71-
3(a)(4)(i), 17 CFR 240.3a71-3(a)(4)(i). See Cross-Border Adopting
Release, 79 FR at 47371, supra note 11. Rule 3a71-3(a)(4)(i) defines
``U.S. person'' to mean ``any person that is: (A) A natural person
resident in the United States; (B) A partnership, corporation,
trust, investment vehicle, or other legal person organized,
incorporated, or established under the laws of the United States or
having its principal place of business in the United States; (C) An
account (whether discretionary or non-discretionary) of a U.S.
person; or (D) An estate of a decedent who was a resident of the
United States at the time of death.'' Id. at 47371. As the
Commission noted in the Cross-Border Adopting Release, the
definition of ``U.S. person'' in Rule 3a71-3(a)(4)(i) ``reflect[s] a
territorial approach to the application of Title VII.'' Cross-Border
Adopting Release, 79 FR at 47306, supra note 11. The Commission
believes that the territorial focus of the definition is appropriate
in the context of the SDR Rules because it will enable the
Commission to identify those SDRs that should be required to
register with the Commission by virtue of the location of a
significant portion of their commercial and legal relationships
within the United States. Cf. Cross-Border Adopting Release, 79 FR
at 47337, supra note 11.
    \100\ 15 U.S.C. 78m(n).
    \101\ In addition to the SDR Rules, the Commission is adopting
Regulation SBSR, which imposes certain obligations on SDRs
registered with the Commission. See Regulation SBSR Adopting
Release, supra note 13. In a separate proposal relating to
implementation of Dodd-Frank Act Section 763(i) (adding Exchange Act
Section 13(n)(5)(E), 15 U.S.C. 78m(n)(5)(E)), the Commission
proposed rules that would require SDRs registered with the
Commission to collect data related to monitoring the compliance and
frequency of end-user clearing exemption claims. See End-User
Exception Proposing Release, supra note 15.
    \102\ See Proposing Release, 75 FR at 77307, supra note 2 (``The
enhanced transparency provided by an SDR is important to help
regulators and others monitor the build-up and concentration of risk
exposures in the SBS market . . . . In addition, SDRs have the
potential to reduce operational risk and enhance operational
efficiency in the SBS market.'').
    \103\ See Proposing Release, 75 FR at 77307, supra note 2 (``The
inability of an SDR to protect the accuracy and integrity of the
data that it maintains or the inability of an SDR to make such data
available to regulators, market participants, and others in a timely
manner could have a significant negative impact on the SBS market.
Failure to maintain privacy of such data could lead to market abuse
and subsequent loss of liquidity.'').
---------------------------------------------------------------------------

