[Federal Register Volume 77, Number 135 (Friday, July 13, 2012)]
[Rules and Regulations]
[Pages 41601-41661]
[FR Doc No: 2012-16233]

Vol. 77

Friday,

No. 135

July 13, 2012

Part IV

Securities and Exchange Commission

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

17 CFR Parts 240 and 249

Process for Submissions for Review of Security-Based Swaps for
Mandatory Clearing and Notice Filing Requirements for Clearing
Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable
to All Self-Regulatory Organizations; Final Rule

Federal Register / Vol. 77, No. 135 / Friday, July 13, 2012 / Rules
and Regulations

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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-67286; File No. S7-44-10]
RIN 3235-AK87

Process for Submissions for Review of Security-Based Swaps for
Mandatory Clearing and Notice Filing Requirements for Clearing
Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable
to All Self-Regulatory Organizations

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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

SUMMARY: In accordance with Section 763(a) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''),
the Securities and Exchange Commission (``Commission'') is adopting
rules under the Securities Exchange Act of 1934 (``Exchange Act'') to
specify the process for a registered clearing agency's submission for
review of any security-based swap, or any group, category, type or
class of security-based swaps, that the clearing agency plans to accept
for clearing, the manner of notice the clearing agency must provide to
its members of such submission and the procedure by which the
Commission may stay the requirement that a security-based swap is
subject to mandatory clearing while the clearing of the security-based
swap is reviewed. The Commission also is adopting a rule to specify
that when a security-based swap is required to be cleared, the
submission of the security-based swap for clearing must be for central
clearing to a clearing agency that functions as a central counterparty.
In addition, the Commission is adopting rules to define and describe
when notices of proposed changes to rules, procedures or operations are
required to be filed by designated financial market utilities in
accordance with Section 806(e) of Title VIII of the Dodd-Frank Act and
to set forth the process for filing such notices with the Commission.
Finally, the Commission is adopting rules to make conforming changes as
required by the amendments to Section 19(b) of the Exchange Act
contained in Section 916 of the Dodd-Frank Act.

DATES: Effective Dates: August 13, 2012 for Sec. Sec.  240.3Ca-1,
240.3Ca-2, and the amendments to 240.19b-4; December 10, 2012 for all
amendments to Sec.  249.819 and Form 19b-4.
    Compliance Dates: August 13, 2012 for Sec. Sec.  240.3Ca-1,
240.3Ca-2, and the amendments to Sec.  240.19b-4, except for the
compliance date for Sec.  240.19b-4(o), which is discussed in the
section of the release titled ``II.G. Effective and Compliance Dates'';
December 10, 2012 for all amendments to Sec.  249.819 and Form 19b-4.

FOR FURTHER INFORMATION CONTACT: Catherine Moore, Senior Special
Counsel, Kenneth Riitho, Special Counsel or Andrew Bernstein, Special
Counsel, at<PHONE_NUMBER>; Division of Trading and Markets, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Discussion
    A. Security-Based Swap Submissions
    1. Process for Making Security-Based Swap Submission to the
Commission
    a. Substance of Security-Based Swap Submissions: Consistency
With Section 17A of the Exchange Act
    b. Substance of Security-Based Swap Submissions: Quantitative
and Qualitative Factors
    c. Substance of Security-Based Swap Submissions: Open Access
    d. Timing of Security-Based Swap Submissions
    e. Notice to Clearing Agency Members
    f. Submissions of a Group, Type or Class of Security-Based Swaps
    g. Other Issues Related to Security-Based Swap Submissions
    h. Additional Comments
    2. Prevention of Evasion of the Clearing Requirement
    B. Stay of the Clearing Requirement and Review by the Commission
    C. Title VIII Notice Filing Requirements for Designated Clearing
Agencies
    1. Standards for Determining When Advance Notice Is Required
    2. Providing Notice of the Matters Included in an Advance Notice
to the Board and Interested Persons
    3. Timing and Determination of Advance Notice Pursuant to
Section 806(e)
    4. Implementation of Proposed Changes and Emergency Changes
Pursuant to Section 806(e)
    D. Amendments to Form 19b-4
    E. Amendments to Rule 19b-4 Relating to Section 916 of the Dodd-
Frank Act
    F. New Requirements Under Exchange Act Section 3C and Section
806(e) and the Existing Filing Requirements in Exchange Act Section
19(b)
    G. Effective and Compliance Dates
III. Paperwork Reduction Act
    A. Summary of Collection of Information
    1. Amendments to Rule 19b-4 and Form 19b-4
    2. Stay of Clearing Requirement
    B. Use of Information
    1. Amendments to Rule 19b-4 and Form 19b-4
    2. Stay of Clearing Requirements
    C. Respondents
    1. Amendments to Rule 19b-4 and Form 19b-4
    2. Stay of Clearing Requirement
    D. Total Annual Reporting and Recordkeeping Burden
    1. Background
    2. Rule 19b-4 and Form 19b-4
    a. Introduction
    b. Internal Policies and Procedures
    c. Proposed Rule Changes
    d. Security-Based Swap Submissions
    e. Advance Notices
    f. Summary
    3. Posting of Security-Based Swap Submissions, Advance Notices
and Proposed Rule Changes on Clearing Agency Web sites
    4. Amendment To Conform to Section 916 of the Dodd-Frank Act
    5. New Rule 3Ca-1
    E. Retention Period of Recordkeeping Requirements
    F. Collection of Information Is Mandatory
    G. Responses to Collection of Information Will Not Be Kept
Confidential
IV. Economic Analysis
    A. Background
    1. Dodd-Frank Act Requirements for Clearing Security-Based Swaps
    2. Current Clearing Practices in the Security-Based Swap Market
    3. Views on Clearing Requirements for Security-Based Swaps
    4. Overview of Statutory Requirements
    B. Analysis of Final Procedural Rules
    1. Analysis of Final Rules Related to Security-Based Swap
Submissions
    2. Analysis of Final Rules Related to the Process for Staying a
Clearing Requirement While the Clearing of the Security-Based Swap
Is Reviewed
    3. Analysis of Final Rule Related to Preventing Evasion of the
Clearing Requirement
    4. Analysis of Final Rules Related to Advance Notices
    5. Analysis of Final Rules To Amend Rule 19b-4 to Conform To the
Requirements of Section 916 of the Dodd-Frank Act
V. Regulatory Flexibility Certification
    A. Self-Regulatory Organizations
    B. Security-Based Swap Counterparties
    C. Certification
VI. Statutory Authority

I. Background

    On July 21, 2010, the President signed the Dodd-Frank Act into
law.\1\ The Dodd-Frank Act was enacted, among other reasons, to promote
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ Title VII
and Title VIII of the Dodd-Frank Act, among other things, impose new
requirements with respect to clearance and settlement systems.
---------------------------------------------------------------------------

    \1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act (Pub. L. 111-203, H.R. 4173).
    \2\ See Pub. L. 111-203, Preamble.
---------------------------------------------------------------------------

    Title VII of the Dodd-Frank Act (``Title VII'') provides the
Commission and the Commodity Futures Trading

Commission (``CFTC'') with authority to regulate certain over-the-
counter (``OTC'') derivatives in response to the recent financial
crisis.\3\ The Dodd-Frank Act is intended to bolster the existing
regulatory structure and provide regulatory tools to oversee the OTC
derivatives market, which has grown exponentially in recent years.
Title VII provides that the CFTC will regulate ``swaps,'' the
Commission will regulate ``security-based swaps,'' and the CFTC and the
Commission will jointly regulate ``mixed swaps.'' \4\
---------------------------------------------------------------------------

    \3\ See, e.g., Report of the Senate Committee on Banking,
Housing, and Urban Affairs regarding The Restoring American
Financial Stability Act of 2010, S. Rep. No. 111-176 at 29 (2010)
(stating that ``[m]any factors led to the unraveling of this
country's financial sector and the government intervention to
correct it, but a major contributor to the financial crisis was the
unregulated [OTC] derivatives market.'')
    \4\ Section 712(d) of the Dodd-Frank Act provides that the
Commission and the CFTC, in consultation with the Board of Governors
of the Federal Reserve System (``Board''), shall further define the
terms ``swap,'' ``security-based swap,'' ``swap dealer,''
``security-based swap dealer,'' ``major swap participant,'' ``major
security-based swap participant,'' ``eligible contract
participant,'' and ``security-based swap agreement.'' The Commission
and the CFTC jointly have proposed to further define the terms
``swap,'' ``security-based swap,'' and ``security-based swap
agreement.'' See Further Definition of ``Swap,'' ``Security-Based
Swap,'' and ``Security-Based Swap Agreement;'' Mixed Swaps;
Security-Based Swap Agreement Recordkeeping, Securities Act Release
No. 9204, Securities Exchange Act Release No. 64372 (Apr. 29, 2011),
76 FR 29818 (May 23, 2011), corrected in Securities Act Release No.
9204A, Securities Exchange Act Release No. 64372A (June 1, 2011), 76
FR 32880 (June 7, 2011) (``Product Definition Proposing Release'').
Further, the Commission and CFTC jointly have adopted rules to
further define the terms ``swap dealer,'' ``security-based swap
dealer,'' ``major swap participant,'' ``major security-based swap
participant,'' and eligible contract participant,'' See Further
Definition of ``Swap Dealer,'' ``Security-Based Swap Dealer,''
``Major Swap Participant,'' ``Major Security-Based Swap
Participant'' and ``Eligible Contract Participant'', Securities
Exchange Act Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23,
2012). Moreover, section 712(a)(8) of the Dodd-Frank Act provides
that the Commission and the CFTC, after consultation with the Board,
shall jointly promulgate such regulations regarding ``mixed swaps''
as may be necessary to carry out the purposes of Title VII. The
Commission and the CFTC have jointly proposed such regulations. See
Product Definition Proposing Release.
---------------------------------------------------------------------------

    Title VII was designed to provide greater certainty that, wherever
possible and appropriate, swap and security-based swap contracts
formerly traded exclusively in the OTC market are centrally cleared.\5\
The swaps and security-based swaps markets traditionally have been
characterized by privately negotiated transactions entered into by two
counterparties, in which each assumes the credit risk of the other
counterparty.\6\ Clearing of swaps and security-based swaps was at the
heart of Congressional reform of the derivatives markets in Title
VII.\7\
---------------------------------------------------------------------------

    \5\ See, e.g., Report of the Senate Committee on Banking,
Housing, and Urban Affairs regarding The Restoring American
Financial Stability Act of 2010, S. Rep. No. 111-176 at 34 (stating
that ``[s]ome parts of the OTC market may not be suitable for
clearing and exchange trading due to individual business needs of
certain users. Those users should retain the ability to engage in
customized, uncleared contracts while bringing in as much of the OTC
market under the centrally cleared and exchange-traded framework as
possible.'').
    \6\ See, e.g., Financial Stability Board, Implementing OTC
Derivatives Market Reforms (Oct. 25, 2010), available at: http://www.financialstabilityboard.org/publications/r_101025.pdf.
    \7\ As previously noted, the Dodd-Frank Act seeks to ensure
that, wherever possible and appropriate, derivatives contracts
formerly traded exclusively in the OTC market be cleared. See supra
note 5; see also Letter from Christopher Dodd, Chairman, Committee
on Banking, Housing and Urban Affairs, United States Senate and
Blanche Lincoln, Chairman, Committee on Agriculture, Nutrition, and
Forestry, United States Senate, to Barney Frank, Chairman, Financial
Services Committee, United States House of Representatives and Colin
Peterson, Chairman, Committee on Agriculture, United States House of
Representatives (June 30, 2010) (on file with the United States
Senate).
---------------------------------------------------------------------------

    Clearing agencies are broadly defined under the Exchange Act and
undertake a variety of functions.\8\ One such function is to act as a
central counterparty (``CCP''), which is an entity that interposes
itself between the counterparties to a trade.\9\ For example, when a
security-based swap contract between two counterparties that are
members of a CCP is executed and submitted for clearing, it is
typically replaced by two new contracts--separate contracts between the
CCP and each of the two original counterparties. At that point, the
original counterparties are no longer counterparties to each other.
Instead, each acquires the CCP as its counterparty, and the CCP assumes
the counterparty credit risk of each of the original counterparties
that are members of the CCP.\10\ Structured and operated appropriately,
CCPs may improve the management of counterparty risk and may provide
additional benefits such as multilateral netting of trades.\11\
---------------------------------------------------------------------------

