[Federal Register Volume 80, Number 43 (Thursday, March 5, 2015)]
[Notices]
[Pages 12048-12054]
[FR Doc No: 2015-05053]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74394; File No. 600-33]

Self-Regulatory Organizations; Bloomberg STP LLC; Notice of
Filing of Application for Exemption From Registration as a Clearing
Agency

February 27, 2015.

I. Introduction

    On March 15, 2013, Bloomberg STP LLC (``BSTP'') filed with the
Securities and Exchange Commission (``Commission'') an application on
Form CA-1 for exemption from registration as a clearing agency pursuant
to section 17A of the Securities Exchange Act of 1934 (``Exchange
Act'') and Rule 17Ab2-1 thereunder. BSTP amended its application on May
7, 9, and 10, July 11, August 8, September 18, and November 21, 2013,
December 19, 2014, and January 22, 2015. BSTP is requesting an
exemption from clearing agency registration in connection with its
proposal to offer an electronic trade confirmation (``ETC'') service
and a matching service. The Commission is publishing this notice in
order to solicit comments from interested persons on the exemption
request.\1\ The Commission will consider any comments it receives in
making its determination whether to grant BSTP's request for an
exemption from clearing agency registration.
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    \1\ The descriptions set forth in this notice regarding the
structure and operations of BSTP have been largely derived from
information contained in BSTP's amended Form CA-1 application and
publicly available sources. The application and non-confidential
exhibits thereto are available on the Commission's Web site.
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II. Background

A. BSTP Organization

    BSTP is a limited liability company organized under the laws of the
State of Delaware, and is wholly-owned by Bloomberg L.P. (``BLP''). BLP
is a global business and financial information and news company that is
headquartered in New York, with offices around the world. BLP's
principal product is the Bloomberg Professional service, which provides
financial market information, data, news and analytics to banks,
broker-dealers, institutional investors,

governmental bodies and other business and financial professionals
worldwide.\2\
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    \2\ See Exhibit C for a graphic description of the BSTP's
organizational structure.
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    BSTP proposes to provide ETC and matching services for fixed-income
and equity trades as described in its Form CA-1 application. An
overview of BSTP's proposed matching service is presented in Part III
below. BSTP will enter into a Software License Agreement and a License
and Services Agreement with its parent, BLP. Under the terms and
conditions of such agreements, BLP will provide BSTP with software,
hardware, administrative, operational and other support services. BSTP
has established a Board of Directors to oversee its operations, and
intends to establish an Advisory Board consisting of industry members
and users of the matching service, including representatives from sell-
side firms, buy-side institutions and custodians.\3\ The mission of the
Advisory Board of BSTP is to provide advice and recommendations to the
Board of Directors of BSTP that will assist BSTP in fulfilling the
policy goals of the Exchange Act in a manner that meets all applicable
legal requirements and serves the interests of users of the
confirmation matching service and the public at large.\4\
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    \3\ See Exhibit S at 8-12.
    \4\ See Exhibit S at 11-12.
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B. Matching as a Clearing Agency Function

