registered security-based swap dealers to conform with such business
conduct standards relating to diligent supervision as the Commission
shall prescribe. See 15 U.S.C. 78o-10(h)(1)(B). We preliminarily
believe that it is not appropriate to except registered security-
based swap dealers from compliance with such requirements. Because
registered security-based swap dealers would be subject to a number
of obligations under the federal securities laws with respect to
their security-based swap business, we preliminarily believe that
having systems in place reasonably designed to ensure diligent
supervision would be an important aspect of their compliance with
the federal securities laws. Under our Cross-Border Proposing
Release, these entity-level requirements would apply to a security-
based swap dealer on a firm-wide basis to address risks to the
security-based swap dealer as a whole. See Cross-Border Proposing
Release, 78 FR 31011.
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    Specifically, our re-proposed amendment to Exchange Act rule 3a71-
3(a) would modify the initially proposed definition of ``U.S.
business'' with respect to foreign security-based swap dealers to refer
to any security-based swap transaction arranged, negotiated, or
executed by personnel of the foreign security-based swap dealer located
in a U.S. branch or office, or by personnel of its agent located in a
U.S. branch or office.\242\ The definition of ``U.S. business'' for
foreign security-based swap dealers and U.S. security-based swap
dealers would continue to exclude certain transactions involving the
foreign branches of U.S. persons.\243\ The definitions of ``U.S.
security-based swap dealer,'' \244\ ``foreign security-based swap
dealer,'' \245\ and ``foreign business'' \246\ would remain unchanged
from the initial proposal, as would the text of re-proposed rule 3a71-
3(c), which would create the exception to the external business conduct
requirements (other than rules and requirements prescribed by the
Commission pursuant to section 15F(h)(1)(B)) for the foreign business
of registered security-based swap dealers.
---------------------------------------------------------------------------

    \242\ Proposed Exchange Act rule 3a71-3(a)(8)(i)(B). We intend
the proposed rule to indicate the same type of activity by personnel
located in the United States as described in Section III.B.5, supra.
Moreover, for purposes of proposed Exchange Act rule 3a71-
3(a)(8)(i)(B), we would interpret the term ``personnel'' in a manner
consistent with the definition of ``associated person of a security-
based swap dealer'' contained in section 3(a)(70) of the Exchange
Act, 15 U.S.C. 78c(a)(70), regardless of whether such non-U.S.
person or such non-U.S. person's agent is itself a security-based
swap dealer. See note 193, supra (discussing the Commission's
proposed interpretation of the term ``personnel'' for purposes of
proposed rule 3a71-3(b)(1)(iii)(C)).
    \243\ Initially proposed Exchange Act rule 3a71-3(a)(6)(i)(A)
provided that the U.S. business of a foreign security-based swap
dealer included any transaction with a U.S. person, ``other than
with a foreign branch.'' The proposed amendment replaces this
language with ``other than a transaction conducted through a foreign
branch of that person.'' Similarly, initially proposed Exchange Act
rule 3a71-3(a)(6)(ii) provided that the U.S. business of a U.S.
security-based swap dealer included any transaction of such dealer,
other than transactions conducted through a foreign branch with a
non-U.S. person ``or another foreign branch.'' Proposed Exchange Act
rule 3a71-3(a)(8)(ii) replaces this language with ``or a transaction
with a U.S. person counterparty that constitutes a transaction
conducted through a foreign branch of the counterparty.''
    These changes are intended to clarify that the counterparty's
activity in each such transaction must meet the definition of
``transaction conducted through a foreign branch'' set forth in
Exchange Act rule 3a71-3(a)(3). These proposed changes are
consistent with Exchange Act rule 3a71-3(b)(1)(iii)(A), which
permits non-U.S. persons to exclude from the de minimis calculation
transactions with U.S. persons, to the extent that such U.S. persons
are engaging in transactions conducted through a foreign branch.
    \244\ See proposed Exchange Act rule 3a71-3(a)(6).
    \245\ See proposed Exchange Act rule 3a71-3(a)(7).
    \246\ See proposed Exchange Act rule 3a71-3(a)(9).
---------------------------------------------------------------------------

    We continue to believe that a registered security-based swap dealer
should be required to comply with the external business conduct
requirements with respect to its U.S. business. The proposed external
business conduct standards are intended to bring professional standards
of conduct to, and increase transparency in, the security-based swap
market and to require registered security-based swap dealers to treat
parties to these transactions fairly. As noted above, the proposed
rules would require, among other things, that registered security-based
swap dealers communicate in a fair and balanced manner with potential
counterparties and that they disclose conflicts of interest and
material incentives to potential counterparties.

Imposing these requirements on the U.S. business of registered
security-based swap dealers should help protect the integrity of U.S.
financial markets for all market participants.
    We recognize that, depending on the particular structure used by a
registered foreign security-based swap dealer to do business in the
United States, its personnel (or personnel of its agent acting on its
behalf) in the United States may be subject to other business conduct
requirements under U.S. law (such as broker-dealer regulation) that
govern the professional interactions of such personnel or agents with
counterparties to a security-based swap.\247\ We also recognize that
these other requirements may afford security-based swap counterparties
protections that may appear to be similar in many respects to the Title
VII external business conduct standards. We preliminarily believe,
however, that, notwithstanding any requirements that may apply to such
intermediaries, it is appropriate to impose these Title VII
requirements directly on registered foreign security-based swap dealers
when they use personnel located in the United States to arrange,
negotiate, or execute security-based swaps, even with counterparties
that are also non-U.S. persons.
---------------------------------------------------------------------------

    \247\ See note 198, supra (discussing the Exchange Act Exemptive
Order). The Financial Industry Regulatory Authority (``FINRA'') also
adopted a rule, FINRA Rule 0180 (Application of Rules to Security-
Based Swaps), which temporary limits the application of certain
FINRA rules with respect to security-based swaps. On January 14,
2015, FINRA filed a proposed rule change, which was effective upon
receipt by the Commission, extending the expiration date of FINRA
Rule 0180 to February 11, 2016. See Self-Regulatory Organizations;
Financial Industry Regulatory Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Extend the
Expiration Date of FINRA Rule 0180 (Application of Rules to
Security-Based Swaps), Exchange Act Release No. 74049 (Jan. 14,
2015).
---------------------------------------------------------------------------

    We note that, in Title VII, Congress has established a
comprehensive framework of business conduct standards that applies to
registered security-based swap dealers, and we preliminarily believe
that this framework should govern their transactions with
counterparties when such transactions raise transparency and market
integrity concerns that are addressed by these requirements. Although
other business conduct frameworks (such as broker-dealer regulation)
may achieve similar regulatory goals, the availability of exceptions
may mean that alternative frameworks may not apply to certain business
structures used by registered security-based swap dealers to carry out
their business in the United States.\248\ In our preliminary view, it
is appropriate to subject all registered security-based swap dealers
engaged in U.S. business to the same external business conduct
framework, rather than encouraging a patchwork of business conduct
protections under U.S. law that may offer counterparties varying levels
of protection with respect to their transactions with different
registered security-based swap dealers depending on the business model
(or models) that each registered security-based swap dealer has chosen
to use in its U.S. business.\249\
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    \248\ See note 202, supra (noting exception from broker-dealer
definition for banks).
    \249\ Consistent with the view we expressed in the Cross-Border
Proposing Release, to the extent that a registered foreign security-
based swap dealer uses personnel of an agent to arrange, negotiate,
or execute security-based swap transactions from a U.S. branch or
office, the dealer and its agent may choose to allocate between
themselves specific responsibilities in connection with these
external business conduct requirements. See Cross-Border Proposing
Release, 78 FR 31026-27. However, we note that the registered
foreign security-based swap dealer would remain responsible for
ensuring that all relevant Title VII requirements applicable to a
given security-based swap transaction are fulfilled. See id. at
31026. As noted above, the agent may also be required to register as
a broker (or, potentially, as a security-based swap dealer), or as
another regulated entity, depending on the nature of its security-
based swap or other activity. See note 198 and accompanying text,
supra; Cross-Border Proposing Release, 78 FR 31027 n.574. An agent
may, accordingly, be subject to independent business conduct or
other requirements with respect to its interactions with the
registered foreign security-based swap dealer's counterparties that
occur in the course of its intermediation of such transactions.
---------------------------------------------------------------------------

    We also note that imposing these external business conduct
requirements on a registered foreign security-based swap dealer when it
uses personnel located in a U.S. branch or office to arrange,
negotiate, or execute security-based swaps with another non-U.S. person
should mitigate competitive disparities between different categories of
security-based swap dealers operating in the United States.\250\ This
concern is particularly acute given the ease with which U.S. security-
based swap dealers may seek to avoid such competitive disparities by
booking in non-U.S.-person affiliates any transactions arranged,
negotiated, or executed by personnel located in the United States. As
noted above, this restructuring would allow these dealers to continue
using U.S. sales and trading personnel to carry on their security-based
swap dealing business in a manner largely unchanged from what we
understand to be current business practices while avoiding the external
business conduct requirements of Title VII.\251\
---------------------------------------------------------------------------

    \250\ See Section II.A, supra (discussing competitive effects of
disparate regulatory treatment of activity in the United States).
    \251\ See Section III.B.4, supra.
---------------------------------------------------------------------------

    We have considered the views of the commenters that opposed
imposing external business conduct requirements on transactions between
a registered foreign security-based swap dealer and a non-U.S.-person
counterparty,\252\ but we do not believe that the issues raised by
commenters warrant refraining from imposing these requirements on all
such transactions. The re-proposed approach, which focuses on a
transaction of a registered foreign security-based swap dealer with
another non-U.S. person only when the registered foreign security-based
swap dealer is using personnel located in the United States to arrange,
negotiate, or execute the security-based swap, should mitigate the
concerns raised by one commenter regarding the potential effect of the
initially proposed rule on U.S. fund managers that manage offshore
funds, because, to the extent an offshore fund is not a U.S. person by
virtue of having its principal place of business in the United States,
only the location of personnel of the registered foreign security-based
swap dealer or the location of personnel of its agent, and not that of
persons acting on behalf of a non-U.S.-person fund in the transaction,
would be relevant to whether the transaction is U.S. business or
foreign business of the registered foreign security-based swap
dealer.\253\
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    \252\ See, e.g., ICI Letter at 11.
    \253\ See notes 236-237, supra. To the extent that a non-U.S.
regulated fund is a U.S. person (including because it has its
principal place of business in the United States), a foreign
security-based swap dealer would be required to comply with external
business conduct requirements in any transaction with that fund
because the counterparty is a U.S. person. See proposed Exchange Act
rule 3a71-3(a)(8). Cf. Exchange Act rule 3a71-3(b)(1)(iii)(A)
(requiring non-U.S. persons to include in their de minimis threshold
calculations security-based swap transactions with U.S. persons in
connection with their dealing activity); Cross-Border Adopting
Release, 79 FR 47320 (describing Exchange Act rule 3a71-
3(b)(1)(iii)(A)).
---------------------------------------------------------------------------

    We also disagree with the commenter that suggested that such
transactions have an insufficient nexus to the United States to warrant
application of the external business conduct requirements and that the
external business conduct requirement should apply only to transactions
with U.S.-person counterparties.\254\ As we discussed in the context of
the de minimis exception above, a foreign security-based swap dealer
arranging, negotiating, or executing a security-based swap transaction
using personnel located in a U.S. branch or office is not solely
``transacting a business in security-

based swaps without the jurisdiction of the United States.''\255\ If
the Commission adopts a rule that makes substituted compliance
available for external business conduct requirements and, pursuant to
further Commission action, makes a substituted compliance
determination, substituted compliance may be permitted in such
transactions.\256\
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    \254\ See notes 238-240, supra.
    \255\ Exchange Act section 30(c). See also Section III.B.4(b),
supra.
    As noted above, we do not believe that our proposed approach
applies Title VII to persons that are ``transact[ing] a business in
security-based swaps without the jurisdiction of the United
States,'' within the meaning of section 30(c) of the Exchange Act.
An approach that did not treat security-based swaps that a
registered foreign security-based swap dealer has arranged,
negotiated, or executed using its personnel or personnel of its
agent located in the United States as the ``U.S. business'' of that
dealer for purposes of proposed Exchange Act rule 3a71-3(c) would,
in our view, reflect an understanding of what it means to conduct a
security-based swaps business within the jurisdiction of the United
States that is divorced both from Title VII's statutory objectives
and from the various structures that non-U.S. persons use to engage
in security-based swap dealing activity. But in any event we also
preliminarily believe that this proposed rule is necessary or
appropriate as a prophylactic measure to help prevent the evasion of
the provisions of the Exchange Act that were added by the Dodd-Frank
Act, and thus help prevent the relevant purposes of the Dodd-Frank
Act from being undermined. See Cross-Border Adopting Release, 79 FR
47291-92 (interpreting anti-evasion provisions of Exchange Act
section 30(c)). Without this rule, non-U.S. persons could simply
carry on a dealing business within the United States with non-U.S.
persons. Permitting this activity could allow these firms to retain
full access to the benefits of operating in the United States while
avoiding compliance with external business conduct requirements,
which could increase the risk of misconduct. See Section III.B.4,
supra.
    \256\ As noted above, in the Cross-Border Proposing Release, we
proposed an approach to substituted compliance with respect to the
external business conduct requirements. See note 223, supra. We
received comments on this proposed rule that we continue to
consider, and we anticipate addressing those comments in the context
of our consideration of final rules regarding the external business
conduct requirement.
---------------------------------------------------------------------------

