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

    The Commission also requests that commenters address whether there
are confidentiality issues with any information required by the
proposed exhibits to proposed Form SB SEF? If so, what information
presents issues and what are the issues? Further, the Commission notes
that proposed Form SB SEF would be filed electronically and thus is
expected to be made available publicly on the Commission's Web site.
The Commission seeks comment on whether the information to be filed on
proposed Form SB SEF would be useful to the public.

XXIII. Rule Filing Processes for Changes to a SB SEF's Rules

A. Introduction

    The Commission is proposing to adopt rules requiring registered SB
SEFs to comply with certain rule filing processes for any new rules or
rule amendments. Specifically, the Commission is proposing new Rules
805 and 806, which set forth, respectively, a process for the voluntary
submission of rules for Commission review and approval, and a self-
certification rule filing process.\353\ The processes proposed under
these rules are substantially similar to the two rule filing processes
that the CFTC has in its existing rules,\354\ as modified by the new
authority the CFTC has received under Section 745 of the Dodd-Frank
Act.\355\ It is important for the Commission to receive notice of
proposed rule changes to understand how each SB SEF operates and is
governed to help the Commission with its oversight of SB SEFs. The
Commission intends to coordinate efforts with the CFTC, as appropriate,
to have the processes offered in proposed Rules 805 and 806 resemble
the rule filings processes that the CFTC ultimately adopts for SEFs, in
large part to streamline and simplify compliance for joint SEF/SB SEF
entities.
---------------------------------------------------------------------------

    \353\ Proposed Rule 806(d) also provides a limited exception to
the certification requirement for certain kinds of filings. See
proposed Rule 806(d). See also discussion infra notes 382 to 384 and
accompanying text.
    \354\ 17 CFR 40.5 and 17 CFR 40.6.
    \355\ See Public Law 111-203 Sec.  745 (amending Section 5c of
the CEA, 7 U.S.C. 7a-2).
---------------------------------------------------------------------------

B. Voluntary Submission of Rules for Commission Review and Approval

    Proposed Rule 805 gives a registered SB SEF the option of
voluntarily submitting a proposed new rule or rule amendment for
approval by the Commission prior to its implementation. Paragraph (a)
of proposed Rule 805 would require such filings to: (1) Be filed
electronically with the Commission in a format specified by the
Commission; (2) set forth the text of the proposed rule or rule
amendment (in the case of a rule amendment, deletions and additions
must be indicated); (3) indicate the proposed effective date of the
proposed rule, any action taken or anticipated to be taken to adopt the
proposed rule by the SB SEF or by its governing board or by any
committee thereof, and the cite for the rules of the SB SEF that
authorize the adoption of the proposed rule change; (4) explain the
operation, purpose, and effect of the proposed rule, including, as
applicable, a description of the anticipated benefits to market
participants or others, any potential anticompetitive effects on market
participants or others, and how the rule fits into the SB SEF's
framework of regulation; (5) certify that the SB SEF posted a notice of
pending rule filing and a copy of the submission, concurrent with the
filing of a submission on its Web site; (6) include the documentation
relied on to establish the basis for compliance with the applicable
provisions of the Exchange Act and the Commission's regulations
thereunder, including the Core Principles; (7) provide additional
information which may be beneficial to the Commission in analyzing the
new rule or rule amendment; (8) describe briefly any substantive
opposing views expressed to the SB SEF by the Board or committee
members, participants of the SB SEF, or market participants with
respect to the new rule or rule amendment that were not incorporated
into the new rule or rule amendment; (9) identify any Commission
regulation that the Commission may need to amend, or sections of the
Exchange Act or the Commission's regulations that the Commission may
need to interpret, in order to approve the new rule or rule amendment;
(10) in the case of proposed amendments to the terms and conditions of
a SB swap product, include a written statement verifying that the
registered SB SEF has undertaken a due diligence review of the legal
conditions, including conditions relating to contractual and
intellectual property rights, that may materially affect the trading of
the product; and (11) request confidential treatment, if
appropriate.\356\
---------------------------------------------------------------------------

    \356\ See proposed Rule 805(a).
---------------------------------------------------------------------------

    Proposed Rule 805(a) sets forth the information a SB SEF would be
required to provide the Commission when seeking Commission approval of
a proposed change to a SB SEF rule, or a proposed change to the terms
and conditions of a SB swap that has already commenced trading. Most of
the proposed items of information to be included are substantially
similar to the items of information a national securities exchange is
required to provide on Form 19b-4 \357\ when

seeking approval of a proposed rule change in accordance with Section
19(b) of the Exchange Act.\358\ Specifically, the requirements in
proposed Rule 805(a)(1) through (4) regarding electronic submission,
submission of proposed rule text highlighting additions and deletions,
inclusion of background information on how and why a proposed change is
authorized, and explanation of the operation, purpose, and effect of
the proposed rule change are similar to the requirements applicable to
national securities exchanges seeking to implement a proposed rule
change. Further, the requirements in proposed Rule 805(a)(7) through
(9) to include additional information beneficial to the Commission in
analyzing the new rule or rule amendment, a description of substantive
opposing views expressed to the SB SEF regarding the proposal, and to
identify any Commission regulation that the Commission may need to
amend or interpret in order to approve the new rule or rule amendment
also are similar to the requirements of Form 19b-4 applicable to
national securities exchanges. These requirements are designed to
ensure that a SB SEF seeking to implement a new or proposed rule change
provides all relevant information and context regarding the proposal
that would allow the Commission to evaluate the proposal for
consistency with the Exchange Act and rules and requirements
thereunder.
---------------------------------------------------------------------------

    \357\ See 17 CFR 240.19b-4.
    \358\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    In addition, similar to the requirements for national securities
exchanges, the proposal in Rule 805(a)(5) would require a SB SEF to
certify that it has posted a notice of pending rule filing and a copy
of the submission, concurrent with the filing of a submission on its
Web site. This proposal is intended to ensure that market participants
would receive prompt notice of new requests for approval filed with the
Commission.\359\
---------------------------------------------------------------------------

    \359\ Rule 19b-4(l) under the Exchange Act requires each
national securities exchange to post proposed rule changes on its
Web site within two business days of filing with the Commission. See
17 CFR 240.19b-4(l).
---------------------------------------------------------------------------

    Proposed Rule 805(a)(6) also would require a SB SEF to include the
documentation relied on to establish the basis for compliance with the
applicable provisions of the Exchange Act and the Commission's
regulations thereunder, including the Core Principles. In the case of
proposed changes to the terms and conditions of a SB swap, this
provision would require, without limitation, inclusion of documentation
relied on to establish the basis for compliance with Section 3D(d)(3)
of the Exchange Act and proposed Rule 812 thereunder, which would
require a SB SEF's swap review committee to have determined, after
taking into account all of the terms and conditions of the SB swap and
the markets for the SB swap and any underlying securities, that a SB
swap proposed to be traded is not readily susceptible to
manipulation.\360\
---------------------------------------------------------------------------

    \360\ See Proposed Rule 812.
---------------------------------------------------------------------------

    Also with regard to proposed changes to the terms and conditions of
a SB swap, proposed Rule 805(a) would require a SB SEF to provide a
written statement verifying that it has undertaken a due diligence
review of the legal conditions, including conditions relating to
contractual and intellectual property rights, that may materially
affect the trading the product. This proposed requirement is designed
to prevent a SB SEF from seeking to trade a proprietary product of
another SB SEF or other entity. The Commission preliminarily believes
that the information to be included pursuant to proposed Rule 805(a) in
a request for approval of a new or proposed rule change or change to
the terms and conditions of a SB swap is necessary to assist the
Commission in making a reasoned determination as to whether such
proposed change is consistent with the Exchange Act.
    Proposed Rule 805(b) would require the Commission to approve a new
rule or rule amendment unless the rule or rule amendment is
inconsistent with the Exchange Act or the Commission's regulations
promulgated thereunder.\361\ The Commission has coordinated with the
CFTC and the proposed standard for approval is the same as that
standard for approval under the CFTC's proposed rule approval process,
which is intended to provide consistency to market participants who may
operate a SB SEF and a SEF.
---------------------------------------------------------------------------

    \361\ See proposed Rule 805(b).
---------------------------------------------------------------------------

    Proposed Rule 805(c) would give the Commission a 45-day review
period, starting from the date that the filing is received by the
Commission, to consider whether the proposed rule or rule amendment is
consistent with the Exchange Act and the regulations thereunder.\362\
Unless the Commission notifies the SB SEF otherwise, the proposed rule
change would be deemed approved by the Commission at the end of the 45-
day review period (or at the end of any extension period, as
applicable), provided that: (1) The submission of the rule change
complies with the requirements of paragraph (a) of proposed Rule 805,
and (2) the SB SEF has not amended the filing during the review period,
except as requested by the Commission during that period.\363\
---------------------------------------------------------------------------

    \362\ See proposed Rule 805(c).
    \363\ Id. Any amendment or supplementation not requested by the
Commission would be treated as the submission of a new filing.
---------------------------------------------------------------------------

    Under paragraph (d) of proposed Rule 805, the Commission would be
able to extend the review period by an additional 45 days if the
proposed rule raises novel or complex issues that require additional
time for review or is of major economic significance, the submission is
incomplete, or the requestor does not respond completely to Commission
questions in a timely manner.\364\ In this case, the Commission would
be required to notify the submitting SB SEF within the initial 45-day
review period and briefly describe the nature of the specific issues
for which additional time for review is required. In addition, the
Commission would be able to extend the review period to any period,
beyond the additional 45 days initially requested, to which the SB SEF
agrees in writing.\365\
---------------------------------------------------------------------------

    \364\ See proposed Rule 805(d).
    \365\ Id.
---------------------------------------------------------------------------

    Under paragraph (e) of proposed Rule 805, the Commission would have
the authority to issue a notice of non-approval if it finds that the
new rule or rule amendment is or appears to be inconsistent with the
Exchange Act or the regulations thereunder.\366\ At any time during its
review under proposed Rule 805, the Commission would be able to notify
the SB SEF that it will not approve the new rule or rule amendment
because it believes that the new rule or rule amendment is inconsistent
with the Exchange Act or Commission rules or regulations thereunder.
The Commission would provide, in its notice, the nature of the issues
raised and the specific provision of the Exchange Act or the
Commission's rules or regulations with which the new rule or rule
amendment is or appears to be inconsistent. Pursuant to proposed Rule
805(f), the receipt of a notice of non-approval would not prevent the
SB SEF from subsequently submitting a revised version of the proposed
rule or rule amendment for Commission review and approval, and the
revised submission would be reviewed without prejudice.\367\ However,
the receipt of a notice of non-approval would be presumptive evidence
that the SB SEF could not truthfully submit the same, or substantially
the same, proposed rule or

rule amendment for self-certification under proposed Rule 806.\368\
---------------------------------------------------------------------------

    \366\ See proposed Rule 805(e).
    \367\ See proposed Rule 805(f)(1).
    \368\ See proposed Rule 805(f)(2). See infra Section XXIII for a
discussion of the certification process.
---------------------------------------------------------------------------

    Proposed Rule 805(g) would allow the Commission to provide for
expedited approval for rule changes, including rule changes to terms
and conditions of a product that are consistent with the Exchange Act
and the rules and regulations thereunder, at such time and under such
conditions as the Commission may specify in a written
notification.\369\ However, proposed Rule 805(g) would also allow the
Commission to grant expedited approval to a proposed rule or rule
amendment, at any time, and also to alter or revoke the applicability
of such a notice to any particular rule or rule amendment.
---------------------------------------------------------------------------

    \369\ See proposed Rule 805(g).
---------------------------------------------------------------------------

    The Commission is proposing the time periods in paragraphs 805(c)
through (g) to align its procedure for reviewing proposed rules and
rule amendments with the CFTC's procedure.\370\ The Commission believes
that a parallel procedure would be beneficial for SB SEFs and SEFs that
are dually registered. Furthermore, the Commission believes that the
proposed prior approval process would allow the SB SEF the opportunity
to achieve greater certainty about the Commission's views on whether a
new rule or rule amendment is consistent with the Exchange Act and the
rules and regulations thereunder prior to taking steps to implement the
rule or amendment.
---------------------------------------------------------------------------