    On April 6, 1998, the Commission issued an interpretive release
regarding matching services \5\ (the ``Matching Release'').\6\ In the
Matching Release, the Commission concluded that matching constitutes a
clearing agency function, specifically the ``comparison of data
respecting the terms of settlement of securities transactions,'' within
the meaning of section 3(a)(23)(A) of the Exchange Act.\7\ Therefore,
any person providing independent matching services must either register
with the Commission as a clearing agency or obtain an exemption from
registration pursuant to section 17A of the Exchange Act and Rule
17Ab2-1 thereunder.\8\ In 2001, the Commission granted an exemption
from registration as a clearing agency to Omgeo, a subsidiary of The
Depository Trust and Clearing Corporation (``DTCC'') and Thomson
Financial, to conduct ETC and matching services.\9\ BSTP has applied
for a similar exemption from registration as a clearing agency to
provide ETC and matching services.
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    \5\ The term ``matching service'' as used here means an
electronic service to centrally match trade information between a
broker-dealer and its institutional customer.
    \6\ See Confirmation and Affirmation of Securities Trades;
Matching, Exchange Act Release No. 34-39829 (Apr. 6, 1998), 63 FR
17943 (Apr. 13, 1998).
    \7\ In addition, on July 1, 2011, the Commission published a
conditional temporary exemption from clearing agency registration
for entities that perform for security-based swap transactions
certain post-trade processing services, including matching services.
See Exchange Act Release No. 34-64796 (Jul. 1, 2011), 76 FR 39963
(Jul. 7, 2011) (providing an exemption from registration under
Section 17A(b) of the Exchange Act, and stating that ``[t]he
Commission is using its authority under section 36 of the Exchange
Act to provide a conditional temporary exemption, until the
compliance date for the final rules relating to registration of
clearing agencies that clear security-based swaps pursuant to
sections 17A(i) and (j) of the Exchange Act, from the registration
requirement in section 17A(b)(1) of the Exchange Act to any clearing
agency that may be required to register with the Commission solely
as a result of providing Collateral Management Services, Trade
Matching Services, Tear Up and Compression Services, and/or
substantially similar services for security-based swaps''). The
order facilitated the Commission's identification of entities that
operate in that area and that accordingly may fall within the
clearing agency definition.
    \8\ See 15 U.S.C. 78q-1 and 17 CFR 240.17Ab2-1.
    \9\ See Global Joint Venture Matching Services--U.S., LLC; Order
Granting Exemption From Registration as a Clearing Agency, Exchange
Act Release No. 34-44188 (Apr. 17, 2001), 66 FR 20494 (Apr. 23,
2001) (``Omgeo Exemptive Order''). On July 24, 2013, DTCC announced
that it had entered into an agreement with Thomson Financial to
acquire full ownership of Omgeo.
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III. BSTP's Proposed Matching Service

    BSTP's proposed matching service for fixed-income and equity trades
will compare post-trade information from a broker-dealer and the
broker-dealer's institutional customer and reconcile such information
to generate an affirmed confirmation. It will operate as follows \10\:
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    \10\ BSTP provides an additional matching workflow in which
custodians send matched confirmations to the matching service and
the matching service submits such matched confirmations as affirmed
confirmations to The Depository Trust Company (``DTC'').
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    1. A customer routes an order to its firm.
    2. The firm executes the order and then sends a notice of execution
(``NOE'') to the customer.
    3. For voice executed trades, the customer affirms to the firm the
trade details contained in the NOE. For trades executed electronically,
the electronic trading platform records the trade in the blotters of
the customer and the firm.
    4. The customer sends to the matching service, the firm, and the
customer's custodian allocation information for the trade.
    5. The firm then submits to the matching service trade data
corresponding to each allocation, including settlement instructions
and, as applicable, commissions, taxes, and fees.
    6. The matching service next compares the customer's allocation
information (containing multiple fields of data) \11\ with the firm's
trade data to determine whether the information contained in each field
matches. If all required fields match, the matching service generates a
matched confirmation and sends it to the firm, the customer, and other
entities designated by the customer (e.g., the customer's custodian).
The matching service will typically perform this step in less than one
second.
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    \11\ According to its application, BSTP notes that it will
follow DTC's format for delivering matched confirmations to DTC.
Further, BSTP will obtain a control number from DTC for each trade
record, cross-reference such control number to the confirmation and
subsequent affirmation of the trade, and include such control number
when delivering the affirmation of the trade to the depository at
DTC. See Exhibit S at 12.
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    7. After the matching service creates the matched confirmation, the
matching service submits it to DTC as an ``affirmed confirmation.''
\12\ From there, the trade goes into DTC's settlement process.
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    \12\ BSTP notes that its proposed confirmation matching process
eliminates multiple steps in the manual workflow, such as DTC's
producing a confirmation for the institution to review and the
institution's reviewing and affirming the confirmation.
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    According to BSTP, a customer will be eligible to use the matching
service once its broker-dealer and, as applicable, its fund service
provider have enabled the customer to use the matching service. A
customer may also subscribe to the matching service directly. BSTP will
make available to matching service users an interactive reporting tool
that will display matching statistics, and users will be able to access
specific details regarding matched and unmatched allocations filtered
by counterparty, investment type, and status.
    Other than the matching service, BSTP states it will not perform
any other functions of a clearing agency requiring registration under
section 17A of the Exchange Act, such as net settlement, maintaining a
balance of open positions between buyers and sellers, marking
securities to the market, or handling funds or securities.\13\
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    \13\ See Exhibit J at 9.
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IV. BSTP's Request for an Exemption

