may be instances in which an SDR's fees or discounts (including volume
discounts) are fair, reasonable, and not unreasonably discriminatory,
even if the fees or discounts are not related to the SDR's costs in
providing such services or access. In all instances, the SDR is
responsible for demonstrating that its fees or discounts meet this
regulatory standard.\515\ As stated above, the Commission expects to
evaluate the fairness and reasonableness of an SDR's fees and charges
on a case-by-case basis.
---------------------------------------------------------------------------

    \514\ Barnard, supra note 19.
    \515\ See Item 26 of Form SDR.
---------------------------------------------------------------------------

    The third commenter suggested that the Commission require SDRs to
make available any data they collect and may properly use for
commercial purposes to all market participants on reasonable terms and
pricing and on a non-discriminatory basis.\516\ Although the Commission
agrees that fees imposed by SDRs should be ``on reasonable terms and
pricing and on a non-discriminatory basis,'' the Commission notes that
an SDR is not required to make SBS data available to all market
participants, aside from SBS data that is publicly disseminated
pursuant to Regulation SBSR.\517\ As discussed below, there may be
limited instances in which an SDR denies access to a market
participant.\518\
---------------------------------------------------------------------------

    \516\ Tradeweb SB SEF, supra note 29.
    \517\ See Regulation SBSR Adopting Release, supra note 13 (Rule
902 requiring SDRs to publicly disseminate certain SBS information).
    \518\ See Section VI.D.3.a.iii(3) of this release discussing an
SDR's obligation to provide fair, open, and not unreasonably
discriminatory access to others.
---------------------------------------------------------------------------

    With respect to cross-subsidies, the Commission believes that it is
not necessary, as one commenter suggested,\519\ to prohibit cross-
subsidies between services provided by an SDR, but the Commission
recognizes that there may be instances in which such cross-subsidies
would violate Rule 13n-4(c)(1)(i). For example, cross-subsidies between
an SDR's services that result in fees that are arbitrary or have no
relationship to the costs of providing the service on a discrete basis
may not be consistent with Rule 13n-4(c)(1)(i). This is because an
arbitrary fee structure could mean that fees are not being incurred
consistently by similarly-situated users of the SDR's services and
because the Commission believes that, in certain instances, fee
structures without some relationship to the costs of the SDR may not be
fair and reasonable due to the differential impact such charges would
have on market participants that may choose to use some, but not all,
of the SDR's or its affiliate's services.\520\ Another commenter
suggested that the Commission prohibit SDRs from charging fees to third
parties acting on behalf of counterparties for accepting SBS
transaction information.\521\ The commenter also suggested that the
Commission require SDRs to share their revenue from redistributing data
with parties providing the data to the SDRs.\522\ Consistent with the
Commission's approach with its other registrants, including exchanges
and clearing agencies, the Commission does not believe that it is
appropriate to dictate who an SDR can and cannot charge or with whom an
SDR must share its revenue.
---------------------------------------------------------------------------

    \519\ See DTCC 4, supra note 19.
    \520\ Accord Exchange Act Section 17A(b)(3)(D), 15 U.S.C. 78q-
1(b)(3)(D) (requiring the rules of a clearing agency to provide for
the equitable allocation of reasonable dues, fees, and other charges
among its participants).
    \521\ Tradeweb SBSR, supra note 27.
    \522\ Tradeweb SB SEF, supra note 29.
---------------------------------------------------------------------------

    One commenter suggested that the Commission extend the
applicability of its rule to providers engaged in two or more of
trading, clearing, or repository services to prevent predatory or
coercive pricing by the providers.\523\ As with its other rules
governing SDRs, the Commission's rule implementing the first core
principle generally applies only to SDR services. To the extent that
the Commission decides that predatory or coercive pricing with respect
to non-SDR services needs to be addressed, the Commission will take
appropriate action.
---------------------------------------------------------------------------

    \523\ DTCC 4, supra note 19.
---------------------------------------------------------------------------

(2) Rule 13n-4(c)(1)(ii): Offering Services Separately
    Rule 13n-4(c)(1)(ii) requires each SDR to permit market
participants to access specific services offered by the SDR separately.
As one commenter suggested,\524\ an SDR may bundle its services,
including any ancillary services, regardless of the asset class at
issue, but this rule requires the SDR to also provide market
participants with the option of using its services separately.\525\ The
Commission believes that it is appropriate to adopt this rule as
proposed to promote competition.\526\
---------------------------------------------------------------------------

    \524\ See DTCC 2, supra note 19 (suggesting that SDRs should be
permitted to offer two or more service options, including one that
fulfills the minimum regulatory reporting requirements and other
services to complement the mandatory reporting function). But see
DTCC 4, supra note 19 (suggesting that bundling should not be
permitted across asset classes).
    \525\ See Barnard, supra note 19 (believing that SDRs should be
able to offer ancillary services, whether bundled or not, but not
supporting the bundling of ancillary services with mandatory or
regulatory services).
    \526\ See Exchange Act Section 13(n)(7)(A), 15 U.S.C.
78m(n)(7)(A) (regarding the first SDR core principle). See also
Section VIII discussing economic analysis.
---------------------------------------------------------------------------

    If an SDR or its affiliate \527\ provides an ancillary service,
such as a matching and confirmation service, then the SDR is prohibited
by Rule 13n-4(c)(1)(ii) from requiring a market participant to use and
pay for that service as a condition of using the SDR's data collection
and maintenance services.\528\ In such an instance, the SDR is also
prohibited from requiring a market participant that uses the SDR's or
affiliate's ancillary service to use the SDR's data collection and
maintenance services. The Commission also believes that if an SDR
enters into an oral or written agreement or arrangement with an
affiliate or third party service provider that reflects a business plan
in which the affiliate or third party service provider will require its
customers to use the core services of that SDR, then the SDR would not
be in compliance with Rule 13n-4(c)(1)(ii).\529\ In evaluating the
fairness and reasonableness of fees that an SDR charges for bundled and
unbundled services, the Commission will take into consideration, among
other things, the SDR's cost of making those services available on a
bundled or unbundled basis, as the case may be, and a market
participant's proportional use of the SDR's services.
---------------------------------------------------------------------------

    \527\ See supra note 247 (defining ``affiliate'').
    \528\ See Proposing Release, 75 FR at 77320-77321, supra note 2.
    \529\ The Commission notes that under Exchange Act Section
20(b), 15 U.S.C. 78t(b), ``[i]t shall be unlawful for any person,
directly or indirectly, to do any act or thing which it would be
unlawful for such person to do under the provisions of [the Exchange
Act] or any rule or regulation thereunder through or by means of any
other person.''
---------------------------------------------------------------------------

    With regard to one commenter's suggestion that all ``users'' of an
SDR's services, including unaffiliated third party service providers,
should be permitted to access the SDR's non-SDR services
separately,\530\ the Commission agrees, as set forth in Rule 13n-
4(c)(1)(ii), that market participants that use an SDR's services should
have access to specific services offered by the SDR, including any
ancillary services, separately. The Commission believes that SDRs
should consider giving third

party service providers acting as agents for such market participants
the same rights as the market participants to access these services
separately. However, Rule 13n-4(c)(1)(ii) does not require an SDR to
afford the agent access to the SDR's unbundled services outside of its
agency capacity.
---------------------------------------------------------------------------

    \530\ See TriOptima, supra note 19.
---------------------------------------------------------------------------

(3) Rule 13n-4(c)(1)(iii): Fair, Open, and Not Unreasonably
Discriminatory Access
    Rule 13n-4(c)(1)(iii) requires each SDR to establish, monitor on an
ongoing basis, and enforce clearly stated objective criteria that would
permit fair, open, and not unreasonably discriminatory access to
services offered and data maintained by the SDR as well as fair, open,
and not unreasonably discriminatory participation by market
participants, market infrastructures, venues from which data can be
submitted to the SDR, and third party service providers that seek to
connect to or link with the SDR. As with Rule 13n-4(c)(1)(i), the
Commission will evaluate whether such access or participation is
``fair, open, and not unreasonably discriminatory'' on a case-by-case
basis. Although this rule does not explicitly require, as one commenter
suggested,\531\ SDRs to establish and maintain effective
interoperability and interconnectivity with other SDRs,\532\ market
infrastructures, and venues from which data can be submitted, the rule
is intended to encourage such interoperability and interconnectivity by
requiring SDRs to establish criteria that would permit fair, open, and
not unreasonably discriminatory participation by others, including
those that seek to connect to or link with the SDR.
---------------------------------------------------------------------------

    \531\ See Better Markets 1, supra note 19.
    \532\ The Commission is not explicitly requiring SDRs to
maintain effective interoperability and interconnectivity with other
SDRs at this time, partly because such a requirement could hinder
the developing infrastructure for SBS transactions.
---------------------------------------------------------------------------

    The Commission agrees with most of the comments on this rule. One
commenter suggested that market participants should have ``equal and
fair access to data on SBS transactions.'' \533\ The Commission agrees
with the comment to the extent that the commenter equated ``equal and
fair access'' with the ``fair, reasonable and not unreasonably
discriminatory'' standard in the rule. However, the Commission notes
that all market participants are not required to be treated the same
way in all instances. For example, if a market participant fails to pay
the SDR's reasonable fees, then it may be ``fair, reasonable and not
unreasonably discriminatory'' for an SDR to deny access to the market
participant.
---------------------------------------------------------------------------

    \533\ See Better Markets 2, supra note 19.
---------------------------------------------------------------------------

    The Commission agrees that an SDR should be able to condition
access to SBS data that it maintains by specifying the methods and
channels that must be used to connect to the SDR and by setting certain
minimum standards,\534\ provided that such conditions are fair, open,
and not unreasonably discriminatory. The Commission also agrees with
one commenter's view that an SDR should, to the extent feasible,
provide each counterparty to an SBS transaction that is reported to an
SDR with reasonable access to the data relating to that
transaction.\535\ If an SDR provides such access to smaller, lower
volume market participants at reduced or waived fees, as one commenter
suggested,\536\ then the discount must be fair and reasonable and not
unreasonably discriminatory.\537\ The Commission further agrees with
commenters' views that an SDR should provide connectivity to others,
including third party service providers, clearinghouses, and SB
SEFs,\538\ and, as one commenter suggested,\539\ if the SDR delegates
the function of providing connectivity to another entity, that entity
cannot require anyone to use the entity's services as a condition to
obtaining connectivity to the SDR. The Commission also agrees with
another commenter that an SDR generally should impose similar data
access rights and requirements on itself (and its affiliates) as those
imposed on a third party acting as an agent on behalf of an SBS
counterparty.\540\
---------------------------------------------------------------------------

    \534\ See MarkitSERV, supra note 19. Related to this comment,
another commenter suggested that market infrastructures such as
clearing agencies and SB SEFs should generally have the ability to
report SBS transactions to SDRs to satisfy their customers'
reporting preferences. See DTCC 3, supra note 19. As stated above,
the Commission intends to adopt rules relating to clearing agencies
and SB SEFs in separate releases.
    \535\ See DTCC 2, supra note 19; see also DTCC 3, supra note 19
(noting that SDRs should be able to accept trades in any manner
consistent with the regulations, from any market participant and
have appropriate communication links, to the extent feasible, with
all counterparties to SBS transactions reported to the SDR); DTCC
SBSR, supra note 27 (stating that SDRs ``will need to support an
appropriate set of connectivity methods'').
    \536\ See DTCC 2, supra note 19 (noting that in providing access
to SBS data, SDRs should reduce or waive certain fees, as necessary,
to smaller, lower volume market participants).
    \537\ See Rule 13n-4(c)(1)(i).
    \538\ See, e.g., DTCC 3, supra note 19 (supporting open access
to SBS data maintained by an SDR by other service providers); Better
Markets 1, supra note 19.
    \539\ See MarkitSERV, supra note 19.
    \540\ See TriOptima, supra note 19 (stating that non-
discriminatory access is important so as to ``not stifle innovation
and the competition in the provision of post-trade processing
services'').
---------------------------------------------------------------------------

    As stated in the Proposing Release, the Commission is concerned,
among other things, that an SDR, controlled or influenced by a market
participant, may limit the level of access to the services offered or
data maintained by the SDR as a means to impede competition from other
market participants or third party service providers.\541\ The
Commission believes that Rule 13n-4(c)(1)(iii) addresses this concern.
---------------------------------------------------------------------------

    \541\ Proposing Release, 75 FR at 77321, supra note 2.
---------------------------------------------------------------------------

