the duties of an SBSEF and to comply with the Core Principles and other
requirements imposed on SBSEFs. Proposed Rule 803 is closely modelled
on analogous CFTC registration requirements for SEFs. The choice to
align the Commission's registration requirements for SBSEFs with the
CFTC's requirements for SEFs is designed to achieve the abovementioned
benefits while imposing only marginal costs on SBSEF registrants, who
likely are SEFs.
---------------------------------------------------------------------------

    \405\ See section 3D(a)(1) of the SEA, 15 U.S.C. 78c-4(a)(1).
---------------------------------------------------------------------------

    Proposed exemptions (proposed Rule 833, proposed Rule 816(e),
proposed amendments to Rule 3a1-1, and proposed Rule 15a-12). Proposed
Rule 833 is designed to preserve access to foreign markets by ``covered
persons'' (as defined in proposed Rule 832). As discussed in section
XIX(B)(6), an analysis of SBS transaction data indicates that certain
trades executed on foreign SBS trading venues involve at least one
counterparty that is a covered person. Absent the proposed rule, these
trading venues might elect to avoid having members that are covered
persons if those venues do not wish to register with the Commission in
some capacity (such as an exchange or SBSEF). In addition, covered
persons would not be permitted to execute SBS that are subject to the
trade execution requirement on these venues if the venues do not
register with the Commission in some capacity (such as an exchange or
SBSEF) or obtain an appropriate exemption. This would limit access to
foreign SBS trading venues by covered persons, potentially making it
harder for them to locate counterparties and obtain liquidity for SBS
that trade on those venues. This in turn could increase their trading
costs, because they might spend more time and effort to locate
counterparties or because they have less bargaining power relative to
the remaining pool of potential counterparties with which they could
trade. To the extent that a foreign SBS trading venue can obtain a Rule
833(a) exemption, it could continue to provide members that are covered
persons with access to and liquidity on its market. Furthermore, a Rule
833(b) exemption would allow covered persons to continue accessing
foreign SBS trading venues to execute SBS that are subject to the SEA's
trade execution requirement.
    Currently, all trading venues that trade SBS--whether domestic or
foreign--are exempt from having to register as a national securities
exchange or SBSEF on account of the SBS trading business. This
exemption expires when the Commission's rules for registering and
regulating SBSEFs come into force.\406\ Thus, removal of the existing
exemption would merely restore the status quo ante, where the SEA
itself, as amended by the Dodd-Frank Act, requires entities meeting the
definition of ``security-based swap execution facility'' or
``exchange'' and falling within the territorial jurisdiction of the SEA
to register with the Commission. By offering foreign SBS trading venues
the possibility of an exemption from the definitions of ``security-
based swap execution facility'' and ``exchange'' as well as from
section 3D(a)(1) of the SEA, proposed Rule 833(a) would allow foreign
SBS trading venues to operate in conditions similar to the current
baseline (if the Commission ultimately grants an exemption under Rule
833(a)).
---------------------------------------------------------------------------

    \406\ See supra section V, note 43.
---------------------------------------------------------------------------

    Currently, market participants that trade SBS that would be covered
by proposed Rule 816(e) \407\ do not trade these products on registered
exchanges or registered SBSEFs. Proposed Rule 816(e), by providing
exemptions from the trade execution requirement for these SBS, would
preserve the status quo for these SBS.
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    \407\ Proposed paragraphs (e)(1), (2), and (3) of Rule 816 would
exempt from the trade execution requirement, respectively: An SBS
transaction that is executed as a component of a package transaction
that also includes a component transaction that is the issuance of a
bond in a primary market; an SBS that qualifies for an exception
under section 3C(g) of the SEA or any exemption from the clearing
requirement that is granted by the Commission, for which the
associated requirements are met; and an SBS transaction that is
executed between counterparties that qualify as ``eligible affiliate
counterparties.''
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    Proposed paragraph (a)(4) of Rule 3a1-1 would provide that an
entity that has registered with the Commission as an SBSEF and provides
a market place for no securities other than SBS would not fall within
the definition of ``exchange'' and thus would not be subject to the
requirement in section 5 of the SEA to register as a national
securities exchange (or obtain a low-volume exemption). The Commission
preliminarily believes that the benefit of the proposed amendment would
be to clarify to prospective SBSEF applicants that, if they register
with the Commission as SBSEFs, they would not face duplicative
registration and regulatory requirements as exchanges. In addition,
proposed paragraph (a)(5) of Rule 3a1-1 would codify a series of
exemptions that the Commission has granted over several years to SBS
clearing agencies that operate ``forced trading'' sessions. Because the
proposed amendment is intended to codify existing exemptions, the
Commission preliminarily believes that any associated economic effects
would be minimal.
    Proposed new Rule 15a-12 is designed to minimize overlapping
compliance burdens for SBSEFs, which are also brokers under the SEA,
that restrict their activity to engaging in the business of operating
an SBSEF (and no other broker activities). Absent the proposed rule,
such SBSEFs (defined as ``SBSEF-Bs'' for purposes of Rule 15a-12) would
need to register as SBSEFs and be subject to the SBSEF regulatory
regime, in addition to registering as brokers and being subject to the
broker regulatory regime. Proposed Rule 15a-12 would allow an SBSEF-B
to satisfy the requirement to register as a broker by registering as an
SBSEF under proposed Rule 803, and would exempt an SBSEF-B from SIPA
and other broker requirements, except for sections 15(b)(4), 15(b)(6),
and 17(b) of the SEA. As a result of the proposed rule, SBSEF-Bs could
avoid incurring what the Commission preliminarily believes to be
duplicative and unnecessary compliance burdens. Each SBSEF-B could save
an estimated $324,849 in initial broker registration costs \408\ and

$59,063 in annual ongoing costs of meeting broker registration
requirements.\409\ In deriving these estimates, the Commission assumes
that the activities an SBSEF-B performs to register and maintain
registration as a broker do not overlap with those that it performs to
register and maintain registration as an SBSEF-B. If there is an
overlap in such activities, the estimated cost savings could be
smaller. Each SBSEF-B could save an estimated $823 in ongoing costs
associated with satisfying broker minimum capital requirements.\410\
The estimated aggregate initial and annual ongoing savings are
$1,624,245 and $299,430, respectively.\411\
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    \408\ The Commission previously estimated that an entity would
incur costs of $301,400 to register as a broker-dealer and become a
member of a national securities association. See Cross-Border
Amendments Adopting Release, 85 FR at 6312. Adjusted for inflation
through December 2021, these costs are $324,849.
    \409\ The Commission previously estimated that an entity would
incur ongoing annual costs of $54,800 to maintain broker-dealer
registration and membership of a national securities association.
See Cross-Border Amendments Adopting Release, 85 FR at 6312.
Adjusted for inflation through December 2021, these costs are
$59,063. The estimation of ongoing annual costs is based on the
assumption that the entity would use existing staff to perform the
functions of the registered broker-dealer and would not incur
incremental costs to hire new staff. To the extent that the entity
chooses to hire new staff, the ongoing annual costs would likely be
higher.
    \410\ The Commission preliminarily believes that, absent the
proposed rule, an SBSEF-B would comply with the minimum net capital
requirement of $5,000 for a registered broker-dealer because it
would not receive, owe, or hold customer funds or securities; carry
customer accounts; and engage in certain other activities. See Rule
15c3-1(a)(2)(vi) under the SEA, 17 CFR 240.15c3-1(a)(2)(vi). The
Commission preliminarily estimates the cost of capital using the
annual stock returns on a value-weighted portfolio of financial
stocks from 1986 to 2021 (see website of Professor Ken French,
available at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/ftp/48_Industry_Portfolios_CSV.zip (accessed on March 14, 2022).
These returns were averaged to arrive at an estimate of 16.45%. The
cost of capital = 16.45% x $5,000 = $823.
    \411\ The Commission preliminarily estimates the number of
SBSEF-Bs as the number of entities that likely will register as
SBSEFs. See supra section XIX(B)(5). Aggregate initial savings =
$324,849 x 5 (number of SBSEF-Bs) = $1,624,245. Aggregate annual
ongoing savings = ($59,063 + $823) x 5 (number of SBSEFs) =
$299,430.
---------------------------------------------------------------------------

    Rule and product filings. Proposed Rules 806 and 807 would set
forth alternative filing processes for a new rule or rule amendment of
a registered SBSEF, and proposed Rules 804 and 805 would set forth
alternative filing processes for an SBSEF to file an SBS product that
it wishes to list. Proposed Rule 810 would address new product filings
by an entity that has applied for SBSEF registration but has not yet
been registered, or by a dormant SBSEF seeking reinstatement of its
registration. The self-certification processes of Rules 804 and 807
would require SBSEFs to include a certification that the product, rule,
or rule amendment, as the case may be, complies with the SEA and
Commission rules thereunder.\412\ The information to be provided by the
SBSEF under proposed Rules 804, 805, and 810 would further the ability
of the Commission to obtain information regarding SBS that an SBSEF
intends to list on its market. The proposed rules would assist the
Commission in overseeing and regulating the trading of SBS and to help
ensure that SBSEFs operate in compliance with the SEA.
---------------------------------------------------------------------------

    \412\ See proposed Rules 804(a)(3)(iv) and 807(a)(6)(iv) .
---------------------------------------------------------------------------

    In addition, proposed Rule 806(a)(5), which would require an SBSEF
to explain the anticipated benefits and potential anticompetitive
effects on market participants of a proposed new rule or rule amendment
potentially could help foster a competitive SBS market because it could
prompt SBSEFs to consider the positive as well as negative aspects of
their proposed rules or rule amendments. Proposed Rule 808 is designed
to facilitate the public's ability to obtain information from SBSEF
applications as well as rule and product filings. Proposed Rule 808(a)
would specify the parts of an SBSEF application that shall be made
publicly available unless confidential treatment is obtained pursuant
to SEA Rule 24b-2. Proposed Rule 808(b) would provide that an SBSEF's
rule and product filings shall be made publicly available unless
confidential treatment is obtained pursuant to SEA Rule 24b-2. Proposed
Rule 808(c) would provide that the terms and conditions of a product
submitted to the Commission pursuant to any of proposed Rules 804
through 807 shall be made publicly available at the time of submission
unless confidential treatment is obtained pursuant to SEA Rule 24b-2.
    Proposed Rule 809 would provide a mechanism for the staying or
tolling of a filing by an SBSEF relating to a product while the
appropriate jurisdictional classification of that product is
determined. The proposed rule is designed to provide regulatory
certainty for SBSEFs and market participants who may be interested in
trading products whose classification as an SBS subject to SEC
jurisdiction or a swap subject to CFTC jurisdiction is unclear. In
particular, proposed Rule 809 would help ensure that determinations
regarding whether the SEC or CFTC appropriately has jurisdiction over a
product are made before the product is traded.
    The Commission's election to model proposed Rules 804 through 810
closely on analogous rules in part 40 of the CFTC's rules that apply to
SEFs (and other registered entities) is designed to promote efficiency.
Utilizing the same processes for rule and product filings, with which
dually registered SEF/SBSEFs are familiar, would impose only minimal
burdens on such entities while obtaining the similar regulatory
benefits as the CFTC rules. In some cases, where a new rule or rule
amendment affects both the swap and SBS business of a dually registered
entity, the same or a very similar filing could be made to each of the
CFTC and SEC, in lieu of having to make different filings to support
the same rule change.
    Chief Compliance Officer. Proposed Rule 831 would, among other
things, require the CCO of an SBSEF to submit an annual compliance
report and annual financial report to the Commission. These reports
would assist the Commission in carrying out its oversight of the SBSEFs
and the SBS market by providing the Commission with information about
the compliance activities and financial state of SBSEFs. Furthermore,
by requiring an SBSEF to designate an individual as the CCO and making
the CCO responsible for ensuring compliance with the SEA and the
Commission's rules thereunder, proposed Rule 831 would promote
regulatory compliance on SBSEFs and the SBS market generally. This in
turn would further the goal of moving SBS trading away from opaque and
unregulated OTC markets and onto transparent and regulated markets by
promoting effective regulation of the latter.
    Conflicts of Interest. Proposed Rule 831 would, among other things,
require the CCO to resolve material conflicts of interest that may
arise in consultation with the governing board or the senior officers
of the SBSEF.\413\ Proposed Rule 828(a) would require an SBSEF to
establish and enforce rules to minimize conflicts of interest in its
decision-making process and establish a process for resolving the
conflicts of interest. Proposed Rule 828(b) would require an SBSEF to
comply with the requirements of proposed Rule 834 which is designed to
implement section 765 of the Dodd-Frank Act with respect to SBSEFs and
SBS exchanges. Proposed Rule 834 would, among other things, impose a
20% cap on the voting interest held by an individual member of an SBSEF
or SBS exchange, mitigate conflicts of interest in the disciplinary
process of an SBSEF or SBS exchange, set forth certain minimum
requirements for the composition of the governing board of an SBSEF or
SBS exchange, set forth

reporting requirements related to governing board elections, and
address the avoidance of conflicts of interest in the execution of
regulatory functions by an SBSEF or SBS exchange.\414\
---------------------------------------------------------------------------