A. Introduction

    BSTP believes its proposed matching service would improve
reliability and stability in the post-trade processing of securities
transactions. According to BSTP, the matching service will offer
tangible benefits to the securities industry by: (i) Adding choice and

redundancy and eliminating a single point of dependency, thereby
increasing the reliability and stability of matching service support
available to market participants; (ii) decreasing overall costs to
market participants; and (iii) by introducing competition, increasing
the potential for development of new and enhanced functionality.\14\
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    \14\ See Exhibit J at 10.
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    BSTP believes that the proposed matching service will increase the
speed and accuracy of confirmation matching, as the proposed matching
service will be ``seamlessly integrated with other tools used by the
financial industry, including the Bloomberg Professional service, BLP's
and third-party order management systems, electronic trading
functionality and other post-trade functionality.'' \15\ BSTP states
that these synergies will help to improve the speed, accuracy and
reliability of the post-trade environment by reducing the number of
required connections and therefore the potential for error in the
matching process. As a result, the speed of confirmation matching is
improved and the accuracy of allocations processing is enhanced,
resulting in prompt and accurate clearance and settlement of trades.
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    \15\ As BSTP's application notes, a Bloomberg Professional
service subscription includes a post-trade trade affirmation
function known as ``VCON,'' which is used by a substantial number of
buy-side and sell-side firms. VCON allows an institution and its
broker-dealer that agree to a trade over the telephone, by email, or
otherwise to reconcile the economics of the trade in a thorough
manner. In response to requests from multiple buy-side and sell-side
customers, Bloomberg decided to enhance its existing VCON function
by adding a confirmation matching service for DTC-eligible
securities. See Exhibit S at 7-8.
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    BSTP believes that the market will benefit from the availability of
functions to be provided by BSTP along with the existing functions
provided by BLP that together will allow professional investors to
analyze potential trades, route an order to a broker, receive an
execution notice from the broker, enter trade details and allocations,
receive a matched confirmation, and send an affirmed confirmation to
the depository at DTC using the same provider. By making available a
confirmation matching service accessible via the Bloomberg Professional
service, which is commonly also used for electronic trading and post-
trade processing, BSTP states that its proposed matching service will
afford the securities industry the opportunity to use complementary
services from start to finish.
    BSTP states that it will devote resources to helping users and
potential users of the matching service further the goal of straight-
through-processing, compressed settlement cycles and, ultimately, a
reduction of risk throughout the financial markets. In sum, BSTP
believes that its matching service will increase overall matching
capacity in the market, eliminate a single point of dependency, and
introduce price competition to the market, which will reduce costs to
market participants.