    \370\ See 17 CFR 40.5 and 40.6. See also Public Law 111-203,
Sec.  745 (amending Section 5c of the Commodity Exchange Act, 7
U.S.C. 7a-2). See also 75 FR 67282 (November 2, 2010) (CFTC proposal
to amend 17 CFR 40.5 and 40.6).
---------------------------------------------------------------------------

C. Self-Certification of Rules

    Proposed Rule 806 would allow a SB SEF, as an alternative to
complying with proposed Rule 805, to implement a new rule or rule
amendment pursuant to self-certification.\371\ This process would
provide the Commission ten business days to review a self-certification
filing and to stay the certification within such review period, if
warranted.
---------------------------------------------------------------------------

    \371\ See proposed Rule 806.
---------------------------------------------------------------------------

    Specifically, under proposed Rule 806(a), a registered SB SEFs
would be required to submit the self-certification electronically at
least ten business days prior to the implementation date of the new
rule or rule amendment.\372\ The proposed rule would require that the
SB SEF publish on its Web site a notice of pending certification with
the Commission and copy of the submission concurrent with the filing of
a submission with the Commission.\373\
---------------------------------------------------------------------------

    \372\ See proposed Rule 806(a)(1) and proposed Rule 806(a)(3).
Proposed Rule 806(a)(3) would provide an exception to the 10 day
requirement for new rules or rule amendments that the SB SEF seeks
to implement in the exercise of its emergency authority pursuant to
Rule 816, requiring instead that the SB SEF file such emergency rule
or rule amendment with the Commission prior to the implementation of
such rule or rule amendment, or, if not practicable, within twenty-
four hours after implementation of such emergency rule or rule
amendment.
    \373\ See proposed Rule 806(a)(2). The proposed Rule would
require the SB SEF to provide such information in its submission to
the Commission, but would permit the SB SEF to redact information
that it seeks to keep confidential from the documents that it
publishes on its Web site. If, however, a determination is made
pursuant to the Freedom of Information Act that such information may
not be kept confidential, the proposed rule would require the SB SEF
to republish its filing on its Web site including such information.
---------------------------------------------------------------------------

    Similar to proposed Rule 805, proposed Rule 806 would require the
submission to include certain specific items: (1) The text of the rule
(in the case of a rule amendment, deletions and additions must be
indicated); (2) the date of intended implementation; (3) a
certification by the SB SEF that the rule complies with the Exchange
Act and the Commission's regulations thereunder; (4) the documentation
relied on to establish the basis for compliance with the applicable
provisions of the Exchange Act and the Commission's regulations
thereunder, including the Core Principles; \374\ (5) a brief
explanation of any substantive opposing views expressed to the
registered SB SEF by the Board or committee members, participants, or
market participants that were not incorporated into the rule, or a
statement that no such opposing views were expressed; (6) a request for
confidential treatment, if appropriate; and (7) in the case of proposed
amendments to the terms and conditions of a SB swap, a written
statement verifying that the registered SB SEF has undertaken a due
diligence review of the legal conditions, including conditions relating
to contractual and intellectual property rights, that may materially
affect the trading the product.\375\ The proposed Rule would also
require the SB SEF to provide, if requested by Commission staff,
additional evidence, information or data that may be beneficial to the
Commission in conducting a due diligence assessment of the filing and
the SB SEF's compliance with any of the requirements of the Exchange
Act or the Commission's rules or regulations thereunder.\376\ The
proposed items of information are similar to those required by proposed
Rule 805(a) as well as those in CFTC Rule 40.6.\377\ The Commission
preliminarily believes that inclusion of the items of information set
forth in proposed Rule 806(a) would assist the Commission in
considering whether a SB SEF's implementation of a new rule, rule
amendment, or modification to the terms and conditions of a SB swap
pursuant to self-certification is appropriate and consistent with the
Exchange Act and the rules and requirements thereunder.
---------------------------------------------------------------------------

    \374\ In the case of proposed changes to the terms and
conditions of a SB swap, this provision would require, without
limitation, inclusion of documentation relied on to establish the
basis for compliance with Section 3D(d)(3) of the Exchange Act and
proposed Rule 812 thereunder, which would require a SB SEF's swap
review committee to have determined, after taking into account all
of the terms and conditions of the SB swap and the markets for the
SB swap and any underlying securities, that a SB swap proposed to be
traded is not readily susceptible to manipulation. See proposed Rule
812.
    \375\ See proposed Rule 806(a)(5).
    \376\ See proposed Rule 806(a)(6).
    \377\ See proposed Rule 805(a) and 17 CFR 40.6. See also Public
Law 111-203, Sec.  745 (amending Section 5c of the Commodity
Exchange Act, 7 U.S.C. 7a-2).
---------------------------------------------------------------------------

    Under paragraph (b) of proposed Rule 806, the Commission would have
10 business days to review the submission and the self-certification
would become effective at the end of the 10 business-day period, unless
the Commission notifies the registered entity, during such 10 business-
day period, that it intends to issue a stay of the certification.\378\
Proposed Rule 806(c)(1) would provide that the Commission would be able
to stay the certification of a new rule or rule amendment by issuing a
notification to the SB SEF informing it that the Commission is staying
the certification and stating the grounds for doing so.\379\ The
proposed rule also would provide that the certification of a rule could
be stayed by the Commission on the grounds that the new rule or rule
amendment presents novel or complex issues, is accompanied by an
inadequate explanation, or is potentially inconsistent with the
Exchange Act or the Commission's regulations thereunder. Once the
Commission issues a notification of stay to the registered entity, the
Commission would have 90 days to conduct a review. A stay of a rule
certification may be appropriate, for example, where a registered
entity certifies a rule that raises unique issues not previously
reviewed by Commission staff. In addition, the Commission believes that
new rules or rule amendments may raise a number of complex issues if
they appear to have a material impact on other securities and financial
markets. Thus, such rules are more likely to be

subject to an extended review period to allow the Commission to
adequately identify and address complex regulatory issues.
---------------------------------------------------------------------------

    \378\ See proposed Rule 806(b).
    \379\ See proposed Rule 806(c)(1).
---------------------------------------------------------------------------

    Proposed Rule 806(c)(2) would require the Commission to provide a
30-day public comment period within the 90-day period that the stay is
in effect and to publish a notice of the 30-day comment period on the
Commission's Web site.\380\ Unless the Commission notifies the SB SEF
that it objects to the certification within the 90-day period on the
grounds that the proposed rule is inconsistent with the Exchange Act or
the rules or regulations thereunder, the rule would become effective,
pursuant to certification, upon the expiration of the 90-day review
period.\381\ If the Commission decides to lift the stay prior to the
expiration of the 90-day review period, the Commission would notify the
SB SEF of its action and the rule would become certified at such time.
---------------------------------------------------------------------------

    \380\ See proposed Rule 806(c)(2).
    \381\ See proposed Rule 806(c)(3).
---------------------------------------------------------------------------

    Finally, proposed Rule 806(d) would permit SB SEFs to implement
certain new rules or rule amendments on the following business day
without certification to the Commission.\382\ Pursuant to proposed Rule
806(d)(1), the rules permitted to be implemented pursuant to this
summary process would be limited to rules regarding corrections of
typographical errors, renumbering, periodic routine updates to
identifying information about approved entities and other such non-
substantive revisions of a product's terms and conditions that have no
effect on the economic characteristics of the product.\383\ Proposed
Rule 806(d)(2) would require SB SEFs to provide to the Commission
electronically, in a format to be specified by the Commission, at least
weekly, a summary notice of all rule amendments made effective
thereunder.\384\ Such notice would not be required for weeks during
which no such actions have been taken. Proposed Rule 806(e) would allow
a SB SEF to implement certain other new rules or rule amendments
without certification or notice to the Commission, provided that the SB
SEF maintains documentation regarding all changes to rules and posts
all such rule changes on its Web site.\385\ These rules and rule
amendments would be those that govern: (1) The organization and
administrative procedures of a SB SEF governing bodies such as a Board,
officers, and committees, but not any of the following: Voting
requirements; Board or committee composition requirements or
procedures; decision making procedures; use or disclosure of material
non-public information gained through the performance of official
duties, or requirements relating to conflicts of interest; or (2) the
routine, daily administration, direction and control of employees,
requirements relating to gratuity and similar funds, but not any of the
following: Guaranty; reserves; or similar funds; declaration of
holidays; and changes to facilities housing the market.
---------------------------------------------------------------------------

    \382\ See proposed Rule 806(d).
    \383\ See proposed Rule 806(d)(2).
    \384\ See proposed Rule 806(d)(1).
    \385\ See proposed Rule 806(e).
---------------------------------------------------------------------------

    The Commission notes that the certification process in proposed
Rule 806 does not call for any final action by the Commission. In cases
where a SB SEF seeks final agency action, a SB SEF could choose to file
a proposed rule or rule amendment under proposed Rule 805.
    The Commission intends to allow registered SB SEFs to submit
filings under proposed Rules 805 and 806 electronically through a
portal similar to the electronic rule filing system used for proposed
rule changes by national securities exchanges and national securities
associations.\386\
---------------------------------------------------------------------------

    \386\ The process for submission of rule filings would be the
subject of a separate rulemaking.
---------------------------------------------------------------------------

    The Commission notes that the process under proposed Rules 805 and
806 closely parallel the CFTC's Rules 40.5 and 40.6.\387\ The
Commission preliminarily believes that allowing SB SEFs to file new
rules and rule amendments in this manner would simplify the filing
process and also provide the Commission with prompt access for review.
The Commission intends to propose forms for these electronic filings as
part of a separate rulemaking.
---------------------------------------------------------------------------

    \387\ See 17 CFR 40.5 and 40.6. See also Public Law 111-203,
Sec.  745 (amending Section 5c of the Commodity Exchange Act, 7
U.S.C. 7a-2). See also 75 FR 67282 (November 2, 2010) (CFTC proposal
to amend 17 CFR 40.5 and 40.6.
---------------------------------------------------------------------------

D. Request for Comment

    The Commission generally requests comments on all aspects of the
proposed rules relating to the proposed rule filing process. Are the
Commission's proposed rules for the filing process for new rules and
rule amendments appropriate and sufficiently clear? If not, why not and
what would be better alternatives? Is it preferable to have a rule
filing process for SB SEFs that closely aligns to the process for SEFs
under the CFTC's rules as proposed? By doing this, would the proposed
rules achieve the goal of streamlining and simplifying the effort to
have rules implemented for entities that are both SB SEFs and SEFs? If
not, what other alternatives should the Commission consider? What other
burdens should the Commission take account of that joint SB SEF/SEF
entities would face under the proposed rules? Is the voluntary prior
approval process in proposed Rule 805 a useful option for SB SEFs? If
not, what would be a better alternative?
    Does the automatic effectiveness for a rule or rule amendment
submitted under proposed Rule 806, once the review period has expired
and in the absence of non-approval, provide sufficient legal clarity
and certainty about the change? Or, would an approval order by the
Commission be more instructive or helpful? Are the time periods for
review, and extensions for review, in proposed Rule 805 appropriate? If
so, what would be more appropriate? Should the submissions for prior
approval be published by the Commission for public comment? Why or why
not?
    Is the provision of a notice of non-approval to the SB SEF, as
described under proposed Rule 805(e), a sufficient means of informing
the SB SEF of the basis for non-approval? Would more information or
another form of notice be more appropriate? If so, please explain.
Should such notice of non-approval be published on the Commission's Web
site or otherwise be made publicly available? Would the proposed self-
certification process in proposed Rule 806 be a useful alternative to
the prior approval process for rule changes? Why or why not?
    Are the proposed grounds for staying a certification under proposed
Rule 806(c) appropriate? If not, why not? Are there other grounds that
would also be appropriate for staying a certification? Under proposed
Rule 806 (for self-certification), would the 10 business-day review
period and, if a stay is put in place, the 90-day review period be
appropriate timeframes for Commission review and consideration? If not,
why not and what would be a better alternative? Please provide support
for any alternative suggestions.
    Should the 90-day review period, subsequent to a stay of a
certification, in proposed Rule 806(c) include a 30-day public comment
period? Why or why not? Is the means for determining whether a rule or
rule amendment has been certified or objected to provided for in
proposed Rule 806(c)(3) sufficiently clear? If not, how could such
determination be made more clear? Should the Commission publish notice
of either the effective certification or the notice of an objection for
the public on its Web site or through other means?

