submissions. The Commission did not receive any comments on these
estimates in the Proposing Release and is using them for the rules as
they are being adopted today, resulting in a total annual burden of 350
hours ((six respondent clearing agencies x 10 hours) + (29 respondent
SROs that are not clearing agencies x 10 hours)).
    Based on staff discussions with the clearing agencies prior to
issuing the Proposing Release, the Commission estimated in the
Proposing Release that there would be a one-time paperwork burden of
130 hours for each newly-registered clearing agency to draft and
implement internal policies and procedures relating to using EFFS to
submit Security-Based Swap Submissions, Advance Notices and proposed
rule changes with the Commission, for a total of 780 hours (130 hours x
six newly-registered clearing agencies). In addition, and based on
conversations with staff from the clearing agencies prior to issuing
the Proposing Release, the Commission estimated that there would be a
one-time paperwork burden of 30 hours for each pre-Dodd-Frank Act
clearing agency to draft and implement modifications to existing
internal policies and procedures for using EFFS in order to update them
for submitting Security-Based Swap Submissions and/or Advance Notices
with the Commission for a total of 120 hours (30 hours x four pre-Dodd-
Frank Act clearing agencies). The Commission believes, based on its
experience with clearing agencies, that such internal policies and
procedures will be drafted and updated by the in-house counsel at the
clearing agencies. The Commission did not receive any comments on the
burden estimates in the Proposing Release and is using these estimates
for the rules the Commission is adopting today.
c. Proposed Rule Changes
    An SRO rule change proposal generally is filed with the Commission
after an SRO's staff has obtained approval of its board of directors.
The time required to complete a filing varies significantly and is
difficult to separate from the time an SRO spends in developing
internally the proposed rule change. In a PRA analysis conducted in
2004 in connection with amendments to Rule 19b-4 and Form 19b-4 (``2004
PRA''), the Commission estimated that 34 hours is the amount of time
that would be required to complete an average proposed rule change
filing and 129 hours is the amount of time required to complete a novel
or complex proposed rule change filing.\210\ The Commission stated in
the Proposing Release that it preliminarily believed that these
estimates remained valid based on its experience with the filings
currently received from SROs and relied on these figures to prepare the
analysis in the Proposing Release.\211\
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    \210\ See Securities Exchange Act Release No. 50486 (Oct. 4,
2004), 69 FR 60287 (Oct. 8, 2004), supra note 94.
    \211\ In 2011, the Commission submitted to OMB a request for
approval of an extension of the existing collection of information
provided for in Rule 19b-4 and Form 19b-4 (``2011 PRA'').
Submissions for OMB review; comment requests, 76 FR 22740 (Apr. 22,
2011) and 76 FR 37161 (June 24, 2011). The 2011 PRA used the 2004
PRA estimates to determine the amount of time required to complete
proposed rule change filings. Consistent with the 2011 PRA, the
Commission has used the figures contained in the 2011 PRA analysis
in calculating the PRA estimates in this final rule.
---------------------------------------------------------------------------

    In fiscal year 2011, 25 SRO respondents filed 1,606 rule change
proposals subject to the current collection of information. Of this
total, and based on the Commission's experience in reviewing SRO
filings and past estimates for Rule 19b-4 and Form 19b-4, the
Commission estimates that 80 proposed rule changes could be
characterized as novel or complex and 1,526 proposed rule changes could
be characterized as average. The Commission estimates that the total
annual reporting burden for filing proposed rule changes with the
Commission under the amendments to Rule 19b-4 and Form 19b-4 will be
87,086 hours (((1,526/25) x 35 \212\ average rule change proposals x 34
hours) + ((80/25) x 35 complex rule change proposals x 129 hours)).
Thus, on average, the reporting burden for filing proposed rule changes
is 38.74 hours (87,086 hours/(2,136 average rule change proposals + 112
complex rule change proposals)). The Commission made similar estimates
in the Proposing Release, only using 2009 fiscal year numbers, and did
not receive any comments on those estimates. Accordingly, the
Commission believes the modified estimates with 2011 fiscal year
numbers are appropriate and, accordingly, these estimates have been
used for the rules being adopted today.
---------------------------------------------------------------------------

    \212\ This figure includes the 32 SROs registered with the
Commission as of June 15, 2012 plus the additional clearing agencies
that the Commission has estimated could potentially register in the
future to clear security-based swaps.
---------------------------------------------------------------------------

d. Security-Based Swap Submissions
    The Commission stated in the Proposing Release that the time
required by clearing agencies to prepare, review and submit Security-
Based Swap Submissions to comply with new Rule 19b-4(o) likely would
vary significantly based on the unique characteristics of each
Security-Based Swap Submission and the submitting clearing agency. The
Commission estimated based on previous discussions with staff from
clearing agencies that the amount of time that a clearing agency would
require to internally prepare, review and submit a Security-Based Swap
Submission would be 140 hours. The Commission also estimated that each
clearing agency would submit 20 Security-Based Swap Submissions
annually based on previous discussions with staff from the clearing
agencies. The Commission did not receive any comments on these
estimated burdens in the Proposing Release. The Commission is modifying
Rule 19b-4(o)(2) from the proposal to provide that clearing agencies
that file a Security-Based Swap Submission before December 3, 2012
shall file such submission with the Commission by email. However, the
Commission does not believe the requirement to submit Security-Based
Swap Submissions electronically by email instead of on EFFS for a
limited period of time would change the estimated amount of time for
clearing agencies to prepare, review, and file these submissions since
the information to be provided in the filing remains the same and the
filing method would still be electronic. Accordingly, the Commission
estimates that the total annual reporting burden for clearing agencies
submitting Security-Based Swap Submissions electronically with the
Commission under the amendments to Rule 19b-4 and Form 19b-4 will be
16,800 hours (20 Security-Based Swap Submissions x 140 hours x six
respondent clearing agencies).
    The Commission also estimated in the Proposing Release that a
clearing agency would require 60 hours of outside legal work to assist
in the process preparing, reviewing and submitting a Security-Based
Swap Submission, based on previous discussions with staff from the

clearing agencies. Assuming an hourly cost of $354 for an outside
attorney,\213\ the Commission estimated that the total annual cost in
the aggregate for the six respondent clearing agencies to meet these
requirements would be $2,548,800 (60 hours x $354 per hour for an
outside attorney x 20 Security-Based Swap Submissions x six respondent
clearing agencies). The Commission did not receive any comments on
these estimated burdens in the Proposing Release and is using the
estimates for the rules as adopted.
---------------------------------------------------------------------------

    \213\ The hourly rate used for an attorney was from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by the Commission's staff to account for an 1800 hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
---------------------------------------------------------------------------

e. Advance Notices
    In the Proposing Release, the Commission estimated that the amount
of time that designated clearing agency representatives will require to
internally prepare, review and electronically file each Advance Notice
with the Commission to comply with Rule 19b-4(n)(1) would be 90 hours.
This estimate in the Proposing Release was based on the staff's
previous discussions with the clearing agencies. The Commission did not
receive any comments on this estimate. The Commission is modifying Rule
19b-4(n)(1) from the proposal to provide that designated clearing
agencies that file an Advance Notice before December 3, 2012 shall file
such notice with the Commission by email. However, the Commission does
not believe the requirement to submit Advance Notices by email for a
limited period of time would change the estimated amount of time for
clearing agencies to prepare, review, and electronically file the
notices since the material required to be provided in the filing
remains the same and the method for submitting the filing remains
electronic. The Commission also estimated in the Proposing Release that
two hours should be added to the time required to prepare each Advance
Notice to comply with the requirement contained in new Rule 19b-4(n)(5)
to provide to the Board copies of all materials submitted to the
Commission relating to an Advance Notice contemporaneously with such
submission to the Commission. The Commission estimated in the Proposing
Release based on previous conversations with staff from clearing
agencies that each designated clearing agency would submit 35 Advance
Notices to the Commission annually. The Commission did not receive any
comments on these estimated burdens in the Proposing Release and is
using the estimates for the rules being adopted today. Accordingly, the
Commission estimates that the total annual reporting burden on
designated clearing agencies submitting Advance Notices electronically
with the Commission pursuant to new Rule 19b-4(n) and Form 19b-4 will
be 32,200 hours (35 Advance Notices x 92 hours x ten respondent
clearing agencies).
    In the Proposing Release, the Commission also estimated that a
designated clearing agency would require 40 hours of outside legal work
to assist in the process preparing, reviewing and submitting an Advance
Notice with the Commission based on previous discussions with staff
from the clearing agencies. Assuming an hourly cost of $354 for an
outside attorney,\214\ the total annual cost in the aggregate for ten
respondent clearing agencies to meet these requirements would be
$4,956,000 (40 hours x $354 per hour for an outside attorney x 35
Advance Notices x ten respondent clearing agencies). The Commission did
not receive any comments on these estimates and is using them for the
rule as adopted.
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    \214\ See id.
---------------------------------------------------------------------------

f. Summary
    The Commission estimates that the total annual reporting burden for
clearing agencies to internally prepare, file and submit Security-Based
Swap Submissions, proposed rule changes and Advance Notices
electronically with the Commission under the Rule 19b-4 and Form 19b-4
will be 136,086 hours (16,800 hours for Security-Based Swap Submissions
+ 32,200 hours for Advance Notices + 87,086 hours for proposed rule
changes). The Commission also estimates that the total annual cost in
the aggregate for the respondent clearing agencies to engage outside
counsel to assist in the process of preparing, filing and submitting
Security-Based Swap Submissions and Advance Notices electronically with
the Commission under the new Rules 19b-4(n) and (o) and Form 19b-4 will
be $7,504,800 ($2,548,800 for Security-Based Swap Submissions +
$4,956,000 for Advance Notices).
3. Posting of Security-Based Swap Submissions, Advance Notices and
Proposed Rule Changes on Clearing Agency Web Sites
    In the Proposing Release, the Commission stated that it believes
clearing agencies that were to be deemed registered under Section
17A(l) or that may be regulated by the Commission in the future to
clear security-based swaps could incur some one-time costs associated
with posting Security-Based Swap Submissions, Advance Notices and
proposed rule changes on their Web sites. The Commission estimated that
each newly-registered clearing agency would spend approximately 15
hours creating or updating its existing Web site in order to provide
the capability to post these submissions online resulting in a total
one-time burden of 90 hours (six respondent clearing agencies x 15
hours). Three of those clearing agencies were deemed registered under
Section 17A(l) in July 2012 and were required to begin posting proposed
rule changes on their Web sites pursuant to existing Rule 19b-
4(l).\215\ Because new Rules 19b-4(o)(5) and (n)(3) will require
Security-Based Swap Submissions and Advance Notices to be posted on a
clearing agencies' Web sites in the same manner as is required for
proposed rule changes, the Commission does not believe these three
clearing agencies would incur any additional costs to create or update
their Web sites to post Security-Based Swap Submissions or Advance
Notices pursuant to the new rules. Accordingly, the Commission is
modifying the number of respondent clearing agencies to include only
the three clearing agencies it estimates may be regulated by the
Commission in the future in order to clear security-based swaps. The
Commission did not receive any comments on the estimated burden in the
Proposing Release regarding the number of hours to create or update a
Web site and is using this estimated hours burden for the rules as
adopted. The revised estimate is a one-time total burden of 45 hours
(three respondent clearing agencies x 15 hours).
---------------------------------------------------------------------------

    \215\ 17 CFR 240.19b-4(l).
---------------------------------------------------------------------------

    With respect to annual burdens, the Commission estimated in the
Proposing Release that four hours would be required by a clearing
agency to post a Security-Based Swap Submission on its Web site to
comply with Rule 19b-4(o)(5). This figure was based on the current
estimate for the requirement that SROs post proposed rule changes on
their Web sites under Rule 19b-4(l) given the similarities between the
two requirements.\216\ The Commission estimated that the total annual
reporting burden for clearing agencies to post Security-Based Swap
Submissions on their Web sites would be 480 hours (20

Security-Based Swap Submissions x four hours x six respondent clearing
agencies). The Commission did not receive any comments on these
estimates in the Proposing Release and is using them for the rules as
adopted.
---------------------------------------------------------------------------

    \216\ See Securities and Exchange Commission, Submission for OMB
Review, Comment Request, 76 FR 37161 (June 24, 2011). The Supporting
Statement containing the detailed estimates for Rule 19b-4 and Form
19b-4 is available at: http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201104-3235-013.
---------------------------------------------------------------------------