    \413\ See proposed Rules 831(a)(2)(iii) and (h)(2).
    \414\ See proposed Rules 834(b) to (g).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed rules would
mitigate conflicts of interest between an SBSEF or SBS exchange and its
members as discussed in section X. Relative to the bilateral OTC SBS
market, SBSEFs and SBS exchanges promote competition between liquidity
providers, potentially forcing them to lower their prices for supplying
liquidity (e.g., narrowing bid-ask spread) and reducing their profits
from liquidity provision. However, if SBS dealers or major SBS
participants were able to restrict access to such venues by, for
example, exercising their voting interest in an SBSEF or SBS exchange,
they could stifle competition in SBSEFs and SBS exchanges and preserve
their profits from liquidity provision. The proposal, by mitigating
such conflicts of interest \415\ could help ensure access to SBSEFs and
SBS exchanges and in turn increase competition in liquidity provision
and lower transaction costs. The Commission preliminarily believes that
proposed Rules 834(e), (f), and (g) also may promote good governance at
SBSEFs and SBS exchanges. To the extent that improved governance result
in more effective oversight by SBSEFs and SBS exchanges of their
markets, market participants may benefit. These benefits could be
limited to the extent that prospective SBSEFs and SBS exchanges already
have rules in place that comply with the proposed rules.
---------------------------------------------------------------------------

    \415\ See, e.g., proposed Rule 834(b) (proposing a 20% cap on
the voting interest held by an individual member of an SBSEF or SBS
exchange).
---------------------------------------------------------------------------

    Structured Data Requirement. Proposed Rule 825(c)(3) would require
an SBSEF to publish a Daily Market Data Report on its website without
charge or usage restrictions and in a downloadable and machine-readable
format using the most recent version of the associated XML schema and
PDF renderer as published on the Commission's website.\416\ The
Commission preliminarily believes that requiring the Daily Market Data
Report to be provided in a structured, machine-readable format (using a
Commission-created XML schema) would facilitate the use of the price,
trading volume, and other trading data on the report by end users such
as SBS market participants and market observers. By including a
structured data requirement, the information in the report would be
made available in a consistent and openly accessible manner that would
allow for automatic processing by software applications, thus enabling
search capabilities and statistical and comparative analyses across
SBSEFs and date ranges.\417\ Absent a structured data requirement, any
SBS market participants and market observers seeking to use the data
would have to spend time manually collecting and entering the data into
a format that allows for analysis, thus increasing the time needed to
analyze the data and potentially leading to data errors. Alternatively,
data users could choose to subscribe to a service provider specializing
in such a data aggregation and comparison process. Under that scenario,
data users would be unable to access the posted data on as timely a
basis as they would if the disclosures were machine-readable upon
posting, and users would also incur monetary costs in paying for the
aggregated data.
---------------------------------------------------------------------------

    \416\ See supra note 392 and accompanying text.
    \417\ In addition, the associated PDF renderer would provide
users with a human-readable document for those who prefer to review
manually individual reports, while still providing a uniform
presentation.
---------------------------------------------------------------------------

    Proposed Regulation SE would require SBSEFs to file documents
required under various provisions in the EDGAR system using Inline
XBRL, a structured (machine-readable) data language.\418\ Requiring a
centralized filing location and a machine-readable data language for
the filings would facilitate access, retrieval, analysis, and
comparison of the disclosed information across different SBSEFs and
time periods by the Commission and the public, thus potentially
augmenting the informational benefits of the various disclosure
requirements discussed herein. Also, because EDGAR provides basic
technical validation capabilities, the use of EDGAR could reduce the
incidence of technical errors (e.g., letters instead of numbers in a
field requiring only numbers) and thereby improve the quality of the
disclosures.
---------------------------------------------------------------------------

    \418\ This includes the documents required under: proposed Rule
803(b)(1)(i) and (3) (filings of, and amendments to, a Form SBSEF
application); proposed Rules 803(e) and 803(f) (requests to withdraw
or vacate an application for registration); proposed Rule 804(a)(1)
(filings for listing products for trading by certification);
proposed Rule 805(a)(1) (filings for voluntary submission of new
products for Commission review and approval); proposed Rule
806(a)(1) (filings for voluntary submission of rules for Commission
review and approval); proposed Rule 807(a)(1) (filings for self-
certification of rules); proposed Rule 807(d) (filings of weekly
notifications to the Commission of rules and rule amendments that
were not required to be certified); proposed Rule 829(g)(6)
(submission to the Commission of reports related to financial
resources and related documentation); proposed Rule 831(j)(2)
(submission to the Commission of the annual compliance report of
SBSEF's CCO). See supra section XV.
---------------------------------------------------------------------------

    Unlike the XML schema that would be used for Daily Market Data
Reports, Inline XBRL would provide the ability to tag detailed facts
within narrative text blocks, and is thus likely more well-suited to
accommodate the other filings required under proposed Regulation SE,
many of which require narrative discussions (e.g., the explanation and
analysis of the product and its compliance with applicable provisions
of the SEA for a product filing required under Rule 804).\419\ In
addition, certain proposed SBSEF disclosures consist of financial
information (e.g., the financial statements of the SBSEF required under
Exhibit I to Form SBSEF), and Inline XBRL is designed specifically for
the accurate capture and communication of financial information, among
other uses.\420\
---------------------------------------------------------------------------

    \419\ See proposed Rule 804(c)(3)(v).
    \420\ For example, because Inline XBRL enables the block tagging
of textual narrative disclosures and the individual tagging of
numeric disclosures nested within those textual narrative
disclosures, it facilitates the comprehensive capture and
communication of information contained in notes to financial
statements.
---------------------------------------------------------------------------

3. Costs
    Although the Commission preliminarily believes that proposed
Regulation SE would benefit the SBS market, the Commission recognizes
that the proposed Regulation SE also would entail certain costs. Some
costs are difficult to precisely quantify and are discussed below. The
Commission is mindful that any rules it may adopt with respect to
SBSEFs under the Dodd-Frank Act may impact the incentives of market
participants with respect to where and how they trade SBS. If the rules
proposed by the Commission are, or are perceived to be, too costly for
trading venues to comply with, fewer entities than expected may seek to
register as SBSEFs, which would not further the goal of moving a
greater percentage of SBS trading from opaque and unregulated OTC
markets to transparent and regulated trading venues. In addition, if
the proposed rules for trading on an SBSEF are perceived as too
burdensome by market participants, SBS trading may continue in the OTC
market absent a mandatory clearing determination and a triggering of
the mandatory trade execution requirement, thus frustrating the goals
of the Dodd-Frank Act.\421\ At the same time, if the proposed rules
relating to

SBSEFs are too lenient, they may have little or no impact on the market
structure and surveillance of the SBS market relative to the status
quo, which could result in the loss of many of the benefits discussed
above and fail to achieve the goals of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \421\ See section XIX(C) (noting that the benefits and costs
associated with the trade execution requirement would not
materialize unless and until the Commission makes mandatory clearing
determinations).
---------------------------------------------------------------------------

    In addition, SBS traded on SBSEFs may be perceived to be subject to
increased costs, monetary and otherwise. For example, the proposed
requirements related to pre-trade transparency could cause market
participants to reveal valuable economic information regarding their
trading interest more broadly than they may believe would be
economically prudent and could discourage participation in the SBS
market. An additional impact of pre-trade transparency are perceived
costs associated with front running, if customers or SBS dealers are
required to show their trading interest before a trade is executed.
These potential costs of pre-trade transparency may change market
participants' trading strategies, which could result in them working
more orders or finding ways to attempt to hide their interest.\422\ If
market participants view the Commission's proposal as too burdensome
with respect to pre-trade transparency, SBS dealers may be less willing
to supply liquidity for SBS that trade on SBSEFs or exchanges, thus
adversely affecting liquidity and competition. However, such effects
could be mitigated by MAT determinations that would require SBS trading
to occur on SBSEFs or exchanges. On the other hand, if the proposed
requirements with respect to pre-trade transparency are too loose, the
result could be that there would be no substantive change from the
status quo, including no benefits of alleviating informational
asymmetries, increasing price competition, and supplying better
executions beyond the changes in response to the other requirements of
the Dodd-Frank Act. This actual impact would depend on the degree of
pre-trade transparency required and the characteristics of the trading
market. The proposed rules are intended to provide for greater pre-
trade transparency than currently exists without requiring pre-trade
transparency in a manner that would cause participants to avoid
providing liquidity on SBSEFs.
---------------------------------------------------------------------------

    \422\ See, e.g., Ananth Madhavan, Market Microstructure: A
Survey, J. of Fin. Markets, Vol. 3 (2000).
---------------------------------------------------------------------------

    The Commission preliminarily believes that there would be
transaction costs, such as fees and connectivity costs, that trading
counterparties would incur in executing or trading SBS subject to the
trade execution requirement on SBSEFs. Likewise, although unregulated
trading venues exist in today's OTC derivatives market, the Commission
does not have information regarding what, if any, fees and connectivity
costs are associated with transacting on these unregulated trading
venues. The Commission invites commenters to provide feedback on the
likely fees and costs associated with transacting on SBSEFs as well as
fees and costs associated with transacting on unregulated trading
venues that exist in today's OTC derivatives market.
    As discussed in section XIX(B), the Commission preliminarily
believes that prospective SBSEF registrants are likely to be CFTC-
registered SEFs that are active in the index CDS market. Because the
proposed rules are harmonized as closely as practicable with analogous
CFTC rules for SEFs, unless a reason exists to do otherwise in a
particular area, the Commission preliminarily believes that much of the
systems, policies, and procedures that are used to support SEF trading
also could be used to support SBSEF trading. The prospective SBSEF
registrants likely would incur marginal costs associated with listing
SBS products on their venues \423\ and making limited changes to their
systems, policies, and procedures to comply with proposed SEC rules
that differ slightly from analogous CFTC rules. The Commission
preliminarily estimates the one-time costs associated with such changes
to systems, policies, and procedures would range between $25,000 and
$1.5 million per SBSEF, depending on the changes needed. The annual
ongoing costs of maintaining the technology (e.g., ensuring any
necessary technological updates and improvements are made) and applying
the technology to ongoing compliance requirements are estimated to be
in the range of $1 million to $2 million.\424\ The Commission invites
commenters to provide feedback on the costs that SEFs may incur should
they register as SBSEFs.
---------------------------------------------------------------------------

    \423\ See infra section XIX(C)(3)(c) (discussing the costs that
these entities might incur to list SBS products).
    \424\ In the 2011 SBSEF Proposal, the Commission estimated that
an entity owning or operating a platform for the trading of OTC
derivatives would incur costs of between $50,000 and $3 million to
enhance its platform to be compatible with proposed requirements in
that release. Further, such an entity would incur annual ongoing
costs of between $2 million and $4 million to maintain such
enhancements. See 2011 SBSEF Proposal, 76 FR at 11041. The
Commission is revising these estimates downward by 50%, taking into
account any potential inflationary effects, because harmonizing
proposed Regulation SE closely with CFTC rules likely would reduce
the one-time and annual ongoing costs incurred by SEFs to change
their systems, policies, and procedures to comply with proposed
Regulation SE, if they choose to register as SBSEFs. Therefore, the
Commission preliminarily estimates that the one-time costs
associated with changes to systems, policies, and procedures would
range between $50,000/2 = $25,000 and $3 million/2 = $1.5 million
per SBSEF, depending on the changes needed. The annual ongoing costs
are preliminarily estimated to be between $2 million/2 = $1 million
and $4 million/2 = $2 million.
---------------------------------------------------------------------------

