\533\ Tradeweb Letter, supra note 18, at 4-5.
---------------------------------------------------------------------------

    These commenters also state that foreign jurisdictions have adopted
robust regulatory regimes that already subject non-U.S. persons and
foreign trading venues to comparable and comprehensive regulations in
their respective jurisdictions.\534\ These commenters contrast the
Commission's proposed approach with the CFTC's efforts ``to curtail the
U.S.' approach to extra-territoriality in light of the progress made by
other jurisdictions in establishing robust derivatives regulatory
regimes,'' \535\ with one noting that, in adopting its cross-border
rules for certain swap-market participants in 2020, the CFTC announced
that it would not consider ANE as a relevant factor in non-U.S.
dealers' swap transactions.\536\ Another commenter asks the Commission
to be mindful of whether CFTC-registered SEFs would be forced to change
their rules in order comply with the new proposed SBSEF rules.\537\
---------------------------------------------------------------------------

    \534\ See id. at 4; ISDA-SIFMA Letter, supra note 18, at 12. See
also SIFMA AMG Letter, supra note 18, at 11.
    \535\ ISDA-SIFMA Letter, supra note 18, at 12. See also Tradeweb
Letter, supra note 18, at 4; SIFMA AMG Letter, supra note 18, at 11.
Section VII.B, infra, discusses the exemptions under Rule 833.
    \536\ ISDA-SIFMA Letter, supra note 18, at 12 n.28. See also
CFTC, Cross-Border Application of the Registration Thresholds and
Certain Requirements Applicable to Swap Dealers and Major Swap
Participants, 85 FR 56924, 56961-63 (Sept. 14, 2020); CFTC Release
No. 8212-20 (July 23, 2020) (CFTC Withdraws ``ANE'' Staff Advisory
and Issues New Cross-Border No-Action Relief).
    \537\ SIFMA AMG Letter, supra note 18, at 11.
---------------------------------------------------------------------------

    Finally, one commenter requests that the Commission make more
explicit that the ``covered person'' definition in Rule 832 is a
transaction-based test,\538\ while another commenter requests
additional clarity about the application of the rule.\539\
---------------------------------------------------------------------------

    \538\ See ISDA-SIFMA Letter, supra note 18, at 11 n.26.
Specifically, this commenter appreciates the Commission's
clarification that the ``covered person'' definition is a
transaction-based test but believes that the rule text could be more
explicit in such regard by replacing: in prong (2) of the definition
``a security-based swap'' with ``that security-based swap;'' and in
prong (3) of the definition ``a transaction'' with ``that security-
based swap transaction.''
    \539\ See SIFMA AMG Letter, supra note 18, at 11-12.
---------------------------------------------------------------------------

    The Commission has considered the comments received for Rule 832
and is adopting the rule as proposed, with minor technical
modifications.\540\ As an initial matter, the Commission disagrees with
those comments suggesting that Rule 832 may exceed the Commission's
statutory authority. The trade execution requirement of section
3C(h)(1) provides that the Commission's authority with respect to trade
execution is co-extensive with the Commission's authority to require
SBS clearing under section 3C(a)(1) of SEA.\541\ And the clearing
requirement of section 3C(a)(1) provides for SBS clearing when a person
is ``engage[d] in a security-based swap'' in the United States.\542\
Thus, consistent with the Commission's territorial approach and Title
VII, the relevant domestic activity that triggers the execution
requirement is engaging in an SBS in the United States.
---------------------------------------------------------------------------

    \540\ See supra note 32.
    \541\ Section 3C(h)(1) of the SEA (requiring trade execution
``[w]ith respect to transactions involving security-based swaps
subject to the clearing requirement of subsection (a)(1)'' of the
SEA).
    \542\ Section 3C(a)(1) of the SEA (``It shall be unlawful for
any person to engage in a security-based swap unless that person
submits such security-based swap for clearing to a clearing agency
that is registered under this Act or a clearing agency that is
exempt from registration . . . .'').
---------------------------------------------------------------------------

    Rule 832 fits comfortably within the bounds of that statutory
authority. A U.S. person undertaking SBS transactions within the United
States is, as no commenter disputes, engaging in an SBS in the United
States (irrespective of whether the counterparty is overseas). And this
is true even if the U.S. person is undertaking the SBS transaction from
a foreign office. As the Commission has explained, ``a foreign office
has no separate existence from the U.S. person itself.'' \543\ It is
the U.S. based entity that has legal and financial responsibility for
the SBS transaction and for the ensuing obligations that will flow from
the transaction over the life of the SBS. Thus, it is reasonable to
understand the U.S. entity to have engaged in the United States in the
SBS even if the initial undertaking (i.e., the SBS transaction)
occurred in the entity's foreign office.
---------------------------------------------------------------------------

    \543\ Proposing Release, supra note 1, 87 FR at 28923 (citing
Application of ``Security-Based Swap Dealer'' and ``Major Security-
Based Swap Participant'' Definitions to Cross-Border Security-Based
Swap Activities; Republication, SEA Release No. 72472 (June 25,
2014), 79 FR 47278, 47289 (Aug. 12, 2014) (``2014 Cross-Border
Adopting Release'')).
---------------------------------------------------------------------------

    For similar reasons, a non-U.S. person who enters an SBS with
another non-U.S. person has nonetheless engaged in an SBS in the United
States (at least in part) if that SBS arrangement is guaranteed by a
U.S. person. When a non-U.S. person operates with a guarantee from a
U.S. person for the non-U.S. person's performance under an SBS, the SBS
arrangement is economically equivalent and substantially identical with
a transaction entered into directly with the U.S. guarantor. With such
an arrangement, an essential element of the transaction from the
viewpoint of the

guaranteed person's counterparty is the legal and financial obligations
such a guarantee imposes on the U.S. guarantor (without which there
would be no need to include the U.S. guarantor) and brings the U.S.
person legally and financially into the transaction as an interested
party. This economic reality makes it appropriate to include guaranteed
non-U.S. persons within the definition of ``covered persons'' in Rule
832.
    Further, the statutory language is, in the Commission's view,
reasonably understood to encompass a non-U.S. person who, in connection
with its SBS dealing activity, uses U.S. personnel located in a U.S.
branch or office, or personnel of an agent of such non-U.S. person
located in a U.S. branch or office, to arrange, negotiate, or execute
an SBS transaction. These activities rise to the level of engaging in
an SBS in the United States. Undertaking critical steps in an SBS
transaction qualifies as engaging in an SBS in the United States, no
less than placing ultimate legal or financial responsibility for an SBS
with a person in the United States (as occurs in the cases discussed
above of an SBS transaction involving either a foreign office of a U.S.
person or a U.S. guarantor).
    The Commission's assessment of the relevant domestic activities
that constitute engaging in an SBS is consistent not only with the
statutory text, but also the statutory objectives underlying the
execution requirement. These objectives include, among other things,
helping to ensure the financial stability of U.S. persons engaged in
SBS transactions, the promotion of transparency in price formation for
SBS transactions that have a nexus to the U.S. securities markets, and
the prevention of manipulation, price distortion and disruptions of the
delivery or cash settlement process within the U.S. market system. Each
of the components of Rule 832 helps to advance one or more of these
statutory goals and, thus, further supports the Commission's reasonable
understanding of what constitutes engaging in an SBS in the United
States.\544\
---------------------------------------------------------------------------

    \544\ In the alternative, the Commission relies on the anti-
evasion authority of section 30(c) of the SEA, 15 U.S.C. 78dd(c), as
statutory authority for Rule 832. Section 30(c) authorizes the
Commission to apply Title VII requirements to persons transacting a
business ``without the jurisdiction of the United States'' if they
contravene rules that the Commission has prescribed as ``necessary
or appropriate to prevent the evasion of any provision'' of Title
VII. For example, without Rule 832(b)(2), U.S. persons could have an
incentive to evade the trade execution requirement by engaging in
SBS via a guaranteed affiliate, while the economic reality of
transactions arising from that activity--including the risks these
transactions introduce to the U.S. market--would be no different in
most respects than transactions entered into directly by U.S.
persons. See Proposing Release, supra note 1, 87 FR at 28923 n.228.
And, without Rule 832(b)(3), non-U.S. persons could retain the
benefits of operating in the United States while avoiding compliance
with the trade execution requirement. See id. at 28923 n.230.
---------------------------------------------------------------------------

    With that general explanation of how Rule 832 fits comfortably
within our statutory authority, the Commission will address the
specific comments that were received on the rule. For the reasons
discussed above, the Commission disagrees with the comment that Rule
832 should not extend the trade execution requirement to transactions
involving foreign branches of U.S. persons or guaranteed person
transactions.\545\ With respect to the commenter that believes Rule
832's definition of ``covered person'' should also cover a transaction
that includes a ``de facto guarantee'' by a U.S. person,\546\ the
Commission appreciates that, even for an affiliate that is not a
guaranteed person, a dealer or large trader might be unwilling to allow
such an affiliate to fail because of the reputational and other
consequences such a failure might have on its interactions with
potential counterparties. At the same time, given the lack of a legal
obligation by the ``de facto guarantor,'' it is not clear how the
Commission could determine--before the fact--which ``de facto
guarantees'' exist and which such ``de facto guarantors'' should be
included, or how market participants, including counterparties, would
be able to determine the applicability of Regulation SE to a
transaction potentially subject to a ``de facto guarantee.'' Thus, the
Commission is not including ``de facto guarantee'' transactions within
Rule 832's definition of ``covered persons.''
---------------------------------------------------------------------------

    \545\ See supra note 523 and accompanying text.
    \546\ See supra note 519 and accompanying text.
---------------------------------------------------------------------------

    For the reasons discussed above, as well as the reasons discussed
immediately below, the Commission also disagrees with the argument that
the Commission should not extend SBSEF rules, which include mandatory
trade execution, to transactions with non-U.S. counterparties (even if
they involve guaranteed persons) where the lack of such rules would
have no ability of posing risk to the U.S. financial system.\547\ While
Title VII's trade execution requirements do not relate to systemic risk
in precisely the same manner that certain other Title VII rules--such
as capital, margin, and segregation requirements for SBSDs and
MSBSPs,\548\ post-trade reporting and public dissemination of SBS
transactions,\549\ registration and regulation of SBSDs and
MSBSPs,\550\ among others--the Commission disagrees with the notion
that the trade execution and other SBSEF requirements are not important
in addressing and mitigating risk, including potentially systemic risk,
to the U.S. financial system. The application of the trade execution
requirement to a cross-border SBS transaction is not simply a matter of
whether a particular form of execution (such as RFQ-to-3 or the use of
an order book) is required. Instead, the application of this
requirement to such a transaction would subject the transaction to the
various requirements of Regulation SE, many of which relate to
mitigating risks to the counterparties of the transaction and,
ultimately, the U.S. financial system. The Core Principles for SBSEFs--
which are set forth in the Dodd-Frank Act \551\ and implemented in the
rules of Regulation SE--seek to, among other things, provide for
transparency in price formation for SBS,\552\ impartial access to SBS
trading,\553\ the financial resources of SBS trading venues,\554\ the
efficient submission of eligible SBS transactions to central
clearing,\555\ and the prevention of manipulation, price distortion,
and disruptions of the delivery or cash settlement process.\556\
---------------------------------------------------------------------------

    \547\ See supra note 524 and accompanying text.
    \548\ See Capital, Margin, and Segregation Release, supra note
100.
    \549\ See Regulation SBSR Release, supra note 102.
    \550\ See SBSD and MSBSP Registration Release, supra note 99.
    \551\ Core Principles of section 3D(d) of the SEA, 15 U.S.C.
78c-4(d).
    \552\ See, e.g., Rule 815 (methods of execution); Rule 816
(trade execution requirement); Rule 825 (Core Principle 8--timely
publication of trading information).
    \553\ See, e.g., Rule 819(c) (Core Principle 2--access
requirements).
    \554\ See, e.g., Rule 829 (Core Principle 12--financial
resources).
    \555\ See, e.g., Rule 823(c) (Core Principle 6--financial
integrity of transactions).
    \556\ See, e.g., Rule 820 (Core Principle 3--SBS not readily
susceptible to manipulation); Rule 821(Core Principle 4--monitoring
of trading and trade processing); Rule 823 (Core Principle 6--
financial integrity of transactions).
---------------------------------------------------------------------------

    With respect to commenters' views opposing the inclusion of ANE
transactions in Rule 832,\557\ the Commission understands that this
differs from the CFTC's policy towards ANE transactions and is
cognizant of the potential complexities and costs that can arise if
market participants are unsure of which jurisdictions' rules apply to a
particular SBS transaction.