    Are the proposed processes for providing notice, without a
certification, for certain kinds of rule changes in proposed Rule
806(d) appropriate? If not, why not? Are the proposed rule changes that
would be eligible for notice without certification in proposed Rule
806(d) and (e) appropriate? If not, which ones should not be eligible
for these processes? Are there other kinds of rule changes that should
be eligible for these processes?
    Would an electronic method for submitting all rule submissions
under proposed Rules 805 and 806 be an appropriate and efficient way of
making such submissions? If not, why not? Would an electronic system
such as the existing system for submitting rule changes by national
securities exchanges and associations, Electronic Form 19b-4 Filing
System, or ``EFFS,'' \388\ be a good model for the system for SB SEF
submissions under these proposed rules? If not, what would be a better
model for such an electronic system?
---------------------------------------------------------------------------

    \388\ See Securities Exchange Act Release No. 50486 (October 4,
2004), 69 FR 60287 (October 8, 2004) (File No. S7-18-04).
---------------------------------------------------------------------------

XXIV. Filing Processes for Trading Security-Based Swaps

A. Introduction

    The Commission is proposing to adopt rules requiring SB SEFs to
comply with certain filing processes prior to trading SB swaps.
Specifically, the Commission is proposing new Rules 807 and 808 of
Regulation SB SEF, which set forth filing processes for commencement or
continued trading of SB swaps on a SB SEF. The processes proposed under
these rules are substantially similar to the parallel processes that
the CFTC has in its existing rules, 17 CFR 40.2 and 17 CFR 40.3, as
modified by the new authority the CFTC has received under Section 745
of the Dodd-Frank Act.\389\
---------------------------------------------------------------------------

    \389\ See Public Law 111-203, Sec.  745 (amending Section 5c of
the Commodity Exchange Act, 7 U.S.C. 7a-2). See also 75 FR 67282
(November 2, 2010) (CFTC proposal to amend 17 CFR 40.2 and 40.3).
---------------------------------------------------------------------------

    The proposed filing processes pursuant to which a SB SEF may trade
a SB swap each require that a SB SEF describe the proposed product's
``terms and conditions.'' The Commission is not proposing a definition
of ``terms and conditions,'' but requests comment on whether it should
adopt a definition of ``terms and conditions'' and, if so, what
specifically should such a definition include.\390\ Specifically,
should a Commission definition of ``terms and conditions'' refer to the
rights and obligations of the counterparties to a SB swap? Should it
include such items as: (1) Notional values; (2) relevant dates, tenor,
and day count conventions; (3) index; (4) relevant prices, rates or
coupons; (5) currency; (6) stub, premium, or initial cash flow
components along with subsequent life cycle events; (7) payment and
reset frequency; (8) business calendars; (9) accrual type; (10) spread
or points; and (11) description of the underlying security or
securities or reference asset(s)? Should it include other items that
appear in the CFTC's definition? Are there any other items that should
be included? Should the ISDA Master Agreement be referenced in a
definition? If so, why and how?
---------------------------------------------------------------------------

    \390\ The Commission notes that the CFTC, in 17 CFR 40.1,
defines ``terms and conditions'' as referring to a description of
the security underlying a swap, specification of cash settlement,
and the rights and obligations of the counterparties to the swap.
The CFTC's definition also notes that whenever possible, all
proposed swap terms and conditions should conform to industry
standards or those terms and conditions adopted by comparable
contracts. Further, the CFTC's definition sets forth a list of items
covered by the phrase ``terms and conditions.''
---------------------------------------------------------------------------

B. Trading SB Swaps Pursuant to Certification

    Proposed Rule 807 would require every SB SEF to comply with certain
submission requirements prior to trading a SB swap product if such
product has not been approved under proposed Rule 808. Pursuant to
proposed Rule 807 every submission must be filed electronically in a
form to be determined by the Commission and be received by the
Commission by the open of business on the business day preceding the
day the SB swap would commence trading. In addition, every submission
would be required to include: (1) A copy of the SB swap product's terms
and conditions; (2) the intended date on which the SB swap may begin
trading; (3) a certification by the registered SB SEF that the SB swap
to be traded complies with the Exchange Act and the rules and
regulations thereunder; (4) the documentation relied on to establish
the basis for compliance with the Exchange Act and the rules and
regulations thereunder, including the Core Principles; \391\ (5) a
written statement verifying that the registered SB SEF has undertaken a
due diligence review of the legal conditions, including legal
conditions that relate to contractual and intellectual property rights,
that may materially affect the trading of the SB swap; (6) a
certification that the registered SB SEF posted on its Web site a
notice of pending certification with the Commission and a copy of the
submission, concurrent with the filing of a submission with the
Commission; and (7) a request for confidential treatment, if
appropriate.
---------------------------------------------------------------------------

    \391\ As discussed in note 374 supra, this provision would
require, without limitation, inclusion of documentation relied on to
establish the basis for compliance with Section 3D(d)(3) of the
Exchange Act and proposed Rule 812 thereunder, which would require a
SB SEF's swap review committee to have determined, after taking into
account all of the terms and conditions of the SB swap and the
markets for the SB swap and any underlying securities, that a SB
swap proposed to be traded is not readily susceptible to
manipulation.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 807(b), upon request of any
representative of the Commission, a SB SEF would be required to provide
any additional evidence, information or data demonstrating that the SB
swap product meets, initially or on a continuing basis, all of the
requirements of the Exchange Act and its rules.
    Proposed Rule 807(c) would provide that the Commission would be
able to stay the certification of a SB swap by issuing a notification
to the SB SEF informing it that the Commission is staying the
certification and stating the grounds for doing so.\392\ The proposed
rule also would provide that the certification could be stayed by the
Commission on the grounds that the SB swap presents novel or complex
issues, is accompanied by an inadequate explanation, or is potentially
inconsistent with the Exchange Act or the Commission's regulations
thereunder. Once the Commission issues a notification of stay to the
registered entity, the Commission would have 90 days to conduct a
review. A stay of a certification may be appropriate, for example,
where a registered entity certifies a SB swap that raises unique issues
not previously reviewed by Commission staff.
---------------------------------------------------------------------------

    \392\ See proposed Rule 807(c)(1).
---------------------------------------------------------------------------

    Proposed Rule 807(c) would require the Commission to provide a 30-
day public comment period within the 90-day period that the stay is in
effect and to publish a notice of the 30-day comment period on the
Commission's Web site.\393\ Unless the Commission notifies the SB SEF
that it objects to the certification within the 90-day period on the
grounds that the proposed SB swap is inconsistent with the Exchange Act
or the rules or regulations thereunder, the SB swap would become
effective, pursuant to certification, upon the expiration of the 90-day
review period.\394\ If the Commission decides to lift the stay prior to
the expiration of the 90-day review period, the Commission would notify
the SB SEF of its action

and the SB swap would become certified at such time.\395\
---------------------------------------------------------------------------

    \393\ See proposed Rule 807(c)(2).
    \394\ See proposed Rule 807(c).
    \395\ The stay provision in proposed Rule 807(c) is more similar
to the stay provision in proposed Rule 806 and proposed CFTC Rule
40.6 than it is to the stay provision in proposed CFTC Rule 40.2.
Proposed CFTC Rule 40.2 would permit the CFTC to stay a
certification of a SB swap during the pendency of a CFTC proceeding
for filing a false certification or during the pendency of a
petition to alter or amend the contract terms and conditions
pursuant to Section 8a(7) of the Commodity Exchange Act. The
Commission notes that the Exchange Act does not provide for
procedures analogous to those in proposed CFTC Rule 40.2, and thus
is proposing it to align proposed Rule 807 with proposed CFTC Rule
40.2.
---------------------------------------------------------------------------

    The Commission preliminarily believes that proposed Rule 807, which
closely parallels CFTC proposed new Rule 40.2, provides a reasonable
process pursuant to which a SB SEF may trade SB swaps through a
certification process. Any dually registered SB SEF would be following
very similar procedures for certification of swaps under CFTC proposed
new Rule 40.2. The proposed rule would give the Commission notice of
any new SB swaps for which a SB SEF would permit trading and would
allow the Commission to stay a proposed SB swap's certification in
certain circumstances. In addition, because the proposed rule closely
parallels the CFTC's proposed rule, it would provide for greater
harmonization of the regulatory process applied to SEFs and SB SEFs.
    The Commission also preliminarily believes that it is appropriate
to include in any submissions under proposed Rule 807 documentation
demonstrating that the product is in compliance with the SB SEF Core
Principles--in particular, core principles that apply specifically to
products, such as Core Principle 3 concerning manipulation. The
Commission preliminarily believes that it is appropriate to require a
SB SEF to document the basis for a determination that a SB swap is not
readily susceptible to manipulation and notes that the self-
certification in proposed Rule 807 is drawn from analogous processes
that the CFTC currently has in place with respect to new financial
futures products proposed to be traded on a designated contract
market.\396\ The Commission further notes that CFTC regulations require
that prior to trading a new product, a designated contract market must
demonstrate that the terms and conditions of a proposed contract ``will
not be conducive to price manipulation or distortion.'' \397\ The
Commission also preliminarily believes that SB SEFs should be
conducting due diligence before listing a new SB swap product. In
evaluating any certification, information on such due diligence would
be essential to the Commission.
---------------------------------------------------------------------------

    \396\ See 17 CFR 40.2, 40.3. See also 17 CFR 40, Appendix A to
Part 40--Guideline No. 1.
    \397\ Id. The Commission understands that the CFTC expect to
propose a similar requirement for SEFs.
---------------------------------------------------------------------------

    The Commission preliminarily believes that SB SEFs would make use
of the certification process in the same way that registered entities
have been making use of the parallel process under the CFTC's existing
rules. The Commission understands from CFTC staff that entities
generally use the CFTC's current certification process if they
reasonably believe that the new product does not raise any novel issues
or questions. However, the Commission notes that the proposed
certification process does not include any final action of the
Commission. In cases where a SB SEF desired final agency action,
Proposed Rule 808 would be available.\398\
---------------------------------------------------------------------------

    \398\ See infra Section XXIV, discussing trading of SB swaps
pursuant to Commission review and approval.
---------------------------------------------------------------------------

    The Commission requests comment on all aspects of Proposed Rule
807. Is the proposed rule text clear? Should a SB SEF be required to
include in its certification disclosure of whether a proposed product
is or is not subject to mandatory clearing? Should a SB SEF be required
to include additional information when certifying a new SB swap
product? If so, what additional information should be included? Should
the proposed rule enumerate what additional evidence, information or
data would need to be provided pursuant to proposed paragraph (a) of
Rule 807, or what the time frame for such a request should be? Is the
proposed stay of certification process clear? Should the Commission
consider adopting another stay procedure? If so, what should that
process be?