B. Conditions to Exemption From Registration

    BSTP represents in its Form CA-1 that it would comply with the list
of conditions found below regarding its operations and interoperability
with other matching providers.\16\ The Commission preliminarily
believes that the conditions are important tools to facilitate
effective systems interoperability. By establishing a framework that
allows the customers of multiple service providers to conduct
transactions without having to join each matching provider, the
Commission preliminarily believes that the interoperability conditions
help facilitate the linking of clearance and settlement facilities.\17\
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    \16\ See Exhibit S at 13-19. On November 19, 2014, the
Commission adopted Regulation Systems Compliance and Integrity
(``Reg SCI''), which would require ``SCI entities'' to comply with
requirements for policies and procedures with respect to their
automated systems that support the performance of their regulated
activities. See Exchange Act Release No. 34-73639 (Nov. 19, 2014),
79 FR 72251, 72271 (Dec. 5, 2014). Rule 1000(a) of Reg SCI would
define an ``SCI entity'' to include, among other things, a
registered clearing agency and an exempt clearing agency subject to
the Commission's Automation Review Policies (``ARP''). In
particular, the term ``exempt clearing agency subject to ARP''
includes ``an entity that has received from the Commission an
exemption from registration as a clearing agency under section 17A
of the Exchange Act, and whose exemption contains conditions that
relate to the Commission's [ARP] Policies, or any Commission
regulation that supersedes or replaces such policies.'' The
Commission notes that the below conditions would meet the definition
described in Rule 1000(a) of Reg SCI, requiring an exempt clearing
agency subject to ARP to meet the applicable requirements set forth
in Reg SCI.
    \17\ See 15 U.S.C. 78q-1(a)(1)(D).
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C.1. Operational Conditions
    (1) Before beginning the commercial operation of its matching
service, BSTP shall provide the Commission with an audit report that
addresses all the areas discussed in the Commission's Automation Review
Policies (``ARP'').\18\
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    \18\ See Exchange Act Release Nos. 34-27445 (Nov. 16, 1989), 54
FR 48703 (Nov. 24, 1989) (``ARP I''), and 34-29185 (May 9, 1991), 56
FR 22490 (May 15, 1991) (``ARP II''); see also Memorandum from the
Securities and Exchange Commission Division of Market Regulation to
SROs and NASDAQ (June 1, 2001) (``Guidance for Systems Outages and
System Change Notifications''), available at http://www.sec.gov/divisions/marketreg/sro-guidance-for-systems-outage-06-01-2001.pdf.
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    (2) BSTP shall provide the Commission with annual reports and any
associated field work prepared by competent, independent audit
personnel that are generated in accordance with the annual risk
assessment of the areas set forth in the ARP. BSTP shall provide the
Commission (beginning in its first year of operation) with annual
audited financial statements prepared by competent independent audit
personnel.
    (3) BSTP shall report all significant systems outages to the
Commission. If it appears that the outage may extend for thirty minutes
or longer, BSTP shall report the systems outage immediately. If it
appears that the outage will be resolved in less than thirty minutes,
BSTP shall report the systems outage within a reasonable time after the
outage has been resolved.
    (4) BSTP shall provide the Commission with 20 business days advance
notice of any material changes that BSTP makes to the matching service.
These changes will not require the Commission's approval before they
are implemented.
    (5) BSTP shall respond and require its service providers (including
BLP) to respond to requests from the Commission for additional
information relating to the matching service and ETC service, and
provide access to the Commission to conduct on-site inspections of all
facilities (including automated systems and systems environment),
records, and personnel related to the matching service and the ETC
service. The requests for information shall be made and the inspections
shall be conducted solely for the purpose of reviewing the matching
service's and the ETC service's operations and compliance with the
federal securities laws and the terms and conditions in any exemptive
order issued by the Commission with respect to BSTP's matching service
and the ETC service.
    (6) BSTP shall supply the Commission or its designee with periodic
reports regarding the affirmation rates for institutional transactions
effected by institutional investors that utilize its matching service
and ETC service.\19\
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    \19\ DTC submits monthly affirmation/confirmation reports to the
appropriate self-regulatory organizations. The Commission
anticipates a similar schedule for BSTP.
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    (7) BSTP shall preserve a copy or record of all trade details,
allocation instructions, central trade matching results, reports and
notices sent to customers, service agreements, reports

