\1159\ If a counterparty qualifies for the end-user clearing
exception, then the security-based swap would not be required to be
cleared unless the end user elects that it be cleared. See 15 U.S.C.
78c-3(g)(2) (providing that application of the exception is solely
at the discretion of the counterparty to security-based swaps that
meets the conditions of the exception in Section 3C(g)(1) of the
Exchange Act).
---------------------------------------------------------------------------

    In recognition of this situation and the potential for duplicative
or conflicting clearing requirements, the Commission preliminarily
believes that it would be appropriate in certain circumstances to
permit substituted compliance in this area. Specifically, the
Commission is proposing to use our authority, under Section 36 of the
Exchange Act,\1160\ to exempt persons from the clearing mandate in
Section 3C of the Exchange Act if a relevant transaction is submitted
to a foreign clearing agency that is the subject of a substituted
compliance determination by the Commission. Because such clearing
agencies would not be engaged in activities that trigger the
registration requirement, such substituted compliance determination
would not be subject to the procedure outlined in Section 17A(k) to
obtain an exemption from clearing agency registration, but would
instead be considered in the context of an exemption from the clearing
mandate. We preliminarily believe that providing substituted compliance
in this area could help to facilitate the clearance and settlement of
cross-border security-based swaps, while also promoting compliance with
clearing mandates.
---------------------------------------------------------------------------

    \1160\ See 15 U.S.C. 78mm. Section 36 of the Exchange Act
provides that, subject to certain exceptions, the Commission ``by
rule, regulation, or order may conditionally or unconditionally
exempt any person, security, or transaction, or any class or classes
of person, securities, or transactions from any provision or
provisions of [the Exchange Act] or of any rule or regulation
thereunder, to the extent that such exemption is necessary or
appropriate in the public interest and is consistent with the
protection of investors.''
---------------------------------------------------------------------------

    Under the proposed approach, upon the Commission's issuance of an
order making a substituted compliance determination with respect to a
particular foreign clearing agency, a counterparty to a security-based
swap transaction that is subject to the mandatory clearing requirement
would be able to rely on the Commission's substituted compliance
determination to satisfy the mandatory clearing requirement by clearing
such transaction on the specified foreign clearing agency.
    The Commission's proposed approach to substituted compliance for
clearing would be limited to foreign clearing agencies that have no
U.S. person members or activities in the United States. A foreign
clearing agency that meets these two threshold requirements could
initiate the process of making a substituted compliance determination
by filing an application, pursuant to the procedures set forth in
proposed Rule 0-13,\1161\ requesting that the Commission make a
substituted compliance determination. Such application would need to
include the reasons therefor and such other documentation as the
Commission may request. To provide the Commission with enough
information to make a substituted compliance determination, the
application would have to include sufficiently comprehensive
information regarding the clearing agency and the foreign regime such
that the Commission has an adequate basis to make the substituted
compliance determination.
---------------------------------------------------------------------------

    \1161\ See Section XI.B, supra.
---------------------------------------------------------------------------

    In making a substituted compliance determination, the Commission
expects that our review in such cases would include seeking appropriate
assurances from the foreign clearing agency regarding the absence of
U.S. person members and relevant activity in the United States,
including the volume of clearing activity originating in the United
States. In addition, the review would look at the scope and objectives
of the applicable foreign jurisdiction's regulatory requirements, as
well as the effectiveness of the supervisory compliance program
administered, and the enforcement authority exercised, by the relevant
foreign financial regulatory authority or authorities to support the
oversight of such clearing agency. Thus, the Commission's determination
would take into account a foreign jurisdiction's overall regulatory
framework, and would focus on the similarity of regulatory objectives
in addition to the presence or absence of similar rules. We expect that
our review of substituted compliance applications in this area would be
aided by the resources available to the Commission as a result of
cooperative relationships with other authorities that we expect would
allow us to assess the risk characteristics of such foreign clearing
agencies on an ongoing basis.\1162\
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    \1162\ See, e.g., FMI Principles, note 687, supra. Systemically
important payment systems, central securities depositories,
securities settlement systems, central counterparties and trade
repositories (``Financial Market Infrastructures'') are expected to
observe the standards as soon as possible, and CPSS and IOSCO
members are seeking to adopt the standards in their respective
jurisdictions by the end of 2012. CPSS and IOSCO have also proposed
assessment methodologies to oversee implementation of the FMI
Principles, including self-assessments and external assessments,
such as those conducted by the International Monetary Fund and the
World Bank under the Financial Sector Assessment Program. See CPSS
and Technical Committee of IOSCO, Assessment Methodology for the
Principles for FMIs and the Responsibilities of Authorities (April
2012), available at: http://www.bis.org/publ/cpss101b.pdf. In
addition, CPSS and the Technical Committee of IOSCO proposed a
disclosure framework to ensure that disclosures made by FMIs are
clear and comprehensive. See CPSS and Technical Committee of IOSCO,
Disclosure Framework for Financial Market Infrastructures (April
2012), available at: http://www.bis.org/publ/cpss101c.pdf. Finally,
see Basel III for a discussion of the preferential capital treatment
that exposures to a central counterparty will receive if such
central counterparty is supervised in a manner consistent with the
FMI Principles.
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    Subsequent to making a substituted compliance determination, the
Commission would be able to modify or withdraw, at any time, an order
containing such determination, after appropriate notice and opportunity
for comment. This would allow the Commission to take action in the
event that a foreign clearing agency, for any reason, is no longer
suitable for substituted compliance.
    The Commission's proposed approach to substituted compliance with
respect to the mandatory clearing requirement differs from other Title
VII categories where substituted compliance would be permitted in that
we are not proposing a specific rule related to substituted compliance.
We preliminarily do not believe that a rule is necessary in the
clearing space, although we are soliciting comment on the issue in the
request for comments below. This belief

stems in part from the fact that we do not expect a large number of
requests for substituted compliance in this area due to the small
number of security-based swap clearing agencies in the market. In
addition, the Title VII clearing agency registration regime already
contains a category of exempt security-based swap clearing agencies,
and clearing security-based swaps through these entities satisfies the
mandatory clearing requirement. As a result, we preliminarily believe
that the proposed approach to substituted compliance in this area,
whereby we are proposing a policy and procedural framework for the use
of our exemptive authority in Section 36 of the Exchange Act, is
sufficient to promote Title VII's clearing mandate while addressing the
regulatory complexities that stem from the global scope of the
security-based swaps market.
Request for comment
    The Commission requests comment on all aspects of the proposed
interpretation, including the following:
     Is substituted compliance related to the mandatory
clearing requirement in Section 3C(a)(1) of the Exchange Act needed to
prevent conflict with mandatory clearing requirements under foreign
law? If so, is the proposed approach to substituted compliance
sufficient to address the potential conflicts?
     Should the Commission apply Section 17A(k) of the Exchange
Act under such circumstances to exempt particular foreign security-
based swap clearing agencies to permit such clearing agencies to be
used by counterparties subject to the mandatory clearing requirement in
Section 3C(a)(1) of the Exchange Act? Are investor protection
considerations sufficiently addressed if transactions are permitted to
be cleared on a CCP that is not registered or exempt from registration?
What conditions would need to be included to ensure the policy goals in
the Dodd-Frank Act regarding central clearing are fulfilled? Should the
conditions identified in Section 17A(k) that the clearing agency be
available for inspection by the Commission and make available
information requested by the Commission apply? Why or why not?
     Should the Commission codify the proposed approach to
substituted compliance in the mandatory clearing space? Or is the
proposed approach's reliance on the Commission's exemptive authority in
Section 36 of the Exchange Act, and the procedures set forth in
proposed Rule 0-13, sufficient? Why or why not?
     Are the conditions limiting the potential availability of
substituted compliance to foreign clearing agencies that have no U.S.
persons as members or activities in the United States appropriate? Are
there other approaches that the Commission should consider? Should the
Commission only consider a foreign clearing agency's CCP activities
with regard to securities based swaps, or all type securities, in
making a substituted compliance determination?
     What would be the market impact of the proposed approach
to substituted compliance for the mandatory clearing requirement? How
would the proposed approach affect the competitiveness of U.S. entities
in the global marketplace (both in the United States as well as in
foreign jurisdictions)? Would the proposed approach place any market
participants at a competitive disadvantage or advantage? If so, please
explain. Would the proposed approach be a more general burden on
competition? If so, please explain. What other measures should the
Commission consider to implement the proposed approach? What would be
the market impacts and competitiveness effects of alternatives to the
proposed approach discussed in this release?

F. Trade Execution Requirement

    Under the Commission's proposal, substituted compliance would be
permitted for certain cross-border security-based swap transactions
that would be subject to the mandatory trade execution requirement of
Section 3C(h) of the Exchange Act. Specifically, under proposed Rule
3Ch-2(b)(1), the Commission could, conditionally or unconditionally, by
order, make a substituted compliance determination with respect to a
foreign jurisdiction to permit a person subject to the mandatory trade
execution requirement to execute such transaction, or have such
transaction executed on their behalf, on a security-based swap market
(or class of markets) that is neither registered under the Exchange Act
nor exempt from registration under the Exchange Act if the Commission
determines that such security-based swap market (or class of markets)
is subject to comparable, comprehensive supervision and regulation by a
foreign financial regulatory authority or authorities in such foreign
jurisdiction. Upon the Commission's issuance of an order making a
substituted compliance determination with respect to a particular
foreign jurisdiction under proposed Rule 3Ch-2(b), a counterparty to a
security-based swap transaction that is subject to the mandatory trade
execution requirement would be able to rely on the substituted
compliance determination by the Commission to satisfy the mandatory
trade execution requirement by executing such transaction on a
security-based swap market in such foreign jurisdiction, if such
security-based swap market is covered by, or is in a class of markets
that is covered by, the Commission's order.\1163\
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    \1163\ Proposed Rule 3Ch-2(a) under the Exchange Act.
---------------------------------------------------------------------------

    Only transactions that meet the requirements of proposed Rule 3Ch-
2(a), however, would be eligible for substituted compliance with
respect to the mandatory trade execution requirement. Specifically,
with respect to a foreign security-based swap market (or class of
markets) for which the Commission has made a substituted compliance
determination pursuant to proposed Rule 3Ch-2(b)(1), substituted
compliance would only be available for security-based swap transactions
where both of the following conditions apply to at least one
counterparty to the transaction: (i) the counterparty is either a non-
U.S. person or foreign branch of a U.S. bank;\1164\ and (ii) the
security-based swap transaction is not solicited, negotiated, or
executed by a person within the United States on behalf of such
counterparty.
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    \1164\ Under proposed Rule 3Ch-1(c) under the Exchange Act, the
term ``foreign branch'' would have the same meaning as set forth in
proposed Rule 3a71-3(a)(1) under the Exchange Act. See Section
III.B.7, supra.
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    Proposed Rule 3Ch-2(a) is designed to extend the availability of
substituted compliance only to security-based transactions where one
counterparty to the transaction is not acting directly or through an
agent within the United States. The Commission preliminarily believes
that transactions in which both counterparties utilize a U.S. person to
act on their behalf to execute, solicit, or negotiate the transaction
should not be eligible for substituted compliance and that it is
appropriate to apply the mandatory trade execution requirement of
Section 3C(h) of the Exchange Act to these transactions, and not
foreign law. This approach should help mitigate any potential
competitive advantage that non-U.S. intermediaries operating within the
United States may have over U.S. intermediaries when facilitating
security-based swap transactions on behalf of non-U.S. persons. It also
should promote regulatory parity for U.S. and non-U.S. counterparties
when they enter into security-based swap transactions within the United
States. The Commission, however, solicits comments on this approach.