    The Commission also estimated in the Proposing Release that four
hours would be required by a designated clearing agency to post an
Advance Notice on its Web site to comply with Rule 19b-4(n)(3). This
figure was based on the current estimate for the requirement that SROs
post proposed rule changes on their Web sites under Rule 19b-4(l) given
the similarities between the two requirements.\217\ The Commission
estimated that the total annual reporting burden for designated
clearing agencies to post Advance Notices on their Web sites would be
1,400 hours (35 Advance Notices x four hours x 10 respondent clearing
agencies). The Commission did not receive any comments on these
estimates in the Proposing Release and is using them for the rules as
adopted.
---------------------------------------------------------------------------

    \217\ See id.
---------------------------------------------------------------------------

    The Commission estimated in the Proposing Release that four hours
would be required for a designated clearing agency to comply with
proposed Rule 19b-4(n)(4) and post notice on its Web site of any change
to its rules, procedures or operations referred to in an Advance Notice
once it has been permitted to take effect. This figure was based on the
current estimate for the requirement that SROs post proposed rule
changes on their Web sites under Rule 19b-4(l) given the similarities
between the two requirements.\218\ The Commission therefore estimated
that the total annual reporting burden for designated clearing agencies
to post notice on their Web sites of any changes to their rules,
procedures or operations referred to in Advance Notices will be 1,400
hours (35 Advance Notices x four hours x 10 respondent clearing
agencies). The Commission did not receive any comments on these
estimates in the Proposing Release and is using them for the rules as
adopted.
---------------------------------------------------------------------------

    \218\ See id.
---------------------------------------------------------------------------

    The Commission has previously provided PRA estimates with respect
to the requirement in Rule 19b-4(l) that all SROs post proposed rule
changes and amendments to proposed rule changes on their Web sites. The
Commission does not believe the rules being adopted today will change
those estimated hour burdens because those rules do not affect the
current requirement that SROs post proposed rule changes on their Web
sites. However, the Commission is increasing the number of respondent
SROs given the increased number of clearing agencies that have been
deemed registered under Section 17A(l) or that may seek to clear
security-based swaps in the future. Clearing agencies registered with
the Commission are SROs and are required to comply with the
requirements in Rule 19b-4, including the requirement in Rule 19b-4(l)
that they post proposed rule changes and amendments to proposed rule
changes on their Web sites and to make any related updates. The
Commission's previous PRA estimates are that SROs take four hours to
post proposed rule change proposals under Exchange Act Section 19(b)
and amendments on their Web sites and four hours to update the posted
SRO rules on their Web sites once the proposed rules become
effective.\219\ There were 1,606 proposed rule changes filed with the
Commission by 25 SROs in fiscal year 2011. Of these, 1,180 were
approved or non-abrogated.\220\ The Commission has used these numbers
to estimate the total annual reporting burden for its estimate of the
increased number of SROs that will post proposed rule change proposals
on their Web sites and to update their posted rules on their Web sites.
Specifically, the Commission divided the total number of filings
received in 2011 by the 25 SROs submitting filings that year and
multiplied it by the new total of 35 SROs. The new total annual
reporting burden will be 15,602 hours ((1,180/25) x 35 SRO respondents)
approved rules x four hours) + ((1,606/25) x 35 SRO respondents) rule
change proposals x four hours)).
---------------------------------------------------------------------------

    \219\ See id.
    \220\ Previously, the Commission was able to ``abrogate'' an
immediately effective proposed rule change filing filed under
Section 19(b)(3)(a) of the Exchange Act, and require an SRO to re-
file the proposal for consideration, notice, and public comment
pursuant to Section 19(b)(2) of the Exchange Act. The Dodd-Frank Act
eliminated the concept of ``abrogation.'' Instead, an immediately
effective proposed rule change filing may be temporarily suspended,
in which case the Commission would be required to institute
proceedings to determine whether to disapprove the proposed rule
change.
---------------------------------------------------------------------------

    In summary, the Commission estimates that the total annual
reporting burden for all clearing agencies to post submitted Security-
Based Swap Submissions, Advance Notices, notices of changes to rules,
procedures or operations referred to in Advance Notices once they take
effect and proposed rule changes on their Web sites under Rule 19b-4
and Form 19b-4 will be 18,882 hours (480 hours for Security-Based Swap
Submissions + 1,400 hours for Advance Notices + 1,400 hours for posting
notices of changes to rules, procedures or operations referred to in
Advance Notices + 15,602 hours for proposed rule changes).
4. Amendment To Conform to Section 916 of the Dodd-Frank Act
    The Commission estimated in the Proposing Release that the
requirement that an SRO inform the Commission of the date on which it
posted a proposed rule change on its Web site (if the posting did not
occur on the same day that the SRO filed the proposal with the
Commission) would impose only a minimal burden, if any, on an SRO. The
Commission stated in the Proposing Release that it believes that SROs
currently post their proposed rule changes on their Web site on the
same day on which they file them with the Commission. Further, the
Commission believes that it is in the interest of an SRO to continue to
do so, since prompt Web site posting triggers the requirement on the
Commission to publish notice of the proposal. The new notice
requirement would only be applicable in a situation where the SRO is
unable to post its proposed rule change on the same day that it files
it with the Commission, which the Commission expects would be an
unlikely occurrence. However, because the deadline applicable to
Commission publication is tied to SRO Web site posting, and the
Commission has no means of ascertaining when Web site posting was made
other than by receiving that information from the SRO itself, the
Commission is imposing this requirement to capture necessary
information to allow it to comply with Exchange Act Section 19(b), as
amended by Section 916 of the Dodd-Frank Act.
    Based on the Commission's experience receiving and reviewing
proposed rule changes filed by SROs, the Commission estimated in the
Proposing Release that SROs will fail to post proposed rule changes on
their Web sites on the same day as the filing was made with the
Commission in 1% of all cases, or 16 times each year. Further, the
Commission estimated that each SRO will spend approximately one hour
preparing and submitting notice to the Commission of the date on which
it posted the proposed rule change on its Web site, resulting in a
total annual burden of 16 hours.
    Thus, the Commission estimated that the total annual reporting
burden under Rule 19b-4 and Form 19b-4 will be 156,049 hours in the
initial year and 155,334 hours thereafter.\221\

Additionally, the Commission estimated that the total annual reporting
burden under new Rule 3Ca-1 will be 540 hours. The Commission did not
receive any comments on these estimates in the Proposing Release and is
using them for the rules as adopted.
---------------------------------------------------------------------------

    \221\ In the initial year, the paperwork burden is calculated as
follows: 120 hours (one-time paperwork burden to train newly-
registered clearing agency staff members to use EFFS) + 780 hours
(one-time paperwork burden for each newly-registered clearing agency
to draft and implement policies and procedures relating to using
EFFS to submit proposed rule changes, Security-Based Swap
Submissions and Advance Notices) + 120 hours (one-time paperwork
burden for each pre-Dodd-Frank Act clearing agency to draft and
implement policies and procedures relating to using EFFS to submit
Security-Based Swap Submissions and/or Advance Notices) + 45 hours
(one-time paperwork burden for each newly-registered clearing agency
to create or update their existing Web sites in order to provide the
capability to post proposed rule changes, Security-Based Swap
Submissions and Advance Notices online) + 136,086 hours (the total
annual reporting burden for all SROs to prepare, review and submit
Security-Based Swap Submissions, proposed rule changes and Advance
Notices with the Commission) + 18,882 hours (the total annual burden
for all SROs to post Security-Based Swap Submissions, Advance
Notices, notices of changes to rules, procedures or operations
referred to in Advance Notices and proposed rule changes (including
updates to the posted SRO rules) on their Web sites + 16 hours for
SROs to notify the Commission of the date on which it posted a
proposed rule change on its Web site = 156,049 hours. After the
initial year, the paperwork burden is calculated as follows: 136,086
hours (the total annual reporting burden for all SROs to prepare,
review and submit Security-Based Swap Submissions, proposed rule
changes and Advance Notices with the Commission) + 18,882 hours (the
total annual burden for all SROs to post Security-Based Swap
Submissions, Advance Notices, notices of changes to rules,
procedures or operations referred to in Advance Notices and proposed
rule changes on their Web sites) + 350 hours (the total annual
burden of training new staff members and updating the training of
existing staff members to use EFFS) + 16 hours for SROs to notify
the Commission of the date on which it posted a proposed rule change
on its Web site = 155,334 hours.
---------------------------------------------------------------------------

5. New Rule 3Ca-1
    Prior to issuing the Proposing Release, Commission staff contacted
eight clearing agencies, including four that likely would clear
security-based swaps, and would therefore be subject to a stay of the
clearing requirement and related review under new Rule 3Ca-1. The
Commission used these discussions to estimate the collection of
information for this rule in the Proposing Release. Those estimates are
discussed below; however, the clearing agencies emphasized that the
estimated burdens would depend in large part on the number of stays
requested annually and the scope of the information requested by the
Commission in the course of the related review.
    Pursuant to Exchange Act Section 3C(c)(1), the Commission on its
own initiative or on the application of a counterparty may stay a
clearing requirement made pursuant to Exchange Act Section 3C(a)(1)
until it completes a review of the terms of the security-based swap and
the clearing arrangement. The Commission is unable to estimate
accurately the number of times it may stay a clearing requirement
pursuant to Exchange Act Section 3C(c)(1) because it has not yet made
any mandatory clearing determinations and it does not know what
counterparties may object to a determination or when they would make an
application for a stay. However, the Commission recognizes that there
will likely be some applications for stays from clearing requirements
made pursuant to a Commission determination and, for purposes of the
Proposing Release, the Commission estimated there would be five
applications for stays of a clearing requirement per clearing agency
per year. This figure would represent one quarter of the estimated
number of Security-Based Swap Submissions from each clearing agency per
year, for a total of 30 applications for stays per year (5 stay
applications x 6 respondent clearing agencies). The Commission did not
receive any comments on this estimate in the Proposing Release and is
using the same estimate for the rules as adopted.
    Based on the Commission staff's discussions with the clearing
agencies, the Commission estimated in the Proposing Release that a
clearing agency would spend approximately 18 hours to retrieve, review,
and submit the information associated with the stay of the clearing
requirement. The Commission also estimated that each clearing agency
would be required to provide information requested by the Commission in
the course of its reviews of five requests for a stay of the clearing
requirement, resulting in a total annual reporting burden of 540 hours
(five stay applications x 18 hours to retrieve, review, and submit the
information x six respondent clearing agencies). Further, the
Commission also estimated that a clearing agency would require seven
hours of outside legal work to retrieve, review, and submit the
information associated with the stay of the clearing requirement. These
figures were based on the Commission staff's discussions with the
clearing agencies prior to issuing the Proposing Release. Assuming an
hourly cost of $354 for an outside attorney,\222\ the total estimated
annual cost in the aggregate for the six respondent clearing agencies
to meet these requirements was $74,340 (seven hours x $354 per hour for
an outside attorney x five stay of clearing applications x six
respondents). The Commission did not receive any comments on these
estimates in the Proposing Release and is using them for the rules as
adopted.
---------------------------------------------------------------------------

    \222\ The hourly rate for an outside attorney is from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by the Commission's staff to account for an 1800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
---------------------------------------------------------------------------

    Finally, the Commission estimated in the Proposing Release that 100
hours would be required by a counterparty to a security-based swap to
prepare and submit an application requesting a stay of the clearing
requirement. The Commission drew a comparison between the amount of
time it would take for a clearing agency to prepare a Security-Based
Swap Submission and the amount of time it would take a counterparty to
prepare an application of a stay of a clearing requirement, given that
each filing would likely address similar issues related to the clearing
of the particular security-based swap. This 100 hours estimated for the
application is less than the 140 hours the Commission estimates it
would take for a clearing agency to prepare a full Security-Based Swap
Submission because an application for a stay would take less time to
prepare than a new submission, due to the fact that some of the
information addressed in the application for a stay will have already
been provided with the Security-Based Swap Submission when it was
published for notice and comment. As discussed above, the Commission
estimated in the Proposing Release that counterparties to security-
based swaps transactions would submit 30 applications requesting stays
of the clearing requirement. Assuming an hourly cost of $354 for an
outside attorney,\223\ the total annual cost in the aggregate for the
respondent counterparties to meet these requirements would be
$1,062,000 (100 hours x $354 per hour for an outside attorney x 30 stay
of clearing applications). The Commission did not receive any comments
on these estimates in the Proposing Release and is using them for the
rules as adopted.
---------------------------------------------------------------------------

