security-based swap that is reported to that registered security-
based swap data repository to satisfy an obligation under [Rule
901(a)].''
    \284\ A registered clearing agency that is required to report a
clearing transaction pursuant to Rule 901(a)(2)(i) is a counterparty
to that security-based swap and is thus covered by the existing
definition of ``participant.''
---------------------------------------------------------------------------

    One commenter expressed general support for requiring platforms and
clearing agencies to become participants of the registered SDRs to
which they report.\285\ A second commenter agreed that a clearing
agency or platform must be a participant of a registered SDR to which
it reports to ensure that reports are submitted in a format required by
the registered SDR.\286\ The second commenter, however, also expressed
its understanding ``that in this context, participant means a
registered user of an SDR, submitting data in the format as requested
by the SDR, rather than a `participant' as defined in Final SBSR.''
\287\ A third commenter agreed that platforms should be required to
report transaction data to a registered SDR ``in a format required by
that registered SDR''; however, the commenter ``does not believe that
it should be required to become a member of an SDR.'' \288\ A fourth
commenter stated that, although a clearing agency ``should execute an
agreement outlining the requirements to report termination messages''
to the alpha SDR, the clearing agency should not become a full
participant of the alpha SDR because it is not a counterparty to the
alpha.\289\ This commenter also argued that the clearing agency
``should not incur SDR fees to report alpha termination messages.''
\290\
---------------------------------------------------------------------------

    \285\ See DTCC Letter at 5-6, 17 (stating that ``the clearing
agency should become an onboarded participant of the SB SDR and
adhere to the policy and procedures to report data in the format
required by the SB SDR. In this regard, separate accommodations
should not be made for clearing agencies, which should be required
to comply with an SB SDR's policies and procedures to the same
extent as other market participants'').
    \286\ See ISDA/SIFMA Letter at 24, 27.
    \287\ Id. at 24.
    \288\ WMBAA Letter at 4.
    \289\ ICE Letter at 6.
    \290\ Id.
---------------------------------------------------------------------------

    After carefully considering the comments, the Commission is
adopting the amendment to Rule 900(u) as proposed. Conferring
``participant'' status on these additional entities subjects them to
the requirement in Rule 906(c), as amended herein,\291\ for enumerated
participants to establish, maintain, and enforce written policies and
procedures that are reasonably designed to ensure that they comply with
any obligations to report information to a registered SDR in a manner
consistent with Regulation SBSR. The Commission believes that these
policies and procedures will increase the accuracy and reliability of
information reported to registered SDRs. Without written policies and
procedures for carrying out their reporting obligations, clearing
agencies and the other entities enumerated in Rule 906(c), as amended,
might depend too heavily on key individuals or ad hoc and unreliable
processes. Written policies and procedures, however, can be shared
throughout an organization and generally should be independent of any
specific individuals. Requiring clearing agencies, as well as the other
participants enumerated in Rule 906(c), to adopt and maintain written
policies and procedures relevant to their reporting responsibilities
should help to improve the degree and quality of overall compliance
with the reporting requirements of Regulation SBSR. Periodic review of
these policies and procedures, as required by Rule 906(c), should help
to ensure that these policies

and procedures remain well-functioning over time.
---------------------------------------------------------------------------

    \291\ See infra Section V(E).
---------------------------------------------------------------------------

    A registered clearing agency that clears security-based swaps or a
platform that executes security-based swaps that will be submitted to
clearing incurs reporting duties under Regulation SBSR, which requires
the platform or registered clearing agency, among other things, to
submit transaction information to one or more registered SDRs. As a
result of the amendment to Rule 900(u) being adopted today, the
platform or registered clearing agency automatically becomes a
``participant''--under Regulation SBSR--of any SDR to which it submits
transaction information on a mandatory basis. The Commission notes,
however, that ``participant'' status under Rule 900(u) does not require
a platform or registered clearing agency to sign a formal participant
agreement with a registered SDR or to establish connectivity sufficient
to report all of the primary and secondary trade information of a
security-based swap.\292\ A registered SDR may impose certain
obligations on persons who utilize the SDR's services, regardless of
whether such persons are deemed ``participants'' under Regulation SBSR.
For example, an SDR may impose fees on such persons for submitting
data.\293\
---------------------------------------------------------------------------

    \292\ At the same time, nothing in Regulation SBSR prevents a
platform or registered clearing agency from signing such a
participation agreement.
    \293\ See supra note 191 and accompanying text. However, an SDR
must offer fair, open, and not unreasonably discriminatory access to
users of its services and ensure that any fees that it charges are
fair and reasonable and not unreasonably discriminatory. See Rules
13n-4(c)(1)(i) and 13n-4(c)(1)(iii) under the Exchange Act, 17 CFR
240.13n-4(c)(1)(i) and 240.13n-4(c)(1)(iii).
---------------------------------------------------------------------------

B. Examples of Reporting Workflows Involving Platforms and Registered
Clearing Agencies

    The following examples illustrate the reporting process for alpha,
beta, and gamma security-based swaps, assuming an agency model of
clearing under which a counterparty to an alpha security-based swap
becomes a direct counterparty to a subsequent clearing transaction:
\294\
---------------------------------------------------------------------------

    \294\ Because clearing of security-based swaps in the United
States is still evolving, other models of clearing might emerge
where customers would not become direct counterparties of a
registered clearing agency. See supra Section III(A)(1) (discussing
the clearing process in the United States).
---------------------------------------------------------------------------

     Example 1. A registered security-based swap dealer enters
into a security-based swap with a private fund. The transaction is not
executed on a platform. The counterparties intend to clear the
transaction (i.e., the transaction is an alpha). Neither side has a
guarantor with respect to the alpha, and both direct counterparties are
U.S. persons.
    [cir] The registered security-based swap dealer is the reporting
side under existing Rule 901(a)(2)(ii) and must report this alpha
transaction to a registered SDR (and may choose the registered SDR).
    [cir] New Rule 901(a)(3) requires the registered security-based
swap dealer, as the reporting side of the alpha transaction, to
promptly provide to the registered clearing agency the transaction ID
of the alpha and the identity of the alpha SDR.
    [cir] If the registered clearing agency accepts the alpha for
clearing and terminates the alpha, two clearing transactions--a beta
(between the registered security-based swap dealer and the registered
clearing agency) and a gamma (between the registered clearing agency
and the private fund)--take its place.
    [cir] New Rule 901(e)(1)(ii) requires the registered clearing
agency to report to the alpha SDR that it accepted the transaction for
clearing.
    [cir] Under new Rule 901(a)(2)(i), the registered clearing agency
is the reporting side for each of the beta and the gamma. Therefore,
the registered clearing agency must report the beta and gamma to a
registered SDR (and the clearing agency may select the registered SDR).
The report for each of the beta and the gamma must include the
transaction ID of the alpha, as required by existing Rule 901(d)(10).
     Example 2. Same facts as Example 1, except that the
private fund and the registered security-based swap dealer transact on
an SB SEF.
    [cir] New Rule 901(a)(1) requires the SB SEF to report the alpha
transaction (and allows the SB SEF to choose the registered SDR).
    [cir] After the alpha has been submitted to clearing, new Rule
901(a)(3) requires the SB SEF to promptly report to the registered
clearing agency the transaction ID of the alpha and the identity of the
alpha SDR.
    [cir] Once the alpha is submitted to clearing, the reporting
workflows are the same as in Example 1.

C. Amendments to Rule 905(a)

    Existing Rule 905(a) provides a mechanism for reporting corrections
of previously submitted security-based swap transaction
information.\295\ Rule 905(a)(1) requires a non-reporting side that
discovers an error in a previously submitted security-based swap to
promptly notify ``the reporting side'' of the error.\296\ Under
existing Rule 905(a)(2), once ``the reporting side'' receives
notification of an error from the non-reporting side or discovers an
error on its own, ``the reporting side'' is required to promptly submit
an amended report containing the corrected information to the
registered SDR that received the erroneous transaction report.
---------------------------------------------------------------------------

    \295\ See Regulation SBSR Adopting Release, 80 FR at 14641-42.
    \296\ See Regulation SBSR Adopting Release, 80 FR at 14681.
---------------------------------------------------------------------------

    In the Regulation SBSR Proposed Amendments Release, the Commission
proposed--and today is adopting--amendments to Rule 901(a) that require
platforms and registered clearing agencies to report certain
transaction information. To preserve the principle in existing Rule
905(a) that the person responsible for reporting information also
should have responsibilities for correcting errors, the Commission
proposed to replace the term ``reporting side'' in existing Rules
905(a)(1) and 905(a)(2) with the phrase ``person having a duty to
report.'' This amendment was necessitated by the fact that a platform--
and a registered clearing agency, when it has the duty to report
whether or not it has accepted a security-based swap for clearing--is
not a side to the transaction, and thus is not covered by existing Rule
905(a).
    Under the proposed amendment to Rule 905(a)(1), a person that is
not the reporting side who discovers an error in a previously submitted
security-based swap would be required to promptly notify ``the person
having the duty to report'' of the error. Under the proposed amendment
to Rule 905(a)(2), ``the person having the duty to report'' a security-
based swap would be required to correct previously reported erroneous
information with respect to that security-based swap if it discovers an
error or if it receives notification of an error from a counterparty.
Four commenters expressed general support for the proposed amendments
to Rule 905(a).\297\
---------------------------------------------------------------------------

    \297\ See DTCC Letter at 18; LCH.Clearnet Letter at 11; ISDA/
SIFMA Letter at 29; WMBAA Letter at 5. Another commenter
acknowledged that the proposed amendments are ``technical changes to
the rules to incorporate these new reporting participants,'' but
made no further commentary on the proposed amendments to Rule
905(a). See Better Markets Letter at 3-4.
---------------------------------------------------------------------------

    After carefully considering the comments received, the Commission
is adopting the amendments to Rule 905(a) as proposed. The Commission
believes that, in light of the amendments to Rule 901(a) that also are
being adopted today,\298\ Rule 905(a) is necessary to account for the
possibility that a person who is not a counterparty and is thus

not on either side of the transaction could have a duty to report.
Thus, a platform or registered clearing agency (when the clearing
agency is reporting whether or not it has accepted an alpha for
clearing and thus is not the reporting side of the alpha) can incur a
duty to report a correction, because it also can incur the initial duty
to report the relevant information.
---------------------------------------------------------------------------

    \298\ See supra Section II(B).
---------------------------------------------------------------------------

    One commenter, discussing general difficulties in making non-
reporting sides become ``onboarded users'' of registered SDRs, stated
that only reporting sides--who presumably would be onboarded users--
should be responsible for amending errors and omissions associated with
previously submitted security-based swaps.\299\ The Commission agrees
that the person having the duty to report the initial transaction
should be responsible for amending errors and omissions. There is no
scenario under Rule 905(a), as amended, in which a non-reporting side
must report anything to a registered SDR. If a non-reporting side
discovers an error, Rule 905(a)(1) requires the non-reporting side to
inform the person who had a duty to report the initial transaction--
which could be a platform, a registered clearing agency, or the
reporting side--not the registered SDR.
---------------------------------------------------------------------------

    \299\ See DTCC/ICE/CME Letter at 2 (also stating that requiring
reporting sides to amend errors and omissions would support
``current operational workflows since the reporting side is the only
party with a contractual relationship with the non-reporting side as
it relates to the trade details'').
---------------------------------------------------------------------------

    A second commenter expressed the view that ``[w]hen a correction is
made to a trade which has already been accepted by a registered
clearing agency or prime broker, then that party must also notify the
registered clearing agency or prime broker of the correction.'' \300\
Nothing in Regulation SBSR requires a person to notify the registered
clearing agency or prime broker of a correction after the person
reports the correction to a registered SDR. Rule 905(a) is concerned
with maintaining accurate information in registered SDRs. The
acceptance of a security-based swap by a registered clearing agency or
a prime broker (in the case of a three-legged prime brokerage
structure) terminates the initial transaction and results in the
creation of new security-based swaps pursuant to the rules of the
relevant registered clearing agency or the terms of the prime brokerage
arrangement, respectively.\301\ Rule 905(a) requires that, if the
person having the duty to report the original transaction becomes aware
of erroneous information in the report of the transaction, that person
must submit a correction to the registered SDR. If the sides of the
security-based swap also provided incorrect information about the
initial transaction to the registered clearing agency or prime broker,
the sides presumably would follow the procedures required by the
registered clearing agency or the prime brokerage arrangement to
correct the error--but nothing in Regulation SBSR compels that result.
---------------------------------------------------------------------------

