responsibilities. Additionally, the Commission believes that an SDR
will be in a better position to determine what its own requirements and
specific needs are with respect to a CCO's background and skills, both
of which may change as the SBS market evolves.
---------------------------------------------------------------------------

    \952\ See Better Markets 3, supra note 19.
    \953\ See Item 15 of Form SDR.
    \954\ See Section VI.D.3.b of the release discussing Rule 13n-
4(c)(2)(iv).
---------------------------------------------------------------------------

2. Definitions (Rule 13n-11(b))
a. Proposed Rule
    Proposed Rule 13n-11(b) defined the following terms: ``affiliate,''
``board,'' ``director,'' ``EDGAR Filer Manual,'' ``material change,''
``material compliance matter,'' and ``tag.''

b. Comments on the Proposed Rule
    The Commission received no comments relating to the proposed
definitions.
c. Final Rule
    The Commission is adopting Rule 13n 11(b) substantially as
proposed, with several modifications. Specifically, the Commission is
adopting the definitions of ``board,'' ``director,'' ``EDGAR Filer
Manual,'' ``material change,'' and ``material compliance matter'' as
proposed. However, the Commission is not adopting the definition of
``affiliate'' because the term is not used in the final rule. To
conform with adopted Rule 13n-11(f), as discussed below, the Commission
is adding the definitions of ``Interactive Data Financial Report'' and
``official filing,'' both of which have the same meaning as set forth
in Rule 11 of Regulation S-T, which sets forth the standards for
electronic filing with the Commission.\955\ For consistency, the
Commission is revising the definition of ``tag'' (including the term
``tagged'') from the proposal to have the same meaning as set forth in
Rule 11 of Regulation S-T.\956\
---------------------------------------------------------------------------

    \955\ See Rules 13n-11(b)(4) and (b)(7). The terms ``Interactive
Data Financial Report'' and ``official filing'' are used in new Rule
407 of Regulation S-T, as discussed in Section VI.J.5.c of this
release.
    \956\ See Rule 13n-11(b)(9).
---------------------------------------------------------------------------

    Moreover, the Commission is adopting the definition of ``senior
officer'' to mean ``the chief executive officer or other equivalent
officer.'' \957\ Proposed Rule 13n-11 referenced the ``chief executive
officer'' in lieu of the statutory references to the ``senior
officer.'' \958\ As adopted, Rule 13n-11 tracks the statutory
references to ``senior officer'' and defines ``senior officer'' to
include an SDR's CEO.
---------------------------------------------------------------------------

    \957\ See Rule 13n-11(b)(8). The term ``senior officer'' is used
in Rules 13n-1(c)(1) and (c)(3), as discussed in Section VI.J.3 of
this release. This definition is consistent with the definition
proposed in the CCO rules for SBS dealers, major SBS participants,
and clearing agencies. See Business Conduct Standards for Security-
Based Swap Dealers and Major Security-Based Swap Participants,
Exchange Act Release No. 64766 (June 29, 2011), 76 FR 42396 (July
18, 2011) (proposing Rule 15Fk-1(e)); Clearing Agency Standards for
Operations and Governance, Exchange Act Release No. 64017 (Mar. 3,
2011), 76 FR 14472 (Mar. 16, 2011) (proposing Rule 3Cj-1).
    \958\ See Exchange Act Section 13(n)(6)(B), 15 U.S.C.
78m(n)(6)(B).
---------------------------------------------------------------------------

3. Enumerated Duties of Chief Compliance Officer (Rule 13n-11(c))
a. Proposed Rule
    Proposed Rule 13n-11(c) incorporated the CCO's duties that are set
forth in Exchange Act Section 13(n)(6).\959\ Proposed Rule 13n-11(c)
would require a CCO to (1) report directly to the board or to the SDR's
CEO, (2) review the SDR's compliance with respect to its statutory and
regulatory requirements and core principles, (3) in consultation with
the board or the SDR's CEO, resolve any conflicts of interest that may
arise, (4) be responsible for administering each policy and procedure
that is required to be established pursuant to Exchange Act Section 13
and the rules and regulations thereunder, (5) ensure compliance with
the Exchange Act and the rules and regulations thereunder relating to
SBSs, (6) establish procedures for the remediation of noncompliance
issues identified by the CCO through certain specified means, and (7)
establish and follow appropriate procedures for the handling,
management response, remediation, retesting, and closing of
noncompliance issues.
---------------------------------------------------------------------------

    \959\ See 15 U.S.C. 78m(n)(6).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed rule,
expressing differing views.\960\ As discussed below, one commenter
suggested a more prescriptive approach \961\ while the other suggested
a less prescriptive approach, but with certain clarifications.\962\
---------------------------------------------------------------------------

    \960\ See Better Markets 1, supra note 19; DTCC 2, supra note
19; see also Better Markets 2, supra note 19; Better Markets 3,
supra note 19.
    \961\ See Better Markets 1, supra note 19.
    \962\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Specifically, one commenter suggested that the Commission
``establish a meaningful role for'' an SDR's CCO.\963\ The commenter
believed that ``the rules should preclude the [g]eneral [c]ounsel or a
member of that office from serving as CCO, since those attorneys owe a
duty of loyalty to the SDR itself that may not be compatible with the
watchdog function of the CCO.'' \964\ The commenter also believed that
``the CCO should have a direct reporting line to the independent board
members and should be required to meet with those independent members
at least quarterly'' in order for ``independent members of the board to
become effective partners with the CCO in promoting a culture of
compliance within the SDR.'' \965\
---------------------------------------------------------------------------

    \963\ Better Markets 2, supra note 19; see also Better Markets
3, supra note 19 (``Ensuring that market participants have CCOs with
real authority and autonomy to police a firm from within is one of
the most efficient and effective tools available to regulators.'').
    \964\ Better Markets 1, supra note 19.
    \965\ Better Markets 1, supra note 19; see also Better Markets
3, supra note 19 (suggesting requirements that the CCO have direct
access to the board and the CCO ``meet quarterly with the Audit
Committee (if there is one or non-management members of the [b]oard
if there is not), in addition to annual meetings with the board and
senior management'').
---------------------------------------------------------------------------

    The other commenter believed that as a general matter, ``SDRs
should have some flexibility to implement the required compliance
procedures in ways consistent with their structure and business.''
\966\ The commenter ``agree[d] with the Commission that a robust
internal compliance function[, including a CCO,] plays an important
role in facilitating an SDR's monitoring of, and compliance with, the
requirements of the Exchange Act (and rules thereunder) applicable to
SDRs.'' \967\ The commenter also ``fully support[ed] Commission efforts
to require the highest standards of regulatory compliance at SDRs, and
believe[d that] requiring each SDR to have a CCO is an effective way to
ensure compliance.'' \968\
---------------------------------------------------------------------------

    \966\ DTCC 2, supra note 19.
    \967\ DTCC 2, supra note 19.
    \968\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The commenter, however, believed that ``some of the enumerated
responsibilities of [a CCO] require clarification in order to avoid an
overly broad reading of those duties.'' \969\ Specifically, the
commenter suggested that the CCO's responsibilities should not, for
instance, ``be read to encompass responsibilities beyond those
traditionally understood to be part of a compliance function (i.e.,
those issues that can as a matter of competence, and typically would
be, handled by a compliance department).'' \970\ The commenter further
believed that ``the CCO should be responsible for establishing relevant
compliance procedures, and monitoring compliance with those procedures
and other applicable legal requirements'' and that ``the CCO should
also participate in other aspects of the SDR's activities that
implicate compliance or regulatory issues.'' \971\ The commenter
believed, however, that ``the CCO cannot be, and should not be,
required to be responsible for the overall operation of the SDR's
business.'' \972\ The commenter stated that the Commission ``should
recognize that oversight of certain aspects of SDR activities are
principally (and, as a practical matter, need to be) within the purview
of risk management and operations personnel. Although there may be a
regulatory component to whether an SDR is meeting its operational
readiness, service level or data security responsibilities for example,
oversight of those aspects of the SDR business should remain with

the relevant business areas, subject of course to oversight by senior
management and ultimately the board of directors. While a CCO may have
an important role to play in overall oversight and remediation of any
problems, the Commission's rules should not be interpreted to impose on
CCOs responsibility outside of their traditional core competencies.''
\973\
---------------------------------------------------------------------------

    \969\ DTCC 2, supra note 19.
    \970\ DTCC 2, supra note 19.
    \971\ DTCC 2, supra note 19.
    \972\ DTCC 2, supra note 19.
    \973\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In suggesting that the Commission ``clarify what types of conflict
of interest should be within the CCO's purview,'' the commenter noted
that ``[s]ome issues, such as permissibility of dealings with related
parties or entities, are properly within the CCO's functions. Other
issues, such as restrictions on ownership and access, may be
fundamental for the board of directors and senior management to
address.'' \974\ Additionally, the commenter stated that to the extent
that the Commission's rule requires consultation with the board or
senior management, ``some materiality threshold would be appropriate,
as not every potential conflict of interest that might be addressed by
a CCO (or his or her subordinates) would need such consultation.''
\975\
---------------------------------------------------------------------------

    \974\ DTCC 2, supra note 19.
    \975\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The commenter further suggested that the Commission ``clarify that
the CCO's specific responsibilities related to conflicts are limited to
compliance with the provisions of Exchange Act Section 13(n) and the
final rules thereunder as they relate to the SBS operations of an
SDR.'' \976\ The commenter believed that ``[t]he Commission should not
mandate compliance responsibilities with respect to other regulatory
requirements to which an SDR may be subject; those responsibilities
should be specified by the regulator imposing the other requirements.''
\977\
---------------------------------------------------------------------------

    \976\ DTCC 2, supra note 19.
    \977\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-11(c) as proposed, with modifications. The final rule incorporates
the duties of an SDR's CCO that are set forth in Exchange Act Section
13(n)(6) \978\ and imposes additional requirements. Specifically, each
CCO is required to comply with the following requirements: (1) Report
directly to the board \979\ or to the SDR's senior officer,\980\ (2)
review the compliance of the SDR with respect to the requirements and
core principles described in Exchange Act Section 13(n) and the rules
and regulations thereunder, (3) in consultation with the board or the
SDR's senior officer,\981\ take reasonable steps to resolve any
material conflicts of interest that may arise, (4) be responsible for
administering each policy and procedure that is required to be
established pursuant to Exchange Act Section 13 and the rules and
regulations thereunder, (5) take reasonable steps to ensure compliance
with the Exchange Act and the rules and regulations thereunder relating
to SBSs, including each rule prescribed by the Commission under
Exchange Act Section 13, (6) establish procedures for the remediation
of noncompliance issues identified by the CCO through any (a)
compliance office review, (b) look-back, (c) internal or external audit
finding, (d) self-reported error, or (e) validated complaint, and (7)
establish and follow appropriate procedures for the handling,
management response, remediation, retesting, and closing of
noncompliance issues. Consistent with one commenter's suggestion, the
Commission believes that Rule 13n-11(c) establishes a meaningful role
for CCOs.\982\ However, because the Commission is not requiring SDRs to
have independent directors, Rule 13n-11(c) does not, as the commenter
suggested,\983\ require a CCO to report directly to independent
directors or meet with independent directors at least quarterly. To
provide CCOs with greater flexibility in fulfilling their duties, the
Commission is also not requiring, as the commenter suggested, CCOs to
``meet quarterly with the Audit Committee (if there is one or non-
management members of the [b]oard if there is not), in addition to
annual meetings with the board and senior management.'' \984\ The
Commission expects CCOs to meet with the board, the senior officer, and
others, whenever necessary to fulfill their duties.
---------------------------------------------------------------------------

    \978\ See 15 U.S.C. 78m(n)(6).
    \979\ See supra note 549 (defining ``board'').
    \980\ The Commission is amending proposed Rule 13n-11(c)(1) by
replacing ``chief executive officer'' with ``senior officer'' to
track the language of Exchange Act Section 13(n)(6)(B)(i)), 15
U.S.C. 78m(n)(6)(B)(i).
    \981\ The Commission is amending proposed Rule 13n-11(c)(3) by
replacing ``chief executive officer'' with ``senior officer'' to
track the language of Exchange Act Section 13(n)(6)(B)(i)), 15
U.S.C. 78m(n)(6)(B)(i).
    \982\ See Better Markets 2, supra note 19; see also Better
Markets 3, supra note 19 (``Ensuring that market participants have
CCOs with real authority and autonomy to police a firm from within
is one of the most efficient and effective tools available to
regulators.'').
    \983\ See Better Markets 1, supra note 19.
    \984\ See Better Markets 3, supra note 19.
---------------------------------------------------------------------------