    We detail below cost estimates for specifics parts of the proposed
rules. Many of these costs estimates are based on the PRA estimates of
costs and burdens from section XX.\425\
---------------------------------------------------------------------------

    \425\ In section XX infra, for purposes of the PRA, the
Commission preliminarily estimates burdens applicable to a stand-
alone SBSEF. However, most if not all SBSEFs will be dually
registered with the CFTC as SEFs and thus will already be complying
with relevant CFTC rules that have analogs to rules proposed in
Regulation SE. Therefore, the Commission's burden estimates are
greater for stand-alone SBSEFs than may exist in practice,
considering the effect of overlapping CFTC rules.
---------------------------------------------------------------------------

a. Registration Requirements for SBSEFs and Form SBSEF
    The Commission preliminarily believes that the proposed
registration provisions would impose costs on entities that seek
registration as SBSEFs. The Commission preliminarily estimates that
initial filings on Form SBSEF by prospective SBSEFs seeking to register
with the Commission pursuant to proposed Rule 803 would result in
aggregate initial costs of $94,400 for prospective SBSEFs.\426\
---------------------------------------------------------------------------

    \426\ $94,400 = 1,475 burden hours x $64/hour blended hourly
rate. The $64/hour blended hourly rate is the $59/hour blended
hourly rate computed by the CFTC and adjusted for CPI inflation
through December 2021. The CFTC used the blended hourly wage to
estimate PRA costs associated with part 37. See infra section
XX(D)(2)(a); OMB, Supporting Statement for New and Revised
Information Collections: Core Principles and Other Requirements for
Swap Execution Facilities, OMB Control Number 3038-0074, Attachment
A (July 7, 2021), available at https://omb.report/icr/202107-3038-004/doc/113431800.pdf. CPI inflation adjustment is based on data
published by the Bureau of Labor Statistics. See CPI Inflation
Calculator, U.S. Bureau of Labor Statistics, available at https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------

b. Ongoing Compliance With Other Requirements That Are Similar to the
Remainder of Part 37
    As discussed in section XX(D)(2)(b), the Commission preliminarily
estimates the aggregate annual paperwork burden for SBSEFs to comply
with all of the proposed SBSEF rules that have analogs in part 37 to be
1935 hours.\427\ These burdens are estimated to impose

aggregate ongoing annual costs of $123,840 on SBSEFs.\428\
---------------------------------------------------------------------------

    \427\ See infra section XX(D)(2)(b). This estimate excludes the
paperwork burdens associated with registration requirements for
SBSEFs and Form SBSEF and provisions of certain proposed rules to be
discussed subsequently.
    \428\ $123,840 = 1,935 burden hours x $64/hour blended hourly
rate. See supra note 426 (derivation of the $64/hour blended hourly
rate).
---------------------------------------------------------------------------

c. Rule and Product Filing Processes for SBSEFs
    The Commission preliminarily estimates that the aggregate ongoing
annual costs incurred by all SBSEFs to prepare and submit rule and
product filings under proposed Rules 804, 805, 806, and 807 (including
the cover sheet) would be $31,200.\429\
---------------------------------------------------------------------------

    \429\ $31,200 = 300 hours x $104/hour blended hourly rate. The
$104/hour blended hourly rate is the $96.26/hour blended hourly rate
computed by the CFTC and adjusted for CPI inflation through December
2021. The CFTC used the blended hourly rate to estimate PRA costs
associated with part 40. See section XX(D)(3)(a); OMB, Supporting
Statement for Information Collection Renewal: OMB Control Number
3038-0093, Attachment A (July 10, 2020), available at https://omb.report/icr/202005-3038-001/doc/101274002.pdf. CPI inflation
adjustment is based on data published by the Bureau of Labor
Statistics. See U.S. Bureau of Labor Statistics, supra note 426. The
platform ID requirement on the submission cover sheet would not
impose burdens for obtaining a platform ID, because an SBSEF
(whether registered or exempt) is already required under Rule 903(a)
of Regulation SBSR to obtain an LEI to identify itself as its
platform ID. See supra note 84.
---------------------------------------------------------------------------

d. Proposed Rules 809, 811, 819, 826, 829, 833, 834, and 835
    The Commission preliminarily estimates the aggregate ongoing annual
costs incurred by SBSEFs to comply with proposed Rule 809 would be
$108.\430\
---------------------------------------------------------------------------

    \430\ $108 = 1.25 hours x $86/hour hourly rate for a compliance
officer. The $86/hour hourly rate for a compliance officer is the
$70/hour hourly rate for a compliance officer computed by the CFTC
and adjusted for CPI inflation through December 2021. The CFTC used
the hourly rate to estimate PRA costs associated with Sec.  40.12
after which proposed Rule 809 is modelled. See infra section
XX(D)(3)(b)(ii); Revised Supporting Statement for New Information
Collections: part 40, Provisions Common to Registered Entities, OMB
Control Number 3038-AD07, Attachment A (October 14, 2011), available
at: https://omb.report/icr/201203-3038-005/doc/31042501. CPI
inflation adjustment is based on data published by the Bureau of
Labor Statistics. See U.S. Bureau of Labor Statistics, supra note
426.
---------------------------------------------------------------------------

    The Commission preliminarily estimates the aggregate ongoing annual
costs incurred by SBSEFs to comply with requests for documents or
information pursuant to proposed Rule 811(d) would be $88.\431\
---------------------------------------------------------------------------

    \431\ $88 = 1 hour x $88/hour hourly rate for an attorney. The
$88/hour hourly rate is the $80/hour hourly rate computed by the
CFTC and adjusted for CPI inflation through December 2021. The CFTC
used the hourly rate to estimate PRA costs associated with Part 1.6.
See infra section XX(D)(4)(a); OMB, Supporting Statement for New and
Revised Information Collections: OMB Control Number 3038-0033
(August 23, 2018), available at https://omb.report/icr/201808-3038-004/doc/85625801.pdf. CPI inflation adjustment is based on data
published by the Bureau of Labor Statistics. See U.S. Bureau of
Labor Statistics, supra note 426.
---------------------------------------------------------------------------

    The Commission preliminarily estimates the aggregate ongoing annual
costs incurred by SBSEFs to comply with proposed Rule 819(i) would be
$25,546.\432\
---------------------------------------------------------------------------

    \432\ $25,546 = 399.15 hours x $64/hour blended hourly rate. The
Commission preliminarily believes that the burdens associated with
this proposed rule are not different from burdens associated with
proposed rules that have part 37 analogs. Thus, the Commission
preliminarily believes that it would be appropriate to apply the
$64/hour blended hourly rate to estimate the paperwork related costs
associated with this proposed rule. See infra section XX(D)(4)(c).
See also supra note 426 (derivation of the $64/hour blended hourly
rate).
---------------------------------------------------------------------------

    The Commission preliminarily estimates the aggregate ongoing annual
costs incurred by SBSEFs to comply with proposed Rule 819(j) would be
$1,135.\433\
---------------------------------------------------------------------------

    \433\ $1,135 = 2.5 hours x $454/hour national hourly rate for an
attorney. See infra section XX(D)(4)(d). The per-hour figure for an
attorney is from SIFMA's Management and Professional Earnings in the
Securities Industry--2013, as modified by Commission staff to adjust
for inflation (through December 2021) and to account for an 1,800-
hour work-year, and multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead.
---------------------------------------------------------------------------

    The Commission preliminarily estimates the aggregate ongoing annual
costs incurred by SBSEFs to update information required by proposed
Rule 826(f) would be $152.\434\ The Commission preliminarily estimates
that interested parties would incur aggregate one-time costs of
$108,960 in the first year and $72,640 in each subsequent year to
submit exemption requests under one or both paragraphs of proposed Rule
833.\435\
---------------------------------------------------------------------------

    \434\ $152 = 2 hours x $76/hour national hourly rate for a
compliance clerk. See infra section XX(D)(4)(f). The per-hour figure
for a compliance clerk is from SIFMA's Office Salaries in the
Securities Industry--2013, as modified by Commission staff to adjust
for inflation (through December 2021) and to account for an 1,800-
hour work-year, and multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead.
    \435\ First year costs: $108,960 = 240 hours x $454/hour
national hourly rate for an attorney. Costs in each subsequent year:
$72,640 = 160 hours x $454/hour national hourly rate for an
attorney. See infra section XX(D)(5)(a). See also supra note 433
(derivation of the national hourly rate for an attorney).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that SBSEFs and SBS
exchanges would incur aggregate one-time costs of $47,880 associated
with drafting and implementing rules to comply with proposed Rules
834(b) and (c).\436\
---------------------------------------------------------------------------

    \436\ $47,880 = 120 hours x $399/hour national hourly rate for a
compliance attorney. The estimate of 120 burden hours is based on
the Commission's preliminary estimate that five SBSEFs and three SBS
exchanges will incur paperwork burdens associated with proposed
Rules 834(b) and (c). See infra section XX(D)(4)(g). The per-hour
figure for a compliance attorney is from SIFMA's Management and
Professional Earnings in the Securities Industry--2013, as modified
by Commission staff to adjust for inflation (through December 2021)
and to account for an 1,800-hour work-year, and multiplied by 5.35
to account for bonuses, firm size, employee benefits, and overhead.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that SBSEFs and SBS
exchanges would incur aggregate ongoing annual costs of $640 to comply
with proposed Rules 834(d), 834(e), and 834(f).\437\
---------------------------------------------------------------------------

    \437\ $640 = 10 hours x $64/hour blended hourly rate. Further,
the costs incurred by SBSEFs = 5 (number of SBSEFs) x 1.25 hours per
SBSEF x $64/hour blended hourly rate = $400. The Commission
preliminarily believes that the burdens associated with this
proposed rule are not different from burdens associated with
proposed rules that have part 37 analogs. Thus, the Commission
preliminarily believes that it would be appropriate to apply the
$64/hour blended hourly rate to estimate the paperwork related costs
associated with this proposed rule. See infra section XX(D)(4)(g).
See also supra note 426 (derivation of the $64/hour blended hourly
rate).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that SBSEFs and SBS
exchanges would incur aggregate one-time costs of $1,024 to comply with
proposed Rule 834(g).\438\
---------------------------------------------------------------------------

    \438\ $1,024 = 16 hours x $64/hour blended hourly rate. The
Commission preliminarily believes that the burdens associated with
this proposed rule are not different from burdens associated with
proposed rules that have part 37 analogs. Thus, the Commission
preliminarily believes that it would be appropriate to apply the
$64/hour blended hourly rate to estimate the paperwork related costs
associated with this proposed rule. See infra section XX(D)(4)(g).
See also supra note 426 (derivation of the $64/hour blended hourly
rate).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that SBSEFs would incur
aggregate ongoing annual costs of $20,430 to comply with proposed Rule
835.\439\
---------------------------------------------------------------------------

    \439\ $20,430 = 45 hours x $454/hour national hourly rate for an
attorney. See infra section XX(D)(5)(b). See also supra note 433
(derivation of the national hourly rate for an attorney).
---------------------------------------------------------------------------

    The Commission preliminarily believes that SBSEFs likely would
incur costs to comply with the financial resources requirement of
proposed Rule 829(b). Assuming that SBSEFs satisfy this requirement by
holding financial resources in the form of their own capital pursuant
to proposed Rule 829(c)(1), the Commission preliminarily estimates that
SBSEFs would incur an aggregate annual cost of capital of $33,377.\440\
SBSEFs could lower this

cost if their capital consists of financial assets that generate a
return that would serve to offset the cost of capital. However, this
cost mitigation is potentially limited by proposed Rule 829(d), which
would require an SBSEF to include among the financial resources it
holds, a certain amount of unencumbered, liquid financial assets (i.e.,
cash and/or highly liquid securities),\441\ that tend to generate
little or no return.
---------------------------------------------------------------------------