C. Trading SB Swaps Pursuant to Commission Review and Approval

    Proposed Rule 808 would permit a SB SEF to request that the
Commission approve a SB swap prior to permitting trading of the SB
swap, or if a SB swap product was initially submitted under Rule 807,
subsequent to commencement of trading of the SB swap. Under proposed
Rule 808, a submission requesting approval would be required to be
submitted electronically in a form to be determined by the Commission
and include: (1) A copy of the SB swap product's terms and conditions;
(2) the documentation relied on to establish the basis for compliance
with the Exchange Act and rules and regulations thereunder, including
the Core Principles; \399\ (3) a written statement verifying that the
registered SB SEF has undertaken a due diligence review of the legal
conditions, including legal conditions that relate to contractual and
intellectual property rights, that may materially affect the trading of
the SB swap; (4) if appropriate, a request for confidential treatment
as permitted pursuant to the applicable provisions of FOIA \400\ and
applicable Commission regulations; \401\ and (5) a certification that
the registered SB SEF has published on its Web site a notice of pending
request for approval with the Commission and a copy of the submission,
concurrent with the filing of a submission with the Commission.
---------------------------------------------------------------------------

    \399\ See supra note 374.
    \400\ 5 U.S.C. 552.
    \401\ 17 CFR 200.83.
---------------------------------------------------------------------------

    In addition, under proposed Rule 808(b), if requested by a
representative of the Commission, a SB SEF would be required to provide
additional evidence, information or data that demonstrates that the SB
swap product meets, initially and on a continuing basis, all of the
requirements of the Exchange Act and any applicable rules and
regulations. Under proposed Rule 808(c) the Commission would approve a
new SB swap product unless the terms and conditions of such product
were inconsistent with the Exchange Act or rules and regulations
thereunder.\402\
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    \402\ The standard for approval in proposed Rule 808 would
differ from the standard for approval in proposed CFTC Rule 40.3.
Proposed CFTC Rule 40.3 provides that the CFTC shall approve a new
swap product unless the terms and conditions of such product
``violate'' the Commodity Exchange Act. See 75 FR 67282 (November 2,
2010) (CFTC proposal to amend 17 CFR 40.2-40.5). Notably, proposed
CFTC Rule 40.5 provides that the CFTC shall approve an amendment to
the terms and conditions of a swap product unless the amended
product would be ``inconsistent'' with the Commodity Exchange Act.
See id. The Commission believes that it is preferable to have the
same standard for approval in proposed Rules 805 and 808 and
therefore proposes that the standard for approval in proposed Rule
808 be the same as the standard for proposed CFTC Rule 40.5. The
Commission notes that the proposed standard is similar to the
standard for Commission approval of a proposed rule change filed
under Section 19(b)(2) of the Exchange Act. See 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Under proposed Rule 808(d), all products submitted for Commission
approval under the proposed section would be deemed approved by the
Commission 45 days after receipt by the Commission, or at the
conclusion of an extended period as provided under proposed Rule
808(e), provided that: (1) The submission complied with the
requirements of proposed Rule 808(a); and (2) the SB SEF making the

submission did not amend the terms and conditions of the proposed SB
swap product or supplement its request for approval during that period,
except in response to a request by the Commission or for correction of
typographical errors, renumbering or other non-substantive revisions.
In addition, under proposed Rule 808(d), any voluntary, substantive
amendment by the SB SEF would be treated as a new submission.
    Under proposed Rule 808(e) the Commission would be able to extend
the 45-day review period for an additional 45 days, if the proposed SB
swap product raised novel or complex issues that required additional
time for review. In that event, the Commission would need to notify the
SB SEF within the initial 45 day review period and would need to
briefly describe the nature of the specific issues. Alternatively, the
SB SEF could agree to any extended review period in writing.
    Under proposed Rule 808(f), the Commission could notify the SB SEF
at any time during its review of the submission that the Commission
will not or is unable to approve the proposed SB swap product. Such
notification would be required to specify the nature of the issues
raised by the proposed SB swap product and the specific provisions of
the Exchange Act rules and regulations involved.
    Proposed Rule 808(g) would address the effect of non-approval by
the Commission. Under proposed paragraph (g) notification to a SB SEF
of the Commission's determination not to approve a proposed SB swap
product would not prejudice the SB SEF from subsequently submitting a
revised version of the proposed product for Commission approval or from
submitting the product as initially proposed pursuant to a supplemented
submission. However, notification to a SB SEF of the Commission's
refusal to approve SB swap would be presumptive evidence that the
entity would not be able to truthfully certify under Rule 807 that the
same, or substantially the same, SB swap complies with the Exchange Act
or the rules thereunder.
    As with proposed Rule 807, proposed Rule 808 is substantially
similar to the applicable CFTC proposed rule, new proposed Rule 40.3.
The Commission believes that this approach would allow dually
registered entities to more easily comply with applicable rules and
regulations. The Commission expects that the SB SEF would include in
its submission all documentation relied upon to determine that the new
product complies with applicable core principles--in particular, core
principles that apply specifically to products, such as Core Principle
3 concerning manipulation. The Commission preliminarily believes that
it is appropriate to require a SB SEF to document the basis for a
determination that a SB swap is not readily susceptible to manipulation
and notes that the proposed certification in proposed Rule 808 is drawn
from analogous processes that the CFTC currently has in place with
respect to new financial futures products proposed to be traded on a
designated contract market.\403\ The Commission further notes that the
CFTC regulations require that prior to trading a new product, a
designated contract market must demonstrate that the terms and
conditions of a proposed contract ``will not be conducive to price
manipulation or distortion.'' \404\ The Commission also preliminarily
believes that SB SEFs should be conducting due diligence before
permitting trading of a new SB swap product. In evaluating any
certification, information on such due diligence would be essential to
the Commission.
---------------------------------------------------------------------------

    \403\ See 17 CFR 40.2, 40.3. See also 17 CFR 40, Appendix A to
Part 40--Guideline No. 1.
    \404\ Id.
---------------------------------------------------------------------------

    As noted above in the discussion concerning self-certification of
new SB swaps, the Commission preliminarily believes that SB SEFs would
use the product approval process in instances where they believe novel
or difficult issues are presented and they desire final agency action.
    The Commission intends to allow registered SB SEFs to submit
filings under proposed Rules 807 and 808 electronically through a
portal similar to the electronic rule filing system used for proposed
rule changes by national securities exchanges and national securities
associations.\405\ The Commission preliminarily believes that allowing
SB SEFs to file new rules and rule amendments in this manner would
simplify the filing process and also provide the Commission with prompt
access for review. The Commission intends to propose forms for these
electronic filings as part of a separate rulemaking.
---------------------------------------------------------------------------

    \405\ The process for submission of rule filings will be the
subject of a separate rulemaking.
---------------------------------------------------------------------------

    The Commission requests comment on all aspects of proposed Rule
808. Is the process required by proposed Rule 808 clear? If not, what
elements of the process need to be added to the proposed rule? Under
what circumstances would a SB SEF that had already certified a new SB
swap product request approval of the product pursuant to the proposed
rule? Should product approval be mandatory for certain types of SB
swaps, as opposed to certification? If so, what products? Please be
specific. Is the proposed standard for approval of a SB swap
appropriate? If not, why not?

XXV. Discussion of Exemptive Authority Pursuant to Section 36 of the
Exchange Act and Compliance Matters

    Pursuant to Section 36 of the Exchange Act, the Commission may
grant an exemption from any provision of Section 3D of the Exchange
Act, any rule or any provision of any rule under Regulation SB SEF, or
any provision of the definition of ``security-based swap execution
facility'' in Section 3(a)(77) of the Exchange Act and any Commission
rules regarding such definition to the extent that such exemption is
necessary or appropriate in the public interest and is consistent with
the protection of investors. Any such exemption could be subject to
conditions and could be revoked by the Commission at any time.
Generally, the Commission would consider entertaining an application
for an exemption where the exemption is necessary or appropriate in the
public interest and consistent with the protection of investors. The
Commission in its sole discretion would determine whether to grant or
deny a request for an exemption. In addition, the Commission could
revoke an exemption at any time, including if a SB SEF could no longer
demonstrate that such exemption is necessary or appropriate in the
public interest, or is consistent with the protection of investors.
    The Commission requests comment on all aspects of the exemptive
authority. Would such exemptive authority be useful to facilitate the
purposes of the Dodd-Frank Act? If so, in what circumstances should the
Commission grant exemptions? Should exemptions only be granted in
limited circumstances? Should the Commission consider granting
exemptions from all rules under Regulation SB SEF or are exemptions
only warranted for specific rules or specific entities? For example,
should exemptions only be available with respect to certain Core
Principles? Should the Commission consider granting exemptions from all
provisions of Section 3(a)(77) of the Exchange Act, or should
exemptions only be available with respect to certain aspects of the
definition of ``security-based swap execution facility?'' What specific
factors should the Commission consider in determining whether to grant
an exemption? Are there cases where exemptions may not be appropriate
and should not be considered?

    The Commission acknowledges that it may take a period of time, as
well as require the expenditure of resources, for an SB SEF to
implement a number of the requirements set forth in proposed Regulation
SB SEF, should those requirements be part of any final rules the
Commission may adopt. A potential SB SEF would not be able to determine
the final rules governing SB SEFs with which it would need to comply
until the Commission adopts those rules. While the Commission is
committed to implementing Congress's directive to require SB SEFs to
register with the Commission and comply with the Core Principles, the
Commission understands that some or all potential SB SEFs may need a
period of time in which to acquire or configure the necessary systems,
engage and train the necessary staff, and develop and implement the
necessary policies and procedures in order to comply with any final
rules that the Commission may adopt.
    The Commission requests comment as to whether it should provide a
SB SEF a certain amount of time to comply with the proposed
requirements of Regulation SB SEF applicable to a registered SB SEF
once the SB SEF has become registered, and, if so, which provisions,
why, and how much time should be provided. For example, proposed Rule
820 relates to the fair representation of participants on the SB SEF's
Board. Should the Commission provide for a delayed compliance date for
this provision to allow the SB SEF sufficient time to establish the
requisite procedures relating to the election of fair representation
candidates, including through a petition process, and to align
compliance with the date of its election of other directors? \406\
Should the Commission consider a delayed compliance date for the CCO's
annual report required by proposed Rule 823, for example, if the SB
SEF's fiscal year ended shortly after the SB SEF's registration
application was approved by the Commission? Are there other proposed
rules or provisions of such rules for which a SB SEF should be provided
more time to comply after becoming registered? If so, which ones and
under what conditions should the Commission permit a delayed compliance
date? For example, would it be appropriate to delay the date for an SB
SEF to comply with the automated surveillance requirements of proposed
Rule 813, as long as the SB SEF had other means to satisfy its
surveillance obligations? If so, how long of a delay would be
appropriate?
---------------------------------------------------------------------------

    \406\ See Regulation MC Proposing Release, supra note 82.
---------------------------------------------------------------------------

    The Commission notes that, under the proposed rules, it would have
the authority to temporarily register a SB SEF and, under proposed
Regulation SB SEF, a temporarily registered SB SEF would need to comply
with Regulation SB SEF, including the rules implementing the Core
Principles. Should a phased-in compliance approach apply only with
respect to those SB SEFs that are temporarily registered with the
Commission? Should phased-in compliance be built into the temporary
registration process? Alternatively, should the Commission consider
using its Section 36 exemptive authority to exempt SB SEFs from certain
of the requirements of Regulation SB SEF on a case-by-case basis? If
commenters favor a phased-in compliance approach for certain proposed
rules, they should provide specific recommendations, a rationale for
each such recommendation, and the conditions under which any such
phased-in approach should be granted.
    The Commission also seeks comment on whether it is necessary or
appropriate for SB SEFs that do not meet certain objective thresholds,
such as a trading or volume threshold, to comply with all of the
requirements of proposed Regulation SB SEF. To avoid unnecessary
barriers to entry that could preclude small SB SEFs from entering this
market and better facilitate competition and innovation in the SB swap
markets that could be used to promote more efficient trading in
organized, transparent and regulated venues, would it be necessary or
appropriate to except an SB SEF from certain requirements of proposed
Regulation SB SEF under certain conditions, e.g., if the SB SEF does
not reach a specified volume or liquidity threshold with respect to the
trading of SB swaps. For example, should a SB SEF be excepted from
provisions of proposed Rule 816 regarding emergency authority and
proposed Rule 822 regarding systems safeguards if the SB SEF does not
reach a specified volume or liquidity threshold with respect to the
trading of SB swaps? Are there circumstances when it would be
burdensome for a SB SEF to undertake electronic surveillance of SB
swaps, e.g., if the SB SEF had a low threshold of trading in SB swaps?
In that case, would it be appropriate to except the SB SEF from the
automated surveillance requirements of proposed Rule 813, as long as
the SB SEF had other means to satisfy its surveillance obligations? How
should any low volume or other liquidity-based exception be measured,
particularly at the outset of trading of SB swaps on registered SB
SEFs? Are there other conditions that should be considered in any
Commission determination that a SB SEF need not comply with certain
provisions of SB SEF and, if so, what are those conditions? In lieu of
granting exceptions from certain proposed rules under certain
conditions on an omnibus basis, should the Commission instead consider
granting exemptions from the provisions of Regulation SB SEF on a case-
by-case basis?

