\583\ See proposed Rule 811(c). See also Core Principle 3 and
proposed Rule 812, which permit a SB SEF to trade only SB swaps that
are not readily susceptible to manipulation. Prior to trading any SB
swap, proposed Rule 812 would require the swap review committee to
determine whether, after taking into account all of the terms and
conditions of the SB swap and the markets for the SB swap and any
underlying security or securities, that such SB swap is not readily
susceptible to manipulation. Proposed Rule 812 also would require
the swap review committee to periodically review that determination.
---------------------------------------------------------------------------

    Consequently, the Commission believes that the proposed rules
requiring impartial access to trading on the SB SEF and providing for
fair representation on the swap review committee to determine which SB
swaps should be traded on SB SEFs should help mitigate the
inappropriate exercise of market power by any given market participant
or group of market participants. In addition, the Commission believes
that, in a competitive market, new SB SEFs could be created to attract
market participants that are unable to meet the objective requirements
of more exclusive SB SEFs or to trade the SB swaps other SB SEFs decide
not to trade.
    The Commission also believes that its proposed interpretation of
which facilities fall within the term SB SEF, providing, at the
minimum, any participant with the ability to make and display
executable bids or offers accessible to all participants on the SB SEF,
if the market participant wishes to do so, would also improve access to
the SB SEF by participants because it provides participants an
additional method with which to execute transactions on the SB SEF.
    Improved Commission and SB SEF Oversight. The Commission believes
that one of the goals of the Dodd-Frank Act is to increase the
regulatory oversight over the currently unregulated OTC derivative
markets.\584\ Proposed Regulation SB SEF would provide the means for
the Commission to gain better insight into and oversight of the market
for SB swaps. The proposed rules would provide the Commission the
ability to, among other things, review the rules of SB SEFs, obtain
data and records from SB SEFs, and inspect and examine SB SEFs, all of
which would support the Commission's oversight function over the SB
swaps market, as directed by Congress in the Dodd-Frank Act.
---------------------------------------------------------------------------

    \584\ See Public Law 111-203 Preamble.
---------------------------------------------------------------------------

    Specifically, proposed Rule 818(a) would require each SB SEF to
keep and preserve all documents, including all correspondence,
memoranda, papers, books, notices, accounts, and other such records
that would be made or received by it in the conduct of its business. In
addition, proposed Rule 818(c) would require SB SEFs to keep audit
trail records relating to all orders, requests for quotations,
responses, quotations, other trading interest, and transactions that
are received by, originated on, or executed on, the SB SEF. The records
required to be kept, preserved and maintained by a SB SEF under
proposed Rule 818 would help the Commission to determine whether an SB
SEF is operating in compliance with the Exchange Act and the rules and
regulations thereunder. The audit trail information required to be
maintained under proposed Rule 818(c) would facilitate the ability of
the SB SEF and the Commission to carry out their respective obligations
under the Exchange Act, by providing a record of the complete history
of all trading interest entered and transactions executed on the SB
SEF. This audit trail could be used to help detect abusive or
manipulative trading activity, prepare reconstructions of activity on
the SB SEF or in the SB swaps market, and generally to understand the
causes of unusual market activity.
    Furthermore, proposed Rule 811(h) would require the SB SEF to make
and keep records specifically of all disciplinary proceedings and
appeals, which would allow the Commission to review the disciplinary
process at a SB SEF, providing the Commission an additional tool to
carry out its oversight responsibilities. The proposed registration
requirements and related proposed Form SB SEF, and the CCO's annual
compliance report, which are further discussed below, should also aid
the Commission in its oversight responsibilities. As a whole, proposed
Regulation SB SEF should facilitate the Commission's work in preparing
the semi-annual and annual public reports of SB swap data required by
Section 763 of the Dodd-Frank Act, because the Commission would be able
to obtain information about the SB swap market through its oversight of
SB SEFs.\585\
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    \585\ See Section 763(i) of the Dodd-Frank Act requiring the
Commission to provide SB swap data to the public.
---------------------------------------------------------------------------

    Improved Automation. In order to comply with the requirements of
proposed Regulation SB SEF relating to recordkeeping and surveillance,
SB SEFs would need to invest in and develop automated technology
systems to store, monitor and communicate a variety of trading data,
including orders, requests for quotations, responses and quotations,
among others. The Commission preliminary believes that the proposed
rules should bring about increased automation in the SB swaps markets.
This increased automation could help market participants more
efficiently track their trading and risk exposures in SB swaps. In
addition, the automation and systems development associated with the
regulation of SB SEFs, as required by proposed Regulation SB SEF, could
provide SB swaps market participants with new platforms and tools to
execute and process transactions in SB swaps at a lower expense per
transaction. Such increased efficiency would enable participants of the
SB SEF to handle increased volumes of SB swaps with greater efficiency.
    In addition to the broad benefits that the Commission anticipates
that Regulation SB SEF may bring to the SB swaps market, the Commission
preliminarily believes that its individual proposed rules may bring
particular benefits to the SB swap market. These include the following:
    Interpretation of SB SEF Definition. The Commission believes that
its proposed interpretation of the scope of the definition of SB SEF
\586\ should provide sufficient flexibility for market participants in
creating and operating a variety of SB SEFs to trade SB swaps. The
Commission preliminary believes that a system or a platform which
allows a participant the ability to send an RFQ to all participants, as
well as the choice to send an RFQ to fewer than all participants, would
provide flexibility to the market, because participants would be able
to trade SB swaps by accepting bids and offers from multiple
participants, while still preserving the ability of each participant to
decide how

broadly or narrowly to disseminate his or her RFQ.
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    \586\ See supra Section III.B for a detailed discussion of the
proposed interpretation of the definition of SB SEF.
---------------------------------------------------------------------------

    The Commission believes that this proposed interpretation would
likely encourage a greater number of SB swaps to trade on SB SEFs
because, as mentioned above, it would give requestors the flexibility
to determine how best to broadcast their interests.
    The Commission believes that, rather than proposing a rule that
establishes a prescribed format for a system or platform that
constitutes a SB SEF, the better approach is to provide baseline
principles, as outlined in the proposed interpretation consistent with
the requirements of the Exchange Act, that any potential SB SEF would
need to meet as a condition to registration as a SB SEF. Such an
approach should provide flexibility to those trading venues that plan
to register as SB SEFs and would permit the continued development of
organized markets for the trading of SB swaps.
    Exemptions from Definition of Exchange and Certain Regulatory
Requirements Applicable to a Broker. The proposed rules would include
exemptions for SB SEFs from the definition of ``exchange'' and from
most regulations governing brokers. Using its exemptive authority under
Section 36 of the Exchange Act, the Commission is proposing: (1) To
amend Rule 3a1-1 under the Exchange Act to exempt any SB SEF from the
definition of ``exchange,'' if such SB SEF provides a marketplace
solely for the trading of security-based swaps (and no other security)
and complies with the provisions of proposed Regulation SB SEF; \587\
and (2) new Rule 15a-12 to allow a person that meets the definition of
a SB SEF and broker, to satisfy the broker registration requirements by
registering as a SB SEF. The Commission believes that Congress
specifically provided a comprehensive regulatory framework for SB SEFs
in the Dodd-Frank Act and, therefore, SB SEFs should not also be
required to be regulated as national securities exchanges or as
brokers. Without these proposed exemptions, SB SEFs would be required
to register with the Commission not only as SB SEFs, but also as
exchanges and brokers. Given the regulatory framework for SB SEFs
required by the Exchange Act and proposed Regulation SB SEF, the
Commission preliminarily believes that requiring a SB SEF to register
in such multiple capacities would not be efficient. The Commission
believes that reducing or eliminating such inefficiency will confer an
overall benefit to the SB swaps market by reducing the costs of
complying with unnecessary rules or regulations.
---------------------------------------------------------------------------

    \587\ See proposed Rule 3a1-1(a)(4).
---------------------------------------------------------------------------

    Registration. The registration of SB SEFs is a requirement under
the Dodd-Frank Act.\588\ Proposed Rule 810(a) incorporates the
requirement under the Dodd-Frank Act that a SB SEF, in order to be
registered and maintain registration, comply with the Core Principles
in Section 3D(d) of the Exchange Act and any requirement that the
Commission may impose by rule or regulation. The proposed registration
process is intended to implement this requirement and assist the
Commission in overseeing and regulating the SB swaps market. The
information to be provided on proposed Form SB SEF is designed to
enable the Commission to assess whether an applicant has the capacity
and the means to perform the duties of a SB SEF and to comply with the
Core Principles and other requirements imposed on registered SB SEFs.
---------------------------------------------------------------------------

    \588\ See Section 3D(a)(1) of the Exchange Act.
---------------------------------------------------------------------------

    In addition, the amendments, supplemental information and notices
that the Commission proposes to require registered SB SEFs to file
pursuant to proposed Rules 802, 803 and 804 are designed to further the
ability of the Commission to efficiently monitor SB SEFs' compliance
with the provisions of the Exchange Act and to oversee the marketplace
for SB swaps and, specifically, the trading of SB swaps on SB SEFs.
    Rule and Product Filings. Proposed Rules 805 and 806 set forth two
alternative filing processes for a new rule or rule amendment of a
registered SB SEF, and proposed Rules 807 and 808 set forth two
alternative filing processes for SB SEFs to submit filings for new
products that it trades. The proposed rules are intended to assist the
Commission in overseeing and regulating the trading of SB swaps and to
help ensure that SB SEFs operate in compliance with the Exchange Act.
The self-certification processes of Rules 806 and 807 require SB SEFs
to include a certification that the proposed new rule or rule amendment
or SB swap, as the case may be, complies with the Exchange Act and
Commission rules and regulations thereunder.\589\
---------------------------------------------------------------------------

    \589\ See proposed Rules 806(a)(5)(iii) and 807(a)(4)(iii).
---------------------------------------------------------------------------

    The information to be provided by the SB SEF under proposed Rules
805 and 806 would further the ability of the Commission to assess
whether a SB SEF has the capacity to perform the duties of a SB SEF and
to comply with the duties, Core Principles, and other requirements
imposed on registered SB SEFs, and to ensure that a registered SB SEF
continues to comply with the requirements imposed on registered SB SEFs
under the Exchange Act. In addition, proposed Rule 805(a)(4), which
would require a SB SEF to explain the anticipated benefits and
potential anticompetitive effects on market participants of a proposed
new rule or rule amendment should help foster a competitive SB swaps
market because it would require SB SEFs to disclose the positive as
well as negative aspects of the SB SEF's proposed rules.
    The information to be provided by the SB SEF under proposed Rules
807 and 808 would further the ability of the Commission to obtain
information regarding SB swaps that a SB SEF intends to trade on its
market. In addition, because these processes are comparable to the
parallel processes of the CFTC, they would promote efficiency for SB
SEFs that are also registered as SEFs.
    Chief Compliance Officer. The submission of the CCO's annual
compliance report and the annual financial report to the Commission as
would be required by proposed Rule 823 would help the Commission
monitor the compliance activities and financial state of SB SEFs. These
reports would also assist the Commission in carrying out its oversight
of the SB SEFs and the SB swaps market by providing the Commission the
information necessary to review instances, for example, of non-
compliance and denials of access.
    Conflicts of Interest. Proposed Rule 820 sets forth certain
governance arrangements that would be required of SB SEFs. Proposed
Rule 820(a) would require the rules of a SB SEF to assure a fair
representation of its participants in the selection of its directors
and administration of its affairs. No less than 20% of the total number
of directors of the SB SEF would be required to be selected by the SB
SEF participants. Further, the Commission proposes that SB SEF
participant owners be restricted in their ability to participate in the
``fair representation'' process. In addition, proposed Rule 820(b)
would require that at least one director on the Board be representative
of investors (``investor director'') who are (1) not SB swap dealers or
major SB swap participants and (2) not associated with a participant.
Finally, proposed Rule 820(c) would require the rules of a SB SEF to
establish a fair process for SB SEF participants to nominate an
alternative candidate or candidates to the Board by petition.

