[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Proposed Rules]
[Pages 77306-77377]
[FR Doc No: 2010-29719]

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Part IV

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Security-Based Swap Data Repository Registration, Duties, and Core
Principles; Proposed Rule

Federal Register / Vol. 75 , No. 237 / Friday, December 10, 2010 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-63347; File No. S7-35-10]
RIN 3235-AK79

Security-Based Swap Data Repository Registration, Duties, and
Core Principles

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: In accordance with Section 763(i) of Title VII (``Title VII'')
of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (``Dodd-Frank Act''), the Securities and Exchange Commission
(``Commission'') is proposing new rules under the Securities Exchange
Act of 1934 (``Exchange Act'') governing the security-based swap data
repository (``SDR'') registration process, duties, and core principles.

DATES: Comments should be submitted on or before January 24, 2011.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-53-10 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549.

All submissions should refer to File Number S7-53-10. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549 on official business days between the hours of 10 a.m. and 3 p.m.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.

FOR FURTHER INFORMATION CONTACT: John Ramsay, Deputy Director; Jo Anne
Swindler, Assistant Director; Richard Vorosmarti, Special Counsel;
Angie Le, Special Counsel; Miles Treakle, Staff Attorney; or Bradley
Gude, Special Counsel, Division of Trading and Markets, at (202) 551-
5777, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing Rules 13n-1 to
13n-11 under the Exchange Act governing SDRs. The Commission is
soliciting comment on all aspects of the proposed rules and will
carefully consider any comments received.

I. Introduction

    On July 21, 2010, President Barack Obama signed the Dodd-Frank Act
into law.\1\ The Dodd-Frank Act was enacted to, among other things,
promote the financial stability of the United States by improving
accountability and transparency in the financial system.\2\
Specifically, Title VII of the Dodd-Frank Act provides the Commission
and the Commodity Futures Trading Commission (``CFTC'') with the
authority to regulate over-the-counter (``OTC'') derivatives in light
of the recent financial crisis, which demonstrated the need for
enhanced regulation of the OTC derivatives market. The Dodd-Frank Act
is intended to strengthen the existing regulatory structure and to
provide the Commission and the CFTC with effective regulatory tools to
oversee the OTC derivatives market, which has grown exponentially in
recent years and is capable of affecting significant sectors of the
U.S. economy.
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    \1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See Public Law 111-203, Preamble.
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    The Dodd-Frank Act provides the CFTC with authority to regulate
``swaps,'' the Commission with authority to regulate ``security-based
swaps'' (``SBSs''), and both the CFTC and the Commission with authority
to regulate ``mixed swaps.'' \3\ The Dodd-Frank Act amends the Exchange
Act to require the following with respect to transactions in SBSs
regulated by the Commission: (1) Transactions in SBSs must be cleared
through a clearing agency if they are of a type that the Commission
determines must be cleared, unless an exemption applies; \4\ (2) if an
SBS is subject to the clearing requirement, then it must be traded on a
registered trading platform, i.e., a security-based swap execution
facility (``SB SEF'') or SBS exchange, unless no facility makes such
SBS available for trading; \5\ and (3) transactions in SBSs (whether
cleared or uncleared) must be reported to a registered SDR or the
Commission.\6\
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    \3\ Section 712(d) of the Dodd-Frank Act provides that the
Commission and the CFTC, in consultation with the Board of Governors
of the Federal Reserve System (``Federal Reserve''), shall jointly
further define the terms ``swap,'' ``security-based swap,'' ``swap
dealer,'' ``security-based swap dealer,'' ``major swap
participant,'' ``major security-based swap participant,'' ``eligible
contract participant,'' and ``security-based swap agreement.'' These
terms are defined in Sections 721 and 761 of the Dodd-Frank Act and,
with respect to the term ``eligible contract participant,'' in
Section 1a(18) of the Commodity Exchange Act (``CEA''), 7 U.S.C.
1a(18), as re-designated and amended by Section 721 of the Dodd-
Frank Act. Further, Section 721(c) of the Dodd-Frank Act requires
the CFTC to adopt a rule to further define the terms ``swap,''
``swap dealer,'' ``major swap participant,'' and ``eligible contract
participant,'' and Section 761(b) of the Dodd-Frank Act permits the
Commission to adopt a rule to further define the terms ``security-
based swap,'' ``security-based swap dealer,'' ``major security-based
swap participant,'' and ``eligible contract participant,'' with
regard to SBSs, for the purpose of including transactions and
entities that have been structured to evade Title VII. Finally,
Section 712(a) of the Dodd-Frank Act provides that the Commission
and CFTC, after consultation with the Federal Reserve, shall jointly
prescribe regulations regarding ``mixed swaps,'' as may be necessary
to carry out the purposes of Title VII. To assist the Commission and
CFTC in further defining the terms specified above, and to prescribe
regulations regarding ``mixed swaps'' as may be necessary to carry
out the purposes of Title VII, the Commission and the CFTC are
currently seeking comments from interested parties. See Exchange Act
Release No. 62717 (Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010) (File
No. S7-16-10) (advance joint notice of proposed rulemaking regarding
definitions contained in Title VII).
    \4\ See Public Law 111-203, Sec.  763(a) (adding Exchange Act
Section 3C).
    \5\ See Public Law 111-203, Sec.  763(c) (adding Exchange Act
Section 3D).
    \6\ See Public Law 111-203, Sec. Sec.  763(i) and 766(a) (adding
Exchange Act Sections 13(m)(1)(G) and 13A(A)(1), respectively). The
Dodd-Frank Act amends the CEA to provide for a similar regulatory
framework with respect to transactions in swaps regulated by the
CFTC.
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    The Dodd-Frank Act provides the Commission with broad authority to
adopt rules governing SDRs and to develop additional duties applicable
to SDRs.\7\ Today, the Commission is proposing in this release new
Rules 13n-1 to 13n-11 under the Exchange Act governing SDR registration
process, duties, and core principles, including duties related to data
maintenance and access by relevant authorities and those seeking to use
the SDR's repository services.\8\ Pursuant to the legislation,

SDRs are required to collect and maintain accurate SBS transaction data
so that relevant authorities can access and analyze the data from
secure, central locations to better monitor for systemic risk and
potential market abuse.
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    \7\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act
Sections 13(n)(7)(D)(i) and 13(n)(9)).
    \8\ Section 712(a)(2) of the Dodd-Frank Act provides that,
before commencing any rulemaking regarding SBSs, security-based swap
dealers (``SBS dealers''), major security-based swap participants
(``major SBS participants''), SDRs, SBS clearing agencies, persons
associated with an SBS dealer or major SBS participant, eligible
contract participants with regard to SBSs, or SB SEFs pursuant to
Subtitle B of Title VII, the Commission must consult and coordinate
with the CFTC and other prudential regulators for the purposes of
assuring regulatory consistency and comparability, to the extent
possible. See Public Law 111-203, Sec.  712(a)(2). Any person that
is required to be registered as an SDR under Exchange Act Section
13(n) must register with the Commission, regardless of whether that
person is also registered under the CEA as a swap data repository.
Public Law 111-203, Sec.  763(i) (adding Exchange Act Section
13(n)(8)). The Commission preliminarily believes that an entity that
registers with the Commission as an SDR is likely to register also
with the CFTC as a swap data repository. As a result, the Commission
staff and the CFTC staff have consulted and coordinated with one
another regarding their respective Commissions' proposed rules
regarding SDRs and swap data repositories as mandated by Sections
763 and 728 of the Dodd-Frank Act, respectively. The Commission
staff has also consulted and coordinated with other prudential
regulators.
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    A separate release issued by the Commission today proposes
Regulation SBSR, which, among other things, implements the provisions
of the Dodd-Frank Act for reporting SBS transactions to SDRs, including
standards for the data elements that must be provided.\9\ In addition,
the Dodd-Frank Act requires the Commission to engage in rulemaking for
the public dissemination of SBS transaction, volume, and pricing
data,\10\ and provides the Commission with discretion to determine an
appropriate approach to implement this important function. In
Regulation SBSR, the Commission proposes to require SDRs to undertake
this role.\11\
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    \9\ See Exchange Act Release No. 63346 (Nov. 19, 2010)
(``Regulation SBSR Release'').
    \10\ Public Law 111-203, Sec.  763(i) (adding Exchange Act
Section 13(m)(1)).
    \11\ See Regulation SBSR Release, supra note 9.
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    Taken together, the rules that the Commission proposes today seek
to provide improved transparency to regulators and the markets through
comprehensive regulations for SBS transaction data and SDRs. The
proposed rules would require SBS transaction information to be (1)
provided to SDRs in accordance with uniform data standards; (2)
verified and maintained by SDRs, which serve as secure, centralized
recordkeeping facilities that are accessible by relevant authorities;
and (3) publicly disseminated in a timely fashion by SDRs. In
combination, these proposed rules represent a significant step forward
in providing a regulatory framework that promotes transparency and
efficiency in the OTC derivatives markets and creates important
infrastructure to assist relevant authorities in performing their
market oversight functions.
    In preparation for the rulemakings related to SDRs, Commission and
CFTC staff held a joint public roundtable (the ``Data Roundtable'') on
September 14, 2010 to gain further insight into many of the issues
addressed in this proposal.\12\ The rules proposed today take into
account the views expressed at the Data Roundtable, as well as the
comments received.
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    \12\ The Commission and the CFTC solicited comments on the Data
Roundtable. See Exchange Act Release No. 62863 (Sept. 8, 2010), 75
FR 55575 (Sept. 13, 2010). Comments received by the Commission are
available at http://www.sec.gov/cgi-bin/ruling-comments?ruling=df-title-vii-swap-data-repositories&rule_path=/comments/df-title-vii/swap-data-repositories&file_num=DF%20Title%20VII%20-%20Swap%20Data%20Repositories&action=Show_Form&title=Swap%20Data%20Repositories%20-%20Title%20VII%20Provisions%20of%20the%20Dodd-Frank%20Wall%20Street%20Reform%20and%20Consumer%20Protection%20Act.
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    This proposed rulemaking is among the first that the Commission has
considered in connection with its mandates under the Dodd-Frank Act,
and the Commission is mindful of the considerations raised by this
timing. The Commission notes that the SBS market is in a nascent stage
of regulatory development compared to the markets for equity securities
and listed options and that the SBS market could develop further as the
Dodd-Frank Act is fully implemented and these transactions move to
central clearing and trading on organized markets. Accordingly, the
Commission urges all interested parties to comment on all aspects of
this proposed rulemaking, including whether this proposal, taken as a
whole, appropriately advances the objectives of the Dodd-Frank Act in a
manner that adequately takes into account the characteristics of the
relevant markets.

