(a) of this section by issuing a notification informing the security-
based swap execution facility that the Commission is staying the
certification of the product on the

grounds that the product presents novel or complex issues that require
additional time to analyze, the product is accompanied by an inadequate
explanation, or the product is potentially inconsistent with the Act or
the Commission's rules thereunder. The Commission will have an
additional 90 days from the date of the notification to conduct the
review.
    (2) Public comment. The Commission shall provide a 30-day comment
period within the 90-day period in which the stay is in effect, as
described in paragraph (c)(1) of this section. The Commission shall
publish a notice of the 30-day comment period on the Commission's
website. Comments from the public shall be submitted as specified in
that notice.
    (3) Expiration of a stay of certification of product. A product
subject to a stay pursuant to this paragraph shall become effective,
pursuant to the certification, at the expiration of the 90-day review
period described in paragraph (c)(1) of this section, unless the
Commission withdraws the stay prior to that time, or the Commission
notifies the security-based swap execution facility during the 90-day
time period that it objects to the proposed certification on the
grounds that the product is inconsistent with the Act or the
Commission's rules.

Sec.  242.805  Voluntary submission of new products for Commission
review and approval.

    (a) Request for approval. A security-based swap execution facility
may request that the Commission approve a new or dormant product prior
to listing the product for trading, or if a product was initially
submitted under Sec.  242.804, subsequent to listing the product for
trading. A submission requesting approval shall:
    (1) Be filed electronically with the Commission using the EFFS
system;
    (2) Include a copy of the submission cover sheet in accordance with
the instructions therein;
    (3) Include a copy of the rules that set forth the security-based
swap's terms and conditions;
    (4) Include an explanation and analysis of the product and its
compliance with applicable provisions of the Act, including the core
principles and the Commission's rules thereunder. This explanation and
analysis shall either be accompanied by the documentation relied upon
to establish the basis for compliance with the applicable law, or
incorporate information contained in such documentation, with
appropriate citations to data sources;
    (5) Describe any agreements or contracts entered into with other
parties that enable the security-based swap execution facility to carry
out its responsibilities;
    (6) Include, if appropriate, a request for confidential treatment
as permitted under Sec.  240.24b-2 of this chapter;
    (7) Certify that the security-based swap execution facility posted
a notice of its request for Commission approval of the new product and
a copy of the submission, concurrent with the filing of a submission
with the Commission, on the security-based swap execution facility's
website. Information that the security-based swap execution facility
seeks to keep confidential may be redacted from the documents published
on the security-based swap execution facility's website but must be
republished consistent with any determination made pursuant to Sec.
240.24b-2 of this chapter; and
    (8) Include, if requested by Commission staff, additional evidence,
information, or data demonstrating that the security-based swap meets,
initially or on a continuing basis, the requirements of the Act, or
other requirement for registration under the Act, or the Commission's
rules or policies thereunder. The security-based swap execution
facility shall submit the requested information by the open of business
on the date that is two business days from the date of request by
Commission staff, or at the conclusion of such extended period agreed
to by Commission staff after timely receipt of a written request from
the security-based swap execution facility.
    (b) Standard for review and approval. The Commission shall approve
a new product unless the terms and conditions of the product violate
the Act or the Commission's rules thereunder.
    (c) Forty-five-day review. A product submitted for Commission
approval under this paragraph shall be deemed approved by the
Commission 45 days after receipt by the Commission, or at the
conclusion of an extended period as provided under paragraph (d) of
this section, unless notified otherwise within the applicable period,
if:
    (1) The submission complies with the requirements of paragraph (a)
of this section; and
    (2) The submitting security-based swap execution facility does not
amend the terms or conditions of the product or supplement the request
for approval, except as requested by the Commission or for correction
of typographical errors, renumbering, or other non-substantive
revisions, during that period. Any voluntary, substantive amendment by
the security-based swap execution facility will be treated as a new
submission under this section.
    (d) Extension of time. The Commission may extend the 45-day review
period in paragraph (c) of this section for:
    (1) An additional 45 days, if the product raises novel or complex
issues that require additional time to analyze, in which case the
Commission shall notify the security-based swap execution facility
within the initial 45-day review period and shall briefly describe the
nature of the specific issue(s) for which additional time for review is
required; or
    (2) Any extended review period to which the security-based swap
execution facility agrees in writing.
    (e) Notice of non-approval. The Commission, at any time during its
review under this section, may notify the security-based swap execution
facility that it will not, or is unable to, approve the product. This
notification will briefly specify the nature of the issues raised and
the specific provision of the Act or the Commission's rules thereunder,
including the form or content requirements of paragraph (a) of this
section, that the product violates, appears to violate, or potentially
violates but which cannot be ascertained from the submission.
    (f) Effect of non-approval. (1) Notification to a security-based
swap execution facility under paragraph (e) of this section of the
Commission's determination not to approve a product does not prejudice
the security-based swap execution facility from subsequently submitting
a revised version of the product for Commission approval, or from
submitting the product as initially proposed pursuant to a supplemented
submission.
    (2) Notification to a security-based swap execution facility under
paragraph (e) of this section of the Commission's refusal to approve a
product shall be presumptive evidence that the security-based swap
execution facility may not truthfully certify under Sec.  242.804 that
the same, or substantially the same, product does not violate the Act
or the Commission's rules thereunder.

Sec.  242.806  Voluntary submission of rules for Commission review and
approval.

    (a) Request for approval of rules. A security-based swap execution
facility may request that the Commission approve a new rule, rule
amendment, or dormant rule prior to implementation of the rule, or if
the request was initially submitted under Sec.  242.806 or Sec.
242.807, subsequent to implementation of the rule. A request for
approval shall:

    (1) Be filed electronically with the Commission using the EFFS
system;
    (2) Include a copy of the submission cover sheet in accordance with
the instructions therein;
    (3) Set forth the text of the rule or rule amendment (in the case
of a rule amendment, deletions and additions must be indicated);
    (4) Describe the proposed effective date of the rule or rule
amendment and any action taken or anticipated to be taken to adopt the
proposed rule by the security-based swap execution facility or by its
governing board or by any committee thereof, and cite the rules of the
security-based swap execution facility that authorize the adoption of
the proposed rule;
    (5) Provide an explanation and analysis of the operation, purpose,
and effect of the proposed rule or rule amendment and its compliance
with applicable provisions of the Act, including the core principles
relating to security-based swap execution facilities and the
Commission's rules thereunder and, as applicable, a description of the
anticipated benefits to market participants or others, any potential
anticompetitive effects on market participants or others, and how the
rule fits into the security-based swap execution facility's framework
of regulation;
    (6) Certify that the security-based swap execution facility posted
a notice of the pending rule with the Commission and a copy of the
submission, concurrent with the filing of a submission with the
Commission, on the security-based swap execution facility's website.
Information that the security-based swap execution facility seeks to
keep confidential may be redacted from the documents published on the
security-based swap execution facility's website but must be
republished consistent with any determination made pursuant to Sec.
240.24b-2 of this chapter;
    (7) Provide additional information which may be beneficial to the
Commission in analyzing the new rule or rule amendment. If a proposed
rule affects, directly or indirectly, the application of any other rule
of the security-based swap execution facility, the pertinent text of
any such rule must be set forth and the anticipated effect described;
    (8) Provide a brief explanation of any substantive opposing views
expressed to the security-based swap execution facility by governing
board or committee members, members of the security-based swap
execution facility, or market participants that were not incorporated
into the rule, or a statement that no such opposing views were
expressed; and
    (9) As appropriate, include a request for confidential treatment as
permitted under Sec.  240.24b-2 of this chapter.
    (b) Standard for review and approval. The Commission shall approve
a new rule or rule amendment unless the rule or rule amendment is
inconsistent with the Act or the Commission's rules thereunder.
    (c) Forty-five-day review. A rule or rule amendment submitted for
Commission approval under paragraph (a) of this section shall be deemed
approved by the Commission 45 days after receipt by the Commission, or
at the conclusion of such extended period as provided under paragraph
(d) of this section, unless the security-based swap execution facility
is notified otherwise within the applicable period, if:
    (1) The submission complies with the requirements of paragraph (a)
of this section;
    (2) The security-based swap execution facility does not amend the
proposed rule or supplement the submission, except as requested by the
Commission, during the pendency of the review period, other than for
correction of typographical errors, renumbering, or other non-
substantive revisions. Any amendment or supplementation not requested
by the Commission will be treated as the submission of a new filing
under this section.
    (d) Extension of time for review. The Commission may further extend
the review period in paragraph (c) of this section for:
    (1) An additional 45 days, if the proposed rule or rule amendment
raises novel or complex issues that require additional time for review
or is of major economic significance, the submission is incomplete, or
the requestor does not respond completely to Commission questions in a
timely manner, in which case the Commission shall notify the submitting
security-based swap execution facility within the initial 45-day review
period and shall briefly describe the nature of the specific issues for
which additional time for review shall be required; or
    (2) Any period, beyond the additional 45 days provided in paragraph
(d)(1) of this section, to which the security-based swap execution
facility agrees in writing.
    (e) Notice of non-approval. Any time during its review under this
section, the Commission may notify the security-based swap execution
facility that it will not, or is unable to, approve the new rule or
rule amendment. This notification will briefly specify the nature of
the issues raised and the specific provision of the Act or the
Commission's rules thereunder, including the form or content
requirements of this section, with which the new rule or rule amendment
is inconsistent or appears to be inconsistent with the Act or the
Commission's rules thereunder.
    (f) Effect of non-approval. (1) Notification to a security-based
swap execution facility under paragraph (e) of this section does not
prevent the security-based swap execution facility from subsequently
submitting a revised version of the proposed rule or rule amendment for
Commission review and approval or from submitting the new rule or rule
amendment as initially proposed in a supplemented submission. The
revised submission will be reviewed without prejudice.
    (2) Notification to a security-based swap execution facility under
paragraph (e) of this section of the Commission's determination not to
approve a proposed rule or rule amendment shall be presumptive evidence
that the security-based swap execution facility may not truthfully
certify the same, or substantially the same, proposed rule or rule
amendment under Sec.  242.807(a).
    (g) Expedited approval. Notwithstanding the provisions of paragraph
(c) of this section, changes to a proposed rule or a rule amendment,
including changes to terms and conditions of a product that are
consistent with the Act and the Commission's rules thereunder, may be
approved by the Commission at such time and under such conditions as
the Commission shall specify in the written notification; provided,
however, that the Commission may, at any time, alter or revoke the
applicability of such a notice to any particular product or rule
amendment.

Sec.  242.807  Self-certification of rules.