    \8\ Section 3(a)(23)(A) of the Exchange Act defines the term
``clearing agency'' to mean any person who acts as an intermediary
in making payments or deliveries or both in connection with
transactions in securities or who provides facilities for the
comparison of data regarding the terms of settlement of securities
transactions, to reduce the number of settlements of securities
transactions, or the allocation of securities settlement
responsibilities. Such term also means any person, such as a
securities depository, who acts as a custodian of securities in
connection with a system for the central handling of securities
whereby all securities of a particular class or series of any issuer
deposited within the system are treated as fungible and may be
transferred, loaned, or pledged by bookkeeping entry without
physical delivery of securities certificates, or otherwise permits
or facilitates the settlement of securities transactions or the
hypothecation or lending of securities without physical delivery of
securities certificates. 15 U.S.C. 78c(a)(23)(A).
    \9\ See id. An entity that acts as a CCP for securities
transactions is a clearing agency as defined in the Exchange Act and
is required to register with the Commission.
    \10\ See Cecchetti, Gyntelberg and Hollanders, Central
counterparties for over-the-counter derivatives, BIS Quarterly
Review, Sept. 2009, available at: http://www.bis.org/publ/qtrpdf/r_qt0909f.pdf.
    \11\ See id. at 46 (stating that the structure of a CCP ``has
three clear benefits. First, it improves the management of
counterparty risk. Second, it allows the CCP to perform multilateral
netting of exposures as well as payments. Third, it increases
transparency by making information on market activity and
exposures--both prices and quantities--available to regulators and
the public''); see also Bank for International Settlements'
Committee on Payment and Settlement Systems and Technical Committee
of the International Organization of Securities Commissions,
Guidance on the application of the 2004 CPSS-IOSCO Recommendations
for Central Counterparties to OTC derivatives CCPs: Consultative
report, (May 2010), available at: http://www.bis.org/publ/cpss89.pdf.
---------------------------------------------------------------------------

    One key way in which the Dodd-Frank Act promotes clearing of such
contracts is by requiring a process by which the Commission would
determine whether a security-based swap is required to be cleared.
Section 3C of the Exchange Act, as added by Section 763(a) of the Dodd-
Frank Act (``Exchange Act Section 3C''),\12\ creates, among other
things, a clearing requirement with respect to certain security-based
swaps. Specifically, this section provides that ``[i]t shall be
unlawful for any person to engage in a security-based swap unless that
person submits such security-based swap for clearing to a clearing
agency that is registered under this Act or a clearing agency that is
exempt from registration under this Act if the security-based swap is
required to be cleared.'' \13\ Exchange Act Section 3C requires the
Commission to adopt rules for a clearing agency's submission of
security-based swaps, or any group, category, type or class of
security-based swaps, that a clearing agency plans to accept for

clearing (``Security-Based Swap Submission'') and to determine the
manner of notice the clearing agency must provide to its members of
such Security-Based Swap Submission.\14\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78c-3 et seq.
    \13\ See 15 U.S.C. 78c-3(a)(1) (as added by Section 763(a) of
the Dodd-Frank Act). The requirement that a security-based swap be
cleared will stem from the determination to be made by the
Commission. Such determination may be made in connection with the
review of a clearing agency's submission regarding a security-based
swap, or any group, category, type or class of security-based swaps,
that the clearing agency plans to accept for clearing. See 15 U.S.C.
78c-3(b)(2)(C)(ii) (as added by Section 763(a) of the Dodd-Frank
Act) (``[t]he Commission shall * * * review each submission made
under subparagraphs (A) and (B), and determine whether the security-
based swap, or group, category, type, or class of security-based
swaps, described in the submission is required to be cleared.''). In
addition, Exchange Act Section 3C(b)(1) provides that ``[t]he
Commission on an ongoing basis shall review each security-based
swap, or any group, category, type, or class of security-based swaps
to make a determination that such security-based swap, or group,
category, type, or class of security-based swaps should be required
to be cleared.''
    \14\ See 15 U.S.C. 78c-3(b)(2)(A) and (5) (as added by Section
763(a) of the Dodd-Frank Act). For purposes of the amendments to
Rule 19b-4 and Form 19b-4 that the Commission is adopting today, and
as generally used in this release, the term ``Security-Based Swap
Submission'' means both the identifying information that clearing
agencies are required to submit to the Commission pursuant to
Exchange Act Section 3C(b)(2) for each security-based swap (or any
group, category, type or class of security-based swaps) that such
clearing agency plans to accept for clearing, and, in addition, the
accompanying information that a clearing agency is required to
provide pursuant to new Rule 19b-4(o)(3).
    Exchange Act Section 3C(b)(2)(C)(i) requires that the Commission
make available to the public any submission received under Exchange
Act Section 3C(b)(2)(A). 15 U.S.C. 78c3-1(b)(2)(C)(i) (as added by
Section 763(a) of the Dodd-Frank Act). Also, the additional
information that clearing agencies are required to provide pursuant
to the amendments being adopted today with respect to Rule 19b-4 and
Form 19b-4 in general will be published in the notice of the
Security-Based Swap Submission and required to be posted on the
clearing agency's Web site. The Commission notes, however, that a
clearing agency may request confidential treatment of the additional
information pursuant to Rule 24b-2 under the Exchange Act regarding
information it desires be kept undisclosed. 17 CFR 240.24b-2.
---------------------------------------------------------------------------

    If the Commission makes a determination that a security-based swap
is required to be cleared, then parties may not engage in such
security-based swap without submitting it for clearing to a clearing
agency that is either registered with the Commission (or exempt from
registration) unless an exception to the clearing requirement
applies.\15\ If the Commission determines that a security-based swap is
not required to be cleared, such security-based swap may still be
cleared on a non-mandatory basis by the clearing agency if the clearing
agency has rules that permit it to clear such security-based swap. In
addition, Exchange Act Section 3C(b)(1) provides that ``[t]he
Commission on an ongoing basis shall review each security-based swap,
or any group, category, type, or class of security-based swaps to make
a determination that such security-based swap, or group, category,
type, or class of security-based swaps should be required to be
cleared'' (``Commission-initiated Review'').\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78c-3(a)(1) (as added by Section 763(a) of the
Dodd-Frank Act).
    \16\ See 15 U.S.C. 78c-3(b)(1) (as added by Section 763(a) of
the Dodd-Frank Act). The Dodd-Frank Act does not require rulemaking
with respect to Commission-initiated Reviews.
---------------------------------------------------------------------------

    Title VIII of the Dodd-Frank Act, entitled the Payment, Clearing,
and Settlement Supervision Act of 2010 (``Clearing Supervision Act'' or
``Title VIII''), provides for enhanced regulation of financial market
utilities, such as clearing agencies, that manage or operate a
multilateral system for the purpose of transferring, clearing or
settling payments, securities or other financial transactions among
financial institutions or between financial institutions and the
financial market utility.\17\ The regulatory regime in Title VIII will
only apply, however, to financial market utilities that the Financial
Stability Oversight Council (``Council'') designates as systemically
important (or likely to become systemically important) in accordance
with Section 804 of the Clearing Supervision Act.\18\ Among other
requirements prescribed under Title VIII, Section 806(e) of the
Clearing Supervision Act (``Section 806(e)'') requires any financial
market utility designated by the Council as systemically important to
file 60 days advance notice of changes to its rules, procedures or
operations that could materially affect the nature or level of risk
presented by the financial market utility (``Advance Notice'').\19\ In
addition, Section 806(e) requires each Supervisory Agency \20\ to adopt
rules, in consultation with the Board, that define and describe when a
designated financial market utility is required to file an Advance
Notice with its Supervisory Agency.\21\
---------------------------------------------------------------------------

    \17\ The definition of ``financial market utility'' in Section
803(6) of the Clearing Supervision Act contains a number of
exclusions that include, but are not limited to, certain designated
contract markets, registered futures associations, swap data
repositories, swap execution facilities, national securities
exchanges, national securities associations, alternative trading
systems, security-based swap data repositories, security-based swap
execution facilities, brokers, dealers, transfer agents, investment
companies and futures commission merchants. 12 U.S.C. 5462(6)(B) (as
added by Title VIII).
    \18\ Pursuant to Section 803(9) of the Clearing Supervision Act,
a financial market utility is systemically important if the failure
of or a disruption to the functioning of such financial market
utility could create, or increase, the risk of significant liquidity
or credit problems spreading among financial institutions or markets
and thereby threaten the stability of the financial system of the
United States. 12 U.S.C. 5462(9) (as added by Title VIII). Under
Section 804 of the Clearing Supervision Act, the Council has the
authority, on a non-delegable basis and by a vote of not fewer than
two-thirds of the members then serving, including the affirmative
vote of its chairperson, to designate those financial market
utilities that the Council determines are, or are likely to become,
systemically important. The Council may, using the same procedures
as discussed above, rescind such designation if it determines that
the financial market utility no longer meets the standards for
systemic importance. Before making either determination, the Council
is required to consult with the Board and the relevant Supervisory
Agency (as determined in accordance with Section 803(8) of the
Clearing Supervision Act). Finally, Section 804 of the Clearing
Supervision Act sets forth the procedures for giving entities a 30-
day notice and the opportunity for a hearing prior to a designation
or rescission of the designation of systemic importance. 12 U.S.C.
5463 (as added by Title VIII). On July 18, 2011, the Council adopted
final rules describing the criteria that will inform and the
processes and procedures established under the Clearing Supervision
Act for the Council's designation of financial market utilities as
systemically important. See Authority to Designate Financial Market
Utilities as Systemically Important, 76 FR 44763 (July 27, 2011).
    \19\ See 12 U.S.C. 5465(e)(1)(A) (as added by Title VIII).
    \20\ Section 803(8) of the Clearing Supervision Act defines the
term ``Supervisory Agency'' in reference to the primary regulatory
authority for the financial market utility. For example, Section
803(8) of the Clearing Supervision Act provides that the Commission
is the Supervisory Agency for any financial market utility that is a
Commission-registered clearing agency. See 12 U.S.C. 5462(8) (as
added by Title VIII). To the extent that an entity is both a
Commission-registered clearing agency and registered with another
agency, such as a CFTC-registered derivatives clearing organization,
the statute requires the two agencies to agree on one agency to act
as the Supervisory Agency, and if the agencies cannot agree on which
agency has primary jurisdiction, the Council shall decide which
agency is the Supervisory Agency for purposes of the Clearing
Supervision Act. 12 U.S.C. 5462(8) (as added by Title VIII).
    \21\ See 12 U.S.C. 5465(e)(1)(B) (as added by Title VIII).
---------------------------------------------------------------------------

    Clearing agencies registered with the Commission are financial
market utilities, as defined in Section 803(6) of Title VIII; \22\
thus, the Commission may be the Supervisory Agency of a clearing agency
that is designated as systemically important by the Council
(``designated clearing agency'').\23\ A clearing agency must begin
filing Advance Notices pursuant to Section 806(e) once the Council
designates the clearing agency as systemically important as of the
compliance date of new Rule 19b-4(o), which the Commission is adopting
today.
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 5462(6) (as added by Title VIII).
    \23\ See supra note 20 discussing the definition of
``Supervisory Agency'' under the Dodd-Frank Act.
---------------------------------------------------------------------------

    On December 15, 2010, the Commission proposed amendments to Rule
19b-4 under the Exchange Act to implement these new requirements by
requiring that Security-Based Swap Submissions under Exchange Act
Section 3C and Advance Notices under Section 806(e) be filed with the
Commission on Form 19b-4.\24\ The Proposing Release also contained two
new rules that were proposed in accordance with the authority granted
to the Commission pursuant to Exchange Act Section 3C: (i) Proposed
Rule 3Ca-1, which would establish a procedure by which the Commission,
at the request of a counterparty or on its

own initiative, may stay the requirement that a security-based swap is
subject to mandatory clearing, and (ii) proposed Rule 3Ca-2, which was
intended to prevent evasions of the clearing requirement by specifying
that security-based swaps required to be cleared must be submitted for
central clearing to a clearing agency that functions as a CCP. Finally,
the Commission proposed technical, conforming and clarifying amendments
to Rule 19b-4 and Form 19b-4 to conform the rule and form with new
deadlines and approval, disapproval and temporary suspension standards
with respect to proposed rule changes filed under Section 19(b) of the
Exchange Act, as modified by Section 916 of the Dodd-Frank Act
(``Exchange Act Section 19(b)'').\25\
---------------------------------------------------------------------------