    The Commission agrees with one commenter that, in general, SDRs
should have flexibility to implement the required compliance procedures
in ways consistent with their structure and business.\985\ In response
to a commenter's request for clarification,\986\ the Commission notes
that generally, an SDR's CCO is not responsible for the SDR's overall
or day-to-day business operation, for example, with respect to risk
management and operations; nor is the CCO responsible for the decisions
and actions of every director, officer, and employee of the SDR.
Instead, the CCO's statutory and regulatory responsibilities generally
entail, among other things, administering the SDR's policies and
procedures required under Exchange Act Section 13 and the rules and
regulations thereunder, keeping the SDR's board or senior officer
apprised of significant compliance issues, advising the board or senior
officer of needed changes in the SDR's policies and procedures,
generally overseeing compliance with the Exchange Act and the rules and
regulations thereunder, as well as remediating noncompliance at the
SDR. If, in the course of administering policies and procedures
required under Exchange Act Section 13 and the rules and regulations
thereunder, the CCO believes that operations or risk management
personnel are not in compliance with such policies and procedures or
the Exchange Act and the rules and regulations thereunder relating to
SBSs (e.g., with Rule 13n-9, which prohibits the misappropriation or
misuse of material nonpublic information by employees), then the CCO is
responsible for establishing and following procedures for the handling,
management response, remediation, retesting, and closing of
noncompliance issues.
---------------------------------------------------------------------------

    \985\ See DTCC 2, supra note 19.
    \986\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that ``a CCO should
review, on an ongoing basis, the SDR's service levels, costs, pricing,
and operational reliability, with the view to preventing
anticompetitive practices and discrimination, and encouraging
innovation and the use of the SDR.'' \987\ With respect to one
commenter's remarks regarding the scope of the CCO's
responsibilities,\988\ the Commission continues to believe that the
CCO's administration of an SDR's policies and procedures should
include, among other things, a review of the SDR's service levels,
costs, pricing, and operational reliability and a

determination that such service levels, costs, pricing, and operational
reliability are reasonable.\989\ The Commission recognizes, however,
that oversight of certain aspects of an SDR's activities may overlap
with or be within the purview of the SDR's risk management and
operations personnel or other business personnel.\990\ In that
situation, the CCO may need to consult with business personnel to
assess whether they have an appropriate justification for the
reasonableness of such service levels, costs, pricing, and operational
reliability.
---------------------------------------------------------------------------

    \987\ Proposing Release, 75 FR at 77342, supra note 2.
    \988\ See DTCC 2, supra note 19 (stating that ``the CCO cannot
be, and should not be, required to be responsible for the overall
operation of the SDR's business.'').
    \989\ See Section VI.D.3.a of this release discussing an SDR's
obligation to ensure that its fees are fair and reasonable and not
unreasonably discriminatory.
    \990\ See DTCC 2, supra note 19 (stating that the Commission
``should recognize that oversight of certain aspects of SDR
activities are principally (and, as a practical matter, need to be)
within the purview of risk management and operations personnel'' and
that ``[a]lthough there may be a regulatory component to whether an
SDR is meeting its operational readiness, service level or data
security responsibilities for example, oversight of those aspects of
the SDR business should remain with the relevant business areas,
subject of course to oversight by senior management and ultimately
the board of directors'').
---------------------------------------------------------------------------

    As the Commission also noted in the Proposing Release, an SDR is
not required to hire an additional person to serve as its CCO.\991\
Instead, an SDR can designate an individual already employed with the
SDR as its CCO. Given the critical role that a CCO is intended to play
in ensuring an SDR's compliance with the Exchange Act and the rules and
regulations thereunder,\992\ the Commission believes that an SDR's CCO
should be competent and knowledgeable regarding the federal securities
laws, should be empowered with full responsibility and authority to
develop and enforce appropriate policies and procedures for the SDR, as
necessary, and should be responsible for monitoring compliance with the
SDR's policies and procedures adopted pursuant to rules under the
Exchange Act. However, the Commission will not substantively review a
CCO's competency, and is not requiring any particular level of
competency or business experience for a CCO.
---------------------------------------------------------------------------

    \991\ Proposing Release, 75 FR at 77341, supra note 2.
    \992\ See Rules 13n-11(c)(4) and (5).
---------------------------------------------------------------------------

    To address a concern raised by one commenter,\993\ the Commission
is revising Rule 13n-11(c)(3) from the proposal to clarify that the CCO
must, in consultation with the board or the senior officer of the SDR,
take reasonable steps to resolve any material conflicts of interest (as
opposed to all conflicts of interest) that may arise.\994\ Recognizing
that a CCO may not be in a position to resolve certain material
conflicts of interest, as suggested by the commenter,\995\ the
Commission is revising the rule from the proposal to specify that CCOs
must take reasonable steps to resolve such conflicts, which is intended
to clarify that CCOs are not required to actually resolve such
conflicts. These conflicts of interest may include, for example,
general conflicts of interest identified in the Commission's Rule 13n-
4(c)(3), as discussed in Section VI.D.3.c of this release.
---------------------------------------------------------------------------

    \993\ See DTCC 2, supra note 19 (noting that some conflicts of
interest are within a CCO's purview while other issues (e.g.,
restrictions on ownership and access) may be fundamental for an
SDR's board or senior management to address and that a CCO would not
need to consult with the board every potential conflict of interest
that might be addressed by a CCO).
    \994\ See Rule 13n-11(c)(3).
    \995\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Recognizing that a CCO cannot guarantee an SDR's statutory
compliance, the Commission is also revising Rule 13n-11(c)(5) from the
proposal to clarify that CCOs are not required to ensure compliance
with the relevant Exchange Act provisions and the rules and regulations
thereunder relating to SBSs, but rather to take reasonable steps to
ensure such compliance. With respect to the comment that the CCO's
specific responsibilities related to conflicts should be limited to
compliance with the provisions of Exchange Act Section 13(n) and the
final rules thereunder as they relate to the SBS operations of an
SDR,\996\ the Commission notes that the CCO's responsibilities go
beyond the provisions of Exchange Act Section 13(n), as required by the
Dodd-Frank Act.\997\ For example, the CCO should take reasonable steps
to ensure compliance with Exchange Act Section 10(b)'s antifraud
requirements.\998\ However, the CCO is required to take only reasonable
steps to ensure compliance with relevant Exchange Act provisions and
the rules and regulations thereunder ``relating to'' SBSs.
---------------------------------------------------------------------------

    \996\ See DTCC 2, supra note 19.
    \997\ See Exchange Act Section 13(n)(6)(B)(v), 15 U.S.C.
78m(n)(6)(B)(v), as added by Dodd-Frank Act Section 763(i)
(requiring an SDR's CCO to ``ensure compliance with [the Exchange
Act] (including regulations) relating to agreements, contracts, or
transactions, including each rule prescribed by the Commission under
[Section 13(n)]'').
    \998\ 15 U.S.C. 78j(b).
---------------------------------------------------------------------------

4. Compliance Reports (Rules 13n-11(d) and 13n-11(e))
a. Proposed Rule
    An SDR's CCO is required, under Exchange Act Section
13(n)(6)(C)(i), to annually prepare and sign a report that contains a
description of the SDR's compliance with respect to the Exchange Act
and the rules and regulations thereunder and each policy and procedure
of the SDR (including the SDR's code of ethics and conflicts of
interest policies).\999\ The Commission proposed Rule 13n-11(d)(1) to
incorporate this requirement and to set forth minimum requirements for
what must be included in each annual compliance report.
---------------------------------------------------------------------------

    \999\ See 15 U.S.C. 78m(n)(6)(C)(i).
---------------------------------------------------------------------------

    Under proposed Rule 13n-11(d)(2), an SDR would be required to file
with the Commission a financial report, as discussed further in Section
VI.J.5 of this release, along with a compliance report, which must
include a certification that, under penalty of law, the compliance
report is accurate and complete.\1000\ The compliance report would also
be required to be filed in a tagged data format in accordance with
instructions contained in the EDGAR Filer Manual, as described in Rule
301 of Regulation S-T.\1001\
---------------------------------------------------------------------------

    \1000\ See proposed Rule 13n-11(d)(2).
    \1001\ See id.; see also 17 CFR 232.301.
---------------------------------------------------------------------------

    In addition, proposed Rule 13n-11(e) would require a CCO to submit
the annual compliance report to an SDR's board for its review prior to
the submission of the report to the Commission under proposed Rule 13n-
11(d)(2).
b. Comments on the Proposed Rule
    Two commenters submitted comments relating to this proposed
rule.\1002\ One commenter believed that an annual compliance report
``should be limited to compliance with the requirements of the Exchange
Act and the policies and procedures of the SDR that relate to its
activities as such with respect to SBSs (as opposed to policies and
procedures that may address other regulatory requirements).'' \1003\
Additionally, the commenter did ``not believe [that] it is appropriate
to require the report to include a discussion of recommendations for
material changes to the policies and procedures of the SDR as a result
of the annual review (as well as the rationale for such recommendations
and whether the policies or procedures will be modified as a result of
such recommendations).'' \1004\ The commenter believed that ``the
inclusion of a description of any material changes to the SDR's
policies and procedures, and any material compliance matters identified
both since the date of the

preceding compliance report, provide comprehensive information,'' and
that ``requiring the CCO to detail every recommendation (whether or not
accepted) may chill open communication between the CCO and other SDR
management.'' \1005\ The commenter ``firmly believe[d that] the annual
report should be kept confidential by the Commission'' and explained
that ``[g]iven the level of disclosure expected to be required . . .
the report will likely contain confidential and proprietary business
information.'' \1006\
---------------------------------------------------------------------------

    \1002\ See DTCC 2, supra note 19; Better Markets 1, supra note
19; see also Better Markets 3, supra note 19.
    \1003\ DTCC 2, supra note 19.
    \1004\ DTCC 2, supra note 19.
    \1005\ DTCC 2, supra note 19.
    \1006\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    The other commenter recommended that ``the review and reporting
should be more frequent, at least semiannually or quarterly,'' and that
``the rules should expressly prohibit the board of an SDR from
requiring the CCO to make any changes to the compliance reports.''
\1007\ The commenter suggested that ``[a]ny edits or supplements to the
report sought by the board may be submitted to the Commission along
with--but not as part of--the CCO's report.'' \1008\
---------------------------------------------------------------------------

    \1007\ Better Markets 1, supra note 19; see also Better Markets
3, supra note 19 (suggesting that the Commission require ``the board
to review and comment on, but not edit, the CCO's annual report to
the Commission'').
    \1008\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rules
13n-11(d) and 13n-11(e) as proposed, each with two modifications.\1009\
Specifically, Rule 13n-11(d)(1) requires that an SDR's CCO annually
prepare and sign a report that contains a description of the SDR's
compliance with respect to the Exchange Act and the rules and
regulations thereunder and each of the SDR's policies and procedures
(including the SDR's code of ethics and conflicts of interest
policies). One commenter suggested that the Commission limit the
applicability of this rule to an SDR's activities relating to SBSs, but
did not provide a rationale for such a limit.\1010\ The Commission does
not believe that there is a rationale for such a limit and has
concluded that it is appropriate to adopt this rule, which essentially
reiterates the statutory language.\1011\ In addition, compliance issues
at an SDR that are not related to SBSs may impact the SDR as a whole,
of which the Commission should be kept apprised.
---------------------------------------------------------------------------

    \1009\ To conform with Rule 13n-11's heading, as adopted, the
Commission is revising the heading of paragraph (d) of the rule to
specify that the paragraph pertains to ``[c]ompliance reports''
rather than ``[a]nnual reports.'' See supra note 941.
    \1010\ See DTCC 2, supra note 19.
    \1011\ See Exchange Act Section 13(n)(6)(C)(i), 15 U.S.C.
78m(n)(6)(C)(i).
---------------------------------------------------------------------------

    Additionally, Rule 13n-11(d)(1) requires each annual compliance
report to contain, at a minimum, a description of: (1) The SDR's
enforcement of its policies and procedures, (2) any material changes
\1012\ to the policies and procedures since the date of the preceding
compliance report, (3) any recommendation for material changes to the
policies and procedures as a result of the annual review, the rationale
for such recommendation, and whether such policies and procedures were
or will be modified by the SDR to incorporate such recommendation, and
(4) any material compliance matters \1013\ identified since the date of
the preceding compliance report. These minimum disclosure requirements
are substantially similar to the Commission's requirements for annual
reports filed by CCOs of investment companies.\1014\ Further, these
disclosure requirements will provide important information to
Commission staff regarding any material compliance issues at an SDR and
material changes or recommendations for material changes to the SDR's
policies and procedures. Among other things, such information will be
useful to assist Commission staff in monitoring compliance by SDRs with
the relevant provisions of the Exchange Act and the rules and
regulations thereunder. Thus, the Commission believes that the minimum
disclosure requirements are appropriate and disagrees with one
commenter's remark that it is not appropriate to require a compliance
report to include a description of any recommendation for material
changes to an SDR's policies and procedures as a result of an annual
review, the rationale for such recommendation, and whether such
policies and procedures were or will be modified by the SDR to
incorporate such recommendation.\1015\
---------------------------------------------------------------------------