    The requirements of proposed Rule 820 are important to help ensure
that SB SEF participants and investors have a voice in the
administration and governance of the SB SEF, without jeopardizing the
overall independence of the Board.\590\ The proposed governance
requirements should also help to mitigate any conflicts of interest
that may arise between SB SEF participants who also could be owners of
the SB SEF, by reducing the possibility that a small group of market
participants would have the ability to unfairly disadvantage other
market participants through the SB SEF governance process. In order to
further mitigate conflicts of interest and achieve fairness in the
governance process of a SB SEF, the proposal would also provide for the
ability of SB SEF participants to have alternative candidates by
requiring the SB SEF to establish a fair process for SB SEFs to
nominate an alternative candidate or candidates by petition. Finally,
the Commission believes that requiring representation on the SB SEF
Board by investors who are not SB swap dealers or major SB swap
participants, or associated with SB SEF participants, would provide an
important perspective to the governance and administration of a SB SEF.
Investor directors could provide unique and different perspectives from
dealers and other participants of the SB SEF, which should enhance the
ability of the Board to address issues in an impartial fashion and
consequently support the integrity of a SB SEF's governance.
---------------------------------------------------------------------------

    \590\ Proposed Rule 702(d) under Regulation MC would require the
Board of a SB SEF to have at least a majority of independent
directors. See Regulation MC Proposing Release, supra note 82.
---------------------------------------------------------------------------

C. Costs

    Although the Commission believes that proposed Regulation SB SEF
would result in significant benefits to the market for SB swaps, the
Commission recognizes that the proposed registration form and rules
would also entail significant costs. Some costs are difficult to
precisely quantify and are discussed below.
    The Commission is mindful that any rules it may adopt with respect
to SB SEFs under the Dodd-Frank Act may impact the incentives of market
participants with respect to where and how they trade SB swaps. The
Commission is cognizant that its proposed interpretation of the
definition of SB SEF, coupled with the level of pre-trade transparency
that would be required for trading on a SB SEF, will impact the
development of the SB swaps market. Further, if the rules proposed by
the Commission are, or are perceived to be, too costly for trading
venues to comply with, fewer entities than expected may seek to
register as SB SEFs, thus impacting competition. In addition, if the
proposed rules for trading on a SB SEF are perceived as too burdensome
by market participants, some trading of SB swaps may move to foreign
markets whose regulations are perceived to be less restrictive, thus
frustrating the goals of the Dodd-Frank Act. At the same time, if the
proposed rules relating to SB SEFs are too lenient, they may have
little or no impact on the market structure and surveillance of the SB
swaps markets, which could result in the loss of many of the benefits
discussed above and fail to achieve the goals of the Dodd-Frank Act of
greater transparency. In addition, because the trading mechanisms in
the OTC market will continue to be largely unregulated, OTC-traded SB
swaps may be perceived by some market participants to be less expensive
to trade than SB SEF-traded swaps, i.e., in the sense that they are
subject to less regulation.
    In addition, SB swaps traded on SB SEFs may be perceived to be
subject to increased costs, monetary and otherwise. For example, some
industry participants have expressed their belief that any proposed
requirement of pre-trade transparency would force market participants
to reveal valuable economic information regarding their trading
interest more broadly than they may believe would be economically
prudent and could discourage participation in the SB swaps market. An
additional impact of pre-trade transparency are perceived costs
associated with front running, if customers or dealers are required to
show their trading interest before a trade is executed. These potential
costs of pre-trade transparency may change market participants' trading
strategies, which could result in them working more orders or finding
ways to attempt to hide their interest.\591\ If market participants
view the Commission's proposal as too burdensome with respect to pre-
trade transparency, dealers may be less willing to supply liquidity for
SB swaps that trade on SB SEFs or exchanges, thus impacting liquidity
and competition. On the other hand, if the requirement with respect to
pre-trade transparency is too loose, the result could be that there
would be no substantive change from the status quo, including no
benefits of alleviating informational asymmetries, increasing price
competition and supplying better executions beyond the changes in
response to the other requirements of Dodd-Frank. However, the
Commission believes that this concern depends on the degree of pre-
trade transparency required and the characteristics of the trading
market. The proposed rules are intended to provide for greater pre-
trade transparency than currently exists without requiring pre-trade
transparency in a manner that would cause participants to avoid
providing liquidity on SB SEFs.
---------------------------------------------------------------------------

    \591\ See, e.g., Ananth Madhavan, Market Microstructure: A
Survey, J. of Fin. Markets, Vol. 3 (2000).
---------------------------------------------------------------------------

    The requirements of the proposed rules would impose the same
minimum level of pre-trade transparency and order interaction on block
trades as on non-block trades. This can potentially have an impact on
the liquidity available on those types of platforms that would provide
for block trading. Today, many block trades are transacted through
voice brokerage, without pre-trade transparency and order interaction.
Block trading enables, among other things, entities with large
exposures to certain business risks to hedge those risks. For example,
investors considering making investments in, or lenders considering
making loans to, certain corporate borrowers may seek to purchase
credit default swap (``CDS'') protection to hedge some portion of the
credit risk the investor does not want to retain. The availability of
such credit risk protection in large block transaction size may
therefore influence investment or lending decisions which in turn may
influence the cost of borrowing for corporations whose investors rely
on block size CDS.
    Generally, economic studies have shown that block trades benefit
from different market structures than non-block trades.\592\ These
studies suggest that pre-trade transparency can be particularly costly
for block trades as prices are likely to move adversely if the
existence of a large unexecuted order becomes known. Other traders may
front run the block trade order or simply infer information about
future price movements from its presence, thus potentially making it
more costly for the block-initiating participant to find a counterparty
willing to trade at an acceptable price. In addition, if a block trade
interacts with other trading interest on a SB SEF, there might not be
enough liquidity on the SB SEF to execute the entire block trade,
leaving a portion of the block trade unexecuted, or requiring the block
to be broken into smaller order sizes, which also could

lead to increased transaction costs and a decreased willingness of
market participants to participate in block trades.
---------------------------------------------------------------------------

    \592\ See, e.g., Bessembinder Paper, supra note 159.
---------------------------------------------------------------------------

    The Commission recognizes these potential costs and believes that
the proposal mitigates these costs, because it would allow SB SEFs
flexibility in setting their market structure and trading rules
concerning block trades. This should allow SB SEFs to create certain
trading structures, e.g., multi-dealer RFQ platforms, that cater to
block trades and others that cater to non-blocks. Moreover, under the
proposed interpretation of the definition of SB SEF, for a transaction
on an RFQ platform, the person exercising investment discretion for the
transaction, whether it is the participant itself or the participant's
customer, could choose to send the RFQ to less than all participants.
Under this proposed interpretation, market participants would have the
choice to determine how broad or how narrow to disseminate their intent
to trade blocks. The Commission further notes that, if overall trading
costs decline, then the costs of breaking up a block into smaller
parcels and spreading out those parcels by market participants seeking
to execute a block transaction may not actually increase.\593\
---------------------------------------------------------------------------

    \593\ See, e.g., Amber Anand, et al., Market Crashes and
Institutional Trading, Working Paper, Social Science Research
Network (2010).
---------------------------------------------------------------------------

    According to industry sources consulted by Commission staff,\594\
the monetary cost of forming a SB SEF is estimated to range from
approximately $15 million to $20 million per SB SEF for the first year
of operation, if an entity were to establish a SB SEF without the
benefit of modifying an already existing trading system. The industry
sources consulted by Commission staff estimate that, for the first year
of operation, the cost of software and product development would range
from approximately $6.5 million to $10.5 million per SB SEF. The
technological costs would be expected to decline considerably during
the second and subsequent years of operation, and are estimated to be
in the range of $3 million to $4 million per year per SB SEF. For
entities that currently own and/or operate platforms for the trading of
OTC derivatives, the cost of forming a SB SEF would be more
incremental, given that these entities already have viable technology
that could be modified to comply with the requirements that the
Commission may impose for SB SEFs. According to industry sources, the
incremental costs of enhancing a trading platform to be compatible with
any SB SEF requirements established by the Commission would range from
as low as $50,000 to as much as $3 million per SB SEF, depending on the
enhancements needed to establish a platform compatible with any
Commission rules governing SB SEFs. The annual ongoing cost of
maintaining the technology and any improvements is estimated to be in
the range of $2 million to $4 million.\595\
---------------------------------------------------------------------------

    \594\ In discussing estimated costs with Commission staff, these
industry sources were generally familiar with the requirements of
the Dodd-Frank Act and the Core Principles and related requirements
specified therein, but were not aware of the specifics of the rules
being proposed. Thus, they were able to provide the broad general
estimates of projected costs, which are described here. More
specific estimates as to the costs associated with specific rules
are detailed further below.
    \595\ Although there currently are trading systems that trade SB
swaps on an OTC basis, the Commission preliminarily believes that no
such systems are currently in operation that would comply, without
modifications, with the requirements of proposed Regulation SB SEF.
---------------------------------------------------------------------------

    In addition, the regulatory requirement of complying with the
statutory Core Principles would increase the regulatory obligations of
registered SB SEFs with respect to operating as a SB SEF and with
respect to overseeing the participants that trade on their facilities.
Industry sources estimate that the cost to an SB SEF of complying with
the rules relating to surveillance and oversight they expected the
Commission to propose would be in the range of $1 million to $3 million
annually, with initial costs likely to be at the higher end of such
range, since a SB SEF would need to create the technology necessary to
monitor and surveil its market participants, as well as to create a
rule book in compliance with the Core Principles and related rules. The
ongoing annual compliance costs are estimated by industry sources to be
approximately $1 million, which would include the salary of a CCO and
at least two junior compliance personnel, expected to be attorneys.
    The Commission requests comments on the accuracy of these
estimates. Specifically, the Commission requests comment on how the
Commission can most accurately estimate the cost and benefits of the
proposed rules and interpretations. Are there any important benefits
and costs not currently discussed? How would the costs and benefits
differ between operators of current platforms or systems trading SB
swaps? What are the potential costs and benefits of the pre-trade
transparency requirement, block trade requirement, order interaction
requirement and other market structure requirements included in the
proposal?
    We detail below cost estimates for specifics parts of the proposed
rules. Many of these costs estimates are based on the PRA estimates of
costs and burdens from Section XXVII, as well as other costs associated
with the proposed rules.
    Registration. The Commission preliminary estimates that the
aggregate initial costs to all potential SB SEF registrants to file
Form SB SEF, including all exhibits thereto, would be approximately
$13,505,940,\596\ or approximately $675,297 \597\ per SB SEF.
---------------------------------------------------------------------------

    \596\ See infra note 597.
    \597\ $13,505,940/20 potential SB SEF registrants = $675,297.
---------------------------------------------------------------------------