    \300\ LCH.Clearnet Letter at 11.
    \301\ See supra Section III(E) (discussing clearing process in
the agency model of clearing); infra Section VII(B) (discussing
prime brokerage workflows).
---------------------------------------------------------------------------

D. Requirements Related to Participant Providing Ultimate Parent and
Affiliate Information to Registered SDR

    As described in Section V(A), supra, the Commission is adopting, as
proposed, an amendment to the definition of ``participant'' in Rule
900(u) to include platforms that are required to report platform-
executed security-based swaps that will be submitted to clearing and
registered clearing agencies that are required to report whether or not
an alpha is accepted for clearing. Existing Rule 906(b) requires each
participant--as defined by Rule 900(u)--of a registered SDR to provide
the SDR with information sufficient to identify any affiliate(s) of the
participant that also are participants of the SDR and any ultimate
parent(s) of the participant.\302\ By amending Rule 900(u) to make
platforms and registered clearing agencies participants, these entities
would become subject to Rule 906(b). In the Regulation SBSR Proposed
Amendments Release, however, the Commission proposed to amend Rule
906(b) to exclude platforms or registered clearing agencies from the
requirement to provide information about affiliates and ultimate
parents to an SDR.
---------------------------------------------------------------------------

    \302\ See Regulation SBSR Adopting Release, 80 FR at 14645.
---------------------------------------------------------------------------

    Three commenters expressed support for the Commission's proposal to
exempt platforms and registered clearing agencies from the obligations
of Rule 906(b).\303\ The Commission continues to believe that platforms
and registered clearing agencies should be exempt from the obligations
of Rule 906(b) and is adopting the amendment to Rule 906(b) as
proposed.
---------------------------------------------------------------------------

    \303\ See LCH.Clearnet Letter at 11; ISDA/SIFMA Letter at 29;
WMBAA Letter at 5.
---------------------------------------------------------------------------

    The Commission also proposed to make a similar amendment to
existing Rule 907(a)(6), which requires a registered SDR to have
policies and procedures ``[f]or periodically obtaining from each
participant information that identifies the participant's ultimate
parent(s) and any participant(s) with which the participant is
affiliated, using ultimate parent IDs and counterparty IDs.'' The
Commission proposed to amend Rule 907(a)(6) to require registered SDRs
to have policies and procedures to obtain this information from each
participant ``other than a platform or a registered clearing agency.''
One commenter supported the Commission's proposal.\304\ The Commission
continues to believe that this amendment to Rule 907(a)(6) is
appropriate and is adopting the amendment as proposed.
---------------------------------------------------------------------------

    \304\ ISDA/SIFMA Letter at 29 (``as we support the assignment of
reporting duties to platforms and clearing agencies, [we] also agree
with the conforming changes to . . . Rule 907(a)(6)'').
---------------------------------------------------------------------------

    One commenter asked the Commission to exclude from Rule 906(b)
transactions that include an execution agent ID.\305\ The commenter
stated: ``Aggregation across affiliated entities under a common parent
makes the most sense from a regulatory or systemic risk perspective
where there is coordinated trading activity and/or the risk of such
swap positions is borne by the parent under an explicit or implicit
guarantee. In the context of asset management, neither is typically
present. For separate account clients, virtually all the asset
management assignments undertaken by our members are on a discretionary
basis . . . As a result, the separate account client (let alone its
affiliates or parent) would not be responsible under its trading
contracts for trading losses incurred by a manager acting on its behalf
beyond the assets it has provided to that manager.'' \306\
---------------------------------------------------------------------------

    \305\ See SIFMA-AMG II at 3-4. The commenter appears to be of
the view that ultimate parent IDs and affiliate IDs are fields that
must be included in reports of individual transactions. See id. at 3
(``AMG requests clarification that the parent and affiliate fields
are not applicable (or `N/A') for a trade if the trade report
includes an execution agent's ID''). The Commission notes, however,
that a participant's ultimate parent and affiliate information must
be disclosed to the registered SDR of which it is a participant in a
separate report, not in individual transaction reports.
    \306\ Id. at 3-4. See also id. at 4 (``There is even less reason
to require identification of the affiliates or parent of a
collective investment vehicle. While funds in the same complex could
be viewed as affiliated for certain purposes, aggregating swap
positions across funds where recourse is legally and contractually
limited would be misleading from a systemic risk and regulatory
oversight perspective'').
---------------------------------------------------------------------------

    Rule 906(b) is designed to facilitate the Commission's ability to
measure security-based swap exposure within the same ownership group.
The Commission believes that requiring the funds and accounts described
in the commenter's letter to report parent and

affiliate information would not serve this goal. Accordingly, the
Commission is amending Rule 906(b) to exclude externally managed
investment vehicles from the requirement to provide ultimate parent and
affiliate information to any registered SDR of which it is a
participant.\307\ The Commission is not acting upon the commenter's
specific suggestion to base an exclusion on the fact that the
transaction reports submitted by a fund includes an ID of an execution
agent. There could be situations where a corporate entity within a
group that Rule 906(b) is designed to cover might use an execution
agent and thus would be required to report an execution agent ID.
Therefore, basing an exclusion from Rule 906(b) on the use of an
execution agent ID would be broader than necessary. The Commission
believes instead that an exclusion for externally managed investment
vehicles is well tailored to satisfy the concerns raised by the
commenter while minimizing the risk of unduly broadening the exclusion.
In light of this amendment to Rule 906(b), the Commission is making a
conforming change to Rule 907(a)(6). Under Rule 907(a)(6), as amended,
a registered SDR need not include in its policies and procedures for
obtaining ultimate parent and affiliate information a mechanism for
obtaining such information from externally managed investment vehicles.
---------------------------------------------------------------------------

    \307\ In the Cross-Border Adopting Release, the Commission added
an express reference to ``investment vehicle'' in the non-exclusive
list of legal persons that could fall within the final definition of
``U.S. person'' in Rule 3a71-3(a)(4) under the Exchange Act, 17 CFR
240.3a71-3(a)(4). The Commission observed that investment vehicles
are commonly established as partnerships, trusts, or limited
liability entities and required that an investment vehicle will be
treated as a U.S. person for purposes of Title VII if it is
organized, incorporated, or established under the laws of the United
States or has its principal place of business in the United States.
See Cross-Border Adopting Release, 79 FR at 47307. Thus, an
investment vehicle--despite being incorporated, organized, or
established under the laws of a foreign jurisdiction--would be a
U.S. person if it is externally managed from the United States,
i.e., its operations ``are primarily directed, controlled, and
coordinated from a location within the United States.'' Id. at
47310.
---------------------------------------------------------------------------

    The Commission declines to grant the commenter's request to exclude
accounts from Rule 906(b). Although, as the commenter indicates, the
parent(s) or affiliate(s) of a separate account client may not be
responsible for losses incurred in the account, the security-based swap
exposure in multiple accounts of a parent would be relevant to
understanding the total exposure within the same ownership group. Thus,
an account's reporting of its parent and affiliate information will
serve the purposes of Rule 906(b) by assisting the Commission in
monitoring enterprise-wide risks related to security-based swaps.

E. Additional Entities Must Have Policies and Procedures for Supporting
Their Reporting Duties

    Existing Rule 906(c) requires each participant of a registered SDR
that is a registered security-based swap dealer or registered major
security-based swap participant to establish, maintain, and enforce
written policies and procedures that are reasonably designed to ensure
that the participant complies with any obligations to report
information to a registered SDR in a manner consistent with Regulation
SBSR. Rule 906(c) also requires each registered security-based swap
dealer and registered major security-based swap participant to review
and update its policies and procedures at least annually.
    In the Regulation SBSR Proposed Amendments Release, the Commission
proposed to extend the requirements of Rule 906(c) to registered
clearing agencies and platforms that are participants of a registered
SDR.\308\ Four commenters generally supported this amendment.\309\
---------------------------------------------------------------------------

    \308\ See 80 FR at 14759.
    \309\ See Better Markets Letter at 6; DTCC Letter at 18; ISDA/
SIFMA Letter at 29; LCH.Clearnet Letter at 11.
---------------------------------------------------------------------------

    In the U.S. Activity Proposal, the Commission proposed to extend
the requirements of Rule 906(c) to any registered broker-dealer that
incurs reporting obligations solely because it effects transactions
between two unregistered non-U.S. persons that do not fall within
proposed Rule 908(b)(5). The Commission received no comments regarding
the proposed amendment to Rule 906(c) for registered broker-dealers.
The Commission continues to believe that this amendment is appropriate
and is adopting the amendment as proposed.\310\
---------------------------------------------------------------------------

    \310\ Existing Rule 906(c) is titled: ``Policies and procedures
of registered security-based swap dealers and registered major
security-based swap participants.'' As the Commission has proposed
to subject various other types of persons to Rule 906(c), the
Commission also proposed to revise the title to ``Policies and
procedures to support reporting compliance.'' The Commission is
adopting the amended title.
---------------------------------------------------------------------------

    One commenter stated that the Commission should expand Rule 906(c)
``to include all parties with reporting obligations under Regulation
SBSR, including platforms and registered clearing agencies.'' \311\
While the Commission is expanding Rule 906(c) to include platforms and
registered clearing agencies, the Commission did not propose and is not
adopting any amendment to expand Rule 906(c) to include ``all parties''
with reporting obligations under Regulation SBSR, which would include
unregistered persons. Regulation SBSR was designed to minimize, to the
extent feasible, instances where unregistered persons have the primary
duty to report security-based swaps; an unregistered person that is a
participant of a registered SDR in most cases will have only limited
duties under Regulation SBSR, such as the duty to report UIC
information pursuant to Rule 906(a).\312\ The Commission does not
believe that it is appropriate to require unregistered persons to
establish policies and procedures to support this limited reporting
function.
---------------------------------------------------------------------------

    \311\ LCH.Clearnet Letter at 11.
    \312\ Existing Rule 906(a) applies to all participants of a
registered SDR, including a participant that is the non-reporting
side of a security-based swap reported to the registered SDR on a
mandatory basis. Rule 906(a), in relevant part, requires a
participant of a registered SDR, with respect to a transaction to
which it is a direct counterparty, to provide the SDR with any UICs
that the SDR lacks, including a counterparty ID ``or (if
applicable), the broker ID, branch ID, execution agent ID, desk ID,
and trader ID.'' In the Regulation SBSR Adopting Release, the
Commission explained why it adopted the term ``trading desk'' and
``trading desk ID'' rather than, as in earlier proposed versions,
``desk'' and ``desk ID.'' See 80 FR at 14583-84. However, in one
place in Rule 906(a), the Commission failed to revise the term
``desk ID'' to ``trading desk ID'' even though it had done so in
another place in Rule 906(a). Therefore, the Commission in this
release is adopting a technical correction to Rule 906(a) to utilize
the term ``trading desk ID'' in both places. In addition, one
commenter requested clarification ``that trading desk ID and trader
ID fields are not applicable (or `N/A') for trades entered into by
an execution agent.'' SIFMA-AMG II at 2. Based on the rule text, the
Commission believes that this is a reasonable interpretation of Rule
906(a).
---------------------------------------------------------------------------

VI. Reporting and Public Dissemination of Security-Based Swaps
Involving Allocation

A. Background

    The Regulation SBSR Adopting Release provides guidance for the
reporting of certain security-based swaps executed by an asset manager
on behalf of multiple clients--transactions involving what are
sometimes referred to as ``bunched orders.'' \313\ That release

explained how Regulation SBSR applies to executed bunched orders that
are subject to the reporting hierarchy in existing Rule 901(a)(2)(ii),
including bunched order alphas that are not executed on a platform and
platform-executed bunched orders that will not be submitted to
clearing. That release also explained how Regulation SBSR applies to
the security-based swaps that result from allocation of an executed
bunched order, if the resulting security-based swaps are uncleared.
---------------------------------------------------------------------------

    \313\ See Regulation SBSR Adopting Release, 80 FR at 14625-27.
The Commission recognizes that market participants may use a variety
of other terms to refer to such transactions, including ``blocks,''
``parent/child'' transactions, and ``splits.'' The Commission has
determined to use a single term, ``bunched orders,'' for purposes of
this release, as this appears to be a widely accepted term. See,
e.g., ``Bunched orders challenge SEFs,'' MarketsMedia (March 25,
2014), available at http://marketsmedia.com/bunched-orders-challenge-sefs/ (last visited May 25, 2016); ``Cleared bunched
trades could become mandatory rule,'' Futures and Options World
(October 31, 2013), available at http://www.fow.com/3273356/Cleared-bunched-trades-could-become-mandatory-rule.html (last visited May
25, 2016).
---------------------------------------------------------------------------