    Our re-proposed rule maintains our initially proposed approach to
the foreign business of registered U.S. security-based swap dealers. We
recognize that at least one commenter suggested that all transactions
of a registered U.S. security-based swap dealer should be subject to
the external business conduct requirements of Exchange Act section
15F,\257\ but we continue to believe it is appropriate to provide this
exception for the foreign business of such persons. As we noted in our
initial proposal, the Dodd-Frank Act generally is concerned with the
protection of U.S. markets and participants in those markets.\258\ We
continue to believe that subjecting U.S. security-based swap dealers to
the Title VII customer protection requirements with respect to their
security-based swap transactions conducted through their foreign
branches outside the United States with non-U.S. persons would not
appreciably further the goal of protecting the U.S. market or U.S.
market participants.
---------------------------------------------------------------------------

    \257\ See note 235, supra.
    \258\ See Cross-Border Proposing Release, 78 FR 31018.
---------------------------------------------------------------------------

F. Request for Comment

    We request comment on all aspects of the re-proposed rule regarding
application of the external business conduct requirements to registered
security-based swap dealers, including the following:
     The re-proposed rule would apply the external business
conduct standards to transactions that a registered foreign security-
based swap dealer arranges, negotiates, or executes using personnel
located in a U.S. branch or office, even if the counterparty is also a
non-U.S. person. Are the external business conduct rules appropriately
applied in this release? Should the external business conduct rules be
expanded to cover other transactions discussed in this release? Should
some or all of the external business conduct standards not apply to
these activities? Why or why not? Please be specific in identifying why
the concerns addressed by the external business conduct requirements do
not arise in this context.
     The re-proposed rule would not apply the external business
conduct standards to the foreign business of any registered security-
based swap dealer. Should some or all of the external business conduct
standards apply to the foreign business of these registered entities?
Why or why not? Please be specific as to what policy objectives would
be advanced by subjecting transactions resulting from the foreign
business of a registered security-based swap dealer to the external
business conduct requirement.
     The re-proposed rule would not apply the external business
conduct standards to a transaction of a registered U.S. security-based
swap dealer that is a transaction conducted through a foreign branch
(assuming that the counterparty is a non-U.S. person or is a U.S.
person for whom the transaction is also a transaction conducted through
a foreign branch). Should some or all of the external business conduct
standards apply to these transactions? Why or why not?
     What types of controls would be necessary to identify
foreign business and U.S. business and ensure that the registered
security-based swap dealer complies with the external business conduct
standards with respect to its U.S. business? How would this work as an
operational matter? Should U.S. business be generally defined with
reference to the type of activity that, if performed in a dealing
capacity, triggers the registration requirement?
     Should some or all of the external business conduct rules
apply in transactions between a registered foreign security-based swap
dealer and a foreign branch of a U.S. bank? Why or why not?
     Should some or all of the external business conduct rules
apply in transactions between a registered non-U.S. security-based swap
dealer and a non-U.S. person whose obligations under a security-based
swap are guaranteed by a U.S. person that is conducted outside the
United States? Why or why not?
     What would be the market impact of the re-proposed
approach to application of the customer protection requirements? Would
non-U.S. persons that engage in dealing activities seek to relocate to
locations outside the United States personnel who currently arrange,
negotiate, and execute transactions from locations within the United
States? Would the potential benefits of applying external business
conduct requirements to transactions that are arranged, negotiated, or
executed by a registered foreign security-based swap dealer in the
United States reduce any incentives to relocate to locations outside
the United States? What are the costs of such relocation? What factors
would weigh against relocation in spite of those costs?
     How would the proposed application of the requirements
affect the competitiveness of U.S. entities in the global marketplace
(both in the United States as well as in foreign jurisdictions)? Would
the proposed approach place any market participants at a competitive
disadvantage or advantage? Why or why not? What other measures should
we consider to implement the transaction-level requirements?

V. Application of Other Requirements to Cross-Border Security-Based
Swap Activity

A. Overview

    In light of our proposed amendment to Exchange Act rule 3a71-3(b),
which would apply the de minimis exception to transactions of a non-
U.S. person that are arranged, negotiated, or executed by personnel
located in a U.S. branch or office in connection with the non-U.S.
person's dealing activity, we have determined also to propose certain

amendments to Regulation SBSR to address the applicability of the
regulatory reporting and public dissemination requirements to such
transactions.\259\ However, we are not proposing to subject
transactions between two non-U.S. persons that are arranged,
negotiated, or executed in the United States to mandatory clearing or
trade execution.
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    \259\ We also are soliciting comment on whether certain
transactions of non-U.S. persons whose obligations under a security-
based swap are guaranteed by a U.S. person should be exempt from the
public dissemination requirement. See Section V.E.3, infra.
---------------------------------------------------------------------------

B. Previously Proposed and Adopted Rules Relating to Application of
Clearing, Trade Execution, Regulatory Reporting, and Public
Dissemination Requirements

1. Mandatory Clearing and Trade Execution
    In the Cross-Border Proposing Release, we proposed to impose both
mandatory clearing and trade execution on ``transactions conducted
within the United States,'' subject to certain exceptions. Proposed
rules 3Ca-3 and 3Ch-1 would have subjected such transactions to
mandatory clearing (provided that we had issued a mandatory clearing
determination with respect to the security-based swap) and mandatory
trade execution (provided that the transaction had been made available
to trade) if a person engaged in a security-based swap transaction that
is a ``transaction conducted within the United States,'' as defined in
initially proposed Exchange Act rule 3a71-3(a)(5).\260\ We also
proposed an exception to this general requirement, under which a
``transaction conducted within the United States'' would not have been
subject to the clearing or trade execution requirements if (i) neither
counterparty to the transaction was a U.S. person; (ii) neither
counterparty's performance under the security-based swap was guaranteed
by a U.S. person; and (iii) neither counterparty to the transaction was
a foreign security-based swap dealer. We proposed that the clearing and
trade execution requirements would not apply to transactions that did
not involve any of these three types of counterparties due to our
preliminary view that, although such transactions conducted within the
United States may give rise to operational risks in the United States,
the financial risk of such transactions would reside outside the United
States.\261\
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    \260\ In addition, the proposed rules generally would have
imposed these requirements on a security-based swap transaction if a
counterparty to the transaction is a U.S. person or a non-U.S.
person whose counterparty has a right of recourse against a U.S.
person. See Cross-Border Proposing Release, 78 FR 31078, 31083. We
also proposed an approach to substituted compliance with respect to
each requirement. See id. at 31098, 31099-100. Although these
provisions of the initial proposal are outside the scope of this
release, we received comments on these provisions of the proposed
rules, which we continue to consider and anticipate addressing in
the context of our consideration of final rules regarding each
requirement.
    \261\ See Cross-Border Proposing Release, 78 FR 31080, 31084.
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2. Regulatory Reporting and Public Dissemination
    In the Cross-Border Proposing Release, we re-proposed the entirety
of Regulation SBSR, including rule 908(a) thereof, which, among other
things, would have specified when a security-based swap was subject to
the regulatory reporting and public dissemination requirements of
Regulation SBSR.\262\ Security-based swaps that fell within the
proposed definition of ``transaction conducted within the United
States'' would have been among the security-based swaps subjected both
to regulatory reporting and to public dissemination under rule 908(a),
as re-proposed in the Cross-Border Proposing Release.\263\
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    \262\ Rule 908(a), as initially proposed, would have required
regulatory reporting of any security-based swap that is ``executed
in the United States or through any means of interstate commerce.''
See Regulation SBSR Proposing Release, 75 FR 75287. When we re-
proposed rule 908(a)(1)(i) in the Cross-Border Proposing Release, we
expressed concern that the language in the Regulation SBSR Proposing
Release could have unduly required a security-based swap to be
reported if it had only the slightest connection with the United
States. See Cross-Border Proposing Release, 78 FR 31061.
    \263\ Rule 900(ii), as re-proposed in the Cross-Border Proposing
Release, would have defined ``transaction conducted within the
United States'' to have the meaning as given in the definition of
the term under previously proposed Exchange Act rule 3a71-
3(a)(5)(i).
---------------------------------------------------------------------------

    We recently adopted rule 908(a)(1), which requires regulatory
reporting and public dissemination of security-based swap transactions
that (i) have a direct or indirect counterparty \264\ that is a U.S.
person on either or both sides of the transaction, or (ii) are accepted
for clearing by a clearing agency having its principal place of
business in the United States. In addition, rule 908(a)(2), as adopted,
requires regulatory reporting but not public dissemination of
transactions that have a direct or indirect counterparty that is a
registered security-based swap dealer or registered major security-
based swap participant on either or both sides of the transaction but
do not otherwise fall within rule 908(a)(1).\265\ We did not, however,
include in that final rule a provision addressing a security-based swap
transaction that is a ``transaction conducted within the United
States,'' noting that commenters had expressed divergent views on this
particular element of the re-proposed rule. We also noted that we
anticipated seeking additional public comment on whether and, if so,
how regulatory reporting and public dissemination requirements should
be applied to transactions involving non-U.S. persons when they carry
out relevant activities in the United States.\266\
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    \264\ Rule 900(hh) of Regulation SBSR defines ``side'' to mean
``a direct counterparty and any guarantor of that direct
counterparty's performance who meets the definition of indirect
counterparty in connection with the security-based swap.'' Rule
900(p) of Regulation SBSR defines ``indirect counterparty'' to mean
``a guarantor of a direct counterparty's performance of any
obligation under a security-based swap such that the direct
counterparty on the other side can exercise a right of recourse
against the indirect counterparty in connection with the security-
based swap; for these purposes a direct counterparty has a right of
recourse against a guarantor on the other side if the direct
counterparty has a conditional or unconditional legally enforceable
right, in whole or in part, to receive payments from, or otherwise
collect from, the guarantor in connection with the security-based
swap.'' A ``direct counterparty'' is a person that is a primary
obligor on a security-based swap. See Exchange Act rule 900(k)
(defining ``direct counterparty'').
    \265\ See rule 908(a). We also simultaneously proposed certain
amendments to Regulation SBSR. See Regulation SBSR--Reporting and
Dissemination of Security-Based Swap Information; Proposed Rule
(``Regulation SBSR Proposed Amendments Release''), Exchange Act
Release No. 74245 (February 11, 2015), 80 FR 14739 (March 19, 2015).
These proposed amendments generally address issues separate from
those being addressed in this release.
    \266\ See Regulation SBSR Adopting Release, 80 FR 14655.
---------------------------------------------------------------------------