    \24\ See Process for Submissions for Review of Security-Based
Swaps for Mandatory Clearing and Notice Filing Requirements for
Clearing Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4
Applicable to All Self-Regulatory Organizations, Securities Exchange
Act Release No. 34-63557 (Dec. 15, 2010), 75 FR 82490 (Dec. 30,
2010) (``Proposing Release'').
    \25\ 15 U.S.C. 78s(b) (as amended by Section 916 of the Dodd-
Frank Act).
---------------------------------------------------------------------------

    The Commission received 19 comment letters on the Proposing Release
from clearing agencies, financial institutions, industry trade groups
and other interested persons.\26\ Commenters were generally supportive
of the Commission's proposals. Some commenters did, however, urge the
Commission to take a different approach to certain parts of the
proposal. For example, a number of commenters provided suggestions on
the proposed rules setting forth the information that clearing agencies
will need to provide to the Commission in connection with a Security-
Based Swap Submission. As discussed below, the Commission is adopting
these rules substantially as proposed, with certain modifications to
address commenters' concerns.\27\
---------------------------------------------------------------------------

    \26\ Copies of comments received on the proposal are available
on the Commission's Web site at: http://www.sec.gov/comments/s7-44-10/s74410.shtml.
    \27\ In addition to the changes discussed throughout this
release, the Commission has made a number of minor typographical and
clarifying revisions to the final rules as compared to what was
included in the Proposing Release, including: (i) Inserting a
missing word in each of new Rule 3Ca-1(d) and new Rule 19b-4(n)(3),
(ii) amending the header to Rule 19b-4 to reflect the two new types
of filings, (iii) replacing the word ``or'' with ``of'' in new Rule
19b-4(n)(2)(iii), (iv) replacing the term ``designated financial
market utility'' with ``designated clearing agency'' in new Rules
19b-4(n)(2)(iii)(A) and (B) and (v) making numerous changes to the
rule text to reflect the style requirements for proper inclusion of
the final rules into the Code of Federal Regulations. Based on the
non-substantive nature of these revisions, the Commission finds
notice of the revisions is not necessary. See 5 U.S.C. 553(b).
---------------------------------------------------------------------------

II. Discussion

    The Commission is adopting rules to implement the new requirements
imposed by Title VII and Title VIII discussed above. In accordance with
the requirements set forth in Exchange Act Section 3C (as added by
Title VII), the Commission is adopting amendments to Rule 19b-4 and
Form 19b-4 and new Rule 3Ca-1 under the Exchange Act to establish
processes for (i) how clearing agencies registered with the Commission
must submit Security-Based Swap Submissions to the Commission for a
determination by the Commission of whether the security-based swap (or
group, category, type or class of security-based swaps) referenced in
the submission is required to be cleared, and to determine the manner
of notice the clearing agency must provide to its members of such
submission and (ii) how the Commission may stay the requirement that a
security-based swap is subject to mandatory clearing. The Commission
also is adopting new Rule 3Ca-2 to prevent evasion of the clearing
requirement.
    In addition, the Commission is adopting amendments to Rule 19b-4
and Form 19b-4 to implement Section 806(e), which requires any
designated clearing agency for which the Commission is the Supervisory
Agency to provide an Advance Notice to the Commission. Moreover, the
Commission is adopting amendments to Rule 19b-4 and Form 19b-4 to
conform to the requirements specified in Exchange Act Section 19(b), as
amended by Section 916 of the Dodd Frank Act.\28\ Section 916 provided
for new deadlines by which the Commission must publish and act upon a
proposed rule change submitted by a self-regulatory organization
(``SRO'') and new standards for the approval, disapproval and temporary
suspension of a proposed rule change. Finally, the Commission is
adopting a number of technical and clarifying amendments to Rule 19b-4
and Form 19b-4.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b) (as amended by Section 916 of the Dodd-
Frank Act).
---------------------------------------------------------------------------

    As set forth in the Proposing Release, Security-Based Swap
Submissions and Advance Notices will be required to be filed with the
Commission on Form 19b-4 using the existing Electronic Form 19b-4
Filing System (``EFFS''). Currently, EFFS is used by SROs, which
include registered clearing agencies,\29\ to file proposed rule changes
electronically with the Commission pursuant to Exchange Act Section
19(b) and Rule 19b-4.\30\ The Commission is requiring clearing agencies
to use EFFS for the filing of Security-Based Swap Submissions and
Advance Notices because registered clearing agencies already use this
system for Exchange Act Section 19(b) filings and because there are
similarities between the existing requirement to file proposed rule
changes with the Commission under Exchange Act Section 19(b) and the
new requirements under the Dodd-Frank Act to file Security-Based Swap
Submissions and under the Clearing Supervision Act to file Advance
Notices.
---------------------------------------------------------------------------

    \29\ The definition of SRO in Section 3(a)(26) of the Exchange
Act includes any registered clearing agency. 15 U.S.C. 78c(a)(26).
    \30\ SROs are required to file with the Commission, in
accordance with rules prescribed by the Commission, copies of any
proposed rule or any proposed change in, addition to, or deletion
from the rules of the SRO (collectively referred to as a ``proposed
rule change''). See 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

A. Security-Based Swap Submissions

1. Process for Making Security-Based Swap Submissions to the Commission
    Exchange Act Section 3C requires each clearing agency that plans to
accept a security-based swap for clearing to file a Security-Based Swap
Submission with the Commission for a determination by the Commission of
whether the security-based swap (or any group, category, type or class
of security-based swaps) referenced in the submission is required to be
cleared.\31\ Accordingly, the Commission is adopting new Rule 19b-
4(o)(1), which sets forth the underlying requirement to make these
submissions, substantially as proposed, with slight modifications made
solely for the purpose of eliminating duplicative language in other
parts of the rule and conforming the rule as necessary for certain
other non-substantive changes made to other parts of Rule 19b-4 (as
discussed below).
---------------------------------------------------------------------------

    \31\ See 15 U.S.C. 78c-3(b)(2) (as added by Section 763(a) of
the Dodd-Frank Act).
---------------------------------------------------------------------------

    To facilitate this filing requirement, the Commission is adopting
Rule 19b-4(o)(2) to require clearing agencies to use EFFS and Form 19b-
4 for Security-Based Swap Submissions. As discussed in the Proposing
Release, registered clearing agencies, as SROs, are already required to
file proposed rule changes on Form 19b-4 on EFFS. Using the same filing
process for Security-Based Swap Submissions would leverage existing
technology and reduce the resources clearing agencies would have to
expend on meeting Commission filing requirements. Moreover, in
situations where a single clearing agency action would trigger more
than one filing requirement, allowing for each filing to be made
pursuant to a single Form 19b-4 submission would improve efficiency in
the filing process. The Commission is adopting the requirements in new
Rule 19b-4(o)(2) substantially as proposed, with modifications made to
allow for

the transition to EFFS filing. Specifically, the Commission is
currently in the process of designing and implementing the Commission
system upgrades that are necessary in order for Security-Based Swap
Submissions to be filed on EFFS. The Commission expects the system
upgrades to EFFS to be completed no later than December 10, 2012. In
order to avoid delaying clearing agencies from making Security-Based
Swap Submissions, the Commission has decided to provide for a temporary
means of submission. As a result, the Commission is adopting Rule 19b-
4(o)(2) to provide that Security-Based Swap Submissions filed before
December 10, 2012 must be filed with the Commission by submitting the
Security-Based Swap Submission to a dedicated email inbox to be
established by the Commission. A clearing agency that files a Security-
Based Swap Submission by email must include in the submission the same
information that is required to be included for Security-Based Swap
Submissions in the General Instructions for Form 19b-4, as such form
has been modified by the rules the Commission is adopting today.
Security-Based Swap Submissions filed on or after December 10, 2012 on
Form 19b-4 would include the same substantive information.\32\
Additional conforming changes have been made to Rule 19b-4(o)(2) to
accommodate the phased implementation of the submission process.
---------------------------------------------------------------------------

    \32\ The Commission notes that a clearing agency must also
continue to meet the filing requirements of Rule 19b-4 and Form 19b-
4. For example, if the decision to clear a security-based swap
referenced in a Security-Based Swap Submission also requires the
clearing agency to file a proposed rule change under Exchange Act
Section 19(b), the clearing agency must file the proposed rule
change with the Commission on Form 19b-4 using EFFS and separately
file the Security-Based Swap Submission with the Commission by
email.
---------------------------------------------------------------------------

    The Commission did not receive any comments on its proposal to use
EFFS and the existing Form 19b-4 filing process for Security-Based Swap
Submissions. Some commenters did, however, raise questions related to
other processes involving the clearing of security-based swaps, namely
the interplay between the process by which the Commission will
determine whether to approve a new security-based swap for clearing and
the process by which the Commission will determine whether a security-
based swap is required to be cleared.\33\ Although these comments were
not directly responsive to the proposed process by which clearing
agencies will file Security-Based Swap Submissions, the Commission
appreciates receiving feedback and questions from interested persons
regarding how it should ultimately make determinations on which
security-based swaps will be subject to mandatory clearing. Of the
commenters that discussed the relationship between a mandatory clearing
determination and an action approving the voluntary clearing of
security-based swaps, one commenter requested that the Commission
clarify the circumstances under which a clearing agency would be
required to make a Security-Based Swap Submission with the Commission
when it already has Commission-approved rules permitting it to clear
the security-based swap in question.\34\ Another commenter requested
that the Commission ``de-couple the determination that a clearing
agency may clear a security-based swap from the determination that a
security-based swap should be subject to a mandatory clearing
obligation.'' \35\ Finally, one commenter asked for confirmation that
``the Commission intends that a clearing agency `eligibility to clear'
review is to be separate from and precede a security-based swap
mandatory clearing review and [that] it is not intended that both
reviews can commence simultaneously.'' \36\
---------------------------------------------------------------------------

    \33\ See, e.g., comment letter of CME Group, Inc. (Feb. 14,
2011) (``CME Letter''); comment letter of LCH.Clearnet Group (Feb.
14, 2011) (``LCH.Clearnet Letter''); comment letter of the
International Swaps and Derivatives Association, Inc. (``ISDA'')
(Feb. 14, 2011) (``ISDA Letter''); and comment letter of The Options
Clearing Corporation (Feb. 14, 2011) (``OCC Letter'').
    \34\ See OCC Letter at 3.
    \35\ See LCH.Clearnet Letter at 2-3.
    \36\ See ISDA Letter at 4.
---------------------------------------------------------------------------

    In response to the three comments described above, the Commission
notes that its process for determining whether a security-based swap is
required to be cleared pursuant to Exchange Act Section 3C (which
process is triggered by the filing of a Security-Based Swap Submission
in accordance with the amendments being adopted today to Rule 19b-4 and
Form 19b-4) is separate and distinct from the Commission's process for
determining whether to approve a request by a clearing agency to
commence voluntary clearing of a security-based swap (which process
will be triggered by the filing of a proposed rule change pursuant to
Exchange Act Section 19(b)).\37\ Each filing process, as well as each
resulting Commission determination, is governed by separate sections of
the Exchange Act, and each operates under separate timeframes. Thus, a
clearing agency will be required to make a Security-Based Swap
Submission regardless of whether it has existing rules permitting it to
clear the security-based swap referred to in the submission.
---------------------------------------------------------------------------

    \37\ A more detailed discussion regarding the separation of the
two filing requirements (and subsequent Commission actions) is
contained in section II.F of this release. Notably, the requirement
to submit a proposed rule change is not affected by the rules the
Commission is adopting today related to the process for filing
Security-Based Swap Submissions.
---------------------------------------------------------------------------

    However, the Commission anticipates that a clearing agency's
decision to plan to clear a security-based swap (or any group,
category, type or class of security-based swaps) could require filings
under both Exchange Act Section 19(b) and Exchange Act Section 3C. This
is because a clearing agency's decision to clear a security-based swap
may require the clearing agency to change its rules and thus file with
the Commission a proposed rule change under Exchange Act Section 19(b).
In this scenario, the clearing agency would be required to file a
Security-Based Swap Submission with the Commission for a determination
by the Commission of whether the security-based swap (or any group,
category, type or class of security-based swaps) referenced in the
submission is required to be cleared.\38\ In other words, the two
filing requirements are not mutually exclusive. Because a clearing
agency may be required to file the same proposal under Exchange Act
Section 3C and Exchange Act Section 19(b), and because there may be
instances where the same information is required under both statutory
provisions,\39\ the Commission believes that the most efficient use of
the Commission's and clearing agencies' resources would be to require
clearing agencies to use the existing EFFS system for these two
related, though legally separate, types of filings (and, to the extent
that the filings are made at the same time, pursuant to a single Form
19b-4 submission).
---------------------------------------------------------------------------