    Also, as stated in the Cross-Border Proposing Release, the
Commission believes that a non-U.S. person \104\ that performs the
functions of an SDR within the United States would be required to
register with the Commission, absent an exemption.\105\ The
Commission's interpretation of the scope of SDR registration is
consistent with the Commission's territorial approach to the
application of Title VII, as discussed in the Cross-Border Adopting
Release.\106\ As noted in that release, the Commission takes the view
that a territorial approach to the application of Title VII is grounded
in the text of the relevant statutory provisions and is designed to
help ensure that the Commission's application of the relevant
provisions is consistent with the goals that the statute was intended
to achieve.\107\ Once the focus of the statute has been identified
using this analysis, determining whether a particular application of
the statute is territorial turns on whether any relevant conduct that
is the focus of the statute has a sufficient territorial nexus with the
United States.\108\
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    \104\ Under this interpretation, the term ``non-U.S. person''
would have the same meaning as set forth in Rule 13n-12(a), as
discussed in Section VI.K.3 of this release.
    \105\ Cross-Border Proposing Release, 78 FR at 31042, supra note
3. See also Exchange Act Section 13(n)(1), 15 U.S.C. 78m(n)(1)
(requiring persons that, directly or indirectly, make use of the
mails or any means or instrumentality of interstate commerce to
perform the functions of an SDR to register with the Commission).
The Commission recognizes that some non-U.S. persons that perform
the functions of an SDR may do so entirely outside the United
States, and thus, are not required to register with the Commission.
See Cross-Border Proposing Release, 78 FR at 31042 n.721, supra note
3.
    \106\ Cross-Border Adopting Release, 79 FR at 47287, supra note
11. Accord IIB CB, supra note 26 (believing that the Commission's
territorial approach to registration is appropriate for market
infrastructures, including SDRs, and stating that ``[t]his approach
will help [ ] achieve the Commission's market oversight objectives
while avoiding conflicts with foreign regulators, and it is
consistent with the CFTC's approach'').
    \107\ Cross-Border Adopting Release, 79 FR at 47287, supra note
11.
    \108\ See Cross-Border Adopting Release, 79 FR at 47287, supra
note 11.
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    As stated in the Cross-Border Proposing Release, the Commission
believes that ``a non-U.S. person would be performing `the functions of
a security-based swap data repository within the United States' if, for
example, it enters into contracts, such as user or technical
agreements, with a U.S. person to enable the U.S. person to report
[SBS] data to such non-U.S. person.'' \109\ As another example, ``a
non-U.S. person would be performing `the functions of a security-based
swap data repository within the United States' if it has operations in
the United States, such as maintaining [SBS] data on servers physically
located in the United States, even if its principal place of business
is not in the United States.'' \110\
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    \109\ Cross-Border Proposing Release, 78 FR at 31042, supra note
3.
    \110\ Cross-Border Proposing Release, 78 FR at 31042, supra note
3. The Commission notes that if a person performing the functions of
an SDR has operations in the United States to the extent that such
operations constitute a principal place of business, then the person
would fall within the definition of ``U.S. person'' in Rule 13n-12,
which cross-references to Exchange Act Rule 3a71-3(a)(4)(i), 17 CFR
240.3a71-3(a)(4)(i). As adopted, the term ``U.S. person'' includes a
partnership, corporation, trust, investment vehicle, or other legal
person having its principal place of business in the United States.
See Cross-Border Adopting Release, 79 FR at 47371, supra note 11. As
a result of being a ``U.S. person,'' the person with its principal
place of business in the United States would be required to register
as an SDR with the Commission.
---------------------------------------------------------------------------

    One commenter submitted a comment relating to the Commission's
guidance on SDR registration in the cross-border context.\111\ This
commenter suggested

that ``[t]he SDR registration requirement should apply to any entity,
regardless of physical location of servers, that receives [SBS]
transaction data from reporting sides who are U.S. persons for the
purpose of complying with the Commission's reporting regulations.''
\112\ The commenter also suggested that if an SDR ``collects and
maintains [SBS] transaction information or records in furtherance of
these obligations, then it should be deemed to `function' as an SDR in
the United States and face the registration requirements.'' \113\ The
Commission agrees generally with the commenter, but notes that
determination of whether or not an SDR is required to register with the
Commission is based on relevant facts and circumstances, including, for
example, whether the SDR performs the functions of an SDR within the
United States, such as having operations within the United States, as
discussed above. Thus, an SDR's registration requirements should be
analyzed separately from the reporting requirements of Title VII and
Regulation SBSR.
---------------------------------------------------------------------------

    \111\ See DTCC CB, supra note 26.
    \112\ DTCC CB, supra note 26.
    \113\ DTCC CB, supra note 26.
---------------------------------------------------------------------------