    By contrast, for transactions involving at least one counterparty
that is a foreign branch or a non-U.S. person and for which no person
within the United States is directly involved in executing, soliciting
or negotiating the transaction on behalf of such non-U.S. person or
foreign branch, the Commission preliminarily believes that such
transactions should be eligible for substituted compliance in the
foreign jurisdiction. The Commission believes that limiting eligibility
for substituted compliance to such cross-border security-based swap
transactions would promote the Title VII goals of transparency, access,
competition, and anti-manipulation with respect to transactions that
impact U.S. markets and market participants, and address the regulatory
complexities that stem from the global scope of the security-based
swaps market.
    Under proposed Rule 3Ch-2(b)(2), in making a substituted compliance
determination, the Commission would take into account such factors as
the Commission determines are appropriate, such as the scope and
objectives of the applicable foreign jurisdiction's regulatory
requirements, as well as the effectiveness of the supervisory
compliance program administered, and the enforcement authority
exercised, by the relevant foreign financial regulatory authority or
authorities to support the oversight of such security-based swap market
(or class of markets). Thus, the Commission's determination would take
into account a foreign jurisdiction's overall regulatory framework, and
would focus on the similarity of regulatory objectives in addition to
the presence or absence of similar rules. In addition, in making a
substituted compliance determination with respect to a foreign
jurisdiction, the Commission's determination could be with respect to a
single security-based swap market within such jurisdiction, or a class
of security-based swap markets within the jurisdiction. For instance,
if a foreign jurisdiction imposes different levels of supervisory
oversight with respect to different classes or categories of security-
based swap markets, the Commission could apply a substituted compliance
determination to an entire class of security-based swap markets in the
foreign jurisdiction, enabling each security-based swap market of that
class within such jurisdiction to rely on the substituted compliance
determination.
    Furthermore, under proposed Rule 3Ch-2(b)(3) under the Exchange
Act, before issuing a substituted compliance order pursuant to proposed
Rule 3Ch-2(b)(1) under the Exchange Act, the Commission would be
required to have entered into a supervisory and enforcement MOU or
other arrangement with the relevant foreign financial regulatory
authority or authorities addressing oversight and supervision of the
security-based swap market (or class of markets) under the substituted
compliance determination.
    Under proposed Rule 3Ch-2(b)(4) under the Exchange Act, the
Commission also would be able to modify or withdraw, at any time, an
order containing a substituted compliance determination, after
appropriate notice and opportunity for comment. This would allow the
Commission to take action in the event that a security-based swap
market (or class of markets), for any reason, is no longer suitable for
substituted compliance.
    The Commission notes that the factors the Commission would consider
in making a substituted compliance determination with respect to
mandatory trade execution would not necessarily be the same factors
that the Commission would find relevant to a comparability
determination for purposes of an exemption from registration as a SB
SEF.\1165\ The Commission preliminarily believes that possible factors,
among others, it could consider when assessing the effectiveness of a
foreign jurisdiction's supervisory compliance program may include the
existence of a dedicated examination program; examiners with proper
expertise; the existence of a risk monitoring framework and an
examination plan; and a disciplinary program to enforce compliance with
laws. The Commission, for example, could find the presence or absence
of certain regulatory requirements in a particular foreign jurisdiction
to be more relevant to a determination of whether a security-based swap
market in that foreign jurisdiction should be exempt from registration
as a SB SEF than to a substituted compliance determination with respect
to mandatory trade execution. Accordingly, the Commission preliminarily
believes that allowing substituted compliance with respect to mandatory
trade execution for a foreign security-based swap market (or class of
markets) would not necessarily result in a determination to exempt that
foreign market (or class of markets) from registration as a SB SEF.
However, the Commission generally solicits comments on the
appropriateness or feasibility of this approach.
---------------------------------------------------------------------------

    \1165\ See Section VII.C, supra.
---------------------------------------------------------------------------

    Proposed Rule 3Ch-2(c) under the Exchange Act provides that one or
more security-based swap markets could initiate the process of making a
substituted compliance determination by filing an application, pursuant
to the procedures set forth in proposed Rule 0-13,\1166\ requesting
that the Commission make a substituted compliance determination. Such
application would need to include the reasons therefor and such other
documentation as the Commission may request. To provide the Commission
with enough information to make a substituted compliance determination,
the application would have to include sufficiently comprehensive
information regarding the security-based swap market and the foreign
regime such that the Commission has an adequate basis to make the
substituted compliance determination set forth in proposed Rule 3Ch-
2(b) under the Exchange Act.
---------------------------------------------------------------------------

    \1166\ See Section XI.B, supra.
---------------------------------------------------------------------------

Request for Comment
    The Commission seeks comment on all aspects of proposed Rule 3Ch-2,
including the following:
     The Commission generally solicits comments on the
appropriateness and clarity of the proposed rule. Should additional
details be included as to any aspect of this proposed rule? If so, for
what aspects of the proposed rule would additional details be useful
and why?
     As discussed above, under proposed Rule 3Ch-2(a) under the
Exchange Act, substituted compliance would be permitted only for
security-based swap transactions that have at least one counterparty
that is a non-U.S. person or a foreign branch and the security-based
swap transaction is not solicited, negotiated, or executed by a person
within the United States on behalf of such counterparty. The Commission
generally solicits comments on the appropriateness of permitting
substituted compliance for the transactions described in proposed Rule
3Ch-2(a). Is the Commission's approach to defining the transactions
that qualify for substituted compliance appropriate? If not, why not?
Should some or all of the transactions described by the proposed rule
not be eligible for substituted compliance? Should additional
transactions not covered by the proposed rule be eligible for
substituted compliance? In either case, please describe the
transactions that should be eligible or ineligible for substituted
compliance and provide the rationale for each.
     Does the proposed substituted compliance rule
appropriately promote

the statutory objectives of the mandatory trade execution requirement,
as well as the goal of international coordination? If not, how could
this be better achieved? Would the objectives of Title VII be hindered
by permitting persons to seek substituted compliance for the eligible
transactions? If so, how?
     What is the likelihood that cross-border transactions
would be subject to the mandatory trade execution requirements of
foreign jurisdictions that conflict with the mandatory trade execution
requirement of Section 3C(h) of the Exchange Act? For such
transactions, would the complications stemming from such conflicting
mandatory trade execution requirements be adequately addressed by
permitting substituted compliance for the transactions described in the
proposed rule? If not, why not? Please describe the complications, if
any, that might still ensue even with substituted compliance. Would any
conflicts likely arise for security-based swaps transactions not
covered by the proposed substituted compliance rule? If so, please
describe those conflicts and how they would arise.
     Under proposed Rule 3Ch-2(b)(1), under the Exchange Act,
the Commission may permit substituted compliance with respect to the
mandatory trade execution requirement if a security-based swap market
(or class of markets) is subject to comparable, comprehensive
supervision and regulation by the relevant foreign financial regulatory
authority or authorities. Is this comparability standard appropriate
and sufficiently clear? Should additional detail be provided as to what
would and would not satisfy this standard? If so, what additional
detail should be provided? Should a different standard be used? If so,
what should be the standard and why?
     In making a substituted compliance determination, under
proposed Rule 3Ch-2(b)(2) under the Exchange Act, the Commission would
consider such factors it determines are appropriate, such as the
factors enumerated in proposed Rule 3Ch-2(b)(2) under the Exchange Act.
Are these factors appropriate to such a determination? Are the
enumerated factors too broad? Too narrow? Please explain. Should
certain of these factors not be considered or should certain additional
factors be enumerated in the proposed rule?
     As discussed above, in making a substituted compliance
determination, the Commission would focus on the similarity of
regulatory objectives in addition to the presence or absence of similar
rules. Is this holistic approach to making a substituted compliance
determination appropriate? Why or why not? If not, what approach should
the Commission take and why?
     As discussed above, the Commission preliminarily believes
that the factors relevant to the Commission's substituted compliance
determination for mandatory trade execution purposes would not
necessarily be the same as the factors that the Commission would find
relevant to a comparability determination for purposes of an exemption
from registration as a security-based swap execution facility. The
Commission generally solicits comments on the appropriateness of
distinguishing the two determinations. Should the Commission consider
the same factors in making a substituted compliance determination for
mandatory trade execution and a comparability determination with
respect to an exemption from registration as a security-based swap
execution facility? If not, what factors would be relevant and
appropriate to both determinations? Please describe. What factors would
only be relevant or appropriate to a substituted compliance
determination for mandatory trade execution or a comparability
determination for an exemption from registration as a security-based
swap execution facility, respectively? Please describe.
     Under proposed Rule 3Ch-2(c) under the Exchange Act, one
or more security-based swap markets may file an application with the
Commission to request that the Commission make a substituted compliance
determination with respect to the mandatory trade execution
requirement. Should persons other than security-based swap markets be
permitted to file such substituted compliance applications? Why or why
not? If so, what other types of persons should be permitted to file
such applications? Please explain.
     What would be the market impact of proposed Rule 3Ch-2?
How would the application of the proposed rule affect the
competitiveness of U.S. entities in the global marketplace (both in the
United States as well as in foreign jurisdictions)? Would the proposed
rule place any market participants at a competitive disadvantage or
advantage? If so, please explain. Would the proposed rule be a more
general burden on competition? If so, please explain. What other
measures should the Commission consider to implement the proposed
approach? What would be the market impacts and competitiveness effects
of alternatives to the proposed approach discussed in this release?

Antifraud Authority

    The provisions of the proposed rules and interpretive guidance,
discussed above, relate solely to the applicability of the registration
and mandatory reporting, clearing, and trade execution requirements
under Title VII. The proposed rules and interpretive guidance do not
limit the cross-border reach of the antifraud or other provisions of
the federal securities laws to these entities.
    In Section 929P(b) of the Dodd-Frank Act, Congress added provisions
to the federal securities laws confirming the Commission's broad cross-
border antifraud authority. Congress enacted Section 929P(b) in
response to the Supreme Court's decision in Morrison v. National
Australia Bank,\1167\ which created uncertainty about the Commission's
cross-border enforcement authority under the antifraud provisions of
the federal securities laws. Prior to Morrison, the federal courts of
appeals for nearly four decades had construed the antifraud provisions
to reach cross-border securities frauds when the fraud either involved
significant conduct within the United States causing injury to overseas
investors, or had substantial foreseeable effects on investors or
markets within the United States.\1168\ With respect to the
Commission's enforcement authority, Section 929P(b) codified the court
of appeals' prior interpretation both as to the scope of the antifraud
provisions' cross-border reach and the nature of the inquiry as one of
subject-matter jurisdiction.\1169\
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    \1167\ See 130 S. Ct. 2869, 2888 (2010) (holding in a Section
10(b) class action that ``it is . . . only transactions in
securities listed on domestic exchanges, and domestic transactions
in other securities, to which Sec.  10(b) applies'').
    \1168\ See, e.g., Schoenbaum v. Firstbrook, 405 F.2d 200, 206
(2d Cir. 1968), modified on other grounds, 405 F.2d 215 (1968) (en
banc).
    \1169\ See 156 Cong. Rec. H5237 (daily ed. June 30, 2010)
(statement of Rep. Kanjorski, author of Section 929P(b)) (``In the
case of Morrison v. National Australia Bank, the Supreme Court last
week held that section 10(b) of the Exchange Act applies only to
transactions in securities listed on United States exchanges and
transactions in other securities that occur in the United States. In
this case, the Court also said that it was applying a presumption
against extraterritoriality. This bill's provisions concerning
extraterritoriality, however, are intended to rebut that presumption
by clearly indicating that Congress intends extraterritorial
application in cases brought by the SEC or the Justice Department.
Thus, the purpose of the language of section 929P(b) of the bill is
to make clear that in actions and proceedings brought by the SEC or
the Justice Department, the specified provisions of the Securities
Act, the Exchange Act and the Investment Advisers Act may have
extraterritorial application, and that extraterritorial application
is appropriate, irrespective of whether the securities are traded on
a domestic exchange or the transactions occur in the United States,
when the conduct within the United States is significant or when
conduct outside the United States has a foreseeable substantial
effect within the United States.''). See also 156 Cong. Rec. S5915-
16 (daily ed. July 15, 2010) (statement of Senator Reed).