    \1012\ The term ``material change'' is defined as a change that
a CCO would reasonably need to know in order to oversee compliance
of the SDR. See Rule 13n-11(b)(5).
    \1013\ The term ``material compliance matter'' is defined as any
compliance matter that the board would reasonably need to know to
oversee the compliance of the SDR and that involves, without
limitation: (1) A violation of the federal securities laws by the
SDR, its officers, directors, employees, or agents; (2) a violation
of the policies and procedures of the SDR, by the SDR, its officers,
directors, employees, or agents; or (3) a weakness in the design or
implementation of the SDR's policies and procedures. See Rule 13n-
11(b)(6).
    \1014\ See Investment Company Act Rule 38a-1(a)(4)(iii), 17 CFR
270.38a-1(a)(4)(iii).
    \1015\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    To address a concern raised by the same commenter,\1016\ the
Commission notes that it is not ``requiring the CCO to detail every
recommendation.'' \1017\ The rule is limited to ``recommendations for
material changes.'' \1018\ The Commission believes that limiting the
description required in an annual compliance report to recommendations
for material changes to the SDR's policies and procedures appropriately
addresses the commenter's concern. The Commission notes, however, that
individual compliance matters may not be material when viewed in
isolation, but may collectively suggest a material compliance matter.
In addition, the Commission recognizes that this rule may ``chill open
communication between the CCO and other SDR management,'' as one
commenter suggested,\1019\ but the Commission believes that the
usefulness of the information in an SDR's annual compliance reports to
the Commission, as discussed above, would justify any potential
chilling of communications.
---------------------------------------------------------------------------

    \1016\ See DTCC 2, supra note 19 (stating that ``requiring the
CCO to detail every recommendation (whether or not accepted) may
chill open communication between the CCO and other SDR
management'').
    \1017\ But see DTCC 2, supra note 19 (believing that it is not
appropriate to require compliance reports to include a discussion of
recommendations for material changes to an SDR's policies and
procedures).
    \1018\ Rule 13n-11(d)(1)(iii).
    \1019\ See DTCC 2, supra note 19.
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    Consistent with the relevant statutory provision,\1020\ the rule
requires annual compliance reports. The Commission does not believe
that it is necessary to require more frequent reports, as one commenter
suggested, in order to assess an SDR's financial stability.\1021\ CCOs,
however, should consider the need for interim reviews of compliance at
SDRs in response to significant compliance events, changes in business
arrangements, and regulatory developments. For example, if there is an
organizational restructuring of an SDR, then its CCO should consider
evaluating whether its policies and procedures are adequate to guard
against potential conflicts of interest. Additionally, if a new rule
regarding SDRs is adopted by the Commission, then a CCO would need to
take reasonable steps to ensure compliance with the rule, including
reviewing the SDR's policies and procedures.
---------------------------------------------------------------------------

    \1020\ See Exchange Act Section 13(n)(6)(C)(i), 15 U.S.C.
78m(n)(6)(C)(i).
    \1021\ See Better Markets 1, supra note 19.
---------------------------------------------------------------------------

    Under Rule 13n-11(d)(2), an SDR is required to file with the
Commission a financial report along with the annual

compliance report, and the compliance report must include a
certification by the CCO that, to the best of his or her knowledge and
reasonable belief,\1022\ and under penalty of law, the compliance
report is accurate and complete. The compliance report is also required
to be filed in a tagged \1023\ data format in accordance with
instructions contained in the EDGAR Filer Manual,\1024\ as described in
Rule 301 of Regulation S-T.\1025\
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    \1022\ The Commission is revising Rule 13n-11(d)(2) from the
proposal to clarify that the certification must be made by the CCO
and permit the certification to be based on the best of the CCO's
knowledge and reasonable belief. Accord General Rule of Practice
153(b)(1)(ii), 17 CFR 201.153(b)(1)(ii) (requiring an attorney who
signs a filing with the Commission to certify that ``to the best of
his or her knowledge, information, and belief, formed after
reasonable inquiry, the filing is well grounded in fact and is
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law'').
    \1023\ See supra note 294 (defining ``tag'' (including the term
``tagged'')).
    \1024\ See supra note 294 (defining ``EDGAR Filer Manual'').
    \1025\ Rule 13n-11(d)(2); see also 17 CFR 232.301. The
information in each compliance report will be tagged using an
appropriate machine-readable, tagged data format to enable the
efficient analysis and review of the information contained in the
report.
---------------------------------------------------------------------------

    Rule 13n-11(e) requires a CCO to submit the annual compliance
report to the board for its review prior to the filing of the report
with the Commission under Rule 13n-11(d)(2).\1026\ Although the rule
requires the compliance report to be submitted to the board once a
year, a CCO should promptly bring serious compliance issues to the
board's attention rather than wait until an annual compliance report is
prepared. One commenter suggested that the Commission permit an SDR's
board to submit edits or supplements to a CCO's annual compliance
report, but not as part of the report.\1027\ Rule 13n-11 does not
prohibit a CCO from editing an annual compliance report to reflect the
board's comments because the Commission believes that the CCO and the
board should be working toward the same compliance goals and that
prohibiting the CCO from taking the board's edits could create an
adversarial atmosphere between them. As discussed above, however, an
SDR could, pursuant to the conflicts of interest requirements set forth
in Rule 13n-4(c)(3), consider prohibiting a board from requiring the
CCO to make any changes to the report.\1028\
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    \1026\ The Commission is revising Rule 13n-11(e) from the
proposal to refer to the ``submission'' of the annual compliance
report ``to'' the Commission as the ``filing'' of the report
``with'' the Commission. The Commission believes that using the term
``filing'' is more precise than the term ``submission'' in this
context.
    \1027\ Better Markets 1, supra note 19.
    \1028\ Accord Better Markets 3, supra note 19 (suggesting that
the Commission require ``the board to review and comment on, but not
edit, the CCO's annual report to the Commission'').
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    One commenter suggested that the Commission keep the annual
compliance report confidential.\1029\ The Commission is not providing,
by rule, that the annual compliance reports are automatically granted
confidential treatment, but an SDR may seek confidential treatment
pursuant to Exchange Act Rule 24b-2. This approach is consistent with
how the Commission generally treats the filings that it receives from
its regulated entities, including exchanges and clearing agencies. The
Commission may make filed annual compliance reports available on its
Web site, except for information where confidential treatment is
requested by the SDR and granted by the Commission.\1030\
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    \1029\ DTCC 2, supra note 19.
    \1030\ As discussed in Section VI.A.1.c of this release, the
Commission is adopting technical amendments to Exchange Act Rule
24b-2 to clarify that the confidential portion of electronic filings
by SDRs must be filed electronically and to require SDRs to request
confidential treatment electronically. The Commission is also
adopting technical amendments to Rule 101 of Regulation S-T to
provide that, except as otherwise provided, all filings by SDRs,
including any information with respect to which confidential
treatment is requested, must be filed electronically.
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5. Financial Reports and Filing of Reports (Exchange Act Rules 13n-
11(f) and (g)/Rules 11, 305, and 407 of Regulation S-T)
a. Proposed Rule
    Proposed Rule 13n-11(f) set forth a number of requirements relating
to an SDR's financial report. First, the proposed rule would require
each financial report to be a complete set of the SDR's financial
statements that are prepared in conformity with U.S. generally accepted
accounting principles (``GAAP'') for the SDR's most recent two fiscal
years.\1031\ Second, the proposed rule would provide that each
financial report shall be audited in accordance with the standards of
the Public Company Accounting Oversight Board (``PCAOB'') by a
registered public accounting firm that is qualified and independent in
accordance with Rule 2-01 of Regulation S-X.\1032\ Third, each
financial report would be required to include a report of the
registered public accounting firm that complies with paragraphs (a)
through (d) of Rule 2-02 of Regulation S-X.\1033\ Fourth, if an SDR's
financial statements contain consolidated information of a subsidiary
of the SDR, then the SDR's financial statements must provide condensed
financial information as prescribed by the Commission.\1034\ Fifth, an
SDR's financial reports would be required to be provided in XBRL
consistent with Rules 405(a)(1), (a)(3), (b), (c), (d), and (e) of
Regulation S-T.\1035\
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    \1031\ Proposed Rule 13n-11(f)(1).
    \1032\ Proposed Rule 13n-11(f)(2).
    \1033\ Proposed Rule 13n-11(f)(3).
    \1034\ Proposed Rule 13n-11(f)(4).
    \1035\ Proposed Rule 13n-11(f)(5); see also 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).
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    Proposed Rule 13n-11(g) would further require that annual
compliance reports and financial reports be filed within 60 days after
the end of the fiscal year covered by such reports.
b. Comments on the Proposed Rule
    The Commission received one comment relating to this proposed
rule.\1036\ Specifically, one commenter suggested harmonizing Rule 13n-
11(f) with the CFTC's rule by eliminating proposed Rule 13n-11(f)(2)'s
requirement that each financial report be audited in accordance with
the PCAOB's standards by a registered public accounting firm that is
qualified and independent unless the SDR is under a separate obligation
to provide financial statements.\1037\ The commenter believed that
``[t]his requirement imposes an additional burden for an [SDR] and is
not justified in relation to the risks that an [SDR] would pose to its
members.'' \1038\ The commenter further suggested that the Commission
``consider adopting the CFTC's approach in its final [swap data
repository] rules, which require [a swap data repository's] financial
statements be prepared in conformity with . . . GAAP.'' \1039\
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    \1036\ See DTCC 5, supra note 19.
    \1037\ DTCC 5, supra note 19.
    \1038\ DTCC 5, supra note 19 (noting that ``[u]nlike clearing
agencies or other entities supervised by the Commission, an [SDR]
does not have financial exposure to its users or participants that
would justify the imposition of this requirement'').
    \1039\ DTCC 5, supra note 19.
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c. Final Rules
    The Commission is adopting proposed Rules 13n-11(f) and (g) with
modifications.\1040\ Specifically, Rule 13n-11(f)(1) requires each
financial report to be a complete set of the SDR's financial statements
that are prepared in conformity with U.S. GAAP for the SDR's most
recent two fiscal years.\1041\

Rule 13n-11(f)(2) provides that each financial report must be audited
in accordance with the PCAOB's standards by a registered public
accounting firm \1042\ that is qualified and independent in accordance
with Rule 2-01 of Regulation S-X.\1043\ Pursuant to Rule 13n-11(f)(3),
each financial report is required to include a report of the registered
public accounting firm that complies with paragraphs (a) through (d) of
Rule 2-02 of Regulation S-X.\1044\
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    \1040\ To conform with the headings of Rule 13n-11 and paragraph
(d) of the rule, as adopted, the Commission is revising the heading
of paragraph (f) of the rule to refer to ``financial reports'' in a
plural form.
    \1041\ This is generally consistent with CFTC Rule 49.25(f). See
17 CFR 49.25(f); DTCC 5, supra note 19 (suggesting that the
Commission adopt the CFTC's rule requiring a swap data repository's
financial statements to be prepared in conformity with GAAP).
    \1042\ The term ``registered public accounting firm'' is defined
in Exchange Act Section 3(a)(59) to have the same meaning as in
Section 2 of the Sarbanes-Oxley Act of 2002. See 15 U.S.C.
78c(a)(59). Section 2 of the Sarbanes-Oxley Act defines ``registered
public accounting firm'' as a public accounting firm registered with
the PCAOB in accordance with the Sarbanes-Oxley Act.
    \1043\ Rule 13n-11(f)(2).
    \1044\ Rule 13n-11(f)(3).
---------------------------------------------------------------------------

    Rule 13n-11(f)(4) further provides that if an SDR's financial
statements contain consolidated information of a subsidiary of the SDR,
then the SDR's financial statements must provide condensed financial
information, in a financial statement footnote, as to the financial
position, changes in financial position and results of operations of
the SDR, as of the same dates and for the same periods for which
audited consolidated financial statements are required. Such financial
information 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.\1045\ 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.\1046\ Descriptions of significant
provisions of the SDR's long-term obligations, mandatory dividend or
redemption requirements of redeemable stocks, and guarantees of the SDR
shall be provided along with a five-year schedule of maturities of
debt.\1047\ If the material contingencies, long-term obligations,
redeemable stock requirements, and guarantees of the SDR have been
separately disclosed in the consolidated statements, then they need not
be repeated in this schedule.\1048\ Rule 13n-11(f)(4) is substantially
similar to Rule 12-04 of Regulation S-X, which pertains to condensed
financial information of registrants.\1049\
---------------------------------------------------------------------------