II. Role, Regulation, and Business Models of SDRs

    Under the Dodd-Frank Act, SDRs are intended to play a key role in
enhancing transparency in the SBS market by retaining complete records
of SBS transactions, maintaining the integrity of those records, and
providing effective access to those records to relevant authorities and
the public in line with their respective information needs. The
enhanced transparency provided by an SDR is important to help
regulators and others monitor the build-up and concentration of risk
exposures in the SBS market. Without an SDR, data on SBS transactions
is dispersed and not readily available to regulators and others. SDRs
may be especially critical during times of market turmoil, both by
giving relevant authorities information to help limit systemic risk and
by promoting stability through enhanced transparency. By enhancing
stability in the SBS market, SDRs may also indirectly enhance stability
across markets, including equities and bond markets.\13\
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    \13\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy
Perspectives of OTC Derivatives Market Infrastructure, Federal
Reserve Bank of New York Staff Report No. 424, dated January 2010,
as revised March 2010 (``Transparency can have a calming influence
on trading patterns at the onset of a potential financial crisis,
and thus act as a source of market stability to a wider range of
markets, including those for equities and bonds.'').
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    In addition, SDRs have the potential to reduce operational risk and
enhance operational efficiency in the SBS market. By maintaining
transaction records that are accessible by both counterparties to an
SBS, SDRs will provide a mechanism for counterparties to ensure that
their records reconcile on all of the key economic details, which may
decrease the likelihood of disputes. The Dodd-Frank Act's requirement
of having all SBSs reported to an SDR encourages standardization of
data elements, which promotes operational and market efficiency.
    The data maintained by an SDR may also assist regulators in (i)
preventing market manipulation, fraud, and other market abuses; (ii)
performing market surveillance, prudential supervision, and
macroprudential (systemic risk) supervision; and (iii) resolving issues
and positions after an institution fails.\14\
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    \14\ See Letter from DTCC to Chairmen Mary Schapiro and Gary
Gensler (Nov. 15, 2010) (available at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swapdatarepositories-13.pdf)
(``A registered SDR should be able to provide (i) enforcement agents
with necessary information on trading activity; (ii) regulatory
agencies with counterparty-specific information about systemic risk
based on trading activity; (iii) aggregate trade information for
publication on market-wide activity; and (iv) a framework for real-
time reporting from swap execution facilities and derivatives
clearinghouses.'')
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    SDRs themselves are, however, subject to certain operational risks.
The inability of an SDR to protect the accuracy and integrity of the
data that it maintains or the inability of an SDR to make such data
available to regulators, market participants, and others in a timely
manner could have a significant negative impact on the SBS market.
Failure to maintain privacy of such data could lead to market abuse and
subsequent loss of liquidity. Therefore, it is important that SDRs are
well-run and effectively regulated.

    The Commission is cognizant that the proposed rules discussed
herein, as well as other proposals that the Commission may consider in
the coming months to implement the Dodd-Frank Act, if adopted, could
significantly affect--and be significantly affected by--the nature and
scope of the SBS market in a number of ways. For example, the
Commission recognizes that if the measures that are adopted are too
onerous for new entrants, they could discourage competition and
formation of SDRs. On the other hand, if the Commission adopts rules
that are too permissive, SDRs might be prone to deficiencies such as
limited access to their services or potential lack of data integrity.
The Commission is also mindful that further development of the SBS
market may alter the calculus for future regulation of SDRs. As
commenters review this release, they are urged to consider generally
the role that regulation may play in fostering or limiting development
of the SBS market (or, vice versa, the role that market developments
may play in changing the nature and implications of regulation) and to
focus specifically on this issue with respect to the proposals
regarding SDRs that are discussed below.
    The Commission is also aware that the regulatory framework for SDRs
being developed by the Commission must take into account the commercial
viability of SDRs, because realizing the benefits of SDRs requires that
entities seek to engage in the business of being an SDR. In this
regard, the Commission, which has limited experience with data
repositories, seeks to understand the potential revenue streams and
operating costs for SDRs. Based on our understanding of existing data
repositories and discussions with industry representatives, it appears
that SDRs might operate under any one of a number of business models.
For example, an SDR could provide basic services and access to data on
an at-cost utility model basis. Alternatively, an SDR might seek to
earn a profit from fees charged to participants for reporting SBS
transaction data to the SDR or for providing raw data to participants
or others. In either of these two models, the SDR could also offer to
participants additional or ancilliary services related to the SBS data
that is reported to the SDR, such as calculating quarterly coupon and
other payments (e.g., upfront fees or credit event payments) due
between counterparties of an SBS; providing bilateral netting
calculations; and providing automated life cycle processing for
successor events such as reorganizations and renaming of corporate
entities, and credit events such as bankruptcies, restructurings, and
insolvencies. Further, an entity that already offers post-trade
processing or matching and confirmation services might seek to expand
its business to include acting as a data repository. Finally, any of
these models could involve the sale of enhanced data or tools derived
from the use and analysis of data reported to the repository.
    The SDR regulatory regime set forth in the Dodd-Frank Act and any
rules that the Commission may adopt to implement the Act will likely
affect an entity's decision over which business model to adopt. An
entity likely will remain in or enter into the SBS market as a
registered SDR based upon the interplay between the business model that
it selects and the regulatory requirements that the Commission imposes
under the Dodd-Frank Act.
    The Commission recognizes the importance of promoting the
development of SDRs to collect, maintain, and make available accurate
SBS data to relevant authorities and the public. The rules that the
Commission proposes in this release today reflect its preliminary views
on potentially appropriate regulatory requirements to implement the
Dodd-Frank Act with respect to SDRs. In this regard, the Commission has
considered its experience in regulating the securities market and has
sought to propose rules that take into account the obligations the
Commission has imposed on other registrants.\15\ At the same time, the
Commission is interested in gathering additional information regarding
the business models that the industry may utilize to operate registered
SDRs, views on the potential areas of competition among SDRs, and the
interplay between the commercial viability of various SDR business
models and any rules implemented under the Dodd-Frank Act. The
Commission does not intend by the requirements imposed on an SDR to
mandate any particular business model, and it solicits comment on the
effect of the proposed rules on business models that SDRs would adopt,
and the consequences for market integrity, transparency, and
efficiency.
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    \15\ For example, proposed Rule 13n-6 would require SDRs to
comply with obligations related to their automated systems'
capacity, resiliency, and security that are comparable to the
standards applicable to self-regulatory organizations, including
clearing agencies, and other registrants pursuant to the
Commission's Automation Review Policy standards. And, the
requirement in proposed Rule 13n-4 for an SDR to ensure that any
dues, fees, or any other charges imposed by, and any discounts or
rebates offered by, an SDR be fair and reasonable and not
unreasonably discriminatory is similar to obligations imposed by the
Exchange Act on other registrants. See, e.g., Exchange Act Section
6(b)(4) (``The rules of the exchange [shall] provide for the
equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other persons using its
facilities''); Exchange Act Section 17A(b)(3)(D) (``The rules of the
clearing agency [shall] provide for the equitable allocation of
reasonable dues, fees and other charges among its participants'');
see also Exchange Act Sections 11A(c)(1)(C) and (D) (providing that
the Commission may prescribe rules to assure that all securities
information processors (``SIPs'') may, ``for purposes of
distribution and publication, obtain on fair and reasonable terms
such information'' and to assure that ``all other persons may obtain
on terms which are not unreasonably discriminatory'' the transaction
information published or distributed by SIPs).
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Request for Comment

    The Commission also requests comment on the following specific
issues:
     Are there business models other than those described above
that an SDR may want to adopt? What are the business models, and what
are their benefits and drawbacks for SDRs and for the integrity,
transparency, and efficiency of the SBS market?
     Do the Commission's proposed rules favor or discourage one
business model over another? If so, identify which rule(s) and explain.
     Should the Commission's rules favor or discourage one
business model over another? If so, which models should be favored or
discouraged and why?
     What factors determine whether an entity decides to
operate as an SDR?
     Who are the likely investors in or sources of capital for
new SDRs? What are the key sources of risk or uncertainty facing such
persons? How would the rules being proposed by the Commission, taken as
a whole or individually, facilitate or discourage the investment of
capital in SDRs?
     What are the revenue sources available to SDRs? How would
the rules proposed or that may be adopted affect potential revenue
sources for SDRs, and their commercial viability? Could repositories be
commercially viable if the only permissible sources of revenue derived
from receiving and generating and providing aggregated data? Which
revenue sources are expected to be most important from the standpoint
of commercial viability?
     Would there be advantages or disadvantages to the market
if SDRs were required to provide basic services on an at-cost or
utility model basis?
     Do the rules proposed by the Commission in this release,
taken as a whole, reflect an appropriate regulatory burden on SDRs,
considering the statutory mandates and policy goals of the Dodd-Frank
Act? Should the Commission impose additional or fewer requirements on
SDRs? Which

requirements should be added or removed and why? Which requirements, if
any, in combination or alone, would be unduly burdensome on SDRs?
     With respect to entities that currently perform repository
services for SBSs or other instruments, how do current practices
compare to the practices that the Commission proposes to require in
these rules? What are the incremental costs to potential SDRs in
connection with adding to or revising their current practices in order
to implement these proposed rules?
     How many SDRs are likely to register with the Commission?
Will there likely be more than one SDR for each asset class of SBSs? If
there will likely be only one SDR for each asset class, will that be
due to the inherent nature of the market and of the SDR business model;
will that be due to the rules proposed by the Commission; or will that
be due to other factors? Should the Commission impose additional
regulatory requirements to mitigate any potential detrimental impact on
the SBS market related to a single, dominant SDR for each asset class?
Or should the Commission instead seek to encourage more competition
among SDRs by modifying or eliminating certain aspects of its proposed
rules to facilitate new entrants into the market?
     Exchange Act Section 13(n)(5) requires an SDR to ``provide
direct electronic access to the Commission (or any designee of the
Commission, including another registered entity).'' Under this
provision, should the Commission designate one SDR as the recipient of
the information of other SDRs, through direct electronic access to the
SBS data at the other SDRs, in order to provide the Commission and
relevant authorities with a consolidated location for SBS data? If so,
should the consolidation of data from SDRs be by asset class of SBSs or
across all asset classes? What would be the costs and benefits of
requiring SDRs to report transaction data to another registered SDR
that would consolidate the information? If the Commission were to
designate one SDR to be the consolidator of SBS data in an asset class
or for all SBS data, are there requirements that should be imposed on
such an entity that are different than those imposed on other SDRs? Are
there specific criteria that the Commission should consider in
selecting an SDR to be a consolidator of SBS data?

