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

    \323\ See SDR Registration Proposing Release, supra note 6.
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    The requirement for a registered SDR to provide reasonable advance
notice to participants and to the public of its normal and special
closing hours, and to provide notice to participants that the SDR is
available to accept transaction data after its system was unavailable
would likely entail a only a modest annual cost. The Commission
preliminarily estimates that the initial and ongoing aggregate annual
cost would be $27,360, which corresponds to $2,736 per registered
SDR.\324\
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    \324\ The Commission derived this number as follows:
[(Operations Specialist (24 hours) at $114 per hour) x (10 potential
registered SDRs)] = $27,360, which corresponds to $2,736 per
registered SDR.
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    There would be additional costs, but these costs are subsumed in
the costs associated with proposed Rules 901 and 902. For example, the
requirement for reporting parties to report information to the
registered SDR upon receiving a notice that the registered SDR has
resumed its normal operations would be part of the reporting parties'
reporting obligations under proposed Rule 901. The requirement to
disseminate transaction reports held in queue should not present any
costs in addition to those already contained in proposed Rule 902.
3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 904 discussed above, as well as any costs and benefits
not already described. The Commission also requests data to quantify
any potential costs or benefits. In addition, the Commission requests
comment on the following:
    274. How can the Commission more accurately estimate the costs and
benefits for handling and disseminating reported SBS transaction data
during a registered SDR's normal and special closing hours?
    275. Would proposed Rule 904 create any additional costs or
benefits not discussed here?

F. Correction of Errors in Security-Based Swap Information--Rule 905 of
Regulation SBSR

    Proposed Rule 905(a) would establish procedures for correcting
errors in reported and disseminated SBS information, recognizing that
that any system for transaction reporting must accommodate for the
possibility that certain data elements may be incorrectly reported.
Proposed Rule 905(b) would set forth the duties of a registered SDR to
verify disputed information and make necessary corrections. If the
registered SDR either discovers an error in a transaction on its system
or receives notice of an error from a counterparty, proposed Rule
905(b)(1) would require the registered SDR to verify the accuracy of
the terms of the SBS and, following such verification, promptly correct
the erroneous information contained in its system. Proposed Rule
905(b)(2) would further require that, if the erroneous transaction
information contained any data that fall into the categories enumerated
in proposed Rule 901(c) as information required to be reported in real
time, the registered SDR would be required to publicly disseminate a
corrected transaction report of the SBS promptly following verification
of the trade by the counterparties to the SBS.
1. Benefits
    The Commission preliminarily believes that proposed Rule 905 would
enhance the overall reliability of SBS transaction data that would be
required to be reported. Requiring participants to promptly correct
erroneous transaction information should help ensure the timeliness,
accuracy, and completeness of reported transaction information.
Providing more accurate SBS transaction data to a registered SDR could
benefit participants by helping them ensure that their books are marked
accurately and reduce operational risks that arise when counterparties
do not have the same understanding of the details of a SBS transaction.
Furthermore, requiring corrected SBS transaction information be
reported to a registered SDR helps ensure that the Commission and other
regulars have an accurate view of the prudential and systemic risks in
the SBS market.
2. Costs
    The Commission preliminarily believes that promptly submitting an
amended transaction report to the appropriate registered SDR after
discovery of an error as required under proposed Rule 905(a)(2) would
impose costs on reporting parties. Likewise, the Commission
preliminarily believes that promptly notifying the relevant reporting
party after discovery of an error as required under proposed Rule
905(a)(1) would impose costs on non-reporting-party participants.
    With respect to reporting parties, the Commission preliminarily
believes that proposed Rule 905(a) would impose an initial, one-time
cost associated with designing and building the reporting party's
reporting system to be capable of submitting amended SBS transactions
to a registered SDR. In addition, reporting parties would face ongoing
costs associated with supporting and maintaining the error reporting
function.\325\
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    \325\ The Commission preliminarily believes that the actual
submission of amended transaction reports required under proposed
Rule 905(a)(2) would not result in material, independent costs
because this would be done electronically though the reporting
system that the reporting party must develop and maintain to comply
with proposed Rule 901. The costs associated with such a reporting
system are addressed in the Commission's analysis of proposed Rule
901. See supra Section XIV.B.2 and notes 298-301.
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    The Commission preliminarily believes that designing and building
appropriate reporting system functionality to comply with proposed Rule
905(a)(2) would be a component of, and represent an incremental ``add-
on'' to, the cost to build a reporting system and develop a compliance
function as required under proposed Rule 901.
    Based on discussions with industry participants, the Commission
preliminarily estimates this incremental burden to be equal to 5% of
the one-time and annual costs associated with designing and building a
reporting system that is in compliance with proposed Rule 901,\326\
plus 10% of the corresponding one-time and annual costs associated with
developing the reporting party's overall compliance program required
under proposed Rule 901.\327\ Thus, for reporting parties, the
Commission preliminarily estimates that proposed Rule 905(a) would
impose an initial (first-year) aggregate cost of $11,419,000, which is
$11,419 per reporting party,\328\ and an ongoing aggregate annualized
burden of $3,927,000, which is $3,927 per reporting party.\329\
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    \326\ See supra notes 298 and 299.
    \327\ See supra notes 302 and 303.
    \328\ This figure is calculated as follows: [((($46,657 one-time
development of reporting system) x (0.05)) + (($5,400 annual
maintenance of reporting system) x (0.05)) + (($51,590 one-time
compliance program development) x (0.1)) + (($36,572 annual support
of compliance program) x (0.1))) x (1,000 reporting parties)] =
$11,419,000, which is $11,419 per reporting party.
    \329\ This figure is calculated as follows: [((($5,400 annual
maintenance of reporting system) x (0.05)) + (($36,572 annual
support of compliance program) x (0.1))) x (1,000 reporting
parties)] = $3,927,000, which is $3,927 per reporting party.
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    With regard to non-reporting-party participants, the Commission
preliminarily believes that proposed Rule 905(a) would impose an
initial and ongoing cost associated with promptly notifying the
relevant reporting party after discovery of an error as required under
proposed Rule 905(a)(1). The Commission preliminarily estimates that
such annual cost would be $172,280,000, which corresponds to $43,070
per non-reporting-party

participant.\330\ This figure is based on the Commission's preliminary
estimates of (1) 4,000 non-reporting-party participants; (2) 11
transactions per day per non-reporting-party participant;\331\ and (3)
an error rate of one-third (33%),\332\ or approximately 4 transactions
per day per non-reporting-party participant.
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    \330\ This figure is based on the following: [(4 error
notifications per non-reporting-party participant per day) x (365
days/year) x (Compliance Clerk (0.5 hours/report) at $59 per hour) x
(4,000 non-reporting-party participants)] = $172,280,000, which
corresponds to $43,070 per non-reporting-party participant. The
Commission preliminarily believes that participants already monitor
their SBS transactions and positions in the ordinary course of
business. Thus, the Commission preliminary believes that, as a
practical matter, proposed Rule 905 would not result in any
significant new burdens for these participants.
    \331\ This figure is based on the following: [((15,458,824
estimated annual SBS transactions)/(4,000 estimated non-reporting-
party participants))/(365 days/year)] = 10.58, or approximately 11
transactions per day. See supra note 185. The Commission understands
that many of these transactions may arise from previously executed
SBS transactions.
    \332\ In other words, the Commission is estimating that one-
third of all SBS transactions will require an amended report to be
submitted to the registered SDR pursuant to proposed Rule 905(a).
For purposes of its PRA analysis, the Commission is further assuming
that both the non-reporting-party participant and the reporting
party discover all errors. The Commission recognizes that, as a
practical matter, there may be instances where one party fails to
detect an error.
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    For registered SDRs, the ability to verify disputed information,
process a transaction report cancellation, accept a new SBS transaction
report, and update relevant records are all capabilities that the
registered SDR would have to implement to comply with its obligations
under proposed Regulation SDR.\333\ Likewise, a registered SDR would be
required to have the capacity to re-disseminate SBS transaction reports
pursuant to proposed Rule 902. The Commission preliminarily believes
that the costs associated with establishing these capabilities,
including systems development, support, and maintenance, are largely
addressed in the Commission's analysis of those rules.\334\ The
Commission preliminarily estimates that to develop and publicly provide
the necessary protocols for carrying out these functions would impose
on each registered SDR a cost of $186,790.\335\ The Commission
estimates that to review and update such protocols would impose an
annualized cost on each registered SDR of $373,580.\336\
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    \333\ See SDR Registration Proposing Release, supra note 6.
    \334\ See id.
    \335\ This figure is based on the following: [(Sr. Programmer
(80 hours) at $285 per hour) + (Compliance Manager (160 hours) at
$294 per hour) + (Compliance Attorney (250 hours) at $291 per hour)
+ (Compliance Clerk (120 hours) at $59 per hour) + (Sr. Systems
Analyst (80 hours) at $251 per hour) + (Director of Compliance (40
hours) at $426 per hour) = $186,790.
    \336\ This figure is based on the following: [(Sr. Programmer
(160 hours) at $285 per hour) + (Compliance Manager (320 hours) at
$294 per hour) + (Compliance Attorney (500 hours) at $291 per hour)
+ (Compliance Clerk (240 hours) at $59 per hour) + (Sr. Systems
Analyst (160 hours) at $251 per hour) + (Director of Compliance (80
hours) at $426 per hour)] = $373,580.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the
initial aggregate annualized cost on registered SDRs under proposed
Rule 905 would be $5,603,700, which corresponds to $560,370 for each
registered SDR.\337\ The Commission further preliminarily estimates
that the ongoing aggregate annualized cost on registered SDRs under
proposed Rule 905 would be $3,735,800, which corresponds to $373,580
for each registered SDR.\338\
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    \337\ This figure is based on the following: [($186,790 to
develop protocols) + ($373,580 for annual support)) x (10 registered
SDRs)] = $5,603,700, which corresponds to $560,370 per registered
SDR.
    \338\ This figure is based on the following: [($373,580 for
annual support per registered SDR) x (10 registered SDRs)] =
$3,735,800, which corresponds to $373,580 per registered SDR.
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3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 905 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    276. How can the Commission more accurately estimate the costs and
benefits related to correcting errors in reported and disseminated SBS
information?
    277. Would proposed Rule 905 create any additional costs or
benefits not discussed here?