    \440\ The Commission preliminarily estimates the financial
resources that SBSEFs would need to hold pursuant to proposed Rule
829(b) as their projected operating costs. See proposed Rule 829(b).
Further, the Commission preliminarily estimates SBSEFs' projected
operating costs as the sum of the aggregate ongoing annual costs
incurred by SBSEFs to comply with proposed Regulation SE. Thus,
SBSEFs' estimated projected operating costs = $123,840 (ongoing
compliance with other proposed requirements that are similar to the
remainder of part 37) + $31,200 (rule and product filing processes
by SBSEFs) + $108 (proposed Rule 809) + $88 (proposed Rule 811(d)) +
$25,546 (proposed Rule 819(i)) + $1,135 (proposed Rule 819(j)) +
$152 (proposed Rule 826(f)) + $400 (proposed Rules 834(d), (e), and
(f)) + $20,430 (proposed Rule 835) = $202,898. Thus, the Commission
preliminarily estimates that SBSEFs would hold $203,221 in the form
of their own capital to comply with proposed Rule 829(b). The
Commission preliminarily estimates SBSEFs' cost of capital using the
annual stock returns on a value-weighted portfolio of financial
stocks from 1986 to 2021. See website of Professor Ken French,
available at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/ftp/48_Industry_Portfolios_CSV.zip (accessed on March 14, 2022).
These returns were averaged to arrive at an estimate of 16.45%.
SBSEFs' aggregate annual cost of capital = $202,898 x 16.45% =
$33,377. The Commission acknowledges that there is uncertainty
associated with this estimate. The estimate does not account for the
fact that SBSEFs may use reasonable discretion in determining the
methodologies used to calculate projected operating costs and wind
down costs, pursuant to proposed Rule 829(e). Depending on how
SBSEFs exercise this reasonable discretion, the resulting
methodologies could yield projected operating costs and in turn,
required financial resources, that may be higher or lower than the
Commission's estimate.
    \441\ The CFTC's experience overseeing SEFs would appear to
support the preliminarily belief that SBSEFs would hold
unencumbered, liquid financial assets rather than obtain a line of
credit to comply with proposed Rule 829(d). In a previous
rulemaking, the CFTC noted that most SEFs satisfy the liquidity
requirement of Sec.  37.1303 (the analog of proposed Rule 829(d))
through maintaining liquid assets rather than obtaining a line of
credit. See CFTC, Swap Execution Facilities, 86 FR 9224, 9242, n.
247 (February 11, 2021) (``2021 SEF Amendments Adopting Release'').
---------------------------------------------------------------------------

e. Assessment Costs
    The Commission preliminarily believes that 87 entities likely would
incur assessment costs as a result of proposed Rule 832, based on an
analysis of counterparties to U.S. single-name CDS. Such costs would be
related primarily to the identification of the counterparty status and
origination location of the transaction to determine whether the trade
execution requirement would apply. The Commission preliminarily
believes that market participants would request representations from
their transaction counterparties to determine the U.S.-person status of
their counterparties. In addition, if the transaction is guaranteed by
a U.S. person, the guarantee would be part of the trading documentation
and, therefore, the existence of the guarantee would be a readily
ascertainable fact. Similarly, market participants would be able to
rely on their counterparties' representations as to whether a
transaction is arranged, negotiated or executed by a person within the
United States. Therefore, the Commission preliminarily believes that
the assessment costs associated with proposed Rule 832 should be
limited to the costs of establishing a compliance policy and procedure
of requesting and collecting representations from trading
counterparties and maintaining the collected representations as part of
the market participants' recordkeeping procedures. The Commission
preliminarily believes that such assessment costs would be
approximately $18,160 per entity.\442\ The Commission preliminarily
believes that requesting and collecting representations would be part
of the standardized transaction process reflected in the policies and
procedures regarding SBS transactions and trading practices and should
not result in separate assessment costs.
---------------------------------------------------------------------------

    \442\ $18,160 = 40 hours x $454/hour national hourly rate for an
attorney. This estimate is based on an estimated 40 hours of in-
house legal or compliance staff's time to establish a procedure of
requesting and collecting representations from trading
counterparties, taking into account that such representations may be
built into a form of standardized trading documentation. See supra
note 433 (derivation of the national hourly rate for an attorney).
---------------------------------------------------------------------------

    The Commission also considers the likelihood that market
participants could implement systems to keep track of counterparty
status for purposes of future trading of SBS that are similar to, if
not the same as, the systems implemented by market participants for
purposes of assessing SBS dealer or major SBS participant status.
Implementation of such a system would involve one-time programming
costs of $14,802 per entity.\443\ Therefore, the Commission estimates
the total one-time costs per entity associated with proposed Rule 832
could be $32,962 and the aggregate one-time costs could be
$2,867,694.\444\ To the extent that market participants have incurred
costs relating to similar or the same assessments with respect to
counterparty status and transaction location for other Title VII
requirements, their assessment costs with respect to proposed Rule 832
may be less.
---------------------------------------------------------------------------

    \443\ This is based on an estimate of the time required for a
programmer analyst to modify the software to track the covered
person status of a counterparty, including consultation with
internal personnel, and an estimate of the time such personnel would
require to ensure that these modifications conformed to the
definition of ``covered person'' (as defined in proposed Rule 832).
$14,802 = (2 hours x $399/hour national hourly rate for a compliance
attorney) + (4 hours x $338/hour national hourly rate for a
compliance manager) + (40 hours x $263/hour national hourly rate for
a programmer analyst) + (4 hours x $250/hour national hourly rate
for a senior internal auditor) + (2 hours x $566/hour rate for a
Chief Financial Officer). The per-hour figures for compliance
attorney, compliance manager, programmer analyst, and senior
internal auditor are from SIFMA's Management & Professional Earnings
in the Securities Industry--2013, as modified by Commission staff to
adjust for inflation (through December 2021) and to account for an
1,800-hour work-year, and multiplied by 5.35 to account for bonuses,
firm size, employee benefits, and overhead. The hourly rate for a
Chief Financial Officer is the $473 hourly rate for the same
position used in the Cross-Border Proposing Release (see 78 FR at
31140, n. 1425) and adjusted for inflation through December 2021.
    \444\ Total one-time costs per entity = $18,160 (compliance
policy and procedure) + $14,802 (systems) = $32,962. Aggregate one-
time costs = 87 entities x $32,962 = $2,867,694.
---------------------------------------------------------------------------

f. Structured Data Costs
    The Commission preliminarily believes that SBSEFs would likely
incur limited costs to comply with the proposed requirement in Rule
825(c)(3) to publish Daily Market Data Reports using the most recent
versions of the associated XML schema and PDF renderer as published on
the Commission's website. Because SBSEFs are required to use a
structured format to fulfill their reporting requirements under
Regulation SBSR, the compliance cost associated with the Rule 825(c)(3)
requirement would be limited to the cost prospective SBSEF registrants
would incur to update their systems to incorporate the Commission's XML
schema for Daily Market Data Reports.\445\ Such costs are included
among the costs for prospective SBSEF registrants in making limited
changes to their systems, policies, and procedures to comply with
proposed SEC rules that differ slightly from analogous CFTC rules, as
discussed in further detail above.\446\
---------------------------------------------------------------------------

    \445\ See 17 CFR 242.907(a)(2) (requiring information to be
submitted to SDRs in an ``open-source structured data format that is
widely used by participants'').
    \446\ See infra note 424 and accompanying text.
---------------------------------------------------------------------------

    With respect to the proposed Inline XBRL requirement for other
documents required under proposed Regulation SE, the Commission
preliminarily believes that SBSEFs would incur initial Inline XBRL
implementation costs (such as the cost of training in-house staff to
prepare filings in Inline XBRL, and the cost to license Inline XBRL
filing preparation software from vendors) and ongoing Inline XBRL
compliance burdens that would result from the proposed tagging
requirement, because prospective SBSEF registrants are not currently
subject to Inline XBRL requirements. Similarly, because prospective
SBSEF registrants are not currently subject to EDGAR requirements, the
Commission preliminarily believes they will incur a one-time compliance
burden of submitting a Form ID as required by

Rule 10(b) of Regulation S-T.\447\ The aforementioned costs are
included among the costs for prospective SBSEF registrants in making
limited changes to their systems, policies, and procedures to comply
with proposed SEC rules that differ slightly from analogous CFTC rules,
as discussed in further detail above.\448\
---------------------------------------------------------------------------

    \447\ See 17 CFR 232.10(b).
    \448\ See infra note 424 and accompanying text.
---------------------------------------------------------------------------

4. Reasonable Alternatives
    The Commission considered a number of alternatives when formulating
the proposed rules and amendments.
    In developing proposed Regulation SE, the Commission considered the
alternative of not harmonizing its rules with analogous CFTC rules. As
discussed in sections II and XIX(B), the entities that are most likely
to register with the Commission as SBSEFs are those already registered
with the CFTC as SEFs. These entities have made substantial investments
in systems, policies, and procedures to comply with and adapt to the
regulatory system developed by the CFTC. Under the proposed approach of
harmonizing with CFTC rules to the extent possible, dually registered
entities could utilize their existing systems, policies, and procedures
to comply with the Commission's SBSEF rules, and SEF market
participants would face no or only incremental changes to trade SBS as
well as swaps on those facilities, and to comply with the Commission's
rules regarding SBS trading. Under the alternative approach whereby the
Commission establishes different or additive requirements, dually
registered entities and their market participants might need to incur
costs and burdens to modify their systems, policies, and procedures to
comply with the SEC-specific rules. Further, proposed requirements that
are significantly different from the rules that apply to the swap
market could cause SEFs to question whether it is economically viable
to enter the SBS market and to register with the Commission as SBSEFs.
The Commission preliminary believes that the proposed approach would
deliver to the SBS market the regulatory benefits generated by the CFTC
regulatory framework and help promote the trading of SBS on regulated
platforms, while imposing only limited costs on SBSEFs. The Commission
preliminarily believes that this trade-off is preferable to the trade-
off associated with the alternative approach.
    In formulating the proposed definition of ``block trade,'' the
Commission considered the alternative of harmonizing the third prong of
the proposed definition with the third prong of the CFTC definition of
``block trade.'' The third prong of the CFTC definition characterizes a
block trade in a particular swap as having ``a notional or principal
amount at or above the appropriate minimum block size applicable to
such swap.'' As discussed in section VII(E), because SBS are not within
the CFTC's jurisdiction, the CFTC has never considered what an
appropriate minimum block size threshold would be for any SBS asset
class. There is no CFTC-defined threshold with which to harmonize when
formulating the third prong of the proposed definition of ``block
trade.'' Accordingly, the Commission preliminarily believes that
establishing a threshold tailored specifically for the SBS market is
preferable to the alternative.
    In formulating proposed Rule 804(a)(2), the Commission considered
the alternative of proposing a one-business-day review of a self-
certified SBS product before an SBSEF could list the product. This
alternative would harmonize with the parallel provision in Sec.
40.2(a).\449\ The Commission preliminarily believes that a ten-
business-day review period for self-certified SBS products before they
can be listed strikes a reasonable balance between allowing SBSEFs to
bring new products to market quickly while affording the Commission
staff a reasonable period in which to assess them. The proposed ten-
business-day review period for self-certified products also accords
with the CFTC's ten-business-day review period for self-certified
rules,\450\ which the Commission is proposing to replicate in Rule
807(a)(3).\451\ Thus, the Commission preliminarily believes the
proposed approach is preferable to the alternative.
---------------------------------------------------------------------------

    \449\ See Sec.  40.2(a)(2) (one condition for a valid self-
certification of a product is that the CFTC has received the
submission by the open of business on the business day preceding the
product's listing).
    \450\ See Sec.  40.6(a)(3) (one condition for a valid self-
certification of a rule or rule amendment is that the CFTC has
received the submission not later than the open of business on the
business day that is ten business days prior to the SEF's
implementation of the rule or rule amendment).
    \451\ See infra section VI(D).
---------------------------------------------------------------------------