XXVI. General Request for Comments

    The Commission seeks comment on the proposed interpretation of the
definition of SB SEF; creation of a registration framework for SB SEFs;
and establishment of rules with respect to the Dodd-Frank Act
requirement that a SB SEF must comply with the enumerated fourteen Core
Principles and enforce compliance with those principles. The Commission
particularly requests comment on possible alternatives to the proposals
in this release. The Commission also seeks comments on the general
impact the proposals would have on the market for SB swaps.
    The Commission invites commenters to address whether the proposed
rules are appropriately tailored to achieve the goal of transparency,
competition, and efficiency in the SB swap market, including with
respect to the administration of the SB SEFs' regulatory activities.
The Commission also requests comment on the necessity and
appropriateness of mandating the proposed requirements set forth in
this release. The Commission seeks comment on the proposals as a whole,
including their interaction with the other provisions of the Dodd-Frank
Act. The Commission further seeks comment on whether the proposals
would help achieve the broader goals of increasing transparency and
accountability in the SB swap market.
    Commenters should, where possible, provide the Commission with
empirical data to support their views. Commenters suggesting
alternative approaches should provide comprehensive proposals,
including any conditions or limitations that they believe should apply;
the reasons for their suggested approaches; and their analysis
regarding why their suggested approaches would satisfy the statutory
mandate contained in Section 763 of the Dodd-Frank Act.
    In considering the proposal, the Commission requests that
commenters consider not only each individual proposal contained in
proposed Regulation SB SEF but also the totality

of the Commission's proposals relating to SB SEFs, including the
proposed interpretation of the definition of SB SEF, the proposed rules
relating to SB SEFs, and the proposed registration requirements for SB
SEFs. Do the proposed interpretation of the definition of SB SEF and
proposed Regulation SB SEF in their entirety provide an efficient and
effective way to implement the requirements of the Dodd-Frank Act
relating to SB SEFs? Are the proposed interpretation of the definition
of SB SEF and proposed Regulation SB SEF in their entirety properly
tailored so that a SB SEF can meet the proposed regulatory requirements
and yet be an economically viable business? Are there aspects of the
Commission's proposals relating to the regulation of SB SEFs that, when
viewed as a whole, are too burdensome, especially in light of the
nascent stage of the SB swap market? If so, what are those features and
are there ways in which they can be revised? With respect to the
proposed rules to implement the Core Principles, commenters are invited
to consider, in addition to the costs of each proposed rule, the
totality of the costs of all of the proposed rules taken as a whole.
Are there any instances in which aspects of the Commission's proposals
should not apply? For example, should a system or platform that
otherwise would meet the proposed interpretation of the definition of
SB SEF, but that does a minimal business in the SB swap market, be
exempt from all or some of the requirements of Regulation SB SEF either
temporarily or permanently? In general, are there additional steps that
the Commission could take that would implement the requirements of the
Dodd-Frank Act that apply to SB SEFs and at the same time allow the SB
swap market to continue to develop?
    Title VII of the Dodd-Frank Act requires that the SEC consult and
coordinate to the extent possible with the CFTC for the purposes of
assuring regulatory consistency and comparability, to the extent
possible,\407\ and states that in adopting rules, the CFTC and SEC
shall treat functionally or economically similar products or entities
in a similar manner.\408\
---------------------------------------------------------------------------

    \407\ See Public Law 111-203, Sec.  712(a)(2).
    \408\ See Public Law 111-203, Sec.  712(a)(7).
---------------------------------------------------------------------------

    The CFTC is adopting rules relating to SEFs as required under
Section 733 of the Dodd-Frank Act. Understanding that the Commission
and the CFTC regulate different products and markets, and as such,
appropriately may be proposing alternative regulatory requirements, the
Commission requests comments on the impact of any differences between
the Commission and CFTC approaches to the regulation of SB SEFs and
SEFs. Specifically, do the regulatory approaches under the Commission's
proposed rulemaking pursuant to Section 763 of the Dodd-Frank Act and
the CFTC's proposed rulemaking pursuant to Section 733 of the Dodd-
Frank Act result in duplicative or inconsistent efforts on the part of
market participants subject to both regulatory regimes or result in
gaps between those regimes? If so, in what ways do commenters believe
that such duplication, inconsistencies, or gaps should be minimized? Do
commenters believe the approaches proposed by the Commission and the
CFTC to regulate SB SEFs and SEFs are comparable? If not, why? Do
commenters believe there are approaches that would make the regulation
of these facilities more comparable? If so, what are those approaches?
Do commenters believe that it would be appropriate for the Commission
to adopt an approach proposed by the CFTC that differs from the
Commission's proposal? If so, which one? The Commission requests
commenters to provide data, to the extent possible, supporting any such
suggested approaches.
    The Commission seeks comment on whether its proposed rules, either
individually or collectively, could permit regulatory arbitrage or have
the effect of driving SB swaps and other derivatives transactions to
financial centers in other jurisdictions. In this regard, how do the
proposed rules compare with comparable existing or proposed rules of
other jurisdictions? If the Commission were to adopt the proposed
rules, would market participants, end users, and others find it less
costly to transact their SB swaps and other derivatives transactions in
other jurisdictions? If so, please provide specific details on those
jurisdictions that could be regarded as having preferential regulation
for trading SB swaps and please identify all the specific rules and
circumstances that could lead to such preferences. The Commission also
seeks comment on specific actions that it could take to harmonize its
proposed rules with those of other jurisdictions consistent with the
mandates and goals of the Dodd-Frank Act.

XXVII. Paperwork Reduction Act

    Certain provisions of the proposed rules contain new ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\409\ The Commission is submitting the
proposed collection of information to the Office of Management and
Budget (``OMB'') for review in accordance with 44 U.S.C. 3507 and 5 CFR
1320.11. The title of the new collection of information is Regulation
SB SEF. As proposed, Regulation SB SEF would implement the provisions
of Title VII of the Dodd-Frank Act relating to the registration and
regulation of SB SEFs. Proposed Regulation SB SEF would include rules
regarding the registration of a prospective SB SEF on Form SB SEF,
rule-writing, reporting, recordkeeping, timely publication of trading
information, the filing of new or amended rules or new products with
the Commission, reports of the SB SEF's CCO, surveillance systems to
capture certain required information and access to SB SEFs by
ECPs.\410\ An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.
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    \409\ 44 U.S.C. 3501 et seq.
    \410\ As proposed, Regulation SB SEF would contain 24 rules that
are designated Rule 800 through Rule 823 inclusive; not all of these
proposed rules would include a collection of information. The
proposed form for registering as a SB SEF under Regulation SB SEF is
Form SB SEF. This collection of information includes any collections
of information required by proposed Form SB SEF. Unless identified
otherwise, all proposed rules referred to in this section would be
contained in Regulation SB SEF.
---------------------------------------------------------------------------

A. Summary of Collection of Information

1. Registration Requirements for SB SEFs and Form SB SEF
    A number of the proposed rules under Regulation SB SEF relate to
registration with the Commission by an applicant that seeks status as a
registered SB SEF. Proposed Rules 801, 802, 803, 804, and proposed Form
SB SEF each would contain requirements relating to registration with
the Commission by an applicant seeking to register as a SB SEF that
would result in a paperwork burden.
    Proposed Rule 801(a) would require an applicant to apply for
registration with the Commission as a SB SEF by filing electronically,
in a tagged data format, a registration application on Form SB SEF in
accordance with the instructions contained therein. Under proposed Rule
801(d), an applicant would be required to designate and authorize on
Form SB SEF an agent in the United States to accept notice or service
of process, pleadings, or other documents in any suit, action or
proceedings brought against it to enforce the Federal securities laws
or the rules or regulations thereunder. Under

proposed Rule 801(e), an applicant that is controlled by any other
person \411\ would be required to certify on Form SB SEF and provide an
opinion of counsel that any person that controls such SB SEF will
consent to and can, as a matter of law, provide the Commission with
prompt access to its books and records, to the extent such books and
records are related to the activities of the SB SEF, and submit to
onsite inspection and examination by representatives of the Commission
with respect to the activities of the SB SEF. Under proposed Rule
801(f), a non-resident person applying for registration would be
required to certify on Form SB SEF and provide an opinion of counsel
that it can, as a matter of law, provide the Commission with prompt
access to its books and records and submit to onsite inspection and
examination by representatives of the Commission. In addition, proposed
Rule 814(b)(4) would require the applicant to certify at the time of
registration on Form SB SEF that the SB SEF has the capacity to fulfill
its obligations under international information sharing agreements to
which it is a party as of the date of such certification.
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    \411\ See supra note 319 and accompanying text regarding the
definition of ``control.''
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    Proposed Rule 802 relates to amendments to Form SB SEF. Proposed
Rule 802(a) would require a SB SEF to file an amendment to Form SB SEF
promptly, but in no case later than 5 business days, after the
discovery that any information filed on Form SB SEF, any statement
therein, or any exhibit or amendment thereto, was inaccurate when
filed. Proposed Rule 802(b) would require a SB SEF to file an
amendment, on Form SB SEF, within 5 business days after any action is
taken that renders inaccurate, or causes to be incomplete, information
filed on the Execution Page of the Form SB SEF or as part of Exhibits
C, E, G or N,\412\ or any amendments thereto. Proposed Rule 802(c)
would require a SB SEF that is controlled by any other person to file
an amendment to Exhibit P on Form SB SEF within 5 business days after
any changes in the legal or regulatory framework of any person that
controls the SB SEF that would impact the ability of or the manner in
which any such person consents to or provides the Commission prompt
access to its books and records, to the extent such books and records
relate to the activities of the SB SEF, or impacts the Commission's
ability to inspect and examine any such person with respect to the
activities of the SB SEF. Proposed Rule 802(d) would require a non-
resident SB SEF to file an amendment to Exhibit P on Form SB SEF within
5 business days after any changes in the legal or regulatory framework
that would impact the SB SEF's ability to or the manner in which it
provides the Commission with prompt access to its books and records or
impacts the Commission's ability to inspect and examine the SB SEF.
Proposed Rule 802(f) would require a SB SEF to file an annual update to
Form SB SEF within 60 days of the end of its fiscal year.
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    \412\ These Exhibits pertain to the list of officers, directors
and committees of the SB SEF (Exhibit C); ownership of the SB SEF
(Exhibit E); certain material operating agreements (Exhibit G); and
criteria for determining what securities may be traded (Exhibit N).
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    Proposed Rule 803(a) would require a registered SB SEF to provide
to the Commission material relating to the trading of SB swaps
(including notices, circulars, bulletins, lists, and periodicals)
issued or made generally available to SB SEF participants. If the
information required to be filed pursuant to proposed Rule 803(a) is
available continuously on an Internet Web site controlled by a SB SEF,
proposed Rule 803(b) would allow the SB SEF to indicate the location of
the Web site where the information may be found and certify that the
information available at such Web site is accurate as of its date in
lieu of filing such information with the Commission pursuant to
proposed Rule 803(a).
    Proposed Rule 804(a) would allow a SB SEF to withdraw from
registration by filing with the Commission a written notice of
withdrawal and an amended Form SB SEF to update any inaccurate
information.
    Proposed Rules 811(b)(4) and 811(h)(2) would require a SB SEF to
report information regarding grants, denials and limitations of access
on Form SB SEF and to disclose all disciplinary actions taken annually
on its annual update to From SEF, respectively.
2. Rule-Writing Requirements for SB SEFs
    A number of the proposed rules under Regulation SB SEF would
require a SB SEF to establish rules, policies and procedures with
respect to various matters. These are proposed Rules 809(c), 810(b),
811(a)(2), 811(a)(3), 811(b)(1), 811(b)(5), 811(c), 811(d), 811(f),
811(g), 811(i), 813(a), 813(c), 813(d), 814(a), 815(a), 816(a), 816(b),
818(d), 820(a), 820(c) and 822(a)(1).
    Proposed Rule 809(c) would require a SB SEF to establish rules
setting forth requirements for an eligible person to become a
participant in the SB SEF. Such rules would require a participant, at a
minimum, to: (1) Be a member of, or have an arrangement with a member
of, a registered clearing agency to clear trades in the SB swaps that
are subject to mandatory clearing and entered into by the participant
on the SB SEF; (2) (i) meet the minimum financial responsibility and
recordkeeping and reporting requirements imposed by the Commission by
virtue of its registration as a SB swap dealer, major SB swap
participant, or broker; or (ii) in the case of an eligible contract
participant, meet the recordkeeping and reporting requirements that the
SB SEF would establish pursuant to proposed Rule 813; (3) agree to
comply with the rules, polices, and procedures of the SB SEF; and (4)
consent to the disciplinary procedures of the SB SEF for violations of
the SB SEF's rules.
    Proposed Rule 810(b) would require a SB SEF to establish: (1) Rules
that provide for the equitable allocation of reasonable dues, fees, and
other charges among its participants and any other users of its system;
(2) rules and systems that are not designed to permit unfair
discrimination among participants and any other users of the SB SEF's
system; (3) rules that promote just and equitable principles of trade;
and (4) rules to provide, in general, a fair procedure for disciplining
participants for violations of the rules of the SB SEF.
    Proposed Rule 811(a)(2) would require a SB SEF to establish and
enforce trading, trade processing, and participation rules that would
deter abuses and have the capacity to detect, investigate, and enforce
those rules, including means to provide market participants with
impartial access to the market and to capture information that may be
used in establishing whether rule violations have occurred. Proposed
Rule 811(a)(3) would require a SB SEF to establish rules governing the
operation of the SB SEF, including rules specifying trading procedures
to be used in entering and executing orders traded or posted on the SB
SEF, including block trades. Proposed Rule 811(b)(1) would require a SB
SEF to establish fair, objective and not unreasonably discriminatory
standards for granting impartial access to trading on the SB SEF.
Proposed Rule 811(b)(5) would require a SB SEF to establish a fair
process for the review of any prohibition or limitation on access with
respect to a participant or any refusal to grant access with respect to
an applicant. Proposed Rule 811(c) would require a SB SEF to establish
rules concerning the terms and conditions of the SB swaps traded on the
SB SEF and to have rules stipulating the method by which representation
on the swap