    \38\ A clearing agency rule is defined broadly in the Exchange
Act to include ``the constitution, articles of incorporation,
bylaws, and rules, or instruments corresponding to the foregoing * *
* and such of the stated policies, practices, and interpretations of
such exchange, association, or clearing agency as the Commission, by
rule, may determine to be necessary or appropriate in the public
interest or for the protection of investors to be deemed to be rules
of such exchange, association, or clearing agency.'' See 15 U.S.C.
78c(a)(27). The Commission anticipates that a proposal to clear a
new type, category or class of security-based swap will, in many
cases, also be a change to the rules of a registered clearing agency
that must be filed with the Commission for approval pursuant to
Exchange Act Section 19(b).
    \39\ See infra section II.F.
---------------------------------------------------------------------------

    In addition, while the Commission recognizes the concerns raised by
the commenter requesting that these two processes not commence

simultaneously,\40\ the Commission notes that the timing and sequencing
of each of these processes ultimately will be determined based on the
individual facts and circumstances of a particular filing. The
Commission generally believes that when a security-based swap is
submitted for review under Exchange Act Section 3C and concurrently
filed under Exchange Act Section 19(b) as a proposed rule change, the
two separate reviews will be carried out on the same general timeline
and likely involving the same staff, both as a practical matter and to
promote efficiency in the use of Commission resources. However, in
circumstances where no proposed rule change filing would be required,
such as a case where a clearing agency's rules already permit it to
clear the security-based swap in question, EFFS and Form 19b-4 still
will be used for the Security-Based Swap Submission.
---------------------------------------------------------------------------

    \40\ See supra note 36 and accompanying text.
---------------------------------------------------------------------------

    The Commission also received a comment letter that attached a copy
of a separate letter that the commenter submitted to the CFTC
requesting, among other things, that the CFTC clarify that a designated
clearing organization (``DCO'') would not be required to make any
submission to the CFTC for swaps previously listed for clearing by a
DCO prior to the date of enactment of Section 723 of the Dodd-Frank Act
(``pre-enactment swaps'') or for any swaps that a DCO cleared prior to
the effective date of the CFTC's final rules setting forth its swap
submission process.\41\ While this commenter did not explicitly make a
concurrent request with respect to security-based swaps, the Commission
notes that it will need to have certain information regarding any
security-based swap (or any group, category, type, or class of
security-based swaps) listed for clearing by a clearing agency as of
the date of enactment of Exchange Act Section 3C (i.e., July 21, 2010)
(``pre-enactment security-based swaps'') in light of Exchange Act
Section 3C(b)(2)(B) on which to base its determination of whether the
security-based swap is required to be cleared.\42\ Accordingly, the
Commission will continue to work directly with any clearing agency that
listed pre-enactment security-based swaps as of the date of enactment
of Exchange Act Section 3C to obtain any information necessary for
making a mandatory clearing determination.\43\
---------------------------------------------------------------------------

    \41\ See Exhibit A to CME Letter.
    \42\ 15 U.S.C. 78c-3(b)(2)(B) (as added by Section 763(a) of the
Dodd-Frank Act) (``[a]ny security-based swap or group, category,
type, or class of security-based swaps listed for clearing by a
clearing agency as of the date of enactment of this subsection shall
be considered submitted to the Commission.'').
    \43\ The Commission notes that only two clearing agencies listed
security-based swaps for clearing as of July 21, 2010. To begin the
process of reviewing pre-enactment swaps, Commission staff has
requested, pursuant to Section 17A of the Exchange Act, that each
registered clearing agency submit information similar to that which
will be required under Rule 19b-4(o)(3) so that the Commission can
make the statutorily required determination. The Commission believes
that receiving this information directly from the clearing agencies,
as opposed to having to gather it from other sources, should help
ensure that the Commission is able to make mandatory clearing
determinations. Moreover, such information would be based on timely,
accurate and comprehensive information obtained from the party most
directly involved in the clearing process as it pertains to a
particular security-based swap. In addition, providing this
information in response to a Commission request is consistent with a
clearing agency's general obligations in connection with its
registration with the Commission. After the effective date of Rule
19b-4(o) and once the Commission has verified that the previously
submitted information is complete on its face, the Commission will
publish the submissions for public comment. The Commission confirms
that a clearing agency that is clearing pre-enactment security-based
swaps may continue to clear them on a voluntary basis and does not
have to wait for a determination from the Commission as to whether
the security-based swaps are required to be cleared.
---------------------------------------------------------------------------

    Finally, one commenter requested that the Commission clarify that,
to the extent that a rule of a clearing agency is changed ``not through
any action of the clearing agency but through the action of ISDA or
other external authority, such an event would not constitute a rule
change or necessitate an additional [Security-Based Swap] Submission.''
\44\ This commenter noted that clearing agencies sometimes have rules
that incorporate ISDA terms by reference or state that determinations
made by an ISDA committee will apply to the security-based swaps that
the clearing agency clears.\45\ In response to this commenter, the
Commission notes that as a general matter, registered clearing agencies
have an ongoing responsibility to ensure that their rules are in
compliance with Section 17A of the Exchange Act, regardless of the
source of, or justification behind, a new rule or rule change.
Accordingly, the Commission would need to review actions on a case-by-
case basis to determine whether specific actions taken by ISDA or
another industry organization would require the filing of a separate
proposed rule change or Security-Based Swap Submission. In that
respect, the Commission encourages clearing agencies to discuss
particular actions with Commission staff in order to determine whether
a filing is required.
---------------------------------------------------------------------------

    \44\ See OCC Letter at 4.
    \45\ See id.
---------------------------------------------------------------------------

a. Substance of Security-Based Swap Submissions: Consistency With
Section 17A of the Exchange Act
    New Rule 19b-4(o)(3)(i), which the Commission is adopting as
proposed, requires that each Security-Based Swap Submission contain a
statement explaining how the submission is consistent with Section 17A
of the Exchange Act. The requirement to submit the information
specified in Rule 19b-4(o)(3)(i) is intended to assist the Commission
in its review of the Security-Based Swap Submission in accordance with
the standards set forth in Exchange Act Section 3C(b)(4)(A).\46\
Section 17A specifies, among other things, that the Commission is
directed, having due regard for the public interest, the protection of
investors, the safeguarding of securities and funds and maintenance of
fair competition among brokers and dealers, clearing agencies, and
transfer agents, to use its authority to facilitate the establishment
of a national system for the prompt and accurate clearance and
settlement of transactions in securities.\47\
---------------------------------------------------------------------------

    \46\ See 15 U.S.C. 78c-3(b)(4)(A) (as added by Section 763(a) of
the Dodd-Frank Act) (``[i]n reviewing a [Security-Based Swap
Submission], the Commission shall review whether the submission is
consistent with section 17A.'').
    \47\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    In complying with this requirement, registered clearing agencies
should be able to utilize their prior experience with the requirement
to comply with a similar rule in the context of filing proposed rule
changes with the Commission pursuant to Exchange Act Section 19(b).
Specifically, Exchange Act Section 19(b)(2)(C)(i) requires the
Commission, prior to approving a proposed rule change filed by any SRO
(including a registered clearing agency), to determine that the
proposed rule change is consistent with the requirements of the
Exchange Act (which would include Section 17A) and the rules and
regulations issued thereunder applicable to such organization.\48\ In
connection with proposed rule changes, an SRO is required to ``explain
why the proposed rule change is consistent with the requirements of the
[Exchange] Act and the rules and regulations thereunder applicable to
the [SRO]. A mere assertion that the proposed rule change is consistent
with those requirements is not sufficient.'' \49\
---------------------------------------------------------------------------

    \48\ See 15 U.S.C. 78s(b)(2)(C)(i).
    \49\ Item 3(b) of the General Instructions for Form 19b-4. 17
CFR 240.819. See also Exchange Act Section 19(b), which requires
that an SRO provide a statement of the basis of the proposed rule
change and provides that the Commission shall approve a proposed
rule change only if it finds that it is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder. 15 U.S.C. 78s(b).

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

    Presently, in complying with the requirement to file proposed rule
changes with the Commission pursuant to Exchange Act Section 19(b),
registered clearing agencies are required to specify, among other
things, how the proposed rule change is consistent with the
requirements under Section 17A(b)(3) of the Exchange Act. In addition,
all registered clearing agencies must comply with the standards in
Section 17A of the Exchange Act, which include requirements under
Section 17A(b)(3) of the Exchange Act to maintain rules for promoting
the prompt and accurate clearance and settlement of securities
transactions, assuring the safeguarding of securities and funds which
are in the custody or control of the clearing agency or for which it is
responsible, fostering cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions,
removing impediments to and perfecting the mechanism of a national
system for the prompt and accurate clearance and settlement of
securities transactions, and, in general, protecting investors and the
public interest.\50\ A registered clearing agency also is required
under Section 17A(b)(3) of the Exchange Act to provide fair access to
clearing and to have the capacity to facilitate the prompt and accurate
clearance and settlement of securities transactions and derivative
agreements, contracts, and transactions for which it is responsible, as
well as to safeguard securities and funds in its custody or control or
for which it is responsible.\51\
---------------------------------------------------------------------------

    \50\ See 15 U.S.C. 78q-1(b)(3)(F).
    \51\ See 15 U.S.C. 78q-1(b)(3)(A), (B) and (F).
---------------------------------------------------------------------------

    The Commission did not receive any comments on the requirement
contained in Rule 19b-4(o)(3)(i) that a clearing agency explain how the
Security-Based Swap Submission is consistent with Section 17A of the
Exchange Act. However, one commenter recommended that the Commission
provide further specificity as to precisely what elements of Section
17A(b)(3) of the Exchange Act ``are relevant to the decision to clear a
security-based swap and thus must be addressed in a clearing agency's
submission.'' \52\ Because each Security-Based Swap Submission will be
tailored to a particular security-based swap (or group, category, type
or class of security-based swaps) and to the clearing arrangement
established by the particular clearing agency filing the submission,
each submission will raise different issues for the Commission to
consider. As such, the Commission is unable to state definitely which
elements of Section 17A(b)(3) would be relevant to individual
submissions. However, the Commission notes that all registered clearing
agencies are required to maintain compliance with each of the standards
set forth in Section 17A of the Exchange Act as a condition to
registration, and a clearing agency should have considered whether
clearing a security-based swap (or group, category, type or class of
security-based swaps) is consistent with the requirements of Section
17A of the Exchange Act at the time the clearing agency first reached a
decision to clear the particular instrument. Accordingly, and in
response to the question raised by the commenter, a clearing agency
should consider whether it needs to include a statement in the
submission discussing the process the clearing agency followed when it
reached its initial decision to clear the security-based swap (or
group, category, type or class of security-based swaps). To the extent
possible, such discussion could include information on the clearing
agency's consideration of the factors set forth in Rule 19b-4(o)(3)(ii)
at the time the clearing agency decided to commence clearing the
product and the weight, if any, each such factor (or other factors
determined to be appropriate by the clearing agency) was given in
reaching its conclusion. If additional procedures were followed, over
and above those associated with other types of rule changes or designed
to assist the clearing agency in considering the particular risk or
other characteristics of the security-based swap (or group, category,
type or class of security-based swaps) that is the subject of the
submission, the clearing agency could specify such procedures. The
Commission also encourages clearing agencies to specify and briefly
describe any departures from processes contemplated by clearing agency
rules in reaching a decision to commence clearing the security-based
swap, such as exercises of discretion not to consult established
management committees, board committees or participant committees.
---------------------------------------------------------------------------

    \52\ See CME Letter at 2, n.1. In its comment letter, CME Group,
Inc. states that Exchange Act Section 3C ``governs the Commission's
responsibility to determine whether a security-based swap that a
clearing agency chooses to clear may be cleared'' and also
``requires the Commission to make determinations respecting whether
a security-based swap is subject to the mandatory clearing
requirement.'' The Commission notes, however, that Exchange Act
Section 3C only relates to mandatory clearing determinations. The
question of whether a clearing agency may clear a security-based
swap will depend on whether clearing of the security-based swap is
permitted under the clearing agency's rules. To the extent that a
clearing agency's rules must also be modified to permit clearing of
a new security-based swap (or group, category, type or class of
security-based swaps), such change would need to be approved as a
proposed rule change governed by Exchange Act Section 19(b). Other
than certain technical changes made pursuant to Section 916 of the
Dodd-Frank Act, the process for submitting proposed rule changes
with the Commission is not being modified by the rules being adopted
today. See supra note 37 and accompanying text.
---------------------------------------------------------------------------