    \1045\ Rule 13n-11(f)(4).
    \1046\ Id.
    \1047\ Id.
    \1048\ Id.
    \1049\ See 17 CFR 210.12-04.
---------------------------------------------------------------------------

    The Commission is revising proposed Rule 13n-11(f)(5) to require an
SDR's financial reports to be provided as an official filing \1050\ in
accordance with the EDGAR Filer Manual and include, as part of the
official filing, an Interactive Data Financial Report \1051\ filed in
accordance with new Rule 407 of Regulation S-T. Finally, Rule 13n-11(g)
provides that annual compliance reports and financial reports filed
pursuant to Rules 13n-11(d) and (f) are required to be filed within 60
days after the end of the fiscal year covered by such reports.
---------------------------------------------------------------------------

    \1050\ ``Official filing'' has the same meaning as set forth in
Rule 11 of Regulation S-T. Rule 13n-11(b)(7). Specifically, Rule 11
of Regulation S-T defines ``official filing'' as ``any filing that
is received and accepted by the Commission, regardless of filing
medium and exclusive of header information, tags and any other
technical information required in an electronic filing; except that
electronic identification of investment company type and inclusion
of identifiers for series and class (or contract, in the case of
separate accounts of insurance companies) as required by [R]ule 313
of Regulation S-T (Sec.  232.313) are deemed part of the official
filing.''
    \1051\ ``Interactive Data Financial Report'' has the same
meaning as set forth in Rule 11 of Regulation S-T. Rule 13n-
11(b)(4). Specifically, the Commission is adding the definition of
``Interactive Data Financial Report'' in Rule 11 of Regulation S-T
to mean ``the machine-readable computer code that presents
information in eXtensible Business Reporting Language (XBRL)
electronic format pursuant to Sec.  232.407.'' This definition is
substantially the same as the definition of ``Interactive Data
File'' in Rule 11 of Regulation S-T. However, Interactive Data
Financial Reports are not considered Interactive Data Files for
purposes of Rule 405 or for other rules and regulations that
reference to Rule 405.
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Rule 407 of Regulation S-T
    In conjunction with Rule 13n-11(f)(5), the Commission is adopting
new Rule 407 of Regulation S-T, which stems from provisions in proposed
Rule 13n-11(f). Rule 407 sets forth the requirements equivalent to
those in Rules 405(a)(1) (except as to the requirement for Web site
posting), (a)(2) (with modifications), (a)(3), (b), (c), (d)(1), and
(e)(1) of Regulation S-T. With the exception of Rule 405(a)(2), these
provisions were cross-referenced in proposed Rule 13n-11(f)(5). Thus,
substantively, the requirements in new Rule 407 are the same as those
proposed under proposed Rule 13n-11(f)(5), except as detailed below.
The text of Rule 407 is also substantially the same as those provisions
of Rule 405 that pertain to the content, format, and filing
requirements of XBRL-formatted financial statements. Rule 407, however,
applies to Interactive Data Financial Reports, whereas Rule 405 applies
to Interactive Data Files. The Commission is adopting new Rule 407 to
specify the content, format, and filing requirements for Interactive
Data Financial Reports.
    Although substantially similar, there are several differences
between the provisions of Rule 405 that proposed Rule 13n-11(f) cross-
referenced and the provisions of Rule 405 that are included in new Rule
407. As a general matter, these differences relate to modifications
from the proposal that address the unique aspects of SDRs and the
applicability of certain filing requirements to them.
    Upon further consideration, the Commission is not adopting, in Rule
407, several provisions that the Commission had initially proposed
applying to SDRs' financial reports. Rule 405(a)(1), which was cross-
referenced in proposed Rule 13n-11(f)(5), requires compliance with the
Web site posting requirements found elsewhere in Rule 405. As adopted,
Rule 407 does not have Web site posting requirements because the
Commission believes that it is not necessary to impose such
requirements on SDRs in this context. No commenters have suggested
otherwise. Additionally, this is consistent with the SDR Rules not
imposing any Web site posting requirements on any other filings by
SDRs. Rule 407 also does not require an SDR to file its financial
reports consistent with Rules 405(d)(2), (3), and (4), all of which
require detailed tagging of footnotes in financial statements.
Additionally, Rule 407 does not require an SDR to file its financial
reports consistent with Rule 405(e)(2), which requires detailed tagging
of financial statement schedules. The Commission believes that block-
text tags of complete footnotes and schedules in an SDR's financial
reports \1052\ will provide sufficient data structure for the
Commission to assess and analyze effectively the SDR's financial and
operational condition. Thus, the Commission believes that it is not
necessary to impose additional costs on SDRs to provide detailed tagged
footnotes and schedules in SDRs' financial reports. For these reasons,
the Commission is not requiring SDRs to detail tag footnotes and
schedules in their financial reports.
---------------------------------------------------------------------------

    \1052\ See Rules 407(d) and (e) of Regulation S-T (requiring
complete footnotes and schedules in financial statements to be
block-text tagged).
---------------------------------------------------------------------------

    In addition, the provisions of Rule 405 that proposed Rule 13n-
11(f) cross-referenced and the provisions of Rule 405 that are included
in new Rule 407 differ in another way. New Rule 407(a)(2) specifies
that Rule 407 applies only to SDRs filing financial reports.\1053\

Specifically, new Rule 407(a)(2) states that an Interactive Data
Financial Report must be filed only by an electronic filer that is
required to file an Interactive Data Financial Report pursuant to Rule
13n-11(f)(5) as an exhibit to a filing of an SDR's financial report.
Consistent with other documents required to be filed in a tagged data,
or interactive, format,\1054\ an SDR's financial report is required to
be filed with the Commission in two formats. The first part of the
official filing is the Related Official Financial Report Filing,\1055\
which is in ASCII or HTML format. The second part of the official
filing, the Interactive Data Financial Report, is an exhibit to the
filing, which is required to be in XBRL format.\1056\
---------------------------------------------------------------------------

    \1053\ Rule 405(a)(2), on the other hand, applies to other
electronic filers either required or permitted to submit an
Interactive Data File.
    \1054\ See Rule 405 of Regulation S-T, 17 CFR 232.405.
    \1055\ The Commission is adding the definition of ``Related
Official Financial Report Filing'' in Rule 11 of Regulation S-T to
mean ``the ASCII or HTML format part of the official filing with
which an Interactive Data Financial Report appears as an exhibit.''
    \1056\ The Commission's proposed Rule 13n-11(f) stated that an
SDR's financial report must be provided in XBRL consistent with
certain provisions in Rule 405. As adopted, Rule 407 is intended to
clarify that it is only the exhibit to the filing of an SDR's
financial report that must be in XBRL.
---------------------------------------------------------------------------

    In addition to adopting new Rule 407 of Regulation S-T, the
Commission is making a conforming amendment to Rule 305 of Regulation
S-T to include Interactive Data Financial Reports among the list of
filings to which Rule 305(a) does not apply.\1057\ Rule 305(a) limits
the number of characters and positions of tabular or columnar
information of electronic filings with the Commission. By amending Rule
305, the Commission is treating Interactive Data Financial Reports in
the same manner as it treats other XBRL filings in this context.
---------------------------------------------------------------------------

    \1057\ The Commission notes that Rule 305(a) of Regulation S-T
does not apply to HTML documents. If a Related Official Financial
Report Filing is filed in HTML format, then Rule 305(a) will not
apply to that filing.
---------------------------------------------------------------------------

    As mentioned above, Rule 13n-11(g) provides that annual compliance
reports and financial reports are required to be filed within 60 days
after the end of the fiscal year covered by such reports. The
Commission anticipates developing an electronic filing system through
which an SDR will be able to file annual compliance reports and
financial reports shortly after the effective date of Rule 13n-11. The
Commission anticipates that this electronic filing system will be
through EDGAR and that it will be the same portal for SDRs to file Form
SDR. If an SDR needs to file an annual compliance report and financial
report prior to such time as the electronic filing system is available,
then the SDR may file the reports in paper format with the Commission's
Division of Trading and Markets at the Commission's principal office in
Washington, DC. However, doing so does not relieve the SDR from
compliance with the requirement in Rule 13n-11(d)(2) to file the annual
compliance report ``in a tagged data format in accordance with the
instructions contained in the EDGAR Filer Manual,'' or the requirement
in Rule 13n-11(f)(5) to provide the financial report ``as part of an
official filing in accordance with the EDGAR Filer Manual.'' Therefore,
when the Commission's electronic filing system is available, the SDR
should file electronically any such reports that previously had been
filed in paper format.
    The Commission is not providing, by rule, that the financial
reports are automatically granted confidential treatment, but an SDR
may seek confidential treatment of certain information pursuant to
Exchange Act Rule 24b-2. As stated above, this approach is consistent
with how the Commission generally treats the filings that it receives
from its regulated entities, including exchanges. The Commission may
make filed financial reports available on its Web site except for
information where confidential treatment is requested by the SDR and
granted by the Commission.\1058\
---------------------------------------------------------------------------

    \1058\ As discussed in Section VI.A.1.c of this release, the
Commission is adopting technical amendments to Exchange Act Rule
24b-2 to clarify that the confidential portion of electronic filings
by SDRs must be filed electronically and to require SDRs to request
confidential treatment electronically. The Commission is also
adopting technical amendments to Rule 101 of Regulation S-T to
provide that, except as otherwise provided, all filings by SDRs,
including any information with respect to which confidential
treatment is requested, must be filed electronically.
---------------------------------------------------------------------------

    The Commission notes that with respect to its other filers, the
Commission has required, at a minimum, the financial information
discussed above \1059\ and, in some instances, significantly more
information.\1060\ Additionally, as discussed in the Proposing Release,
the Commission believes that it is necessary to obtain an audited
annual financial report from each registered SDR to understand the
SDR's financial and operational condition. It is particularly important
for the Commission to have this understanding because SDRs are intended
to play a pivotal role in improving the transparency and efficiency of
the SBS market and because SBSs (whether cleared or uncleared) are
required to be reported to a registered SDR.\1061\ In its role as
central recordkeeper, an SDR serves an important role as a source of
data for regulators to monitor exposures, risks, and compliance with
the Exchange Act and for market participants to access position
information. Among other things, the Commission will need to know
whether an SDR has adequate financial resources to comply with its
statutory obligations or is having financial difficulties. If an SDR
ultimately ceases doing business, then it could create a significant
disruption in the OTC derivatives market.
---------------------------------------------------------------------------

    \1059\ See, e.g., Exchange Act Rule 17a-5(d), 17 CFR 240.17a-
5(d) (requiring broker-dealers to file annually audited financial
statements); Article 3 of Regulation S-X, 17 CFR 210.3-01 et seq.
(requiring certain financial statements to be audited by independent
accountants).
    \1060\ See, e.g., Exchange Act Rule 17a-5(a), 17 CFR 240.17a-
5(a) (requiring broker-dealers to file monthly and quarterly
Financial and Operational Combined Uniform Single (FOCUS) reports);
Article 10-01(d) of Regulation S-X, 17 CFR 210.10-01(d) (requiring
public companies to have their quarterly reports reviewed by
independent public accountants).
    \1061\ Proposing Release, 75 FR at 77343, supra note 2; see also
Exchange Act Section 13(m)(1)(G), 15 U.S.C. 78m(m)(1)(G).
---------------------------------------------------------------------------

    With respect to one commenter's suggested deletion of the auditing
requirement in Rule 13n-11(f)(2), the Commission disagrees with the
commenter's view that the requirement imposes an additional burden for
an SDR that is not justified in relation to the risks that an SDR would
pose to its members.\1062\ The Commission believes that the audit
requirement will serve as an effective means to assure the reliability
of the information in an SDR's financial report that is filed with the
Commission. The Commission also believes that the filing of audited
financial statements (as opposed to unaudited financial statements) is
important because it would bolster market participants' confidence in
the SDR and provide greater credibility to the accuracy of the
information that the SDR files with the Commission.\1063\ The
Commission recognizes that because of the audit requirement in Rule
13n-11(f)(2), the rule may, in some instances, be more costly than the
CFTC's requirement of quarterly unaudited financial statements.\1064\
The Commission believes, however, that the additional burden, where it
exists, is

justified by the aforementioned benefits of requiring audited financial
statements.
---------------------------------------------------------------------------

    \1062\ See DTCC 5, supra note 19.
    \1063\ See Revision of the Commission's Auditor Independence
Requirements, Securities Act Release No. 7919 (Nov. 21, 2000), 65 FR
76008 (Dec. 5, 2000) (discussing importance of auditor independence
and audited financial statements).
    \1064\ See CFTC Rule 49.25, 17 CFR 49.25; DTCC 5, supra note 19
(suggesting that the Commission ``consider adopting the CFTC's
approach in its final [swap data repository] rules,'' regarding
financial statements).
---------------------------------------------------------------------------