    One commenter recommended that the Commission permit SDRs to deny
access only on risk-based grounds.\542\ Although the Commission concurs
that an SDR should always consider the risks that an actual or
prospective market participant may pose to the SDR, the Commission does
not believe that it is appropriate to explicitly limit an SDR's ability
to deny access because there may be reasonable grounds for denial that
may not be risk-related--e.g., a counterparty to an SBS fails to pay
the SDR's reasonable fees or a third party service provider breaches
its contractual obligation to maintain the privacy of data received by
the SDR. The same commenter suggested that the Commission should set
forth ``clearly stated objective criteria'' with respect to fair access
and denial of access in the final rule,\543\ but the Commission does
not believe that it is necessary to do so. Under Rule 13n-4(c)(1)(iii),
SDRs must establish appropriate criteria to govern access to their
services and data as well as participation by those seeking to connect
to or link with the SDR.
---------------------------------------------------------------------------

    \542\ Better Markets 1, supra note 19.
    \543\ Better Markets 1, supra note 19.
---------------------------------------------------------------------------

    The Commission does not believe that Rule 13n-1(c)(1)(iii) should
require an SDR to provide ``full and unrestricted'' access to third
party service providers acting pursuant to written authorizations from
an SBS counterparty, as suggested by one commenter.\544\ While the
Commission agrees with the commenter that such a third party service
provider is exercising the SBS counterparty's right to access data with
respect to that counterparty's trades, the Commission believes that
requiring an SDR to provide ``full and unrestricted'' access (beyond
that provided to the SBS counterparty acting directly) would appear to
be inconsistent with the Exchange Act. Even if the service provider has
received written authorization from one SBS counterparty, the SDR
nonetheless would be required to protect the privacy and
confidentiality of the other

counterparty; \545\ thus, the SDR need only provide the third party
service provider with access to such data that the SBS counterparty
that has authorized disclosure would be entitled to access. As noted by
the commenter, such a third party service provider is acting as the SBS
counterparty's agent and should be entitled to the same level of access
as provided to the SBS counterparty.\546\ The Commission agrees with
the commenter regarding the importance of upholding ``a fair, secure
and efficient post-trade market'' \547\ and believes that the rule as
adopted achieves this goal.
---------------------------------------------------------------------------

    \544\ See TriOptima, supra note 19.
    \545\ See Exchange Act Section 13(n)(5)(F), 15 U.S.C.
78m(n)(5)(F), and Rule 13n-9 (requiring SDRs to maintain the privacy
of SBS transaction information).
    \546\ See TriOptima, supra note 19.
    \547\ See TriOptima, supra note 19.
---------------------------------------------------------------------------

(4) Rule 13n-4(c)(1)(iv): Prohibited or Limited Access
    Rule 13n-4(c)(1)(iv) requires each SDR to establish, maintain, and
enforce written policies and procedures reasonably designed to review
any prohibition or limitation of any person with respect to access to
services offered, directly or indirectly, or data maintained by the SDR
and to grant such person access to such services or data if such person
has been discriminated against unfairly.
    As stated in the Proposing Release, the Commission believes that,
for any such policies and procedures to be reasonable, at a minimum,
those at an SDR involved in the decision-making process of prohibiting
or limiting a person's access to the SDR's services or data cannot be
involved in the review of whether the prohibition or limitation was
appropriate.\548\ Otherwise, the purpose of the review process would be
undermined. Additionally, an SDR may wish to consider whether its
internal review process should be done by the SDR's board \549\ or an
executive committee.
---------------------------------------------------------------------------

    \548\ Proposing Release, 75 FR at 77321, supra note 2.
    \549\ The term ``board'' is defined as ``the board of directors
of the security-based swap data repository or a body performing a
function similar to the board of directors of the security-based
swap data repository.'' See Rule 13n-4(a)(2); see also Rule 13n-
11(b)(1).
---------------------------------------------------------------------------

    As discussed above, one commenter suggested that the Commission
require an SDR to promptly file a notice with the Commission if the SDR
prohibits or limits any person's access to services offered or data
maintained by the SDR.\550\ Rule 909 of Regulation SBSR, which the
Commission is concurrently adopting in a separate release, requires
each registered SDR to register as a SIP, and, as such, Exchange Act
Section 11A(b)(5) governs denials of access to services by an SDR.\551\
This section provides that ``[i]f any registered securities information
processor prohibits or limits any person in respect of access to
services offered, directly or indirectly, by such securities
information processor, the registered securities information processor
shall promptly file notice thereof with the Commission.'' \552\
Accordingly, an SDR must promptly notify the Commission if it prohibits
or limits access to any of its services to any person. In addition, the
SDR is required to notify the Commission of any prohibition or
limitation with respect to services offered or data maintained by the
SDR in its annual amendment to its Form SDR, which will also enable the
Commission to evaluate whether the prohibition or limitation is
appropriate.\553\ Also, pursuant to Rule 13n-7, records of the decision
to prohibit or limit access are required to be maintained by the SDR,
and the SDR must promptly furnish such records to any representative of
the Commission upon request.\554\
---------------------------------------------------------------------------

    \550\ See Better Markets 1, supra note 19.
    \551\ See Regulation SBSR Adopting Release, supra note 13.
    \552\ 15 U.S.C. 78k-1(b)(5).
    \553\ See Item 33 of Form SDR.
    \554\ See Section VI.G of this release discussing Rule 13n-7.
---------------------------------------------------------------------------

b. Second Core Principle: Governance Arrangements (Rule 13n-4(c)(2))
i. Proposed Rule
    Proposed Rule 13n-4(c)(2) would incorporate and implement the
second core principle \555\ by requiring SDRs to establish governance
arrangements that are transparent (i) to fulfill public interest
requirements under the Exchange Act and the rules and regulations
thereunder; (ii) to carry out functions consistent with the Exchange
Act, the rules and regulations thereunder, and the purposes of the
Exchange Act; and (iii) to support the objectives of the Federal
Government, owners, and participants.\556\ The proposed rule would
impose four specific requirements. First, an SDR would be required to
establish governance arrangements that are well defined and include a
clear organizational structure with effective internal controls.\557\
Second, an SDR's governance arrangements would be required to provide
for fair representation of market participants.\558\ Third, an SDR
would be required to provide representatives of market participants,
including end-users, with the opportunity to participate in the process
for nominating directors and with the right to petition for alternative
candidates.\559\ Finally, an SDR would be required to establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure that the SDR's senior management and each member of
the board or committee that has the authority to act on behalf of the
board possess requisite skills and expertise to fulfill their
responsibilities in the management and governance of the SDR, to have a
clear understanding of their responsibilities, and to exercise sound
judgment about the SDR's affairs.\560\
---------------------------------------------------------------------------

    \555\ See Exchange Act Section 13(n)(7)(B), 15 U.S.C.
78m(n)(7)(B).
    \556\ Proposed Rule 13n-4(c)(2).
    \557\ Proposed Rule 13n-4(c)(2)(i).
    \558\ Proposed Rule 13n-4(c)(2)(ii).
    \559\ Proposed Rule 13n-4(c)(2)(iii).
    \560\ Proposed Rule 13-4(c)(2)(iv).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission solicited comments on
whether to impose any additional requirements, including ownership or
voting limitations on SDRs and persons associated with SDRs.\561\
---------------------------------------------------------------------------

    \561\ Proposing Release, 75 FR at 77323-77324, supra note 2.
---------------------------------------------------------------------------

ii. Comments on the Proposed Rule
    Four commenters submitted comments relating to this proposed
rule.\562\ Comments on the proposal were mixed. As a general matter,
one commenter stated that the role of the Commission is to ``insure
that the governing structure [of SDRs] is fair to all market
participants.'' \563\
---------------------------------------------------------------------------

    \562\ See Barnard, supra note 19; Better Markets 1, supra note
19; DTCC 2, supra note 19; Saul, supra note 19; see also Better
Markets 2, supra note 19; DTCC 3, supra note 19.
    \563\ Saul, supra note 19.
---------------------------------------------------------------------------

    In suggesting that ``ownership and voting limitations be eliminated
in their entirety,'' \564\ another commenter noted that such
limitations would be an imprecise tool to achieve the Commission's
policy goals regarding conflicts of interest.\565\ The commenter stated
that instead, ``[t]hese policy goals can best be met by structural
governance requirements'' such as governance by market
participants.\566\ The commenter believed that ``[i]n the specific case
of an SDR, governance by market participants is appropriate, given that
most potential conflicts of interest are dealt with directly in the
Proposed Rule and will be overseen directly by the regulator.'' \567\
The commenter further believed that because the ``SDR is not

defining the reporting party, timeliness or content for public
dissemination, and similarly the SDR is not defining the reporting
party, content or process for regulatory access . . . the SDR does not
have significant influence over the inclusion or omission of
information in the reporting process, nor does it control the output of
the process.'' \568\ The commenter suggested that the Commission focus
on ensuring open access and, to support such access, ``the SDR needs
governance that has independence from its affiliates and is
representative of users who are the beneficiaries of choice in service
providers.'' \569\ Along this line, the commenter believed that SDRs
should assure that ``dealings with affiliates . . . be subject to
oversight by members of the SDR's board of directors who are not
engaged in the governance or oversight of either the affiliates or
their competitors.'' \570\ The commenter also suggested that SDRs be
``user-governed,'' including ``a board of directors that is broadly
representative of market participants and that incorporates voting
safeguards designed to prevent non-regulatory uses of data of a
particular class of market participants that are objectionable to that
class.'' \571\ The commenter believed that ``[i]ndependent perspectives
can provide value to a board of directors, but those who do not
directly participate in markets may not have sufficient, timely, and
comprehensive expertise on those issues critical to the extraordinarily
complex financial operations of SDRs.'' \572\
---------------------------------------------------------------------------

    \564\ DTCC 3, supra note 19.
    \565\ DTCC 2, supra note 19.
    \566\ DTCC 2, supra note 19
    \567\ DTCC 2, supra note 19.
    \568\ DTCC 2, supra note 19 (An SDR's conflicts of interest are
``significantly different from other market infrastructures, where
these infrastructures may have the ability to influence
participation in a service (e.g. execution, clearing membership,
portfolio compression), or completeness of product offering (where
it is proposed that all trades in an asset class are accepted).'').
    \569\ DTCC 2, supra note 19; see also DTCC 3, supra note 19
(``[S]tructural governance requirements offer the best solution to
reduce risk, increase transparency and promote market integrity
within the financial system while avoiding the potential negative
impact on capital, liquidity and mitigating systemic risk that could
result from any ownership or voting limitations.'').
    \570\ DTCC 2, supra note 19.
    \571\ DTCC 2, supra note 19.
    \572\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    A third commenter recommended that ``meaningful corporate
governance requirements apply to [SDRs].'' \573\ In this regard, the
commenter recommended that the Commission's rules relating to
governance arrangements ``be much more detailed and clear'' and
``require SDRs to establish boards and nominating committees that are
composed of a majority of independent directors.'' \574\ The commenter
believed that ``[i]ndependent boards are one of the most effective
tools for ensuring that an SDR will abide by the letter and spirit of
the enumerated duties and core principles set forth in the Dodd-Frank
Act.'' \575\ The commenter also believed that as ``important safeguards
against the dominant influence of some market participants over
others,'' the Commission's rules should impose both individual and
aggregate limitations on ownership and voting (e.g., limit the
aggregate ownership interest in an SDR by SDR participants and their
related persons to 20%, prohibit SDR participants and their related
persons from directly or indirectly exercising more than 20% of the
voting power of any class of ownership interest in the SDR).\576\
---------------------------------------------------------------------------

    \573\ Better Markets 2, supra note 19.
    \574\ Better Markets 1, supra note 19; see also Better Markets
2, supra note 19 (reiterating the importance of independent boards
for SDR governance).
    \575\ Better Markets 1, supra note 19.
    \576\ Better Markets 1, supra note 19; see also Better Markets
2, supra note 19 (reiterating the importance of ownership and voting
restrictions for SDRs governance).
---------------------------------------------------------------------------

    Another commenter suggested that, with respect to ``board
membership requirements and ownership and voting limits, there should
be a level playing field between at least SDRs and other swap
entities.'' \577\ The commenter recommended that the Commission propose
something similar to the CFTC's ``Independent Perspective'' \578\ by
``requiring a registered SDR to have independent public directors on
(i) its board of directors and (ii) any committee that has the
authority to (A) act on behalf of the board of directors or (B) amend
or constrain the action of the board of directors.'' \579\
---------------------------------------------------------------------------