    The Commission estimates the initial costs (aside from the costs
associated with Exhibits F, H and P, which are separately discussed
below) associated with proposed Form SB SEF would be $32,000 per SB
SEF, or $640,000 for all potential SB SEFs.\598\ This would include the
time required to compile the information required by proposed Form SB
SEF, prepare the proposed Form SB SEF itself, and file it with the
Commission. In addition, Exhibits F and H to proposed Form SB SEF would
require an applicant to submit financial reports that would need to
satisfy a number of requirements, including the requirement that a
certified public account audit each financial report relating to the SB
SEF and a requirement that unaudited financial information be provided
for certain affiliated entities of the SB SEF.\599\ The Commission
preliminarily believes that it is unlikely that during the initial
implementation period a potential registrant would have audited
financial statements for the SB SEF in the ordinary course of business
prior to applying for registration on Form SB SEF. Therefore, in order
to register as a SB SEF with the Commission on Form SB SEF and comply
with Exhibits F and H thereto, potential registrants would incur an
initial cost to generate such financial statements. Based on
conversations with operators of current

trading platforms and the Commission's experience with entities of
similar size, the Commission preliminarily estimates that each
potential SB SEF registrant would incur, on average, a cost of $99,000
to complete the financial statements,\600\ and a cost of $500,000 for
independent public accounting services. In the aggregate, these costs
are estimated to be $1,980,000 \601\ and $10,000,000,\602\
respectively.\603\
---------------------------------------------------------------------------

    \598\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden imposed by proposed Form SB
SEF (other than Exhibits F, H and P of Form SB SEF) for SB SEF
registration would be 100 hours per SB SEF. See supra Section XXVII.
Assuming an hourly cost of $320 for a compliance attorney to meet
these requirements, the one-time estimated dollar cost to register
as a SB SEF would be $32,000 (100 hours x $320), or $640,000
($32,000 x 20 SB SEFs) in the aggregate. The hourly rate for the
compliance attorney is from SIFMA's Management & Professional
Earnings in the Securities Industry 2010, modified by the
Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \599\ See supra Section XXVII.D.1.
    \600\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden would be 500 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $198 for a
senior accountant to meet these requirements, the one-time estimated
dollar cost to register as a SB SEF would be $99,000 (500 hours x
$198), or $1,980,000 ($99,000 x 20 SB SEFs) in the aggregate. The
hourly rate for the senior accountant is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \601\ $1,980,000 = $99,000 x 20 SB SEFs.
    \602\ $10,000,000 = $500,000 x 20 SB SEFs.
    \603\ See also Section XXVII.D.1.
---------------------------------------------------------------------------

    The Commission also estimates that it would cost approximately
$7,920 per respondent to compile, review, and submit the financial
reports for certain affiliated entities as required pursuant to Exhibit
H to proposed Form SB SEF, or $158,400 in the aggregate.\604\ All of
the financial statements required by Exhibits F and H to proposed Form
SB SEF would need to be provided in XBRL, as required in Rules
405(a)(1), (a)(3), (b), (c), (d) and (e) of Regulation S-T.\605\ This
would create an additional cost for potential SB SEF respondents. The
Commission preliminarily estimates, based on its experience with other
data tagging initiatives, that these requirements would add an
additional cost on average of approximately $12,096 \606\ and $23,000
in outside software and other costs per respondent, or $241,920 \607\
and $460,000 \608\ in the aggregate, respectively. Thus, for complying
with the financial statement requirements under Exhibits F and H to
proposed Form SB SEF, the Commission estimates a total initial cost of
approximately $642,016 per respondent \609\ and $12,840,320 in the
aggregate for all respondents.\610\
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    \604\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden to comply with the
financial statement requirements of Exhibit H to proposed Form SB
SEF would be 40 hours per SB SEF. See supra Section XXVII. Assuming
an hourly cost of $198 for a senior accountant to meet these
requirements, the one-time estimated dollar cost per SB SEF would be
$7,920 (40 hours x $198), or $158,400 ($7,920 x 20 SB SEFs) in the
aggregate. The hourly rate for the senior accountant is from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by the Commission's staff to account for an 1800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
    \605\ See 17 CFR 232.405.
    \606\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden would be 54 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $224 for a
programmer analyst to meet these requirements, the initial estimated
dollar cost would be $12,096 (54 hours x $224), or $241,920 ($12,096
x 20 SB SEFs) in the aggregate. The hourly rate for the programmer
analyst is from SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by the Commission's staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
    \607\ $241,920 = $12,096 x 20 SB SEFs.
    \608\ $460,000 = $23,000 x 20 SB SEFs.
    \609\ $99,000 + $500,000 + $7,920 + $12,096 + $23,000 =
$642,016.
    \610\ $12,840,320 = $642,016 x 20 SB SEFs.
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    Exhibit P to proposed Form SB SEF would require SB SEFs controlled
by other persons and non-resident SB SEFs to provide opinions of
counsel as required by Rules 801(e) and (f), respectively. Therefore,
in order to register as a SB SEF with the Commission on Form SB SEF,
potential registrants that are controlled by other persons or that are
non-resident persons would incur an initial cost to generate such
opinions of counsel. As discussed above, the Commission preliminarily
estimates that the average initial paperwork cost for each SB SEF
controlled by another person and each non-resident SB SEF to provide
the opinion of counsel required by Exhibit P would be one hour and $900
per SB SEF. As discussed above, the Commission preliminarily estimates
that all 20 estimated applicants seeking to register as SB SEFs would
be controlled by other persons and that one applicant seeking to
register as a SB SEF will be a non-resident person. Therefore, in the
aggregate, the costs to comply with Exhibit P are estimated to be
$24,400 for all SB SEFs controlled by other persons \611\ and $1,220
for all non-resident SB SEFs.\612\
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    \611\ The Commission estimates that a SB SEF that is controlled
by another person will assign these responsibilities to a compliance
attorney. Assuming an hourly cost of $320 for a compliance attorney
to meet these requirements, the one-time estimated dollar cost for a
SB SEF controlled by another person to comply with Exhibit P would
be $1,220 ((1 hour x $320) + $900), or $24,400 ($1,220 x 20 SB SEFs
controlled by other persons) in the aggregate. The hourly rate for
the compliance attorney is from SIFMA's Management & Professional
Earnings in the Securities Industry 2010, modified by the
Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \612\ The Commission estimates that a non-resident SB SEF will
assign these responsibilities to a compliance attorney. Assuming an
hourly cost of $320 for a compliance attorney to meet these
requirements, the one-time estimated dollar cost for a non-resident
SB SEF to comply with Exhibit P would be $1,220 ((1 hour x $320) +
$900). This would also be the aggregate initial cost as the
Commission has estimated that only one non-resident person would
seek to register as a SB SEF. The hourly rate for the compliance
attorney is from SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by the Commission's staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    Therefore, the Commission preliminarily estimates that the total
one-time aggregate cost for all respondents to file the initial Form SB
SEF, including all exhibits thereto, would be approximately
$13,505,940.\613\
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    \613\ $13,505,940 = $640,000 (costs other than Exhibits F, H and
P to Form SB SEF) + $12,840,320 (costs relating to Exhibits F and H
to Form SB SEF) + $24,400 (costs relating to Exhibit P to Form SB
SEF for SB SEFs controlled by other persons) + $1,220 (costs
relating to Exhibit P to Form SB SEF for all non-resident SB SEFs).
---------------------------------------------------------------------------

    After the initial year in which a SB SEF would be registered, the
Commission estimates that each registered SB SEF would submit 4
amendments to Form SB SEF on average and one annual update, at an
annual cost of $48,000 per SB SEF, or $960,000 in the aggregate.\614\
In addition, the Commission estimates that two SB SEFs controlled by
another person would each submit one amendment to Exhibit P to Form SB
SEF per year, at an annual aggregate cost of $2,440.\615\ The
Commission also estimates that one non-resident SB SEF would submit one
amendment to Exhibit P to Form SB SEF per year, at an annual cost of
$1,220.\616\
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    \614\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual burden to prepare and file rule
amendments and the annual update to Form SB SEF would be 150 hours
per SB SEF. See supra Section XXVII. Assuming an hourly cost of $320
for a compliance attorney to meet these requirements, the annual
estimated dollar cost would be $48,000 (150 hours x $320), or
$960,000 ($48,000 x 20 SB SEFs) in the aggregate. The hourly rate
for the compliance attorney is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \615\ The Commission estimates that a SB SEF that is controlled
by another person will assign these responsibilities to a compliance
attorney. Assuming an hourly cost of $320 for a compliance attorney
to meet these requirements, the annual estimated dollar cost for a
SB SEF controlled by another person to amend Exhibit P would be
$1,220 ((1 hour x $320) + $900), or $2,440 in the aggregate ($1,220
x 2 (estimated number of SB SEFs controlled by other persons
required to amend Exhibit P per year) x 1 amendment). The hourly
rate for the compliance attorney is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \616\ The Commission estimates that a non-resident SB SEF will
assign these responsibilities to a compliance attorney. Assuming an
hourly cost of $320 for a compliance attorney to meet these
requirements, the annual estimated dollar cost for a non-resident SB
SEF to amend Exhibit P would be $1,220 ((1 hour x $320) + $900).
This would also be the aggregate annual cost as the Commission has
estimated that only one non-resident person would seek to register
as a SB SEF, and that such non-resident SB SEF will only file one
amendment to Exhibit P per year. The hourly rate for the compliance
attorney is from SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by the Commission's staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.

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

    In addition, proposed Rule 804 would impose costs on SB SEFs
seeking to withdraw registration. The Commission estimates that one SB
SEF would seek to withdraw its registration per year. Therefore, the
Commission estimates that the aggregate annual estimated dollar cost
for SB SEFs seeking to withdraw registration would be $320.\617\
---------------------------------------------------------------------------

    \617\ The Commission preliminarily estimates, for purposes of
its PRA, that the average burden for a SB SEF to withdraw its
registration would be 1 hour. See supra Section XXVII. Assuming an
hourly cost of $320 for a compliance attorney to meet these
requirements, the estimated dollar cost to withdraw the registration
of a SB SEF would be $320 (1 hour x $320). This would also be the
aggregate annual cost as the Commission has estimated that only one
SB SEF would seek to withdraw its registration as a SB SEF per year.
The hourly rate for the compliance attorney is from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by the Commission's staff to account for an 1800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
---------------------------------------------------------------------------

    Finally, proposed Rule 803 would impose costs on SB SEFs to prepare
and file supplemental information with the Commission. The Commission
estimates that the average annual cost for a SB SEF to prepare and file
such supplemental information would be $2,400 for each SB SEF, or
$48,000 in the aggregate.\618\
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    \618\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual burden to prepare and file
supplemental information would be 7.5 hours per SB SEF. See supra
Section XXVII. Assuming an hourly cost of $320 for a compliance
attorney to meet these requirements, the estimated annual dollar
cost would be $2,400 (7.5 hours x $320), or $48,000 ($2,400 x 20 SB
SEFs) in the aggregate. The hourly rate for the compliance attorney
is from SIFMA's Management & Professional Earnings in the Securities
Industry 2010, modified by the Commission's staff to account for an
1800-hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    Thus, the Commission estimates that the total annual aggregate cost
of making all required filings related to Form SB SEF would be
approximately $1,011,980.\619\
---------------------------------------------------------------------------

    \619\ $1,011,980 = $960,000 + $2,440 + $1,220 + $320 + $48,000.
---------------------------------------------------------------------------