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

    Specifically, the Commission's antifraud enforcement authority
under Section 17(a) of the Securities Act and the antifraud provisions
of the Exchange Act--including Sections 9(j) and 10(b)--extends to
``(1) conduct within the United States that constitutes significant
steps in furtherance of [the antifraud violation], even if the
securities transaction occurs outside the United States and involves
only foreign investors,'' and ``(2) conduct occurring outside the
United States that has a foreseeable substantial effect within the
United States.'' \1170\ Similarly, the Commission's enforcement
authority under Section 206 of the Investment Advisers Act applies
broadly to reach ``(1) conduct within the United States that
constitutes significant steps in furtherance of the violation, even if
the violation is committed by a foreign adviser and involves only
foreign investors,'' and ``(2) conduct occurring outside the United
States that has a foreseeable substantial effect within the United
States.'' \1171\
---------------------------------------------------------------------------

    \1170\ Section 22 of the Securities Act, 15 U.S.C. 77v(a);
Section 27 of the Exchange Act, 15 U.S.C. 78aa.
    \1171\ Section 214 of the Investment Advisers Act, 15 U.S.C.
80b-14.
---------------------------------------------------------------------------

    The Commission's broad antifraud enforcement authority reflects the
strong interest of the United States in applying the antifraud
provisions to cross-border frauds that implicate U.S. territory, U.S.
markets, U.S. investors or other U.S. market participants, or other
U.S. interests.\1172\ Doing so is necessary to ensure honest securities
markets and high ethical standards in the U.S. securities industry, and
thereby to promote confidence in our securities markets among both
domestic and foreign investors. Cross-border application of the
antifraud provisions is also critical for the protection of U.S.
investors from securities frauds executed outside of the United States,
but that threaten to produce, foreseeably do produce, or were otherwise
intended to produce effects upon U.S. markets, U.S. investors or other
U.S. market participants, or other U.S. interests.
---------------------------------------------------------------------------

    \1172\ See generally Restatement (Third) of Foreign Relations
Law of the United States section 402 (1987), stating that ``the
United States has authority to prescribe law with respect to . . .
conduct that, wholly or in substantial part, takes place within its
territory; the status of persons, or interests in things, present
within its territory'' and ``conduct outside its territory that has
or is intended to have substantial effect within its territory'').
---------------------------------------------------------------------------

XIII. General Request for Comment

A. General Comments

    In responding to the specific requests for comment above,
interested persons are encouraged to provide supporting data and
analysis and, when appropriate, suggest modifications to proposed rule
text. Responses that are supported by data and analysis provide great
assistance to the Commission in considering the practicality and
effectiveness of proposed new requirements as well as assessing the
benefits and costs of proposed requirements. In addition, commenters
are encouraged to identify in their responses a specific request for
comment by indicating the section number of the release.
    The Commission also seeks comment on the proposals as a whole. In
particular, the Commission seeks comment on the following questions:
     How would the proposals integrate with provisions in other
Titles and Subtitles of the Dodd-Frank Act and any domestic or global
regulations or proposed regulations under those other Titles and
Subtitles of the Dodd-Frank Act? For example, the Commission invites
comment on how certain aspects of the proposals, such as registration
and regulation of foreign security-based swap dealers and major
security-based swap participants, and application of the transaction-
level requirements, would integrate with regulation of systemically
important financial institutions in Title I of the Dodd-Frank Act,
regulation of registered broker-dealers and investment advisers,
regulation of bank holding companies in the Bank Holding Company Act,
and regulation of global systemically important financial institutions
in other jurisdictions.
     For what aspects of the proposal should the Commission
consider invoking our authority under Section 30(c) of the Exchange Act
to prevent evasion? Please explain.

B. Consistency with CFTC's Cross-Border Approach

    The CFTC has proposed interpretative guidance and a policy
statement describing the cross-border application of certain swaps
provisions of the CEA that were enacted by Title VII, and the CFTC's
regulations promulgated thereunder.\1173\ Specifically, the proposal
addresses the registration requirement for swap dealers and major swap
participants that are not U.S. persons, the application of Title VII
requirements appurtenant to such registered entities, and the
application of the clearing, trade execution, and certain reporting
provisions under the CEA to cross-border swap transactions involving
counterparties that are not swap dealers or major swap participants.
---------------------------------------------------------------------------

    \1173\ The CFTC's guidance interprets Section 2(i) of the
Commodity Exchange Act (``CEA''), as revised by Section 722(d) of
the Dodd-Frank Act. Section 2(i) provides that Title VII's
provisions relating to swaps, ``(including any rule prescribed or
regulation promulgated under that Act), shall not apply to
activities outside the United States unless those activities--(1)
have a direct and significant connection with activities in, or
effect on, commerce of the United States; or (2) contravene such
rules or regulations as the Commission may prescribe or promulgate
as are necessary or appropriate to prevent the evasion of any
provision of this Act that was enacted by the [Dodd-Frank Act].''
---------------------------------------------------------------------------

    Understanding that the Commission and the CFTC regulate different
products, participants, and markets, and have different statutory
authority, and thus, appropriately may take different approaches to
various issues, we nevertheless are guided by the objective of
establishing consistent and comparable requirements to U.S. market
participants. Accordingly, we request comments generally on (i) the
impact of any differences between the Commission and CFTC approaches to
the application of Title VII to cross-border activities, including the
application of registration requirements and the substantive
requirements of Title VII, (ii) whether the Commission's proposed
application of Title VII in the cross-border context should be modified
to conform to the proposals made by the CFTC, and (iii) whether any
cross-border interpretations proposed by the CFTC, but not proposed by
the Commission (whether as interpretations or rules), should be adopted
by the Commission.

XIV. Paperwork Reduction Act

A. Introduction

    The Paperwork Reduction Act of 1995 (``PRA'') \1174\ imposes
certain requirements on Federal agencies in connection with their
conducting or sponsoring any ``collection of information.'' \1175\ 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 control number. In addition, 44 U.S.C. 3507(a)(1)(D) provides
that before adopting (or revising) a collection of information
requirement, an agency must, among other things, publish a notice in
the Federal Register stating that the agency has submitted the proposed
collection

of information to the Office of Management and Budget (``OMB'') and
setting forth certain required information, including: (1) A title for
the collection of information; (2) a summary of the collection of
information; (3) a brief description of the need for the information
and the proposed use of the information; (4) a description of the
likely respondents and proposed frequency of response to the collection
of information; (5) an estimate of the paperwork burden that shall
result from the collection of information; and (6) notice that comments
may be submitted to the agency and director of OMB.\1176\
---------------------------------------------------------------------------

    \1174\ 44 U.S.C. 3501 et seq.
    \1175\ 44 U.S.C. 3502(3).
    \1176\ 44 U.S.C. 3507(a)(1)(D) (internal formatting omitted);
see also 5 CFR 1320.5(a)(1)(iv).
---------------------------------------------------------------------------

    Certain provisions of proposed Rule 3a71-3, proposed Rule 3a71-5,
proposed Rule 3Ch-2, re-proposed Forms SBSE, SBSE-A, and SBSE-BD,
proposed Rule 18a-4, and re-proposed Rules 242.900 through 242.911 of
Regulation SBSR contain ``collection of information requirements''
within the meaning of the PRA. Accordingly, the Commission is
submitting these requirements to OMB for review in accordance with 44
U.S.C. 3507 and 5 CFR 1320.11. The title of these collections are
[``Registration Rules for Security-Based Swap Entities,'' ``Disclosures
by Certain Foreign Security-Based Swap Dealers and Major Security-Based
Swap Participants,'' ``Reliance on Counterparty Representations
Regarding Activity Within the United States,'' ``Requests for Cross-
Border Substituted Compliance Determinations,'' and ``Reporting and
Dissemination of Security-Based Swap Information.''] We are applying
for OMB Control Numbers for the collections listed above in accordance
with 44 U.S.C. 3507(j) and 5 CFR 1320.13.

B. Re-proposal of Form SBSE, Form SBSE-A, and Form SBSE-BD

1. Summary of Collection of Information
    On October 24, 2011, the Commission proposed Rules 15Fb1-1 through
15Fb6-1 and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C, and SBSE-W to
facilitate registration of, certification by, and withdrawal of SBS
Entities, as required by Section 15F of the Exchange Act.\1177\ In
light of the Commission's proposed rules regarding substituted
compliance, the Commission is re-proposing Forms SBSE, SBSE-A, and
SBSE-BD to add three questions to Form SBSE and Form SBSE-A, one
question to Form SBSE-BD, and to amend Schedule F to those Forms as
described in more detail below.\1178\ The Commission is not proposing
to amend any of the other Forms, or any of the rules, proposed in the
Registration Proposing Release. The burden estimates described below
are designed to update our burden estimates for proposed Forms SBSE and
SBSE-A to account for the revisions we are proposing to those two re-
proposed forms. For information regarding the other burdens associated
with proposed Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A,
SBSE-BD, SBSE-C, and SBSE-W, please refer to the Registration Proposing
Release.\1179\
---------------------------------------------------------------------------

    \1177\ See Registration Proposing Release, 76 FR 65784.
    \1178\ See Proposed Rule 3a71-5(c) under the Exchange Act; see
also Section III.C, supra. The Commission is not proposing any
changes to Form SBSE-BD, Form SBSE-C, or Form SBSE-W.
    \1179\ See Registration Proposing Release, 76 FR 65807.
---------------------------------------------------------------------------

    Pursuant to paragraph (a) of proposed Rule 15Fb2-1, each SBS Entity
would be required to file an application to register with the
Commission.\1180\ The Commission sought to reduce burdens and costs
associated with the application process by providing alternate
registration forms for certain types of SBS Entities (including Forms
SBSE-A and SBSE-BD). Each SBS Entity would only need to research,
complete, and file one of the proposed Forms.
---------------------------------------------------------------------------

    \1180\ Id. at 65820-21.
---------------------------------------------------------------------------

    Proposed Rule 15Fb2-3 would require that SBS Entities promptly
amend their applications if they find that the information contained
therein has become inaccurate.\1181\ While SBS Entities may need to
update their Forms periodically, each firm would only need to amend
that aspect of the Form that has become inaccurate.
---------------------------------------------------------------------------

    \1181\ Id. at 65822.
---------------------------------------------------------------------------

    Proposed Rules 15Fb1-1 through 15Fb6-1 and re-proposed Forms SBSE,
SBSE-A, and SBSE-BD would require that each respondent retain certain
records and information for three years.\1182\
---------------------------------------------------------------------------

    \1182\ See id. at 65821.
---------------------------------------------------------------------------

2. Proposed Use of Information
    Re-proposed Forms SBSE, SBSE-A, and SBSE-BD, as applicable, are
applications through which SBS Entities would register with the
Commission. Information collected through these re-proposed Forms SBSE,
SBSE-A, and SBSE-BD would allow the Commission to determine whether
applicants meet the standards for registration, including provisions
regarding substituted compliance, and would help the Commission to
fulfill our oversight responsibilities.
    The Commission intends to make the information collected pursuant
to proposed Rule 15Fb1-1 through 15Fb6- 1 and re-proposed Forms SBSE,
SBSE-A, and SBSE-BD public.
    Any collections of information required pursuant to proposed Rules
15Fb1-1 through 15Fb6-1 and re-proposed Forms SBSE, SBSE-A, and SBSE-BD
would be mandatory to permit the Commission to determine whether
applicants meet the standards for registration, and to fulfill our
oversight responsibilities.
3. Respondents
    In the Intermediary Definitions Adopting Release and Registration
Proposing Release the Commission staff estimated, based on data
obtained from DTCC and conversations with market participants, that
approximately 50 entities would fit within the definition of a
security-based swap dealer.\1183\ The Commission staff also estimated
in the Registration Proposing Release that up to five entities fit
within the definition of major security-based swap participant.\1184\
The Commission sought comment on the reasonableness and accuracy of our
estimates, but received no comments regarding these estimates.
---------------------------------------------------------------------------

    \1183\ See Intermediary Definitions Adopting Release, 77 FR
30725; Registration Proposing Release, 76 FR 65808; see also Trade
Acknowledgment Proposing Release, 76 FR 3868; External Business
Conduct Standards Proposing Release, 76 FR 46668.
    \1184\ See Registration Proposing Release, 76 FR 65821; see also
Intermediary Definitions Proposing Release, 75 FR 80209 n.188; Trade
Acknowledgment Proposing Release, 76 FR 3868; External Business
Conduct Standards Proposing Release, 76 FR 46668.
---------------------------------------------------------------------------