III. Discussion of Proposed Rules Governing SDRs

    Exchange Act Section 3(a)(75), enacted in Section 761 of the Dodd-
Frank Act, defines a ``security-based swap data repository'' to mean
``any person that collects and maintains information or records with
respect to transactions or positions in, or the terms and conditions
of, security-based swaps entered by third parties for the purpose of
providing a centralized recordkeeping facility for security-based
swaps.'' \16\ Exchange Act Section 13(n), enacted in Section 763(i) of
the Dodd-Frank Act, makes it ``unlawful for any person, unless
registered with the Commission, directly or indirectly, to make use of
the mails or any means or instrumentality of interstate commerce to
perform the functions of a security-based swap data repository.'' \17\
To be registered and maintain such registration, each SDR is required
to comply with the requirements and core principles described in
Exchange Act Section 13(n), as well as with any requirements that the
Commission adopts by rule or regulation.\18\ The Dodd-Frank Act also
requires each SDR to appoint a chief compliance officer (``CCO'') and
specifies the CCO's duties.\19\ In addition, the Dodd-Frank Act grants
the Commission authority to inspect and examine any registered SDR and
to prescribe data standards for SDRs.\20\
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    \16\ Public Law 111-203, Sec.  761 (adding Exchange Act Section
3(a)(75)).
    \17\ Public Law 111-203, Sec.  763(i) (adding Exchange Act
Section 13(n)(1)). Any person that is required to be registered as
an SDR under Exchange Act Section 13(n) must register with the
Commission, regardless of whether that person is also registered
under the CEA as a swap data repository. Id. (adding Exchange Act
Section 13(n)(8)). Under the legislation, a clearing agency may
register as an SDR. Id. (adding Exchange Act Section 13(m)(1)(H)).
In addition, any person that is required to register as an SDR
pursuant to this section must register with the Commission
regardless of whether that person is also registered as an SB SEF.
    \18\ See id. (adding Exchange Act Section 13(n)(3)).
    \19\ See id. (adding Exchange Act Section 13(n)(6)).
    \20\ See id. (adding Exchange Act Sections 13(n)(2) and
13(n)(4)). In a separate proposal, the Commission is proposing rules
prescribing the data elements that an SDR is required to accept for
each SBS in association with requirements under Section 763(i),
adding Exchange Act Section 13(n)(4)(A) relating to standard setting
and data identification. See Regulation SBSR Release (proposed Rule
901), supra note 9. Any comments regarding the data elements should
be submitted in connection with that proposal.
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A. Proposed Rule Regarding Registration of SDRs \21\
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    \21\ In separate proposals, the Commission is proposing rules
requiring each SDR to register as a SIP, as defined in Exchange Act
Section 3(a)(22), on Form SIP based on additional requirements
proposed in those rules and to register as a clearing agency,
depending on an SDR's services. See, e.g., Regulation SBSR Release
(proposed Rule 909), supra note 9. Any comments regarding such
registrations should be submitted in connection with these
proposals.
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    The Commission is proposing Rule 13n-1, which establishes the
procedures by which an SDR may apply to the Commission for
registration. The proposed rule would provide that an application for
the registration of an SDR must be filed electronically in a tagged
\22\ data format on proposed new Form SDR with the Commission in
accordance with the instructions contained in the form.\23\ The
Commission anticipates developing an online filing system through which
an SDR would be able to file and update Form SDR.\24\ The information
filed would be available on the Commission's Web site.\25\ The
Commission preliminarily believes that filing Form SDR in an electronic
format would be less burdensome and more efficient for both the SDRs
and the Commission.
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    \22\ The term ``tag'' (including the term ``tagged'') would be
defined as an identifier that highlights specific information
submitted to the Commission that is in the format required by the
Electronic Data Gathering, Analysis, and Retrieval System
(``EDGAR'') Filer Manual, as described in Rule 301 of Regulation S-
T. See proposed Rule 13n-1(a)(3); see also 17 CFR 232.301. The term
``EDGAR Filer Manual'' would have the same meaning as set forth in
Rule 11 of Regulation S-T (defining ``EDGAR Filer Manual'' as ``the
current version of the manual prepared by the Commission setting out
the technical format requirements for an electronic submission'').
See Proposed Rule 13n-1(a)(1); see also 17 CFR 232.11.
    \23\ See proposed Rule 13n-1(b).
    \24\ The Commission anticipates that SDR filings will be
submitted through EDGAR, in which case the electronic filing
requirements of Regulation S-T would apply. See generally 17 CFR 232
(governing the electronic submission of documents filed with the
Commission).
    \25\ If the Commission adopts the rule as proposed, it is
possible that SDRs might be required to file Form SDR in paper until
such time as an electronic filing system is operational and capable
of receiving the form. SDRs would be notified as soon as the
electronic system can accept filing of Form SDR. At such time, the
Commission may require each SDR to promptly re-file electronically
Form SDR and any amendments to the form.
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    As part of the Commission's longstanding efforts to increase
transparency and the usefulness of information, the Commission has been
implementing data-tagging of information contained in electronic
filings to improve the accuracy of financial information and facilitate
its analysis.\26\ Data becomes machine-readable when it is labeled, or
tagged, using a computer markup language that can be processed by
software programs for analysis. Such computer markup languages use
standard sets of definitions, or ``taxonomies,'' that translate text-
based information in

Commission filings into structured data that can be retrieved,
searched, and analyzed through automated means. Requiring the
information to be tagged in a machine-readable format using a data
standard that is freely available, consistent, and compatible with the
tagged data formats already in use for Commission filings would enable
the Commission to review and analyze effectively Form SDR submissions.
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    \26\ See Regulation S-T, 17 CFR 232. See also Securities Act
Release No. 8891 (Feb. 6, 2008), 73 FR 10592 (Feb. 27, 2008);
Securities Act Release No. 9002 (Jan. 30, 2009), 74 FR 6776 (Feb.
10, 2009); Securities Act Release No. 9006 (Feb. 11, 2009), 74 FR
7748 (Feb. 19, 2009); Exchange Act Release No. 61050 (Nov. 23,
2009), 74 FR 63832 (Dec. 4, 2009); Investment Company Release No.
29132 (Feb. 23, 2010), 75 FR 10060 (Mar. 4, 2010).
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1. Proposed New Form SDR
    Proposed Form SDR includes a set of instructions for its proper
completion and submission. These instructions are attached to this
release, together with proposed Form SDR. The instructions would
require an SDR to indicate the purpose for which it is submitting the
form (i.e., application for registration, or amendment to an
application or to an effective registration) and then to provide
information in seven categories: (1) General information, (2) business
organization, (3) financial information, (4) operational capability,
(5) access to services and data, (6) other policies and procedures, and
(7) legal opinion. As part of the application process, each SDR would
be required to provide additional information to the Commission upon
request.\27\
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    \27\ See proposed Rule 13n-1(b).
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    The Commission preliminarily believes that permitting an SDR to
provide information in narrative form would allow the SDR greater
flexibility and opportunity for meaningful disclosure of relevant
information. The Commission also preliminarily believes that it is
necessary to obtain the requested information in proposed Form SDR to
enable the Commission to determine whether to grant or deny an
application for registration. Specifically, the information would
assist the Commission in understanding the basis for registration as
well as an SDR's overall business structure, financial condition, track
record in providing access to its services and data, technological
reliability, and policies and procedures to comply with its statutory
obligations. The information would also be useful to the Commission in
tailoring any requests for additional information that it may ask an
SDR to provide. Furthermore, the required information would assist the
Commission in the preparation of its inspection and examination of an
SDR.
    General Information. Proposed Form SDR would require an SDR to
provide contact information, information concerning successor entities
(if applicable), a list of asset classes of SBSs for which the SDR is
collecting and maintaining data or for which it proposes to collect and
maintain data, and a description of the functions that it performs or
proposes to perform. This information would assist the Commission and
its staff in evaluating the applications and overseeing registered
SDRs.
    An SDR would be required to consent that any notice or service of
process, pleadings, or other documents in connection with any action or
proceeding against the SDR may be effectuated by certified mail to an
officer or person specified by the SDR at a given U.S. address. The
Commission preliminarily believes that this consent is important to
minimize any logistical obstacles (e.g., locating defendants or
respondents abroad) that the Commission may encounter when attempting
to provide notice to an SDR or to effect service, including service
overseas.
    Form SDR must be signed by a person who is duly authorized to act
on behalf of the SDR. The signer would be required to certify that all
information contained in the application, including the required items
and exhibits, is true, current, and complete. This certification is
consistent with the certification provisions in the registration forms
for SIPs, investment advisers, and broker-dealers (i.e., Forms SIP,
ADV, and BD).\28\
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    \28\ See 17 CFR 249.1001 (Form SIP, for application for
registration as a securities information processor or to amend such
an application or registration); Form ADV (available at http://www.sec.gov/about/forms/formadv.pdf); and Form BD (available at
http://www.sec.gov/about/forms/formbd.pdf).
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    If an applicant is a non-resident SDR, then the signer of Form SDR
would also be required to certify that the SDR can, as a matter of law,
provide the Commission with prompt access to the SDR's books and
records and that the SDR can, as a matter of law, submit to onsite
inspection and examination by the Commission.\29\ For purposes of the
certification, the term ``non-resident security-based swap data
repository'' would mean (i) in the case of an individual, one who
resides in or has his principal place of business in any place not in
the United States; (ii) in the case of a corporation, one incorporated
in or having its principal place of business in any place not in the
United States; or (iii) in the case of a partnership or other
unincorporated organization or association, one having its principal
place of business in any place not in the United States.\30\ Certain
foreign jurisdictions may have laws that complicate the ability of
financial institutions such as SDRs located in their jurisdictions from
sharing and/or transferring certain information, including personal
financial data of individuals that the financial institutions come to
possess from third persons (e.g., personal data relating to the
identity of market participants or their customers). The Commission
preliminarily believes that the non-resident SDR certification is
important to confirm that each SDR located overseas has taken the
necessary steps to be in the position to provide the Commission with
prompt access to its books and records and to be subject to onsite
inspection and examination by the Commission. Failure to make this
certification may be a basis for the Commission to deny an application
for registration. If a registered non-resident SDR becomes unable to
comply with this certification, then this may be a basis for the
Commission to revoke the SDR's registration.
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    \29\ Under Exchange Act Section 13(n)(2), an SDR is subject to
inspection and examination by the Commission. See Public Law 111-
203, Sec.  763(i).
    \30\ See also proposed Rule 13n-1(a)(2). This definition is
substantially similar to the definition of ``non-resident broker or
dealer'' in Exchange Act Rule 17a-7(d)(3). See 17 CFR 240.17a-
7(d)(3).
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    Business Organization. Proposed Form SDR would require each SDR to
provide information regarding its business organization, including
information about (1) any person who owns 10 percent or more of the
SDR's stock or who, either directly or indirectly, through agreement or
otherwise, in any other manner, may control or direct the SDR's
management or policies, (2) the business experience, qualifications,
and disciplinary history of its designated CCOs, officers, directors,
governors, and persons performing functions similar to any of the
foregoing, and the members of all standing committees,\31\ (3) its