    We also previously proposed rule 908(b), which would have provided
that, notwithstanding any other provision of Regulation SBSR, a person
would not incur any obligation under Regulation SBSR unless the person
is:
    (1) a U.S. person;
    (2) a security-based swap dealer or major security-based swap
participant; or
    (3) a counterparty to a transaction conducted within the United
States.\267\ Our recently adopted rule 908(b) included only the first
two of these prongs, and the Regulation SBSR Adopting Release clarified
that a security-based swap dealer or major security-based swap
participant that is not a U.S. person would incur an obligation under
Regulation SBSR only if it is registered.\268\ We noted that we
anticipated soliciting additional public comment on whether regulatory
reporting and/or public dissemination

requirements should be extended to transactions occurring within the
United States between non-U.S. persons and, if so, which non-U.S.
persons should incur reporting duties under Regulation SBSR.\269\
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    \267\ See Cross-Border Proposing Release, 78 FR 31065.
    \268\ See rule 908(b); Regulation SBSR Adopting Release, 80 FR
14656.
    \269\ See Regulation SBSR Adopting Release, 80 FR 14655.
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    Finally, in the Cross-Border Proposing Release, we re-proposed rule
901(a), which set forth a reporting hierarchy for identifying which
side has a duty to report in a variety of transactions. This rule would
have provided, among other things, that, in a transaction in which
neither side included a security-based swap dealer or major security-
based swap participant, if one side included a U.S. person while the
other side did not, the side with the U.S. person would have been the
reporting side; if both sides in such transaction included a U.S.
person or neither side included a U.S. person, the sides would have
been required to select the reporting side.\270\ In the Regulation SBSR
Adopting Release, we adopted rules establishing the reporting hierarchy
for a range of transactions, including a provision that, in a
transaction in which neither side includes a registered security-based
swap dealer or registered major security-based swap participant but
both sides include a U.S. person, the sides shall select the reporting
side.\271\ We noted in that release that we anticipated soliciting
additional comment about how to apply Regulation SBSR, including which
side should incur the reporting duty, in transactions between two
unregistered non-U.S. persons and transactions between an unregistered
U.S. person and an unregistered non-U.S. person.\272\
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    \270\ See Regulation SBSR Adopting Release, 80 FR 14597.
    \271\ See rule 901(a)(2)(ii)(E)(1).
    \272\ See Regulation SBSR Adopting Release, 80 FR 14598.
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C. Commenters' Views

1. General Comments on Application of Clearing, Trade Execution,
Regulatory Reporting, and Public Dissemination Requirements
    One commenter generally supported our proposed territorial approach
to applying these requirements, noting that the requirements ``would
encompass any transaction with a U.S. person or within the U.S.'' \273\
Similarly, another market participant agreed with our proposed
application of these requirements to security-based swaps entered into
by offshore funds that have a U.S. nexus, arguing that a failure to
apply such requirements would undermine central objectives of the Dodd-
Frank Act, create opportunities for regulatory arbitrage, and risk
fragmenting the security-based swap market.\274\
---------------------------------------------------------------------------

    \273\ Better Markets Letter at 19-20.
    \274\ See Citadel Letter at 1.
---------------------------------------------------------------------------

    At the same time, other commenters raised concerns about our
proposed approach.\275\ Some commenters explained that applying
mandatory clearing, mandatory trading, regulatory reporting, and public
dissemination requirements to transactions between non-U.S. branches of
two U.S. persons would lead to duplication of, and conflicts with,
foreign requirements.\276\ Another commenter criticized the proposed
approach to categorization of these requirements, stating that the
proposal did not classify regulatory reporting, public dissemination,
mandatory clearing, or mandatory trade execution as either entity-level
requirements or transaction-level requirements but as a distinct
category of ``transactional requirements'' that apply to persons
regardless of their registration status.\277\ This commenter argued
that multiple categories of requirements make it more difficult for
market participants to determine which requirements apply and whether
substituted compliance is available.\278\ The commenter contended that
it would be simpler and more rational to apply the clearing, trade
execution, regulatory reporting, and public dissemination requirements
in the same way that we proposed to apply the external business conduct
requirements.\279\
---------------------------------------------------------------------------

    \275\ See, e.g., IIB Letter at 6-7, 23 (stating that the
registration requirement, external business conduct standards,
clearing, trade execution, regulatory reporting, and public
dissemination requirements should not apply to transactions of non-
U.S. persons with foreign security-based swap dealers based on
conduct in the United States when neither counterparty's obligations
under the security-based swap are guaranteed by a U.S. person,
because such an application would create ``serious operational,
legal and economic difficulties for foreign security-based swap
market participants'').
    \276\ See IIB Letter at 9; EC Letter at 2.
    \277\ See SIFMA/FIA/FSR Letter at A-38 to A-39.
    \278\ See id.
    \279\ See id.
---------------------------------------------------------------------------

2. Comments on Mandatory Clearing and Mandatory Trade Execution
    Market participants expressed a range of views regarding the
application of mandatory clearing and mandatory trade execution to
transactions of non-U.S. persons conducted within the United States.
One commenter supported our proposed definition of ``transaction
conducted within the United States'' together with our proposal to
impose the clearing requirement on such transactions because this
approach would help ensure that the security-based swap activity of
offshore funds managed by U.S.-based investment managers is subject to
our clearing requirements.\280\ Two commenters specifically argued that
the proposed exceptions from the application of mandatory clearing
should be eliminated,\281\ and one commenter urged the same with
respect to mandatory trade execution.\282\ One of these commenters
suggested that, at most, we should permit substituted compliance for
the transactions rather than excepting them from any application of the
clearing requirement.\283\
---------------------------------------------------------------------------

    \280\ See Citadel Letter at 3.
    \281\ See AFR Letter at 10 (arguing that the exceptions were
unreasonable because ``no provision of Dodd-Frank justifies
exempting security-based swaps that occur within our borders from
U.S. regulatory requirements''); Better Markets Letter at 22
(arguing that the exception for the clearing requirement conflicts
with the Commission's territorial approach). Cf. Letter from AFR to
CFTC and SEC, dated November 25, 2014 (arguing that foreign
subsidiaries of U.S. firms without guarantees may present risk to
the United States).
    \282\ See Better Markets Letter at 22.
    \283\ See AFR Letter at 10.
---------------------------------------------------------------------------

    Other commenters opposed an activity-based application of mandatory
clearing or trade execution. One market participant argued that conduct
in the United States should not trigger the application of the clearing
requirement because the test ``is impractical, cannot be justified by
cost-benefit analysis and exceeds the Commission's SBS authority under
the Exchange Act.'' \284\ Another commenter opposed applying regulatory
requirements, including clearing and trade execution, to transactions
between two unguaranteed non-U.S. persons that involve activity in the
United States, regardless of their status as registered security-based
swap dealers.\285\
---------------------------------------------------------------------------

    \284\ See SIFMA/FIA/FSR Letter A-48. See also FOA Letter at 8
(stating that a transaction conducted within the United States that
involves one non-U.S. person security-based swap dealer is
insufficiently connected to the United States to require mandatory
clearing and mandatory trade execution).
    \285\ See ICI Letter at 8-10 n.23 (explaining that the risk in
such transactions is outside the United States, that the
counterparties would have no expectation that the requirements would
apply, and that U.S. persons and non-U.S. persons that use U.S.
asset managers would be placed at a competitive disadvantage); EC
Letter at 2 (submitting that the Commission's rules should not apply
to a transaction where the legal counterparty is a non-U.S. person,
on the basis that there is no counterparty risk to a U.S. person in
such a transaction).
---------------------------------------------------------------------------

3. Comments on Regulatory Reporting and Public Dissemination
    Commenters expressed divergent views regarding application of
Regulation SBSR to transactions

involving the conduct of non-U.S. persons within the United
States.\286\ Noting its general opposition to the proposed
``transaction conducted within the United States'' concept, one
commenter argued that the regulatory reporting and public dissemination
requirements should not apply to transactions conducted within the
United States between two non-U.S.-person counterparties because the
proposed requirement would likely result in ``duplicative reporting
requirements.'' \287\ Another commenter argued that it would be
``unnecessary and unworkable'' to require transactions that are between
non-U.S. persons and are executed but not cleared in the United States
to be reported, noting that such transactions would generally be
subject to reporting in the counterparties' jurisdictions and
additional reporting to a U.S. SDR would impose additional significant
costs.\288\ Another commenter argued that applying Regulation SBSR on
the basis of conduct in the United States would not be workable because
it would require a trade-by-trade analysis rather than ``party level
static data,'' for which system architecture does not currently
exist.\289\ This commenter also stated that market participants do not
have the capability to determine whether their counterparty's
activities trigger the proposed conduct test.\290\
---------------------------------------------------------------------------

    \286\ See Citadel Letter at 1-2; ABA Letter at 3 (noting that
the initially proposed activity-based approach is consistent with
longstanding Commission practice but also noting potential
ambiguities); IAA Letter at 6 (explaining that the proposed term may
capture parties with minimal connection to the United States); IIB
Letter at 8-9 (explaining that application of the term may result in
duplicative and conflicting regulation); EC Letter at 2 (explaining
that the Commission's rules should not apply because no U.S. firms
are subject to counterparty credit risk in such transactions); FOA
Letter at 7-8 (explaining that the test would reach transactions
with minimal nexus to the United States); JFMC Letter at 4-5
(requesting that the Commission not apply its rules to such
transactions based on its belief that such an approach would
conflict with the CFTC approach).
    \287\ SIFMA/FIA/FSR Letter at A-42.
    \288\ Letter from Cleary Gottlieb Steen & Hamilton LLP to CFTC,
SEC, Board of Governors of the Federal Reserve System, Office of the
Comptroller of the Currency, Federal Deposit Insurance Corporation,
Federal Housing Finance Agency, and Farm Credit Administration
(``Cleary Letter''), dated September 20, 2011 at 28 (suggesting that
the Commission adopt accommodations for the use of non-U.S. SDRs in
appropriate cases).
    \289\ See Letter from ISDA to SEC dated November 14, 2014
(``ISDA Letter'') at 18 (urging us not to apply Regulation SBSR on
the basis of conduct within the United States as it would not be
practicable). This commenter also argued that counterparties to a
transaction executed on an SB SEF, and not the SB SEF itself, should
be required to report such transactions. See id. at 7. See also
Regulation SBSR Proposed Amendments Release, 80 FR 14748-49 (citing
additional comment letters addressing this issue).
    \290\ See ISDA Letter at 18. This commenter also argued that,
because in its view a security-based swap involving only non-U.S.
persons that are not registered as a security-based swap dealer or
as a major security-based swap participant should not be required to
be reported, the reporting hierarchy need not address the reporting
obligations arising from such security-based swap transactions. See
id. at 19.
---------------------------------------------------------------------------

4. The CFTC Staff Advisory and Responses to the CFTC Request for
Comment
    As noted above, in response to the solicitation of comment on the
CFTC Staff Advisory, commenters raised concerns specifically with
respect to the application of the approach in that document to the
CFTC's transaction-level requirements.
    Some commenters suggested that only those CFTC transaction-level
requirements directly relevant to the specific activities that the swap
dealer carries out from a U.S. location should apply to the
transaction, generally taking the view that the CFTC's regulatory
interest extends only to counterparty-facing activities and not, for
example, to the risk-mitigation aspects of Title VII.\291\ One
commenter suggested, however, that certain counterparty-facing
communications raise no concerns relevant to Title VII and therefore
should not trigger application of transaction-level requirements, even
if a swap dealer engages in such communications within the United
States.\292\ Another commenter noted that this approach would help
ensure that costs and benefits of such an approach were
commensurate.\293\
---------------------------------------------------------------------------

    \291\ See IIB Letter to CFTC at 8-10 (arguing that, if the CFTC
adopts the CFTC Staff Advisory, it should apply only the
transaction-level requirements relevant to the activity that occurs
within the United States); SIFMA/FIA/FSR Letter to CFTC at A-9 to A-
11 (any approach adopted by the CFTC that is based on the use of
personnel located in the United States should trigger only
requirements that relate to concerns raised by the conduct that
triggered the requirements); Barclays Letter to CFTC at 3 (arguing
that the only transaction-level requirements whose objectives are
implicated by activity in which the ``sole nexus to the U.S. is the
participation of U.S.-based personnel of a non-U.S. swap dealer''
are requirements related to ``sales practices'' and that, therefore,
the only relevant transaction-level requirements that should apply
to such transactions, should the CFTC adopt an approach that is
based on the use of personnel located in the United States, are pre-
trade disclosure requirements); ISDA Letter to CFTC at 9 (suggesting
that, should the CFTC adopt the approach in the CFTC Staff Advisory,
only those transaction-level requirements that are transaction-
specific and that relate to the triggering communication--
transaction specific disclosure and communications--should apply to
the transaction).
    \292\ See SIFMA/FIA/FSR Letter at A-11 to A-12 (stating that
``arranging and negotiating trading relationships and legal
documentation and providing legal advice as well as providing credit
terms and technical terms, market color, market research or a
general discussion of the swap transaction'' have no relation to any
concerns of the Dodd-Frank Act in transactions between two non-U.S.
persons).
    \293\ See Barclays Letter to CFTC at 3.
---------------------------------------------------------------------------