    Of the 55 entities likely to be either security-based swap dealers
or major security-based swap participants, the Commission staff
estimates that 18 entities will be registered foreign security-based
swap dealers, as defined in proposed Rule 3a71-3(a)(3) or foreign major
security-based swap participants, as defined in proposed Rule 3a67-
10(a)(1) (collectively, ``Nonresident SBS Entities'').\1185\ The
Commission staff expects that most registered Nonresident SBS Entities
will be based in one of a small number of non-U.S. jurisdictions;
however, the Commission understands that approximately 19 jurisdictions
are in the process of developing regulations and/or infrastructure for
swaps, security-based

swaps, and other OTC derivatives.\1186\ In addition, the Commission
anticipates that a small number of security-based swap market
participants could be based in other jurisdictions. As a result, the
Commission staff estimate that cross-border issues may arise in
connection with security-based swap market participants and
transactions in and between up to 30 discrete jurisdictions.\1187\
---------------------------------------------------------------------------

    \1185\ While the Commission estimated in the Registration
Proposing Release that 22 non-resident entities would likely
register with the Commission as SBS Entities (see Registration
Proposing Release, 76 FR 65807-12), our estimates have changed based
on the staff's further analysis of the cross-border issues and
likely respondents.
    \1186\ See FSB Progress Report April 2013. These 19
jurisdictions are: Argentina, Australia, Brazil, Canada, China, the
European Union, Hong Kong, India, Indonesia, Japan, Mexico, the
Republic of Korea, Russia, Saudi Arabia, Singapore, South Africa,
Switzerland, Turkey, and the United States. See also notes 35 and
36, supra.
    \1187\ The European Union is regulating OTC derivatives
reporting, clearing, and bilateral risk management on a pan-European
basis. Accordingly, the Commission may treat the European Union as a
single jurisdiction for purposes of certain cross-border issues.
However, the Commission notes that there may be variation between
individual European countries even within this consolidated approach
(e.g., privacy laws or supervisory oversight or enforcement may
differ in various European countries).
---------------------------------------------------------------------------

    In the Registration Proposing Release, Commission staff further
estimated, based on its experience and understanding of the swap and
security-based swap markets that of the firms that may register as SBS
Entities, approximately 35 also will register with the CFTC as swap
dealers or major swap participants, approximately 16 would also be
registered with the Commission as broker-dealers, and approximately 4
firms not otherwise registered with the CFTC or the Commission will
seek to become an SBS Entity.\1188\ The Commission sought comment on
the reasonableness and accuracy of our estimates, but has received no
comments regarding these estimates to date.
---------------------------------------------------------------------------

    \1188\ See External Business Conduct Standards Proposing
Release, 76 FR 46668.
---------------------------------------------------------------------------

    The Commission again seeks comment on the reasonableness and
accuracy of our estimates as to the number of participants in the
security-based swap market that will be required to register with the
Commission through the use of re-proposed Forms SBSE, SBSE-A, and SBSE-
BD, including the number of registered foreign security-based swap
dealers. The Commission also seeks comment on our estimate of the
number of jurisdictions with security-based swap participants or
infrastructure that may transact with or be used by U.S.-regulated
entities.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
(a) Paperwork Burden Associated With Filing Application Forms
    As indicated in the Registration Proposing Release, proposed Rule
15Fb2-1 would require that each SBS Entity register with the Commission
by filing an application on Form SBSE, Form SBSE-A, or Form SBSE-BD, as
appropriate. Each SBS Entity would only need to research, complete, and
file one form.\1189\ The Commission is not proposing to amend this
rule, but is re-proposing the Forms that would be filed to facilitate
registration. The modifications to re-proposed Forms SBSE, SBSE-A, and
SBSE-BD would add two questions to Form SBSE and Form SBSE-A, add one
question to all three Forms, and would modify Schedule F to all the
Forms.
---------------------------------------------------------------------------

    \1189\ Id. at 65820-21.
---------------------------------------------------------------------------

    The Commission staff does not believe that the addition of these
questions will significantly increase the burdens associated with the
filing of these forms. In the Registration Proposing Release, the
Commission staff estimated that approximately four firms would need to
register using proposed Form SBSE and that the total paperwork burden
associated with filing each proposed Form SBSE (including the Schedules
\1190\ and disclosure reporting pages (``DRPs'')) would be
approximately 40 hours for each firm that would use this Form.\1191\
The Commission staff acknowledged that it is likely that the time
necessary to complete these forms would vary depending on the nature
and complexity of an entity's business.\1192\ The Commission staff
believes, based on its experience with Form BD, that the addition of
three new questions to Form SBSE included in the re-proposed Form SBSE
could increase the amount of time it would take for an SBS Entity to
complete this form by about two hours. Thus, the Commission staff
estimates that it would take all 4 SBS Entities who may use Form SBSE
to register with the Commission a total of approximately 168 hours to
register using re-proposed Form SBSE.\1193\ As each SBS Entity would
only be required to file 1 complete form once, this would be a one-time
burden associated with registration \1194\ (the burden associated with
amendments to the form are discussed below).
---------------------------------------------------------------------------

    \1190\ Except Schedule G (which we are not proposing to amend)
and Schedule F (which is dealt with separately below).
    \1191\ Registration Proposing Release, 76 FR 65808.
    \1192\ Id.
    \1193\ 42 hours * 4 firms = 168 hours.
    \1194\ While it is possible that another firm may choose to
register as an SBS Entity at some future time, we presently estimate
for purposes of this PRA that no additional firms will register in
the next three years. This is because the Dodd-Frank Act imposed
regulation on an existing industry and we expect those industry
participants presently engaged in this business to either register
when the rules become effective or decide to withdraw from this
business. In addition, the costs to start-up an SBS Entity will
likely be high, which may discourage new entrants. Finally, as the
Commission has not yet promulgated rules to register or regulate
these entities and we have no experience with the registration
trends of SBS Entities over time, any estimate regarding the number
of possible new entrants over time would be speculative.
---------------------------------------------------------------------------

    As proposed, Form SBSE-A contains fewer questions than the proposed
Form SBSE and is available only to firms that are (or will be) familiar
with the registration process because they are registered (or will be
registering) with the CFTC as a swap dealer or major swap participant.
As a result, the Commission staff estimated in the Registration
Proposing Release that it would take SBS Entities filing proposed Form
SBSE-A approximately 80% of the time that it would take for an
unregistered entity to research, complete, and file proposed Form SBSE
(including the Schedules and DRPs).\1195\ Accordingly, the Commission
staff estimated that the total paperwork burden associated with filing
each proposed Form SBSE-A across 35 firms would be approximately 32
hours for each firm who would use this Form.\1196\ The Commission staff
believes, based on its experience with Form BD, that the addition of 3
new questions to Form SBSE-A included in the re-proposed Form SBSE-A
could increase the amount of time it would take for an SBS Entity to
complete this form by about two hours. Thus, the Commission staff
estimates that it would take all 35 SBS Entities who may use Form SBSE-
A to register with the Commission a total of approximately 1,190 hours
to register using re-proposed Form SBSE-A.\1197\ As each SBS Entity
would only be required to file 1 complete form once, this would be a
one-time burden associated with registration \1198\ (the burden
associated with amendments to the form are discussed below).
---------------------------------------------------------------------------

    \1195\ Registration Proposing Release, 76 FR 65808. This
estimate assumes that an entity that is familiar with an analogous
registration process would require approximately 20% less time to
complete Form SBSE-A compared to an unregistered entity completing
Form SBSE.
    \1196\ Id.
    \1197\ 34 hours * 35 firms = 1,190 hours.
    \1198\ See note 1194, supra.
---------------------------------------------------------------------------

    As proposed, Form SBSE-BD contains fewer questions than both the
proposed Form SBSE and Form SBSE-A and is available only to firms that
are (or will

be) familiar with the registration process because they are registered
(or will be registering) with the Commission as a broker-dealer. As a
result, the Commission staff estimated in the Registration Proposing
Release that it would take SBS Entities filing proposed Form SBSE-BD
approximately 25% of the time that it would take for an unregistered
entity to research, complete, and file proposed Form SBSE (including
the Schedules and DRPs).\1199\ Accordingly, the Commission staff
estimated that the total paperwork burden associated with filing each
proposed Form SBSE-BD across sixteen firms would be approximately ten
hours for each firm that would use this Form.\1200\ The Commission
staff believes, based on its experience with Form BD, that the addition
of one new question to Form SBSE-BD included in the re-proposed Form
SBSE-BD could increase the amount of time it would take for an SBS
Entity to complete this form by about one half hour. Thus, the
Commission staff estimates that it would take all sixteen SBS Entities
that may use Form SBSE-BD to register with the Commission a total of
approximately 168 hours to register using re-proposed Form SBSE-
BD.\1201\ As each SBS Entity would only be required to file one
complete form once, this would be a one-time burden associated with
registration\1202\ (the burden associated with amendments to the form
are discussed below).
---------------------------------------------------------------------------

    \1199\ Registration Proposing Release, 76 FR 65808.
    \1200\ Id.
    \1201\ 10\1/2\; hours * 16 firms = 168 hours.
    \1202\ See note 1194, supra.
---------------------------------------------------------------------------

(b) Paperwork Burden Associated With Amending Schedule F
    As indicated in the Registration Proposing Release, proposed Rule
15Fb2-4 would require that each nonresident SBS Entity file an
additional schedule (Schedule F) with its Form SBSE, Form SBSE-A, or
Form SBSE-BD, as appropriate, to identify its U.S. agent for service of
process and to certify that the firm can, as a matter of law, provide
the Commission with access to its books and records and can, as a
matter of law, submit to onsite inspection and examination by the
Commission.\1203\ The Commission is not proposing to amend this rule,
but is re-proposing Schedule F. The modifications to re-proposed
Schedule F would divide Schedule F into two sections. Section I would
include the full text of the originally proposed Schedule F. Section II
would elicit additional information regarding foreign regulators with
which the applicant may be registered or that otherwise have
jurisdiction over the applicant.
---------------------------------------------------------------------------

    \1203\ Registration Proposing Release, 76 FR 65822.
---------------------------------------------------------------------------

    The Commission staff does not believe that the addition of this new
Section would significantly increase the burdens associated with the
filing of Schedule F because information regarding the foreign
regulators with jurisdiction over the entity should be known and
readily available. In the Registration Proposing Release, the
Commission staff estimated, based on its experience relative to the
securities industry and Form BD, that the average time necessary for
each Nonresident SBS Entity to complete and file Schedule F would be
approximately one hour.\1204\ The Commission staff believes, based on
its experience with Form BD, that adding the new section to Schedule F
could increase the amount of time it would take for an SBS Entity to
complete this form by about one-half hour. Thus, the Commission staff
estimates that it would take all 18 Non-resident SBS Entities who may
use Schedule F to register with the Commission a total of approximately
27 hours complete Schedule F.\1205\ As each SBS Entity would only be
required to file Schedule F once, this would be a one-time burden
associated with registration\1206\ (the burden associated with
amendments to the form--including the schedules--are discussed below).
---------------------------------------------------------------------------

    \1204\ Id. at 65811.
    \1205\ 1\1/2\; hours * 18 Non-resident SBS Entities = 27 hours.
    \1206\ See note 1194, supra.
---------------------------------------------------------------------------

(c) Paperwork Burden Associated With Amending Application Forms
    As discussed in the Registration Proposing Release, proposed Rule
15Fb2-3 would require that SBS Entities amend their applications if
they find that information contained in a prior filing has become
inaccurate.\1207\ The Commission is not proposing to amend this rule;
however, the addition of three questions to proposed Forms SBSE and
SBSE-A, the addition of one question to Form SBSE-BD, and the revisions
to Schedule F would provide additional information that could change
over time and require amendment of these Forms. As indicated in the
Registration Proposing Release, the staff does not expect that the
requirement to amend these Forms would impose a significant burden
because each SBS Entity would have already completed proposed Forms
SBSE, SBSE-A, or SBSE-BD, as applicable, and would only need to amend
those aspects of the Forms that may become inaccurate. In the
Registration Proposing Release, the staff estimated, based on the
number of amendments the Commission receives annually on Form BD, that
each SBS Entity would file approximately three amendments
annually.\1208\ The staff also estimated in the Registration Proposing
Release that, although the time necessary to file an amendment to
proposed Forms SBSE, SBSE-A, or SBSE-BD, as applicable, would vary
depending on the nature and complexity of the amendment, the Commission
staff estimates the average total annual burden associated with
amending proposed Forms SBSE, SBSE-A, and SBSE-BD would be
approximately one hour for each amendment.\1209\ The staff does not
believe the addition of 3 questions included in each of re-proposed
Forms SBSE and SBSE-A, the addition of one new question to re-proposed
Form SBSE-BD, and the revision of Schedule F would increase either the
number of amendments each firm may be required to file or the amount of
time it would take for a firm to file an amendment.\1210\ Thus we
continue to believe the annual burden for associated with Rule 15Fb2-3
would be approximately 165 hours.\1211\
---------------------------------------------------------------------------

    \1207\ Registration Proposing Release, 76 FR 65809.
    \1208\ Id.
    \1209\ Id.
    \1210\ The estimated number of amendments filed by each SBS
Entity in the Registration Proposing Release was based on the number
of amendments to Form BD filed annually by broker-dealers. See
Registration Proposing Release, 76 FR 65809. We did not base our
estimate on a comparison of the number or content of the questions,
because we have no data upon which to base that type of estimate and
we believe it would be too speculative.
    \1211\ 1 hour * 3 amendments per year * 55 SBS Entities = 165
hours.
---------------------------------------------------------------------------

    As indicated in the Registration Proposing Release, the collection
of information relating to Forms SBSE, SBSE-A, SBSE-BD and Schedule F
would be mandatory, and the Commission intends to make the information
provided through these forms and Schedule F public.
5. Request for Comment on Paperwork Burden Estimates
    The Commission seeks comment on the paperwork burdens associated
with proposed Rules 15Fb1-1 through 15Fb6-1 and re-proposed Forms SBSE,
SBSE-A, and SBSE-BD, as applicable.
     What burdens, if any, would respondents incur with respect
to system design, programming, expanding systems capacity, and
establishing compliance programs to comply with re-proposed Forms SBSE,
SBSE-A, and SBSE-BD, as applicable?