6. Additional Rule Regarding Chief Compliance Officer (Rule 13n-11(h))
    In the Proposing Release, the Commission asked whether it should
prohibit any officers, directors, or employees of an SDR from, directly
or indirectly, taking any action to coerce, manipulate, mislead, or
fraudulently influence the SDR's CCO in the performance of his
responsibilities.\1065\ In response, one commenter recommended that the
Commission adopt such a prohibition.\1066\ After considering the
commenter's recommendation, the Commission has decided to adopt Rule
13n-11(h), which states that ``[n]o officer, director, or employee of a
security-based swap data repository may directly or indirectly take any
action to coerce, manipulate, mislead, or fraudulently influence the
security-based swap data repository's chief compliance officer in the
performance of his or her duties under [Rule 13n-11].'' This rule is
intended to advance the goals of the statute's requirements by
preventing others at the SDR from seeking to improperly affect the
SDR's CCO in the performance of his or her responsibilities. This rule
is also intended to promote the independence of an SDR's CCO while
maintaining the CCO's effectiveness by mitigating the potential
conflicts of interest between the CCO and the SDR's officers,
directors, and employees.
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    \1065\ Proposing Release, 75 FR at 77341, supra note 2.
    \1066\ Better Markets 1, supra note 19; see also Better Markets
3, supra note 19 (suggesting ``[e]xplicit prohibitions against
attempts by officers, directors, or employees to coerce, mislead, or
otherwise interfere with the CCO'').
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K. Exemption From Requirements Governing SDRs for Certain Non-U.S.
Persons (Rule 13n-12)

1. Proposed Rule
    In the Cross-Border Proposing Release, the Commission proposed,
pursuant to its authority under Exchange Act Section 36,\1067\ an
exemption from Exchange Act Section 13(n) \1068\ and the rules and
regulations thereunder (collectively, the ``SDR Requirements'') for
non-U.S. persons that perform the functions of an SDR within the United
States, subject to a condition.\1069\ Specifically, the Commission
proposed Rule 13n-12 (``SDR Exemption''), which provides: ``A non-U.S.
person \1070\ that performs the functions of a security-based swap data
repository within the United States shall be exempt from the
registration and other requirements set forth in Section 13(n) of the
[Exchange] Act . . . and the rules and regulations thereunder, provided
that each regulator with supervisory authority over such non-U.S.
person has entered into a supervisory and enforcement memorandum of
understanding or other arrangement with the Commission that addresses
the confidentiality of data collected and maintained by such non-U.S.
person, access by the Commission to such data, and any other matters
determined by the Commission.'' \1071\
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    \1067\ Exchange Act Section 36 authorizes the Commission to
conditionally or unconditionally exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from certain provisions of the Exchange Act or certain
rules or regulations thereunder, by rule, regulation, or order, to
the extent that such exemption is necessary or appropriate in the
public interest, and is consistent with the protection of investors.
15 U.S.C. 78mm.
    \1068\ 15 U.S.C. 78m(n).
    \1069\ Cross-Border Proposing Release, 78 FR at 31209, supra
note 3.
    \1070\ Proposed Rule 13n-12(a)(1) defines ``non-U.S. person'' to
mean any person that is not a U.S. person. Proposed Rule 13n-
12(a)(2) defines ``U.S. person'' by cross-reference to the
definition of ``U.S. person'' in proposed Rule 3a71-3(a)(7). See
Cross-Border Proposing Release, 78 FR at 31209, supra note 3.
    \1071\ Proposed Rule 13n-12(b).
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2. Comments on the Proposed Rule
    The Commission received several comment letters concerning the
registration and regulation of SDRs in the cross-border context, most
of which were submitted prior to the Commission's proposal of Rule 13n-
12. As a general matter, commenters suggested that the Commission
should apply principles of international comity.\1072\
---------------------------------------------------------------------------

    \1072\ See DTCC 2, supra note 19 (urging the Commission, in its
regulation of SDRs, to aim for regulatory comity as it has already
been agreed to by ODRF and other international bodies such as CPSS
and IOSCO); Foreign Banks SBSR, supra note 27 (recommending that the
Commission work with foreign authorities to permit SDRs in all major
jurisdictions to register with the appropriate regulators in each
jurisdiction); see also Soci[eacute]t[eacute] G[eacute]n[eacute]rale
SBSR, supra note 27 (suggesting that the Commission consider
international comity and public policy goals of derivatives
regulation to limit its regulation of swap business and requesting
that the Commission coordinate with its foreign counterparts,
especially those based in Europe, to work toward an MOU on the
jurisdictional reach of the derivatives rules of the U.S./European
Market Infrastructure Regulation); ISDA SIFMA SBSR, supra note 27
(``The Commission should consult with foreign regulators before
establishing the extra-territorial scope of the rules promulgated
under Title VII.''). See also DTCC CB, supra note 26 (``Given the
global nature of OTC swaps and SB swaps markets, the United States
should continue to promote an approach to the regulation of the
swaps markets that adheres to international comity and mitigates the
risk of regulatory arbitrage in market decisions. Regulations among
jurisdictions must be coordinated in a manner that promotes
competition, transparency, and protects the safety and soundness of
these global markets. At the same time, the Commission should remain
vigilant that the international framework is efficient and does not
unfairly disadvantage or concentrate systemic risk in the United
States.'').
---------------------------------------------------------------------------

    One commenter expressed concern that ``the current asymmetry in the
[proposed SDR Rules], when compared to existing international
standards, will lead to fragmentation along regional lines and prohibit
global services and global data provision, which will weaken the
introduction of trade repositories as a financial markets reform
measure.'' \1073\ The commenter stated that ``because of the onerous
standards imposed on SDRs compared to the regulatory framework of other
competitive jurisdictions, the U.S. will be less attractive than other
locations for the purpose of storing full global data where SDRs are
actively looking to service the global regulatory community.'' \1074\
---------------------------------------------------------------------------

    \1073\ DTCC 2, supra note 19.
    \1074\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In addition, two commenters expressed concern about the potential
impact of duplicative registration requirements imposed on SDRs.\1075\
Specifically, one of these commenters remarked that the Commission's
proposed rules governing SDRs ``would seem to force a non-resident SDR
to be subject to multiple regimes and to the jurisdiction of several
authorities'' and that the Proposing Release made no ``reference to
equivalency of regulatory regimes or cooperation with the authorities
of the country of establishment of the non-resident SDRs.'' \1076\ To
address this concern, the commenter suggested that the Commission adopt
a regime under which foreign SDRs would be deemed to comply with the
SDR Requirements if the laws and regulations of the relevant foreign
jurisdiction were equivalent to those of the Commission and an MOU has
been entered into between the Commission and the relevant foreign
authority.\1077\ The commenter noted that the recommended ``regime
would have the following advantages: i) Facilitating cooperation among
authorities from different jurisdictions; ii) ensuring the mutual
recognition of [SDRs]; and iii) establishing convergent regulatory and
supervisory regimes which is necessary in a global market such as the
OTC derivatives one.'' \1078\
---------------------------------------------------------------------------

    \1075\ See US & Foreign Banks, supra note 24; ESMA, supra note
19.
    \1076\ ESMA, supra note 19.
    \1077\ ESMA, supra note 19.
    \1078\ ESMA, supra note 19 (noting that a similar regulatory
regime is delineated in the ``European Commission's proposal for a
Regulation on OTC derivatives, central counterparties and trade
repositories'').

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

    Recognizing that some SDRs would function solely outside of the
United States and, therefore, would be regulated by an authority in
another jurisdiction, commenters suggested possible approaches to the
SDR registration regime. One commenter, for example, suggested that ``a
non-U.S. SDR should not be subject to U.S. registration so long as it
collects and maintains information from outside the U.S., even if such
information is collected from non-U.S. swap dealer or [major security-
based swap participant] registrants.'' \1079\ Two commenters supported
``cross-registration'' of SDRs, whereby SDRs in all major jurisdictions
may register with the appropriate regulators in each
jurisdiction.\1080\
---------------------------------------------------------------------------

    \1079\ See US & Foreign Banks, supra note 24.
    \1080\ Foreign Banks SBSR, supra note 27 (``Cross-registration
of SDRs is not only necessary given the global nature of the swaps
market, it also reduces duplicative data reporting. Cross-
registration would also facilitate the creation of uniform reporting
rules and procedures that would enable easy comparison of
transaction data from different jurisdictions. Cross-border
information sharing and cross-registration, coupled with the new
standard identification codes that will be required for reporting to
SDRs, would provide regulators and market participants with a
comprehensive picture, thus enabling more robust surveillance and
supervision of the global swaps market.''); BofA SBSR, supra note 27
(noting that the Commission can ensure that it retains access to
data reported to foreign SDRs by establishing a regime for cross-
registration of SDRs in multiple jurisdictions).
---------------------------------------------------------------------------

3. Final Rule
    As stated above,\1081\ the Commission believes that a non-U.S.
person that performs the functions of an SDR within the United States
is required to register with the Commission, absent an exemption.\1082\
After considering comments, including those urging the Commission to
take into consideration the principles of international comity and
mitigate the risk of regulatory arbitrage in market decisions,\1083\
the Commission is adopting Rule 13n-12 as proposed, with two
modifications,\1084\ to provide an exemption from the SDR Requirements
for certain non-U.S. persons. This rule is intended to provide legal
certainty to market participants and to address commenters' concerns
regarding the potential for duplicative regulatory requirements.\1085\
Specifically, Rule 13n-12 states as follows: ``A non-U.S. person \1086\
that performs the functions of a security-based swap data repository
within the United States shall be exempt from the registration and
other requirements set forth in section 13(n) of the [Exchange] Act . .
. and the rules and regulations thereunder, provided that each
regulator with supervisory authority over such non-U.S. person has
entered into a memorandum of understanding \1087\ or other arrangement
with the Commission that addresses the confidentiality of data
collected and maintained by such non-U.S. person, access by the
Commission to such data, and any other matters determined by the
Commission.''
---------------------------------------------------------------------------

    \1081\ See Section III.B of this release discussing persons
performing the functions of an SDR within the United States that
must register with the Commission.
    \1082\ See Cross-Border Proposing Release, 78 FR at 31042, supra
note 3. See also Exchange Act Section 13(n)(1), 15 U.S.C. 78m(n)(1)
(requiring persons that, directly or indirectly, make use of the
mails or any means or instrumentality of interstate commerce to
perform the functions of an SDR, to register with the Commission).
The Commission recognizes that some non-U.S. persons that perform
the functions of an SDR may do so entirely outside the United
States, and thus, are not required to register with the Commission.
    \1083\ See DTCC 2, supra note 19; DTCC CB, supra note 26;
Foreign Banks SBSR, supra note 27; Soci[eacute]t[eacute]
G[eacute]n[eacute]rale SBSR, supra note 27; and ISDA SIFMA SBSR,
supra note 27.
    \1084\ See infra note 1086 (discussing technical revision) and
infra note 1087 (discussing MOU requirement).
    \1085\ See US & Foreign Banks, supra note 24; ESMA, supra note
19.
    \1086\ Exchange Act Rule 13n-12(a)(1), as adopted, defines
``non-U.S. person'' to mean any person that is not a U.S. person.
Exchange Act Rule 13n-12(a)(2) defines ``U.S. person'' by cross-
reference to the definition of ``U.S. person'' in Exchange Act Rule
3a71-3(a)(4)(i), 17 CFR 240.3a71-3(a)(4)(i). See Cross-Border
Adopting Release, 79 FR at 47371, supra note 11 (adopting Exchange
Act Rule 3a71-3(a)(4)(i)). As proposed, Rule 13n-12(a)(2) cross-
referenced to ``Sec.  240.3a71-3(a)(7).'' For consistency in how
cross-references are formatted in the SDR Rules, the Commission is
revising from the proposal the format of the cross-reference to
``Rule 3a71-3(a)(4)(i) (Sec.  240.3a71-3(a)(4)(i)).''
    \1087\ Upon further consideration, the Commission is revising
the proposed rule to require an MOU rather than a more specific
``supervisory and enforcement'' MOU. Requiring an MOU provides the
Commission with the flexibility to negotiate a broad range of terms,
conditions, and circumstances under which information can be shared
with other relevant authorities.
---------------------------------------------------------------------------