G. Other Duties of Participants--Rule 906 of Regulation SBSR

    Proposed Rule 906(a) would set forth a procedure designed to ensure
that a registered SDR obtains relevant ID information for both
counterparties to a SBS, not just the IDs of the reporting party.
Proposed Rule 906(a) would require a registered SDR to identify any SBS
reported to it for which it does not have participant ID and (if
applicable) broker ID, desk ID, and trader ID of each counterparty. For
such transactions, the registered SDR would be required to send a
report, once a day, to each participant seeking the missing
information. Under proposed Rule 906(a), a participant that receives
such a report would be required to provide the missing ID information
to the registered SDR within 24 hours.
    Proposed Rule 906(b) would require participants to provide a
registered SDR with information identifying the participant's
affiliate(s) that may also be participants of the registered SDR, as
well as its ultimate parent(s). Additionally, under proposed Rule
906(b) participants would be required to promptly notify the registered
SDR of any changes to the information previously provided.
    Proposed Rule 906(c) would require a participant that is a SBS
dealer or major SBS participant to establish, maintain, and enforce
written policies and procedures that are reasonably designed to ensure
compliance with any SBS transaction reporting obligations in a manner
consistent with proposed Regulation SBSR and the registered SDR's
applicable policies and procedures. In addition, proposed Rule 906(c)
would require each such participant to review and update its policies
and procedures at least annually.
1. Benefits
    The Commission preliminarily believes that proposed Rule 906(a)
would enable each registered SDR to obtain more complete records,
consistent with the goals of the Dodd-Frank Act. Also, proposed Rule
906(a) would provide regulators with a more comprehensive picture of
SBS transactions, thus enabling more robust surveillance and
supervision of the SBS markets. More complete SBS records would provide
the Commission necessary information to investigate specific
transactions and respond effectively when issues arise in the SBS
markets.
    Proposed Rule 906(b) is designed to enhance the Commission's
ability to monitor and surveil the SBS markets. Obtaining this ultimate
parent(s) and affiliate(s) information would be helpful for
understanding the risk profile of not only individual counterparties,
but for large financial groups. The Commission further preliminarily
believes that it is important that the participants promptly notify the
registered SDR of any changes to the information regarding ultimate
parent(s) and affiliate(s), as this would impact the value of the data
that the registered SDR would be retaining for regulatory purposes.
    Furthermore, proposed Rule 906(b) could result in significant
benefits by encouraging the creation and widespread use of generally
accepted standards for reference information. The Commission
understands that some efforts have been undertaken--in both

the private and public sectors, both domestically and internationally--
to establish a comprehensive and widely accepted system for identifying
entities that participate not just in the SBS market, but in the
financial markets generally. Such a system would be of significant
benefit to regulators worldwide, as each market participant could
readily be identified using a single reference code regardless of the
jurisdiction or product market in which the market participant was
engaging. Such a system also could be of significant benefit to the
private sector, as market participants would have a common
identification system for all counterparties and reference entities,
and would no longer have to use multiple proprietary nomenclature
systems. The enactment of the Dodd-Frank Act and the establishment of a
comprehensive system for reporting and dissemination of SBSs--and for
reporting and dissemination of swaps, under jurisdiction of the CFTC--
offer a unique opportunity to facilitate the establishment of a
comprehensive and widely accepted system for identifying entities that
participate not just in the SBS market, but in the financial markets
generally.
    The Commission preliminarily believes that proposed Rule 906(c)
could provide benefits to SBS market participants and the market as a
whole. Proposed Rule 906(c) would enhance the overall reliability SBS
transaction data that is required to be reported to a registered SDR
pursuant to proposed Rule 901. Requiring SBS dealers and major SBS
participants to adopt and maintain written policies and procedures
addressing compliance with proposed Regulations SBSR should result in
more reliable reporting of SBS transaction data. More reliable
reporting would benefit counterparties to SBS transactions, and the
market more generally, by increasing the usefulness of the disseminated
data, and would benefit regulators using and analyzing the reported
data. In addition, requiring participants that are SBS dealers or major
SBS participants--the entities that engage in the most SBS
transactions--to implement policies and procedures could reduce the
incidence of outages, reporting system malfunctions, or interruptions
by addressing how they may be prevented and, in the event one occurs,
how it could be resolved with the least negative impact.
    The Commission preliminarily believes that requiring each
participant that is a SBS dealer or major SBS participant to adopt and
maintain written policies and procedures related to the reporting of
SBS transactions may have additional benefits. Proposed Rule 906(c)
should foster compliance efforts more generally among participants.
With written policies and procedures, a participant's compliance with
its reporting obligations would not be overly dependent on any specific
individual. Higher quality reporting of SBS transaction data should
generate greater confidence among SBS market participants and benefit
the market as a whole. Over time, participants and the Commission also
would be able to compare different approaches and develop best
practices for the reporting of SBS transactions. Best practices would
be valuable to the participants, the Commission, and market as a whole
by supporting more complete and accurate SBS transaction reporting.
Comparing the written policies and procedures adopted and maintained by
covered participants would also support Commission supervision and
oversight of SBS transaction reporting. For example, the failure of a
SBS dealer or major SBS participant to adopt and maintain appropriate
policies and procedures as required under proposed Rule 906(c) could
serve as an important indicator of other compliance issues. Proposed
Rule 906(c) could thus provide the Commission a means to address such
concerns proactively.
2. Costs
    Proposed Rule 906(a) would require a registered SDR, once a day, to
send a report to each participant identifying, for each SBS to which
that participant is a counterparty, the SBS(s) for which the registered
SDR lacks participant ID and (if applicable) broker ID, desk ID, and
trader ID. The Commission preliminarily estimates that each registered
SDR would face a one-time, initial cost of $30,832 to create a report
template and develop the necessary systems and processes to produce a
daily report required by proposed Rule 906(a).\339\ The Commission
further preliminarily believes that there would be an ongoing annual
cost for a registered SDR to generate and issue the daily reports, and
to enter into its systems the ID information supplied by participants
in response to the daily reports, of approximately $29,244.\340\
---------------------------------------------------------------------------

    \339\ The Commission derived its estimate from the following:
[(Senior Systems Analyst (40 hours) at $251 per hour) + (Sr.
Programmer (40 hours) at $285 per hour) + (Compliance Manager (16
hours) at $294 per hour) + (Director of Compliance (8 hours) at $426
per hour) + (Compliance Attorney (8 hours) at $291)] = $30,832.
    \340\ The Commission derived its estimate from the following:
[(Senior Systems Analyst (24 hours) at $251 per hour) + (Sr.
Programmer (24 hours) at $285 per hour) + (Compliance Clerk (260
hours) at $59 per hour)] = $29,244.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the
initial aggregate annualized cost for registered SDRs associated with
proposed Rule 906(a) would be approximately $600,760, which corresponds
to $60,076 per registered SDR.\341\ The Commission preliminarily
estimates that the ongoing aggregate annualized cost for registered
SDRs associated with proposed Rule 906(a) would be approximately
$292,440, which corresponds to $29,244 per for registered SDR.\342\
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    \341\ The Commission derived its estimate from the following:
[($30,832 + $29,244) x (10 registered SDRs)] = $600,760, which
corresponds to $60,076 per registered SDR.
    \342\ The Commission derived its estimate from the following:
[($29,244) x (10 registered SDRs)] = $292,440, which corresponds to
$29,244 per registered SDR.
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    Proposed Rule 906(a) would require a participant that receives a
daily report from a registered SDR to provide the missing UICs to the
registered SDR within 24 hours. Proposed Rule 906(a) would impose
initial and ongoing costs on participants to complete and return the
reports received from a registered SDR. The Commission preliminarily
estimates that proposed Rule 906(a) would not result in any initial or
ongoing costs for participants that are reporting parties. This
estimate is based on the Commission's preliminary belief that a
reporting party would structure its reporting program to be in
compliance with proposed Regulation SBSR, and consequently, would send
complete information as relates to itself for each SBS transaction
submitted to a registered SDR. The Commission further preliminarily
estimates that proposed Rule 906(a) would result in an initial and
ongoing aggregate annualized cost for participants of approximately
$75,372,500, which corresponds to a cost of approximately $15,100 per
participant.\343\ This figure is based on the Commission's preliminary
estimates of (1) 5,000 participants; (2) 9 transactions per day per
participant; \344\ and (3) a missing information rate of

80%,\345\ or approximately 7 transactions per day per participant.
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    \343\ This figure is based on the following: [(7 missing
information reports per participant per day) x (365 days/year) x
(Compliance Clerk (0.1 hours) at $59 per hour) x (5,000
participants)] = $75,372,500, which corresponds to $15,074.50 per
participant.
    \344\ This figure is based on the following: [((15,458,824
estimated annual SBS transactions)/(5,000 estimated participants))/
(365 days/year)] = 8.47, or approximately 9 transactions per day.
See supra note 290. The Commission understands that many of these
transactions may arise from previously executed SBS transactions.
    \345\ In other words, the Commission is estimating that 80% of
the time the reporting party would not know and thus would not be
able to report the necessary UICs of its counterparty. Therefore, a
registered SDR would have to obtain the missing UICs through the
process described in proposed Rule 906(a).
---------------------------------------------------------------------------

    Proposed Rule 906(b) would require every participant to provide a
registered SDR an initial parent/affiliate report, using ultimate
parent IDs and participant IDs, and updating that information, as
necessary. The Commission preliminarily estimates that the cost for
each participant to submit an initial or update report would be
$29.50.\346\ The Commission preliminarily estimates that each
participant would submit two reports each year.\347\ In addition, the
Commission preliminarily estimates that there may be 5,000 SBS
participants and that each one may connect to two registered SDRs.
Accordingly, the Commission preliminarily estimates that the initial
and ongoing aggregate annualized cost associated with proposed Rule
906(b) would be $590,000, which corresponds to $118 per
participant.\348\
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    \346\ This figure is based on the following: [(Compliance Clerk
(0.5 hours) at $59 per hour) x (1 report)] = $29.50.
    \347\ During the first year, the Commission preliminarily
believes each participant would submit its initial report and one
update report. In subsequent years, the Commission preliminarily
estimates that each participant would submit two update reports.
    \348\ This figure is based on the following: [($29.50/report) x
(2 reports/year/SDR connection) x (2 SDR connections/participant) x
(5,000 participants)] = $590,000, which corresponds to $118 per
participant.
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    The Commission, in proposed Regulation SBSR, is not requiring the
development of internationally recognized standards for reference
information (such participant IDs or ultimate parent IDs) that could be
used across the financial service industry. Therefore, the Commission
believes that the costs of developing and sustaining such a system
should not be considered costs of proposed Regulation SBSR. However,
proposed Regulation SBSR would require a registered SDR and its
participants to use UICs generated by such a system, if such system
were able to generate such UICs. Although the Commission believes there
would be long-term benefits for using UICs generated by such a system,
there could be short-term costs imposed on reporting parties to convert
to such a system. In addition, under these internationally recognized
standards, users of the reference information could have to pay
reasonable fees to support the system. These fees also would represent
costs of proposed Rule 901. The Commission requests comment on this
issue and any potential costs associated with the potential future use
of internationally recognized standards.
    Proposed Rule 906(c) would require each participant that is a SBS
dealer or major SBS participant to establish, maintain, and enforce
written policies and procedures that are reasonably designed to ensure
compliance with any SBS transaction reporting obligations in a manner
consistent with proposed Regulation SBSR and the registered SDR's
applicable policies and procedures. Proposed Rule 906(c) would also
require the review and updating of such policies and procedures at
least annually. The Commission preliminarily estimates that developing
and implementing written policies and procedures as required under the
proposed rule could result in a one-time initial cost to each covered
participant of approximately $52,440.\349\ Drawing on the Commission's
experience with other rules that require entities to establish and
maintain policies and procedures,\350\ this figure includes the
estimated cost to develop a set of written policies and procedures,
program systems, implement internal controls and oversight, train
relevant employees, and perform necessary testing. In addition, the
Commission preliminarily estimates that the annualized cost to maintain
such policies and procedures, including a full review at least
annually, as required under the proposed rule, would be approximately
$29,736 for each covered participant.\351\ This figure is based on an
estimate of the cost to review existing policies and procedures, make
any necessary updates, conduct ongoing training, maintain relevant
systems and internal controls systems, and perform necessary testing.
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    \349\ The Commission derived its estimate from the following:
[(Sr. Programmer (40 hours) at $285 per hour) + (Compliance Manager
(40 hours) at $294 per hour) + (Compliance Attorney (40 hours) at
$291 per hour) + (Compliance Clerk (40 hours) at $59 per hour) +
(Sr. Systems Analyst (32 hours) at $251 per hour) + (Director of
Compliance (24 hours) at $426 per hour)] = $52,440 per covered
participant.
    \350\ See supra note 256.
    \351\ The Commission derived its estimate from the following:
[(Sr. Programmer (8 hours) at $285 per hour) + (Compliance Manager
(24 hours) at $294 per hour) + (Compliance Attorney (24 hours) at
$291 per hour) + (Compliance Clerk (24 hours) at $59 per hour) +
(Sr. Systems Analyst (16 hours) at $251 per hour) + (Director of
Compliance (24 hours) at $426 per hour)] = $29,736 per participant.
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    Accordingly, the Commission preliminarily estimates that the
initial aggregate annualized cost associated with proposed Rule 906(c)
would be approximately $82,176,000, which corresponds to $82,176 per
covered participant.\352\ The Commission preliminarily estimates that
the ongoing aggregate annualized cost associated with proposed Rule
906(c) would be approximately $29,736,000, which corresponds to $29,736
per covered participant.\353\
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    \352\ The Commission derived its estimate from the following:
[($52,440 + $29,736) x (1,000 covered participants)] = $82,176,000.
    \353\ The Commission derived its estimate from the following:
[($29,736) x (1,000 covered participants)] = $29,736,000.
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    In total, the Commission preliminarily believes that proposed Rule
906 would result in an initial, aggregate annualized cost of
$159,094,260,\354\ and an ongoing, aggregate annualized cost of
$106,350,860 for all covered entities.\355\
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    \354\ This figure is based on the following: [($600,760 for
registered SDRs under proposed Rule 906(a)) + ($75,372,500 for non-
reporting-party participants under proposed Rule 906(a)) + ($945,000
for participants under proposed Rule 906(b)) + ($82,176,000 for
covered participants under proposed Rule 906(c))] = $159,094,260.
    \355\ This figure is based on the following: [($297,360 for
registered SDRs under proposed Rule 906(a)) + ($75,372,500 for non-
reporting-party participants under proposed Rule 906(a)) + ($945,000
for participants under proposed Rule 906(b)) + ($29,736,000 for
covered participants under proposed Rule 906(c))] = $106,350,860.
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3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 906 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    278. How can the Commission more accurately estimate the costs and
benefits?
    279. Would proposed Rule 906 create any additional costs or
benefits not discussed here?
    280. What would be the costs and benefits of having reference
identifiers established under the auspices of an IRSB--for
participants? For registered SDRs? What fees might be charged to
support such a system? How much would those fees be? Who would have to
pay them?
    281. What would be the costs to verify ultimate parent and
affiliate information under the auspices of an IRSB and maintain it
over time? What would be the benefits of having such information
verified and maintained?
    282. To what extent do participants already have policies and
procedures in place for reporting information to an SDR? To what extent
would proposed Rule 906(c) impose costs on covered