    Commenters also noted that a non-U.S.-person swap dealer using
personnel or agents located in the United States to arrange, negotiate,
or execute swap transactions generally would already be subject to
regulation in its home jurisdiction.\294\ In their view, adoption of
the CFTC Staff Advisory would raise the possibility of conflicting and
duplicative regulation of such non-U.S.-person swap dealers and
reflected a lack of comity on the CFTC's part toward regulators in
other jurisdictions.\295\
---------------------------------------------------------------------------

    \294\ See CDEU Letter to CFTC at 2, 3 (arguing that the approach
in the CFTC Staff Advisory represents a departure from the CFTC
Cross-Border Guidance in that a transaction between two entities
organized under German law would be subject to the Title VII
requirements and the EMIR requirements, which would be duplicative
and unnecessary, without any ability for substituted compliance);
IIB Letter to CFTC at 5 (explaining that ``[i]t would stand
international comity on its head for the [CFTC]'' to adopt the CFTC
Staff Advisory's approach of imposing regulatory requirements on
non-U.S. firms on the basis of ``limited activities'' of their U.S.
personnel or agents when the foreign jurisdiction has strong
supervisory interests in the risks arising from the transactions);
JFMC Letter to CFTC at 1 (explaining that the CFTC Staff Advisory's
approach to applying transaction-level requirements does not account
for the application of foreign regimes to the transaction).
    \295\ See SIFMA/FIA/FSR Letter to CFTC at A-6 (explaining that
the CFTC Staff Advisory fails to respect comity principles because
it would not ``give due recognition to the compelling supervisory
interests of home regulators in the jurisdictions in which these
transactions occur''). See also IIB Letter to CFTC at 6 (arguing
that Dodd-Frank incorporates mechanism for addressing competition
concerns: a ``mandate'' for international harmonization).
Accordingly, they urged the CFTC to make substituted compliance
available in such transactions. See CDEU Letter to CFTC at 5 (urging
the CFTC to make substituted compliance determinations with respect
to the transaction-level requirements and to defer to foreign
regulators to regulate entities that are organized under the laws of
their jurisdiction); ISDA Letter to CFTC at 4 (arguing that
substituted compliance should be available for transactions between
a non-U.S. swap dealer and a non-U.S. counterparty if the CFTC
adopts the approach in the CFTC Staff Advisory); SIFMA/FIA/FSR
Letter to CFTC at A-13 (suggesting that substituted compliance be
available for the transaction-level requirements).
---------------------------------------------------------------------------

    Some commenters suggested that adoption of the CFTC Staff Advisory
could present difficulties for, and impose costs on, non-U.S.-person
counterparties of dealers, as such counterparties may not currently
have systems in place for complying with certain CFTC requirements,
particularly if they are imposed only because the swap dealer (and not
the counterparty) happens to have carried out certain activities using
personnel or agents

located in the United States.\296\ As a result, commenters argued that
non-U.S. swap dealers may no longer be able to service non-U.S.-person
counterparties from U.S. locations.\297\ Some commenters noted possible
competitive effects of imposing, or not imposing, transaction-level
requirements on such transactions. One commenter supported the CFTC
Staff Advisory, arguing that without it, U.S. firms would be at a
competitive disadvantage compared to non-U.S. firms operating in the
United States, because U.S. firms would be subject to different rules
for the same transactions.\298\
---------------------------------------------------------------------------

    \296\ See, e.g., SIFMA/FIA/FSR Letter to CFTC at A-4 (explaining
that certain non-U.S.-person counterparties may not have clearing
relationships with FCMs, and requiring them to clear through an FCM
simply because the dealer happens to use personnel within the United
States in the transaction would be costly).
    \297\ See, e.g., ISDA Letter to CFTC at 4.
    \298\ See AFR Letter to CFTC at 3 (explaining that ``any
weakening of [the] advisory would open the door to regular and
significant levels of swaps activities being performed within the
U.S. by nominally foreign entities under foreign rules, or in some
cases no rules at all,'' whereas U.S. firms operating in the United
States would be subject to different rules for the same transactions
operating in the same market).
---------------------------------------------------------------------------

    Some commenters indicated that adoption of the CFTC Staff Advisory
would also disadvantage non-dealing counterparties. For example, one
commenter argued that, were the CFTC Staff Advisory adopted, end users
that trade with non-U.S. swap dealers might face competitive
disadvantages.\299\ Other commenters noted that the application of
transaction-level requirements to such transactions could put foreign
swap dealers at a competitive disadvantage because it would be overly
burdensome for them to use U.S.-based personnel or agents to perform
certain function in connection with their dealing activity,
particularly with respect to transactions with foreign counterparties
that may oppose being subject to transaction-level requirements, and
that the adoption of the CFTC Staff Advisory would therefore encourage
dealers not to use their U.S.-based personnel.\300\
---------------------------------------------------------------------------

    \299\ See CDEU Letter to CFTC at 2 (urging the CFTC not to adopt
the Staff Advisory because it would lead to competitive
disadvantages for certain non-U.S. end-user affiliates that had
relied on trading with non-U.S. swap dealers compared to other non-
U.S. end users in the same markets that currently hedge with
unregistered counterparties). This commenter also expressed concern
that applying the transaction-level requirements to such
transactions would disadvantage non-U.S.-person non-dealers that
choose to hedge with non-U.S. swap dealers using personnel or agents
in the United States, as compared to non-U.S. persons that choose to
hedge with unregistered counterparties or dealers that do not use
personnel or agents in the United States. See CDEU Letter to CFTC at
1-2.
    \300\ See ISDA Letter to CFTC at 4 (noting that non-U.S.
counterparties have insisted that a swap dealer not use its U.S.-
based personnel so as to avoid being subject to transaction-level
requirements). See also JFMC Letter to CFTC at 1 (explaining that
adoption of the CFTC Staff Advisory would create regulatory
uncertainty and disrupt the planning of firms' systems and put Asia-
based swap dealers at a disadvantage if they want to use U.S.-based
personnel or agents).
---------------------------------------------------------------------------

D. Mandatory Clearing and Trade Execution

    After careful consideration of concerns raised by commenters and
our further consideration of policy concerns relevant to the security-
based swap market, we are not proposing to subject transactions between
two non-U.S. persons to the clearing requirement (and, by extension, to
the trade execution requirement \301\) on the basis of dealing activity
in the United States, including transactions that are arranged,
negotiated, or executed by personnel located in a U.S. branch or
office.
---------------------------------------------------------------------------

    \301\ We continue to believe that, under the statutory
framework, a security-based swap transaction is potentially subject
to the trade execution requirement only if it is first subject to
the clearing requirement. See Cross-Border Proposing Release, 78 FR
31082. Accordingly, to the extent that the clearing requirement does
not apply to a particular security-based swap transaction, the trade
execution requirement also would not apply. See id. (noting that, to
the extent that we are proposing not to apply the clearing
requirement to a particular transaction, the trade execution
requirement would not apply to such transaction).
---------------------------------------------------------------------------

    As we noted in the Cross-Border Proposing Release, because the
financial risks of such a transaction reside outside the United States,
``it is not necessary to apply the mandatory clearing requirement to a
transaction between two non-U.S. persons solely'' because the
transaction involves activity in the United States.\302\ However, the
proposed approach would have subjected a ``transaction conducted within
the United States'' involving at least one registered foreign security-
based swap dealer to the clearing requirement (and, as noted, to the
trade execution requirement). We proposed this approach because we
preliminarily believed that registered foreign security-based swap
dealers would have a more significant connection to the United States
and to minimize potential competitive disparities between U.S. persons
and non-U.S. persons.\303\
---------------------------------------------------------------------------

    \302\ Cross-Border Proposing Release, 78 FR 31080.
    \303\ See id. at 31080.
---------------------------------------------------------------------------

    On further consideration, however, we now preliminarily believe
that we should not impose the clearing requirement on a security-based
swap transaction between two non-U.S. persons where neither
counterparty's obligations under the security-based swap are guaranteed
by a U.S. person, even if the transaction involves one or more
registered foreign security-based swap dealers. In our view, a key
objective of the clearing requirement is to mitigate systemic and
operational risk in the United States, but the counterparty credit risk
and operational risk of such transactions reside primarily outside the
United States.\304\ Accordingly, we preliminarily believe that
subjecting such security-based swaps to the clearing requirement would
not significantly advance what we view as a key policy objective of the
clearing requirement applicable to security-based swaps under the Dodd-
Frank Act.\305\
---------------------------------------------------------------------------

    \304\ See id. at 31077; note 285, supra (citing EC Letter
arguing that activity between two non-U.S. persons in the United
States does not create counterparty credit risk in the United
States). We recognize that even if a transaction involving one or
more registered foreign security-based swap dealers that is
arranged, negotiated, or executed by personnel located in the United
States does not create financial or counterparty credit risk that
resides in the United States, it may create operational risks
associated, for example, with the processing of the transaction. See
id. However, such risks are borne primarily by the counterparties to
the transaction, both of whom are by definition--in the transactions
being addressed in this release--non-U.S. persons (because they are
incorporated outside the United States and do not have their
principal place of business in the United States). Accordingly, any
reduction of operational risks in the U.S. financial market that
would be produced by requiring these transactions to be cleared by a
U.S.-registered clearing agency would likely be insignificant. On
the other hand, imposing the clearing requirement on a transaction
between two non-U.S. persons involving at least one registered
foreign security-based swap dealer because the transaction was
arranged, negotiated, or executed in the United States to be cleared
by a U.S.-registered clearing agency would directly expose that
clearing agency and, through it, the U.S. financial system to the
counterparty credit risk of the transaction.
    \305\ For these reasons, we disagree with commenters that
characterized any exception from the clearing requirement as
``indefensible'' or ``unreasonable.'' See note 281, supra.
    We recognize that another commenter suggested that our initially
proposed approach, which would have required a ``transaction
conducted within the United States'' to be cleared, subject to
certain exceptions, would help ensure that transactions of non-U.S.-
person funds that are managed by U.S.-based investment managers are
subject to the Title VII clearing requirement. See note 280, supra
(citing Citadel Letter). Under the approach set forth in this
release, the transactions of such funds may not be subject to the
clearing requirement when the counterparty is not a U.S. person,
but, as already noted, the risks of such transactions reside
primarily outside the United States, and we preliminarily do not
believe that requiring such transactions to be cleared would further
the purposes of the clearing requirement. To the extent that the
fund has its principal place of business in the United States, of
course, it would be a U.S. person and, under the approach set forth
in our Cross-Border Proposing Release, would be subject to the
clearing requirement. See Exchange Act rule 3a71-3(a)(4)(B)
(defining ``U.S. person'' to include, among other things, an
investment vehicle ``having its principal place of business in the
United States''); Cross-Border Proposing Release, 78 FR 31078
(describing applicability of clearing requirement to U.S. persons
under that proposal). Cf. note 285, supra (citing ICI Letter noting
that mere presence of an investment manager in the United States
does not necessarily create risk in the United States).