The Commission also recognizes commenters' views that certain foreign
jurisdictions have adopted ``robust'' regulatory regimes.\558\ However,
the purpose of Rule 832 is to ``address when the . . . trade execution
requirement applies to a cross-border SBS transaction.'' \559\ Absent
an exemption, the trade execution requirement applies in cross-border
contexts wherever covered persons are involved in an SBS transaction,
regardless of whether the relevant foreign jurisdictions have robust
regulatory regimes--such as those the Commission may consider in
connection with a foreign trading venue's application to the Commission
for an exemption from the trade execution requirement under Rule
833(b).\560\
---------------------------------------------------------------------------

    \557\ See supra notes 527-537 and accompanying text.
    \558\ See supra note 534 and accompanying text.
    \559\ Proposing Release, supra note 1, 87 FR at 28924.
    \560\ See infra section VII.B (discussing cross-border
exemptions under Rule 833, including exemptions relating to the
trade execution requirement under Rule 833(b)). The Commission may
consider, among other things, the extent to which the SBS traded in
a foreign jurisdiction are subject to a comparable trade-execution
requirement.
---------------------------------------------------------------------------

    In adopting Rule 832, the Commission has been mindful of its impact
on CFTC-registered SEFs and, as a commenter suggests,\561\ whether they
might be forced to change their rules because of the Commission's ANE
approach for SBSEFs. As discussed below in section VII.B with respect
to applications for exemptions relating to the trade execution
requirement under Rule 833(b), foreign trading venues that have already
received exemptive relief from the CFTC for swaps trading where robust
regulatory regimes may exist with requirements comparable to those
applicable to SBS transactions in the United States may apply for
exemptive relief under Rule 833(b). If exempted under Rule 833(b),
trading of SBS on such foreign trading venues would not require CFTC-
registered SEFs to change their rules.\562\ Similarly, for SBS
transactions that the Commission exempts from the trade execution
requirement based on an application submitted under Rule 833(b), the
concerns expressed by commenters regarding complexities and costs would
no longer be applicable,\563\ and commenters' concerns regarding the
Commission's treatment of ANE transactions should be allayed as well,
because the effect of such exemptions would likely result in SBS
transactions in foreign jurisdictions with what may be considered
robust regulatory regimes being exempt from the Commission's trade
execution requirement and, in practice, have similar treatment of
transactions on applicable foreign trading venues as the CFTC. On the
other hand, if the Commission does not grant an exemption to such an
SBS transaction, that would mean that the Commission would not have
made a finding that granting such an exemption would be in the public
interest and consistent with the protection of investors, in light of
any information submitted with the application which the Commission may
have considered regarding comparable requirements in that foreign
jurisdiction. For such SBS transactions, it would be appropriate for
the trade execution requirements to apply.
---------------------------------------------------------------------------

    \561\ See supra note 537 and accompanying text.
    \562\ See infra notes 624-627 and accompanying text.
    \563\ According to one commenter, these issues no longer apply
in the SBS markets given that the CFTC resolved it ``when it granted
equivalency to major foreign trading platforms in Europe and Asia.''
See supra note 526 and accompanying text. The CFTC has granted
orders of exemptions to certain markets pursuant to CEA section
5h(g), which authorizes the CFTC to exempt, conditionally or
unconditionally, a SEF from registration under CEA section 5h if the
CFTC finds that the facility is ``subject to comparable,
comprehensive supervision and regulation on a consolidated basis by
. . . the appropriate governmental authorities in the home country
of the facility.'' See ``Exemption of Foreign Swap Trading
Facilities from SEF Registration,'' available at https://www.cftc.gov/International/ForeignMarketsandProducts/ExemptSEFs.
---------------------------------------------------------------------------

    The Commission also disagrees with the characterization of Rule 832
with respect to ANE transactions as bringing ``a random selection of
additional transactions into scope'' and the belief that the location
of personnel in the United States should not form the basis for
applying the Commission's trade execution requirement.\564\ The mere
fact that an entity has personnel located in the U.S. does not subject
an SBS transaction to the trade execution requirement; rather, it is
the role such personnel play in arranging, negotiating, or executing
the transaction that brings them within the definition of ``covered
person'' for purposes of Rule 832. ANE transactions would not be a
``random selection of additional transactions;'' \565\ instead, it
would be appropriate to apply its carefully considered and tailored
guidance given in other Title VII requirements for the phrase
``arranged, negotiated, or executed'' for the purposes of the
application of the trade execution requirement in the cross-border
context.
---------------------------------------------------------------------------

    \564\ See supra notes 527 and 529 and accompanying text.
    \565\ See supra note 564 and accompanying text.
---------------------------------------------------------------------------

    Specifically, the Commission has clarified that Title VII
requirements using an ``arranged, negotiated, or executed'' test are
not triggered in certain circumstances where the market-facing activity
of U.S. personnel is ``so limited that it would not implicate the
regulatory interests underlying the relevant Title VII requirements.''
\566\ Such instances arise when U.S. personnel provide ``market color''
in connection with SBS transactions, where such market color is
``limited to background information regarding pricing or market
conditions associated with particular instruments or with markets more
generally'' \567\ and when the U.S. personnel have no client
responsibility \568\ and do not receive any transaction-linked
compensation.\569\ However, market-facing activity by personnel located
in the United States also would not be ``market color'' (i.e., would be
considered to be ``arranged, negotiated, or executed'') if such
activity involves: providing recommendations, such as recommending
particular instruments; providing predictions regarding potential
merits or risks of, or providing trading ideas or strategies relating
to, a proposed security-based swap transaction; structuring a
particular SBS transaction; or finalizing or reaching agreement with
respect to any pricing or non-pricing element, such as underlier,
notional amount or tenor, that must be resolved to complete an SBS
transaction.\570\
---------------------------------------------------------------------------

    \566\ See 2019 Cross-Border Adopting Release, supra note 218, 85
FR at 6274.
    \567\ Id. at 6275-76. Background information includes
information regarding (1) current or historic pricing, volatility or
market depth, and (2) trends or predictions regarding pricing,
volatility, or market depth, as well as information related to risk
management. See id. at 6275.
    \568\ No client responsibility would mean that the U.S.
personnel have not been assigned, and do not otherwise exercise,
client responsibility in connection with the transaction. See id. at
6275-76.
    \569\ Not receiving any transaction-linked compensation means
the U.S. personnel do not receive compensation based on, or
otherwise linked to, the completion of individual transactions on
which the U.S. personnel provide market color. See id.
    \570\ See id. at 6275.
---------------------------------------------------------------------------

    With this existing guidance that applies to cross-border ANE
transactions subject to Rule 832,\571\ declining to apply Title VII
requirements to SBS transactions of foreign entities that use U.S.
personnel to engage in ANE transactions would allow such entities to
exit the Title VII regulatory regime without exiting the U.S.
market.\572\ This is problematic

because, as the Commission stated in the Proposing Release, ``applying
the trade execution requirement to such persons is necessary or
appropriate as a prophylactic measure to help prevent the evasion of
the provisions of the SEA that were added by the Dodd-Frank Act, and
thus help prevent the relevant purposes of the Dodd-Frank Act from
being undermined. Without this rule, non-U.S. persons could retain the
benefits of operating in the United States while avoiding compliance
with the trade execution requirement.'' \573\
---------------------------------------------------------------------------

    \571\ See supra notes 566-570 and accompanying text.
    \572\ See Proposing Release, supra note 1, 87 FR at 28923
(citing Regulation SBSR--Reporting and Dissemination of Security-
Based Swap Information, SEA Release No. 78321 (July 14, 2016), 81 FR
53546, 53591 (Aug. 12, 2016) (``Regulation SBSR Adopting Release
II'')).
    \573\ Proposing Release, supra note 1, 87 FR at 28923 n.230. See
also supra note 521 and accompanying text (providing an example of
swap dealers strategically choosing the location of the desk
executing a particular trade in order to avoid trading in a more
transparent and competitive setting after no-action relief from the
trade execution requirement for ANE transaction).
---------------------------------------------------------------------------

    Finally, with respect to the request by one commenter that the
Commission revise the ``covered person'' definition in Rule 832 to make
more explicit that it is a transaction-based test,\574\ the Commission
affirms again that the definition is intended to apply on a
transaction-by-transaction basis,\575\ and views the language in the
rule (e.g., ``with respect to a particular security-based swap'') as
sufficiently clear in this regard.\576\
---------------------------------------------------------------------------

    \574\ See supra note 538 and accompanying text.
    \575\ See Proposing Release, supra note 1, 87 FR at 28922 n.221
(``The proposed term `covered person' is designed to apply on a
transaction-by-transaction basis.'').
    \576\ With respect to the commenter that requested additional
clarity with respect to Rule 832, see supra note 539 and
accompanying text, the Commission's discussion of the rule in this
section including, for example, the applicability of existing
guidance with respect to ANE transactions and the availability of
exemptions under Rule 833(b) from the mandatory trade execution
requirement as discussed in section VII.B below, should provide
market participants with more clarity on when and to whom the rule's
requirements would apply.
---------------------------------------------------------------------------

    Accordingly, for the reasons discussed above, the Commission is
adopting Rule 832 as proposed, with minor technical modifications.\577\
---------------------------------------------------------------------------

    \577\ See supra notes 32 and 540.
---------------------------------------------------------------------------

B. Rule 833--Cross-Border Exemptions for Foreign Trading Venues and
Relating to the Trade Execution Requirement

    As discussed above, Rule 832 specifies when the trade execution
requirement applies to an individual cross-border SBS transaction. When
covered persons (as defined in Rule 832) are members of a foreign
trading venue for SBS (a ``foreign SBS trading venue'') with respect to
SBS transacted on that venue, whether or not such SBS are subject to
the trade execution requirement, the foreign SBS trading venue could be
required to register with the Commission as a national securities
exchange or SBSEF \578\ or, because the foreign SBS trading venue would
be facilitating the execution of SBS between persons, a broker.\579\
---------------------------------------------------------------------------

    \578\ See 15 U.S.C. 78c-4(a)(1) (stating that no person may
operate a facility for the trading or processing of SBS, unless the
facility is registered as an SBSEF or national securities exchange).
    \579\ A ``broker'' is generally defined as a person engaged in
the business of effecting transactions in securities for the account
of others. See Section 3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4).
Section 15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), generally provides
that it shall be unlawful for any broker to make use of the mails or
any means or instrumentality of interstate commerce to effect any
transactions in, or to induce or attempt to induce the purchase or
sale of, any security unless such broker is registered in accordance
with SEA section 15(b). See also infra section XI (discussing Rule
15a-12).
---------------------------------------------------------------------------

    To address the situation of a foreign SBS trading venue that wishes
to avoid registering with the Commission in one or more of these
capacities, the Commission proposed Rule 833(a). Rule 833(a), which
would specify that a foreign SBS trading venue can request that the
Commission grant it an exemption under section 36(a)(1) of the SEA
\580\ by submitting, pursuant to SEA Rule 0-12,\581\ a complete
application for exemptive relief. Rule 833(a) would also provide that
such an application under section 36(a)(1) and Rule 0-12, relating to
the status of the foreign SBS trading venue under the SEA, may state
that the application is also submitted pursuant to Rule 833(a).\582\
When such an application is submitted pursuant to Rule 833(a), the
Commission would consider the submission as an application to exempt
the foreign SBS trading venue, with respect to its providing a market
place for SBS, from: the definition of ``exchange'' in section 3(a)(1)
of the SEA; \583\ the definition of ``security-based swap execution
facility'' in section 3(a)(77) of the SEA; \584\ the definition of
``broker'' in section 3(a)(4) of the SEA; \585\ and section 3D(a)(1) of
the SEA.\586\ Because a foreign SBS trading venue for which the
Commission grants an exemptive order under SEA section 36 and Rule
833(a) \587\ would be exempt from these definitions and from section
3D(a)(1) of the SEA, the foreign SBS trading venue would not be
required to register with the Commission as a national securities
exchange, SBSEF, or broker, or to comply with other requirements
applicable to such entities under the SEA or Commission rules
thereunder.\588\
---------------------------------------------------------------------------

    \580\ 15 U.S.C. 78mm(a)(1).
    \581\ 17 CFR 240.0-12 (setting forth procedures for filing
applications for orders for exemptive relief under section 36 of the
SEA).
    \582\ An application for an exemption under Rule 833(a) could be
submitted by a foreign SBS trading venue itself or by another
interested party. For example, a financial regulatory authority in a
foreign jurisdiction could submit an application under Rule 833(a)
on behalf of one or more SBS trading venues licensed and regulated
in that jurisdiction.
    \583\ 15 U.S.C. 78c(a)(1).
    \584\ 15 U.S.C. 78c(a)(77).
    \585\ 15 U.S.C. 78c(a)(4).
    \586\ 15 U.S.C. 78c-4(a)(1) (stating that no person may operate
a facility for the trading or processing of SBS, unless the facility
is registered as an SBSEF or national securities exchange).
    \587\ For the remainder of this discussion, an exemption under
SEA section 36 and Rule 833(a) will be referred to simply as a
``Rule 833(a) exemption.'' In addition, the Commission will use the
term ``trading venue covered by an exemption order under Rule 833''
(or a similar formulation) rather than ``exempt exchange,'' ``exempt
SBSEF'' or ``exempt broker'' because, pursuant to an exemption
granted under Rule 833(a), the covered trading venue would no longer
be an exchange, SBSEF, or broker (as defined by the SEA).
    \588\ However, as discussed further below, the Rule 833(a)
exemption is designed to address only activities related to
providing a market place for SBS. An entity that engages in other
SBS-related activity or any activity involving non-SBS securities
would, with respect to such other SBS-related activity or any
activity involving non-SBS securities, still be subject to any
applicable requirements to register with the Commission as a
national securities exchange, SBSEF, or broker, or to comply with
other requirements applicable to such entities under the SEA or
Commission rules thereunder.
---------------------------------------------------------------------------