    \577\ Barnard, supra note 19.
    \578\ The CFTC requires each swap data repository to establish,
maintain, and enforce written policies or procedures to ensure that
the nomination process for its board of directors, as well as the
process for assigning members of the board of directors or other
person to such committees, adequately incorporates an ``Independent
Perspective,'' which is defined as ``a viewpoint that is impartial
regarding competitive, commercial, or industry concerns and
contemplates the effect of a decision on all constituencies
involved.'' See CFTC Rules 49.2(a)(14) and 49.20(c)(1)(i)(B), 17 CFR
49.2(a)(14) and 49.20(c)(1)(i)(B); see also CFTC Part 45 Adopting
Release, 76 FR at 54563, supra note 37 (discussing a swap data
repository's consideration of an Independent Perspective).
    \579\ Barnard, supra note 19.
---------------------------------------------------------------------------

iii. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-4(c)(2) as proposed, with one minor modification.\580\ Under this
rule, each SDR is required to establish governance arrangements that
are transparent to fulfill public interest requirements under the
Exchange Act and the rules and regulations thereunder; to carry out
functions consistent with the Exchange Act, the rules and regulations
thereunder, and the purpose of the Exchange Act; and to support the
objectives of the Federal Government, owners, and participants.\581\ To
comply with the second core principle, each SDR is required to comply
with four specific requirements: (i) Establish governance arrangements
that are well defined and include a clear organizational structure with
effective internal controls; \582\ (ii) establish governance
arrangements that provide for fair representation of market
participants; \583\ (iii) provide representatives of market
participants, including end-users, with the opportunity to participate
in the process for nominating directors and with the right to petition
for alternative candidates; \584\ and (iv) establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
that the SDR's senior management and each member of the board or
committee that has the authority to act on behalf of the board possess
requisite skills and expertise to fulfill their responsibilities in the
management and governance of the SDR, have a clear understanding of
their responsibilities, and exercise sound judgment about the SDR's
affairs.\585\
---------------------------------------------------------------------------

    \580\ See infra accompanying text to note 586 of this release
discussing a modification to proposed Rule 13n-4(c)(2).
    \581\ Rule 13n-4(c)(2).
    \582\ Rule 13n-4(c)(2)(i).
    \583\ Rule 13n-4(c)(2)(ii). Accord Exchange Act Section
17A(b)(3)(C), 15 U.S.C. 78q-1(b)(3)(C) (requiring the rules of a
clearing agency assure a fair representation of its shareholders (or
members) and participants in the selection of its directors and
administration of its affairs). The term ``market participant'' is
defined as ``(1) any person participating in the security-based swap
market, including, but not limited to, security-based swap dealers,
major security-based swap participants, and any other counterparties
to a security-based swap transaction.'' See Rule 13n-4(a)(6); see
also Rule 13n-9(a)(3); Rule 13n-10(a).
    \584\ Rule 13n-4(c)(2)(iii).
    \585\ Rule 13n-4(c)(2)(iv).
---------------------------------------------------------------------------

    As proposed, Rule 13n-4(c)(2)(iv) would have required an SDR's
policies and procedures be reasonably designed to ensure that its
senior management and each member of the board or committee that has
the authority to act on behalf of the board to ``possess requisite
skills and expertise . . . to have a clear understanding of their
responsibilities'' and ``possess requisite skills and expertise . . .
to exercise sound judgment about the [SDR's] affairs.'' The Commission
is revising the proposed rule by removing the word ``to'' from the
clauses above, to provide

that an SDR's policies and procedures be reasonably designed to ensure
that its senior management and each member of the board or committee
that has the authority to act on behalf of the board is required to
actually have a clear understanding of their responsibilities and
exercise sound judgment about the SDR's affairs, rather than simply
possess the skills and expertise to do so.\586\ Without the revision
from the proposal, the rule could have been misinterpreted to mean that
an SDR's management and each member of the board or committee that has
the authority to act on behalf of the board need only possess the
skills and expertise to have a clear understanding of their
responsibilities. With respect to sound judgment, an SDR may want to
include, in its policies and procedures, a requirement that its
management and each member of the board or committee that has the
authority to act on behalf of the board consider fairly all relevant
information and views without undue influence from others, and provide
advice and recommendations that are reasonable under the relevant facts
and circumstances.
---------------------------------------------------------------------------

    \586\ Rule 13n-4(c)(2)(iv).
---------------------------------------------------------------------------

    Given an SDR's unique and integral role in the SBS market, the
Commission believes that it is particularly important that an SDR
establish a governance arrangement that is well defined and include a
clear organizational structure with effective internal controls.
Because the board has a role in overseeing the SDR's compliance with
the SDR's statutory and regulatory obligations,\587\ the Commission
also believes that it is important that those who are managing and
overseeing an SDR's activities are qualified to do so. An SDR's failure
to comply with their obligations could affect, for example, the SDR's
operational efficiency, which could, in turn, impact the SBS market as
a whole.\588\
---------------------------------------------------------------------------

    \587\ See Rule 13n-11(e) (requiring an SDR's CCO to submit an
annual compliance report to the board for its review prior to the
filing of the report to with the Commission).
    \588\ Accord Proposing Release, 75 FR at 77307, supra note 2
(``The inability of an SDR to protect the accuracy and integrity of
the data that it maintains or the inability of an SDR to make such
data available to regulators, market participants, and others in a
timely manner could have a significant negative impact on the SBS
market. Failure to maintain privacy of such data could lead to
market abuse and subsequent loss of liquidity.'').
---------------------------------------------------------------------------

    The Commission believes that Rule 13n-4(c)(2)'s requirement that
SDRs establish governance arrangements that provide for fair
representation of market participants is consistent with one
commenter's view that governance of SDRs by market participants is
appropriate.\589\ With respect to one commenter's recommendation that
an SDR's governance should be independent from its affiliates by, for
example, ensuring that dealings with its affiliates are subject to
oversight by members of the SDR's board who are not engaged in the
governance or oversight of either the affiliates or their
competitors,\590\ the Commission believes that this is one effective
way to comply with the rule and to minimize the SDR's potential
conflicts of interest, as discussed further in Section VI.D.3.c of this
release.
---------------------------------------------------------------------------

    \589\ See DTCC 2, supra note 19. In discussing governance
arrangements, the commenter seemed to imply that the Commission is
responsible for directly overseeing an SDR's conflicts of interest.
To clarify, it is the SDR itself that is statutorily required to
establish and enforce policies and procedures to minimize its
conflicts of interest in its decision-making process. See Exchange
Act Section 13(n)(7)(C), 15 U.S.C. 78m(n)(7)(C).
    \590\ See DTCC 2, supra note 19.
---------------------------------------------------------------------------

    In establishing a governance arrangement that provides for fair
representation of market participants, one way for an SDR to comply
with Rule 13n-4(c)(2) is to provide market participants with the
opportunity to participate in the process for nominating directors and
with the right to petition for alternative candidates. These two
requirements are interrelated. The Commission believes that if market
participants have no say in an SDR's governance process, then the
market participants may not be fairly represented.\591\ The Commission
notes, however, that having fair representation of market participants
does not necessarily equate to requiring a fixed number or percentage
of enumerated categories of market participants. Instead, the
requirement is intended to promote a fair representation of the views
and perspectives of market participants.
---------------------------------------------------------------------------

    \591\ One commenter suggested that the Commission propose
something similar to the CFTC's ``Independent Perspective.''
Barnard, supra note 19. The Commission believes that although Rule
13n-4(c)(2) is different from CFTC Rule 49.20 in this area, both
rules may achieve the same objective of broad representation on
SDRs' boards. Rule 13n-4(c)(2)(ii) requires SDRs to ``[e]stablish
governance arrangements that provide for fair representation of
market participants,'' and Rule 13n-4(c)(2)(iii) requires SDRs to
``[p]rovide representatives of market participants, including end-
users, with the opportunity to participate in the process for
nominating directors and with the right to petition for alternative
candidates.'' Instead of focusing on fair representation of market
participants, CFTC Rule 49.20(c) requires a swap data repository to
establish, maintain, and enforce written policies and procedures to
ensure that its board and other committees adequately consider an
``Independent Perspective'' in their decision-making process. See 17
CFR 49.20(c). Cf. DTCC 2, supra note 19 (stating that
``[i]ndependent perspectives can provide value to a board of
directors, but those who do not directly participate in markets may
not have sufficient, timely, and comprehensive expertise on those
issues critical to the extraordinarily complex financial operations
of SDRs'').
---------------------------------------------------------------------------

    The Commission considered whether an SDR's potential and existing
conflicts of interest would warrant prescriptive rules relating to
governance (e.g., ownership or voting limitations, independent
directors, nominating committees composed of a majority of independent
directors), as two commenters suggested,\592\ but believes that the
rules that are intended to minimize such conflicts and to help ensure
that SDRs meet core principles are sufficient at this time.\593\ If the
Commission were to impose additional governance requirements and
limitations, SDRs would likely incur costs in addition to the costs
already imposed by the SDR Rules.\594\ The Commission, however, does
not believe that the additional costs are warranted at this time. Also,
consistent with one comment,\595\ the Commission continues to believe
that it is appropriate and cost-effective to provide SDRs with
flexibility in determining their ownership and governance structure.
The Commission may, however, revisit the issue of whether to impose
additional governance requirements and limitations as the SBS market
evolves.
---------------------------------------------------------------------------

    \592\ See Barnard, supra note 19; Better Markets 1, supra note
19; see also Better Markets 2, supra note 19.
    \593\ See, e.g., Rule 13n-4(c)(1) (implementing core principle
relating to market access to SDRs' services and data), as discussed
in Section VI.D.3.a of this release; Rule 13n-4(c)(3) (implementing
core principle relating to conflicts of interest), as discussed in
Section VI.D.3.c of this release; and Rule 13n-5 (requiring an SDR
to accept all SBSs in a given asset class if it accepts any SBS in
that asset class), as discussed in Section VI.E of this release; see
also Item 32 of Form SDR (requiring disclosure of instances in which
an SDR has prohibited or limited a person with respect to access to
the SDR's services or data). As stated in Section VI.D.3.a.iii(4) of
this release, the Commission is adopting Rule 909 of Regulation
SBSR, which requires each SDR to register as a SIP; as such,
Exchange Act Section 11A(b)(5) governs denials of access to all
services of an SDR. See Regulation SBSR Adopting Release, supra note
13; Exchange Act Section 11A(b)(5), 15 U.S.C. 78k-1(b)(5).
    \594\ See Section VIII.D of this release (discussing SDRs' costs
of complying with the SDR Rules).
    \595\ See DTCC 2, supra note 19 (recommending structural
governance requirements instead of ownership and voting
limitations); see also DTCC 3, supra note 19 (supporting the
mitigation of conflicts of interest through the imposition of
structural governance requirements instead of ownership and voting
limitations).

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

c. Third Core Principle: Rules and Procedures for Minimizing and
Resolving Conflicts of Interest (Rule 13n-4(c)(3))
i. Proposed Rule
    Proposed Rule 13n-4(c)(3) would incorporate the third core
principle \596\ by requiring each SDR to establish and enforce written
policies and procedures reasonably designed to minimize conflicts of
interest in the decision making process of the SDR, and establish a
process for resolving any such conflicts of interest.\597\ The proposed
rule provided general examples of conflicts of interest that should be
considered by an SDR and would require each SDR to comply with the core
principle by (i) establishing, maintaining, and enforcing written
policies and procedures reasonably designed to identify and mitigate
potential and existing conflicts of interest in the SDR's decision-
making process on an ongoing basis; \598\ (ii) recusing any person
involved in a conflict of interest from the decision-making process for
resolving such conflicts of interest; \599\ and (iii) establishing,
maintaining, and enforcing reasonable written policies and procedures
regarding the SDR's non-commercial and/or commercial use of the SBS
transaction information that it receives from a market participant, any
registered entity, or any other person.\600\
---------------------------------------------------------------------------

    \596\ See Exchange Act Section 13(n)(7)(C), 15 U.S.C.
78m(n)(7)(C)).
    \597\ Proposed Rule 13n-4(c)(3).
    \598\ Proposed Rule 13n-4(c)(3)(i).
    \599\ Proposed Rule 13n-4(c)(3)(ii).
    \600\ Proposed Rule 13n-4(c)(3)(iii).
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ii. Comments on the Proposed Rule
    Seven commenters submitted comments relating to this proposed
rule.\601\ One commenter agreed that the Proposing Release ``correctly
highlights a number of the harmful practices that can thrive in an
environment that does not adequately address conflicts of interest. . .
.'' \602\ These practices are discussed further in Section VI.D.3.c.iii
below. Another commenter acknowledged that ``[t]he mandatory reporting
regime [under the Dodd-Frank Act] creates an opportunity for [an] SDR
to improperly commercialize the information it receives'' and agreed
with the Commission that ``market access by service providers to an SDR
could be a potential source for conflicts of interest.'' \603\ This
commenter expressed the view, however, that because ``[t]he reporting
rules for SDRs are highly prescriptive, and the primary consumers of
this data are regulators, [there is] limited room for conflicts
involving regulatory or public data access.'' \604\ The commenter noted
that ``[i]t is important that regulators ensure that the public utility
function of SDRs . . . is separated from potential commercial uses of
the data.'' \605\
---------------------------------------------------------------------------