governance arrangements, (4) the SDR's constitution, articles of
incorporation or association with all amendments to them, existing by-
laws, rules, procedures, and instruments corresponding to them, (5) the
SDR's organizational structure, (6) its affiliates,\32\ (7) any
material pending legal proceedings to which the SDR or its affiliate is
a party or to which any of its property is the subject, (8) the SDR's
material contracts with any SB SEF, clearing agency, central
counterparty, and third party service provider, and (9) the SDR's
policies and procedures to minimize conflicts of interest in its
decision-making process and to resolve any such conflicts of interest.
Obtaining this information would assist the Commission in understanding
an SDR's overall business structure, governance arrangements, and
operations, all of which would assist the Commission in its inspection
and examination of the SDR.
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    \31\ More specifically, proposed Form SDR would require an SDR
to disclose the following information regarding its designated CCOs,
officers, directors, governors, and persons performing functions
similar to any of the foregoing, and the members of all standing
committees: (a) Name, (b) title, (c) date of commencement and, if
appropriate, termination of present term of position, (d) length of
time such person has held the same position, (e) brief account of
the business experience of such person over the last five years, (f)
any other business affiliations in the securities industry or OTC
derivatives industry, and (g) a description of: (1) Any order of the
Commission with respect to such person pursuant to Exchange Act
Sections 15(b)(4), 15(b)(6), 19(h)(2), or 19(h)(3); (2) any
conviction or injunction of a type described in Exchange Act
Sections 15(b)(4)(B) or (C) within the past ten years; (3) any
action of a self-regulatory organization with respect to such person
imposing a final disciplinary sanction pursuant to Exchange Act
Sections 6(b)(6), 15A(b)(7), or 17A(b)(3)(G); (4) any final action
by a self-regulatory organization with respect to such person
constituting a denial, bar, prohibition, or limitation of
membership, participation, or association with a member, or of
access to services offered by, such organization of a member
thereof; and (5) any final action by another federal regulatory
agency, including the CFTC, any state regulatory agency, or any
foreign financial regulatory authority resulting in: (i) A finding
that such person has made a false statement or omission, or has been
dishonest, unfair, or unethical; (ii) a finding that such person has
been involved in a violation of any securities-related regulations
or statutes; (iii) a finding that such person has been a cause of a
business having its authorization to do business denied, suspended,
revoked, or restricted; (iv) an order entered, in the past ten
years, against such person in connection with a securities-related
activity; or (v) any disciplinary sanction, including a denial,
suspension, or revocation of such person's registration or license
or otherwise, by order, a prevention from associating with a
securities-related business or a restriction of such person's
activities.
    \32\ For purposes of proposed Form SDR, an ``affiliate'' of an
SDR would be defined as a person that, directly or indirectly,
controls, is controlled by, or is under common control with the SDR.
See also proposed Rule 13n-4(a)(1). This proposed definition of
``affiliate'' is designed to allow the Commission to collect
comprehensive identifying information relating to an SDR.
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    Financial Information. Each SDR would be required to disclose as
exhibits to proposed Form SDR certain financial and related
information, including (1) its balance sheet, statement of income and
expenses, statement of sources and application of revenues, and all
notes or schedules thereto, as of the most recent fiscal year of the
SDR, or, alternatively, a financial report, as discussed further in
Section III.K.3 of this release, (2) a balance sheet and statement of
income and expense for each affiliate of the SDR as of the end of the
most recent fiscal year of each such affiliate, or, alternatively,
identification of the most recently filed annual report on Form 10-K of
the SDR's affiliate, if available, (3) the SDR's schedule of dues,
fees, and other charges imposed, or to be imposed, for its services as
well as any discounts and rebates offered, or to be offered, and (4) a
description of any differentiations in such dues, fees, other charges,
discounts, and rebates.
    Operational Capability. Proposed Form SDR would also require each
SDR to provide information on its operational capability, including (1)
its functions and services, (2) the computer hardware that it uses to
perform its functions, (3) personnel qualifications for each category
of professional, non-professional, and supervisory employees employed
by the SDR or the division, subdivision, or other segregable entity
within the SDR, (4) the SDR's measures or procedures to provide for the
security of any system employed to perform its functions, including any
physical and operational safeguards designed to prevent unauthorized
access to the system, (5) any circumstances within the past year in
which such security measures or safeguards failed to prevent any such
unauthorized access to the system and any measures taken to prevent a
reoccurrence, (6) any measures used to satisfy itself that the
information received or disseminated by the system is accurate, (7) the
SDR's backup systems or subsystems that are designed to prevent
interruptions in the performance of any SDR functions, (8) limitations
on the SDR's capacity to receive (or collect), process, store, or
display its data and factors that account for such limitations, and (9)
the priorities of assignment of capacity between functions of the SDR
and any other uses and methods used to divert capacity between such
functions and other uses. Obtaining this information would assist the
Commission in determining, among other things, whether an SDR is able
to comply with proposed Rule 13n-6, as discussed further in Section
III.F of this release.
    Access to Services and Data. Proposed Form SDR would further
require an SDR to provide information regarding access to its services
and data, including (1) the number of persons who presently subscribe,
or who have notified the SDR of their intention to subscribe, to its
services, (2) instances in which the SDR has prohibited or limited any
person with respect to access to services offered or data maintained by
the SDR,\33\ (3) the storage media of any service furnished in machine-
readable form and the data elements of such service, (4) copies of the
contracts governing the terms by which persons may subscribe to the
SDR's services, including ancillary services, (5) any specifications,
qualifications, and criteria that limit, are interpreted to limit, or
have the effect of limiting access to or use of any services offered or
data maintained by the SDR, (6) any specifications, qualifications, or
other criteria required of persons who supply SBS information to the
SDR for collection and maintenance or of persons who seek to connect to
or link with the SDR, (7) any specifications, qualifications, or other
criteria required of any person who requests access to data maintained
by the SDR, and (8) the SDR's policies and procedures to review any
prohibition or limitation of any person with respect to access to
services offered or data maintained by the SDR and to determine whether
any person who has been denied access has been discriminated against
unfairly. Obtaining this information would assist the Commission in
determining, among other things, whether an SDR can comply with
proposed Rule 13n-4(c)(1), as discussed further in Section III.D.2.a in
this release.
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    \33\ If the Commission adopts proposed Rule 909 of Regulation
SBSR, which would require each SDR to register as a SIP, then
Exchange Act Section 11A(b)(5) would govern denials of access to all
SDRs' services. See Regulation SBSR Release (proposed Rule 909),
supra note 9.
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    Other Policies and Procedures. Proposed Form SDR would require each
SDR to submit as exhibits: (1) The SDR's policies and procedures to
protect the privacy of any and all SBS transaction information that the
SDR receives from a market participant or any registered entity, (2) a
description of the SDR's safeguards, policies, and procedures to
prevent the misappropriation or misuse of (a) any confidential
information received by the SDR, including, but not limited to, trade
data, position data, and any nonpublic personal information about a
market participant or any of its customers; (b) material, nonpublic
information; and/or (c) intellectual property by the SDR or any person
associated with the SDR for their personal benefit or for the benefit
of others, (3) the SDR's policies and procedures regarding its use of
the SBS transaction information that it receives from a market
participant, any registered entity, or any other person for non-
commercial and/or commercial purposes, (4) the SDR's procedures and a
description of its facilities for resolving disputes over the accuracy
of the transaction data and positions that are recorded in the SDR, (5)
the SDR's policies and procedures relating to its calculation of
positions, (6) the SDR's policies and procedures to prevent any
provision in a valid SBS from being invalidated or modified through the

procedures or operations of the SDR, and (7) a plan to ensure that the
transaction data and position data that are recorded in the SDR
continue to be maintained after the SDR withdraws from registration,
which shall include procedures for transferring transaction data and
position data to the Commission or its designee (including another
registered SDR). As discussed further below, the Commission is
proposing to require each SDR to establish, maintain, and enforce these
seven policies and procedures. In addition, an SDR would be required to
submit as exhibits to Form SDR all of the policies and procedures set
forth in Regulation SBSR.\34\
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    \34\ See Regulation SBSR Release, supra note 9.
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    Legal Opinion. Finally, Form SDR would require each non-resident
SDR to provide an opinion of counsel that the SDR can, as a matter of
law, provide the Commission with prompt access to the books and records
of such SDR and that the SDR can, as a matter of law, submit to onsite
inspection and examination by the Commission. Each jurisdiction may
have a different legal framework with respect to its laws (e.g.,
privacy laws) that may limit or restrict the Commission's ability to
receive information from an SDR. Providing an opinion of counsel that
an SDR can provide prompt access to books and records and can be
subject to onsite inspection and examination will allow the Commission
to better evaluate an SDR's ability to meet the requirements of
registration and ongoing supervision. Failure to provide an opinion of
counsel may be a basis for the Commission to deny an application for
registration.

Request for Comment

    The Commission requests comment on the following specific issues:
     Are the instructions in proposed Form SDR sufficiently
clear? If not, identify any instructions that should be clarified and,
if possible, offer alternatives.
     Are the Commission's proposed definitions of
``affiliate,'' ``non-resident security-based swap data repository,''
and ``tag'' appropriate and sufficiently clear? If not, why not and how
should they be defined?
     Should the Commission implement an electronic filing
system for receipt of Form SDR, and, if so, what particular features
should be incorporated into the system?
     Do SDRs anticipate any burdens of filing Form SDR
electronically that the Commission should consider?
     In the event that there is a delay in the full
implementation of the Commission's electronic filing system for
receiving Form SDR, should the Commission require each SDR to promptly
re-file electronically Form SDR and any amendments to the form after
the system is operational? If so, what would be a reasonable timeframe
to allow such re-filing (e.g., 30 days, 60 days)? Would the re-filing
be unduly burdensome for SDRs?
     Which information in Form SDR, including exhibits, should
be subject to the proposed data tagging requirements?
     Regarding the format of tagged data, as discussed in
Section III.K.3 of this release, the Commission is proposing that an
SDR's financial reports be submitted in eXtensible Business Reporting
Language (``XBRL'') format. Should the Commission require a specific
format for tagging other information in proposed Form SDR (e.g.,
financial information that is not a financial report as described in
proposed Rule 13n-11(f), operational capability, access to services and
data, and other policies and procedures)? If so, which format (e.g.,
XML, XBRL) would be best suited to such information?
     Would it be useful for the Commission to provide any
additional instructions or define any additional terms in proposed Form
SDR? If so, what are they?
     Is the consent relating to notice and service of process
on proposed Form SDR appropriate and sufficiently clear? If not, why
not and what would be a better alternative to obtaining such consent?
     Are there other factors that the Commission should
consider, in addition to an opinion of counsel, that address whether
the Commission can legally, under applicable foreign law, obtain prompt
access to an SDR's books and records and conduct onsite inspection or
examination of the SDR?
     Are the representations that would be required to be made
by the person who signs Form SDR appropriate and sufficiently clear?
Should the Commission require any additional or alternative
representations?
     Should the Commission require SDRs to provide information
on persons who own ten percent or more of the SDR's stock or who may
control or direct the management or policies of the SDR? Would a
different ownership or control threshold be more appropriate? If so,
why?
     Are the suggested timeframes of the business experience,
qualifications, and disciplinary history of an SDR's designated CCOs,
officers, directors, governors, and persons performing functions
similar to any of the foregoing, and members of all standing committees
appropriate? If not, what should the timeframes be?
     Should the suggested timeframe relating to any conviction
or injunction of a type described in Exchange Act Sections 15(b)(4)(B)
or (C) be ten years as proposed? If not, should it be longer, shorter,
or indefinite? Should it be consistent with other forms (e.g., Form BD)
or with Section 15(b)(4)(B) itself?
     Is the financial information that the Commission is
requesting on proposed Form SDR appropriate? If not, identify any items
that are not appropriate, explain why, and, if possible, offer
alternatives. For example, should the Commission request financial
information of all affiliates of an SDR or only specific affiliates
(e.g., an SDR's parent company, an SDR's wholly-owned subsidiaries,
entities in which an SDR has at least a 25% interest, entities that
have at least a 25% interest in the SDR)?
     Is the information relating to an SDR's operational
capability that the Commission is requesting on proposed Form SDR
appropriate? If not, identify any items that are not appropriate,
explain why, and, if possible, offer alternatives.
     Should the Commission require on Form SDR a narrative
description of any interruption in an SDR's functions performed by
automated facilities or systems that has lasted for more than thirty
minutes within the preceding six months of filing Form SDR, including
the date of each interruption, the cause and duration of each
interruption, and the total number of interruptions that have lasted
thirty minutes or less? If not, why not? Should the timeframes be
longer or shorter? Would this request be necessary in light of the
Commission's proposed Rule 13n-6(b)(3)'s requirement that an SDR notify
the Commission in writing of material systems outages, as discussed
further in Section III.F.1.c. of this release?
     Is the information relating to access to an SDR's services
and data that the Commission is requesting on proposed Form SDR
appropriate? If not, identify any items that are not appropriate,
explain why, and, if possible, offer alternatives.
     Is the Commission's request for information on the
specified policies and procedures of an SDR appropriate? If not,
explain.
     Would any of the requested information on proposed Form
SDR be difficult for an SDR to supply? If so, explain.
     Should the Commission require any additional information
on proposed