    As with other exemptions issued pursuant to section 36, to issue a
Rule 833(a) exemption, the Commission would be required to find that
the exemption is necessary or appropriate in the public interest, and
consistent with the protection of investors.\589\ As contemplated in
section 36(a)(1), the Commission may issue a Rule 833(a) exemption with
conditions.
---------------------------------------------------------------------------

    \589\ See 15 U.S.C. 78mm(a)(1). Unlike the CFTC, which has
exemptive authority under section 5h(g) of the CEA, the Commission
would not be required to find that the foreign trading venue is
subject to comparable, comprehensive supervision and regulation by a
U.S. or foreign regulator.
---------------------------------------------------------------------------

    The Commission also proposed Rule 833(b), which would address
requests for exemptive relief relating to the application of the trade
execution requirement to transactions executed on a foreign SBS trading
venue. Rule 833(b)(2) would provide that, in considering whether to
issue a Rule 833(b) exemption, the Commission may consider: (i) the
extent to which the SBS traded in the foreign jurisdiction covered by
the request are subject to a trade execution requirement comparable to
that in section 3C(h) of the SEA and the Commission's rules thereunder;
(ii) the extent to which trading venues in the foreign jurisdiction
covered by the request are subject to regulation and supervision
comparable to that under the SEA, including section 3D of the SEA, and
the Commission's rules thereunder; (iii) whether the foreign trading
venue or venues where covered

persons intend to trade SBS have received an exemptive order
contemplated by Rule 833(a); and (iv) any other factor that the
Commission believes is relevant for assessing whether the exemption is
in the public interest and consistent with the protection of
investors.\590\
---------------------------------------------------------------------------

    \590\ For a more detailed discussion of the items in Rule
833(b)(2) that the Commission may consider, see Proposing Release,
supra note 1, 87 FR at 28925-26.
---------------------------------------------------------------------------

    As with other exemptions issued pursuant to section 36, to issue a
Rule 833(b) exemption, the Commission would be required to find that
the exemption is necessary or appropriate in the public interest, and
consistent with the protection of investors. As contemplated by section
36(a)(1), the Commission may issue a Rule 833(b) exemption with
conditions.
    One commenter expresses general support for the establishment of a
rule granting exemptions for foreign trading venues and for cross-
border trade execution exemptions, noting that ``difficulties that can
arise when the trade execution requirement applies in two separate
jurisdictions'' and that ``it is important for market participants and
trading venues to have regulatory certainty while maintaining
flexibility in where transactions may be consummated.'' \591\
---------------------------------------------------------------------------

    \591\ Bloomberg Letter, supra note 18, at 18. However, as
discussed below in this section VII.B, this commenter criticizes
various aspects of Rule 833.
---------------------------------------------------------------------------

    Another commenter believes the Commission's proposed exemption rule
should be made more robust to prevent evasion of the SBSEF registration
and trade execution requirements. This commenter believes that Rule 833
does not provide meaningful standards for how the Commission will
assess requests for such exemptions, which this commenter believes is
insufficient, and provides the Commission with ``unreasonably broad,
nearly unlimited, discretion, in how it assess foreign swaps regulatory
frameworks,'' which this commenter believes may result in the
Commission ``facilitating evasion of Title VII.'' \592\ This commenter
states that the Dodd-Frank Act ``requires that the SEC must, at the
very least . . . make an affirmative determination that such an
application demonstrates that the exemption could not be used to evade
those requirements[, which would] require the SEC [to] make a credible,
comprehensive determination that the foreign regulatory requirements
applicable to the applicant is actually written, applied and enforced,
are the same as those that would otherwise apply to the applicant
absent an exemption.'' \593\
---------------------------------------------------------------------------

    \592\ Better Markets Letter, supra note 18, at 16.
    \593\ Id.
---------------------------------------------------------------------------

    One commenter argues that Rule 833(b)'s requirements are
unnecessary if a foreign trading venue has received an exemption under
Rule 833(a), given that the Commission would be required to find that
the Rule 833(a) exemption is ``necessary or appropriate in the public
interest and consistent with the protection of investors,'' which this
commenter believes ``should be sufficient for the purposes of trading
SBS on foreign trading venues, even when the trade execution
requirement applies.'' \594\ Thus, this commenter requests that the
Commission ``remove the 833(b) exemption and clarify that . . . if a
foreign trading venue has been granted an 833(a) exemption . . ., a
market participant should be permitted to trade SBS on that venue.''
\595\
---------------------------------------------------------------------------

    \594\ Bloomberg Letter, supra note 18, at 7.
    \595\ Id.
---------------------------------------------------------------------------

    Another commenter does not believe the exemptions in Rule 833 are
sufficiently clear, and requests that the Commission consider setting
forth charts or examples to better facilitate compliance.\596\
---------------------------------------------------------------------------

    \596\ See SIFMA AMG Letter, supra note 18, at 11-12.
---------------------------------------------------------------------------

    With respect to Rule 833(b) specifically, several comments appear
to anticipate that, in order for a transaction on a foreign SBS trading
venue to qualify for the trade execution exemption under Rule 833(b),
the relevant foreign jurisdiction would have to require RFQ-to-3 or an
order book for Required Transactions.\597\ One commenter states that
``the CFTC, appropriately in our view, recognized that there are
multiple ways that a regulator can ensure appropriate pre-trade
transparency and competition, such that restricting execution methods
to [central limit order books] and RFQ-to-3 systems are not the only
ways to achieve these objectives. Failing to recognize this fact in the
course of making comparability determinations would incorrectly turn
the statutory comparability standard into a test for identical rules.''
\598\ Two commenters state that it would be difficult for many foreign
SBS trading venues to demonstrate comparability if RFQ-to-3 and an
order book were required, with one stating that ``[f]ew jurisdictions
require RFQ to 3, and some do not require SBS to be traded on an
organized trading venue.'' \599\
---------------------------------------------------------------------------

    \597\ See Bloomberg Letter, supra note 18, at 6; Tradeweb
Letter, supra note 18, at 5-6; ISDA-SIFMA Letter, supra note 18, at
14. See also ICE Letter, supra note 18, at 4.
    \598\ Tradeweb Letter, supra note 18, at 6.
    \599\ Bloomberg Letter, supra note 18, at 6. See also ICE
Letter, supra note 18, at 4 (stating that ``EU and UK based
multilateral trading facilities are not required under their home
country regulation to ensure that a request-for-quote be sent to
three different recipients or offer a central-limit-order-book'' and
thus the proposed criteria cannot be satisfied from the outset);
Bloomberg Letter, supra note 18, at 19 (stating that ``at least
three Bloomberg-affiliated [foreign venues] would seek an
exemption'' but may be ``effectively barred at the door by the
Proposal's requirement that security-based swaps are subject to a
trade execution requirement in the foreign jurisdiction that is
comparable to that in 15 U.S.C. 78c-3(h) and the Commission's rules
thereunder''); ISDA-SIFMA Letter, supra note 18, at 14 (stating that
hardly any (if any at all) foreign trading venues would be able to
enjoy an Exempt SBSEF status and that, as far as the commenter is
aware, none of the CFTC recognized multilateral trading facilities
or organized trading facilities are required to offer a central
limit order books on their platforms).
---------------------------------------------------------------------------

    Two commenters oppose requiring an exemption under Rule 833 to
depend upon a ``rule-by-rule'' comparison or analysis. One commenter
states that this would be ``unduly burdensome and at odds with the
overall goal of achieving comparable outcomes.'' \600\ The other
commenter requests that the Commission adopt ``a more flexible approach
to the recognition of foreign trading venues--one that relies on
holistic outcomes and governing principles, rather than a rule-by-rule
analysis.'' \601\
---------------------------------------------------------------------------

    \600\ Bloomberg Letter, supra note 18, at 7.
    \601\ ISDA-SIFMA Letter, supra note 18, at 15.
---------------------------------------------------------------------------

    Several commenters believe that Rule 833, as they understand it,
would result in various negative consequences. One commenter states
that covered persons would not be able to fulfill the trade execution
requirement and that, as a result, market participants would then be
forced to trade on a limited subset of venues, disrupting liquidity and
requiring them to expend time and resources in onboarding to a
compliant trading venue.\602\ Another commenter warns that ``the
limited liquidity in the SBS market is not going to withstand
significant disruptions, increased costs, and market fragmentation,
thus making it more likely for market participants to exit the SBS
markets entirely.'' \603\ This commenter believes that the Commission's
approach ``will force market participants to trade SBS within the
jurisdictional borders of the United States, restricting access to
global liquidity and thus further diminishing already thin SBS
markets,'' rather than ``the decision where to trade the most
standardized and liquid swaps [being] dictated by the available
liquidity and

prices in global markets.'' \604\ Similarly, another commenter
contrasts the approach taken under Rule 833 with the approach the CFTC
has taken to exempt certain foreign SEFs from SEF registration, and
states that Rule 833 would prevent covered persons from trading SBS on
such exempt SEFs and would impair their ability to manage risk
effectively.\605\ If covered persons are no longer able to trade SBS on
these venues, this commenter states, they also ``may not find it
feasible to trade other instruments, such as swaps and foreign
corporate debt, due to the bifurcation of liquidity that will result.''
\606\ This commenter states that the ability to combine trading
interest in related products on the same trading platform is critical
to the effective transfer of risk within the financial system, and
preventing ``this single pool of liquidity jeopardizes that risk
transfer and impairs price formation and ultimately increases systemic
risk.'' \607\
---------------------------------------------------------------------------

    \602\ See Bloomberg Letter, supra note 18, at 6-7. See also
Tradeweb Letter, supra note 18, at 6.
    \603\ ISDA-SIFMA Letter, supra note 18, at 15. See also Tradeweb
Letter, supra note 18, at 6.
    \604\ ISDA-SIFMA Letter, supra note 18, at 14.
    \605\ See ICE Letter, supra note 18, at 4.
    \606\ Id.
    \607\ Id. at 4-5.
---------------------------------------------------------------------------

    These commenters argue that the Commission should instead align
with the CFTC's approach to exemptions, which does not require exempt
foreign SEFs to have order books or to satisfy the RFQ-to-3
requirement, stating that the CFTC's ``flexible, outcomes-based
approach serves market participants well.'' \608\ One commenter argues
for the Commission to avoid the ``unintended economic disadvantage if
other global market participants avoid trading with the managers' non-
US fund clients solely to avoid being subject to the Commission's SBSEF
requirements'' and the significant costs and burdens that would arise
if the two regulatory approaches produce different outcomes for swaps
and SBS.\609\ These commenters state that the CFTC has ``already
granted exemptions to a number of foreign trading venues across
jurisdictions in Europe and Asia,'' \610\ with one commenter stating
that the ``CFTC process, while imperfect, provides a more streamlined
and workable approach for the Commission.'' \611\
---------------------------------------------------------------------------

    \608\ Bloomberg Letter, supra note 18, at 7. See also ISDA-SIFMA
Letter, supra note 18, at 14-15; Tradeweb Letter, supra note 18, at
6.
    \609\ ICI Letter, supra note 18, at 14.
    \610\ Bloomberg Letter, supra note 18, at 7. See also ICE
Letter, supra note 18, at 4. See also ISDA-SIFMA Letter, supra note
18, at 14.
    \611\ Bloomberg Letter, supra note 18, at 7.
---------------------------------------------------------------------------

    These commenters argue that the Commission should ``ensure that its
proposed approach to granting exemption will produce outcomes similar
to those of the CFTC'' so as to ``further harmonize with the CFTC's SEF
framework, and promote consistency and simplicity. . . .'' \612\
Several of these commenters recommend that the Commission grant
automatic exemptions for trading venues that are currently exempt under
the CFTC's rules.\613\ Some commenters stated that this approach would
be consistent with the Commission's general approach of harmonizing
closely with the CFTC's SEF rules where appropriate and also stated
that, as there are no distinctions outside of the United States between
the regulation of swaps and the regulation of SBS, SBS are currently
traded on foreign venues that have been recognized by the CFTC.\614\
Three commenters requested that the Commission recognize such
exemptions (i.e., CFTC-exempt SEFs as ``exempt'' SBSEFs) at the
adoption of Regulation SE.\615\ And one of these three commenters also
requests that, in the alternative, and ``in order to avoid duplicative
or conflicting regulation . . . the Commission grant an exemption from
the trade execution requirement if the SBS transaction at issue is
subject to mandatory trading in another jurisdiction.'' \616\
---------------------------------------------------------------------------