participants that they have not already incurred?

H. Policies and Procedures of Registered SDRs--Rule 907 of Regulation
SBSR

    Proposed Rule 907 would require a registered SDR to establish and
maintain compliance with written policies and procedures: (1) That
enumerate the specific data elements of an SBS or a life cycle event
that a reporting party would report; (2) that specify data formats,
connectivity requirements, and other protocols for submitting
information; (3) for specifying how reporting parties are to report
corrections to previously submitted information, making corrections to
information in its records that is subsequently discovered to be
erroneous, and applying an appropriate indicator to any transaction
report required to be disseminated by proposed Rule 905(b)(2), which
would denote that the report relates to a previously disseminated
transaction; (4) describing how reporting parties shall report and,
consistent with the enhancement of price discovery, how the registered
SDR shall publicly disseminate, reports of, and adjustments due to,
life cycle events; SBS transactions that do not involve an opportunity
to negotiate any material terms, other than the counterparty; and any
other SBS transactions that, in the estimation of the registered SDR,
do not accurately reflect the market; (5) for assigning transaction IDs
and UICs related to its participants; and (6) for periodically
obtaining from each participant information that identifies the
participant's ultimate parent(s) and any other participant(s) with
which the counterparty is affiliated, using applicable UICs.
    In addition, proposed Rule 907(b) would require a registered SDR to
establish and maintain written policies and procedures for calculating
and publicizing block trade thresholds for all SBS instruments reported
to the registered SDR in accordance with the criteria and formula for
determining block size as specified by the Commission.
    Under proposed Rules 907(c) and (d), a registered SDR would be
required to make its policies and procedures publicly available on its
Web site, and review, and update as necessary, its policies and
procedures at least annually, indicating the date on which they were
last reviewed. Finally, proposed Rule 907(e) would require a registered
SDR to have the capacity to provide to the Commission, upon request,
information or reports related to the timeliness, accuracy, and
completeness of data reported to it pursuant to proposed Regulation
SBSR and the registered SDR's policies and procedures thereunder.
1. Benefits
    In proposed Regulation SBSR, the Commission is establishing a
number of broad policy goals for implementing Title VII of the Dodd-
Frank Act. Proposed Rule 907 would permit a registered SDR some
flexibility regarding how to meet those goals. In many cases, there
could be many ways that that these goals could be carried out
effectively, and it may not be necessary or appropriate in all cases to
establish one particular way by rule. By requiring a registered SDR, in
proposed Rule 907, to develop policies and procedures for completing
many of the details of an SBS transaction reporting and dissemination
system, the Commission seeks to harness the knowledge and experience of
registered SDRs and harness market incentives to develop the policies
and procedures that are most effective in meeting the policy goals in
an efficient manner. The Commission expects that, over time, registered
SDRs, participants, and the Commission could identify best practices
for the reporting and dissemination of SBS transactions.
    Proposed Rules 907(a)(1) and (2) would require a registered SDR to
develop and maintain policies and procedures to specify the data
elements of a SBS or a life cycle event that a reporting party must
report, as well as the data formats, connectivity requirements, and
other protocols for submitting information. The Commission
preliminarily believes that assigning this responsibility to a
registered SDR would provide a level of flexibility and transparency
that is necessary in this developing market. Furthermore, this approach
would allow registered SDRs (perhaps, but not necessarily, after
consultation with their participants) to quickly identify and address
potential weaknesses in the SBS transaction reporting process as set
out under proposed Regulation SBSR.
    Proposed Rule 907(a)(3) would require a registered SDR to establish
and maintain compliance with policies and procedures for specifying how
reporting parties are to report corrections to previously submitted
information, making corrections to information in its records that is
subsequently discovered to be erroneous, and applying an appropriate
indicator to any transaction report required to be disseminated by
proposed Rule 905(b)(2), which would denote that the report relates to
a previously disseminated transaction. The Commission preliminarily
believes that a registered SDR is in the best position to determine how
these corrections are submitted, and believes that a consistent regime
for the submission of correction by participants would benefit all
market participants.
    Proposed Rule 907(a)(4) would require a registered SDR to develop
and maintain policies and procedures that describe how reporting
parties would report and, consistent with the enhancement of price
discovery, how the registered SDR would publicly disseminate reports
of, and adjustments to, life cycle events; SBS transactions that do not
involve an opportunity to negotiate any material terms, other than the
counterparty; and any other SBS transactions that, in the estimation of
the registered SDR, do not accurately reflect the market. The
Commission believes that the entire SBS market could benefit if a
registered SDR, using its knowledge of the market, would develop
consistent and transparent standards when certain SBS might have
characteristics that reduce or eliminate entirely their price discovery
value. For example, while an inter-affiliate SBS transaction would be
required to be reported (so that the registered SDR obtains information
about the legal owner), it could be disseminated with indication that
the transaction was not at arm's length.
    Proposed Rule 907(a)(5) would require a registered SDR to establish
and maintain compliance with policies and procedures for assigning a
transaction ID to each SBS that is reported to it, and for assigning
UICs, including participant IDs, ultimate parent IDs, desk IDs, broker
IDs, and trader IDs. As noted above, all such UICs would have to be
assigned by or on behalf of an IRSB (or, if no standards-setting body
meet the required criteria or the IRSB has not assigned a UIC to a
particular person or unit thereof, by the registered SDR). Proposed
Rule 906 could result in significant benefits by encouraging the
creation and widespread use of internationally recognized standards for
reference information. The Commission preliminarily believes that
reporting of information using UICs would promote effective oversight,
enforcement, and surveillance of the SBS market by the Commission and
other regulators. For example, activity could be tracked by a
particular participant, a particular desk, or a particular trader.
Regulators could observe patterns and connections in trading activity,
or examine whether a trader had engaged in questionable trading
activity across different SBS instruments. UICs also could facilitate
aggregation and monitoring of the positions of SBS counterparties,
which

could be of significant benefit for prudential and systemic risk
management.
    The Commission understands that some efforts have been undertaken--
in both the private and public sectors, both domestically and
internationally--to establish a comprehensive and widely accepted
system for identifying entities that participate not just in the SBS
market, but in the financial markets generally. Such a system would be
of significant benefit to regulators worldwide, as each market
participant could readily be identified using a single reference code
regardless of the jurisdiction or product market in which the market
participant was engaging. Such a system also could be of significant
benefit to the private sector, as market participants would have a
common identification system for all counterparties and reference
entities, and would no longer have to use multiple identification
systems. The enactment of the Dodd-Frank Act and the establishment of a
comprehensive system for reporting and dissemination of SBSs--and for
reporting and dissemination of swaps, under the jurisdiction of the
CFTC--offer a unique opportunity to facilitate the establishment of a
comprehensive and widely accepted system for identifying entities that
participate not just in the SBS market, but in the financial markets
generally.
    Furthermore, requiring a registered SDR to establish and maintain
compliance with written policies and procedures could result in more
accurate reporting by reporting parties, and thus more reliable
dissemination of SBS transaction data. Higher quality reporting and
dissemination of SBS transaction data should generate greater
confidence among registered SDRs, market participants, and regulators,
thus strengthening the SBS market the market as a whole.
    The Commission preliminarily believes that requiring a registered
SDR to calculate and publish block trade thresholds pursuant to
proposed Rule 907(b) should help market participants, the Commission,
and other regulators monitor block trade thresholds and track changes
in the market for particular SBS instruments over time. The Commission
preliminarily believes that a registered SDR is best placed to deliver
these benefits, because an SDR has access to the necessary data and the
ability to calculate and publicize the block trade thresholds
efficiently.
    The Commission preliminarily believes that requiring a registered
SDR to make publicly available on its Web site the policies and
procedures required by proposed Regulation SBSR, pursuant to proposed
Rule 907(c), would promote greater understanding of and compliance with
such policies and procedures. Periodic review of the policies and
procedures would also ensure that they are up-to-date.
    Finally, proposed Rule 907(e) would require a registered SDR to
have the capacity to provide to the Commission, upon request,
information or reports related to the timeliness, accuracy, and
completeness of data reported to it pursuant to proposed Regulation
SBSR and the registered SDR's policies and procedures thereunder. There
could be benefits in obtaining information from each registered SDR
related to the timeliness, accuracy, and completeness of data reported
to the registered SDR. Required data submissions that are untimely,
inaccurate, or incomplete could compromise the regulatory data that the
Commission would utilize to carry out its oversight responsibilities.
Furthermore, required data submissions that are untimely, inaccurate,
or incomplete could diminish the value of publicly disseminated reports
that promote transparency and price discovery. Information or reports
provided to the Commission by a registered SDR related to the
timeliness, accuracy, and completeness of data could assist the
Commission in examining for compliance with proposed Regulation SBS and
in bringing enforcement or other administrative actions as necessary
and appropriate.
2. Costs
    The Commission preliminarily estimates that ten registered SDRs
would be subject to proposed Rule 907, and that developing and
implementing written policies and procedures as required under proposed
Rule 907 could result in an initial, one-time cost to each registered
SDR of approximately $3,831,000.\356\ This figure includes the
estimated cost to develop a set of written policies and procedures,
program systems, implement internal controls and oversight, train
relevant employees, perform necessary testing, monitor participants,
and compile data.\357\ In addition, the Commission preliminarily
estimates that the annualized cost to maintain such policies and
procedures, including a full review at least annually; making its
policies and procedures publicly available on its Web site; and
developing the capacity to provide the Commission information or
reports related to the timeliness, accuracy, and completeness of data
reported to it pursuant to proposed Regulation SBSR and the registered
SDR's policies and procedures would be approximately $7,662,000 for
each registered SDR.\358\ This figure is based on an estimate of the
cost to review existing policies and procedures, make necessary
updates, conduct ongoing training, maintain relevant systems and
internal controls systems, calculate and publish block trade
thresholds, perform necessary testing, monitor participants, and
collect data. Accordingly, the Commission preliminarily estimates that
the initial annualized cost associated with proposed Rule 907 would be
approximately $11,492,500 per registered SDR, which corresponds to an
initial annualized aggregate cost of approximately $114,924,500.\359\
The Commission preliminarily estimates that the ongoing annualized cost
associated with proposed Rule 907 would be approximately $7,662,000 per
registered SDR, which corresponds to an ongoing annualized aggregate
cost of approximately $76,617,000.\360\ These figures are based, in
part, on the