    In formulating proposed Rule 825(c), which would require an SBSEF
to publish a ``Daily Market Data Report'' on its website, the
Commission considered the alternative of requiring SBSEFs to submit the
information in such reports directly to the Commission. The Commission
believes that the regulatory data that it is receiving pursuant to
Regulation SBSR would generate the same information as that contained
in such reports. Thus, the Commission preliminarily believes that the
proposed approach is preferable to the alternative because it would
relieve SBSEFs of the need to send daily reports to Commission while
preserving the Commission's ability to be informed about SBSEF market
activity via the regulatory data it receives pursuant to Regulation
SBSR.
    The Commission also considered the alternative of requiring a
structured data language other than Inline XBRL for SBSEF filings. For
example, the Commission could create an XML-based data language (i.e.,
an XML schema) specific to SBSEF filings, similar to the XML schema to
be used for Daily Market Data Reports under proposed Rule 825. The
Commission preliminarily believes, however, that Inline XBRL would be
more suitable for SBSEF filings to the Commission. As noted, unlike an
XML schema that would be used under this alternative, Inline XBRL would
provide the ability to tag detailed facts within narrative text blocks,
and is thus likely more well-suited to accommodate the other filings
required under proposed Regulation SE, many of which require narrative
discussions (e.g., the explanation and analysis of the product and its
compliance with applicable provisions of the SEA for a product filing
required under Rule 804). In addition, certain proposed SBSEF
disclosures consist of financial information (e.g., the financial
statements of the SBSEF required under Exhibit I to Form SBSEF), and
Inline XBRL is designed specifically for the accurate capture and
communication of financial information, among other uses.\452\
---------------------------------------------------------------------------

    \452\ See supra section XIX(C)(2).
---------------------------------------------------------------------------

    Another alternative that the Commission considered is to require
that an exemption order under proposed Rule 833(a) could apply to a
foreign trading venue only if it traded SBS and no other types of
securities. Under this alternative, an exemption order would be
unavailable to a foreign trading venue that trades SBS and other types
of securities. The Commission preliminarily believes, however, that
this alternative is unnecessary. Other jurisdictions might have market
structures where it is common to trade SBS and other types of
securities on the same trading venue. The Commission preliminarily
believes that it would be inequitable to disqualify such jurisdictions
ex ante from qualifying for a Rule 833(a) exemption.
    In connection with the proposed amendments to Rule 3a1-1, the

Commission considered the alternative of applying the retraction
provisions of Rule 3a1-1(b) to SBSEFs and clearing agencies that are
covered by proposed paragraphs (a)(4) and (a)(5), respectively, of Rule
3a1-1. Under this alternative, if a registered SBSEF or a registered
clearing agency were to grow above a certain size, its exemption under
proposed paragraph (a)(4) or (a)(5), respectively, could be retracted,
forcing it to register as a national securities exchange.
    The Commission preliminarily believes that, in adopting section 3D
of the SEA, Congress gave the Commission a mechanism to regulate SBSEFs
of any size. Nothing in section 3D suggests that, if an SBSEF were to
grow above a certain size, the Commission should be able to withdraw
that entity's ability to operate as an SBSEF and instead compel it to
register as a national securities exchange. The Commission
preliminarily believes that it is not necessary to apply the retraction
provisions in Rule 3a1-1(b) to registered clearing agencies that engage
in forced trading sessions and are covered by proposed Rule 3a1-
1(a)(5). SBS transactions effected using this functionality are
designed to facilitate the clearance and settlement process, and forced
trading sessions are carried out by registered clearing agencies under
rules that have been approved by the Commission. This trading
functionality is not effected for the purpose of conducting open-market
transactions. Therefore, the Commission preliminarily believes that it
would not be appropriate to apply the retraction provisions of Rule
3a1-1(b) to clearing agencies that would be covered by proposed Rule
3a1-1(a)(5), as this would force these clearing agencies also to
register as national securities exchanges. For the above reasons, the
Commission preliminarily believes that the proposed approach is
preferable to this alternative.
    In connection with proposed Rule 15a-12, the Commission considered
the alternative of not exempting SBSEF-Bs from section 17(a) of the
SEA, which requires a registered broker (among other types of
registered entity) to make and keep records as prescribed by Commission
rule.\453\ This approach would subject SBSEF-Bs to the full scope of
the Commission's books and records rules under section 17(a). The
Commission is proposing instead to utilize proposed Rule 15a-12 to
exempt SBSEF-Bs from section 17(a), among other provisions applying to
brokers, and instead to subject SBSEF-Bs to proposed new Rule 826,
which derives its statutory authority from Core Principle 9 in section
3D of the SEA. This approach would allow the Commission to tailor a
books and records rule specifically to the limited business as an
SBSEF-B and to better harmonize with the books and records requirements
of the CFTC to which the SBSEF-B would likely also be subject.
---------------------------------------------------------------------------

    \453\ 15 U.S.C. 78q(a).
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

    Proposed Regulation SE and the other proposed rules and rule
amendments would likely affect competition, capital formation, and
efficiency in various ways discussed below.
1. Competition
    As discussed earlier, currently, the SBS market is dominated by a
small group of SBS dealers.\454\ A mandatory clearing determination by
the Commission, followed by a MAT determination by one or more SBSEFs,
should help foster greater competition in the trading of SBS by
promoting greater order interaction and increasing participation on
SBSEFs. Further, proposed rules that improve access to SBSEFs by market
participants could increase participation and competition in liquidity
provision in the SBS market.\455\ To the extent that increased
competition in liquidity provision reduces the price of liquidity
provision (e.g., bid-ask spread), market participants could benefit in
terms of lower transaction costs.
---------------------------------------------------------------------------

    \454\ See supra section XIX(B)(2).
    \455\ See supra section XIX(C)(1) (discussing improved access
and competition as an overarching benefit of the proposal).
---------------------------------------------------------------------------

2. Capital Formation
    The Commission preliminary believes that the proposal could promote
capital formation by helping to improve regulatory oversight and market
integrity. Regulation SE would require, among other things, that SBSEFs
maintain an audit trail and automated trade surveillance system;
conduct real-time market monitoring; establish and enforce rules for
information collection; and comply with reporting and recordkeeping
requirements.\456\ These requirements are designed to provide an SBSEF
with sufficient information to oversee trading on its market, including
detecting and deterring abusive trading practices.\457\ The proposed
audit trail and recordkeeping and reporting requirements, by providing
the Commission access to information about SBSEFs, would increase the
Commission's ability to assess risks in the SBS market and to oversee
the market, which all else being equal should reduce the amount of
risky or abusive behavior in the SBS market.\458\ Further, proposed
Rule 831, the proposed requirements relating to the CCO, would promote
regulatory compliance on SBSEFs and the SBS market generally.\459\ In
addition, the proposal would provide for various safeguards to help
promote market integrity, including proposed Rule 819(c) relating to
impartial access to the SBSEF \460\ and proposed Rule 830 relating to
systems safeguards. Any resulting increase in regulatory oversight and
market integrity likely would increase market participants' confidence
in the soundness and fairness of SBSEFs, which in turn could spill over
into increased confidence in the soundness and fairness of the SBS
market more broadly. Such increased confidence could lead to the
greater use of SBS, particularly those traded on SBSEFs, by corporate
entities to hedge their business risks and investors to hedge their
portfolio risks with respect to positions in underlying securities. To
the extent that corporate entities can improve their hedging efficiency
with SBS, they may divert resources from precautionary savings into
productive assets, thereby promoting capital formation. To the extent
that investors can improve their hedging efficiency with SBS, they may
be more willing to invest in the underlying securities, which should
facilitate capital raising and formation by issuers. Therefore, the
Commission preliminarily believes that the proposed rules would help
encourage capital formation.
---------------------------------------------------------------------------

    \456\ See proposed Rules 819, 821, 822, and 826.
    \457\ See supra section XIX(C)(1) (discussing improved oversight
of trading by SBSEFs as an overarching benefit of the proposal).
    \458\ See supra section XIX(C)(1) (discussing improved
Commission oversight as an overarching benefit of the proposal).
    \459\ See supra section XIX(C)(2) (discussing the benefits
associated with proposed Rule 831).
    \460\ See supra note 455.
---------------------------------------------------------------------------

    By reducing the risk of trading disruptions on SBSEFs, proposed
Rules 829 and 830 could lead to the greater use of SBS traded on
SBSEFs. This in turn could promote capital formation as discussed
above.
3. Efficiency
    The Commission preliminarily believes that the proposed
requirements with respect to pre-trade price transparency could lead to
more efficient pricing in the SBS market. The proposed rules are
designed to increase pre-trade price transparency for SBS, which should
aid market participants in evaluating current market prices for

SBS, thereby furthering more efficient price discovery. Price
transparency, coupled with increased competition in liquidity provision
as discussed above,\461\ could further decrease the spread in quoted
prices, and thus could lead to higher efficiency in the trading of
these securities.
---------------------------------------------------------------------------

    \461\ See supra section XIX(D)(1).
---------------------------------------------------------------------------

    The Commission recognizes the possibility that pre-trade price
transparency could cause market participants to reveal more information
about trading interest than they believe would be economically
desirable. If market participants consider that pre-trade price
transparency requirements are too burdensome and choose not to
participate in the market, market efficiency could be reduced insofar
as these market participants forgo any potential economic benefits that
may have resulted from transacting in the SBS market. The Commission
preliminarily believes that several factors mitigate such concerns.
First, pursuant to proposed Rule 815(c)(2), an SBSEF may offer any
execution method for Permitted Transactions. Thus, a market participant
engaging in a Permitted Transaction may choose to use an execution
method that reveals only the desired amount of information about
trading interest. Second, pursuant to proposed Rule 815(a)(2), and as
discussed earlier, an SBSEF would be required to offer two execution
methods for Required Transactions (limit order book and RFQ-to-3).
Thus, market participants have flexibility in the degree of pre-trade
transparency they wish to employ, which should attenuate potential
concerns associated with revealing too much information about trading
interest.
    The Commission preliminarily believes that the proposed Rules 829
and 830 may reduce the risk of trading disruptions on SBSEFs that may
otherwise prevent market participants from impounding information into
SBS prices through market activity (e.g., order submission), and thus
could improve the price efficiency in the SBS market.

F. Request for Comment

    The Commission is requesting comment regarding the economic
analysis set forth herein. To the extent possible, the Commission
requests that market participants and other commenters provide
supporting data and analysis with respect to the benefits, costs, and
effects on competition, efficiency, and capital formation of adopting
the proposed rules and amendments or any reasonable alternatives. In
addition, the Commission asks commenters to consider the following
questions:
    212. What additional qualitative or quantitative information should
the Commission include as part of the baseline for its economic
analysis of the proposed rules and amendments?
    213. What additional information can the Commission use to estimate
the costs and benefits of implementing the proposed rules and
amendments?
    214. Has the Commission considered all relevant aspects of the
proposed rules and amendments? Has the Commission accurately described
the costs and benefits of the proposed rules and amendments? Why or why
not? Please identify any other benefits associated with the proposed
rules and amendments in detail. Please identify any costs associated
with the proposed rules and amendments that the Commission has not
identified. If possible, please provide quantification or data that
would enable a quantification of such effects.
    215. What are the economic effects of the discussed reasonable
alternatives? Are there any additional reasonable alternatives that the
Commission should include? If so, please identify such alternatives and
any economic effects associated with such alternatives. If possible,
please provide data that would enable a quantification of such effects.
    216. The Commission preliminarily estimates that five CFTC-
registered SEFs likely would register as SBSEFs. How many entities do
you believe will seek to register with the Commission as SBSEFs? Of
these, how many would be CFTC-registered SEFs seeking to be dually-
registered SEF/SBSEFs and how many would be standalone SBSEFs?
    217. Are SBS products being traded on unregistered SBSEFs? If so,
please provide data on (1) the types of SBS that are being traded on
unregistered SBSEFs; and (2) the volume of such SBS that are being
traded on unregistered SBSEFs.
    218. Does the Commission's description of SBS trade execution
practices accurately capture the trade execution practices currently
used in the trading of SBS? If not, please identify and describe the
execution practices that are currently used to trade SBS.
    219. What costs would CFTC-registered SEFs incur if they elect to
register and operate as SBSEFs under proposed Regulation SE? Would
these entities incur costs associated with the de novo formation of an
SBSEF? Alternatively, would they incur costs associated with listing
SBS products on their venues and making limited changes to their
systems, policies, and procedures to the extent that the proposed rules
differ from analogous CFTC rules? Are there other costs that have not
been identified?
    220. What would be the likely fees and costs associated with
transacting on SBSEFs? What are the fees and costs associated with
transacting on unregulated trading venues that exist in today's OTC
derivatives market?