    The Commission solicits comments on the costs associated with the
registration related rules and new Form SB SEF and exhibits. The
Commission specifically requests comment on initial costs associated
with completing the registration form and ongoing annual costs of
completing the required periodic and annual amendments. Please describe
and, to the extent practicable, quantify the costs associated with any
comments that are submitted. In addition, the Commission requests
comment on the following:
     How can the Commission most accurately estimate the costs
and benefits arising from proposed Regulation SB SEF's registration
requirements?
     What are the costs currently borne by entities covered by
the proposed registration requirements that may have been included in
the Commission's analysis?
     Are there additional costs involved in complying with the
registration requirements that have not been identified? If so, what
are the types, and amounts, of such costs?
     Can commenters assess the benefits of having comprehensive
and accurate registration of SB SEFs, which would provide access to
such information to the Commission and other regulators?
     Would there be additional benefits from the proposed
registration requirements that have not been identified?
    Rules Generally. The Commission estimates that the initial cost for
SB SEFs to comply with the rule writing requirements of Regulation SB
SEF, including to establish and submit the rules to the Commission,
would be $73,600 for each SB SEF, for an aggregate initial cost of
$1,472,000.\620\ The estimated cost would include the time expended for
drafting the rules, and for review of the draft rules, policies or
procedures by the SB SEF's senior management.
---------------------------------------------------------------------------

    \620\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden to comply with the rule-
writing requirements of Regulation SB SEF would be 230 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $320 for a
compliance attorney to meet these requirements, the initial
estimated dollar cost would be $73,600 (230 hours x $320), or
$1,472,000 ($73,600 x 20 SB SEFs) in the aggregate. The hourly rate
for the compliance attorney is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    The Commission notes that a SB SEF may choose to refine the rules,
policies or procedures that it would establish in connection with the
requirements of Regulation SB SEF. Once a SB SEF has drafted the
written rules, policies and procedures it is required to establish
pursuant to Regulation SB SEF, the Commission estimates that it would
cost a SB SEF approximately $38,400 annually to update its rules, for
an aggregate estimated ongoing annual cost for all SB SEFs of
approximately $768,000.\621\
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    \621\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual burden to comply with the rule-
writing requirements of Regulation SB SEF would be 120 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $320 for a
compliance attorney to meet these requirements, the annual estimated
dollar cost would be $38,400 (120 hours x $320), or $768,000
($38,400 x 20 SB SEFs) in the aggregate. The hourly rate for the
compliance attorney is from SIFMA's Management & Professional
Earnings in the Securities Industry 2010, modified by the
Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed rule writing requirements discussed above, as well as any
costs and benefits not already described that could result. The
Commission also requests data to quantify any potential costs or
benefits. The Commission requests comment on the costs and benefits of
the proposed registration requirements discussed above, as well as any
costs and benefits not already described that could result. The
Commission also requests data to quantify any potential costs or
benefits. In addition, the Commission requests comment on the
following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed rule writing requirements of
Regulation SB SEF?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed rule writing requirements?
     Are there additional costs involved in complying with the
rule writing requirements that have not been identified? If so, what
are the types, and amounts, of such costs?
     Can commenters assess the benefits of having a
comprehensive and accurate rule writing requirement for SB SEFs, which
would provide access to such information to the Commission and other
regulators?
     Would there be additional benefits from the proposed rule
writing requirements that have not been identified?
    Reporting. The Commission estimates that the annual cost for SB
SEFs to comply with the reporting requirements of Regulation SB SEF
would be $387,200 per SB SEF, for an aggregate annual cost of
$7,744,000.\622\ Further,

the Commission estimates the total cost of hiring outside legal counsel
to review an international information sharing agreement to be $4,000
per SB SEF, for an aggregate cost of approximately $80,000 \623\ for
all SB SEFs. In addition, the Commission estimates the total annual
cost of hiring an objective, external firm to review internal audits to
be $90,000 per SB SEF, for an aggregate cost of approximately
$1,800,000 \624\ for all SB SEFs. Thus, the estimated aggregate total
annual costs associated with reporting requirements for all SB SEFs
would be approximately $9,624,000.\625\
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    \622\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual costs comply with the reporting
requirements of Regulation SB SEF would be 1,210 hours per SB SEF.
See supra Section XXVII. Assuming an hourly cost of $320 for a
compliance attorney to meet these requirements, the annual estimated
dollar cost would be $387,200 (1,210 hours x $320), or $7,744,000
($387,200 x 20 SB SEFs) in the aggregate. The hourly rate for the
compliance attorney is from SIFMA's Management & Professional
Earnings in the Securities Industry 2010, modified by the
Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \623\ $80,000 = $4,000 x 20 SB SEFs.
    \624\ $1,800,000 = $90,000 x 20 SB SEFs.
    \625\ $9,624,000 = $7,744,000 + $80,000 + $1,800,000.
---------------------------------------------------------------------------

    The Commission estimates that the annual cost for SB SEF
participants to comply with the reporting requirements of Regulation SB
SEF would be $32,000 per SB SEF participant, for an aggregate annual
cost of $8,800,000.\626\
---------------------------------------------------------------------------

    \626\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual costs to comply with the reporting
requirements of Regulation SB SEF would be 100 hours per SB SEF
participant, with an estimated 275 SB SEF participants in total for
a total of 27,500 hours. See supra Section XXVII. Assuming an hourly
cost of $320 for a compliance attorney to meet these requirements,
the annual estimated dollar cost would be $32,000 (100 hours x
$320), or $8,800,000 ($32,000 x 275 SB SEF participants) in the
aggregate. The hourly rate for the compliance attorney is from
SIFMA's Management & Professional Earnings in the Securities
Industry 2010, modified by the Commission's staff to account for an
1800-hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed reporting requirements discussed above, as well as any costs
and benefits not already described that could result. The Commission
also requests data to quantify any potential costs or benefits. In
addition, the Commission requests comment on the following:
     How can the Commission most accurately estimate the costs
and benefits arising from proposed reporting requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed reporting requirements?
     Are there additional costs involved in complying with the
reporting requirements that have not been identified? If so, what are
the types, and amounts, of such costs?
     Can commenters assess the benefits of having comprehensive
and accurate reporting requirements for SB SEFs, which would provide
access to such information to the Commission and other regulators?
     Would there be additional benefits from the proposed
reporting requirements that have not been identified?
    Recordkeeping. The Commission estimates that the annual cost for SB
SEFs to comply with the recordkeeping requirements of proposed Rule
818(a)-(b) would be similar to the annual cost for national securities
exchanges to comply with comparable rules. The Commission estimates
that the annual cost would be $16,000 per SB SEF, for an aggregate
annual cost of $320,000.\627\ This figure includes, but is not limited
to, the annual hourly burden to generate, collect, organize and
preserve all of the documents and other records required under proposed
Rule 818(a) and (b).
---------------------------------------------------------------------------

    \627\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual burden to comply with the
recordkeeping requirements of proposed Rule 818(a)-(b) would be 50
hours per SB SEF. See supra Section XXVII. Assuming an hourly cost
of $320 for a compliance attorney to meet these requirements, the
annual estimated dollar cost would be $16,000 (50 hours x $320), or
$320,000 ($16,000 x 20 SB SEFs) in the aggregate. The hourly rate
for the compliance attorney is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    In addition, proposed Rule 818(c) would require a SB SEF to keep
certain records with respect to trading activity on and through the SB
SEF. Specifically, a SB SEF must make and keep accurate, time-sequenced
records of all inquiries, responses, orders, quotations, other trading
interest and transactions that are received by, originated on, or
executed on the SB SEF. The Commission estimates that the annual cost
to comply with this requirement would be $41,600 per SB SEF, for an
aggregate annual cost of $832,000.\628\
---------------------------------------------------------------------------

    \628\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual burden to comply with the
recordkeeping requirements of proposed Rule 818(c) would be 130
hours per SB SEF. See supra Section XXVII. Assuming an hourly cost
of $320 for a compliance attorney to meet these requirements, the
annual estimated dollar cost would be $41,600 (130 hours x $320), or
$832,000 ($41,600 x 20 SB SEFs) in the aggregate. The hourly rate
for the compliance attorney is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that a SB SEF could incur a
one-time cost to set up or modify an existing recordkeeping system to
comply with proposed Rule 818. Based on the Commission's experience
with recordkeeping costs, and consistent with prior cost estimates for
similar recordkeeping provisions,\629\ the Commission estimates that
setting up or modifying a recordkeeping system would cost $106,680 per
SB SEF, for an aggregate total of $2,133,600.\630\
---------------------------------------------------------------------------

    \629\ See Securities Exchange Act Release No. 59342 (February 2,
2009); 74 FR 6456 (February 9, 2009) (Amendments to Rules for
Nationally Recognized Statistical Rating Organizations) (``NRSRO
Adopting Release'').
    \630\ The Commission estimates it would take 345 hours for a
senior programmer to set up or modify a recordkeeping system for a
cost of $104,880 per SB SEF (345 hours x $304), or $2,097,600
($104,880 x 20 SB SEFs). In addition, the Commission estimates a
cost of $1,800 per SB SEF in information technology expenses to
purchase recordkeeping software for a total initial cost of $36,000
for all SB SEFs. The total costs would be $106,680 ($104,880 +
$1,800) per SB SEF or a total of $2,133,600 ($106,680 x 20 SB SEFs)
for all SB SEFs. The hourly rate for the senior programmer is from
SIFMA's Management & Professional Earnings in the Securities
Industry 2010, modified by the Commission's staff to account for an
1800-hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    Additionally, the Commission preliminarily estimates that each SB
SEF may have a one-time burden to upgrade its existing systems to
ensure that the audit trail component of its systems complies with
proposed Rule 818(c). Based on industry sources, the Commission
preliminarily believes that this work would be done internally by two
programmers over the course of approximately four weeks. The Commission
preliminarily estimates that it would cost a total of $97,280 per SB
SEF, or $1,945,600 in the aggregate for all SB SEFs.\631\
---------------------------------------------------------------------------

    \631\ The Commission estimates that it would take 160 hours for
two senior programmers to set up or modify a recordkeeping system
for a cost of $97,280 per SB SEF (160 hours x 2 programmers x $304),
or $1,945,600 ($97,280 x 20 SB SEFs) for all SB SEFs. The hourly
rate for the senior programmer is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    As discussed above, proposed Rule 809(d) would require a SB SEF
that permits non-registered ECPs to be participants in the SB SEF to
establish, document, and maintain a system of risk management controls
and supervisory procedures reasonably designed to manage the financial,
regulatory, and other risks of this business activity. Based on
conversations with industry

sources, the Commission preliminarily believes that the majority of
entities that would seek to become SB SEFs already would have risk
management systems and supervisory procedures and controls to protect
the integrity of their business and to comply with other requirements
already specified and accounted for herein. The Commission also
believes that only a small number of entities would have to establish
completely new systems and procedures to comply with the requirement of
proposed Rule 809(d).
    The Commission estimates that each SB SEF would spend an average of
$68,400 to modify its risk management systems to bring them into
compliance with the proposed Rule for a total one-time cost of
$1,368,000 for all SB SEFs combined,\632\ and a total annual ongoing
burden of $1,048,800 on all SB SEFs to maintain their systems.\633\ The
Commission preliminarily believes that proposed Rule 809(d) also would
impose a one-time legal and compliance cost of $330,300 on all SB SEFs
to comply with the requirement to establish, document, and maintain
compliance policies and supervisory procedures,\634\ and an annual cost
of $482,700 on all SB SEFs to review their written compliance policies
and supervisory procedures.\635\
---------------------------------------------------------------------------