    \223\ See id.
---------------------------------------------------------------------------

E. Retention Period of Recordkeeping Requirements

    Clearing agencies will be required to retain records of the
collection of information (the manually signed signature page of the
Form 19b-4, a file available to interested persons for public
inspection and copying, of all Security-Based Swap Submissions, Advance
Notices and proposed rule changes made pursuant to Rule 19b-4) and all
correspondence and other

communications reduced to writing (including comment letters) to and
from such SROs concerning any Security-Based Swap Submissions, Advance
Notices and proposed rule changes, for a period of not less than five
years, the first two years in an easily accessible place, according to
the current recordkeeping requirements set forth in Exchange Act Rule
17a-1.\224\
---------------------------------------------------------------------------

    \224\ SROs may also destroy or otherwise dispose of such records
at the end of five years according to Rule 17a-6 of the Act. 17 CFR
240.17a-6.
---------------------------------------------------------------------------

    The Commission believes that maintaining the physical signature
pages, Security-Based Swap Submissions, Advance Notices, proposed rule
changes and all related correspondence and other communications would
enable interested parties, including the Commission, to access a record
of a particular Security-Based Swap Submission, Advance Notice or
proposed rule change that was made. The Commission notes that the
retention of the physical signature page is an existing maintenance
requirement for SROs.\225\
---------------------------------------------------------------------------

    \225\ Rule 19b-4(j) currently requires SROs to sign Form 19b-4
electronically in connection with filing a proposed rule change and
to retain a copy of the signature page in accordance with Rule 17a-
1. Under the adopted rules, Rule 19b-4(j) would be modified such
that it would apply also to Security-Based Swap Submissions and
Advance Notices.
---------------------------------------------------------------------------

F. Collection of Information is Mandatory

    Any collection of information pursuant to Rule 19b-4 and Form 19b-4
to require electronic submission of Security-Based Swap Submissions,
Advance Notices and proposed rule changes with the Commission is a
mandatory collection of information. Any collection of information
pursuant to Rule 19b-4 to require Web site posting by clearing agencies
of their Security-Based Swap Submissions, Advance Notices and proposed
rule changes also is a mandatory collection of information. Any
collection of information pursuant to new Rule 3Ca-1 in connection with
the application for the stay of the clearing requirement is a mandatory
collection of information. Any collection of information pursuant to
Rule 19b-4 to require an SRO to inform the Commission of the date on
which it posted a proposed rule change on its Web site (if such date is
not the same day that it filed the proposal with the Commission) also
is a mandatory collection of information.

G. Responses to Collection of Information Will Not Be Kept Confidential

    The collection of information pursuant to Rule 19b-4, Form 19b-4
and new Rule 3Ca-1 will not be kept confidential.\226\ The posting of
Security-Based Swap Submissions, Advance Notices and proposed rule
changes would be publicly available on the SRO's Web site.
---------------------------------------------------------------------------

    \226\ While there is a general requirement that information be
made publicly available, SROs may request confidential treatment of
certain information in accordance with the provisions of the Freedom
of Information Act. 5 U.S.C. 552.
---------------------------------------------------------------------------

IV. Economic Analysis

    The rules that the Commission is adopting today are largely
concerned with implementing certain processes for clearing agencies and
security-based swap counterparties to submit filings to the Commission.
These include Security-Based Swap Submissions, Advance Notices, and
requests for a stay of an existing mandatory clearing requirement. The
economic analysis set forth below focuses on the economic
considerations related to those processes. The analysis does not seek
to address the full range of considerations that may result from the
Commission's future actions, such as determinations based on the
information submitted in specific filings. The Commission believes
instead that these considerations are more appropriately addressed at
the time such future determinations are made as each filing may raise
unique issues that are unrelated to the submission process. The
Commission, however, recognizes that the process rules are being
adopted in the larger context of substantive reforms to the financial
system pertaining to the clearing of securities. The Commission is
mindful of the potential economic consequences of this larger
substantive effort in considering the more limited economic
consequences of these final procedural rules. In particular, the
Commission is cognizant of the potential impact future determinations
made with respect to mandatory clearing could have on clearing
practices, given that central clearing of security-based swaps is a
relatively recent development and much of the current security-based
swaps market is cleared on a bilateral basis.
    In recognition of the larger context within which the final rules
are being adopted, this analysis begins with a review of the Dodd-Frank
Act's new clearing requirements, current clearing practices, and views
on the new clearing requirements, including the broader economic
considerations that those requirements, practices, and views may
suggest. This discussion then proceeds with an analysis of each
procedure established by the final rules--in particular, Security-Based
Swap Submissions, stays related to the review of mandatory clearing
determinations, and Advance Notices--and the specific economic
considerations associated with each procedure.

A. Background

1. Dodd-Frank Act Requirements for Clearing Security-Based Swaps
    As described above, the Dodd-Frank Act was enacted to, among other
things, mitigate systemic risk and promote the financial stability of
the U.S. by improving accountability and transparency in the financial
system and by providing for enhanced regulation and oversight of
institutions designated as systemically important.\227\ Specifically,
Title VII of the Dodd-Frank Act amended the Exchange Act to require
that transactions in security-based swaps must be cleared through a
clearing agency that is registered with the Commission (or exempt from
registration) if they are of a type that the Commission determines must
be cleared, unless an exemption from mandatory clearing applies.\228\
As one means of accomplishing this objective, the Dodd-Frank Act seeks
to ensure that, wherever possible and appropriate, derivatives
contracts formerly traded exclusively in the OTC market be centrally
cleared.\229\ Central clearing mitigates counterparty credit risk among
dealers and other institutions by shifting that risk from individual
counterparties to CCPs, thereby helping protect counterparties from
each other's potential failures. Central clearing also requires that
mark-to-market pricing and margin requirements be applied in a
consistent manner.\230\ CCPs generally use liquid margin collateral to
manage the risk of a CCP member's failure, and rely on the accuracy of
their margin calculations and their access to that liquid collateral to
protect against sudden movements in market prices. A CCP that stands
between counterparties

for OTC derivatives is generally perceived to decrease systemic
risk.\231\
---------------------------------------------------------------------------

    \227\ See supra part I. See also Pub. L. 111-203, Preamble.
    \228\ See 15 U.S.C. 78c-3(a)(1) (as added by Section 763(a) of
the Dodd-Frank Act).
    \229\ See supra note 5 and accompanying text.
    \230\ See Christopher Culp, OTC-Cleared Derivative: Benefits,
Costs, and Implications of the ``Dodd-Frank Wall Street Reform and
Consumer Protection Act, (Journal of Applied Finance No. 2, 2010),
available at: http://www.rmcsinc.com/articles/OTCCleared.pdf.
    \231\ See, e.g., Darrell Duffie and Haoxiang Zhu, Does a Central
Clearing Counterparty Reduce Counterparty Risk?, (Stanford
University, Working Paper, 2010), available at: http://
www.stanford.edu/~duffie/DuffieZhu.pdf; Nout Wellink, Mitigating
system risk in OTC derivatives markets, (Banque de France, Financial
Stability Review, No. 14--Derivatives--Financial innovation and
stability, July 2010), available at: http://www.banque-france.fr/fileadmin/user_upload/banque_de_france/publications/Revue_de_la_stabilite_financiere/etude15_rsf_1007.pdf; and Manmohan
Singh, Collateral, Netting and System Risk in the OTC Derivatives
Market,'' (International Monetary Fund, Working Paper, 2009),
available at: http://www.imf.org/external/pubs/ft/wp/2010/wp1099.pdf.
---------------------------------------------------------------------------

    Exchange Act Section 3C(b), which was added pursuant to Title VII
of the Dodd-Frank Act, requires the Commission to adopt rules for a
clearing agency's submission of security-based swaps (or any group,
category, type or class of security-based swaps) that a clearing agency
plans to accept for clearing and to determine the manner of notice the
clearing agency must provide to its members of such Security-Based Swap
Submission.\232\
---------------------------------------------------------------------------

    \232\ See 15 U.S.C. 78c-3(b)(2)(A) and (5) (as added by Section
763(a) of the Dodd-Frank Act).
---------------------------------------------------------------------------

2. Current Clearing Practices in the Security-Based Swap Market
    Prior to the enactment of the Dodd-Frank Act, there was no
provision in the Exchange Act or any other laws in the U.S. for the
mandatory clearing of OTC derivatives. Although initiatives related to
central clearing had been considered before 2008, certain events of
September 2008 brought a new focus on CDS as a source of systemic risk
and contributed to a more general recognition that CCPs could play a
role in helping to manage bilateral counterparty credit risk in OTC
CDS.\233\ The failure of large financial institutions highlighted the
concern that bilateral swap agreements can be a source of systemic risk
by, among other things, increasing the likelihood that financial
distress in one dealer will contribute to the financial distress in
others--a risk that can be mitigated when transactions are cleared by a
creditworthy central counterparty that becomes the seller to every
clearing member buyer and the buyer to every clearing member
seller.\234\
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    \233\ See, e.g., Testimony of Erik Sirri, Director of the
Division of Trading and Markets, Securities and Exchange Commission,
before the U.S. House of Representatives, Committee on Agriculture,
(Nov. 20, 2008) (``In light of the problems involving AIG, Lehman,
Fannie, Freddie, and others, attention has focused on the systemic
risks posed by CDS * * * A [CCP] for CDS could be an important step
in reducing the counterparty risks inherent in the CDS market, and
thereby help mitigate potential systemic impacts.''), available at:
http://www.sec.gov/news/testimony/2008/ts112008ers.htm. The
President's Working Group on Financial Markets made the central
clearing of OTC derivatives a top policy objective in 2008. See
Policy Objectives for the OTC Derivatives Market (Nov. 14, 2008),
available at: http://www.treasury.gov/resource-center/fin-mkts/Documents/policyobjectives.pdf; see also Policy Statement on
Financial Market Developments (Mar. 13, 2008), available at: http://www.treasury.gov/resource-center/fin-mkts/Documents/pwgpolicystatemktturmoil_03122008.pdf; and Progress Update (Oct.
2008), available at: http://www.treasury.gov/resource-center/fin-mkts/Documents/q4progress%20update.pdf.
    \234\ See supra notes 10-11 and accompanying text.
---------------------------------------------------------------------------

    In November 2008, the Commission, in consultation and coordination
with the Board and the CFTC, took steps to help facilitate the prompt
development of CCPs for OTC derivatives.\235\ Specifically, the
Commission authorized the clearing of OTC security-based swaps by
permitting certain clearing agencies to clear CDS on a temporary
conditional basis.\236\ As the Commission and other regulatory agencies
monitored the activities of those clearing agencies, a significant
volume of interdealer OTC CDS transactions and a smaller volume of
dealer to non-dealer OTC CDS transactions were centrally cleared on a
voluntary basis.\237\ As discussed in greater detail below, the level
of voluntary clearing in swaps and security-based swaps has steadily
increased since that time. Although the volume of interdealer CDS
cleared to date is quite large,\238\ many security-based swap
transactions are still ineligible for central clearing, and many
transactions in security-based swaps eligible for clearing at a CCP
continue to settle bilaterally.
---------------------------------------------------------------------------

    \235\ On November 14, 2008, the Commission executed a Memorandum
of Understanding with the Board and CFTC that established a
framework for consultation and information sharing on issues related
to central counterparties for the OTC derivatives market. See http://www.sec.gov/news/press/2008/2008-269.htm.
    \236\ The Commission authorized five entities to clear credit
default swaps. See supra note 205.
    \237\ Voluntary CCP clearing grew out of a series of meetings
beginning in September 2005 hosted by the Federal Reserve Bank of
New York with major market participants and their domestic and
international supervisors for the purpose of discussing problems in
the processing of credit default swaps, and related risk management
and control issues. See http://www.ny.frb.org/newsevents/news/markets/2005/an050915.html. In June 2008 the attendees agreed to an
agenda for improvement in the derivatives market infrastructure that
included ``developing a central counterparty for credit default
swaps that, with a robust risk management regime, can help reduce
systemic risk.'' See http://www.ny.frb.org/newsevents/news/markets/2008/ma080609.html; see also https://www.theice.com/marketdata/reports/ReportCenter.shtml.
    \238\ As of March 31, 2012, ICE Clear Credit had cleared
approximately $15.4 trillion notional amount of CDS contracts based
on indices of securities, approximately $1.4 trillion notional
amount of CDS contracts based on individual reference entities or
securities and $151 billion notional amount of CDS contracts based
on sovereigns. As of March 31, 2012, ICE Clear Europe had cleared
approximately [euro]7.7 trillion notional amount of CDS contracts
based on indices of securities and approximately [euro]1.2 trillion
notional amount of CDS contracts based on individual reference
entities or securities.
---------------------------------------------------------------------------