    \612\ ICI Letter, supra note 18, at 14. See also Bloomberg
Letter, supra note 18, at 7, 18; ISDA-SIFMA Letter, supra note 18,
at 14-15; Tradeweb Letter, supra note 18, at 6.
    \613\ See Bloomberg Letter, supra note 18, at 7, 18; ISDA-SIFMA
Letter, supra note 18, at 14-15; Tradeweb Letter, supra note 18, at
6.
    \614\ See Bloomberg Letter, supra note 18, at 18-19; ISDA-SIFMA
Letter, supra note 18, at 14-15.
    \615\ See ICE Letter, supra note 18, at 5; ISDA-SIFMA Letter,
supra note 18, at 15; Tradeweb Letter, supra note 18, at 6.
    \616\ ISDA-SIFMA Letter, supra note 18, at 15.
---------------------------------------------------------------------------

    The Commission has considered the comments received for Rule 833
and is adopting the rule as proposed. As the Commission stated in the
Proposing Release,\617\ Rule 833(a) is designed to address only
activities relating to providing a market place for SBS and would not
extend to trading in any other type of security or to other activities
with respect to SBS.\618\ A foreign SBS trading venue covered by an
exemptive order under Rule 833(a) might offer trading in other types of
securities; however, the exemptive order would permit covered persons
to trade only SBS on that trading venue without causing the trading
venue to have to register with the Commission as a national securities
exchange, SBSEF, or broker. The exemptive order would not address any
registration obligations that might arise from any other SBS-related
activity or any activity involving non-SBS securities by the foreign
trading venue.\619\
---------------------------------------------------------------------------

    \617\ See Proposing Release, supra note 1, 87 FR at 28924.
    \618\ For example, although a foreign trading venue covered by a
Rule 833(a) exemption would be exempt from the definition of
``broker,'' that exemption would extend only to the operation of a
market place for SBS and would not permit the foreign trading venue
to otherwise act as a securities broker using U.S. jurisdictional
means.
    \619\ The Commission also emphasizes that a Rule 833(a)
exemption would not have any impact on section 6(l) of the SEA, 15
U.S.C. 78f(l), which makes it unlawful for any person to effect a
transaction in an SBS with or for a person that is not an ECP,
unless such transaction is effected on a national securities
exchange registered pursuant to section 6(b) of the SEA. Because a
foreign SBS trading venue covered by a Rule 833(a) exemption would
not be registered as a national securities exchange, the foreign SBS
trading venue would not be permitted to effect SBS transactions with
or for a covered person that is not an ECP.
---------------------------------------------------------------------------

    The bulk of the comments received opposing Rule 833 appear to
emanate from commenters' interpretation--and misunderstanding--of what
would be required in order to receive a Rule 833(b) exemption. The
Commission proposed Rule 833(b) to address requests for exemptive
relief relating to the application of the trade execution requirement
under section 3C(h) of the SEA to transactions executed on a foreign
SBS trading venue. Pursuant to section 3C(h) of the SEA, an SBS that is
subject to the trade execution requirement must be executed on an
exchange, on an SBSEF registered under section 3D of the SEA, or on an
SBSEF that is exempt from registration under section 3D(e) of the
SEA.\620\ As a result, a covered person (as defined in Rule 832) would
not be permitted to execute an SBS that is subject to the trade
execution requirement on a foreign SBS trading venue unless that venue
has registered with the Commission as a national securities exchange or
an SBSEF, or has received an exemption under section 3D(e) of the SEA.
---------------------------------------------------------------------------

    \620\ Section 3D(e) of the SEA gives the Commission authority to
exempt an SBSEF from registration if it is subject to comparable,
comprehensive supervision and regulation by the CFTC. See 15 U.S.C.
78c-4(e).
---------------------------------------------------------------------------

    Several commenters interpret the rule and the Commission's
discussion of the rule in the Proposing Release to mean that a foreign
SBS trading venue must have RFQ-to-3 and an order book for Required
Transactions in order for transactions on that venue to qualify for a
Rule 833(b) exemption.\621\ These commenters, however, are incorrect in
this understanding of the requirements for a Rule 833(b) exemption.
---------------------------------------------------------------------------

    \621\ See supra notes 597-599 and accompanying text.
---------------------------------------------------------------------------

    First, Rule 833(b)(2) does not contain a list of items that ``are
required,'' but rather lists items that the Commission ``may consider''
when it receives a

request for a Rule 833(b) exemption.\622\ And second, Rule 833(b)(2)(i)
states, in relevant part, that the Commission may consider ``the extent
to which the security-based swaps traded in the foreign jurisdiction
covered by the request are subject to a trade execution requirement
comparable to that in section 3C(h) of the Act . . . and the
Commission's rules thereunder.'' (Emphasis added.) In the Proposing
Release, the Commission described this requirement by stating that ``a
trade execution requirement in a foreign jurisdiction would not be
comparable to the trade execution requirement under the SEA if the
foreign jurisdiction's rules did not require SBS products subject to
that requirement to be executed through means comparable to Required
Transactions as described in Rule 815 (e.g., if the foreign
jurisdiction allowed the use of single-dealer platforms to discharge
any mandatory trading execution requirement in that jurisdiction).''
\623\ That is, the Commission's proposed rule would not require foreign
SBS trading venues to have RFQ-to-3 and an order book in order for the
Commission to consider their SBS executions for an exemption under Rule
833(b).
---------------------------------------------------------------------------

    \622\ Rule 833(b)(2).
    \623\ Proposing Release, supra note 1, 87 FR at 28925 (emphasis
added).
---------------------------------------------------------------------------

    While, as commenters correctly state, for Required Transactions,
Rule 815 requires SBS transactions to be executed through a limit order
book or an RFQ-to-3 system,\624\ neither the text of Rule 833(b) nor
the Commission's description of Rule 833(b) states that a limit order
book or an RFQ-to-3 system is required to receive a Rule 833(b)
exemption.\625\ The phrase ``comparable to'' does not carry the same
meaning as phrases such as ``identical to'' or ``substantially similar
to,'' and the Commission uses this phrase with respect to Rule 833(b)
exemptions because SBS transactions would not be disqualified from
receiving a Rule 833(b) exemption simply because they were not executed
through a limit order book or an RFQ-to-3 system. Rather, the
Commission agrees with commenters that there may be foreign SBS trading
venues--many of which have already received exemptive relief from the
CFTC for swaps trading \626\--that may be appropriate candidates for
exemptive relief, that are subject to what may be considered robust
regulatory regimes for SBS trading. With respect to such foreign SBS
trading venues, the Commission encourages market participants to submit
a request for exemptive relief under Rule 833(b) if they seek to be
exempt from the Commission's trade execution requirement for their SBS
transactions.\627\
---------------------------------------------------------------------------

    \624\ See supra section V.E (discussing methods of execution and
Rule 815).
    \625\ In the Proposing Release, the Commission stated its
preliminary belief that ``the use of single-dealer platforms to
discharge any mandatory trading execution requirement'' would not
meet the proposed rule's requirements. See Proposing Release, supra
note 1, 87 FR at 28925.
    \626\ See www.cftc.gov/International/ForeignMarketsandProducts/ExemptSEFs (listing foreign swap trading facilities that the CFTC
has exempted from its SEF registration requirements, including
certain such facilities in the European Union, Japan, and
Singapore). Market practices continued in this regard without change
after the United Kingdom (``UK'') withdrew from the European Union,
based upon a CFTC staff no-action letter addressing certain UK swap
trading facilities. See CFTC Letter No. 22-16 (Dec. 1, 2022),
available at https://www.cftc.gov/csl/22-16/download.
    \627\ Several commenters describe the negative consequences that
would occur because, they believe, the Commission's Rule 833(b)
exemption would require foreign jurisdictions to require RFQ-to-3
and order book methods of execution, which these commenters believe
forecloses many foreign trading venues from obtaining exemptive
relief from the Commission for their SBS trading even though they
have received similar exemptions from their CFTC. See supra notes
602-611 and accompanying text. Similarly, one commenter requests
that, in the alternative, the Commission grant an exemption from the
trade execution requirement if the SBS transaction at issue is
subject to mandatory trading in another jurisdiction. See supra note
616 and accompanying text. As the Commission has explained, Rule
833(b) exemptions are not limited to those jurisdictions that
require RFQ-to-3 and order books, but rather Rule 833(b)(2)(i)
states that the Commission may consider the extent to which SBS
transactions are subject to a trade execution requirement comparable
to such methods of execution. Accordingly, SEFs would not be
foreclosed from obtaining exemptive relief from the Commission for
their SBS trading. For this reason, the Commission also does not
agree with the commenter's suggested alternative to grant an
exemption from the trade execution requirement if the SBS
transaction at issue is subject to mandatory trading in another
jurisdiction, because exemptive relief under 833(b) may be applied
for in such instances, which would give the Commission the
opportunity to appropriately consider the applicable facts and
circumstances.
---------------------------------------------------------------------------

    Certain commenters also object that, in their understanding, a Rule
833(b) exemption request would require a ``rule-by-rule'' comparison or
analysis,\628\ which one commenter characterized as unduly
burdensome.\629\ In addition to Rule 833(b)(2)(i) discussed above,
another relevant factor (among others) that the Commission may consider
is whether the trading venues in the foreign jurisdiction are subject
to regulation and supervision comparable to that under the SEA,
including section 3D of the SEA and the Commission's rules thereunder,
which the Commission described in the Proposing Release to include
being subject to rules designed to foster comparable levels of pre- and
post-trade transparency, access, and liquidity.\630\
---------------------------------------------------------------------------

    \628\ See supra notes 600-601 and accompanying text.
    \629\ See supra note 600 and accompanying text.
    \630\ See Proposed Rule 833(b)(2)(ii) and Proposing Release,
supra note 1, 87 FR at 28925.
---------------------------------------------------------------------------

    An 833(b) exemptive request generally should include an analysis
that could assist the Commission's determination as to whether the
regulation and supervision of a foreign SBS trading venue in an
applicable foreign jurisdiction is subject to regulation and
supervision comparable to that under the SEA. Given the central roles
the jurisdiction's applicable laws, rules and regulations, as well as a
foreign SBS trading venue's own rules, play in such a determination, an
exemptive request generally should include an analysis of these
requirements. A precise form of any such analysis--whether it is done
as a ``rule-by-rule'' comparison or through some other methodology
(e.g., in a more holistic manner)--is not specified by Rule 833(b),
would be at the discretion of the entity submitting the exemptive
request, and should be provided in order to help the Commission and its
staff understand what requirements apply to the foreign SBS trading
venue.
    With respect to the comments that the Commission should
automatically provide exemptions for foreign trading venues that have
received a parallel exemption from the CFTC for their SEF trading,\631\
and that the Commission should do so contemporaneously with adopting
Regulation SE,\632\ while doing so would promote consistency,
simplicity, and harmonization with the CFTC's SEF rules, such a blanket
exemption would not afford the Commission the opportunity to
appropriately consider the relevant facts and circumstances in support
of a finding that an exemption is necessary or appropriate in the
public interest and consistent with the protection of investors.
However, persons interested in submitting a request for exemptive
relief should be mindful of the implementation period that will take
place before Regulation SE's requirements take effect, as described in
more detail below.\633\
---------------------------------------------------------------------------

    \631\ See supra notes 612-615 and accompanying text.
    \632\ See supra note 615 and accompanying text. See also supra
note 626.
    \633\ See infra section VIII. See also infra note 787 and
accompanying text.
---------------------------------------------------------------------------

    With respect to the comment that the provisions of Rule 833 are not
robust enough,\634\ the Commission disagrees. Importantly, in order to
issue any exemption under Rule 833, the Commission would be required to
find that the exemption is necessary or

appropriate in the public interest and consistent with the protection
of investors, and the Commission may issue the exemptive relief with
conditions. A blanket grant of exemptive relief would be inconsistent
with carefully considering whether a specific exemptive request meets
the applicable standard and might lead to a greater percentage of SBS
transactions being executed beyond the scope of any U.S. regulatory
oversight.
---------------------------------------------------------------------------

    \634\ See supra note 593 and accompanying text.
---------------------------------------------------------------------------

    Finally, the Commission disagrees with the commenter that suggested
that Rule 833(b)'s requirements are unnecessary if a foreign trading
venue has received an exemption under Rule 833(a).\635\ The two
exemptions under Rule 833 provide exemptive relief from different
requirements of the SEA and are also directed at different entities.
Specifically, a Rule 833(a) exemption provides exemptive relief to a
foreign trading venue that, absent the exemption, could be required to
register with the Commission as an exchange, SBSEF, and/or broker if it
traded SBS (regardless of whether such SBS are subject to the trade
execution requirement). On the other hand, Rule 833(b)'s exemption
provides exemptive relief to the counterparties of an SBS transaction
with respect to the trading execution requirement in section 3C(h) of
the SEA.\636\
---------------------------------------------------------------------------

    \635\ See supra note 595 and accompanying text.
    \636\ With respect to the commenter that requested additional
clarity with respect to Rule 833, see supra note 596 and
accompanying text, the Commission's discussion of the exemptions,
including the standard of ``comparable to'' and the type of analysis
that should be presented, should provide market participants with
more clarity on how a person could seek exemptive relief.
---------------------------------------------------------------------------

    Accordingly, for the reasons discussed above, the Commission is
adopting Rule 833 as proposed.