Commission's experience with other rules that require entities to
establish and maintain compliance with policies and procedures.\361\
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    \356\ The Commission derived its estimate from the following:
[(Sr. Programmer (1,667 hours) at $285 per hour) + (Compliance
Manager (3,333 hours) at $294 per hour) + (Compliance Attorney
(5,000 hours) at $291 per hour) + (Compliance Clerk (2500 hours) at
$59 per hour) + (Sr. Systems Analyst (1,667 hours) at $251 per hour)
+ (Director of Compliance (833 hours) at $426 per hour)] =
$3,830,722 per SDR. The Commission preliminarily believes that
potential SDRs that have similar policies and procedures in place
may find that these costs would be lower, while potential SDRs that
do not have similar policies and procedures in place may find that
the potential costs would be higher.
    \357\ This figure includes time necessary to design and program
systems and implement policies and procedures to calculate and
publish block trade thresholds for all SBS instruments reported to
the registered SDR as required by proposed Rule 907(b). It also
includes time necessary to design and program systems and implement
policies and procedures to determine which reported trades would not
be considered block trades pursuant to proposed Rule 907(b). This
figure also includes time necessary to design and program systems
and implement policies and procedures to assign certain IDs, as
required by proposed Rule 907(a)(5).
    \358\ The Commission derived its estimate from the following:
[Sr. Programmer (3,333 hours) at $285 per hour) + (Compliance
Manager (6,667 hours) at $294 per hour) + (Compliance Attorney
(10,000 hours) at $291 per hour) + (Compliance Clerk (5,000 hours)
at $59 per hour) + (Sr. Systems Analyst (3,333 hours) at $251 per
hour) + (Director of Compliance (1,667 hours) at $426 per hour)] =
$7,661,728 per registered SDR. The Commission preliminarily believes
that potential SDRs that have similar policies and procedures in
place may find that these costs would be lower, while potential SDRs
that do not have similar policies and procedures in place may find
that the potential costs would be higher.
    \359\ The Commission derived its estimate from the following:
[((3,830,722) + ($7,661,728)) x (10 registered SDRs)] =
$114,924,500.
    \360\ The Commission derived its estimate from the following:
[($7,661,728) x (10 registered SDRs)] = $76,617,280.
    \361\ See supra note 256.
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    In addition, proposed Rule 907(a)(5) could impose certain costs on
registered SDRs in connection with the use of internationally
recognized standards for reference information. The Commission, in
proposed Regulation SBSR, is not requiring the development of such
standards that could be used across the financial service industry.
Therefore, the Commission believes that the costs of developing and
sustaining such a system should not be considered costs of proposed
Regulation SBSR. However, proposed Regulation SBSR would require a
registered SDR to use UICs generated by such a system, if such system
is able to generate such UICs. Although the Commission believes there
would be long-term benefits for using UICs generated by such a system,
there could be short-term costs imposed on registered SDRs to convert
to such a system. In addition, under these internationally recognized
standards, users of the reference information could have to pay
reasonable fees to support the system. These fees also would represent
costs of proposed Rule 901. The Commission requests comment on this
issue and any potential costs associated with the potential future use
of internationally recognized standards.
    There could be a potential cost of proposed Rule 907 in that
registered SDRs would retain flexibility to shape the details of a SBS
trade reporting and dissemination system. It could be that such
flexibility could result in varying approaches by each registered SDR
and, thus, complicate the reporting of SBS transactions, impede the use
of SBS transaction information that is publicly disseminated, or make
market oversight more difficult. These potential costs could be avoided
were the Commission to implement more of the details through
rulemaking. The Commission requests comment on the costs, if any,
associated with providing a registered SDR a certain amount of
flexibility, and how those costs should be balance with the potential
benefits as discussed above of providing the registered SDRS with
flexibility.
    Finally, with respect to proposed Rule 907(e), the Commission
preliminarily believes that, as part of its core functions, a
registered SDR would have the capacity to provide to the Commission,
upon request, information or reports related to the timeliness,
accuracy, and completeness of data reported to it pursuant to proposed
Regulation SBSR and the registered SDR's policies and procedures.
Proposed Rule 13n-5(b) would require a registered SDR to establish,
maintain, and enforce written policies and procedures to satisfy itself
by reasonable means that the transaction data that has been submitted
to the security-based swap data repository is accurate, and also to
ensure that the transaction data and positions that it maintains are
accurate.\362\ The Commission preliminarily believes that these
capabilities would enable a registered SDR to provide the Commission
information or reports as may be requested pursuant to proposed Rule
907(e). Thus, the Commission does not believe that proposed Rule 907(e)
would impose any additional costs on a registered SDR.
---------------------------------------------------------------------------

    \362\ See SDR Registration Proposing Release, supra note 6,
proposed Rules 13n-5(b)(1)(iii) and 13n-5(b)(3) under the Exchange
Act.
---------------------------------------------------------------------------

3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 907 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    283. How can the Commission more accurately estimate the costs and
benefits?
    284. Would proposed Rule 907 create any additional costs or
benefits not discussed here?
    285. Is it a potential cost that the policies and procedures
sufficiently detailed such that participants would be able to know what
is required of them?
    286. What are the costs and benefits of allowing a registered SDR
some flexibility to determine whether certain SBSs may not have price
discovery value and to use certain indicators to that effect in the
publicly disseminated transaction reports?
    287. What costs would be imposed on a registered SDR to use UICs
that had been established by or on behalf of an IRSB? Would the
registered SDR have to pay fees to support the system? To whom? How
much would the fees be? What would be the costs of transitioning to
such a system? How would these overall costs compare to the costs that
would be incurred by a registered SDR to assign UICs using its own
methodology?
    288. What are the costs of allowing registered SDRs flexibility to
shape many of the details of a SBS trade reporting and dissemination
system? What are the benefits?

I. Jurisdictional Matters--Rule 908 of Regulation SBSR

1. Benefits
    The Commission believes that, in proposing Rule 908, the Commission
has no discretion about which entities or SBSs are subject to the
Exchange Act, as amended by the Dodd-Frank Act. A federal agency does
not have the power to expand or circumscribe the reach of U.S. law.
Therefore, because the Commission has no discretion in the matter,
there are no benefits to proposed Rule 908 other than those inherent in
the Exchange Act, as amended by the Dodd-Frank Act.
2. Costs
    Similarly, because the Commission has no discretion in the matter,
there are no costs to proposed Rule 908 other than those inherent in
the Exchange Act, as amended by the Dodd-Frank Act.

J. Registration of Security-Based Swap Data Repository as Securities
Information Processor--Rule 909 of Regulation SBSR

    Proposed Rule 909 would require each registered SDR also to
register with the Commission as a SIP on existing Form SIP.
1. Benefits
    The Commission preliminarily believes that SIP registration of a
registered SDR would help ensure fair access to important SBS
transaction data reported to and publicly disseminated by the
registered SDR. Requiring a registered SDR to register with the
Commission as a SIP would subject it to Section 11A(b)(5) of the
Exchange Act,\363\ which provides that a registered SIP must notify the
Commission whenever it prohibits or limits any person's access to its
services. Upon its own motion or upon application by any aggrieved
person, the Commission could review the SIP's action.\364\ If the
Commission finds that the person has been discriminated against
unfairly, it could require the SIP to provide access to that
person.\365\ Section 11A(b)(6) of the Exchange Act \366\ also provides
the Commission authority to take certain regulatory action as may be
necessary or appropriate against a registered SIP.\367\

The Commission preliminarily believes that potential consumers of SBS
market data would benefit from the Commission having the additional
authority over a registered SDR/SIP provided by Sections 11A(b)(5) and
11A(b)(6) of the Exchange Act to help ensure that these entities offer
their SBS market data on terms that are fair and reasonable and not
unreasonably discriminatory.
---------------------------------------------------------------------------

    \363\ 15 U.S.C. 78k-1(b)(5).
    \364\ See 15 U.S.C. 78k-1(b)(5)(A).
    \365\ See 15 U.S.C. 78k-1(b)(5)(B).
    \366\ 15 U.S.C. 78k-1(b)(6).
    \367\ Section 11A(b)(6) of the Exchange Act provides that the
Commission, by order, may censure or place limitations upon the
activities, functions, or operations of any registered SIP or
suspend for a period not exceeding 12 months or revoke the
registration of any such processor, if the Commission finds, on the
record after notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or revocation is in the public
interest, necessary or appropriate for the protection of investors,
or to assure the prompt, accurate, or reliable performance of the
functions of such SIP, and that such SIP has violated or is unable
to comply with any provision of this title or the rules or
regulations thereunder.
---------------------------------------------------------------------------

2. Costs
    The Commission preliminarily believes that the costs of proposed
Rule 909 would be minimal. As noted above, proposed Rule 909 would
impose an initial one-time cost on each registered SDR associated with
the submission of Form SIP.\368\ The Commission notes that Form SDR,
which all SDRs would be required to complete and submit to the
Commission pursuant to proposed Rule 13n-1 under the Exchange Act,\369\
and Form SIP are similar in many respects. Thus, the Commission
preliminarily believes that a registered SDR, which must complete Form
SDR, would be able to complete Form SIP more easily and with less cost
than otherwise would be the case. The Commission preliminarily
estimates that the one-time cost to each SDR to complete Form SIP would
be about one-quarter the cost of completing proposed Form SDR, or
approximately $14,600.\370\ In addition, the Commission preliminarily
estimates that each SDR would incur approximately one half of the
ongoing annual costs--corresponding to an average of six months of
operations--during the first year. The Commission preliminarily
estimates this cost would be approximately $730 per SDR/SIP.\371\
---------------------------------------------------------------------------

    \368\ See supra Section XII.J.
    \369\ See SDR Registration Proposing Release, supra note 6.
    \370\ The Commission derived its estimate from the following:
[(Compliance Attorney (37.5 hours) at $291 per hour) + (Compliance
Clerk (62.5 hours) at $59 per hour)] = $14,600. See Section XII(J)
supra; SDR Registration Proposing Release, supra note 6.
    \371\ The Commission derived its estimate from the following:
[($1,460/2)] = $730. See infra note 372.
---------------------------------------------------------------------------

    With regard to ongoing costs, the Commission preliminarily
estimates that the aggregate annualized cost for providing amendments
to Form SIP would be one-tenth of the cost to complete the initial Form
SIP, or approximately $1,460 per SDR/SIP.\372\ This figure is based on
a preliminary estimate that each registered SDR would submit one
amendment on Form SIP each year. SIP registration also would require a
registered SDR to provide notice to the Commission of prohibitions or
limitations on access to its services. The Commission preliminarily
believes that the notice would be a simple form, and that prohibitions
or limitations on access to information provided by a registered SDR
would be not be prevalent. Thus, the Commission does not believe that
providing such notice would result in economically significant costs.
---------------------------------------------------------------------------

    \372\ The Commission derived its estimate from the following:
[($14,600) x (0.1)] = $1,460. See supra note 370.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the
initial aggregate annualized costs associated with proposed Rule 909
would be approximately $153,300, which corresponds to $15,330 per
registered SDR.\373\ The Commission further preliminary estimates that
the ongoing aggregate annualized costs associated with proposed Rule
909 would be approximately $14,600, or an ongoing annual cost of
approximately $1,460 for each registered SDR/SIP.\374\ The Commission
solicits comments as to the accuracy of these estimates.
---------------------------------------------------------------------------

    \373\ The Commission derived its estimate from the following:
[(($14,600) + ($730)) x (10 registered SDRs)] = $153,300. See supra
notes 370 and 371.
    \374\ The Commission derived its estimate from the following:
[($1,460) x (10 registered SDRs)] = $14,600. See supra notes 372.
---------------------------------------------------------------------------

3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 909 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    289. How can the Commission more accurately estimate the costs and
benefits?
    290. Would proposed Rule 909 create any additional costs or
benefits not discussed here?
    291. Are the Commission's preliminary estimates reasonable?
    292. Is SIP registration likely to impose costs not addressed? If
so, what are they?