    Voluntary clearing of security-based swaps in the U.S. is currently
limited to CDS products. Central clearing of security-based swaps began
in March 2009 for index CDS products, in December 2009 for single-name
corporate CDS products, and in November 2011 for single-name sovereign
CDS products. At present, there is no central clearing in the U.S. for
security based swaps that are not CDS products, such as those based on
equity securities. The level of clearing activity appears to have
steadily increased as more products have become eligible to be cleared.
One illustration of this apparent trend is Figure 1 below, which shows
the gross notional volumes of cleared transactions reported by ICE
Clear Credit for U.S. CDS index and U.S. single-name corporate CDS
products \239\ compared to the total gross notional volumes of (a) all
transactions for reference entities or indexes, as applicable, that are
accepted for clearing in the corresponding calendar year (cleared and
uncleared), and (b) the total market, that is, all transactions in all
reference underlyings of the same category (single name or index),
whether accepted for clearing or not by ICE Clear Credit, in each case
calculated based on price-forming, gold record transactions submitted
to the Depository Trust and Clearing Corporation's Trade Information
Warehouse (``DTCC-TIW'').\240\
---------------------------------------------------------------------------

    \239\ These amounts are based on information reported by ICE
Clear Credit on its public Web site and are based on ``price forming
transactions.'' See infra note 240. This includes the clearing of
trades entered into on the same day as the trade was executed as
well as the clearing of trades entered into in prior periods that
were not previously cleared. These amounts do not include trades
that result from the compression of trades previously submitted for
clearing. See https://www.theice.com/marketdata/reports/ReportCenter.shtml#report/26. ICE Clear Credit describes portfolio
compression as a process that ``reduces the overall notional size
and number of outstanding contracts in credit derivative portfolios
without changing the overall risk profile or present value of the
portfolios. This is achieved by terminating existing trades and
replacing them with a smaller number of new replacement trades that
carry the same risk profile and cashflows as the initial portfolio,
but require a smaller amount of regulatory capital to be held
against the positions.'' See https://www.theice.com/post_trade_processing.jhtml. The CME Group also clears CDS index products and
has reported clearing $144 billion in gross notional volumes of
transactions since inception, with $21 billion in open interest as
of the end of 2011. See http://www.cmegroup.com/trading/cds/. These
volumes are small relative to total market activity and are not
included in Figure 1.
    \240\ ``Price-forming transactions'' include all new trades and
assignments, increases, and terminations of previously executed
trades. Trades terminated or entered into in connection with a
compression exercise and expiration of a contract at maturity are
not considered price-forming and therefore excluded. Transactions
reported to the DTCC-TIW used for this analysis considers all global
activity, including transactions wholly between foreign
counterparties.

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

[GRAPHIC] [TIFF OMITTED] TR13JY12.002

    Figure 1 shows that U.S.-based index CDS products comprise a
greater proportion of the CDS market than U.S. single-name corporate
CDS products and account for the bulk of current clearing activity in
U.S. CDS transactions. The proportion of transactions in names accepted
for clearing that are ultimately cleared also appears to be higher in
U.S.-based index CDS products than in U.S. corporate single-name CDS
products. In calendar years 2010 and 2011, Figure 1 indicates that 90%
of the total gross notional volume of transactions in index names was
accepted for clearing as of the end of each calendar year and that
cleared index transactions correspond to more than 50% of the total
gross notional volume of index trades during the same period. By
contrast, the figure suggests that the proportion of transactions in
accepted names in U.S. single-name corporate CDS was only 33% during
2011, with cleared transactions during the same year totaling only 25%
of the total trades during the same period.
    Table 1, below, provides more detail of the data summarized in
Figure 1. The Table reports the proportion of gross notional market
activity in names accepted for clearing and the proportion of gross
notional market activity that was cleared. Because a security-based
swap may have been accepted for clearing only late in the calendar
year, two measures of transactions that were ``accepted for clearing''
are provided, which differ by when the applicable reference underlying
became accepted for clearing. The first measure, and the measure
included in Figure 1, includes all transaction volume in names accepted
for clearing at any time during the calendar year, whether or not a
trade was accepted for clearing at the time of its execution.\241\ This
measure represents an upper bound for the potential level of clearing--
i.e., the level that could have been achieved if all trades in products
accepted for clearing had in fact been submitted for clearing and there
were no additional constraints on clearing eligibility such as those
described above (e.g., a counterparty is not a member of a CCP that
accepts the product in question for clearing). The second measure
includes only transaction volume in names accepted for clearing at the
time of trade execution.\242\ This measure accounts for the fact that
although transactions executed in names prior to the name being
accepted for clearing can be cleared later in the same calendar year
through ``backloading,'' names accepted for clearing towards the end of
the year allow less time for this to occur. Comparing these two
measures within a year and across years measures (a) the

increase in percentage from 2009 to 2011 in the volume of new trades in
names that have ``accepted for clearing'' status, and (b) the increase
in percentage in the volume of new transactions that are actually being
cleared.
---------------------------------------------------------------------------

    \241\ This calculation was performed by staff in the Division of
Risk, Strategy, and Financial Innovation by totaling the sum of
price forming transactions reported to DTCC in the calendar year for
Index and single-name corporate CDS products that match the list of
names accepted for clearing at ICE Clear Credit during the same
period. See https://www.theice.com/publicdocs/clear_credit/ICE_Clear_Credit_Clearing_Eligible_Products.xls
    \242\ This calculation was performed by staff in the Division of
Risk, Strategy, and Financial Innovation by totaling the sum of
price forming transactions reported to DTCC in the calendar year for
Index and single-name corporate CDS products that match the list of
names accepted for clearing at ICE Clear Credit, including only
those transactions executed following the accepted for clearing date
reported by ICE Clear Credit.

        Table 1--Cleared Trades and Accepted Trades as a Percentage of Gross Notional Transaction Volume
----------------------------------------------------------------------------------------------------------------
                                                         U.S. Index CDS                U.S. Single name CDS
                                               -----------------------------------------------------------------
                                                   2009       2010       2011       2009       2010       2011
----------------------------------------------------------------------------------------------------------------
Gross notional volume ($ billions)............     10,400      8,900      9,900      4,100      3,900      2,800
Percent of gross notional in names accepted
 for clearing
    --at calendar year end....................        88%        90%        91%         1%        23%        33%
    --at time of trade execution..............        55%        87%        91%         0%        16%        29%
Cleared transactions: % of gross notional.....        32%        54%        57%         0%        16%        25%
----------------------------------------------------------------------------------------------------------------

    One important limitation of the calendar year snapshots is that the
volumes of cleared transactions reported by ICE Clear Credit likely
overstate the percentages of total market activity that are cleared in
a particular calendar year because many of the trades submitted for
clearing to ICE Clear Credit are bilateral transactions entered into in
a prior calendar year before ICE Clear Credit began clearing the
particular security-based swap. Such transactions were submitted for
clearing retroactively--through a process referred to as
``backloading''--causing the termination of the original trade and the
creation of two new trades with ICE Clear Credit, both of which are
reported to DTCC-TIW by ICE Clear Credit as cleared transactions, but
only one of which is reported for the purpose of calculating the
clearing volume reported in Figure 1. Until April 2011, all newly
cleared security-based swaps were submitted for clearing in this manner
because same-day clearing was not available. Since April 2011, clearing
members have been able to submit new trades in security-based swaps for
clearing on the same day the counterparties enter into the trade. With
same-day clearing, the trade is first submitted to the CCP for
clearing, and the CCP then reports it to the DTCC-TIW as a single
transaction. However, some backloading will likely continue to occur as
long as CCPs continue to expand the roster of security-based swaps that
they accept for clearing, making more past trades eligible for
backloading.
    Although the volume of cleared CDS transactions appears to have
steadily increased over time, there is still a large proportion of
transactions in security-based swaps that are accepted for clearing by
a CCP but that are nevertheless not actually cleared, particularly with
respect to U.S. Index CDS. Currently, only eligible trades where both
parties request the CCP to clear the transaction will be cleared.
Eligible trades include only those where both counterparties are
members of the clearing agency and the trade has ``accepted for
clearing'' status at that agency. Because clearing is currently done on
a voluntary basis, if both parties do not request the CCP to clear the
transactions, then the transaction is not cleared. There may be a
number of reasons why one counterparty to a security-based swap
transaction may choose not to clear that transaction. For example, some
counterparties may so choose because they want to avoid any additional
transaction costs or transparency associated with clearing at a CCP.
Other counterparties may wish to clear a transaction in a name accepted
for clearing by a CCP but may not be eligible for membership in the CCP
or may not have a correspondent clearing arrangement in place with a
member of the CCP. To these counterparties, clearing is not available
for trades that are otherwise eligible to be cleared when executed by
other counterparties. It is also possible for counterparties to
transact in a currency other than U.S. dollars in a name that is
accepted for clearing; use of a currency other than U.S. dollars makes
the trade not eligible to be cleared. Finally, because prior to April
2011 clearing was performed exclusively on a backloading basis, some
trades have not been cleared because they may have been subject to
portfolio compression or otherwise terminated prior to the option to
submit the trade for clearing becoming available.
3. Views on Clearing Requirements for Security-Based Swaps
    Taken together, while the Commission is mindful of the limitations
discussed above, these data suggest that clearing of security-based
swaps has been increasing, but significant segments of the security-
based swap market remain uncleared, even where a CCP is available to
clear the product in question on a voluntary basis. Due in part to this
data, the Commission recognizes that mandatory clearing determinations
made pursuant to Exchange Act Section 3C(a)(1) could alter current
clearing practices at the time such determinations are made. One
potential consequence of determinations that require mandatory clearing
for certain security-based swaps could be a higher level of clearing
for such security-based swaps than would take place under a voluntary
system. Where the amount of clearing taking place under a voluntary
system is significantly different from the level of clearing that would
take place if trading in a product were mandatory and where such
difference marks a shift in existing market clearing practices, the
mandatory clearing determination could potentially have a material
economic impact.
    New Rule 19b-4(o) and the corresponding amendments to Form 19b-4
focus largely on the process for how a clearing agency is required to
make Security-Based Swap Submissions. Interested parties, including a
number of academics, have expressed their views on the potential impact
of the underlying clearing determinations that will be made by the
Commission in response to Security-Based Swap Submissions or pursuant
to the Commission's own initiative. While these parties generally agree
that a well-managed CCP would help to mitigate counterparty credit risk
in the security-based swaps markets, their views vary on how effective
a clearing requirement would be in controlling risk to the financial
system. For example, some believe that central clearing is a core
feature of the Dodd-Frank Act and is intended to mitigate systemic
risk. According to this view, there should be as much central clearing
of security-based swaps as possible to fulfill the purpose of the Dodd-
Frank Act.\243\

Others contend that concentrating the risk of numerous bilateral
counterparties in a single CCP (or a small number of CCPs) could
introduce risks and incentives that may not otherwise exist. For
example, they believe that risk sharing through a central counterparty
may encourage excessive risk taking if the costs of imprudent decisions
by one clearing member are borne by other clearing members, and
generally would not be more effective in mitigating systemic risk than
bilateral clearing arrangements between individual firms.\244\
Moreover, at least one party believes this moral hazard problem could
be exacerbated to the extent that CCPs are viewed as too important to
fail and subject to bailout remedies that benefit all CCP members.\245\
---------------------------------------------------------------------------