VIII. Rule 834--Implementation of Section 765 of the Dodd-Frank Act and
Governance of SBSEFs and SBS Exchanges

    Section 765(a) of the Dodd-Frank Act \637\ provides in relevant
part that, to mitigate conflicts of interest, the Commission ``shall
adopt rules which may include numerical limits on the control of, or
the voting rights with respect to'' any clearing agency that clears
SBS, or on the control of any SBSEF or SBS exchange by certain bank
holding companies, certain nonbank financial companies, an affiliate of
such a bank holding company or nonbank financial company, an SBS
dealer, major SBS participant, or person associated with an SBS dealer
or major SBS participant.\638\ Section 765(b) states that the purpose
of the statutory provision is ``to improve the governance of, or to
mitigate systemic risk, promote competition, or mitigate conflicts of
interest in connection with'' an SBS dealer or major SBS participant's
conduct of business with, a clearing agency, SBSEF, or SBS exchange and
in which such SBS dealer or major SBS participant ``has a material debt
or equity investment.'' Finally, section 765(c) provides in relevant
part that, in adopting rules pursuant to section 765, the Commission
shall consider any conflicts of interest arising from the amount of
equity owned by a single investor, the ability to vote, cause the vote
of, or withhold votes entitled to be cast on any matters by the holders
of the ownership interest.
---------------------------------------------------------------------------

    \637\ 15 U.S.C. 8343.
    \638\ The Commission recognizes that promulgating rules under
section 765 alone will not result in a highly competitive market for
SBS. There could be other ways for anticompetitive forces to impede
the growth of SBS trading on transparent, regulated platforms other
than by misuse of a large voting interest in the trading venue. For
example, a large SBS dealer or coalition of SBS dealers, even absent
any voting interest in any SBSEF or SBS exchange, could threaten to
move their business elsewhere unless given an unfair advantage by
the trading venue. A large SBS dealer or coalition of SBS dealers
also could conspire to shut out end users who sought to trade more
actively on these transparent, regulated venues rather than
continuing to trade in the bilateral OTC markets. The Commission
will be alert to any such anticompetitive practices and consider
appropriate prophylactic measures. At present, adopting rules under
section 765 is a necessary and appropriate first step to guard
against conflicts of interest arising on SBSEFs and SBS exchanges.
See Proposing Release, supra note 1, 87 FR at 28930.
---------------------------------------------------------------------------

    In 2010, the Commission proposed Regulation MC to implement section
765.\639\ In view of the significant amount of time that had elapsed
and the significant evolution in the swap and SBS markets since the
proposal of Regulation MC, the Commission withdrew that proposal,\640\
and proposed Rule 834 to implement section 765 of the Dodd-Frank Act
with respect to SBSEFs and SBS exchanges.\641\
---------------------------------------------------------------------------

    \639\ See Regulation MC Proposal, supra note 21.
    \640\ See Proposing Release, supra note 1, 87 FR at 28874.
    \641\ See id. at 29001-03.
---------------------------------------------------------------------------

A. Rule 834(a)

    Paragraph (a) of Proposed Rule 834 would define terms used in Rule
834. The Commission received no comments on of Proposed Rule 834(a) and
is adopting Rule 834(a) as proposed for the reasons stated in the
Proposing Release.

B. Rule 834(b)

    Paragraph (b) of Proposed Rule 834 would impose a cap on the size
of the voting rights that an individual member of an SBSEF or SBS
exchange may own or direct, barring an SBSEF or SBS exchange from
permitting any of its members, either alone or together with any
officer, principal, or employee of the member, to:
    (1) Own, directly or indirectly, 20% or more of any class of voting
securities or of other voting interest in the SBSEF or SBS exchange; or
    (2) Directly or indirectly vote, cause the voting of, or give any
consent or proxy with respect to the voting of, any interest that
exceeds 20% of the voting power of any class of securities or of other
ownership interest in the SBSEF or SBS exchange.
    One commenter supports the Commission's goal to adopt rules that
aim to achieve better governance and mitigation of conflicts of
interest that arise out of the operation of SBSEFs, but the commenter
opposes Rule 834 because it believes that the rule would disrupt the
closely harmonized rules with the CFTC, as the CFTC has not adopted
corresponding provisions for its SEF registrants. This commenter
recommends that the Commission, like the CFTC, should focus on board
governance, conflicts of interest, and antitrust considerations rather
than proscriptive, bright line rules. The commenter states that the
Commission's concerns regarding conflicts of interest ``can best be
addressed by ensuring compliance with the SBSEF Core Principles rather
than an additional regulation,'' \642\ and specifically that the
proposed 20 percent limitation on the voting interest that may be held
by members of any SBSEF or SBS exchange ``goes beyond what is necessary
to effectively mitigate conflicts of interest.'' \643\ Rather, this
commenter states, the ownership limit would limit access to necessary
capital and act as barriers to entry for SBSEFs and SBS exchanges. The
commenter also states that section 765 of Dodd-Frank does not require
the Commission to restrict the ability to hold significant ownership
interests in SBSEFs and that the statutory language instead provides
that the Commission is authorized to adopt rules upon determining,
after review, that such restrictions are necessary or appropriate to
improve the governance of SBSEFs or to mitigate systemic risk, to
promote competition, or mitigate conflicts of interest.\644\
---------------------------------------------------------------------------

    \642\ SIFMA AMG Letter, supra note 18, at 12.
    \643\ Id.
    \644\ See id.
---------------------------------------------------------------------------

    Another commenter states that that the proposed 20% voting cap
requirement could potentially thwart the Commission's objective to
ensure that only incremental changes would be

necessary to adopt the SBSEF framework. The proposed cap, this
commenter states, may require SEFs to set up an entirely new legal
entity with a different governance structure, making it more
challenging to obtain dual registration. The commenter also states that
the conflicts of interest rules implemented by the CFTC, which do not
include a 20% voting cap, sufficiently address any conflicts of
interest concerns, as SEFs have operated under those rules for almost
10 years, and there have been no observable issues that would warrant
such a regulatory shift.\645\
---------------------------------------------------------------------------

    \645\ See ISDA-SIFMA Letter, supra note 18, at 16.
---------------------------------------------------------------------------

    One commenter states that it strongly opposes Rule 834 and that, as
written, Rule 834 would have the effect of prohibiting certain SBSEF
participants from having common ownership and control as the SBSEF. An
SBSEF, the commenter states, would likely not be able to onboard an
affiliated introducing broker, even if the introducing broker would be
subject to the same rules and practices as an unaffiliated participant.
The commenter states that some CFTC-registered SEFs, including the
commenter's member firms, have affiliated introducing-broker
participants that execute their respective swaps business on their
affiliated SEFs, and the affiliated transactions make up a majority of
the SEF's business. The commenter states that these firms may choose
not to register as an SBSEF and take on the costs and burdens of being
an SBSEF if they cannot accommodate their affiliate's trade execution
needs, which would thwart the goal of developing a competitive
landscape of regulated SBS market places.\646\
---------------------------------------------------------------------------

    \646\ See WMBAA Letter, supra note 18, at 2.
---------------------------------------------------------------------------

    This commenter further states that it and many others previously
opposed these hard caps when they were proposed in 2010, and that--with
a decade of experience operating SEFs and venues for other financial
products, including Commission regulated alternative trading systems--
the commenter still believes the rule's approach is ``too heavy-
handed'' a way to solve a problem that has been more than adequately
addressed through less burdensome measures.\647\ The commenter states
that the CFTC never adopted its proposed ownership/governance
prohibition for SEFs, that the CFTC's existing conflicts of interest
rules have proven satisfactory, and that, rather than mandating
ownership limits, the Commission should instead permit SBSEFs to
exercise reasonable discretion as to its mechanisms for mitigating
conflicts of interest and should rely instead on the conflict of
interest and antitrust provisions already embedded in the SBSEF
regulatory regime.\648\
---------------------------------------------------------------------------

    \647\ Id.
    \648\ See id. at 2-3.
---------------------------------------------------------------------------

    The Commission has considered the comments and, as discussed below,
is modifying Proposed Rule 834 to provide an exemption from the
ownership and voting caps for an SBSEF that has mitigated the potential
conflict of interest with respect to compliance with the rules of the
SBSEF by entering into an agreement with a registered futures
association or a national securities association for the provision of
regulatory services that encompass, at a minimum, real-time market
monitoring, investigations, and investigation reports.
    The 20% cap in Proposed Rule 834(b) is designed to balance
competing policy interests. On one hand, execution venues need capital,
expertise, and liquidity to establish and grow. Historically, market
participants who become members of an execution venue are a source of
all three components, and any person contributing capital to a new
venture might reasonably expect to have a voting interest commensurate
with the amount of capital contributed. Too low a cap, even if imposed
in the name of eliminating conflicts of interest, could have the
unintended effect of impeding the development of execution venues for
SBS altogether, if market participants who become members have no (or
substantially limited) ability to vote their equity interest.
    On the other hand, allowing a member of an SBSEF or SBS exchange
too large a voting interest could undermine the public policy benefits
of having transparent, fair, and regulated markets for the trading of
SBS. A member of an SBSEF or SBS exchange with a sufficiently large
voting interest could exercise undue influence over the rules and
policies applicable to members, the venue's access criteria, decisions
regarding access, and disciplinary matters, among other things. In
particular, members who are SBS dealers and conduct a significant
amount of business in the bilateral OTC market have incentives to
restrict the scope of SBS that an SBSEF or SBS exchange makes eligible
for trading. Trading in a market with robust order competition and pre-
trade transparency reduces search costs for end users and liquidity
seekers and reduces the information and bargaining asymmetry of end
users and liquidity seekers relative to SBS dealers. An SBS dealer with
a large voting interest in an SBSEF or SBS exchange, if it perceived
that trading on the regulated venue was diminishing the rents obtained
from its bilateral OTC business, might seek to utilize its voting
influence in a number of ways to degrade the capability of the
regulated venue, thus making the OTC market by comparison a more
attractive option.
    Capping a member's voting interest at 20% strikes a reasonable
balance between these competing interests, absent additional measures
to ensure that a member or members with large voting power could tilt
the playing field in their favor. And the Commission does not agree
with the comment that a more general focus on board governance,
conflicts of interest, and antitrust considerations, or on simply
ensuring compliance with the SBSEF Core Principles,\649\ is sufficient
to address this concern because, based on its long experience in
regulating the markets on which the instruments underlying SBS trade,
the ownership and voting structure of a regulated entity can give rise
to conflicts of interest between the organization's business interests
and its regulatory obligations. Further, even if the CFTC has not to
date adopted its own ownership and governance prohibitions for SEFs,
the appropriate comparison with respect to ownership and governance for
SBSEFs is national securities exchanges, because both types of entities
operate markets to which fair or impartial access requirements
comprehensively apply.\650\ Therefore, SBSEFs should be subject to
ownership restrictions that are similar to those in the rules of
national securities exchanges, as approved by the Commission, which
limit ownership by any one member and do not permit an exchange to
merely ``exercise reasonable discretion'' with respect to its
mechanisms for mitigating conflicts of interest.
---------------------------------------------------------------------------

    \649\ See supra note 642.
    \650\ See SEA sections 6(b)(2) and 6(c), 15 U.S.C. 78f(b)(2) and
78f(c). Alternative Trading Systems, by contrast, are subject to
``fair access'' requirements only if they meet certain volume
trading thresholds. See Rule 301(b)(5)(i), 17 CFR 242.301(b)(5)(i).
---------------------------------------------------------------------------

    The Commission, however, appreciates the concerns expressed by
commenters that a cap of 20% on voting interest in all cases could
prevent would-be SBSEFs from onboarding their affiliated introducing
brokers, and that the burdens imposed in setting up an SBSEF that is
legally remote from affiliated introducing brokers may dissuade current
SEFs from registering as SBSEFs, which would lead to their ceasing to
offer SBS trading on their

platforms.\651\ Therefore, the Commission is modifying Rule 834 as
proposed to add new paragraph (b)(3) to provide an exemption from the
20% cap for an SBSEF that has entered into an agreement with a
registered futures association or a national securities association for
the provision of regulatory services that encompass, at a minimum,
real-time market monitoring and investigations and investigation
reports.
---------------------------------------------------------------------------

    \651\ See supra notes 645-648.
---------------------------------------------------------------------------

    This exemption, which is conditioned upon an SBSEF conducting its
market monitoring and investigative activities through a self-
regulatory body that has broader membership than an individual SBSEF
and that does not operate its own SBSEF, would mitigate concerns that
members with large ownership shares might be given preferential
treatment with respect to their compliance with the SBSEF's rules. And
the exemption should also, by permitting SBSEFs to exceed the 20%
ownership and voting cap, serve to facilitate the formation and
registration of SBSEFs, thereby also facilitating the movement of SBS
trading to venues that are more transparent and that have affirmative
regulatory obligations.
    The Commission acknowledges that this exemption, because it focuses
on surveillance and compliance functions, does not directly address
concerns about an SBSEF adopting rules that hamper impartial access to
an SBSEF, restrict the scope of SBS that might trade on a given SBSEF,
or degrade the capability of a given SBSEF in ways that would favor a
member's OTC SBS business. These concerns, however, can be addressed in
other ways. With respect to impartial access, the requirements of
Proposed Rule 819(c), together with the guidance the Commission has
provided regarding the application of that rule,\652\ set clear limits
on the ability of an SBSEF to favor the interest of any members,
including its large members, by unfairly excluding other market
participants. And competition among SBSEFs will discourage any
individual SBSEF from declining to list particular SBS or from
degrading the capability of the SBSEF to favor a member, as trading in
the affected SBS may migrate not to the OTC market, but to a direct
competitor.
---------------------------------------------------------------------------