    \601\ See Better Markets 1, supra note 19; DTCC 2, supra note
19; Markit, supra note 19; MarkitSERV, supra note 19; MFA 1, supra
note 19; WMBAA SBSR, supra note 27; Tradeweb SB SEF, supra note 29;
see also DTCC SBSR, supra note 27.
    \602\ Better Markets 1, supra note 19.
    \603\ DTCC 2, supra note 19 (discussing an SDR's conflicts of
interest identified by the Commission in the Proposing Release).
    \604\ DTCC 2, supra note 19.
    \605\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    As noted in the Proposing Release, a few entities that presently
provide or had anticipated providing trade repository services
identified the following conflicts of interest that could arise at an
SDR.\606\ First, owners of an SDR could have commercial incentives to
exert undue influence to control the level of access to the services
offered and data maintained by the SDR and to implement policies and
procedures that would further their self-interests to the detriment of
others.\607\ Specifically, owners of an SDR could exert their influence
and control to prohibit or limit access to the services offered and
data maintained by the SDR in order to impede competition.\608\ Second,
an SDR could favor certain market participants over others with respect
to the SDR's services and pricing for such services.\609\ Third, an SDR
could require that services be purchased on a ``bundled'' basis.\610\
Finally, an SDR or a person associated with the SDR could misuse or
misappropriate data reported to the SDR for financial gain.\611\ As one
trade repository noted, ``SDR data is extremely valuable and could be
sold either stand alone or enhanced with other market data and
analysis. The use of this data in this manner would present competitive
problems'' as well as conflicts of interest issues.\612\
---------------------------------------------------------------------------

    \606\ Proposing Release, 75 FR at 77324-77325, supra note 2.
    \607\ See, e.g., Reval, Responses to the CFTC's Questions on the
SDR Requirements, available at<EMAIL_ADDRESS>(stating that an SDR with any ownership or revenue sharing
arrangements directly or indirectly with a dealer would be an
obvious conflict of interest) (``Reval CFTC Response Letter'').
    \608\ See, e.g., Warehouse Trust Company, Draft Response to CFTC
re: CFTC Request for Information regarding SDR Governance, available
at<EMAIL_ADDRESS>(stating that ``ownership
of an SDR could lead to access restrictions on non-owners'')
(``Warehouse Trust CFTC Response Letter'').
    \609\ See Reval CFTC Response Letter, supra note 607 (stating
that preferential treatment in services provided by an SDR could
also occur).
    \610\ See Warehouse Trust CFTC Response Letter, supra note 608
(``The issue of vertical bundling could arise where [SB SEFs and
clearing agencies] have preferred access or servicing arrangements
with SDRs primarily due to ownership overlaps.'').
    \611\ See Reval CFTC Response Letter, supra note 607 (``[T]here
would always be an underlying conflict to ensure that the position
information or client activity does not get into the hands of
investors or business partners of the SDR who could benefit from
that information.'').
    \612\ Warehouse Trust CFTC Response Letter, supra note 608; see
also Reval CFTC Response Letter, supra note 607 (``[I]f only one SDR
is created for an asset class and that SDR is held by a market
participant that could gain by having an edge on when the
information is received, even if by a split second, it could have a
trading edge.'').
---------------------------------------------------------------------------

    Several commenters expressed their views on the ownership of SBS
data maintained by SDRs. Specifically, three commenters believed that
ownership of SBS data should remain with counterparties to the SBS
unless specifically agreed by them.\613\ One commenter to proposed
Regulation SBSR stated that ownership of SBS data should be retained by
the reporting party (e.g., SB SEFs, counterparties to an SBS),\614\
whereas a commenter to the Proposing Release believed that data
ownership does not transfer to an SB SEF or any other regulated
entity.\615\ Three commenters, including two commenters to proposed
Regulation SBSR, believed that SDRs and/or their affiliates should be
prohibited from using SBS data for commercial purposes.\616\ One of
those commenters

supported an SDR's use of aggregated data for commercial use, such as
marketing.\617\
---------------------------------------------------------------------------

    \613\ MarkitSERV, supra note 19 (``[I]n the interest of ensuring
minimal intrusion on commercial activity and optimal incentives for
parties to support and encourage robust and accurate reporting, and
the development of valuable commercial products . . . data provided
to [SDRs] should only be used as permitted by the relevant market
participants in agreements between them and the [SDR].''); Markit,
supra note 19 (stating that ``commercialization of data should only
be done with the specific consent of the data owners''); DTCC 2,
supra note 19 (``The principle of user control over the data for
non-regulatory purposes must . . . be scrupulously maintained.'');
see also DTCC 3, supra note 19 (``It is critical to preserve the
trading parties' control over their own data.'').
    \614\ WMBAA SBSR, supra note 27.
    \615\ Markit, supra note 19.
    \616\ MFA 1, supra note 19 (suggesting that the Commission adopt
a rule similar to the CFTC's proposed rule that would prohibit SDRs
from using data for commercial purposes without express written
consent); DTCC SBSR, supra note 27 (``It is good public policy that
the aggregating entity not itself use the data for commercial
purposes, particularly where data is required to be reported to an
aggregator serving a regulatory purpose, and make such data
available to value added providers on a non-discriminatory basis,
consistent with restrictions placed on the data by the data
contributors themselves.''); WMBAA SBSR, supra note 27 (``Consistent
with reporting practices in other markets, the reporting of SBS
transaction information to a registered SDR should not bestow the
SDR with the authority to use the SBS transaction data for any
purpose other than those explicitly enumerated in the Commission's
regulations.'').
    \617\ MFA 1, supra note 19; see also Tradeweb SB SEF, supra note
29 (supporting SDRs' commercial use of data with limitations).
---------------------------------------------------------------------------

    One commenter to the SB SEF Proposing Release recommended that the
Commission clarify in its final rules or adopting release that its
rules are not intended to impose or imply any limit on the ability of
market participants, including counterparties to SBS transactions, SB
SEFs, and clearing agencies, to use and/or commercialize data that they
create or receive in connection with the execution or reporting of SBS
data.\618\ Similarly, one commenter to proposed Regulation SBSR
suggested that the Commission require SDRs to adopt policies and
procedures explicitly acknowledging that counterparties to SBS
transactions and SB SEFs retain the ability to market and commercialize
their own proprietary data.\619\
---------------------------------------------------------------------------

    \618\ Tradeweb SB SEF, supra note 29 (believing that its
recommendation will help ensure a robust and competitive market, as
envisioned by the Dodd-Frank Act, and help limit the possibility of
overreaching by SDRs due to their unique position in the data-
reporting regime).
    \619\ WMBAA SBSR, supra note 27.
---------------------------------------------------------------------------

iii. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-4(c)(3) as proposed. Under this rule, each SDR is required to
establish and enforce written policies and procedures reasonably
designed to minimize conflicts of interest in the decision-making
process of the SDR and to establish a process for resolving any such
conflicts of interest.\620\
---------------------------------------------------------------------------

    \620\ Rule 13n-4(c)(3).
---------------------------------------------------------------------------

    Rule 13n-4(c)(3) provides general examples of conflicts of interest
that should be considered by an SDR, including, but not limited to: (1)
Conflicts between the commercial interests of an SDR and its statutory
and regulatory responsibilities, (2) conflicts in connection with the
commercial interests of certain market participants or linked market
infrastructures, third party service providers, and others, (3)
conflicts between, among, or with persons associated with the SDR,\621\
market participants, affiliates of the SDR, and nonaffiliated third
parties,\622\ and (4) misuse of confidential information, material,
nonpublic information, and/or intellectual property. These general
examples are the same as those included in proposed Rule 13n-4(c)(3)
with one modification. The proposed rule provided, as an example,
``conflicts between the commercial interests of [an SDR] and its
statutory responsibilities.'' Upon further consideration, the
Commission is revising this example, to include potential conflicts
between an SDR's commercial interests and its regulatory
responsibilities. This revision is intended to clarify that an SDR's
commercial interests can conflict with not only its statutory
responsibilities, but also its regulatory responsibilities, which may
be more prescriptive than its statutory responsibilities.
---------------------------------------------------------------------------

    \621\ Rule 13n-4(a)(8) defines ``person associated with a
security-based swap data repository'' as (i) any partner, officer,
or director of such SDR (or any person occupying a similar status or
performing similar functions), (ii) any person directly or
indirectly controlling, controlled by, or under common control with
such SDR, or (iii) any employee of such SDR. See also Rule 13n-
9(a)(7). This definition draws from the definition of ``person
associated with a broker or dealer'' in the Exchange Act, and
includes persons associated with an SDR whose functions are solely
clerical or ministerial. See Exchange Act Section 3(a)(18), 15
U.S.C. 78c(a)(18). Rule 13n-4(a)(3) defines ``control'' (including
the terms ``controlled by'' and ``under common control with'') as
``the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise.'' Pursuant to Rule 13n-4(a)(3), ``[a] person is presumed
to control another person if the person: (i) Is a director, general
partner, or officer exercising executive responsibility (or having
similar status or functions); (ii) directly or indirectly has the
right to vote 25 percent or more of a class of voting securities or
has the power to sell or direct the sale of 25 percent or more of a
class of voting securities; or (iii) in the case of a partnership,
has the right to receive, upon dissolution, or has contributed, 25
percent or more of the capital.'' The Commission is correcting a
typographical error in the proposed definition. Proposed Rule 13n-
4(a)(3)(ii) referred to the right to vote 25 percent ``of'' more of
a class of securities. See Proposing Release, 75 FR at 77367, supra
note 2. As adopted, Rule 13n-4(a)(3)(ii) refers to the right to vote
25 percent ``or'' more of a class of securities. See also Rules 13n-
9(a)(2) and 13n-11(b)(2). The definition of ``control'' incorporates
the definition of ``control'' in Exchange Act Rule 12b-2 and Form
BD, the registration form for broker-dealers. See 17 CFR 240.12b-2
and Form BD, 17 CFR 249.501.
    \622\ The term ``nonaffiliated third party'' of an SDR is
defined as any person except (1) the SDR, (2) an SDR's affiliate, or
(3) a person employed by an SDR and any entity that is not the SDR's
affiliate (and ``nonaffiliated third party'' includes such entity
that jointly employs the person). See Rule 13n-4(a)(7); see also
Rule 13n-9(a)(4). This definition draws from the definition of
``nonaffiliated third party'' in Sec.  248.3 of Regulation S-P. See
17 CFR 248.3.
---------------------------------------------------------------------------

    To comply with the third core principle, an SDR is required to
comply with three specific requirements. First, Rule 13n-4(c)(3)(i)
requires each SDR to establish, maintain, and enforce written policies
and procedures reasonably designed to identify and mitigate potential
and existing conflicts of interest in the SDR's decision-making process
on an ongoing basis. The Commission continues to believe that requiring
an SDR to conduct ongoing identification and mitigation of conflicts of
interest is important because such conflicts can arise gradually over
time or unexpectedly. Furthermore, a situation that is acceptable one
day may present a conflict of interest the next. The Commission
believes that in order to identify and address potential conflicts that
may arise over time, an SDR's procedures generally should provide a
means for regular review of conflicts as they impact the SDR's
decision-making processes. Rather than imposing prescriptive
requirements on SDRs regarding how to address conflicts, the Commission
believes that SDRs should be provided the flexibility to determine how
best to address and manage their conflicts.
    Second, Rule 13n-4(c)(3)(ii) requires an SDR to recuse any person
involved in a conflict of interest from the decision-making process for
resolving that conflict of interest. As stated in the Proposing
Release, the Commission believes that such recusal is necessary to
eliminate an apparent conflict of interest in an SDR's decision-making
process.\623\ Additionally, recusal will likely increase confidence in
the SDR's decision-making process and avoid an appearance of
impropriety.
---------------------------------------------------------------------------

    \623\ Proposing Release, 75 FR at 77325, supra note 2.
---------------------------------------------------------------------------

    Finally, Rule 13n-4(c)(3)(iii) requires an SDR to establish,
maintain, and enforce reasonable written policies and procedures
regarding the SDR's non-commercial and/or commercial use of the SBS
transaction information that it receives from a market participant, any
registered entity, or any other person. The Commission recognizes that
an SDR may have commercial incentives to operate as an SDR and agrees
with one commenter's view that the Dodd-Frank Act's mandatory reporting
regime creates an opportunity for an SDR to commercialize improperly
the information that it receives.\624\ To the extent that an SDR uses
data that it receives from others for commercial purposes, the
Commission believes that such uses should be clearly defined and
disclosed to market participants.\625\ If, for example, a market
participant is considering waiving confidentiality of the data that it
provides to an SDR, then, at the very least, such disclosure should
provide the market participant with the information necessary to make a
meaningful choice. One commenter suggested that an SDR should, as a way
to minimize potential conflicts of interest, consider separating its
utility function from its commercial use of the