    \243\ See, e.g., Swaps and Derivatives Market Association,
``Lessening Systemic Risk: Removing Final Hurdles to Clearing OTC
Derivatives'', (available at: http://media.ft.com/cms/fe51a538-78d7-11df-a312-00144feabdc0.pdf) (``[m]andating the clearing of all
standardized OTC derivatives without exemptions would lead to broad
adoption of CCPs, thus reducing systemic risk.'').
    \244\ See, e.g., Craig Pirrong, Mutualization of Default Risk,
Fungibility, and Moral Hazard: The Economics of Default Risk Sharing
in Cleared and Bilateral Markets, available at: http://business.nd.edu/uploadedFiles/Academic_Centers/Study_of_Financial_Regulation/pdf_and_documents/clearing_moral_hazard_1.pdf (University of Houston, Working Paper, 2010) (``[c]learing of
OTC derivatives has been touted as an essential component of reforms
designed to prevent a repeat of the financial crisis. A back-to-
basics analysis of the economics of clearing suggests that such
claims are overstated, and that traditional OTC mechanisms may be
more efficient for some instruments and some counterparties.''). See
also Derivatives Clearinghouses: Opportunities and Challenges:
Hearing Before the U.S. Senate Committee on Banking, Housing, and
Urban Affairs, Subcommittee on Securities, Insurance, and
Investment, 112th Cong. (2011) (statement of Chester Spatt) (``it is
unclear whether the extent of use of clearinghouses will ultimately
lead to a reduction in systemic risk in the event of a future
crisis.'').
    \245\ See Pirrong, supra note 244.
---------------------------------------------------------------------------

    Some market participants, furthermore, are concerned that requiring
central clearing of security based swaps may entail unnecessary costs.
One commenter stated that an ``inappropriate imposition of mandatory
clearing requirements could also adversely affect liquidity in the
relevant security-based swap(s) and similarly deter use of otherwise
optimal risk management products.'' \246\ In this commenter's view,
``[w]hile sound, centralized clearing affords clear benefits, it should
be noted that centralized clearing also entails increased operational
and collateral costs.'' \247\ According to this commenter, these
additional costs underscore the importance of the Commission
``strik[ing] an appropriate balance in evaluating the relevant
statutory standards applicable to a mandatory clearing determination,
and weigh[ing] the relevant factors and market impacts with great
care.'' \248\
---------------------------------------------------------------------------

    \246\ ISDA Letter at 2-3.
    \247\ See id. Although the comment was submitted in response to
the proposed process rule, the substance of the comments focused on
the statutory requirements of Exchange Act Section 3C, including the
Commission's review of security-based swaps in order to determine
whether the Commission should impose a mandatory clearing
requirement (either pursuant to a Commission-initiated Review or a
Security-Based Swap Submission).
    \248\ See id.
---------------------------------------------------------------------------

4. Overview of Statutory Requirements
    Exchange Act Section 3C(b) requires the Commission to adopt rules
for a clearing agency's submission of security-based swaps (or any
group, category, type or class of security-based swaps) that a clearing
agency plans to accept for clearing and to determine the manner of
notice the clearing agency must provide to its members of such
Security-Based Swap Submission.\249\ In addition, Section 806(e)(1)(B)
of the Clearing Supervision Act requires each Supervisory Agency to
adopt rules, in consultation with the Board, that define and describe
when a designated financial market utility is required to file an
Advance Notice with its Supervisory Agency.\250\ To satisfy these
requirements, the Commission is today adopting new Rules 19b-4(n) and
(o) and making corresponding amendments to Form 19b-4. In addition,
Exchange Act Section 3C(c)(4) requires the Commission to adopt rules,
pursuant to its authority to stay a mandatory clearing requirement, for
reviewing a clearing agency's clearing of a security-based swap (or any
group, category, type or class of security-based swaps) that the
clearing agency has accepted for clearing.\251\ Today the Commission is
adopting new Rule 3Ca-1 to comply with this requirement. In addition,
Exchange Act Section 3C(d)(1), which is the basis on which the
Commission is adopting new Rule 3Ca-2, directs the Commission to
prescribe rules (and interpretations of rules) the Commission
determines to be necessary to prevent evasions of the clearing
requirements.\252\ Finally, Section 916 of the Dodd-Frank Act amended
Exchange Act Section 19(b) the Dodd-Frank Act to provide for new
deadlines by which the Commission must publish and act upon a proposed
rule change submitted by an SRO.\253\ Accordingly, the Commission is
adopting amendments to Rule 19b-4 and Form 19b-4 to implement conform
the rule and form to these new requirements.
---------------------------------------------------------------------------

    \249\ See 15 U.S.C. 78c-3(b)(2)(A) and (5) (as added by Section
763(a) of the Dodd-Frank Act).
    \250\ See 12 U.S.C. 5465(e)(1)(B) (as added by Title VIII).
    \251\ See 15 U.S.C. 78c-3(c)(4) (as added by Section 763(a) of
the Dodd-Frank Act).
    \252\ See 15 U.S.C. 78c-3(d)(1) (as added by Section 763(a) of
the Dodd-Frank Act).
    \253\ See 15 U.S.C. 78s(b) (as amended by Section 916 of the
Dodd-Frank Act).
---------------------------------------------------------------------------

B. Analysis of Final Procedural Rules

    The Commission is sensitive to the economic effects of all of the
rules it is adopting today, including the costs and benefits of those
rules. Some of these costs and benefits stem from statutory mandates,
while others are affected by the discretion the Commission exercises in
implementing the mandates. The Commission requested comment on all
aspects of the costs and benefits of the proposal, including any effect
the proposed rules may have on efficiency, competition, and capital
formation.
    The first procedure the Commission is adopting implements the
requirement of Exchange Act Section 3C(b) to promulgate rules for a
clearing agency's Security-Based Swap Submissions and to determine the
manner of notice the clearing agency must provide to its members of
such Security-Based Swap Submission.\254\ The Commission also is
adopting two additional process-related rules related to the mandatory
clearing of security-based swaps that are contemplated by the Dodd-
Frank Act. Specifically, pursuant to Exchange Act Section 3C(c)(1), new
Rule 3Ca-1 establishes a procedure for staying a mandatory clearing
requirement and for the Commission's subsequent review of the terms of
the security-based swap and the clearing arrangement. Separately, new
Rule 3Ca-2, adopted pursuant to the anti-evasion authority granted to
the Commission by Exchange Act Section 3C(d)(1), clarifies that the
phrase ``submits such security-based swap for clearing to a clearing
agency'' found in Exchange Act Section 3C(a)(1)--which establishes the
mandatory clearing requirement for security-based swaps--means that the
security-based swap subject to the clearing requirement must be
submitted for central clearing to a clearing agency that functions as a
CCP.
---------------------------------------------------------------------------

    \254\ See 15 U.S.C. 78c-3(b)(2)(A) and (5) (as added by Section
763(a) of the Dodd-Frank Act).
---------------------------------------------------------------------------

    In adopting these rules, the Commission considered the procedural
rules recently adopted by the CFTC pursuant to the mandatory clearing
requirement in new Section 2(h) of the Commodity Exchange Act, as added
by Section 723(a)(3) of the Dodd-Frank Act.\255\ The procedural rules
adopted by the CFTC included, among other things, a rule for the
submission of swaps by a DCO to the CFTC for a mandatory

clearing determination.\256\ Given the similarity between the clearing
requirements for swaps and security-based swaps under the CEA and the
Exchange Act, respectively, the Commission carefully reviewed the rules
adopted by the CFTC in formulating the rules the Commission is adopting
today. Specifically, the Commission considered the information required
by the CFTC for swap submissions filed by DCOs in new Regulation
39.5.\257\ The Commission believes that these information requirements
are substantially similar to the information the Commission is
requiring in its rules, or that it may request in connection with a
Security-Based Swap Submission. Similar to the rules the Commission is
adopting today, Regulation 39.5(b) requires that a DCO submit
information relating to the five factors the CFTC must consider in
making a mandatory clearing determination.\258\ Additionally,
Regulation 39.5(b) requires that DCOs submit detailed information
relating to the swap and the risk management practices of the DCO.\259\
The Commission did not add such additional information requirements in
the text of the rules being adopted today in order to retain the
ability to evaluate the information needed on a case-by-case basis;
however, the Commission specifically provided for the ability to
request such additional information in connection with each Security-
Based Swap Submission and, as previously indicated, the Commission may
require production of such information to the extent it believes such
information is relevant to the mandatory clearing determination.
---------------------------------------------------------------------------

    \255\ See Section 2(h) of the CEA, 7 U.S.C. 2(h) (as added by
Section 723(a) of the Dodd-Frank Act).
    \256\ See 76 FR 44464 (Jul. 26, 2011).
    \257\ See 17 CFR 39.5(b). Regulation 39.5(b) sets out the
process for DCOs to follow when submitting a swap, or a group,
category, type or class of swaps to the CFTC, including what
information a DCO must include in the submission to assist the CFTC
in its review.
    \258\ See 17 CFR 39.5(b)(3)(ii)(A)-(E).
    \259\ See 17 CFR 39.5(b)(3)(iii)-(ix).
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    The rules the Commission is adopting also implement certain
process-related provisions of the Clearing Supervision Act. Among other
things, Section 806(e) of the Clearing Supervision Act requires any
financial market utility designated by the Council as systemically
important to file 60 days advance notice of changes to its rules,
procedures or operations that could materially affect the nature or
level of risk presented by the financial market utility. Specifically,
the Commission is adopting new Rule 19b-4(n) and corresponding
amendments to Form 19b-4 to set forth the process by which a designated
clearing agency (for which the Commission is the Supervisory Agency)
must file Advance Notices with the Commission.
    Finally, the Commission is adopting technical, conforming and
clarifying amendments to Rule 19b-4 and Form 19b-4 to conform the rule
and form with new deadlines and approval, disapproval and temporary
suspension standards with respect to proposed rule changes filed under
Exchange Act Section 19(b), as modified by Section 916 of the Dodd-
Frank Act.
    The principal benefit of the final rules is that they will
facilitate the operation of certain substantive regulations
contemplated by the Dodd-Frank Act. Specifically, as described above,
the Dodd-Frank Act establishes a number of reforms related to the
substantive regulation of securities clearing including, for example,
with respect to the mandatory clearing of security-based swaps and
enhanced oversight of systemically important financial market
utilities. While the final rules do not themselves implement these
substantive reforms, they do establish certain processes that clearing
agencies and security-based swap counterparties must follow in order
for the broader substantive regulations to proceed.
    For example, Exchange Act Sections 3C(b)(2)(A) and (b)(5) require
the Commission to adopt rules for a clearing agency's submission of
security-based swaps (or any group, category, type or class of
security-based swaps) that a clearing agency plans to accept for
clearing and to determine the manner of notice the clearing agency must
provide to its members of such Security-Based Swap Submission.\260\ The
Commission is then required to make a determination, pursuant to
Exchange Act Section 3C(b)(2)(C)(ii), whether the security-based swap
described in the submission is required to be cleared (i.e., subject to
mandatory clearing). New Rule 19b-4(o) and the corresponding amendments
to Form 19b-4, while not addressing the underlying mandatory clearing
determinations, will facilitate such determinations by providing
registered clearing agencies with, among other things, information as
to what must be included in a Security-Based Swap Submission and a
mechanism for transmitting the submission to the Commission. The rules
also specify how and when a clearing agency is required to provide
notice of a Security-Based Swap Submission to its members and the
public.
---------------------------------------------------------------------------

    \260\ See 15 U.S.C. 78c-3(b)(2)(A) and (5) (as added by Section
763(a) of the Dodd-Frank Act).
---------------------------------------------------------------------------

    Similarly, Section 806(e) of the Clearing Supervision Act requires
the Commission, in consultation with the Board, to adopt rules that
define and describe when a designated clearing agency is required to
file with the Commission notice of any change to its rules, procedures
or operations that could materially affect the nature or level of risk
presented by the clearing agency.\261\ Upon receiving an Advance
Notice, the Commission is required, subject to certain exceptions, to
(i) consult with the Board before taking any action on, or completing
its review of, the change referred to in the Advance Notice \262\ and
(ii) notify the designated clearing agency of any objection to a
proposed change described in the notice within 60 days of receipt.\263\
Although new Rule 19b-4(n) and the corresponding amendments to Form
19b-4 do not address how the Commission will ultimately determine
whether to object to a particular change, the final rules will
facilitate such determinations by helping designated clearing agencies
determine when they must file Advance Notices and what information must
be included therein. The final rules also provide a method of
submission for Advance Notices that should already be familiar to
clearing agencies and establish certain requirements related to how the
clearing agency must make the Advance Notice available to the public.
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    \261\ See 12 U.S.C. 5465(e)(1)(B) (as added by Title VIII).
    \262\ See 12 U.S.C. 5465(e)(4) (as added by Title VIII).
    \263\ See 12 U.S.C. 5465(e)(1)(E).
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    Finally, Section 3(f) of the Exchange Act requires the Commission,
whenever it engages in rulemaking and is required to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action would promote efficiency, competition, and capital
formation.\264\ In addition, Section 23(a)(2) of the Exchange Act \265\
requires the Commission, when adopting rules and regulations under the
Exchange Act, to consider the impact such new rule would have on
competition. Section 23(a)(2) of the Exchange Act also prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.
---------------------------------------------------------------------------