    \652\ See infra section VI.B.3.
---------------------------------------------------------------------------

    Because the Commission has modified Proposed Rule 834 to provide
for an exemption from the 20% ownership and voting cap, it is not the
case that, as one commenter states, existing SEFs would necessarily be
required to set up a new legal entity to operate an SBSEF, making it
more challenging to obtain dual registration and potentially thwarting
the Commission's objective to ensure that only incremental changes
would be necessary to adopt the SBSEF framework. And although the
Commission's proposed ownership rule departs from the CFTC's rules for
SEFs, which do not include caps on ownership or voting, the Commission
is also mindful of the trading relationship between SBS and their
underlying securities--which trade on exchanges that have a similar 20%
ownership and voting cap as a result of their Commission-approved
rules--and the Commission wishes to avoid creating a regulatory
incentive for activity to migrate from trading securities on national
securities exchanges to trading SBS on SBSEF. For similar reasons, it
would not be appropriate to extend the exemption in new paragraph
(b)(3) of Proposed Rule 834 to SBS exchanges. Providing an exemption
from the 20% ownership and voting cap requirements for SBS exchanges in
Proposed Rule 834(b)(1) would result in different treatment from other
national securities exchanges simply because one set of exchanges
trades SBS, and this is not a sufficient reason to permit different
ownership structures only for those exchanges, as this could lead to
regulatory arbitrage by creating incentives for new exchanges to
register first as SBS exchanges, without the ownership and voting caps,
and then seek to amend their rulebooks to commence trading in cash
equities. As it stated in the Proposing Release, the Commission
proposed to apply the 20% ownership and voting on SBS exchanges based
on its ``long experience with handling questions of member influence
over national securities exchanges raised in applications to register
with the Commission on Form 1 and in governance rule filings made on
SEA Form 19b-4,'' \653\ and SBSEF rules seeking to manage conflicts of
interest would not by themselves be sufficient to mitigate conflict-of-
interest concerns when those concerns arise from one or a few SBS
dealers or a major SBS participants having majority voting rights in an
SBSEF or SBS exchange in which they are a member.
---------------------------------------------------------------------------

    \653\ See Proposing Release, supra note 1, 87 FR at 28927 and
n.257.
---------------------------------------------------------------------------

    Finally, the Commission reiterates that Proposed Rule 834(b) would
cover both direct and indirect voting interests. The purpose of
including indirect voting interest is to prevent potential
circumvention of the 20% cap if, for example, a member placed its
voting interest in an SBSEF or SBS exchange of 20% or more in a shell
company or other affiliate and directed how the shell company or
affiliate casts those votes. Accordingly, Proposed Rule 834(b) would
look through the non-member entities holding interests in SBSEFs and
SBS exchanges to consider whether any member could indirectly control
20% or more of the voting interest through the non-member entity having
the direct interest. Furthermore, Proposed Rule 834(b) would look
through the corporate structure of the SBSEF or SBS exchange to
consider whether any member could indirectly have 20% or more of the
voting interest in the underlying trading venue. For example, an SBSEF
or SBS exchange could be wholly owned by a holding company. In such a
case, the voting restriction in Proposed Rule 834(b) would apply to the
voting interest in the parent holding company held by a member of the
child SBSEF or SBS exchange, since a direct voting interest of 20% or
more in the parent would equate to an indirect voting interest of 20%
or more in the child trading venue.
    And, similar to its approach to indirect voting interest, Proposed
Rule 834(b) would aggregate the voting interest of the member itself
with the voting interest held by any officer, principal, or employee of
the member for purposes of determining compliance with the 20% cap.
Without this provision, the member--or an officer, principal, or
employee of the member--could split the voting interest held in the
SBSEF or SBS exchange across multiple persons who would likely be
voting that interest in concert, thereby potentially acting as a
conflict of interest. The Commission did not receive comments on the
aggregation-of-interest aspect of Proposed Rule 834(b).
    For these reasons, the Commission is adopting Rule 834(b) with the
modifications discussed above.

C. Rule 834(c)

    Paragraph (c) of Proposed Rule 834 would include requirements
designed to reinforce the 20% cap in paragraph (b). Paragraph (c) would
require the rules of each SBSEF and SBS exchange to be reasonably
designed, and have an effective mechanism, to:
    (1) Deny effect to the portion of any voting interest held by a
member in excess of the 20% limitation;
    (2) Compel a member who possesses a voting interest in excess of
the 20% limitation to divest enough of that voting interest to come
within that limit; and
    (3) Obtain information relating to its ownership and voting
interests owned

or controlled, directly or indirectly, by its members.
    The Commission received no comments on Proposed Rule 834(c) and is
adopting Rule 834(c) as proposed, with minor technical
modifications,\654\ for the reasons stated in the Proposing Release.
---------------------------------------------------------------------------

    \654\ The Commission has corrected an internal cross-reference
within Proposed Rule 834.
---------------------------------------------------------------------------

D. Rule 834(d)

    Paragraph (d) of Proposed Rule 834 is designed to mitigate
conflicts of interest in the disciplinary process of an SBSEF or SBS
exchange and would provide as follows: ``Each security-based swap
execution facility and SBS exchange shall ensure that its disciplinary
processes preclude any member, or group or class of its members, from
dominating or exercising disproportionate influence on the disciplinary
process. Each major disciplinary committee or hearing panel thereof
shall include sufficient different groups or classes of its members so
as to ensure fairness and to prevent special treatment or preference
for any person or member in the conduct of the responsibilities of the
committee or panel.'' Paragraph (d) of Proposed Rule 834 would
recognize that one way that a conflict of interest could manifest
itself is in the disciplinary process. Therefore, the Commission
proposed, as the first sentence of Proposed Rule 834(d), that each
SBSEF and SBS exchange should ``preclude any member, or group or class
of its members, from dominating or exercising disproportionate
influence on the disciplinary process.''
    The second sentence of Proposed Rule 834(d) is adapted from Sec.
1.64 of the CFTC's rules, which addresses the composition of various
SRO governing boards and major disciplinary committees.\655\ Proposed
Rule 834(d) would reflect the Commission's belief that an SBSEF or SBS
exchange should be mindful of its different membership interests, and
how they are represented on disciplinary committees and hearing panels
in particular matters, to avoid potential conflicts of interest.
---------------------------------------------------------------------------

    \655\ Proposed Rule 834(a)(2) would define ``major disciplinary
committee'' as a committee of persons who are authorized by an SBSEF
to conduct disciplinary hearings, to settle disciplinary charges, to
impose disciplinary sanctions, or to hear appeals thereof in cases
involving any violation of the rules of the SBSEF except those which
are related to decorum or attire, financial requirements, or
reporting or recordkeeping and do not involve fraud, deceit, or
conversion.
---------------------------------------------------------------------------

    The Commission received no comments on Proposed Rule 834(d) and is
adopting Rule 834(d) as proposed for the reasons stated in the
Proposing Release.

E. Rule 834(e)

    Paragraph (e) of Proposed Rule 834 is closely modeled on Sec.
1.64(b). Paragraph (e)(1)(i) would require each SBSEF and SBS exchange
to ensure that 20% or more of the persons who are eligible to vote
routinely on matters being considered by the governing board (excluding
those members who are eligible to vote only in the case of a tie vote
by the governing board) are persons who are knowledgeable of SBS
trading or financial regulation, or otherwise capable of contributing
to governing board deliberations. Paragraphs (e)(1)(ii) through (v) of
Proposed Rule 834 are based on four of the prongs in Sec.
1.64(b)(1)(ii) and would provide that 20% or more of the persons who
are eligible to vote routinely on matters being considered by the
governing board (excluding those members who are eligible to vote only
in the case of a tie vote by the governing board) must not be: members
of the SBSEF or SBS exchange; \656\ salaried employees of the SBSEF or
SBS exchange; primarily performing services for the SBSEF or SBS
exchange in a capacity other than as a member of the governing board;
or officers, principals, or employees of a firm which holds a
membership at the SBSEF or SBS exchange, either in its own name or
through an employee on behalf of the firm.
---------------------------------------------------------------------------

    \656\ Proposed Rule 834(e)(1)(ii), read together with Proposed
Rule 834(b), would allow four members of an SBSEF or SBS exchange to
control up to 80% of the voting interest (assuming that each of the
four holds 20%). Under Proposed Rule 834(e)(1)(ii), at least 20% of
the voting interest would have to be held by non-members.
---------------------------------------------------------------------------

    Paragraph (e)(2) of Proposed Rule 834, modeled on Sec.  1.64(b)(3),
would require each SBSEF and SBS exchange to ensure that membership of
its governing board includes a diversity of groups or classes of its
members.
    The Commission did not receive comments on Proposed Rule 834(e) and
is adopting Rule 834(e) as proposed, for the reasons stated in the
Proposing Release.

F. Rule 834(f)

    Paragraph (f) of Proposed Rule 834 is based closely on Sec.
1.64(d) and would require each SBSEF and SBS exchange to submit to the
Commission, within 30 days after each governing board election, a list
of the governing board's members, the groups or classes of members that
they represent, and how the composition of the governing board
otherwise meets the requirements of Rule 834.
    The Commission received no comments on Proposed Rule 834(f) and is
adopting Rule 834(f) as proposed for the reasons stated in the
Proposing Release.

G. Rule 834(g)

    Paragraph (g) of Proposed Rule 834 is modeled on Sec.  1.69, which
requires an SRO to further address the avoidance of conflicts of
interest in the execution of its self-regulatory functions. Proposed
Rule 834(g) closely follows the paragraph structure and language of
Sec.  1.69, with a few minor exceptions (beyond modifying the rule's
application to SBSEFs and SBS exchanges, rather than, in the CFTC
original, all SROs). First, paragraph (g)(1)(i)(A) of Proposed Rule 834
is based closely on Sec.  1.69(b)(1)(i) and would set out the types of
relationships with the named party of interest that would create a
conflict of interest for a member of the governing board, disciplinary
committee, or oversight panel.\657\ Second, Proposed Rule
834(g)(1)(ii)(C) is a simplified version of Sec.  1.69(b)(2)(iii).
Rather than incorporating the first four prongs of Sec.
1.69(b)(2)(iii), which cross-reference definitions elsewhere in the
CFTC's rules, Rule 834(g)(1)(ii)(C) would instead incorporate only the
final, catch-all prong, which would cover any positions held by any
member of an SBSEF's governing board, disciplinary committees, or
oversight committees that would have been covered under the other four
prongs.\658\ Third, Proposed Rule 834(g)(1)(ii)(C) would omit a
requirement in Sec.  1.69(b)(2)(iv) that an SRO, when making a
determination of whether a conflict of interest exists, must take into
consideration ``[t]he most recent large trader reports and clearing
records available to the self-regulatory organization.'' These types of
reports

may not be as prevalent in the securities and SBS markets as the swaps
market. The final, catch-all prong in Sec.  1.69(b)(2)(iv)--``Any other
source of information that is held by and reasonably available to the
self-regulatory organization''--would suffice, and proposed it as Rule
834(g)(1)(ii)(C)(2).
---------------------------------------------------------------------------

    \657\ Paragraph (g)(1)(i)(A) of Proposed Rule 834, however,
would incorporate only four of the five prongs in Sec.
1.69(b)(1)(i). The Commission did not propose to include a prong
about being associated with a named party of interest through a
``broker association,'' as defined in Sec.  156.1 of the CFTC's
rules, as that concept does not exist under the SEA.
    \658\ Thus, the relevant language in Rule 834(g)(1)(ii)(C) would
read, ``Such determination must include a review of any positions,
whether maintained at that security-based swap execution facility,
SBS exchange, or elsewhere, held in the member's personal accounts
or the proprietary accounts of the member's affiliated firm that the
security-based swap execution facility or SBS exchange reasonably
expects could be affected by the significant action.'' Proposed Rule
834(a)(3) would define a ``member's affiliated firm'' as a firm in
which the member is a principal or an employee, and Proposed Rule
834(a)(5) would define ``significant action'' to include several
types of actions or rule changes by an SBSEF or SBS exchange that
could be implemented without the Commission's prior approval related
to addressing an emergency and certain changes in margin levels.
---------------------------------------------------------------------------

    The Commission did not receive comments on paragraph (g) of
Proposed Rule 834 and is adopting Rule 834(g) as proposed, for the
reasons stated in the Proposing Release.