XX. Paperwork Reduction Act

    Certain provisions of the proposed rules contain new ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\462\ The Commission is submitting the
proposed collection of information to the Office of Management and
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507(d) and 5
CFR 1320.11. The title of the new collection of information is
``Regulation SE.'' As proposed, Regulation SE would create a regime for
the registration and regulation of SBSEFs and address other issues
relating to SBS execution.
---------------------------------------------------------------------------

    \462\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    In addition, the Commission is proposing to amend Rule 3a-1 under
the SEA to exempt a registered SBSEF from the statutory definition of
``exchange.'' Furthermore, the Commission is proposing new Rule 15a-12
under the SEA that, while affirming that an SBSEF also would be a
broker under the SEA, would exempt a registered SBSEF from certain
broker requirements under the SEA.
    Proposed Regulation SE would include rules regarding the
registration of a prospective SBSEF on Form SBSEF, the filing of new or
amended rules or new products with the Commission, and rules
harmonizing the Commission's SBSEF regime with the CFTC's parallel SEF
regime.\463\ An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the agency
displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \463\ See supra section III. As proposed, Regulation SE contains
36 separately designated rules (800 to 835, inclusive), which (if
adopted) would be located in 17 CFR 242; a Form SBSEF (with
instructions); and a submission cover sheet (with instructions). If
adopted, the form and the submission cover sheet would be located in
17 CFR 249.
---------------------------------------------------------------------------

A. Summary of Collection of Information

    The proposed rules and rule amendments would include a collection
of information within the meaning of the PRA for SBSEFs that would be
required to comply with Regulation SE and file a Form SBSEF with the

Commission. In addition, proposed Rule 833 would include a collection
of information within the meaning of the PRA for persons that wish to
seek an exemption order under that rule, and proposed Rule 834 would
include a collection of information within the meaning of the PRA for
SBS exchanges (in addition to SBSEFs).
    Many of the proposed rules that comprise Regulation SE are modelled
after analogous CFTC rules with only minor edits to reflect differences
between the statutory regimes of the two agencies. Entities that are
most likely to register with the Commission as SBSEFs are those already
registered with the CFTC as SEFs. Such entities have made substantial
investments in systems, policies, and procedures to comply with and
adapt to the regulatory system developed by the CFTC. Harmonization
would allow such dually-registered entities to utilize their existing
systems, policies, and procedures to comply with the Commission's SBSEF
rules, and SEF members would likely face only marginal additional
burdens to trade SBS as well as swaps on those SEF/SBSEFs. In light of
these factors, the Commission has based many of its paperwork burden
estimates on CFTC burden estimates calculated for analogous CFTC rules.
The CFTC estimated PRA burdens by aggregating the burdens produced by a
group of related rules, as explained more fully in section XX(D) below.
In most cases, the Commission has modelled its methodology,
assumptions, and calculations on those of the CFTC, while making
adjustments that reflect differences between the scale of the market
for swaps relative to the market for SBS, such as the estimated number
of SBSEFs, number of SBS market participants, and number of SBS
transactions, as necessary.
    The following is a summary of the rules contained in proposed
Regulation SE.\464\ The paperwork burdens associated with proposed
Regulation SE are discussed in section XX(D) below.
---------------------------------------------------------------------------

    \464\ See supra section IV(A) (discussing proposed Rule 800);
section IV(B) (discussing proposed Rule 801); section IV(C)
(discussing proposed Rule 802); section V(A) (discussing the
registration provisions contained in proposed Rule 803); section
V(B) (discussing Form SBSEF); section VI(A) (discussing proposed
Rule 804); section VI(B) (discussing proposed Rule 805); section
VI(C) (discussing proposed Rule 806); section VI(D) (discussing
proposed Rule 807); section VI(F) (discussing proposed Rule 808);
section VI(G) (discussing proposed Rule 809); section VI(H)
(discussing proposed Rule 810); section VII(A) (discussing proposed
Rule 811); section VII(B) (discussing proposed Rule 812); section
VII(C) (discussing proposed Rule 813); section VII(D) (discussing
proposed Rule 814); section VII(E) (discussing proposed Rule 815);
section VII(F) (discussing proposed Rule 816); section VII(G)
(discussing proposed Rule 817); section VIII(A) (discussing proposed
Rule 818); section VIII(B) (discussing proposed Rule 819); section
VIII(C) (discussing proposed Rule 820); section VIII(D) (discussing
proposed Rule 821); section VIII(E) (discussing proposed Rule 822);
section VIII(F) (discussing proposed Rule 823); section VIII(G)
(discussing proposed Rule 824); section VIII(H) (discussing proposed
Rule 825); section VIII(I) (discussing proposed Rule 826); section
VIII(J) (discussing proposed Rule 827); section VIII(K) (discussing
proposed Rule 828); section VIII(L) (discussing proposed Rule 829);
section VIII(M) (discussing proposed Rule 830); section VIII(N)
(discussing proposed Rule 831); section IX(A) (discussing proposed
Rule 832); section IX(B) (discussing proposed Rule 833); section X
(discussing proposed Rule 834); section XI (discussing the notice
required by proposed Rule 835); section XII (discussing proposed
amendments to Rule 3a1-1); section XIII (discussing proposed Rule
15a-12); section XVI (discussing new rules and proposed amendments
to the Commission's Rules of Practice).
    \465\ Each of the filings that would be required by proposed
Rules 804 through 807, 809, and 816 would have to include a
submission cover sheet that is also being proposed herein. Because
the cover sheet is an integral part of the filing--it is the
mechanism whereby an SBSEF would inform the Commission what type of
filing is enclosed--the paperwork burdens for the cover sheet are
not estimated separately from the paperwork burden of the
substantive filing.

----------------------------------------------------------------------------------------------------------------
     Proposed rule number and title              Overview of proposed rule           Paperwork  burden  created?
----------------------------------------------------------------------------------------------------------------
800--Scope.............................  would state that the provisions of this    No
                                          section shall apply to every SBSEF that
                                          is registered or is applying to become
                                          registered as an SBSEF under section 3D
                                          of the SEA.
801--Applicable provisions.............  would require an SBSEF to comply with all  No
                                          applicable Commission rules, including
                                          any related definitions and cross-
                                          referenced sections.
802--Definitions.......................  Definitions..............................  No
803--Requirements and procedures for     would set out a process for registering    Yes
 registration.                            with the Commission as an SBSEF,
                                          including the submission of Form SBSEF.
804--Listing products for trading by     procedures by which an SBSEF, via self-    Yes \465\
 certification.                           certification, may list a product for
                                          trading.
805--Voluntary submission of new         procedures for voluntary submission of     Yes
 products for Commission review and       new products for Commission review and
 approval.                                approval.
806--Voluntary submission of rules for   procedures for voluntary submission of     Yes
 Commission review and approval.          new rules or rule amendments for
                                          Commission review and approval.
807--Self-certification of rules.......  whereby an SBSEF can implement a new rule  Yes
                                          or rule amendment via self-certification.
808--Availability of public information  would set out the information that will    No
                                          be made public with respect to
                                          applications to become an SBSEF as well
                                          as filings relating to rules and
                                          products.
809--Staying of certification and        would provide for a stay of a product      Yes
 tolling of review period pending         certification or tolling of a review
 jurisdictional determination.            period for a product where it is unclear
                                          whether the product should be classified
                                          as an SBS under the jurisdiction of the
                                          SEC or a swap under the jurisdiction of
                                          the CFTC pending the issuance of a joint
                                          interpretation by the SEC and CFTC
                                          clarifying which agency has jurisdiction
                                          over the product.
810--Product filings by SBSEFs that are  would provide that an applicant for        Yes
 not yet registered and by dormant        registration as an SBSEF may submit for
 SBSEFs.                                  Commission review and approval an SBS's
                                          terms and conditions or rules prior to
                                          listing the product as part of its
                                          application for registration.
811--Information relating to SBSEF       would provide that an SBSEF shall submit   Yes
 compliance.                              information to the Commission that the
                                          Commission requests, including
                                          demonstrations that the SBSEF is in
                                          compliance with one or more Core
                                          Principles, notification of a transfer
                                          50% or more of the equity interest in
                                          the SBSEF, and information about pending
                                          legal proceedings.

812--Enforceability....................  would provide that a transaction entered   Yes
                                          into on or pursuant to the rules of an
                                          SBSEF shall not be void, voidable,
                                          subject to rescission, otherwise
                                          invalidated, or rendered unenforceable
                                          because of a violation by the SBSEF of
                                          section 3D of the SEA or the
                                          Commission's rules thereunder; also
                                          would require an SBSEF to provide each
                                          counterparty to a transaction on the
                                          SBSEF with a written record of all the
                                          terms of the transaction that were
                                          agreed to on the SBSEF.
813--Prohibited use of data collected    would provide that an SBSEF shall not use  No
 for regulatory purposes.                 for business or marketing purposes any
                                          proprietary data or personal information
                                          that it collects or receives, from or on
                                          behalf of any person, for the purpose of
                                          fulfilling its regulatory obligations,
                                          without such person's consent; also
                                          would require the SBSEF not to condition
                                          access to its markets on such consent
                                          and provide that the SBSEF may, where
                                          necessary for regulatory purposes, share
                                          such data or information with other
                                          registered SBSEFs or exchanges.
814--Entity operating both a national    would provide that an entity that intends  No
 securities exchange and SBSEF.           to operate both a national securities
                                          exchange and an SBSEF shall separately
                                          register the two facilities pursuant to
                                          section 6 of the SEA and Rule 803,
                                          respectively; also would provide that a
                                          national securities exchange shall, to
                                          the extent that the exchange also
                                          operates an SBSEF and uses the same
                                          electronic trade execution system,
                                          identify whether electronic trading of
                                          SBS is taking place on or through the
                                          national securities exchange or the
                                          SBSEF.
815--Methods of execution for Required   would provide that a Required Transaction  Yes
 and Permitted Transactions.              must be executed on an SBSEF through an
                                          order book or RFQ system, whereas a
                                          Permitted Transaction can be executed in
                                          any manner; also would require an SBSEF
                                          to maintain rules and procedures that
                                          facilitate the resolution of error
                                          trades and that an SBSEF shall not
                                          generally disclose the identity of a
                                          counterparty to an SBS that is executed
                                          anonymously and intended to be cleared.
816--Trade execution requirement and     would set out a process and standards for  Yes
 exemptions therefrom.                    an SBSEF to MAT an SBS; also would
                                          establish certain exemptions from the
                                          trade execution requirement.
817--Trade execution compliance          would provide that an SBS transaction      No
 schedule.                                shall be required to be executed on an
                                          SBS exchange or SBSEF upon the later of
                                          a determination by the Commission that
                                          the SBS is required to be cleared and 30
                                          days after a MAT determination
                                          submission or certification for that SBS
                                          is approved or certified, respectively.
818--Core Principle 1 (Compliance with   would require a registered SBSEF to        Yes
 Core Principles).                        comply with the SEA's Core Principles
                                          for SBSEFs.
819--Core Principle 2 (Compliance with   would require a registered SBSEF to        Yes
 rules).                                  establish, comply with, and enforce its
                                          own rules--including rules regarding
                                          market access; rules governing trading,
                                          trade processing, and participation that
                                          will deter abuses; rules governing the
                                          operation of the SBSEF; and rules to
                                          capture and retain an audit trail--and
                                          have the capacity to detect,
                                          investigate, and enforce those rules;
                                          also would require an SBSEF to establish
                                          rules that generally prohibit employees
                                          from trading any covered interest or
                                          disclosing any material, non-public
                                          information obtained as a result of
                                          their employment by the SBSEF; also
                                          would require an SBSEF to maintain in
                                          effect rules that render a person
                                          ineligible to serve on the SBSEF's
                                          disciplinary committees, arbitration
                                          panels, oversight panels, or governing
                                          board who has been found to have
                                          committed enumerated offenses.
820--Core Principle 3 (SBS not readily   would require that SBSEF to permit         Yes
 susceptible to manipulation).            trading only in SBS that are not readily
                                          susceptible to manipulation.
821--Core Principle 4 (Monitoring of     would require an SBSEF to establish and    Yes
 trading and trade processing).           enforce rules detailing trading and
                                          trade processing procedures, and to
                                          monitor trading and market activity to
                                          prevent manipulation, price distortion,
                                          and delivery or settlement disruptions;
                                          also would require an SBSEF to
                                          demonstrate that it has access to
                                          sufficient information to assess whether
                                          trading on its market or in the
                                          underlying assets or indexes is being
                                          used to affect prices on its market.
822--Core Principle 5 (Ability to        would require an SBSEF to establish and    Yes
 obtain information).                     enforce rules that would allow it to
                                          obtain any information necessary to
                                          comply with section 3D of the SEA and to
                                          provide that information to the
                                          Commission on request.
823--Core Principle 6 (Financial         would require an SBSEF to establish and    Yes
 integrity of transactions).              enforce rules for ensuring the financial
                                          integrity of SBS on its facility,
                                          including the clearance and settlement
                                          of the SBS; also would require that SBS
                                          that are required to be cleared shall be
                                          cleared by a registered clearing agency
                                          (or a clearing agency that has obtained
                                          an exemption from clearing agency
                                          registration to provide central
                                          counterparty services for SBS), that the
                                          SBSEF provide for minimum financial
                                          standards for its members, and that the
                                          SBSEF monitor its members for compliance
                                          with those standards.
824--Core Principle 7 (Emergency         would require an SBSEF to adopt rules to   Yes
 authority).                              provide for the exercise of emergency
                                          authority, in order for the SBSEF to
                                          maintain fair and orderly trading and
                                          prevent or address manipulation or
                                          disruptive trading practices.
825--Core Principle 8 (Timely            would require an SBSEF to make public      Yes
 publication of trading information).     timely information on price, trading
                                          volume, and other trading data on SBS
                                          transactions, as required by Regulation
                                          SBSR, and to publish on its website a
                                          Daily Market Data Report.