    \264\ 15 U.S.C. 78c(f).
    \265\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    Because these rules focus on the process by which clearing agencies

make Security-Based Swap Submissions, the Commission believes that the
rules being adopted today will have a minimal, if any, impact on
efficiency, competition, and capital formation. Although in some cases
process rules themselves can have a significant impact on efficiency,
competition, and capital formation, in this context, the rules are
intended to simply facilitate implementation of the larger statutory
regime regarding mandatory clearing. The Commission believes the rules
are being implemented in a cost-efficient way consistent with the
statute (e.g., leveraging existing infrastructure and procedures
familiar to clearing agencies), but the rules themselves should have a
minimal impact on efficiency, competition, and capital formation. The
Commission nevertheless recognizes that its subsequent mandatory
clearing determinations, which will be based on the particular facts
and circumstances of each individual Security-Based Swap Submission,
could potentially have an impact on efficiency, competition, and
capital formation in the security-based swap market.
1. Analysis of Final Rules Related to Security-Based Swap Submissions
    Exchange Act Section 3C requires each clearing agency that plans to
accept a security-based swap for clearing to file a Security-Based Swap
Submission with the Commission for a determination by the Commission of
whether a security-based swap (or any group, category, type or class of
security-based swaps) referenced in the submission is required to be
cleared.\266\ Accordingly, the Commission is adopting new Rule 19b-4(o)
and corresponding amendments to Form 19b-4 for the purpose of ensuring
that the Commission receives the information necessary to conduct its
review of Security-Based Swap Submissions received from clearing
agencies. In particular, the new rule requires clearing agencies to
provide information about the factors the Commission is required to
consider under Exchange Act Section 3C(b)(4)(B). These factors include
consideration of the effect on competition as well as the size of the
market, trading liquidity, and pricing data, as well as the
availability of a rule framework, capacity, operational expertise and
resources, and credit support infrastructure to clear the security-
based swap (or group, category, type or class of security-based swaps)
under consideration.\267\ In addition, the factors in Exchange Act
Section 3C(b)(4)(B) require the Commission to consider the effect of a
mandatory clearing determination on the mitigation of systemic risk,
taking into account the size of the market for the security-based swap
and the resources of the clearing agency available to clear the
security-based swap, as well as the effect on competition and the
effect of an insolvency event on customer and security-based swap
counterparty positions, funds, and property.\268\ Furthermore, in
taking into account the size of the market, competition, and the
mitigation of systemic risk, the factors in Section 3C(b)(4)(B) require
the Commission to consider the effect of a mandatory clearing
determination on the market, whether market participants trading in the
particular security-based swap could all meet a mandatory clearing
requirement or if the costs of such a requirement would competitively
disadvantage some participants, and whether the clearing agency has the
operational and risk management systems in place to effectively
mitigate systemic risk.
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    \266\ See 15 U.S.C. 78c-3(b)(2) (as added by Section 763(a) of
the Dodd-Frank Act).
    \267\ 15 U.S.C. 78c-3(4)(B)(i) and (ii) (as added by Section
763(a) of the Dodd-Frank Act).
    \268\ 15 U.S.C. 78c-3(4)(B)(iii), (iv), and (v) (as added by
Section 763(a) of the Dodd-Frank Act).
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    The Commission will conduct each review in accordance with Exchange
Act Section 3C(b)(4),\269\ with determinations made on a case-by-case
basis in connection with the unique facts and circumstances of each
submission. The Commission will consider the factors in Exchange Act
Section 3C(b)(4)(B) at the time the Commission conducts a review,
drawing on the information provided by the relevant clearing agency in
accordance with new Rule 19b-4(o).
---------------------------------------------------------------------------

    \269\ See 15 U.S.C. 78c-3(b)(4) (as added by Section 763(a) of
the Dodd-Frank Act).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission identified potential costs
and benefits resulting from Rule 19b-4(o) and the related amendments to
Form 19b-4, as proposed, and requested comment on all aspects of the
cost-benefit analysis, including the identification and assessment of
any costs and benefits that were not discussed in the analysis.
Although the Commission did not receive any comments on the specific
cost-benefit analysis contained in the Proposing Release, some
commenters raised concerns about the overall scope of some of the
proposed rules. In particular, one commenter suggested that new Rule
19b-4(o)(3), which sets forth the information that a clearing agency
will be required to include in a Security-Based Swap Submission, is
broad and burdensome, not authorized by the Dodd-Frank Act, and would
ultimately ``undermine the purposes of Dodd-Frank'' by ``eliminat[ing]
the possibility of a simple, speedy decision on whether a swap
transaction can be cleared by a clearing agency.'' \270\
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    \270\ See CME Letter at 3. Similarly, The Options Clearing
Corporation noted that Rule 19b-4(o)(3) identifies a ``a potentially
very large amount of data'' to be provided in a Security-Based Swap
Submission and urged Commission staff exercise judgment and
flexibility in determining the scope of information required in
connection with a submission. See OCC Letter at 3-4.
---------------------------------------------------------------------------

    The Commission does not agree with the assertion that the
requirements of Rule 19b-4(o)(3) would delay the approval of a request
by a clearing agency to list a new security-based swap for clearing. As
previously noted, the rules related to Security-Based Swap Submissions
apply solely to the process by which the Commission will make a
determination, pursuant to Exchange Act Section 3C(b)(2)(C)(ii),
whether the security-based swap described in the submission is required
to be cleared (i.e., subject to mandatory clearing). Nothing in the
rules the Commission is adopting today related to Security-Based Swap
Submissions would prevent a registered clearing agency from voluntarily
clearing a security-based swap prior to such determination so long as
it does so in accordance with its rules. Thus, the Commission does not
believe that Rule 19b-4(o)(3), which simply sets forth the information
required to be contained in a Security-Based Swap Submission, would
affect the current state of affairs with respect to a clearing agency's
ability to clear a security-based swap transaction, nor does the
Commission believe that this rule would undermine the goals of the
Dodd-Frank Act as they pertain to the voluntary clearing of security-
based swaps.
    At the same time, the Commission recognizes the concern expressed
by commenters that Rule 19b-4(o)(3) could potentially require a
clearing agency to submit a large amount of information in connection
with a Security-Based Swap Submission. Accordingly, the Commission has
sought to narrowly tailor the rule to the specific requirements of the
Exchange Act. The list of information required pursuant to new Rule
19b-4(o)(3)(ii) incorporates the identical qualitative and quantitative
factors that the Commission is required to consider pursuant to
Exchange Act Section 3C(b)(4)(B) when determining whether a security-
based swap (or group, category, type or class of security-based swaps)
will be subject

to the mandatory clearing requirement.\271\ In addition, the
information required pursuant to new Rule 19b-4(o)(3)(i) (discussing
how the Security-Based Swap Submission is consistent with Section 17A
of the Exchange Act) and new Rules 19b-4(o)(3)(iii)-(iv) (describing
how the clearing agency's rules for open access are applicable to the
security-based swap described in the Security-Based Swap Submission)
also track statutory requirements contained in Exchange Act Section
3C.\272\ The Commission therefore believes that it has crafted new Rule
19b-4(o)(3) to allow it to obtain the information necessary to complete
its statutory obligation to make the required determination, without
imposing undue additional information requirements on clearing
agencies. As described in greater detail below, the Commission also
believes that the available alternatives to the approach being adopted
would have been less cost-efficient because of the concentration of
relevant information in the clearing agencies and would not represent
the best option for appropriately implementing the statutory mandate.
---------------------------------------------------------------------------

    \271\ See 15 U.S.C. 78c-3(b)(4)(B)(i)-(v) (as added by Section
763(a) of the Dodd-Frank Act) (emphasis added).
    \272\ See 15 U.S.C. 78c-3(b)(4)(A) (as added by Section 763(a)
of the Dodd-Frank Act) (regarding compliance with Section 17A of the
Exchange Act) and 15 U.S.C. 78c-3(a)(2) (as added by Section 763(a)
of the Dodd-Frank Act) (setting forth the standards for evaluating
whether the rules of a clearing agency provide for open access).
---------------------------------------------------------------------------

    However, the Commission is mindful that the new procedure set forth
by Rule 19b-4(o) will result in costs for clearing agencies, even if
that procedure were to achieve optimal efficiency. As in the Proposing
Release, this analysis looks first to the hourly burdens contained in
the PRA analysis in Section IV (which hourly figures have been updated
from the estimates provided in the Proposing Release) multiplied by the
estimated hourly cost. With respect to the amendments to Rule 19b-4 and
Form 19b-4 that require a clearing agency to file Security-Based Swap
Submissions with the Commission using EFFS and existing Form 19b-4, the
Commission believes that clearing agencies affected by the new rules
will likely incur certain one-time and ongoing costs associated with
making these filings, which are primarily related to preparing internal
policies and procedures with respect to the new filing requirements and
training personnel to prepare security-based swap submission and file
them on EFFS. The hourly estimates are discussed in detail in the PRA
analysis, although the Commission recognizes that certain of these
costs may differ in amount depending on whether the clearing agency is
already clearing security-based swaps or will be new to the market and
regulatory structure. The Commission has used the hourly estimates in
the PRA analysis to estimate the total recurring annual and ongoing
costs for the six clearing agencies the Commission has determined may
be required to meet the requirements in the rules relating to Security-
Based Swap Submissions. The Commission estimates the annual costs will
be $8,113,090 in the aggregate and that the one-time costs will be
$319,080 in the aggregate.\273\
---------------------------------------------------------------------------

    \273\ These figures consist of the total hourly burdens
identified in sections III.D.2.b and d, multiplied by the costs per
hour attributed to different specialists. Specifically, $320 is
attributed per hour for in-house compliance attorneys, $354 per hour
for outside attorneys, $259 per hour for a senior systems analyst,
and $225 per hour for a Webmaster. These hourly rates were based on
the corresponding figures set forth in SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800 hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    In addition, the Commission recognizes that registered clearing
agencies may incur some additional costs associated with filing
Security-Based Swap Submissions that are not readily quantifiable. For
example, in cases where a clearing agency's rules already permit it to
clear a security-based swap that is not listed for clearing, the
clearing agency's subsequent decision to list such security-based swap
for clearing would result in the requirement to make a Security-Based
Swap Submission despite the fact that the clearing agency may have
previously filed a proposed rule change with respect to the same
security-based swap. As a result, clearing agencies put in this
position could incur additional costs by being required to make a
greater number of filings than they do currently under Exchange Act
Section 19(b). In addition, the Commission notes that Security-Based
Swap Submissions filed before December 10, 2012, will not be filed on
Form 19b-4 in order to allow time for the Commission to make the
necessary system upgrades to EFFS. Accordingly, a clearing agency that
files a Security-Based Swap Submission prior to December 10, 2012, that
is also an Advance Notice or proposed rule change (or both) will be
required to submit two separate filings with the Commission. However,
the Commission believes that the requirement to file the Security-Based
Swap Submission by email, as well as the temporary nature of the
requirement, will impose relatively little additional burden on
clearing agencies, which can use their existing email systems to make
such filings.
    While the Commission recognizes the importance of considering these
costs, and appreciates that some costs may be unavoidable in
establishing a new procedure, the Commission believes that new Rule
19b-4(o) is cost-efficient and appropriately implements the provisions
identified by Congress as requiring Commission rulemaking.
Specifically, while implementing the submission and notice requirements
in Exchange Act Section 3C, the Commission anticipates that the rule
will minimize unnecessary costs to filers by utilizing a format that
clearing agencies should be familiar with and, as they become
registered clearing agencies, will be otherwise required to use for all
of their proposed rule changes under existing Commission rules.
    In addition, the Commission also believes that new Rule 19b-4(o) is
cost-efficient and an implementation of the statutory mandate because,
as previously noted, a clearing agency would ordinarily consider most,
if not all, of the factors set forth in the Exchange Act Section
3C(b)(4) and new Rule 19b-4(o)(3) as part of its internal decision-
making process, particularly at the time when it was determining
whether to list the relevant security-based swaps for clearing (and
knowing that such listing could result in the Commission determining
that the security-based swap may be required to be cleared).\274\
Accordingly, although the Commission recognizes that clearing agencies
may incur costs associated with locating, processing and preparing
information required to be included in a Security-Based Swap
Submission, the Commission believes that clearing agencies are the most
appropriate source for accurate and updated information regarding a
security-based swap that it accepts (or plans to accept) for clearing.
The Commission is aware of no other source for the scope and nature of
the information contemplated by Exchange Act Section 3C.
---------------------------------------------------------------------------