    The Commission continues to believe that the SDR Exemption is
necessary or appropriate in the public interest, and consistent with
the protection of investors.\1088\ Because the reporting requirements
of Title VII and Regulation SBSR can be satisfied only if an SBS
transaction is reported to an SDR that is registered with the
Commission,\1089\ the Commission continues to believe that the primary
reason for a person subject to the reporting requirements of Title VII
and Regulation SBSR to report an SBS transaction to an SDR that is not
registered with the Commission would likely be to satisfy reporting
obligations that it or its counterparty has under foreign law.\1090\
Such person would still be required to fulfill its reporting
obligations under Title VII and Regulation SBSR by reporting its SBS
transaction to an SDR that is registered with the Commission, absent
other relief from the Commission,\1091\ even if the transaction were
also reported to a non-U.S. person that is not registered with the
Commission because it is relying on the SDR Exemption. The Commission
believes that this approach to the SDR Requirements appropriately
balances the Commission's interest in having access to data about SBS
transactions involving U.S. persons, while addressing commenters'
concerns regarding the potential for duplicative regulatory
requirements \1092\ as well as furthering the goals of the Dodd-Frank
Act.
---------------------------------------------------------------------------

    \1088\ See Cross-Border Proposing Release, 78 FR at 31043, supra
note 3.
    \1089\ The Commission believes that the SDR Exemption addresses
one commenter's view that ``a non-U.S. SDR should not be subject to
U.S. registration so long as it collects and maintains information
from outside the U.S.'' See US & Foreign Banks, supra note 24; see
also Section III.B of this release (discussing when SDRs that are
non-U.S. persons must register with the Commission). The Commission
notes, however, that a non-U.S. person that performs the functions
of an SDR outside the United States may choose to register with the
Commission as an SDR to enable that person to accept data from
persons that are reporting an SBS pursuant to the reporting
requirements of Title VII and Regulation SBSR. See Exchange Act
Sections 13(m)(1)(G) and 13A(a)(1), 15 U.S.C. 78m(m)(1)(G) and 78m-
1(a)(1), as added by Dodd-Frank Act Sections 763(i) and 766(a);
Regulation SBSR Adopting Release, supra note 13 (Rule 901 requiring
all SBSs to be reported to a registered SDR or, if no SDR will
accept the SBSs, the Commission). This approach is consistent with
commenters' views supporting cross-registration of SDRs. See Foreign
Banks SBSR, supra note 27 (suggesting cross-registration of SDRs);
BofA SBSR, supra note 27 (suggesting cross-registration of SDRs).
The Commission may consider also granting, pursuant to its authority
under Exchange Act Section 36, 15 U.S.C. 78mm, exemptions to such
non-U.S. person that registers with the Commission from certain of
the SDR Requirements on a case-by-case basis. In determining whether
to grant such an exemption, the Commission may consider, among other
things, whether there are overlapping requirements in the Exchange
Act and applicable foreign law.
    \1090\ See Cross-Border Proposing Release, 78 FR at 31043, supra
note 3.
    \1091\ See Cross-Border Proposing Release, 78 FR at 31043, supra
note 3 (discussing Regulation SBSR and substituted compliance); see
also Regulation SBSR Adopting Release, supra note 13 (adopting Rule
908(c) allowing for the possibility of substituted compliance).
    \1092\ See US & Foreign Banks, supra note 24; ESMA, supra note
19.
---------------------------------------------------------------------------

    The SDR Exemption includes a condition that each regulator with
supervisory authority over the non-U.S. person that performs the
functions of an SDR within the United States enters into an MOU or
other arrangement with the Commission, as specified in Exchange Act
Rule 13n-12(b). The Commission anticipates that in determining whether
to enter into such an MOU or other

arrangement with a relevant authority, the Commission will consider
whether the relevant authority can keep confidential requested data
that is collected and maintained by the non-U.S. person that performs
the functions of an SDR within the United States \1093\ and whether the
Commission will have access to data collected and maintained by such
non-U.S. person.\1094\ The Commission anticipates that it will consider
other matters, including, for example, whether the relevant authority
agrees to provide the Commission with reciprocal assistance in
securities matters within the Commission's jurisdiction and whether an
MOU or other arrangement would be in the public interest.\1095\ The
Commission believes that, in lieu of requiring every non-U.S. person
that performs the functions of an SDR within the United States to
register with the Commission, the condition in the SDR Exemption is
appropriate to address the Commission's interest in having access to
SBS data involving U.S. persons and U.S. market participants that is
maintained by non-U.S. persons that perform the functions of an SDR
within the United States and protecting the confidentiality of such SBS
data involving U.S. persons and U.S. market participants.\1096\
---------------------------------------------------------------------------

    \1093\ The Commission contemplates that the relevant authority
will keep requested data that is collected and maintained by such
non-U.S. person confidential in a manner that is consistent with
Exchange Act Section 24 and Rule 24c-1 thereunder. See 15 U.S.C. 78x
and 17 CFR 240.24c-1.
    \1094\ The Commission contemplates that the Commission's access
to data collected and maintained by such non-U.S. person will be in
a manner that is consistent with Exchange Act Section 13(n)(5)(D)
and Rule 13n-4(b)(5) thereunder. See Exchange Act Section
13(n)(5)(D), 15 U.S.C. 78m(n)(5)(D).
    \1095\ The Commission has entered numerous cooperative
agreements with foreign authorities. See Cooperative Arrangements
with Foreign Regulators, available at http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml. Based on the Commission's
experience with negotiating MOUs and other agreements with foreign
authorities, the Commission believes that the MOU or agreement
described in Rule 13n-12(b) could, in many cases, be negotiated in a
timely manner so that the exemption provided under Rule 13n-12(b)
should be available before the registration of an SDR seeking to
claim the exemption would otherwise be required.
    \1096\ Accord Soci[eacute]t[eacute] G[eacute]n[eacute]rale SBSR,
supra note 27 (requesting that the Commission coordinate with its
foreign counterparts, especially those based in Europe, to work
toward an MOU on the jurisdictional reach of the derivatives rules
of the U.S./European Market Infrastructure Regulation).
---------------------------------------------------------------------------

    With respect to one commenter's concern about ``the current
asymmetry in the [proposed SDR Rules] when compared to existing
international standards'' and ``onerous standards imposed on SDRs
compared to regulatory framework of other competitive jurisdictions,''
the Commission believes that the SDR Exemption is intended to encourage
international cooperation, and thereby mitigate to some extent the
concern of data fragmentation and regulatory arbitrage.\1097\ The
commenter, which was submitted prior to the Commission's proposal of
Rule 13n-12, did not provide specific examples of international
standards or regulatory frameworks for comparison with the SDR Rules,
but, as discussed in Section I.D above, the Commission has taken into
consideration recommendations by international bodies; Commission staff
also has consulted and coordinated with foreign regulators through
bilateral and multilaterial discussions.\1098\
---------------------------------------------------------------------------

    \1097\ See DTCC 2, supra note 19.
    \1098\ Senior representatives of authorities with responsibility
for regulation of OTC derivatives have met on a number of occasions
to discuss international coordination of OTC derivatives
regulations. See, e.g., Report of the OTC Derivatives Regulators
Group (ODRG) on Cross-Border Implementation Issues (Mar. 31, 2014),
available at<EMAIL_ADDRESS>---------------------------------------------------------------------------

VII. Paperwork Reduction Act

    Certain provisions of the SDR Rules\1099\ and Form SDR impose new
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\1100\ In accordance with 44
U.S.C. 3507 and 5 CFR 1320.11, the Commission submitted the provisions
to the Office of Management and Budget (``OMB'') for review when it
issued the Proposing Release. The title of the new collection of
information is ``Form SDR and Security-Based Swap Data Repository
Registration, Duties, and Core Principles.'' An agency may not conduct
or sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid OMB control number.
OMB assigned control number 3235-0719 to the new collection of
information.
---------------------------------------------------------------------------

    \1099\ As noted above, ``SDR Rules'' means, collectively, Rules
13n-1 to 13n-12.
    \1100\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission solicited comment on the
collection of information requirements and the accuracy of the
Commission's statements.\1101\ The Commission received three comments
noting the importance of confidentiality.\1102\ The Commission received
one comment generally discussing the burden of Rule 13n-11(f)(2), which
is discussed below.\1103\
---------------------------------------------------------------------------

    \1101\ See Proposing Release, 75 FR at 77354, supra note 2.
    \1102\ One commenter emphasized that regulators should provide
confidential treatment to the annual compliance reports that SDRs
provide to the Commission. DTCC 2, supra note 19. Consistent with
its treatment of filings that it receives from other registrants,
the Commission is not providing, by rule, that annual compliance
reports are automatically granted confidential treatment, but SDRs
may request confidential treatment. See Section VI.J.4.c of this
release. One commenter to the Temporary Rule Release emphasized the
importance of the Commission protecting information furnished to it
under the rules in that release. Deutsche Temp Rule, supra note 28.
A second commenter reiterated that regulators should provide
confidential treatment to SBS data provided by SDRs. ESMA, supra
note 19. The Commission anticipates that it will keep reported data
that SDRs submit to the Commission confidential, subject to the
provisions of applicable law. Pursuant to Commission rules,
confidential treatment can be sought for information submitted to
the Commission. See 17 CFR 200.83 (regarding confidential treatment
procedures under FOIA).
    \1103\ See Section VIII.D.6.c of this release discussing
economic alternatives to Rule 13n-11(f)(2).
---------------------------------------------------------------------------

    The Commission also received one comment recommending that ``the
Commission should generally seek to avoid any divergence from the
CFTC's and international regulators' frameworks that is likely to give
rise to undue costs or burdens.''\1104\ The commenter believed that
``divergence is generally warranted only if the rule adopted by the
Commission is more flexible than those adopted by others (and therefore
would not preclude the voluntary adoption of consistent practices by
market participants).''\1105\
---------------------------------------------------------------------------

    \1104\ IIB CB, supra note 26.
    \1105\ IIB CB, supra note 26.
---------------------------------------------------------------------------

    None of the commenters specifically addressed the burden estimates
in the Proposing Release related to the collection of information. The
Commission has, however, revised the burden associated with completing
Form SDR to reflect some additional material incorporated from Form SIP
to accommodate SDRs' registration as SIPs and to reflect a revision to
the disclosure of business affiliations.\1106\ The Commission has also
made a change to correct a calculation error.\1107\ Other than these
changes, the Commission's estimates remain unchanged from the Proposing
Release.
---------------------------------------------------------------------------

    \1106\ See Section VII.D.1 of this release discussing the
burdens associated with SDRs' registration requirements.
    \1107\ The calculation of the burden on non-resident SDRs under
Rule 13n-1(f) has been revised to correct a calculation error, which
slightly reduces the burden hours incurred by non-resident SDRs. See
infra note 1136 and the accompanying text.
---------------------------------------------------------------------------

A. Summary of Collection of Information

1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    Rule 13n-1(b) requires an SDR to apply for registration with the

Commission by filing Form SDR electronically in tagged data format in
accordance with the instructions contained on the form. Under Rule 13n-
1(e), each SDR is required to both designate and authorize on Form SDR
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 SDR to enforce the federal securities laws and the rules
and regulations thereunder. Rule 13n-1(f) requires a non-resident SDR
to (i) certify on Form SDR that the SDR can, as a matter of law, and
will provide the Commission with prompt access to the SDR's books and
records and can, as a matter of law, and will submit to onsite
inspection and examination by the Commission and (ii) provide an
opinion of counsel that the SDR can, as a matter of law, provide the
Commission with prompt access to the SDR's books and records and can,
as a matter of law, submit to onsite inspection and examination by the
Commission. Under Rule 13n-3(a), in the event that an SDR succeeds to
and continues the business of a registered SDR, the successor SDR may
file an application for registration on Form SDR (and the predecessor
SDR is required to file a withdrawal from registration with the
Commission) within 30 days after the succession in order for the
registration of the predecessor to be deemed to remain effective as the
registration of the successor. Also, under Rule 13n-11(a), an SDR is
required to identify on Form SDR a person who has been designated by
the board to serve as a CCO of the SDR.
    Rule 13n-1(d) requires SDRs to file an amendment on Form SDR
annually as well as when any information provided in items 1 through
17, 26, and 48 on Form SDR is or becomes inaccurate for any reason.
Under Rule 13n-3(b), if an SDR succeeds to and continues the business
of a registered SDR and the succession is based solely on a change in
the predecessor's date or state of incorporation, form of organization,
or composition of a partnership, the successor SDR is permitted, within
30 days after the succession, to amend the registration of the
predecessor SDR on Form SDR to reflect these changes.
    Rule 13n-2(b) permits a registered SDR to withdraw from
registration by filing a withdrawal from registration on Form SDR
electronically in a tagged data format. The SDR must designate on Form
SDR a person to serve as custodian of its books and records. When
filing a withdrawal from registration on Form SDR, the SDR must update
any inaccurate information.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic
Access
    Rule 13n-4(b) sets out a number of duties for SDRs. Under Rules
13n-4(b)(2) and (4), SDRs are required to accept data as prescribed in
Regulation SBSR \1108\ and maintain that data, as required in Rule 13n-
5, for each SBS reported to the SDRs. SDRs are required, pursuant to
Rule 13n-4(b)(5), to provide direct electronic access to the Commission
or its designees.\1109\ SDRs are required, pursuant to Rule 13n-
4(b)(6), to provide information in such form and at such frequency as
required by Regulation SBSR. The Commission anticipates that it will
propose for public comment detailed specifications of acceptable
formats and taxonomies for the purposes of direct electronic access.
Until such time as the Commission adopts any format or taxonomy, SDRs
may provide direct electronic access to the Commission to data in the
form in which SDRs maintain such data.
---------------------------------------------------------------------------