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

    We recognize that, to the extent that a non-U.S. person using
personnel located in a U.S. branch or office to arrange, negotiate, or
execute security-based swap transactions in connection with its dealing
activity is affiliated with a U.S. financial firm, the non-U.S.
person's security-based swap exposures may pose risk to its U.S.
affiliates in the United States, as U.S. entities that are affiliated
with non-U.S. persons may determine for reputational reasons that they
must support their non-U.S. affiliates at times of crisis.\306\
However, as we noted in the Cross-Border Adopting Release, Congress has
established other regulatory tools that are specifically intended, and
better suited, to address risks to bank holding companies and financial
holding companies, arising from the financial services activities of a
foreign affiliate of those holding companies where the foreign
affiliate does not engage in security-based swap activity in the United
States,\307\ and we preliminarily believe the same principle applies
here. Moreover, we note that it is likely that such a non-U.S. person
engaged in significant security-based swap dealing activity would be a
registered security-based swap dealer under our proposed approach and
subject to Title VII capital and margin requirements, which we
preliminarily believe would be a more narrowly tailored and appropriate
way of mitigating any such risk in this context.\308\ Under proposed
rule 3a71-3(b)(1)(iii)(C), the non-U.S. person would be required to
include in its dealer de minimis threshold calculations any security-
based swap transaction that it arranged, negotiated, or executed in
connection with its dealing activity using personnel located in a U.S.
branch or office. Any non-U.S. person engaged in significant activity
in the United States, including a non-U.S.-person affiliate of a U.S.
financial firm whose obligations under a security-based swap are not
guaranteed by its U.S. parent, would be required to register as a
security-based swap dealer and comply with Title VII capital and margin
requirements (along with other entity-level requirements). Whereas the
clearing requirement would have applied only to certain transactions of
registered foreign security-based swap dealers, capital and margin
requirements would apply to all of their security-based swap
transactions, including those that do not involve personnel located in
a U.S. branch or office.\309\
---------------------------------------------------------------------------

    \306\ See Cross-Border Adopting Release, 79 FR 47318. As we
noted in the Cross-Border Adopting Release, however, any U.S. person
that is subject to the reporting requirements of section 13(a) or
section 15(d) of the Exchange Act, 15 U.S.C. 78m(a) or 15 U.S.C.
78o(d) respectively, regardless of whether that person provides a
recourse guarantee relating to its non-U.S. affiliates' obligations,
must consider whether there are disclosures that must be made in its
periodic reports regarding any of its obligations. See Cross-Border
Adopting Release, 79 FR 47318 n.348.
    \307\ See id. at 47318-19.
    \308\ We also note in this regard the relatively low liquidity
of the security-based swap market in general, even for the most
liquid products. See Section II.B.3, supra.
    \309\ See, e.g., Cross-Border Proposing Release, 78 FR 31011-12
(proposing to treat margin as an entity-level requirement).
---------------------------------------------------------------------------

    We also preliminarily believe that requiring such security-based
swap transactions to be cleared (and executed on a platform) would
impose a significant burden on certain market participants. Some non-
U.S. person counterparties may not currently have a direct or indirect
relationship with a U.S.-registered clearing agency, and the burdens of
establishing such a relationship may deter these non-U.S. persons--
particularly those not engaged in dealing activity--from entering into
security-based swap transactions with non-U.S. persons that, in
connection with their dealing activity arrange, negotiate, or execute
such transactions using personnel located in a U.S. branch or
office.\310\ Given that, under our proposed approach, a non-U.S. person
that engages in significant security-based swap activity using
personnel located in a U.S. branch or office is likely to be required
to register and be subject to Title VII capital and margin requirements
with respect to all of its transactions, we preliminarily do not
believe that subjecting a subset of these persons' activities to the
clearing requirement is likely to provide a significant additional
reduction in counterparty credit risk in the United States. Consistent
with customary Commission practice, we expect that Commission staff
will monitor developments in the security-based swap market, including
changes in liquidity or market fragmentation, that may warrant
reconsideration of this proposed approach and, if necessary and
appropriate, make recommendations to address such developments.
---------------------------------------------------------------------------

    \310\ See notes 296-297, supra. Establishing a direct
relationship with a clearing agency may entail upfront costs that
include, among other things, meeting minimum capital requirements
and making minimum clearing fund contributions. See, e.g., ICE Clear
Credit Clearing Rules at 12 and 90 (available at: https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Rules.pdf,
last visited April 15, 2015).
---------------------------------------------------------------------------

    Because such security-based swap transactions would not be subject
to the clearing requirement, under our proposed approach they would
also not be subject to mandatory trade execution. While we acknowledge
that trading between two non-U.S. persons in the OTC market may
indirectly affect liquidity available to market participants subject to
mandatory trade execution,\311\ we preliminarily do not believe that it
is appropriate to require such non-U.S. persons to shift their non-U.S.
business to trading platforms merely because one of the counterparties
to the transaction uses personnel located in a U.S. branch or office to
arrange, negotiate, or execute the transaction.\312\ As with the
clearing requirement, and consistent with customary Commission
practice, we expect that Commission staff will monitor developments in
the security-based swap market, including changes in liquidity or
market fragmentation, that may warrant reconsideration of this proposed
approach and, if necessary and appropriate, make recommendations to
address such developments.
---------------------------------------------------------------------------

    \311\ See Section VI.C.4, infra.
    \312\ See note 308, supra.
---------------------------------------------------------------------------

E. Regulation SBSR

    We are proposing amendments to Regulation SBSR to address the
application of the regulatory reporting and public dissemination
requirements to certain transactions not addressed in the Regulation
SBSR Adopting Release or the Regulation SBSR Proposed Amendments
Release.
1. Statutory Framework
    Section 13A(a)(1) of the Exchange Act \313\ provides that ``[e]ach
security-based swap that is not accepted for clearing by any clearing
agency or derivatives clearing organization shall be reported to--(A) a
registered security-based swap data repository described in section
13(n); or (B) in the case in which there is no security-based swap data
repository that would accept the security-based swap, to the
Commission.'' Section 13(m)(1)(G) of the Exchange Act \314\ provides
that ``[e]ach security-based swap (whether cleared or uncleared) shall
be reported to a registered security-based swap data repository.''
---------------------------------------------------------------------------

    \313\ 15 U.S.C. 78m-1(a)(1).
    \314\ 15 U.S.C. 78m(m)(1)(G). See also 15 U.S.C. 78q(a)(1).

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

    Section 13(m)(1)(B) of the Exchange Act \315\ directs the
Commission ``to make security-based swap transaction and pricing data
available to the public in such form and at such times as the
Commission determines appropriate to enhance price discovery.'' Section
13(m)(1)(C) of the Exchange Act \316\ authorizes the Commission to
provide by rule for the public availability of security-based swap
transaction, volume, and pricing data. Furthermore, section 13(m)(1)(D)
of the Exchange Act \317\ authorizes the Commission to require
registered entities (such as registered SDRs) to publicly disseminate
the security-based swap transaction and pricing data required to be
reported under section 13(m) of the Exchange Act. Finally, section
13(n)(5)(D)(ii) of the Exchange Act \318\ requires SDRs to provide
security-based swap information ``in such form and at such frequency as
the Commission may require to comply with the public reporting
requirements.''
---------------------------------------------------------------------------

    \315\ 15 U.S.C. 78m(m)(1)(B). See also 15 U.S.C. 78q(a)(1).
    \316\ 15 U.S.C. 78m(m)(1)(C).
    \317\ 15 U.S.C. 78m(m)(1)(D).
    \318\ 15 U.S.C. 78m(n)(5)(D)(ii).
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, we interpreted the
regulatory reporting and public dissemination requirements to apply to
security-based swaps that ``exist, at least in part, within the United
States'' \319\ and noted that a security-based swap with a direct or
indirect counterparty that is a U.S. person necessarily would exist
within the United States.\320\ This view is consistent with a
territorial approach to the statutory language requiring the reporting
of ``[e]ach security-based swap,'' and with the statutory requirement
that security-based swaps that are reported must be publicly
disseminated, unless an exception applies.\321\ In our view, it is also
consistent with a territorial approach to these statutory provisions to
require each security-based swap that is otherwise subject to
regulatory requirements under Title VII (as implemented under our
territorial approach to implementing those requirements) to be reported
and publicly disseminated pursuant to Regulation SBSR.
---------------------------------------------------------------------------

    \319\ See, e.g., Regulation SBSR Adopting Release, 80 FR 14651.
    \320\ See Regulation SBSR Adopting Release, 80 FR 14650.
    \321\ See Regulation SBSR Adopting Release, 80 FR 14649-50.
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2. Proposed Amendments Regarding Application of Regulation SBSR to
Certain Security-Based Swap Transactions
(a) Security-Based Swap Transactions That a Non-U.S. Person, in
Connection With its Dealing Activity, Arranges, Negotiates, or Executes
Using Personnel Located in a U.S. Branch or Office
    We propose to amend rule 908(a)(1) of Regulation SBSR to include a
provision that would require any security-based swap transaction
connected with a person's security-based swap dealing activity that is
arranged, negotiated, or executed by personnel of such non-U.S. person
located in a U.S. branch or office--or by personnel of its agent
located in a U.S. branch or office--to be reported to a registered SDR
and publicly disseminated pursuant to Regulation SBSR.\322\ This
proposed amendment generally reflects the approach described in our
Cross-Border Proposing Release, which would have subjected
``transactions conducted within the United States'' to both regulatory
reporting and public dissemination requirements.\323\ Consistent with
that approach, it would expand the scope of Regulation SBSR in two
ways. First, it would require the security-based swaps that a
registered foreign security-based swap dealer arranges, negotiates, or
executes using personnel located in a U.S. branch or office to be
publicly disseminated, even if the counterparty to such transaction is
another non-U.S. person whose obligations under the security-based swap
are not guaranteed by a U.S. person.\324\ Second, it would require that
a transaction of a non-U.S. person that is not a registered security-
based swap dealer be subject to both regulatory reporting and public
dissemination under Regulation SBSR if that non-U.S. person would be
required to include the transaction in its de minimis threshold
calculations under proposed Exchange Act rule 3a71-3(b)(1)(iii)(C), as
described above.
---------------------------------------------------------------------------

    \322\ See proposed rule 908(a)(1)(v). We intend the proposed
rule to indicate the same type of activity by personnel located in
the United States as described in Section III.B.5, supra. Moreover,
for purposes of proposed rule 908(a)(1)(v), we would interpret the
term ``personnel'' in a manner consistent with the definition of
``associated person of a security-based swap dealer'' contained in
section 3(a)(70) of the Exchange Act, 15 U.S.C. 78c(a)(70),
regardless of whether such non-U.S. person or such non-U.S. person's
agent is itself a security-based swap dealer. See note 193, supra
(discussing the Commission's proposed interpretation of the term
``personnel'' for purposes of proposed rule 3a71-3(b)(1)(iii)(C)).
    \323\ We preliminarily believe that the approach reflected in
this release, which focuses only on whether a counterparty in
connection with its dealing activity has arranged, negotiated, or
executed the security-based swap transaction using personnel located
in the United States, should mitigate many of the concerns raised by
commenters. See note 286, supra (citing several comment letters
arguing, among other things, that requirements, including Regulation
SBSR, should not apply to transactions with only a minimal
connection to the United States). See also notes 289-290, supra
(citing comment letters arguing that looking to activity in the
United States as a trigger for Regulation SBSR would not be
practicable); note 292, supra (citing SIFMA/FIA/FSR Letter).
    We recognize that some commenters suggested that certain Title
VII requirements, including the regulatory reporting and public
dissemination requirements implemented by Regulation SBSR, should
not apply to transactions between two non-U.S. persons even if they
involve activity in the United States because of operational
complications or potential regulatory overlap or duplication. See
note 275-276, 286-287, and 294-295, supra. We do not believe,
however, that reporting a security-based swap to a registered SDR is
likely to pose significant challenges, as the burden is borne under
our rules only by one side of the transaction, and at least one
counterparty to any transaction arranged, negotiated, or executed by
a non-U.S. person, in connection with its dealing activity, using
personnel located in a U.S. branch or office is already likely to
have infrastructure in place to report transactions to a registered
SDR.
    \324\ Under Exchange Act rule 3a71-1(c), absent a limitation by
the Commission, a security-based swap dealer is deemed to be a
security-based swap dealer with respect to each security-based swap
it enters into, regardless of the type, class, or category of the
security-based swap or the person's activities in connection with
the security-based swap. Accordingly, for purposes of this proposed
amendment, any transaction that a registered security-based swap
dealer arranged, negotiated, or executed using personnel located in
a U.S. branch or office would be ``in connection with its dealing
activity'' and subject to both regulatory reporting and public
dissemination.
---------------------------------------------------------------------------