K. Implementation of Security-Based Swap Reporting and Dissemination--
Rule 910 of Regulation SBSR

1. Benefits
    Proposed Rule 910 addresses implementation of the obligations
imposed by proposed Regulation SBSR. Proposed Rule 910(a) would require
a reporting party to report to a registered SDR any pre-enactment SBSs
subject to reporting under proposed Rule 901(i) no later than January
12, 2012 (180 days after the effective date of the Dodd-Frank Act). The
proposed timeframe would help ensure that the Commission has relevant
information about SBS transactions necessary to prepare reports
required by the Dodd-Frank Act.\375\ Further, proposed Rule 910 would
help ensure timely implementation of Regulation SBSR, and thereby
facilitate achievement of the goals articulated in the Dodd-Frank Act.
---------------------------------------------------------------------------

    \375\ See Section 719 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    Proposed Rule 910(b) would establish a phase-in period for each SDR
that registers with the Commission, as well as its participants. The
phase-in period would give both the registered SDR and its participants
a reasonable period in which to acquire or configure the necessary
systems, engage and train the necessary staff, and develop and
implement the necessary policies and procedures to implement the
proposed rules. In the absence of the measured and incremental approach
specified in proposed Rule 910(b), market participants might not
evaluate and develop their systems, processes, and procedures with
sufficient care and analysis. Furthermore, without the phase-in period
afforded by proposed Rule 910(b), registered SDRs and their
participants could be forced to devote an undue amount of capital and
resources to becoming compliant with proposed Regulation SBSR, thus
diverting capital and resources from other productive endeavors.
2. Costs
    The Commission preliminarily believes that proposed Rule 910(a)
would not require reporting parties to materially change their current
practices or operations with respect to recordkeeping for the pre-
enactment SBSs or transitional SBSs. Any reporting party, as part of
its regular business operations, would already maintain records
covering most if not all of the data elements associated with a SBS.
Furthermore, proposed Rule 910(a) would not require reporting parties
to report any data elements (such as the

time of execution) that were not already available. Therefore, proposed
Rule 910(a) would not require reporting parties to search for or
reconstruct any missing data elements.
    To comply with the reporting obligations of proposed Rule 910(a),
reporting parties likely would incur many of the costs that they
otherwise would incur in order to comply with proposed Rule 901.\376\
Because of the substantial overlap between the costs necessitated by
proposed Rule 910 and proposed Rule 901 (for reporting parties) and
proposed Rule 902, the Commission preliminarily estimates that that the
initial annualized, cost for each reporting party associated with
proposed Rule 910 would be de minimis.
---------------------------------------------------------------------------

    \376\ See supra Section XIV.B.2.
---------------------------------------------------------------------------

    The Commission preliminarily estimates two types of costs
associated with proposed Rule 910(b): One stemming from the possibility
that the phase-in period is too long and the other stemming from the
possibility that the phase-in period is too short. If the phase-in
period were too long, the benefits from better recordkeeping and
regulatory information, as well as from post-trade transparency in the
SBS market, would be inappropriately delayed. However, if the phase-in
period were too short, market participants might not have enough time
to develop appropriate systems and procedures to effectively implement
proposed Regulation SBSR. In proposing Rule 910(b), the Commission
seeks an appropriate balance between these two considerations.
3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 910 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    293. How can the Commission more accurately estimate the costs and
benefits?
    294. Would proposed Rule 910 create any additional costs or
benefits not discussed here?
    295. How many entities would be affected by the rule?
    296. Are there additional costs involved in complying with the
proposed rule that have not been identified? What are the types, and
amounts, of the costs?
    297. Are there additional benefits from the rule that have not been
identified? If so, please identify and quantify to the extent feasible.

L. Prohibition During Phase-In Period--Rule 911 of Regulation SBSR

    Proposed Rule 911 would provide that a reporting party to a SBS
would not report a SBS to a registered SDR in a phase-in period
described in proposed Rule 910 during which the registered SDR is not
yet required to publicly disseminate transaction reports for that SBS
instrument unless: (1) The SBS is also reported to an registered SDR
that is disseminating transaction reports for that SBS instrument
consistent with proposed Rule 902; or (b) No other registered SDR is
able to receive, hold, and publicly disseminate transaction reports
regarding that SBS instrument.
1. Benefits
    The Commission preliminarily believes that proposed Rule 911 would
have two clear benefits to the marketplace. First, it is meant to
preserve the goal of post-trade transparency for SBSs, as codified in
the Dodd-Frank Act, even as new SDRs are phased in, as specified in
proposed Rule 910, during which time they may have no obligation or
only a limited obligation to publicly disseminate SBS data. Second, the
proposed rule would prevent reporting parties from engaging in
regulatory arbitrage by avoiding reporting SBS data to an existing
registered SDR that is publicly disseminating SBS transaction reports
and instead reporting only to a new SDR subject to a phase-in period,
in an effort to avoid having their SBS transactions publicly
disseminated in real time. Proposed Rule 911 would prohibit such
conduct.
2. Costs
    The Commission believes that the costs imposed by proposed Rule 911
on reporting parties and registered SDRs would be minimal, as the rule
would restrict the ability of a reporting party to report a SBS to one
registered SDR rather than another, but would not otherwise create any
quantifiable costs beyond those already required by proposed Rule 901.
To the extent there are costs, they may include the following. First,
proposed Rule 911 potentially could dampen competition among those
entities considering registering as SDRs. Potential SDR registrants
could perceive the proposed rule as a barrier to entry to the
marketplace insofar as their business may be limited during the phase-
in period. Second, as a result of proposed Rule 911, there may be some
costs associated with double-reporting of SBS information--both to an
existing SDR as well as to a new SDR in a phase-in period. Indeed,
proposed Rule 911 contemplates the potential of such double-reporting.
This could result require regulators to incur costs to accurately
identify double-counted transactions, where the same SBS transaction is
captured by two different registered SDRs.
3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 911 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    298. How can the Commission more accurately estimate the costs and
benefits?
    299. Would proposed Rule 911 create any additional costs or
benefits not discussed here?

M. Amendments to Rule 31

    Rule 31 under the Exchange Act \377\ sets forth a procedure for the
calculation and collection of fees payable under Section 31 of the
Exchange Act.\378\ The Dodd-Frank Act classifies SBSs as
securities,\379\ thereby subjecting them to Section 31 fees. The
proposed amendment to Rule 31 would add ``security-based swaps'' to the
list of ``exempt sales,'' and thereby exempt SBSs from Section 31
fees.\380\
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    \377\ 17 CFR 240.31.
    \378\ 15 U.S.C. 78ee.
    \379\ See 15 U.S.C. 78c(a)(10).
    \380\ The Commission is also proposing to make a technical
correction to Rule 31(a)(10)(ii), to correct a date (from
``September 30'' to ``September 25''), as required by the Dodd-Frank
Act. The Commission does not believe there are any material costs or
benefits to this change.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments
to Rule 31 would have a neutral effect on existing costs and benefits.
It would not impose any additional costs or impact the transaction fees
currently paid on other securities transactions. Likewise, because
market participants have never monitored or collected fees on SBS
transactions, there would be no benefit to exempting these transactions
from Section 31 fees other than that affected entities would not have
to take any steps to pay fees on SBS transactions.
    However, eliminating Section 31 fee for SBS transactions
theoretically could result in slightly higher fees on transactions in
other securities that would not benefit from a Section 31

exemption. Section 31 requires the Commission to adjust Section 31 fees
so that such rates are reasonably likely to produce aggregate fee
collections that equal amounts prescribed under Section 31.\381\ Thus,
although the Commission may exempt certain securities from Section 31,
it cannot reduce the total amount of fees that it is required to
collect under Section 31. An exemption granted to certain securities
could, therefore, result in a higher rate paid on transactions in the
other, non-exempted securities.
---------------------------------------------------------------------------

    \381\ See 15 U.S.C. 78ee(j).
---------------------------------------------------------------------------

    The Commission requests comment on the costs and benefits of the
proposed amendments to Rule 31, as well as any costs and benefits not
already described that could result. The Commission also requests data
to quantify any potential costs or benefits.

N. Aggregate Total Costs

    Based on the foregoing, the Commission preliminarily estimates that
proposed Regulation SBSR would impose an aggregate total first-year
cost of approximately $1,038,947,500 on all covered entities.\382\ This
amount includes an estimated total first-year cost of approximately
$852,850,500 on participants (reporting parties and non-reporting
parties), and approximately $186,097,000 on registered SDRs. The
Commission preliminarily estimates that proposed Regulation SBSR would
impose a total ongoing annualized aggregate cost of approximately
$703,147,540 for all covered entities.\383\ This amount includes an
estimated total ongoing annualized cost of approximately $598,021,500
on participants (reporting parties and non-reporting parties), and
approximately $105,126,040 on registered SDRs.
---------------------------------------------------------------------------

    \382\ The Commission derived its estimate from the following:
[($511,013,000 proposed Rule 901 first-year costs on reporting
parties) + ($778,480 proposed Rule 901 first-year costs on
registered SDRs) + ($64,006,400 proposed Rule 902 first-year costs
on registered SDRs) + ($27,360 proposed Rule 904 first-year costs on
registered SDRs) + ($11,419,000 proposed Rule 905 first-year costs
on reporting parties) + ($5,603,700 proposed Rule 905 first-year
costs on registered SDRs) + ($172,280,000 proposed Rule 905 first-
year costs on non-reporting parties) + ($82,176,000 proposed Rule
906 first-year costs on reporting parties) + ($600,760 proposed Rule
906 first-year costs on registered SDRs) + ($75,962,500 proposed
Rule 906 first-year costs on all SDR participants) + ($114,927,000
proposed Rule 907 first-year costs on registered SDRs) + ($153,300
proposed Rule 909 first-year costs on registered SDRs)] =
$1,038,947,500.
    \383\ The Commission derived its estimate from the following:
[($316,116,000 proposed Rule 901 ongoing annual costs on reporting
parties) + ($436,440 proposed Rule 901 ongoing annual costs on
registered SDRs) + ($24,002,400 proposed Rule 902 ongoing annual
costs on registered SDRs) + ($27,360 proposed Rule 904 ongoing
annual costs on registered SDRs) + ($3,927,000 proposed Rule 905
ongoing annual costs on reporting parties) + ($3,735,800 proposed
Rule 905 ongoing annual costs on registered SDRs) + ($172,280,000
proposed Rule 905 ongoing annual costs on non-reporting parties) +
($29,736,000 proposed Rule 906 ongoing annual costs on reporting
parties) + ($292,440 proposed Rule 906 ongoing annual costs on
registered SDRs) + ($75,962,500 proposed Rule 906 ongoing annual
costs on all SDR participants) + ($76,617,000 proposed Rule 907
ongoing annual costs on registered SDRs) + ($14,600 proposed Rule
909 ongoing annual costs on registered SDRs)] = $703,147,540.
---------------------------------------------------------------------------

    With regard to registered SDRs, the Commission preliminarily
estimates that proposed Regulation SBSR would impose an initial
aggregate one-time cost of approximately $80,978,260,\384\ and an
ongoing aggregate annual cost of $105,126,400.\385\ The Commission
further preliminarily estimates that the proposed SDR registration
rules would impose an initial aggregate one-time cost of approximately
$214,913,592,\386\ and an ongoing aggregate annual cost of
approximately $140,302,120 on registered SDRs.\387\ Summing these
estimates, proposed Regulation SBSR and the proposed SDR registration
rules would impose initial costs on registered SDRs of approximately
$295,891,852,\388\ and ongoing annualized costs on registered SDRs of
approximately $245,428,520.\389\
---------------------------------------------------------------------------