    \632\ The Commission preliminarily estimates, for purposes of
its PRA, that the average one-time cost to comply with proposed Rule
809(d) would require one senior programmer working 225 hours. See
supra Section XXVII. Assuming an hourly cost of $304 for a senior
programmer the one-time cost would be $68,400 (225 hours x $304), or
$1,368,000 ($68,400 x 20) in the aggregate. The hourly rate for the
senior programmer is from SIFMA's Management & Professional Earnings
in the Securities Industry 2010, modified by the Commission's staff
to account for an 1800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits and overhead.
    \633\ The Commission preliminarily estimates, for purposes of
its PRA, that the ongoing cost to comply with proposed Rule 809(d)
would require one senior programmer working 172.5 hours annually.
See supra Section XXVII. Assuming an hourly cost of $304 for a
senior programmer, the cost would be $52,440 (172.5 hours x $304),
or $1,048,800 ($52,440 x 20 SB SEFs) in the aggregate. The hourly
rate for the senior programmer is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \634\ The Commission preliminarily estimates, for purposes of
its PRA, that the average one-time cost to comply with proposed Rule
809(d) would require one compliance attorney and one compliance
manager to spend 7.5 hours each to evaluate appropriate access
thresholds. The Commission also preliminarily estimates that one
compliance attorney and one compliance manager would each require
approximately 15 hours, and the CCO would require approximately 7.5
hours, to set up or modify compliance policies and procedures to
comply with the proposed rule. See supra Section XXVII. Assuming an
hourly cost of $320 for a compliance attorney, $423 for the CCO, and
$273 for a compliance manager the cost for each SB SEF would be
$16,515 = 7,200 (22.5 hours x $320) + $3,172.5 (7.5 hours x $423) +
$6,142.5 (22.5 hours x $273), for a total of $330,300 for all SB
SEFs ($16,515 x 20). The hourly rate for the compliance attorney,
compliance manager and CCO are from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \635\ The Commission preliminarily estimates, for purposes of
its PRA, that the ongoing cost to comply with proposed Rule 809(d)
would require an average of 30 hours per year for each of an
compliance attorney and compliance manager, and 15 hours per year
for the CCO, to review and document their written compliance
policies and supervisory procedures. Assuming an hourly cost of $320
for a compliance attorney, $423 for the CCO, and $273 for a
compliance manager, the cost for each SB SEF would be 24,135 =
$9,600 (30 hours x $320) + $6,345 (15 hours x $423) + $8,190 (30
hours x $273), for a total of $482,700 for all SB SEFs ($24,135 x 20
SB SEFs). The hourly rate for the compliance attorney, compliance
manager and CCO are from SIFMA's Management & Professional Earnings
in the Securities Industry 2010, modified by the Commission's staff
to account for an 1800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    Therefore, the Commission preliminarily estimates that the total
one-time burden for all SB SEFs to comply with the collection of
information requirements of proposed Rule 809(d) would be
$1,698,300,\636\ and the total annual burden for all SB SEFs to comply
with the proposed Rule would be $1,531,500.\637\
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    \636\ $1,698,300 = $1,368,000 + $330,300. See supra notes 632
and 634 (discussing the average one-time costs to comply with Rule
809(d)).
    \637\ $1,531,500 = $1,048,800 + $482,700. See supra notes 633
and 635 (discussing the ongoing costs to comply with Rule 809(d)).
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed recordkeeping requirements discussed above, as well as any
costs and benefits not already described that could result. The
Commission also requests data to quantify any potential costs or
benefits. In addition, the Commission requests comment on the
following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed recordkeeping requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed recordkeeping requirements?
     Are there additional costs involved in complying with the
recordkeeping requirements that have not been identified? If so, what
are the types, and amounts, of such costs?
     Can commenters assess the benefits of having comprehensive
and accurate recordkeeping requirements for SB SEFs, which would
provide access to such information to the Commission and other
regulators?
     Are the Commission's estimates concerning what it would
cost to implement and maintain technology systems to comply with the
recordkeeping requirements accurate? If not, what would the costs, in
both time and dollar figures, be? Please provide data.
     Would there be additional benefits from the proposed
recordkeeping requirements that have not been identified?
    Publication of Trading Information. For the requirement in proposed
Rule 817(a) that a SB SEF have the capacity to electronically capture,
transmit, and disseminate information on price, trading volume, and
other trading data on all SB swaps executed on or through the SB SEF,
the Commission preliminarily estimates that a SB SEF would incur a one-
time cost of $92,416 per SB SEF, or $1,848,320 in the aggregate.\638\
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    \638\ The Commission preliminarily estimates, for purposes of
its PRA, that the average one-time cost to comply with proposed Rule
817(a) would require two senior programmers working 160 hours, for a
total of 320 hours. See supra Section XXVII. Assuming an hourly cost
of $304 for a senior programmer, the one-time cost would be $92,416
(320 hours x $304), or $1,848,320 ($92,416 x 20 SB SEFs) in the
aggregate. The hourly rate for the senior programmer and programmer
analyst are from SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by the Commission's staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
requirements discussed above, as well as any costs and benefits not
already described that could result. The Commission also requests data
to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed publication of trading
information requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed publication of trading information requirements?
     Are there additional costs involved in complying with the
publication of trading information requirements that have not been
identified? If so, what are the types, and amounts, of such costs?
     Can commenters assess the benefits of having these
requirements for SB SEFs, which would provide access to such
information to the Commission and other regulators?

     Would there be additional benefits from the proposed
publication of trading information requirements that have not been
identified?
    Composite Indicative Quote and Executable Bids and Offers. For the
two requirements: (1) The requirement in proposed Rule 811(e) that a SB
SEF operating a RFQ platform create and disseminate through the SB SEF
a composite indicative quote, made available to all participants, for
SB swaps traded on or through the SB SEF; and (2) the requirement
imposed by the Commission's proposed interpretation of the definition
of SB SEF that each SB SEF, at a minimum, provide any participant with
the ability to make and display executable bids or offers accessible to
all participants on the SB SEF, if the participant wishes to do so, the
Commission preliminarily estimates that a SB SEF would incur a one-time
cost of $21,120 per SB SEF, or $422,400 in the aggregate.\639\ Further,
the Commission preliminarily estimates that each SB SEF would incur a
recurring annual cost of $11,200 to monitor and update its systems to
determine if its composite indicative quote and executable bid and
offer functionalities operate appropriately.\640\
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    \639\ The Commission preliminarily estimates, for purposes of
its PRA, that the average one-time cost to comply with the above
requirements would require one senior programmer and one programmer
analyst working 40 hours each. See supra Section XXVII. Assuming an
hourly cost of $304 for a senior programmer and $224 for a
programmer analyst, the one-time cost would be $21,120 ((40 hours x
$304) + (40 hours x $224)), or $422,400 ($21,120 x 20 SB SEFs) in
the aggregate. The hourly rate for the senior programmer and
programmer analyst are from SIFMA's Management & Professional
Earnings in the Securities Industry 2010, modified by the
Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \640\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual cost to comply with the above
requirements would require one programmer analyst working 50 hours.
See supra Section XXVII. Assuming an hourly cost of $224 for a
programmer analyst the one-time cost would be $11,200 (50 hours x
$224), or $224,000 ($11,200 x 20 SB SEFs) in the aggregate. The
hourly rate for the senior programmer and programmer analyst are
from SIFMA's Management & Professional Earnings in the Securities
Industry 2010, modified by the Commission's staff to account for an
1800-hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of
collecting and disseminating a composite indicative quote and of
allowing participants to disseminate executable bids and offers
discussed above, as well as any costs and benefits not already
described that could result. The Commission also requests data to
quantify any potential costs or benefits. In addition, the Commission
requests comment on the following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed requirements to collect and
disseminate a composite indicative quote and executable bids and
offers?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed dissemination of a composite indicative quote?
     Are there additional costs involved in complying with the
requirements to collect and disseminate a composite indicative quote
and providing the ability for participants to disseminate executable
bids and offer that have not been identified? What are the types, and
amounts, of the costs?
     Can commenters assess the benefits of collecting and
disseminating a composite indicative quote for SB SEFs and of SB SEFs
providing participants the ability to disseminate executable bids and
offers?
    Rule and Product Filings. The Commission estimates that the annual
cost for SB SEFs to comply with the proposed rule and product filing
requirements of proposed Rules 805 through 808 would be $75,200 per SB
SEF, for an aggregate annual cost of $1,504,000.\641\ These estimated
costs entail preparing, reviewing and submitting the filings to the
Commission. Based on the Commission staff's consultation with CFTC
staff, the Commission believes that SB SEFs would handle the rule and
product filing processes internally.
---------------------------------------------------------------------------

    \641\ Based on the Commission staff's consultation with CFTC
staff, the Commission preliminarily estimates for purposes of its
PRA that the average annual burden to comply with the rule filing
requirements of Rules 805 and 806 would be 150 hours, and the
average annual burden to comply with the product filing requirements
of Rules 807 and 808 would be 85 hours per SB SEF. See supra Section
XXVII. Assuming an hourly cost of $320 for a compliance attorney to
meet these requirements, the annual estimated dollar cost would be
$75,200 (235 hours x $320), or $1,504,000 ($75,200 x 20 SB SEFs) in
the aggregate. The hourly rate for the compliance attorney is from
SIFMA's Management & Professional Earnings in the Securities
Industry 2010, modified by the Commission's staff to account for an
1800-hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed rule and product filing requirements discussed above, as well
as any costs and benefits not already described that could result. The
Commission also requests data to quantify any potential costs or
benefits. In addition, the Commission requests comment on the
following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed rule and product filing
requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed rule and product filing requirements?
     Are there additional costs involved in complying with the
rule and product filing requirements that have not been identified? If
so, what are the types, and amounts, of such costs?
     Can commenters assess the benefits of having comprehensive
and accurate rules and product filing requirements for SB SEFs, which
would provide access to such information to the Commission and other
regulators?
     Would there be additional benefits from the proposed rule
and product filing requirements that have not been identified?
    Chief Compliance Officer. The Commission estimates that the initial
cost for SB SEFs to comply with the CCO requirements of proposed Rule
823(b)(6) and (7), which relate to the handling of noncompliance
issues, would be $91,200 per SB SEF, for an aggregate annual cost of
$1,824,000.\642\ A CCO also would be required under proposed Rule
823(c) and (d) to prepare and submit an annual compliance report to the
Commission and to the SB SEF's Board. The Commission estimates that the
annual cost for SB SEFs to comply with this requirement is $29,440 per
SB SEF, for an aggregate annual cost of $588,800.\643\ Proposed Rule
823(e)(1)