SBS transaction information that it receives.\626\ The Commission
agrees that this could be a way to address potential conflicts of
interest, but the Commission does not believe that it necessarily
mitigates or eliminates conflicts in all circumstances. Thus, while
SDRs may wish to consider this approach, the Commission is not
requiring them to do so at this time.
---------------------------------------------------------------------------

    \624\ See DTCC 2, supra note 19.
    \625\ See Section VI.I.2 of this release discussing an SDR's
disclosure requirements.
    \626\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, the Commission believes that
a small number of dealers could control an SDR, which may require SDR
owners to balance competing interests.\627\ Owners of an SDR could
derive greater revenues from their non-trade repository activities in
the SBS market than they would from sharing in the profits of the SDR
in which they hold a financial interest; consequently, the owners of an
SDR may be conflicted in making decisions that would increase the SDR's
profitability, but decrease the profitability of their non-trade
repository activities. In addition, there may be a tension between an
SDR's statutory or regulatory obligations (e.g., maintaining the
privacy of data reported to the SDR) and its own commercial interests
or those of its owners (e.g., using data reported to the SDR for
commercial purposes).\628\
---------------------------------------------------------------------------

    \627\ Proposing Release, 75 FR at 77324, supra note 2.
    \628\ See Proposing Release, 75 FR at 77324, supra note 2
(citing to CPSS-IOSCO Trade Repository Report (noting the conflicts
of interest ``between the unique public role of the [SDR] and its
own commercial interests particularly if the [SDR] offers services
other than record keeping or between commercial interests relating
to different participants and linked market infrastructures and
service providers'')).
---------------------------------------------------------------------------

    An SDR's conflicts of interest that are not properly managed could
limit the benefits of the SDR to the markets and regulators of SDRs as
well as undermine the mandatory reporting requirement in Exchange Act
Section 13(m)(1)(G), thereby impacting efficiency in the SBS
market.\629\ If, for instance, a market participant loses confidence in
a particular SDR because the SDR fails to minimize its conflicts of
interest, then the market participant may report its SBS transactions
to an alternative SDR, which could lead to data fragmentation. By
requiring an SDR to take specific actions to minimize its conflicts of
interest, the Commission believes that Rule 13n-4(c)(3), as adopted,
addresses these concerns as well as the concerns expressed in comments
received on the rule proposal.
---------------------------------------------------------------------------

    \629\ See 15 U.S.C. 78m(m)(1)(G). Exchange Act Section
13(m)(1)(G) imposes a mandatory reporting requirement, which
provides that ``[e]ach security-based swap (whether cleared or
uncleared) shall be reported to a registered security-based swap
data repository.'' See also Exchange Act Section 13A(a)(1), 15
U.S.C. 78m-1(a)(1) (``Each security-based swap that is not accepted
for clearing by any clearing agency or derivatives clearing
organization shall be reported to--(A) a security-based swap data
repository . . ., or (B) in the case in which there is no security-
based swap data repository that would accept the security-based
swap, to the Commission . . . .'').
---------------------------------------------------------------------------

    Several commenters expressed their views on whether an SDR should
be permitted to use data for commercial purposes.\630\ For a number of
reasons, the Commission continues to believe that it is not appropriate
to adopt, at this time, a rule prohibiting an SDR and its affiliates
from using for commercial purposes SBS data that the SDR maintains
without obtaining express written consent from both counterparties to
the SBS transaction or the reporting party. First, the Commission
believes that such a prohibition may limit transparency by hindering an
SDR's ability to provide anonymized and aggregated reports to the
public if the Commission does not specifically mandate an SDR to
provide these reports to the public. Under the final rule, an SDR may
provide these reports to the public, provided that it complies with the
privacy requirements of Rule 13n-9, as discussed in Section VI.I.1
below.\631\ Second, a rule that prohibits an SDR from using SBS data
for commercial purposes seems to presume that the market participants
or reporting party owns the data. As evidenced by the comment letters
received,\632\ the issue of who owns the data is not clear cut,
particularly when value is added to it. Third, a general prohibition on
an SDR's commercial use of SBS data could hinder competition and the
establishment of new SDRs. As stated in Section III.D of this release,
the Commission does not support any particular business model;
restricting an SDR's commercial use of SBS data entirely, however, may
be viewed as the Commission favoring one model over other models.
Finally, the Commission believes that it is adopting adequate
mechanisms to prevent or detect an SDR's misuse of SBS data.\633\ If,
however, such mechanisms prove to be inadequate, then the Commission
may revisit this issue.
---------------------------------------------------------------------------

    \630\ See Markit, supra note 19 (stating that
``commercialization of data should only be done with the specific
consent of the data owners''); MarkitSERV, supra note 19 (stating
that ``data provided to [SDRs] should only be used as permitted by
the relevant market participants in agreements between them and the
[SDR]''); MFA 1, supra note 19 (suggesting that the Commission adopt
a rule similar to the CFTC's proposed rule that would prohibit SDRs
from using data for commercial purposes without express written
consent); see also DTCC SBSR, supra note 27 (suggesting that an SDR
should not use data for commercial purposes); WMBAA SBSR, supra note
27 (indicating that an SDR should not have the authority to use SBS
transaction data ``for any purpose other than those explicitly
enumerated in the Commission's regulations''). See also CFTC Rule
49.17(g), 17 CFR 49.17(g) (``Swap data accepted and maintained by
the swap data repository generally may not be used for commercial or
business purposes by the swap data repository or any of its
affiliated entities''; however, ``[t]he swap dealer, counterparty or
any other registered entity that submits the swap data maintained by
the registered swap data repository may permit the commercial or
business use of the data by express written consent.'').
    \631\ Cf. SBSR Adopting Release, supra note 13 (prohibiting
public dissemination of ``non-mandatory reports,'' as defined in
Regulation SBSR).
    \632\ See DTCC 2, supra note 19; Markit, supra note 19;
MarkitSERV, supra note 19; MFA 1, supra note 19; DTCC SBSR, supra
note 27; WMBAA SBSR, supra note 27.
    \633\ See, e.g., Rules 13n-4(c)(1)(i) (fair and reasonable fee
requirements) and 13n-9 (privacy requirements).
---------------------------------------------------------------------------

    At this time, the Commission believes that the core principles and
statutory requirements applicable to SDRs under the Dodd-Frank Act can
be appropriately addressed under the final SDR Rules, without the need
for the Commission to take a position on ownership of SBS data. In
response to one commenter's request for clarification,\634\ the
Commission notes that Rule 13n-4(c)(3) is not intended to impose or
imply any limit on the ability of market participants, including
counterparties to SBS transactions, SB SEFs, and clearing agencies, to
use or commercialize data that they create or receive in connection
with the execution or reporting of SBS data. The Commission, however,
does not believe that it is necessary, as another commenter
suggested,\635\ to require SDRs to adopt policies and procedures
explicitly acknowledging that market participants retain the ability to
market and commercialize their own proprietary data.
---------------------------------------------------------------------------

    \634\ See Tradeweb SB SEF, supra note 29.
    \635\ See WMBAA SBSR, supra note 27.
---------------------------------------------------------------------------

4. Indemnification Exemption (Rule 13n-4(d))
    In the Cross-Border Proposing Release, the Commission proposed Rule
13n-4(d), pursuant to its authority under Exchange Act Section 36,\636\
to provide a tailored exemption from the indemnification requirement
set forth in Exchange Act Section 13(n)(5)(H)(ii) \637\ and previously
proposed Rule 13n-4(b)(10) thereunder.\638\ The Commission received a
number of comments relating to the indemnification requirement and

the proposed exemption.\639\ While the Commission continues to believe
that an exemption from the indemnification requirement should be
considered, the Commission also believes that the final resolution of
this issue can benefit from further consideration and public comment.
Accordingly, the Commission is not adopting proposed Rule 13n-4(d) at
this time. The Commission anticipates soliciting additional public
comment regarding the indemnification requirement and a proposed
exemption. As discussed above, SDRs will have to comply with all
statutory requirements, including the indemnification requirement set
forth in Exchange Act Section 13(n)(5)(H)(ii),\640\ when the current
exemptive relief from the statutory requirements expires.\641\
---------------------------------------------------------------------------

    \636\ 15 U.S.C. 78mm.
    \637\ 15 U.S.C. 78m(n)(5)(H)(ii).
    \638\ Cross-Border Proposing Release, 78 FR at 31209, supra note
3.
    \639\ See DTCC 2, supra note 19; ESMA, supra note 19; US &
Foreign Banks, supra note 24; see also DTCC 1*, supra note 20; DTCC
CB, supra note 26.
    \640\ 15 U.S.C. 78m(n)(5)(H)(ii).
    \641\ See Section V of this release discussing the
implementation of the SDR Rules.
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E. Data Collection and Maintenance (Rule 13n-5)

    The Commission proposed Exchange Act Rule 13n-5 to specify the data
collection and maintenance requirements applicable to SDRs.\642\ After
considering the comments received on this proposal, the Commission is
adopting Rule 13n-5 as proposed, with certain modifications.\643\
---------------------------------------------------------------------------

    \642\ Rule 13n-5 is being promulgated under Exchange Act
Sections 13(n)(4)(B), 13(n)(7)(D), and 13(n)(9). See 15 U.S.C.
78m(n)(4)(B), 78m(n)(7)(D), and 78m(n)(9). Rule 13n-5(b) does not
apply to SDR records other than transaction data and positions, as
defined below. Records made or kept by an SDR, other than
transaction data and positions, are governed by Rule 13n-7, as
discussed in Section VI.G of this release.
    \643\ Each definition in Rule 13n-5(a) is discussed alongside
the substantive rule in which the definition is used. See Section
VI.E.1 below discussing ``asset class'' and ``transaction data'';
and Section VI.E.2 below discussing ``position.''
---------------------------------------------------------------------------

1. Transaction Data (Rule 13n-5(b)(1))
a. Proposed Rule
    Proposed Rule 13n-5(b)(1)(i) would require every SDR to establish,
maintain, and enforce written policies and procedures reasonably
designed for the reporting of transaction data to the SDR, and would
require the SDR to accept all transaction data that is reported to the
SDR in accordance with such policies and procedures. Proposed Rule 13n-
5(a)(1) defined ``transaction data'' to mean all the information
reported to an SDR pursuant to the Exchange Act and the rules and
regulations thereunder.\644\
---------------------------------------------------------------------------

    \644\ In a separate rulemaking implementing Dodd-Frank Act
Sections 763(i) and 766(a) (adding Exchange Act Sections 13(m) and
13A(a)(1) respectively), the Commission is adopting rules requiring
SBS transactions to be reported to a registered SDR. See Regulation
SBSR Adopting Release, supra note 13 (Rules 901 and 902). In another
separate proposal relating to implementation of Dodd-Frank Act
Section 763(i) (adding Exchange Act Section 13(n)(5)(E)), the
Commission proposed rules that would require SDRs to receive SBS
transaction data that satisfies the notice requirement for parties
that elect the end-user exception to mandatory clearing of SBSs in
order to aid the Commission in its responsibility to prevent abuse
of the end-user exception as provided for in Exchange Act Section
3C(g). See End-User Exception Proposing Release, supra note 15
(``Using the centralized facilities of SDRs should also make it
easier for the Commission to analyze how the end-user clearing
exception is being used, monitor for potentially abusive practices,
and take timely action to address abusive practices if they were to
develop.'').
---------------------------------------------------------------------------

    Proposed Rule 13n-5(b)(1)(ii) would require an SDR, if it accepts
any SBS in a given asset class, to accept all SBSs in that asset class
that are reported to it in accordance with its policies and procedures
required by paragraph (b)(1) of the proposed rule. Proposed Rule 13n-
5(a)(3) defined ``asset class'' as ``those security-based swaps in a
particular broad category, including, but not limited to, credit
derivatives, equity derivatives, and loan-based derivatives.''
    Proposed Rule 13n-5(b)(1)(iii) would require every SDR to
establish, maintain, and enforce written policies and procedures
reasonably designed to satisfy itself by reasonable means that the
transaction data that has been submitted to the SDR is accurate. This
proposed rule would also require every SDR to clearly identify the
source for each trade side and the pairing method (if any) for each
transaction in order to identify the level of quality of that
transaction data.\645\
---------------------------------------------------------------------------

    \645\ Proposed Rule 13n-5(b)(1)(iii).
---------------------------------------------------------------------------

    Proposed Rule 13n-5(b)(1)(iv) would require every SDR to promptly
record the transaction data it receives.\646\
---------------------------------------------------------------------------

    \646\ In a separate release, the Commission is adopting rules
prescribing the data elements that an SDR is required to accept for
each SBS, in association with requirements under Dodd-Frank Act
Section 763(i) (adding Exchange Act Section 13(n)(4)(A), relating to
standard setting and data identification). See Regulation SBSR
Adopting Release, supra note 13 (Rule 901).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
    Three commenters submitted comments relating to this proposed
rule.\647\ One commenter stated that an SDR should have ``certain
minimum data standards'' with regard to the transaction data that it
accepts, but that ``such standards should be able to accommodate a wide
variety of SBS transactions submitted per asset class.'' \648\ The
commenter also stated that ``the regulations should be understood to
permit [SDRs] to specify the methods and channels that participants
need to use to connect to them, which will most commonly be provided in
the form of the Application Programming Interfaces (APIs) and through
setting of certain minimum standards.'' \649\
---------------------------------------------------------------------------