    \384\ The Commission derived its estimate from the following:
[($342,040 proposed Rule 901 one-time costs on registered SDRs) +
($40,004,000 proposed Rule 902 one-time costs on registered SDRs) +
($1,867,900 proposed Rule 905 one-time costs on registered SDRs) +
($308,320 proposed Rule 906 one-time costs on registered SDRs) +
($38,310,000 proposed Rule 907 one-time costs on registered SDRs) +
($146,000 proposed Rule 909 one-time costs on registered SDRs)] =
$80,978,260.
    \385\ The Commission derived its estimate from the following:
[($436,440 proposed Rule 901 ongoing annual costs on registered
SDRs) + ($24,002,400 proposed Rule 902 ongoing annual costs on
registered SDRs) + ($27,360 proposed Rule 904 ongoing annual costs
on registered SDRs) + ($3,735,800 proposed Rule 905 ongoing annual
costs on registered SDRs) + ($292,440 proposed Rule 906 ongoing
annual costs on registered SDRs) + ($76,617,000 proposed Rule 907
ongoing annual costs on registered SDRs) + ($14,600 proposed Rule
909 ongoing annual costs on registered SDRs)] = $105,126,400.
    \386\ See SDR Registration Proposing Release, supra note 6.
    \387\ See id.
    \388\ The Commission derived its estimate from the following:
[($80,978,260) + ($214,913,592)] = $295,891,852.
    \389\ The Commission derived its estimate from the following:
[($105,126,400) + ($140,302,120)] = $245,428,520.
---------------------------------------------------------------------------

XV. Consideration of Burden on Competition and Promotion of Efficiency,
Competition, and Capital Formation

    Section 3(f) of the Exchange Act \390\ requires the Commission,
whenever it engages in rulemaking and is required to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider whether the action would promote efficiency,
competition, and capital formation. In addition, Section 23(a)(2) of
the Exchange Act \391\ requires the Commission, when making rules under
the Exchange Act, to consider the impact of such rules on competition.
Section 23(a)(2) also prohibits the Commission from adopting any rule
that would impose a burden on competition not necessary or appropriate
in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \390\ 15 U.S.C. 78c(f).
    \391\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

A. Analysis of Proposed Regulation SBSR

    The Commission preliminarily believes that public availability of
transaction and pricing data for SBSs, as required by the Dodd-Frank
Act and implemented by proposed Regulation SBSR, would promote
efficiency, competition, and capital formation by reducing information
asymmetries, lowering transaction costs, and encouraging market
participation from a larger number of firms. Public, real-time
dissemination of last-sale information aids dealers in deriving
appropriate quotations, and aids investors in evaluating current
quotations--thus furthering efficient price discovery. Increased
transparency ultimately should provide the opportunity for increased
competition among market participants and thus contribute to a more
efficient market. The Commission believes that knowledge that all
market participants are subject to the same reporting rules and can see
the same price information creates certainty, fosters investor
confidence, and promotes participation in the markets.
    The Commission's experience with other asset classes is that post-
trade transparency reduces transaction costs. For example, a number of
studies have found that post-trade transparency in the corporate bond
market, resulting from the introduction of TRACE, has reduced
transaction costs.\392\ Post-trade transparency could have the same
effect in the SBS market, although the Commission acknowledges that the
differences between the SBS market and other securities markets might
be sufficiently great that post-trade transparency might not have the
same effects in the SBS market. The Commission requests comment on
whether post-trade transparency would have a similar effect on the SBS
market as it has in other securities markets--and if not, why not. To
the extent that post-trade transparency in the SBS

market would lower transaction costs, this would be evidence of greater
competition and efficiency. Furthermore, money saved in transaction
costs can assist in additional capital formation.
---------------------------------------------------------------------------

    \392\ See supra note 88.
---------------------------------------------------------------------------

    The proposed rules on block trades of SBSs are designed to minimize
any adverse impact on efficiency, competition, and capital formation.
Though temporarily withholding the full size of a block trade may have
some immediate adverse effect on efficiency, as other market
participants would lack complete real-time information about large
transactions, the Commission's approach is designed to promote
efficiency in the longer-term, by allowing SBS market participants to
engage in large transactions without the risk of other market
participants using this information in ways that promote artificial and
adverse short-term price movements. Encouraging such market
participants to continue to execute in large size is designed to
promote efficiency, competition, and capital formation. The Commission
requests comment on the effect of its proposed block trade rules on
these considerations.
    Proposed Regulation SBSR is designed to provide the Commission and
other regulators with detailed, up-to-date information about both
positions of particular entities and financial groups as well as
positions by multiple market participants in particular instruments. A
well-regulated SBS market--where the Commission and other regulators
have access to information about all SBS transactions captured and
retained in the registered SDRs--could increase the confidence in the
soundness and fairness of the market, potentially drawing additional
participants and thereby increasing efficiency. The Commission and
other regulators also would have greater information with which to
surveil the SBS market and bring appropriate enforcement actions.
Together, these regulatory factors should have a positive impact on
efficiency, competition, and capital formation.
    The Commission preliminarily believes that post-trade transparency
in the SBS market could improve market participants' ability to value
SBSs. In transparent markets with sufficient liquidity, valuations
generally can be derived from recent quotations and/or last-sale
prices. However, in opaque markets or markets with low liquidity,
recent quotations or last-sale prices may not exist or, if they do
exist, may not be widely available. Therefore, market participants
holding assets that trade in opaque markets or markets with low
liquidity frequently rely instead on pricing models. These models might
be based on assumptions subject to the evaluator's discretion, and can
be imprecise. Thus, market participants holding the same asset but
using different valuation models might arrive at significantly
different values for the same asset.
    The Commission preliminarily believes that post-trade transparency,
even in relatively illiquid markets--such as corporate bonds or SBSs--
could represent an improvement over relying on valuation models alone,
particularly if post-trade information is used as an input to, rather
than a substitute for, independent valuation and pricing decisions by
other market participants. Market participants might devise means to
consider last-sale reports of the asset to be valued, reports of
related assets, or reports of benchmark products that include the asset
to be valued or closely related assets. There is evidence to suggest
that post-trade transparency helps reduce the range of valuations of
assets that trade in illiquid markets.\393\ The Commission
preliminarily believes that post-trade transparency in the SBS market
could result in more accurate valuations of SBSs generally, as all
market participants would have the benefit of knowing how
counterparties to an SBS valued the SBS at a specific moment in time.
Especially with complex instruments, investment decisions generally are
predicated on a significant amount of due diligence to value the
instrument properly. A post-trade transparency system permits other
market participants to derive at least some informational benefit from
obtaining the views of the two counterparties who traded that
instrument.
---------------------------------------------------------------------------

    \393\ See supra note 314.
---------------------------------------------------------------------------

    Better valuations could have a significant impact on efficiency and
capital allocation. Efficient allocation of capital is premised on
accurate knowledge of asset prices. Overvaluing asset prices could
result in a misallocation of capital, as investors seek to obtain more
of an asset that cannot deliver the anticipated risk-adjusted return.
By the same token, assets that are inappropriately undervalued
represent investment opportunities that might go unpursued, because
investors do not realize that a good risk-adjusted return is available.
To the extent that post-trade transparency enables asset valuations to
move closer to their fundamental values, capital may be more
efficiently allocated.
    Better valuations resulting from post-trade transparency also could
reduce prudential and systemic risks. Some financial institutions,
including many of the most systemically important financial
institutions, have large portfolios of SBSs. The financial system would
benefit greatly if the assets of these institutions were more
accurately valued. To the extent that post-trade transparency affirms
the valuation of an institution's portfolio, regulators, the individual
firm, and the market as a whole would have more certainty as to whether
the firm would or would not pose prudential or systemic risks. In some
cases, however, post-trade transparency in the SBS market might cause
an individual firm to revalue its positions and lower the overall value
of its portfolio. The sooner that accurate valuations can be made, the
more quickly that regulators and the individual firm can take
appropriate steps to minimize the firm's prudential risk profile, and
the more quickly that regulators and other market participants can take
appropriate steps to address any systemic risk concerns raised by that
firm.
    Finally, the Commission has considered how proposed Regulation SBSR
could affect market participation generally, measured by both the
number of market participants and the number of SBSs executed. The
regulatory environment created by proposed Regulation SBSR would permit
all market participants to see last-sale prices in real time, and could
thereby incentivize more market participants to enter the market, trade
more frequently, and compete with large dealers on price. Reducing
information asymmetries is pro-competitive, because it reduces the
competitive advantage that certain market participants have solely
because they have access to more or better information about the
market. Reducing information asymmetries also reduces the likelihood
that a less-informed market participant would enter into a trade at an
imprudent price. To the extent that fewer such trades occur, efficiency
and capital formation could be improved. Moreover, proposed Regulation
SBSR could result in greater confidence in the market generally, which
could have a beneficial impact on efficiency, competition, and capital
formation.
    It is also possible that implementing post-trade transparency in
the SBS market and the costs of complying with proposed Regulation SBSR
could cause some market participants to execute fewer SBSs or to exit
the market completely. This could result in a detrimental impact on
efficiency,

competition, and capital formation. For example, certain market
participants that are currently active in the SBS market might find the
costs of complying with proposed Regulation SBSR too high. If these
market participants respond by reducing their trading activity or
exiting the market completely, competition could suffer because there
would be fewer participants competing in the market. Moreover,
efficiency could suffer because risk that otherwise might have been
allocated to the market participant optimally suited to manage it
would, if that participant has left the market, necessarily have to
reside at a suboptimal location. Moreover, capital formation could be
negatively impacted if market participants with risks to hedge find it
more difficult or costly to find a counterparty with which to transact
and instead reserve more capital against the risk of loss.
    On the other hand, the possibility exists that, in certain
circumstances, efficiency, competition, and capital formation would be
positively impacted even if fewer SBS transactions occur because of
proposed Regulation SBSR. This could be the case if market participants
that are unable or unwilling to properly manage the attendant risks of
participation in the SBS market are deterred from participating, or if
there were a reduction in the number of SBS transactions where there is
a significant information asymmetry between the counterparties. In the
latter case, efficiency, competition, and capital formation could
benefit if uninformed parties are deterred from unwittingly taking on
imprudent positions in the SBS market.
    It is difficult at this stage to ascertain how proposed Regulation
SBSR and other measures to implement the Dodd-Frank Act might increase
or decrease participation in the SBS market, and what impacts such an
increase or decrease might have on efficiency, competition, and capital
formation. However, the Commission requests comment on those impacts.

B. Analysis of Amendments to Rule 31 Under the Exchange Act

    The Commission preliminarily believes that the proposed amendments
to Rule 31 under the Exchange Act would have no significant impact on
efficiency, competition, and capital formation. Exempting SBSs from
Section 31 fees should have little or no impact on the overall amount
of fees collected by the Commission, as the Commission is required to
adjust the fee rate to a level that is reasonably likely to produce the
aggregate fee collections stipulated in Section 31(d).\394\ Exempting
SBSs from Section 31 fees would result in other classes of securities
that remain subject to Section 31 fees continuing to bear the burden of
meeting the aggregate fee collection. Allowing SBSs to become subject
to Section 31 fees, however, could result in a competitive imbalance
between brokers and SBS dealers. Specifically, the burden for funding
Section 31 fees would fall on brokers, rather than SBS dealers.
Exempting SBSs from Section 31 fees, therefore, would avoid this
concern and any impact it might have on the development of the SBS
market.
---------------------------------------------------------------------------

    \394\ See 15 U.S.C. 78ee(j).
---------------------------------------------------------------------------

    The Commission requests comment on all aspects of this analysis
and, in particular, on whether proposed Regulation SBSR and the
proposed amendments to Rule 31 under the Exchange Act would place a
burden on competition, as well as the effect of the proposal on
efficiency, competition, and capital formation. Commenters are
requested to provide empirical data and other factual support for their
views, if possible.