    Requiring these transactions to be reported to a registered SDR
should enhance our ability to oversee relevant activity related to
security-based swap dealing occurring within the United States as well
as to monitor market participants for compliance with specific Title
VII requirements (including the requirement that a person register with
the Commission as a security-based swap dealer if it exceeds the de
minimis threshold). We preliminarily believe it would also likely
enhance our ability to monitor for manipulative and abusive practices
involving security-based swap transactions or transactions in related
underlying assets, such as corporate bonds or other securities
transactions that result from dealing activity, or other relevant
activity, in the U.S. market.
    Subjecting these transactions to the public dissemination
requirements of Regulation SBSR should enhance the level of
transparency in the U.S. security-based swap market, potentially
reducing implicit transaction costs \325\

and promoting greater price efficiency. As we noted in the Regulation
SBSR Adopting Release, the current market for security-based swaps is
opaque.\326\ Dealers can observe order flow submitted to them by
customers and other potential counterparties and know about their own
executions, and may know about other dealers' transactions in certain
instances, but information about executed transactions is not
widespread. Market participants--particularly non-dealers--have to
arrive at a price at which they would be willing to assume risk with
little or no knowledge of how other market participants would or have
arrived at prices at which they have assumed or would be willing to
assume risk. We preliminarily believe that, by reducing information
asymmetries between non-dealers and persons acting in a dealing
capacity and providing more equal access to post-trade information in
the security-based swap market, implicit transaction costs could be
reduced, which could in turn promote greater price efficiency.\327\
Ensuring that post-trade information encompasses transactions involving
a non-U.S. person that arranged, negotiated, or executed the security-
based swap in connection with its dealing activity using personnel
located in a U.S. branch or office could increase price competition and
price efficiency in the security-based swap market and should enable
all market participants to have more comprehensive information with
which to make trading and valuation determinations.\328\
---------------------------------------------------------------------------

    \325\ As discussed in the Regulation SBSR Adopting Release,
dealing activity in the single-name CDS market is concentrated among
a small number of firms that each enjoy informational advantages as
a result of the large quantity of order flow they privately observe.
Implicit transaction costs are the difference between the
transaction price and the fundamental value, which could reflect
adverse selection or could reflect compensation for inventory risk.
In addition to these implicit transaction costs, security-based swap
market participants may face explicit transaction costs such as
commissions and other fees that dealers might charge non-dealers for
access to the market. See Regulation SBSR Adopting Release, 80 FR
14704 n.1254.
    \326\ See Regulation SBSR Adopting Release, 80 FR 14605.
    \327\ Security-based swaps are complex derivative products, and
there is no single accepted way to model a security-based swap for
pricing purposes. As we noted in the Regulation SBSR Adopting
Release, making post-trade pricing and volume information publicly
available should allow valuation models to be adjusted to reflect
how other market participants have valued a security-based swap
product at a specific moment in time. Public dissemination of last-
sale information also should aid persons engaged in dealing activity
in deriving better quotations, because they will know the prices at
which other market participants have traded. Last-sale information
also should aid end users and other non-dealing entities in
evaluating current quotations, by allowing them to question why a
dealer's quote differs from the prices of the most recent
transactions. Furthermore, smaller market participants that view
last-sale information should be able to test whether quotations
offered by dealers before the last sale were close to the price at
which the last sale was executed. In this manner, post-trade
transparency should promote price competition and more efficient
price discovery in the security-based swap market. See Regulation
SBSR Adopting Release, 80 FR 14606.
    \328\ See id.
---------------------------------------------------------------------------

(b) Security-Based Swaps Executed on a Platform Having Its Principal
Place of Business in the United States
    We also are proposing to amend rule 908(a)(1) of Regulation SBSR by
adding a provision that would require any security-based swap
transaction that is executed on a platform \329\ having its principal
place of business in the United States both to be reported to a
registered SDR and to be publicly disseminated pursuant to Regulation
SBSR.\330\ Under our previously re-proposed rule, such transactions
generally would have been subjected to Regulation SBSR as
``transactions conducted within the United States'' under the proposed
definition of that term.
---------------------------------------------------------------------------

    \329\ Regulation SBSR defines ``platform'' to mean ``a national
securities exchange or security-based swap execution facility that
is registered or exempt from registration.'' Rule 900(v).
    \330\ See proposed rule 908(a)(1)(iii).
---------------------------------------------------------------------------

    As noted above, our proposed amendments to Regulation SBSR focus on
transactions that a non-U.S. person, in connection with its dealing
activity, arranges, negotiates, or executes using personnel located in
a U.S. branch or office rather than on the broader range of activity
reflected in our proposed definition of ``transaction conducted in the
United States.'' We preliminarily continue to believe, however, that a
transaction executed on a platform that has its principal place of
business in the United States also should be subject to Regulation
SBSR, even when the transaction involves two non-U.S. persons that are
not engaged in dealing activity in connection with the transaction.
Transactions executed on a platform having its principal place of
business in the United States are consummated within the United States
and therefore exist, at least in part, in the United States.\331\
Requiring these security-based swaps to be reported to a registered SDR
will permit the Commission and other relevant authorities to observe,
in a registered SDR, all transactions executed on such a platform and
to carry out oversight of such security-based swaps. Furthermore, we
preliminarily believe that public dissemination of such transactions
would have value to participants in the U.S. security-based swap
market, who are likely to trade the same or similar products, as these
products will have been listed by a platform having its principal place
of business in the United States.
---------------------------------------------------------------------------

    \331\ Cf. Regulation SBSR Adopting Release, 80 FR 14654 (noting
that a security-based swap that is accepted for clearing by a
clearing agency having its principal place of business in the United
States also exists, at least in part, within the United States).
    Requiring these transactions to be reported should enable
registered SDRs to have a complete record of all security-based
swaps that are executed on platforms that have their principal place
of business in the United States, which should enhance our ability
to monitor these platforms, and activity in the security-based swap
market more generally, for manipulation and other abusive practices.
Cf. Cross-Border Proposing Release, 78 FR 31040 (noting importance
of having a complete record of security-based swaps). Requiring
these transactions to be reported should also enhance our ability to
monitor activity on these platforms for compliance with
recordkeeping and reporting and other requirements. See Cross-Border
Proposing Release, 78 FR 31183 (discussing the market-wide benefits
of enhanced transparency).
---------------------------------------------------------------------------

(c) Security-Based Swaps Effected by or Through a Registered Broker-
Dealer
    We are also proposing to amend rule 901(a) of Regulation SBSR by
adding a provision that would require the reporting and public
dissemination of any security-based swap transaction that is effected
by or through a registered broker-dealer (including a registered SB
SEF).\332\ As noted above, existing rule 908(a)(1) already provides
that any transaction involving a U.S. person, either directly or
indirectly, on one or both sides of the transaction subjects that
transaction to both regulatory reporting and public dissemination;
proposed rule 908(a)(1)(v) would impose the same requirements with
respect to any transaction that a non-U.S. person in connection with
its dealing activity arranges, negotiates, or executes using its
personnel or the personnel of its agent located in a U.S. branch or
office. Given the limitation on reporting duties set forth in rule
908(b) and in the proposed amendments to that rule, we expect that
most, if not all, registered broker-dealers required to report under
this proposed amendment would be U.S. persons intermediating security-
based swap transactions between non-U.S. person counterparties and that
such persons would be effecting transactions in security-based swaps
from their offices in the United States. Moreover, under the proposed
amendments to the reporting hierarchy described below, a registered
broker-dealer (including a registered SB SEF) would be required to
report transactions effected by or through it only when neither side of
that transaction includes a U.S. person, neither side is a

registered security-based swap dealer or registered major security-
based swap participant, and neither side of that transaction involves a
non-U.S. person that has, in connection with its dealing activity,
arranged, negotiated, or executed the security-based swap using its
personnel or the personnel of its agent located in a U.S. branch or
office.\333\
---------------------------------------------------------------------------

    \332\ See proposed rule 908(a)(1)(iv).
    \333\ We acknowledge that some commenters urged us not to
require SB SEFs to report transactions under Regulation SBSR. See
note 289, supra. We preliminarily believe, however, that a
registered broker-dealer (including a registered SB SEF) is likely
to be better positioned to report than either counterparty to a
transaction described in proposed rule 901(a)(2)(ii)(E)(4). We note
that proposed rule 901(a)(2)(ii)(E)(4) applies only when two non-
U.S. persons who are not registered security-based swap dealers,
registered major security-based swap participants, or non-U.S.
persons that fall within proposed rule 908(b)(5) effect a security-
based swap through a registered broker-dealer. In the Regulation
SBSR Adopting Release, we observed that non-registered persons are
less likely than Commission registrants to have systems in place to
support the reporting required by Regulation SBSR, and we
preliminarily believe that the same applies here. See Regulation
SBSR Adopting Release, 80 FR 14600.
---------------------------------------------------------------------------

    To the extent that a registered broker-dealer intermediates a
security-based swap transaction, we preliminarily believe that the
transaction should be both reported to a registered SDR and publicly
disseminated. Registered broker-dealers play a key role as
intermediaries in the U.S. financial markets. To improve integrity and
transparency in those markets, we believe that it is important that the
Commission, and other relevant authorities, have ready access to
detailed information about the security-based swap transactions that
such persons intermediate. Furthermore, we preliminarily believe that
public dissemination of such transactions will have value to
participants in the U.S. security-based swap market, who are likely to
trade the same or similar products.
3. Application of the Public Dissemination Requirement to Certain
Transactions
    In the Regulation SBSR Adopting Release, we adopted rule
908(a)(1)(i), which requires, among other things, public dissemination
of all security-based swap transactions having a U.S.-person guarantor,
including transactions in which the other side includes no counterparty
that is a U.S. person, registered security-based swap dealer, or
registered major security-based swap participant (a ``covered cross-
border transaction'').\334\ This represented a departure from the re-
proposed approach described in the Cross-Border Proposing Release,
which would have excepted covered cross-border transactions from the
public dissemination requirement.\335\ We noted, however, that we had
determined to continue considering whether to except covered cross-
border transactions from the public dissemination requirement and that
we would solicit additional comment regarding whether such an exception
would be appropriate. We solicit comment on this approach in the
request for comments below.
---------------------------------------------------------------------------

    \334\ See rule 908(a)(1)(i); Regulation SBSR Adopting Release,
80 FR 14652-53. As in the Regulation SBSR Adopting Release, a
``covered cross-border transaction'' refers to a transaction that
meets the description above and will not be submitted to clearing at
a registered clearing agency having its principal place of business
in the United States. See Regulation SBSR Adopting Release, 80 FR
14653.
    \335\ See Cross-Border Proposing Release, 78 FR 31062; initially
re-proposed rule 908(a)(2) (requiring that security-based swaps be
publicly disseminated if there is a direct or indirect counterparty
that is a U.S. person on each side of the transaction).
---------------------------------------------------------------------------

    In light of our determination to require all security-based swap
transactions of U.S. persons, including all transactions conducted
through a foreign branch, to be publicly disseminated, we preliminarily
do not think that it would be appropriate to exempt covered cross-
border transactions from the public dissemination requirement. As we
have noted elsewhere, the transactions of a guaranteed non-U.S. person
exist, at least in part, within the United States, and the economic
reality of these transactions is substantially identical to
transactions entered into directly by a U.S. person (including through
a foreign branch).\336\ Failure to require such transactions to be
publicly disseminated would treat these economically substantially
identical transactions differently, potentially creating competitive
disparities between U.S. persons, depending on how they have structured
their business, as a guaranteed non-U.S. person would be able to carry
out an unlimited volume of covered cross-border transactions without
being subject to the public dissemination requirement.\337\
---------------------------------------------------------------------------

    \336\ See note 319, supra.
    \337\ However, if the transactions of a guaranteed non-U.S.
person are subject to regulatory reporting and public dissemination
requirements in a foreign jurisdiction that are comparable to those
imposed by Regulation SBSR, such transactions could be eligible for
substituted compliance. See rule 908(c).
---------------------------------------------------------------------------

4. Proposed Amendments Regarding Limitations on Reporting Obligations
of Certain Persons Engaged in Security-Based Swaps Subject to
Regulation SBSR
    Rule 908(b) of Regulation SBSR provides that, notwithstanding any
other provision of Regulation SBSR, a person shall not incur any
obligation under Regulation SBSR unless it is a U.S. person, a
registered security-based swap dealer, or a registered major security-
based swap participant.\338\ We noted that rule 908(b) is designed to
specify the types of persons that will incur duties under Regulation
SBSR. If a person does not come within any of the categories enumerated
by rule 908(b), it would not incur any duties under Regulation
SBSR.\339\ Rule 908(b) was designed to reduce assessment costs and
provide greater legal certainty to counterparties engaging in cross-
border security-based swaps, and we explained that we anticipated
soliciting additional public comment regarding whether regulatory
reporting and/or public dissemination requirements should be extended
to transactions between non-U.S. persons occurring within the United
States and, if so, which non-U.S. persons should incur reporting duties
under Regulation SBSR.\340\
---------------------------------------------------------------------------