    (a) Required certification. A security-based swap execution
facility shall comply with the following conditions prior to
implementing any rule--other than a rule delisting or withdrawing the
certification of a product with no open interest and submitted in
compliance with paragraphs (a)(1), (2), and (6) of this section--that
has not obtained Commission approval under Sec.  242.806, or that
remains a dormant rule subsequent to being submitted under this section
or approved under Sec.  242.806.
    (1) The security-based swap execution facility has filed its
submission electronically with the Commission using the EFFS system.
    (2) The security-based swap execution facility has provided a
certification that

it posted a notice of pending certification with the Commission and a
copy of the submission, concurrent with the filing of a submission with
the Commission, on the security-based swap execution facility's
website. Information that the security-based swap execution facility
seeks to keep confidential may be redacted from the documents published
on the security-based swap execution facility's website, but it must be
republished consistent with any determination made pursuant to Sec.
240.24b-2 of this chapter.
    (3) The Commission has received the submission not later than the
open of business on the business day that is 10 business days prior to
the security-based swap execution facility's implementation of the rule
or rule amendment.
    (4) The Commission has not stayed the submission pursuant to Sec.
242.807(c).
    (5) A new rule or rule amendment that establishes standards for
responding to an emergency shall be submitted pursuant to Sec.
242.807(a). A rule or rule amendment implemented under procedures of
the governing board to respond to an emergency shall, if practicable,
be filed with the Commission prior to implementation or, if not
practicable, be filed with the Commission at the earliest possible time
after implementation, but in no event more than 24 hours after
implementation. Any such submission shall be subject to the
certification and stay provisions of paragraphs (b) and (c) of this
section.
    (6) The rule submission shall include:
    (i) A copy of the submission cover sheet in accordance with the
instructions therein (in the case of a rule or rule amendment that
responds to an emergency, ``Emergency Rule Certification'' should be
noted in the description section of the submission cover sheet);
    (ii) The text of the rule (in the case of a rule amendment,
deletions and additions must be indicated);
    (iii) The date of intended implementation;
    (iv) A certification by the security-based swap execution facility
that the rule complies with the Act and the Commission's rules
thereunder;
    (v) A concise explanation and analysis of the operation, purpose,
and effect of the proposed rule or rule amendment and its compliance
with applicable provisions of the Act, including core principles
relating to security-based swap execution facilities and the
Commission's rules thereunder;
    (vi) A brief explanation of any substantive opposing views
expressed to the security-based swap execution facility by governing
board or committee members, members of the security-based swap
execution facility, or market participants, that were not incorporated
into the rule, or a statement that no such opposing views were
expressed; and
    (vii) As appropriate, a request for confidential treatment pursuant
to the procedures provided in Sec.  240.24b-2 of this chapter.
    (7) The security-based swap execution facility shall provide, if
requested by Commission staff, additional evidence, information, or
data that may be beneficial to the Commission in conducting a due
diligence assessment of the filing and the security-based swap
execution facility's compliance with any of the requirements of the Act
or the Commission's rules or policies thereunder.
    (b) Review by the Commission. The Commission shall have 10 business
days to review the new rule or rule amendment before the new rule or
rule amendment is deemed certified and can be made effective, unless
the Commission notifies the security-based swap execution facility
during the 10-business-day review period that it intends to issue a
stay of the certification under paragraph (c) of this section.
    (c) Stay. (1) Stay of certification of new rule or rule amendment.
The Commission may stay the certification of a new rule or rule
amendment submitted pursuant to paragraph (a) of this section by
issuing a notification informing the security-based swap execution
facility that the Commission is staying the certification of the rule
or rule amendment on the grounds that the rule or rule amendment
presents novel or complex issues that require additional time to
analyze, the rule or rule amendment is accompanied by an inadequate
explanation, or the rule or rule amendment is potentially inconsistent
with the Act or the Commission's rules thereunder. The Commission will
have an additional 90 days from the date of the notification to conduct
the review.
    (2) Public comment. The Commission shall provide a 30-day comment
period within the 90-day period in which the stay is in effect, as
described in paragraph (c)(1) of this section. The Commission shall
publish a notice of the 30-day comment period on the Commission
website. Comments from the public shall be submitted as specified in
that notice.
    (3) Expiration of a stay of certification of new rule or rule
amendment. A new rule or rule amendment subject to a stay pursuant to
this paragraph shall become effective, pursuant to the certification,
at the expiration of the 90-day review period described in paragraph
(c)(1) of this section, unless the Commission withdraws the stay prior
to that time, or the Commission notifies the security-based swap
execution facility during the 90-day time period that it objects to the
proposed certification on the grounds that the proposed rule or rule
amendment is inconsistent with the Act or the Commission's rules
thereunder.
    (d) Notification of rule amendments. Notwithstanding the rule
certification requirement of paragraph (a) of this section, a security-
based swap execution facility may place the following rules or rule
amendments into effect without certification to the Commission if the
following conditions are met:
    (1) The security-based swap execution facility provides to the
Commission at least weekly a summary notice of all rule amendments made
effective pursuant to this paragraph during the preceding week. Such
notice must be labeled ``Weekly Notification of Rule Amendments'' and
need not be filed for weeks during which no such actions have been
taken. One copy of each such submission shall be furnished
electronically using the EFFS system; and
    (2) The rule governs:
    (i) Non-substantive revisions. Corrections of typographical errors,
renumbering, periodic routine updates to identifying information about
the security-based swap execution facility, and other such non-
substantive revisions of a product's terms and conditions that have no
effect on the economic characteristics of the product;
    (ii) Fees. Fees or fee changes, other than fees or fee changes
associated with market making or trading incentive programs, that:
    (A) Total $1.00 or more per contract, and
    (B) Are established by an independent third party or are unrelated
to delivery, trading, clearing, or dispute resolution.
    (iii) Survey lists. Changes to lists of banks, brokers, dealers, or
other entities that provide price or cash market information to an
independent third party and that are incorporated by reference as
product terms;
    (iv) Approved brands. Changes in lists of approved brands or
markings pursuant to previously certified or Commission approved
standards or criteria;
    (v) Trading months. The initial listing of trading months, which
may qualify for implementation without notice pursuant to paragraph
(d)(3)(ii)(F) of this section, within the currently established cycle
of trading months; or

    (vi) Minimum tick. Reductions in the minimum price fluctuation (or
``tick'').
    (3) Notification of rule amendments not required. Notwithstanding
the rule certification requirements of paragraph (a) of this section, a
security-based swap execution facility may place the following rules or
rule amendments into effect without certification or notice to the
Commission if the following conditions are met:
    (i) The security-based swap execution facility maintains
documentation regarding all changes to rules; and
    (ii) The rule governs:
    (A) Transfer of membership or ownership. Procedures and forms for
the purchase, sale, or transfer of membership or ownership, but not
including qualifications for membership or ownership, any right or
obligation of membership or ownership, or dues or assessments;
    (B) Administrative procedures. The organization and administrative
procedures of a security-based swap execution facility's governing
bodies such as a governing board, officers, and committees, but not
voting requirements, governing board, or committee composition
requirements or procedures, decision-making procedures, use or
disclosure of material non-public information gained through the
performance of official duties, or requirements relating to conflicts
of interest;
    (C) Administration. The routine daily administration, direction,
and control of employees, requirements relating to gratuity and similar
funds, but not guaranty, reserves, or similar funds; declaration of
holidays; and changes to facilities housing the market, trading floor,
or trading area;
    (D) Standards of decorum. Standards of decorum or attire or similar
provisions relating to admission to the floor, badges, or visitors, but
not the establishment of penalties for violations of such rules;
    (E) Fees. Fees or fee changes, other than fees or fee changes
associated with market making or trading incentive programs, that:
    (1) Are less than $1.00; or
    (2) Relate to matters such as dues, badges, telecommunication
services, booth space, real-time quotations, historical information,
publications, software licenses, or other matters that are
administrative in nature; and
    (F) Trading months. The initial listing of trading months which are
within the currently established cycle of trading months.

Sec.  242.808  Availability of public information.

    (a) The Commission shall make publicly available on its website the
following parts of an application to register as a security-based swap
execution facility, unless confidential treatment is obtained pursuant
to Sec.  240.24b-2 of this chapter:
    (1) Transmittal letter and first page of the application cover
sheet;
    (2) Exhibit C;
    (3) Exhibit G;
    (4) Exhibit L; and
    (5) Exhibit M.
    (b) The Commission shall make publicly available on its website,
unless confidential treatment is obtained pursuant to Sec.  240.24b-2
of this chapter, a security-based swap execution facility's filing of
new products pursuant to the self-certification procedures of Sec.
242.804, new products for Commission review and approval pursuant to
Sec.  242.805, new rules and rule amendments for Commission review and
approval pursuant to Sec.  242.806, and new rules and rule amendments
pursuant to the self-certification procedures of Sec.  242.807.
    (c) The terms and conditions of a product submitted to the
Commission pursuant to Sec.  242.804, 242.805, 242.806, or 242.807
shall be made publicly available at the time of submission unless
confidential treatment is obtained pursuant to Sec.  240.24b-2 of this
chapter.

Sec.  242.809  Staying of certification and tolling of review period
pending jurisdictional determination.

    (a) A product certification made by a security-based swap execution
facility pursuant to Sec.  242.804 shall be stayed, or the review
period for a product that has been submitted for Commission approval by
a security-based swap execution facility pursuant to Sec.  242.805
shall be tolled, upon request for a joint interpretation of whether the
product is a swap, security-based swap, or mixed swap made pursuant to
Sec.  240.3a68-2 of this chapter by the security-based swap execution
facility, the Commission, or the Commodity Futures Trading Commission.
    (b) The Commission shall provide the security-based swap execution
facility with a written notice of the stay or tolling pending issuance
of a joint interpretation.
    (c) The stay shall be withdrawn, or the approval review period
shall resume, if a joint interpretation finding that the Commission has
jurisdiction over the product is issued.

Sec.  242.810  Product filings by security-based swap execution
facilities that are not yet registered and by dormant security-based
swap execution facilities.

    (a) An applicant for registration as a security-based swap
execution facility may submit a security-based swap's terms and
conditions prior to listing the product as part of its application for
registration.
    (b) Any security-based swap terms and conditions or rules submitted
as part of a security-based swap execution facility's application for
registration shall be considered for approval by the Commission at the
time the Commission issues the security-based swap execution facility's
order of registration.
    (c) After the Commission issues the order of registration, the
security-based swap execution facility shall submit a security-based
swap's terms and conditions, including amendments to such terms and
conditions, new rules, or rule amendments pursuant to the procedures in
Sec. Sec.  242.804, 242.805, 242.806, and 242.807.
    (d) Any security-based swap terms and conditions or rules submitted
as part of an application to reinstate the registration of a dormant
security-based swap execution facility shall be considered for approval
by the Commission at the time the Commission approves the reinstatement
of registration of the dormant security-based swap execution facility.

Sec.  242.811  Information relating to security-based swap execution
facility compliance.

    (a) Request for information. Upon the Commission's request, a
security-based swap execution facility shall file with the Commission
information related to its business as a security-based swap execution
facility in the form and manner, and within the timeframe, specified by
the Commission.
    (b) Demonstration of compliance. Upon the Commission's request, a
security-based swap execution facility shall file with the Commission a
written demonstration, containing supporting data, information, and
documents, that it is in compliance with one or more core principles or
with its other obligations under the Act or the Commission's rules
thereunder, as the Commission specifies in its request. The security-
based swap execution facility shall file such written demonstration in
the form and manner, and within the timeframe, specified by the
Commission.
    (c) Equity interest transfer. (1) Equity interest transfer
notification. A security-based swap execution facility shall file with
the Commission a notification of any transaction involving the direct
or

indirect transfer of 50 percent or more of the equity interest in the
security-based swap execution facility. The Commission may, upon
receiving such notification, request supporting documentation of the
transaction.
    (2) Timing of notification. The equity interest transfer notice
described in paragraph (c)(1) of this section shall be filed with the
Commission in a form and manner specified by the Commission at the
earliest possible time, but in no event later than the open of business
10 business days following the date upon which the security-based swap
execution facility enters into a firm obligation to transfer the equity
interest.
    (3) Rule filing. Notwithstanding the foregoing, if any aspect of an
equity interest transfer described in paragraph (c)(1) of this section
requires a security-based swap execution facility to file a rule, the
security-based swap execution facility shall comply with the applicable
rule filing requirements of Sec.  242.806 or Sec.  242.807.
    (4) Certification. Upon an equity interest transfer described in
paragraph (c)(1) of this section, the security-based swap execution
facility shall file with the Commission, in a form and manner specified
by the Commission, a certification that the security-based swap
execution facility meets all of the requirements of section 3D of the
Act and the Commission rules thereunder, no later than two business
days following the date on which the equity interest of 50 percent or
more was acquired.
    (d) Pending legal proceedings. (1) A security-based swap execution
facility shall submit to the Commission a copy of the complaint, any
dispositive or partially dispositive decision, any notice of appeal
filed concerning such decision, and such further documents as the
Commission may thereafter request filed in any material legal
proceeding to which the security-based swap execution facility is a
party or its property or assets is subject.
    (2) A security-based swap execution facility shall submit to the
Commission a copy of the complaint, any dispositive or partially
dispositive decision, any notice of appeal filed concerning such
decision, and such further documents as the Commission may thereafter
request filed in any material legal proceeding instituted against any
officer, director, or other official of the security-based swap
execution facility from conduct in such person's capacity as an
official of the security-based swap execution facility and alleging
violations of:
    (i) The Act or any rule, regulation, or order under the Act;
    (ii) The constitution, bylaws, or rules of the security-based swap
execution facility; or
    (iii) The applicable provisions of State law relating to the duties
of officers, directors, or other officials of business organizations.
    (3) All documents required by this paragraph (d) to be submitted to
the Commission shall be submitted electronically in a form and manner
specified by the Commission within 10 days after the initiation of the
legal proceedings to which they relate, after the date of issuance, or
after receipt by the security-based swap execution facility of the
notice of appeal, as the case may be.
    (4) For purposes of this paragraph (d), a ``material legal
proceeding'' includes but is not limited to actions involving alleged
violations of the Act or the Commission rules thereunder. However, a
legal proceeding is not ``material'' for the purposes of this rule if
the proceeding is not in a Federal or State court or if the Commission
is a party.