     Is it likely that SBS Entities would complete re-proposed
Forms SBSE, SBSE-A, and SBSE-BD, as applicable, themselves or is it
more likely that they would obtain assistance in completing these forms
from some outside entity (e.g., outside counsel)? If an SBS Entity
obtains assistance in completing the forms from an outside entity, what
type of entity may be utilized and what may the relative costs to
employ such an entity for this purpose be?
     The Commission estimates that no new SBS Entities will
register after year 1 because the security-based swap market is already
well-developed and because of potentially significant barriers to entry
for prospective market participants. Is this estimate accurate? If not,
how many SBS Entities will register after year 1?
     Would there be different or additional paperwork burdens
associated with the collection of information under re-proposed Forms
SBSE, SBSE-A, and SBSE-BD, as applicable, that a respondent does not
currently undertake in the ordinary course of business that the
Commission has failed to identify? If so, please both describe and
quantify any additional burden(s).

C. Disclosures by Certain Foreign Security-Based Swap Dealers and Major
Security-Based Swap Participants

1. Summary of Collection of Information
    A registered foreign security-based swap dealer must disclose to
any counterparty that is a U.S. person, prior to accepting any assets
from, for, or on behalf of such counterparty to margin, guarantee, or
secure a security-based swap, the potential treatment of any assets
segregated by the registered foreign security-based swap dealer
pursuant to Exchange Act Section 3E in an insolvency proceeding under
U.S. bankruptcy law and any applicable foreign insolvency laws.\1212\
---------------------------------------------------------------------------

    \1212\ Proposed Rule 18a-4(e)(3) under the Exchange Act.
---------------------------------------------------------------------------

2. Proposed Use of Information
    The required disclosures would give U.S. counterparties important
information regarding the treatment of their collateral and the role of
U.S. and foreign law in any insolvency proceedings. The Commission
preliminarily believes that this information would promote transparency
and help counterparties in fully assessing the risks associated with
their transactions. Moreover, without these disclosures, the Commission
preliminarily believes that there is a risk that some U.S.
counterparties could assume, incorrectly, that any security-based swap
transaction with a registered foreign security-based swap dealer or
major security-based swap participant is automatically and fully
subject to Title VII and other potentially applicable U.S. laws (e.g.,
U.S. bankruptcy law). These disclosures would make such confusion less
likely and, as a result, help to ensure that U.S. counterparties
conduct appropriate due diligence when transacting with foreign
security-based swap dealers.
    The disclosures required pursuant to proposed Rule 18a-4(e) under
the Exchange Act would be mandatory for all registered foreign
security-based swap dealers that enter into security-based swaps with
counterparties that are not U.S. persons.
    Registered foreign security-based swap dealers are required to
disclose information pursuant to proposed Rule 18a-4(e) to their U.S.
counterparties. Therefore, the Commission would not typically receive
confidential information as a result of this collection of information.
However, to the extent that the Commission receives confidential
information pursuant to proposed Rule 18a-4(e) through our examination
and oversight program, an investigation, or some other means, such
information would be kept confidential, subject to the provisions of
applicable law.\1213\
---------------------------------------------------------------------------

    \1213\ See, e.g., 5 U.S.C. 552 (Exemption 4 of the Freedom of
Information Act provides an exemption for ``trade secrets and
commercial or financial information obtained from a person and
privileged or confidential.'' 5 U.S.C. 552(b)(4). Exemption 8 of the
Freedom of Information Act provides an exemption for matters that
are ``contained in or related to examination, operating, or
condition reports prepare by, or on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions.'' 5 U.S.C. 552(b)(8)).
---------------------------------------------------------------------------

3. Respondents
    As discussed in Section B.3 above, the Commission staff estimates
that there will be 18 Nonresident SBS Entities and that most of these
firms will be based in one of a small number of non-U.S.
jurisdictions.\1214\ In addition, the Commission staff anticipates that
a small number of security-based swap market participants could be
based in other jurisdictions.\1215\ As a result, the Commission staff
estimates that cross-border issues may arise in connection with
security-based swap market participants and transactions in and between
up to 30 discrete jurisdictions.\1216\
---------------------------------------------------------------------------

    \1214\ See Section XIV.B.3, supra.
    \1215\ Id.
    \1216\ Id.
---------------------------------------------------------------------------

4. Total Initial and Annual Reporting Burdens
    The estimates in this section reflect the Commission's experience
with burden estimates for similar disclosure requirements and our
staff's discussions with market participants.\1217\ Pursuant to
proposed Rule18a-4(e)(3), registered foreign security-based swap
dealers would be required to provide disclosures to their U.S.
counterparties. The Commission believes that, in most cases, these
disclosures would be made through amendments to the registered foreign
security-based swap dealer's existing trading documentation. Because
these disclosures relate to new regulatory requirements, the Commission
anticipates that all registered foreign security-based swap dealers
would need to incorporate new language into their existing trading
documentation with U.S. counterparties. Disclosure of the potential
treatment of segregated assets in insolvency proceedings under U.S.
bankruptcy law and foreign insolvency laws pursuant to proposed Rule
18a-4(e)(3) would likely vary depending on the counterparty's
jurisdiction. Accordingly, the Commission expects that these
disclosures often may need to be tailored to address the particular
circumstances of each trading relationship. However, in some cases,
trade associations or industry working groups may be able to develop
standard disclosure forms that can be adopted by foreign security-based
swap dealers with little or no modification. In either case, the
paperwork burden associated with developing new disclosure language and
incorporating this language into a registered foreign security-based
swap dealer's trading documentation will vary depending on: (1) the
number of non-U.S. counterparties with whom the registered foreign
security-based swap dealer trades; (2) the number of jurisdictions
represented by the registered foreign security-based swap dealer's
counterparties; and (3) the availability of standardized disclosure
language. To the extent standardized disclosures become available, the
paperwork burden on registered foreign security-based swap dealers
would be limited to amending existing trading

documentation to incorporate the standardized disclosures. Conversely,
more time will be necessary where a greater degree of customization is
required to develop the required disclosures and incorporate this
language into existing documentation.
---------------------------------------------------------------------------

    \1217\ See External Business Conduct Standards Proposing
Release, 76 FR 42396; see also Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity
Instruments and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity
Instruments, Securities Act Release No. 7386 (Jan. 31, 1997), 62 FR
6044 (Feb. 10, 1997).
---------------------------------------------------------------------------

    The Commission estimates the maximum total paperwork burden
associated with developing new disclosure language would be
approximately 2,700 hours, plus $2.1 million for all 18 foreign
security-based swap dealers and 30 jurisdictions.\1218\ This estimate
assumes little or no reliance on standardized disclosure language. In
addition, the Commission estimates the total paperwork burden
associated with incorporating new disclosure language into each foreign
security-based swap dealer's trading documentation would be
approximately 9,000 hours for all 18 foreign security-based swap
dealers.\1219\
---------------------------------------------------------------------------

    \1218\ The Commission staff estimates the total paperwork burden
associated with developing new disclosure language for each foreign
security-based swap dealer would be 150 hours of in-house counsel
time (5 hours of in-house counsel time * up to 30 potential
jurisdictions), plus $120,000 (based on 10 hours of outside counsel
time * $400 * up to 30 potential jurisdictions).
    \1219\ The Commission staff estimate that the average
Nonresident SBS Entity will have 50 active non-U.S. counterparties.
Accordingly, the Commission staff estimates the cost of
incorporating new disclosure language into the trading documentation
of an average foreign security-based swap participant would be 500
hours per foreign security-based swap participant (based on 10 hours
of in-house counsel time * 50 active non-U.S. counterparties).
---------------------------------------------------------------------------

    The Commission expects that the majority of the paperwork burden
associated with the new disclosure requirements will be experienced
during the first year as language is developed, whether by individual
foreign security-based swap dealers or through collaborative efforts,
and trading documentation is amended. After the new disclosure language
is developed and incorporated into trading documentation, the
Commission believes that the ongoing burden associated with proposed
Rule 18a-4(e) would be limited to periodically updating the disclosures
to reflect changes in the applicable law or to incorporate new
jurisdictions with security-based swap counterparties. The Commission
estimates that this ongoing paperwork burden would not exceed 100 hours
per year for all 18 foreign security-based swap dealers (approximately
5 hours per foreign security-based swap dealer per year).
5. Request for Comment on Paperwork Burden Estimates
    The Commission seeks comment on the paperwork burdens associated
with proposed Rule18a-4(e).
     Is it likely that foreign security-based swap participants
will have more than 50 active non-U.S. counterparties?
     In how many discrete jurisdictions do most foreign
security-based swap participants have counterparties?
     In general, is the proposed collection of information
necessary for the proper performance of the Commission's functions?
Will the proposed collection of information have practical utility to
the Commission and Commission staff?
     Are the Commission's estimates of the paperwork burden of
the proposed collection accurate?
     Is the Commission's estimate of the expected ongoing
burden associated with updating and maintaining the disclosures in
proposed Rule 18a-4(e) reasonable? If not, why?
     Are there ways for the Commission to enhance the quality,
utility, and clarity of the information collected? Are there ways for
the Commission to minimize the paperwork burden of the proposed
collection of information (e.g., through the use of automated
collection techniques or other forms of information technology)? If so,
please describe.