    As described in the Regulation SBSR Adopting Release, to execute a
bunched order, an asset manager negotiates and executes a security-
based swap with a counterparty, typically a security-based swap dealer,
on behalf of multiple clients. The bunched order can be executed on- or
off-platform. After execution of the bunched order, the asset manager
allocates a fractional amount of the aggregate notional amount of the
transaction to each of several clients, thereby creating several new
security-based swaps and terminating the bunched order execution.\314\
By executing a bunched order, the asset manager avoids having to
negotiate the client-level transactions individually, and obtains
exposure for each client on the same terms (except, perhaps, for size).
---------------------------------------------------------------------------

    \314\ In aggregate, the notional amount of the security-based
swaps that result from the allocation is the same as the notional
amount of the executed bunched order. However, as one commenter
noted, ``due to cross-border considerations the aggregate notional
of a bunched order will not always tie out completely in reported
SBSR data to the sum of the notional of its related allocations.''
See ISDA/SIFMA Letter at 28.
---------------------------------------------------------------------------

    In the Regulation SBSR Adopting Release, the Commission explained
that Rule 901 requires a bunched order execution and the security-based
swaps resulting from the allocation of the bunched order execution, if
they are not cleared, to be reported like other security-based
swaps.\315\ The Commission further explained that Rule 902(a) requires
the registered SDR that receives the report required by Rule 901 to
disseminate the information enumerated in Rule 901(c) for the bunched
order execution, including the full notional amount of the transaction.
The Commission observed that publicly disseminating bunched order
executions in this manner would allow the public to ``know the full
size of the bunched order execution and that this size was negotiated
at a single price.'' \316\ Existing Rule 902(c)(7) provides that a
registered SDR shall not publicly disseminate any information regarding
the allocation of a bunched order execution, which would include
information about the security-based swaps resulting from the
allocation of the initial transaction as well as the fact that the
bunched order execution is terminated following this allocation.
---------------------------------------------------------------------------

    \315\ See 80 FR at 14625.
    \316\ Id. at 14626.
---------------------------------------------------------------------------

B. Guidance on How Regulation SBSR Applies to Bunched Order Executions

    In the Regulation SBSR Proposed Amendments Release, the Commission
provided guidance explaining how Regulation SBSR would apply to a
bunched order that is executed on a platform and will be submitted to
clearing, and-- if the bunched order execution is accepted for
clearing--the security-based swaps that result.\317\ Consistent with
the principles laid out in the Regulation SBSR Adopting Release with
respect to the reporting of bunched order executions that will not be
submitted to clearing, the reporting hierarchy in existing Rule
901(a)(2)(ii) will apply to the reporting of original bunched order
executions that will be submitted to clearing. However, the reporting
of the security-based swaps resulting from the allocation of the
original bunched order execution is different if a registered clearing
agency is involved. Because the Commission proposed a new approach for
the reporting of all clearing transactions, the Commission could not
offer guidance on how Regulation SBSR applies to bunched order
executions that are allocated through the clearing process until the
Commission adopted final rules for the reporting of clearing
transactions. Today, the Commission is adopting amendments to Rule 901
that will govern how clearing transactions must be reported, and also
now is providing guidance for how bunched order executions and related
allocations are to be reported when they are cleared.
---------------------------------------------------------------------------

    \317\ See 80 FR at 14753-55.
---------------------------------------------------------------------------

1. Example 1: Off-Platform Cleared Transaction
    Assume that an asset manager, acting on behalf of several advised
accounts, executes a bunched order alpha with a registered security-
based swap dealer. The execution does not occur on a platform, and
there are no indirect counterparties on either side of the bunched
order alpha. The transaction is submitted to a registered clearing
agency.
a. Reporting the Bunched Order Alpha
    The reporting hierarchy of existing Rule 901(a)(2)(ii) applies to
the bunched order alpha because the execution does not occur on a
platform and the bunched order alpha is not a clearing transaction.
Under existing Rule 901(a)(2)(ii)(B), the registered security-based
swap dealer is the reporting side for the bunched order alpha because
its side includes the only registered security-based swap dealer. As
the reporting side, the registered security-based swap dealer must
report the primary and secondary trade information for the bunched
order alpha to a registered SDR (the ``alpha SDR'') of its choice
within 24 hours after the time of execution. Rule 902(a) requires the
alpha SDR to publicly disseminate a transaction report of the bunched
order alpha immediately upon receiving the report from the registered
security-based swap dealer.\318\
---------------------------------------------------------------------------

    \318\ Pursuant to Rule 906(a), the registered SDR also would be
required to obtain any missing UICs from the counterparties.
---------------------------------------------------------------------------

    When the registered security-based swap dealer submits the bunched
order alpha to a registered clearing agency for clearing, Rule
901(a)(3), as adopted today, requires the registered security-based
swap dealer promptly to provide the registered clearing agency with the
transaction ID of the bunched order alpha and the identity of the alpha
SDR. This requirement facilitates the registered clearing agency's
ability to report whether or not it has accepted the bunched order
alpha for clearing, as required by Rule 901(e)(1)(ii), which also is
being adopted today.
b. Reporting the Security-Based Swaps Resulting From Allocation
    New Rule 901(a)(2)(i) requires the registered clearing agency to
report all clearing transactions that arise as a result of clearing the
bunched order alpha, regardless of the workflows used to clear the
bunched order alpha.\319\
---------------------------------------------------------------------------

    \319\ Like other clearing transactions that arise from the
acceptance of a security-based swap for clearing, these security-
based swaps are not subject to public dissemination. See Rule
902(c)(6). See also Rule 902(c)(7) (exempting from public
dissemination any ``information regarding the allocation of a
security-based swap'').
---------------------------------------------------------------------------

    If the asset manager provides allocation instructions prior to or
contemporaneous with the clearing of the bunched order alpha, clearing
could result in the creation of a beta (i.e., the clearing transaction
between the registered clearing agency and the security-based swap
dealer) and a ``gamma series'' (i.e., the gammas between the registered
clearing agency and each of the client accounts selected by the asset
manager to receive a portion of the initial notional amount). The beta
and each security-based swap that comprises the gamma series would not

be treated differently under Regulation SBSR than any other clearing
transactions.
    If the asset manager does not provide allocation instructions until
after the bunched order alpha is cleared, clearing could result in the
creation of a beta (i.e., the clearing transaction between the
registered clearing agency and the security-based swap dealer) and an
``intermediate gamma'' (i.e., the clearing transaction between the
clearing agency and the side representing the clients of the asset
manager). The beta would be the same--and would be treated the same--as
any other clearing transaction, while the intermediate gamma would
continue to exist until the registered clearing agency receives the
allocation information, which could come from the asset manager or its
clearing member and would allow for the creation of the gamma series.
The registered clearing agency would report the intermediate gamma to a
registered SDR of its choice. As the registered clearing agency
receives the allocation information, it would terminate the
intermediate gamma and create new security-based swaps as part of the
gamma series. The partial terminations of the intermediate gamma would
be life cycle events of the intermediate gamma that the registered
clearing agency must report under existing Rule 901(e)(1)(i). Existing
Rule 901(e)(2) requires the registered clearing agency to report these
life cycle events to the same registered SDR to which it reported the
intermediate gamma. Under new Rule 901(a)(2)(i), as adopted today, the
registered clearing agency also is required to report to a registered
SDR each new security-based swap comprising part of the gamma series.
Because these security-based swaps arise from the termination (or
partial termination) of an existing security-based swap (i.e., the
intermediate gamma series), existing Rule 901(d)(10) requires the
registered clearing agency to link each new transaction in the gamma
series to the intermediate gamma by including the transaction ID of the
intermediate gamma as part of the report of each new security-based
swap in the gamma series.
2. Example 2: Cleared Platform Transaction
    Assume the same facts as Example 1, except that the registered
security-based swap dealer and asset manager execute the bunched order
alpha on a SB SEF.
a. Reporting the Bunched Order Alpha
    Because the initial transaction is executed on a platform and will
be submitted to clearing, the platform would have the duty under Rule
901(a)(1), as adopted today, to report the bunched order alpha to a
registered SDR. To satisfy this reporting obligation, the platform must
provide the information required by Rule 901(a)(1). Even if the
platform does not know and thus cannot report the counterparty IDs of
each account that will receive an allocation, the platform would know
the identity of the execution agent who executed the bunched order
alpha on behalf of its advised accounts. The platform, therefore, would
report the execution agent ID of the execution agent, even though it
might not know the intended counterparties of the security-based swaps
that will result from the allocation.\320\ Existing Rule 902(a)
requires the registered SDR that receives the report of the bunched
order alpha from the platform to publicly disseminate a report of the
bunched order alpha. Then, pursuant to existing Rule 906(a), the
registered SDR would be required to obtain any missing UICs from its
participants.\321\
---------------------------------------------------------------------------

    \320\ See Rule 901(d)(1) (requiring reporting of the
counterparty ID ``or the execution agent ID of each counterparty, if
applicable''). If the counterparties--i.e., the specific accounts
who will receive allocations--are not yet known, the requirement to
report the execution agent ID instead of the counterparty ID would
apply. Similarly, if the asset manager uses an execution agent to
access the platform, the platform would report the identity of the
asset manager's execution agent.
    \321\ One commenter stated that a registered SDRs will be unable
to compel non-reporting sides to become ``onboarded users'' of the
SDR; the commenter recommended, therefore, that the Commission
require any reports, such as those required by Rule 906(a), ``to
only be provided to onboarded users.'' DTCC/ICE/CME Letter at 2. In
the Regulation SBSR Adopting Release, the Commission resolved the
issue of whether a non-reporting side becomes a participant of a
registered SDR: It does, if the non-reporting side falls within Rule
908(b) and the transaction was reported to the registered SDR on a
mandatory basis. See Regulation SBSR Adopting Release, 80 FR at
14645 (``The Commission recognizes that some non-reporting sides may
not wish to connect directly to a registered SDR because they may
not want to incur the costs of establishing a direct connection.
Rule 906(a) does not prescribe the means registered SDRs must use to
obtain information from non-reporting sides'').
---------------------------------------------------------------------------

b. Reporting the Security-Based Swaps Resulting From Allocation
    If the asset manager provides allocation instructions prior to or
contemporaneous with the clearing of the bunched order alpha, clearing
would (under the agency model of clearing) result in the creation of a
beta (i.e., the clearing transaction between the registered clearing
agency and the registered security-based swap dealer) and a ``gamma
series'' (i.e., the gammas between the clearing agency and each of the
asset manager's clients). The beta and each security-based swap that
comprises the gamma series would be no different--and would not be
treated differently under Regulation SBSR--from other clearing
transactions.
    If the asset manager does not provide allocation instructions until
after the bunched order alpha is cleared, clearing (under the agency
model) would result in the creation of a beta (between the registered
clearing agency and the security-based swap dealer) and an intermediate
gamma (between the registered clearing agency and the side representing
the clients of the asset manager). The registered clearing agency would
then be required to report the termination of the bunched order alpha
and the creation of the beta and intermediate gamma, pursuant to Rules
901(e)(1)(ii) and 901(a)(2)(i), as adopted today. From this point on,
the beta would be treated the same as any other clearing transaction,
while the intermediate gamma would be decremented and replaced by the
gamma series, as described in Example 1.