    To the extent relevant to its initial conclusion to clear a
security-based swap, the clearing agency could include a clear
statement whether it believes that the security-based swap (or group,
category, type or class of security-based swaps) that is the subject of
the Security-Based Swap Submission should or should not be required to
be cleared by the Commission, together with a discussion of the reasons
for its belief. If the Commission's decision to require or not to
require the security-based swap (or group, category, type or class of
security-based swaps) that is the subject of the submission to be
cleared would or would not materially affect the clearing agency's
judgment that the clearing proposal is consistent with Section 17A of
the Exchange Act, the clearing agency is encouraged to include a
statement of this nature and explain why this is the case.\53\
---------------------------------------------------------------------------

    \53\ As compliance with each of the standards of Section 17A of
the Exchange Act is required of each registered clearing agency, the
information specified throughout this paragraph is expected to be
provided by each clearing agency for any security-based swap (or
group, category, type or class of security-based swaps) being
considered by the Commission, including pre-enactment swaps.
---------------------------------------------------------------------------

b. Substance of Security-Based Swap Submissions: Quantitative and
Qualitative Factors
    The Commission also is adopting new Rule 19b-4(o)(3)(ii) to specify
what qualitative and quantitative factors should be discussed by a
clearing agency in its Security-Based Swap Submission. This rule is
being adopted substantially as proposed, with certain non-substantive
changes having been made to correct paragraph numbering. To provide
context for the requirements to provide this information, Exchange Act
Section 3C(b)(4)(B) requires the Commission, prior to making a
mandatory clearing determination, to analyze five specific qualitative
and quantitative factors.\54\ New Rule 19b-4(o)(3)(ii) requires
clearing agencies to submit information to assist the Commission in its
consideration of the five factors specified in Exchange Act

Section 3C(b)(4)(B), including, but not limited to:
---------------------------------------------------------------------------

    \54\ See 15 U.S.C. 78c-3(b)(4)(B)(i)-(v) (as added by Section
763(a) of the Dodd-Frank Act).
---------------------------------------------------------------------------

    (i) The existence of significant outstanding notional exposures,
trading liquidity and adequate pricing data.
    (ii) The availability of a rule framework, capacity, operational
expertise and resources, and credit support infrastructure to clear the
contract on terms that are consistent with the material terms and
trading conventions on which the contract is then traded.
    (iii) The effect on the mitigation of systemic risk, taking into
account the size of the market for such contract and the resources of
the clearing agency available to clear the contract.
    (iv) The effect on competition, including appropriate fees and
charges applied to clearing.
    (v) The existence of reasonable legal certainty in the event of the
insolvency of the relevant clearing agency or one or more of its
clearing members with regard to the treatment of customer and security-
based swap counterparty positions, funds, and property.
    Some commenters requested that the Commission limit the breadth of
the information that clearing agencies will be required to submit to
the Commission pursuant to Rule 19b-4(o)(3)(ii) pertaining to the five
qualitative and quantitative factors.\55\ For example, one commenter
urged Commission staff to exercise judgment and flexibility in
determining the scope of information required in connection with the
five qualitative and quantitative factors, noting that some of these
factors would require ``at most a very cursory mention'' in a specific
Security-Based Swap Submission, particularly where the responsive
information is already well-known to the Commission or where the
Commission has extensive knowledge of the clearing agency's rules or
operations.\56\ Further, this commenter requested that the Commission
clarify that when a Rule 19b-4 filing is both a proposed rule change
and a Security-Based Swap Submission, any information that is self-
evident from the text of the proposed rule need not be repeated for the
Security-Based Swap Submission aspect of the filing.\57\
---------------------------------------------------------------------------

    \55\ See, e.g., CME Letter, LCH.Clearnet Letter and OCC Letter.
    \56\ See OCC Letter at 3-5.
    \57\ See id.
---------------------------------------------------------------------------

    In response to this comment, the Commission reiterates that
registered clearing agencies will be required to submit Security-Based
Swap Submissions for the sole purpose of submitting the information
necessary for the Commission to determine, pursuant to Exchange Act
Section 3C(b)(2)(C)(ii), whether the security-based swap described in
the submission is required to be cleared (i.e., subject to mandatory
clearing). As discussed in section II.A.1 and throughout this release,
the process by which the Commission will determine whether a security-
based swap is required to be cleared following the submission of a
Security-Based Swap Submission is separate and distinct from the
process by which the Commission will determine whether to approve a new
security-based swap for voluntary clearing following the filing of a
proposed rule change pursuant to Exchange Act Section 19(b).\58\ In
cases where the Rule 19b-4 filing is both a proposed rule change and a
Security-Based Swap Submission, each filing should be complete in
accordance with the particular rules applicable to the different types
of filings. At the same time, the Commission agrees with this commenter
that clearing agencies should not be required to provide unnecessarily
duplicative information. Accordingly, if more than one type of filing
is made pursuant to a single Form 19b-4 submission, clearing agencies
may be able to refer to and cross-reference relevant information in the
proposed rule change that also is relevant to the Security-Based Swap
Submission filing so long as the requirements of each applicable rule
are individually satisfied and if the clearing agency clearly explains
how the information included in the proposed rule change is applicable
to the specific information required to be provided in the Security-
Based Swap Submission.
---------------------------------------------------------------------------

    \58\ As previously noted, although the Commission will accept
both Security-Based Swap Submissions and proposed rule changes on
Form 19b-4 through EFFS for the sake of efficiency, each filing will
be considered a separate submission to be reviewed in accordance
with the appropriate statutory provision--even to the extent that
both filings are made at the same time using the same form.
---------------------------------------------------------------------------

    Another commenter suggested that the Commission should limit the
information required to be in a Security-Based Swap Submission to
include only information addressing whether clearing a security-based
swap comports with Section 17A of the Exchange Act.\59\ In particular,
this commenter maintained that the qualitative and quantitative factors
set forth in Exchange Act Section 3C(b)(4)(B) were most relevant to the
Commission in making its determination as to whether a security-based
swap is required to be cleared and less relevant in the context of a
submission by a clearing agency seeking approval to clear a security-
based swap.\60\ This commenter maintained that requiring clearing
agencies to perform an analysis of the qualitative and quantitative
factors set forth in Exchange Act Section 3C(b)(4)(B) in connection
with seeking approval to clear a security-based swap would be ``broad
and burdensome,'' noting that the Commission has a great deal of
information necessary to address the statutory factors by virtue of the
extensive reporting requirements under the Dodd-Frank Act.\61\
---------------------------------------------------------------------------

    \59\ See CME Letter at 3. In addition, the CME Letter attached
as an exhibit a comment letter, dated Jan. 3, 2011, that CME Group,
Inc. submitted to the CFTC in connection with a similar set of
proposed rules. See Exhibit A to CME Letter. In this letter, CME
Group, Inc. recommended that the CFTC delete a number of items
required to be included in a submission to the CFTC in connection
with a mandatory clearing determination for swaps. These recommended
deletions included each of the five qualitative and quantitative
factors set forth in Section 2(h)(2)(D) of the Commodity Exchange
Act (which are identical to the factors contained in Exchange Act
Section 3C(b)(4)(B)). Specifically, CME Group, Inc. expressed its
belief that these requirements were unclear, unduly burdensome,
could defeat the purposes of the Dodd-Frank Act and, in some cases,
called for information that the clearing agency does not possess.
    \60\ See id.
    \61\ See id.
---------------------------------------------------------------------------

    Similarly, a separate commenter requested that the Commission amend
the information requirements in the proposed rule ``such that a
clearing agency is required to include in its submission only that
information which is necessary for determining the suitability of a
security-based swap for clearing and the eligibility of a clearing
agency to clear that security-based swap (but not the information
required to support the determination of whether a security-based swap
should be subject to a mandatory clearing obligation).'' \62\ In
furtherance of this suggestion, the commenter suggested specific
deletions to the information requirements in the proposed rules that
were based on the five statutory factors set forth in Exchange Act
Section 3C(b)(4)(B).\63\
---------------------------------------------------------------------------

    \62\ See LCH.Clearnet Letter at 3.
    \63\ See id. at 4
---------------------------------------------------------------------------

    In response to the commenters discussed in the two preceding
paragraphs, the Commission notes that the factors specified in new Rule
19b-4(o)(3)(ii) are identical to the qualitative and quantitative
factors that the Commission is required to consider pursuant to
Exchange Act Section 3C(b)(4)(B) when determining whether a security-
based swap (or group, category, type or class of security-based swaps)
will be subject to a mandatory clearing requirement. Moreover, and in
response to the commenter that requested that the information required
in the submission relate only to the suitability of the security-based
swap for clearing and the

eligibility of the clearing agency to clear the security-based swap,
the Commission notes that the information related to the statutory
factors are necessary in connection with the Commission's statutory
obligation to make a mandatory clearing determination. The Commission
believes that it is appropriate to require such information to be
included in Security-Based Swap Submissions because clearing agencies
ordinarily have primary access to this information, making it easier
for them to submit the information to the Commission than it would be
for the Commission to gather the information from other sources,
resulting in a more effective and efficient process for both the
Commission and clearing agencies.
    Furthermore, the Commission does not believe that requiring
clearing agencies to submit information responsive to new Rule 19b-
4(o)(3)(ii) would be overly burdensome or require clearing agencies to
provide material that is not in their possession. In particular, and
based on its prior experience with the operations and governance of
clearing agencies, the Commission would expect that clearing agencies
would consider the factors set forth in the statute and the rule as
part of their decision-making process, particularly in connection with
determining whether to list the relevant security-based swaps for
clearing (and knowing that such listing could result in the Commission
determining that the security-based swap may be required to be
cleared). Based on all of the reasons outlined above, particularly the
requirement that the Commission consider each of the factors set forth
in Exchange Act Section 3C(b)(4)(B) prior to making a mandatory
clearing determination, each Security-Based Swap Submission will be
required to include information regarding the factors listed in
paragraphs (A) through (E) of Rule 19b-4(o)(3)(ii).
    In addition, the Proposing Release included examples of information
that a clearing agency ``could'' consider including in its Security-
Based Swap Submission in order to respond to the quantitative and
qualitative factors specified in Exchange Act Section 3C.\64\ Some
commenters urged the Commission to incorporate these examples into its
final rules, thereby requiring all of this information to be included
in a clearing agency's Security-Based Swap Submission.\65\ For example,
one commenter suggested that the proposed rules did not include
requirements to ensure that Security-Based Swap Submissions provide
sufficiently detailed information; this commenter stated that the range
of information discussed in the proposed rule as information a clearing
agency ``could'' include appears to be essential information that the
Commission could use to ``efficiently and effectively determine whether
the clearing agency should be allowed to clear the swap, or whether the
swap should be required to clear.'' \66\ A second commenter requested
that the Commission, at a minimum, replace the word ``could'' with
``shall'' in the list of disclosures required to be included in a
Security-Based Swap Submission.\67\
---------------------------------------------------------------------------

    \64\ See Proposing Release, supra note 24, at section II.A.1.b.
    \65\ See, e.g., comment letter of Americans for Financial Reform
(Feb. 14, 2011) (``AFR Letter''); comment letter of American
Federation of State, County and Municipal Employees (``AFSCME'')
(Feb. 14, 2011) (``AFSCME Letter''); and comment letter of Better
Markets, Inc. (Feb. 14, 2011) (``Better Markets Letter'').
    \66\ See AFR Letter at 2.
    \67\ See AFSCME Letter at 3-4. While AFSCME suggested that all
of the examples identified in the release be incorporated into the
rule, it highlighted as particularly relevant the reference to
information on product specifications, including copies of any
standardized legal documentation, generally accepted contract terms,
standard practices for managing and communicating any life cycle
events associated with the security-based swap and related
adjustments, and the manner in which the information contained in
the confirmation of the security-based swap trade is transmitted.
---------------------------------------------------------------------------

    A third commenter urged the Commission to ``require every clearing
agency to submit all of the information identified in the [Proposing]
Release and in the instructions as potentially relevant to the five
factors'' set forth in Exchange Act Section 3C(b)(4)(B).\68\ The same
commenter also requested that the proposed rules be expanded to require
clearing agencies to submit additional information regarding pricing,
liquidity and risk management as part of a Security-Based Swap
Submission, and to include an explicit statement in the final rules
whereby the Commission would make clear that ``a given level of
contract-specific systemic risk is not a prerequisite for a
determination that a security-based swap is subject to mandatory
clearing.'' \69\ Finally, this commenter urged the Commission to
require clearing agencies to include information regarding the
decision-making process they follow when deciding whether or not to
make a Security-Based Swap Submission.\70\
---------------------------------------------------------------------------