    The commenter stated that ``an entity that (i) collects and
maintains [non-SBS] transaction information, (ii) collects and
maintains [SBS] transaction information from activity between non-U.S.
persons, or (iii) collects and maintains [SBS] transaction information
reported to the entity pursuant to regulatory requirements or
commitments unrelated to those imposed by the Commission . . . should
not be considered to function in the United States,'' and
``[a]ccordingly, such an entity would not be required to register with
the Commission as an SDR.'' \114\ The Commission believes that this
position is overly broad. The Commission agrees that a person that
collects and maintains only non-SBS transaction information would not
have to register with the Commission because it would not fall within
the statutory definition of an SDR.\115\ However, consistent with the
Commission's territorial approach to the application of Title VII, an
SDR that collects and maintains data relating to SBS transactions
between non-U.S. persons may still be required to register with the
Commission if the SDR makes use of the mails or any means or
instrumentality of interstate commerce to perform the functions of an
SDR--for example by maintaining SBS data on servers physically located
in the United States. Similarly, an SDR that collects and maintains SBS
transaction information reported to the SDR pursuant to requirements or
commitments unrelated to those imposed by the Commission may still be
required to register with the Commission if the SDR makes use of the
mails or any means or instrumentality of interstate commerce to perform
the functions of an SDR.
---------------------------------------------------------------------------

    \114\ DTCC CB, supra note 26.
    \115\ See Exchange Act Section 3(a)(75), 15 U.S.C. 78c(a)(75).
---------------------------------------------------------------------------

    Determination of whether or not an SDR is required to register with
the Commission is fact-specific. As stated in the Cross-Border
Proposing Release, given the constant innovation in the market and the
fact-specific nature of the determination, it is not possible to
provide a comprehensive discussion of every activity that would
constitute a non-U.S. person performing ``the functions of a security-
based swap data repository within the United States.'' \116\ In order
to provide legal certainty to market participants and to address
commenters' concerns regarding the potential for duplicative regulatory
requirements, the Commission is adopting Rule 13n-12, which exempts
certain non-U.S. persons performing ``the functions of a security-based
swap data repository within the United States'' from the registration
and other requirements set forth in Exchange Act Section 13(n) and the
rules and regulations thereunder. Rule 13n-12 is discussed in Section
VI.K of this release.
---------------------------------------------------------------------------

    \116\ Cross-Border Proposing Release, 78 FR at 31042-3, supra
note 3.
---------------------------------------------------------------------------

C. Ancillary Services

    As stated above, the Commission believes that the statutory
definition of an SDR describes the core services or functions of an
SDR. This release will refer to all other services or functions
provided by an SDR as ``ancillary services.'' SDRs are required to
provide some ancillary services under the Exchange Act and the rules
and regulations thereunder (``required ancillary services''). These
required ancillary services include certain duties of SDRs that are set
forth in Exchange Act Section 13(n)(5) \117\ and the duties imposed by
the SDR Rules. SDRs also may voluntarily choose to provide other
ancillary services (``voluntary ancillary services'').
---------------------------------------------------------------------------

    \117\ 15 U.S.C. 78m(n)(5).
---------------------------------------------------------------------------

    Five commenters submitted comments relating to ``ancillary
services.'' \118\ Three commenters recommended that SDRs be allowed
(but not be required) to offer ancillary services to SBS
counterparties.\119\ One of these commenters recommended that SDRs be
allowed (but not be required) to offer ``ancillary services,'' which,
according to that commenter, ``may include: Asset servicing,
confirmation, verification and affirmation facilities, collateral
management, settlement, trade compression and netting services,
valuation, pricing and reconciliation functionalities, position limits
management, dispute resolution, counterparty identity verification and
others.'' \120\ The commenter noted that allowing SDRs to offer such
services would ``promote greater efficiencies and greater accuracy of
data.'' \121\ The commenter also recommended allowing an SDR's
affiliates, which may not be registered with the Commission, to perform
such ``ancillary services.'' \122\ The second commenter recommended
that life cycle event processing and legal recordkeeping services be
treated as ``ancillary'' services.\123\ The second commenter also
recommended allowing SDRs to offer ``an asset servicing function,''
which would allow SDRs to ``assist in systemic risk monitoring by
providing regulators with regular reports analyzing the data (such as
position limit violations or certain identified manipulative trading
practices).'' \124\ With respect to bundling, both commenters agreed
that an SDR should not be allowed to require counterparties to use
``ancillary services'' in order to gain access to the SDR.\125\ The
third commenter believed that SDRs should be able to offer ``ancillary
services,'' but did not support the bundling of such services with
mandatory or regulatory services.\126\ The

