market demand. For this reason, requiring SB SEFs to submit this
information would be critical to the Commission's ability to
effectively oversee SB SEFs.
    Much of the information that the Commission expects to receive from
SB SEFs under proposed Rule 822 is, by its nature, competitively
sensitive. If the Commission were unable to afford confidential
protection to the information that it expects to receive, then the SB
SEFs may hesitate to submit the required information to the Commission.
This result could potentially undermine the Commission's ability
effectively to oversee SB SEFs, which, in turn, could undermine
investor confidence in the SB swap market.
    The Freedom of Information Act (``FOIA'') provides at least two
exemptions under which the Commission has authority to grant
confidential treatment for the information submitted under proposed
Rule 822. First, FOIA Exemption 4 provides an exemption for ``trade
secrets and commercial or financial information obtained from a person
and privileged or confidential.'' \262\ As specified in proposed Rule
822(c), ``a notification, review, or description and analysis submitted
pursuant to this [Rule] will be accorded confidential treatment to the
extent permitted by law.'' The information required to be submitted to
the Commission under proposed Rule 822 may contain proprietary
information regarding automated systems that is privileged or
confidential and thus subject to protection from disclosure under
Exemption 4 of the FOIA.
---------------------------------------------------------------------------

    \262\ 5 U.S.C. 552(b)(4).
---------------------------------------------------------------------------

    Second, FOIA Exemption 8 provides an exemption for matters that are
``contained in or related to examination, operating, or condition
reports prepared by, on behalf of, or for the use of an agency
responsible for the regulation or supervision of financial
institutions.'' \263\ Similarly, Commission Rule 80(b)(8), Commission
Records and Information,

implementing Exemption 8, states that the Commission generally will not
publish or make available to any person matters that are ``[c]ontained
in, or related to, any examination, operating, or condition report
prepared by, on behalf of, or for the use of, the Commission, any other
Federal, State, local, or foreign governmental authority or foreign
securities authority, or any securities industry self-regulatory
organization, responsible for the regulation or supervision of
financial institutions.'' \264\
---------------------------------------------------------------------------

    \263\ 5 U.S.C. 552(b)(8).
    \264\ 17 CFR 200.80(b)(8).
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    The Commission requests comment on the following specific issues.
Are there specific provisions in proposed Rule 822(c) that should be
eliminated or refined? If so, please explain your reasoning. What is
the likely impact of this requirement on the SB swaps market, including
the impact on the incentives and behaviors of SB SEFs and the
willingness of persons to register as SB SEFs?

XX. Core Principle 14--Chief Compliance Officer

    Section 3D(d)(14) of the Exchange Act (Core Principle 14), requires
registered SB SEFs to designate a CCO and requires the CCO to perform
certain duties and to file compliance reports and financial reports
annually.\265\ Proposed Rule 823 would incorporate the requirements of
Core Principle 14 and provide certain additional requirements for its
implementation.
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    \265\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14) of the Exchange Act).
---------------------------------------------------------------------------

A. Appointment and Duties of CCO

    Proposed Rule 823(a) would require a registered SB SEF to identify
on its Form SB SEF a person who has been designated by the Board to
serve as the CCO. The compensation and removal of the CCO would require
the approval of a majority of the Board.\266\ Proposed Rule 823(b)
would incorporate the duties of the CCO contained in Core Principle
14.\267\ Specifically, proposed Rule 823(b) would provide that each CCO
shall: (1) Report directly to the Board or the senior officer of the SB
SEF; (2) review the compliance of the SB SEF with respect to the Core
Principles in Section 3D of the Exchange Act and the rules and
regulations thereunder; (3) in consultation with the Board or the
senior officer, resolve any conflicts of interest that may arise; (4)
be responsible for establishing each policy and procedure that is
required to be established under Section 3D of the Exchange Act and the
rules and regulations thereunder; (5) monitor compliance with the
Exchange Act and the rules and regulations thereunder relating to its
business as a SB SEF, including each rule prescribed by the Commission
under Section 3D of the Exchange Act; (6) establish procedures for the
remediation of noncompliance issues identified by the CCO through any
(i) compliance office review, (ii) look-back, (iii) internal or
external audit finding, (iv) self-reported error, or (v) validated
complaint; and (7) establish and follow appropriate procedures for the
handling, management response, remediation, retesting, and closing of
noncompliance issues.
---------------------------------------------------------------------------

    \266\ See proposed Rule 823(a).
    \267\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14)(B) of the Exchange Act).
---------------------------------------------------------------------------

    The CCO would be responsible for, among other things, keeping the
SB SEF's Board or senior officer apprised of significant compliance
issues and advising of needed changes in the SB SEF's policies and
procedures. Given the critical role that a CCO is intended to play in
ensuring a SB SEF's compliance with the Exchange Act and the rules and
regulations thereunder, the Commission believes that a SB SEF's CCO
should be competent and knowledgeable regarding the Federal securities
laws and should be empowered with full responsibility and authority to
develop and enforce appropriate policies and procedures for the SB
SEF.\268\ To meet the statutory obligations, a CCO also should have a
position of sufficient seniority and authority within the SB SEF to
compel others to adhere to the SB SEF's policies and procedures. The
Commission notes, however, that the SB SEF would not be required to
hire an additional person to serve as its CCO. Instead, the SB SEF
could designate an individual already employed by the SB SEF to serve
as its CCO.
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    \268\ The Commission believes that the person that is designated
by the Board to serve as the CCO should have the background and
qualifications necessary to fulfill the responsibilities of the
position.
---------------------------------------------------------------------------

    The Commission is concerned that a SB SEF's commercial interests
might discourage its CCO from making forthright disclosure to the Board
or the senior officer about any compliance failures. To mitigate this
potential conflict of interest, the Commission believes that the CCO
should be independent from the SB SEF's management so as not to be
conflicted in reporting or addressing any compliance failures. To
support this independence, the proposed rule would allow only a
majority of the Board to approve the CCO's compensation and to remove
the CCO from his or her responsibilities.
    The Commission notes that proposed Regulation MC would require a SB
SEF to establish a fully independent ROC, which would be the Board
committee that would be responsible for monitoring a SB SEF's
regulatory program for sufficiency, effectiveness, and
independence.\269\ The Board of a SB SEF should consider the
appropriate reporting structure for the CCO, taking into account the
potential conflicts of interest between the CCO and other senior
officers of the SB SEF. Because the SB SEF would be required to have a
ROC, the Board could elect to delegate to the ROC the duty of
overseeing the CCO.
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    \269\ See Regulation MC Proposing Release, supra note 82,
(proposing that the SB SEF establish a ROC composed solely of
independent directors).
---------------------------------------------------------------------------

    The Commission generally requests comments on all aspects of the
proposed rules relating to the appointment and duties of the CCO.
Should the Commission require a CCO to meet minimum competency
standards? If so, what background, skills and other qualifications
should a CCO be required to have? Does the proposed requirement that
the CCO report directly to the Board or the senior officer balance the
CCO's needs to work effectively with management and to have an adequate
separation of business and regulatory influence? Are there situations
when the CCO's ability to conduct his or her duties under the Exchange
Act could be compromised if he or she were required to report to the
senior officer? If so, are there steps that the SB SEF could take to
resolve differences between the CCO and the senior officer? Should the
Commission require a CCO to report to a specific senior officer? If so,
to whom and why? Would it be preferable for the CCO to report to the
Board? If so, would it be preferable for the Board to delegate the
responsibility for oversight of the CCO to its ROC?
    Is the Commission's proposed requirement regarding the Board's
approval of a CCO's compensation and removal necessary or appropriate?
Absent specific requirements imposed by Federal statute or rules, in
general, the entity has the discretion to create the governance
structure that it believes best promotes compliance with applicable
laws and regulations, in accordance with the relevant laws of the
entity's jurisdiction of incorporation or formation. As noted above,
the Commission has identified potential conflict concerns between a SB
SEF's commercial interests and its regulatory obligations. To mitigate
such concerns

and support the independence of the CCO from management of the SB SEF,
the Commission is proposing the requirement described above.\270\ Do
commenters believe that it would be appropriate to impose this
requirement, or do commenters believe that SB SEFs would be able to
comply with their regulatory obligations without this requirement?
Would the removal of this requirement affect the ability of a CCO to
comply with the extensive duties required of the CCO under the Dodd-
Frank Act? If commenters do not agree that the proposed requirements
are necessary or appropriate, why and what would be a better
alternative, if any, to promote the independence and effectiveness of
the CCO? For example, should the required percentage of Board approval
be lower or higher? Or, should the Commission require that the CCO meet
separately with the independent directors of the SB SEF, without anyone
else present? \271\ Would such a requirement promote the independence
and effectiveness of the CCO by supporting his or her ability to speak
freely with the independent directors about any sensitive compliance
issues of concern to any of them? Do commenters believe that it would
be appropriate to impose this type of requirement, or do commenters
believe that SB SEFs would be able to comply with their regulatory
obligations without a requirement such as this?
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    \270\ The Commission proposed this same requirement in its
proposal relating to the registration and regulation of security-
based swap data repositories. See SDR Release, supra note 6.
    \271\ The concept of an individual with regulatory oversight
responsibilities having mandated access to the independent directors
without the presence of non-independent directors on the entity's
board is not novel, although it has not to date been specifically
mandated by the Exchange Act or rules thereunder. See, e.g., Article
IV, Sec. 7 of the Nasdaq Bylaws (requiring the Chief Regulatory
Officer of Nasdaq to meet in executive session with the Regulatory
Oversight Committee of Nasdaq, which is a fully independent
committee of the Nasdaq board).
---------------------------------------------------------------------------

    Should the Commission add a rule explicitly prohibiting any
officers, directors, or employees of a SB SEF from, directly or
indirectly, taking any action to coerce, manipulate, mislead, or
fraudulently influence the CCO in the performance of his other
responsibilities?
    Are there any terms in proposed Rule 823(b) regarding the duties of
the CCO that should be clarified or modified (e.g., ``look-back,''
``self-reported error,'' or ``validated complaint'')? If so, which
terms and how should they be defined?
    Are the duties of the CCO in proposed Rule 823(b) sufficiently
clear? Should the Commission provide further guidance or rules on how
the CCO should comply with these duties? If so, what kinds of guidance
or rules would be appropriate to adopt in this context?
    Should the Commission provide guidance in its proposed rules about
the CCO's procedures for the remediation of noncompliance issues?
Should the Commission provide guidance in its proposed rules on what
would be considered ``appropriate procedures'' for the handling,
management response, remediation, retesting, and closing of
noncompliance issues? If so, what factors should the Commission take
into consideration?
    Would the CCO have difficulty discharging any of the obligations
under proposed Rule 823? Would any of the CCO's obligations under
proposed Rule 823 conflict with current obligations imposed on a CCO?
If so, which ones and why? Should the Commission impose any additional
duties on the CCO that are not already enumerated in Section 3D(d)(14)
of the Exchange Act and incorporated in the proposed rule?
    What is the likely impact of the Commission's proposed rule on the
SB swap market? Would the proposed rule potentially promote or impede
the establishment of SB SEFs? With respect to entities that currently
provide a marketplace for trading SB swaps and that may be required to
register under the Dodd-Frank Act, how do current practices compare to
the practices that the Commission proposes to require in this rule?
What are the incremental costs to potential SB SEFs in connection with
adding to or revising their current practices in order to implement the
Commission's proposed rule?
    How might the evolution of the SB swaps market over time affect SB
SEFs and impact the Commission's proposed rule?