C. Comments Received

    The Commission received two comments that generally supported the
guidance on the proposed rules for the reporting and public
dissemination of a bunched order execution that is executed on a
platform and will be submitted to clearing, and the security-based swap
clearing transactions that result from the allocation.\322\
---------------------------------------------------------------------------

    \322\ See ISDA/SIFMA Letter at 28 (supporting ``the requirement
for a reporting side to report a bunched order executed off-
platform, proposed rule 901(a)(1) that would require a platform to
report a bunched order alpha executed on its facility, and proposed
rule 901(a)(2)(i) that would require a registered clearing agency to
report a cleared bunched order, if applicable, and the allocations
that result from the cleared bunched order'' and stating that ``a
bunched order should be subject to public dissemination instead of
the related allocations''); ICE Trade Vault Letter at 7 (supporting
inclusion of the transaction ID of the bunched order execution on
each security-based swap resulting from its allocation as a
``critical data element necessary to improve data quality'').
---------------------------------------------------------------------------

    One of these commenters raised concerns, however, about the
application of the guidance to cross-border situations where the
identity of the asset manager's clients (i.e., the direct
counterparties to the security-based swaps that result from the
allocation) is not known at the time of bunched order execution,
particularly if the Commission requires compliance with Regulation SBSR
before security-based swap dealers have had the opportunity to register
with the Commission as such.\323\ The commenter stated that ``the
Commission should be aware that in advance of dealer registration
determining whether a

bunched order is subject to reporting under SBSR can only be based on
the reporting side's understanding of the execution agent's status as a
U.S. person. The U.S. person status of the funds to which the bunched
order will be allocated will determine whether the allocations are
subject to reporting and will have no bearing on whether the bunched
order is reported.'' \324\ The Commission shares the commenter's
concern that there be clear and workable solutions for reporting
transactions under Regulation SBSR even under complex cross-border
scenarios. The Commission also notes that, as discussed below,\325\
compliance with Regulation SBSR will be required independent of when
security-based swap dealers register as such with the Commission.
---------------------------------------------------------------------------

    \323\ See ISDA/SIFMA Letter at 28.
    \324\ Id.
    \325\ See infra Section X(C).
---------------------------------------------------------------------------

    In the U.S. Activity Proposal, the Commission proposed a new
paragraph (a)(1)(v) to existing Rule 908(a)(1) that would subject to
regulatory reporting and public dissemination any transaction in
connection with a non-U.S. person's security-based swap dealing
activity that is arranged, negotiated, or executed by personnel of such
non-U.S. person located in a U.S. branch or office, or by personnel of
an agent of such non-U.S. person located in a U.S. branch or office (an
``ANE transaction''). New Rule 908(a)(1)(v)--which is being adopted
today \326\--coupled with the existing provisions of Rule 908(a)(1),
will further clarify how the guidance discussed above applies to
various cross-border scenarios, as illustrated in the following
examples:
---------------------------------------------------------------------------

    \326\ See infra Section IX(C).
---------------------------------------------------------------------------

     If the dealing entity who executes the bunched order with
the asset manager/execution agent is a U.S. person, whether registered
or unregistered, the bunched order execution is subject to both
regulatory reporting and public dissemination because of the U.S.-
person status of the dealing entity, regardless of the U.S.-person
status of the asset manager/execution agent or of the funds/accounts
that later receive allocations.
     If the dealing entity who executes the bunched order with
the asset manager is a non-U.S. person but the bunched order execution
is an ANE transaction, the bunched order execution is again subject to
both regulatory reporting and public dissemination, regardless of the
U.S.-person status of the asset manager/execution agent or of the
funds/accounts that later receive allocations.
     If all of the funds/accounts that could be eligible to
receive allocations are U.S. persons, the bunched order execution is
subject to both regulatory reporting and public dissemination because
of the U.S.-person status of the funds/accounts, regardless of the
U.S.-person status of the dealing entity or the location of the
personnel (or agent) of the dealing entity. In other words, however the
asset manager/execution agent allocates the bunched order execution in
this example, there is no scenario where any part of the bunched order
execution could be viewed as involving a non-U.S. person. Therefore,
the initial bunched order execution involving the dealing entity on one
side necessarily has a U.S. person on the other side, and the initial
bunched order execution is subject to both regulatory reporting and
public dissemination.
    The Commission acknowledges that a more complex situation arises if
the bunched order execution is between an unregistered non-U.S. person
who is not engaging in ANE activity and an asset manager/execution
agent acting on behalf of funds/accounts at least some of which are
non-U.S. persons. In some cases, the status of the initial bunched
order execution would be resolved if the asset manager/execution agent
ultimately makes allocations only to funds/accounts that are U.S.
persons.\327\ In other cases, however, the asset manager/execution
agent \328\ might make allocations to some funds/accounts that are non-
U.S. persons or might not, in unusual cases, make any allocations until
more than 24 hours after the time of execution of the initial bunched
order. Ordinarily, the U.S.-person status of the asset manager/
execution agent is not determinative of whether the bunched order
execution is subject to regulatory reporting and public dissemination
under Rule 908(a)(1)(i) or any other provision of Rule 908(a).\329\ In
this limited situation, however, the Commission believes that it would
be reasonable for the sides to look to the U.S.-person status of the
asset manager/execution agent to resolve whether or not the bunched
order execution should be subject to regulatory reporting and public
dissemination. Given that the true counterparties might be unknown or
unknowable when the transaction report for the bunched order execution
is due, the U.S.-person status of the asset manager/execution agent can
serve as a reasonable proxy. Even if some or all of the allocation is
subsequently made to funds/accounts that are not U.S. persons, it would
not be inconsistent with Regulation SBSR if a regulatory report and
public dissemination of the initial bunched order execution, including
the full notional size, is made. Furthermore, if the asset manager/
execution agent is not a U.S. person and the counterparties determine
not to report the transaction on that basis, and if allocations are
made to one or more funds/accounts that are U.S. persons, those
security-based swaps resulting from the allocation would have to be
reported, and the Commission would still have at least partial
understanding of the overall transaction.\330\ The Commission staff
intends to evaluate this issue after required reporting commences.
---------------------------------------------------------------------------

    \327\ The Commission understands from discussions with market
participants that allocation determinations are generally made
within 24 hours after execution. In such cases, the asset manager/
execution agent would know that all of the security-based swaps
resulting from allocation--as well as the initial bunched order
execution--are subject to regulatory reporting and public
dissemination, because of the U.S.-person status of all of fund/
account counterparties, before a transaction report for the initial
bunched order execution is due, at least during the first interim
phase of security-based swap reporting.
    \328\ The Commission notes that some transactions could involve
more than one execution agent, and that the execution agent IDs of
all execution agents of each direct counterparty would be required
to be reported. See Regulation SBSR Adopting Release, 80 FR at 14583
(``The Commission notes that some security-based transactions may
involve multiple agents'').
    \329\ Existing Rule 908(a)(1)(i) provides that a security-based
swap shall be subject to regulatory reporting and public
dissemination if there ``is a direct or indirect counterparty that
is a U.S. person on either or both sides of the transaction.'' The
execution agent/asset manager would not be a counterparty to the
executed bunched order unless it was the primary obligor or a
guarantor for the bunched order execution. See Rule 900(i) (defining
``counterparty'' for purposes of Regulation SBSR). If the asset
manager/execution agent is the primary obligor or a guarantor of the
security-based swap, it would be a counterparty and the outcome of
the reporting hierarchy would have to reflect this fact.
    \330\ The commenter observed that, ``due to cross-border
considerations the aggregate notional of a bunched order will not
always tie out completely in reported SBSR data to the sum of the
notional of its related allocations.'' ISDA/SIFMA Letter 28. This
could occur if, for example, the initial bunched order execution
were reported to a registered SDR, but certain security-based swaps
resulting from the allocation were not, because they did not fall
within any of the prongs of Rule 908(a)(1). The Commission
recognizes this possibility. However, it does not appear that this
would happen to such an extent as to compromise the Commission's
ability to oversee the security-based swap market.
---------------------------------------------------------------------------

D. Conforming Amendment to Rule 901(d)(4)

    Existing Rule 901(d)(4) requires the reporting side to report, as
applicable, the branch ID, broker ID, execution agent ID, trader ID,
and trading desk ID of the direct counterparty on the reporting side.
One commenter requested that, for bunched order executions, the
reporting side be

excused from this requirement because the relevant information ``can
only be determined upon allocation as any reported values would refer
to applicable agreements with each party to an allocation and not the
execution agent. SBSR should explicitly absolve platforms, clearing
agencies and reporting sides from the obligation to report the
information required by Sec.  242.901(d)(4) for bunched orders.'' \331\
---------------------------------------------------------------------------

    \331\ ISDA/SIFMA Letter at 28-29. The commenter noted that the
Commission had not proposed to require a platform to report the
title and date of agreements incorporated by reference for a bunched
order alpha that will be submitted to clearing. See id. at 28.
---------------------------------------------------------------------------

    The Commission agrees and has decided to amend Rule 901(d)(4) so
that it does not apply to the initial bunched order execution, and
instead applies only to the security-based swaps that result from the
allocation of that bunched order execution. The relevant agreements
that are to be reported pursuant to Rule 901(d)(4) are between the
clients of the execution agent--i.e., the funds that receive
allocations--and the security-based swap dealer. The Commission
believes that it is unnecessary to require these agreements to be
reported twice, once with the report of the bunched order execution and
once with the report of each security-based swap resulting from the
allocation of the original bunched order execution. Requiring the
reporting of agreement information for the bunched order execution
could be challenging in instances when the clients that will receive
the allocated security-based swaps are not known at the time of
execution of the bunched order. Furthermore, the title and date of the
relevant agreements will be included in the reports of the security-
based swaps resulting from the allocation. Therefore, the Commission
does not believe it is necessary to require the names and dates of the
agreements to be reported with the initial bunched order execution.

VII. Reporting and Public Dissemination of Prime Brokerage Transactions

A. Background

    In the Regulation SBSR Proposed Amendments Release, the Commission
discussed how Regulation SBSR would apply to security-based swap
transactions arising out of prime brokerage arrangements.\332\ The
Commission understands that, under a typical prime brokerage
arrangement, a prime broker and a client enter into an agreement
whereby the prime broker facilitates the client's participation in the
security-based swap market by providing credit intermediation services.
The prime brokerage arrangement permits the client to negotiate and
agree to the terms of security-based swaps with one or more third-party
``executing dealers,'' subject to limits and parameters specified in
the prime brokerage agreement. An executing dealer would negotiate a
security-based swap with the client expecting that it would face the
prime broker, rather than the client, for the duration of the security-
based swap. The executing dealer and/or the client would submit the
transaction that they have negotiated to the prime broker. In the
Regulation SBSR Proposed Amendments Release, the Commission set forth
its understanding that a typical prime brokerage transaction involved
three security-based swap transactions or ``legs'': \333\
---------------------------------------------------------------------------

    \332\ See Regulation SBSR Proposed Amendments Release, 80 FR at
14755-57.
    \333\ See id. at 14755.
---------------------------------------------------------------------------

     Transaction 1. The client and the executing dealer
negotiate and agree to the terms of a security-based swap transaction
(the ``client/executing dealer transaction'') and notify the prime
broker of these terms. Transaction 1 is terminated upon the creation of
Transaction 2 and 3, as described below.
     Transaction 2. If the terms of Transaction 1 are within
the parameters established by the prime brokerage arrangement, the
prime broker accepts the transaction and faces the executing dealer in
a new security-based swap (the ``prime broker/executing dealer
transaction'') having the same economic terms agreed to by the
executing dealer and the client in Transaction 1.
     Transaction 3. Upon executing Transaction 2 with the
executing dealer, the prime broker will enter into an offsetting
security-based swap with the client (the ``prime broker/client
transaction'').
    The Commission received three comments regarding this proposed
interpretation. One commenter disagreed with the Commission's view that
a typical prime brokerage transaction comprises three legs, arguing
that the negotiation of terms between the executing dealer and the
client does not result in a transaction between the executing dealer
and the client.\334\ The commenter also stated that, if the prime
broker did not accept the transaction, there would be no security-based
swap to report (i.e., there would not be a client/executing dealer
transaction in the absence of acceptance by the prime broker).\335\
Accordingly, the commenter requested that the Commission limit all
reporting requirements arising from a prime brokerage arrangement to
Transactions 2 and 3.\336\ Another commenter concurred that a typical
prime brokerage arrangement would result in only two legs, one between
the prime broker and the executing dealer and one between the client
and the prime broker.\337\ The commenter expressed the view that there
is not a transaction between the executing dealer and the client,\338\
and that the initial negotiation between the executing dealer and the
client results in a security-based swap between the executing dealer
and the prime broker, with the client acting as the prime broker's
agent.\339\
---------------------------------------------------------------------------

    \334\ See ISDA/SIFMA Letter at 20.
    \335\ See id.
    \336\ See id. at 21.
    \337\ See Memorandum from the Division of Trading and Markets
regarding a November 13, 2015, meeting with representatives of SIFMA
and Cleary Gottlieb Steen & Hamilton LLP (November 20, 2015), at
slide 5.
    \338\ See id. at slide 11.
    \339\ See id. at slide 5.
---------------------------------------------------------------------------