regarding affirmation rates that are sent to the Commission or its
designee, and any complaint received from a customer, all of which
pertain to the operation of its matching service and ETC service. BSTP
shall retain these records for a period of not less than five years,
the first two years in an easily accessible place.
    (8) BSTP shall not perform any clearing agency function (such as
net settlement, maintaining a balance of open positions between buyers
and sellers, or marking securities to the market) other than as
permitted in an exemption issued by the Commission.
    (9) Before beginning the commercial operation of its matching
service, BSTP shall provide the Commission with copies of the service
agreement between BLP and BSTP and shall notify the Commission of any
material changes to the service agreement.
C.2. Interoperability Conditions
    (1) BSTP shall develop, in a timely and efficient manner, fair and
reasonable linkages between BSTP's matching service and other matching
services that are registered with the Commission or that receive or
have received from the Commission an exemption from clearing agency
registration that, at a minimum, allow parties to trades that are
processed through one or more matching services to communicate through
one or more appropriate effective interfaces with other matching
services.
    (2) BSTP shall devise and develop interfaces with other matching
services that enable end-user clients or any service that represents
end-user clients to BSTP (``end-user representative'') to gain a single
point of access to BSTP and other matching services. Such interfaces
must link with each other matching service so that an end-user client
of one matching service can communicate with all end-user clients of
all matching services, regardless of which matching service completes
trade matching prior to settlement.
    (3) If any intellectual property proprietary to BSTP is necessary
to develop, build, and operate links or interfaces to BSTP's matching
service, as described in these conditions, BSTP shall license such
intellectual property to other matching services seeking linkage to
BSTP on fair and reasonable terms for use in such links or interfaces.
    (4) BSTP shall not engage in any activity inconsistent with the
purposes of section 17A(a)(2) of the Exchange Act,\20\ which section
seeks the establishment of linked or coordinated facilities for
clearance and settlement of transactions. In particular, BSTP will not
engage in activities that would prevent any other matching service from
operating a matching service that it has developed independently from
BSTP's matching service.
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    \20\ 15 U.S.C. 78q-1(a)(2)(A)(ii).
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    (5) BSTP shall support industry standards in each of the following
categories: communication protocols (e.g., TCP/IP, SNA); message and
file transfer protocols and software (e.g., FIX, WebSphere MQ, SWIFT);
message format standards (e.g., FIX); and message languages and
metadata (e.g., XML). However, BSTP need not support all existing
industry standards or those listed above by means of example. Within
three months of regulatory approval, BSTP shall make publicly known
those standards supported by BSTP's matching service. To the extent
that BSTP decides to support other industry standards, including new
and modified standards, BSTP shall make these standards publicly known
upon making such decision or within three months of updating its system
to support such new standards, whichever is sooner. Any translation to/
from these published standards necessary to communicate with BSTP's
system shall be performed by BSTP without any significant delay or
service degradation of the linked parties' services.
    (6) BSTP shall make all reasonable efforts to link with each other
matching service in a timely and efficient manner, as specified below.
Upon written request, BSTP shall negotiate with each other matching
service to develop and build an interface that allows the two to link
matching services (``interface''). BSTP shall involve neutral industry
participants in all negotiations to build or develop interfaces and, to
the extent feasible, incorporate input from such participants in
determining the specifications and architecture of such interfaces.
Absent adequate business or technological justification,\21\ BSTP and
the requesting other matching service shall conclude negotiations and
reach a binding agreement to develop and build an interface within 120
calendar days of BSTP's receipt of the written request. This 120-day
period may be extended upon the written agreement of both BSTP and the
other matching service engaged in negotiations. For each other matching
service with whom BSTP reaches a binding agreement to develop and build
an interface, BSTP shall begin operating such interface within 90 days
of reaching a binding agreement and receiving all the information
necessary to develop and operate it. This 90-day period may be extended
upon the written agreement of both BSTP and the other matching service.
For each interface and within the same time BSTP must negotiate and
begin operating each interface, BSTP and the other matching service
shall agree to ``commercial rules'' for coordinating the provision of
matching services through their respective interfaces, including
commercial rules: (A) Allocating responsibility for performing matching
services; and (B) allocating liability for service failures. BSTP shall
also involve neutral industry participants in negotiating applicable
commercial rules and, to the extent feasible, take input from such
participants into account in agreeing to commercial rules. At a
minimum, each interface shall enable BSTP and the other matching
service to transfer between them all trade and account information
necessary to fulfill their respective matching responsibilities as set
forth in their commercial rules (``trade and account information'').
Absent an adequate business or technological justification, BSTP shall
develop and operate each interface without imposing conditions that
negatively impact the other matching service's ability to innovate its
matching service or develop and offer other value-added services
relating to its matching service or that negatively impact the other
matching service's ability to compete effectively against BSTP.
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    \21\ The failure of neutral industry participants to be
available or to submit their input within the 120 day or 90 day time
periods set forth in this paragraph shall not constitute an adequate
business or technological justification for failing to adhere to the
requirements set forth in this paragraph.
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    (7) In order to facilitate fair and reasonable linkages between
BSTP and other matching services, BSTP shall publish or make available
to any other matching service the specifications for any interface and
its corresponding commercial rules that are in operation within 20 days
of receiving a request for such specifications and commercial rules.
Such specifications shall contain all the information necessary to
enable any other matching services not already linked to BSTP through
an interface to establish a linkage with BSTP through an interface or a
substantially similar interface. BSTP shall link to any other matching
service, if the other matching service so opts, through an interface
substantially similar to any interface and its corresponding commercial
rules that BSTP is currently operating. BSTP shall begin operating such
substantially similar interface and commercial rules with the other
matching service within 90 days of receiving all the information
necessary to operate that link. This 90-