D. Reliance on Counterparty Representations Regarding Activity Within
the United States

1. Summary of Collection of Information
    When determining whether a security-based swap is a ``transaction
conducted through a foreign branch,'' as defined in proposed Rule 3a71-
3(a)(4)(i) under the Exchange Act, a party may rely on a representation
from its counterparty indicating that ``no person within the United
States is directly involved in soliciting, negotiating, or executing''
the transaction on behalf of the counterparty, unless the party
receiving the representation knows that it is not accurate.\1220\
Similarly, when determining whether a security-based swap is a
``transaction conducted within the United States,'' as defined in
proposed Rule 3a71-3(a)(5)(i), a party may rely on a representation
from its counterparty indicating that the transaction ``is not
solicited, negotiated, executed, or booked within the United States by
or on behalf of such counterparty,'' unless the party receiving the
representation knows that it is not accurate.\1221\
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    \1220\ Proposed Rule 3a71-3(a)(4)(ii) under the Exchange Act.
    \1221\ Proposed Rule 3a71-3(a)(5)(ii) under the Exchange Act.
---------------------------------------------------------------------------

2. Proposed Use of Information
    Under the proposed rules, certain Title VII requirements would not
apply to cross-border transactions conducted through a foreign branch
of a U.S. bank where the foreign branch is the named counterparty to
the transaction and no person within the United States is directly
involved in soliciting, negotiating, or executing the security-based
swap on behalf of the foreign branch or its counterparty. For example,
under the proposed rules, a non-U.S. person would not be required to
count toward the de minimis threshold in the security-based swap dealer
definition its transactions with the foreign branch of a U.S. bank.
Conversely, certain Title VII requirements would apply to transactions
conducted within the United States, even if both counterparties are
non-U.S. persons.
    The Commission acknowledges that verifying whether a security-based
swap falls within the definition of a ``transaction conducted through a
foreign branch'' or a ``transaction conducted within the United
States'' could require significant due diligence. The Commission
preliminarily believes that the representations described in proposed
Rule 3a71-3(a)(4)(ii) and proposed Rule 3a71-3(a)(5)(ii) would mitigate
the operational difficulties that could arise in connection with
investigating the activities of a counterparty to ensure compliance
with the corresponding rules.
    The representations described in proposed Rule 3a71-3(a)(4)(ii) and
proposed Rule 3a71-3(a)(5)(ii) would be provided voluntarily by the
counterparties to certain security-based swap transactions; therefore,
the Commission would not typically receive confidential information as
a result of this collection of information. However, to the extent that
the Commission receives confidential information described in proposed
Rule 3a71-3(a)(4)(ii) or proposed Rule 3a71-3(a)(5)(iii) through our
examination and oversight program, an investigation, or some other
means, such information would be kept confidential, subject to the
provisions of applicable law.\1222\
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    \1222\ See, e.g., 5 U.S.C. 552 (Exemption 4 of the Freedom of
Information Act provides an exemption for ``trade secrets and
commercial or financial information obtained from a person and
privileged or confidential.'' 5 U.S.C. 552(b)(4). Exemption 8 of the
Freedom of Information Act provides an exemption for matters that
are ``contained in or related to examination, operating, or
condition reports prepare by, or on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions.'' 5 U.S.C. 552(b)(8)).

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3. Respondents
    Based on our understanding of the OTC derivatives markets,
including the size of the market, the number of counterparties that are
active in the market, and how market participants currently structure
security-based swap transactions, the Commission preliminarily
estimates that 50 entities may include a representation that a
security-based swap is a ``transaction conducted through a foreign
branch'' in their trading relationship documentation (e.g., the
schedule to a master agreement). Similarly, the Commission
preliminarily estimates that 250 entities may include a representation
that a security-based swap is not a ``transaction conducted within the
United States.'' \1223\
---------------------------------------------------------------------------

    \1223\ For a more detailed discussion, see discussion of the
number of market participants that may be reporting counterparties
in Section XIV.F.2.d.ii, infra.
---------------------------------------------------------------------------

4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The estimates in this section reflect the Commission's experience
with burden estimates for similar requirements and our discussions with
market participants.\1224\ Pursuant to proposed Rules 3a71-3(a)(4)(ii)
and 3a71-3(a)(5)(iii), parties to security-based swaps would be
permitted to rely on certain representations from their counterparties
when determining whether a transaction falls within the definition of a
``transaction conducted through a foreign branch'' or a ``transaction
conducted within the United States.'' The Commission preliminarily
believes that, in most cases, these representations would be made
through amendments to the parties' existing trading documentation
(e.g., the schedule to a master agreement).\1225\ Because these
representations relate to new regulatory requirements, the Commission
anticipates that counterparties may elect to develop and incorporate
these representations in trading documentation soon after the effective
date of the Commission's security-based swap regulations, rather than
incorporating specific language on a transactional basis. The
Commission believes that parties would be able to adopt, where
appropriate, standardized language across all of their security-based
swap trading relationships. This language may be developed by
individual firms or through a combination of trade associations and
industry working groups.
---------------------------------------------------------------------------

    \1224\ See External Business Conduct Standards Proposing
Release, 76 FR 42396.
    \1225\ The Commission preliminarily believes that because
trading relationship documentation is established between two
counterparties, whether one or both counterparties is able to
represent that it is entering into a ``transaction conducted through
a foreign branch'' or a ``transaction conducted within the United
States'' would not change on a transaction-by-transaction basis and,
therefore, such representations would generally be made in the
schedule to a master agreement, rather than in individual
confirmations.
---------------------------------------------------------------------------

    The Commission estimates the maximum total paperwork burden
associated with developing new representations would be, for each
entity, no more than approximately three to five hours, plus between
$1,200 and $2,000 for the services of outside professionals, for a
maximum of approximately 1,500 hours and $600,000 across all security-
based swap counterparties.\1226\ This estimate assumes little or no
reliance on standardized disclosure language. In addition, the
Commission estimates the total paperwork burden associated with
incorporating new disclosure language would be no more than
approximately three to five hours per counterparty, for a maximum of
approximately 15,000 hours across all applicable security-based swap
counterparties.\1227\
---------------------------------------------------------------------------

    \1226\ Because the representations will be short and based on
facts that should be known and readily available to the entity
making the representation, the Commission staff estimates the
paperwork burden associated with developing new representations
would range from three to five hours of in-house counsel time, plus
$1,200 to 2,000 for the services of outside professionals (based on
three to five hours of outside counsel time * $400)). The Commission
staff estimates that the burden for counterparties that only require
one of the two representations would be at the lower end of this
range.
    \1227\ The Commission staff estimates that the average security-
based swap counterparty (including security-based swap dealers and
buy-side counterparties) will have no more than 10 active
counterparties able to represent that a transaction is conducted
through a foreign branch, not conducted within the United States, or
both. Accordingly, the Commission staff estimates the total burden
associated with incorporating new disclosure language into the
relevant trading documentation would be 15,000 hours (based on five
hours per counterparty * 300 respondents * 10 applicable security-
based swap counterparties).
---------------------------------------------------------------------------

    The Commission expects that the majority of the burden associated
with the new disclosure requirements will be experienced during the
first year as language is developed and trading documentation is
amended. After the new representations are developed and incorporated
into trading documentation, the Commission believes that the annual
paperwork burden associated with this requirement would be no more than
approximately 10 hours per counterparty for verifying representations
with existing counterparties and onboarding new counterparties, for a
maximum of approximately 3,000 hours across all applicable security-
based swap counterparties.\1228\
---------------------------------------------------------------------------

    \1228\ The Commission staff estimates that this burden would
consist of 10 hours of in-house counsel time for each security-based
swap market participant.
---------------------------------------------------------------------------

5. Request for Comment on Paperwork Burden Estimates
    The Commission seeks comment on the paperwork burdens associated
with proposed Rules 3a71-3(a)(4)(ii) and 3a71-3(a)(5)(ii).
     Are the Commission's estimates of the numbers of market
participants that will include a representation that a security-based
swap is a ``transaction conducted through a foreign branch'' or not a
``transaction conducted within the United States'' reasonable? Are
these estimates likely to become incorrect as a result of changes in
the OTC derivatives markets? If so, how?
     Is the Commission's estimate that a representation that a
security-based swap is a ``transaction conducted through a foreign
branch'' or not a ``transaction conducted within the United States''
will be made in a schedule to a master agreement rather than in
individual confirmations reasonable? If not, where will these
representations be made?
     In general, is the proposed collection of information
necessary for the proper performance of the Commission's functions?
Will the proposed collection of information have practical utility to
the Commission and Commission staff?
     Are the Commission's estimates of the paperwork burden of
the proposed collection accurate?
     Is the Commission's estimate of the cost of outside
counsel reasonable?
     Are there ways for the Commission to enhance the quality,
utility, and clarity of the information collected? Are there ways for
the Commission to minimize the paperwork burden of the proposed
collection of information (e.g., through the use of automated
collection techniques or other forms of information technology)? If so,
please describe.

E. Requests for Cross-Border Substituted Compliance Determinations

1. Summary of Collection of Information
    The Commission is proposing to apply various Title VII provisions
to SBS Entities and related market infrastructures on a cross-border
basis. However, as noted above, the Commission would permit, in
appropriate circumstances, compliance

with comparable regulatory requirements in a foreign jurisdiction to
substitute for compliance with certain requirements of the Exchange
Act, and rules and regulations thereunder, relating to security-based
swaps. As proposed, the Commission would consider making substituted
compliance determinations with respect to four distinct categories of
rules: (1) requirements applicable to registered foreign security-based
swap dealers under Section 15F of the Exchange Act and the rules and
regulations thereunder pursuant to proposed Rule 3a71-5(c) under the
Exchange Act; (2) requirements relating to regulatory reporting and
public dissemination of security-based swaps pursuant to re-proposed
Rule 242.908(c)(2)(ii) of Regulation SBSR; (3) requirements relating to
clearing for security-based swaps; \1229\ and (4) requirements relating
to trade execution for security-based swaps pursuant to proposed Rule
3Ch-2(c) under the Exchange Act.
---------------------------------------------------------------------------

    \1229\ The Commission is not proposing a rule regarding the
substituted compliance process for the mandatory clearing
requirement. See Section XI.E, supra.
---------------------------------------------------------------------------

    Requests for a substituted compliance determination would come from
registered foreign security-based swap dealers or other persons.\1230\
However, under the proposed rules noted above, the Commission would
make any determinations with respect to particular requirements on a
class or jurisdiction basis, depending on the specific characteristics
of the foreign regulatory regime, rather than on a firm-by-firm
basis.\1231\ Once the Commission has made a substituted compliance
determination, other similarly situated market participants would be
able to rely on that determination to the extent applicable and subject
to any corresponding conditions. Accordingly, the Commission expects
that requests for a substituted compliance determination would be made
only where an entity seeks to rely on particular requirements of a
foreign jurisdiction that have not previously been the subject of a
substituted compliance request. The Commission believes that this
approach would substantially reduce the burden associated with
requesting substituted compliance determinations for an entity that
relies on a previously issued determination, and, therefore, complying
with the Commission's rules and regulations more generally.\1232\
---------------------------------------------------------------------------

    \1230\ As discussed above, the Commission is not proposing to
permit substituted compliance for registered foreign major security-
based swap participants.
    \1231\ Requests for substituted compliance determinations under
proposed Rule 3a71-5(c) under the Exchange Act must come directly
from a foreign security-based swap dealer (or a group of such
dealers); foreign financial regulatory authorities may not request
such a determination. Proposed Rule 3a71-5(c) under the Exchange
Act.
    \1232\ The paperwork burden associated with requesting
substituted compliance determinations is discussed in detail in
Section XIV.E.4 below.
---------------------------------------------------------------------------

    When applying for a substituted compliance determination under one
of the proposed rules, an entity would be required to provide the
Commission with any supporting documentation as the Commission may
request, in addition to information that the entity believes is
necessary for the Commission to make a determination, such as
information demonstrating that the requirements applied in the foreign
jurisdiction are comparable to the Commission's and describing the
methods used by relevant foreign financial regulatory authorities to
monitor compliance with those requirements. A foreign security-based
swap dealer (or a group of foreign security-based swap dealers of the
same class) seeking a substituted compliance determination with respect
to one or more requirements in Section 15F of the Exchange Act and the
rules and regulations thereunder also must demonstrate that it is
directly supervised by the foreign financial regulatory authority (with
respect to requirements relating to the applicable requirements in
Section 15F of the Exchange Act) and provide the certification and
opinion of counsel, as described in Rule 15Fb2-4(c).\1233\
---------------------------------------------------------------------------

    \1233\ Proposed Rule 3a71-5(c); see also Section XIV.B, supra.
---------------------------------------------------------------------------

    The Commission is proposing that applicants follow the procedures
set forth in proposed Rule 0-13 under the Exchange Act for an
application requesting a substituted compliance determination.\1234\
---------------------------------------------------------------------------

    \1234\ See Section XI.B, supra (discussing proposed Rule 0-13
under the Exchange Act).
---------------------------------------------------------------------------