Form SDR? If so, what information and why?
     Are there any items on proposed Form SDR that the
Commission should not request? If so, which items and why?
     Under proposed Regulation SBSR, an SDR would be required
to register with the Commission as a SIP on Form SIP.\35\ Should the
Commission combine Form SDR and Form SIP such that an SDR would
register as an SDR and SIP using only one form? For example, should the
Commission add item 28c from Form SIP to Form SDR? Are there other
items from Form SIP that should be added to Form SDR that would help
facilitate the registration process?
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    \35\ See Regulation SBSR Release (proposed Rule 909), supra note
9.
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     Should the policies and procedures required under proposed
Regulation SBSR be filed with the Commission as exhibits to Form SDR or
attachments to a separate schedule to Form SDR?
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?
2. Factors for Approval of Registration and Procedural Process for
Review
    Proposed Rule 13n-1(c) would provide that within 90 days of the
date of the filing of Form SDR (or within such longer period as to
which the SDR consents), the Commission shall either grant the
registration by order or institute proceedings to determine whether
registration should be denied. The 90-day period would not begin to run
until a complete Form SDR has been filed by an SDR with the Commission.
Proceedings instituted pursuant to this proposed rule shall include
notice of the grounds for denial under consideration and opportunity
for hearing on the record and shall be concluded not later than 180
days after the date on which the application for registration is filed
with the Commission under proposed Rule 13n-1(b).\36\ At the conclusion
of such proceedings, the Commission, by order, shall grant or deny such
registration.\37\ The Commission may extend the time for conclusion of
such proceedings for up to 90 days if it finds good cause for such
extension and publishes its reasons for so finding or for such longer
period as to which the SDR consents.\38\
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    \36\ Proposed Rule 13n-1(c).
    \37\ Id.
    \38\ Id.
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    The proposed rule would further provide that the Commission shall
grant the registration of an SDR if the Commission finds that such SDR
is so organized, and has the capacity, to be able to assure the prompt,
accurate, and reliable performance of its functions as an SDR, comply
with any applicable provision of the Federal securities laws and the
rules and regulations thereunder, and carry out its functions in a
manner consistent with the purposes of Exchange Act Section 13(n) and
the rules and regulations thereunder.\39\ The Commission shall deny the
registration of an SDR if the Commission does not make any such
finding.\40\
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    \39\ Proposed Rule 13n-1(c)(3).
    \40\ Id.
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    The Commission preliminarily believes that its proposed timeframes
for reviewing applications for registration as an SDR are appropriate
to allow the Commission staff sufficient time to ask questions and, as
needed, to require amendments or changes to address legal or regulatory
concerns before the Commission approves an application for
registration. In addition, the registration provides a mechanism for an
SDR to demonstrate that it can comply with the federal securities laws
and the rules and regulations thereunder. The proposed procedural
process for reviewing applications for registration as an SDR is
consistent with the procedural process for reviewing applications of
other registrants by the Commission (e.g., SIPs, broker-dealers,
nationally recognized statistical ratings organizations, national
securities exchanges, registered securities associations, clearing
agencies) although the timeframes for review vary.\41\
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    \41\ See 15 U.S.C. 78k-1(b)(3), 78o(b), 78o-7(2), and 78s(a).
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    In order to form a more complete and informed basis on which to
determine whether to grant, deny, or revoke an SDR's registration, the
Commission is considering whether to adopt a requirement that an SDR
file with the Commission, as a condition of registration or continued
registration, a review relating to the SDR's operational capacity and
ability to meet its regulatory obligations. The Commission could
require such a review to be in the form of a report conducted by the
SDR, an independent third party, or both. This review could be required
as an exhibit to Form SDR at the time of registration or as an
amendment to Form SDR at a later date (e.g., one year after the
registration becomes effective) to allow the review to evaluate the
SDR's capabilities after some operational experience following
registration.

Request for Comment

    The Commission requests comment on the following specific issues:
     Is the Commission's proposed registration process
appropriate and sufficiently clear? If not, why not and what would be a
better alternative?
     Are the timeframes in the proposed registration process
appropriate? If not, why not and what would be more appropriate
timeframes?
     Are the proposed factors in determining whether the
Commission should grant or deny an application for registration
appropriate and sufficiently clear? If not, why not? Should the
Commission take into consideration any other factors in determining
whether to grant or deny an SDR's application for registration?
     If a non-resident SDR is registered as an SDR in a foreign
jurisdiction, should the registration process for the non-resident SDR
be any different than the Commission's proposed registration process?
For example, should the registration process be more streamlined for
such non-resident SDR? Should the process instead require more
information from a non-resident SDR? What would be the reasons to
provide for a different registration process or, on the other hand, to
require a uniform process?
     Should the Commission consider any other factors relating
to a non-resident SDR with respect to the Commission's registration
rules or in general?
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?
     Should the Commission require an SDR to conduct or obtain
a review relating to the SDR's operational capacity and ability to meet
its regulatory obligations? If not, why not? If so, how should the
Commission define the nature and scope of this review? Should the
Commission identify a specific framework for SDRs or independent third
parties to follow when conducting a review? If so, what would the
critical components of the framework include? Are existing frameworks
available that are suitable for this purpose and, if so, which ones
would be considered appropriate? Should the review resemble a report,
audit, or something else?
     Should the Commission require the SDR, an independent
third party, or some other entity to conduct the review? What are
examples of such a review? Should the Commission require a review on a
case-by-case basis or for

all SDRs? Should the Commission require that the review be filed with
the Commission? If not, why not? If so, should it be required to be
filed with the Commission as a condition of registration pursuant to
proposed Rule 13n-1? If not, why not? When should the Commission
require the filing of any review? Would conducting or obtaining a
review, or filing such review with the Commission, impose impracticable
burdens and costs on SDRs? Please explain the burdens and quantify the
costs of such a review.
     If the Commission were to adopt a rule requiring a review
by an independent third party, should the rule specify some minimum
standard of review or the types of review that should be performed? If
so, what should the standards be? Should there be minimum qualification
standards for the independent third party? Are there any particular
types of third party service providers that should not be permitted to
conduct a review of an SDR?
     Should the Commission also require that an SDR certify the
accuracy of the review and provide disclosure regarding the nature of
the review, findings, and conclusions? To what extent should an SDR be
permitted to rely on a third party that it hired to perform the review?
Should the Commission condition the ability of an SDR to rely on a
third party's review?
     Would a review by an independent third party be necessary
in light of the CCO's annual compliance report or proposed Rule 13n-6,
as discussed further below?
3. Temporary Registration
    Proposed Rule 13n-1(d) would provide a method for SDRs to register
temporarily with the Commission. Specifically, the Commission, upon the
request of an SDR, may grant temporary registration of the SDR that
shall expire on the earlier of: (1) The date that the Commission grants
or denies registration of the SDR, or (2) the date that the Commission
rescinds the temporary registration of the SDR.\42\ The reasons that
the Commission may rescind such temporary registration would be the
same as those set forth in proposed Rule 13n-2(c), discussed below, for
revoking or cancelling a registration of an SDR--e.g., if the
Commission finds that an SDR has made any false and misleading
statements with respect to any material fact on its Form SDR, is no
longer in existence, has ceased to do business in the capacity
specified in its application for registration, or has violated or
failed to comply with any provision of the federal securities laws or
the rules or regulations thereunder. In addition, the Commission would
expect that SDRs registered on a temporary registration basis
demonstrate that they have the capacity and resources to comply with
their regulatory obligations on an ongoing basis as their business
evolves.
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    \42\ Proposed Rule 13n-1(d).
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    The proposed temporary registration would enable an SDR to comply
with the Dodd-Frank Act upon its effective date (i.e., the later of 360
days after the date of its enactment or 60 days after publication of
the final rule implementing Exchange Act Section 13(n)) \43\ regardless
of any unexpected contingencies that may arise in connection with the
filing of Form SDR. The temporary registration would also allow the
Commission to implement the registration requirements of the Dodd-Frank
Act for SDRs while still giving the Commission sufficient time to
review fully the application of an SDR after it becomes operational,
but before granting a registration that is not limited in duration. An
SDR that is temporarily registered with the Commission would be subject
to Exchange Act Section 13(n) and the rules and regulations thereunder
during the period in which the Commission is reviewing the SDR's
application of registration.
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    \43\ See Public Law 111-203, Sec.  774.
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    Notwithstanding the potential for temporary registration, the
Commission encourages each SDR to apply for registration as soon as
possible, following the Commission's adoption of final Rules 13n-1
through 13n-11, to permit sufficient time for an SDR to answer any
questions that the Commission staff may have and to provide additional
information or documentation, if necessary. The Commission will review
applications in the order in which they are received. Applications
received close to the effective date of the SDR registration
requirement may not be reviewed and approved by the effective date.

Request for Comment

    The Commission requests comment on the following specific issues:
     Is the Commission's proposed rule regarding temporary
registration appropriate? If not, why not? For example, should the
temporary registration be time-limited (e.g., eighteen months from the
date the registration is made effective)?
     Is the Commission's proposed rule for temporary
registration sufficiently clear? If not, how can it be clarified?
     What conditions should apply to the granting of a
temporary registration? For example, should a temporary registration be
granted provided that an SDR's completed Form SDR suggests that it can
comply with Exchange Act Section 13(n) and the rules and regulations
thereunder?
     Is it feasible for an SDR to comply with Exchange Act
Section 13(n) and the rules thereunder upon the effective date of the
final rules applicable to SDRs? If not, which requirement(s) would be
difficult for an SDR to comply with upon the effective date? Should
such requirement(s) be imposed on an incremental, phased-in approach?
If so, what would be an appropriate timeframe for such requirement(s)
to be met?
     Are there specific requirements that the Commission should
consider not requiring an SDR to comply with during the temporary
registration period for reasons other than feasibility? If so, what
requirements and for what reasons?
     Are there any other reasons not specified in this release
upon which a temporary registration should be denied or rescinded?
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?
4. Amendment on Form SDR
    Under proposed Rule 13n-1(e), if any information reported in items
1 through 16, 25, and 44 of Form SDR or in any amendment thereto is or
becomes inaccurate for any reason, whether before or after the
registration has been granted, an SDR shall promptly file an amendment
on Form SDR updating such information (``interim amendment'').
Generally, an SDR would be required to file an amendment within 30 days
from the time such information becomes inaccurate.
    For example, a non-resident SDR should file an amendment promptly
after any changes in the legal or regulatory framework that would
impact its ability or the manner in which it provides the Commission
with prompt access to its books and records or impacts the Commission's
ability to inspect and examine the SDR onsite. The amendment should
include a revised opinion of counsel describing how, as a matter of
law, the SDR will continue to meet its obligations to provide the
Commission with prompt access to the SDR's books and records and to be
subject to the Commission's onsite inspection and examination under the
new regulatory regime. As noted in Section III.A.1.a of this release,
if a registered non-resident SDR

becomes unable to comply with this requirement, because of legal or
regulatory changes, or otherwise, then this may be a basis for the
Commission to revoke the SDR's registration.
    In addition to the proposed interim amendments, an SDR would be
required to file an annual amendment on Form SDR, including all items
subject to interim amendments, within 60 days after the end of its
fiscal year.\44\ Proposed Rule 13n-1(e) is consistent with the
Commission's requirements for other registrants (e.g., national
securities exchanges, SIPs, broker-dealers) to file updated and annual
amendments with the Commission.\45\ The Commission believes that such
amendments are important to obtain updated information on each SDR,
which would assist the Commission in determining whether each SDR
continues to be in compliance with the federal securities laws and the
rules and regulations thereunder. Obtaining updated information would
also assist the Commission in its inspection and examination of an SDR.
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    \44\ Proposed Rule 13n-1(e).
    \45\ See Exchange Act Rules 6a-2 and 15b3-1, 17 CFR 240.6a-2 and
240.15b3-1, respectively. See also 17 CFR 249.1001, supra note 28.
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Request for Comment

    The Commission requests comment on the following specific issues:
     Is the Commission's proposed rule for interim amendments
on Form SDR appropriate and sufficiently clear? If not, why not and
what would be a better alternative?
     Is the proposed timeframe to file an amendment on Form SDR
appropriate? If not, should the timeframe be shorter or longer?
     Should an SDR be required to file an interim amendment for
any other items on Form SDR other than items 1 through 16, 25, and 44?
If so, which item(s) and why?
     Should any of the items 1 through 16, 25, and 44 not be
required to be amended in the interim? If so, which item(s) and why?
     Should interim amendments be required under any other
circumstances not specified?
     Is the Commission's proposed rule requiring SDRs to file
annual amendments on Form SDR appropriate and sufficiently clear? If
not, why not and what would be a better alternative?
     Is an annual filing requirement redundant, in light of the
requirement to update promptly the form, or should the annual filing be
sufficient to obviate the need for prompt updates?
     Is the proposed timeframe to file an annual amendment on
Form SDR appropriate? If not, should the timeframe be shorter or
longer? Should the Commission permit the SDR to request an extension to
file an annual amendment on Form SDR (e.g., due to substantial, undue
hardship)?
5. Service of Process and Non-Resident SDRs
    The Commission is proposing Rule 13n-1(f) to require each SDR to
designate and authorize on Form SDR an agent in the United States,
other than a Commission member, official, or employee, to accept any
notice or service of process, pleadings, or other documents in any
action or proceedings against the SDR to enforce the Federal securities
laws and the rules and regulations thereunder. If an SDR appoints
another agent to accept such notice or service of process, then the SDR
would be required to file promptly an amendment on Form SDR updating
this information.\46\ Proposed Rule 13n-1(f) is intended to conserve
the Commission's resources and to minimize any logistical obstacles
(e.g., locating defendants or respondents abroad) that the Commission
may encounter when attempting to effect service. For instance, by
prohibiting an SDR from designating a Commission member, official, or
employee as its agent for service of process, the proposed rule would
reduce a significant resource burden on the Commission, including
resources to locate agents of registrants overseas and keep track of
their whereabouts.
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    \46\ See proposed Rule 13n-1(e).
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    Proposed Rule 13n-1(g) would further require any non-resident SDR
applying for registration pursuant to this rule to certify on Form SDR
and provide an opinion of counsel that the SDR can, as a matter of law,
provide the Commission with prompt access to the books and records of
such SDR and that the SDR can, as a matter of law, submit to onsite
inspection and examination by the Commission. For the reasons stated in
Section III.A.1.a above, the Commission preliminarily believes that
before granting registration to a non-resident SDR, it is appropriate
to obtain assurance and an opinion of counsel that such person has
taken the necessary steps to be in the position to provide legally the
Commission with prompt access to the SDR's books and records and to be
subject to onsite inspection and examination by the Commission.