day period may be extended upon the written agreement of both BSTP and
the other matching service that plans to use that link.
    (8) BSTP and respective other matching services shall bear their
own costs of building and maintaining an interface, unless otherwise
negotiated by the parties.
    (9) BSTP shall provide to all other matching services and end-user
representatives that maintain linkages with BSTP sufficient advance
notice of any material changes, updates, or revisions to its interfaces
to allow all parties who link to BSTP through affected interfaces to
modify their systems as necessary and avoid system downtime,
interruption, or system degradation.
    (10) BSTP and each other matching service shall negotiate fair and
reasonable charges and terms of payment for the use of their interface
with respect to the sharing of trade and account information
(``interface charges''). In any fee schedule adopted under conditions
C.2(10), C.2(11), or C.2(12) herein, BSTP's interface charges shall be
equal to the interface charges of the respective other matching
service.
    (11) If BSTP and the other matching service cannot reach agreement
on fair and reasonable interface charges within 60 days of receipt of
the written request, BSTP and the other matching service shall submit
to binding arbitration under the rules promulgated by the American
Arbitration Association. The arbitration panel shall have 60 days to
establish a fee schedule. The arbitration panel's establishment of a
fee schedule shall be binding on BSTP and the other matching service
unless and until the fee schedule is subsequently modified or abrogated
by the Commission or BSTP and the other matching service mutually agree
to renegotiate.
    (12)(A) The following parameters shall be considered in determining
fair and reasonable interface charges: (i) The variable cost incurred
for forwarding trade and account information to other matching
services; (ii) the average cost associated with the development of
links to end-users and end-user representatives; and (iii) BSTP's
interface charges to other matching services. (B) The following factors
shall not be considered in determining fair and reasonable interface
charges: (i) The respective cost incurred by BSTP or the other matching
service in creating and maintaining interfaces; (ii) the value that
BSTP or the other matching service contributes to the relationship;
(iii) the opportunity cost associated with the loss of profits to BSTP
that may result from competition from other matching services; (iv) the
cost of building, maintaining, or upgrading BSTP's matching service; or
(v) the cost of building, maintaining, or upgrading value added
services to BSTP's matching service. (C) In any event, the interface
charges shall not be set at a level that unreasonably deters entry or
otherwise diminishes price or non-price competition with BSTP by other
matching services.
    (13) BSTP shall not charge its customers more for use of its
matching service when one or more counterparties are customers of other
matching services than BSTP charges its customers for use of its
matching service when all counterparties are customers of BSTP. BSTP
shall not charge customers any additional amount for forwarding to or
receiving trade and account information from other matching services
called for under applicable commercial rules.
    (14) BSTP shall maintain its quality, capacity, and service levels
in the interfaces with other matching services (``matching services
linkages'') without bias in performance relative to similar
transactions processed completely within BSTP's service. BSTP shall
preserve and maintain all raw data and records necessary to prepare
reports tabulating separately the processing and response times on a
trade-by-trade basis for (A) completing its matching service when all
counterparties are customers of BSTP; (B) completing its matching
service when one or more counterparties are customers of other matching
services; or (C) forwarding trade information to other matching
services called for under applicable commercial rules. BSTP shall
retain the data and records for a period not less than six years.
Sufficient information shall be maintained to demonstrate that the
requirements of condition C.2(15) below are being met. BSTP and its
service providers shall provide the Commission with reports regarding
the time it takes BSTP to process trades and forward information under
various circumstances within thirty days of the Commission's request
for such reports. However, BSTP shall not be responsible for
identifying the specific cause of any delay in performing its matching
service where the fault for such delay is not attributable to BSTP.
    (15) BSTP shall process trades or facilitate the processing of
trades by other matching services on a first-in-time priority basis.
For example, if BSTP receives trade and account information that BSTP
is required to forward to other matching services under applicable
commercial rules (``pass-through information'') prior to receiving
trade and account information from BSTP's customers necessary to
provide matching services for a trade in which all parties are
customers of BSTP (``intra-hub information''), BSTP shall forward the
pass-through information to the designated other matching service prior
to processing the intra-hub information. If, on the other hand, the
information were to come in the reverse order, BSTP shall process the
intra-hub information before forwarding the pass-through information.
    (16) BSTP shall sell access to its databases, systems or
methodologies for transmitting settlement instructions (including
settlement instructions from investment managers, broker-dealers, and
custodian banks) and/or transmitting trade and account information to
and receiving authorization responses from settlement agents on fair
and reasonable terms to other matching services and end-user
representatives. Such access shall permit other matching services and
end-user representatives to draw information from those databases,
systems, and methodologies for transmitting settlement instructions
and/or transmitting trade and account information to and receiving
authorization responses from settlement agents for use in their own
matching services or end-user representatives' services. The links
necessary for other matching services and end-user representatives to
access BSTP's databases, systems or methodologies for transmitting
settlement instructions and/or transmitting trade and account
information to and receiving authorization responses from settlement
agents will comply with conditions C.2(3), C.2(5), C.2(9), C.2(14) and
C.2(15) above.
    (17) For the first five years from the date of an exemptive order
issued by the Commission with respect to BSTP's matching service, BSTP
shall provide the Commission with reports every six months sufficient
to document BSTP's adherence to the obligations relating to interfaces
set forth in conditions C.2(6) through C.2(13) and C.2(16) above. BSTP
shall incorporate into such reports information including but not
limited to: (A) All other matching services linked to BSTP; (B) the
time, effort, and cost required to establish each link between BSTP and
other matching services; (C) any proposed links between BSTP and other
matching services as well as the status of such proposed links; (D) any
failure or inability to establish such proposed links or fee schedules
for interface charges; (E) any written complaint received from other
matching services