826--Core Principle 9 (Recordkeeping     would set forth recordkeeping and          Yes
 and reporting).                          reporting obligations for SBSEFs and
                                          require an SBSEF to maintain records of
                                          all activities relating to the business
                                          of the facility, including a complete
                                          audit trail, in a form and manner
                                          acceptable to the Commission for a
                                          period of five years.
827--Core Principle 10 (Antitrust        would provide that, unless necessary or    No
 considerations).                         appropriate to achieve the purposes of
                                          the SEA, an SBSEF shall not adopt any
                                          rules or take any actions that result in
                                          any unreasonable restraint of trade or
                                          impose any material anticompetitive
                                          burden on trading or clearing.
828--Core Principle 11 (Conflicts of     would require an SBSEF to establish and    Yes
 interest).                               enforce rules to minimize conflicts of
                                          interest in its decision-making process
                                          and establish a process for resolving
                                          such conflicts.
829--Core Principle 12 (Financial        would require an SBSEF to have adequate    Yes
 resources).                              financial, operational, and managerial
                                          resources to discharge its
                                          responsibilities; also would set forth
                                          the standards used to calculate the
                                          adequacy of such resources; and require
                                          certain reports to the Commission.
830--Core Principle 13 (System           would require an SBSEF to establish and    Yes
 safeguards).                             maintain a program of automated systems
                                          and risk analysis to identify and
                                          minimize sources of operational risk,
                                          through the development of appropriate
                                          controls and procedures; also would
                                          require an SBSEF to establish and
                                          maintain emergency procedures, backup
                                          facilities, and a plan for disaster
                                          recovery; conduct periodic tests to
                                          verify those resources are sufficient;
                                          and notify the Commission promptly of
                                          any cyber incidents and material planned
                                          changes to the SBSEF's systems
                                          safeguards.
831--Core Principle 14 (Designation of   would require an SBSEF to designate a CCO  Yes
 CCO).                                    and set forth regulatory and reporting
                                          obligations for the CCO.
832--Cross-border mandatory trade        would explain when the SEA's trade         No
 execution.                               execution requirement applies to a cross-
                                          border SBS transaction.
833--Cross-border exemptions...........  would provide for a process by which the   Yes
                                          Commission, upon making the requisite
                                          findings, could grant exemptions from
                                          the SEA definitions of ``exchange,''
                                          ``security-based swap execution
                                          facility,'' and ``broker'' and exempt
                                          cross-border SBS from the SEA's trade
                                          execution requirement.
834--Mitigation of conflicts of          would provide that each SBSEF and SBS      Yes
 interest of SBSEFs and SBS exchanges.    exchange must create and maintain rules
                                          to mitigate conflicts of interest
                                          between SBSEFs and SBS exchanges and
                                          their members, including by prohibiting
                                          members from owning 20% or more of the
                                          voting securities of an SBSEF or SBS
                                          exchange, and from exercising
                                          disproportionate influence in
                                          disciplinary proceedings; also would
                                          require each SBSEF and SBS exchange to
                                          submit to the Commission after every
                                          governing board election a list of each
                                          governing board's members, the groups
                                          they represent, and how the composition
                                          of the board complies with the
                                          requirements of Rule 834.
835--Notice to Commission by SBSEF of    would provide that, if an SBSEF issues a   Yes
 final disciplinary action or denial or   final disciplinary action against a
 limitation of access.                    member, denies or conditions membership,
                                          or denies or limits access of a person
                                          to any services offered by the SBSEF,
                                          the SBSEF shall file a notice of such
                                          action with the Commission within 30
                                          days and serve a copy on the affected
                                          person.
3a1-1 proposed amendments..............  would exempt from the SEA definition of    No
                                          ``exchange'' a registered SBSEF that
                                          provides a market place for no
                                          securities other than SBS, and an entity
                                          that has registered with the Commission
                                          as a clearing agency and limits its
                                          exchange functions to operation of a
                                          trading session that is designed to
                                          further the accuracy of end-of-day
                                          valuations.
15a-12--Exemption for certain SBSEFs     would exempt a registered SBSEF from       No
 from certain broker requirements.        certain broker requirements while
                                          affirming that an SBSEF is a broker
                                          under the SEA.
Proposed rules and amendments to the     new rules and amendments to the Rules of   No **
 Commission's Rules of Practice.          Practice to allow persons who are
                                          aggrieved by a final disciplinary
                                          action, a denial or conditioning of
                                          membership, or a denial or limitation of
                                          access by an SBSEF to seek an
                                          application for review by the Commission.
----------------------------------------------------------------------------------------------------------------
** The Commission finds, in accordance with section 553(b)(3)(A) of the Administrative Procedure Act (``APA''),
  5 U.S.C. 553(b)(3)(A), that the proposed revisions to the Commission's Rules of Practice relate solely to
  agency organization, procedure, or practice. They are therefore not subject to the provisions of the APA
  requiring notice, opportunity for public comment, and publication. However, the Commission believes that it
  would be useful to publish the rules for notice and comment. To the extent that these rules relate to agency
  information collections during the conduct of administrative proceedings, they are exempt from review under
  the PRA.

B. Proposed Use of Information

1. Registration Requirements and Form SBSEF
    Proposed Regulation SE would impose various requirements relating
to SBSEF registration, which are set forth in proposed Rule 803.\466\
---------------------------------------------------------------------------

    \466\ See, e.g., proposed Rule 803(b)(1) (requiring an entity
that wishes to register with the Commission as an SBSEF to submit a
Form SBSEF).
---------------------------------------------------------------------------

    The information collected pursuant to these proposed rules would
enhance the ability of the Commission to determine whether to approve
the registration of an entity as an SBSEF; to monitor and oversee
SBSEFs; to determine that SBSEFs initially comply, and continue to
operate in compliance, with the SEA, including the Core Principles
applicable to SBSEFs; to carry out its statutorily mandated oversight
functions; and to maintain accurate and updated information regarding
SBSEFs. Because

the registration information would be publicly available, it could also
be useful to an SBSEF's members, other market participants, other
regulators, and the public generally.
2. Requirements for SBSEFs To Establish Rules
    Various provisions of proposed Regulation SE would require SBSEFs
to establish certain rules, policies, and procedures to comply with
applicable requirements of the SEA and the Commission's rules
thereunder.\467\ The rules also would help an SBSEF's members to
understand and comply with requirements of the SBSEF.
---------------------------------------------------------------------------

    \467\ See, e.g., proposed Rule 819(a)(2) (requiring an SBSEF to
establish and enforce trading, trade processing, and participation
rules).
---------------------------------------------------------------------------

3. Reporting Requirements for SBSEFs
    Various provisions of proposed Regulation SE would require SBSEFs
and certain other persons to submit reports or provide specified
information.\468\ This information generally would be used by the
Commission in its oversight of SBSEFs and the SBS markets; certain of
the information to be collected could be used by market participants to
confirm their SBS transactions.
---------------------------------------------------------------------------

    \468\ See, e.g., proposed Rule 829 (requiring an SBSEF,
quarterly or upon Commission request, to provide the Commission a
report that includes the amount of financial resources necessary to
meet the requirements of Rule 829).
---------------------------------------------------------------------------

4. Recordkeeping Required Under Regulation SE
    Proposed Regulation SE would require an SBSEF to keep specified
records.\469\ The audit trail information required to be maintained
under proposed Regulation SE would aid the SBSEF in detecting and
deterring fraudulent and manipulative acts with respect to trading on
its market, as well as help it to fulfill the statutory requirement in
Core Principle 4 that an SBSEF monitor trading in SBS, including
through comprehensive and accurate trade reconstructions. In addition,
Commission access to these records would provide a valuable tool to
help the Commission carry out its oversight responsibility over SBSEFs
and the SBS markets in general.
---------------------------------------------------------------------------

    \469\ See proposed Rule 826 (requiring an SBSEF to maintain
records of all activities relating to the business of the facility,
including a complete audit trail, and to report information to the
Commission upon request).
---------------------------------------------------------------------------

5. Timely Publication of Trading Information Requirement for SBSEFs
    Proposed Regulation SE would impose certain publication burdens on
SBSEFs in proposed Rule 825.\470\
---------------------------------------------------------------------------

    \470\ See proposed Rule 825 (requiring an SBSEF to make publicly
available a ``Daily Market Data Report'').
---------------------------------------------------------------------------