Sec.  242.812  Enforceability.

    (a) A transaction entered into on or pursuant to the rules of a
security-based swap execution facility shall not be void, voidable,
subject to rescission, otherwise invalidated, or rendered unenforceable
as a result of a violation by the security-based swap execution
facility of the provisions of section 3D of the Act or the Commission's
rules thereunder.
    (b) A security-based swap execution facility shall, as soon as
technologically practicable after the time of execution of a
transaction entered into on or pursuant to the rules of the facility,
provide a written record to each counterparty of all of the terms of
the transaction that were agreed to on the facility, which shall
legally supersede any previous agreement regarding such terms.

Sec.  242.813  Prohibited use of data collected for regulatory
purposes.

    A security-based swap execution facility shall not use for business
or marketing purposes any proprietary data or personal information it
collects or receives, from or on behalf of any person, for the purpose
of fulfilling its regulatory obligations; provided, however, that a
security-based swap execution facility may use such data or information
for business or marketing purposes if the person from whom it collects
or receives such data or information clearly consents to the security-
based swap execution facility's use of such data or information in such
manner. A security-based swap execution facility shall not condition
access to its market(s) or market services on a person's consent to the
security-based swap execution facility's use of proprietary data or
personal information for business or marketing purposes. A security-
based swap execution facility, where necessary for regulatory purposes,
may share such data or information with one or more security-based swap
execution facilities or national securities exchanges registered with
the Commission.

Sec.  242.814  Entity operating both a national securities exchange and
security-based swap execution facility.

    (a) An entity that intends to operate both a national securities
exchange and a security-based swap execution facility shall separately
register the two facilities pursuant to section 6 of the Act and Sec.
242.803, respectively.
    (b) A national securities exchange shall, to the extent that the
exchange also operates a security-based swap execution facility and
uses the same electronic trade execution system for listing and
executing trades of security-based swaps on or through the exchange and
the facility, identify whether electronic trading of such security-
based swaps is taking place on or through the national securities
exchange or the security-based swap execution facility.

Sec.  242.815  Methods of execution for Required and Permitted
Transactions.

    (a) Execution methods for Required Transactions. (1) Required
Transaction means any transaction involving a security-based swap that
is subject to the trade execution requirement in section 3C(h) of the
Act.
    (2) Execution methods. (i) Each Required Transaction that is not a
block trade shall be executed on a security-based swap execution
facility in accordance with one of the following methods of execution,
except as provided in paragraph (d) or (e) of this section:
    (A) An order book; or
    (B) A request-for-quote system that operates in conjunction with an
order book.
    (ii) In providing either one of the execution methods set forth in
paragraph (a)(2)(i)(A) or (B) of this section, a security-based swap
execution facility may for purposes of execution and communication use
any means of interstate commerce, including, but not limited to, the
mail, internet, email, and telephone, provided that the chosen
execution method satisfies the requirements for order books in Sec.
242.802 of this chapter or in paragraph (a)(3) of this section for
request-for-quote systems.

    (3) Request-for-quote system means a trading system or platform in
which a market participant transmits a request for a quote to buy or
sell a specific instrument to no less than three market participants in
the trading system or platform, to which all such market participants
may respond. The three market participants shall not be affiliates of
or controlled by the requester and shall not be affiliates of or
controlled by each other. A security-based swap execution facility that
offers a request-for-quote system in connection with Required
Transactions shall provide the following functionality:
    (i) At the same time that the requester receives the first
responsive bid or offer, the security-based swap execution facility
shall communicate to the requester any firm bid or offer pertaining to
the same instrument resting on any of the security-based swap execution
facility's order books;
    (ii) The security-based swap execution facility shall provide the
requester with the ability to execute against such firm resting bids or
offers along with any responsive orders; and
    (iii) The security-based swap execution facility shall ensure that
its trading protocols provide each of its market participants with
equal priority in receiving requests for quotes and in transmitting and
displaying for execution responsive orders.
    (b) Time delay requirement for Required Transactions on an order
book. (1) Time delay requirement. With regard to Required Transactions,
a security-based swap execution facility shall require that a broker or
dealer who seeks to either execute against its customer's order or
execute two of its customers' orders against each other through the
security-based swap execution facility's order book, following some
form of pre-arrangement or pre-negotiation of such orders, be subject
to at least a 15-second time delay between the entry of those two
orders into the order book, such that one side of the potential
transaction is disclosed and made available to other market
participants before the second side of the potential transaction,
whether for the broker's or dealer's own account or for a second
customer, is submitted for execution.
    (2) Adjustment of time delay requirement. A security-based swap
execution facility may adjust the time period of the 15-second time
delay requirement described in paragraph (b)(1) of this section, based
upon a security-based swap's liquidity or other product-specific
considerations; however, the time delay shall be set for a sufficient
period of time so that an order is exposed to the market and other
market participants have a meaningful opportunity to execute against
such order.
    (c) Execution methods for Permitted Transactions. (1) Permitted
Transaction means any transaction not involving a security-based swap
that is subject to the trade execution requirement in section 3C(h) of
the Act.
    (2) Execution methods. A security-based swap execution facility may
offer any method of execution for each Permitted Transaction.
    (d) Exceptions to required methods of execution for package
transactions. (1) For purposes of this paragraph, a package transaction
consists of two or more component transactions executed between two or
more counterparties where:
    (i) At least one component transaction is a Required Transaction;
    (ii) Execution of each component transaction is contingent upon the
execution of all other component transactions; and
    (iii) The component transactions are priced or quoted together as
one economic transaction with simultaneous or near-simultaneous
execution of all components.
    (2) A Required Transaction that is executed as a component of a
package transaction that includes a component security-based swap that
is subject exclusively to the Commission's jurisdiction, but is not
subject to the clearing requirement under section 3C of the Act and is
not intended to be cleared, may be executed on a security-based swap
execution facility in accordance with paragraph (c)(2) of this section
as if it were a Permitted Transaction;
    (3) A Required Transaction that is executed as a component of a
package transaction that includes a component that is not a security-
based swap may be executed on a security-based swap execution facility
in accordance with paragraph (c)(2) of this section as if it were a
Permitted Transaction. This provision shall not apply to:
    (i) A Required Transaction that is executed as a component of a
package transaction in which all other non-security-based swap
components are U.S. Treasury securities;
    (ii) A Required Transaction that is executed as a component of a
package transaction in which all other non-security-based swap
components are contracts for the purchase or sale of a commodity for
future delivery;
    (iii) A Required Transaction that is executed as a component of a
package transaction in which all other non-security-based swap
components are agency mortgage-backed securities;
    (iv) A Required Transaction that is executed as a component of a
package transaction that includes a component transaction that is the
issuance of a bond in a primary market; and
    (v) A Required Transaction that is executed as a component of a
package transaction in which all other non-security-based swap
components are swaps that are subject to a trade execution requirement
under 17 CFR 37.9.
    (4) A Required Transaction that is executed as a component of a
package transaction that includes a component security-based swap that
is not exclusively subject to the Commission's jurisdiction may be
executed on a security-based swap in accordance with paragraph (c)(2)
of this section as if it were a Permitted Transaction.
    (e) Resolution of operational and clerical error trades. (1) A
security-based swap execution facility shall maintain rules and
procedures that facilitate the resolution of error trades. Such rules
shall be fair, transparent, and consistent; allow for timely
resolution; require members to provide prompt notice of an error
trade--and, as applicable, offsetting and correcting trades--to the
security-based swap execution facility; and permit members to:
    (i) Execute a correcting trade, in accordance with paragraph (c)(2)
of this section, regardless of whether it is a Required or Permitted
Transaction, for an error trade that has been rejected from clearing as
soon as technologically practicable, but no later than one hour after a
registered clearing agency provides notice of the rejection; or
    (ii) Execute an offsetting trade and a correcting trade, in
accordance with paragraph (c)(2) of this section, regardless of whether
it is a Required or Permitted Transaction, for an error trade that was
accepted for clearing as soon as technologically practicable, but no
later than three days after the error trade was accepted for clearing
at a registered clearing agency.
    (2) If a correcting trade is rejected from clearing, then the
security-based swap execution facility shall not allow the
counterparties to execute another correcting trade.
    (f) Counterparty anonymity. (1) Except as otherwise required under
the Act or the Commission's rules thereunder, a security-based swap
execution facility shall not directly or indirectly, including through
a third-party service provider, disclose the identity of a counterparty
to a security-based swap that is executed

anonymously and intended to be cleared.
    (2) A security-based swap execution facility shall establish and
enforce rules that prohibit any person from directly or indirectly,
including through a third-party service provider, disclosing the
identity of a counterparty to a security-based swap that is executed
anonymously and intended to be cleared.
    (3) For purposes of paragraphs (f)(1) and (2) of this section,
``executed anonymously'' shall include a security-based swap that is
pre-arranged or pre-negotiated anonymously, including by a member of
the security-based swap execution facility.
    (4) For a package transaction that includes a component transaction
that is not a security-based swap intended to be cleared, disclosing
the identity of a counterparty shall not violate paragraphs (f)(1) or
(2) of this section. For purposes of this paragraph (f), a ``package
transaction'' consists of two or more component transactions executed
between two or more counterparties where:
    (i) Execution of each component transaction is contingent upon the
execution of all other component transactions; and
    (ii) The component transactions are priced or quoted together as
one economic transaction with simultaneous or near-simultaneous
execution of all components.
    (g) Transactions not accepted for clearing. A security-based swap
execution facility shall establish and enforce rules that provide that
a security-based swap that is intended to be cleared at the time of the
transaction, but is not accepted for clearing at a registered clearing
agency, shall be void ab initio.

Sec.  242.816  Trade execution requirement and exemptions therefrom.