relating to its established or proposed links with BSTP; and (F) if
BSTP failed to adhere to any of the obligations relating to interfaces
set forth in conditions C.2(6) through C.2(13) and C.2(16) above, its
explanation for such failure. The Commission shall treat information
submitted in accordance with this condition as confidential, non-public
information, subject to the provisions of applicable law. If any other
matching service seeks to link with BSTP more than five years after
issuance of an exemptive order issued by the Commission with respect to
BSTP's matching service, BSTP shall notify the Commission of the other
matching service's request to link with BSTP within ten days of
receiving such request. In addition, BSTP shall provide reports to the
Commission in accordance with this paragraph commencing six months
after the initial request for linkage is made until one year after BSTP
and the other matching service begin operating their interface. The
Commission reserves the right to request reports from BSTP at any time.
BSTP shall provide the Commission with such updated reports within
thirty days of the Commission's request.
    (18) BSTP shall also publish or make available upon request to any
end-user representative the necessary specifications, protocols, and
architecture of any interface created by BSTP for any end-user
representative.

V. Statutory Standards

A. Statutory Process for Registering or Exempting Clearing Agencies

    Section 17A(b)(1) of the Exchange Act requires all clearing
agencies to register with the Commission before performing any of the
functions of a clearing agency.\22\ However, section 17A(b)(1) also
states that, upon its own motion or upon a clearing agency's
application, the Commission may conditionally or unconditionally exempt
said clearing agency from any provisions of section 17A or the rules or
regulations thereunder if the Commission finds that such exemption is
consistent with the public interest, the protection of investors, and
the purposes of section 17A, including the prompt and accurate
clearance and settlement of securities transactions and the
safeguarding of securities and funds.
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    \22\ See 15 U.S.C. 78q-1(b) and 17 CFR 240.17Ab2-1.
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    In the Matching Release, the Commission noted that an entity that
limited its clearing agency functions to providing matching services
might not have to be subject to the full range of clearing agency
regulation. The Matching Release stated that the Commission anticipated
that an entity seeking an exemption from clearing agency registration
for matching would be required to: (1) Provide the Commission with
information on its matching services and notice of material changes to
its matching services; (2) establish an electronic link to a registered
clearing agency that provides for the settlement of its matched trades;
(3) allow the Commission to inspect its facilities and records; and (4)
make periodic disclosures to the Commission regarding its operations.
    In 2001, the Commission approved an application by Omgeo, then a
joint venture between DTCC and Thomson Financial, for an exemption from
registration as a clearing agency to provide matching services.\23\
Omgeo's exemption from clearing agency registration was subject to
conditions that were substantially similar to the conditions set forth
in Part IV.C above.
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    \23\ See supra note 9.
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B. BSTP's Compliance With Statutory Standards