    After considering these comments, the Commission is supplementing
its views regarding the application of Regulation SBSR to prime
brokerage arrangements. The Commission understands that the
documentation used to structure a prime brokerage arrangement may vary.
As described more fully below, the documentation may provide that the
client acts as agent for the prime broker when negotiating the first
leg with the executing dealer, resulting in a prime brokerage structure
comprised of two legs (the prime broker/executing dealer transaction
and the prime broker/client transaction). Alternatively, the
documentation could provide that the negotiation between the client and
the executing dealer results in a transaction between those two
parties,\340\ resulting in a prime brokerage structure comprised of
three legs (the client/executing dealer transaction, the prime broker/
executing dealer transaction, and the prime broker/client transaction).
In cases where the client is acting as agent for the prime broker, the
arrangement would result in the following two legs:
---------------------------------------------------------------------------

    \340\ For example, the client and executing dealer could agree
in advance that, in the event of rejection by the prime broker, they
would preserve their contract without the involvement of the prime
broker. See ISDA, 2005 ISDA Compensation Agreement (``ISDA
Compensation Agreement'') at Section 2.
---------------------------------------------------------------------------

     Transaction A. The client, acting as agent for the prime
broker, and the executing dealer negotiate a security-based swap
transaction and notify the prime broker of its terms. If the
transaction does not satisfy the parameters in the prime brokerage
agreement, the prime broker may reject

the transaction. If the prime broker accepts the transaction, the prime
broker and the executing dealer are counterparties to the security-
based swap.
     Transaction B. If the prime broker accepts Transaction A,
the prime broker also will enter into an offsetting security-based swap
with the client.
    In cases where the documentation provides for a three-legged
structure, the Commission is making a minor modification to Rule 902(c)
to account for the situation where a registered SDR receives notice
that the prime broker has rejected the transaction before the SDR has
received the initial transaction report.\341\ The Commission discusses
below the application of the reporting and dissemination requirements
as they apply to the two-legged structure and provides additional
clarification in response to comments.
---------------------------------------------------------------------------

    \341\ See infra Section VII(D).
---------------------------------------------------------------------------

B. Reporting of Security-Based Swaps Resulting From Prime Brokerage
Arrangements

    In the Regulation SBSR Proposed Amendments Release, the Commission
stated its understanding that prime brokerage arrangements involve
credit intermediation offered by the prime broker, rather than a
registered clearing agency; thus, prime brokerage transactions are not
cleared.\342\ Therefore, the application of Regulation SBSR's reporting
and dissemination requirements to a prime brokerage arrangement
detailed below assumes none of the security-based swaps resulting from
a prime brokerage arrangement is a clearing transaction, and that none
is intended to be cleared.
---------------------------------------------------------------------------

    \342\ See 80 FR at 14755.
---------------------------------------------------------------------------

1. If There Are Three Legs
    In the Regulation SBSR Proposed Amendments Release, the Commission
set forth its proposed interpretation of the application of Regulation
SBSR to the three-legged prime brokerage structure.\343\ The Commission
is finalizing this interpretation substantially as proposed.
---------------------------------------------------------------------------

    \343\ See id. at 14755-57.
---------------------------------------------------------------------------

    Because Transaction 1 (i.e., the client/executing dealer
transaction) is not a clearing transaction and it is not intended to be
cleared, the reporting hierarchy in existing Rule 901(a)(2)(ii) assigns
the reporting duty for Transaction 1. If the prime broker accepts the
transaction, the prime broker would initiate Transactions 2 and 3,
which would have the effect of terminating Transaction 1. The
termination would be a life cycle event of Transaction 1, and existing
Rule 901(e)(2) requires the reporting side for Transaction 1 (likely
the executing dealer) to report this life cycle event to the same
registered SDR to which it reported Transaction 1.\344\
---------------------------------------------------------------------------

    \344\ One commenter agreed with this approach, stating that the
reporting obligation should remain with the original reporting side.
See LCH.Clearnet Letter at 11.
---------------------------------------------------------------------------

    Transactions 2 and 3 (i.e., the prime broker/executing dealer
transaction and the prime broker/client transaction, respectively) also
are security-based swaps that must be reported pursuant to Rule
901(a)(2)(ii). Because each of these transactions is a security-based
swap that arises from the termination of another security-based swap
(i.e., Transaction 1), existing Rule 901(d)(10) requires the reporting
of Transaction 1's transaction ID as part of the secondary trade
information for each of Transaction 2 and Transaction 3.
2. If There Are Two Legs
    The Commission is providing the following interpretation of the
application of the reporting requirements of Regulation SBSR in cases
where the documentation provides for a two-legged structure.
    Existing Rule 901(a)(2)(ii) assigns the reporting duty for
Transaction A (i.e., the prime broker/executing dealer transaction),
because Transaction A is not a clearing transaction and it is not
intended to be cleared. When the client, acting as agent for the prime
broker, executes Transaction A with the executing dealer, the sides
(i.e., the executing dealer and the prime broker) would determine the
reporting side pursuant to the hierarchy set forth in existing Rule
901(a)(2)(ii). The reporting side would have up to 24 hours after the
time of execution to report the applicable primary and secondary trade
information of Transaction A. The client would be disclosed as the
execution agent of the prime broker pursuant to Rule 901(d)(2) (if the
prime broker is the reporting side) or Rule 906(a) (if the prime broker
is not the reporting side).
    If the prime broker accepts the transaction, the prime broker would
initiate Transaction B between itself and the client. The reporting
side for Transaction B also would be determined pursuant to Rule
901(a)(2)(ii). The reporting side would have up to 24 hours after the
time of execution to report the applicable primary and secondary trade
information of Transaction B.

C. Public Dissemination of Prime Brokerage Transactions

    Existing Rule 902(a) requires public dissemination of each
security-based swap, unless it falls within a category enumerated in
Rule 902(c). If the documentation of the prime brokerage agreement is
such that there are three security-based swaps, then each of the three
is subject to public dissemination; if the documentation of the prime
brokerage agreement is such that there are only two security-based
swaps, both are subject to public dissemination.
    If a prime broker rejects either Transaction 1 or Transaction A,
the registered SDR would handle dissemination of information regarding
the termination of the first transaction in the same manner as an alpha
that has been rejected from clearing.\345\
---------------------------------------------------------------------------

    \345\ See infra Section VII(D) (discussing the effect of
rejection by the prime broker). See also supra Section III(J).
---------------------------------------------------------------------------

    One commenter reiterated an earlier request that the Commission
exempt the prime broker/client leg of a prime broker transaction from
public dissemination, arguing that dissemination of this transaction
would provide misleading price data without providing any further
transparency on costs related to prime brokerage.\346\ The commenter
argued that the prime broker's service fee is not relevant to security-
based swap pricing.\347\ In the Regulation SBSR Proposed Amendments
Release, the Commission stated its preliminary belief that publicly
disseminating reports of each leg of a prime brokerage transaction
could provide market observers with useful information about the cost
of the prime broker's credit intermediation services, because prime
brokers may charge for these services by pricing the executing dealer/
prime broker transaction differently than the prime broker/client
transaction.\348\ The Commission also noted that, with prime brokerage
transactions, the only mechanism for ascertaining the charge for the
credit intermediation service offered by the prime broker would be to
compare the prices of Transaction 1 with the prices of any subsequent
transaction.\349\
---------------------------------------------------------------------------

    \346\ See ISDA/SIFMA Letter at 21.
    \347\ See id.
    \348\ See 80 FR at 14756.
    \349\ See id.
---------------------------------------------------------------------------

    In response, the commenter noted that prime brokers might not in
all cases include their fees in transaction prices and stated that, if
the fees charged for prime brokerage services were useful to market
observers, then such information could be more ``reliably and
accurately

obtained by requesting it from a [prime broker].'' \350\ The
Commission, however, continues to believe that disseminating each leg
of a prime brokerage arrangement will enhance price discovery by
helping market observers to distinguish between the price of a
security-based swap and the cost of credit intermediation. Market
participants should not have to request information from a prime broker
regarding the manner in which the cost of a prime broker's credit
intermediation service might affect the price of a security-based swap
when the mandate of Section 13(m)(1)(C) provides all market observers
with the ability to observe the prices directly. Even if the fees
charged for prime brokerage services are not always reflected in
transaction prices, at least some transaction prices will include the
cost of credit intermediation. Therefore, the Commission believes that
none of the legs of a prime brokerage transaction should be excluded
from public dissemination.
---------------------------------------------------------------------------

    \350\ ISDA/SIFMA Letter at 21.
---------------------------------------------------------------------------

    In this regard, the Commission notes that Rule 907(a)(4) requires
the policies and procedures of a registered SDR, in relevant part, to
identify characteristics of a security-based swap that could, in the
fair and reasonable estimation of the registered SDR, cause a person
without knowledge of those characteristics to receive a distorted view
of the market. The Commission believes that it would be difficult to
comply with that requirements of the rule if a registered SDR did not
identify whether individual security-based swaps are related legs of a
prime brokerage transaction. If market observers are not given the
ability to identify the two or three legs of a prime brokerage
transaction as related, it would be difficult for market observers to
avoid developing a distorted view of the market.\351\
---------------------------------------------------------------------------

    \351\ See supra note 223.
---------------------------------------------------------------------------

    One commenter acknowledged that a prime brokerage flag had
``potential value'' for regulatory reporting but strongly disagreed
with the Commission's view that a prime brokerage flag should be
publicly disseminated.\352\ The commenter argued that the market for
security-based swap prime brokerage services is limited, so a prime
brokerage flag would have a ``high probability of compromising the
anonymity'' of executing dealers and prime brokers.\353\ The Commission
considered similar issues in the Regulation SBSR Adopting Release
relating to thinly traded security-based swaps.\354\ There, the
Commission declined to provide any exception to public dissemination
based on the fact that only a small number of market makers were active
in particular segments of the market. Here, the Commission declines to
make any exception to its approach to public dissemination of prime
brokerage transactions. Absent a prime brokerage flag, market observers
would have no ability to know that the separate legs of a single prime
brokerage transaction are related, and would incorrectly conclude that
there was more market activity than in fact occurred.
---------------------------------------------------------------------------

    \352\ See ISDA/SIFMA Letter at 22.
    \353\ Id.
    \354\ See 80 FR at 14612.
---------------------------------------------------------------------------

    Finally, one commenter noted that a prime broker/client leg might
be a bunched order execution where the allocations ``are provided
upfront,'' and argued that the dissemination of these multiple
transactions would not enhance price discovery.\355\ In the Regulation
SBSR Adopting Release, the Commission provided guidance regarding how a
bunched order execution must be reported and publicly disseminated
(assuming that the bunched order execution is not cleared): The initial
bunched order execution and any security-based swaps that result from
allocating the bunched order execution are subject to regulatory
reporting, while only the bunched order execution is subject to public
dissemination.\356\ Thus, the Commission agrees with the commenter that
the security-based swaps resulting from the allocation of a prime
broker/client transaction should not be publicly disseminated. However,
the initial bunched order execution between the prime broker and the
client is subject to public dissemination.
---------------------------------------------------------------------------

    \355\ ISDA/SIFMA Letter at 21.
    \356\ See 80 FR at 14625-27. See also Rule 902(c)(7) (requiring
a registered SDR to refrain from disseminating any information
regarding the allocation of a security-based swap).
---------------------------------------------------------------------------

D. If the Prime Broker Rejects the Initial Security-Based Swap

    Under either the two-leg or three-leg prime brokerage arrangements
described above, the prime broker could reject the initial transaction
negotiated between the client and the executing dealer. The Commission
is providing guidance regarding how Regulation SBSR applies to this
possibility.
    The effect of the rejection by the prime broker would depend on
what, if any, contractual agreement exists between the executing dealer
and its client. In some cases, the client and the executing dealer
could have a pre-existing agreement that would allow them to revise the
security-based swap with new terms if the prime broker rejects a
transaction that they have negotiated.\357\ If there is such an
agreement and the client and executing dealer elect to preserve a
security-based swap between them, the result would have to be reported
in one of two ways. If the governing documentation provides that there
are only two security-based swaps that could result from the prime
brokerage arrangement (i.e., the initial leg is between the prime
broker and the executing dealer, with the client acting as agent for
the prime broker), the rejection by the prime broker would have the
effect of terminating this leg, and the termination would have to be
reported by the reporting side of the initial leg. The security-based
swap arising between the client and the executing dealer would, because
there are new counterparties, be a new security-based swap, and the
reporting side for this security-based swap would be determined by the
reporting hierarchy. On the other hand, if the governing documentation
provides that three security-swaps would result from the prime
brokerage arrangement and the client and executing dealer intend to
preserve the security-based swap with different terms, the rejection by
the prime broker and the amendment with the new terms would have to be
reported as a life cycle event of the initial leg (presumably by
executing dealer). If there is no pre-existing agreement between the
client and the executing dealer that would allow for an amendment to
the initially negotiated leg or such an agreement exists but the client
and executing dealer elect not to keep the security-based swap in
existence, the prime broker's rejection would terminate the initial leg
and the reporting side of the initial leg would have to report the
termination.
---------------------------------------------------------------------------