    (a) General. (1) Required submission. A security-based swap
execution facility that makes a security-based swap available to trade
in accordance with paragraph (b) of this section, shall submit to the
Commission its determination with respect to such security-based swap
as a rule, pursuant to the procedures under Sec.  242.806 or Sec.
242.807.
    (2) Listing requirement. A security-based swap execution facility
that makes a security-based swap available to trade must demonstrate
that it lists or offers that security-based swap for trading on its
trading system or platform.
    (b) Factors to consider. To make a security-based swap available to
trade for purposes of section 3C(h) of the Act, a security-based swap
execution facility shall consider, as appropriate, the following
factors with respect to such security-based swap:
    (1) Whether there are ready and willing buyers and sellers;
    (2) The frequency or size of transactions;
    (3) The trading volume;
    (4) The number and types of market participants;
    (5) The bid/ask spread; or
    (6) The usual number of resting firm or indicative bids and offers.
    (c) Applicability. Upon a determination that a security-based swap
is available to trade on a security-based swap execution facility or
national securities exchange, all other security-based swap execution
facilities and SBS exchanges shall comply with the requirements of
section 3C(h) of the Act in listing or offering such security-based
swap for trading.
    (d) Removal. The Commission may issue a determination that a
security-based swap is no longer available to trade upon determining
that no security-based swap execution facility or SBS exchange lists
such security-based swap for trading.
    (e) Exemptions to trade execution requirement. (1) A security-based
swap transaction that is executed as a component of a package
transaction that also includes a component transaction that is the
issuance of a bond in a primary market is exempt from the trade
execution requirement in section 3C(h) of the Act. For purposes of
paragraph (e) of this section, a package transaction consists of two or
more component transactions executed between two or more counterparties
where:
    (i) At least one component transaction is subject to the trade
execution requirement in section 3C(h) of the Act;
    (ii) Execution of each component transaction is contingent upon the
execution of all other component transactions; and
    (iii) The component transactions are priced or quoted together as
one economic transaction with simultaneous or near-simultaneous
execution of all components.
    (2) Section 3C(h) of the Act does not apply to a security-based
swap transaction that qualifies for an exception under section 3C(g) of
the Act, or any exemption from the clearing requirement that is granted
by the Commission, for which the associated requirements are met.
    (3)(i) Section 3C(h) of the Act does not apply to a security-based
swap transaction that is executed between counterparties that qualify
as ``eligible affiliate counterparties,'' as defined below.
    (ii) For purposes of this paragraph (e)(3), counterparties will be
``eligible affiliate counterparties'' if:
    (A) One counterparty, directly or indirectly, holds a majority
ownership interest in the other counterparty, and the counterparty that
holds the majority interest in the other counterparty reports its
financial statements on a consolidated basis under Generally Accepted
Accounting Principles or International Financial Reporting Standards,
and such consolidated financial statements include the financial
results of the majority-owned counterparty; or
    (B) A third party, directly or indirectly, holds a majority
ownership interest in both counterparties, and the third party reports
its financial statements on a consolidated basis under Generally
Accepted Accounting Principles or International Financial Reporting
Standards, and such consolidated financial statements include the
financial results of both of the counterparties.
    (iii) For purposes of this paragraph (e)(3), a counterparty or
third party directly or indirectly holds a majority ownership interest
if it directly or indirectly holds a majority of the equity securities
of an entity, or the right to receive upon dissolution, or the
contribution of, a majority of the capital of a partnership.

Sec.  242.817  Trade execution compliance schedule.

    (a) A security-based swap transaction shall be subject to the
requirements of section 3C(h) of the Act upon the later of:
    (1) A determination by the Commission that the security-based swap
is required to be cleared as set forth in section 3C(a) or any later
compliance date that the Commission may establish as a term or
condition of such determination or following a stay and review of such
determination pursuant to section 3C(c) of the Act and Sec.  240.3Ca-1
of this chapter thereunder; and
    (2) Thirty days after the available-to-trade determination
submission or certification for that security-based swap is,
respectively, deemed approved under Sec.  242.806 or deemed certified
under Sec.  242.807.
    (b) Nothing in this section shall prohibit any counterparty from
complying voluntarily with the requirements of section 3C(h) of the Act
sooner than as provided in paragraph (a) of this section.

Sec.  242.818  Core Principle 1--Compliance with core principles.

    (a) In general. To be registered, and maintain registration, as a
security-based swap execution facility, the security-based swap
execution facility shall comply with the core principles described in
section 3D of the Act, and any requirement that the Commission may
impose by rule or regulation.
    (b) Reasonable discretion of security-based swap execution
facility. Unless otherwise determined by the Commission, by rule or
regulation, a security-based swap execution facility described in
paragraph (a) of this section shall have reasonable discretion in
establishing the manner in which it complies with the core principles
described in section 3D of the Act.

Sec.  242.819  Core Principle 2--Compliance with rules.

    (a) General. A security-based swap execution facility shall:
    (1) Establish and enforce compliance with any rule established by
such security-based swap execution facility, including the terms and
conditions of the security-based swaps traded or processed on or
through the facility, and any limitation on access to the facility;
    (2) Establish and enforce trading, trade processing, and
participation rules that will deter abuses and have the capacity to
detect, investigate, and enforce those rules, including means to
provide market participants with impartial access to the market and to
capture information that may be used in establishing whether rule
violations have occurred; and
    (3) Establish rules governing the operation of the facility,
including rules specifying trading procedures to be used in entering
and executing orders traded or posted on the facility.
    (b) Operation of security-based swap execution facility and
compliance with rules. (1) A security-based swap execution facility
shall establish rules governing the operation of the security-based
swap execution facility, including, but not limited to, rules
specifying trading procedures to be followed by members when entering
and executing orders traded or posted on the security-based swap
execution facility.
    (2) A security-based swap execution facility shall establish and
impartially enforce compliance with the rules of the security-based
swap execution facility, including, but not limited to:
    (i) The terms and conditions of any security-based swaps traded or
processed on or through the security-based swap execution facility;
    (ii) Access to the security-based swap execution facility;
    (iii) Trade practice rules;
    (iv) Audit trail requirements;
    (v) Disciplinary rules; and
    (vi) Mandatory trading requirements.
    (c) Access requirements. (1) Impartial access to markets and market
services. A security-based swap execution facility shall provide any
eligible contract participant and any independent software vendor with
impartial access to its market(s) and market services, including any
indicative quote screens or any similar pricing data displays, provided
that the facility has:
    (i) Criteria governing such access that are impartial, transparent,
and applied in a fair and non-discriminatory manner;
    (ii) Procedures whereby eligible contract participants provide the
security-based swap execution facility with written or electronic
confirmation of their status as eligible contract participants, as
defined by the Act and Commission rules thereunder, prior to obtaining
access; and
    (iii) Comparable fee structures for eligible contract participants
and independent software vendors receiving comparable access to, or
services from, the security-based swap execution facility.
    (2) Jurisdiction. Prior to granting any eligible contract
participant access to its facilities, a security-based swap execution
facility shall require that the eligible contract participant consent
to its jurisdiction.
    (3) Limitations on access. A security-based swap execution facility
shall establish and impartially enforce rules governing any decision to
allow, deny, suspend, or permanently bar an eligible contract
participant's access to the security-based swap execution facility,
including when a decision is made as part of a disciplinary or
emergency action taken by the security-based swap execution facility.
    (4) Commission review with respect to a denial or limitation of
access to any service or a denial or conditioning of membership. (i) In
general. An application for review by the Commission may be filed by
any person who is aggrieved by a determination of a security-based swap
execution facility with respect to any final action with respect to a
denial or limitation of access to any service offered by the security-
based swap execution facility or any final action with respect to a
denial or conditioning of membership, as defined in Sec.  242.835(b)(2)
of this chapter (Rule 835(b)(2)), in accordance with Sec.  201.442 of
this chapter (Rule of Practice 442).
    (ii) Standard to govern Commission review. In reviewing such a
determination, if the Commission finds that the specific grounds on
which such denial, limitation, or conditioning is based exist in fact,
that such denial, limitation, or conditioning is in accordance with the
rules of the security-based swap execution facility, and that such
rules are, and were applied in a manner, consistent with the purposes
of the Exchange Act, the Commission, by order, shall dismiss the
proceeding. If the Commission does not make any such finding or if it
finds that such denial, limitation, or conditioning imposes any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act, the Commission, by order, shall set aside
the action of the security-based swap execution facility and require it
to admit such person to membership or participation or grant such
person access to services offered by the security-based swap execution
facility.
    (d) Rule enforcement program. A security-based swap execution
facility shall establish and enforce trading, trade processing, and
participation rules that will deter abuses and it shall have the
capacity to detect, investigate, and enforce those rules.
    (1) Abusive trading practices prohibited. A security-based swap
execution facility shall prohibit abusive trading practices on its
markets by members. A security-based swap execution facility that
permits intermediation shall prohibit customer-related abuses
including, but not limited to, trading ahead of customer orders,
trading against customer orders, accommodation trading, and improper
cross trading. Specific trading practices that shall be prohibited
include front-running, wash trading, pre-arranged trading (except for
transactions approved by or certified to the Commission pursuant Sec.
242.806 or Sec.  242.807, respectively), fraudulent trading, money
passes, and any other trading practices that a security-based swap
execution facility deems to be abusive. A security-based swap execution
facility shall also prohibit any other manipulative or disruptive
trading practices prohibited by the Act or by the Commission pursuant
to Commission regulation.
    (2) Capacity to detect and investigate rule violations. A security-
based swap execution facility shall have arrangements and resources for
effective enforcement of its rules. Such arrangements shall include the
authority to collect information and documents on both a routine and
non-routine basis, including the authority to examine

books and records kept by the security-based swap execution facility's
members and by persons under investigation. A security-based swap
execution facility's arrangements and resources shall also facilitate
the direct supervision of the market and the analysis of data collected
to determine whether a rule violation has occurred.
    (3) Compliance staff and resources. A security-based swap execution
facility shall establish and maintain sufficient compliance staff and
resources to ensure that it can conduct effective audit trail reviews,
trade practice surveillance, market surveillance, and real-time market
monitoring. The security-based swap execution facility's compliance
staff shall also be sufficient to address unusual market or trading
events as they arise, and to conduct and complete investigations in a
timely manner, as set forth in paragraph (d)(6) of this section.
    (4) Automated trade surveillance system. A security-based swap
execution facility shall maintain an automated trade surveillance
system capable of detecting potential trade practice violations. The
automated trade surveillance system shall load and process daily orders
and trades no later than 24 hours after the completion of the trading
day. The automated trade surveillance system shall have the capability
to detect and flag specific trade execution patterns and trade
anomalies; compute, retain, and compare trading statistics; reconstruct
the sequence of market activity; perform market analyses; and support
system users to perform in-depth analyses and ad hoc queries of trade-
related data.
    (5) Real-time market monitoring. A security-based swap execution
facility shall conduct real-time market monitoring of all trading
activity on its system(s) or platform(s) to identify any market or
system anomalies. A security-based swap execution facility shall have
the authority to adjust trade prices or cancel trades when necessary to
mitigate market disrupting events caused by malfunctions in its
system(s) or platform(s) or errors in orders submitted by members. Any
trade price adjustments or trade cancellations shall be transparent to
the market and subject to standards that are clear, fair, and publicly
available.
    (6) Investigations and investigation reports. (i) Procedures. A
security-based swap execution facility shall establish and maintain
procedures that require its compliance staff to conduct investigations
of possible rule violations. An investigation shall be commenced upon
the receipt of a request from Commission staff or upon the discovery or
receipt of information by the security-based swap execution facility
that indicates a reasonable basis for finding that a violation may have
occurred or will occur.
    (ii) Timeliness. Each compliance staff investigation shall be
completed in a timely manner. Absent mitigating factors, a timely
manner is no later than 12 months after the date that an investigation
is opened. Mitigating factors that may reasonably justify an
investigation taking longer than 12 months to complete include the
complexity of the investigation, the number of firms or individuals
involved as potential wrongdoers, the number of potential violations to
be investigated, and the volume of documents and data to be examined
and analyzed by compliance staff.
    (iii) Investigation reports when a reasonable basis exists for
finding a violation. Compliance staff shall submit a written
investigation report for disciplinary action in every instance in which
compliance staff determines from surveillance or from an investigation
that a reasonable basis exists for finding a rule violation. The
investigation report shall include the reason the investigation was
initiated; a summary of the complaint, if any; the relevant facts;
compliance staff's analysis and conclusions; and a recommendation as to
whether disciplinary action should be pursued.
    (iv) Investigation reports when no reasonable basis exists for
finding a violation. If after conducting an investigation, compliance
staff determines that no reasonable basis exists for finding a rule
violation, it shall prepare a written report including the reason the
investigation was initiated; a summary of the complaint, if any; the
relevant facts; and compliance staff's analysis and conclusions.
    (v) Warning letters. The rules of a security-based swap execution
facility may authorize its compliance staff to issue a warning letter
to a person or entity under investigation or to recommend that a
disciplinary panel take such an action. No more than one warning letter
may be issued to the same person or entity found to have committed the
same rule violation within a rolling 12-month period.
    (e) Regulatory services provided by a third party. (1) Use of
regulatory service provider permitted. A security-based swap execution
facility may choose to contract with a registered futures association
(under section 17 of the Commodity Exchange Act), a board of trade
designated as a contract market (under section 5 of the Commodity
Exchange Act), a national securities exchange, a national securities
association, or another security-based swap execution facility (each a
``regulatory service provider''), for the provision of services to
assist in complying with the Act and Commission rules thereunder, as
approved by the Commission. A security-based swap execution facility
that chooses to contract with a regulatory service provider shall
ensure that such provider has the capacity and resources necessary to
provide timely and effective regulatory services, including adequate
staff and automated surveillance systems. A security-based swap
execution facility shall at all times remain responsible for the
performance of any regulatory services received, for compliance with
the security-based swap execution facility's obligations under the Act
and Commission rules thereunder, and for the regulatory service
provider's performance on its behalf.
    (2) Duty to supervise regulatory service provider. A security-based
swap execution facility that elects to use the service of a regulatory
service provider shall retain sufficient compliance staff to supervise
the quality and effectiveness of the regulatory services provided on
its behalf. Compliance staff of the security-based swap execution
facility shall hold regular meetings with the regulatory service
provider to discuss ongoing investigations, trading patterns, market
participants, and any other matters of regulatory concern. A security-
based swap execution facility shall also conduct periodic reviews of
the adequacy and effectiveness of services provided on its behalf. Such
reviews shall be documented carefully and made available to the
Commission upon request.
    (3) Regulatory decisions required from the security-based swap
execution facility. A security-based swap execution facility that
elects to use the service of a regulatory service provider shall retain
exclusive authority in all substantive decisions made by its regulatory
service provider, including, but not limited to, decisions involving
the cancellation of trades, the issuance of disciplinary charges
against members, and denials of access to the trading platform for
disciplinary reasons. A security-based swap execution facility shall
document any instances where its actions differ from those recommended
by its regulatory service provider, including the reasons for the
course of action recommended by the regulatory service provider and the
reasons why the security-based swap execution facility chose a
different course of action.