    \68\ See Better Markets Letter at 3-5.
    \69\ See id at 5-7. The additional information suggested by
Better Markets, Inc. (``Better Markets'') includes: (1) Information
about any price indices used for pricing the security-based swap;
(2) information regarding liquidity over the life of a security-
based swap; (3) information regarding risk management procedures,
particularly with respect to cross-contract netting and credits
relating to initial margin, including correlations to be used and
algorithms that result in the netting or credits; and (4) certain
information on the hedging relationships between the security-based
swaps proposed to be cleared and other security-based swaps that are
cleared by the clearing agency or by other clearing agencies.
    \70\ See Better Markets Letter at 7-8. Specifically, Better
Markets urged the Commission to require clearing agencies to: (1)
Include a summary of member support for clearing the security-based
swap as proposed, as well as member objections; (2) notify the
Commission and the public of the type of security-based swap being
considered at the time it notifies members of the submission or
possible submission; (3) submit input from both the public and
customers regarding the decision to make a submission, which can be
considered alongside member views (including the methods used to
solicit such input and the outcome); and (4) notify the Commission
of the decision not to make a submission if the decision is made
after the clearing agency risk committee (or similar body) solicits
input from members, customers or others regarding a submission,
which notification should include the objections and supporting
statements received regarding the proposed submission. Similarly,
Americans for Financial Reform urged the Commission to require
clearing agencies to file submissions (which should be made publicly
available) when the clearing agency ``rejects a class of swaps for
clearing.'' See AFR Letter at 2.
    While the Commission has provided full responses to these
comments later in this section, with respect to the commenters
requesting that a clearing agency notify the Commission when it
decides not to make a Security-Based Swap Submission or when it
``rejects a class'' of security-based swaps for clearing, the
Commission notes that, to the extent that these commenters'
suggestion is directed toward the Commission's ability to ensure
that clearing agencies do not reject new security-based swaps for
clearing for improper reasons, such as anticompetitive reasons,
other provisions of the Exchange Act provide the Commission with the
ability to investigate and address potential anticompetitive
behavior if it occurs. For example, Section 17A of the Exchange Act
provides that clearing agency rules must not be designed to permit
unfair discrimination in the admission of participants or among
participants in the use of the clearing agency and that the rules
may not impose a burden of competition that is not necessary or
appropriate in furtherance of the provisions of the Exchange Act.
See 15 U.S.C. 78q-1(b)(3)(F) and (I). All proposed rule changes
filed by clearing agency with the Commission under Exchange Act
Section 19(b)(2) are subject to approval by the Commission and all
Security-Based Swap Submissions will be subject to Commission review
to determine whether a security-based swap should be required to be
cleared. Pursuant to Rule 17a-1, a registered clearing agency must
keep copies of all documents made or received by it in the course of
its business as such and provide copies of any such documents to the
Commission upon request. See 17 CFR 17a-1. The Commission has broad
authority under Section 17(b) of the Exchange Act to conduct
examinations of clearing agencies. See 15 U.S.C. 78q. And
ultimately, under Section 19(h) of the Exchange Act, the Commission
has the authority to bring an enforcement action against a clearing
agency that has violated or is unable to comply with any provision
of the Exchange Act, the rules or regulations thereunder, or its own
rules. See 15 U.S.C. 78s.
---------------------------------------------------------------------------

    In response to the three commenters discussed above, the Commission
believes that the requirements contained in new Rule 19b-4(o)(3)(ii)
strike an appropriate balance by requiring clearing agencies to submit
the

information necessary to allow the Commission to make informed and
timely mandatory clearing determinations. In particular, the Commission
believes that the information requirements contained in Rule 19b-
4(o)(3)(ii) provide for the submission of a comprehensive set of
information to be included in a preliminary Security-Based Swap
Submission. For example, the Commission believes that most of the
information discussed in the proposed rule as information a clearing
agency ``could'' include in a Security-Based Swap Submission is already
contemplated by the rules the Commission is adopting today. In fact, in
the discussion set forth both the Proposing Release and in the
paragraph immediately below, the Commission has attempted to tie each
example identified as information a clearing agency ``could'' include
in a Security-Based Swap Submission to a specific section of new Rule
19b-4(o)(3)(ii). As a result, the Commission does not believe that it
is necessary to incorporate this information directly into the rule
text, as suggested by three commenters.\71\ Similarly, the Commission
believes that the information identified by the commenter who suggested
that the final rules be expanded by requiring, among other things,
information regarding pricing, liquidity, risk management, and certain
decision-making processes also is generally contemplated by one of the
requirements of new Rule 19b-4(o).\72\ Moreover, to the extent that
information suggested to be included in the final rules by commenters
is not addressed in other provisions (including, for example,
information on certain hedging relationships between security-based
swaps and information on decisions not to accept a security-based swap
for clearing) or omitted from a Security-Based Swap Submission, the
Commission notes that it can require the production of additional
information from clearing agencies pursuant to Rule 19b-4(o)(6) (to the
extent that the information is requested in connection with an actual
Security-Based Swap Submission) or in all cases pursuant to the
Commission's general supervisory authority to the extent that it
believes such information will be relevant to its consideration of the
Security-Based Swap Submission or otherwise.
---------------------------------------------------------------------------

    \71\ See supra notes 65 to 68 and accompanying text.
    \72\ See supra notes 69 to 70 and accompanying text. For
example, Better Markets suggested that the Commission require
clearing agencies to submit certain information on price indices
used for pricing the security-based swap and information on
liquidity over the life of the security-based swap. The Commission
believes that this information generally falls within the scope of
new Rule 19b-4(o)(3)(ii)(A), which requires the clearing agency to
provide information about the existence of significant outstanding
notional exposures, trading liquidity and adequate pricing data. In
addition, Better Markets suggested that the Commission require
clearing agencies to submit certain information regarding the
clearing agency's risk management procedures which the Commission
believes is already contemplated by new Rule19b-4(o)(3)(ii)(B) and
(C), which require the clearing agency to provide information about
the availability of a rule framework, capacity, operational
expertise and resources, and credit support infrastructure to clear
the contract on terms that are consistent with the material terms
and trading conventions on which the contract is then traded as well
as the effect on the mitigation of systemic risk, taking into
account the size of the market for such contract and the resources
of the clearing agency available to clear the contract. With respect
to the information suggested by Better Markets regarding certain
decision-making processes used by the clearing agency when it makes
a Security-Based Swap Submission, the Commission believes that much
of this information is contemplated by new Rule 19b-4(o)(3)(i),
which requires clearing agencies to explain how the submission is
consistent with Section 17A of the Exchange Act.
---------------------------------------------------------------------------

    Nevertheless, and as described in the Proposing Release, the
Commission believes that while the content of each Security-Based Swap
Submission will depend on the specific product referenced therein and
the particular set of circumstances related to the clearing
arrangement, many common types of information likely will be responsive
to a large number of these types of submissions. For example, with
respect to Rule 19b-4(o)(3)(ii)(A), a statement describing the
existence of outstanding notional exposures, trading liquidity and
adequate pricing data could address pricing sources, models and
procedures demonstrating an ability to obtain price data to measure
credit exposures in a timely and accurate manner, as well as measures
of historical market liquidity and trading activity, and expected
market liquidity and trading activity if the security-based swap is
required to be cleared (including information on the sources of such
measures). With respect to Rule 19b-4(o)(3)(ii)(B), a statement
describing the availability of a rule framework could include a
discussion of the rules, policies or procedures applicable to the
clearing of the relevant security-based swap. Additionally, a
discussion of credit support infrastructure could include the methods
to address and communicate requests for, and posting of, collateral.
With respect to Rule 19b-4(o)(3)(ii)(C), a discussion of systemic risk
could include a statement on the clearing agency's risk management
procedures including, among other things, the measurement and
monitoring of credit exposures, initial and variation margin
methodology, methodologies for stress testing and back testing,
settlement procedures and default management procedures. With respect
to Rule 19b-4(o)(3)(ii)(D), a discussion of fees and charges could
address any volume incentive programs that may apply or impact the fees
and charges. With respect to Rule 19b-4(o)(3)(ii)(E), a discussion of
legal certainty in the event of an insolvency could address segregation
of accounts and all other customer protection measures under
insolvency.
    In addition, the Commission continues to believe that when
describing the security-based swap (or group, category, type or class
of security-based swaps) referenced in the Security-Based Swap
Submission, the clearing agency could discuss the relevant product
specifications, including any standardized legal documentation,
generally accepted contract terms,\73\ standard practices for managing
and communicating any life cycle events associated with the security-
based swap and related adjustments,\74\ and the manner in which the
information contained in the confirmation of the security-based swap
trade is transmitted. Further, the clearing agency also could discuss
its financial and operational capacity to provide clearing services to
all customers potentially subject to the clearing requirements as
applicable to the particular security-based swap. Finally, the clearing
agency could include an analysis of the effect of a clearing
requirement on the market for the group, category, type, or class of
security-based swaps, both domestically and globally, including the
potential effect on market liquidity, trading activity, use of
security-based swaps by direct and indirect market participants and any
potential market disruption or benefits. This analysis could include
whether the members of the clearing agency are operationally and
financially capable of absorbing clearing business (including indirect
access market participants) that may result from a determination that
the security-based swap (or group, category, type or class of security-
based swaps) is required to be cleared.\75\
---------------------------------------------------------------------------

    \73\ For example, for some security-based swaps, industry
standard documentation would include the applicable ISDA Master
Agreement and any related asset-class-specific definitions.
    \74\ The Commission included a definition of ``life cycle
event'' in proposed Regulation SBSR. See Regulation SBSR--Reporting
and Dissemination of Security-Based Swap Information, Securities
Exchange Act Release No. 63346 (Nov. 19, 2010), 75 FR 75208 (Dec. 2,
2010).
    \75\ In addition to the information required to be submitted to
the Commission pursuant to new Rule 19b-4(o)(3), and any information
identified in this release as an example of information that
clearing agencies may wish to provide in their submissions, the
Commission may also require additional information as necessary to
assess any of the factors it determines to be appropriate in order
to make a determination of whether the clearing requirement applies.
See infra section II.A.1.g (discussing new Rule 19b-4(o)(6)).

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

    The Commission believes that basing the information submission
requirements in new Rule 19b-4(o)(3)(ii) on the five statutory factors
set forth in Exchange Act Section 3C(b)(4)(B), and supplementing these
requirements by providing the above examples of information that the
Commission believes could be responsive, is an appropriate approach to
implementing the statute because it retains the flexibility provided
for in the Proposing Release to allow clearing agencies to address the
statutory factors based on the facts and circumstances of a particular
submission without requiring specific data points that could be overly
prescriptive at the outset. At the same time, the Commission recognizes
that a requirement that does not provide enough detail could result in
an inefficient use of clearing agency and Commission resources if
Security-Based Swap Submissions contain a large amount of unnecessary
or irrelevant information. To that extent, the Commission encourages
clearing agencies to discuss, at least initially, prospective Security-
Based Swap Submissions with Commission staff to help determine what
materials would be responsive to the requirements of new Rule 19b-
4(o)(3)(ii) and Exchange Act Section 3C(b)(4)(B) in the context of a
particular submission.
c. Substance of Security-Based Swap Submissions: Open Access
    Exchange Act Section 3C also requires that the rules of a clearing
agency that clears security-based swaps subject to the clearing
requirement provide for open access.\76\ In the course of reviewing a
Security-Based Swap Submission, the Commission may assess whether a
clearing agency's rules provide for open access, particularly with
respect to the relevant Security-Based Swap Submission. Accordingly,
new Rule 19b-4(o)(3)(ii), which is being adopted as proposed, requires
that a Security-Based Swap Submission include a statement regarding how
the clearing agency's rules:
---------------------------------------------------------------------------

    \76\ See 15 U.S.C. 78c-3(a)(2) (``OPEN ACCESS.--The rules of a
clearing agency described in paragraph (1) shall--(A) prescribe that
all security-based swaps submitted to the clearing agency with the
same terms and conditions are economically equivalent within the
clearing agency and may be offset with each other within the
clearing agency; and (B) provide for non-discriminatory clearing of
a security-based swap executed bilaterally or on or through the
rules of an unaffiliated national securities exchange or security-
based swap execution facility.'').
---------------------------------------------------------------------------