B. Annual Reports

    Section 3D(d)(14)(C) of the Exchange Act requires the CCO to
prepare and sign an annual report, in accordance with rules prescribed
by the Commission.\272\ Proposed Rule 823(c) would prescribe the rules
to implement this statutory provision.\273\ Proposed Rule 823(c)(1)
would implement the requirements in Section 3D(d)(14)(C)(i) under
Exchange Act for the CCO to annually prepare and sign a report that
contains a description of: (i) The compliance of the SB SEF with
respect to the Exchange Act and the rules and regulations thereunder;
and (ii) the policies and procedures of the SB SEF (including the code
of ethics and conflicts of interest policies of the SB SEF).\274\
---------------------------------------------------------------------------

    \272\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14)(C) of the Exchange Act).
    \273\ See proposed Rule 823(c).
    \274\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14)(C)(i) of the Exchange Act) and proposed Rule 823(c)(1).
---------------------------------------------------------------------------

    The Commission also is proposing certain minimum requirements in
proposed Rule 823(c)(1) for the information that should be provided in
the CCO's annual report.\275\ The proposed minimum requirements would
provide guidance for including in the report certain key disclosures
about the SB SEF's compliance with the Core Principles. However, this
proposed provision is not intended to be an exhaustive list; any other
relevant descriptions of the SB SEF's compliance with the Exchange Act
and the policies and procedures of the SB SEF related thereto,
consistent with the broader statutory requirement in Section
3D(d)(14)(C) of the Exchange Act, also should be included in the CCO's
annual report.\276\
---------------------------------------------------------------------------

    \275\ See proposed Rule 823(c)(1).
    \276\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14)(C) of the Exchange Act).
---------------------------------------------------------------------------

    Proposed Rule 823(c)(1)(i) through (ii) would require the annual
report to include a description of the SB SEF's enforcement of its
policies and procedures and information on all investigations,
inspections, examinations, and disciplinary cases opened, closed, and
pending during the reporting period. Proposed Rule 823(c)(1)(iii) would
require the annual report to include a description of all grants of
access (including, for all participants, the reasons for granting such
access) and all denials or limitations of access (including, for each
applicant, the reasons for denying or limiting access), consistent with
Rule 811(b)(3). The disclosures in proposed Rule 823(c)(i) through
(iii) would provide a basis for evaluating the effectiveness of the SB
SEF's compliance program under the standards in Core Principle 2, which
generally requires the SB SEF to establish and enforce compliance with
its rules.
    Proposed Rule 823(c)(1)(iv) through (v) would require the annual
report to include any material changes to the SB SEF's policies and
procedures since the date of the preceding compliance report and any
recommendation for material changes to the policies and procedures as a
result of the annual review (including the rationale for such
recommendation, and whether such policies and procedures were or will
be modified by the SB SEF to incorporate such recommendation).\277\ The

proposed requirements should demonstrate the kinds of compliance issues
the SB SEF is facing and how the CCO is addressing those issues.
---------------------------------------------------------------------------

    \277\ The term ``material change'' would be defined as a change
that a CCO would reasonably need to know in order to oversee
compliance of the SB SEF. See proposed Rule 800.
---------------------------------------------------------------------------

    Proposed Rule 823(c)(1)(vi) through (vii) would require the annual
report to include the results of the SB SEF's surveillance program
(including information on the number of reports and alerts generated,
and the reports and alerts that were referred for further investigation
or for an enforcement proceeding) and any complaints received on the SB
SEF's surveillance program. The proposed requirements should provide a
demonstration of the effectiveness of the SB SEF's compliance program
in detecting violations and the appropriateness of the SB SEF's
response in addressing such detected violations.
    Finally, proposed Rule 823(c)(1)(viii) would require the CCO's
annual report to include any material compliance matters identified
since the date of the preceding compliance report.\278\ This proposed
requirement would indicate the most significant compliance matters that
the SB SEF is dealing with on its market. The Commission notes that
individual compliance matters may not be material when viewed in
isolation, but may collectively suggest a material compliance matter.
---------------------------------------------------------------------------

    \278\ The term ``material compliance matter'' would be defined
as any compliance matter that the Board would reasonably need to
know to oversee the compliance of the SB SEF and includes, without
limitation: (1) A violation of the Federal securities laws by the SB
SEF, its officers, directors, employees, or agents; (2) a violation
of the policies and procedures of the SB SEF, by the SB SEF, its
officers, directors, employees, or agents; or (3) a weakness in the
design or implementation of the SB SEF's policies and procedures.
See proposed Rule 800.
---------------------------------------------------------------------------

    Although the proposed rule would require only annual reviews, the
CCO should consider the need for interim reviews in response to
significant compliance events, changes in business arrangements, and
regulatory developments. For example, if there is an organizational
restructuring of a SB SEF, its CCO should evaluate whether the SB SEF's
policies and procedures are adequate to guard against potential
conflicts of interest. Additionally, if a new rule regarding SB SEFs is
adopted by the Commission, then the CCO should review its policies and
procedures to ensure compliance with the rule.
    Proposed Rule 823(c)(2) would implement the requirement in Section
3D(d)(14)(C)(ii)(I) of the Exchange Act for the CCO to submit the
annual report with the appropriate financial reports of the SB SEF at
the time of filing.\279\ The proposed rule also would implement the
requirement in Section 3D(d)(14)(C)(ii)(II) of the Exchange Act that
the CCO include a certification in its report, under penalty of law,
that the report is accurate and complete.\280\
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    \279\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14)(C)(ii)(I) of the Exchange Act) and proposed Rule
823(c)(2).
    \280\ See Public Law 111-203, Sec.  763(c) (adding Section
3D(d)(14)(C)(ii)(II) of the Exchange Act) and proposed Rule
823(c)(2).
---------------------------------------------------------------------------

    Under proposed Rule 823(d), the CCO would be required to submit the
annual compliance report to the Board for its review prior to the
submission of the report to the Commission.\281\ The Commission notes,
however, that the CCO should promptly bring serious compliance issues
to the attention of the full Board or the Board's independent directors
rather than wait until an annual report is prepared.
---------------------------------------------------------------------------

    \281\ See proposed Rule 823(d).
---------------------------------------------------------------------------

    The Commission generally requests comments on all aspects of the
proposed rules regarding annual compliance reports. Are the
Commission's proposed rules regarding annual compliance reports
appropriate and sufficiently clear? If not, why not and what would be a
better approach?
    Are the proposed definitions of ``material change'' and ``material
compliance matter'' appropriate? If not, are they over-inclusive or
under-inclusive, and how else should these terms be defined?
    Proposed Rule 823(c)(1) lists specific disclosures that would need
to be included in each annual compliance report. Are there other
specific items that should be required? For example, should disclosures
about instances when the SB SEF or the Board has not accepted the
recommendations of the swap review committee be required to be included
in the annual compliance report? Would such information be helpful to
the Commission in evaluating whether conflicts of interest are
impacting decisions about whether to trade, or how to trade, a
particular SB swap?
    Should the Commission propose a timeframe for the CCO to submit his
or her annual compliance report for the review by the Board? If so,
what would be an appropriate timeframe? Should the Commission permit
the SB SEF to request an extension to file an annual compliance report
(e.g., due to substantial, undue hardship)?
    If a CCO reports to the senior officer of the SB SEF rather than to
the Board, should the Commission permit the CCO to submit his or her
annual compliance report for prior review to the senior officer rather
than to the Board, in addition to the Board, or only when the SB SEF
does not have a Board? Would any of these alternatives lessen the
independence of the CCO in any way?
    Should the Commission prohibit a SB SEF's Board from requiring its
CCO to make any changes to the annual compliance report? If the
Commission permits the CCO to submit his or her annual compliance
report to the senior officer for prior review, instead of to the Board
or in addition to the Board, should a similar prohibition be applied to
the senior officer? Would such a prohibition be necessary, in either
case, in light of the CCO's statutory requirement to certify that the
compliance report is accurate and complete?
    Is the Commission's proposed requirement that the CCO meet
separately with the independent directors of a SB SEF appropriate? If
not, why not and what would be a better alternative?
    Are the Commission's proposed minimum disclosure requirements in
the CCO's annual compliance report appropriate? If not, why not and
what would be a better alternative? Should the Commission require any
other disclosures in the CCO's annual compliance report?
    Would keeping the compliance reports confidential encourage the CCO
to be more forthcoming about sensitive compliance issues or would it
likely not have any impact on the disclosure of such issues? Are there
any disadvantages to keeping the CCO's compliance report confidential?
How could the Commission address any such disadvantage? Would making
the CCO's compliance report public be useful to the public or other
regulators?
    What is the likely impact of the Commission's proposed rule on the
SB swap market? Would the proposed rule potentially promote or impede
the establishment of SB SEFs? With respect to entities that currently
provide a marketplace for trading SB swaps and that may be required to
register under the Exchange Act, as amended by the Dodd-Frank Act, how
do current practices compare to the practices that the Commission
proposes to require in this rule? What would be the incremental costs
to potential SB SEFs in connection with adding to or revising their
current practices in order to implement the Commission's proposed rule?
    How might the evolution of the SB swaps market over time affect SB
SEFs and impact the Commission's proposed rule?

C. Financial Reports

    Section 3D(d)(14)(C)(ii)(I) of the Exchange Act requires a
compliance report filed by the CCO to be accompanied by each
appropriate financial report of the SB SEF that is required to be
furnished to the Commission pursuant to Section 3D of the Exchange Act.
The Commission is proposing Rule 823(e), which would set forth the
appropriate financial reports that a SB SEF would be required to
include with its annual compliance reports.\282\ Proposed Rule
823(e)(1) would require the financial reports of the SB SEF to: (1) Be
a complete set of financial statements of the SB SEF that are prepared
in accordance with U.S. generally accepted accounting principles for
the most recent two fiscal years of the SB SEF; (2) be audited in
accordance with standards of the Public Company Accounting Oversight
Board (``PCAOB'') by a public accounting firm that is registered with
the PCAOB and is qualified and independent in accordance with Rule 2-01
of Regulation S-X (17 CFR 210.2-01); (3) include a report of the
registered public accounting firm that complies with paragraphs (a)
through (d) of Rule 2-02 of Regulation S-X (17 CFR 210.2-02); and (iv)
include the SB SEF's accounting policies and practices.\283\
---------------------------------------------------------------------------

    \282\ The financial statements required by these proposed rules
are the same as the requirements for the annual financial statements
that would be required to be submitted pursuant to Exhibits F and H
of proposed Form SB SEF. See infra Section XXII. To avoid submitting
duplicative financial statements, the CCO may represent in the
annual compliance report that the financial statements required by
proposed Rule 823(e) have been submitted to the Commission as part
of the annual update of Form SB SEF required by proposed Rule
802(f).
    \283\ See proposed Rule 823(e)(1).
---------------------------------------------------------------------------

    Under Proposed Rule 823(e)(1)(v), if the SB SEF's financial
statements contain consolidated information of the SB SEF's
subsidiaries, then the SB SEF's financial statements also would need to
provide condensed financial information, in a financial statement
footnote, as to the financial position, changes in financial position
and results of operations of the SB SEF, as of the same dates and for
the same periods for which audited consolidated financial statements
are required.\284\ Such financial information would need not be
presented in greater detail than is required for condensed statements
by Rules 10-01(a)(2), (3), and (4) of Regulation S-X. Detailed footnote
disclosure that would normally be included with complete financial
statements may be omitted with the exception of disclosures regarding
material contingencies, long-term obligations, and guarantees.
Descriptions of significant provisions of the SB SEF's long-term
obligations, mandatory dividend or redemption requirements of
redeemable stocks, and guarantees of the SB SEF would also be required
to be provided along with a five-year schedule of maturities of debt.
If the material contingencies, long-term obligations, redeemable stock
requirements and guarantees of the SB SEF have been separately
disclosed in the consolidated statements, then they would not need to
be repeated in this schedule.\285\ This proposed requirement is
substantially similar to Rule 12-04 of Regulation S-X, which pertains
to condensed financial information of registrants.\286\
---------------------------------------------------------------------------

    \284\ See proposed Rule 823(e)(1)(v).
    \285\ Id.
    \286\ See 17 CFR 210.9-06.
---------------------------------------------------------------------------

    Under proposed Rule 823(e)(2), for SB SEFs with affiliated entities
(any subsidiary in which the applicant has, directly or indirectly, a
25% interest and for every entity that has, directly or indirectly, a
25% interest in the applicant), for each affiliated entity, the
financial report would also be required to include a complete set of
unconsolidated financial statements (in English) for the latest two
fiscal years and such footnotes and other disclosures as are necessary
to avoid rendering the financial statements misleading.\287\ The
Commission notes that information on affiliated entities is currently
requested for national securities exchanges \288\ and is important
information for the Commission to obtain because the financial health
of affiliated entities could potentially have an impact on the
financial condition of the SB SEF.
---------------------------------------------------------------------------