review committee of the SB SEF shall be chosen by the Board.
    Proposed Rule 811(d) would require a SB SEF to establish rules
governing the procedures for trading on the SB SEF including, but not
limited to: (1) Doing business on the SB SEF; (2) the types of trading
interest \413\ that would be available on the SB SEF; (3) the manner in
which trading interest would be handled on the SB SEF and a requirement
for fair treatment of all trading interest; (4) the manner in which
price transparency for participants entering trading interest into the
system would be promoted; (5) the manner in which trading interest and
transaction data would be disseminated, whether to the SB SEF's
participants or otherwise, and whether for a fee or otherwise; (6)
prohibited trading practices; (7) the prevention of the entry of
orders, requests for quotations, responses, quotations, or other
trading interest that might result in a trade that is clearly erroneous
with respect to the terms of the trade, a fair and non-discriminatory
manner of handling any trade that is clearly erroneous, and resolution
of any disputes concerning a clearly erroneous trade; (8) trading halts
in any SB swap, which rules would be required to include procedures for
halting trading in a SB swap when trading has been halted or suspended
in the underlying security or securities pursuant to the rules or an
order of a regulatory authority with authority over the underlying
security or securities; (9) the manner in which block trades would be
handled, if different from the handling of non-block trades; and (10)
any other rules concerning trading on the SB SEF.
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    \413\ For purposes of this PRA, references to ``trading
interest'' includes any order, request for quotation response,
quotation, or any other trading interest on the SB SEF.
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    Proposed Rule 811(f) would require a SB SEF to establish rules
concerning the reporting of trades executed on the SB SEF to a clearing
agency if the transaction is subject to clearing and the procedures for
the processing of transactions in SB swaps that occur on or through the
SB SEF including, but not limited to, procedures to resolve any
disputes concerning the execution of a trade.
    Proposed Rule 811(g) would require a SB SEF to establish rules and
procedures concerning the disciplining of participants including, but
not limited to, rules authorizing its staff to recommend and take
disciplinary action for violations of the rules of the SB SEF;
specifying the sanctions that may be imposed upon participants for
violations of the rules of the SB SEF such that each sanction is
commensurate with the corresponding violation; and establishing fair
and non-arbitrary procedures for any disciplinary process and appeal
thereof.
    Proposed Rule 811(i) would require a SB SEF to establish rules and
procedures to assure that information to be used to determine whether
rule violations have occurred is captured and retained in a timely
manner.
    Proposed Rule 813(a) would require a SB SEF to establish and
enforce rules or terms and conditions defining, or specifications
detailing trading procedures to be used in entering and executing
orders traded on or through the facilities of the SB SEF and procedures
for trade processing of SB swaps on or through the facilities of the SB
SEF. Proposed Rule 813(c) would require a SB SEF to establish rules
requiring any participant that enters any order or trading interest or
executes any transaction on the SB SEF to maintain books and records of
any such trading interest or transaction and of any position in any SB
swap that is the result of any such trading interest or transaction and
to provide prompt access to such books and records to the SB SEF and to
the Commission.
    Proposed Rule 813(d) would require a SB SEF to establish and
maintain procedures to investigate possible rule violations, to prepare
reports concerning the findings and recommendations of investigations,
and to take corrective action, as necessary.
    Proposed Rule 814(a) would require a SB SEF to establish and
enforce rules requiring its participants \414\ to furnish to the SB
SEF, upon request, and in the form and manner prescribed by the SB SEF,
any information necessary to permit the SB SEF to perform its
responsibilities, including, without limitation, surveillance,
investigations, examinations and discipline of participants; such
information may include, without limitation, financial information,
books, accounts, records, files, memoranda, correspondence, and any
other information pertaining to trading interest entered and
transactions executed on or through the SB SEF, and to cooperate with
and allow access by the SB SEF and representatives of the Commission.
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    \414\ See supra note 227 and accompanying text regarding the
definition of ``participant.''
---------------------------------------------------------------------------

    Proposed Rule 815(a) would require a SB SEF to establish and
enforce rules and procedures for ensuring the financial integrity of SB
swaps entered on or through the facilities of such SB SEF, including
the clearance and settlement of SB swaps pursuant to new section
3C(a)(1) of the Exchange Act.
    Proposed Rule 816(a) would require a SB SEF to establish rules and
procedures to provide for the exercise of emergency authority in
consultation or cooperation with the Commission as necessary or
appropriate. Proposed Rule 816(b) would require a SB SEF to establish
rules and procedures that would specify: (1) The person or persons
authorized by the SB SEF to declare an emergency; (2) how the SB SEF
would notify the Commission of its decision to exercise its emergency
authority; (3) how the SB SEF would notify the public of its decision
to exercise its emergency authority; (4) the processes for decision
making by the SB SEF personnel with respect to the exercise of
emergency authority, including alternate lines of communication and
guidelines to avoid conflicts of interest in the exercise of such
authority; and (5) the processes for determining that an emergency no
longer exists and notifying the Commission and the public of such
decision.
    Proposed Rule 818(d) would require a SB SEF to establish, maintain,
and enforce written policies and procedures to verify the accuracy of
the transaction data that it collects and reports.
    Proposed Rule 820(a) would require the rules of a SB SEF to assure
fair representation of participants in the selection of the SB SEF's
Board. Proposed Rule 820(c) would require the rules of a SB SEF to
include a fair process for participants to nominate an alternative
candidate or candidates to the Board by petition.
    Proposed Rule 822(a)(1) would require a SB SEF, with respect to
those systems that support or are integrally related to the performance
of its activities, to establish, maintain, and enforce written policies
and procedures reasonably designed to ensure that its systems provide
adequate levels of capacity, resiliency, and security. These policies
and procedures would, at a minimum, require the security-based swap
execution facility to: (1) Establish reasonable current and future
capacity estimates, including quantifying in appropriate units of
measure the limits of the SB SEF's capacity to receive (or collect),
process, store or display (or disseminate for display or other use) the
data elements included within each function, and identifying the
factors (mechanical, electronic, or other) that account for the current
limitations; (2) conduct periodic capacity stress tests of critical
systems to determine such systems' ability to process transactions in
an accurate, timely, and efficient

manner; (3) develop and implement reasonable procedures to review and
keep current its system development and testing methodology; (4) review
the vulnerability of its systems and data center computer operations to
internal and external threats, physical hazards, and natural disasters,
and; (5) establish adequate contingency and disaster recovery plans
which shall include plans to resume trading of security-based swaps by
the SB SEF no later than the next business day following a wide-scale
disruption.
3. Reporting Requirements for SB SEFs
    A number of the proposed rules under Regulation SB SEF would
require SB SEFs, SB SEF participants and other persons to report or
provide information to the Commission or to a SB SEF. Proposed Rules
814, 816(d), 818(a)(3), 818(e), 818(f), 822(a)(2), 822(a)(3), and
822(a)(4) each would contain a reporting requirement.\415\ These
requirements to report or provide information to the Commission would
result in a paperwork burden.
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    \415\ In addition, proposed Rule 823 would require the SB SEF's
CCO to submit to the Commission an annual compliance report, along
with a financial report. The paperwork burden associated with the
CCO's reports, including for proposed Rules 811(b)(4) and 811(g),
and 814(b) that set forth certain items to be addressed in the CCO's
reports, is addressed separately in Section XXVII.A.7., below.
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    Proposed Rule 814 addresses the ability of a SB SEF to obtain
information from its participants, and the ability of Commission
representatives to obtain information from a SB SEF and its
participants. Proposed Rule 814(a) would require a SB SEF to establish
and enforce rules requiring its participants to provide information or
documents to the SB SEF upon request. The information or documents
requested may include any information that is necessary to permit the
SB SEF to perform its regulatory responsibilities, including, without
limitation, any financial information, books, accounts, records, files,
memoranda, correspondence, and any other information pertaining to
trading interest entered and transactions executed on or through the SB
SEF. Proposed Rule 814(a) also would direct a SB SEF to require its
participants to allow access by any Commission representative to
examine the participant's books and records and to obtain or verify
information related to trading interest entered or transactions
executed on or through the SB SEF.\416\ Proposed Rule 814(b) would
direct a SB SEF to allow access by any Commission representative to
examine the SB SEF's books and records and to obtain or verify
information related to trading interest entered or transactions
executed on or through the SB SEF. Proposed Rule 814(b)(3) would
require a SB SEF to have the capacity to carry out such international
information-sharing agreements as the Commission may require.
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    \416\ The Commission notes that proposed Rule 813(c)(2)
similarly requires a SB SEF to establish and enforce rules that
require any participant that enters any trading interest or executes
any transaction on the SB SEF to provide the Commission with prompt
access to its books and records. The Commission considers the prompt
access requirement of proposed Rule 813(c)(2) to be included in the
burden estimates of proposed Rule 814(a) for purposes of this PRA
analysis.
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    Proposed Rule 816(d) would require a SB SEF to notify the
Commission promptly of any exercise of its emergency authority, and
within two weeks following cessation of an emergency, submit to the
Commission a report explaining the basis for declaring an emergency,
how conflicts of interest were minimized in the SB SEF's exercise of
its emergency authority, and the extent to which the SB SEF considered
the effect of its emergency action on the markets for the SB swap and
any security or securities underlying the SB swap.
    Proposed Rule 818 would establish both recordkeeping and reporting
obligations for SB SEFs. Proposed Rule 818(e) would require a SB SEF to
report to the Commission such information as the Commission may, from
time to time, determine to be necessary to perform the duties of the
Commission under the Exchange Act. Proposed Rule 818(f) would require a
SB SEF to provide to any representative of the Commission, upon
request, copies of documents required to be kept and preserved pursuant
to the recordkeeping requirements of proposed Rules 818(a) and (b).
    Proposed Rule 822 addresses system safeguards for the SB SEF.
Proposed Rule 822(a)(2) would require a SB SEF to submit to the
Commission on an annual basis an objective review with respect to those
systems that support or are integrally related to the performance of
the SB SEF's activities. If the objective review is performed by an
internal department, an objective, external firm would be required to
assess the internal department's objectivity, competency, and work
performance. Proposed Rule 822(a)(3) would require a SB SEF to promptly
notify the Commission in writing of material systems outages and any
remedial measures implemented or contemplated and submit to the
Commission within five business days of when the outage occurred a
written description and analysis of the outage and any remedial
measures that have been implemented or are contemplated. Proposed Rule
822(a)(4) would require a SB SEF to notify the Commission in writing at
least thirty calendar days before implementation of any planned
material systems changes.
4. Recordkeeping Required Under Regulation SB SEF
    Proposed Rule 818(a) would require a SB SEF to keep and preserve at
least one copy of all documents, including all correspondence,
memoranda, papers, books, notices, accounts, and other such records,
including the audit trail records required pursuant to proposed Rule
818(c), as shall be made and received in the conduct of its business.
Proposed Rule 818(b) would require SB SEFs to keep and preserve such
documents and other records for a period of not less than five years,
the first two years in an easily accessible place. Proposed Rule 818(c)
would require SB SEFs to establish and maintain accurate, time-
sequenced records of all trading interest and transactions received by,
originated on, or executed on the SB SEF. In addition, proposed Rule
811(b)(3) would require that a SB SEF make and keep records relating to
all grants of access and the basis for such grant, and all denials or
limitations of access to the SB SEF and the reasons for such denial or
limitation. Proposed Rule 811(h) would require a SB SEF to make and
keep records relating to all disciplinary proceedings, sanctions
imposed, and appeals thereof.\417\
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    \417\ The records required by proposed Rules 811(b)(3) and
811(g) would be included in the business records required to be kept
pursuant to proposed Rule 818. Therefore, the Commission
preliminarily believes that the paperwork burden for these rules
would be included in the estimated burden for proposed Rule 818. See
infra note 493 and accompanying text.
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5. Timely Publication of Trading Information Requirement for SB SEFs
    Proposed Rule 817(a)(1) would require a SB SEF to have the capacity
to electronically capture, transmit, and disseminate information on
price, trading volume, and other trading data on all SB swaps executed
on or through the SB SEF.\418\
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    \418\ Proposed Rule 817(a)(2) requires every SB SEF to make
public timely information on price, trading volume, and other
trading data on SB swaps to the extent required by the Commission.
The Commission notes that proposed Rule 817(a)(2) does not require a
SB SEF to make public timely information on price, trading volume,
and other trading data on SB swaps. Rather, the Commission has
proposed that other parties be responsible for timely publication of
trading information. See Reporting and Dissemination Release supra
note 6.