and (2) and Exhibits F and H to proposed Form SB SEF also require the
CCO to submit an annual financial report. Based on conversations with
operators of current trading platforms and the Commission's experience
with entities of similar size, the Commission preliminarily estimates
that each SB SEF would incur, on average, a cost of $99,500 to complete
the reports,\644\ and a cost of $500,000 for independent public
accounting services. In the aggregate, these costs are estimated to be
$1,980,000 and $10,000,000, respectively.\645\ The Commission also
estimates that it would cost approximately $7,920 per respondent to
compile, review, and submit the financial reports for certain
affiliated entities or $158,400 in the aggregate.\646\ However, all of
these reports would need to be provided in XBRL, as required by Rules
405(a)(1), (a)(3), (b), (c), (d) and (e) of Regulation S-T.\647\ This
would create an additional cost for SB SEFs. The Commission
preliminarily estimates, based on its experience with other data
tagging initiatives, that these requirements would add an additional
cost on average of approximately $12,096 \648\ and $23,000 in outside
software and other costs per respondent, or $241,920 and $460,000 in
the aggregate, respectively. Thus, the Commission estimates a total
initial cost of approximately $762,656 per respondent \649\ and
$15,253,120 in the aggregate for all respondents.\650\
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    \642\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden to comply with the CCO
requirements of proposed Rule 823(b)(6) and (7) would be 160 hours.
Also, due to the novel nature of the CCO requirements in the SB SEF
industry and the new requirements under the Dodd-Frank Act, the
Commission estimates that there would be an initial one-time burden
of $40,000 per SB SEF in outside legal costs. See supra Section
XXVII. Assuming an hourly cost of $320 for a compliance attorney to
meet these requirements, the annual estimated dollar cost would be
$51,200 (160 hours x $320) plus $40,000, for a total of $91,200, or
$1,824,000 ($91,200 x 20 SB SEFs) in the aggregate. The hourly rate
for the compliance attorney is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \643\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden to comply with the CCO
requirements of proposed Rule 823(c) and (d) would be 92 hours. See
supra Section XXVII. Assuming an hourly cost of $320 for a
compliance attorney to meet these requirements, the annual estimated
dollar cost would be $29,440 (92 hours x $320) or $588,800 ($29,440
x 20 SB SEFs) in the aggregate. The hourly rate for the compliance
attorney is from SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by the Commission's staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
    \644\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden would be 500 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $198 for a
senior accountant to meet these requirements, the one-time estimated
dollar cost to register a SB SEF would be $99,000 (500 hours x
$198), or $1,980,000 ($99,000 x 20 SB SEFs) in the aggregate. The
hourly rate for the senior accountant is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \645\ Id. See also Section XXVII.D.1.
    \646\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden would be 40 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $198 for a
senior accountant to meet these requirements, the one-time estimated
dollar cost per SB SEF would be $7,920 (40 hours x $198), or
$158,400 ($7,920 x 20 SB SEFs) in the aggregate. The hourly rate for
the senior accountant is from SIFMA's Management & Professional
Earnings in the Securities Industry 2010, modified by the
Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \647\ See 17 CFR 232.405.
    \648\ The Commission preliminarily estimates, for purposes of
its PRA, that the average initial burden would be 54 hours per SB
SEF. See supra Section XXVII. Assuming an hourly cost of $224 for a
programmer analyst to meet these requirements, the initial estimated
dollar cost would be $12,096 (54 hours x $224), or $241,920 ($12,096
x 20 SB SEFs) in the aggregate. The hourly rate for the programmer
analyst is from SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by the Commission's staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
    \649\ $762,656 = $91,200 + $29,440 + $99,000 + $500,000 + $7,920
+ $12,096 + $23,000.
    \650\ $15,253,120 = 20 (number of SB SEFs) x $762,656.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed CCO requirements discussed above, as well as any costs and
benefits not already described that could result. The Commission also
requests data to quantify any potential costs or benefits. In addition,
the Commission requests comment on the following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed CCO requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the cost of the
proposed CCO requirements?
     Are there additional costs involved in complying with the
CCO requirements that have not been identified? If so, what are the
types, and amounts, of such costs?
     Can commenters assess the benefits of having comprehensive
and accurate CCO requirements for SB SEFs, which would provide access
to such information to the Commission and other regulators?
     Would there be additional benefits from the proposed CCO
requirements that have not been identified?
    Conflicts of Interest. As described above, proposed Rule 820 sets
forth certain governance arrangements that would be required of SB
SEFs. A SB SEF may need to revise the composition of its Board, if the
Board currently is not composed of at least 20% SB SEF participants. A
SB SEF could comply with the 20% participant director requirement by
decreasing the size of its Board and allowing some non-participant
directors to resign, maintaining the current size of its Board and
replacing some non-participant directors with participant directors, or
by increasing the size of its Board and electing additional participant
directors. In any event, unless a SB SEF currently complies with
proposed Rule 820, it would incur the cost of adding new directors or
replacing existing directors. A SB SEF may also need to design or
modify its governance processes to preclude any participant, either
alone or together with its related persons, that beneficially owns an
interest in the SB SEF from dominating or exercising disproportionate
influence in the selection of participant directors, if such
participant could thereby dominate or exercise disproportionate
influence in the selection or appointment of the entire Board. The
Commission estimates a cost per SB SEF of $4,800, or $96,000 in the
aggregate for all SB SEFs to revise the relevant governing
documents.\651\
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    \651\ The Commission preliminarily estimates, for purposes of
its PRA, that it would take a compliance attorney approximately 15
hours to revise the relevant governing documents. Assuming an hourly
cost of $320 for a compliance attorney to meet these requirements,
the one-time estimated dollar cost would be $4,800 (15 hours x $320)
or $96,000 ($4,800 x 20 SB SEFs) in the aggregate. The hourly rate
for the senior programmer and programmer analyst are from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by the Commission's staff to account for an 1800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
---------------------------------------------------------------------------

    A SB SEF may also need to revise the composition of its Board to
include at least one director that is representative of investors who
are not SB swap dealers or major SB swap participants, and are not
associated with a participant. In this regard, SB SEFs could face
difficulties in locating qualified individuals to serve as investor
directors, particularly because SB swaps trading is complex and some
potential candidates may decline to serve as a director if they believe
that they lack sufficient expertise. There could also be costs in
educating investor directors to become familiar with the manner in
which SB swaps are traded and the overall market for SB swaps, as well
as the new regulatory structure that would govern them, which could
slow Board or committee processes at least initially.
    The Commission preliminarily believes that the cost of securing an
investor director to serve on the Board of the SB SEF could range from
a relatively low cost for those entities that have the contacts and
resources to be able to search for one or more investor directors on
their own; to a moderate cost for those entities that can undertake the
search on their own but would incur some expenditures, such as placing
advertisements in national media; to a higher cost for those entities
that must secure the services of a recruitment firm that specializes in
the placement of outside directors. The Commission preliminarily
estimates that those SB SEFs that must rely on a recruitment specialist
could incur a cost of approximately $68,000 per director,\652\

or $1,360,000 in the aggregate, if all SB SEFs utilized a recruitment
firm.\653\
---------------------------------------------------------------------------

    \652\ The Commission is basing this estimate on a recent study
noting that the retainer fee for outside directors is on average
$67,624 (rounded to $68,000). See http://www.hewittassociates.com/_MetaBasicCMAssetCache_/Assets/Articles/2010/2010_Outside_Director_Compensation.pdf. The Commission believes that this amount
could serve as a proxy for the amount of any fee to be charged by a
recruitment firm that would conduct a national search for a director
that meets the requirements of proposed Rule 820(c)(2).
    \653\ $1,360,000 = 20 (number of SB SEFs) x $68,000.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed conflicts requirements discussed above, as well as any costs
and benefits not already described that could result. The Commission
also requests data to quantify any potential costs or benefits. In
addition, the Commission requests comment on the following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed conflicts requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed conflicts requirements?
     Are there additional costs involved in complying with the
governance requirements that have not been identified? If so, what are
the types, and amounts, of such costs?
     Can commenters assess the benefits of having governance
requirements for SB SEFs?
     Would there be additional benefits from the proposed
conflicts requirements that have not been identified?
    Surveillance. The Commission preliminarily estimates that
establishing an automated surveillance system in compliance with
proposed Rules 811 and 813 would require an initial cost of $3,256,800
per SB SEF, or $65,136,000 in the aggregate. The initial cost per SB
SEF includes $1,756,800 in initial programming costs per SB SEF \654\
as well as a one-time capital expenditure per SB SEF of $1.5 million in
information technology costs that would be necessary to establish such
a system. This capital expenditure estimate is based on the
Commission's discussions with market participants currently operating
platforms that trade OTC swaps.
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    \654\ The Commission preliminarily estimates, for purposes of
its PRA, that establishing an automated surveillance system would
require one senior programmer and three additional programmers
working for 1,800 hours each to create and implement such a system.
See supra Section XXVII. Assuming an hourly cost of $304 for a
senior programmer and $224 for a programmer analyst to meet these
requirements, the initial estimated dollar cost would be $1,756,800
= (1,800 hours x $304) + ((1,800 hours x $224) x 3), or $35,136,000
($1,756,800 x 20 SB SEFs) in the aggregate. The hourly rate for the
senior programmer and programmer analyst are from SIFMA's Management
& Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the ongoing annual
costs associated with the automated surveillance system required by
proposed Rules 811 and 813 would be $1,306,400 per SB SEF, or
$26,128,000 in the aggregate. The annual cost per SB SEF includes
$806,400 in annual programming costs per SB SEF \655\ as well as an
ongoing annual information technology cost of $500,000 per SB SEF.
---------------------------------------------------------------------------

    \655\ The Commission preliminarily estimates, for purposes of
its PRA, that the average annual burden to comply with the automated
surveillance system requirements of proposed Rules 811 and 813 would
require two programmer analysts working for 1,800 hours per SB SEF.
See supra Section XXVII. Assuming an hourly cost of $224 for a
programmer analyst to meet these requirements, the initial estimated
dollar cost would be $806,400 (1,800 hours x $224 x 2), or
$16,128,000 ($806,400 x 20 SB SEFs) in the aggregate. The hourly
rate for the programmer analyst is from SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed surveillance system requirements discussed above, as well as
any costs and benefits not already described that could result. The
Commission also requests data to quantify any potential costs or
benefits. In addition, the Commission requests comment on the
following:
     How can the Commission most accurately estimate the costs
and benefits arising from the proposed surveillance system
requirements?
     What are the costs currently borne by entities that may
have been included in the Commission's analysis of the costs of the
proposed surveillance system requirements?
     Are there additional costs involved in complying with the
surveillance system requirements that have not been identified? If so,
what are the types, and amounts, of such costs?
     Can commenters assess the benefits of having comprehensive
and accurate surveillance system requirements for SB SEFs, which would
provide access to such information to the Commission and other
regulators?
     Would there be additional benefits from the proposed
surveillance system requirements that have not been identified?

D. General Request for Comments on Regulation SB SEF

     The Commission requests comment on any other aspect of the
costs and benefits associated with Regulation SB SEF.
     Would the obligations imposed on reporting parties by
proposed Regulation SB SEF be a significant enough barrier to entry to
cause some firms not to enter the SB swaps market? If so, how many
firms might decline to enter the market? How can the cost of their not
entering the market be tabulated? How should the Commission weigh such
costs, if any, against the anticipated benefits from increased
transparency to the SB swaps market from the proposal, as discussed
above?
     How many entities would be affected by proposed Regulation
SB SEF?

XXIX. Consideration of Burden on Competition, and Promotion of
Efficiency, Competition and Capital Formation

    Section 3(f) of the Exchange Act \656\ requires the Commission,
whenever it engages in rulemaking and is required to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action would promote efficiency, competition, and capital
formation. In addition, Section 23(a)(2) of the Exchange Act \657\
requires the Commission, when adopting rules under the Exchange Act, to
consider the impact of any such rules on competition. Section 23(a)(2)
of the Exchange Act also prohibits the Commission from adopting any
rule that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\658\
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    \656\ 15 U.S.C. 78c(f).
    \657\ 15 U.S.C. 78w(a)(2).
    \658\ Id.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the regulation of SB
SEFs, as required by the Dodd-Frank Act and proposed to be implemented
under Regulation SB SEF, would promote efficiency, competition, and
capital formation.
    Promotion of Efficiency. The Commission preliminarily believes that
the regulation of SB SEFs, as required by the Dodd-Frank Act and
proposed to be implemented under Regulation SB SEF, would promote
efficiency by encouraging innovation, automation, and reduction of
informational asymmetries.