    \287\ See proposed Rule 823(e)(2).
    \288\ See Form 1 and instructions thereunder.
---------------------------------------------------------------------------

    Proposed Rule 823(e)(4) also would require the financial statements
to be provided in XBRL, consistent with Rules 405(a)(1), (a)(3), (b),
(c), (d), and (e) of Regulation S-T.\289\ Specifically, information in
the financial statements would be required to be tagged \290\ using
XBRL to allow the Commission to assess and analyze effectively the SB
SEF's financial and operational condition.
---------------------------------------------------------------------------

    \289\ See 17 CFR 232.405 (imposing content, format, submission
and Web site posting requirements for an interactive data file, as
defined in Rule 11 of Regulation S-T).
    \290\ Tagging refers to labeling fields of data electronically
so that it can be searched electronically by categories. See
proposed Rule 800.
---------------------------------------------------------------------------

    Finally, annual compliance reports and financial reports filed
pursuant to proposed Rule 823 would be required to be filed within 60
days after the end of the fiscal year covered by such reports.\291\
---------------------------------------------------------------------------

    \291\ See proposed Rule 823(f).
---------------------------------------------------------------------------

    The Commission notes that with respect to its other registrants,
the Commission has required, at a minimum, the proposed financial
information and in some instances, significantly more information.\292\
The Commission believes that it would be important to obtain an audited
annual financial report covering two years from each registered SB SEF
to understand the SB SEF's financial and operational condition,
particularly because SB SEFs are intended to play a pivotal role in
improving the transparency of the OTC derivatives markets.\293\ Among
other things, the financial statements could help the Commission
evaluate whether a SB SEF has adequate financial resources to comply
with its statutory obligations or is having financial difficulties. If
a SB SEF ultimately ceases doing business, it could create a
significant disruption in the OTC derivatives market. The Commission
believes that the financial information that it is seeking pertaining
to the affiliates of the SB SEF is relevant and necessary as the
financial condition of the affiliates could have an immediate or future
impact on the condition of the SB SEF.
---------------------------------------------------------------------------

    \292\ See, e.g., Rule 17a-5(d) under the Exchange Act, 17 CFR
240.17a-5(d).
    \293\ See Public Law 111-203, Sec.  763(c) (adding Section 3D of
the Exchange Act).
---------------------------------------------------------------------------

    The Commission requests comments on all aspects of the proposed
rules relating to financial statements. Is the Commission's proposed
rule regarding a SB SEF's financial report appropriate and sufficiently
clear? If not, why not and what would be a better alternative? Should
the Commission permit a financial report by a SB SEF that is a foreign
private issuer to be in compliance with International Financial
Reporting Standards as an alternative to GAAP? If so, why and what are
the costs and benefits to permitting this?
    Is the Commission's proposed rule requiring financial reports to
cover the most recent two fiscal years of a SB SEF appropriate? If not,
should the lookback timeframe be greater (e.g., the most recent three
fiscal years) or shorter (e.g., the most recent fiscal year)?
    Is the Commission's proposed requirement regarding a SB SEF's
condensed financial information appropriate and sufficiently clear? If
not, why not and what would be a better alternative?
    Is the Commission's proposed 60-day timeframe for a SB SEF to file
the annual and financial report appropriate?

If not, should the timeframe be shorter or longer (e.g., 30 days or 90
days)? Would a SB SEF's financial report be useful to the public or
other regulators? If so, explain.
    Are the financial report requirements relating to certain
affiliates of SB SEFs too broad or overly burdensome? Are there any
terms in the Commission's proposed rule regarding a SB SEF's financial
report that need to be defined or clarified? If so, which terms?
    What is the likely impact of the Commission's proposed rule on the
SB swap market? Would the proposed rule potentially promote or impede
the establishment of SB SEFs? With respect to entities that currently
provide a marketplace for trading SB swaps and that may be required to
register under the Dodd-Frank Act, how do current practices compare to
the practices that the Commission proposes to require in this rule?
What would be the incremental costs to potential SB SEFs in connection
with adding to or revising their current practices in order to
implement the Commission's proposed rule?
    How might the evolution of the SB swaps market over time affect SB
SEFs and impact the Commission's proposed rule relating to the CCO?

XXI. Registration of Security-Based Swap Execution Facilities

    As stated above, a primary goal of the Dodd-Frank Act is to improve
the transparency and oversight of the OTC derivatives market and to
guard against systemic risk in the trading of these instruments. A key
aim of the legislation is to bring the trading of mandatorily cleared
OTC derivatives onto regulated markets. In this regard, the Dodd-Frank
Act amends the Exchange Act to add new Section 3D of the Exchange
Act.\294\ Section 3D(a)(1) of the Exchange Act provides that no person
may operate a facility for the trading or processing of SB swaps,
unless the facility is registered as a SB SEF or as a national
securities exchange.\295\ Core Principle 1 for SB SEFs, as set forth in
Section 3D(d)(1)(A) of the Exchange Act,\296\ provides that, to be
registered and maintain its registration as a SB SEF, a SB SEF must
comply with the 14 Core Principles governing SB SEFs and any
requirement that the Commission may impose by rule or regulation.\297\
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    \294\ See Public Law 111-203, Sec.  763(c) (adding Section 3D of
the Exchange Act).
    \295\ Id.
    \296\ Id.
    \297\ Id.
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    The Commission's rules currently provide for registration
frameworks for two types of trading venues for securities, namely
national securities exchange registration and broker-dealer
registration for ATSs. SB SEFs represent an additional category of
registered entities under the Exchange Act and the Commission
preliminarily believes that it would be appropriate to adopt a
registration process for SB SEFs that is similar to the Commission's
existing registration framework for national securities exchanges. SB
SEFs, like national securities exchanges, have regulatory obligations
pursuant to the Exchange Act.\298\ Also, pursuant to the Dodd-Frank
Act, both national securities exchanges and SB SEFs would be permitted
to trade SB swaps, although exchange trading of SB swaps is governed by
Section 6 of the Exchange Act \299\ and other provisions of the
Exchange Act relevant to SROs.\300\ The registration process for
national securities exchanges is already established, but no process
exists for SB SEFs. Thus, the Commission is proposing rules that would
require an application registration process for SB SEFs and a form for
such application, which would be subject to approval by the Commission.
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    \298\ For example, pursuant to Section 3D(d)(2) of the Exchange
Act, Public Law 111-203, Sec.  763(c), a SB SEF is required to: (1)
Establish and enforce compliance with any rule established by it,
including (i) the terms and conditions of the SB swaps traded or
processed on or through the facility and (ii) any limitation on
access to the facility; (2) establish and enforce trading, trade
processing, and participation rules that will deter abuses and have
the capacity to detect, investigate, and enforce those rules,
including means (i) to provide market participants with impartial
access to the market; and (ii) to capture information that may be
used in establishing whether rule violations have occurred; and (3)
establish rules governing the operation of the facility, including
rules specifying trading procedures to be used in entering and
executing orders traded or posted on the facility, including block
trades.
    \299\ 15 U.S.C. 78f.
    \300\ See, e.g., Section 19 of the Exchange Act, 15 U.S.C. 78s.
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A. Initial SB SEF Registration

1. Procedures for Registration
    Proposed Rule 801(a) provides that an application for the
registration of a SB SEF would need to be filed electronically in a
tagged data format \301\ with the Commission on the new proposed Form
SB SEF, in accordance with the instructions contained in the Form SB
SEF.\302\ Proposed Form SB SEF also would be used by a SB SEF for
submitting all amendments to the Form SB SEF.\303\ The Commission's
proposal contemplates the use of an online filing system through which
a SB SEF would be able to file a completed Form SB SEF, which would be
available on the Commission's Web site and accessible from any computer
with Internet access.\304\ Based on the widespread use and availability
of the Internet, the Commission believes that filing Form SB SEF in an
electronic format would be less burdensome and a more efficient filing
process for SB SEFs, the Commission, and the public.
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    \301\ Proposed Rule 800 would define the term ``tag'' or
``tagged'' to mean an identifier that highlights specific
information submitted to the Commission and that is in the format
required by the EDGAR Filer Manual, as described in Rule 301 of
Regulation S-T, 17 CRF 232.301.
    \302\ See proposed Rule 801(a).
    \303\ See Section XXI.B infra for a discussion of the amendments
to Form SB SEF required in proposed Rule 802. An application for
registration or any amendment thereto filed pursuant to Regulation
SB SEF would be considered a ``report'' filed with the Commission
for purposes of Sections 18(a) and 32(a) of the Exchange Act and the
rules and regulations thereunder. See proposed Rule 801(f). Exchange
Act Sections 18(a) and 32(a) set forth the potential liability for a
person who makes, or causes to be made, any false or misleading
statement in any ``report'' filed with the Commission (e.g., Form
SDR). Specifically, Exchange Act Section 18(a) provides, in part,
that ``[a]ny person who shall make or cause to be made any statement
in any * * * report * * * which statement was at the time and in the
light of the circumstances under which it was made false or
misleading with respect to any material fact, shall be liable to any
person (not knowing that such statement was false or misleading)
who, in reliance upon such statement, shall have purchased or sold a
security at a price which was affected by such statement, for
damages caused by such reliance, unless the person sued shall prove
that he acted in good faith and had no knowledge that such statement
was false or misleading.'' 15 U.S.C. 78r(a). Exchange Act Section
32(a) provides, in part, that ``[a]ny person who willfully and
knowingly makes, or causes to be made, any statement in any * * *
report * * * which statement was false or misleading with respect to
any material fact, shall upon conviction be fined not more than
$5,000,000, or imprisoned not more than 20 years, or both, except
that when such person is a person other than a natural person, a
fine not exceeding $25,000,000 may be imposed.'' 15 U.S.C. 78ff(a).
    \304\ If the Commission adopts the rule as proposed, it is
possible that SB SEFs may be required to file Form SB SEF in paper
until such time as an electronic filing system is operational and
capable of receiving the form. In such a case, SB SEFs would be
notified as soon as the electronic system is operational to accept
filings on Form SB SEF.
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    The Commission's proposal requires a Form SB SEF to be filed with
the Commission in a tagged data format. As part of the Commission's
longstanding efforts to increase transparency and the usefulness of
information, the Commission has been implementing data-tagging of
information contained in electronic filings to improve the accuracy of
financial information and facilitate its analysis.\305\ Data becomes