    \647\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; MFA
1, supra note 19; see also DTCC 3, supra note 19; DTCC 4, supra note
19; DTCC 5, supra note 19.
    \648\ MarkitSERV, supra note 19.
    \649\ MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    Another commenter recommended revising the definition of ``asset
class'' from the proposal to eliminate ``the distinction between loan-
based and credit asset classes,'' and noted that ``products like CDS on
loans, while loan-based, are currently reported alongside other CDS
products.'' \650\ The commenter believed that ``[i]n general, equity
and credit derivatives will be easy to classify, although it is
possible that certain transactions could be mixed and more difficult to
classify.'' \651\ The commenter stated that it considers it more likely
to have classification difficulties between ``a swap and an SBS, rather
than between SBS asset classes.'' \652\ The commenter suggested that,
in order to mitigate the problem of classification between asset
classes, the Commission could combine ``the loan-based asset class with
credit derivatives, and [allow] an SBS to be reported to either the
equity or credit SDR if there is any uncertainty of a product's asset
class.'' \653\
---------------------------------------------------------------------------

    \650\ DTCC 2, supra note 19.
    \651\ DTCC 2, supra note 19.
    \652\ DTCC 2, supra note 19 (giving as an example a trade
constructed based on the correlation between commodities and
equities).
    \653\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

    Two commenters agreed that SDRs should be required to support all
trades in an asset class.\654\ One commenter stated that ``[w]ithout
specific requirements related to the range of products that can be
reported to them, [SDRs] may be tempted to limit their operating costs
by only accepting the more standardized categories of swaps [that] also
tend to trade in high volumes. This would result in incomplete market
coverage and an increased fragmentation of the reported data.'' \655\
Thus, the commenter recommended that the Commission require SDRs ``to
accept all trades in a given asset class as a means of ensuring broad
coverage while guarding against fragmentation that could result from
inadequate [SDR]

functionality.'' \656\ The other commenter stated that the
``requirement for an SDR to support all trades in an asset class is . .
. important to reduce the complexity for reporting parties,'' and that
the ``requirement discourages an SDR from only servicing high volume
products within an asset class to maximize profit, and leaving more
complex (and less frequently traded) transactions to be reported by
reporting parties directly to the Commission.'' \657\
---------------------------------------------------------------------------

    \654\ MarkitSERV, supra note 19; DTCC 2, supra note 19; see also
DTCC 3, supra note 19; DTCC 4, supra note 19.
    \655\ MarkitSERV, supra note 19 (citation omitted).
    \656\ MarkitSERV, supra note 19 (noting that ``some level of
data fragmentation will be unavoidable'') (citation omitted).
    \657\ DTCC 2, supra note 19; see also DTCC 3, supra note 19
(recommending that any SDR ``be able to receive and manage all swaps
in any asset class for which it is registered in accordance with the
requirements of the Commission'' because such requirement is
``critical . . . for assuring that the more complex and non-standard
transactions, typically the higher risk creating transactions . . .,
are appropriately registered in SDRs so accurate risk and market
activity profiles can be maintained''); DTCC 4, supra note 19
(stating that ``no provider of trading or clearing services should
be permitted to simply declare itself the SDR for trades it
facilitates'' and that it ``strenuously objects'' to allowing SDRs
accept only those SBSs that are cleared).
---------------------------------------------------------------------------

    Three commenters addressed the SDR's role with respect to verifying
the accuracy of the transaction data submitted.\658\ One commenter
fully supported the requirement that SDRs confirm with both
counterparties the accuracy of the data submitted.\659\ Another
commenter stated that ``the Commission should encourage the use and
reporting of trade data that has been confirmed or verified by both
counterparties via an affirmation or a matching process,'' \660\ and
that this should be ``connected with'' the Commission's proposed
requirement that SBS dealers and major SBS participants provide trade
acknowledgments and verify those trade acknowledgments.\661\ This
commenter suggested, however, that SDRs should be able to accept
single-sided trades for real-time reporting purposes, and that any
subsequently discovered discrepancies could be corrected after
confirmation.\662\ The third commenter recommended that ``SDRs should
not have additional duties with respect to verifying the accuracy of
[a] submission, as there is limited data available to the SDR. The SDR
may carry out certain routine functions to identify trades which may
indicate erroneous data (e.g. based on size), but in general, the
primary responsibility for accuracy of reported information should
remain with the reporting party.'' \663\ This commenter also
recommended that the Commission determine that an SDR has satisfied its
obligation where ``(i) the [SBS] has been reported by a [SEF], clearing
agency, designated contract market, or other regulated counterparty who
has an independent obligation to maintain the accuracy of the
transaction data; (ii) a confirmation has been submitted to the [SDR]
to demonstrate that both counterparties have agreed to the accuracy of
the swap information that was submitted to the [SDR]; or (iii) the
[SBS] is deemed verified and the [SDR] has developed and implemented
policies and procedures reasonably designed to provide the non-
reporting side of the [SDR] with an opportunity to confirm the
information submitted by the reporting side.'' \664\ This same
commenter stated that SDRs should ``process transactions in real-
time.'' \665\
---------------------------------------------------------------------------

    \658\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; MFA
1, supra note 19.
    \659\ MFA 1, supra note 19.
    \660\ MarkitSERV, supra note 19 (stating such an approach would
motivate parties to ensure the accuracy of reported data because of
the associated economic and legal consequences).
    \661\ See Trade Acknowledgment Release, supra note 133.
    \662\ MarkitSERV, supra note 19.
    \663\ DTCC 2, supra note 19.
    \664\ DTCC 5, supra note 19.
    \665\ DTCC 2, supra note 19.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-5(b)(1) and the definition of ``transaction data'' under Rule 13n-
5(a)(3) as proposed, with modifications.\666\ The Commission is
adopting the definition of ``asset class'' under Rule 13n-5(a)(1) as
proposed, with one modification.\667\
---------------------------------------------------------------------------

    \666\ The Commission is making one technical amendment to
proposed Rule 13n-5(b)(1)(ii). As proposed, the rule referenced the
``policies and procedures required by paragraph (b)(1) of this
section.'' As adopted, the rule references the ``policies and
procedures required by paragraph (b)(1)(i) of this section.''
Additionally, the Commission is renumbering the definition of
``transaction data'' as Rule 13n-5(a)(3) in order to alphabetize the
definitions in Rule 13n-5(a). The definition of ``transaction data''
is also being revised from the proposal, as discussed below.
    \667\ The definition of ``asset class'' is also being renumbered
as Rule 13n-5(a)(1) in order to alphabetize the definitions in Rule
13n-5(a).
---------------------------------------------------------------------------

    Rule 13n-5(b)(1)(i) and the definition of ``transaction data'':
Rule 13n-5(b)(1)(i) requires every SDR to establish, maintain, and
enforce written policies and procedures reasonably designed for the
reporting of complete and accurate transaction data to the SDR, and
requires the SDR to accept all transaction data that is reported to the
SDR in accordance with such policies and procedures. ``Transaction
data'' is defined to mean all the information reported to an SDR
pursuant to the Exchange Act and the rules and regulations thereunder,
except for information provided pursuant to Rule 906(b) of Regulation
SBSR.\668\
---------------------------------------------------------------------------

    \668\ Rule 13n-5(a)(3). As proposed, the definition of
``transaction data'' did not include the exception for information
provided pursuant to Rule 906(b) of Regulation SBSR. See Regulation
SBSR Adopting Release, supra note 13 (Rule 906(b) requiring a
participant to provide information related to its ultimate parent(s)
and affiliates). Because the information provided pursuant to Rule
906(b) is not tied to a particular SBS, the Commission believes that
it does not make sense to tie the retention of the information to
the expiration of an SBS. See Rule 13n-5(b)(4) (requiring an SDR to
maintain transaction data ``for not less than five years after the
applicable [SBS] expires''). By adding the exception to the
definition of ``transaction data,'' the information that an SDR
receives pursuant to Rule 906(b) will instead be required to be kept
and preserved for not less than five years, pursuant to Rule 13n-
7(b).
---------------------------------------------------------------------------

    As explained in the Proposing Release, a fundamental goal of Title
VII is to have all SBSs reported to SDRs.\669\ Therefore, ``transaction
data'' includes all information, including life cycle events, required
to be reported to an SDR under Rule 901 of Regulation SBSR.\670\ Rule
13n-5(b)(1)(i) is intended to prevent SDRs from rejecting SBSs for
arbitrary or anti-competitive reasons, minimize the number of SBSs that
are not accepted by an SDR, and to the extent that an SDR's policies
and procedures make clear which SBSs the SDR will accept, make it
easier for market participants and market infrastructures to determine
whether there is an SDR that will accept a particular SBS.\671\
---------------------------------------------------------------------------

    \669\ Proposing Release, 75 FR at 77327, supra note 2. See
Exchange Act Section 13(m)(1)(G), 15 U.S.C. 78m(m)(1)(G), as added
by Dodd-Frank Act Section 763(i) (requiring ``[e]ach security-based
swap (whether cleared or uncleared)'' to be reported to a registered
SDR).
    \670\ A definition of ``life cycle event'' is included in
Regulation SBSR. See Regulation SBSR Adopting Release, supra note 13
(Rule 900).
    \671\ In a separate release relating to implementation of Dodd-
Frank Act Section 763(i), the Commission is adopting additional
rules requiring an SDR to have policies and procedures relating to
the reporting of SBS data to the SDR. See Regulation SBSR Adopting
Release, supra note 13 (Rule 907); see also id. (Rule 901(h)
requiring information to be reported to an SDR ``in a format
required by the registered [SDR]'').
---------------------------------------------------------------------------

    The Commission is revising the rule from the proposal to clarify
that an SDR's policies and procedures should be reasonably designed for
the reporting of ``complete and accurate'' transaction data to the
SDR.\672\ For example, an SDR's policies and procedures may not be
reasonable if they do not require reporting of all the data elements

required under Regulation SBSR and that the data reported be accurate.
---------------------------------------------------------------------------

    \672\ See Proposing Release, 75 FR at 77307 and 77327, supra
note 2 (``SDRs are required to collect and maintain accurate SBS
transaction data so that relevant authorities can access and analyze
the data from secure, central locations to better monitor for
systemic risk and potential market abuse'' and ``an SDR is useful
only insofar as the data it retains is accurate''); see also MFA 1,
supra note 19 (discussing the importance of SDRs maintaining
accurate data).
---------------------------------------------------------------------------

    The Commission agrees with one commenter's view that an SDR's
policies and procedures should allow for the reporting of ``a wide
variety of SBS transactions.'' \673\ The Commission also agrees that
SDRs should be allowed to ``specify the methods and channels that
participants need to use to connect to [SDRs],'' \674\ so long as such
methods and channels are reasonable. Therefore, an SDR may reject SBS
data that is reported in a manner that is inconsistent with its
reasonable policies and procedures.
---------------------------------------------------------------------------

    \673\ See MarkitSERV, supra note 19.
    \674\ See MarkitSERV, supra note 19.
---------------------------------------------------------------------------

    In addition, to the extent that an SDR's policies and procedures
allow SBSs to be reported to it in more than one format,\675\ the SDR
may need to reformat or translate the data to conform to any format and
taxonomy that the Commission may adopt pursuant to Rule 13n-4(b)(5) in
order to satisfy the requirement of providing direct electronic access
to the Commission.\676\ For example, the SDR may need to reformat or
translate terms of the transaction (e.g., scheduled termination dates,
prices, or fixed or floating rate payments). The Commission notes that
an SDR is not required to make persons who report SBSs to the SDR use
any of the formats and taxonomies specified by the Commission. Rather,
the SDR is only required to use such formats and taxonomies when
providing the Commission with direct electronic access.
---------------------------------------------------------------------------

    \675\ See Regulation SBSR Adopting Release, supra note 13 (Rule
907(a)(2) requiring a registered SDR to establish and maintain
written policies and procedures that specify one or more acceptable
data formats (each of which must be an open-source structured data
format that is widely used by participants), connectivity
requirements, and other protocols for submitting information).
    \676\ See Section VI.D.2.c.ii of this release discussing Rule
13n-4(b)(5) (requiring SDRs to provide direct electronic access to
the Commission or any designee); Section VI.E.4 of this release
discussing Rule 13n-5(b)(4) (requiring every SDR to maintain
transaction data in a format readily accessible and usable to the
Commission); and Section VI.H of this release discussing Rule 13n-8
(requiring every SDR to promptly report information to the
Commission in a form and manner acceptable to the Commission).
---------------------------------------------------------------------------