fourth commenter believed that if SDRs provide ``ancillary services,''
then the SDRs should not have advantages in providing these services
over competitors offering the same services.\127\ This commenter noted,
for example, that SDRs will maintain granular trade data that is
valuable in providing post-trade services, and that other post-trade
service providers should have the same access to the granular trade
data as the SDR and its affiliates when providing post-trade
services.\128\ The fifth commenter suggested that certain functions
that an SDR may perform (e.g., confirmation of trades, reconciliation,
valuation of transactions, life-cycle management, collateral
management) should not be considered as ``processing of [SBSs]'' for
the purposes of SB SEF registration.\129\
---------------------------------------------------------------------------

    \118\ See Barnard, supra note 19; BNY Mellon, supra note 19;
DTCC 2, supra note 19; MarkitSERV, supra note 19; TriOptima, supra
note 19; see also DTCC 1*, supra note 20; DTCC 3, supra note 19.
These commenters generally did not define ``ancillary services.''
But see MarkitSERV, supra note 19 (referring to ``an array of
services that are ancillary . . . to those narrowly outlined in the
[SDR Rules] (i.e., basic receipt and storage of [SBS] data.)'').
    \119\ See MarkitSERV, supra note 19; DTCC 2, supra note 19;
Barnard, supra note 19; see also TriOptima, supra note 19
(contemplating that an SDR would provide ancillary services and
stressing the importance of equal access to SDR data when such
services are provided).
    \120\ MarkitSERV, supra note 19.
    \121\ MarkitSERV, supra note 19.
    \122\ MarkitSERV, supra note 19.
    \123\ DTCC 2, supra note 19.
    \124\ DTCC 1*, supra note 20.
    \125\ MarkitSERV, supra note 19; DTCC 3, supra note 19; see also
DTCC 4, supra note 19 (stating that providers offering services for
one asset class should not be permitted to bundle or tie these
services with services for other asset classes); TriOptima, supra
note 19 (agreeing that ``it is important that market participants
have the ability to access specific services separately''). See
Section VI.D.3.a of this release discussing bundling of services.
    \126\ Barnard, supra note 19.
    \127\ TriOptima, supra note 19.
    \128\ TriOptima, supra note 19.
    \129\ BNY Mellon, supra note 19. See also Exchange Act Section
3D(a)(1), 15 U.S.C. 78c-4(a)(1) (stating that ``[n]o person may
operate a facility for the trading or processing of security-based
swaps, unless the facility is registered as a security-based swap
execution facility or as a national securities exchange under this
section''). Subsequent to receiving this comment, the Commission
issued a proposing release on the registration and regulation of SB
SEFs, interpreting the Dodd-Frank Act to key the SB SEF registration
obligation on the definition of an SB SEF in Exchange Act Section
3(a)(77). See 15 U.S.C. 78c(a)(77), as added by Dodd-Frank Act
Section 761(a). See SB SEF Proposing Release, 76 FR at 10959 n.62,
supra note 29. The Commission expects to address the scope of SB SEF
registration when it adopts final rules relating to the registration
and regulation of SB SEFs.
---------------------------------------------------------------------------

    It appears that the commenters generally used the term ``ancillary
services'' to mean voluntary ancillary services. The Commission,
however, notes that at least two services identified by a commenter as
``ancillary services'' are considered by the Commission to be required
ancillary services for an SDR. This commenter suggested that
``confirmation'' and ``dispute resolution'' are ancillary to ``those
[services] narrowly outlined in the SBS SDR Regulation (i.e., basic
receipt and storage of swaps data).'' \130\ The Commission agrees with
the commenter's suggestion that these two services are not ``core'' SDR
services, which would cause a person providing such core services to
meet the definition of an SDR, and thus, require the person to register
with the Commission as an SDR. However, SDRs are required to perform
these two services or functions, and thus, they are required ancillary
services; as discussed in Sections VI.E.1.c and VI.E.6.c of this
release, the Exchange Act requires SDRs to ``confirm'' the accuracy of
the data submitted,\131\ and the final SDR Rules include a dispute
resolution requirement.\132\
---------------------------------------------------------------------------