H. Rule 834(h)

    Proposed Rule 834(h) would require each SBSEF and SBS exchange to
maintain in effect various rules that would be required under Rule 834.
An SBSEF would be required to file these rules under Rule 806 or Rule
807 of Regulation SE; an SBS exchange would be required to file such
rules under existing SEA Rule 19b-4.\659\ Proposed Rule 834(h) is
loosely modeled on various provisions in Sec. Sec.  1.64 and 1.69
providing that the SRO rules required under those CFTC rules must be
filed with the CFTC pursuant to relevant provisions of the CEA and the
CFTC's rules thereunder.
---------------------------------------------------------------------------

    \659\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The Commission received no comments on Proposed Rule 834(h) and is
adopting Rule 834(h) as proposed for the reasons stated in the
Proposing Release.

IX. Rule 835--Notice to Commission by SBSEF of Final Disciplinary
Action, Denial or Conditioning of Membership, or Denial or Limitation
of Access

    The Commission proposed Rule 835 to require an SBSEF to provide the
Commission notice of a final disciplinary action, a final action with
respect to a denial or conditioning of membership, or a final action
with respect to a denial or limitation of access. Such notice is
designed to ensure that the Commission is kept aware of significant
disciplinary actions, denials or conditionings of membership, or
denials or limitations on access by SBSEFs that could be the subject of
an aggrieved person's request for review by the Commission. The
requirement to provide notice to the Commission would also obligate an
SBSEF to be cognizant of, and make records for, each such instance, and
such records would become a necessary part of the record should the
aggrieved person seek Commission review of the SBSEF's action.
    Specifically, paragraph (a) of Proposed Rule 835 would provide
that, if an SBSEF issues a final disciplinary action against a member,
or takes a final action with respect to a denial or conditioning of
membership, or a final action with respect to a denial or limitation of
access of a person to any services offered by the SBSEF, the SBSEF
shall file a notice of such action with the Commission within 30 days
and serve a copy on the affected person. Proposed Rule 835(a) would use
the phrase ``final disciplinary action against a member'' (emphasis
added) because an SBSEF may utilize its disciplinary authority under
Core Principle 2 (Compliance with Rules) in section 3D of the SEA \660\
only with respect to its members; but uses the phrase ``denies or
limits access of a person'' (emphasis added) because the person whose
access is denied or limited might not be a member. For example, a
person that is denied membership by an SBSEF would fall under this
category.
---------------------------------------------------------------------------

    \660\ 15 U.S.C. 78c-4(d)(2).
---------------------------------------------------------------------------

    Paragraph (b)(1) of Proposed Rule 835 would provide that, for
purposes of paragraph (a), a disciplinary action would not be
considered final unless: (1) the affected person has sought an
adjudication or hearing with respect to the matter, or otherwise
exhausted their administrative remedies at the SBSEF; and (2) the
disciplinary action is not a summary action permitted under Rule
819(g)(13)(ii).\661\ In addition, paragraph (b)(2) of Proposed Rule 835
would provide that, for purposes of paragraph (a), a disposition of a
matter with respect to a denial or conditioning of membership, or a
denial or limitation of access, would not be considered final unless
such person has sought an adjudication or hearing, or otherwise
exhausted their administrative remedies at the SBSEF with respect to
such matter.
---------------------------------------------------------------------------

    \661\ As discussed above, see supra section VI.B.7, Proposed
Rule 819(g)(13)(ii) would permit an SBSEF to adopt a summary fine
schedule for violations of rules relating to the failure to timely
submit accurate records required for clearing or verifying each
day's transactions, which may be summarily imposed against persons
within the SBSEF's jurisdiction for violating such rules.
Furthermore, an SBSEF's summary fine schedule could allow for
warning letters to be issued for first-time violations or violators.
If adopted, a summary fine schedule would be required by Proposed
Rule 819(g)(13)(ii) to provide for progressively larger fines for
recurring violations. A summary fine schedule, if an SBSEF elects to
adopt one, would have to be part of the SBSEF's rules, and thus
would need to be submitted to the Commission. See Proposed Rule
819(g)(13)(ii).
---------------------------------------------------------------------------

    Paragraph (c) of Proposed Rule 835 would provide that the notice
required under Rule 835(a) must include the name of the member or the
associated person and last known address, as reflected in the SBSEF's
records, of the member or associated person, as well as the name of the
person, committee, or other organizational unit of the SBSEF that
initiated the disciplinary action or access restriction. In the case of
a final disciplinary action, the notice would be required to include a
description of the acts or practices, or omissions to act, upon which
the sanction is based, including, as appropriate, the specific rules
that the SBSEF has found to have been violated; a statement describing
the respondent's answer to the charges; and a statement of the sanction
imposed and the reasons for such sanction. In the case of a denial or
conditioning of membership or a denial or limitation of access, the
notice would be required to include: the financial or operating
difficulty of the prospective member or member (as the case may be)
upon which the SBSEF determined that the prospective member or member
could not be permitted to do, or continue to do, business with safety
to investors, creditors, other members, or the SBSEF; the pertinent
failure to meet qualification requirements or other prerequisites for
membership or access and the basis upon which the SBSEF determined that
the person concerned could not be permitted to have membership or
access with safety to investors, creditors, other members, or the
SBSEF; or the default of any delivery of funds or securities to a
clearing agency by the member. Finally, the notice would be required to
include the effective date of such final disciplinary action, denials
or conditioning of membership, or denial or limitation of access, as
well as any other information that the SBSEF may deem relevant.
    The Commission received no comments on Proposed Rule 835. Because
the language of paragraphs (b)(1)(i) and (b)(2) should more clearly
state that certain actions by an SBSEF shall not be ``final'' unless
the affected person has exhausted their administrative remedies at the
SBSEF, the Commission is modifying the phrase ``person has sought an
adjudication or hearing, or otherwise exhausted their administrative
remedies'' in both paragraphs (b)(1)(i) and (b)(2) so that it now reads
simply, ``person has exhausted their administrative remedies,'' and is
adopting Rule 835 as modified.

X. Amendments to Existing Rule 3a1-1 Under the Sea--Exemptions From the
Definition of ``Exchange''

    An entity that meets the definition of ``security-based swap
execution facility'' would also likely meet the definition of
``exchange'' set forth in section 3(a)(1) of

the SEA \662\ and the interpretation of that definition set forth in
Rule 3b-16 thereunder.\663\ Thus, absent an exemption, an entity
needing to register with the Commission as an SBSEF would also likely
need to register with the Commission as a national securities
exchange.\664\ The Commission has previously stated that it ``believes
that Congress specifically provided a comprehensive regulatory
framework for SBSEFs in the [SEA], as amended by the Dodd Frank Act,
and therefore that such entities that are registered as SBSEFs should
not also be required to register and be regulated as national
securities exchanges.'' \665\
---------------------------------------------------------------------------

    \662\ 15 U.S.C. 78c(a)(1).
    \663\ 17 CFR 240.3b-16. See also supra section III.A (discussing
Rule 803 and the requirements and procedures for registration,
including the overlap between the definitions of ``exchange'' and
``security-based swap execution facility''). See also infra note 678
and accompanying text (discussing the Commission's proposed
amendments to Rule 3b-16).
    \664\ See Sec.  3D(a)(1) of the SEA, 15 U.S.C. 78c-4(a)(1) (``No
person may operate a facility for the trading or processing of
security-based swaps, unless the facility is registered as a
security-based swap execution facility or as a national securities
exchange under this section'').
    \665\ 2011 SBSEF Proposal, supra note 6, 76 FR at 10958.
---------------------------------------------------------------------------

    Therefore, the Commission proposed to exercise its authority under
section 36(a)(1) of the SEA \666\ to exempt an SBSEF from the
definition of ``exchange''--and thus the obligation to register as a
national securities exchange--if it provides a market place solely for
the trading of SBS (and no securities other than SBS) and has
registered with the Commission as an SBSEF. To effect this exemption,
the Commission proposed to amend Rule 3a1-1 under the SEA \667\ by
adding new paragraph (a)(4).
---------------------------------------------------------------------------

    \666\ 15 U.S.C. 78mm(a)(1).
    \667\ 17 CFR 240.3a1-1.
---------------------------------------------------------------------------

    The proposed amendment would add new paragraph (a)(4) to existing
Rule 3a1-1 to provide that an organization, association, or group of
persons that has registered with the Commission as an SBSEF pursuant to
Rule 803 and provides a market place for no securities other than SBS
is exempt from the definition of ``exchange'' under section 3(a)(1) of
the SEA, and thus would not be subject to the requirement in section 5
of the SEA to register as a national securities exchange or obtain a
low-volume exemption.\668\
---------------------------------------------------------------------------

    \668\ An SBSEF that fails to comply with the condition to the
exemption provided under paragraph (a)(4) of Rule 3a1-1 would no
longer qualify for the exemption and might thus be operating as an
unregistered exchange under the section 5 of the SEA. 15 U.S.C. 78e.
Section 5 also generally provides that a broker or dealer may not
use any facility of an exchange to effect or report any transaction
in a security unless that exchange is registered as a national
securities exchange or is exempt from registration by reason of the
limited volume of transactions effected on the exchange. Brokers and
dealers who are members of a registered SBSEF would not be in
violation of section 5 by effecting or reporting any SBS
transactions on that SBSEF, because an SBSEF that qualifies for the
exemption under Rule 3a1-1(a)(4) would not be an exchange within the
meaning of section 5.
---------------------------------------------------------------------------

    In addition, the Commission proposed new paragraph (a)(5) to
existing Rule 3a1-1 under the SEA, which would provide that an
organization, association, or group of persons shall be exempt from the
definition of the term ``exchange'' if that organization, association,
or group of persons has registered with the Commission as a clearing
agency pursuant to section 17A of the SEA and limits its exchange
functions to operation of a trading session that is designed to further
the accuracy of end-of-day valuations.\669\ As noted above, this
provision would codify a series of exemptions that the Commission has
granted over several years to SBS clearing agencies that operate
``forced trading'' sessions.\670\ As part of the clearing and risk
management processes, an SBS clearing agency must establish an end-of-
day valuation for any SBS in which any of its members has a cleared
position. Certain SBS clearing agencies utilize a valuation mechanism
whereby they require clearing members to submit indicative settlement
prices for SBS products, and, to provide an incentive for accurate
submissions, the clearing agency can require those members to trade at
those quoted prices. The precise means by which the clearing agency
matches quotes from different clearing members could cause the clearing
agency to fall within the definition of ``exchange'' in section 3(a)(1)
of the SEA. The Commission has previously found that it was necessary
or appropriate in the public interest and consistent with the
protection of investors to exempt clearing agencies that engage in this
activity from the definition of ``exchange,'' \671\ and the Commission
proposed to codify this exemption.\672\
---------------------------------------------------------------------------

    \669\ As discussed above, see supra note 37 and accompanying
text, such a trading session is also referred to as a ``forced-
trading session.''
    \670\ See supra note 37; Proposing Release, supra note 1, 87 FR
at 28878.
    \671\ See id.
    \672\ See Proposing Release, supra note 1, 87 FR at 28878. This
exemption would cover only the forced-trading session of an SBS
clearing agency; any other exchange activity that a clearing agency
might engage in could remain subject to the SEA provisions and the
Commission's rules thereunder applying to national securities
exchanges or alternative trading systems.
---------------------------------------------------------------------------

    Finally, the Commission proposed to amend the introductory language
of paragraph (b) of Rule 3a1-1 to cover only paragraphs (a)(1) through
(a)(3), not paragraph (a) as a whole.\673\ The changed language is
designed to clarify that the revocation provisions would not apply to
organizations, associations, or groups of persons who fall within
amended Rule 3a1-1(a)(4) or (a)(5). Thus, even if a registered SBSEF
were to become a substantial market, Rule 3a1-1(b), as proposed to be
amended, would not afford a basis for the Commission to revoke an
SBSEF's exemption from the definition of ``exchange'' under Rule 3a1-
1(a)(4), which would force the SBSEF to register as a national
securities exchange (to avoid being an unregistered exchange).
---------------------------------------------------------------------------

    \673\ Specifically, the Commission proposed to amend the
introductory language of existing paragraph (b) of Rule 3a1-1, which
states: ``Notwithstanding paragraph (a) of this rule, an
organization, association, or group of persons shall not be exempt
under this rule from the definition of `exchange' if . . . .''
Paragraph (b) then sets out procedural and substantive criteria for
the Commission to revoke an exemption under paragraph (a) of Rule
3a1-1 if an exchange's share of the market in any one of the
specified classes of securities exceeds a defined threshold.
---------------------------------------------------------------------------

    The Commission received two comment letters regarding the proposed
amendments to Rule 3a1-1.\674\ One commenter does not support an
exemption for clearing agencies from the definition of exchange,
stating that the exemption would create a loophole.\675\ However, the
limited scope of the exemption--which applies solely to trades that a
clearing agency requires its members to undertake in support of the
accuracy of the clearing agency's end-of-day valuation process--is
sufficiently narrow to prevent use of the exemption as a loophole
allowing clearing agencies to act as, or on behalf of exchanges,
without sufficient public reporting. The language of new paragraph
(a)(5) of Rule 3a1-1, however, should more precisely reflect that the
Commission is codifying exemptive relief that was provided with respect
to trading sessions to support end-of-day valuations of SBS,\676\ and
the Commission is therefore modifying paragraph (a)(5) to add the words
``of

security-based swaps'' at the end of the paragraph.
---------------------------------------------------------------------------