    \357\ See, e.g., ISDA Compensation Agreement, at Section 2.
---------------------------------------------------------------------------

    If rejection by the prime broker results in a termination, one of
two things must occur next. If the registered SDR that received the
report of the initial leg has already disseminated it, the SDR must
then disseminate a follow-up report indicating that the initial
security-based swap has been terminated.\358\ However, situations could
arise where the registered SDR had not yet disseminated a report of the
initial leg when it

receives notice of the termination.\359\ As noted in Section III(J),
supra, the Commission is adopting a new paragraph (c)(8) to existing
Rule 902(c) providing that a registered SDR shall not publicly
disseminate ``[a]ny information regarding a security-based swap that
has been rejected from clearing or rejected by a prime broker if the
original transaction report has not yet been publicly disseminated.''
Therefore, if the registered SDR had not disseminated the transaction
report for Transaction 1/Transaction A at the time that it receives the
report of the termination of that transaction, the registered SDR would
not disseminate any information regarding Transaction 1/Transaction A.
Conversely, if the registered SDR had disseminated a transaction report
of Transaction 1/Transaction A before receiving the termination report
for that transaction, the registered SDR would disseminate a report of
the termination of Transaction 1/Transaction A.
---------------------------------------------------------------------------

    \358\ See Rule 902(a) (requiring, in relevant part,
dissemination of life cycle events when there are changes to
information provided under Rule 901(c)); Rule 907(a)(3) (requiring a
registered SDR, in relevant part, to have written policies and
procedures for flagging transaction reports involving life cycle
events).
    \359\ For example, assume that the prime brokerage agreement
provides for a three-legged structure and the executing dealer is
the reporting side for the initial leg between itself and the
client. However, there is no pre-existing agreement between the
client and executing dealer that would allow for the terms of the
initial leg to be renegotiated if the prime broker rejects the
transaction. Assume further that the executing dealer does not
immediately report the initial leg. See Rule 901(j) (generally
allowing up to 24 hours after the time of execution to report a
security-based swap). When the client and the executing dealer
convey the results of their negotiation to the prime broker, the
prime broker rejects the transaction. The executing dealer may
simultaneously report to a registered SDR the terms of the initial
leg and the fact that it has been rejected by the prime broker and
terminated.
---------------------------------------------------------------------------

VIII. Prohibition on Registered SDRs From Charging Fees for or Imposing
Usage Restrictions on Publicly Disseminated Data

A. Background

    Existing Rule 902(a) requires a registered SDR to publicly
disseminate a transaction report of a security-based swap, or a life
cycle event or adjustment due to a life cycle event, immediately upon
receipt of information about the security-based swap, with certain
exceptions noted in existing Rule 902(c). Existing Rule 900(cc) defines
``publicly disseminate'' to mean ``to make available through the
Internet or other electronic data feed that is widely accessible and in
machine-readable electronic format.'' In the Regulation SBSR Proposed
Amendments Release, the Commission stated its preliminary belief that a
registered SDR should not be permitted to charge fees for the security-
based swap transaction data that it is required to publicly disseminate
pursuant to Regulation SBSR.\360\ Accordingly, the Commission proposed
new Rule 900(tt), which would define the term ``widely accessible''--as
used in the definition of ``publicly disseminate'' in existing Rule
900(cc)--to mean ``widely available to users of the information on a
non-fee basis.'' As discussed in the SBSR Proposed Amendments Release,
this proposed definition of ``widely accessible'' would have the effect
of prohibiting a registered SDR from charging fees for, or imposing
usage restrictions on, the security-based swap transaction data that it
is required to publicly disseminate under Regulation SBSR.\361\
---------------------------------------------------------------------------

    \360\ See 80 FR at 14760.
    \361\ See id.
---------------------------------------------------------------------------

    In proposing this requirement, the Commission considered the
statutory requirements to establish post-trade transparency in the
security-based swap market, the CFTC's rules for public dissemination,
and comments received in response to Regulation SBSR, as originally
proposed and as re-proposed. Title VII contains numerous provisions
directing the Commission to establish a regime for post-trade
transparency in the security-based swap market, which are designed to
give the public pricing, volume, and other relevant information about
all executed security-based swap transactions.\362\ In the Regulation
SBSR Proposed Amendments Release, the Commission expressed the
preliminary view that the statutory requirement to make this
transaction information publicly available would be frustrated if
registered SDRs could charge members of the public for the right to
access the disseminated data.\363\
---------------------------------------------------------------------------

    \362\ See id. at 14759-60.
    \363\ See id. at 14760.
---------------------------------------------------------------------------

    The Commission also expressed the preliminary belief that it is
necessary to prohibit a registered SDR from charging users of
regulatorily mandated security-based swap transaction data for public
dissemination of the data to reinforce existing Rule 903(b).\364\ Rule
903(b) provides that a registered SDR may disseminate information using
UICs (such as product IDs or other codes, such as reference entity
identifiers, that are embedded within the product IDs) or permit UICs
to be used for reporting by its participants only if the information
necessary to interpret such UICs is widely available on a non-fee
basis. The Commission continues to be concerned that a registered SDR
that wished to charge (or allow others to charge) users for the
information necessary to understand these UICs--but could not, because
of Rule 903(b)--might seek to do so indirectly by recharacterizing the
charge as being for public dissemination. Under these circumstances,
the economic benefit to the registered SDR would be the same, but the
manner in which the registered SDR characterizes the fee--i.e., whether
as a charge to users for public dissemination or as a charge of
accessing the UICs within the publicly disseminated data--would be the
difference between the fee being permissible or impermissible under
Rule 903(b). Accordingly, the Commission took the preliminary view that
permitting a registered SDR to charge users for receiving the publicly
disseminated transaction data could undermine the purposes of Rule
903(b).
---------------------------------------------------------------------------

    \364\ See id. at 14761.
---------------------------------------------------------------------------

    The CFTC, in adopting its own rules for public dissemination of
swap transactions, addressed the issue of whether a swap data
repository could be allowed to charge for its publicly disseminated
data. In Section 43.2 of its rules,\365\ the CFTC defined ``public
dissemination'' and ``publicly disseminate'' to mean ``to publish and
make available swap transaction and pricing data in a non-
discriminatory manner, through the Internet or other electronic data
feed that is widely published and in machine-readable electronic
format.'' The CFTC also defined ``widely published'' to mean ``to
publish and make available through electronic means and in a manner
that is freely available and readily accessible to the public.'' \366\
Section 43.3(d)(2) of the CFTC rules provides: ``Data that is publicly
disseminated . . . shall be available from an Internet Web site in a
format that is freely available and readily accessible to the public.''
The CFTC stated that ``implicit in this mandate [of public
dissemination] is the requirement that the data be made available to
the public at no cost,'' \367\ and that ``Section 43.3(d)(2) reflects
the [CFTC]'s belief that data must be made freely available to market
participants and the public, on a nondiscriminatory basis.'' \368\
Although prohibiting fees on the data that swap data repositories are
required to publicly disseminate, the CFTC's rules permit a swap data
repository to offer, for a fee, value-added data products derived from
the freely available regulatorily mandated public data and to charge
fair and reasonable

fees to providers of swap transaction and pricing data.\369\
---------------------------------------------------------------------------

    \365\ 17 CFR 43.2.
    \366\ Id. (emphasis added).
    \367\ Real-Time Public Reporting of Swap Transaction Data (Final
Rule), 77 FR 1182, 1207 (January 9, 2012).
    \368\ Id. at 1202 (emphasis added).
    \369\ See id. at 1207.
---------------------------------------------------------------------------

B. Comments Received and Final Rule

    The Commission received six comments on whether registered SDRs
should be permitted to charge fees or impose usage restrictions on
publicly disseminated data.\370\ Several commenters generally agreed
with prohibiting an SDR from charging fees or imposing usage
restrictions on the transaction data that it is required to publicly
disseminate.\371\ However, one commenter argued against imposing a
prohibition against usage restrictions \372\ and another requested that
the Commission clarify the applicability of the prohibition.\373\ After
carefully considering all of the comments received, the Commission is
adopting Rule 900(tt) as proposed and provides clarification, below,
regarding application of the rule.
---------------------------------------------------------------------------

    \370\ See Barnard I at 2; Better Markets Letter at 5; DTCC
Letter at 14-15, 18-19; ICE Letter at 7; ISDA/SIFMA Letter at 29;
Markit Letter at 15.
    \371\ See Barnard I at 2; ISDA/SIFMA Letter at 29; Markit Letter
at 15. One commenter noted that providing data on a non-fee basis is
``critical,'' but that the Commission's rules should also ensure
equal access. See Better Markets Letter at 5.
    \372\ See DTCC Letter at 14-15, 18-19.
    \373\ See Markit Letter at 15.
---------------------------------------------------------------------------

    The Commission stated in the Regulation SBSR Proposed Amendments
Release that the requirement that information be ``widely available to
users of the information on a non-fee basis'' necessarily implies that
a registered SDR would not be permitted to impose--or allow to be
imposed--any usage restrictions on the security-based swap transaction
information that it is required to publicly disseminate, including
restrictions on access to or further distribution of the regulatorily
mandated public security-based swap data.\374\ One commenter agreed
with this view \375\ and another disagreed, the latter stating that a
registered SDR should be able to manage redistribution of data it
disseminates.\376\ The commenter noted that a limitation on usage
restrictions for publicly disseminated data would prevent a registered
SDR from monetizing a potential revenue stream.\377\ In addition, the
commenter was concerned about claims related to data redistributed by
others.\378\ The commenter argued that a registered SDR should be
permitted to impose various usage restrictions on its publicly
disseminated data, such as a requirement to attribute the SDR as the
source of the data, a restriction of the data to internal use, and a
prohibition on redistribution of the data ``without first engaging the
SB SDR and agreeing on licensing terms.'' \379\
---------------------------------------------------------------------------

    \374\ See Regulation SBSR Adopting Release, 80 FR at 14761.
    \375\ See ISDA/SIFMA Letter at 29.
    \376\ See DTCC Letter at 15, 19.
    \377\ See id. at 15.
    \378\ See id.
    \379\ Id. at 19. See also id. at 15 (``Typical restrictions on
the use of data obtained from the trade repository's public
dissemination might include restricting data to internal use without
a license and limiting publishing, redistributing, databasing,
archiving, creating derivative works, or using the data to compete
with the trade repository or in a manner otherwise adverse to the
trade repository. These are relatively standard clauses in data
licenses''). Even if these restrictions are ``standard clauses in
data licenses,'' the Commission notes that they are not permitted
under Regulation SBSR, in light of the amendments being adopted
today.
---------------------------------------------------------------------------

    The Commission continues to believe that public dissemination would
not satisfy the ``widely available'' standard in Rule 900(tt) if a
registered SDR could deny access to users who do not agree to limit
their use of the data in a manner directed by the registered SDR. Here,
the Commission notes the asymmetric bargaining strength of the parties:
A registered SDR has a monopoly position over the security-based swap
transaction data that it is required to publicly disseminate, because
the public has no access to that information until it is publicly
disseminated. If a registered SDR could impose usage restrictions with
which a user does not wish to comply, there would be no other source
from which the user could freely obtain this transaction information.
    The prohibition on usage restrictions would also prohibit an SDR-
imposed restriction on bulk redistribution by third parties of the
regulatorily mandated transaction data that the registered SDR publicly
disseminates. Despite the objections of one commenter,\380\ the
Commission continues to believe that it could prove useful to the
public for intermediaries to collect, consolidate, and redistribute the
regulatorily mandated transaction data to the public. Users of the data
might, instead of obtaining data directly from each of several SDRs,
find it preferable to obtain the data from a single person who itself
obtains the data directly from the multiple registered SDRs and
consolidates it. The Commission continues to believe that allowing
unencumbered redistribution best serves the policy goals of wide
availability of the data and minimization of information asymmetries in
the security-based swap market. Because the Commission is prohibiting
registered SDRs from imposing a restriction on bulk redistribution,
third parties (as well as registered SDRs themselves, as discussed
below) will be able to take in the full data set and scrub,
reconfigure, aggregate, analyze, repurpose, or otherwise add value to
those data, and potentially sell that value-added product to others.
---------------------------------------------------------------------------