2. Proposed Use of Information
    The Commission would use the information collected pursuant to
proposed Rule 3a71-5(c) under the Exchange Act to evaluate requests for
substituted compliance with respect to requirements applicable to
registered security-based swap dealers (or classes thereof) under
Section 15F of the Exchange Act and the rules and regulations
thereunder. The Commission would use the information collected pursuant
to re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR to evaluate
requests for substituted compliance with regard to requirements
applicable to regulatory reporting and public dissemination of
security-based swaps. Finally, the Commission would use the information
collected pursuant to proposed Rule 3Ch-2(c) under the Exchange Act to
evaluate requests for substituted compliance with regard to
requirements relating to trade execution for security-based swaps.
    The requests for substituted compliance determinations in proposed
Rule 3a71-5, re-proposed Rule 242.908(c)(2)(ii), and proposed Rule 3Ch-
2(c) under the Exchange Act are required when a person seeks a
substituted compliance determination.
    The Commission intends to make public the information submitted to
it pursuant to any request for a substituted compliance determination
under proposed Rules 3a71-(5), re-proposed Rule 242.908(c)(2)(ii), and
proposed Rule 3Ch-2(c) under the Exchange Act, including supporting
documentation provided by the requesting party.
3. Respondents
    As discussed in Section XIV.B.3 above, the Commission preliminarily
estimates that there will be 22 Nonresident SBS Entities and that most
of these firms will be based in one of a small number of non-U.S.
jurisdictions.\1235\ In addition, the Commission staff anticipates that
a small number of security-based swap market participants could be
based in other jurisdictions.\1236\ As a result, the Commission staff
estimates that requests for substituted compliance determinations may
arise in connection with security-based swap market participants and
transactions in and between up to 30 discrete jurisdictions.\1237\
---------------------------------------------------------------------------

    \1235\ See Section XIV.B.3, supra.
    \1236\ Id.
    \1237\ Id.
---------------------------------------------------------------------------

4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Proposed Rule 3a71-5 under the Exchange Act, proposed Rule 3Ch-2(c)
under the Exchange Act, and re-proposed Rule 242.908(c)(2)(ii) of
Regulation SBSR would require submission of certain information to the
Commission to the extent entities elect to request a substituted
compliance determination with respect to one or more areas where the
Commission has issued rules under the Dodd-Frank Act.
(a) Proposed Rule 3a71-5
    Proposed Rule 3a71-5(c) under the Exchange Act would apply only to
registered foreign security-based swap dealers (or classes thereof)
that request a substituted compliance determination with regard to one
or more requirements

in Section 15F of the Exchange Act and the rules and regulations
thereunder. As discussed above, in connection with each request, a
registered foreign security-based swap dealer would be required to
provide the Commission with any supporting documentation it believes
necessary for the Commission to make a determination that its foreign
financial regulatory authority or authorities have established
requirements that are comparable to requirements otherwise applicable
to a U.S. security-based swap dealer. Among other things, a foreign
security-based swap dealer would be required to provide the Commission
with information regarding applicable requirements established by the
foreign financial regulatory authority or authorities, as well as the
methods used by the foreign financial regulatory authority or
authorities to monitor compliance with these rules. All such supporting
documentation would be made public.\1238\
---------------------------------------------------------------------------

    \1238\ See Section XIV.B, supra.
---------------------------------------------------------------------------

    A registered foreign security-based swap dealer would not be
required to make a request with respect to rules and regulations of a
foreign jurisdiction that have previously been the subject of a
substituted compliance determination. Given that only a relatively
small number of jurisdictions have substantial OTC derivatives markets
and are implementing OTC derivatives reforms, the Commission estimates
that it will receive no more than 50 requests for substituted
compliance determinations pursuant to proposed Rule 3a71-5.\1239\ This
estimate accounts for the fact that the Commission may receive multiple
requests from each jurisdiction (e.g., separate requests from bank and
nonbank entities).\1240\ Because the Commission preliminarily expects
that registered foreign security-based swap dealers will seek to rely
on substituted compliance upon registration, the Commission believes
that these requests will be made during the first year following the
effective date.\1241\
---------------------------------------------------------------------------

    \1239\ See Section XIV.B.3, supra.
    \1240\ The Commission preliminarily estimates that is may
receive requests for substituted compliance determinations for up to
30 different jurisdictions. In approximately two-thirds of those
jurisdictions, the Commission preliminarily estimates that it may
receive requests from more than one type of market participant
(e.g., a bank and a non-bank security-based swap dealer).
    \1241\ For purposes of this estimate, the Commission has assumed
that proposed Rules 3a71-3 and 3a71-5 will be implemented
contemporaneously. If the Commission requires registration before
certain substituted compliance determinations are finalized, the
Commission staff may receive requests for substituted compliance
determinations pursuant to proposed Rule 3a71-5 after the first year
following the effective date.
---------------------------------------------------------------------------

    The Commission staff estimates that the total paperwork burden
associated with preparing and submitting a request for a substituted
compliance determination pursuant to proposed Rule 3a71-5(c) would be
approximately 4,000 hours, plus $4 million for the services of outside
professionals for all 50 requests.\1242\ These total costs include all
collection burdens associated with the proposed rule, including burdens
associated with analyzing and comparing the regulatory requirements of
the foreign jurisdiction with the requirements in Section 15F of the
Exchange Act and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \1242\ The Commission staff estimates that the paperwork burden
associated with making each substituted compliance request pursuant
to proposed Rule 3a71-5 would be approximately 80 hours of in-house
counsel time, plus $80,000 for the services of outside professionals
(based on 200 hours of outside counsel time * $400). The paperwork
burden associated with the opinion of counsel referenced in proposed
Rule 3a71-5 is discussed in the Registration Proposing Release in
connection with proposed Rule 15Fb2-4(c). See Registration Proposing
Release, 76 FR 65811.
---------------------------------------------------------------------------

(b) Re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR
    Re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR would apply
to any person that requests a substituted compliance determination with
respect to a foreign jurisdiction's rules regarding regulatory
reporting and public dissemination of security-based swaps. In
connection with each request, the requesting party would be required to
provide the Commission with any supporting documentation that the
entity believes is necessary for the Commission to make a
determination, including information demonstrating that the
requirements applied in the foreign jurisdiction are comparable to the
Commission's and describing the methods used by relevant foreign
financial regulatory authorities to monitor compliance with those
requirements.\1243\ The Commission preliminarily estimates that the
total paperwork burden associated with submitting a request for a
substituted compliance determination with respect to regulatory
reporting and public dissemination would be approximately 1,120 hours,
plus $1,120,000 for 14 requests.\1244\ This estimate includes all
collection burdens associated with the request, including burdens
associated with analyzing whether the regulatory requirements of the
foreign jurisdiction impose a comparable, comprehensive system for the
regulatory reporting and public dissemination of all security-based
swaps. Furthermore, this estimate assumes that each request would be
prepared de novo, without any benefit of prior work on related
subjects. The Commission notes, however, that as such requests are
developed with respect to certain jurisdictions, the cost of preparing
such requests with respect to other foreign jurisdictions could
decrease.
---------------------------------------------------------------------------

    \1243\ See Section VIII.C, supra.
    \1244\ The Commission staff estimates that the paperwork burden
associated with making a substituted compliance request pursuant to
re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR would be
approximately 80 of in-house counsel time, plus $80,000 for the
services of outside professionals (based on 200 hours of outside
counsel time * $400).
---------------------------------------------------------------------------

    Because only a small number of jurisdictions have substantial OTC
derivatives markets and are implementing OTC derivatives reforms, the
Commission preliminarily estimates that it would receive approximately
10 requests in the first year for substituted compliance determinations
with respect to regulatory reporting and public dissemination pursuant
to re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR. Assuming 10
requests in the first year, the Commission staff estimates an
aggregated burden for the first year would be 800 hours, plus $800,000
for the services of outside professionals.\1245\ The Commission
preliminarily estimates that it would receive 2 requests for
substituted compliance determinations pursuant to re-proposed Rule
242.908(c)(2)(ii) in each subsequent year. Assuming the same
approximate time and costs, the aggregate burden for each year
following the first year would be up to 160 hours of company time and
$160,000 for the services of outside professionals.\1246\
---------------------------------------------------------------------------

    \1245\ The Commission staff estimates that the paperwork burden
associated with making a substituted compliance request pursuant to
re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR would be up to
approximately 800 hours (80 hours of in-house counsel time * 10
respondents), plus $800,000 for the services of outside
professionals (based on 200 hours of outside counsel time * $400 *
10 respondents).
    \1246\ The Commission staff estimates that the paperwork burden
associated with making a substituted compliance request pursuant to
re-proposed Rule 242.908(c)(2)(ii) of Regulation SBSR would be up to
approximately 160 hours (80 hours of in-house counsel time * two
respondents) + plus $160,000 for the services of outside
professionals (based on 200 hours of outside counsel time * $400 *
two respondents).
---------------------------------------------------------------------------

(c) Proposed Rule 3Ch-2(c)
    Finally, proposed Rule 3Ch-2(c) under the Exchange Act would apply
to any person who requests a substituted compliance determination with
respect to the rules of a foreign jurisdiction relating to trade
execution for security-based swaps. In connection with each request,
the requesting party would be required to provide the Commission

with certain supporting information.\1247\ However, a person would not
be required to make a request with respect to rules and regulations of
a foreign jurisdiction related to trade execution that have previously
been the subject of a substituted compliance determination. As
discussed above, because only a relatively small number of
jurisdictions have substantial OTC derivatives markets and are
implementing OTC derivatives reforms, the Commission estimates that it
will receive no more than 25 requests for substituted compliance
determinations pursuant to proposed Rule 3Ch-2(c).\1248\ Moreover,
because market participants will likely seek to rely on substituted
compliance upon registration, the Commission believes that many of
these requests will be made during the first year following the
effective date. However, because some jurisdictions may not fully
implement their trade execution requirements in the immediate future,
the Commission staff estimates that it may receive requests for
substituted compliance determinations pursuant to proposed Rule 3Ch-
2(c) for several years following the effective date.\1249\
---------------------------------------------------------------------------

    \1247\ See Section XIV.E.1, supra.
    \1248\ See Section XIV.B.3, supra. The Commission notes that it
may not receive requests for substituted compliance determinations
pursuant to proposed Rule 3Ch-2(c) from every jurisdiction will have
a security-based swap market that is potentially eligible for such a
determination.
    \1249\ The Commission notes that certain jurisdictions may
implement OTC derivatives reforms incrementally. Accordingly, the
Commission's estimates in this section are based on the assumption
that certain jurisdictions may implement trade execution
requirements later in time than other OTC derivatives reforms (e.g.,
dealer regulation, reporting, and mandatory clearing requirements).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the total paperwork
burden associated with preparing and submitting a request for a
substituted compliance determination pursuant to proposed Rule 3Ch-2(c)
will be 2,000 hours and associated costs of $2 million for the services
of outside professionals, including attorneys.\1250\ These total costs
include all collection burdens associated with the proposed rule,
including burdens associated with analyzing whether the regulatory
requirements of the foreign jurisdiction impose a comparable,
comprehensive system for the regulatory reporting and public
dissemination of all security-based swaps.
---------------------------------------------------------------------------

    \1250\ The Commission staff estimates that the paperwork burden
associated with making each substituted compliance request pursuant
to proposed Rule 3Ch-2(c) would be approximately 2,000 hours of in-
house counsel time (80 hours * 25 respondents), plus $2,000,000 for
the services of outside professionals (based on 200 hours of outside
counsel time * $400 * 25 respondents).
---------------------------------------------------------------------------

    Assuming 17 requests in the first year, the Commission staff
estimates an aggregated burden for the first year would be 1,360 hours,
plus approximately $1,360,000 for the services of outside
professionals.\1251\ The Commission preliminarily estimates that it
would receive 4 requests for substituted compliance determinations
pursuant to re-proposed Rule 3Ch-2(c) in each subsequent year. Assuming
the same approximate time and costs, the aggregate burden for each year
following the first year would be up to 320 hours of company time and
$320,000 for the services of outside professionals.\1252\
---------------------------------------------------------------------------

    \1251\ The Commission staff estimates that the paperwork burden
associated with making a substituted compliance request pursuant to
proposed Rule 3Ch-2(c) would be up to approximately 1,360 hours (80
hours of in-house counsel time * 17 respondents), plus approximately
$1,360,000 for the services of outside professionals (based on 200
hours of outside counsel time * $400 * 17 respondents).
    \1252\ The Commission staff estimates that the paperwork burden
associated with making a substituted compliance request pursuant to
proposed Rule 3Ch-2(c) would be up to approximately 320 hours (80
hours of in-house counsel time * four respondents), plus $320,000
for the services of outside professionals (based on 200 hours of
outside counsel time * $400 * four respondents).
---------------------------------------------------------------------------

Request for Comment
    The Commission seeks comment on the paperwork burdens associated
with proposed Rules 3a71-5(c) under the Exchange Act, re-proposed Rule
242.908(c)(2)(ii) of Regulation SBSR, and proposed Rule 3Ch-2(c) under
the Exchange Act.
     Are the Commission's estimates of the numbers of
substituted compliance determinations reasonable? Are these estimates
likely to become incorrect as a result of changes in the OTC
derivatives markets? If so, how?
     In general, is the proposed collection of information
necessary for the proper performance of the Commission's functions?
Will the proposed collection of information have practical utility to
the Commission and Commission staff?
     Are the Commission's estimates of the paperwork burden of
the proposed collection accurate? Is the Commission's estimate of the
cost of outside counsel reasonable?
     Are there ways for the Commission to enhance the quality,
utility, and clarity of the information collected? Are there ways for
the Commission to minimize the paperwork burden of the proposed
collection of information (e.g., through the use of automated
collection techniques or other forms of information technology)? If so,
please describe.