    \674\ See Keeney Letter, supra note 95; ISDA-SIFMA Letter, supra
note 18, at 17.
    \675\ See Keeney Letter, supra note 95 (stating that the
exemption would permit clearing agencies to ``do the bidding of
exchanges'' while being exempt from reporting requirements).
    \676\ See Proposing Release, supra note 1, 87 FR at 28932
(``This exemption would cover only the forced-trading session of an
SBS clearing agency; any other exchange activity that a clearing
agency might engage in could remain subject to the SEA provisions
and the Commission's rules thereunder applying to exchanges.'').
---------------------------------------------------------------------------

    Another commenter supports the proposed amendments and also
addresses another Commission rulemaking related to the definition of
``exchange.'' \677\ The Commission has separately proposed certain
amendments to Rule 3b-16, a rule which defines certain terms used in
the statutory definition of ``exchange'' under section 3(a)(1) of the
SEA.\678\ The commenter states that the Commission should exempt from
the definition of ``exchange'' any market place that solely trades SBS,
whether or not that market place is registered as an SBSEF.\679\ This
commenter states that the Commission has ``proposed to expand Rule 3b-
16 substantially'' and that this proposal, if adopted, would ``reverse
the previous relationship between the `exchange' definition (as
interpreted in Rule 3b-16) and the SBSEF definition.'' \680\ This
commenter states that an organization that makes available certain
methods for parties to interact regarding SBS might fall within the
expanded definition of exchange but outside the definition of SBSEF and
therefore be required to register as an exchange because SBSEF
registration would be unavailable.\681\
---------------------------------------------------------------------------

    \677\ See ISDA-SIFMA Letter, supra note 18, at 17.
    \678\ See Amendments Regarding the Definition of ``Exchange''
and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and
Agency Securities, National Market System (NMS) Stocks, and Other
Securities, SEA Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar.
18, 2022) (File No. S7-02-22) (``Rule 3b-16 Proposal''). See also
Reopening of Comment Periods for ``Private Fund Advisers;
Documentation of Registered Investment Adviser Compliance Reviews''
and ``Amendments Regarding the Definition of `Exchange' and
Alternative Trading Systems (ATSs) That Trade U.S. Treasury and
Agency Securities, National Market System (NMS) Stocks, and Other
Securities,'' SEA Release No. 94868 (May 9, 2022), 87 FR 29059 (May
12, 2022) (S7-02-22); Supplemental Information and Reopening of
Comment Period for Amendments Regarding the Definition of
``Exchange,'' SEA Release No. 97309 (Apr. 14, 2023), 88 FR 29448
(May 5, 2023) (File No. S7-02-22).
    \679\ See ISDA-SIFMA Letter, supra note 18, at 17.
    \680\ Id.
    \681\ See id.
---------------------------------------------------------------------------

    The Commission does not agree with the commenter's request to
extend the Rule 3a1-1 exemption from the ``exchange'' definition to any
entity that provides a market place for no securities other than SBS,
regardless of whether they are registered as an SBSEF.
    The purpose of the exemption under Rule 3a1-1(a)(4) is not to
universally exempt from the definition of ``exchange'' all entities
that provide a market place for no securities other than SBS. Rather,
given that Congress has provided a regulatory framework for SBSEFs
through the Dodd Frank Act, the exemption is narrowly designed to avoid
burdening registered SBSEFs with a second regulatory framework--namely,
registration as national securities exchanges. Further, creating that
commenter's suggested exemption in Rule 3a1-1(a) would create a
regulatory gap in which some entities that meet the definition of
exchange are registered neither as national securities exchanges nor as
SBSEFs. The language of new paragraph (a)(4) of Rule 3a1-1, however,
should more closely track the language and scope of section 3(a)(1) of
the SEA, which uses the term ``market place or facilities,'' rather
than the term ``market place,'' \682\ and the Commission is therefore
modifying proposed paragraph (a)(4) of Rule 3a1-1 to replace the term
``market place'' with the term ``market place or facilities.''
---------------------------------------------------------------------------

    \682\ See 15 U.S.C. 78c(a)(1).
---------------------------------------------------------------------------

    Accordingly, for the reasons discussed above, the Commission is
adopting the amendments to Rule 3a1-1 with the modifications to
paragraphs (a)(4) and (a)(5) discussed above and with minor technical
modifications.\683\
---------------------------------------------------------------------------

    \683\ See supra note 32.
---------------------------------------------------------------------------

XI. Rule 15a-12--SBSEFs as Registered Brokers; Relief From Certain
Broker Requirements

    An SBSEF, by facilitating the execution of SBS between persons,
also is engaged in the business of effecting transactions in securities
for the account of others and therefore meets the SEA definition of
``broker.'' \684\ Absent an exception or exemption, an SBSEF--in
addition to being subject to the registration and regulatory
requirements for SBSEFs--would also be required to register with the
Commission as a broker pursuant to sections 15(a) and 15(b) of the SEA
\685\ and would be subject to all regulatory requirements applicable to
brokers.\686\ For example, brokers and dealers must comply with a
number of rules that govern their conduct, including those relating to
customer confirmations and disclosure of credit terms in margin
transactions.\687\
---------------------------------------------------------------------------

    \684\ See SEA section 3(a)(4), 15 U.S.C. 78c(a)(4).
    \685\ 15 U.S.C. 78o(a) and 78o(b). Section 15(a)(1) generally
provides that, absent an exception or exemption, a broker or dealer
that uses the mails or any means of interstate commerce to effect
transactions in, or to induce or attempt to induce the purchase or
sale of, any security must register with the Commission. Section
15(b) generally provides the manner of registration of brokers and
dealers and other requirements applicable to registered brokers and
dealers.
    \686\ As discussed in note 47, supra, a person that is acting as
a broker solely because it is acting as an SBSEF is currently exempt
from the requirement to register with the Commission as a broker and
the Commission's rules under the SEA that apply to brokers. This
exemption will expire upon the earliest compliance date for the
Commission's final rules regarding SBSEF registration.
    \687\ See 17 CFR 240.10b-10 and 240.10b-16.
---------------------------------------------------------------------------

    The Commission proposed new Rule 15a-12 under the SEA, which would
deem registration with the Commission as an SBSEF to also constitute
registration as a broker, and which would exempt a registered SBSEF
from many broker requirements in light of the SBSEF regulatory regime
to which it would also be subject. The accommodation provided in Rule
15a-12, however, would not be available to an SBSEF that engages in
other types of brokerage activity.
    Paragraph (a) of Proposed Rule 15a-12 would define the term
``SBSEF-B'' to mean an SBSEF that does not engage in any securities
activity other than facilitating the trading of SBS on or through the
SBSEF. Thus, an SBSEF that acts as agent to SBS counterparties or that
acts in a discretionary manner with respect to the execution of SBS
transactions, could not avail itself of Rule 15a-12. Also, if an inter-
dealer broker elects not to separate its inter-dealer broker functions
from its SBSEF (by, for example, housing them in separate legal
entities), and instead chooses to operate the SBSEF in the same legal
entity as the inter-dealer broker, the entity could avail itself of
Rule 15a-12 because it would not be an SBSEF-B under the rule.
    Paragraph (b) of Proposed Rule 15a-12 would provide that an SBSEF-
B, if it registered as an SBSEF pursuant to Rule 803, would be deemed
also to have registered with the Commission pursuant to sections 15(a)
and (b) of the SEA.\688\
---------------------------------------------------------------------------

    \688\ The Commission's proposal would not have exempted SBSEFs
from registration as brokers. Rather, given the registration and
regulatory requirements that were being proposed for SBSEFs through
Regulation SE, the Commission proposed for such SBSEFs to be deemed
registered as brokers so as to prevent subjecting those entities to
a second, separate registration process as well as duplicative
additional regulatory requirements. As discussed in the Proposing
Release, an additional layer of registration processes and
duplicative requirements would not be appropriate or necessary. See
Proposing Release, supra note 1, 87 FR 28933.
---------------------------------------------------------------------------

    Paragraphs (c) and (d) of Proposed Rule 15a-12 would set out the
scope of broker requirements from which an SBSEF-B is exempt and which
broker requirements would continue to apply. Paragraph (c) would
provide that an SBSEF-B would be exempt from any provision of the SEA
or the Commission's rules thereunder applicable to brokers that by its
terms requires, prohibits, restricts, limits, conditions, or affects
the activities of a broker, unless such provision specifies

that it applies to an SBSEF. Paragraph (d) of Proposed Rule 15a-12
would provide that, notwithstanding paragraph (c), an SBSEF-B is still
subject to section 15(b)(4),\689\ section 15(b)(6),\690\ and section
17(b) of the SEA.\691\
---------------------------------------------------------------------------

    \689\ 15 U.S.C. 78o(b)(4).
    \690\ 15 U.S.C. 78o(b)(6).
    \691\ 15 U.S.C. 78q(b).
---------------------------------------------------------------------------

    Finally, paragraph (e) of Proposed Rule 15a-12 would exempt an
SBSEF-B from the Securities Investor Protection Act (``SIPA'').\692\
SIPA established the Securities Investor Protection Corporation
(``SIPC''), which oversees the liquidation of member firms that close
when a member firm is bankrupt or in financial trouble and customer
assets are missing.\693\ SIPC protection is funded by assessments made
on member firms.\694\
---------------------------------------------------------------------------

    \692\ 15 U.S.C. 78aaa, et seq.
    \693\ See https://www.sipc.org/about-sipc/sipc-mission (``In a
liquidation under the Securities Investor Protection Act, SIPC and
the court-appointed Trustee work to return customers' securities and
cash as quickly as possible. Within limits, SIPC expedites the
return of missing customer property by protecting each customer up
to $500,000 for securities and cash (including a $250,000 limit for
cash only).'').
    \694\ See 15 U.S.C. 78ddd(d).
---------------------------------------------------------------------------

    Section 2 of SIPA \695\ states that, unless otherwise provided, the
SEA shall apply as if SIPA constituted an amendment to, and was
included as a section of, the SEA. An SBSEF-B, by definition, would
operate only as an SBSEF. It would not be equitable to require an
SBSEF-B to become a member of SIPC and pay SIPC assessments, because
the SBSEF-B would not have brokerage customers and would not hold any
customer funds or securities. Accordingly, under section 36(a)(1) of
the SEA,\696\ the Commission finds that it is necessary or appropriate
in the public interest, and is consistent with the protection of
investors, to exempt SBSEF-Bs from any requirement under SIPA,
including the requirement to pay assessments to the SIPC insurance
fund. The Commission is codifying this exemption as Rule 15a-12(e).
---------------------------------------------------------------------------

    \695\ 15 U.S.C. 78bbb.
    \696\ 15 U.S.C. 78mm(a)(1) (giving the Commission exemptive
authority, including the ability to exempt any person or classes of
persons from any provision of the SEA or any rules thereunder, to
the extent that such exemption is necessary or appropriate in the
public interest, and is consistent with the protection of
investors).
---------------------------------------------------------------------------

    The Commission received no comments on Proposed Rule 15a-12 and is
adopting Rule 15a-12 as proposed, with minor technical
modifications,\697\ for the reasons stated in the Proposing Release.
---------------------------------------------------------------------------

    \697\ See supra note 32.
---------------------------------------------------------------------------

XII. Termination of Temporary Exemptions

    As discussed above and in the Proposing Release, after issuing the
2011 SBSEF Proposal,\698\ the Commission granted the Temporary SBSEF
Exemptions.\699\ In relevant part, Temporary SBSEF Exemptions have:
---------------------------------------------------------------------------

    \698\ See supra note 6.
    \699\ See supra notes 45-47 and accompanying text.
---------------------------------------------------------------------------

    (1) Allowed an entity that trades SBS and is not currently
registered as a national securities exchange, or that cannot yet
register as an SBSEF because final rules for such registration have not
yet been adopted, to continue trading SBS during this temporary period
without registering as a national securities exchange or SBSEF; \700\
---------------------------------------------------------------------------

    \700\ See June 2011 Exemptive Order, supra note 46, 76 FR at
36293 (granting temporary exemptive relief from SEA section
3D(a)(1), 15 U.S.C. 78c-4(a)(1)).
---------------------------------------------------------------------------

    (2) Exempted national securities exchanges (to the extent that they
also operate an SBSEF and use the same electronic trade execution
system for listing and executing trades of SBS on or through the
exchange and the facility) from the requirement to identify whether
electronic trading of those SBS is taking place on or through the
national securities exchange or the SBSEF; \701\
---------------------------------------------------------------------------

    \701\ See id. at 36293 (granting temporary exemptive relief from
SEA section 3D, 15 U.S.C. 78c-4).
---------------------------------------------------------------------------

    (3) Exempted any person, other than a clearing agency acting as a
central counterparty in security-based swaps, that, solely due to its
activities relating to security-based swaps, would fall within the
definition of exchange and thus be required to register as an exchange
from the requirement to register as a national securities exchange in
sections 5 and 6 of the Exchange Act; \702\
---------------------------------------------------------------------------

    \702\ See July 2011 Exemptive Order, supra note 46, 76 FR at
39934.
---------------------------------------------------------------------------