    The requirement contained in proposed Rule 825 that an SBSEF have
the capacity to electronically capture, transmit, and disseminate
information on price, trading volume, and other trading data on all SBS
executed on or through the SBSEF would assist the SBSEF in carrying out
its regulatory responsibilities under the SEA and enable the SBSEF to
comply with reasonable requests to provide information to others.
Furthermore, proposed Rule 825 would require an SBSEF to publish a
Daily Market Data Report that is designed to provide market observers
with a daily snapshot of market activity on the SBSEF.
6. Rule Filing and Product Filing Processes for SBSEFs
    Proposed Regulation SE would establish various filing requirements
applicable to SBSEFs. Proposed Rules 804 and 805 would provide
mechanisms for an SBSEF to submit filings for new products that they
seek to list either through a self-certification process or by
voluntarily requesting approval of the Commission, respectively.
Proposed Rules 806 and 807 would require an SBSEF to submit new rule or
rule amendments either through a self-certification process or by
voluntarily requesting approval of the Commission, respectively.
    Proposed Rule 808 would address the public availability of certain
information in an application to register as an SBSEF and SBSEF filings
made under the self-certification procedures or pursuant to Commission
review and approval. Proposed Rule 809 would establish procedures for
addressing a situation where an SBSEF wishes to list a product and it
is unclear whether the product is an SBS or swap (i.e., whether it
properly falls under the jurisdiction of the SEC or the CFTC). Proposed
Rule 810 would provide that an applicant for registration as an SBSEF
may submit for Commission review and approval an SBS's terms and
conditions or rules prior to listing the product as part of its
application for registration.
    The information that would be collected under proposed Rules 804
and 805 would help the Commission assess whether an SBS listed by an
SBSEF complies with relevant provisions of the SEA. In addition, this
information would assist the Commission in overseeing the SBSEF's
compliance with its regulatory obligations generally and to learn about
developments in the SBS product market. Proposed Rules 804 and 805 also
would provide a mechanism whereby market participants, other SBSEFs,
other regulators, and the public generally could learn what products an
SBSEF intends to list, and to obtain information regarding such
products.
    The information that would be collected under proposed Rules 806
and 807 would help the Commission assess whether a new rule or rule
amendment of an SBSEF complies with relevant provisions of the SEA, and
assist the Commission in overseeing the SBSEF's compliance with its
regulatory obligations generally. Proposed Rules 806 and 807 also would
provide a mechanism whereby an SBSEF's members (and prospective
members) could learn what new rules or rule amendments the SBSEF
intends to apply in its market.
    The information collected under proposed Rules 809 and 810 would
help the Commission assess an SBSEF's compliance with relevant
provisions of the SEA, and assist the Commission in overseeing the
SBSEF's compliance with its regulatory obligations. This information
also would be useful to the SBSEF's members, because they would be
subject to such new or amended rules or products and thus would have an
interest in learning about those rules or products. Other market
participants, other SBSEFs, and other regulators, as well as the public
generally, may find information about proposed new or amended rules or
products useful.
7. Requirements Relating to the CCO
    Proposed Regulation SE includes Rule 831 that would set out
requirements relating to an SBSEF's CCO.
    The information that would be collected under proposed Rule 831
would help ensure compliance by SBSEFs with relevant provisions of the
SEA and assist the Commission in overseeing SBSEFs generally. The
Commission could use the annual compliance report to help it evaluate
whether an SBSEF is carrying out its statutorily-mandated regulatory
obligations and, among other things, to discern the scope of any
denials of access or refusals to grant access by the SBSEF and to
obtain information on the status of the SBSEF's regulatory compliance
program. The SBSEF's fourth-quarter financial report would provide the
Commission with important information on the financial health of the
SBSEF.

8. Surveillance Systems Requirements for SBSEFs
    The proposed rules that would require an SBSEF to maintain
surveillance systems and to monitor trading \471\ are designed to
promote compliance by an SBSEF with its obligations under the SEA to
oversee trading on its market, and to prevent manipulation and other
unlawful activity or disruption of its market.
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    \471\ See, e.g., proposed Rule 819(d)(3) (requiring an SBSEF to
establish and maintain sufficient compliance staff and resources to
ensure that it can conduct effective audit trail reviews, trade
practice surveillance, market surveillance, and real-time market
monitoring).
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C. Respondents

    The respondents subject to the collection of information burdens
associated with proposed Regulation SE would be: (1) SBSEFs (and
entities wishing to register with the Commission as SBSEFs); (2) in the
case of Rule 833, persons that seek an exemption order under that rule;
and (3) in the case of Rule 834, SBS exchanges.
    Currently there are no registered SBSEFs. Based on the number of
SEFs registered with the CFTC that trade index CDS (the closest analog
to single-name CDS, which is likely to be the product most frequently
traded on SEC-registered SBSEFs) and general industry information, the
Commission preliminarily estimates that five entities will seek to
register as SBSEFs and thus become subject to the collection of
information requirements of these proposed rules.
    The Commission preliminarily estimates that three persons would
request exemption orders under one or both paragraphs \472\ of proposed
Rule 833.\473\ The CFTC has granted three exemptions similar to those
contemplated by proposed Rule 833,\474\ which suggests that the number
of jurisdictions having organized trading venues for swap and SBS
products that overlap with products traded on similar venues in the
United States is not large.
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    \472\ See supra note 254.
    \473\ The Commission anticipates that such persons could include
foreign SBS trading venues, foreign authorities that license and
regulate those trading venues, or covered persons (as defined in
proposed Rule 832) who are members of such trading venues.
    \474\ See supra note 244.
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    The Commission preliminarily estimates that three entities will
operate as SBS exchanges. These are likely to be existing national
securities exchanges that, in the future, seek to list SBS and thereby
become SBS exchanges.
    The Commission considered whether any provision of proposed
Regulation SE would impose any burdens (as defined in the PRA) on SBSEF
members, but has determined that they would not.

D. Total Annual Reporting and Recordkeeping Burden

1. Overview
    The CFTC, based on experience gained in developing rules for SEFs
and regulating the SEF market, over the years has developed, refined,
and received approval from OMB for paperwork burden hours estimates,
both for SEF rules directly as well as for ancillary rules on which
various rules in proposed Regulation SE are modelled.\475\ Those
estimates are presented in the form of aggregate totals for compliance
with:
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    \475\ See Core Principles and Other Requirements for Swap
Execution Facilities (May 17, 2013), 78 FR 33476, 33548-49 (June 4,
2013) (Final Rule PRA for CFTC part 37); Swap Execution Facility
Requirements (November 27, 2020), 85 FR 82313, 82324 (December 18,
2020) (Final Rule PRA for Sec.  36.1); Core Principles and Other
Requirements for Swap Execution Facilities: OMB Control Number 3038-
0074 Supporting Statements (last updated July 26, 2021), available
at https://omb.report/omb/3038-0074 (PRA Supporting Statements for
CFTC Core Principles for SEFs, Sec.  36.1); Provisions Common to
Registered Entities (July 19, 2011), 76 FR 44776, 44789-90 (July 27,
2011) (Final Rule PRA for CFTC part 40); part 40, Provisions Common
to Registered Entities: OMB Control Number 3038-0093 Supporting
Statements (last updated February 24, 2021), available at https://omb.report/omb/3038-0093 (PRA Supporting Statements for CFTC part
40, Sec.  36.1); Notification of Pending Legal Proceedings: OMB
Control Number 3038-0033 Supporting Statements (last updated August
24, 2018), available at https://omb.report/omb/3038-0033 (PRA
Supporting Statements for Sec. Sec.  1.60(a), (c), and (e));
Adaptation of Regulations To Incorporate Swaps (October 16, 2012),
77 FR 66288, 66306-08 (November 2, 2012) (Final Rule PRA for
Sec. Sec.  1.59 and 1.37(c)); Recordkeeping (May 23, 2017), 82 FR
24479, 24485 (May 30, 2017) (Final Rule PRA for Sec.  1.31);
Adaptation of Regulations to Incorporate Swaps-Exclusion of Utility
Operations-Related Swaps with Utility Special Entities from De
Minimis Threshold: OMB Control Number 3038-0090 Supporting
Statements (last updated July 1, 2020), available at https://omb.report/omb/3038-0090 (PRA Supporting Statements for Sec. Sec.
1.31, 1.37(c), 1.59, and 1.67); Service on Self-Regulatory
Organization Governing Boards or Committees by Persons with
Disciplinary Histories (February 27, 1990), 55 FR 7884, 7890 (March
6, 1990) (Final Rule PRA for Sec.  1.63); Final Rule and Rule
Amendments Concerning Composition of Various Self-Regulatory
Organization Governing Boards and Major Disciplinary Committees
(June 29, 1993), 58 FR 37644, 37653 (July 13, 1993) (Final Rule PRA
for Sec.  1.64); Voting by Interested Members of Self-Regulatory
Organization Governing Boards and Committees (December 23, 1998), 64
FR 16, 22 (January 4, 1999) (Final Rule PRA for Sec.  1.69); Rules
Pertaining to Contract Markets and Their Members: OMB Control Number
3038-0022 Supporting Statements (last updated December 21, 2010),
available at https://omb.report/omb/3038-0022 (PRA Supporting
Statements for Sec. Sec.  1.63, 1.64, and 1.69); Swap Data
Recordkeeping and Reporting Requirements (December 20, 2011), 77 FR
2136, 2171-76 (January 13, 2012) (Final Rule PRA for Sec.  45.2);
Swap Data Recordkeeping and Reporting Requirements: OMB Control
Number 3038-0096 Supporting Statements (last updated March 16,
2021), available at https://omb.report/omb/3038-0096 (PRA Supporting
Statements for Sec.  45.2); Repeal of the Exempt Commercial Market
and Exempt Board of Trade Exemptions (September 28, 2015), 80 FR
59575, 59576 (October 2, 2015) (Final Rule PRA for Sec.  15.05).
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     Part 37 of the CFTC regulations regarding initial
registration requirements applicable to SEFs;
     Part 37 regarding other requirements applicable to SEFs,
including the statutory Core Principles;
     Part 40 of the CFTC regulations regarding requirements
applicable to SEFs (and other CFTC-registered entities); and
     Sec. Sec.  1.60(a), 1.60(c), 1.60(e), 36.1, 1.59, 1.63,
1.67, 15.05, 1.37(c), 1.64, and 1.69 regarding requirements applicable
to SEFs (and other CFTC-registered entities).
    The rules applicable to SBSEFs would be, with limited exceptions
discussed above, substantively similar to those applicable to SEFs.
Therefore, the Commission is basing its preliminary estimates for the
paperwork burdens for SBSEFs on the CFTC's paperwork burden
calculations for analog rules that apply to SEFs, which have been
approved by OMB.\476\ However, in certain cases, the paperwork burdens
estimated by the CFTC are scaled down for SBSEFs to account for the
likelihood that there will be fewer SBSEFs than SEFs and the SBS
business of dually registered SEF/SBSEFs is likely to be smaller than
the swap business.
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    \476\ Proposed Rule 835, which would require SBSEFs to file with
the Commission notices of final disciplinary actions and denials and
limitations of access, is not based on a CFTC rule but rather on an
existing Commission rule that imposes a similar filing requirement
on SROs. Therefore, the Commission is utilizing the burden estimates
in its rulemaking for SROs to estimate the burdens of this rule for
SBSEFs.
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    Although there are minor differences between the CFTC rules and the
proposed Commission rules, the Commission does not believe it needs to
substantially deviate from the CFTC's estimates of aggregated burden
hours for compliance (beyond scaling back the CFTC's estimates to
account for fewer SBSEFs than SEFs, and the smaller size of the SBS
market relative to the swap market). These minor differences between
the CFTC's existing rules for SEFs and the Commission's proposed rules
for SBSEFs are prompted, in some cases, by minor differences between
the statutory provisions that apply to SEFs under the CEA and the
statutory provisions that apply to SBSEFs under the SEA, or, in other
cases, by differences between the swap market and SBS market. In either
case, however, the Commission preliminarily anticipates that the
burdens on SBSEFs would be substantially similar to the burdens set out
in the CFTC estimates,

which serve as the basis for the Commission's estimates.\477\
Furthermore, the Commission preliminarily believes that basing the
burden estimates for SBSEFs on the CFTC's estimates for SEFs would be
more accurate than using burden hours estimates for any other entity
that the Commission currently regulates (e.g., national securities
exchanges) because SBSEFs share many more similarities with SEFs than
they do with any other SEC-registered entities.
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    \477\ The Commission notes that, when the CFTC adopted the SEF
rules in 2013, the CFTC took a similar approach to burden hours
estimation. The CFTC relied on the aggregate burden hours for three
types of entities that it regulated (DCMs, derivatives transaction
execution facilities, and certain exempt commercial markets) and
applied those burden hours to SEFs unadjusted, even though there are
differences between the regulations that govern SEFs and those that
govern the other entities. The CFTC noted that those entities, like
SEFs, were subject to certain statutory core principles and rules
thereunder, and despite variations in the applicable regulations, it
was still appropriate to use the average aggregate burden number for
those entities as the estimate for SEFs without adjustment. See
CFTC, Core Principles and Other Requirements for Swap Execution
Facilities, 78 FR at 33548-51.
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    The Commission anticipates that most if not all entities that seek
to register with the Commission as SBSEFs will also register, or will
already be registered, with the CFTC as SEFs. With a few exceptions,
the rules being proposed by the Commission are adapted from existing
rules of the CFTC. With these proposed rules, the Commission intends to