XVI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA'') \395\ the Commission must advise the OMB
whether the proposed regulation constitutes a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in: (1) An annual effect on the economy of $100
million or more (either in the form of an increase or a decrease); (2)
a major increase in costs or prices for consumers or individual
industries; or (3) significant adverse effect on competition,
investment or innovation. If a rule is ``major,'' its effectiveness
will generally be delayed for 60 days pending Congressional review.
---------------------------------------------------------------------------

    \395\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    The Commission requests comment on the potential impact of proposed
Regulation SBSR on the economy on an annual basis, on the costs or
prices for consumers or individual industries, and on competition,
investment, or innovation. Commenters are requested to provide
empirical data and other factual support for their view to the extent
possible.

XVII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') \396\ requires federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Section 603(a) of the Administrative Procedure
Act,\397\ as amended by the RFA, generally requires the Commission to
undertake a regulatory flexibility analysis of all proposed rules, or
proposed rule amendments, to determine the impact of such rulemaking on
``small entities.'' \398\ Section 605(b) of the RFA \399\ states that
this requirement shall not apply to any proposed rule or proposed rule
amendment which, if adopted, would not have a significant economic
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \396\ 5 U.S.C. 601 et seq.
    \397\ 5 U.S.C. 603(a).
    \398\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
``small entity'' for the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as relevant to this
proposed rulemaking, are set forth in Rule 0-10 under the Exchange
Act, 17 CFR 240.0-10. See Securities Exchange Act Release No. 18451
(January 28, 1982), 47 FR 5215 (February 4, 1982) (File No. AS-305).
    \399\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the RFA, a
small entity includes: (1) When used with reference to an ``issuer'' or
a ``person,'' other than an investment company, an ``issuer'' or
``person'' that, on the last day of its most recent fiscal year, had
total assets of $5 million or less; \400\ or (2) a broker-dealer with
total capital (net worth plus subordinated liabilities) of less than
$500,000 on the date in the prior fiscal year as of which its audited
financial statements were prepared pursuant to Rule 17a-5(d) under the
Exchange Act,\401\ or, if not required to file such statements, a
broker-dealer with total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last day of the preceding
fiscal year (or in the time that it has been in business, if shorter);
and is not affiliated with any person (other than a natural person)
that is not a small business or small organization.\402\
---------------------------------------------------------------------------

    \400\ See 17 CFR 240.0-10(a).
    \401\ 17 CFR 240.17a-5(d).
    \402\ See 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

    Based on input from SBS market participants and its own
information, the Commission preliminarily believes that the majority of
SBS transactions have at least one counterparty that is either as SBS
dealer or major SBS participant, and that these entities--whether
registered broker-dealers or not--would exceed the thresholds defining
``small entities'' set out above. Accordingly, neither of these types
of entities would likely qualify as small entities for purposes of the
RFA.

Moreover, even in cases where one of the counterparties to an SBS is
not covered by these definitions, the Commission preliminarily does not
believe that any such entities would be ``small entities'' as defined
in Commission Rule 0-10. Feedback from industry participants and the
Commission's own information about the SBS market indicate that only
persons or entities with assets significantly in excess of $5 million
participate in the SBS market. For example, as revealed in a current
survey conducted by Office of the Comptroller of the Currency, 99.9% of
CDS positions by U.S. Commercial Banks and Trusts are held by those
with assets over $10 billion.\403\ Given the magnitude of this figure,
and the fact that it so far exceeds $5 million, the Commission
preliminarily believes that the vast majority of, if not all, SBS
transactions are between large entities for purposes of the RFA.
---------------------------------------------------------------------------

    \403\ See Office of the Comptroller of the Currency, ``Quarterly
Report on Bank Trading and Derivatives Activities Second Quarter
2010'' (2010).
---------------------------------------------------------------------------

    In addition, the Commission preliminarily believes that the
entities likely to register as SDRs would not be small entities. Based
on input from SBS market participants and its own information, the
Commission preliminarily believes that most if not all the registered
SDRs would be part of large business entities, and that all registered
SDRs would have assets exceeding $5 million and total capital exceeding
$500,000. Therefore, the Commission preliminarily believes that none of
the registered SDRs would be small entities.
    On this basis, the Commission preliminarily believes that the
number of SBS transactions involving a small entity as that term is
defined for purposes of the RFA would be de minimis. Moreover, the
Commission does not believe that any aspect of proposed Regulation SBSR
would be likely to alter the type of counterparties presently engaging
in SBS transactions. Therefore, the Commission preliminarily does not
believe that proposed Regulation SBSR would impact any small entities.
    For the foregoing reasons, the Commission certifies that Regulation
SBSR would not have a significant economic impact on a substantial
number of small entities for purposes of the RFA. The Commission
encourages written comments regarding this certification. The
Commission requests that commenters describe the nature of any impact
on small entities, indicate whether they believe that participants and
registered SDRs are unlikely to be small entities, and provide
empirical data to support their responses.

XVIII. Statutory Basis and Text of Proposed Rule

    The Commission is proposing to adopt Regulation SBSR, and Rule 900-
911 thereunder, pursuant to the Exchange Act.

List of Subjects in 17 CFR Parts 240 and 242

    Brokers, Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

    1. The authority citation for part 240 continues to read in part as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4,
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
* * * * *
    2. Amend Sec.  240.31 by:
    a. Removing ``September 30'' at the beginning of paragraph
(a)(10)(ii) and adding in its place ``September 25'';
    b. Removing the ``and'' at the end of paragraph (a)(11)(vii);
    c. Removing the period at the end of paragraph (a)(11)(viii) and
adding in its place ``; and'';
    d. Adding paragraph (a)(11)(ix); and
    e. Adding new paragraph (a)(19) to read as follows:

Sec.  240.31  Section 31 transaction fees.

    (a) * * *
    (11) * * *
    (ix) Any sale of a security-based swap.
* * * * *
    (19) The term security-based swap has the same definition as
provided in Section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)).
* * * * *

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER
MARGIN REQUIREMENTS FOR SECURITY FUTURES

    3. The authority citation for part 242 continues to read as
follows:

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2),
78i(a), 78j, 78k-l(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g),
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and
80a-37, unless otherwise noted.

    4. The part heading for part 242 is revised as set forth above.
    5. Add Sec. Sec.  242.900, 242.901, 242.902, 242.903, 242.904,
242.905, 242.906, 242.907, 242.908, 242.909, 242.910, and 242.911 to
read as follows:

Sec.  242.900  Definitions.

    Terms used in this Regulation SBSR (Sec. Sec.  242.900 through
242.911) that appear in Section 3 of the Exchange Act (15 U.S.C. 78c)
have the same meaning as in Section 3 of the Exchange Act (15 U.S.C.
78c) and the rules or regulations thereunder. In addition, the
following definitions shall apply:
    Affiliate means any person that, directly or indirectly, controls,
is controlled by, or is under common control with, a person.
    Asset class means those security-based swaps in a particular broad
category, including, but not limited to, credit derivatives, equity
derivatives, and loan-based derivatives.
    Block trade means a large notional security-based swap transaction
that meets the criteria set forth in Sec.  242.907(b).
    Broker ID means the UIC assigned to a person acting as a broker for
a participant.
    Confirm means the production of a confirmation that is agreed to by
the parties to be definitive and complete and that has been manually,
electronically, or, by some other legally equivalent means, signed.
    Control means, for purposes of Sec. Sec.  242.900 through 242.911,
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. A person
is presumed to control another person if the person:
    (1) Is a director, general partner or officer exercising executive
responsibility (or having similar status or functions);
    (2) 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
    (3) In the case of a partnership, has the right to receive, upon
dissolution, or has contributed, 25 percent or more of the capital.
    Derivatives clearing organization means the same as provided under
the Commodity Exchange Act.
    Desk ID means the UIC assigned to the trading desk of a participant
or of a broker of a participant.

    Effective reporting date, with respect to a security-based swap
data repository, means the date six months after the registration date.
    Exchange Act means the Securities Exchange Act of 1934 (15 U.S.C.
78a, et seq.), as amended.
    Life cycle event means, with respect to a security-based swap, any
event that would result in a change in the information reported to a
registered security-based swap data repository under Sec.  242.901,
including a counterparty change resulting from an assignment or
novation; a partial or full termination of the security-based swap; a
change in the cash flows originally reported; for a security-based swap
that is not cleared, any change to the collateral agreement; or a
corporate action affecting a security or securities on which the
security-based swap is based (e.g., a merger, dividend, stock split, or
bankruptcy). Notwithstanding the above, a life cycle event shall not
include the scheduled expiration of the security-based swap, a
previously described and anticipated interest rate adjustment (such as
a quarterly interest rate adjustment), or other event that does not
result in any change to the contractual terms of the security-based
swap.
    Parent means a legal person that controls a participant.
    Participant means:
    (1) A U.S. person that is a counterparty to a security-based swap
that is required to be reported to a registered security-based swap
data repository; or
    (2) A non-U.S. person that is a counterparty to a security-based
swap that is:
    (i) Required to be reported to a registered security-based swap
data repository; and
    (ii) Executed in the United States or through any means of
interstate commerce, or cleared through a clearing agency that has its
principal place of business in the United States.
    Participant ID means the UIC assigned to a participant.
    Phase-in period means the period immediately after a security-based
swap data repository has registered with the Commission during which it
is not required to disseminate security-based swap data pursuant to an
implementation schedule, as provided in Sec.  242.910.
    Pre-enactment security-based swap means any security-based swap
executed before July 21, 2010 (the date of enactment of the Dodd-Frank
Act (Pub. L. 111-203, H.R. 4173)), the terms of which had not expired
as of that date.
    Price means the price of a security-based swap transaction,
expressed in terms of the commercial conventions used in that asset
class.
    Product ID means the UIC assigned to a security-based swap
instrument.
    Publicly disseminate means to make available through the Internet
or other electronic data feed that is widely accessible and in machine-
readable electronic format.
    Real time means, with respect to the reporting of security-based
swap information, as soon as technologically practicable, but in no
event later than 15 minutes after the time of execution of the
security-based swap transaction.
    Registered security-based swap data repository means a security-
based swap data repository that is registered with the Commission
pursuant to Section 13(n) of the Exchange Act (15 U.S.C. 78m(n)) and
any rules or regulations thereunder.
    Registration date, with respect to a security-based swap data
repository, means the date on which the Commission registers the
security-based swap data repository, or, if the Commission registers
the security-based swap data repository before the effective date of
Sec. Sec.  242.900 through 242.911.
    Reporting party means the counterparty to a security-based swap
with the duty to report information in accordance with Sec. Sec.
242.900 through 242.911 to a registered security-based swap data
repository, or if there is no registered security-based swap data
repository that would receive the information, to the Commission.
    Security-based swap instrument means each security-based swap in
the same asset class, with the same underlying reference asset,
reference issuer, or reference index.
    Time of execution means the point at which the counterparties to a
security-based swap become irrevocably bound under applicable law.
    Trader ID means the UIC assigned to a natural person who executes
security-based swaps.
    Transaction ID means the unique identification code assigned by a
registered security-based swap data repository to a specific security-
based swap.
    Transitional security-based swap means a security-based swap
executed on or after July 21, 2010, and before the effective reporting
date.
    Ultimate parent means a legal person that controls a participant
and that itself has no parent.
    Ultimate parent ID means the UIC assigned to an ultimate parent of
a participant.
    Unique Identification Code or UIC means the unique identification
code assigned to a person, unit of a person, or product by or on behalf
of an internationally recognized standards-setting body that imposes
fees and usage restrictions that are fair and reasonable and not
unreasonably discriminatory. If no standards-setting body meets these
criteria, a registered security-based swap data repository shall assign
all necessary UICs using its own methodology. If a standards-setting
body meets these criteria but has not assigned a UIC to a particular
person, unit of a person, or product, a registered security-based swap
data repository shall assign a UIC to that person, unit of a person, or
product using its own methodology.
    U.S. person means a natural person that is a U.S. citizen or U.S.
resident or a legal person that is organized under the corporate laws
of any part of the United States or has its principal place of business
in the United States.

Sec.  242.901  Reporting obligations.