Request for Comment

    The Commission requests comment on the following specific issues:
     Is the Commission's proposed rule regarding service of
process appropriate and sufficiently clear? If not, why not and what
would be a better alternative?
     Should the Commission impose any minimum requirements on
the agent whom a non-resident SDR designates to accept any notice or
request for service of process?
     Are there any factors or alternatives that the Commission
should take into consideration to ensure that there could be effective
service of process on a non-resident SDR applying for registration as
an SDR?
     Are there any factors that the Commission should take into
consideration to ensure that a non-resident SDR seeking to register as
an SDR can, in compliance with applicable foreign laws, provide the
Commission with access to the SDR's books and records that are required
pursuant to proposed Rule 13n-7(b), as discussed below, and submit to
onsite inspection and examination by the Commission?
     Are any other documents or information necessary to
establish a non-resident SDR's ability to comply with the federal
securities laws and the rules and regulations thereunder?
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?
6. Definition of ``Report''
    Proposed Rule 13n-1(h) would provide that ``[a]n application for
registration or any amendment thereto that is filed pursuant to this
[rule] shall be considered a `report' filed with the Commission for
purposes of Sections 18(a) and 32(a) of the [Exchange] Act and the
rules and regulations thereunder and other applicable provisions of the
United States Code and the rules and regulations thereunder.'' Exchange
Act Sections 18(a) and 32(a) set forth the potential liability for a
person who makes, or causes to be made, any false or misleading
statement in any ``report'' filed with the Commission (e.g., Form
SDR).\47\
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    \47\ Exchange Act Section 18(a) provides, in part, that ``[a]ny
person who shall make or cause to be made any statement in any * * *
report * * * which statement was at the time and in the light of the
circumstances under which it was made false or misleading with
respect to any material fact, shall be liable to any person (not
knowing that such statement was false or misleading) who, in
reliance upon such statement, shall have purchased or sold a
security at a price which was affected by such statement, for
damages caused by such reliance, unless the person sued shall prove
that he acted in good faith and had no knowledge that such statement
was false or misleading.'' 15 U.S.C. 78r(a). Exchange Act Section
32(a) provides, in part, that ``[a]ny person who willfully and
knowingly makes, or causes to be made, any statement in any * * *
report * * * which statement was false or misleading with respect to
any material fact, shall upon conviction be fined not more than
$5,000,000, or imprisoned not more than 20 years, or both, except
that when such person is a person other than a natural person, a
fine not exceeding $25,000,000 may be imposed.'' 15 U.S.C. 78ff(a).

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B. Proposed Rule Regarding Withdrawal From Registration

    Proposed Rule 13n-2(b) would permit a registered SDR to withdraw
from registration by filing a notice of withdrawal with the Commission.
An SDR would be required to designate on its notice of withdrawal a
person associated with the SDR \48\ to serve as the custodian of the
SDR's books and records.\49\ The purpose of this requirement is to
ensure that the books and records of an SDR are maintained and
available to the Commission and other regulators after the SDR
withdraws from registration, and to assist the Commission in enforcing
proposed Rules 13n-5(b)(7) and 13n-7(c), as discussed below.
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    \48\ The term ``person associated with a security-based swap
data repository'' would be defined as (i) any partner, officer, or
director of such SDR (or any person occupying a similar status or
performing similar functions), (ii) any person directly or
indirectly controlling, controlled by, or under common control with
such SDR, or (iii) any employee of such SDR. Proposed Rule 13n-
2(a)(2). The term ``control'' (including the terms ``controlled by''
and ``under common control with'') would be defined as the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or
otherwise. Under the proposed rules, a person is presumed to control
another person if the person: (i) Is a director, general partner, or
officer exercising executive responsibility (or having similar
status or functions); (ii) directly or indirectly has the right to
vote 25 percent or more of a class of voting securities or has the
power to sell or direct the sale of 25 percent or more of a class of
voting securities; or (iii) in the case of a partnership, has the
right to receive, upon dissolution, or has contributed, 25 percent
or more of the capital. Proposed Rule 13n-2(a)(1).
    \49\ Proposed Rule 13n-2(b).
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    Prior to filing a notice of withdrawal, an SDR would be required to
file an amended Form SDR to update any inaccurate information.\50\ If
there is no inaccurate information to update, then an SDR should
include a confirmation to that effect in its notice of withdrawal. The
Commission anticipates developing an online filing system through which
an SDR can file its notice of withdrawal. The information filed would
be available on the Commission's website. The Commission preliminarily
believes that filing a notice of withdrawal in an electronic format
would be less burdensome and more efficient for both the SDRs and the
Commission.
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    \50\ Id.
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    Proposed Rule 13n-2(c) would provide that a notice of withdrawal
from registration filed by an SDR shall become effective for all
matters (except as provided in Rule 13n-2(c)) on the 60th day after the
filing thereof with the Commission, within such longer period of time
as to which such SDR consents or which the Commission, by order, may
determine as necessary or appropriate in the public interest or for the
protection of investors, or within such shorter period of time as the
Commission may determine. Proposed Rule 13n-2(d) would provide that a
notice of withdrawal that is filed pursuant to this rule shall be
considered a ``report'' filed with the Commission for purposes of
Exchange Act Sections 18(a) and 32(a) and the rules and regulations
thereunder and other applicable provisions of the United States Code
and the rules and regulations thereunder.
    Under proposed Rule 13n-2(e), if the Commission finds, on the
record after notice and opportunity for hearing, that any registered
SDR has obtained its registration by making any false and misleading
statements with respect to any material fact or has violated or failed
to comply with any provision of the federal securities laws and the
rules and regulations thereunder, the Commission, by order, may revoke
the registration. The proposed rule would further provide that pending
final determination of whether any registration shall be revoked, the
Commission, by order, may suspend such registration, if such suspension
appears to the Commission, after notice and opportunity for hearing on
the record, to be necessary or appropriate in the public interest or
for the protection of investors.\51\
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    \51\ Proposed Rule 13n-2(e).
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    Finally, proposed Rule 13n-2(f) would provide that if the
Commission finds that a registered SDR is no longer in existence or has
ceased to do business in the capacity specified in its application for
registration, the Commission, by order, may cancel the registration.
    This proposed rule is similar to Exchange Act Rule 15b6-1, which
relates to withdrawal from registration as a broker-dealer. The
Commission believes that implicit in its authority to register an SDR
is its authority to revoke or cancel such registration.

Request for Comment

    The Commission requests comment on the following specific issues:
     Is the Commission's proposed rule regarding withdrawal
from registration appropriate and sufficiently clear? If not, why not
and what would be a better alternative?
     Are the proposed definitions of ``person associated with a
security-based swap data repository'' and ``control'' appropriate and
sufficiently clear? If not, why not and how should they be defined?
     Should the Commission require an SDR to designate on its
notice of withdrawal a custodian of the SDR's books and records? If
not, why not and what would be a better alternative?
     Are there any other instances not specified in this
proposed rule in which the Commission should have the authority to
revoke or cancel an SDR's registration?
     Is the proposed effective date of 60 days from the filing
of the notice of withdrawal with the Commission appropriate? If not,
would an earlier or later date be more appropriate?
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?

C. Proposed Rule Regarding Registration of Successor to Registered SDR

1. Succession by Application
    Proposed Rule 13n-3 would govern the registration of a successor to
a registered SDR. Because this proposed rule is substantially similar
to Exchange Act Rule 15b1-3, which governs the registration of a
successor to a registered broker-dealer, the Commission is proposing to
incorporate the concepts that the Commission explained when it adopted
amendments to Rule 15b1-3.\52\
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    \52\ See Registration of Successors to Broker-Dealers and
Investment Advisers, Exchange Act Release No. 31661 (Dec. 28, 1992),
58 FR 7 (Jan. 4, 1993).
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    Specifically, proposed Rule 13n-3(a) would provide that in the
event that an SDR succeeds to and continues the business of an SDR
registered pursuant to Exchange Act Section 13(n), the registration of
the predecessor shall be deemed to remain effective as the registration
of the successor if, within 30 days after such succession, the
successor files an application for registration on Form SDR, and the
predecessor files a notice of withdrawal from registration with the
Commission. A successor would not be permitted to ``lock in'' the 30-
day window period by submitting an application that is incomplete in
material respects.
    The proposed rule would further provide that the registration of
the

predecessor SDR shall cease to be effective 90 days after the
application for registration on Form SDR is filed by the successor
SDR.\53\ In other words, the 90-day period would not begin to run until
a complete Form SDR has been filed by the successor with the
Commission. This 90-day period is consistent with proposed Rule 13n-1,
pursuant to which the Commission would have 90 days to grant a
registration or institute proceedings to determine if a registration
should be denied.
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    \53\ Proposed Rule 13n-3(a).
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    The following are examples of the types of successions that would
be required to be completed by filing an application: (1) An
acquisition, through which an unregistered entity purchases or assumes
substantially all of the assets and liabilities of the SDR and then
operates the business of the SDR, (2) a consolidation of two or more
registered entities, resulting in their conducting business through a
new unregistered entity, which assumes substantially all of the assets
and liabilities of the predecessor entities, and (3) dual successions,
through which one registered entity subdivides its business into two or
more new unregistered entities.
2. Succession by Amendment
    Proposed Rule 13n-3(b) would further provide that notwithstanding
Rule 13n-3(a), if an SDR succeeds to and continues the business of a
registered predecessor SDR, and the succession is based solely on a
change in the predecessor's date or state of incorporation, form of
organization, or composition of a partnership, the successor may,
within 30 days after the succession, amend the registration of the
predecessor SDR on Form SDR to reflect these changes. Such amendment
shall be deemed an application for registration filed by the
predecessor and adopted by the successor. In all three types of
successions, the predecessor must cease operating as an SDR. The
Commission preliminarily believes that it is appropriate to allow a
successor to file an amendment to the predecessor's Form SDR in these
types of successions.
3. Scope and Applicability of Proposed Rule 13n-3
    The purpose of proposed Rule 13n-3 is to enable a successor SDR to
operate without an interruption of business by relying for a limited
period of time on the registration of the predecessor SDR until the
successor's own registration becomes effective. The proposed rule is
intended to facilitate the legitimate transfer of business between two
or more SDRs and to be used only where there is a direct and
substantial business nexus between the predecessor and the successor
SDR. The proposed rule would not allow a registered SDR to sell its
registration, eliminate substantial liabilities, spin off personnel, or
facilitate the transfer of the registration of a ``shell'' organization
that does not conduct any business. No entity would be permitted to
rely on proposed Rule 13n-3 unless it is acquiring or assuming
substantially all of the assets and liabilities of the predecessor's
SDR business.
    Proposed Rule 13n-3 would not apply to reorganizations that involve
only registered SDRs. In those situations, the registered SDRs need not
use the rule because they can continue to rely on their existing
registrations. The proposed rule would also not apply to situations in
which the predecessor intends to continue to engage in SDR activities.
Otherwise, confusion may result as to the identities and registration
statuses of the parties.