    \380\ See id. (``there should be no limitations on a registered
trade repository's ability to manage the redistribution of data it
has previously disseminated'').
---------------------------------------------------------------------------

    The Commission acknowledges the concern of the commenter who stated
that ``SB SDRs must be able to protect themselves from claims related
to data sourced or scraped from the trade repository and redistributed
by others where there are quality issues with respect to data
redistributed.'' \381\ However, a registered SDR may not, consistent
with its duty to publicly disseminate under Rule 902(a) when read in
connection with Rule 900(tt), require a user of the data to ``agree''
to any terms purporting to disclaim the SDR's responsibility for
incorrect data before the user may access the regulatorily mandated
public security-based swap data, as this would constitute a usage
restriction. The Commission declines to make an exception for usage
restrictions that are designed to limit a registered SDR's potential
liability to third parties. The Commission believes that unencumbered
access best serves the policy goals of wide availability of the data
and minimization of information asymmetries in the security-based swap
market, and that the speculative risk of SDR liability does not justify
foregoing the public benefits of promoting free and unrestricted access
to the security-based swap transaction data that registered SDRs are
required to disseminate.
---------------------------------------------------------------------------

    \381\ Id. at 15.
---------------------------------------------------------------------------

    The Commission recognizes that establishing and operating a
registered SDR entails various costs. The Commission does not believe,
however, that prohibiting a registered SDR from charging for data that
it is required to publicly disseminate will impede its ability to carry
out these functions because other viable sources of revenue are
available to registered SDRs. One such source may be fees imposed on
persons who are required to report transactions to the SDR. Thus, the
Commission believes that, with the adopted definition of ``widely
accessible,'' a registered SDR will have adequate sources of funding
even if it is prohibited from charging users fees for receiving the
security-based swap

transaction data that the SDR is required to publicly disseminate.\382\
---------------------------------------------------------------------------

    \382\ One commenter, responding to the Commission's request for
comment on what means exist for registered SDRs to recoup their
operating costs, stated: ``Non-reporting sides should be charged a
minimum monthly fee for system access. This minimum charge reflects
the fact that non-reporting and small volume participants tend to
require equal levels of support and other resources relative to
moderate and high volume participants.'' ICE Letter at 7. This issue
is beyond the scope of this rulemaking, although the Commission
notes that existing Rule 13n-4(c)(1)(i) under the Exchange Act
requires an SDR to ensure that any dues, fees, or other charges
imposed by the SDR are fair and reasonable and not unreasonably
discriminatory.
---------------------------------------------------------------------------

C. Other Interpretive Issues

    Two commenters advocated that a registered SDR be permitted to
offer value-added services related to publicly disseminated data.\383\
One of these commenters stated, for example, that a registered SDR
``should be permitted to commercialize aggregated SB swap data and
charge fees for value-added data products that incorporate the
regulatorily mandated transaction data.'' \384\ As the Commission
stated in the Regulation SBSR Proposed Amendments Release,\385\
existing Rule 902(a) does not prohibit a registered SDR from creating
and charging fees for a value-added data product that incorporates the
regulatorily mandated transaction data, provided that the registered
SDR has first satisfied its duty under Rule 902(a) to publicly
disseminate the regulatorily mandated transaction data in accordance
with the definition of ``widely accessible.'' To comply with Rule
902(a), a registered SDR must publicly disseminate a transaction report
of a security-based swap (assuming that the transaction does not fall
within Rule 902(c)) immediately upon receipt of information about the
security-based swap. Thus, a registered SDR would not be permitted to
make its value-added product available before it publicly disseminated
the regulatorily mandated transaction report because such dissemination
would not comply with the requirement in Rule 902(a) that a registered
SDR publicly disseminate a transaction report of a security-based swap
immediately upon receipt of information about the security-based swap.
---------------------------------------------------------------------------

    \383\ See DTCC Letter at 14-15, 18-19; ISDA/SIFMA Letter at 29.
    \384\ DTCC Letter at 14-15 (also stating that ``[a]n SB SDR that
is permitted to do so would likely be better equipped to bear the
costs associated with operating a Commission-registered SB SDR. In
turn, to the extent that such commercialization offsets the costs of
operating the SDR, the costs of reporting for reporting
counterparties would likely be reduced'').
    \385\ See 80 FR at 14762.
---------------------------------------------------------------------------

    This approach is consistent with parallel CFTC rules that require
regulatorily mandated data to be freely available to the public but do
not prohibit a CFTC-registered swap data repository from making
commercial use of such data subsequent to its public
dissemination.\386\ This approach also allows potential competitors in
the market for value-added security-based swap data products to obtain
the regulatorily mandated transaction information from registered SDRs
that have a monopoly on this information until it is publicly
disseminated.\387\ Potential competitors to the registered SDR could be
at a disadvantage if, needing the raw data for their own services, they
had to purchase a value-added data product from the registered SDR or
could obtain the regulatorily mandated transaction data only on a
delayed basis. The Commission notes, finally, that any value-added data
product offered by an SDR may be subject to certain SDR rules.\388\
---------------------------------------------------------------------------

    \386\ See ``Real-Time Public Reporting of Swap Transaction
Data'' (December 20, 2011), 77 FR 1182, 1207 (January 9, 2012)
(adopting rules for the public dissemination of swaps).
    \387\ See infra Section XIII(F).
    \388\ See, e.g., Rule 13n-4(c)(1)(i) (requiring that any dues,
fees, or other charges imposed by an SDR are fair and reasonable and
not unreasonably discriminatory); Rule 13n-4(c)(1)(ii) (requiring an
SDR to permit market participants to access specific services
offered by the SDR separately); Rule 13n-4(c)(1)(iii) (requiring an
SDR to establish, monitor on an ongoing basis, and enforce clearly
stated objective criteria that would permit fair, open, and not
unreasonably discriminatory access to services offered and data
maintained by the SDR).
---------------------------------------------------------------------------

    A final commenter ``ask[ed] the Commission to clarify that the
restrictions on user fees and usage in Proposed Rule 900(tt) extends
only to data that is disseminated by SDRs in a post-trade context.''
\389\ The commenter further stated: ``We note and ask the Commission to
confirm that certain information contained in publicly-disseminated SBS
transaction records may be proprietary and therefore subject to usage
restrictions in pre-trade contexts . . . We believe this clarification
is needed because in its absence, we have reason to expect some market
participants to infer that because SDRs may not impose usage
restrictions on information contained in a publicly-disseminated SBS
record, that all such limitations on user fees and usage restrictions,
i.e., in pre-trade contexts, are similarly prohibited. However, we do
not believe that it is the Commission's intention . . . to eliminate
all user fees and usage restrictions on information contained in
publicly disseminated SBS data.'' \390\ The commenter further stated
that there would not be any significant benefit to post-trade
transparency from restrictions on user fees and usage in pre-trade
contexts.\391\
---------------------------------------------------------------------------

    \389\ Markit Letter at 15.
    \390\ Id. (stating that eliminating all user fees and usage
restrictions in the pre-trade context ``would erase much of the
value of virtually all proprietary reference rates, underlier codes,
prices, or indexes used in SBS transactions'').
    \391\ See id.
---------------------------------------------------------------------------

    The Commission declines to make the clarification requested by the
commenter. In fact, it is the Commission's intention to eliminate all
fees and usage restrictions on the information that a registered SDR is
required to publicly disseminate. In the Commission's view, the
commenter's distinction between ``post-trade contexts''--where fees and
usage restrictions could not be imposed--and ``pre-trade contexts''--
where, according to the commenter, they could be imposed--would be
unworkable. The Commission intends for market observers to be able to
take in the security-based swap transaction data that are publicly
disseminated by registered SDRs on a mandatory basis and scrub,
reconfigure, aggregate, analyze, repurpose, or otherwise add value to
that publicly disseminated data in any manner that they see fit,
without fear that doing so might subject them to liability to a third
party for violating a license agreement.\392\ It would be difficult if
not impossible for a market observer to explain that its use of
particular codes derives only from the ``post-trade context'' when
utilization of the same codes ``in the pre-trade context'' might render
the market observer liable to the third party who claims to own
intellectual property in the code. When proposing the requirement that
the information mandatorily disseminated by a registered SDR be
``widely available on a non-fee basis,'' the Commission stated that the
requirement ``necessarily implies that a registered SDR would not be
permitted to impose--or allow to be imposed--any usage restrictions on
the security-based swap transaction data that it is required to
publicly disseminate.'' \393\ Thus, if a registered SDR requires or
permits the use of any code or other data element where there is a
reasonable threat that a third-party holder of rights in that code or
in other data elements might attempt to enforce those rights against
market observers,

the registered SDR would not be acting consistent with Rule 903 by
requiring or permitting use of that code for reporting or publicly
disseminating security-based swap transaction information pursuant to
Regulation SBSR. If license restrictions or any other contractual
restrictions in the ``pre-trade context'' could in any way impede usage
of the data in a ``post-trade context,'' then any codes or other data
elements that have license restrictions may not be used under Rule 903.
---------------------------------------------------------------------------

    \392\ For example, a third party could take in data that are
publicly disseminated by one or more registered SDRs and develop its
own value-added product. The third party would be entitled to
include in its own value-added product any UICs that are included in
the information publicly disseminated by any registered SDR pursuant
to Rule 902.
    \393\ Regulation SBSR Proposed Amendments Release, 80 FR at
14761 (emphasis added).
---------------------------------------------------------------------------

IX. Cross-Border Matters

A. Introduction

    In November 2010,\394\ the Commission proposed Rule 908(a) to
define the scope of cross-border transactions that would be subject to
Regulation SBSR's regulatory reporting and public dissemination
requirements, and proposed Rule 901(a) to establish a reporting
hierarchy for identifying the person that would have the duty to report
the security-based swap in a variety of contexts, including cross-
border contexts. In May 2013, the Commission re-proposed Rules 901 and
908 with substantial revisions as part of the Cross-Border Proposing
Release.\395\ The Commission adopted modified versions of re-proposed
Rules 901 and 908 as part of Regulation SBSR.\396\ When doing so, the
Commission identified certain transactions involving non-U.S. persons
that would not be addressed by Rules 901(a) and 908, as adopted in the
Regulation SBSR Adopting Release, and stated its intention to seek
additional comment regarding how Regulation SBSR should apply to those
transactions. In April 2015, the Commission addressed those
transactions in the U.S. Activity Proposal, which included proposed
amendments to Rules 901(a), 908, and related rules in Regulation SBSR.
These amendments would, among other things, apply Regulation SBSR's
regulatory reporting and public dissemination requirements to security-
based swap transactions of a non-U.S. dealing entity that are arranged,
negotiated, or executed by personnel of the non-U.S. person located in
a U.S. branch or office, or by the personnel of its agent located in a
U.S. branch or office.\397\ In addition, the Commission solicited
comment on whether certain transactions of non-U.S. persons whose
obligations under a security-based swap are guaranteed by a U.S. person
should be exempt from the public dissemination requirement.\398\
---------------------------------------------------------------------------

    \394\ See Regulation SBSR Proposing Release, supra note 5.
    \395\ See supra note 5. Rule 908(a), as initially proposed,
would have required regulatory reporting of any security-based swap
that is ``executed in the United States or through any means of
interstate commerce.'' See Regulation SBSR Proposing Release, 75 FR
at 75287. When the Commission re-proposed Rule 908(a)(1)(i) in the
Cross-Border Proposing Release, the Commission expressed concern
that the language in the Regulation SBSR Proposing Release could
have unduly required a security-based swap to be reported if it had
only the slightest connection with the United States. See Cross-
Border Proposing Release, 78 FR at 31061.
    \396\ See Regulation SBSR Adopting Release, 80 FR at14596-604,
14649-68.
    \397\ See supra note 87.
    \398\ See U.S. Activity Proposal, 80 FR at 27478.
---------------------------------------------------------------------------

    The Commission received 16 comments regarding the U.S. Activity
Proposal, of which seven discussed the proposed amendments to
Regulation SBSR. In February 2016, the Commission adopted rules that
require a foreign dealing entity to count against its de minimis
threshold transactions with non-U.S. persons where the foreign dealing
entity is engaging in ANE activity.\399\ For the reasons discussed
below, the Commission is adopting substantially as proposed the
amendments to Regulation SBSR proposed in the U.S. Activity Proposal.
---------------------------------------------------------------------------