    The proposed rules are designed to be flexible and to foster
innovation in the SB swaps market, particularly with respect to the
trading of SB swaps by a diverse group of market participants. The
Commission formulated the proposed rules, along with the proposed
interpretation of the definition of SB SEF in a manner that would allow
entities that seek to become SB SEFs to structure diverse platforms for
the trading of SB swaps, subject to certain baseline requirements.
These proposed baseline requirements are meant to permit access by a
wide group of market participants to a range of SB swaps in keeping
with the mandate of the Dodd-Frank Act. Thus, the Commission believes
that the trading of SB swaps could evolve to its most efficient
structure while also meeting the statutory and regulatory requirements
relating to such activity.
    The Commission preliminarily believes that the proposed
requirements with respect to pre-trade price transparency could lead to
more efficient pricing in the SB swaps market. The proposed rules are
designed to result in an increase in pre-trade price transparency for
SB swaps, which should aid market participants in evaluating current
market prices for SB swaps, thereby furthering more efficient price
discovery. Price transparency, coupled with the potential increase in
the number of market participants with access to trading in SB swaps,
could further decrease the spread in quoted prices, and thus could lead
to higher efficiency in the trading of these securities.
    Some industry participants, however, have expressed concerns to the
Commission that pre-trade price transparency could force market
participants to reveal more information about trading interest than
they believe would be economically desirable. To the extent that market
participants consider that pre-trade price transparency requirements
are too burdensome and choose not to participate in the market, thereby
foregoing any potential economic benefits that may have resulted from
purchasing a particular SB swap, market efficiency could be harmed for
less liquid instruments and for large blocks of SB swaps.
    The Commission preliminarily believes that automation and systems
development that would be associated with the regulation of SB SEFs, as
required by proposed Regulation SB SEF, would provide market
participants with new platforms and tools to execute and process
transactions in SB swaps, which could result in lower trading costs and
thus could lead to more efficient trading of SB swaps.
    The Commission also believes that the proposed exemptions for SB
SEFs from regulation as national securities exchanges or as brokers
would eliminate what would be largely an additive oversight of SB SEFs
and therefore would promote efficiency, because SB SEFs would not have
to expend resources to comply with these regulatory obligations from
which they would be exempt.
    Promotion of Competition. The Commission preliminary believes that
the regulation of SB SEFs, as required by the Dodd-Frank Act and
proposed to be implemented under Regulation SB SEF, could promote
competition. The proposed rules that would require SB SEFs to establish
fair, objective and not unreasonably discriminatory standards for
granting impartial access to trading on the SB SEF would foster greater
access to SB SEFs by SB swap dealers, major SB swap participants,
brokers, and ECPs. The resulting increase in the number of participants
who could access venues for the trading of SB swaps would allow a range
of market participants to compete for business on the SB SEF through
price competition or other dimensions of service. The proposed pre-
trade transparency requirements, including the proposed requirement to
create and disseminate a composite indicative quote, could further
promote price competition by making available information about trading
interest before execution of the trade, thereby allowing participants
to improve upon current quotes.
    The Dodd-Frank Act's mandate to bring SB swaps that are subject to
the mandatory clearing requirement and that are made available to trade
onto regulated markets as well as the proposed interpretation of the
definition of SB SEF, and proposed Regulation SB SEF that are intended
to further implement the statutory directive, should help foster
greater competition in the trading of SB swaps. The trading of SB swaps
on regulated markets, and the Commission's proposals to institute rules
for such trading, should allow diverse trading platforms or systems to
register as SB SEFs and to compete for business in the SB swap market.
    The Commission proposes to initially permit temporary registration
of SB SEFs while it considers each applicant's full registration
application, as long as the applicant meets certain requirements for
temporary registration. This proposed temporary registration should
help alleviate burdens associated with starting up a SB SEF and promote
competition by reducing barriers to entry, because entry into the SB
swap market would not be delayed by procedural matters, such as the
timing of Commission review of the applicant's full registration
submission. In addition, the Commission would have the opportunity to
observe the SB SEF in operation before it grants permanent registration
to the SB SEF, thereby helping to ensure that the SB SEF promotes
desirable competition.
    Promotion of Capital Formation. The Commission preliminary believes
that the regulation of SB SEFs, as required by the Dodd-Frank Act and
as proposed to be implemented under Regulation SB SEF, would promote
capital formation because the proposed interpretation of the definition
of SB SEF, along with the elements of proposed Rule 811 that relate to
pre-trade price transparency, are intended to provide a flexible
approach as to the parameters of what can be traded on a SB SEF. As a
result, entities that currently provide a platform or system for OTC
derivatives trading should be able to leverage off of their current
trading platforms when developing a SB SEF-compatible trading platform.
These entities would have various options available to them when
developing their systems or platforms to comply with the Commission's
proposed rulemaking. This flexible feature of the proposals should help
promote capital formation because resources would be invested in a more
efficient manner to improve upon or expand the features of those that
plan to register as a SB SEF.
    In addition, proposed Regulation SB SEF would provide the
Commission with information relating to trading, recordkeeping, and
surveillance of SB SEFs, as well as access to the books and records of
SB SEFs. A well-regulated SB swap market, where the Commission has
access to information about SB swap transactions, would increase the
Commission's ability to assess risks in the SB swap market. In
addition, the proposals would provide for various safeguards to help
promote market integrity, including proposed Rule 809 relating to
access to the SB SEF and proposed Rule 822 relating to systems
safeguards. Proposed Regulation SB SEF also is intended to support the
statutorily-mandated regulatory obligations of SB SEFs through proposed
Rule 823 relating to the duties of the CCO, among other proposed rules.
Any resulting increase in market integrity would likely increase market
participants' confidence in the soundness and fairness of the SB swap
market. Such increased confidence likely would stimulate financial
investment in SB swaps by corporate

entities and others that may find that more transparent venues for the
trading of SB swaps would allow them to purchase SB swaps to offset
business risks and to meet hedging objectives. Further, to the extent
that market participants utilize SB swaps to better manage portfolio
risks with respect to positions in underlying securities, the extent
that they are willing to participate in the SB swap market may impact
their willingness to participate in the underlying asset's market.
Therefore, the Commission preliminarily believes that the proposed
rules would help encourage capital formation.
    Burden on Competition. Based on discussions with industry
participants, the Commission preliminarily believes that the start-up
costs to become a SB SEF for those entities that currently own and/or
operate a platform for the trading of OTC swaps would be moderate.
According to these industry participants, any needed modifications to
their systems or operations as a result of the Commission's proposals
generally would entail the expenditure of resources chiefly on
regulatory and compliance matters and on enhancing electronic systems
to support both the operational and regulatory aspects of a SB SEF. A
trading platform that currently trades OTC swaps would need to make
some adjustments to its systems and structure to trade SB swaps in
compliance with proposed Regulation SB SEF. The Commission
preliminarily believes that the development and registration of, and
introduction of trading in SB swaps by, a SB SEF would result in some
barriers to entry that otherwise would not exist. This is particularly
the case because, prior to the enactment of the Dodd-Frank Act, there
were no statutory provisions mandating the trading of certain SB swaps
on regulated markets.
    The Commission requests comment on all aspects of this analysis
and, in particular, on whether proposed Regulation SB SEF and the
proposed interpretation of the definition of SB SEF would place a
burden on competition, as well as the effect of the proposals on
efficiency, competition, and capital formation. Commenters are
requested to provide empirical data and other factual support for their
views, if possible.

XXX. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' the Commission must advise the OMB as to
whether proposed Regulation SB SEF constitutes a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in: (1) An annual effect on the economy of $100
million or more (either in the form of an increase or a decrease); (2)
a major increase in costs or prices for consumers or individual
industries; or (3) a significant adverse effect on competition,
investment or innovation. If a rule is ``major,'' its effectiveness
will generally be delayed for 60 days pending Congressional review.
    The Commission requests comment on the potential impact of proposed
Regulation SB SEF on the economy on an annual basis, on the costs or
prices for consumers or individual industries, and any potential effect
on competition, investment, or innovation. Commenters are requested to
provide empirical data and other factual support for their views to the
extent possible.

XXXI. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \659\ requires Federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Section 603(a) \660\ of the Administrative Procedure
Act,\661\ as amended by the RFA, generally requires the Commission to
undertake a regulatory flexibility analysis of all proposed rules, or
proposed rule amendments, to determine the impact of such rulemaking on
``small entities.'' \662\ Section 605(b) of the RFA states that this
requirement shall not apply to any proposed rule or proposed rule
amendment, which if adopted, would not have a significant economic
impact on a substantial number of small entities.\663\
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    \659\ 5 U.S.C. 601 et seq.
    \660\ 5 U.S.C. 603(a).
    \661\ 5 U.S.C. 551 et seq.
    \662\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
``small entity'' for the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as relevant to this
proposed rulemaking, are set forth in Rule 0-10, 17 CFR 240.0-10.
See Securities Exchange Act Release No. 18451 (January 28, 1982), 47
FR 5215 (February 4, 1982) (File No. AS-305).
    \663\ See 5 U.S.C. 605(b).
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A. Security-Based Swap Execution Facilities

    The proposed rules and form under Regulation SB SEF would apply to
all entities that seek to register with the Commission as a SB SEF and
thus to operate as a SB SEF in compliance with Regulation SB SEF. In
the Dodd-Frank Act, Congress defined for the first time the scope of a
SB SEF and mandated the registration of these new entities. Based on
its understanding of the market and conversations with industry
sources, the Commission preliminarily believes that approximately 20 SB
SEFs could be subject to the requirements of proposed Regulation SB
SEF.
    For purposes of Commission rulemaking in connection with the RFA, a
small entity includes: (1i) When used with reference to an ``issuer''
or a ``person,'' other than an investment company, an ``issuer'' or
``person'' that, on the last day of its most recent fiscal year, had
total assets of $5 million or less,\664\ or (2) a broker-dealer with
total capital (net worth plus subordinated liabilities) of less than
$500,000 on the date in the prior fiscal year as of which its audited
financial statements were prepared pursuant to Rule 17a-5(d) under the
Exchange Act,\665\ or, if not required to file such statements, a
broker-dealer with total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last day of the preceding
fiscal year (or in the time that it has been in business, if shorter);
and is not affiliated with any person (other than a natural person)
that is not a small business or small organization.\666\ Under the
standards adopted by the Small Business Administration (``SBA''),
entities in financial investments and related activities \667\ are
considered small entities if they have $7 million or less in annual
receipts.
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    \664\ See 17 CFR 240.0-10(a).
    \665\ See 17 CFR 240.17a-5(d).
    \666\ See 17 CFR 240.0-10(c).
    \667\ These entities would include firms involved in investment
banking and securities dealing, securities brokerage, commodity
contracts dealing, commodity contracts brokerage, securities and
commodity exchanges, miscellaneous intermediation, portfolio
management, providing investment advice, trust, fiduciary and
custody activities, and miscellaneous financial investment
activities. See SBA's Table of Small Business Size Standards,
Subsector 523.
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    Based on the Commission's existing information about the SB swap
market and the entities likely to register as SB SEFs, the Commission
preliminarily believes that the entities likely to register as SB SEFs
would not be considered small entities. The Commission preliminarily
believes that most, if not all, of the SB SEFs would be large business
entities or subsidiaries of large business entities, and that all SB
SEFs would have assets in excess of $5 million and annual receipts in
excess of $7,000,000. Therefore, the Commission preliminarily believes
that none of the potential SB SEFs would be considered small entities.