machine-readable when it is labeled, or tagged, using a computer markup
language that can be processed by software programs for analysis. Such
computer markup languages use standard sets of definitions, or
``taxonomies,'' that translate text-based information in Commission
filings into structured data that can be retrieved, searched, and
analyzed through automated means. Requiring the information to be
tagged in a machine-readable format using a data standard that is
freely available, consistent, and compatible with the tagged data
formats already in use for Commission filings would enable the
Commission to review and analyze effectively Form SB SEF submissions.
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    \305\ See Regulation S-T, 17 CFR 232. See also Securities Act
Release No. 8891 (Feb. 6, 2008), 73 FR 10592 (Feb. 27, 2008);
Securities Act Release No. 9002 (Jan. 30, 2009), 74 FR 6776 (Feb.
10, 2009); Securities Act Release No. 9006 (Feb. 11, 2009), 74 FR
7748 (Feb. 19, 2009); Exchange Act Release No. 61050 (Nov. 23,
2009), 74 FR 63832 (Dec. 4, 2009); Investment Company Release No.
29132 (Feb. 23, 2010), 75 FR 10060 (Mar. 4, 2010).
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    Proposed Rule 801(a) provides that a registration application on
Form SB SEF must include information sufficient to demonstrate
compliance with the Exchange Act and rules and regulations thereunder.
The proposed rule provides that if a registration application is not
complete, the Commission will notify the applicant that the application
will not be deemed to have been submitted for purposes of the
Commission's review.\306\ Pursuant to the proposed rule, an application
on Form SB SEF would not be considered to be complete unless an
applicant has submitted, at a minimum, the Execution Page and Exhibits
as required in proposed Form SB SEF, and any other material that the
Commission may require, upon request, in order to be able to determine
whether the applicant is able to comply with the Exchange Act and rules
and regulations thereunder. Such other material may include, but is not
limited to, information regarding the applicant's system test
procedures, contingency or disaster recovery plans, and the manner in
which the applicant would conduct market and financial surveillance.
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    \306\ See Proposed Rule 801(a).
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    Proposed Rule 801(b) sets forth the SB SEF registration application
processes for (i) applications received during the initial
implementation phase of Regulation SB SEF, from the date of Regulation
SB SEF's effectiveness up to and including July 31, 2014 (``initial
implementation period''), and (ii) applications received after the
initial implementation period (i.e., after July 31, 2014).
    Proposed Rule 801(b)(1) would provide that for applications for
registration as a SB SEF filed on Form SB SEF with the Commission on or
before July 31, 2014, within 360 days of the date of the filing of such
application (or within such longer period as to which the applicant
consents), the Commission would be required to either grant the
registration or institute proceedings to determine whether registration
should be denied. Such proceedings would include notice of the grounds
for denial under consideration and opportunity for hearing and would be
required to be concluded within 450 days after the date on which the
application for registration is furnished to the Commission. At the
conclusion of such proceedings, the Commission, by order, would be
required to grant or deny such registration. The Commission would be
able to extend the time for conclusion of such proceedings for up to 90
days if it finds good cause for such extension and publishes its
reasons for so finding or for such longer period as to which the
applicant consents.
    Proposed Rule 801(b)(2) would provide that for applications for
registration as a SB SEF filed on Form SB SEF with the Commission after
July 31, 2014, within 180 days of the date of filing of such
application (or within such longer period as to which the applicant
consents), the Commission would be required to either grant the
registration or institute proceedings to determine whether registration
should be denied. Such proceedings would include notice of the grounds
for denial under consideration and opportunity for hearing and would be
required to be concluded within 270 days after the date on which the
application for registration is furnished to the Commission. At the
conclusion of such proceedings, the Commission, by order, would be
required to grant or deny such registration. The Commission would be
able to extend the time for conclusion of such proceedings for up to 90
days if it finds good cause for such extension and publishes its
reasons for so finding or for such longer period as to which the
applicant consents.
    The proposed rule further provides that the Commission would grant
the registration of an applicant if it finds that the requirements of
the Exchange Act and the rules and regulations thereunder with respect
to the applicant are satisfied, and would deny such registration if it
does not make such finding.\307\
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    \307\ See proposed Rule 801(b)(3).
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    The proposed process for SB SEF's to apply for initial registration
would provide a mechanism for an applicant to demonstrate that it has
the operational and financial capability to operate as a SB SEF and can
comply with the Federal securities laws and the rules and regulations
thereunder, including the Core Principles, and would allow the
Commission to consider the materials provided by the SB SEF and to make
an informed determination as to whether the SB SEF complies with the
Exchange Act and the rules and regulations thereunder. In addition, the
application process would allow the Commission staff to ask questions
and, as needed, to require amendments or changes to the application or
additional information to address legal and regulatory concerns before
approving an application for registration. Further, providing a process
and timeframes for the application process would provide certainty to
applicants as to the procedural aspects of registering as a SB SEF.
    As no SB SEF is currently registered with the Commission and a
number of entities have informed the Commission that they may seek to
register as a SB SEF, the Commission contemplates receiving a large
volume of applications for registration as a SB SEF within the first 3
years following any adoption of rules applicable to SB SEFs. The
proposed timeframes for the Commission to review applications for
registration as a SB SEF set forth in proposed Rule 801(b) recognize
that, as the Commission has limited resources, the Commission may
require an extended period of time to review these applications. For
applications filed after the initial implementation period, the
proposed timeframes for the Commission to review applications for
registration as a SB SEF would be decreased to mirror those set forth
in Section 19(a)(1) of the Exchange Act applicable to the review of SRO
registration applications. The Commission believes that the timeframes
for Commission review during and after the initial implementation
period are appropriate in light of the anticipated volume of
registration applications during the initial implementation period. The
Commission also believes that the temporary registration provisions of
proposed Rule 801(c), discussed below, should work in combination with
the proposed review and approval process to allow both the Commission
and entities seeking to register as SB SEFs to comply with the
provisions of the Exchange Act, as amended by the Dodd-Frank Act, in a
timely manner. In addition, the Commission notes that the process for
the Commission to review registration applications for SB SEFs would be
similar to the process for reviewing applications of other registrants
by the Commission (e.g., national securities exchanges, national

securities associations, and clearing agencies).\308\
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    \308\ See Section 19(a)(1) of the Exchange Act, 15 U.S.C.
78s(a)(1). In addition, the Commission notes that the SEC Rules of
Practice would be applicable to the Commission's review of
registration applications for SB SEFs. See 17 CFR 201.100, et seq.
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    The Commission requests comments on all aspects of the proposed
rules relating to the registration process for SB SEFs. Is the
Commission's proposed registration process appropriate and sufficiently
clear? If not, why not and what would be a better alternative? Are the
timeframes in the proposed registration process appropriate? If not,
why not and what would be more appropriate timeframes? Should
timeframes be omitted from the process? Should different time periods
apply to the Commission's review of applications during the initial
implementation period? If not, why not? Should the Commission have
greater flexibility to extend the timeframes?
    Are the proposed factors in determining whether the Commission
should grant or deny an application for registration appropriate and
sufficiently clear? If not, why not? Should the Commission take into
consideration any other factors in determining whether to grant or deny
an application for registration?
    In order to form a more complete and informed basis on which to
determine whether to grant, deny, or revoke a SB SEF's registration,
the Commission is considering whether to adopt a requirement that a SB
SEF file with the Commission, as a condition of registration or
continued registration, a review relating to the SB SEF's operational
capacity and ability to meet its regulatory obligations. The Commission
could require such a review to be in the form of a report conducted by
the SB SEF, an independent third party, or both. This review could be
required as an exhibit to Form SB SEF at the time of registration or as
an amendment to Form SB SEF at a later date (e.g., one year after the
registration becomes effective) to allow the review to evaluate the SB
SEF's capabilities after some operational experience following
registration.
    Should the Commission require a SB SEF to conduct or obtain a
review relating to the SB SEF's operational capacity and ability to
meet its regulatory obligations? If not, why not? If so, how should the
Commission define the nature and scope of this review? Should the
Commission identify a specific framework for SB SEFs or independent
third parties to follow when conducting a review? If so, what would the
critical components of the framework include? Are existing frameworks
available that are suitable for this purpose and, if so, which ones
would be considered appropriate? Should the review resemble a report,
audit, or something else?
    Should the Commission require the SB SEF, an independent third
party, or some other entity to conduct the review? What are examples of
such a review? Should the Commission require a review on a case-by-case
basis or for all SB SEFs? Should the Commission require that the review
be filed with the Commission? If not, why not? If so, should it be
required to be filed with the Commission as a condition of registration
pursuant to proposed Rule 801? If not, why not? When should the
Commission require the filing of any review? Would conducting or
obtaining a review, or filing such review with the Commission, impose
impracticable burdens and costs on SB SEFs? Please explain the burdens
and quantify the costs of such a review.
    If the Commission were to adopt a rule requiring a review by an
independent third party, should the rule specify some minimum standard
of review or the types of review that should be performed? If so, what
should the standards be? Should there be minimum qualification
standards for the independent third party? Are there any particular
types of third party service providers that should not be permitted to
conduct a review of a SB SEF? Should the Commission also require that a
SB SEF certify the accuracy of the review and provide disclosure
regarding the nature of the review, findings, and conclusions? To what
extent should a SB SEF be permitted to rely on a third party that it
hired to perform the review? Should the Commission condition the
ability of a SB SEF to rely on a third party's review? Would a review
by an independent third party be necessary in light of the CCO's annual
compliance report or proposed Rule 822?
2. Temporary Registration
    Proposed Rule 801(c) under Regulation SB SEF would provide a method
for the Commission to grant temporary registration to SB SEFs.\309\
Specifically, for any application for registration as a SB SEF filed
with the Commission in accordance with the provisions of proposed Rule
801(a) on or before July 31, 2014 for which the SB SEF indicates on the
Execution Page that it would like to be considered for temporary
registration, the Commission could grant such temporary registration to
the SB SEF, which temporary registration would expire on the earlier
of: (1) The date that the Commission grants or denies registration of
the SB SEF; or (2) the date that the Commission rescinds the temporary
registration of the SB SEF. In considering whether to grant a request
for temporary registration, the Commission would review and consider
the information and materials provided by the SB SEF in its
registration application on Form SB SEF that the Commission believes to
be relevant, including, but not limited to: Whether the applicant's
trading system satisfies the definition of a ``security-based swap
execution facility'' in Section 3(a)(77) of the Exchange Act and any
Commission rules, interpretations or guidelines regarding such
definition; \310\ any access requirements or limitations imposed by the
SB SEF; \311\ the ownership and voting structure of the SB SEF; \312\
and any certifications made by the SB SEF, including with respect to
its capacity to function as a SB SEF and its compliance with the
Exchange Act and the rules and regulations thereunder.\313\ In
addition, the Commission would expect that SB SEFs registered on a
temporary registration basis demonstrate that they have the capacity
and resources to comply with their regulatory obligations on an ongoing
basis as their business evolves. After granting a temporary
registration to a SB SEF, the Commission could rescind such temporary
registration if, upon further review, the Commission found that the
applicant did not meet the requirements for granting the registration
of a SB SEF set forth in proposed Rule 801(b)(3),\314\ or if the
conditions for revoking or canceling the registration of a SB SEF in
proposed Rules 804(d) and (e) under Regulation SB SEF were met.\315\
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    \309\ See proposed Rule 801(c).
    \310\ See Exhibit I, Item 1 of proposed Form SB SEF.
    \311\ See Exhibit I, Item 2 and Exhibit L of proposed Form SB
SEF.
    \312\ See Exhibit E of proposed Form SB SEF.
    \313\ See Execution Page of proposed Form SB SEF.
    \314\ See proposed Rule 801(b)(3).
    \315\ See proposed Rule 804(c) and discussion infra Section
XXI.C. Proposed Rule 804(c) provides that the Commission may, by
order, cancel or revoke a SB SEF's registration if the Commission
finds that the SB SEF obtained its registration by making a false or
misleading statements with respect to any material fact, is no
longer in existence, has ceased to do business in the capacity
specified in its application for registration, or has violated or
failed to comply with any provision of the Federal securities laws
and the rules and regulations thereunder.
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    The Dodd-Frank Act provides that, unless otherwise provided, the
provisions of Title VII shall be effective on the later of 360 days
after the date

of the enactment of Title VII or not less than 60 days after the
publication of final rules or regulations implementing such
provisions.\316\ The Commission preliminarily believes that the
proposed temporary registration process for SB SEFs could serve as a
useful tool during the initial implementation period to allow the
Commission to temporarily register an applicant as a SB SEF following
an initial review of a SB SEF's application for registration where it
believes such temporary registration is appropriate. The Commission
preliminarily believes that this would be beneficial in order to allow
SB SEFs to comply with the timeframe set forth in the Dodd-Frank Act
while still giving the Commission sufficient time to review an
application more thoroughly before granting a registration that is not
limited in duration. A SB SEF that is temporarily registered with the
Commission would still need to comply with all provisions of the
Exchange Act and the rules and regulations thereunder, including
Section 3D of the Exchange Act and proposed Regulation SB SEF.
---------------------------------------------------------------------------