    \399\ See supra note 16.
---------------------------------------------------------------------------

B. Existing Rules 901 and 908

    Existing Rule 908(a)(1) requires regulatory reporting and public
dissemination of any security-based swap transaction that (1) has a
direct or indirect counterparty that is a U.S. person on either or both
sides of the transaction, or (2) is accepted for clearing by a clearing
agency having its principal place of business in the United States.
Existing Rule 908(a)(2) requires regulatory reporting but not public
dissemination of a transaction that has a direct or indirect
counterparty that is a registered security-based swap dealer or
registered major security-based swap participant on either or both
sides of the transaction but does not otherwise fall within Rule
908(a)(1). In other words, Rule 908(a)(2) applies to uncleared
security-based swaps of registered non-U.S. persons when there is no
U.S. person on the other side.
    Rule 908(b) is designed to specify the types of persons that will
incur duties under Regulation SBSR. If a person does not come within
any of the categories enumerated by Rule 908(b), it does not incur any
duties under Regulation SBSR.\400\
---------------------------------------------------------------------------

    \400\ See Regulation SBSR Adopting Release, 80 FR at 14656.
---------------------------------------------------------------------------

    Under Rule 908(a), as re-proposed in the Cross-Border Proposing
Release, security-based swaps that would have fallen within the
proposed definition of ``transaction conducted within the United
States'' would have been among the security-based swaps subjected to
both regulatory reporting and public dissemination.\401\ In adopting
Regulation SBSR, the Commission did not include in Rule 908(a)(1) a
prong for ``transactions conducted within the United States,'' noting
that commenters had expressed divergent views on this particular
element of the re-proposed rule.\402\ Similarly, the Commission, in the
Cross-Border Proposing Release, proposed to expand Rule 908(b) to
include any counterparty to a transaction conducted in the United
States. However, Rule 908(b), as adopted in the Regulation SBSR
Adopting Release, included only U.S. persons, registered security-based
swap dealers, and registered major security-based swap participants.
Thus, under the rules adopted in the Regulation SBSR Adopting Release,
a non-U.S.-person security-based swap dealer or major security-based
swap participant would incur an obligation under Regulation SBSR only
if it were registered. The Commission noted that it anticipated
soliciting additional public comment on whether regulatory reporting
and/or public dissemination requirements should be extended to
transactions occurring within the United States between non-U.S.
persons and, if so, which non-U.S. persons should incur reporting
duties under Regulation SBSR.\403\ The Commission solicited comment on
these questions in the U.S. Activity Proposal.\404\
---------------------------------------------------------------------------

    \401\ Rule 900(ii), as re-proposed in the Cross-Border Proposing
Release, would have defined ``transaction conducted within the
United States'' to have the same meaning as in Exchange Act Rule
3a71-3(a)(5)(i), as proposed in the Cross-Border Proposing Release.
    \402\ See Regulation SBSR Adopting Release, 80 FR at 14656.
    \403\ See id.
    \404\ See 80 FR at 27489-90.
---------------------------------------------------------------------------

    While Rule 908(a) specifies what types of security-based swap
transactions are subject to regulatory reporting and/or public
dissemination and Rule 908(b) specifies the types of persons that will
incur duties under Regulation SBSR, Rule 901(a) assigns the duty to
report each individual transaction. Rule 901(a), as adopted in the
Regulation SBSR Adopting Release, did not address the reporting of many
types of cross-border transactions, and the Commission noted that it
anticipated soliciting additional comment about how to apply Regulation
SBSR, including which side should incur the reporting duty, in a
security-based swap transaction between two unregistered non-U.S.
persons and in a transaction between an unregistered

U.S. person and an unregistered non-U.S. person.\405\ The U.S. Activity
Proposal, among other things, proposed amendments to Rules 900, 901(a),
906, 907, and 908 of Regulation SBSR to address the regulatory
reporting and public dissemination of transactions involving non-U.S.
persons that were not addressed in the Regulation SBSR Adopting
Release. The proposed amendments, the comments received, and final
rules are discussed below.
---------------------------------------------------------------------------

    \405\ See Regulation SBSR Adopting Release, 80 FR at 14598.
---------------------------------------------------------------------------

C. Extending Regulation SBSR to All ANE Transactions

1. Description of Proposed Rule
    In the U.S. Activity Proposal, the Commission proposed to add a new
paragraph (a)(1)(v) to Rule 908(a)(1). Proposed Rule 908(a)(1)(v) would
require any security-based swap transaction connected with a non-U.S.
person's security-based swap dealing activity that is arranged,
negotiated, or executed by personnel of such non-U.S. person located in
a U.S. branch or office--or by personnel of its agent located in a U.S.
branch or office--to be reported and publicly disseminated. This
amendment would expand the scope of Regulation SBSR in two ways. First,
it would require that a transaction of a foreign dealing entity be
subject to both regulatory reporting and public dissemination if the
non-U.S. person would be required to include the transaction in its de
minimis threshold calculation under Rule 3a71-3(b)(1)(iii)(C) under the
Exchange Act.\406\ Second, the proposed rule would require public
dissemination of any ANE transaction of a foreign dealing entity, even
if there is no U.S. person on the other side and the transaction is not
accepted for clearing by a clearing agency having its principal place
of business in the United States. Under existing Rule 908(a), a
transaction of a registered foreign security-based swap dealer--even if
it is an ANE transaction--would be subject to regulatory reporting but
not public dissemination if there is no U.S. person on the other side
and the transaction is not accepted for clearing by a clearing agency
having its principal place of business in the United States.\407\
---------------------------------------------------------------------------

    \406\ 17 CFR 240.3a71-3(b)(1)(iii)(C).
    \407\ Under Exchange Act Rule 3a71-1(c), 17 CFR 240. 3a71-1(c),
absent a limitation by the Commission, a security-based swap dealer
is deemed to be a security-based swap dealer with respect to each
security-based swap that it enters into, regardless of the type,
class, or category of the security-based swap or the person's
activities in connection with the security-based swap. Accordingly,
for purposes of this rule, any transaction that a registered
security-based swap dealer arranged, negotiated, or executed using
personnel located in a U.S. branch or office would be ``in
connection with its dealing activity'' and subject to both
regulatory reporting and public dissemination.
---------------------------------------------------------------------------

    As discussed in more detail in Section X, infra, the Commission in
the Regulation SBSR Proposed Amendments Release did not propose to
align Regulation SBSR compliance with security-based swap dealer
registration. Thus, as proposed, there could have been a period of
indefinite length when compliance with Regulation SBSR--including the
cross-border reporting provisions thereof--could have been required
when no security-based swap dealers had yet registered with the
Commission. During such a period, the only way a foreign dealing entity
could have been subject to duties under Regulation SBSR would have been
if the foreign dealing entity were using U.S. personnel to engage in
ANE activity, and the only way that a transaction involving only
foreign persons would have been subject to reporting and public
dissemination under Regulation SBSR would be if at least one side
included a foreign dealing entity that was using U.S. personnel to
engage in ANE activity with respect to that specific transaction. After
security-based swap dealers register as such with the Commission, most
foreign dealing entities will become subject to Regulation SBSR and
assume the highest rung in the reporting hierarchy because of their
registration status.

2. Discussion of Comments and Final Rule

    Several commenters opposed extending Regulation SBSR's regulatory
reporting and public dissemination requirements to ANE
transactions.\408\ One of these commenters stated, for example, that
transactions between non-U.S. persons, where there is no guarantee by a
U.S. person on either side, should not be required to be reported or
publicly disseminated in the United States because they ``lack the
requisite nexus to the United States regardless of the location of
conduct of the counterparties.'' \409\ A second commenter stated that
transactions that have no U.S.-person counterparty should not be
publicly disseminated because they ``have minimal, if any, impact on or
relevance for the U.S. SBS markets even if they are arranged,
negotiated or executed in the United States.'' \410\ A third commenter
argued that ``[r]equiring non-registrants to publicly disseminate and
report ANE transactions seems unnecessary in light of the fact that
only small numbers of ANE transactions do not involve a registered SBSD
or registered MSBSP and would also be unduly burdensome for non-
registrants that are only engaged in de minimis SBS activities.'' \411\
Two other commenters expressed concern about the costs that the
proposed rule could impose on unregistered foreign dealing entities to
report ANE transactions.\412\ One of these commenters stated that there
would be significant costs associated with reporting ANE transactions
because market participants that have already designed and implemented
reporting systems based on the CFTC's ``status-based'' approach to the
scope of reporting requirements and the rules of other jurisdictions
would need to modify their systems to comply with the Commission's
rules.\413\
---------------------------------------------------------------------------

    \408\ See IIB Letter at 14-17; ISDA I at 3 (arguing generally
that any security-based swap between two non-U.S. persons that is
cleared outside the United States should not be subject to
Regulation SBSR); SIFMA-AMG I at 5-7; SIFMA/FSR Letter at 11-14; UBS
Letter at 3.
    \409\ SIFMA/FSR Letter at 12. In the commenter's view, public
dissemination of transactions between non-U.S. persons based on
U.S.-located conduct could result in the dissemination of
information that is not informative or that gives a distorted view
of prevailing market prices, while the regulatory reporting of these
transactions would not be useful because of the minimal U.S. nexus.
See id.
    \410\ See ISDA I at 13.
    \411\ UBS Letter at 3.
    \412\ See IIB Letter at 16; SIFMA/FSR Letter at 13 (``It is
generally not possible to directly determine the location of
counterparty conduct without substantial effort, expense and
operational changes to systematically capture and process this
data--burdens on market participants that will certainly outweigh
the perceived regulatory benefits of obtaining transaction data for
security-based swaps required to be reported as a result of U.S.-
located conduct. These burdens will also fall on unregistered
entities that have no reporting infrastructure and that are not
well-equipped to ascertain whether they have a reporting obligation,
as long as there are trades between non-U.S. persons, neither of
which is a dealer'').
    \413\ See IIB Letter at 16 (stating that, to modify its systems
in connection with the Commission's requirements, a foreign dealing
entity, including one operating below the de minimis threshold,
``would need to install or modify a trade capture system capable of
tracking, on a dynamic, trade-by-trade basis, the location of front-
office personnel. The non-U.S. SBSD would then need to feed that
data into its reporting system and re-code that system to account
for the different rules that apply to non-U.S. SBS depending on
whether they are arranged, negotiated or executed by U.S. personnel.
The non-U.S. SBSD would also need to train its front office
personnel in the use of this new trade capture system and develop
policies, procedures, and controls to require, track, and test the
proper use of that system. In addition, the non-U.S. SBSD would need
to seek and obtain waivers from non-U.S. counterparties--to the
extent such waivers are even permitted--with respect to privacy,
blocking and secrecy laws in local jurisdictions'').
---------------------------------------------------------------------------

    After carefully considering these comments, the Commission is
adopting Rule 908(a)(1)(v) as proposed. Consistent with its territorial

application of Title VII requirements,\414\ the Commission believes
that, when a foreign dealing entity uses U.S. personnel to arrange,
negotiate, or execute a transaction in a dealing capacity, that
transaction occurs at least in part within the United States and is
relevant to the U.S. security-based swap market. The Commission has
previously determined that ANE activity carried out by U.S. personnel
warrants application of the security-based swap dealer registration
requirements.\415\ The Commission believes that there is sufficient
``nexus'' to apply Title VII's regulatory reporting and public
dissemination requirements to security-based swap transactions
involving a foreign dealing entity that is using U.S. personnel to
engage in ANE activity with respect to a particular transaction. As the
Commission has stated previously, declining to apply Title VII
requirements to security-based swaps of foreign dealing entities that
use U.S. personnel to engage in ANE activity would have the effect of
allowing such entities ``to exit the Title VII regulatory regime
without exiting the U.S. market.'' \416\ Further, as discussed in
Section X, infra, reporting under Regulation SBSR will commence
following security-based swap dealer registration. Thus, for the vast
majority of transactions of foreign dealing entities falling within the
scope of Rule 908(a), the reporting obligation under Regulation SBSR
will arise from an entity's status as a registered security-based swap
dealer, and entities that are registered as security-based swap dealers
will not be required to assess whether they have engaged in ANE
activity with respect to a transaction. The costs associated with the
reporting of ANE transactions are discussed more fully below.