    (a) Reporting party. The reporting party shall be as follows:
    (1) Where only one counterparty to a security-based swap is a U.S.
person, the U.S. person shall be the reporting party;
    (2) Where both counterparties to a security-based swap are U.S.
persons:
    (i) With respect to a security-based swap in which only one
counterparty is a security-based swap dealer or major security-based
swap participant, the security-based swap dealer or major security-
based swap participant shall be the reporting party;
    (ii) With respect to a security-based swap in which one
counterparty is a security-based swap dealer and the other a major
security-based swap participant, the security-based swap dealer shall
be the reporting party; and
    (iii) With respect to any other security-based swap not described
in paragraphs (a)(2)(i) and (ii) of this section, the counterparties to
the security-based swap shall select a counterparty to be the reporting
party.
    (3) If neither counterparty is a U.S. person but the security-based
swap meets the criteria of Sec.  242.908(a)(2) or (a)(3), the
counterparties to the security-based swap shall select a counterparty
to be the reporting party.
    (b) Recipient of security-based swap information. For each
security-based swap for which it is the reporting party, the reporting
party shall provide the information required by Sec. Sec.  242.900
through 242.911 to a registered security-based swap data repository or,
if there is no registered security-based swap

data repository that would accept the information, to the Commission.
    (c) Information to be reported in real time. For each security-
based swap for which it is the reporting party, the reporting party
shall report the following information in real time:
    (1) The asset class of the security-based swap and, if the
security-based swap is an equity derivative, whether it is a total
return swap or is otherwise designed to offer risks and returns
proportional to a position in the equity security or securities on
which the security-based swap is based;
    (2) Information that identifies the security-based swap instrument
and the specific asset(s) or issuer(s) of any security on which the
security-based swap is based;
    (3) The notional amount(s), and the currency(ies) in which the
notional amount(s) is expressed;
    (4) The date and time, to the second, of execution, expressed using
Coordinated Universal Time (UTC);
    (5) The effective date;
    (6) The scheduled termination date;
    (7) The price;
    (8) The terms of any fixed or floating rate payments, and the
frequency of any payments;
    (9) Whether or not the security-based swap will be cleared by a
clearing agency;
    (10) If both counterparties to a security-based swap are security-
based swap dealers, an indication to that effect;
    (11) If applicable, an indication that the transaction does not
accurately reflect the market; and
    (12) If the security-based swap is customized to the extent that
the information provided in paragraphs (c)(1) through (11) of this
section does not provide all of the material information necessary to
identify such customized security-based swap or does not contain the
data elements necessary to calculate the price, an indication to that
effect.
    (d) Additional information that must be reported. (1) In addition
to the information required under paragraph (c) of this section, for
each security-based swap for which it is the reporting party, the
reporting party shall report:
    (i) The participant ID of each counterparty;
    (ii) As applicable, the broker ID, desk ID, and trader ID of the
reporting party;
    (iii) The amount(s) and currency(ies) of any up-front payment(s)
and a description of the terms and contingencies of the payment streams
of each counterparty to the other;
    (iv) The title of any master agreement, or any other agreement
governing the transaction (including the title of any document
governing the satisfaction of margin obligations), incorporated by
reference and the date of any such agreement;
    (v) The data elements necessary for a person to determine the
market value of the transaction;
    (vi) If the security-based swap will be cleared, the name of the
clearing agency;
    (vii) If the security-based swap is not cleared, whether the
exception in Section 3C(g) of the Exchange Act was invoked;
    (viii) If the security-based swap is not cleared, a description of
the settlement terms, including whether the security-based swap is
cash-settled or physically settled, and the method for determining the
settlement value; and
    (ix) The venue where the security-based swap was executed.
    (2) Any information required to be reported pursuant to paragraph
(d)(1) of this section must be reported promptly, but in no event later
than:
    (i) Fifteen minutes after the time of execution for a security-
based swap that is executed and confirmed electronically;
    (ii) Thirty minutes after the time of execution for a security-
based swap that is confirmed electronically but not executed
electronically; or
    (iii) Twenty-four hours after the time of execution for a security-
based swap that is not executed or confirmed electronically.
    (e) Duty to report any life cycle event of a security-based swap.
For any life cycle event, and any adjustment due to a life cycle event,
that results in a change to information previously reported pursuant to
paragraph (c), (d), or (i) of this section, the reporting party shall
promptly provide updated information reflecting such change to the
entity to which it reported the original transaction, using the
transaction ID, subject to the following exceptions:
    (1) If a reporting party ceases to be a counterparty to a security-
based swap due to an assignment or novation, the new counterparty shall
be the reporting party following such assignment or novation, if the
new counterparty is a U.S. person.
    (2) If, following an assignment or novation, the new counterparty
is not a U.S. person, the counterparty that is a U.S. person shall be
the reporting party following such assignment or novation.
    (f) Time stamping incoming information. A registered security-based
swap data repository shall time stamp, to the second, its receipt of
any information submitted to it pursuant to paragraph (c), (d), or (e)
of this section.
    (g) Assigning transaction ID. A registered security-based swap data
repository shall assign a transaction ID to each security-based swap
reported by a reporting party.
    (h) Format of reported information. The reporting party shall
electronically transmit the information required under this section in
a format required by the registered security-based data repository, and
in accordance with any applicable policies and procedures of the
registered security-based swap data repository.
    (i) Reporting of pre-enactment and transitional security-based
swaps. With respect to any pre-enactment security-based swap or
transitional security-based swap, the reporting party shall report all
of the information required by paragraphs (c) and (d) of this section,
to the extent such information is available.

Sec.  242.902  Public dissemination of transaction reports.

    (a) Dissemination of transaction reports. Except in the case of a
block trade, a registered security-based swap data repository shall
publicly disseminate a transaction report of a security-based swap
immediately upon receipt of information about the security-based swap
from a reporting party, or upon re-opening following a period when the
registered security-based swap data repository was closed. The
transaction report shall consist of all the information reported by the
reporting party pursuant to Sec.  242.901, plus any indicator or
indicators contemplated by the registered security-based swap data
repository's policies and procedures that are required by Sec.
242.907.
    (b) Dissemination of block trades. A registered security-based swap
data repository shall publicly disseminate a transaction report of a
security-based swap that constitutes a block trade immediately upon
receipt of information about the block trade from the reporting party.
The transaction report shall consist of all the information reported by
the reporting party pursuant to Sec.  242.901(c), except for the
notional size, plus the transaction ID and an indicator that the report
represents a block trade. The registered security-based swap data
repository shall publicly disseminate a complete transaction report for
such block trade (including the transaction ID and the full notional
size) as follows:
    (1) If the security-based swap was executed on or after 05:00 UTC
and before 23:00 UTC of the same day, the transaction report (including
the transaction ID and the full notional size)

shall be disseminated at 07:00 UTC of the following day.
    (2) If the security-based swap was executed on or after 23:00 UTC
and up to 05:00 UTC of the following day, the transaction report
(including the transaction ID and the full notional size) shall be
disseminated at 13:00 UTC of that following day.
    (3) Notwithstanding the foregoing, if a registered security-based
swap data repository is in normal closing hours or special closing
hours at a time when it would be required to disseminate information
about a block trade pursuant to this section, the registered security-
based swap data repository shall instead disseminate information about
the block trade immediately upon re-opening.
    (c) Non-disseminated information. A security-based swap data
repository shall not disseminate:
    (1) The identity of either counterparty to a security-based swap;
    (2) With respect to a security-based swap that is not cleared at a
registered clearing agency and that is reported to a registered
security-based swap data repository, any information disclosing the
business transactions and market positions of any person; or
    (3) Any information regarding a security-based swap reported
pursuant to Sec.  242.901(i).
    (d) Temporary restriction on other market data sources. No person
other than a registered security-based swap data repository shall make
available to one or more persons (other than a counterparty)
transaction information relating to a security-based swap before the
earlier of 15 minutes after the time of execution of the security-based
swap; or the time that a registered security-based swap data repository
publicly disseminates a report of that security-based swap.

Sec.  242.903  Coded information.

    A reporting party may provide information to a registered security-
based swap data repository pursuant to Sec.  242.901 and a registered
security-based swap data repository may publicly disseminate
information pursuant to Sec.  242.902 using codes in place of certain
data elements, provided that the information necessary to interpret
such codes is widely available on a non-fee basis.

Sec.  242.904  Operating hours of registered security-based swap data
repositories.

    A registered security-based swap data repository shall have systems
in place to continuously receive and disseminate information regarding
security-based swaps pursuant to Sec. Sec.  242.900 through 242.911,
subject to the following exceptions:
    (a) A registered security-based swap data repository may establish
normal closing hours during periods when, in its estimation, the U.S.
market and major foreign markets are inactive. A registered security-
based swap data repository shall provide reasonable advance notice to
participants and to the public of its normal closing hours.
    (b) A registered security-based swap data repository may declare,
on an ad hoc basis, special closing hours to perform system maintenance
that cannot wait until normal closing hours. A registered security-
based swap data repository shall: to the extent reasonably possible
under the circumstances, avoid scheduling special closing hours during
when, in its estimation, the U.S. market and major foreign markets are
most active; and provide reasonable advance notice of its special
closing hours to participants and to the public.
    (c) During normal closing hours, and to the extent reasonably
practicable during special closing hours, a registered security-based
swap data repository shall have the capability to receive and hold in
queue information regarding security-based swaps that has been reported
pursuant to Sec. Sec.  242.900 through 242.911.
    (d) When a registered security-based swap data repository re-opens
following normal closing hours or special closing hours, it shall
disseminate transaction reports of security-based swaps held in queue,
in accordance with the requirements of Sec.  242.902.
    (e) If a registered security-based swap data repository could not
receive and hold in queue transaction information that was required to
be reported pursuant to Sec. Sec.  242.900 through 242.911, it must
immediately upon re-opening send a message to all participants that it
has resumed normal operations. Thereafter, any participant that had an
obligation to report information to the registered security-based swap
data repository pursuant to Sec. Sec.  242.900 through 242.911, but
could not do so because of the registered security-based swap data
repository's inability to receive and hold in queue data, must
immediately report the information to the registered security-based
swap data repository.

Sec.  242.905  Correction of errors in security-based swap information.

    (a) Duty of counterparties to correct. Any counterparty to a
security-based swap that discovers an error in information previously
reported pursuant to Sec. Sec.  242.900 through 242.911 shall correct
such error in accordance with the following procedures:
    (1) If a counterparty that was not the reporting party for a
security-based swap discovers an error in the information reported with
respect to such security-based swap, the counterparty shall promptly
notify the reporting party of the error; and
    (2) If the reporting party for a security-based swap transaction
discovers an error in the information reported with respect to a
security-based swap, or receives notification from its counterparty of
an error, the reporting party shall promptly submit to the entity to
which the security-based swap was originally reported an amended report
pertaining to the original transaction report. If the reporting party
reported the initial transaction to a registered security-based swap
data repository, the reporting party shall submit an amended report to
the registered security-based swap data repository in a manner
consistent with the policies and procedures contemplated by Sec.
242.907(a)(3).
    (b) Duty of registered security-based swap data repository to
correct. A registered security-based swap data repository shall:
    (1) Upon discovery of the error or receipt of a notice of the error
from a reporting party, verify the accuracy of the terms of the
security-based swap and, following such verification, promptly correct
the erroneous information regarding such security-based swap contained
in its system; and
    (2) If such erroneous information falls into any of the categories
of information enumerated in Sec.  242.901(c), publicly disseminate a
corrected transaction report of the security-based swap promptly
following verification of the trade by the parties to the security-
based swap, with an indication that the report relates to a previously
disseminated transaction.

Sec.  242.906  Other duties of participants.

    (a) Reporting by non-reporting-party counterparty. A registered
security-based swap data repository shall identify any security-based
swap reported to it for which the registered security-based swap data
repository does not have the participant ID and (if applicable) the
broker ID, desk ID, and trader ID of each counterparty. Once a day, a
registered security-based swap data repository shall send a report to
each participant identifying, for each security-based swap to which
that participant is a counterparty, the security-based swap(s) for