Request for Comment

    The Commission requests comment on the following specific issues:
     Is there a sufficient likelihood of successors to
registered SDRs to warrant a successor rule?
     Is the Commission's proposed successor rule appropriate
and sufficiently clear? If not, why not and what would be a better
alternative?
     Are the 30-day and 90-day timeframes in the proposed
successor rule appropriate? If not, what would be more appropriate
timeframes and why?
     Are there any other instances not specified in the
proposed rule in which a successor should be permitted to file an
amendment to the predecessor's Form SDR for registration?
     Are there any reasons not to allow a successor to rely on
its predecessor's registration by filing an amendment to the
predecessor's Form SDR in the specified circumstances?
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?
     Are there any factors not specified that the Commission
should consider with respect to this proposed successor rule?

D. Proposed Rule Regarding Duties and Core Principles of SDRs

    Section 763(i) of the Dodd-Frank Act requires an SDR to comply with
the requirements and core principles described in Exchange Act Section
13(n) as well as any requirement that the Commission prescribes by rule
or regulation in order to be registered and maintain registration as an
SDR with the Commission.\54\ The Commission is proposing Rule 13n-4,
which would implement the enumerated duties and core principles and
establish additional requirements by rule.
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    \54\ See Public Law 111-203, Sec.  763(i). The legislation also
authorizes the Commission to establish additional requirements for
SDRs by rule or regulation.
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    In May 2010, the Committee on Payment and Settlement Systems
(``CPSS'') and the Technical Committee of the International
Organization of Securities Commissions (``IOSCO'') issued a
consultative report that presented a set of factors for trade
repositories in the OTC derivatives markets to consider in designing
and operating their services (``CPSS-IOSCO consultative report'').\55\
The OTC Derivatives Regulators' Forum \56\ (``ODRF'') has also made
general recommendations relating to the functionality of trade
repositories. The Commission's proposed rules draw from recommendations
made by CPSS-IOSCO and the ODRF.
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    \55\ See Considerations for Trade Repositories in OTC
Derivatives Markets, CPSS-IOSCO (May 2010) (available at http://www.bis.org/press/p100512.htm). CPSS is a forum for central banks to
monitor and analyze developments in payment and settlement
arrangements as well as in cross-border and multicurrency settlement
schemes. See Press Release, CPSS-IOSCO, CPSS and IOSCO Consult on
Policy Guidance for Central Counterparties and Trade Repositories in
the OTC Derivatives Market (May 12, 2010) (available at http://www.bis.org/press/p100512.htm). IOSCO is an international policy
forum for securities regulators. The objective of the Technical
Committee, a specialized working group established by IOSCO's
Executive Committee, is to review major regulatory issues related to
international securities and futures transactions and to coordinate
practical responses to these concerns. See id.
    \56\ The OTC Derivatives Regulators' Forum is comprised of
international financial regulators, including central banks, banking
supervisors, and market regulators, resolution authorities, and
other governmental authorities that either have direct authority
over OTC derivatives market infrastructure providers or major OTC
derivatives market participants or that consider OTC derivative
market matters more broadly. See OTC Derivatives Regulators' Forum
Overview, http://www.otcdrf.org/.
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1. Enumerated Duties
    Under Exchange Act Sections 13(n)(2), 13(n)(5), and 13(n)(6), each
SDR is required to:
    (1) Subject itself to inspection and examination by the Commission;
    (2) Accept data as prescribed by the Commission for each SBS; \57\
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    \57\ In a separate proposal, the Commission is proposing rules
prescribing the data elements that an SDR is required to accept for
each SBS in association with requirements under Section 763(i) of
the Dodd-Frank Act (adding Exchange Act Section 13(n)(4)(A) relating
to standard setting and data identification). See Regulation SBSR
Release (proposed Rule 901), supra note 9. Any comments regarding
the data elements should be submitted in connection with that
proposal.

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    (3) Confirm with both counterparties to the SBS the accuracy of the
data that was submitted, as discussed further in Section III.E.2.a of
this release;
    (4) Maintain the data in such form, in such manner, and for such
period as prescribed by the Commission, as discussed further in Section
III.E.2 of this release;
    (5) Provide direct electronic access to the Commission (or any
designee of the Commission), including another registered entity;
    (6) Provide such information in such form and at such frequency as
the Commission may require to comply with requirements set forth in
Exchange Act Section 13(m) and the rules and regulations thereunder;
\58\
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    \58\ Exchange Act Section 13(m) pertains to the public
availability of SBS data. See Public Law 111-203, Sec.  763(i). In a
separate proposal relating to implementation of Section 763(i) of
the Dodd-Frank Act (adding Exchange Act Section 13(m)), the
Commission is proposing rules that would impose various duties on
SDRs in connection with the reporting and real-time public
dissemination of SBS transaction information. See Regulation SBSR
Release, supra note 9. Any comments regarding Exchange Act Section
13(m) should be submitted in connection with that proposal.
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    (7) At such time and in such manner as may be directed by the
Commission, establish automated systems for monitoring, screening, and
analyzing data;
    (8) Maintain the privacy of any and all SBS transaction information
that the SDR receives from an SBS dealer,\59\ counterparty, or any
registered entity, as discussed further in Section III.I of this
release;
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    \59\ Section 761 of the Dodd-Frank Act codified the term
``security-based swap dealer'' at Exchange Act Section 3(a)(71) to
generally mean any person that holds itself out as a dealer in SBSs,
makes a market in SBSs, regularly enters into SBSs with
counterparties as an ordinary course of business for its own
account, or engages in any activity causing it to be commonly known
in the trade as a dealer or market maker in SBSs. See Public Law
111-203, Sec.  761; see also Definitions Contained in Title VII of
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange
Act Release No. 62717 (Aug. 13, 2010), 75 FR 51429 (Aug. 20, 2010).
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    (9) On a confidential basis pursuant to Exchange Act Section 24 and
the rules and regulations thereunder, upon request, and after notifying
the Commission of the request, make available all data obtained by the
SDR, including individual counterparty trade and position data, to the
following:
    (i) Each appropriate prudential regulator; \60\
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    \60\ ``Prudential regulator'' is defined in Exchange Act Section
3(a)(74) to have the same meaning as in the CEA. See Public Law 111-
203, Sec.  761. The CEA identifies the Federal Reserve Board, the
Office of the Comptroller of the Currency, the Federal Deposit
Insurance Corporation (``FDIC''), the Farm Credit Administration,
and the Federal Housing Finance Agency as prudential regulators. See
Public Law 111-203, Sec.  721(a)(17) (adding Section 1a(39) of the
CEA, 7 U.S.C. 1a(39)).
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    (ii) The Financial Stability Oversight Council;
    (iii) The CFTC;
    (iv) The Department of Justice; and
    (v) The FDIC \61\ and any other person that the Commission
determines to be appropriate, including, but not limited to--
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    \61\ Subject to the statutory requirements of Sections
13(n)(5)(G) and (H), the FDIC, for example, would have access to all
data maintained by an SDR, including in connection with its
resolution authority under Title II of the Dodd-Frank Act or the
Federal Deposit Insurance Act and with respect to SBS data in the
SDR related to all counterparties to SBS transactions.
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    (i) Foreign financial supervisors (including foreign futures
authorities);
    (ii) Foreign central banks; and
    (iii) Foreign ministries.
    (10) Before sharing information with any entity described in
Exchange Act Section 13(n)(5)(G), obtain a written agreement from each
entity stating that the entity shall abide by the confidentiality
requirements described in Exchange Act Section 24 and the rules and
regulations thereunder relating to the information on SBS transactions
that is provided, and each entity shall agree to indemnify the SDR and
the Commission for any expenses arising from litigation relating to the
information provided under Exchange Act Section 24 and the rules and
regulations thereunder (``indemnification provision''); and
    (11) Designate a CCO who must comply with the duties set forth in
Exchange Act Section 13(n)(6).
    With respect to the SDR's duty to provide direct electronic access
to the Commission or any designee of the Commission, the Commission is
proposing to define ``direct electronic access'' to mean access, which
shall be acceptable to the Commission, to data stored by an SDR in an
electronic format and updated at the same time as the SDR's data is
updated so as to provide the Commission or any of its designees with
the ability to query or analyze the data in the same manner that the
SDR can query or analyze the data.\62\ The Commission may specify the
form and manner in which an SDR provides direct electronic access. The
Commission is considering different--and possibly multiple--ways in
which an SDR may be required or permitted to provide direct electronic
access, including, but not limited to, (1) a direct streaming of the
data maintained by the SDR to the Commission or any of its designees,
(2) a user interface that provides the Commission or any of its
designees with direct access to the data maintained by the SDR and that
provides the Commission or any of its designees with the ability to
query or analyze the data in the same manner that is available to the
SDR, or (3) another mechanism that provides a mirror copy of the data
maintained by the SDR, which is in an electronic form that is
downloadable by the Commission or any of its designees and is in a
format that provides the ability to query or analyze the data in the
same manner that is available to the SDR.
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    \62\ See proposed Rule 13n-4(a)(5).
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    The Commission is not proposing in this release that an SDR
establish automated systems for monitoring, screening, and analyzing
SBS data. The Commission believes that a measured approach to
addressing this provision of the Dodd-Frank Act is appropriate. The
market infrastructure of the SBS market is in its infancy. The Dodd-
Frank Act and the rules and regulations that the Commission will
promulgate over the next year will direct further development and
refinement of this market. As the infrastructure for the SBS market
continues to develop and the Commission gains experience in regulating
this market, the Commission will consider further steps to implement
this statutory provision.\63\
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    \63\ In a separate proposal relating to implementation of
Section 763(i) of the Dodd-Frank Act (adding Exchange Act Section
13(n)(5)(E)), the Commission is considering proposing rules that
would require SDRs to collect data related to monitoring the
compliance and frequency of end-user clearing exemption claims. Any
comments regarding the end-user clearing exemption proposed rules
should be submitted in connection with that proposal.
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    With respect to an SDR's duty to notify the Commission when any
entity described in Exchange Act Section 13(n)(5)(G) requests directly
from the SDR access to data obtained by the SDR, the SDR must keep such
notifications and any related requests confidential.\64\ Failure by an
SDR to treat such notifications and requests confidential could render
ineffective or could have adverse effects on the underlying basis for
the requests. If, for example, a regulatory use of the data is
improperly disclosed, such disclosure could possibly signal a pending
investigation or enforcement action, which could have detrimental
effects.
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    \64\ See Public Law 111-203, Sec.  763(i) (adding Exchange Act
Section 13(n)(5)(G)).
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    With respect to the indemnification provision, the Commission
understands that regulators may be legally prohibited or otherwise
restricted from agreeing to indemnify third parties, including SDRs