    (i) Prescribe that all security-based swaps submitted to the
clearing agency with the same terms and conditions are economically
equivalent within the clearing agency and may be offset with each other
within the clearing agency; and
    (ii) Provide for non-discriminatory clearing of a security-based
swap executed bilaterally or on or through the rules of an unaffiliated
national securities exchange or security-based swap execution facility.
    One commenter requested that the Commission delete the requirement
that a clearing agency submit information responsive to the factors
related to open access in its Security-Based Swap Submission on the
basis that requiring this information is ``broad and burdensome'' and
outside of the authority granted to the Commission by the Dodd-Frank
Act.\77\ While the Commission recognizes that the factors related to
open access are not included in the five qualitative and quantitative
factors that the Commission is required to consider when reviewing a
Security-Based Swap Submission, the Commission notes that Exchange Act
Section 3C(a)(2) provides the authority for including this requirement
in new Rule 19b-4(o)(3)(ii) in that it requires that the rules of a
clearing agency that clears security-based swaps subject to the
clearing requirement be in compliance with the two open access
provisions.\78\ By requiring that compliance with the open access
requirements be assessed each time a clearing agency files a Security-
Based Swap Submission, the clearing agency will be required to
demonstrate that it continues to satisfy these ongoing conditions prior
to listing a new security-based swap (or group, category, type, or
class of security-based swap) for clearing. Because clearing in a
particular security-based swap is limited to a small number of clearing
agencies, it is critical that access to the clearing agency be open and
available to market participants having due regard for risk management
considerations.\79\ Further, the Commission believes that requiring
clearing agencies to address the two open access requirements in a
Security-Based Swap Submission generally would not require a clearing
agency to conduct a completely novel analysis or to consider factors
with which it is unfamiliar as clearing agencies are already required
to address open access issues as part of their compliance with certain
requirements contained in Section 17A of the Exchange Act.\80\
Accordingly, the rules the Commission is adopting today, which are
unchanged from what was proposed, require that clearing agencies
address in their Security-Based Swap Submission how their rules meet
such open access requirements.
---------------------------------------------------------------------------

    \77\ See CME Letter at 3.
    \78\ See 15 U.S.C. 78c-3(a)(2) (as added by Section 763(a) of
the Dodd-Frank Act).
    \79\ The Commission has previously recognized that certain
conflicts of interest at clearing agencies or among their members
could restrict open access to the clearing agency. See Ownership
Limitations and Governance Requirements for Security-Based Swap
Clearing Agencies, Security-Based Swap Execution Facilities, and
National Securities Exchanges with Respect to Security-Based Swaps
under Regulation MC, Securities Exchange Act Release No. 63107 (Oct.
14, 2010), 75 FR 65882 (Oct. 26, 2010) (noting that ``[a]
consequence of increased use of central clearing services, however,
is that participants that control or influence a security-based swap
clearing agency may gain a competitive advantage in the security-
based swaps market by restricting access to the clearing agency. If
that occurred, financial institutions and marketplaces that do not
have access to central clearing would have limited ability to trade
in or list security-based swaps.''). The Commission also recognized,
however, that clearing agencies may legitimately impose minimum
participation standards that could affect open access. See id (``The
provisions in Section 17A recognize that a clearing agency may
discriminate among persons in the admission to, or the use of, the
clearing agency, by requiring that participants meet certain
financial, operational, and other fitness standards. However,
Section 17A also requires that sanctioned discriminations must not
be unfair.'').
    \80\ See 15 U.S.C. 78q-1(b)(3)(F) (requiring that the rules of a
clearing agency, among other things, not be designed ``to permit
unfair discrimination in the admission of participants or among
participants in the use of the clearing agency'').
---------------------------------------------------------------------------

d. Timing of Security-Based Swap Submissions
    Pursuant to Exchange Act Section 3C(b)(3), the Commission is
required to make its determination of whether a security-based swap
described in a clearing agency's Security-Based Swap Submission is
required to be cleared not later than 90 days after receiving such
Security-Based Swap Submission.\81\ The statute further provides that
this 90-day determination period may be extended with the consent of
the clearing agency making such Security-Based Swap Submission.\82\ In
addition, the statute requires the Commission to make available to the
public any Security-

Based Swap Submission it receives and to ``provide at least a 30-day
public comment period regarding its determination whether the clearing
requirement shall apply to the submission.'' \83\
---------------------------------------------------------------------------

    \81\ 15 U.S.C. 78c-3(b)(3) (as added by Section 763(a) of the
Dodd-Frank Act). Further, pursuant to new Rule 19b-4(o)(2), if any
information submitted to the Commission by a clearing agency on Form
19b-4 were not complete or otherwise in compliance with Rule 19b-4
and Form 19b-4, such information would not be considered a Security-
Based Swap Submission and the Commission would be required to inform
the clearing agency within twenty-one business days of such
submission.
    \82\ 15 U.S.C. 78c-3(b)(3) (as added by Section 763(a) of the
Dodd-Frank Act).
    \83\ 15 U.S.C. 78c-3(b)(2)(C)(iii) (as added by Section 763(a)
of the Dodd-Frank Act).
---------------------------------------------------------------------------

    Because the Commission's obligation to provide for notice and
public comment of Security-Based Swap Submissions is set forth in
detail in Exchange Act Section 3C, it was not necessary for the
Commission to adopt rules regarding these procedures. However, the
Commission believes that it is important to provide guidance on how it
intends to implement these statutory requirements in practice.
Specifically, the Commission believes that the statutory requirement to
``provide at least a 30-day public comment'' was intended, at least in
part, to enable the public to have an opportunity to comment on the
Security-Based Swap Submission and to provide information for the
Commission to consider as part of making its determination whether the
clearing requirement should apply to the submission. Accordingly, the
Commission will indicate in each notice that it publishes of a
Security-Based Swap Submission that public comment will be accepted
during the period specified in the notice (which will in no event be
less than 30 days). In addition, the comment period will begin and end
within the 90-day determination period (as opposed to beginning after
the Commission has made its final determination). The Commission
expects to publish notice of the Security-Based Swap Submission in the
Federal Register and it also intends to publish notice on the
Commission's publicly-available Web site at www.sec.gov. Such notice
would include the solicitation of public comment for the period
specified in the notice. This process is consistent with the current
process that is in place for proposed rule changes under Exchange Act
Section 19(b)(2) and Rule 19b-4.
    Although the Commission did not propose rules with respect to the
procedure it will follow in publishing Security-Based Swap Submissions
for public comment, one commenter requested that the Commission extend
the minimum public review period to 45 days.\84\ This commenter also
recommended that the comment period should not commence until after:
(1) The clearing agency has proven the ability to clear the product
through testing; (2) the clearing agency has sufficient operational
resources and established connectivity to the market using standard
protocols; (3) all market standardization issues defining the product,
life events, etc. have been resolved; (4) pricing standards and margin
calculations have been agreed by the clearing agency's risk committee;
and (5) the Commission has all the information it needs and such
information has been verified as consistent with data received from
security-based swap data repositories, security-based swap dealers and
major security-based swap participants.\85\ In response to this comment
letter, the Commission notes that the comment period specified in the
notice will be at least 30 days, as is required under the statute.\86\
The Commission believes the statute permits it to specify a comment
period that is longer than 30 days, and the Commission will state the
length of the comment period in each notice. Generally, however, the
Commission believes that a 30-day comment period for Security-Based
Swap Submissions strikes an appropriate balance by providing commenters
with sufficient time to formulate their ideas while still giving the
Commission time to consider all of the comments received and to factor
them into the mandatory clearing determination, particularly as the
Commission has a statutory obligation to make a clearing determination
not later than 90 days after receiving the submission. In response to
the comment suggesting that the Commission should delay the
commencement of the comment period until the actions outlined by the
above commenter are completed, the Commission notes that most of the
information identified by the commenter is already required by the five
quantitative and qualitative factors set forth in Exchange Act Section
3C(b)(4)(B) and new Rule 19b-4(o)(3)(ii).\87\ Moreover, the Commission
is concerned that delaying the commencement of the public comment
process would delay the Commission's potential receipt of feedback from
the public which, in the Commission's experience reviewing proposed
rule changes, is often an important source of information for
supplementing or challenging the material submitted by the SRO.
---------------------------------------------------------------------------

    \84\ See ISDA Letter at 11.
    \85\ See id.
    \86\ See 15 U.S.C. 78c-3(b)(2)(C)(iii) (as added by Section
763(a) of the Dodd-Frank Act).
    \87\ To the extent that a Security-Based Swap Submission does
not include the minimum information set forth in new Rule 19b-
4(o)(3), such incomplete submission would, pursuant to new Rule 19b-
4(o)(2), be deemed not to have been submitted and the Commission
would be required to notify that clearing agency of the rejection of
the Security-Based Swap Submission within twenty-one business days
of the original submission.
---------------------------------------------------------------------------

    In addition, a commenter recommended that the Commission adopt an
extended transition period between the date that a determination is
made that a security-based swap is required to be cleared and the date
clearing becomes mandatory for that product.\88\ This commenter also
recommended a second transition period from ``when the `exchange/
security-based swap execution facility trading' requirement is
determined to when such requirement takes effect.'' \89\ Finally, this
commenter recommended ``full transparency of clearing agency
requirements and performance during such period(s).'' \90\ Although the
substance of the Commission's mandatory clearing determinations and the
timing of implementation of those determinations are not addressed in
the rules being adopted today, which focus on the process by which
clearing agencies submit filings, the Commission understands the
importance of ensuring that clearing agencies and market participants
are given an appropriate amount of time and guidance to comply with a
clearing mandate. In many cases, the determination of when and how a
clearing requirement should be implemented will depend on the
particular product that the Commission determines is required to be
cleared. The Commission further notes that Exchange Act Section
3C(b)(4)(C) provides that the Commission, in making a mandatory
clearing determination, may require such terms and conditions as the
Commission determines to be appropriate.\91\
---------------------------------------------------------------------------

    \88\ See ISDA Letter at 10-11.
    \89\ See id.
    \90\ See id. at 11.
    \91\ See 15 U.S.C. 78c-3(b)(4)(C).
---------------------------------------------------------------------------

e. Notice to Clearing Agency Members
    Exchange Act Section 3C(b)(2)(A) requires that a clearing agency
provide notice to its members, in a manner determined by the
Commission, of its Security-Based Swap Submissions.\92\ To meet this
requirement, new Rule 19b-4(o)(5), which is being adopted as proposed,
requires clearing agencies to post all Security-Based Swap Submissions,
and any amendments thereto, on their Web sites. This public posting
must be completed within two business days following the submission to
the Commission. The Commission received one comment expressing general
support for this requirement.\93\
---------------------------------------------------------------------------

    \92\ See 15 U.S.C. 78c-3(b)(2)(A) (as added by Section 763(a) of
the Dodd-Frank Act).
    \93\ See AFR Letter at 2.