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6. Rule Filing and Product Filing Processes for SB SEFs
    Proposed Rules 805 and 806 relate to the submission to the
Commission of filings of new or amended rules, while proposed Rules 807
and 808 relate to the submission to the Commission of filings to make
SB swap products available to trade. Proposed Rules 805, 806, 807, and
808 would impose a collection of information burden on SB SEFs.\419\
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    \419\ The Commission expects to conduct a separate rulemaking
that would propose the form for the electronic submission of such
filings to the Commission and the procedures pertinent to such form.
Should the Commission propose any such form and associated
procedures, it would include a collection of information burden as
part of that proposed rulemaking.
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    Rule Filings: Proposed Rules 805 and 806 would require a SB SEF to
submit rule filings for new rules or rule amendments, including changes
to an existing product's terms or conditions.\420\ Under proposed Rules
805(a) and 806(a), a SB SEF could submit either a voluntary request for
prior approval or a self-certified rule filing, respectively, for any
new rules or rule amendments. Under both proposed rules, a SB SEF would
be required to submit the rule filings electronically to the Commission
in a format to be specified by the Commission.\421\ Both proposed Rules
805(a) and 806(a) would require the SB SEF to include the following
information in the requisite rule filings: (1) The text of the proposed
rule or rule amendment (in the case of a rule amendment, deletions and
additions would need to be indicated); (2) the proposed effective date
or intended date of implementation, as applicable; (3) the
documentation relied on by the SB SEF to establish the basis for
compliance with the applicable provisions of the Exchange Act and the
rules and regulations thereunder (including Section 3D(d) of the
Exchange Act and the rules and regulations thereunder); (4) a
certification or written statement, as applicable, that the SB SEF has
published a notice of pending new rule or rule amendment, or a notice
of pending certification, as applicable, on the SB SEF's Web site and a
copy of the submission, concurrent with its filing with the Commission;
(5) a description of any substantive opposing views on the rule that
were expressed to the SB SEF by the Board or committee members,
participants or market participants that were not incorporated into the
rule (or, with respect to a self-certification filing under Rule
806(a), a statement that no such opposing views were expressed, if
applicable); (6) a request for confidential treatment, if appropriate;
and (7) for proposed amendments to a product's terms and conditions, a
written statement that the SB SEF has undertaken a due diligence review
of the legal conditions, including conditions relating to contractual
and intellectual property rights, that may materially affect the
trading of the product.
---------------------------------------------------------------------------

    \420\ Filings that relate to proposed changes to an existing SB
swap's terms or conditions would be submitted under proposed Rules
806 or 807.
    \421\ See supra Section XXIII.
---------------------------------------------------------------------------

    In addition, for voluntary requests for prior approval rule
filings, proposed Rule 805(a) would also require SB SEFs to include:
(1) A description of any action taken or anticipated to be taken to
adopt the proposed rule by the SB SEF or its Board, or by any committee
thereof, and a citation to the rules of the SB SEF that authorize the
adoption of the proposed rule change; (2) an explanation of the
operation, purpose and effect of the proposed new rule or rule
amendment, including, as applicable, a description of the anticipated
benefits to market participants or others, any potential
anticompetitive effects on market participants or others, and how the
rule fits into the SB SEF's framework of regulation; (3) any additional
information that may be beneficial to the Commission in analyzing the
new rule or rule amendment (and if the proposed rule affects, directly
or indirectly, the application of any other rule of the SB SEF, the
pertinent text of any such rule must be set forth and the anticipated
effect described); and (4) and the identification of any Commission
rule or regulation that Commission may need to amend or interpret in
order to approve the new rule or rule amendment and, to the extent that
such an amendment or interpretation is necessary to accommodate the new
rule or rule amendment, a reasoned analysis supporting the proposed
amendment or interpretation.
    For self-certification rule filings, proposed Rule 806(a) also
would require a SB SEF to include: (1) A certification by the SB SEF
that the rule complies with the Exchange Act and Commission rules and
regulations thereunder; and (2) upon request of any representative of
the Commission, additional evidence, information, or data that may be
beneficial to the Commission in conducting a due diligence assessment
of the filing and the SB SEF's compliance with any of the requirements
of the Exchange Act or the rules and regulations thereunder.
    Product Filings: Proposed Rules 807 and 808 would require a SB SEF
to submit product filings prior to trading a SB swap. Under proposed
Rules 807(a) and 808(a), a SB SEF could submit either a self-certified
product submission or voluntary request for prior approval product
filing, respectively, before trading a SB swap. Under both proposed
rules, a SB SEF would be required to submit the product filings
electronically to the Commission in a format specified by the
Commission. Both proposed Rules 807(a) and 808(a) would require SB SEFs
to include the following information in the product filings: (1) A copy
of the SB swap's terms and conditions, (2) the documentation relied on
to establish the basis for compliance with the Exchange Act and rules
and regulations thereunder (including Section 3D(d) of the Exchange Act
and the rules and regulations thereunder); (3) a written statement
verifying that the SB SEF has undertaken a due diligence review of the
legal conditions, including legal conditions that relate to contractual
and intellectual property rights, that may materially affect the
trading of the SB swap; (4) a request for confidential treatment, if
appropriate; and (5) a certification that the SB SEF has published on
its Web site a notice of pending request for approval, or a notice of
pending certification, as applicable, and a copy of the submission,
concurrent with the filing of the submission with the Commission. In
addition, for self-certification product filings, proposed Rule 807(a)
also would require a SB SEF to include the following information: (1)
The intended date on which the SB swap may begin trading, and (2) a
certification by the SB SEF that the SB swap to be traded complies with
the Exchange Act and the rules and regulations thereunder, including
Section 3D(d) of the Exchange act and the rules and regulations
thereunder.
    In addition, proposed Rules 807(b) and 808(b) would require a SB
SEF to provide, upon request of any representative of the Commission,
additional evidence, information, or data that demonstrates that the SB
swap meets, initially or on a continuing basis, all of the requirements
of the Exchange Act and rules and regulations thereunder.
7. Requirements Relating to the SB SEF's Chief Compliance Officer
    Proposed Rule 823 addresses the obligations of the SB SEF's CCO,
including the CCO's performance of his or her statutory duties with
respect to the SB SEF and its statutory

requirement to prepare and submit to the Commission annual compliance
and financial reports.
    Proposed Rule 823(a) would require the SB SEF's Board to designate
a CCO to perform the duties identified in proposed Rule 823(b) through
(e). Under proposed Rule 823(b)(6) and (7), the CCO would be
responsible for establishing procedures for the remediation of
noncompliance issues identified by the CCO identified through any
compliance office review, look-back, internal or external audit
finding, self-reported error or validated complaint, and establishing
appropriate procedures for the handling, management response,
remediation, retesting, and closing of noncompliance issues.
    The CCO also would be required under proposed Rule 823(c) and (d)
to prepare and submit annual compliance reports to the Commission and
the SB SEF's Board containing, at a minimum: (1) A description of the
SB SEF's enforcement of its policies and procedures; (2) information on
all investigations, inspections, examinations, and disciplinary cases
opened, closed, and pending during the reporting period; (3) all grants
of access (including, for all participants, the reasons for granting
such access) and all denials or limitations of access (including for
each applicant, the reasons for denying or limiting access), consistent
with proposed Rule 811(b)(3); (4) any material changes to the policies
and procedures since the date of the preceding compliance report; (5)
any recommendation for material changes to the policies and procedures
as a result of the annual review, the rationale for such
recommendation, and whether such policies and procedures were or will
be modified by the SB SEF to incorporate such recommendation; (6) the
results of the SB SEF's surveillance program, including information on
the number of reports and alerts generated, and the reports and alerts
that were referred for further investigation or for an enforcement
proceeding; (7) any complaints received regarding the SB SEF's
surveillance program; and (8) any material compliance matters
identified since the date of the preceding compliance report.
    The CCO is required under proposed Rule 823(e)(1) and (2) to submit
annually a financial report for the SB SEF and for certain affiliated
entities of the SB SEF. Among other things, the annual financial report
for the SB SEF must be audited by a registered public accounting firm
that is qualified and independent in accordance with Rule 2-01 of
Regulation S-X (17 CFR 210.2-01), be a complete set of financial
statements of the SB SEF that are prepared in accordance with U.S.
generally accepted accounting principles for the two most recent fiscal
years of the SB SEF. For certain affiliated entities (every subsidiary
in which the applicant has, directly or indirectly, a 25% interest and
for every entity that has, directly or indirectly, a 25% interest in
the applicant), the SB SEF must provide a financial report consisting
of a complete set of unconsolidated financial statements (in English)
for the latest two fiscal years and include such footnotes and other
disclosures as are necessary to avoid rendering the financial
statements misleading. As proposed, the reports for the SB SEF and for
the SB SEF's affiliated entities would be provided in XBRL consistent
with Rules 405(a)(1), (a)(3), (b), (c), (d) and (e) of Regulation S-
T.\422\ The Commission notes that these annual financial reports are
the same as those required to be produced upon registration and
annually pursuant to Exhibits F and H to proposed Form SB SEF for the
SB SEF. In addition, pursuant to Exhibit H to proposed Form SB SEF, the
Commission may request unaudited financial information for any other
affiliated entity not covered by the 25% interest threshold discussed
above.
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    \422\ See 17 CFR 232.405.
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8. Surveillance Systems Requirements for SB SEFs
    Several proposed rules under Regulation SB SEF would require a SB
SEF to electronically surveil its market and to maintain an automated
surveillance system. To the extent that such surveillance and systems
would require a SB SEF to collect and assess data and other
information, such rules would result in a collection of information.
    Proposed Rule 811(j) would require a SB SEF to have the capacity to
capture information that may be used in establishing whether rule
violations have occurred, including through the use of automated
surveillance systems as set forth in proposed Rule 813(b). Proposed
Rule 813(a)(2) would require a SB SEF to monitor trading in SB swaps to
prevent manipulation, price distortion, and disruptions of the delivery
or cash settlement practices and procedures, including methods for
conducting real-time monitoring of trading and comprehensive and
accurate trade reconstructions. Proposed Rule 813(b) would require a SB
SEF to have the capacity and appropriate resources to electronically
monitor trading in SB swaps on its market by establishing an automated
surveillance system, including through real-time monitoring of trading
and use of automated alerts. \423\
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    \423\ The collection of information burdens associated with the
audit trail provisions of proposed Rule 818(a) and (c) are discussed
in the sections of this PRA analysis relating to recordkeeping.
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9. Access by Non-Registered Eligible Contract Participants
    Proposed Rule 809(d)(1) would require a SB SEF that provides direct
access to non-registered ECPs as participants to establish, document,
and maintain a system of risk management controls and supervisory
procedures reasonably designed to manage the financial, regulatory, and
other risks of this business activity.\424\ Proposed Rule 809(d)(2)
would require that the risk management controls and supervisory
procedures for granting access to ECPs as participants of the SB SEF to
be reasonably designed to ensure compliance with all regulatory
requirements.\425\
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    \424\ See proposed Rule 809(d)(1). Non-registered ECPs are
eligible contract participants that are not registered with the
Commission as a SB swap dealer, major SB swap participant, or broker
(as defined in section 3(a)(4) of the Exchange Act).
    \425\ See proposed Rule 809(d)(2).
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10. Composite Indicative Quote and Executable Bids and Offers
    Proposed Rule 811(e) would require a SB SEF that operates an RFQ
platform to create and disseminate through the SB SEF a composite
indicative quote, made available to all participants, for SB swaps
traded on or through the SB SEF. The Commission's proposed
interpretation of SB SEF would require each SB SEF, at the minimum, to
provide any participant with the ability to make and display executable
bids or offers accessible to all participants on the SB SEF, if the
participant wishes to do so.