    \274\ See supra section II.A.1.b.
---------------------------------------------------------------------------

    In the alternative, as suggested by a commenter,\275\ if the
Commission were limited to compiling the necessary information using
already available material as well as information obtained by the
Commission in connection with its supervision of clearing agencies,

there is risk that such material would be incomplete and/or inaccurate
and therefore not well-suited to allowing the Commission to make a
reasonably informed mandatory clearing determination. Under such
circumstances, the Commission may also be required to make potentially
costly and time-consuming ad hoc information requests to clearing
agencies. Requiring a clearing agency to provide necessary information
with its submission will help ensure that the information used by the
Commission to evaluate the security-based swap for mandatory clearing
is correct and complete in the first instance, reducing the likelihood
that further information requests will be required and the associated
costs for clearing agencies incurred.
---------------------------------------------------------------------------

    \275\ See supra notes 59 to 61 and accompanying text.
---------------------------------------------------------------------------

    Moreover, as described above, new Rule 19b-4(o) limits the
information required to be provided to the Commission while, at the
same time, allowing the Commission to meet its statutory requirements
under specific categories established by the Dodd-Frank Act. The
Commission, in seeking the most cost-efficient solution for the new
procedure that also appropriately implements the statutory mandate,
chose not to include additional information requests in the rule at
this time because the Commission believes that the factors identified
in the statute are capable of supporting a reasonable determination
with respect to a Security-Based Swap Submission. Nevertheless, the
Commission recognizes that a clearing agency may still require
additional clarification or guidance with respect to what information
must be included in a Security-Based Swap Submission. In that regard,
Commission staff is in regular contact with each clearing agency and
expects to be able to provide such clarification or guidance as
necessary or appropriate based on the relevant facts and circumstances.
    Finally, although the Commission is still in the process of
determining how best to aggregate security-based swaps into groups,
categories, types or classes, requiring that Security-Based Swap
Submissions aggregate security-based swaps in this manner, to the
extent reasonable and practicable to do so, as provided for in new Rule
19b-4(o)(4), could eventually lead to further cost efficiencies by
reducing the number of filings required to be made with the Commission,
and subsequently reducing the number of submissions that must be
processed and reviewed by Commission staff.
    Separately, with respect to notice, the Commission believes that
new Rule 19b-4(5) appropriately implements the statutory mandate and
creates a cost-efficient method of providing notice to members of the
clearing agency, as well as other interested persons, such as
counterparties to security-based swaps, of a Security-Based Swap
Submission by requiring posting of the submission on the clearing
agency's Web site within two business days of filing with the
Commission. The Commission anticipates that this notice will provide
the clearing agency members and other interested persons with the
opportunity to comment on the submission with the potential for
providing new information about the suitability of the security-based
swap for mandatory clearing.
2. Analysis of Final Rules Related to the Process for Staying a
Clearing Requirement While the Clearing of the Security-Based Swap Is
Reviewed
    Under Exchange Act Section 3C(c)(1), after making a determination
that a security-based swap (or group, category, type or class of
security-based swaps) is required to be cleared, the Commission, on
application of a counterparty to a security-based swap or on the
Commission's own initiative, may stay the clearing requirement until
the Commission completes a review of the terms of the security-based
swap and the clearing arrangement.\276\ In connection with a stay of
the clearing requirement, the Commission is required to adopt rules for
reviewing a clearing agency's clearing of a security-based swap (or any
group, category, type or class of security-based swaps) that the
clearing agency has accepted for clearing.
---------------------------------------------------------------------------

    \276\ See 15 U.S.C. 78c-3(c)(1) (as added by Section 763(a) of
the Dodd-Frank Act).
---------------------------------------------------------------------------

    Pursuant to new Rule 3Ca-1, a counterparty to a security-based swap
subject to the clearing requirement who applies for a stay of the
clearing requirement will be required to submit a written statement to
the Commission that includes: A request for a stay of the clearing
requirement; the identity of the counterparties to the security-based
swap and a contact at the counterparty requesting the stay; the
identity of the clearing agency clearing the security-based swap; the
terms of the security-based swap subject to the clearing requirement
and a description of the clearing arrangement; and the reasons why a
stay should be granted and why the security-based swap should not be
subject to a clearing requirement, specifically addressing the same
factors a clearing agency must address in its Security-Based-Swap
Submission pursuant to Rule 19b-4(o).\277\ In the Proposing Release,
the Commission identified potential costs and benefits resulting from
Rule 3Ca-1 as proposed and requested comment on all aspects of the
cost-benefit analysis, including the identification and assessment of
any costs and benefits that were not discussed in the analysis. The
Commission did not receive any responses to this request.
---------------------------------------------------------------------------

    \277\ Rule 3Ca-1(b).
---------------------------------------------------------------------------

    The Commission is mindful of the costs associated with the final
procedure for the application for a stay. As in the Proposing Release,
this analysis looks first to the hourly burdens contained in the PRA
analysis in Section IV (which hourly figures have been updated from the
estimates provided in the Proposing Release) multiplied by the
estimated hourly cost. As previously noted, the Commission is unable to
estimate accurately the number of stay applications that it will
receive pursuant to new Rule 3Ca-1 and Section 3C(c)(1) because the
Commission has not yet made any mandatory clearing determinations, does
not know which counterparties may object to a determination, and has no
information as to when counterparties would make an application for a
stay. Accordingly, the Commission has no reasonable basis for
estimating the number of applications. In addition, the mere fact that
a counterparty files an request for a stay does not automatically
create an obligation on the relevant clearing agency to respond to the
application. Rather, new Rule 3Ca-1(d) provides that any clearing
agency that has accepted for clearing a security-based swap that is
subject to the stay shall provide information requested by the
Commission necessary to assess any of the factors it determines to be
appropriate in the course of its review. The Commission therefore
cannot estimate with precision the quantified costs associated with the
new rule regarding procedures for a stay, and no additional information
was made available during the pendency of this rule that would aid such
an estimate.
    Nonetheless, the Commission recognizes that there will likely be
applications for stays and, for purposes of the Proposing Release, the
Commission estimated, by way of illustrating the potential costs of
such applications, that there would be 30 applications for stays of a
clearing requirement from counterparties each year based on the
estimates of section III.D.4. of the PRA analysis. Further, the
Proposing Release relied on the

assumption that the Commission would request additional information
from the relevant clearing agency after receiving a request for a stay
from a counterparty.
    Based on the figures and assumptions described above, the
Commission estimates, as it did in the Proposing Release, that
counterparties would incur $1,062,000 in total aggregate costs to
prepare and submit applications requesting a stay of a clearing
requirement and that clearing agencies will incur $247,140 in total
aggregate costs to compile and provide any information requested by the
Commission.\278\
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    \278\ This figure consists of the total hourly burden identified
in section III.D.4, multiplied by $320 for each hour attributed to
in-house compliance attorneys and $354 per hour for outside
attorneys. This hourly cost is based on SIFMA's Management &
Professional Earnings in the Securities Industry 2010, modified by
the Commission's staff to account for an 1800 hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
---------------------------------------------------------------------------

    While for the reasons described above, the Commission has no basis
to believe that this estimate is an inapt illustration of the potential
costs associated with stays, the Commission notes that another
indicator of the potential burden may be the ``per stay'' cost implied
by these aggregate figures--namely, approximately $35,400 per
counterparty per stay and approximately $8,238 per clearing agency per
stay. These estimates of course also assume that there is an
application (when in fact there may be none in cases where the
Commission exercises its authority under Exchange Act Section 3C(c)(1)
to grant a stay on its own initiative) and that it requires a clearing
agency to respond (when in fact it may not be required to respond in
cases where the Commission does not require the production of
additional information pursuant to new Rule 3Ca-1(d)).
    After considering these illustrative costs, the Commission believes
that new Rule 3Ca-1 appropriately implements the provisions identified
by Congress as requiring Commission rulemaking and is cost-efficient
for the parties that will most likely be affected by the rule. In
particular, the Commission believes that the information required of
the counterparty and, if applicable, the clearing agency, is
information that is most likely to be in the possession of the relevant
party, and that alternative mechanisms for obtaining that information
would be comparatively more costly for the parties involved. For
example, similar to the analysis conducted with respect to Security-
Based Swap Submissions, one alternative would have been to require that
the Commission rely on information within its possession to make a
determination with respect to the application for a stay. However, with
respect to the counterparty, the Commission is all but certain not to
have the full information required to understand the application--the
counterparty alone will likely have its reasons as to why the stay
should be granted and why the security-based swap should not be subject
to a clearing requirement. Similarly, a clearing agency will only be
required to submit information in connection with this process in
response to a request by the Commission in order to facilitate the
Commission's review of the application for a stay and, if the stay is
granted, the applicable clearing requirement. Under these
circumstances, it is likely that such requests will include information
that is unique to the clearing agency and not independently available
to the Commission.
3. Analysis of Final Rule Related to Preventing Evasion of the Clearing
Requirement
    As described above, new Rule 3Ca-2 clarifies that the phrase
``submits such security-based swap for clearing to a clearing agency''
found in Exchange Act Section 3C(a)(1) and is intended to prevent
potential evasions of the clearing requirement by requiring market
participants to submit security-based swaps to a clearing agency for
central clearing as opposed to other clearing functions or services.
The Commission does not believe that the Rule 3Ca-2 would impose any
additional costs or burdens on clearing agencies or counterparties to
security-based swaps because the rule simply clarifies that security-
based swaps must be cleared at a central counterparty, rather than at
an entity that meets the technical definition of a clearing agency
under the Exchange Act for another reason. This clarification is
consistent with the purpose of Section 3C(a)(1), which is to require
that security-based swaps are centrally cleared.
4. Analysis of Final Rules Related to Advance Notices
    As previously noted, the Clearing Supervision Act, which was
enacted into law pursuant to Title VIII of the Dodd-Frank Act, provides
for enhanced regulation of financial market utilities, such as clearing
agencies, that manage or operate a multilateral system for the purpose
of transferring, clearing or settling payments, securities or other
financial transactions among financial institutions or between
financial institutions and the financial market utility. Among other
things, Section 806(e) of the Clearing Supervision Act requires any
financial market utility designated by the Council as systemically
important to provide ``60 days in advance notice to its Supervisory
Agency of any proposed change to its rules, procedures or operations
that could, as defined in rules of each Supervisory Agency, materially
affect the nature or level of risks presented by the designated
financial market utility.'' \279\ In addition, Congress mandated that
each Supervisory Agency, including the Commission, adopt rules, in
consultation with the Board, that define and describe when a designated
financial market utility is required to file an Advance Notice with its
Supervisory Agency.\280\ Accordingly, new Rule 19b-4(n) was intended to
define and describe when Advance Notices are required to be filed by
designated clearing agencies and to set forth the process for filing
such notices with the Commission.
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    \279\ See 12 U.S.C. 5465(e)(1)(A) (as added by Title VIII).
    \280\ See 12 U.S.C. 5465(e)(1)(B) (as added by Title VIII).
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    In the Proposing Release, the Commission identified potential costs
and benefits resulting from Rule 19b-4(n) and the related amendments to
Form 19b-4 as proposed, and requested comment on all aspects of the
cost-benefit analysis, including the identification and assessment of
any costs and benefits that were not discussed in the analysis.
Although the Commission did not receive any comments on the specific
cost-benefit analysis contained in the Proposing Release, some
commenters suggested that proposed 19b-4(n)(2), which defines the
phrase ``materially affect the nature or level of risks presented'' for
purposes of determining when a designated clearing agency will be
required to submit an Advance Notice with the Commission, was overly
broad and burdensome.\281\ Specifically, these commenters generally
argued that the definition would result in a requirement to submit
Advance Notices to the Commission regarding matters that were risk-
reducing, impractical, and potentially of lesser importance to the
designated clearing agency and its regulators, which could potentially
place an unnecessary strain on the existing resources of the clearing
agency.\282\
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    \281\ See supra notes 154 to 162 and accompanying text.
    \282\ See id.
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    While the Commission recognizes that new Rule 19b-4(n)(2), which is
being