    \130\ See MarkitSERV, supra note 19.
    \131\ See Exchange Act Section 13(n)(5)(B), 15 U.S.C.
78m(n)(5)(B); Rule 13n-4(b)(3) (requiring an SDR to ``[c]onfirm, as
prescribed in Rule 13n-5(Sec.  240.13n-5), with both counterparties
to the [SBS] the accuracy of the data that was submitted''); Rule
13n-5(b)(1)(iii) (requiring an SDR to establish, maintain, and
enforce written policies and procedures reasonably designed to
satisfy the SDR that the transaction data that has been submitted to
the SDR is complete and accurate).
    \132\ See Section VI.E.6.c of this release discussing Rule 13n-
5(b)(6).
---------------------------------------------------------------------------

    An SDR may delegate some of these required ancillary services to
third party service providers, who do not need to register as SDRs to
provide such services. The SDR will remain legally responsible for the
third party service providers' activities relating to the required
ancillary services and their compliance with applicable rules under the
Exchange Act. For example, as discussed above, the Exchange Act
requires SDRs to ``confirm'' the accuracy of the data submitted.\133\
If an SDR delegates its confirmation obligation to a third party
service provider, then the third party service provider that provides
this required ancillary service would not need to register as an SDR,
unless it otherwise falls within the definition of an SDR; however, the
SDR that delegates its obligation to the third party service provider
would remain responsible for compliance with the statutory
requirement.\134\
---------------------------------------------------------------------------

    \133\ See Exchange Act Section 13(n)(5)(B), 15 U.S.C.
78m(n)(5)(B). In a separate release, the Commission proposed rules
under Exchange Act Section 15F(i)(1), which provides that SBS
dealers and major SBS participants must ``conform with such
standards as may be prescribed by the Commission, by rule or
regulation, that relate to timely and accurate confirmation . . . of
all security-based swaps.'' See Trade Acknowledgment and
Verification of Security-Based Swap Transactions, Exchange Act
Release No. 63727 (Jan. 14, 2011), 76 FR 3859 (Jan. 21, 2011)
(``Trade Acknowledgment Release''). SDRs are not required to perform
confirmations under Exchange Act Section 15F(i)(1) and the rules and
regulations thereunder, but, in certain circumstances, SDRs may be
able to rely on confirmations that are provided pursuant to Exchange
Act Section 15F(i)(1). See Section VI.E.1.c of this release
discussing the circumstances where a single confirmation could
fulfill both requirements.
    \134\ An SDR that delegates required ancillary services to a
third party service provider must have a reasonable basis for
relying on the third party service provider. See Section VI.E.1.c of
this release discussing reasonable reliance in the context of
confirmations. Cf. Exchange Act Rule 17a-4(i), 71 CFR 240.17a-4(i)
(stating that an agreement with an outside entity to maintain and
preserve records for a member, broker, or dealer will not relieve
the member, broker, or dealer from its responsibilities under
Exchange Act Rules 17a-3 or 17a-4).
---------------------------------------------------------------------------

    The Commission agrees with the commenters' view that SDRs should be
allowed to offer voluntary ancillary services.\135\ The Commission
believes that use of such services by market participants and market
infrastructures will likely improve the quality of the data held by the
SDRs.\136\ The Commission believes that when the data held at an SDR is
used by counterparties for their own business purposes, rather than
solely for regulatory purposes, the counterparties will have additional
opportunities to identify errors in the data and will likely have
incentives to ensure the accuracy of the data held by the SDR.\137\
Such voluntary ancillary services that an SDR could provide include,
for example, collateral management, clearing and settlement, trade
compression and netting services, and pricing and reconciliation
functionalities. These services could also be provided by persons that
are not SDRs and would not, in and of themselves, require the providers
to register as SDRs.\138\
---------------------------------------------------------------------------