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

    This Commission believes that a two-business-day timeframe is
appropriate because it is consistent with the notice requirement that
currently applies to proposed rule changes,\94\ and that such timeframe
will provide members of the clearing agency and the public with timely
notice of the submission. New Rule 19b-4(o)(5) requires a clearing
agency to maintain this posting on its Web site until the Commission
makes a determination regarding the Security-Based Swap Submission, the
clearing agency withdraws the Security-Based Swap Submission or the
clearing agency is notified that the Security-Based Swap Submission is
not properly filed.\95\ These requirements should help ensure that
submissions that are being actively considered by the Commission are
readily available to the members of the clearing agency and the public
and help provide for a more transparent process.
---------------------------------------------------------------------------

    \94\ Commission rules currently require SROs to post on their
Web sites a copy of any proposed rule change the SRO filed with the
Commission, and any amendments thereto. Such posting is required
within two business days after filing the proposed rule change with
the Commission. See 17 CFR 240.19b-4(l). In adopting this rule, the
Commission stated that all market participants, investors and other
interested parties should have access to proposed rule changes filed
with the Commission, and any amendments, as soon as practicable, and
that it did not believe that a two-business-day timeframe would be
impractical or unduly burdensome on SROs. See Final Rules Regarding
Proposed Rule Changes of Self-Regulatory Organizations, Securities
Exchange Act Release No. 50486 (Oct. 4, 2004), 69 FR 60287 (Oct. 8,
2004).
    \95\ Proposed Rule 19b-4(o)(5).
---------------------------------------------------------------------------

    The Commission notes that the current instructions for Form 19b-4
require an SRO to file with the Commission copies of notices issued by
the SRO soliciting comment on the proposed rule change and copies of
all written comments on the proposed rule change received by the SRO
(whether or not comments were solicited) from its members or
participants.\96\ Any correspondence the SRO receives after it files a
proposed rule change, but before the Commission takes final action on
the proposed rule change, also is required to be filed with the
Commission.\97\ The SRO is required to summarize the substance of all
such comments received and respond in detail to any significant issues
raised in the comments about the proposed rule change.\98\ In
accordance with the changes the Commission is adopting today, clearing
agencies will be subject to these same requirements in connection with
Security-Based Swap Submissions. The Commission believes that applying
these requirements in the instructions to Form 19b-4 to Security-Based
Swap Submissions will provide the Commission with an opportunity to
consider the various viewpoints expressed by commenters by making sure
relevant comments are included in the Security-Based Swap Submission.
---------------------------------------------------------------------------

    \96\ See Items 5 and 9 (Exhibit 2) of the General Instructions
for Form 19b-4. 17 CFR 240.819.
    \97\ See id.
    \98\ Item 5 of the General Instructions for Form 19b-4. 17 CFR
240.819.
---------------------------------------------------------------------------

    Finally, one commenter requested that the Commission require
clearing agencies ``to notify the Commission, as well as the public, of
the type of swap being considered at the time it notifies members of
the submission or possible submission.'' \99\ The Commission
appreciates this suggestion, but has ultimately decided not to modify
new Rule 19b-4(o)(5) in this manner as the Commission believes that
requiring Web site disclosure of the Security-Based Swap Submission
within two business days of the submission itself will provide
interested persons and the public with sufficient opportunity to
provide feedback on the submission before the Commission makes a
mandatory clearing determination.
---------------------------------------------------------------------------

    \99\ See Better Markets Letter at 8.
---------------------------------------------------------------------------

f. Submissions of a Group, Category, Type or Class of Security-Based
Swaps
    New Rule 19b-4(o)(4), which is being adopted as proposed, requires
that clearing agencies submit security-based swaps to the Commission
for review by group, category, type, or class to the extent that doing
so is practicable and reasonable. Any aggregation will require a clear
description in the applicable Security-Based Swap Submission so that
market participants and the public know which security-based swaps may
be subject to a clearing requirement. The Proposing Release contained a
number of requests for comment with respect to how the Commission
should apply this rule including, among other things, questions
pertaining to how a clearing agency should identify the scope of the
group, category, type or class of security-based swaps it plans to
clear, the relevant characteristics of security-based swaps that permit
aggregation by group, category, type or class, factors that would make
aggregation more difficult, and factors that may be specific to a
particular clearing agency.
    Two commenters requested that the Commission further define the
meaning and scope of the terms ``category,'' ``class,'' ``type,'' and
``group'' with respect to security-based swaps.\100\ In particular, one
of these commenters further suggested using the following
characteristics of security-based swaps to define different products:
(1) Instrument description; (2) acceptable currencies (and whether the
contract is single currency); (3) acceptable indices; (4) types (e.g.,
total return or price return); (5) maximum residual term; (6) notional
amount (minimum to maximum of the relevant currency unit); (7)
applicable day count fraction; (8) applicable business day convention;
(9) minimum residual term of the trade (i.e., the period from the date
of submission of the trade to the date of termination); and (10)
applicable calculation periods.\101\
---------------------------------------------------------------------------

    \100\ See Exhibit A to CME Letter and ISDA Letter.
    \101\ See ISDA Letter at 3-4.
---------------------------------------------------------------------------

    Although the commenter did provide specific suggestions of certain
characteristics that could be used to create groups, categories, types
or classes of security-based swaps, the Commission did not receive any
comment letters responding to its requests for suggestions as to how
best to utilize the individual characteristics, which may include among
other things the underlying security, tenor, and coupon of the
security-based swap, to aggregate security-based swaps into groups,
categories, types or classes. In addition, the Commission notes that it
has not yet received any Security-Based Swap Submissions and does not
have detailed information about how clearing agencies would create
groups, categories, types or classes of security-based swaps in
determining whether to clear such security-based swaps. For these
reasons, the Commission believes that allowing these key terms to
evolve over time as an iterative process between the clearing agencies
and the Commission is preferable to prematurely hard-coding definitions
into the rules without the benefit of experience.
    Nevertheless, the Commission continues to believe that requiring
multiple security-based swaps in each submission--to the extent that
such groupings are practicable and reasonable (e.g., by taking into
consideration appropriate risk management issues applicable to the
aggregation)--would streamline the submission process for Commission
staff and the clearing agencies. This approach would allow more
security-based swaps to be reviewed in a timely manner. At the same
time, the manner in which the Commission will ultimately determine
which security-based swaps are appropriately aggregated into groups,
categories, types, or classes likely will depend on the particular
facts and circumstances of the products under consideration. This in
turn will be informed by how the clearing agency defines the relevant
security-based swap (or relevant group,

category, type, or class of security-based swaps), how the clearing
agency manages the product (both operationally and in its rulebook) and
the comments received by the Commission during the public comment
period.
    Prior to the Commission providing further guidance regarding
aggregation, clearing agencies may organize their Security-Based Swap
Submissions using a reasonable basis that they determine to be
appropriate and responsive to the requirements of the Exchange Act. For
example, to the extent possible, the groups, categories, types or
classes of security-based swaps that are filed with the Commission as a
Security-Based Swap Submission could mirror the groups, categories,
types or classes that the clearing agency evaluates in determining
whether to list such security-based swap for clearing. In addition,
clearing agencies could also consider other factors that they deem to
be appropriate, including the characteristics identified in the comment
letter referred to above.\102\ In reaching a determination regarding
any aggregation, the Commission also expects to conduct its own
analysis, which will take into account, at a minimum, the five
qualitative and quantitative factors that the Commission is required to
consider pursuant to Exchange Act Section 3C(b)(4)(B) when making a
mandatory clearing determination.
---------------------------------------------------------------------------

    \102\ See id.
---------------------------------------------------------------------------

g. Other Issues Related to Security-Based Swap Submissions
    Proposed Rule 19b-4(o)(6)(i) provided that, in making a mandatory
clearing determination, the Commission would take into account the
factors addressed in the Security-Based Swap Submission and any
additional factors the Commission determines to be appropriate.
Proposed Rule 19b-4(o)(6)(i) also required a clearing agency to provide
any additional information requested by the Commission as necessary to
make a determination. In addition, proposed Rule 19b-4(o)(6)(ii)
provided that, in making a determination of whether or not the clearing
requirement would apply to the security-based swap (or any group,
category, type, or class of security-based swaps) described in the
submission, the Commission may require such terms and conditions as the
Commission determines to be appropriate in the public interest.\103\
---------------------------------------------------------------------------

    \103\ See 15 U.S.C. 78c-3(b)(4)(C) (as added by Section 763(a)
of the Dodd-Frank Act) and proposed Rule 19b-4(o)(6)(ii).
---------------------------------------------------------------------------

    In connection with proposed Rule 19b-4(o)(6), one commenter urged
the Commission to remove the language allowing the Commission, in
addition to considering the five statutory factors set forth in
Exchange Act Section 3C(b)(4)(B), to consider ``any additional factors
the Commission determines to be appropriate'' in connection with a
mandatory clearing determination. The commenter believes that this
language exceeds the Commission's statutory authority and would expose
the proposed rules to potential litigation.\104\
---------------------------------------------------------------------------

    \104\ See Better Markets Letter at 8-10.
---------------------------------------------------------------------------

    The Commission has carefully considered the comments it received in
respect of proposed Rule 19b-4(o)(6). While the Commission disagrees
with the commenter that the Commission lacks authority to promulgate a
rule allowing it to consider ``any additional factors the Commission
determines to be appropriate'' in connection with a mandatory clearing
determination,\105\ the Commission has nonetheless decided not to adopt
the language in the final rule. The Commission believes the language is
unnecessary because Exchange Act Section 3C already requires that the
Commission shall take into account the five factors in Exchange Act
Section 3C(b)(4)(B) in making a mandatory clearing determination and
new Rule 19b-4(o)(6)(i), as adopted, requires clearing agencies to
provide any additional information requested by the Commission as
necessary to assess any of the factors it determines to be appropriate
in order to make a mandatory clearing determination in connection with
a Security-Based Swap Submission. The Commission believes that this
rule, as adopted, already empowers it to require the provision of any
additional information relevant to making mandatory clearing
determinations under Exchange Act Section 3C.
---------------------------------------------------------------------------

    \105\ The Commission does not read Exchange Act Section 3C as
restricting its existing authority to obtain information from
registered clearing agencies. The Commission notes that Section
23(a) of the Exchange Act allows the Commission to ``make such rules
and regulations as may be necessary or appropriate to implement the
provisions of this title for which [it is] responsible or for the
execution of the functions vested in [it] by this title.'' See 15
U.S.C. 78w(a)(1).
---------------------------------------------------------------------------

    The Commission also has decided not to adopt: (i) The preamble to
proposed Rule 19b-4(o)(6), which had stated that upon receipt of a
Security-Based Swap Submission, the Commission was required to review
the submission and determine whether the relevant security-based swap
(or group, category, type or class of security-based swaps) would be
required to be cleared and (ii) proposed Rule 19b-4(o)(6)(ii), which
had stated that the Commission may include such terms and conditions as
it determined to be appropriate in the public interest in connection
with making a mandatory clearing determination. In each case, the
Commission notes that these provisions simply mirror statutory
provisions set forth in Exchange Act 3C.\106\ As noted above in
connection with the Commission's modifications to proposed Rule
19b(o)(6)(i), promulgating rules to reiterate existing Commission
powers and obligations is unnecessary, and the Commission believes that
it would be prudent to remove these types of provisions so as to
simplify the final rule to focus on the process by which clearing
agencies will be required to make Security-Based Swap Submissions with
the Commission.
---------------------------------------------------------------------------

    \106\ See 15 U.S.C. 78c-3(b)(2)(C)(ii) (as added by Section
763(a) of the Dodd-Frank Act) (requiring the Commission to review
each Security-Based Swap Submission and determine whether the
security-based swap, or group, category, type, or class of security-
based swaps, described in the submission is required to be cleared)
and 15 U.S.C. 78c-3(b)(4)(C) (as added by Section 763(a) of the
Dodd-Frank Act) (providing that the Commission, in making a
mandatory clearing determination, may require such terms and
conditions to the requirement as the Commission determines to be
appropriate).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission also requested comment on
whether a clearing agency, in connection with each submission or in
some circumstances, should be required to include an independent
validation of its margin methodology and its ability to maintain
sufficient financial resources. In response to this request, one
commenter expressed an opinion that independent validations may be
helpful in verifying elements of a submission, but that the Commission
should use caution in allowing them to become a substitute for the
Commission's own judgment. This commenter also urged the Commission to
pay careful attention to the question of what constitutes
``independence'' for these purposes.\107\ Another commenter noted that
a clearing agency should have an ongoing internal process for
validating its internal risk models, which process should be
independent of the internal models' development, implementation, and
operation.\108\ As such, this commenter believes that it should be
permissible for the review personnel to be employed by the clearing
agency, so long as they are not involved in the development,
implementation, and operation of the risk models.\109\ This

commenter further recommended that the independent validation evaluate
``empirical evidence and documentation supporting the methodologies
used, important model assumptions and their limitations, adequacy and
robustness of empirical data used in parameter estimation and model
calibration, and evidence of a model's strengths and weaknesses.''
\110\ After reviewing the comments received, the Commission has
determined that it is not necessary to include an express requirement
in new Rule 19b-4(o)(3) that a Security-Based Swap Submission refer to
an independent validation of the clearing agency's margin methodology
and its ability to maintain sufficient financial resources. The
Commission believes such requirement is already contemplated by the
final rules, particularly new Rule 19b-4(o)(3)(ii)(B). Specifically, in
discussing a clearing agency's rule framework, capacity, operational
expertise and resources, and credit support infrastructure to clear the
security-based swap (or group, category, type or class of security-
based swaps) under consideration, as required by this provision, it may
be appropriate for a Security-Based Swap Submission to refer to any
independent validation of the clearing agency's margin methodology or
other processes satisfactory to the clearing agency that have assessed
the fundamental soundness of all of the assumptions contained in the
model as it exists at the time of the submission and that have assessed
the appropriateness of the model during a relevant time period.
---------------------------------------------------------------------------

    \107\ See AFR Letter at 3.
    \108\ See OCC Letter at 3.
    \109\ See id.
    \110\ See id.
---------------------------------------------------------------------------

    Finally, one commenter requested that the Commission promulgate
rules governing Commission-initiated Reviews.\111\ The commenter