as well as the Commission. The indemnification provision could chill
requests for access to data obtained by SDRs, thereby hindering the
ability of others to fulfill their regulatory mandates and
responsibilities. The Commission preliminarily believes that by having
access to such data, however, regulators would be in a better position
to, among other things, monitor risk exposures of individual
counterparties to swap and SBS transactions, monitor concentrations of
risk exposures, and evaluate systemic risks.\65\ As such, the
Commission expects that an SDR would not go beyond the minimum
requirements of the statute so as not to preclude entities described in
Exchange Act Section 13(n)(5)(G) from obtaining the data maintained by
an SDR.
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    \65\ See Duffie et al., supra note 13 (Regulators can ``explore
the sizes and depths of the markets, as well as the nature of the
products being traded. With this information, regulators are better
able to identify and control risky market practices, and are better
positioned to anticipate large market movements.'').
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    The Commission notes that, pursuant to Exchange Act Section 24 and
Rule 24c-1 thereunder, the Commission may share nonpublic information
\66\ in its possession with, among others, ``federal, state, local, or
foreign government, or any political subdivision, authority, agency or
instrumentality of such government * * * [or] a foreign financial
regulatory authority.'' Pursuant to Exchange Act Section 21(a), the
Commission also may assist a foreign securities authority in
investigating whether any person has violated, is violating, or is
about to violate any laws or rules relating to securities matters that
the requesting authority administers or enforces.\67\
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    \66\ Under Rule 24c-1, the term ``nonpublic information'' means
``records, as defined in Section 24(a) of the [Exchange] Act, and
other information in the Commission's possession, which are not
available for public inspection and copying.'' 17 CFR 240.24c-1.
    \67\ Exchange Act Section 21(a)(2) provides: ``On request from a
foreign securities authority, the Commission may provide assistance
in accordance with this paragraph if the requesting authority states
that the requesting authority is conducting an investigation which
it deems necessary to determine whether any person has violated, is
violating, or is about to violate any laws or rules relating to
securities matters that the requesting authority administers or
enforces. The Commission may, in its discretion, conduct such
investigation as the Commission deems necessary to collect
information and evidence pertinent to the request for assistance.
Such assistance may be provided without regard to whether the facts
stated in the request would also constitute a violation of the laws
of the United States. In deciding whether to provide such
assistance, the Commission shall consider whether (A) the requesting
authority has agreed to provide reciprocal assistance in securities
matters to the Commission; and (B) compliance with the request would
prejudice the public interest of the United States.'' 15 U.S.C.
78u(a)(2). Exchange Act Section 3(a)(50) defines ``foreign
securities authority'' to mean ``any foreign government, or any
governmental body or regulatory organization empowered by a foreign
government to administer or enforce its laws as they relate to
securities matter.'' 15 U.S.C. 78c(a)(50).
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Request for Comment

    The Commission requests comment on the following specific issues:
     Is the Commission's proposed rule incorporating the
enumerated duties appropriate and sufficiently clear? If not, what
would be a better alternative?
     Under Exchange Act Section 13(n)(2), an SDR shall be
subject to inspection and examination by any representative of the
Commission. Should the Commission specify in its rule or clarify when
the Commission anticipates inspecting prospective or newly registered
SDRs?
     Is the Commission's proposed definition of ``direct
electronic access'' appropriate and sufficiently clear? If not, how can
the Commission clarify this definition?
     What are the advantages and disadvantages of requiring
SDRs to provide a direct streaming of data to the Commission or its
designee? Should the Commission require periodic electronic transfer of
data as an alternative? If so, how often should such transfer occur
(e.g., hourly, a few times a day, every few days, once a week)?
     What are the advantages and disadvantages of requiring
SDRs to provide a user interface that provides the Commission or any of
its designees access to the data maintained by the SDR and that
provides the Commission or its designee with the ability to query or
analyze the data in the same manner that is available to the SDR?
     What are the advantages and disadvantages of requiring
SDRs to provide a mirror copy of its data, which is in an electronic
form that is downloadable and is in a format that provides the ability
to query or analyze the data in the same manner that is available to
the SDR?
     What would be the most feasible and cost-effective method
for an SDR to provide direct electronic access to the Commission or its
designee?
     Are there other methods of providing direct electronic
access to the Commission or its designee that the Commission should
consider?
     Are there any other factors that the Commission should
take into consideration when requiring SDRs to provide the Commission
or its designee with direct electronic access?
     What would be the advantages and disadvantages of the
Commission appointing as its designee for direct electronic access
another registered SDR, to which SDRs would grant direct electronic
access and which would consolidate the data that would then be provided
to the Commission?
     Are there specific reports or sets of data that the
Commission should consider obtaining from SDRs to monitor risk
exposures of individual counterparties to SBS transactions, to monitor
concentrations of risk exposures, or for other purposes that would help
encourage the transparency and open trading of SBSs?
     In addition to the data already subject to the
Commission's request,\68\ are there additional reports or sets of data
that the Commission should consider obtaining from SDRs to evaluate
systemic risk or that could be used for prudential supervision?
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    \68\ See Regulation SBSR Release, supra note 9.
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     Are there any other reports or sets of data that the
Commission should consider obtaining from SDRs?
     Should the Commission require SDRs to establish automated
systems for monitoring, screening, and analyzing SBS data or provide
the data for the Commission to perform these functions? Should the
Commission require SDRs to monitor, screen, and analyze all SBS data in
their possession in such a manner as the Commission may require,
including in connection with ad hoc requests by the Commission?
     Besides the FDIC, should the Commission specify in its
rules any other appropriate person to have access to all data
maintained by an SDR (e.g., the Federal Reserve Bank of New York)?
     Are there alternative ways that the Commission could
address the indemnification provision while being consistent with
Exchange Act Section 13(n)(5)(H)?
     Should the Commission provide in its rules specific
indemnification language that an SDR would be required to use when
requesting indemnification from entities described in Exchange Act
Section 13(n)(5)(G)? If so, what indemnification language would address
the requirements of the statute and the needs of information users?
     Alternatively, should the Commission explicitly require
that the indemnification agreement be fair and not unreasonably
discriminatory so as not to preclude entities described in Exchange Act
Section 13(n)(5)(G) from obtaining the data maintained by an SDR?
     Should the Commission limit the amount of indemnification
to an SDR and the Commission? If so, what should the limit be? For
example, should it be limited to only reasonable litigation expenses
(and not any damages) in order to facilitate the ability of entities

described in Exchange Act Section 13(n)(5)(G) to obtain data maintained
by an SDR?
     Should the Commission impose any additional duties on
SDRs? For example, should SDRs be required to provide downstream
processing services or ancillary services (e.g., managing life cycle
events and asset servicing)?
     Should any additional duties imposed on SDRs depend on the
asset class of SBSs that the SDR is collecting and maintaining? If so,
clarify.
     What is the likely impact of the Commission's proposed
rule on the SBS market? Would the proposed rule potentially promote or
impede the establishment of SDRs?
     With respect to entities that currently perform repository
services for SBSs or other instruments, how do current practices
compare to the practices that the Commission proposes to require in
this rule? What are the incremental costs to potential SDRs in
connection with adding to or revising their current practices in order
to implement the Commission's proposed rule?
     How might the evolution of the SBS market over time affect
SDRs or impact the Commission's proposed rule?
2. Implementation of Core Principles
    Each SDR is required, under Exchange Act Section 13(n)(7), to
comply with core principles relating to (1) market access to services
and data, (2) governance arrangements, and (3) conflicts of interest.
Specifically, unless necessary or appropriate to achieve the purposes
of the Exchange Act and the rules and regulations thereunder, an SDR
\69\ is prohibited from adopting any policies and procedures or taking
any action that results in any unreasonable restraint of trade or
imposing any material anticompetitive burden on the trading, clearing,
or reporting of transactions. In addition, each SDR must establish
governance arrangements that are transparent to fulfill the public
interest requirements under the Exchange Act and the rules and
regulations thereunder; to carry out functions consistent with the
Exchange Act, the rules and regulations thereunder, and the purposes of
the Exchange Act; and to support the objectives of the federal
government, owners of the SDR, and market participants. Moreover, each
SDR must establish and enforce written policies and procedures
reasonably designed to minimize conflicts of interest in the SDR's
decision-making process and to establish a process for resolving any
such conflicts of interest. Proposed Rule 13n-4(c) incorporates and
implements these three core principles.
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    \69\ Although Exchange Act Section 13(n)(7)(A) refers to ``swap
data repository,'' the Commission believes that the Congress
intended it to refer to ``security-based swap data repository.''
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a. First Core Principle: Market Access to Services and Data \70\
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    \70\ The Dodd-Frank Act refers to the first core principle as
``antitrust considerations,'' which the Commission believes include
market access to services offered by and data maintained by SDRs.
See Public Law 111-203, Sec.  763(i).
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    In implementing the first core principle, the Commission is
proposing rules that are intended to protect investors and to maintain
a fair, orderly, and efficient SBS market. These proposed rules would
protect investors by, for example, fostering transparency in the
services that an SDR provides and its pricing for such services as well
as promoting competition in the SBS market. As discussed more fully
below, when administering these rules, the Commission would generally
expect to apply the principles and procedures it has developed in other
areas in which it monitors analogous services, such as clearing
agencies.
    First, proposed Rule 13n-4(c)(1)(i) would require each SDR to
ensure that any dues, fees, or other charges it imposes, and any
discounts or rebates it offers, are fair and reasonable and not
unreasonably discriminatory.\71\ Such dues, fees, other charges,
discounts, or rebates shall be applied consistently across all
similarly situated users of the SDR's services, including, but not
limited to, market participants,\72\ market infrastructures (including
central counterparties), venues from which data can be submitted to the
SDR (including exchanges, SB SEFs, electronic trading venues, and
matching and confirmation platforms), and third party service
providers.
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    \71\ The Exchange Act applies a similar standard for other
registrants. See, e.g., Exchange Act Section 6(b)(4) (``The rules of
the exchange [shall] provide for the equitable allocation of
reasonable dues, fees, and other charges among its members and
issuers and other persons using its facilities''); Exchange Act
Section 17A(b)(3)(D) (``The rules of the clearing agency [shall]
provide for the equitable allocation of reasonable dues, fees and
other charges among its participants''); see also Exchange Act
Sections 11A(c)(1)(C) and (D) (providing that the Commission may
prescribe rules to assure that all SIPs may, ``for purposes of
distribution and publication, obtain on fair and reasonable terms
such information'' and to assure that ``all other persons may obtain
on terms which are not unreasonably discriminatory'' the transaction
information published or distributed by SIPs).
    \72\ The term ``market participant'' would be defined as any
person participating in the SBS market, including, but not limited
to, SBS dealers, major SBS participants, and any other
counterparties to an SBS transaction. Proposed Rule 13n-4(a)(7).
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    The terms ``fair'' and ``reasonable'' often need standards to guide
their application in practice. One factor commonly taken into
consideration to evaluate the fairness and reasonableness of fees,
particularly those of a monopolistic provider of a service, is the cost
incurred to provide the service.\73\ The Commission does not, however,
intend to establish fees or rates, or to dictate formulas by which fees
or rates are determined. Based on our experience with other
registrants, the Commission would need to take a flexible approach and
evaluate the fairness and reasonableness of an SDR's charges on a case-
by-case basis. The Commission recognizes that there may be instances in
which an SDR would charge different users different prices for the same
or similar services. Such differences, however, cannot be unreasonably
discriminatory. For example, if an SDR's policies and procedures
provide that it may accept an electronic confirmation as reasonable
documentation that the data submitted by both counterparties to an SBS
is accurate, then an SDR may charge a smaller fee to a market
participant that is expected to send a large volume of data that is all
electronically confirmed. If, on the other hand, an SDR requires
greater resources to contact a counterparty to reasonably satisfy
itself that the data that was submitted to the SDR is accurate, then
higher fees may be appropriate. The Commission preliminarily believes
that an SDR should make reasonable accommodations, including
consideration of any cost burdens, on a non-reporting counterparty of
an SBS transaction in connection with any follow-up by the SDR
regarding the accuracy of the SBS transaction data.
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    \73\ See Regulation of Market Information Fees and Revenues,
Exchange Act Release No. 42208 (Dec. 17, 1999).
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    Second, proposed Rule 13n-4(c)(1)(ii) would require each SDR to
permit market participants to access specific services offered by the
SDR separately. Although an SDR would be allowed to bundle its
services, including any ancillary services, this proposed rule would