    \316\ See Public Law 111-203, Sec.  774.
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    The Commission requests comments on all aspects of the proposed
rules with respect to temporary registration. Is the Commission's
proposed rule regarding temporary registration appropriate? If not, why
not? Is the Commission's proposed rule for temporary registration
sufficiently clear? If not, how can it be clarified? What is the best
method for a SB SEF to request temporary registration from the
Commission? Is it appropriate to include a check box on Form SB SEF as
proposed? Would a different method be more appropriate? Are there more
appropriate methods other than temporary registration that would allow
SB SEFs to meet the timelines for compliance set forth in the Dodd-
Frank Act? If so, what are those methods?
    As discussed above, the Commission anticipates receiving a large
volume of applications for registration as a SB SEF within the first 3
years following the adoption of the proposed rules, and the ability to
grant temporary registration during such initial implementation period
could be an important tool for the Commission to allow SB SEFs to
comply with the provisions of the Exchange Act, as amended by the Dodd-
Frank Act, while providing the Commission with additional time to
conduct a thorough review of the SB SEF prior to granting permanent
registration. Should temporary registration be limited to those
registration applications filed during the initial implementation
period as proposed? If not, why not? Should the Commission be able to
grant temporary registration to any registration application,
regardless of when filed? If temporary registration should be limited
to a specific time period, would a time period other than the initial
implementation period be appropriate? If so, what time period would be
appropriate?
    Should temporary registration be granted only after the filing of a
completed registration application? Should there be a separate
application for temporary registration other than proposed Form SB SEF?
Should the proposed rule specify the items the Commission must review
prior to granting temporary registration? Should temporary registration
be granted by the Commission only when certain conditions are met? If
so, what should those conditions be? Should the proposed rule specify
the findings the Commission must make in order to grant a temporary
registration? In what instances should a temporary registration be
denied? For example, should a temporary registration be denied if a
Form SB SEF is not sufficiently complete? Are there any reasons not
specified in this release upon which a temporary registration should be
rescinded?
    Should the Commission be required to grant temporary registration
within a specified time frame? If so, what time period would be
appropriate? Is it appropriate to stay the time period for Commission
action on a registration application if the Commission grants a SB SEF
temporary registration? If so, should such stay be limited in duration?
What would be the appropriate time period for such stay?
    Would it be feasible for a SB SEF to comply with Section 3D of the
Exchange Act and the rules and regulations thereunder within 60 days
after publication of the final rules applicable to SB SEFs? If not,
which requirement(s) would be difficult for a SB SEF to comply with
upon the effective date? Should any requirement(s) be imposed on an
incremental basis or with a phased-in approach? If so, what would be an
appropriate timeframe for such requirement(s) to be met? \317\
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    \317\ See infra Section XXV for a discussion regarding a
potential phased-in approach.
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    Is it essential that a SB SEF that is temporarily registered be
required to comply with all provisions of the Exchange Act and the
rules and regulations thereunder? If not, are there specific
requirements that the Commission should consider not requiring a SB SEF
to comply with during a temporary registration period? If so, what are
such requirements and for what reasons should the Commission consider
not requiring them?
3. Non-Resident Persons and Control Persons
    Proposed Rule 801(d) would require each SB SEF applying for
registration with the Commission to designate and authorize on Form SB
SEF an agent in the United States, other than a Commission member,
official, or employee, to accept notice or service of process,
pleadings, or other documents in any action or proceedings brought
against the SB SEF to enforce the Federal securities laws and the rules
and regulations thereunder.\318\
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    \318\ See proposed Rule 801(d).
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    The Commission preliminarily believes that before granting
registration to a SB SEF, it is appropriate to obtain assurance that
such person has an agent for service of process in the United States in
order to facilitate proper notification to the SB SEF of any actions or
proceedings the Commission may wish to bring against such SB SEF.
    Proposed Rule 801(e) would require any person applying for
registration on Form SB SEF that is controlled by another person \319\
to certify on Form SB SEF and provide an opinion of counsel that any
person that controls such applicant will consent to and can, as a
matter of law, (1) provide the Commission with prompt access to its
books and records, to the extent such books and records are related to
the activities of the SB SEF; and (2) submit to onsite inspection and
examination by representatives of the Commission with respect to the
activities of the SB SEF.\320\ In addition, proposed Rule 802(c) would
require any SB SEF controlled by any other person to file an amendment
to Exhibit P on Form SB SEF within 5 business days after any changes in
the legal or regulatory framework of any person that controls

the SB SEF that would impact the ability of or the manner in which any
such person consents to or provides the Commission prompt access to its
books and records, to the extent such books and records are related to
the activities of the SB SEF, or impacts the Commission's ability to
inspect and examine any such person with respect to the activities of
the SB SEF.\321\ Such amendment would be required to include a revised
opinion of counsel pursuant to Exhibit P describing how, as a matter of
law, any person that controls the SB SEF would continue to meet its
obligations to consent to and provide the Commission with prompt access
to its books and records, to the extent such books and records are
related to the activities of the SB SEF, and to consent to and be
subject to onsite inspection and examination by representatives of the
Commission with respect to the activities of the SB SEF under such new
legal or regulatory framework.\322\ The Commission emphasizes that the
proposed provisions would be applicable only to those books and records
or activities that are related to the activities of the SB SEF. The
Commission believes that it is important for the SB SEF to have access
to books and records that are related to the activities of a SB SEF and
to have examination and inspection authority with respect to activities
of a SB SEF, in order for a SB SEF to be able to effectively carry out
its regulatory responsibilities. Similarly, the Commission believes
that it is important for the Commission to have access to those books
and records and such examination and inspection authority so that it
may effectively conduct its oversight and regulatory responsibilities
under the Exchange Act.
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    \319\ For purposes of Regulation SB SEF, proposed Rule 800 would
define the term ``control'' or any derivatives thereof as the direct
or indirect possession of the power to direct or cause the direction
of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise. Proposed
Rule 800 would provide that a person would be presumed to control
another person if the person: (1) Is a director, general partner, or
officer exercising executive responsibility (or having similar
status or functions); (2) directly or indirectly has the right to
vote 25% or more of a class of voting securities or has the power to
sell or direct the sale of 25% or more of a class of voting
securities; or (3) in the case of a partnership, has the right to
receive, upon dissolution, or has contributed, 25% or more of the
capital. See Instructions to Form 1.
    \320\ See proposed Rule 801(e).
    \321\ See proposed Rule 802(c).
    \322\ Id.
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    Proposed Rule 801(f) would require that any non-resident person
\323\ seeking to register as a SB SEF certify on Form SB SEF and
provide an opinion of counsel that the SB SEF can, as a matter of law,
(1) provide the Commission with prompt access to the books and records
of such SB SEF and (2) submit to onsite inspection and examination by
representatives of the Commission.\324\
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    \323\ The term ``non-resident person'' would be defined to mean:
(1) In the case of an individual, one who resides in or has his
principal place of business in any place not in the United States;
(2) in the case of a corporation, one incorporated in or having its
principal place of business in any place not in the United States;
and (3) in the case of a partnership or other unincorporated
organization or association, one having its principal place of
business in any place not in the United States. See proposed Rule
800.
    \324\ See proposed Rule 801(f).
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    The Commission preliminarily believes that before granting
registration to a non-resident SB SEF, it is appropriate to obtain
assurance that such person is legally permitted to provide the
Commission with prompt access to its books and records and to be
subject to inspection and examination by the Commission. Similarly, the
Commission preliminarily believes that before granting registration to
a SB SEF controlled by another person, it is appropriate to obtain
assurance that the person controlling such SB SEF is legally permitted
to provide the Commission with prompt access to its books and records
related to the SB SEF and to be subject to inspection and examination
by the Commission with respect to activities of the SB SEF. The
Commission preliminarily believes that the certifications and opinions
of counsel required by proposed Rules 801(e) and (f) would be important
to confirm that each non-resident SB SEF or control person of a SB SEF
has taken the necessary steps to be in the position to provide the
Commission with prompt access to its books and records and to be
subject to inspection and examination by the Commission. Certain
foreign jurisdictions may have laws that complicate the ability of
financial institutions, such as SB SEFs located in their jurisdictions,
from sharing or transferring certain information, including personal
financial data of individuals that financial institutions come to
possess from third parties (i.e., personal data relating to the
identity of market participants or their customers). Providing an
opinion of counsel that the SB SEF can provide prompt access to books
and records and can be subject to inspection and examination would
allow the Commission to better evaluate a SB SEF's ability to meet the
requirements of registration and ongoing supervision. In addition,
certain persons controlling a SB SEF may not be under the jurisdiction
of the Commission or may be non-resident persons. Providing an opinion
of counsel that such control persons have consented to and can provide
prompt access to books and records and be subject to inspection and
examination would help the Commission to monitor and oversee
individuals that control SB SEFs in cases where such individuals may
not otherwise subject to the jurisdiction of the Commission or may be
subject to foreign jurisdictions. Failure to make these certifications
or provide an opinion of counsel may be a basis for the Commission to
deny an application for registration. Similarly, if a registered non-
resident SB SEF or a registered SB SEF that is controlled by another
person becomes unable to comply with these certifications or provide
such opinions of counsel, then this may be a basis for the Commission
to revoke the SB SEF's registration.\325\
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    \325\ See proposed Rule 804(d) and discussion infra Section
XXI.C.
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    The Commission requests comments on all aspects of the proposed
rules relating to non-resident persons and applicants controlled by
other persons seeking to register as SB SEFs. Is the Commission's
proposed rule regarding service of process appropriate and sufficiently
clear? If not, why not and what would be a better alternative? Should
the Commission impose any minimum requirements on the agent whom a
person designates to accept any notice or request for service of
process? Are there any factors that the Commission should take into
consideration to help provide effective service of process on a non-
resident person or a person controlled by another person applying for
registration as a SB SEF?
    If a non-resident SB SEF that is registered in a similar capacity
in a foreign jurisdiction seeks to apply for registration as a SB SEF
with the Commission, should the registration process for the non-
resident SB SEF be any different than the Commission's proposed
registration process? For example, should the registration process
incorporate additional registration requirements for such non-resident
SB SEF? Should the Commission consider any other factors relating to a
non-resident SB SEF with respect to the Commission's registration rules
or in general?
    Are there any factors that the Commission should take into
consideration to ensure that a non-resident person seeking to register
as a SB SEF can, in compliance with applicable foreign laws, provide
the Commission with access to its books and records and can submit to
inspection and examination by the Commission? Should such a non-
resident person be required to provide any additional information or
documents on proposed Form SB SEF to establish its ability to comply
with the Federal securities laws and the rules and regulations
thereunder?
    Are there any factors that the Commission should take into
consideration to ensure that a person controlling a person seeking to
register as a SB SEF can provide the Commission with access to its
books

and records and can submit to inspection and examination by the
Commission? Should such control persons or the SB SEFs which they
control be required to provide any additional information or documents
on proposed Form SB SEF to establish the ability of the SB SEF to
comply with the Federal securities laws and the rules and regulations
thereunder? For example, should a SB SEF controlled by another person
be required to provide on proposed Form SB SEF a copy of the document
evidencing the consent by the controlling person to the books and
records and examination and inspections requirements contained in
proposed Rule 801(e)?