    (f) Audit trail. A security-based swap execution facility shall
establish procedures to capture and retain information that may be used
in establishing whether rule violations have occurred.
    (1) Audit trail required. A security-based swap execution facility
shall capture and retain all audit trail data necessary to detect,
investigate, and prevent customer and market abuses. Such data shall be
sufficient to reconstruct all indications of interest, requests for
quotes, orders, and trades within a reasonable period of time and to
provide evidence of any violations of the rules of the security-based
swap execution facility. An acceptable audit trail shall also permit
the security-based swap execution facility to track a customer order
from the time of receipt through execution on the security-based swap
execution facility.
    (2) Elements of an acceptable audit trail program. (i) Original
source documents. A security-based swap execution facility's audit
trail shall include original source documents. Original source
documents include unalterable, sequentially identified records on which
trade execution information is originally recorded, whether recorded
manually or electronically. Records for customer orders (whether
filled, unfilled, or cancelled, each of which shall be retained or
electronically captured) shall reflect the terms of the order, an
account identifier that relates back to the account's owner(s), the
time of order entry, and the time of trade execution. A security-based
swap execution facility shall require that all orders, indications of
interest, and requests for quotes be immediately captured in the audit
trail.
    (ii) Transaction history database. A security-based swap execution
facility's audit trail program shall include an electronic transaction
history database. An adequate transaction history database shall
include a history of all indications of interest, requests for quotes,
orders, and trades entered into a security-based swap execution
facility's trading system or platform, including all order
modifications and cancellations. An adequate transaction history
database shall also include:
    (A) All data that are input into the trade entry or matching system
for the transaction to match and clear;
    (B) The customer type indicator code; and
    (C) Timing and sequencing data adequate to reconstruct trading.
    (iii) Electronic analysis capability. A security-based swap
execution facility's audit trail program shall include electronic
analysis capability with respect to all audit trail data in the
transaction history database. Such electronic analysis capability shall
ensure that the security-based swap execution facility has the ability
to reconstruct indications of interest, requests for quotes, orders,
and trades, and identify possible trading violations with respect to
both customer and market abuse.
    (iv) Safe-storage capability. A security-based swap execution
facility's audit trail program shall include the capability to safely
store all audit trail data retained in its transaction history
database. Such safe-storage capability shall include the capability to
store all data in the database in a manner that protects it from
unauthorized alteration, as well as from accidental erasure or other
loss. Data shall be retained in accordance with the recordkeeping
requirements of Sec.  242.826 (Core Principle 9).
    (3) Enforcement of audit trail requirements. (i) Annual audit trail
and recordkeeping reviews. A security-based swap execution facility
shall enforce its audit trail and recordkeeping requirements through at
least annual reviews of all members and persons and firms subject to
the security-based swap execution facility's recordkeeping rules to
verify their compliance with the security-based swap execution
facility's audit trail and recordkeeping requirements. Such reviews
shall include, but are not limited to, reviews of randomly selected
samples of front-end audit trail data for order routing systems; a
review of the process by which user identifications are assigned and
user identification records are maintained; a review of usage patterns
associated with user identifications to monitor for violations of user
identification rules; and reviews of account numbers and customer type
indicator codes in trade records to test for accuracy and improper use.
    (ii) Enforcement program required. A security-based swap execution
facility shall establish a program for effective enforcement of its
audit trail and recordkeeping requirements. An effective program shall
identify members, persons, and firms subject to the security-based swap
execution facility's recordkeeping rules that have failed to maintain
high levels of compliance with such requirements, and impose meaningful
sanctions when deficiencies are found. Sanctions shall be sufficient to
deter recidivist behavior. No more than one warning letter shall be
issued to the same person or entity found to have committed the same
violation of audit trail or recordkeeping requirements within a rolling
12-month period.
    (g) Disciplinary procedures and sanctions. A security-based swap
execution facility shall establish trading, trade processing, and
participation rules that will deter abuses and have the capacity to
enforce such rules through prompt and effective disciplinary action,
including suspension or expulsion of members that violate the rules of
the security-based swap execution facility.
    (1) Enforcement staff. (i) A security-based swap execution facility
shall establish and maintain sufficient enforcement staff and resources
to effectively and promptly prosecute possible rule violations within
the disciplinary jurisdiction of the security-based swap execution
facility.
    (ii) The enforcement staff of a security-based swap execution
facility shall not include members or other persons whose interests
conflict with their enforcement duties.
    (iii) A member of the enforcement staff shall not operate under the
direction or control of any person or persons with trading privileges
at the security-based swap execution facility.
    (iv) The enforcement staff of a security-based swap execution
facility may operate as part of the security-based swap execution
facility's compliance department.
    (2) Disciplinary panels. A security-based swap execution facility
shall establish one or more disciplinary panels that are authorized to
fulfill their obligations under the rules of this section. Disciplinary
panels shall meet the composition requirements of Sec.  242.834(d), and
shall not include any members of the security-based swap execution
facility's compliance staff or any person involved in adjudicating any
other stage of the same proceeding.
    (3) Notice of charges. If compliance staff authorized by a
security-based swap execution facility or disciplinary panel thereof
determines that a reasonable basis exists for finding a violation and
adjudication is warranted, it shall direct that the person or entity
alleged to have committed the violation be served with a notice of
charges. A notice of charges shall adequately state the acts, conduct,
or practices in which the respondent is alleged to have engaged; state
the rule or rules alleged to have been violated (or about to be
violated); advise the respondent that it is entitled, upon request, to
a hearing on the charges; and prescribe the period within which a
hearing on the charges may be requested. If the rules of the security-
based swap execution facility so provide, a notice may also advise:

    (i) That failure to request a hearing within the period prescribed
in the notice, except for good cause, may be deemed a waiver of the
right to a hearing; and
    (ii) That failure to answer or to deny expressly a charge may be
deemed to be an admission of such charge.
    (4) Right to representation. Upon being served with a notice of
charges, a respondent shall have the right to be represented by legal
counsel or any other representative of its choosing in all succeeding
stages of the disciplinary process, except by any member of the
security-based swap execution facility's governing board or
disciplinary panel, any employee of the security-based swap execution
facility, or any person substantially related to the underlying
investigations, such as a material witness or respondent.
    (5) Answer to charges. A respondent shall be given a reasonable
period of time to file an answer to a notice of charges. The rules of a
security-based swap execution facility governing the requirements and
timeliness of a respondent's answer to a notice of charges shall be
fair, equitable, and publicly available.
    (6) Admission or failure to deny charges. The rules of a security-
based swap execution facility may provide that, if a respondent admits
or fails to deny any of the charges, a disciplinary panel may find that
the violations alleged in the notice of charges for which the
respondent admitted or failed to deny any of the charges have been
committed. If the security-based swap execution facility's rules so
provide, then:
    (i) The disciplinary panel may impose a sanction for each violation
found to have been committed;
    (ii) The disciplinary panel shall promptly notify the respondent in
writing of any sanction to be imposed and shall advise the respondent
that the respondent may request a hearing on such sanction within the
period of time, which shall be stated in the notice; and
    (iii) The rules of a security-based swap execution facility may
provide that, if a respondent fails to request a hearing within the
period of time stated in the notice, the respondent will be deemed to
have accepted the sanction.
    (7) Denial of charges and right to hearing. Where a respondent has
requested a hearing on a charge that is denied, or on a sanction set by
the disciplinary panel, the respondent shall be given an opportunity
for a hearing in accordance with the rules of the security-based swap
execution facility.
    (8) Settlement offers. (i) The rules of a security-based swap
execution facility may permit a respondent to submit a written offer of
settlement at any time after an investigation report is completed. The
disciplinary panel presiding over the matter may accept the offer of
settlement, but may not alter the terms of a settlement offer unless
the respondent agrees.
    (ii) The rules of a security-based swap execution facility may
provide that, in its discretion, a disciplinary panel may permit the
respondent to accept a sanction without either admitting or denying the
rule violations upon which the sanction is based.
    (iii) If an offer of settlement is accepted, the panel accepting
the offer shall issue a written decision specifying the rule violations
it has reason to believe were committed, including the basis or reasons
for the panel's conclusions, and any sanction to be imposed, which
shall include full customer restitution where customer harm is
demonstrated, except where the amount of restitution or to whom it
should be provided cannot be reasonably determined. If an offer of
settlement is accepted without the agreement of the enforcement staff,
the decision shall adequately support the disciplinary panel's
acceptance of the settlement. Where applicable, the decision shall also
include a statement that the respondent has accepted the sanctions
imposed without either admitting or denying the rule violations.
    (iv) The respondent may withdraw its offer of settlement at any
time before final acceptance by a disciplinary panel. If an offer is
withdrawn after submission, or is rejected by a disciplinary panel, the
respondent shall not be deemed to have made any admissions by reason of
the offer of settlement and shall not be otherwise prejudiced by having
submitted the offer of settlement.
    (9) Hearings. A security-based swap execution facility shall adopt
rules that provide for the following minimum requirements for any
hearing:
    (i) The hearing shall be fair, shall be conducted before members of
the disciplinary panel, and shall be promptly convened after reasonable
notice to the respondent. A security-based swap execution facility need
not apply the formal rules of evidence for a hearing; nevertheless, the
procedures for the hearing may not be so informal as to deny a fair
hearing;
    (ii) No member of the disciplinary panel for the hearing may have a
financial, personal, or other direct interest in the matter under
consideration;
    (iii) In advance of the hearing, the respondent shall be entitled
to examine all books, documents, or other evidence in the possession or
under the control of the security-based swap execution facility. The
security-based swap execution facility may withhold documents that are
privileged or constitute attorney work product; were prepared by an
employee of the security-based swap execution facility but will not be
offered in evidence in the disciplinary proceedings; may disclose a
technique or guideline used in examinations, investigations, or
enforcement proceedings; or disclose the identity of a confidential
source;
    (iv) The security-based swap execution facility's enforcement and
compliance staffs shall be parties to the hearing, and the enforcement
staff shall present their case on those charges and sanctions that are
the subject of the hearing;
    (v) The respondent shall be entitled to appear personally at the
hearing, to cross-examine any persons appearing as witnesses at the
hearing, to call witnesses, and to present such evidence as may be
relevant to the charges;
    (vi) The security-based swap execution facility shall require
persons within its jurisdiction who are called as witnesses to
participate in the hearing and produce evidence. The security-based
swap execution facility shall make reasonable efforts to secure the
presence of all other persons called as witnesses whose testimony would
be relevant. The rules of a security-based swap execution facility may
provide that a sanction may be summarily imposed upon any person within
its jurisdiction whose actions impede the progress of a hearing; and
    (vii) If the respondent has requested a hearing, a copy of the
hearing shall be made and shall become a part of the record of the
proceeding. The record shall not be required to be transcribed unless:
    (A) The transcript is requested by Commission staff or the
respondent;
    (B) The decision is appealed pursuant to the rules of the security-
based swap execution facility; or
    (C) The decision is reviewed by the Commission pursuant to Sec.
201.442 of this chapter. In all other instances, a summary record of a
hearing is permitted.
    (10) Decisions. Promptly following a hearing conducted in
accordance with the rules of the security-based swap execution
facility, the disciplinary panel shall render a written decision based
upon the weight of the evidence contained in the record of the
proceeding and shall provide a copy to the respondent. The decision
shall include:

    (i) The notice of charges or a summary of the charges;
    (ii) The answer, if any, or a summary of the answer;
    (iii) A summary of the evidence produced at the hearing or, where
appropriate, incorporation by reference of the investigation report;
    (iv) A statement of findings and conclusions with respect to each
charge and a complete explanation of the evidentiary and other basis
for such findings and conclusions with respect to each charge;
    (v) An indication of each specific rule that the respondent was
found to have violated; and
    (vi) A declaration of all sanctions imposed against the respondent,
including the basis for such sanctions and the effective date of such
sanctions.
    (11) Emergency disciplinary actions. (i) A security-based swap
execution facility may impose a sanction, including suspension, or take
other summary action against a person or entity subject to its
jurisdiction upon a reasonable belief that such immediate action is
necessary to protect the best interest of the market place.
    (ii) Any emergency disciplinary action shall be taken in accordance
with a security-based swap execution facility's procedures that provide
for the following:
    (A) If practicable, a respondent should be served with a notice
before the action is taken, or otherwise at the earliest possible
opportunity. The notice shall state the action, briefly state the
reasons for the action, and state the effective time and date, and the
duration of the action.
    (B) The respondent shall have the right to be represented by legal
counsel or any other representative of its choosing in all proceedings
subsequent to the emergency action taken. The respondent shall be given
the opportunity for a hearing as soon as reasonably practicable and the
hearing shall be conducted before the disciplinary panel pursuant to
the rules of the security-based swap execution facility.
    (C) Promptly following the hearing, the security-based swap
execution facility shall render a written decision based upon the
weight of the evidence contained in the record of the proceeding and
shall provide a copy to the respondent. The decision shall include a
description of the summary action taken; the reasons for the summary
action; a summary of the evidence produced at the hearing; a statement
of findings and conclusions; a determination that the summary action
should be affirmed, modified, or reversed; and a declaration of any
action to be taken pursuant to the determination, and the effective
date and duration of such action.
    (12) Right to appeal. The rules of a security-based swap execution
facility may permit the parties to a proceeding to appeal promptly an
adverse decision of a disciplinary panel in all or in certain classes
of cases. Such rules may require a party's notice of appeal to be in
writing and to specify the findings, conclusions, or sanctions to which
objection are taken. If the rules of a security-based swap execution
facility permit appeals, then both the respondent and the enforcement
staff shall have the opportunity to appeal and:
    (i) The security-based swap execution facility shall establish an
appellate panel that is authorized to hear appeals. The rules of the
security-based swap execution facility may provide that the appellate
panel may, on its own initiative, order review of a decision by a
disciplinary panel within a reasonable period of time after the
decision has been rendered;
    (ii) The composition of the appellate panel shall be consistent
with Sec.  242.834(d) and shall not include any members of the
security-based swap execution facility's compliance staff or any person
involved in adjudicating any other stage of the same proceeding. The
rules of a security-based swap execution facility shall provide for the
appeal proceeding to be conducted before all of the members of the
appellate panel or a panel thereof;
    (iii) Except for good cause shown, the appeal or review shall be
conducted solely on the record before the disciplinary panel, the
written exceptions filed by the parties, and the oral or written
arguments of the parties; and
    (iv) Promptly following the appeal or review proceeding, the
appellate panel shall issue a written decision and shall provide a copy
to the respondent. The decision issued by the appellate panel shall
adhere to all the requirements of paragraph (g)(10) of this section to
the extent that a different conclusion is reached from that issued by
the disciplinary panel.
    (13) Disciplinary sanctions. (i) In general. All disciplinary
sanctions imposed by a security-based swap execution facility or its
disciplinary panels shall be commensurate with the violations committed
and shall be clearly sufficient to deter recidivism or similar
violations by other members. All disciplinary sanctions, including
sanctions imposed pursuant to an accepted settlement offer, shall take
into account the respondent's disciplinary history. In the event of
demonstrated customer harm, any disciplinary sanction shall also
include full customer restitution, except where the amount of
restitution or to whom it should be provided cannot be reasonably
determined.
    (ii) Summary fines for violations of rules regarding timely
submission of records. A security-based swap execution facility may
adopt a summary fine schedule for violations of rules relating to the
failure to timely submit accurate records required for clearing or
verifying each day's transactions. A security-based swap execution
facility may permit its compliance staff, or a designated panel of
security-based swap execution facility officials, to summarily impose
minor sanctions against persons within the security-based swap
execution facility's jurisdiction for violating such rules. A security-
based swap execution facility's summary fine schedule may allow for
warning letters to be issued for first-time violations or violators. If
adopted, a summary fine schedule shall provide for progressively larger
fines for recurring violations.
    (14) Commission review of a disciplinary sanction. (i) In general.
An application for review by the Commission may be filed by any person
who is aggrieved by a determination of a security-based swap facility
with respect to any final disciplinary action, as defined in Sec.
242.835(b)(1) of this chapter (Rule 835(b)(1)), in accordance with
Sec.  201.442 of this chapter (Rule of Practice 442).
    (ii) Standard to govern Commission review. (A) In reviewing such a
determination, if the Commission finds that such person has engaged in
such acts or practices, or has omitted such acts, as the security-based
swap execution facility has found him to have engaged in or omitted,
that such acts or practices, or omissions to act, are in violation of
the Exchange Act, the rules or regulations thereunder, or the rules of
the security-based swap execution facility, and that such provisions
are, and were applied in a manner, consistent with the purposes of
Exchange Act, the Commission, by order, shall so declare and, as
appropriate, affirm the sanction imposed by the security-based swap
execution facility, modify the sanction in accordance with paragraph
(C) of this subsection, or remand to the security-based swap execution
facility for further proceedings; or
    (B) if the Commission does not make any such finding it shall, by
order, set aside the sanction imposed by the security-based swap
execution facility

and, if appropriate, remand to the security-based swap execution
facility for further proceedings.
    (C) If the Commission, having due regard for the public interest
and the protection of investors, finds that a sanction imposed by a
security-based swap execution facility upon such person imposes any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act or is excessive or oppressive, the
Commission may cancel, reduce, or require the remission of such
sanction.
    (h) Activities of security-based swap execution facility's
employees, governing board members, committee members, and consultants.
(1) Definitions. The following definitions shall apply only in this
paragraph (h):
    (i) Covered interest, with respect to a security-based swap
execution facility, means:
    (A) A security-based swap that trades on the security-based swap
execution facility;
    (B) A security of an issuer that has issued a security that
underlies a security-based swap that is listed on that facility; or
    (C) A derivative based on a security that falls within paragraph
(h)(1)(i)(B) of this section.
    (ii) Pooled investment vehicle means an investment company
registered under the Investment Company Act of 1940 in which no covered
interest constitutes more than 10 percent of the investment company's
assets.
    (2) Required rules. A security-based swap execution facility must
maintain in effect rules which have been submitted to the Commission
pursuant to Sec.  242.806 or Sec.  242.807 that, at a minimum, prohibit
an employee of the security-based swap execution facility from:
    (i) Trading, directly or indirectly, any covered interest; and
    (ii) Disclosing to any other person any material, non-public
information which such employee obtains as a result of their employment
at the security-based swap execution facility, where such employee has
or should have a reasonable expectation that the information disclosed
may assist another person in trading any covered interest; provided,
however, that such rules shall not prohibit disclosures made in the
course of an employee's duties, or disclosures made to another
security-based swap execution facility, court of competent
jurisdiction, or representative of any agency or department of the
Federal or State government acting in their official capacity.
    (3) Possible exemptions. A security-based swap execution facility
may adopt rules, which must be submitted to the Commission pursuant to
Sec.  242.806 or Sec.  242.807, which set forth circumstances under
which exemptions from the trading prohibition contained in paragraph
(h)(2)(i) of this section may be granted; such exemptions are to be
administered by the security-based swap execution facility on a case-
by-case basis. Specifically, such circumstances may include:
    (i) Participation by an employee in a pooled investment vehicle
where the employee has no direct or indirect control with respect to
transactions executed for or on behalf of such vehicle;
    (ii) Trading by an employee in a derivative based on a pooled
investment vehicle that falls within paragraph (h)(3)(i) of this
section;
    (iii) Trading by an employee in a derivative based on an index in
which no covered interest constitutes more than 10 percent of the
index; and
    (iv) Trading by an employee under circumstances enumerated by the
security-based swap execution facility in rules which the security-
based swap execution facility determines are not contrary to applicable
law, the public interest, or just and equitable principles of trade.
    (4) Prohibited conduct. (i) No employee, governing board member,
committee member, or consultant of a security-based swap execution
facility shall:
    (A) Trade for such person's own account, or for or on behalf of any
other account, in any covered interest on the basis of any material,
non-public information obtained through special access related to the
performance of such person's official duties as an employee, governing
board member, committee member, or consultant; or
    (B) Disclose for any purpose inconsistent with the performance of
such person's official duties as an employee, governing board member,
committee member, or consultant any material, non-public information
obtained through special access related to the performance of such
duties.
    (ii) No person shall trade for such person's own account, or for or
on behalf of any other account, in any covered interest on the basis of
any material, non-public information that such person knows was
obtained in violation of this paragraph (h)(4) from an employee,
governing board member, committee member, or consultant.
    (i) Service on security-based swap execution facility governing
boards or committees by persons with disciplinary histories. (1) A
security-based swap execution facility shall maintain in effect rules
which have been submitted to the Commission pursuant to Sec.  242.806
or Sec.  242.807 that render a person ineligible to serve on its
disciplinary committees, arbitration panels, oversight panels, or
governing board who:
    (i) Was found within the prior three years by a final decision of a
security-based swap execution facility, a self-regulatory organization,
an administrative law judge, a court of competent jurisdiction, or the
Commission to have committed a disciplinary offense;
    (ii) Entered into a settlement agreement with a security-based swap
execution facility, a court of competent jurisdiction, or the
Commission within the prior three years in which any of the findings
or, in the absence of such findings, any of the acts charged included a
disciplinary offense;
    (iii) Currently is suspended from trading on any security-based
swap execution facility, is suspended or expelled from membership with
a self-regulatory organization, is serving any sentence of probation,
or owes any portion of a fine imposed pursuant to:
    (A) A finding by a final decision of a security-based swap
execution facility, a self-regulatory organization, an administrative
law judge, a court of competent jurisdiction, or the Commission that
such person committed a disciplinary offense; or
    (B) A settlement agreement with a security-based swap execution
facility, a court of competent jurisdiction, or the Commission in which
any of the findings or, in the absence of such findings, any of the
acts charged included a disciplinary offense;
    (iv) Currently is subject to an agreement with the Commission, a
security-based swap execution facility, or a self-regulatory
organization not to apply for registration with the Commission or
membership in any self-regulatory organization;
    (v) Currently is subject to or has had imposed on him or her within
the prior three years a Commission registration revocation or
suspension in any capacity for any reason, or has been convicted within
the prior three years of any felony; or
    (vi) Currently is subject to a denial, suspension, or
disqualification from serving on a disciplinary committee, arbitration
panel, or governing board of any security-based swap execution facility
or self-regulatory organization.
    (2) No person may serve on a disciplinary committee, arbitration
panel, oversight panel or governing