    \135\ See MarkitSERV, supra note 19; DTCC 2, supra note 19;
Barnard, supra note 19.
    \136\ See MarkitSERV, supra note 19 (recommending allowing SDRs
to offer ``ancillary services'' because it would ``promote greater
efficiencies and greater accuracy of data'').
    \137\ For example, counterparties might use the data maintained
by the SDR as part of their risk management activities. See
MarkitSERV, supra note 19 (``[O]ne of the critical components in
ensuring the accuracy of swaps data is the degree to which such data
is utilized by industry participants in other processes. The
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.'').
    \138\ The performance of some of these services, such as
clearing and settlement and netting services, may cause a person to
be a ``clearing agency,'' as defined in Exchange Act Section
3(a)(23), 15 U.S.C. 78c(a)(23); see also Clearing Agency Standards,
Exchange Act Release No. 68080 (Oct. 22, 2012), 77 FR 66220, 66227-
28 (Nov. 2, 2012) (``Clearing Agency Standards Release'') ([T]he
definition of clearing agency in Section 3(a)(23)(A) of the Exchange
Act covers any person who acts as an intermediary in making payments
or deliveries or both in connection with transactions in securities
and provides facilities for the comparison of data regarding the
terms of settlement of securities transactions, to reduce the number
of settlements of securities transactions, or for the allocation of
securities settlement responsibilities. . . . The determination of
whether particular activities meet the definition of a clearing
agency depends on the totality of the facts and circumstances
involved.''). It is unlawful for a clearing agency to make use of
the mails or any means or instrumentality of interstate commerce to
perform the functions of a clearing agency with respect to any
security (other than exempted securities) unless it is registered
with the Commission, or exempted from registration, pursuant to
Exchange Act Sections 17A(b) and 19(a), and the rules and
regulations thereunder.
---------------------------------------------------------------------------

    The Commission also agrees with the commenters' view that market
participants should not be required to use voluntary ancillary services
offered by an SDR as a condition to use the SDR's repository
services,\139\ and that SDRs should not be permitted to use their
repository function to gain

advantages in providing voluntary ancillary services over competitors
offering the same services.\140\ As discussed further below, the
Commission is adopting Rule 13n-4(c)(1), which should address
commenters' concerns.\141\
---------------------------------------------------------------------------

    \139\ See MarkitSERV, supra note 19; DTCC 2, supra note 19;
Barnard, supra note 19.
    \140\ See TriOptima, supra note 19.
    \141\ See Section VI.D.3.a of this release discussing Rule 13n-
4(c)(1).
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D. Business Models of SDRs

    The Commission understands that SDRs might operate under a number
of business models and did not intend for the proposed SDR Rules to
mandate any particular business model.\142\ In the Proposing Release,
the Commission solicited comments on whether the SDR Rules should favor
or discourage one business model over another.\143\ Three commenters,
including one comment submitted prior to the Proposing Release,
suggested that SDRs should be required to operate on an at-cost utility
model.\144\
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    \142\ See Proposing Release, 75 FR at 77308, supra note 2.
    \143\ Proposing Release, 75 FR at 77308, supra note 2.
    \144\ See DTCC 2, supra note 19 (stating that ``there is a
significant advantage to the market if SDRs are required to provide
basic services on an at-cost or utility model basis, as it avoids
the potential abuse or conflict of interest related to a relatively
small number of service providers in the SDR industry'' and that
``SDR fee structures should reflect an at-cost operating budget'');
Benchmark*, supra note 20 (stating that a non-profit utility
structure ``helps promote innovative uses'' of SBS data ``to
maximize its value to market participants''); Saul, supra note 19
(stating that SDRs should ``serve the entire industry as a utility''
and that ``[t]reating an SDR as a utility would also make it easier