B. Proposed Filing Requirements for Maintaining SB SEF Registration

    Proposed Rule 802 under Regulation SB SEF would require SB SEFs
registered with the Commission to submit certain amendments and updates
to Form SB SEF. Proposed Rule 803 under Regulation SB SEF would require
SB SEFs registered with the Commission to file certain supplemental
information with respect to the trading of SB swaps.
    Proposed Rule 802(a) would require a SB SEF to file an amendment to
its Form SB SEF promptly, but in no event later than five business
days, after discovering that any information filed on Form SB SEF, any
statement therein, or any exhibit or amendment thereto, was inaccurate
when filed in order to correct such inaccuracies.
    Proposed Rule 802(b) would require a registered SB SEF to file an
amendment on Form SB SEF with the Commission within five business days
after any action is taken that renders inaccurate, or that causes to be
incomplete, any information filed on the Execution Page of the SB SEF's
Form SB SEF, or any amendment thereto, or any information filed as part
of Exhibits C, E, G, or N,\326\ or any amendments thereto.\327\ Any
such amendments must set forth the nature and effective date of the
action taken, provide any new information, and correct any information
rendered inaccurate. Proposed Rule 802(c) would require a SB SEF that
is under the control of any other person to file an amendment to
Exhibit P to its Form SB SEF within 5 business days after any changes
in the legal or regulatory framework of any person that controls the SB
SEF that would impact the ability of or the manner in which any such
person consents to or provides the Commission prompt access to its
books and records, to the extent such books and records are related to
the activities of the SB SEF, or impacts the Commission's ability to
inspect and examine any such person with respect to the activities of
the SB SEF.\328\ Such amendment would be required to include a revised
opinion of counsel pursuant to Exhibit P describing how, as a matter of
law, any person that controls the SB SEF will continue to meet its
obligations to consent to and provide the Commission with prompt access
to its books and records, to the extent such books and records are
related to the activities of the SB SEF, and to consent to and be
subject to onsite inspection and examination by representatives of the
Commission under such new legal or regulatory framework.\329\ Proposed
Rule 802(d) would require non-resident SB SEFs to file an amendment to
Exhibit P to their Form SB SEF within five business days after any
changes in legal or regulatory framework that would impact the SB SEF's
ability to or the manner in which it provides the Commission prompt
access to its books and records or impacts the Commission's ability to
inspect and examine the SB SEF.\330\ Such amendment would be required
to include a revised opinion of counsel describing how, as a matter of
law, the entity will continue to: (1) meet its obligations to provide
the Commission with prompt access to its books and records and (2) be
subject to onsite inspection and examination by representatives of the
Commission under such new legal or regulatory framework.\331\
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    \326\ These exhibits pertain to the list of officers, governors
and committees of the SB SEF (Exhibit C), ownership of the SB SEF
(Exhibit E), certain material operating agreements (Exhibit G), and
criteria for determining what securities may be traded (Exhibit N).
    \327\ See proposed Rule 802(b).
    \328\ See proposed Rule 802(c).
    \329\ Id.
    \330\ See proposed Rule 802(d).
    \331\ Id.
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    The Commission preliminarily believes that it is appropriate to
require the updating of only the Execution Page and Exhibits C, E, G,
and N to proposed Form SB SEF on a continuous basis. The exhibits
required to be updated pursuant to proposed Rule 802(b) are
substantially similar to the exhibits to Form 1 required to be updated
on a continuous basis by national securities exchanges pursuant to Rule
6a-2 under the Exchange Act.\332\ The Commission believes that it is
important for the Commission to receive updates to the information
included in the enumerated exhibits, namely information regarding a SB
SEF's governance, ownership, operations, and criteria used to determine
the SB swaps that may be traded on the SB SEF, on a real-time basis to
allow the Commission to effectively oversee SB SEFs to ensure
compliance with the Exchange Act. The Commission also believes that it
is important for the Commission to receive updated opinions of counsel
under Exhibit P pursuant to proposed Rules 802(c) and (d) to ensure
that the Commission can oversee and ensure compliance with the Exchange
Act of non-resident SB SEFs and control persons of SB SEFs. Although
the comparable amendments to the Form 1 for national securities
exchanges are required to be filed within 10 days pursuant to Rule 6a-
2, given the improvements in technology since the adoption of Rule 6a-
2, the Commission preliminarily believes that five business days should
provide SB SEFs sufficient time to prepare and file a Form SB SEF
amendment. In addition, the proposed time frame would ensure that the
relevant exhibits remain timely and that the Commission has up-to-date
information in a timely manner.
---------------------------------------------------------------------------

    \332\ 17 CFR 240.6a-2.
---------------------------------------------------------------------------

    Proposed Rule 802(e) also would provide that if the number of
changes to be reported in an amendment, or the number of amendments
filed, are so great that the purpose of clarity will be promoted by the
filing of a new complete Form SB SEF and exhibits, a SB SEF may elect
to, or upon request of any representative of the Commission shall, file
as an amendment a complete new Form SB SEF together with all exhibits
thereto.
    Under proposed Rule 802(f), a registered SB SEF would be required
to update its Form SB SEF on an annual basis. Specifically, within 60
days of the end of its fiscal year, a registered SB SEF would be
required to file an amendment to its Form SB SEF to update the Form SB
SEF in its entirety.\333\ Each exhibit to the amended Form SB SEF would
be required to be up-to-date as of the end of the latest fiscal year of
the SB SEF.\334\ The purpose of this requirement is to provide the
Commission and the public with updated information on all the exhibits
required in the Form SB SEF, particularly those exhibits that are not
otherwise required to be updated under proposed Rules 802(b), (c) and
(d), on an annual basis. The Commission preliminarily believes that a
60-day filing deadline would give SB SEFs sufficient time in which to
file an annual amendment to Form SB SEF.
---------------------------------------------------------------------------

    \333\ See proposed Rule 802(f).
    \334\ See id.

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

    Proposed Rule 803 would require a registered SB SEF to file with
the Commission any material relating to the trading of SB swaps
(including notices, circulars, bulletins, lists, and periodicals)
issued or made generally available to SB SEF participants. A SB SEF
would be required to file such supplementary material with the
Commission upon issuing or making the material available to SB SEF
participants.\335\ However, if such information is available
continuously on an Internet Web site controlled by the SB SEF, the SB
SEF may indicate to the Commission the location of the Web site and
certify that such information is accurate instead of filing with the
Commission.\336\
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    \335\ See proposed Rule 803(a).
    \336\ See proposed Rule 803(b).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the amendments required
by proposed Rule 802 and the supplemental material required by proposed
Rule 803 would provide a useful tool for the Commission to carry out
its oversight of SB SEFs and their compliance with the Exchange Act and
the rules and regulations thereunder. Requiring SB SEFs to provide
consistent and up-to-date disclosures about significant changes in
their governance, ownership, operations and criteria used to determine
the SB swaps that may be traded on the SB SEF, and requiring non-
resident SB SEFs and SB SEFs controlled by another person to update the
opinion of counsel whenever changes in legal or regulatory framework
would impact their ability to comply with proposed Rules 801(e) and
(f), respectively, pursuant to proposed Rules 802(b), (c) and (d) would
provide the Commission with important information in monitoring whether
a SB SEF is in compliance with the Core Principles throughout its
fiscal year. Requiring a SB SEF to update its Form SB SEF and the
exhibits thereto on an annual basis pursuant to proposed Rule 802(f)
would provide updated information on the parts of the Form SB SEF that
are not required to be updated within five business days and thus
enable the Commission to have a full picture of the changes at a SB SEF
on a year-to-year basis. Requiring SB SEFs to provide to the Commission
material made available to SB SEF participants regarding the trading of
SB swaps pursuant to proposed Rule 803 would provide the Commission
with important information to monitor the trading of SB swaps on the SB
SEF and whether such trading is being conducted in compliance with the
Federal securities laws and the rules and regulations thereunder.
    Providing the Commission with the necessary information it needs to
effectively regulate SB SEFs and the trading of SB swaps on SB SEFs is
especially important because SB SEFs would be new entities and SB SEFs,
and the trading of SB swaps on SB SEFs, would be newly regulated by the
Commission. The operation of SB SEFs and trading of SB swaps on SB SEFs
is likely to change as the regulated market for SB swaps and the
trading of SB swaps on trading venues regulated by the Commission
continue to develop. The proposed amendments to Form SB SEF, including
the proposed annual update, and the proposed supplemental information
filing, would help the Commission keep abreast of the changes that may
occur with respect to the trading of SB swaps on SB SEFs, and the
operation and ownership of SB SEFs, and thus should enable the
Commission to more effectively regulate the trading of SB swaps and SB
SEFs.
    The Commission requests comments on all aspects of the proposed
rules relating to required amendments and updates to proposed Form SB
SEF and the required filing of supplemental information. Are the
Commission's proposed rules appropriate and sufficiently clear? If not,
why not and what would be a better alternative? Are the exhibits to
proposed Form SB SEF that would require prompt updating pursuant to
proposed Rule 802(b) appropriate? Are there other exhibits to Form SB
SEF that should be updated on a continuous basis? Are there exhibits
that should not be updated on a continuous basis? Is it appropriate to
require SB SEF's to update their registration statement annually? Would
a different time period be more appropriate? What would be the cost to
SB SEFs of the proposed rules requiring amendments?
    Is the material required to be filed pursuant to proposed Rule 803
appropriate? Is there other information that the Commission should
require to be filed with respect to the trading of SB swaps? Is there
information that the Commission should not request? Should the
Commission request any information at all? Is it appropriate, in lieu
of requiring a SB SEF to file supplemental material with the Commission
pursuant to proposed Rule 803(a), to allow the SB SEF to direct the
Commission to a Web site where such information is located and certify
that the information is accurate pursuant to proposed Rule 803(b)?
Should the Commission make such an allowance for SB SEFs with respect
to required amendments pursuant to proposed Rule 802?

C. Withdrawal or Revocation of Registration of SB SEF

    Proposed Rule 804 under Regulation SB SEF would permit a registered
SB SEF to withdraw from registration by filing a written notice of
withdrawal with the Commission, which notice must designate a person
associated with the SB SEF to serve as the custodian of the SB SEF's
books and records.\337\ Prior to filing a notice of withdrawal, a SB
SEF would be required to file an amended Form SB SEF to update any
inaccurate information.\338\ A notice of withdrawal from registration
filed by a SB SEF would become effective on the 60th day after the
filing thereof with the Commission, or within such longer period of
time as to which such SB SEF consents or which the Commission, by
order, may determine as necessary or appropriate in the public interest
or for the protection of investors, or within such shorter period of
time as the Commission may determine.\339\
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    \337\ See proposed Rule 804(a). A notice of withdrawal filed
pursuant to proposed Rule 804 would be considered a ``report'' filed
with the Commission for purposes of Sections 18(a) and 32(a) of the
Exchange Act and the rules and regulations thereunder. See proposed
Rule 804(c). See also supra note 303.
    \338\ See proposed Rule 804(a).
    \339\ See proposed Rule 804(b).
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    The Commission preliminarily believes that is appropriate to
provide for a mechanism for SB SEFs to withdraw from registration. In
addition, the Commission preliminarily believes that 60 days following
notice of withdrawal is an appropriate effective date for any SB SEF
registration withdrawal. Providing a period between filing of notice of
withdrawal and the effective date of any withdrawal should enable the
Commission to allow a SB SEF to withdraw its registration with the
Commission and cease operating as a SB SEF and market participants to
react to any such withdrawal without dislocating the SB swap market or
causing any other unintended consequences with respect to the trading
of SB swaps.
    Proposed Rule 804(d) would provide that the Commission may, by
order, revoke the registration of a registered SB SEF if the Commission
finds, on the record after notice and opportunity for hearing, that the
SB SEF obtained its registration by making false or misleading
statements with respect to any material fact or has violated or failed
to comply with any provision of the Federal securities laws or the
rules

and regulations thereunder.\340\ Pending a final determination as to
whether the registration of a SB SEF shall be revoked, the Commission
may, by order, suspend the registration of the SB SEF if such
suspension appears to the Commission, after notice and opportunity for
hearing, to be necessary or appropriate in the public interest or for
the protection of investors.\341\ The Commission believes that it is
appropriate to provide a mechanism for the Commission to revoke a SB
SEF's registration if a SB SEF obtained its registration unlawfully or
has violated the Federal securities laws or rules or regulations
thereunder.
---------------------------------------------------------------------------

    \340\ See proposed Rule 804(d).
    \341\ Id.
---------------------------------------------------------------------------

    Proposed Rule 804(e) would provide that the Commission may, by
order, cancel the registration of a SB SEF if the Commission finds that
the SB SEF is no longer in existence or has ceased to do business in
the capacity specified in its application for registration.\342\ The
Commission believes that it is appropriate to provide a mechanism for
the Commission to cancel a SB SEF's registration if a SB SEF is no
longer in existence or has ceased to do business in the manner set
forth in the registration application.
---------------------------------------------------------------------------

    \342\ See proposed Rule 804(e).
---------------------------------------------------------------------------

    The Commission requests comments on all aspects of the proposed
rule relating to withdrawal or revocation of registration. Is the
Commission's proposed rule regarding the withdrawal, revocation and
cancellation of a SB SEF's registration appropriate and sufficiently
clear? If not, why not and what would be a better alternative? Should a
SB SEF be required to file an amendment on Form SB SEF before
withdrawing its registration? If not, why not and what would be a
better alternative? Should the Commission require a SB SEF to file a
form to request withdrawal of registration? If so, why and what should
the SB SEF be required to disclose in the form? Should this form be
required in lieu of or in addition to an amendment on Form SB SEF? Is
the proposed effective date of 60 days from the filing of the notice of
withdrawal with the Commission appropriate? If not, would an earlier or
later date be more appropriate? Are the findings required by the
Commission to revoke, suspend or cancel a SB SEF's registration
appropriate? Are any other instances not specified in this proposed
rule in which the Commission should revoke, suspend or cancel a SB
SEF's registration?