F. Reporting and Dissemination of Security-Based Swap Information

1. Background on the Re-proposed Rules
    The Commission is re-proposing Regulation SBSR to address a number
of cross-border issues, many of which were discussed in comments to the
cross-border provisions of the initial proposal. The changes made
between the proposed and re-proposed versions of Regulation SBSR, and
the Commission's preliminary estimates of the paperwork burdens that
would result from re-proposed Regulation SBSR, are described below.
2. Modifications to ``Reporting Party'' Rules
    Proposed Rule 901 of Regulation SBSR, as amended herein, contains
``collection of information requirements'' within the meaning of the
PRA. The title of this collection is ``Rule 901--Reporting
Obligations.''
(a) Summary of Collection of Information
    Under Rule 901(a), as initially proposed, a non-U.S. person
security-based swap dealer or major security-based swap participant
might incur the duty to report only if the security-based swap was
executed in the United States or through any means of interstate
commerce, or was cleared through a clearing agency having its principal
place of business in the United States. If a non-U.S. person security-
based swap dealer or major security-based swap participant entered into
a swap with an unregistered U.S. person, the unregistered U.S. person
would have incurred the duty to report. As set forth in more detail
above, the Commission is re-proposing Rule 901(a) to provide that a
security-based swap dealer or major security-based swap participant
that is not a U.S. person could incur the duty to report a security-
based swap in various cases. Re-proposed Rule 901(a) now provides as
follows:
     If both sides of the security-based swap include a
security-based swap dealer, the sides would be required to select the
reporting side.
     If only one side of the security-based swap includes a
security-based swap dealer, that side would be the reporting side.
     If both sides of the security-based swap include a major
security-based swap participant, the sides would be required to select
the reporting side.
     If one side of the security-based swap includes a major
security-based

swap participant and the other side includes neither a security-based
swap dealer nor a major security-based swap participant, the side
including the major security-based swap participant would be reporting
side.
     If neither side of the security-based swap includes a
security-based swap dealer or major security-based swap participant:
(i) If both sides include a U.S. person or neither side includes a U.S.
person, the sides would be required to select the reporting side; and
(ii) If only one side includes a U.S. person, that side would be the
reporting side.
    In addition, in re-proposed Rule 901, the Commission is proposing
certain technical or conforming changes. Specifically, the Commission
is proposing certain changes to proposed Rules 901(c) and 901(d), which
address the data elements to be reported to a registered SDR, to
reflect that, under the re-proposal, certain security-based swaps might
be subject to regulatory reporting but not public dissemination. Rule
901(c), as initially proposed, was titled ``Information to be reported
in real time.'' Under Rule 902(a), as originally proposed, the
registered SDR to which such information was reported would be required
to promptly disseminate to the public such information (except in the
case of a block trade). However, the Commission preliminarily believes
that, if a security-based swap were subject to regulatory reporting but
not public dissemination, there is no need to require that information
about the security-based swap be reported in real time. Therefore, the
introductory language to Rule 901(c) is being re-proposed as follows:
``For any security-based swap that must be publicly disseminated
pursuant to Sec. Sec.  242.902 and 242.908 and for which it is the
reporting side, the reporting side shall report the following
information in real time. If a security-based swap is required by
Sec. Sec.  242.901 and 242.908 to be reported but not publicly
disseminated, the reporting side shall report the following information
no later than the time that the reporting side is required to comply
with paragraph (d) of this section.'' In addition, re-proposed Rule
901(c) would be retitled ``Primary trade information,'' thus
eliminating the reference to real-time reporting--since the information
required to be reported under Rule 901(c) would no longer in all cases
be required to be reported in real time. Furthermore, re-proposed Rule
901(d) would be retitled ``Secondary trade information.''
    Rule 901(c)(10), as initially proposed, provided that the following
data element would be required to be reported: ``If both counterparties
to a security-based swap are security-based swap dealers, an indication
to that effect.'' As the Commission stated in the Regulation SBSR
Proposing Release: ``Prices of transactions involving a dealer and a
non-dealer are typically `all-in' prices that include a mark-up or
mark-down, while interdealer transaction prices typically do not. Thus,
the Commission believes that requiring an indication of whether a
[security-based swap] was an interdealer transaction or a transaction
between a dealer and a non-dealer counterparty would enhance
transparency by allowing market participants to more accurately assess
the reported price for a [security-based swap].''\1253\ The Commission
is now re-proposing Rule 901(c)(10) as follows: ``If both sides of the
security-based swap include a security-based swap dealer, an indication
to that effect.'' The re-proposed rule clarifies that a security-based
swap dealer might be a direct or indirect counterparty to a security-
based swap. The Commission continues to believe that, in either case, a
security-based swap having a security-based swap dealer on each side
could, all other things being equal, be priced differently than a
security-based swap having a security-based swap dealer on only one
side. Therefore, the Commission continues to believe that the existence
of a security-based swap dealer on each side should be reported to the
registered SDR and made known to the public.
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    \1253\ See Regulation SBSR Proposing Release, 75 FR 75214.
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    The Commission is re-proposing Rule 901(d)(1)(ii) to require
reporting of the broker ID, desk ID, and trader ID, as applicable, only
of the direct counterparty on the reporting side. The Commission
preliminarily believes that it would be impractical and unnecessary to
report such data elements with respect to an indirect counterparty, as
such elements might not be applicable to an indirect counterparty.
Similarly, Rule 901(d)(1)(iii) is being re-proposed to require
reporting of a description of the terms and contingencies of the
payment streams only of each direct counterparty to the other. The
Commission is including the word ``direct'' to avoid extending Rule
901(d)(1)(iii) to indirect counterparty relationships, where payments
might not (except in unusual circumstances) flow to or from an indirect
counterparty.
    Proposed Rule 901(e) set forth provisions for reporting life cycle
events of a security-based swap. The basic approach set forth in
proposed Rule 901(e) was that, generally, the original reporting party
of the initial transaction would have the responsibility to report any
subsequent life cycle event; this approach remains unchanged in the re-
proposal. However, if the life cycle event were an assignment or
novation that removed the original reporting party, either the new
counterparty or the original counterparty would have to be the
reporting party. Further, Rule 901(e), as initially proposed, would
provide that the new counterparty would be the reporting party if it
were a U.S. person, whereas the other counterparty would be the new
reporting party if the new counterparty were not a U.S. person.
    However, as discussed above, the Commission is now proposing the
concept of a ``reporting side,'' which would include the direct and any
indirect counterparty. Further, as discussed above, the Commission is
proposing that non-U.S. person security-based swap dealers or major
security-based swap participants would, in certain instances, incur a
duty to report. Thus, the Commission is re-proposing Rule 901(e) to
provide that the duty to report would switch to the other side only if
the new side did not include a U.S. person (as in the originally
proposed rule) or a security-based swap dealer or major security-based
swap participant (references to which are being added to Rule 901(e)).
The Commission preliminarily believes that, if the new side includes a
registered person such as a security-based swap dealer or major
security-based swap participant, the new side should retain the duty to
report. This approach is designed to align reporting duties with the
market participants that the Commission preliminarily believes are
better suited to carrying them out because non-U.S. security-based swap
dealers and major security-based swap participants likely have already
taken significant steps to establish and maintain the systems,
processes and procedures, and staff resources necessary to report
security-based swaps currently.\1254\
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    \1254\ See note 913 and accompanying text, supra; see also 15
U.S.C. 78m-1(a)(3).
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    Aside from some technical changes to the titles of Rules 901(c) and
(d) and to the introductory language to Rule 901(c) noted above, the
Commission is not proposing to add or delete any data elements from
Rules 901(c) and 901(d). Therefore, no revisions to the Commission's
paperwork estimates are being made to increase or decrease paperwork
burdens because of more or fewer required data elements to be reported.
However, other changes to the

paperwork burdens initially proposed for Rule 901 are necessitated by
the other changes to the proposed rule noted above.
(b) Proposed Use of Information
    As described by the Commission in the Regulation SBSR Proposing
Release, the security-based swap transaction information required to be
reported pursuant to re-proposed Rule 901 would be used by SDRs, market
participants, the Commission, and other regulators. The information
reported by reporting parties pursuant to re-proposed Rule 901 would be
used by SDRs to publicly disseminate real-time reports of security-
based swap transactions, as well as to offer a resource for regulators
to obtain detailed information about the security-based swap market.
Market participants would use the public market data feed, among other
things, to assess the current market for security-based swaps and to
mark their own positions. The Commission and other regulators would use
information about security-based swap transactions reported to and held
by SDRs to monitor and assess prudential and systemic risks, as well as
to examine for improper behavior and to take enforcement actions, as
appropriate.
(c) Respondents
    Re-proposed Rule 901(a) would designate which side of a security-
based swap transaction would be the reporting side.\1255\ In the
Regulation SBSR Proposing Release, the Commission stated our
preliminary belief that up to 1,000 entities could incur duties to
report transactions under proposed Rule 901(a), and that it was
reasonable to use the figure of 1,000 respondents for estimating
collection of information burdens under the PRA.\1256\ As discussed in
more detail below, the Commission now preliminarily estimates there
would be 300 respondents to re-proposed Rule 901.
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    \1255\ See Section VIII.D, supra (discussing the use of the term
``reporting side'').
    \1256\ See Regulation SBSR Proposing Release, 75 FR 75247.
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    In the Regulation SBSR Proposing Release, the Commission noted that
proposed Rule 901 would impose certain duties on SDRs. The Commission
preliminarily estimated that the number of SDRs would not exceed 10.
The Commission continues to believe that it is reasonable to use 10 as
an estimate of the number of SDRs for the purpose of estimating
collection of information burdens for re-proposed Regulation SBSR.
(d) Total Initial and Annual Reporting and Recordkeeping Burdens
i. Baseline Burdens
    In the Regulation SBSR Proposing Release, the Commission estimated
that respondents would face 3 categories of burdens to comply with
proposed Rule 901. First, each entity that would incur a duty to report
security-based swap transactions pursuant to Regulation SBSR would have
to develop an internal order and trade management system (``OMS'')
capable of capturing the relevant transaction information. Second, each
reporting party would have to implement a reporting mechanism. Third,
each reporting party would have to establish an appropriate compliance
program and support for the operation of the OMS and reporting
mechanism. In the Regulation SBSR Proposing Release, the Commission
preliminarily estimated that the initial, aggregate annualized burden
associated with proposed Rule 901 would be 1,438 hours per reporting
party--for a total of 1,438,300 hours for all reporting parties--in
order to develop an OMS, implement a reporting mechanism, and establish
an appropriate compliance program and support system.\1257\ The
Commission preliminarily estimated that the ongoing aggregate
annualized burden associated with proposed Rule 901 would be 731 hours
per reporting party, for a total of 731,300 hours for all reporting
parties.\1258\ The Commission further estimated that the initial
aggregate annualized dollar cost burden on reporting parties associated
with Rule 901 would be $201,000 per reporting party, for a total of
$201,000,000 for all reporting parties.\1259\
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    \1257\ See id. at 75250.
    \1258\ See id.
    \1259\ See id. The Commission notes that the Regulation SBSR
Proposing Release incorrectly stated this total as $301,000 per