B. Proposed Use of Information

1. Registration Requirements for SB SEFs and Form SB SEF
    As discussed above, proposed Rules 801, 802, 803 and 804 would
require an applicant to register on Form SB SEF, file certain
amendments and updates to Form SB SEF, file other supplemental
information with the Commission with respect to the trading of SB
swaps, and provide notice to the Commission of the SB SEF's withdrawal
of registration. The information collected pursuant to these proposed
rules would enhance the ability of the Commission to determine whether
to approve the registration of an entity as a SB SEF; to monitor and
oversee SB SEFs; to determine that SB

SEFs initially comply, and continue to operate in compliance, with the
Exchange Act, including the Core Principles applicable to SB SEFs, and
the rules and regulations thereunder; to carry out its statutorily
mandated oversight functions; and to maintain accurate and updated
information regarding SB SEFs. Because the registration information
would be publicly available, it could also be useful to SB SEF's
participants, other market participants, other regulators, and the
public generally.
2. Rule-Writing Requirements for SB SEFs
    The proposed provisions of Regulation SB SEF requiring that SB SEFs
establish certain rules, policies and procedures would help SB SEFs
comply with the Exchange Act, including the Core Principles applicable
to SB SEFs, and the rules and regulations thereunder. The rules also
would be useful to the SB SEF's participants in understanding and
complying with the requirements of the SB SEF and to other market
participants, other regulators, and the public generally.
3. Reporting Requirements for SB SEFs
    The information that would be collected under the proposed
provisions of Regulation SB SEF requiring SB SEFs, SB SEF participants,
and other persons to submit certain reports and provide certain
information upon request would be used by the Commission to assist in
its oversight of SB SEFs and the SB swap markets.
4. Recordkeeping Required Under Regulation SB SEF
    Proposed Rule 813(c) would aid the SB SEF in detecting and
deterring fraudulent and manipulative acts with respect to trading on
its market, as well as help it to fulfill the statutory requirement in
Core Principle 4 that a SB SEF monitor trading in SB swaps, including
through comprehensive and accurate trade reconstructions. The proposed
rule also would aid the Commission in carrying out its responsibility
to oversee SB SEFs.
    Proposed Rules 818(a) and (b) would help to ensure that records
exist, and thus would be available to the Commission pursuant to the
proposed reporting requirements. Access to these records would provide
a valuable tool to help the Commission carry out its oversight
responsibility over SB SEFs and the SB swap markets in general.
    The audit trail information required to be maintained under the
proposed Rule 818(c) would facilitate the ability of the SB SEF and the
Commission to carry out their respective obligations under the Exchange
Act, by providing a record of the complete history of all trading
interest entered and transactions executed on the SB SEF, which data
could be used to help detect abusive or manipulative trading activity,
prepare reconstructions of activity on the SB SEF or in the SB swaps
market, and generally to understand the causes of unusual market
activity. In addition, proposed Rule 811(b)(3) would require every SB
SEF to make and keep records of all grants, denials, or limitations of
access to the SB SEF, which would provide the Commission an important
tool to help it assess whether the SB SEF is meeting its duty to
provide fair and impartial access to its facility. Further, proposed
Rule 811(h) would require the SB SEF to make and keep records
specifically of all disciplinary proceedings and appeals, which would
allow the Commission to review the disciplinary process at a SB SEF and
would provide the Commission an additional tool to carry out its
oversight responsibilities.
5. Timely Publication of Trading Information Requirement for SB SEFs
    The requirement contained in proposed Rule 817 that a SB SEF have
the capacity to electronically capture, transmit, and disseminate
information on price, trading volume, and other trading data on all SB
swaps executed on or through the SB SEF, would assist the SB SEF in
carrying out its regulatory responsibilities under the Exchange Act,
including, without limitation, the proposed requirements that every SB
SEF must keep and preserve books and records of activities related to
its business, and allow access by the Commission to obtain or verify
other information related to orders entered and transactions executed
on or through the SB SEF's facilities. In addition, the Commission
believes that every SB SEF must have the capacity to capture this
information to enable the SB SEF to comply with reasonable requests to
provide information to others, including, SB SEF participants,
counterparties, registered SDRs, or regulatory authorities.
6. Rule Filing and Product Filing Processes for SB SEFs
    Proposed Rules 805 and 806 would require a SB SEF to submit new
rule or rule amendments as rule filings either through a voluntary
prior approval process or a self-certification process. The information
that would be collected under these proposed rules would help ensure
compliance by the SB SEF with the provisions of the Exchange Act,
including the Core Principles applicable to SB SEFs, and the rules and
regulations thereunder, as well as assist the Commission in overseeing
the SB SEF's compliance with its regulatory obligations. This
information also would be useful to the SB SEF's participants, because
they would be subject to such new or amended rules and thus would have
an interest in learning about those rules and potentially in submitting
to the Commission comments on any proposed new or amended rules. Other
market participants, other SB SEFs, and other regulators, as well as
the public generally, may find information about proposed new or
amended rules useful.
    Proposed Rules 807 and 808 would require a SB SEF to submit filings
for new products that they make available for trading either through a
self-certification process or a voluntary prior approval process. The
information that would be collected under these proposed rules would
help ensure that any SB swap that is available to trade on the SB SEF
would comply with the provisions of the Exchange Act, including the
Core Principles applicable to SB SEFs, and the rules and regulations
thereunder, as well as assist the Commission in overseeing the SB SEF's
compliance with its regulatory obligations. In particular, the
requirements of proposed Rules 807(a) and 808(a) should help the
Commission determine the SB SEF's compliance with the Core Principles
that apply specifically to products, such as Core Principle 3 which
would require a SB SEF to ensure that a SB swap trading on its facility
is not readily susceptible to manipulation. Other market participants,
other SB SEFs, and other regulators, as well as the public generally,
may find information about the new products useful.
7. Requirements Relating to the SB SEF's CCO
    As discussed above, proposed Rule 823 would require that a SB SEF's
CCO establish certain policies relating to noncompliance issues as well
as prepare and submit to the Commission both an annual compliance
report and an annual financial report. The information that would be
collected under this proposed rule would help ensure compliance by SB
SEFs with the provisions of the Exchange Act, including the Core
Principles applicable to SB SEFs, and the rules and regulations
thereunder, as well as assist the Commission in overseeing the SB SEFs.
The Commission could use the annual compliance report to help it
evaluate

whether the SB SEF is carrying out its statutorily-mandated regulatory
obligations and, among other things, to discern the scope of any
denials of access or refusals to grant access by the SB SEF and to
obtain information on the status of the SB SEF's regulatory compliance
program. The annual financial report would provide the Commission with
important information on the financial health of the SB SEF.
8. Surveillance Systems Requirements for SB SEFs
    The proposed rules requiring a SB SEF to maintain certain
surveillance systems and monitor trading would enable the SB SEFs to
have the capacity and resources to fulfill its obligations under the
Exchange Act to oversee trading on its market, and to prevent
manipulation and other unlawful activity or disruption of the market.
These systems would help the SB SEF to identify and investigate market
behavior that may be improper and bring any necessary disciplinary
actions.
9. Access by Non-Registered Eligible Contract Participants
    Proposed Rule 809 would permit a SB SEF to provide access to the SB
SEF by non-registered ECPs, provided that the conditions of the
proposed rule relating to such access would be satisfied. Proposed Rule
809(d) would require a SB SEF that would permit access to non-
registered ECPs \426\ to establish, document, and maintain a system of
risk management controls and supervisory procedures reasonably designed
to manage the financial, regulatory, and other risks of this business
activity. The risk management controls and supervisory procedures for
granting access to non-registered ECPs would be required to be
reasonably designed to ensure compliance with all regulatory
requirements. Since non-registered ECPs are not directly subject to
capital or other financial requirements, there is a concern that, in
the absence of risk management controls and supervisory procedures,
they could enter into trades that exceed appropriate capital or credit
limits. The proposal relating to risk management controls and
supervisory procedures is intended to help manage these risks
associated with allowing non-registered ECPs to have direct access to
an SB SEF's market.
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    \426\ See proposed Rule 809.
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10. Composite Indicative Quote and Executable Bids and Offers
    As discussed above, proposed Rule 811(e) would require a SB SEF
that operates an RFQ platform to create and disseminate through the SB
SEF a composite indicative quote, made available to all participants,
for SB swaps traded on or through the SB SEF. The Commission
preliminarily believes that a composite indicative quote would provide
a certain level of pre-trade transparency for an RFQ platform. In
addition, the Commission's proposed interpretation of SB SEF would
require each SB SEF, at the minimum, to provide any participant with
the ability to make and display executable bids or offers accessible to
all participants on the SB SEF, if the participant wishes to do so. The
Commission preliminarily believes that this functionality would provide
greater access to the SB SEF for participants.

C. Respondents

    The collection of information associated with the proposed
Regulation SB SEF would apply to entities seeking to register as, and
to registered, SB SEFs. In the Dodd-Frank Act, Congress incorporated
into the Exchange Act a definition of SB SEF and mandated the
registration and regulation of these new facilities.\427\ There
currently are no registered SB SEFs. Based on conversations with the
CFTC and industry sources, the Commission preliminarily believes that
approximately 10 to 20 entities could seek to register as SB SEFs and
thus be subject to the collection of information requirements of these
proposed rules. The Commission is using the higher estimate of 20 SB
SEFs for this PRA analysis.\428\
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    \427\ See Public Law 111-203, Sec.  761(a) (adding Section
3(a)(77) of the Exchange Act), defining the term ``security-based
swap execution facility.'' See also Public Law 111-203, Sec.  763(c)
(adding Section 3D of the Exchange Act).
    \428\ This estimate comports with the estimated number of SB
SEFs contained in the Regulation MC Proposing Release, supra note
82.
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    In addition, proposed Rules 813(c) and 814(a) would impose
collection of information burdens on SB SEF participants. Based on
conversations with industry sources, the Commission preliminarily
believes that there could be a total of 275 persons that could become
SB SEF participants and would thus be subject to the collection of
information requirements of the proposed rules.\429\
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    \429\ 275 = 50 (estimated number of SB swap dealers that would
be SB SEF participants) + 5 (estimated number of major SB swap
participants that would be SB SEF participants) + 10 (estimated
number brokers that would be SB SEF participants) + 210 (estimated
number of ECPs that would be SB SEF participants). The Commission
recently proposed rules to define a number of terms used in Title
VII, including, among others, ``security-based swap dealer'' and
``major security-based swap participant.'' See Securities Exchange
Act Release No. 63452 (December 7, 2010), 75 FR 80174 (December 21,
2010). As part of that proposal, the Commission preliminarily
estimated that approximately 50 entities may be required to register
as SB swap dealers under the proposed rules. See 75 FR at 80209
n.188. The Commission further estimated that no more than ten
entities would have SB swap positions large enough that they would
have to monitor whether they meet the thresholds defining a major SB
swap participant. See 75 FR at 80207-08. For purposes of these
proposed rules, the Commission conservatively assumes that there
would be a total of five major SB swap participants, while
recognizing that in fact there may be fewer than five.
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    Except with regard to the collection of information burdens imposed
on SB SEF participants pursuant to proposed Rules 813(c) and 814(a), as
discussed further in the sections of this PRA discussing the reporting
and recordkeeping requirements of Regulation SB SEF, the respondents
subject to the collection of information burdens associated with
proposed Regulation SB SEF would be SB SEFs.

D. Total Annual Reporting and Recordkeeping Burden

1. Registration Requirements for SB SEFs and Form SB SEF
    Initial filings on Form SB SEF by a prospective SB SEF seeking to
register with the Commission pursuant to proposed Rule 801 would be
made on a one-time basis. As discussed above, no SB SEFs currently are
registered with the Commission and the Commission preliminarily
estimates that 20 entities initially would seek to register with the
Commission as SB SEFs. The Commission's estimate regarding the initial
burden that a SB SEF would incur to file a Form SB SEF is informed by
its estimate of the number of hours necessary to complete a Form 1 for
registration of a national securities exchange. The Commission