XXII. New Proposed Form SB SEF for the Registration of Security-Based
Swap Execution Facilities

    The Commission is proposing that applications for registration as a
SB SEF, and amendments to such registration, be submitted on new
proposed Form SB SEF. Proposed Form SB SEF is similar in style and
format to the existing Form 1 for registration as a national securities
exchange. Proposed Form SB SEF, however, is tailored to solicit
information that the Commission believes would be useful for
considering whether a SB SEF meets the requirements for registration in
Section 3D of the Exchange Act, including whether the SB SEF can comply
with the Core Principles contained in Section 3D(d) of the Exchange
Act, and the rules thereunder, including proposed Regulation SB SEF.
    The Execution Page to proposed Form SB SEF would require an
applicant to provide certain identifying information. The Execution
Page would include a box for the applicant to indicate whether the
applicant was seeking consideration for temporary registration pursuant
to proposed Rule 801(c). In addition, the Execution Page would require
the applicant to designate and authorize an individual, other than a
Commission official, for service of process, pleadings, or other
documents in connection with any action or proceeding against the
applicant, as required by proposed Rule 801(d).
    The Execution Page to proposed Form SB SEF further would require
the applicant to certify that the statements contained therein are
current, true and complete, and that the applicant is currently in
compliance with, and is currently operating its business in a manner
consistent with, the Exchange Act and all rules and regulations
thereunder. The applicant also would be required to certify that it is
so organized, and has the capacity, to assure the prompt, accurate, and
reliable performance of its functions as a SB SEF, and that it has the
capacity to fulfill its obligations under all international
information-sharing agreements to which it is a party. In addition, the
applicant would be required to certify that any person that controls
the applicant has consented to and can, as a matter of law, (1) provide
the Commission with prompt access to its books and records, to the
extent such books and records are related to the activities of the
security-based swap execution facility; and (2) submit to onsite
inspection and examination by representatives of the Commission with
respect to the activities of the SB SEF, as required by proposed Rule
801(e). Finally, the applicant would be required to certify that, if it
is a non-resident person, it can, as a matter of law, (1) provide the
Commission with prompt access to its books and records and (2) submit
to an onsite inspection and examination by representatives of the
Commission, as required by proposed Rule 801(f).
    Proposed Exhibit A to Form SB SEF would require the applicant to
provide a copy of the governing documents of the applicant, including
but not limited to a corporate charter, articles of incorporation or
association, limited liability company agreement, or partnership
agreement, with all subsequent amendments, and by-laws or corresponding
rules or instruments, whatever the name, of the applicant. This
information is intended to be used to assess the applicant's compliance
with Core Principle 1 (Compliance with Core Principles), Core Principle
2 (Compliance with Rules), and Core Principle 11 (Conflicts of
Interest). The information provided in this proposed exhibit is
designed to allow the Commission to confirm that the applicant has the
appropriate authority to operate the trading system and to regulate its
participants, and that the ownership structure is consistent with the
Exchange Act and the rules and regulations thereunder relating to the
governance of SB SEFs.
    Proposed Exhibit B to Form SB SEF would require the applicant to
provide a copy of all written rulings, settled practices having the
effect of rules, stated policies and interpretations of the Board or
other committee of the applicant in respect of any provisions of the
governing documents, rules or trading practices of the applicant which
are not included in Exhibit A. This information required in proposed
Exhibit B would be critical to the Commission's ability to assess the
applicant's compliance with all of the Core Principles that require SB
SEFs to establish and enforce rules relating to a variety of matters
(e.g., Core Principle 2 (Compliance with Rules); Core Principle 4
(Monitoring of Trade and Trade Processing); Core Principle 5 (Ability
to Obtain Information); Core Principle 6 (Financial Integrity of
Transactions); Core Principle 7 (Emergency Authority); Core Principle
10 (Antitrust Considerations); and Core Principle 11 (Conflicts of
Interest)). Consequently, the Commission believes that such information
is necessary for the Commission to confirm that the applicant's rules
meet the requirements of those Core Principles and of the Exchange Act
and the rules and

regulations thereunder, including proposed Regulation SB SEF.
    Proposed Exhibit C to Form SB SEF would require the applicant to
provide a list of the officers and directors of the SB SEF, or persons
performing similar functions, who presently hold or have held their
offices or positions during the previous year, and a list of all
standing committees and their members, indicating the following for
each: their name and title; date of commencement and termination of
term of office or position; the type of business in which each is
primarily engaged (e.g., SB swap dealer, major SB swap participant,
inter-dealer broker, end-user etc.); and, if such person is a director,
whether such director qualifies as an ``independent director'' pursuant
to proposed Rule 800 under Regulation SB SEF and whether such director
is a member of any standing committees or committees that have the
authority to act on behalf of the Board or the nominating committee.
The Commission believes that mandating SB SEFs to disclose this
information should better inform the Commission about SB SEF officers,
the persons responsible for the day-to-day operation of the SB SEF, and
SB SEF directors, the persons that comprise the Board. In addition, the
Commission believes that the information required in Exhibit C is
necessary for the Commission to determine the applicant's compliance
with the governance requirements of Core Principle 11 (Conflicts of
Interest) and the proposed rules under Regulation SB SEF relating
thereto, and would aid the Commission in ascertaining any affiliations
and relationships that would preclude directors from being considered
independent.
    Proposed Exhibit D to Form SB SEF would require an applicant to
provide a chart or charts illustrating fully the internal
organizational structure of the SB SEF. The charts would need to
indicate the internal divisions or departments, the responsibilities of
each such division or department, and the reporting structure of each
division or department, including its oversight by committees or their
equivalent. The charts should be sufficiently detailed to permit the
Commission and the public to gain a complete understanding of the
manner in which the SB SEF is structured and should be able to provide
the Commission with an overview of the entity's organizational
structure. The Commission preliminarily believes that disclosure of
these organizational charts would be an important means by which to
provide the Commission with a better understanding of the governance
structure of the SB SEF and would enable the Commission to determine
the applicant's compliance with Core Principle 11 (Conflicts of
Interest) and the proposed rules under Regulation SB SEF relating
thereto. In addition, the Commission preliminary believes that these
organizational charts would inform the Commission's view on the ability
of the SB SEF to carry out its regulatory and oversight
responsibilities with respect to its markets.
    Proposed Exhibit E to Form SB SEF would require an applicant to
provide certain ownership information. Specifically, Exhibit E would
require a list of each person that has a direct or indirect ownership
or voting interest in the SB SEF that equals or exceeds 5%, and a list
of all related persons of such persons that have an ownership or voting
interest in the SB SEF or that are SB SEF participants. For each of the
persons and related persons listed in the Exhibit E, an applicant would
also need to provide such person's name, title or legal status and
whether such person is a SB SEF participant; the date such title,
status or participation in a SB SEF was acquired or commenced; the
percentage ownership interest held; the type of ownership held,
including whether such ownership interest qualifies as ``beneficial
ownership'' under proposed Rule 800 or is entitled to vote; the
percentage of voting interest held; and the type of voting interest
held. The purpose of this information is to provide the Commission,
participants of the SB SEF, and investors with detailed information
about which persons or groups of persons potentially could control or
influence the SB SEF. In addition, the information proposed to be
required by Exhibit E relating to ownership of a SB SEF would provide
the Commission, as well as participants in the SB SEF, with up-to-date
information regarding a change or potential change in control of a SB
SEF. The Commission expects that the disclosure of information
concerning persons that hold ownership or voting interests of more than
5% of a SB SEF should help the Commission more effectively oversee and
regulate SB SEFs, especially if the SB SEF is owned or controlled by
persons who are not regulated by the Commission.
    Proposed Exhibit F to Form SB SEF would require an applicant to
provide, for the latest two fiscal years of the applicant, audited
financial statements, which would be prepared in accordance with the
same requirements for the preparation of financial statements submitted
pursuant to the proposed rules under Regulation SB SEF relating to Core
Principle 14.\343\ The Commission preliminarily believes that this
information would enable the Commission to assess the applicant's
compliance with Core Principle 12 (Financial Resources) and the
proposed rules under Regulation SB SEF relating thereto. In addition,
the Commission believes that disclosure of audited financial statements
would permit the Commission to better understand the financial
resources and decisions of SB SEFs. The Commission preliminarily
believes that these statements should be submitted by SB SEFs pursuant
to Form SB SEF in addition to the rules relating to Core Principle 14,
because documents submitted pursuant to Form SB SEF will be disclosed
to the public. This would allow the public to be informed about the
financial position of these SB SEFs and should facilitate investor
confidence in the markets. In addition, because Exhibit F and the rules
relating to Core Principle 14 have the same requirements with respect
to the preparation and presentation of such financial statements, this
should not create an additional burden on SB SEFs.
---------------------------------------------------------------------------

    \343\ See supra Section XX.C for a discussion of the financial
statement requirements pursuant to Core Principle 14. See also
proposed Rule 823.
---------------------------------------------------------------------------

    Proposed Exhibit G to Form SB SEF would require an applicant to
provide an executed or executable copy of any agreements or contracts
entered into or to be entered into by the applicant, or a subsidiary or
an affiliate of the applicant, including partnership or limited
liability company, third-party regulatory service, or other agreements
relating to the operation of an electronic trading system to be used to
effect transactions on the SB SEF (``System'') that enable or empower
the applicant to comply with Section 3D of the Exchange Act. The
Commission believes that the provision of these material agreements
would be useful for the Commission and the public. They would enable
the Commission to understand how and through what parties the System is
being operated and to have a better understanding of the arrangements
that the SB SEF has entered into to meet its obligations under the
Exchange Act. The information required in this exhibit would allow the
Commission generally to ascertain the applicant's compliance with all
Core Principles.
    Proposed Exhibit H to Form SB SEF would require an applicant to
provide unconsolidated financial statements (in English) for the latest
two fiscal years for every subsidiary in which the applicant has,
directly or indirectly, a 25% interest and every entity that has,
directly or indirectly, a 25% interest in