adopted as proposed, will impose certain costs and burdens on
designated clearing agencies (which costs and burdens are discussed in
greater detail below), the Commission believes that the rule is cost-
efficient method and represents an appropriate method for implementing
the statutory mandate. Specifically, Section 806(e) requires all
financial market utilities to file Advance Notices with their
Supervisory Agencies whenever the change referred to in the notice
materially affects the nature or level of risks presented by the
designated financial market utility.\283\ While the Commission
recognizes that a more narrowly tailored definition of the phrase
``materially affect the nature or level of risks presented'' could
potentially result in designated clearing agencies being required to
file fewer Advance Notices, new Rule 19b-4(n)(2) was drafted to follow
closely the statutory language set forth in Section 806(e)(1)(A). As
such, the Commission believes that the definition set forth in the new
rule strikes an appropriate balance between the objectives of the Dodd-
Frank Act and the potential costs and burdens on financial market
utilities in that it does not expand on the language included in the
statute, either by including specific types of changes not contemplated
in Section 806(e) or by excluding changes that were not expressly
identified by Congress. Furthermore, the Commission has previously
encouraged designated clearing agencies to discuss proposed changes
with Commission staff to help determine whether an Advance Notice under
Section 806(e) would need to be filed and continues to encourage
clearing agencies to avail themselves of this approach.\284\
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    \283\ See 12 U.S.C. 5465(e)(1)(A) (as added by Title VIII).
    \284\ See supra section II.C.1.
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    However, the Commission is mindful that the new procedure set forth
for Advance Notices will result in costs for financial market
utilities, even if that procedure were to achieve optimal efficiency.
As in the Proposing Release, this analysis looks first to the hourly
burdens contained in the PRA analysis in Section IV (which hourly
figures have been updated from the estimates provided in the Proposing
Release) multiplied by the estimated hourly cost. The Commission
estimates the total annual cost related to filing and posting Advance
Notices to be $15,890,000 in the aggregate for ten respondent clearing
agencies.\285\
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    \285\ This figure consists of the total hourly burdens
identified in sections III.D.2.e and III.3, multiplied by the costs
per hour attributed to different specialists. Specifically, $320 is
attributed per hour for in-house compliance attorneys, $354 per hour
for outside attorneys and $225 per hour for a Webmaster. These
hourly rates were based on the corresponding figures set forth in
SIFMA's Management & Professional Earnings in the Securities
Industry 2010, modified by the Commission's staff to account for an
1800 hour work-year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
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    In addition, the Commission recognizes that registered clearing
agencies may incur some additional costs associated with filing Advance
Notices that are not readily quantifiable. For example, some proposed
changes may be required to be filed only as Advance Notices under
Section 806(e) and not as proposed rule changes under Exchange Act
Section 19(b). In these circumstances, clearing agencies will likely
incur additional costs by being required to make a greater number of
filings than they do currently under Exchange Act Section 19(b), which
would result from the application of different standards for triggering
a filing under the two statutory provisions. In addition, the
Commission notes that Advance Notices filed before December 10, 2012,
will not be filed on Form 19b-4 in order to allow time for the
Commission to make the necessary system upgrades to EFFS. Accordingly,
a designated clearing agency that is required to file a change as both
an Advance Notice and a proposed rule change will be required to submit
two separate filings with the Commission. However, the Commission
believes that the requirement to file the Advance Notice by email, as
well as the temporary nature of the requirement, will impose relatively
little additional burden on clearing agencies, which can use their
existing email systems to make such filings.
    While the Commission recognizes the importance of considering these
costs, and appreciates that some costs may be unavoidable in
establishing a new procedure, the Commission believes that new Rule
19b-4(n) implements the provisions identified by Congress as requiring
Commission rulemaking and is cost-efficient for the parties that will
most likely be affected by the rule. Specifically, by defining the term
``materially affect the nature or level of risks presented,'' new Rule
19b-4(n)(2) provides designated clearing agencies with an
understanding, as required by Congress pursuant to Section
806(e)(1)(B), of when an Advance Notice is required. While the
Commission could have taken a more prescriptive approach by specifying
which types of groups of changes would or would not trigger the
requirement, the Commission believes that interpretative issues would
remain and questions whether such alternative would be consistent with
the statutory language in Section 806(e)(1)(A).
    In addition, because the requirement to file notices under Section
806(e) is similar to the filing requirement for proposed rule changes
under Exchange Act Section 19(b), the Commission is requiring that
Advance Notices be filed on Form 19b-4 and EFFS. In many cases, it is
likely that a proposed change for purposes of Section 806(e) will also
be a proposed rule change for purposes of Exchange Act Section 19(b).
Although the Commission could have required that Advance Notices be
filed on a separate form, the Commission believes that requiring
submissions using existing Form 19b-4 and EFFS represents a
particularly cost-efficient approach to implementing the statutory
mandate to submit Security-Based Swap Submissions, particularly since
designated clearing agencies will already be familiar with this method
of submission. Further, in situations where a single clearing agency
action would trigger more than one of these filing requirements,
allowing for each filing to be made pursuant to a single Form 19b-4
submission would improve efficiency in the filing process including,
for example, by allowing the clearing agency to refer to and cross-
reference information in one part of the submission if the information
is relevant to a separate filing that is part of the same submission
(so long as the requirements of each applicable rule are individually
satisfied and if the clearing agency clearly explains how the
information in one filing is applicable to the specific information
required to be provided in the other filing).
5. Analysis of Final Rules To Amend Rule 19b-4 To Conform to the
Requirements of Section 916 of the Dodd-Frank Act
    The Commission has made a number of modifications to Rule 19b-4 and
Form 19b-4 to conform to the requirements specified in Exchange Act
Section 19(b), as amended by Section 916 of the Dodd Frank Act. These
amendments were designed to incorporate changes required by Section
916, which provided for new deadlines by which the Commission must
publish and act upon a proposed rule change submitted by all SROs and
new standards for the approval, disapproval, and temporary suspension
of a proposed rule change. In the Proposing Release, the Commission
identified potential costs and benefits resulting from these
amendments, as proposed, and requested comment on all aspects of the

cost-benefit analysis, including the identification and assessment of
any costs and benefits that were not discussed in the analysis. The
Commission did not receive any responses to this request.
    The Commission estimates that the requirement that an SRO inform
the Commission of the date on which it posted a proposed rule change on
its Web site (if the posting did not occur on the same day that the SRO
filed the proposal with the Commission) will impose only a minimal
burden, if any, on the SRO. As discussed in Section IV.B.4., the
Commission believes that SROs currently post their proposed rule
changes on their Web site on the same day on which they file them with
the Commission. It would be unlikely that an SRO would fail to post its
proposed rule change on the same day that it files with the Commission,
since prompt Web site posting triggers the requirement on the
Commission to publish notice of the proposed rule change.
    The Commission also identified certain isolated or unusual
circumstances that could result in unforeseen costs associated with the
requirement that an SRO, if it does not post a proposed rule change on
its Web site on the same day that it files the proposal with the
Commission, inform the Commission of the date on which it posted such
proposal on its Web site. In conducting an evaluation of the costs of
this amendment, as in the Proposing Release, the Commission relies on
the hourly burdens contained in the PRA analysis in Section IV (which
hourly figures have been updated from the estimates provided in the
Proposing Release) multiplied by the estimated hourly cost. In
addition, the Commission estimates that SROs will fail to post proposed
rule changes on their Web sites on the same day as the filing was made
with the Commission in 1% of all cases, or 16 times each year, and that
each SRO will spend approximately one hour preparing and submitting
notice to the Commission of the date on which it posted the proposed
rule change on its Web site, resulting in a total annual burden of 14
hours. Based on these assumptions, the Commission estimates that the
total annual cost of this amendment will be $5,120 in the aggregate for
all SROs.\286\
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    \286\ This figure consists of the total hourly burdens
identified in section III.D.4, multiplied by $320 per hour for in-
house compliance attorneys. This hourly cost is based on SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by the Commission's staff to account for an 1800 hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead.
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V. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \287\ requires the
Commission, in promulgating rules, to consider the impact of those
rules on small entities. Section 603(a) \288\ of the Administrative
Procedure Act,\289\ as amended by the RFA, generally requires the
Commission to undertake a regulatory flexibility analysis of all rules
it has proposed to determine the impact of such rulemaking on ``small
entities.'' \290\ Section 605(b) of the RFA states that this
requirement shall not apply to any proposed rule which, if adopted,
would not have a significant economic impact on a substantial number of
small entities.\291\
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    \287\ 5 U.S.C. 601 et seq.
    \288\ 5 U.S.C. 603(a).
    \289\ 5 U.S.C. 551 et seq.
    \290\ Section 601(b) of the RFA permits agencies to formulate
their own definitions of ``small entities.'' The Commission has
adopted definitions for the term ``small entity'' for the purposes
of rulemaking in accordance with the RFA. These definitions, as
relevant to this rulemaking, are set forth in Rule 0-10, 17 CFR
240.0-10.
    \291\ See 5 U.S.C. 605(b).
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A. Self-Regulatory Organizations

    New Rule 19b-4(n) and the corresponding amendments to Form 19b-4
will apply to all designated clearing agencies. New Rule 19b-4(o) and
the corresponding amendments to Form 19b-4 will apply to all security-
based swap clearing agencies. New rules 3Ca-1 and 3Ca-2 also will apply
to all security-based swap clearing agencies. All of the remaining
amendments to Rule 19b-4 and Form 19b-4, including those made to Rule
19b-4(l) to reflect the revisions to Exchange Act Section 19(b)
pursuant to Section 916 of the Dodd-Frank Act, will apply to all SROs.
Three entities are currently registered to provide central clearing
services for CDS, a class of security-based swaps. The Commission
believes, based on its understanding of the market, that likely no more
than six security-based swap clearing agencies could be subject to the
requirements of new Rule 19b-4(o) and new Rules 3Ca-1 and 3Ca-2. In
addition, the Commission believes that approximately ten registered
clearing agencies could be designated by the Council as systemically
important (and for which the Commission will be the Supervisory Agency)
and subject to the requirements of new Rule 19b-4(n), which includes
the four securities clearing agencies in existence prior to the
enactment of the Dodd-Frank Act and the six estimated clearing agencies
that may clear security-based swaps. Finally, there are currently 32
SROs registered with the Commission (including registered clearing
agencies). When combined with the additional clearing agencies that
could potentially register with the Commission in the future to clear
security-based swaps, the Commission believes that approximately 35
SROs will be subject to all of the other technical amendments to Rule
19b-4, including the amendments to Rule 19-4(l).
    For the purposes of Commission rulemaking in connection with the
RFA, a small entity includes, when used with reference to a clearing
agency, a clearing agency that: (i) Compared, cleared and settled less
than $500 million in securities transactions during the preceding
fiscal year; (ii) had less than $200 million of funds and securities in
its custody or control at all times during the preceding fiscal year
(or at any time that it has been in business, if shorter); and (iii) is
not affiliated with any person (other than a natural person) that is
not a small business or small organization.\292\ With respect to SROs
that are not clearing agencies, the RFA analysis would apply to
national securities exchanges, national securities associations and the
Municipal Securities Rulemaking Board. Exchange Act Rule 0-10(d)
provides that a small entity includes, when used in reference to an
exchange, any exchange that: (i) Has been exempted from the reporting
requirements of Rule 601 of Regulation NMS \293\ and (ii) is not
affiliated with any person (other than a natural person) that is not a
small business or small organization.\294\ Under the standards adopted
by the Small Business Administration, small entities in the finance
industry include the following: (i) For entities engaged in investment
banking, securities dealing and securities brokerage activities,
entities with $6.5 million or less in annual receipts; (ii) for
entities engaged in trust, fiduciary and custody activities, entities
with $6.5 million or less in annual receipts; and (iii) funds, trusts
and other financial vehicles with $6.5 million or less in annual
receipts.\295\
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    \292\ 17 CFR 240.0-10(d).
    \293\ 17 CFR 242.601.
    \294\ 17 CFR 240.0-10(e).
    \295\ 13 CFR 121.201, Sector 52.
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