    Rule 13n-5(b)(1)(ii) and the definition of ``asset class'': Rule
13n-5(b)(1)(ii) requires an SDR, if it accepts any SBS in a particular
asset class, to accept all SBSs in that asset class that are reported
to it in accordance with its policies and procedures required by Rule
13n-5(b)(1)(i). As explained in the Proposing Release, this requirement
is designed to maximize the number of SBSs that are accepted by an
SDR.\677\ The comments that the Commission received on this rule
endorsed it.\678\ The Commission believes that if certain SBSs are not
accepted by any SDR and are reported to the Commission instead,\679\
the purpose of the Dodd-Frank Act to have centralized data on SBSs for
regulators and others to access could be undermined.\680\ In addition,
the Commission agrees with one commenter that this requirement will
``reduce the complexity for reporting parties.'' \681\ The Commission
also agrees with commenters' views that without this requirement, SDRs
may be tempted to limit their services to standardized, high-volume
SBSs.\682\ Given these incentives, the requirement that an SDR accept
all SBSs in a given asset class if it accepts any SBS in that asset
class is meant to facilitate the aggregation of, and relevant
authorities' and market participants' access to, SBS transaction data.
This requirement prevents a provider of trading or clearing services to
act as an SDR for only those SBSs that it trades or clears.\683\ This
requirement also prevents an SDR from accepting only SBSs that have
been cleared.\684\
---------------------------------------------------------------------------

    \677\ Proposing Release, 75 FR at 77327, supra note 2.
    \678\ See DTCC 2, supra note 19; MarkitSERV, supra note 19; DTCC
3, supra note 19; DTCC 4, supra note 19.
    \679\ See Exchange Act Section 13A(a)(1), 15 U.S.C. 78m-1(a)(1)
(requiring an uncleared SBS to be reported to the Commission if
there is no SDR that would accept the SBS)); see also Regulation
SBSR Adopting Release, supra note 13 (Rule 901(b) requiring SBSs to
be reported to the Commission if there is no SDR that would accept
the SBSs).
    \680\ See also MarkitSERV, supra note 19 (stating that the
requirement to accept all trades in an asset class is ``a means of
ensuring broad coverage while guarding against fragmentation'').
    \681\ See DTCC 2, supra note 19.
    \682\ See DTCC 2, supra note 19 (stating that the requirement
for an SDR to support all trades in an asset class ``discourages an
SDR from only servicing high volume products within an asset class
to maximize profit, and leaving more complex (and less frequently
traded) transactions to be reported by reporting parties directly to
the Commission''); MarkitSERV, supra note 19 (``Without specific
requirements related to the range of products that can be reported
to them, [SDRs] may be tempted to limit their operating costs by
only accepting the more standardized categories of swaps [that] also
tend to trade in high volumes. This would result in incomplete
market coverage and an increased fragmentation of the reported
data.'') (citation omitted).
    \683\ See DTCC 4, supra note 19 (stating that ``no provider of
trading or clearing services should be permitted to simply declare
itself the SDR for trades it facilitates'').
    \684\ See DTCC 4, supra note 19 (stating that it ``strenuously
objects'' to allowing SDRs to accept only those SBSs that are
cleared).
---------------------------------------------------------------------------

    As explained in the Proposing Release, an SDR is required to accept
only those SBSs that are reported in accordance with the SDR's policies
and procedures required by Rule 13n-5(b)(1)(i).\685\ For example, an
SDR's policies and procedures could prescribe the necessary security
and connectivity protocols that market participants and market
infrastructures must have in place prior to transmitting transaction
data to the SDR. The SDR is not required to accept transaction data
from market participants and market infrastructures that do not comply
with these protocols; otherwise the transmission of the transaction
data could compromise the SDR's automated systems.\686\
---------------------------------------------------------------------------

    \685\ Proposing Release, 75 FR at 77327, supra note 2. An SDR is
required to disclose to market participants its criteria for
providing others with access to services offered and data maintained
by the SDR pursuant to Rule 13n-10(b)(1), as discussed in Section
VI.I.2 of this release. Therefore, market participants will be made
aware of an SDR's policies and procedures for reporting data.
    \686\ To the extent that an SDR already has systems in place to
accept and maintain SBSs in a particular asset class, the Commission
believes that Rule 13n-5(b)(1)(ii) will not add a material
incremental financial or regulatory burden to SDRs. See Proposing
Release, 75 FR at 77327, supra note 2.
---------------------------------------------------------------------------

    In response to the comment recommending amending the definition of
``asset class'' to remove the ``the distinction between loan-based and
credit asset classes,'' \687\ the Commission agrees that removing such
distinction will make it easier for reporting parties when classifying
a transaction. Therefore, the Commission is modifying from the proposal
the definition of ``asset class'' in Rule 13n-5(a)(1) to mean ``those
security-based swaps in a particular broad category, including, but not
limited to, credit derivatives and equity derivatives.'' \688\
---------------------------------------------------------------------------

    \687\ See DTCC 2, supra note 19.
    \688\ In a separate release relating to implementation of Dodd-
Frank Act Section 763(i), the Commission is adopting the same
definition of ``asset class.'' See Regulation SBSR Adopting Release,
supra note 13 (Rule 900). In addition, the Commission proposed rules
relating to trade acknowledgments and verifications of SBSs, which
proposed a definition of ``asset class'' that is the same as the
definition of ``asset class'' in the Proposing Release, 75 FR at
77369, supra note 2, and therefore differs from the definition of
``asset class'' being adopted in this release. See Trade
Acknowledgment Release, supra note 133. The Commission expects to
consider conforming the proposed definition of ``asset class'' in
the Trade Acknowledgment Release with the definition being adopted
today at a later time.
---------------------------------------------------------------------------

    Where an SBS arguably could belong to more than one asset class,
for example, if it has characteristics of both credit and equity
derivatives, then an SDR serving either asset class should be able to
accept that SBS without then being required to accept all SBSs in the
other asset class--i.e., an SDR for the credit derivative asset class
could accept such an SBS without then having to accept all equity SBSs,
and an SDR for the equity derivative asset class could

accept the SBS without then having to accept all credit SBSs.
    One commenter expressed concern about transactions that could be
considered both swaps and SBSs, such as one constructed based on the
correlation between commodities and equities.\689\ The Commission notes
that it has adopted, jointly with the CFTC, regulations applicable to
mixed swaps.\690\ The Commission believes that if an SDR accepts a
mixed swap, then it should not be required to accept all SBSs in all
asset classes to which the mixed swap belongs. For example, if a swap
data repository that accepts commodity swaps accepts a mixed swap that
is based on the value of both equity and commodity prices, then that
swap data repository should not be required to accept all equity SBSs.
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    \689\ See DTCC 2, supra note 19.
    \690\ See Further Definition of ``Swap,'' ``Security-Based
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps;
Security-Based Swap Agreement Recordkeeping, Exchange Act Release
No. 67453 (July 18, 2012), 77 FR 48207 (Aug. 13, 2012).
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    Rule 13n-5(b)(1)(iii): Rule 13n-5(b)(1)(iii) requires every SDR to
establish, maintain, and enforce written policies and procedures
reasonably designed to satisfy itself that the transaction data that
has been submitted to the SDR is complete and accurate.\691\ Rule 13n-
5(b)(1)(iii) also requires every SDR to clearly identify the source for
each trade side and the pairing method (if any) for each transaction in
order to identify the level of quality of that transaction data.\692\
These requirements, which are intended to improve data accuracy, are
based on the requirement in Exchange Act Section 13(n)(5)(B) that an
SDR ``confirm with both counterparties to the security-based swap the
accuracy of the data that was submitted.'' \693\ As explained in the
Proposing Release, the requirement is based on the premise that an SDR
is useful only insofar as the data it retains is accurate.\694\
Unreliable SBS data does not enhance transparency. Requiring the SDR to
take steps regarding the accuracy of the transaction data submitted to
it, should help ensure that the data submitted to the SDR is accurate
and agreed to by both counterparties. One commenter suggested that
``SDRs should not have additional duties with respect to verifying the
accuracy of submission.'' \695\ But because of the statutory
requirement and the likelihood that the commenter's approach would lead
to less accurate information being provided to the Commission and the
marketplace, the Commission is adopting Rule 13n-5(b)(1)(iii) largely
as proposed.
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    \691\ As proposed, Rule 13n-5(b)(1)(iii) would require the SDR's
policies and procedures to be ``reasonably designed to satisfy [the
SDR] by reasonable means that the transaction data that has been
submitted to the SDR is accurate.'' In adopting Rule 13n-
5(b)(1)(iii), the Commission is removing the phrase ``by reasonable
means'' to make the rule text clearer. This revision is not intended
to substantively change the meaning of the rule.
    \692\ With regard to this requirement, proposed Rule 13n-
5(b)(1)(iii) used the phrase ``including clearly identifying.'' In
adopting Rule 13n-5(b)(1)(iii), the Commission is changing
``including clearly identifying'' to ``clearly identifies'' to make
the rule text clearer. This revision is not intended to
substantively change the meaning of the rule.
    \693\ 15 U.S.C. 78m(n)(5)(B); see also Rule 13n-4(b)(3)
(implementing same requirement).
    \694\ Proposing Release, 75 FR at 77327, supra note 2. Accord
CPSS-IOSCO Trade Repository Report, supra note 48 (the primary
public policy benefit of an SDR is facilitated by the integrity of
the information maintained by an SDR).
    \695\ See DTCC 2, supra note 19; see also DTCC 5, supra note 19
(recommending that SDRs be determined to have satisfied their
obligation to confirm the accuracy of data under certain
circumstances).
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    As proposed, the rule would require an SDR's policies and
procedures to address the accuracy of the transaction data. For
purposes of clarification, the rule as adopted requires that an SDR's
policies and procedures address both the completeness and accuracy of
the transaction data. For example, an SDR's policies and procedures may
not be reasonable if they allow data elements required under Regulation
SBSR to be blank.
    The Commission understands that with respect to certain asset
classes, third party service providers currently provide an electronic
affirmation or matching process prior to the SBS data reaching an
SDR.\696\ As explained in the Proposing Release, the Commission
believes that an SDR can fulfill its responsibilities under Exchange
Act Section 13(n)(5)(B), Rule 13n-4(b)(3),\697\ and this Rule 13n-
5(b)(1)(iii) by developing reasonable policies and procedures that rely
on confirmations completed by another entity, such as an SB SEF,
clearing agency, or third party vendor, as long as such reliance is
reasonable.\698\ In order for such policies and procedures establishing
reliance on a third party to be reasonable, the SDR would need to
oversee and supervise the performance of the third party confirmation
provider. This could include having policies and procedures in place to
monitor the third party confirmation provider's compliance with the
terms of any agreements and to assess the third party confirmation
provider's continued fitness and ability to perform the confirmations.
It could also include having the SDR or an independent auditor inspect
or test the performance of the third party confirmation provider, with
the SDR retaining records of such inspections or tests.\699\
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    \696\ See, e.g., MarkitSERV, supra note 19 (noting that
commenter provides confirmation and matching services for post-trade
SBS transactions).
    \697\ Rule 13n-4(b)(3) requires SDRs to ``[c]onfirm, as
prescribed in Rule 13n-5 (Sec.  240.13n-5), with both counterparties
to the security-based swap the accuracy of the data that was
submitted.''
    \698\ Proposing Release, 75 FR at 77327-8, supra note 2. See,
e.g., MarkitSERV, supra note 19 (The ``Commission should encourage
the use and reporting of trade data that has been confirmed or
verified by both counterparties via an affirmation or a matching
process.'').
    \699\ Such records would have to be maintained pursuant to Rule
13n-7(b). See Section VI.G.2 of this release discussing SDR
recordkeeping.
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    For example, if an SBS is traded on an SB SEF, that SB SEF could
confirm the accuracy of the transaction data with both counterparties,
and the SB SEF could then report the transaction data to an SDR.\700\
The SDR would not need to further substantiate the accuracy of the
transaction data, as long as the SDR has a reasonable belief that the
SB SEF performed an accurate confirmation. However, the SDR would not
comply with Exchange Act Section 13(n)(5)(B), Rule 13n-4(b)(3), and
this Rule 13n-5(b)(1)(iii) if the confirmation proves to be inaccurate
and the SDR's reliance on the SB SEF for providing accurate
confirmations was unreasonable (e.g., the SDR ignored a pattern of
inaccuracies or red flags). In certain circumstances, such as where an
SBS is transacted by two commercial end-users and is not electronically
traded or cleared, and is reported to an SDR by one of those end-users,
there may not be any other entity upon which the SDR can reasonably
rely to perform the confirmation. In such a case, the SDR would have to
contact each of the counterparties to substantiate the accuracy of the
transaction data.\701\
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    \700\ See Proposing Release, 75 FR at 77328, supra note 2.
    \701\ The Commission believes that an SDR should consider making
reasonable accommodations, including consideration of any cost
burdens, for a non-reporting counterparty of an SBS transaction in
connection with any follow-up by the SDR regarding the accuracy of
the counterparty's SBS transaction. These accommodations could, for
example, include providing means for non-reporting counterparties to
substantiate the accuracy of the transaction data without having to
incur significant systems or technology costs.
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    Similarly, it would not be reasonable for an SDR to rely on a trade
acknowledgment provided by one counterparty to an SBS, without
verifying that the other counterparty has agreed to the trade. However,
if a party to an SBS timely delivers a trade acknowledgment to both the
counterparty and the SDR (or a third party confirmation provider), and
the counterparty promptly sends the