B. SB SEF Participants

    The proposed rules under Regulation SB SEF also would impose
requirements on participants of SB SEFs, i.e., SB swap dealers, major
SB swap participants, brokers and non-registered ECPs. Among other
requirements relating to participants, SB SEFs would be required to
establish and enforce rules that require its participants to maintain
books and records of any trading interest, transaction, or position in
any SB swap pertinent to their activity on the SB SEF and to provide
prompt access to those books and records to the SB SEF and to the
Commission. Based on conversations with industry sources, the
Commission preliminarily believes that there could be a total of 275
persons that could become SB SEF participants and thus would thus be
subject to the requirements of the proposed rules.\668\
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    \668\ See supra Section XXVII.C.
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    For purposes of Commission rulemaking in connection with the RFA, a
small entity includes: (1) When used with reference to an ``issuer'' or
a ``person,'' other than an investment company, an ``issuer'' or
``person'' that, on the last day of its most recent fiscal year, had
total assets of $5 million or less,\669\ or (2) a broker-dealer with
total capital (net worth plus subordinated liabilities) of less than
$500,000 on the date in the prior fiscal year as of which its audited
financial statements were prepared pursuant to Rule 17a-5(d) under the
Exchange Act,\670\ or, if not required to file such statements, a
broker-dealer with total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last day of the preceding
fiscal year (or in the time that it has been in business, if shorter);
and is not affiliated with any person (other than a natural person)
that is not a small business or small organization.\671\ Under the
standards adopted by the SBA, small entities in the finance and
insurance industry include the following: (1) For entities in credit
intermediation and related activities,\672\ entities with $175 million
or less in assets or, (2) for non-depository credit intermediation and
certain other activities,\673\ $7 million or less in annual receipts;
(3) for entities in financial investments and related activities,\674\
entities with $7 million or less in annual receipts; (4) for insurance
carriers and entities in related activities,\675\ entities with $7
million or less in annual receipts; and (5) for funds, trusts, and
other financial vehicles,\676\ entities with $7 million or less in
annual receipts.
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    \669\ See 17 CFR 240.0-10(a).
    \670\ See 17 CFR 240.17a-5(d).
    \671\ See 17 CFR 240.0-10(c).
    \672\ This includes commercial banks, savings institutions,
credit unions, firms involved in other depository credit
intermediation, credit card issuing, sales financing, consumer
lending, real estate credit, and international trade financing. See
SBA's Table of Small Business Size Standards, Subsector 522.
    \673\ This includes firms involved in secondary market
financing, all other non-depository credit intermediation, mortgage
and nonmortgage loan brokers, financial transactions processing,
reserve, and clearing house activities, and other activities related
to credit intermediation. See SBA's Table of Small Business Size
Standards, Subsector 522.
    \674\ This includes firms involved in investment banking and
securities dealing, securities brokerage, commodity contracts
dealing, commodity contracts brokerage, securities and commodity
exchanges, miscellaneous intermediation, portfolio management,
providing investment advice, trust, fiduciary and custody
activities, and miscellaneous financial investment activities. See
SBA's Table of Small Business Size Standards, Subsector 523.
    \675\ This includes direct life insurance carriers, direct
health and medical insurance carriers, direct property and casualty
insurance carriers, direct title insurance carriers, other direct
insurance (except life, health and medical) carriers, reinsurance
carriers, insurance agencies and brokerages, claims adjusting, third
party administration of insurance and pension funds, and all other
insurance related activities. See SBA's Table of Small Business Size
Standards, Subsector 524.
    \676\ This includes pension funds, health and welfare funds,
other insurance funds, open-end investment funds, trusts, estates,
and agency accounts, real estate investment trusts and other
financial vehicles. See SBA's Table of Small Business Size
Standards, Subsector 525.
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    Based on feedback from industry participants about the SB swap
market, the Commission preliminarily believes that the entities that
will be participants of SB SEFs, whether SB swap dealers, major SB swap
participants, registered brokers or non-registered ECPs, would exceed
the thresholds defining ``small entities'' set out above. Thus, the
Commission believes it is unlikely that proposed Regulation SB SEF, as
it would affect SB SEF participants, would have a significant economic
impact on any small entity.

C. Certification

    For the foregoing reasons, the Commission certifies that the
proposed rules and form under Regulation SB SEF would not have a
significant economic impact on a substantial number of small entities
for purposes of the RFA. The Commission requests comments regarding
this certification. The Commission requests that commenters describe
the nature of any impact on small entities and provide empirical data
to illustrate the extent of the impact.

XXXII. Statutory Authority and Text of Proposed Amendments

    Pursuant to the Exchange Act, 15 U.S.C. 78a et seq., and
particularly, Sections 3, 6, 15, 19, 23(a), 30(b), 30(c) and 36 (15
U.S.C. 78c, 78f, 78o, 78s, 78w(a), 78dd(b), 78dd(c) and 78mm), thereof,
and Section 763 of the Dodd-Frank Act (15 U.S.C. 78c-4), the Commission
is proposing to adopt Sec.  240.15a-12, Regulation SB SEF and Form SB
SEF under the Exchange Act and to amend Sec.  240.3a1-1 under the
Exchange Act.

List of Subjects in 17 CFR Parts 240, 242 and 249

    Securities, brokers, reporting and recordkeeping requirements.

    For the reasons stated in the preamble, the Commission is proposing
to amend Title 17, Chapter II of the Code of the Federal Regulations as
follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

    1. The general authority citation for Part 240 is revised and the
following citation is added in numerical order to read as follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q,
78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37,
80b-3, 80b-4, 80b-11, and 7201 et seq; 18 U.S.C. 1350 and 12 U.S.C.
5221(e)(3), unless otherwise noted.
* * * * *

Sec.  240.15a-12  also issued under 15 U.S.C. 78c-4.

* * * * *
    2. Section 240.3a1-1 is amended by adding paragraph (a)(4) and
revising paragraph (b) introductory text to read as follows:

Sec.  240.3a1-1  Exemption from the definition of ``Exchange'' under
Section 3(a)(1) of the Act.

    (a) * * *
    (4) Is a security-based swap execution facility, as that term is
defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)), that:
    (i) Is in compliance with Regulation SB SEF (17 CFR 242.800 through
242.823); and
    (ii) Does not serve as a marketplace for transactions in securities
other than security-based swaps.
    (b) Notwithstanding paragraph (a)(1), (a)(2), or (a)(3) of this
section, an organization, association, or group of persons shall not be
exempt under this section from the definition of ``exchange,'' if:
* * * * *
    3. Add Sec.  240.15a-12 to read as follows:

Sec.  240.15a-12  Conditional exemption from the regulation of brokers
registered as security-based swap execution facilities.

    (a) A security-based swap execution facility (as that term is
defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77))) may
register as a broker under section 15(a)(1) and (b) of the Act (15
U.S.C. 78o(a)(1) and (b)) by registering as a security-based swap
execution facility, if such security-based swap execution facility does
not engage in any activity other than facilitating the trading of
security-based swaps on or through the security-based swap execution
facility in a manner consistent with Regulation SB SEF (17 CFR 242.800
through 242.823).
    (b) Except for the provisions of the Act specified in paragraph (c)
of this section, a broker registered under paragraph (a) of this
section that does not engage in any activity other than facilitating
the trading of security-based swaps on or through the security-based
swap execution facility in a manner consistent with the Regulation SB
SEF (17 CFR 242.800 through 242.823) shall be exempt from the
requirements of the Act and the rules and regulations thereunder that,
by their terms, require, prohibit, restrict, limit, condition, or
affect activities of a broker unless those requirements of the Act or
any rule, regulation, or order thereunder specifies that it applies to
a security-based swap execution facility.
    (c) The following provisions of the Act shall apply to a broker
that is a security-based swap execution facility:
    (1) Section 15(b)(4) of the Act (15 U.S.C. 78o(b)(4));
    (2) Section 15(b)(6) of the Act (15 U.S.C. 78o(b)(6)); and
    (3) Section 17(b) of the Act (15 U.S.C. 78q(b)).
    (d) A broker registered under paragraph (a) of this section that
does not engage in any activity other than facilitating the trading of
security-based swaps on or through the security-based swap execution
facility in a manner consistent with Regulation SB SEF (17 CFR 242.800
through 242.823) shall be exempt from the Securities Investor
Protection Act.

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SB SEF AND CUSTOMER
MARGIN REQUIREMENTS FOR SECURITY FUTURES

    4. The authority citation for part 242 is amended by adding the
following citation to read as follows:

    Authority:  15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2),
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g),
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and
80a-37.

    Sections 242.800 through 242.823 are also issued under sec. 943,
Pub. L. 111-203, Section 763.

    5. The heading for part 242 is revised to read as set forth above.
    6. Add Sec. Sec.  242.800 through 242.823 to read as follows:
* * * * *

Sec.
242.800 Definitions.
242.801 Application for registration as a security-based swap
execution facility.
242.802 Amendments to application.
242.803 Supplemental material to be filed by security-based swap
execution facilities.
242.804 Withdrawal from or revocation of registration for security-
based swap execution facilities.
242.805 Voluntary submission of rules for Commission review and
approval.
242.806 Self-certification of rules.
242.807 Trading security-based swaps pursuant to certification.
242.808 Trading security-based swaps pursuant to Commission review
and approval.
242.809 Access to security-based swap execution facilities.
242.810 Compliance with core principles.
242.811 Compliance with rules.
242.812 Security-based swaps not readily susceptible to
manipulation.
242.813 Monitoring of trading and trade processing.
242.814 Ability to obtain information.
242.815 Financial integrity of transactions.
242.816 Emergency authority.
242.817 Timely publication of trading information.
242.818 Recordkeeping and reporting.
242.819 Antitrust considerations.
242.820 Conflicts of interest.
242.821 Financial resources.
242.822 System safeguards.
242.823 Designation of Chief Compliance Officer of security-based
swap execution facility.
* * * * *

Sec.  242.800  Definitions.

    Terms used in this Regulation SB SEF (17 CFR 242.800 through
242.823) that appear in section 3 of the Act (15 U.S.C. 78c) have the
same meaning as in section 3 of the Act (15 U.S.C. 78c) and the rules
or regulations thereunder. In addition, the following definitions shall
apply:
    The term affiliate means any person that, directly or indirectly,
controls, is controlled by, or is under common control with, the
person.
    The terms beneficial ownership, beneficially owns, or any
derivative thereof have the same meaning, with respect to any security
or other ownership interest, as set forth in Sec.  240.13d-3 of this
chapter, as if (and whether or not) such security or other ownership
interest were a voting equity security registered under section 12 of
the Act (15 U.S.C. 78l); provided that to the extent any person is a
member of a group within the meaning of section 13(d)(3) under the Act
(15 U.S.C. 78m(d)(3)) and Sec.  240.13d-5(b) of this chapter, such
person shall not be deemed to beneficially own such security or other
ownership interest for purposes of this section, unless such person has
the power to direct the vote of such security or other ownership
interest.
    The term block trade has the same meaning as Sec.  242.900,
provided however that until the Commission sets the criteria and
formula for determining what constitutes a block trade under Sec.
242.907(b), a security-based swap execution facility may set its own
criteria and formula for determining what constitutes a block trade as
long as such criteria and formula comply with the Core Principles
relating to security-based swap execution facilities in section 3D of
the Act (15 U.S.C. 78c-4) and the rules and regulations thereunder.
    The term Board means the Board of Directors or Board of Governors