    BSTP's matching service would be the only clearing agency function
that it would perform under an exemptive order. BSTP believes that the
undertakings it has proposed as a condition of obtaining an exemption
from clearing agency registration are consistent with the public
interest, the protection of investors, and the purposes of section 17A
of the Exchange Act.
    BSTP represents in its Form CA-1 that it will comply with all of
the conditions described in Part IV.C above. Preliminarily, the
Commission does not believe, however, that BSTP, in the absence of
performing the functions of a clearing agency other than the matching
service described here, raises the same concerns as an entity that
performs a wider range of clearing agency functions. For example, BSTP
would not be operating as a self-regulatory organization with the
powers to enforce its rules against its members. Accordingly, the
Commission preliminarily believes it may not be necessary to require
BSTP to satisfy all of the standards for registrants under section 17A
of the Exchange Act because the proposed conditions should establish a
sufficiently robust regulatory framework. Further, the Commission
preliminarily believes that granting BSTP an exemption from
registration as a clearing agency would be consistent with the
Commission's past practice, and that additional matching service
providers should promote innovation and reduce costs for investors.
    In evaluating BSTP's application, the Commission intends to
consider whether BSTP is so organized and has the capacity to be able
to facilitate prompt and accurate matching services. Subject to the
specific operational, interoperability and access conditions to which
it has agreed, the Commission preliminarily believes this to be the
case. In particular, BSTP has represented that the addition of a new
matching service into a single provider market will not adversely
affect current users of the existing matching service offered by Omgeo.
BSTP states that the proposed matching service will ensure that users
will have full flexibility to use the central matching service of their
choice at any time, and will have the ability to choose whether or not
to use the matching service or another service on a per-trade basis.
BSTP represents that users will not be locked into using BSTP's
matching service over any alternative, whether by contract,
functionality or otherwise.\24\ BSTP believes that market participants
seek ``interoperability'' through the ability to connect to multiple
providers and the resulting improvements to reliability and stability
in the post-trade space that would flow from this type of service
offering.
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    \24\ See Exhibit J at 10.
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    The Commission requests comment on whether the conditions are
sufficient to promote the purposes of section 17A of the Exchange Act
and to allow the Commission to adequately monitor the effects of BSTP's
proposed activities on the national system for the clearance and
settlement of securities transactions. In addition, the Commission
invites commenters to address whether granting BSTP an exemption from
clearing agency registration would impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
section 17A of the Exchange Act.

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed
exemption is consistent with the public interest, the protection of
investors, and the purposes of section 17A of the Exchange Act. To the
extent possible, commenters are requested to provide empirical data and
other factual support for their views. In addition, the Commission
seeks comment generally on the following issues:

    1. In light of the passage of time since the adoption of the Omgeo
Exemptive Order, developments in technology, and enhancements in market
practices, are the proposed conditions to the exemptive order
appropriate? Specifically, are all of the conditions designed to
facilitate interoperability necessary? Could the Commission continue to
promote the purposes of section 17A of the Exchange Act by additional
modification or elimination of some or all of the conditions? If so,
which conditions should be modified or eliminated?
    2. What, if any, effect will moving from a single provider to two
or more providers have on the efficiency of the trade settlement
process?
    3. What, if any, impact will the introduction of a second provider
have on pricing, quality of service, and innovation?
    4. Will the introduction of one or more additional providers
increase or reduce risk in the marketplace?
    5. Does BSTP's application for exemption from registration help
achieve the underlying policy objectives of the Exchange Act? Why or
why not? In particular, please address whether granting an exemption
from registration does or does not further the goals of promoting
investor protection and the integrity of the securities markets.
    6. Are the proposed conditions to the exemptive order sufficient to
promote the purposes of section 17A of the Exchange Act and to allow
the Commission to adequately monitor the effects of BSTP's proposed
activities on the national system for the clearance and settlement of
securities transactions? Why or why not?
    7. Would the links and interfaces with other matching services as
described in BSTP's application have a positive or negative effect on
other matching services that are registered with the Commission or that
receive from the Commission an exemption from clearing agency
registration? Why or why not? Should the proposed condition to develop
an interface with another matching service provider be made mandatory,
rather than only upon request from another provider?
    8. Would the links and interfaces with other matching services as
described in BSTP's application have a positive or negative effect on
end-user clients of all matching services, regardless of which matching
service completes trade matching prior to settlement? Why or why not?
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number 600-33 on the subject line; or

Paper Comments

     Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090. All submissions should refer to File Number
600-33.

To help us process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec.gov/rules/other.shtml).
    Copies of the submission, all subsequent amendments, all written
statements with respect to the application that are filed with the
Commission, and all written communications relating to the application
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for Web site viewing and printing in the
Commission's Public Reference Section, 100 F Street NE., Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number 600-33
and should be submitted on or before April 6, 2015.

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(16).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-05053 Filed 3-4-15; 8:45 am]
 BILLING CODE 8011-01-P