    \338\ See rule 908(b). In the Regulation SBSR Proposed
Amendments Release, we proposed to amend rule 908(b) by adding
platforms and registered clearing agencies to the list of persons
that might incur obligations under Regulation SBSR. See Regulation
SBSR Proposed Amendments Release, 80 FR 14759.
    \339\ See Regulation SBSR Adopting Release, 80 FR 14656.
    \340\ See id.
---------------------------------------------------------------------------

    Consistent with the proposed amendments described above, and so
that at least one counterparty to a transaction that is subject to
Regulation SBSR has an obligation to report the transaction to a
registered SDR, we are proposing to add subparagraph (5) to rule 908(b)
to include a non-U.S. person that, in connection with such person's
security-based swap dealing activity, arranged, negotiated, or executed
the security-based swap using its personnel located in a U.S. branch or
office, or using personnel of its agent located in a U.S. branch or
office.\341\ Because

existing rule 908(b)(2) already covers a non-U.S. person that is
registered as a security-based swap dealer, the effect of proposed rule
908(b)(5) would be to cover a non-U.S. person that engages in dealing
activity in the United States but that does not meet the de minimis
threshold and thus would not be registered as a security-based swap
dealer.
---------------------------------------------------------------------------

    \341\ See proposed rule 908(b)(5). We intend the proposed rule
to indicate the same type of activity by personnel located in the
United States as described in Section III.B.5, supra. Moreover, for
purposes of proposed rule 908(b)(5), we would interpret the term
``personnel'' in a manner consistent with the definition of
``associated person of a security-based swap dealer'' contained in
section 3(a)(70) of the Exchange Act, 15 U.S.C. 78c(a)(70),
regardless of whether such non-U.S. person or such non-U.S. person's
agent is itself a security-based swap dealer. See note 193, supra
(discussing the Commission's proposed interpretation of the term
``personnel'' for purposes of proposed rule 3a71-3(b)(1)(iii)(C)).
---------------------------------------------------------------------------

5. Proposed Amendment Regarding Reporting Duties of Certain Persons
That are not Registered Security-Based Swap Dealers or Registered Major
Security-Based Swap Participants
    Rule 901(a)(2)(ii) of Regulation SBSR establishes a reporting
hierarchy that specifies the side that has the duty to report a
security-based swap, taking into account the types of entities present
on each side of the transaction.\342\ The reporting side, as determined
by the reporting hierarchy, is required to submit the information
required by rule 901 of Regulation SBSR to a registered SDR.\343\ The
reporting side may select the registered SDR to which it makes the
required report.
---------------------------------------------------------------------------

    \342\ See rule 901(a).
    \343\ Rule 900(gg) defines ``reporting side'' to mean ``the side
of a security-based swap identified by Sec.  242.901(a)(2).'' As
noted above, rule 901(a)(2) identifies the person that will be
obligated to report a security-based swap under various
circumstances.
---------------------------------------------------------------------------

    Rule 901(a)(2) of Regulation SBSR does not assign reporting
obligations for certain transactions having only unregistered entities
on both sides of the transaction. In the Regulation SBSR Adopting
Release, we specifically noted that we anticipated soliciting further
comment regarding the duty to report a security-based swap where
neither side includes a registered security-based swap dealer or a
registered major security-based swap participant and neither side
includes a U.S. person or only one side includes a U.S. person.\344\ In
this release we are proposing additional provisions setting forth which
sides would have the duty to report such transactions.
---------------------------------------------------------------------------

    \344\ See Regulation SBSR Adopting Release, 80 FR 14600, 14655.
---------------------------------------------------------------------------

    As noted above, and as discussed in the Regulation SBSR Adopting
Release, one commenter raised concerns about burdens that the
previously re-proposed reporting hierarchy might place on U.S. persons
in transactions with certain non-U.S.-person counterparties.\345\ Under
that approach, in a transaction between a non-U.S. person and a U.S.
person, where neither side included a security-based swap dealer or
major security-based swap participant, the U.S. person would have had
the duty to report. The commenter noted that in such transactions the
non-U.S.-person counterparty might be engaged in dealing activity but
at levels below the security-based swap dealer de minimis threshold and
the U.S. person may not be acting in a dealing capacity in any of its
security-based swap transactions. The commenter argued that, in such
cases, the non-U.S. person may be better equipped to report the
transaction and accordingly that, when two non-registered persons enter
into a security-based swap, the counterparties should be permitted to
select which counterparty would report, even if one counterparty is a
U.S. person.\346\
---------------------------------------------------------------------------

    \345\ See IIB Letter at 26; Regulation SBSR Adopting Release, 80
FR 14600.
    \346\ See IIB Letter at 26 (stating that, in such transactions,
``it would be more efficient and fair for the Commission to modify
its rules to allow a De Minimis SBSD to agree with its counterparty
to be the reporting party when facing a U.S. non-registrant
counterparty'').
---------------------------------------------------------------------------

    Proposed rule 901(a)(2)(ii)(E)(2) is intended in part to address
this concern when the non-U.S. person is engaged in dealing activity
using personnel located in the United States. Under the proposed rule,
in a transaction between such a non-U.S. person and a U.S. person,
where neither side includes a registered security-based swap dealer or
a registered major security-based swap participant, the sides would be
permitted to select which side has the duty to report the
transaction.\347\ We preliminarily believe that this approach should
facilitate efficient allocation of reporting duties between the sides
by permitting the counterparties to select the reporting side.
---------------------------------------------------------------------------

    \347\ See proposed rule 901(a)(2)(ii)(E)(2).
---------------------------------------------------------------------------

    For similar reasons, proposed rule 901(a)(2)(ii)(E)(2) also
provides that, in a transaction between two non-U.S. persons in which
both sides include a non-U.S. person that is carrying out relevant
security-based swap dealing activity using personnel located in a U.S.
branch or office, as described in proposed rule 908(b)(5), the sides
would be permitted to select which side has the duty to report the
transaction. We preliminarily believe that, because both sides of such
a transaction are engaging in dealing activity in the United States but
both fall beneath the de minimis thresholds, both sides are likely to
have approximately equivalent levels of infrastructure to support their
U.S. business, including the infrastructure for reporting transactions
to a registered SDR. In such cases, we preliminarily believe that it
would be reasonable and appropriate to permit them to select which side
will have the duty to report.\348\
---------------------------------------------------------------------------

    \348\ Similar considerations have informed our proposal to
permit counterparties to a transaction where both sides include only
non-U.S. persons that do not fall within proposed rule 908(b)(5) to
select the reporting side. See proposed rule 901(a)(2)(ii)(E)(4).
Such a transaction would be subject to Regulation SBSR because it
has been accepted for clearing by a clearing agency that has its
principal place of business in the United States or because it has
been executed on a platform that has its principal place of business
in the United States. See proposed rules 908(a)(ii) and (iii).
---------------------------------------------------------------------------

    With respect to transactions in which one side includes only
unregistered non-U.S. persons that do not fall within proposed rule
908(b)(5) and the other side includes at least one unregistered non-
U.S. person that does fall within proposed rule 908(b)(5) or one
unregistered U.S. person, we preliminarily believe that it is
appropriate to place the reporting duty on the side that includes the
unregistered non-U.S. person that falls within proposed rule 908(b)(5)
or the unregistered U.S. person.\349\ We preliminarily believe that, in
such a transaction, the U.S. person or the non-U.S. person engaged in a
security-based swap transaction, in connection with its dealing
activity, using personnel located in a U.S. branch or office may
generally be more likely than its counterparty to have the ability to
report the transaction to a registered SDR given that it has operations
in the United States. We also note that, in a transaction where neither
side includes a registered security-based swap dealer or a registered
major security-based swap participant, placing the duty on the side
that has a presence in the United States should better enable us to
monitor and enforce compliance with the reporting requirement.
---------------------------------------------------------------------------

    \349\ See proposed rule 901(a)(2)(ii)(E)(3).
---------------------------------------------------------------------------

    Finally, we are proposing a rule that would provide that a
registered broker-dealer (including a registered SB SEF) shall report
the information required by rules 901(c) and 901(d) for any transaction
in which neither side includes a U.S. person and neither side includes
a non-U.S. person that falls within proposed rule 908(b)(5) but the
security-based swap is effected by or through the registered broker-
dealer (including a registered SB SEF).\350\ We preliminarily believe
that, in such a transaction, the registered broker-dealer (including a
registered SB SEF) may generally be more likely than the counterparties
to the transaction (neither of which may have any operations or
presence in the United States) to have the ability to report the
transaction to a registered SDR given its

presence in the United States and its familiarity with the Commission's
regulatory requirements.\351\
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    \350\ See proposed rule 901(a)(2)(ii)(E)(4).
    \351\ Cf. Letter from ISDA to SEC, dated January 18, 2011
(``ISDA/SIFMA Letter'') at 17 (noting that market participants,
including brokers, may provide reporting services on behalf of their
customers).
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6. Proposed Amendments to Rules 900(u), 901(d)(9), 906(b), 906(c), and
907(a) of Regulation SBSR To Accommodate Proposed Rule
901(a)(2)(ii)(E)(4).
(a) Proposed Amendment to Rule 900(u)
    Rule 900(u) defines a ``participant'' of a registered SDR as ``a
counterparty, that meets the criteria of [rule 908(b) of Regulation
SBSR], of a security-based swap that is reported to that [registered
SDR] to satisfy an obligation under [rule 901(a) of Regulation SBSR].''
In the Regulation SBSR Proposed Amendments Release, we proposed to
expand the definition of ``participant'' to include registered clearing
agencies and platforms.\352\ This proposed definition would not include
a registered broker-dealer that incurs reporting obligations solely
because it effects a transaction between unregistered non-U.S. persons
that do not fall within proposed rule 908(b)(5). We believe that such
registered broker-dealers should be participants of any registered SDR
to which they are required to report security-based swap transaction
information. Imposing participant status on such registered broker-
dealers would explicitly require those entities to report security-
based swap transaction information to a registered SDR in a format
required by that registered SDR under rule 901(h). If such registered
broker-dealers were not participants of the registered SDR and were
permitted to report data in a format of their own choosing, it could be
difficult or impossible for the registered SDR to understand individual
transaction reports or aggregate them with other reports in a
meaningful way. This could adversely affect the ability of the
Commission and other relevant authorities to carry out their oversight
responsibilities and could interfere with the ability of a registered
SDR to publicly disseminate security-based swap transaction information
as required by rule 902 of Regulation SBSR. Therefore, we are proposing
to amend the definition of ``participant'' in rule 900(u) to include a
registered broker-dealer that is required to report a security-based
swap by rule 901(a)(2)(ii)(E)(4).
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    \352\ See Regulation SBSR Adopting Release, 80 FR 14751. As
proposed to be amended, rule 900(u) would define ``participant'' to
mean: (1) A person that is a counterparty to a security-based swap,
provided that the security-based swap is subject to regulatory
reporting under Regulation SBSR and is reported to a registered SDR
pursuant to Regulation SBSR; (2) a platform that is required to
report a security-based swap pursuant to Rule 901(a)(1); or (3) a
registered clearing agency that is required to report a life cycle
event pursuant to Rule 901(e).
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    If we ultimately adopt both this amendment to rule 900(u) and the
amendment proposed in the Regulation SBSR Proposed Amendments Release,
``participant'' would mean: ``with respect to a registered security-
based swap data repository, [ ] (1) A counterparty, that meets the
criteria of Sec.  242.908(b), of a security-based swap that is reported
to that registered security-based swap data repository to satisfy an
obligation under Sec.  242.901(a); (2) a platform that reports a
security-based swap to that registered security-based swap data
repository to satisfy an obligation under Sec.  242.901(a); (3) a
registered clearing agency that is required to report to that
registered security-based swap data repository whether or not it has
accepted a security-based swap for clearing pursuant to Sec.
242.901(e)(1)(ii); or (4) a registered broker-dealer (including a
registered security-based swap execution facility) that is required to
report a security-based swap to that registered security-based swap
data repository by Sec.  242.901(a).''
(b) Proposed Amendment to Rule 901(d)(9)
    In the Regulation SBSR Adopting Release, we noted the importance of
identifying whether a broker is involved in the execution of a
security-based swap. Identifying the broker for a security-based swap
will provide regulators with a more complete understanding of the
transaction and could provide useful information for market
surveillance purposes.\353\ To obtain information about brokers that
facilitate security-based swap transactions--as well as other persons
involved in a security-based swap--existing rule 901(d)(2) requires the
reporting side to report, as applicable, the branch ID, broker ID,
execution agent ID, trade ID, and trading desk ID of the direct
counterparty on the reporting side. In the Regulation SBSR Adopting
Release, we also recognized the importance of identifying the venue on
which a security-based swap is executed, because this information
should enhance the ability of relevant authorities to conduct
surveillance in the security-based swap market and understand
developments in the security-based swap market generally.\354\
Therefore, we adopted rule 901(d)(9), which requires reporting of the
platform ID, if applicable.
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    \353\ See Regulation SBSR Adopting Release, 80 FR 14583.
    \354\ See Regulation SBSR Adopting Release, 80 FR 14589.
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    As described above, proposed rule 901(a)(2)(ii)(E)(4) would require
a registered broker-dealer to report the information in rules 901(c)
and 901(d) for any transaction between two unregistered non-U.S.
persons that do not fall within rule 908(b)(5) where the transaction is
effected by or through the registered broker-dealer. Because a
security-based swap reported under rule 901(a)(2)(ii)(E)(4) will not
have a reporting side, no one would have the obligation to report the
information required by existing rule 901(d)(2). We preliminarily
believe, however, that being able to identify any registered broker-
dealer that effects a security-based swap transaction in the manner
described in rule 901(a)(2)(ii)(E)(4) would enhance our understanding
of the security-based swap market and would improve our ability, and
the ability of other relevant authorities, to conduct surveillance of
security-based swap market activities. We therefore propose to amend
rule 901(d)(9) to assure that the identity of any such registered
broker-dealer is included in the report of a security-based swap
transaction reported pursuant to rule 901(a)(2)(ii)(E)(4). As proposed
to be amended, rule 901(d)(9) would require reporting of ``[t]he
platform ID, if applicable, or if a registered broker-dealer (including
a registered security-based swap execution facility) is required to
report the security based swap by Sec.  242.901(a)(2)(ii)(E)(4), the
broker ID of that registered broker-dealer (including a registered
security-based swap execution facility).''
(c) Proposed Amendments to Rules 906 and 907
    Under the proposed amendment to rule 900(u) described above,\355\
the definition of ``participant'' would be expanded to include a
registered broker-dealer that incurs reporting obligations solely
because it effects a transaction between two unregistered non-U.S.
persons that do not fall within proposed rule 908(b)(5). Rule 906(b) of
Regulation SBSR generally requires a participant of a registered SDR to
provide the identity of its ultimate parent and any affiliates that
also are participants of that registered SDR. In the Regulation SBSR
Proposed Amendments Release, we proposed to except platforms and
registered clearing agencies from rule