board of a security-based swap execution facility if such person is
subject to any of the conditions listed in paragraphs (i)(1)(i) through
(vi) of this section.
    (3) A security-based swap execution facility shall submit to the
Commission a schedule listing all those rule violations which
constitute disciplinary offenses and, to the extent necessary to
reflect revisions, shall submit an amended schedule within 30 days of
the end of each calendar year. A security-based swap execution facility
shall maintain and keep current the schedule required by this section,
and post the schedule on the security-based swap execution facility's
website so that it is in a public place designed to provide notice to
members and otherwise ensure its availability to the general public.
    (4) A security-based swap execution facility shall submit to the
Commission within 30 days of the end of each calendar year a certified
list of any persons who have been removed from its disciplinary
committees, arbitration panels, oversight panels, or governing board
pursuant to the requirements of this section during the prior year.
    (5) Whenever a security-based swap execution facility finds by
final decision that a person has committed a disciplinary offense and
such finding makes such person ineligible to serve on that security-
based swap execution facility's disciplinary committees, arbitration
panels, oversight panels, or governing board, the security-based swap
execution facility shall inform the Commission of that finding and the
length of the ineligibility in a form and manner specified by the
Commission.
    (6) For purposes of this paragraph:
    (i) Arbitration panel means any person or panel empowered by a
security-based swap execution facility to arbitrate disputes involving
the security-based swap execution facility's members or their
customers.
    (ii) Disciplinary offense means:
    (A) Any violation of the rules of a security-based swap execution
facility, except a violation resulting in fines aggregating to less
than $5,000 within a calendar year involving:
    (1) Decorum or attire;
    (2) Financial requirements; or
    (3) Reporting or recordkeeping;
    (B) Any rule violation which involves fraud, deceit, or conversion
or results in a suspension or expulsion;
    (C) Any violation of the Act or the Commission's rules thereunder;
or
    (D) Any failure to exercise supervisory responsibility when such
failure is itself a violation of either the rules of the security-based
swap execution facility, the Act, or the Commission's rules thereunder.
    (E) A disciplinary offense must arise out of a proceeding or action
which is brought by a security-based swap execution facility, the
Commission, any Federal or State agency, or other governmental body.
    (iii) Final decision means:
    (A) A decision of a security-based swap execution facility which
cannot be further appealed within the security-based swap execution
facility, is not subject to the stay of the Commission or a court of
competent jurisdiction, and has not been reversed by the Commission or
any court of competent jurisdiction; or
    (B) Any decision by an administrative law judge, a court of
competent jurisdiction, or the Commission which has not been stayed or
reversed.
    (j) Notification of final disciplinary action involving financial
harm to a customer.
    (1) Upon any final disciplinary action in which a security-based
swap execution facility finds that a member has committed a rule
violation that involved a transaction for a customer, whether executed
or not, and that resulted in financial harm to the customer:
    (i) The security-based swap execution facility shall promptly
provide written notice of the disciplinary action to the member; and
    (ii) The security-based swap execution facility shall have
established a rule pursuant to Sec.  242.806 or Sec.  242.807 that
requires a member that receives such a notice to promptly provide
written notice of the disciplinary action to the customer, as disclosed
on the member's books and records.
    (2) A written notice required by paragraph (j)(1) of this section
must include the principal facts of the disciplinary action and a
statement that the security-based swap execution facility has found
that the member has committed a rule violation that involved a
transaction for the customer, whether executed or not, and that
resulted in financial harm to the customer.
    (3) Solely for purposes of this paragraph (j):
    (i) Customer means a person that utilizes an agent in connection
with trading on a security-based swap execution facility.
    (ii) Final disciplinary action means any decision by or settlement
with a security-based swap execution facility in a disciplinary matter
which cannot be further appealed at the security-based swap execution
facility, is not subject to the stay of the Commission or a court of
competent jurisdiction, and has not been reversed by the Commission or
any court of competent jurisdiction.
    (k) Designation of agent for non-U.S. member. (1) A security-based
swap execution facility that admits a non-U.S. person as a member shall
be deemed to be the agent of the non-U.S. member with respect to any
security-based swaps executed by the non-U.S. member. Service or
delivery of any communication issued by or on behalf of the Commission
to the security-based swap execution facility shall constitute valid
and effective service upon the non-U.S. member. The security-based swap
execution facility which has been served with, or to which there has
been delivered, a communication issued by or on behalf of the
Commission to a non-U.S. member shall transmit the communication
promptly and in a manner which is reasonable under the circumstances,
or in a manner specified by the Commission in the communication, to the
non-U.S. member.
    (2) It shall be unlawful for a security-based swap execution
facility to permit a non-U.S. member to execute security-based swaps on
the facility unless the security-based swap execution facility prior
thereto informs the non-U.S. member in writing of the requirements of
this section.
    (3) The requirements of paragraphs (k)(1) and (2) of this section
shall not apply if the non-U.S. member has duly executed and maintains
in effect a written agency agreement in compliance with this paragraph
with a person domiciled in the United States and has provided a copy of
the agreement to the security-based swap execution facility prior to
effecting any transaction on the security-based swap execution
facility. This agreement must authorize the person domiciled in the
United States to serve as the agent of the non-U.S. member for purposes
of accepting delivery and service of all communications issued by or on
behalf of the Commission to the non-U.S. member and must provide an
address in the United States where the agent will accept delivery and
service of communications from the Commission. This agreement must be
filed with the Commission by the security-based swap execution facility
prior to permitting the non-U.S. member to effect any transactions in
security-based swaps. Such agreements shall be filed in a manner
specified by the Commission.
    (4) A non-U.S. member shall notify the Commission immediately if
the written agency agreement is terminated, revoked, or is otherwise no
longer in effect. If the security-based swap execution facility knows
or should

know that the agreement has expired, been terminated, or is no longer
in effect, the security-based swap execution facility shall notify the
Commission immediately.

Sec.  242.820  Core Principle 3--Security-based swaps not readily
susceptible to manipulation.

    The security-based swap execution facility shall permit trading
only in security-based swaps that are not readily susceptible to
manipulation.

Sec.  242.821  Core Principle 4--Monitoring of trading and trade
processing.

    (a) General. The security-based swap execution facility shall:
    (1) Establish and enforce rules or terms and conditions defining,
or specifications detailing:
    (i) Trading procedures to be used in entering and executing orders
traded on or through the facilities of the security-based swap
execution facility; and
    (ii) Procedures for trade processing of security-based swaps on or
through the facilities of the security-based swap execution facility;
and
    (2) Monitor trading in security-based swaps to prevent
manipulation, price distortion, and disruptions of the delivery or cash
settlement process through surveillance, compliance, and disciplinary
practices and procedures, including methods for conducting real-time
monitoring of trading and comprehensive and accurate trade
reconstructions.
    (b) Market oversight obligations. A security-based swap execution
facility shall:
    (1) Collect and evaluate data on its members' market activity on an
ongoing basis in order to detect and prevent manipulation, price
distortions, and, where possible, disruptions of the physical-delivery
or cash-settlement process;
    (2) Monitor and evaluate general market data in order to detect and
prevent manipulative activity that would result in the failure of the
market price to reflect the normal forces of supply and demand;
    (3) Demonstrate an effective program for conducting real-time
monitoring of trading for the purpose of detecting and resolving
abnormalities. A security-based swap execution facility shall employ
automated alerts to detect abnormal price movements and unusual trading
volumes in real time and instances or threats of manipulation, price
distortion, and disruptions on at least a T + 1 basis. The T + 1
detection and analysis should incorporate any additional data that
becomes available on a T + 1 basis, including the trade reconstruction
data;
    (4) Demonstrate the ability to comprehensively and accurately
reconstruct daily trading activity for the purpose of detecting
instances or threats of manipulation, price distortion, and
disruptions; and
    (5) Have rules in place that allow it to intervene to prevent or
reduce market disruptions. Once a threatened or actual disruption is
detected, the security-based swap execution facility shall take steps
to prevent the market disruption or reduce its severity.
    (c) Monitoring of physical-delivery security-based swaps. For
physical-delivery security-based swaps, the security-based swap
execution facility shall demonstrate that it:
    (1) Monitors a security-based swap's terms and conditions as they
relate to the underlying asset market; and
    (2) Monitors the availability of the supply of the asset specified
by the delivery requirements of the security-based swap.
    (d) Additional requirements for cash-settled security-based swaps.
(1) For cash-settled security-based swaps, the security-based swap
execution facility shall demonstrate that it monitors the pricing of
the reference price used to determine cash flows or settlement.
    (2) For cash-settled security-based swaps listed on the security-
based swap execution facility where the reference price is formulated
and computed by the security-based swap execution facility, the
security-based swap execution facility shall demonstrate that it
monitors the continued appropriateness of its methodology for deriving
that price and shall promptly amend any methodologies that result, or
are likely to result, in manipulation, price distortions, or market
disruptions, or impose new methodologies to resolve the threat of
disruptions or distortions.
    (3) For cash-settled security-based swaps listed on the security-
based swap execution facility where the reference price relies on a
third-party index or instrument, including an index or instrument
traded on another venue, the security-based swap execution facility
shall demonstrate that it monitors for pricing abnormalities in the
index or instrument used to calculate the reference price and shall
conduct due diligence to ensure that the reference price is not
susceptible to manipulation.
    (e) Ability to obtain information. (1) A security-based swap
execution facility shall demonstrate that it has access to sufficient
information to assess whether trading in security-based swaps listed on
its market, in the index or instrument used as a reference price, or in
the underlying asset for its listed security-based swaps is being used
to affect prices on its market. The security-based swap execution
facility shall demonstrate that it can obtain position and trading
information directly from members that conduct substantial trading on
its facility or through an information-sharing agreement with other
venues or a third-party regulatory service provider. If the position
and trading information is not available directly from its members but
is available through information-sharing agreements with other trading
venues or a third-party regulatory service provider, the security-based
swap execution facility should cooperate in such information-sharing
agreements.
    (2) A security-based swap execution facility shall have rules that
require its members to keep records of their trading, including records
of their activity in the underlying asset, and related derivatives
markets, and make such records available, upon request, to the
security-based swap execution facility or, if applicable, to its
regulatory service provider and the Commission. The security-based swap
execution facility may limit the application of this requirement to
only those members that conduct substantial trading on its facility.
    (f) Risk controls for trading. A security-based swap execution
facility shall establish and maintain risk control mechanisms to
prevent and reduce the potential risk of market disruptions, including,
but not limited to, market restrictions that pause or halt trading
under market conditions prescribed by the security-based swap execution
facility. Such risk control mechanisms shall be designed to avoid
market disruptions without unduly interfering with that market's price
discovery function. The security-based swap execution facility may
choose from among controls that include: pre-trade limits on order
size, price collars or bands around the current price, message
throttles, daily price limits, and intraday position limits related to
financial risk to the clearing member, or design other types of
controls, as well as clear error-trade and order-cancellation policies.
Within the specific array of controls that are selected, the security-
based swap execution facility shall set the parameters for those
controls, so that the specific parameters are reasonably likely to
serve the purpose of preventing market disruptions and price
distortions.
    (g) Trade reconstruction. A security-based swap execution facility
shall have the ability to comprehensively and accurately reconstruct
all trading on its facility. All audit-trail data and reconstructions
shall be made available

to the Commission in a form, manner, and time that is acceptable to the
Commission.
    (h) Regulatory service provider. A security-based swap execution
facility shall comply with the rules in this section through a
dedicated regulatory department or by contracting with a regulatory
service provider pursuant to Sec.  242.819(e).