the applicant, which would be prepared in accordance with the same
requirements for the preparation of financial statements submitted
pursuant to the proposed rules under Regulation SB SEF relating to Core
Principle 14.\344\ Such financial statements would be required to
contain such footnotes and other disclosures as are necessary to avoid
rendering the financial statements misleading, and be provided in
eXtensible Business Reporting Language consistent with Rules 405(a)(1),
(a)(3), (b), (c), (d), and (e) of Regulation S-T.\345\ In addition to
the foregoing, for all other affiliates of the applicant not listed,
such information would be required to be made available to the
Commission upon request.\346\ The Commission preliminarily believes
that the information required in this exhibit would allow the
Commission to assess the SB SEF's compliance with Core Principle 12
(Financial Resources) and the proposed rules under Regulation SB SEF
relating thereto. In addition, the Commission believes that the
required financial statement would enable the Commission to better
understand the financial resources and decisions of SB SEFs and their
affiliates. Finally, while evaluating an applicant's registration
application on Form SB SEF, the Commission may determine that
additional affiliates of the applicant that do not meet the 25%
threshold may be material to the applicant's operation as a SB SEF.
Therefore, the Commission preliminarily believes that it is appropriate
to require an applicant to provide financial information regarding
other affiliates upon request of the Commission.
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    \344\ See supra Section XX.C for a discussion of the financial
statement requirements pursuant to Core Principle 14. See also
proposed Rule 823.
    \345\ These requirements are the same as the requirements for
the preparation of financial statements for affiliated entities that
would be submitted pursuant to the proposed rules under Regulation
SB SEF relating to Core Principle 14. See supra Section XX.C for a
discussion of the financial statement requirements pursuant to Core
Principle 14.
    \346\ This requirement to provide the information for all other
affiliates of the applicant upon request is not contained in the
rules under Regulation SB SEF relating to Core Principle 14, as the
financial report submitted by the SB SEF pursuant to such rules is
an annual report, rather than a registration application.
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    Proposed Exhibit I to Form SB SEF would require an applicant to
describe the manner of operation of the System. This description would
be required to include: (1) A detailed description of the manner in
which the System satisfies the definition of ``security-based swap
execution facility'' in Section 3(a)(77) of the Exchange Act and any
Commission rules, interpretations or guidelines regarding such
definition, including a description of how the System displays all
orders, quotes, requests for quote, responses, and trades in an
electronic or other form, and the timelines in which the system does
so; how trading interest interacts on the System; the ability of market
participants to see and transact with orders, quotes, requests for
quotes, and responses; and an explanation of the trade-matching
algorithm if it is based on order priority factors other than price and
time; (2) the means of access to the System, including any limitations
on access; (3) procedures governing entry and display of trading
interest in the System; (4) procedures governing the execution,
reporting, clearance and settlement of transactions in connection with
the System; (5) proposed fees; (6) procedures for ensuring compliance
with System usage guidelines and rules; (7) the hours of operation of
the System, and the date on which the applicant intends to commence
operation of the System; (8) a copy of the users' manual or equivalent
document; (9) if applicant proposes to hold funds or securities on a
regular basis, a description of the controls that would be implemented
to ensure safety of those funds or securities; and (10) the name of any
entity, other than the SB SEF, that will be involved in operation of
the System, including the execution, trading, clearing and settling of
transactions on behalf of the SB SEF, and a description of the role and
responsibilities of each entity.
    The Commission believes that Exhibit I would allow the Commission
to determine if the applicant meets the definition of SB SEF under the
Exchange Act and rules and regulations hereunder, and in accordance
with the guidance set forth in Section III above. In addition, Exhibit
I would address the applicant's compliance with several Core
Principles, including Core Principle 1 (Compliance with Rules), Core
Principle 4 (Monitoring of Trade & Trade Processing), Core Principle 6
(Financial Integrity of Transactions), Core Principle 8 (Timely
Publication of Trading Information), Core Principle 9 (Recordkeeping
and Reporting), and Core Principle 13 (System Safeguards), and the
proposed rules under Regulation SB SEF relating to such Core
Principles.
    Proposed Exhibit J to Form SB SEF would require an applicant to
provide a complete set of all forms pertaining to: (1) Applications for
participation or subscription to or use of the SB SEF; (2) applications
for approval as a person associated with a SB SEF participant, or user
of the SB SEF; and (3) any other similar materials. The applicant would
have to provide a table of contents listing the forms included. The
Commission believes that the information required in proposed Exhibit J
would provide the Commission with important information on the ability
of persons to directly access the SB SEF. Such information would enable
the Commission to assess the applicant's compliance with Core Principle
2 (Compliance with Rules), Core Principle 5 (Ability to Obtain
Information), and Core Principle 6 (Financial Integrity of
Transactions) and the proposed rules under Regulation SB SEF related to
such Core Principles.
    Proposed Exhibit K to Form SB SEF would require an applicant to
provide a complete set of all forms of financial statements, reports,
or questionnaires required of SB SEF participants, subscribers or any
other users relating to financial responsibility or minimum capital
requirements for such participants or any other users. The applicant
also would have to provide a table of contents listing the forms
included. The Commission preliminarily believes that the information
collected in this proposed exhibit would provide the Commission with
the financial information that SB SEF's require of their participants
and users and enable the Commission to assess the applicant's
compliance with Core Principle 6 (Financial Integrity of Transactions)
and the proposed rules under Regulation SB SEF related thereto.
    Proposed Exhibit L to Form SB SEF would require an applicant to
describe the applicant's criteria for participation in or use of the SB
SEF. The applicant would be required to describe conditions under which
SB SEF participants or persons associated with SB SEF participants may
be subject to suspension or termination with regard to access to the SB
SEF, and any procedures that would be involved in the suspension or
termination of a SB SEF participant or person associated with a SB SEF
participant. Proposed Exhibit L would require a SB SEF to provide a
list of all grants of access (including, for all participants, the
reasons for granting such access) and all denials or limitations of
access (including, for each applicant or participant, the reasons for
denying or limiting access). In addition, proposed Exhibit L would
require a SB SEF to provide a list of all disciplinary actions taken by
the SB SEF. The Commission preliminarily believes that proposed Exhibit
L would provide the Commission with information regarding access to,
limitations of access by, and

denials of access by a SB SEF, and disciplinary actions taken by a SB
SEF against participants, and would allow the Commission to ascertain
the applicant's compliance with Core Principle 2 (Compliance with
Rules) and Core Principle 4 (Monitoring of Trading and Trade
Processing) and the proposed rules under Regulation SB SEF relating to
such Core Principles.
    Proposed Exhibit M to Form SB SEF would require an applicant to
provide an alphabetical list of all SB SEF participants or other users
of the SB SEF, including the following information: name; date of
acceptance as a participant or other user; principal business address
and telephone number; if participant or other user is an individual,
the name of the entity with which such individual is associated and the
relationship of such individual to the entity (e.g., partner, officer,
director, employee, etc.); a description of the type of activities
primarily engaged\347\ in by the participant or other user (e.g., SB
swap dealer, major SB swap participant, inter-dealer broker, non-broker
dealer, non-security-based swap dealer, commercial end-user, inactive
or other functions); and the class of participation or other access.
The Commission preliminarily believes that this exhibit would provide
the Commission with information relating to who has access to trading
on the SB SEF and would enable the Commission to determine whether a SB
SEF is in compliance with Core Principle 2 (Compliance with Rules),
Core Principle 6 (Financial Integrity of Transactions) and Core
Principle 11 (Conflicts of Interest) and the proposed rules under
Regulation SB SEF related to such Core Principles.
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    \347\ A person would be ``primarily engaged'' in an activity or
function for purposes of this item when that activity or function is
the one in which that person is engaged for the majority of their
time. When more than one type of person at an entity engages in any
of the types of activities or functions enumerated in this item, the
applicant would be required to identify each type and state the
number of participants or other users in each.
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    Proposed Exhibit N to Form SB SEF requires an applicant to provide
a description of the criteria used to determine the SB swaps that may
be traded on the SB SEF. The Commission preliminarily believes that
this requirement would provide the Commission with information
regarding the process by which a SB SEF determines what SB swaps would
be traded on the SB SEF and the factors the SB SEF would consider in
making such determination. Proposed Exhibit O to Form SB SEF requires
an applicant to provide a schedule of the SB swaps to be traded on the
SB SEF, including a description of each SB swap. The Commission
believes that proposed Exhibits N and O would enable the Commission to
determine whether a SB SEF is complying with Core Principle 2
(Compliance with Rules), Core Principle 6 (Financial Integrity of
Transactions) and Core Principle 3 (Security-based Swaps not Readily
Susceptible to Manipulation) and the proposed rules under Regulation SB
SEF relating to such Core Principles.
    Proposed Exhibit P to Form SB SEF would require an applicant that
is controlled by any other person to provide an opinion of counsel that
any person that controls the SB SEF has consented to and can, as a
matter of law, (1) provide the Commission with prompt access to its
books and records, to the extent such books and records are related to
the activities of the SB SEF; and (2) submit to onsite inspection and
examination by representatives of the Commission with respect to the
activities of the SB SEF. Proposed Exhibit P to Form SB SEF also would
require an applicant that is a non-resident person to provide an
opinion of counsel that the applicant can, as a matter of law, (1)
provide the Commission with prompt access to the books and records of
such applicant and (2) submit to onsite inspection and examination by
representatives of the Commission. As discussed in Section XXI above,
these requirements would allow the Commission to better evaluate an
applicant's ability to comply with the books and records and inspection
requirements set forth in proposed Rules 801(e) and (f).
    A national securities exchange that seeks to operate a SB SEF would
be required to separately register such SB SEF with the Commission as a
SB SEF pursuant to proposed Rule 801 and proposed Form SB SEF, and
would be required to comply with Section 3D of the Exchange Act, the
rules and regulations thereunder, and any other provisions of the
Exchange Act and rules thereunder applicable to SB SEFs with respect to
the operations of such SB SEF.
    National securities exchanges could, under the rules the Commission
is proposing today, form subsidiaries or affiliates that operate SB
SEFs. If a national securities exchange chose to form such a subsidiary
or affiliate, the exchange itself could remain registered as a national
securities exchange, while the subsidiary or affiliate registers and
operates as a SB SEF. Section 3D(c) of the Exchange Act requires a
national securities exchange to identify whether electronic trading of
SB swaps is taking place on or through the national securities exchange
or a SB SEF to the extent that the exchange also operates a SB SEF and
uses the same electronic trade execution system for listing and
executing trades of SB swaps. The Commission notes that any subsidiary
or affiliate of a registered exchange could not integrate, or otherwise
link the SB SEF with the exchange, including using the premises or
property of such exchange for effecting or reporting a transaction,
without being considered a ``facility of the exchange.''\348\ In the
event that a national securities exchange begins trading SB swaps
either on the exchange or on a facility of the exchange, it would be
required to file rule filings under Rule 19b-4 under the Exchange Act
in connection with the trading of SB swaps on the exchange or its
facility, and such facility would have to comply with the provisions of
the Exchange Act and the rules and regulations thereunder applicable to
national securities exchanges.
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    \348\ See Section 3(a)(2) of the Exchange Act, 15 U.S.C.
78c(a)(2) (defining the term ``facility of the exchange''). The
Commission gave a similar analysis regarding facilities of exchanges
with regard to ATSs in the ATS Adopting Release, supra note 94, at
note 437.
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    The Commission generally requests comments on all aspects of the
proposed Form SB SEF. Is the format of the proposed Form SB SEF
appropriate and sufficiently clear? If not, why not and how could it be
improved? Are the instructions to the proposed Form SB SEF appropriate
and sufficiently clear? If not, why not and how could they be improved?
Are the defined terms included on proposed Form SB SEF appropriate and
sufficiently clear? If not, why not and how could they be improved?
    Are the disclosure items contained on the Execution Page of the
proposed Form SB SEF appropriate? Are there other useful disclosure
items that should be added? If so, please describe such items and why
they should be added. Or, are there proposed items on the Execution
Page that should be deleted? If so, please describe why such items are
not necessary. Are the certifications contained on the Execution Page
of the proposed Form SB SEF appropriate? Are there other useful
certifications that the Commission should require the applicant to
make? If so, please describe such items and why they should be added.
Or, are there proposed certifications that should be deleted? If so,
please describe why such certifications are not necessary.
    Are the proposed exhibits to the Form SB SEF appropriate? Would the

information requested adequately allow the Commission to determine
whether to grant or deny the registration of a SB SEF pursuant to
proposed Rule 801(b)? Are there other useful disclosure items that
should be added to the exhibits or added as exhibits? If so, please
describe such items and why they should be added. Are there any
registration requirements proposed by the CFTC for SEFs that the
Commission should adopt for SB SEFs? \349\ For example, should the
Commission require a SB SEF to provide a description of material
pending legal proceedings? \350\ Should the Commission require a SB SEF
to provide a description of the personnel qualifications for each
category of professional employees employed by the applicant? \351\
Should the Commission require a SB SEF to provide an analysis of the
staffing requirements necessary to carry out operations of the
applicant and the name and qualifications of each key staff person?
\352\ Is the information requested on Form SB SEF and the exhibits
thereto overly burdensome for SB SEFs? If so, how could any such
burdens be reduced? Are there proposed exhibits or items of information
in proposed exhibits that should be deleted from proposed Form SB SEF?
If so, please describe why such proposed exhibits would not be
necessary. Should certain proposed exhibits be required to be made
available to the Commission only upon request? If so, which proposed
exhibits and why? For example, should an applicant be required to
provide the information regarding SB SEF participants required by
proposed Exhibit M upon request by the Commission following the filing
of the applicant's Form SB SEF, rather than as an exhibit to the
applicant's initial filing of proposed Form SB SEF? Commenters are
requested to consider the totality of the information required by
proposed Form SB SEF in framing their responses.
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    \349\ See Notice of proposed SEF rulemaking by the CFTC Release,
supra note 17.
    \350\ See proposed Exhibit H to proposed Form SEF; see also
Notice of proposed SEF rulemaking by the CFTC, supra note 17.
    \351\ See proposed Exhibit E to proposed Form SEF; see also
Notice of proposed SEF rulemaking by the CFTC, supra note 17.
    \352\ See proposed Exhibit F to proposed Form SEF; see also
Notice of proposed SEF rulemaking by the CFTC, supra note 17.