    \1108\ See Regulation SBSR Adopting Release, supra note 13.
    \1109\ See also Rule 13n-4(a)(5) (defining ``direct electronic
access'').
---------------------------------------------------------------------------

    SDRs have an obligation under Rule 13n-4(b)(3) to confirm, as
prescribed in Rule 13n-5, with both counterparties the accuracy of the
information submitted to the SDRs. Under Rule 13n-4(b)(7), at such time
and in such manner as may be directed by the Commission, an SDR is
required to establish automated systems for monitoring, screening, and
analyzing SBS data.\1110\
---------------------------------------------------------------------------

    \1110\ The Commission is not requiring SDRs to monitor, screen,
and analyze SBS data maintained by the SDR at this time. See Section
VI.D.2.c.iii of this release.
---------------------------------------------------------------------------

    Rule 13n-5 establishes rules regarding SDR data collection and
maintenance. Rule 13n-5(b)(1) requires every SDR to (1) establish,
maintain, and enforce written policies and procedures reasonably
designed for the reporting of complete and accurate transaction data to
the SDR;\1111\ (2) accept all transaction data reported to it in
accordance with those policies and procedures; (3) accept all data
provided to it regarding all SBSs in an asset class if the SDR accepts
data on any SBS in that particular asset class; and (4) establish,
maintain, and enforce written policies and procedures reasonably
designed to satisfy itself that the transaction data that has been
submitted to the SDR is complete and accurate, and clearly identifies
the source for each trade side, and the pairing method (if any) for
each transaction in order to identify the level of quality of the
transaction data. An SDR is also required under Rule 13n-5(b)(1)(iv) to
promptly record transaction data it receives.
---------------------------------------------------------------------------

    \1111\ ``Transaction data'' is defined in Rule 13n-5(a)(3).
---------------------------------------------------------------------------

    In addition, Rule 13n-5(b) requires every SDR to establish,
maintain, and enforce written policies and procedures reasonably
designed: (1) to calculate positions \1112\ for all persons with open
SBSs for which the SDR maintains records; (2) to ensure that the
transaction data and positions that it maintains are complete and
accurate; and (3) to prevent any provision in a valid SBS from being
invalidated or modified through the procedures or operations of the
SDR.
---------------------------------------------------------------------------

    \1112\ ``Position'' is defined in Rule 13n-5(a)(2).
---------------------------------------------------------------------------

    Rule 13n-5(b)(4) requires that every SDR maintain the transaction
data and related identifying information for not less than five years
after the applicable SBS expires and historical positions for not less
than five years. This data is required to be maintained in a place and
format that is readily accessible and usable to the Commission and
other persons with authority to access or view the information. SDRs
must also maintain this data in an electronic format that is non-
rewritable and non-erasable. Under Rule 13n-5(b)(7), the SDR's
obligation to preserve, maintain, and make accessible the transaction
data and historical positions extends to the periods required under
Rule 13n-5 even if the SDR ceases to do business or to be registered
pursuant to Exchange Act Section 13(n). Rule 13n-5(b)(8) requires every
SDR to make and keep current a plan to ensure that the transaction data
and positions that are recorded in the SDR continue to be maintained in
accordance with Rule 13n-5(b)(7), including procedures for transferring
the transaction data and positions to the Commission or its designee
(including another registered SDR).
    Rule 13n-6 establishes rules regarding SDR automated systems. Rule
13n-6 requires that every SDR, with respect to those systems that
support or are integrally related to the performance of its activities,
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that its systems provide adequate levels
of capacity, integrity, resiliency, availability, and security.
3. Recordkeeping
    Rule 13n-7 requires every SDR to make and keep records, in addition
to those required under Rules 13n-4(b)(4) and 13n-5. Specifically,
every SDR is

required, under Rule 13n-7(a)(1), to make and keep current a record for
each office listing, by name or title, each person at that office who,
without delay, can explain the types of records the SDR maintains at
that office and the information contained in those records. Every SDR
is also required, under Rule 13n-7(a)(2), to make and keep current a
record listing each officer, manager, or person performing similar
functions of the SDR responsible for establishing policies and
procedures that are reasonably designed to ensure compliance with the
Exchange Act and the rules and regulations thereunder. Rule 13n-7(b)
requires every SDR to keep and preserve at least one copy of all
documents made or received by it in the course of its business as such.
These records are required to be kept for a period of not less than
five years, the first two years in a place that is immediately
available to representatives of the Commission for inspection and
examination. Upon the request of any representative of the Commission,
pursuant to Rule 13n-7(b)(3), an SDR is required to furnish promptly to
such representative copies of any documents required to be kept and
preserved by the SDR pursuant to Rules 13n-7(a) and (b). Under Rule
13n-7(c), the SDR's recordkeeping obligation is extended to the periods
required under Rule 13n-7 even if the SDR ceases to do business or to
be registered pursuant to Exchange Act Section 13(n).
    SDRs are also required to make available the books and records
required by Rules 13n-1 through 13n-11 upon request by Commission
representatives for inspection and examination.\1113\
---------------------------------------------------------------------------

    \1113\ See, e.g., Rules 13n-4(b)(1) and 13n-7(b)(3).
---------------------------------------------------------------------------

4. Reports
    Under Rule 13n-8, SDRs are required to promptly report to the
Commission, in a form and manner acceptable to the Commission, such
information as the Commission determines necessary or appropriate for
the Commission to perform its duties.
5. Disclosure
    Rule 13n-10 describes disclosures that SDRs are required to provide
to a market participant before accepting any SBS data from that market
participant or upon a market participant's request. The information
required in the disclosure document includes: (1) the SDR's criteria
for providing others with access to services offered and data
maintained by the SDR, (2) the SDR's criteria for those seeking to
connect to or link with the SDR, (3) a description of the SDR's
policies and procedures regarding its safeguarding of data and
operational reliability, as described in Rule 13n-6, (4) a description
of the SDR's policies and procedures reasonably designed to protect the
privacy of any and all SBS transaction information that the SDR
receives from an SBS dealer, counterparty, or any registered entity, as
described in Rule 13n-9(b)(1), (5) a description of the SDR's policies
and procedures regarding its non-commercial and/or commercial use of
the SBS transaction information that it receives from a market
participant, any registered entity, or any other person, (6) a
description of the SDR's dispute resolution procedures involving market
participants, as described in Rule 13n-5(b)(6), (7) a description of
all the SDR's services, including any ancillary services, (8) the SDR's
updated schedule of any dues; unbundled prices, rates, or other fees
for all of its services, including any ancillary services; any
discounts or rebates offered; and the criteria to benefit from such
discounts or rebates, and (9) a description of the SDR's governance
arrangements.
6. Chief Compliance Officer; Compliance Reports and Financial Reports
    Rule 13n-4(b)(11) requires an SDR and Rule 13n-11(a) requires the
board of an SDR to designate a CCO to perform the duties identified in
Rule 13n-11. Under Rules 13n-11(c)(6) and (7), the CCO is responsible
for, among other things, establishing procedures for the remediation of
noncompliance issues identified by the CCO and establishing and
following appropriate procedures for the handling, management response,
remediation, retesting, and closing of noncompliance issues.
    The CCO is also required under Rules 13n-11(d), (e), and (g) to
prepare and submit annual compliance reports to the SDR's board for
review before they are filed with the Commission. The annual compliance
reports must contain, at a minimum, a description of the SDR's
enforcement of its policies and procedures, any material changes to the
policies and procedures since the date of the preceding compliance
report, any recommendation for material changes to the policies and
procedures, and any material compliance matters identified since the
date of the preceding compliance report. The compliance reports must be
filed in a tagged data format in accordance with the instructions
contained in the EDGAR Filer Manual.\1114\
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    \1114\ See 17 CFR 232.301.
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    Rules 13n-11(f) and (g) require that financial reports be prepared
and filed annually with the Commission. These financial reports must,
among other things, be prepared in conformity with GAAP for the most
recent two fiscal years of the SDR, audited by a registered public
accounting firm that is qualified and independent in accordance with
Rule 2-01 of Regulation S-X, and audited in accordance with standards
of the Public Company Accounting Oversight Board. The financial reports
must be provided as an official filing in accordance with the EDGAR
Filer Manual and include, as part of the official filing, an
Interactive Data Financial Report filed in accordance with Rule 407 of
Regulation S-T.\1115\
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    \1115\ See Section VI.J.5.c of this release discussing Rule 407
of Regulation S-T.
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7. Other Provisions Relevant to the Collection of Information
    Rule 13n-4(c)(1) sets forth the requirements for SDRs related to
market access to services and data. Among other things, an SDR must:
(1) establish, monitor on an ongoing basis, and enforce clearly stated
objective criteria that would permit fair, open, and not unreasonably
discriminatory access to services offered and data maintained by the
SDR, as well as fair, open, and not unreasonably discriminatory
participation by market participants, market infrastructures, venues
from which data can be submitted to the SDR, and third party service
providers that seek to connect to or link with the SDR; and (2)
establish, maintain, and enforce written policies and procedures
reasonably designed to review any prohibition or limitation of any
person with respect to services offered or data maintained by the SDR
and to grant that person access to those services or data if the person
has been discriminated against unfairly.
    Rule 13n-4(c)(2)(iv) requires each SDR to establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
that the SDR's senior management and each member of the board or
committee that has the authority to act on behalf of the board
possesses requisite skills and expertise to fulfill their
responsibilities in the management and governance of the SDR, have a
clear understanding of their responsibilities, and exercise sound
judgment about the SDR's affairs.
    Rule 13n-4(c)(3) sets forth the conflicts of interest controls
required of SDRs. In particular, SDRs must establish and enforce
written policies and procedures reasonably designed to minimize
conflicts of interest, including establishing, maintaining, and
enforcing written policies and procedures

reasonably designed to identify and mitigate potential and existing
conflicts of interest in the SDR's decision-making process on an
ongoing basis and written policies and procedures regarding the SDR's
non-commercial and commercial use of the SBS transaction information
that it receives.
    Rule 13n-5(b)(6) requires SDRs to establish procedures and provide
facilities reasonably designed to effectively resolve disputes over the
accuracy of the transaction data and positions that are recorded in the
SDR.
    Rules 13n-4(b)(8) and 13n-9 relate to the privacy requirements for
SDRs. Rule 13n-4(b)(8) requires SDRs to maintain the privacy of any and
all SBS transaction information that the SDR receives from a SBS
dealer, counterparty, or any registered entity as prescribed in Rule
13n-9. Rule 13n-9(b)(1) requires each SDR to establish, maintain, and
enforce written policies and procedures reasonably designed to protect
the privacy of any and all SBS transaction information that the SDR
receives from any SBS dealer, counterparty, or any registered entity.
Rule 13n-9(b)(2) requires each SDR to establish and maintain
safeguards, policies, and procedures reasonably designed to prevent the
misappropriation or misuse of any confidential information received by
the SDR, material, nonpublic information, and/or intellectual property.
At a minimum, these policies and procedures must address limiting
access to such information and intellectual property, standards
pertaining to the trading by persons associated with the SDR for their
personal benefit or the benefit of others, and adequate oversight.