verification back to both the original party and the SDR (or a third
party confirmation provider), then the SDR could use the trade
acknowledgment and verification to fulfill its obligations under this
rule.\702\
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    \702\ Although the Commission proposed rules requiring SBS
dealers and major SBS participants to provide trade acknowledgment
and verification of SBS transactions, it has not adopted any such
rules. See Trade Acknowledgment Release, supra note 133. The
Commission may address in a later release whether the procedure
described above would comply with any such rules. See MarkitSERV,
supra note 19 (stating that ``the environment envisaged by the SBS
SDR Regulation would greatly benefit from being connected with the
confirmation requirement (such as the verified trade acknowledgement
record)'').
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    With regard to the requirement that an SDR ``clearly identif[y] the
source for each trade side and the pairing method (if any) for each
transaction,'' \703\ the Commission notes that transaction data may
vary in terms of reliability and such source and pairing method may
affect the reliability of the transaction data. As explained in the
Proposing Release, some transaction data may be affirmed by
counterparties to an SBS, but not confirmed.\704\ Some transaction data
may be confirmed informally by the back-offices of the counterparties,
but the confirmation may not be considered authoritative. Other
transaction data may go through an electronic confirmation process,
which is considered authoritative by the counterparties. The Commission
is adopting this requirement to enable relevant authorities to better
determine the reliability of any particular transaction data maintained
by an SDR. In order for an SDR's policies and procedures for satisfying
itself that the transaction data that has been submitted to the SDR is
complete and accurate to be reasonable, the SDR could consider
documenting the processes used by third parties to substantiate the
accuracy of the transaction data.
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    \703\ Rule 13n-5(b)(1)(iii).
    \704\ Proposing Release, 75 FR at 77328, supra note 2.
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    Rule 13n-5(b)(1)(iv): Rule 13n-5(b)(1)(iv) requires every SDR to
promptly record the transaction data it receives. As explained in the
Proposing Release, it is important that SDRs keep up-to-date records so
that regulators and counterparties to SBSs will have access to accurate
and current information.\705\ One commenter recommended that SDRs
process transactions in ``real-time.'' \706\ The commenter did not
define ``real-time.'' If, by ``real-time,'' the commenter means that
SDRs should begin to record the transaction data as soon as it arrives,
then the Commission believes that the rule's requirement to ``promptly
record the transaction data it receives'' is consistent with the
commenter's recommendation.
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    \705\ Proposing Release, 75 FR at 77328, supra note 2.
    \706\ See DTCC 2, supra note 19 (stating that SDRs should
``process transactions in real-time'').
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2. Positions (Rule 13n-5(b)(2))
a. Proposed Rule
    Proposed Rule 13n-5(b)(2) would require every SDR to establish,
maintain, and enforce written policies and procedures reasonably
designed to calculate positions for all persons with open SBSs for
which the SDR maintains records. Proposed Rule 13n-5(a)(2) defined
``position'' as the gross and net notional amounts of open SBS
transactions aggregated by one or more attributes, including, but not
limited to, the (i) underlying instrument, index, or reference entity;
(ii) counterparty; (iii) asset class; (iv) long risk of the underlying
instrument, index, or reference entity; and (v) short risk of the
underlying instrument, index, or reference entity. The Commission
requested comment regarding whether it should require SDRs to calculate
market values of each position at least daily and provide them to the
Commission.\707\
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    \707\ See Proposing Release, 75 FR at 77329, supra note 2.
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b. Comments on the Proposed Rule
    Three commenters submitted comments relating to this proposed
rule.\708\ One commenter expressed the view that ``position data is
most valuable when aggregated among all SDRs,'' and therefore suggested
that ``one SDR should be given the responsibility to aggregate and
maintain the consolidated position data for regulatory purposes.''
\709\
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    \708\ See DTCC 2, supra note 19; Markit, supra note 19; Ethics
Metrics, supra note 19.
    \709\ DTCC 2, supra note 19.
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    None of the commenters believed that SDRs should be required to
perform valuation calculations at this time. One commenter indicated,
however, that providing valuations should be a long-term goal.\710\ In
this commenter's view, existing SDRs do not have the capability to
provide valuations and they are not currently best situated to develop
this capability; the short-term goal should be for SDRs to collect, and
potentially report, valuations provided by the counterparties to an SBS
and/or any relevant third party entities.\711\ Another commenter
expressed the view that ``firms'' should provide market values because
they invest considerable resources in valuing trades and it would be
difficult for an SDR to replicate these activities for all trades.\712\
The commenter stated that an ``SDR could contract with a market
valuation service to provide some values and this would provide some
independent valuation, but this will not readily extend to illiquid or
structured products.'' \713\ The commenter also stated that while mark-
to-market values would be of some use to regulators, without collateral
information ``the values would not be useful in assessing counterparty
risk exposures.'' \714\ A third commenter stated that valuation models
for counterparty credit risks and systemic risk should include
independent, third party data.\715\
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    \710\ Markit, supra note 19 (``[W]e believe that the Commission
should work to create a system where SBS SDRs play an important and
even primary role not only in ensuring the accuracy of
counterparties' swap valuations, but also in performing independent
valuations for the counterparties.'').
    \711\ Markit, supra note 19 (recognizing that an SDR performing
``independent valuations may not be practical given the highly
customized and bespoke nature of many swaps'').
    \712\ DTCC 2, supra note 19.
    \713\ DTCC 2, supra note 19.
    \714\ DTCC 2, supra note 19.
    \715\ Ethics Metrics, supra note 19; see also MarkitSERV, supra
note 19 (describing valuations as a possible ancillary service of
SDRs).
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c. Final Rule
    After considering the comments, the Commission is adopting Rule
13n-5(b)(2) and the definition of ``position'' under Rule 13n-5(a)(2)
as proposed. Rule 13n-5(b)(2) requires every SDR to establish,
maintain, and enforce written policies and procedures reasonably
designed to calculate positions for all persons with open SBSs for
which the SDR maintains records.\716\ Rule 13n-5(a)(2) defines
``position'' as the gross and net notional amounts of open SBS
transactions aggregated by one or more attributes, including, but not
limited to, the (i) underlying instrument, index, or reference entity;
(ii) counterparty; (iii) asset class; (iv) long risk of the underlying
instrument, index, or reference entity; and (v) short risk of the
underlying instrument, index, or reference entity.\717\
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    \716\ Position data is required to be provided by an SDR to
certain entities pursuant to Exchange Act Section 13(n)(5)(G), 15
U.S.C. 78m(n)(5)(G).
    \717\ As stated in the Proposing Release, for purposes of this
definition, positions aggregated by long risk would be only for the
aggregate notional amount of SBSs in which a market participant has
long risk of the underlying instrument, index, or reference entity.
Proposing Release, 75 FR at 77326 n.102, supra note 2. Similarly,
positions aggregated by short risk would be only for the aggregate
notional amount of SBSs in which a market participant has short risk
of the underlying instrument, index, or reference entity. For SBSs
other than credit default swaps, a counterparty has long risk where
the counterparty profits from an increase in the price of the
underlying instrument or index, and a counterparty has short risk
where the counterparty profits from a decrease in the price of the
underlying instrument or index. For credit default swaps, a
counterparty has long risk where the counterparty profits from a
decrease in the price of the credit risk of the underlying index or
reference entity, and a counterparty has short risk where the
counterparty profits from an increase in the price of the credit
risk of the underlying index or reference entity. As the market
develops, the Commission may consider whether to require SDRs
calculate positions in another manner and provide those positions to
the Commission on a confidential basis.

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    As explained in the Proposing Release, position information is
important to regulators for risk, enforcement, and examination
purposes.\718\ In addition, having a readily available source of
position information can be useful to counterparties in evaluating
their own risk. As explained in the Proposing Release, in order to meet
its obligation to calculate positions, an SDR could require reporting
parties to report the necessary events to calculate positions, or it
could have a system that will monitor for and collect such
information.\719\ In order for the positions to be calculated
accurately, an SDR will need to promptly incorporate recently reported
transaction data and collected unreported data. It is important that
the SDR keep up-to-date records so that relevant authorities and
parties to the SBS will have access to accurate and current
information. In calculating positions, an SDR is only required to
reflect SBS transactions reported to that SDR.
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    \718\ Proposing Release, 75 FR at 77329, supra note 2.
    \719\ Proposing Release, 75 FR at 77329, supra note 2.
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    As explained in the Proposing Release, the definition of
``position'' is designed to be sufficiently specific so that SDRs are
aware of the types of position calculations that regulators may require
an SDR to provide, while at the same time, provide enough flexibility
to encompass the types of position calculations that regulators and the
industry will find important as new types of SBSs are developed.\720\
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    \720\ Proposing Release, 75 FR at 77326, supra note 2. The
Commission notes that Dodd-Frank Act Section 763(h) adds Exchange
Act Section 10B, which provides, among other things, for the
establishment of position limits for any person that holds SBSs. See
15 U.S.C. 78j-2. Specifically, Exchange Act Section 10B(a) provides
that ``[a]s a means reasonably designed to prevent fraud and
manipulation, the Commission shall, by rule or regulation, as
necessary or appropriate in the public interest or for the
protection of investors, establish limits (including related hedge
exemption provisions) on the size of positions in any security-based
swap that may be held by any person.'' Id. In addition, Exchange Act
Section 10B(d) provides that the Commission may establish position
reporting requirements for any person that effects transactions in
SBSs, whether cleared or uncleared. Id.
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    While one commenter suggested that ``one SDR should be given the
responsibility to aggregate and maintain the consolidated position data
for regulatory purposes,'' \721\ the Commission is not mandating the
aggregation of position data at one SDR. At this time, the Commission
believes that it--rather than any particular registered entity--is in
the best position to aggregate data across multiple registered SDRs. As
described above, the Commission anticipates that it will propose for
public comment detailed specifications of acceptable formats and
taxonomies that will facilitate an accurate interpretation,
aggregation, and analysis of SBS data by the Commission.\722\ The
Commission may revisit this issue as the SBS market evolves.\723\
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    \721\ DTCC 2, supra note 19.
    \722\ See Section VI.D.2.c.ii of this release discussing
anticipated Commission proposal pursuant to Rule 13n-4(b)(5).
    \723\ See Section IV of this release for further discussion of
consolidating data in one SDR.
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    With regard to valuations, the Commission agrees with commenters
\724\ that SDRs are not necessarily in the best position to calculate
market valuations at this time. While, as one commenter pointed out, an
SDR could contract with a market valuation service to provide some
values,\725\ it is not apparent how useful the valuation would be
without collateral information,\726\ and a valuation service could not
readily provide valuations for illiquid or structured products.\727\
Therefore, the Commission is not requiring SDRs to calculate market
values of positions daily and to provide them to the Commission. The
Commission notes that under Regulation SBSR, the counterparties are
required to report to an SDR the ``data elements included in the
agreement between the counterparties that are necessary for a person to
determine the market value of the transaction.'' \728\ Accordingly, if
necessary, the Commission could calculate some market valuations either
in-house or by hiring a third party market valuation service provider.
As the market develops and SDRs develop and increase their
capabilities, the Commission may revisit this issue.
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    \724\ See DTCC 2, supra note 19; Markit, supra note 19.
    \725\ See DTCC 2, supra note 19.
    \726\ See DTCC 2, supra note 19 (stating that valuations without
collateral information would not be useful in assessing counterparty
risk exposures).
    \727\ See DTCC 2, supra note 19 (stating that independent market
valuations services could not readily value illiquid or structured
products).
    \728\ See Regulation SBSR Adopting Release, supra note 13 (Rule
901).
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3. Maintain Accurate Data (Rule 13n-5(b)(3))
a. Proposed Rule
    Proposed Rule 13n-5(b)(3) would require every SDR to establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure that the transaction data and positions that it
maintains are accurate.
b. Comments on the Proposed Rule
    Both commenters that submitted comments relating to this proposed
rule agreed that SDRs serve an important role in collecting and
maintaining accurate SBS data.\729\ One commenter stated that