906(b).\356\ We preliminarily believe that the purposes of rule
906(b)--namely, facilitating our ability to measure derivatives
exposure within the same ownership group--would not be advanced by
applying the requirement to a registered broker-dealer that incurs
reporting obligations solely because it effects a transaction between
two unregistered non-U.S. persons that do not fall within proposed rule
908(b)(5) to report parent and affiliate information to a registered
SDR. A registered broker-dealer acting solely as a broker with respect
to a security-based swap is not taking a principal position in the
security-based swap. To the extent that such a registered broker-dealer
has an affiliate that transacts in security-based swaps, such positions
could be derived from other transaction reports indicating that
affiliate as a counterparty. Accordingly, we propose to amend rule
906(b) to state that reporting obligations under rule 906(b) do not
apply to a registered broker-dealer that becomes a participant solely
as a result of making a report to satisfy an obligation under rule
901(a)(2)(ii)(E)(4).
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    \355\ See Section V.E.6, supra.
    \356\ See Regulation SBSR Adopting Release, 80 FR 14645-46.
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    We propose to make a similar amendment to rule 907(a)(6). In the
Regulation SBSR Proposed Amendments Release, we proposed to amend this
rule to require a registered SDR to have policies and ``[f]or
periodically obtaining from each participant other than a platform or a
registered clearing agency information that identifies the
participant's ultimate parent(s) and any participant(s) with which the
participant is affiliated, using ultimate parent IDs and counterparty
IDs.'' \357\ We now propose to further amend rule 907(a)(6) and except
from this requirement a registered broker-dealer that incurs reporting
obligations solely because it effects a transaction between two
unregistered non-U.S. persons that do not fall within proposed rule
908(b)(5). Thus, if we ultimately adopt both this amendment to rule
907(a)(6) and the amendment to rule 907(a)(6) proposed in the
Regulation SBSR Proposed Amendments Release, rule 907(a)(6) would
require a registered SDR to have policies and procedures ``[f]or
periodically obtaining from each participant other than a platform, a
registered clearing agency, or a registered broker-dealer (including a
registered security-based swap execution facility) that becomes a
participant solely as a result of making a report to satisfy an
obligation under Sec.  242.901(a)(2)(ii)(E)(4) information that
identifies the participant's ultimate parent(s) and any participant(s)
with which the participant is affiliated, using ultimate parent IDs and
counterparty IDs.''
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    \357\ Once a participant reports parent and affiliate
information to a registered SDR, rule 906(b) requires the
participant to ``promptly notify the registered [SDR] of any
changes'' to its parent and affiliate information.
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(d) Extending the Applicability of Rule 906(c)
    Rule 906(c) requires certain participants of a registered SDR to
establish, maintain, and enforce written policies and procedures that
are reasonably designed to ensure that the participant complies with
any obligations to report information to a registered SDR in a manner
consistent with Regulation SBSR. Rule 906(c) also requires participants
covered by the rule to review and update their policies and procedures
at least annually. In the Regulation SBSR Adopting Release, we stated
that the policies and procedures required by rule 906(c) are intended
to promote complete and accurate reporting of security-based swap
information by SDR participants that are registered security-based swap
dealers or registered major security-based swap participants.\358\
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    \358\ See Regulation SBSR Adopting Release, 80 FR 14648.
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    In the Regulation SBSR Proposed Amendments Release, we proposed to
amend rule 906(c) by extending the requirement to have such policies
and procedures to platforms and registered clearing agencies.\359\ In
light of the proposed amendments to rule 901(a) relating to registered
broker-dealers, described above, we now preliminarily believe that a
registered broker-dealer that incurs reporting obligations solely
because it effects transactions between two unregistered non-U.S.
persons that do not fall within proposed rule 908(b)(5) also should be
required to establish, maintain, and enforce the policies and
procedures required by rule 906(c).\360\
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    \359\ See id. at 14758-59.
    \360\ We are also proposing to revise the title of the rule. As
adopted, the title of rule 906(c) was: ``Policies and procedures of
registered security-based swap dealers and registered major
security-based swap participants.'' In the Regulation SBSR Proposed
Amendments Release, we proposed to add registered clearing agencies
and platforms to the rule's title. Rather than adding registered
broker-dealers to the entities delineated in the title to 906(c), we
are proposing to revise the title to ``Policies and procedures to
support reporting compliance.''
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    We preliminarily believe that the proposed amendment to rule 906(c)
should result in greater accuracy and completeness of the security-
based swap transaction data reported to registered SDRs. Without
written policies and procedures, compliance with reporting obligations
of such a registered broker-dealer might depend too heavily on key
individuals or unreliable processes. For example, if knowledge of the
reporting function was not reflected in written policies and procedures
but existed solely in the memories of one or a few individuals,
compliance with applicable reporting requirements by the firm might
suffer if these key individuals depart the firm. We preliminarily
believe, therefore, that requiring participants that are registered
broker-dealers that incur reporting obligations solely because they
effect a transaction between two non-U.S. persons that do not fall
within proposed rule 908(b)(5) to establish, maintain, and enforce
written policies and procedures should promote clear, reliable
reporting that can continue independent of any specific individuals. We
further believe that requiring such a participant to establish,
maintain, and enforce written policies and procedures relevant to its
reporting responsibilities, as would be required by the proposed
amendment to rule 906(c), would help to improve the degree and quality
of overall compliance with the reporting requirements of Regulation
SBSR.
7. Availability of Substituted Compliance
    Rule 908(c)(1) of Regulation SBSR describes the security-based swap
transactions that potentially would be eligible for substituted
compliance with respect to regulatory reporting and public
dissemination of security-based swap transactions. Accordingly,
substituted compliance would potentially be available for transactions
that would become subject to Regulation SBSR pursuant to the proposed
amendments described above, as the location of relevant dealing
activity or of execution of the transaction would continue to be
irrelevant for purposes of rule 908(c).\361\
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    \361\ See note 295, supra.
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    Rule 908(c)(1) does not condition substituted compliance
eligibility on where a particular transaction was arranged, negotiated,
or executed.\362\ Under rule 908(c)(1), a security-based swap is
eligible for substituted

compliance with respect to regulatory reporting and public
dissemination, provided that at least one of the direct counterparties
to the security-based swap is either a non-U.S. person or a foreign
branch. Thus, rule 908(c)(1) permits a security-based swap between a
U.S. person and the New York branch of a foreign bank (i.e., a non-U.S.
person with operations inside the United States) to be eligible for
substituted compliance, provided that such compliance is with the rules
of a foreign jurisdiction that is the subject of a Commission
substituted compliance order.
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    \362\ Rule 908(c)(1) provides: ``Compliance with the regulatory
reporting and public dissemination requirements in sections 13(m)
and 13A of the Act (15 U.S.C. 78m(m) and 78m-1), and the rules and
regulations thereunder, may be satisfied by compliance with the
rules of a foreign jurisdiction that is the subject of a Commission
order described in paragraph (c)(2) of this section, provided that
at least one of the direct counterparties to the security-based swap
is either a non-U.S. person or a foreign branch.''
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    In adopting rule 908(c)(1), we noted that the final rule was
consistent with our decision to solicit additional comments regarding
whether to impose reporting or public dissemination requirements based
solely on whether a transaction is conducted within the United
States.\363\ Although we are now proposing an amendment that would
impose these requirements on certain transactions that a non-U.S.
person arranges, negotiates, or executes using personnel located in a
U.S. branch or office, we are not proposing an amendment that would
limit the availability of substituted compliance for such transactions
based on the location of this relevant activity. Accordingly, under our
proposed approach, and consistent with our final rule, counterparties
to a transaction that is required to be reported because a non-U.S.-
person counterparty to the transaction, in connection with its dealing
activity, arranged, negotiated, or executed the transaction using
personnel located in a U.S. branch or office or because it was executed
on a platform or effected by or through a registered broker-dealer
would be eligible for substituted compliance, provided that such
compliance is with the rules of a foreign jurisdiction that is the
subject of a Commission order.\364\
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    \363\ See Regulation SBSR Adopting Release, 80 FR 14658.
    \364\ A non-U.S. person engaged in relevant dealing activity
using personnel located in a U.S. branch or office may incur the
duty to report a transaction under Exchange Act rules
901(a)(2)(ii)(A), (B), (C), or (D), or under proposed rules
901(a)(2)(ii)(E)(2), (3), or (4) of Regulation SBSR.
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    This approach would subject transactions that are arranged,
negotiated, or executed by personnel located in a U.S. branch or
office, in connection with a non-U.S. person's dealing activity, to
regulatory reporting and public dissemination requirements in a manner
consistent with Title VII, while mitigating the potential to duplicate
compliance burdens. The proposed approach is also consistent with the
determination in our final rule that certain transactions involving
U.S.-person counterparties are eligible for substituted compliance
(i.e., when the transaction is through the foreign branch of the U.S.
person) even if the non-U.S.-person counterparty has engaged in dealing
activity in connection with the transaction in the United States.\365\
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    \365\ See Exchange Act rule 908(c)(1) (permitting compliance
with the regulatory reporting and public dissemination requirements
by complying with the rules of a foreign jurisdiction if at least
one of the direct counterparties to the security-based swap
transaction is either a non-U.S. person or a foreign branch).
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F. Request for Comment

    We invite comment regarding all aspects of the proposed approach to
clearing, trade execution, regulatory reporting, and public
dissemination described here, as well as potential alternative
approaches. Data and comment from market participants and other
interested parties regarding the likely effect of the proposed approach
and of potential alternative approaches will be particularly useful to
us in evaluating potential modifications to the re-proposal.
    In addition, we specifically request comment with respect to each