Sec.  242.822  Core Principle 5--Ability to obtain information.

    (a) General. The security-based swap execution facility shall:
    (1) Establish and enforce rules that will allow the facility to
obtain any necessary information to perform any of the functions
described in section 3D of the Act;
    (2) Provide the information to the Commission on request; and
    (3) Have the capacity to carry out such international information-
sharing agreements as the Commission may require.
    (b) Establish and enforce rules. A security-based swap execution
facility shall establish and enforce rules that will allow the
security-based swap execution facility to have the ability and
authority to obtain sufficient information to allow it to fully perform
its operational, risk management, governance, and regulatory functions
and any requirements under this section, including the capacity to
carry out international information-sharing agreements as the
Commission may require.
    (c) Collection of information. A security-based swap execution
facility shall have rules that allow it to collect information on a
routine basis, allow for the collection of non-routine data from its
members, and allow for its examination of books and records kept by
members on its facility.
    (d) Provide information to the Commission. A security-based swap
execution facility shall provide information in its possession to the
Commission upon request, in a form and manner specified by the
Commission.
    (e) Information-sharing agreements. A security-based swap execution
facility shall share information with other regulatory organizations,
data repositories, and third-party data reporting services as required
by the Commission or as otherwise necessary and appropriate to fulfill
its regulatory and reporting responsibilities. Appropriate information-
sharing agreements can be established with such entities, or the
Commission can act in conjunction with the security-based swap
execution facility to carry out such information sharing.

Sec.  242.823  Core Principle 6--Financial integrity of transactions.

    (a) General. The security-based swap execution facility shall
establish and enforce rules and procedures for ensuring the financial
integrity of security-based swaps entered on or through the facilities
of the security-based swap execution facility, including the clearance
and settlement of security-based swaps pursuant to section 3C(a)(1) of
the Act.
    (b) Required clearing. Transactions executed on or through the
security-based swap execution facility that are required to be cleared
under section 3C(a)(1) of the Act or are voluntarily cleared by the
counterparties shall be cleared through a registered clearing agency or
a clearing agency that has obtained an exemption from clearing agency
registration to provide central counterparty services for security-
based swaps.
    (c) General financial integrity. A security-based swap execution
facility shall provide for the financial integrity of its transactions:
    (1) By establishing minimum financial standards for its members,
which shall, at a minimum, require that each member qualify as an
eligible contract participant;
    (2) For transactions cleared by a registered clearing agency:
    (i) By ensuring that the security-based swap execution facility has
the capacity to route transactions to the registered clearing agency in
a manner acceptable to the clearing agency for purposes of clearing;
and
    (ii) By coordinating with each registered clearing agency to which
it submits transactions for clearing, in the development of rules and
procedures to facilitate prompt and efficient transaction processing.
    (d) Monitoring for financial soundness. A security-based swap
execution facility shall monitor its members to ensure that they
continue to qualify as eligible contract participants.

Sec.  242.824  Core Principle 7--Emergency authority.

    (a) The security-based swap execution facility shall adopt rules to
provide for the exercise of emergency authority, in consultation or
cooperation with the Commission, as is necessary and appropriate,
including the authority to liquidate or transfer open positions in any
security-based swap or to suspend or curtail trading in a security-
based swap.
    (b) To comply with this core principle, a security-based swap
execution facility shall adopt rules that are reasonably designed to:
    (1) Allow the security-based swap execution facility to intervene
as necessary to maintain markets with fair and orderly trading and to
prevent or address manipulation or disruptive trading practices,
whether the need for intervention arises exclusively from the security-
based swap execution facility's market or as part of a coordinated,
cross-market intervention;
    (2) Have the flexibility and independence to address market
emergencies in an effective and timely manner consistent with the
nature of the emergency, as long as all such actions taken by the
security-based swap execution facility are made in good faith to
protect the integrity of the markets;
    (3) Take market actions as may be directed by the Commission,
including, in situations where a security-based swap is traded on more
than one platform, emergency action to liquidate or transfer open
interest as directed, or agreed to, by the Commission or the
Commission's staff;
    (4) Include procedures and guidelines for decision-making and
implementation of emergency intervention that avoid conflicts of
interest;
    (5) Include alternate lines of communication and approval
procedures to address emergencies associated with real-time events; and
    (6) Allow the security-based swap execution facility, to address
perceived market threats, to impose or modify position limits, impose
or modify price limits, impose or modify intraday market restrictions,
impose special margin requirements, order the liquidation or transfer
of open positions in any contract, order the fixing of a settlement
price, extend or shorten the expiration date or the trading hours,
suspend or curtail trading in any contract, transfer customer contracts
and the margin, or alter any contract's settlement terms or conditions,
or, if applicable, provide for the carrying out of such actions through
its agreements with its third-party provider of clearing or regulatory
services.
    (c) A security-based swap execution facility shall promptly notify
the Commission of its exercise of emergency authority, explaining its
decision-making process, the reasons for using its emergency authority,
and how conflicts of interest were minimized, including the extent to
which the security-based swap execution facility considered the effect
of its emergency action on the underlying markets and on markets that
are linked or referenced to the contracts traded on its facility,
including similar

markets on other trading venues. Information on all regulatory actions
carried out pursuant to a security-based swap execution facility's
emergency authority shall be included in a timely submission of a
certified rule pursuant to Sec.  242.807.

Sec.  242.825  Core Principle 8--Timely publication of trading
information.

    (a)(1) The security-based swap execution facility shall make public
timely information on price, trading volume, and other trading data on
security-based swaps to the extent prescribed by the Commission.
    (2) The security-based swap execution facility shall be required to
have the capacity to electronically capture and transmit and
disseminate trade information with respect to transactions executed on
or through the facility.
    (b) A security-based swap execution facility shall report security-
based swap transaction data as required by Sec. Sec.  242.900 through
242.909 (Regulation SBSR).
    (c) A security-based swap execution facility shall make available a
``Daily Market Data Report'' containing the information required in
paragraphs (c)(1) and (2) of this section in a manner and timeframe
required by this section.
    (1) Contents. The Daily Market Data Report of a security-based swap
execution facility for a business day shall contain the following
information for each tenor of each security-based swap traded on that
security-based swap execution facility during that business day:
    (i) The trade count (excluding error trades, correcting trades, and
offsetting trades);
    (ii) The total notional amount traded (excluding error trades,
correcting trades, and offsetting trades);
    (iii) The total notional amount of block trades, after such time as
the Commission adopts a definition of ``block trade'' in Sec.  242.802
of this chapter (Rule 802);
    (iv) The opening and closing price;
    (v) The price that is used for settlement purposes, if different
from the closing price; and
    (vi) The lowest price of a sale or offer, whichever is lower, and
the highest price of a sale or bid, whichever is higher, that the
security-based swap execution facility reasonably determines accurately
reflects market conditions. Bids and offers vacated or withdrawn shall
not be used in making this determination. A bid is vacated if followed
by a higher bid or price and an offer is vacated if followed by a lower
offer or price.
    (2) Additional information. A security-based swap execution
facility must record the following information with respect to
security-based swaps on that reporting market:
    (i) The method used by the security-based swap execution facility
in determining nominal prices and settlement prices; and
    (ii) If discretion is used by the security-based swap execution
facility in determining the opening and/or closing ranges or the
settlement prices, an explanation that certain discretion may be
employed by the security-based swap execution facility and a
description of the manner in which that discretion may be employed.
Discretionary authority must be noted explicitly in each case in which
it is applied (for example, by use of an asterisk or footnote).
    (3) Form of publication. A security-based swap execution facility
shall publicly post the Daily Market Data Report on its website:
    (i) In a downloadable and machine-readable format using the most
recent versions of the associated XML schema and PDF renderer as
published on the Commission's website;
    (ii) Without fees or other charges;
    (iii) Without any encumbrances on access or usage restrictions; and
    (iv) Without requiring a user to agree to any terms before being
allowed to view or download the Daily Market Data Report, such as by
waiving any requirements of this paragraph (c)(3). Any such waiver
agreed to by a user shall be null and void.
    (4) Timing of publication. A security-based swap execution facility
shall publish the Daily Market Data Report on its website as soon as
reasonably practicable on the next business day after the day to which
the information pertains, but in no event later than 7 a.m. on the next
business day.
    (5) Duration. A security-based swap execution facility shall keep
each Daily Market Data Report available on its website in the same
location as all other Daily Market Data Reports for no less than one
year after the date of first publication.

Sec.  242.826  Core Principle 9--Recordkeeping and reporting.

    (a) In general. (1) A security-based swap execution facility shall:
    (i) Maintain records of all activities relating to the business of
the facility, including a complete audit trail, in a form and manner
acceptable to the Commission for a period of five years; and
    (ii) Report to the Commission, in a form and manner acceptable to
the Commission, such information as the Commission determines to be
necessary or appropriate for the Commission to perform the duties of
the Commission under the Act.
    (2) The Commission shall adopt data collection and reporting
requirements for security-based swap execution facilities that are
comparable to corresponding requirements for clearing agencies and
security-based swap data repositories.
    (b) Required records. A security-based swap execution facility
shall keep full, complete, and systematic records, together with all
pertinent data and memoranda, of all activities relating to its
business with respect to security-based swaps. Such records shall
include, without limitation, the audit trail information required under
Sec.  242.819(f) and all other records that a security-based swap
execution facility is required to create or obtain under Sec. Sec.
242.800 through 242.835 (Regulation SE).
    (c) Duration of retention. (1) A security-based swap execution
facility shall keep records of any security-based swap from the date of
execution until the termination, maturity, expiration, transfer,
assignment, or novation date of the transaction, and for a period of
not less than five years, the first two years in an easily accessible
place, after such date.
    (2) A security-based swap execution facility shall keep each record
other than the records described in paragraph (c)(1) of this section
for a period of not less than five years, the first two years in an
easily accessible place, from the date on which the record was created.
    (d) Record retention. (1) A security-based swap execution facility
shall retain all records in a form and manner that ensures the
authenticity and reliability of such records in accordance with the Act
and the Commission's rules thereunder.
    (2) A security-based swap execution facility shall, upon request of
any representative of the Commission, promptly furnish to the
representative legible, true, complete, and current copies of any
records required to be kept and preserved pursuant to this section.
    (3)(i) An electronic record shall be retained in a form and manner
that allows for prompt production at the request of any representative
of the Commission.
    (ii) A security-based swap execution facility maintaining
electronic records shall establish appropriate systems and controls
that ensure the authenticity and reliability of electronic records,
including, without limitation:
    (A) Systems that maintain the security, signature, and data as
necessary to ensure the authenticity of

the information contained in electronic records and to monitor
compliance with the Act and the Commission's rules thereunder;
    (B) Systems that ensure that the security-based swap execution
facility is able to produce electronic records in accordance with this
section, and ensure the availability of such electronic records in the
event of an emergency or other disruption of the security-based swap
execution facility's electronic record retention systems; and
    (C) The creation and maintenance of an up-to-date inventory that
identifies and describes each system that maintains information