B. Use of Information

1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    As discussed above, Rules 13n-1 and 13n-3 generally require SDRs to
register on Form SDR and make amendments on Form SDR when specified
information on the form becomes inaccurate, as well as annually. The
information collected in Form SDR is used to enhance the ability of the
Commission to monitor SDRs and oversee their compliance with the
federal securities laws and the rules and regulations thereunder, as
well as understand their operations and organizational structure. The
information will also be used to make determinations of whether to
grant or institute proceedings to determine whether registration should
be granted or denied.
    As discussed above, Rule 13n-2 generally permits a registered SDR
to withdraw from registration by filing Form SDR electronically in a
tagged data format, designating a custodian of its books and records,
and updating any inaccurate information contained in its most recently
filed Form SDR. The information collected from an SDR withdrawing from
registration is used by the Commission to monitor and oversee SDRs by
ensuring that the Commission has an accurate record of registered SDRs
and access to an SDR's books and records after the SDR withdraws from
registration.
    Also, under Rule 13n-11(a), an SDR is required to identify on Form
SDR a person who has been designated by the board to serve as a CCO of
the SDR. This information will help the Commission identify SDRs' CCOs.
2. SDR Duties, Data Collection and Maintenance, and Direct Electronic
Access
    As discussed above, Rules 13n-4(b), 13n-5, and 13n-6 specify the
duties of SDRs, require SDRs to collect and maintain specific data and
provide that data to certain entities.\1116\ The information that is
collected under these provisions will help ensure an orderly and
transparent SBS market as well as provide the Commission and other
relevant authorities with tools to help oversee this market.
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    \1116\ See Sections VI.D.2.c, VI.E, and VI.F.3 of this release
discussing Rules 13n-4(b), 13n-5, and 13n-6, respectively.
---------------------------------------------------------------------------

3. Recordkeeping
    As discussed above, Rule 13n-7 requires an SDR to make and keep
books and records relating to its business (except for the transaction
data and positions collected and maintained pursuant to Rule 13n-5) for
a prescribed period.\1117\ The information collected under these
provisions is necessary for Commission representatives to inspect and
examine an SDR and to facilitate the Commission's efforts to evaluate
the SDR's compliance with the federal securities laws and the rules and
regulations thereunder.
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    \1117\ See Section VI.G of this release discussing Rule 13n-7.
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4. Reports
    As discussed above, Rule 13n-8 requires SDRs to provide certain
reports to the Commission.\1118\ The Commission will use the
information collected under this provision to assist in its oversight
of SDRs, which will help ensure an orderly and transparent SBS market.
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    \1118\ See Section VI.H.3 of this release discussing Rule 13n-8.
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5. Disclosure
    As discussed above, Rule 13n-10 requires SDRs to provide certain
specific disclosures to a market participant before accepting any data
from that market participant or upon a market participant's
request.\1119\ These disclosures will help market participants
understand the potential risks and costs associated with using an SDR's
services, as well as the protections and services available to them.
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    \1119\ See Section VI.I.2.c of this release discussing Rule 13n-
10.
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6. Chief Compliance Officer; Compliance Reports and Financial Reports
    As discussed above, Rule 13n-11 requires an SDR's CCO to establish
certain procedures relating to the remediation of noncompliance issues
as well as prepare and sign an annual compliance report, which is filed
with the Commission.\1120\ Rule 13n-11 also requires that a financial
report be prepared and filed with the Commission as an official filing
in accordance with the EDGAR Filer Manual and include, as part of the
official filing, an Interactive Data Financial Report filed in
accordance with Rule 407 of Regulation S-T. The information collected
under this rule will help ensure compliance by SDRs with the federal
securities laws and the rules and regulations thereunder as well as
assist the Commission in overseeing SDRs.
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    \1120\ See Section VI.J of this release discussing Rule 13n-11.
---------------------------------------------------------------------------

7. Other Provisions Relevant to the Collection of Information
    As discussed above, Rule 13n-4(c)(1) requires SDRs to comply with
certain requirements relating to market access to services and data,
including establishment of certain policies and procedures and clearly
stated objective criteria. Rule 13n-4(c)(2)(iv) requires SDRs to
establish, maintain, and enforce policies and procedures regarding the
skills and expertise, understanding of responsibilities, and sound
judgment of the SDRs' senior management and members of the board or
committee that has the authority to act on behalf of the board. Rule
13n-4(c)(3) requires SDRs to establish and enforce written conflicts of
interest policies and procedures; to establish, maintain, and enforce
written policies and procedures reasonably designed to identify and
mitigate conflicts of interest on an ongoing basis; and to establish,
maintain, and enforce

written policies and procedures regarding their noncommercial and
commercial use of transaction information. Rule 13n-5(b)(6) requires
SDRs to establish procedures and provide facilities reasonably designed
to effectively resolve disputes regarding the accuracy of the
transaction data and positions that are recorded in the SDRs. Rules
13n-4(b)(8) and 13n-9 require SDRs to establish, maintain, and enforce
policies, procedures, and safeguards regarding privacy and
misappropriation or misuse of certain information.\1121\ The
information collected pursuant to these provisions will help ensure a
transparent and orderly SBS market, protect market participants'
privacy, and facilitate Commission oversight of SDRs.
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    \1121\ See Section VI.I.1.c of this release discussing Rule 13n-
9.
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C. Respondents

1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    As discussed above, the registration requirements of Rules 13n-1,
13n-2, 13n-3, 13n-11(a), and Form SDR apply to every U.S. person
performing the functions of an SDR and every non-U.S. person performing
the functions of an SDR within the United States, absent an
exemption.\1122\ Commission staff is aware of seven persons that have,
to date, filed applications for registration with the CFTC as swap data
repositories, three of which have withdrawn their applications and four
of which are provisionally registered with the CFTC. It is reasonable
to estimate that a similar number of persons provisionally registered
with the CFTC may seek to register with the Commission as SDRs.
Therefore, the Commission continues to estimate, for PRA purposes, that
ten persons may register with the Commission as SDRs. The Commission
also continues to estimate, for PRA purposes, that three of the ten
respondents may be non-resident SDRs subject to the additional
requirements of Rule 13n-1(f). The Commission received no comments on
its estimate of the number of non-resident SDRs and continues to
believe that this estimate is reasonable. Although non-resident SDRs
may be able to take advantage of the SDR Exemption, the Commission
conservatively estimates for PRA purposes that none of the three would
rely on the exemption.
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    \1122\ See Section VI.K of this release discussing Rule 13n-12
(``SDR Exemption'').
---------------------------------------------------------------------------

2. SDR Duties, Data Collection and Maintenance, and Direct Electronic
Access
    The duties, data collection and maintenance, and direct electronic
access requirements of Rules 13n-4(b), 13n-5, and 13n-6 as a general
matter, apply to all SDRs, absent an exemption. Thus, for these
provisions, the Commission estimates that there will be 10 respondents.
3. Recordkeeping
    The recordkeeping requirements of Rule 13n-7 apply to all SDRs,
absent an exemption. Thus, for this rule, the Commission estimates that
there will be 10 respondents.
4. Reports
    The report requirement of Rule 13n-8 applies to all SDRs, absent an
exemption. Thus, for this rule, the Commission estimates that there
will be 10 respondents.
5. Disclosure
    The disclosure requirements of Rule 13n-10 apply to all SDRs,
absent an exemption. Thus, for this rule, the Commission estimates that
there will be 10 respondents.
6. Chief Compliance Officer; Compliance Reports and Financial Reports
    The provisions regarding CCOs set forth in Rule 13n-11 apply to all
SDRs, absent an exemption. Thus, for this rule, the Commission
estimates that there will be 10 respondents.
7. Other Provisions Relevant to the Collection of Information
    The remaining requirements of the SDR Rules \1123\ relevant to the
collection of information, specifically Rules 13n-4(c), 13n-5(b)(6),
and 13n-4(b)(8) and 13n-9, apply to all SDRs, absent an exemption.
Thus, for these provisions, the Commission estimates that there will be
10 respondents.
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    \1123\ As noted above, ``SDR Rules'' means Rules 13n-1 to 13n-
12.
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    As stated above, no commenters addressed any of these
estimates.\1124\
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    \1124\ See Section VII of this release discussing comments
related to the collection of information.
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D. Total Annual Reporting and Recordkeeping Burden

    The Commission received no comments on any of the estimates
provided in the Proposing Release. The Commission has, however, revised
the burden associated with completing Form SDR to reflect some
additional material incorporated from Form SIP to accommodate SDRs'
registration as SIPs and to reflect a revision to the disclosure of
business affiliations. The Commission has also made a change to correct
a calculation error.\1125\ Other than these changes, the Commission's
estimates remain unchanged from the Proposing Release.
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    \1125\ In one minor respect, the calculation of the burden on
non-resident SDRs under Rule 13n-1(f) has been revised to correct a
calculation error, which slightly reduces the burden hours incurred
by non-resident SDRs. See infra note 1136 and the accompanying text.
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1. Registration Requirements, Form SDR, and Withdrawal From
Registration
    Rule 13n-1(b) and Rule 13n-3(a) (which relates to successor SDRs as
described above) require SDRs to apply for registration using Form SDR
and file the form electronically in tagged data format with the
Commission in accordance with the instructions to the form.\1126\
Further, Rule 13n-1(e) requires SDRs to designate an agent for service
of process on Form SDR, and Rule 13n-11(a) requires SDRs to identify
their CCOs on Form SDR. For purposes of the PRA, the Commission
initially estimated that it would take an SDR approximately 400 hours
to complete the initial Form SDR with the information required,
including all exhibits to Form SDR.\1127\ The Commission based this
estimate on the number of hours necessary to complete Form SIP because
Form SDR was based on Form SIP and incorporated many of the provisions
of Form SIP.\1128\ The Commission continues to estimate, based on Form
SIP, that it will initially take an SDR 400 hours to complete the
proposed portions of Form SDR with the information required, including
all exhibits thereto,\1129\ and now estimates that it will take an SDR
an additional 81 hours to complete Form SDR to reflect the additional
burden hours discussed below.
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    \1126\ See Sections VI.A and VI.C.3 of this release discussing
Rule 13n-1(b) and Rule 13n-3(a), respectively.
    \1127\ See Proposing Release, 75 FR at 77348, supra note 2.
    \1128\ See Proposing Release, 75 FR at 77348, supra note 2.
    \1129\ The Commission calculated in 2011 that Form SIP would
take 400 hours to complete. See Submission for OMB Review; Comment
Request, 76 FR 30984 (May 27, 2011) (outlining the Commission's most
recent calculations regarding the PRA burdens for Form SIP) (``SIP
PRA Filing''). While the requirements of Form SIP and Form SDR are
not identical, the Commission believes that there is sufficient
similarity for PRA purposes that the burden will be roughly
equivalent.
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    As noted above, the Commission has revised Form SDR to incorporate
certain provisions from Form SIP to allow SDRs to register as both SDRs
and SIPs using

Form SDR.\1130\ The Commission believes that the burden of filing Form
SDR should be adjusted to reflect these revisions. Because of the
overlap between Form SDR and Form SIP, the Commission initially
estimated that SDRs would need only one-quarter of the time to complete
Form SIP, or 100 hours, when registering with the Commission as SIPs
separately on Form SIP.\1131\ The Commission believes that this
estimate of the burden of an SDR to register as a SIP using Form SDR
should be reduced to 80 hours because (1) SDRs will not have to process
and file two separate forms; (2) SDRs will not have to provide
duplicate information in two forms; and (3) SDRs will not have to
prepare and file duplicate exhibits to two forms. The Commission
believes that 80 hours represents a reasonable estimate of the
additional burden hours that SDRs will incur in responding to the
provisions incorporated from Form SIP into Form SDR.
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    \1130\ See Section VI.A.1.c of this release discussing Form SDR.
See also supra note 220 discussing changes to proposed Form SDR to
incorporate the additional information requested on Form SIP of
applicants for registration as a SIP.
    \1131\ See Regulation SBSR Proposing Release, 75 FR at 75260,
supra note 8 (``Any entity that is required to complete proposed
Form SDR also would have to complete Form SIP. Because of the
substantial overlap in the forms, much of the burden for completing
Form SIP would be subsumed in completing proposed Form SDR.
Therefore, the Commission preliminarily estimates that, having
completed a proposed Form SDR, an entity would need only one-quarter
of the time to then complete Form SIP, or 100 hours (specifically,
37.5 hours of legal compliance work and 62.5 hours of clerical
compliance work).'').
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    Moreover, as discussed above, the Commission is revising Form SDR
from the proposal by requiring disclosure of business affiliations in
the ``derivatives industry'' rather than the ``OTC derivatives
industry'' for an applicant's designated CCO, officers, directors,
governors, and persons performing functions similar to any of the
foregoing, and the members of all standing committees.\1132\ The
Commission believes that SDRs will incur an additional burden in
replying to this disclosure, which may require disclosure of more
business affiliations than would have been disclosed under Form SDR, as
proposed. The Commission believes that 1 hour represents a reasonable
estimate of the additional burden hours that each SDR will incur in
responding to the revised disclosure requirement.
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    \1132\ See Section VI.A.1.c of this release discussing Form SDR.
---------------------------------------------------------------------------

    As noted above, the Commission estimates that 10 respondents will
be subject to this burden.\1133\ Accordingly, the Commission estimates
that the one-time initial registration burden for all SDRs is
approximately 4810 burden hours.\1134\ The Commission believes that
SDRs will, as a general matter, prepare Form SDR internally, except as
otherwise discussed below. In the Proposing Release, the Commission
solicited comments as to whether SDRs would outsource this requirement,
but the Commission did not receive any comments in this regard.\1135\
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    \1133\ See Section VII.C.1 of this release discussing
respondents to the registration requirements and Form SDR.
    \1134\ The Commission derived its estimate from the following: