The Commission also recognizes, however, that once the relevant
systems have been set up, repositories may be expected to incur
addition incremental burdens and costs associated with setting up
access to security-based swap data consistent with the recipient's
regulatory mandate or legal responsibility or authority.\123\ The
Commission preliminarily believes that, for any particular recipient,
security-based swap data repositories on average would incur a burden
of 26 hours.\124\ As discussed below, based on the estimate that
approximately 300 relevant authorities may make requests for data from
security-based swap data repositories,\125\ the Commission
preliminarily estimates that each repository would incur a one-time
burden of 7,800 hours in connection with providing that
connectivity.\126\
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    \123\ In addressing those burdens, the Commission expects that
the MOUs or other arrangements that are used to satisfy the
conditions of the indemnification exemption will set forth objective
criteria that delimit the scope of a recipient's ability to access
security-based swap data pursuant to the indemnification exemption.
The Commission further expects that repositories would use those
criteria to program their data systems to reflect the scope of the
recipient's access to repository data. Absent such objective and
programmable criteria, repositories would be expected to incur
greater burdens to assess whether an authority's request satisfies
the relevant conditions, particularly with regard to whether
particular information relates to persons or activities within the
entity's regulatory mandate or legal responsibility or authority.
    \124\ This estimate is based on the view that for each recipient
requesting data, a repository would incur a 25 hour burden
associated with programming or otherwise inputting the relevant
parameters, encompassing 20 hours of programmer analyst time and
five hours of senior programmer time. The estimate also encompasses
one hour of attorney time in connection with each such recipient.
    \125\ See part VI.C.3.ii, infra.
    \126\ Across an estimated ten repositories, accordingly, the
Commission estimates that repositories cumulatively would incur a
one-time burden of 78,000 hours in connection with providing such
connectivity.
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d. Providing Notification of Requests, and Associated Records
Requirements
    Under the proposed rules, repositories would be required to inform
the Commission when they receive the first request for security-based
swap data from a particular entity.\127\ As discussed below, based on
the estimate that approximately 300 relevant authorities may make
requests for data from security-based swap data repositories, the
Commission estimates that each repository would provide the Commission
with actual notice approximately 300 times.\128\ Moreover, based on the
estimate that ten persons may register with the Commission as security-
based swap data repository, the Commission estimates that repositories
in the aggregate would provide the Commission with actual notice a
total of 3,000 times. The Commission preliminarily estimates that each
such notice would take no more than one-half hour to make on average,
leading to a cumulative estimate of 1,500 hours associated with the
notice requirement.
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    \127\ See proposed Exchange Act rule 13n-4(e) (further requiring
the repository to maintain records of the initial and all subsequent
requests).
    \128\ See part VI.C.3.a.ii, infra.
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    The proposed rule further requires that repositories must maintain
records of all information related to the initial and all subsequent
requests for data access, including records of all instances of online
or electronic access, and records of all data provided in connection
with such access.\129\ The Commission estimates that there cumulatively
may be 360,000 subsequent data requests or access per year across all
security-based swap data repositories, for which repositories must
maintain records as required by the proposed rule.\130\ Based on its
experience with recordkeeping costs associated with security-based
swaps generally, the Commission preliminarily estimates that for each
repository this requirement would create an initial burden of roughly
360 hours, and an annualized burden of roughly 280 hours and $40,000 in
information technology costs.\131\
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    \129\ See proposed Exchange Act rule 13n-4(e).
    \130\ See part VI.C.3.a.ii, infra.
    \131\ Across an estimated ten repositories, accordingly, the
Commission preliminarily estimates that repositories cumulatively
will incur an initial burden of roughly 3,600 hours in information
technology costs, and an annualized burden of roughly 2,800 hours
and $400,000 in information technology costs.
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2. Confidentiality Condition
    The Commission preliminarily does not believe that the
confidentiality provision of the proposal would be

associated with collections of information that would result in a
reporting or recordkeeping burden for security-based swap data
repositories. This is because, under the proposal, the confidentiality
condition would be satisfied by an MOU or other arrangement between the
Commission and the recipient entity (i.e., another regulatory
authority) addressing confidentiality. We preliminarily expect that in
practice that the condition will be addressed by MOUs or other
arrangements entered into by the Commission, and that repositories
accordingly would not be involved in the drafting or negotiation of
confidentiality agreements.
    As discussed above, moreover, the confidentiality provision would
be expected to impose burdens on authorities that seek to access data
pursuant to these provisions, as a result of the need to negotiate
confidentiality MOUs or other arrangements.\132\
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    \132\ See part V.D.1.a, supra.
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E. Collection of Information Is Mandatory

    The conditional data access requirements of Exchange Act sections
13(n)(5)(G) and (H) and the underlying rules are mandatory for all
security-based swap data repositories. The confidentiality condition is
mandatory for all entities that seek access to data under those
requirements. Also, the conditions to the indemnification exemption are
mandatory to entities that seek to rely on the exemption, which the
Commission believes will be all entities that seek data pursuant to
these requirements.

F. Confidentiality

    The Commission will make public requests for a determination that
an authority is appropriate to conditionally access security-based swap
data, as well as Commission determinations issued in response to such
requests. The Commission preliminarily expects that it will make
publicly available the MOUs or other arrangements with the Commission
used to satisfy the confidentiality and indemnification conditions.
    Initial notices of requests for access provided to the Commission
by repositories will be kept confidential, subject to the provisions of
applicable law. To the extent that the Commission obtains subsequent
requests for access that would be required to be maintained by the
repositories, the Commission also will keep those records confidential,
subject to the provisions of applicable law.

G. Request for Comment

    We request comment on our approach and the accuracy of the current
estimates. Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits
comments to: (1) Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility; (2)
evaluate the accuracy of the Commission's estimate of burden of the
collection of information; (3) determine whether there are ways to
enhance the quality, utility and clarity of the information to be
collected; and (4) evaluate whether there are ways to minimize the
burden of the collection of information on those who are required to
respond, including through the use of automated collection techniques
or other forms of information technology.
    In this regard, the Commission particularly requests comment
regarding the systems-related costs associated with these data access
requirements. Among other things, commenters are invited to address the
burdens associated with establishing and programming systems to provide
regulators and other authorities with connectivity to repository data
systems, including whether such costs would be incremental to the
systems-related costs associated with the existing rule requiring that
repositories provide direct electronic access to the Commission and its
designees, and whether such systems-related costs would encompass
capacity-related elements linked to the total number of regulators and
other authorities that access repositories pursuant to these data
access provisions. Commenters also are invited to address the estimated
burdens associated with the requirement that repositories maintain
records in connection with the notification requirement.
    The Commission further requests comment regarding the burdens
associated with the negotiation of MOUs or other arrangements between
the Commission and other authorities, including the average time
required for those regulators to negotiate such MOUs or other
arrangements, and whether those other authorities may incur costs to
retain outside counsel in connection with such negotiations.
    Persons submitting comments on the collection of information
requirements should direct the comments to the Office of Management and
Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
DC 20503, and send a copy to Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090, with reference
to File No. S7-___. Requests for materials submitted to OMB by the
Commission with regard to these collections of information should be in
writing, refer to File No. S7-___, and be submitted to the Securities
and Exchange Commission, Office of FOIA Services, 100 F Street NE.,
Washington, DC 20549-2736. OMB is required to make a decision
concerning the collection of information between 30 and 60 days after
publication of this release. Consequently, a comment to OMB is assured
of having its full effect if OMB receives it within 30 days of
publication.

VI. Economic Analysis

    As discussed above, the Commission is proposing rules to implement
data access requirements for relevant authorities other than the
Commission that the Dodd-Frank Act imposes on security-based swap
repositories, and to provide an exemption from the associated
indemnification requirement. To carry out their regulatory mandate, or
legal responsibility or authority, certain relevant entities other than
the Commission may periodically need access to security-based swap data
collected and maintained by SEC-registered security-based swap data
repositories, and the proposed rules are intended to facilitate such
access.
    The Commission is sensitive to the economic effects of its rules,
including the costs and benefits and the effects of its rules on
efficiency, competition, and capital formation. Section 3(f) \133\ of
the Exchange Act requires the Commission, whenever it engages in
rulemaking pursuant to the Exchange Act, to consider or determine
whether an action is necessary or appropriate in the public interest,
and to consider, in addition to the protection of investors, whether
the action would promote efficiency, competition, and capital
formation. In addition, section 23(a)(2) \134\ of the Exchange Act
requires the Commission, when promulgating rules under the Exchange
Act, to consider the impact such rules would have on competition.
Exchange Act section 23(a)(2) also provides that the Commission shall
not adopt any rule which would impose a burden on competition that is
not necessary or appropriate in furtherance of the purposes of the
Exchange Act.
---------------------------------------------------------------------------

    \133\ 15 U.S.C. 78c(f).
    \134\ 15 U.S.C. 78w(a)(2).

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A. Economic Considerations

1. Title VII Transparency Framework
    The security-based swap market prior to the passage of the Dodd-
Frank Act has been described as being opaque, in part because
transaction-level data were not widely available to market participants
or to regulators.\135\ To increase the transparency of the over-the-
counter derivatives market to both market participants and regulatory
authorities, Title VII requires the Commission to undertake a number of
rulemakings, including rules the Commission adopted earlier this year
to address the registration process, duties and core principles
applicable to security-based swap data repositories,\136\ and to
address regulatory reporting and public dissemination of security-based
swap information.\137\ Among other matters, those rules address market
transparency by requiring security-based swap data repositories, absent
an exemption, to collect and maintain accurate security-based swap
transaction data, and address regulatory transparency by requiring
security-based swap data repositories to provide the Commission with
direct electronic access to such data.\138\
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    \135\ With respect to one type of security-based swap, credit
default swaps (``CDSs''), the Government Accountability Office found
that ``comprehensive and consistent data on the overall market have
not been readily available,'' ``authoritative information about the
actual size of the [CDS] market is generally not available'' and
regulators currently are unable ``to monitor activities across the
market.'' Government Accountability Office, GAO-09-397T, Systemic
Risk: Regulatory Oversight and Recent Initiatives to Address Risk
Posed by Credit Default Swaps, at 2, 5, 27, (2009) available at:
http://www.gao.gov/new.items/d09397t.pdf; see also Robert E. Litan,
The Derivatives Dealers' Club and Derivatives Market Reform: A Guide
for Policy Makers, Citizens and Other Interested Parties, Brookings
Institution (Apr. 7, 2010), http://www.brookings.edu/~/media/
research/files/papers/2010/4/07%20derivatives%20litan/
0407_derivatives_litan.pdf; Michael Mackenzie, Era of an Opaque
Swaps Market Ends, Financial Times, June 25, 2010, available at:
http://www.ft.com/intl/cms/s/0/f49f635c-8081-11df-be5a-00144feabdc0.html#axzz3HLUjYNI7.
    \136\ See SDR Adopting Release, note 13, supra.
    \137\ See Regulation SBSR Adopting Release.
    \138\ See Exchange Act rule 13n-5 (requiring repositories to
comply with data collection and data maintenance standards related
to transaction and position data); Exchange Act rule 13n-4(b)(5)
(requiring repositories to provide direct electronic access to the
Commission and its designees).
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    Consistent with the goal of increasing transparency to regulators,
the data access provisions at issue here set forth a framework for
security-based swap data repositories to provide access to security-
based swap data to relevant authorities other than the Commission. The
proposed rules would implement that framework for repositories to
provide data access to other relevant entities in order to fulfill
their regulatory mandate, or legal responsibility or authority.
2. Transparency in the Market for Security-Based Swaps
    The proposed data access rules and indemnification exemption, in
conjunction with the transparency-related requirements generally
applicable to security-based swap data repositories, are designed to,
among other things, make available to the Commission and other relevant
authorities data that will provide a broad view of the security-based
swap market and help monitor for pockets of risk and potential market
abuses that might not otherwise be observed by those authorities.\139\
Unlike most other securities transactions, security-based swaps involve
ongoing financial obligations between counterparties during the life of
transactions that typically span several years. Counterparties to a
security-based swap rely on each other's creditworthiness and bear this
credit risk and market risk until the security-based swap terminates or
expires. This can lead to market instability when a large market
participant, such as a security-based swap dealer, major security-based
swap market participant, or central counterparty (``CCP'') becomes
financially distressed. The default of a large market participant could
introduce the potential for sequential counterparty failure; the
resulting uncertainty could reduce the willingness of market
participants to extend credit, and substantially reduce liquidity and
valuations for particular types of financial instruments.\140\
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    \139\ See, e.g., Exchange Act section 13(n)(5)(D), 15 U.S.C.
78m(n)(5)(D), and rule 13n-4(b)(5) (requiring SDRs to provide direct
electronic access to the Commission). See also 156 Cong. Rec. S5920
(daily ed. July 15, 2010) (statement of Sen. Lincoln) (``These new
`data repositories' will be required to register with the CFTC and
the SEC and be subject to the statutory duties and core principles
which will assist the CFTC and the SEC in their oversight and market
regulation responsibilities.'').
    \140\ See, e.g., Markus K. Brunnermeier and Lasse Heje Pedersen,
Market Liquidity and Funding Liquidity, 22 Review of Financial
Studies 2201 (2009); Denis Gromb and Dimitri Vayanos, A Model of
Financial Market Liquidity Based on Intermediary Capital, 8 Journal
of the European Economic Association 456 (2010).
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    A broad view of the security-based swap market, including
information regarding aggregate market exposures to particular
reference entities (or securities), positions taken by individual
entities or groups, and data elements necessary to determine the market
value of the transaction, may be expected to provide the Commission and
other relevant authorities with a better understanding of the actual
and potential risks in the market and promote better risk monitoring
efforts. The information provided by security-based swap data
repositories also may be expected to help the Commission and other
relevant authorities investigate market manipulation, fraud and other
market abuses.
3. Global Nature of the Security-Based Swap Market
    As highlighted in more detail in the Economic Baseline below, the
security-based swap market is a global market. Based on market data in
the Depository Trust and Clearing Corporation's Trade Information
Warehouse (``DTCC-TIW''), the Commission estimates that only 12 percent
of the global transaction volume that involves either a U.S.-domiciled
counterparty or a U.S-domiciled reference entity (as measured by gross
notional) between 2008 and 2014 was between two U.S.-domiciled
counterparties, compared to 48 percent entered into between one U.S.-
domiciled counterparty and a foreign-domiciled counterparty and 40
percent entered into between two foreign-domiciled counterparties.\141\
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    \141\ The data the Commission receives from the DTCC-TIW does
not include transactions between two non-U.S. domiciled
counterparties that reference a non-U.S. entity or security. This is
approximately 19 percent of global transaction volume. See note 152,
infra. Therefore, factoring in these transactions, approximately 10
percent of global transaction volume involves two U.S.-domiciled
counterparties, 39 percent involve one U.S.-domiciled counterparty
and one foreign counterparty, and 51 percent are between two
foreign-domiciled counterparties.
---------------------------------------------------------------------------

    In light of the security-based swap market's global nature there is
the possibility that regulatory data may be fragmented across
jurisdictions, particularly because a large fraction of transaction
volume includes at least one counterparty that is not a U.S. person
\142\ and the applicable U.S. regulatory reporting rules depend on the
U.S. person status of the counterparties.\143\ As discussed further
below,

fragmentation of data can increase the difficulty in consolidating and
interpreting security-based swap market data from repositories,
potentially reducing the general economic benefits derived from
transparency of the security-based swap market to regulators. Absent a
framework for the cross-border sharing of data reported pursuant to
regulatory requirements in various jurisdictions, the relevant
authorities responsible for monitoring the security-based swap market
may not be able to access data consistent with their regulatory
mandate, or legal responsibility or authority.
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    \142\ This statement is based on staff analysis of voluntary CDS
transaction data reported to the DTCC-TIW, which includes self-
reported counterparty domicile. See note 161, infra. The Commission
notes that the DTCC-TIW entity domicile may not be completely
consistent with the Commission's definition of ``U.S. person'' in
all cases but preliminarily believes that these two characteristics
have a high correlation.
    \143\ See Regulation SBSR rule 908(a) (generally requiring
regulatory reporting and public dissemination when at least one
direct or indirect counterparty is a U.S. person). Note that current
voluntary reporting considers the self-reported domicile of the
counterparty but the recently adopted SBSR rules consider the
counterparty's status as a U.S. person.
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4. Economic Purposes of the Rulemaking
    The proposed data access requirements and indemnification exemption
are designed to increase the quality and quantity of transaction and
position information available to relevant authorities about the
security-based swap market while helping to maintain the
confidentiality of that information. The increased availability of
security-based swap information may be expected to help relevant
authorities act in accordance with their regulatory mandate, or legal
responsibility or authority, and to respond to market developments.
    Moreover, by facilitating access to security-based swap data for
relevant authorities, including non-U.S. authorities designated by the
Commission, the Commission anticipates an increased likelihood that the
Commission itself will have commensurate access to security-based swap
data stored in trade repositories located in foreign
jurisdictions.\144\ This may be particularly important in identifying
transactions in which the Commission has a regulatory interest (e.g.,
transactions involving a U.S. reference entity or security) but may not
have been reported to a registered security-based swap data repository
due to the transactions occurring outside of the U.S. between two non-
U.S. persons.\145\ This should assist the Commission in fulfilling its
regulatory mandate and legal responsibility and authority, including by
facilitating the Commission's ability to detect and investigate market
manipulation, fraud and other market abuses, by providing the
Commission with greater access to security-based swap information than
that provided under the current voluntary reporting regime.\146\
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    \144\ As discussed above, for example, EU law conditions the
ability of non-EU authorities to access data from EU repositories on
EU authorities having ``immediate and continuous'' access to the
information they need. See note 94, supra, and accompanying text.
    Also, as discussed above, the Commission anticipates considering
whether or not the relevant authority requesting access agrees to
provide the Commission and other U.S. authorities with reciprocal
assistance in matters within their jurisdiction when making a
determination as to whether the requesting authority shall be
granted access to security-based swap data held in registered SDRs.
See part II.A.3(a) supra.
    \145\ For example, it is possible to replicate the economic
exposure of either a long or short position in a debt security that
trades in U.S. markets by trading in U.S. treasury securities and
credit default swaps that reference the debt security. Transactions
between two non-U.S. persons on a U.S. reference entity supervised
by the Commission or novations between two non-U.S. persons that
reduce exposure to a U.S. registrant may provide information to the
Commission about the market's views concerning the financial
stability or creditworthiness of the registered entity.
    \146\ See part VI.B, supra, for a description of the data the
Commission receives from DTCC-TIW under the current voluntary
reporting regime.
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    Such data access may be especially critical during times of market
turmoil, by giving the Commission and other relevant authorities
information to examine risk exposures incurred by individual entities
or in connection with particular reference entities. Increasing the
available data about the security-based swap market should further give
the Commission and other relevant authorities better insight into how
regulations are affecting or may affect the market, which may allow the
Commission and other regulators to better craft regulations to achieve
desired goals, and therefore increase regulatory effectiveness.

B. Baseline

    To assess the economic impact of the proposed data access rules and
indemnification exemption, the Commission is using as a baseline the
security-based swap market as it exists today, including applicable
rules that have already been adopted and excluding rules that have been
proposed but not yet finalized. Thus we include in the baseline the
rules that the Commission adopted earlier this year to govern the
registration process, duties and core principles applicable to
security-based swap data repositories, and to govern regulatory
reporting and public dissemination of security-based swap transactions.
    Because those rules were adopted only recently, there are not yet
any registered swap data repositories, and the Commission does not yet
have access to regulatory reporting data. Hence, our characterization
of the economic baseline, including the quantity and quality of
security-based swap data available to the Commission and other relevant
authorities and the extent to which data are fragmented, considers the
anticipated effects of the final SDR rules and Regulation SBSR. The
Commission acknowledges limitations in the degree to which it can
quantitatively characterize the current state of the security-based
swap market. As described in more detail below, because the available
data on security-based swap transactions do not cover the entire
market, the Commission has developed an understanding of market
activity using a sample that includes only certain portions of the
market.
1. Regulatory Transparency in the Security-Based Swap Market
    There currently is no robust, widely accessible source of
information about individual security-based swap transactions. In 2006,
a group of major dealers expressed their commitment in support of
DTCC's initiative to create a central trade industry warehouse for
credit derivatives.\147\ Moreover, in 2009, the leaders of the G20--
whose members include the United States, 18 other countries, and the
European Union--called for global improvements in the functioning,
transparency, and regulatory oversight of over-the-counter (``OTC'')
derivatives markets and agreed, among other things, that OTC
derivatives contracts should be reported to trade repositories.\148\ A
single repository, the DTCC-TIW, makes the data reported to it under
the voluntary reporting regime available to the Commission and other
relevant authorities in accordance with the agreement between DTCC-TIW
and the OTC Derivatives Regulatory Forum (``ODRF''), of which the
Commission is a member.\149\ Although many jurisdictions have
implemented rules concerning reporting of security-based swaps to trade
repositories,\150\ the Commission understands that many market
participants continue to report voluntarily to the DTCC-TIW.
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    \147\ See Letter to Timothy Geithner, President, Federal Reserve
Bank of New York, Mar. 10, 2006, available at: http://www.newyorkfed.org/newsevents/news/markets/2006/industryletter2.pdf.
    \148\ See G20 Leaders Statement from the 2009 Pittsburgh Summit,
available at: http://www.g20.utoronto.ca/2009/2009communique0925.html.
    \149\ See note 71, supra.
    \150\ See Eighth Progress Report on Implementation of OTC
Derivatives Market Reforms (Nov. 2014), available at: http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf.
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    The data that the Commission receives from DTCC-TIW do not
encompass CDS transactions that both: (i) Do not involve any U.S.
counterparty, and (ii) are not based on a U.S. reference entity.\151\
Based on a comparison of

weekly transaction volume publicly disseminated by DTCC-TIW with data
provided to the Commission under the voluntary arrangement, we estimate
that the transaction data provided to the Commission covers
approximately 77 percent of the global single-name credit default swap
market.\152\
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    \151\ The Commission notes that the identification of entity
domicile in the voluntary data reported to DTCC-TIW may not be
consistent with the Commission's definition of ``U.S. person'' in
all cases.
    \152\ In 2014, DTCC-TIW reported on its Web site new trades in
single-name CDSs with gross notional of $15.4 trillion. During the
same period, data provided to the Commission by DTCC-TIW, which
include only transactions with a U.S. counterparty or transactions
written on a U.S. reference entity or security, included new trades
with gross notional equaling $12.4 trillion, or 81% of the total
reported by DTCC-TIW.
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    While DTCC-TIW generally provides detailed data on positions and
transactions to regulators that are members of the ODRF, DTCC-TIW makes
only summary information available to the public.\153\
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    \153\ The DTCC-TIW publishes weekly transaction and position
reports for single-name credit default swaps. In addition, ICE Clear
Credit provides aggregated volumes of clearing activity, and large
multilateral organizations periodically further report measures of
market activity. For example, the Bank for International Settlements
(``BIS'') reports gross notional outstanding for single-name credit
default swaps and equity forwards and swaps semiannually.
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2. Current Security-Based Swap Market
    The Commission's analysis of the current state of the security-
based swap market is based on data obtained from DTCC-TIW, particularly
data regarding the activity of market participants for single-name
credit-default swaps from 2008 to 2014. While other repositories also
may collect data on transactions in total return swaps on equity and
debt, the Commission does not currently have access to such data for
those products (or for other products that are security-based swaps).
Although the definition of ``security-based swap'' is not limited to
single-name credit-default swaps, the Commission believes that the
single-name credit default swap data are sufficiently representative of
the security-based swap market and therefore can directly inform the
analysis of the state of the current security-based swap market.\154\
The Commission believes that DTCC-TIW's data for single-name credit
default swaps appear reasonably comprehensive because they include data
on almost all single-name credit default swap transactions and market
participants trading in single-name credit default swaps.\155\
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    \154\ According to data published by BIS, the global notional
amount outstanding in equity forwards and swaps as of December 2014
was $2.50 trillion. The notional amount outstanding was
approximately $9.04 trillion for single-name CDSs, approximately
$6.75 trillion for multi-name index CDSs, and approximately $0.61
trillion for multi-name, non-index CDSs. See Bank of International
Settlement, BIS Quarterly Review, Statistical Annex, Table 19 (June
2015), available at: http://www.bis.org/publ/qtrpdf/r_qt1506.htm.
For purposes of this analysis, the Commission assumes that multi-
name index CDSs are not narrow-based security index CDSs, and
therefore do not fall within the definition of security-based swap.
See Exchange Act section 3(a)(68)(A), 15 U.S.C. 78c(a)(68)(A); see
also Further Definition of ``Swap,'' ``Security-Based Swap,'' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping, Exchange Act Release No. 67453 (July 18,
2012), 77 FR 48207 (Aug. 13, 2012). The Commission also assumes that
instruments reported as equity forwards and swaps include
instruments such as total return swaps on individual equities that
fall with the definition of security-based swap. Based on these
assumptions, single-name CDS appear to constitute roughly 80 percent
of the security-based swap market. Although the BIS data reflects
the global OTC derivatives market, and not only the U.S. market, the
Commission is not aware of any reason to believe that these ratios
differ significantly in the U.S. market.
    \155\ See ISDA, CDS Marketplace, Exposures & Activity, available
at: http://www.isdacdsmarketplace.com/exposures_and_activity (``DTCC
Deriv/SERV's Trade Information Warehouse is the only comprehensive
trade repository and post-trade processing infrastructure for OTC
credit derivatives in the world. Its Deriv/SERV matching and
confirmation service electronically matches and confirms more than
98% of credit default swaps transactions globally.'').
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    Based on this information, our analysis below indicates that the
current security-based swap market: (i) Is global in scope, and (ii) is
concentrated among a small number of dealing entities. Although under
the voluntary reporting regime discussed above there was a single
repository, as various jurisdictions have implemented mandatory
reporting rules in their jurisdictions the number of trade repositories
holding security-based swap data has grown.\156\
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    \156\ See, for example, the list of trade repositories
registered by ESMA, available at: http://www.esma.europa.eu/content/List-registered-Trade-Repositories. As of May 28, 2015, there were
six repositories registered by ESMA, all of which are authorized to
receive data on credit derivatives.
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a. Security-Based Swap Market Participants
    A key characteristic of security-based swap activity is that it is
concentrated among a relatively small number of entities that engage in
dealing activities.\157\ Based on the Commission's analysis of DTCC-TIW
data, there were 1,879 entities engaged directly in trading credit
default swaps between November 2006 and December 2014.\158\ Table 1
below highlights that of these entities, there were 17, or
approximately 0.9 percent, that were ISDA-recognized dealers.\159\
ISDA-recognized dealers executed the vast majority of transactions
(82.6 percent) measured by the number of counterparties (each
transaction has two counterparties or transaction sides). Many of these
dealers are regulated by entities other than, or in addition to, the
Commission. In addition, thousands of other market participants appear
as counterparties to security-based swap transactions, including, but
not limited to, investment companies, pension funds, private (hedge)
funds, sovereign entities, and non-financial companies.
---------------------------------------------------------------------------

    \157\ See Exchange Act Release No.72472 (Jun. 25, 2014), 79 FR
47278, 47293 (Aug. 12, 2014) (``Cross-Border Definitions Adopting
Release''). All data in this section cites updated data from that
release and its accompanying discussion.
    \158\ These 1,879 transacting agents represent over 10,000
accounts representing principal risk holders. See Cross-Border
Definitions Adopting Release, 79 FR 47293-94 (discussing the number
of transacting agents and accounts of principal risk holders).
    As noted above, the data provided to the Commission by the DTCC-
TIW only includes transactions that either include at least one
U.S.-domiciled counterparty or reference a U.S. entity or security.
Therefore, any entity that is not domiciled in the U.S., never
trades with a U.S.-domiciled entity and never buys or sells
protection on a U.S. reference entity or security would not be
included in this analysis.
    \159\ For the purpose of this analysis, the ISDA-recognized
dealers are those identified by ISDA as a recognized dealer in any
year during the relevant period. Dealers are only included in the
ISDA-recognized dealer category during the calendar year in which
they are so identified. The complete list of ISDA recognized dealers
is: JP Morgan Chase NA (and Bear Stearns), Morgan Stanley, Bank of
America NA (and Merrill Lynch), Goldman Sachs, Deutsche Bank AG,
Barclays Capital, Citigroup, UBS, Credit Suisse AG, RBS Group, BNP
Paribas, HSBC Bank, Lehman Brothers, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, Credit Agricole, Wells Fargo, and Nomura.
See ISDA, Operations Benchmarking Surveys, available at: http://www2.isda.org/functional-areas/research/surveys/operations-benchmarking-surveys.

Table 1--The Number of Transacting Agents in the Single-Name CDS Market by Counterparty Type and the Fraction of
     Total Trading Activity, From November 2006 Through December 2014, Represented by Each Counterparty Type
----------------------------------------------------------------------------------------------------------------
                                                                                Transaction
                      Transacting agents                            Number          Percent           share
                                                                                (percent)
----------------------------------------------------------------------------------------------------------------
Investment Advisers...........................................           1,419             75.5             10.9
    SEC registered............................................             572             30.4              6.9
Banks.........................................................             260             13.8              5.0
Pension Funds.................................................              29              1.5              0.1
Insurance Companies...........................................              38              2.0              0.3
ISDA-Recognized Dealers \160\.................................              17              0.9             82.6
Other.........................................................             116              6.2              1.2
                                                               -------------------------------------------------
    Total.....................................................           1,879            100              100
----------------------------------------------------------------------------------------------------------------

    Although the security-based swap market is global in nature,
approximately 60 percent of the transaction volume in the 2008-2014
period included at least one U.S.-domiciled entity (see Figure 1).
Moreover, 48 percent of the single-name CDS transactions reflected in
DTCC-TIW data that include at least one U.S.-domiciled counterparty or
a U.S. reference entity or security were between U.S.-domiciled
entities and foreign-domiciled counterparties.
---------------------------------------------------------------------------

    \160\ For the purpose of this analysis, the ISDA-recognized
dealers are those identified by ISDA as belonging to the G14 or G16
dealer group during the period: JP Morgan Chase NA (and Bear
Stearns), Morgan Stanley, Bank of America NA (and Merrill Lynch),
Goldman Sachs, Deutsche Bank AG, Barclays Capital, Citigroup, UBS,
Credit Suisse AG, RBS Group, BNP Paribas, HSBC Bank, Lehman
Brothers, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, Credit
Agricole, Wells Fargo and Nomura. See, e.g., http://www.isda.org/c_and_a/pdf/ISDA-Operations-Survey-2010.pdf.
[GRAPHIC] [TIFF OMITTED] TP14SE15.000

    The fraction of new accounts with transaction activity that are
domiciled in the U.S. fell through the 2008-2014 period. Figure 2 below
is a chart of: (1) The percentage of new accounts with a domicile in
the United States,\161\ (2) the

percentage of new accounts with a domicile outside the United States,
and (3) the percentage of new accounts that are domiciled outside the
United States but managed by a U.S. entity, foreign accounts that
include new accounts of a foreign branch of a U.S. bank, and new
accounts of a foreign subsidiary of a U.S. entity. Over time, a greater
share of accounts entering the DTCC-TIW data either have had a foreign
domicile or have had a foreign domicile while being managed by a U.S.
person. The increase in foreign accounts may reflect an increase in
participation by foreign accountholders, and the increase in foreign
accounts managed by U.S. persons may reflect the flexibility with which
market participants can restructure their market participation in
response to regulatory intervention, competitive pressures and other
factors. There are, however, alternative explanations for the shifts in
new account domicile in Figure 2. Changes in the domicile of new
accounts through time may reflect improvements in reporting by market
participants to DTCC-TIW. Additionally, because the data include only
accounts that are domiciled in the United States, transact with U.S.-
domiciled counterparties or transact in single-name CDSs with U.S.
reference entities or securities, changes in the domicile of new
accounts may reflect increased transaction activity between U.S. and
non-U.S. counterparties.
---------------------------------------------------------------------------

    \161\ The domicile classifications in DTCC-TIW are based on the
market participants' own reporting and have not been verified by
Commission staff. Prior to enactment of the Dodd-Frank Act, account
holders did not formally report their domicile to DTCC-TIW because
there was no systematic requirement to do so. After enactment of the
Dodd-Frank Act, the DTCC-TIW has collected the registered office
location of the account. This information is self-reported on a
voluntary basis. It is possible that some market participants may
misclassify their domicile status because the databases in DTCC-TIW
do not assign a unique legal entity identifier to each separate
entity. It is also possible that the domicile classifications may
not correspond precisely to the definition of ``U.S. person'' under
the rules defined in Exchange Act rule 3a71-3(a)(4), 17 CFR
240.3a71-3(a)(4). Notwithstanding these limitations, the Commission
believes that the cross-border and foreign activity demonstrates the
nature of the single-name CDS market.
---------------------------------------------------------------------------

    We note that cross-border rules related to regulatory reporting and
public dissemination of security-based swap transactions depend on,
among other things, the U.S. person status of the counterparties.\162\
The analyses behind Figures 1 and 2 show that the security-based swap
market is global, with an increasing share of the market characterized
by cross-border trade.
---------------------------------------------------------------------------

    \162\ See note 143, supra.
    \163\ Following publication of the Warehouse Trust Guidance on
CDS data access, TIW surveyed market participants, asking for the
physical address associated with each of their accounts (i.e., where
the account is organized as a legal entity). This is designated the
registered office location by TIW. When an account does not report a
registered office location, we have assumed that the settlement
country reported by the investment adviser or parent entity to the
fund or account is the place of domicile. This treatment assumes
that the registered office location reflects the place of domicile
for the fund or account.
[GRAPHIC] [TIFF OMITTED] TP14SE15.001

b. Security-Based Swap Data Repositories
    No security-based swap data repositories are currently registered
with the Commission. The Commission is aware of one entity in the
market (i.e., the DTCC-TIW) that has been accepting voluntary reports
of single-name and index credit default swap transactions. In 2014,
DTCC-TIW received approximately 4 million records of single-name credit
default swap transactions, of which approximately 868,000 were price-
forming transactions.\164\
---------------------------------------------------------------------------

    \164\ Price-forming credit default swap transactions include all
new transactions, assignments, modifications to increase the
notional amounts of previously executed transactions and
terminations of previously executed transactions. Transactions
terminated or entered into in connection with a compression
exercise, and expiration of contracts at maturity, are not
considered price-forming and are therefore excluded, as are
replacement trades and all bookkeeping-related trades.

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

    The CFTC has provisionally registered four swap data
repositories.\165\ These swap data repositories are: BSDR LLC, Chicago
Mercantile Exchange Inc., DTCC Data Repository LLC, and ICE Trade
Vault, LLC. The Commission believes that these entities will likely
register with the Commission as security-based swap data repositories
and that other persons may seek to register with both the CFTC and the
Commission as swap data repositories and security-based swap data
repositories, respectively.\166\
---------------------------------------------------------------------------

    \165\ CFTC rule 49.3(b) provides for provisional registration of
a swap data repository. 17 CFR 49.3(b).
    \166\ For the purpose of estimating PRA related costs, the
number of swap data repositories is estimated to be as high as ten.
See part V.C, supra.
---------------------------------------------------------------------------

    Efforts to regulate the swap and security-based swap markets are
underway not only in the United States, but also abroad. Consistent
with the call of the G20 leaders for global improvements in the
functioning, transparency and regulatory oversight of OTC derivatives
markets,\167\ substantial progress has been made in establishing the
trade repository infrastructure to support the reporting of OTC
derivatives transactions.\168\ Currently, multiple trade repositories
operate, or are undergoing approval processes to do so, in a number of
different jurisdictions.\169\ Combined with the fact that the
requirements for trade reporting differ across jurisdictions, the
result is that security-based swap data is fragmented across many
locations, stored in a variety of formats, and subject to many
different rules for authorities' access. The data in these trade
repositories accordingly will need to be aggregated in various ways if
authorities are to obtain a comprehensive and accurate view of the
global OTC derivatives markets.
---------------------------------------------------------------------------

    \167\ See note 148, supra, and accompanying text.
    \168\ See Eighth Progress Report on Implementation of OTC
Derivatives Market Reforms (Nov. 2014), available at: http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf.
    \169\ Id.
---------------------------------------------------------------------------

C. Economic Costs and Benefits, Including Impact on Efficiency,
Competition, and Capital Formation

    As discussed above, the security-based swap market to date largely
has developed as an opaque OTC market with limited dissemination of
transaction-level price and volume information.\170\ Accordingly, the
Commission envisions that registered security-based swap data
repositories, by storing the security-based swap transaction and
position data required to be reported to them by market participants,
will become an essential part of the infrastructure of the market in
part by providing the data to relevant authorities in accordance with
their regulatory mandate, or legal responsibility or authority.
---------------------------------------------------------------------------

    \170\ See part VI.B.1, supra (addressing limited information
currently available to market participants and regulators).
---------------------------------------------------------------------------

    In proposing these rules to implement the Exchange Act data access
requirement and to provide a conditional exemption from the
indemnification requirement, the Commission has attempted to balance
different goals. On the one hand, the Commission preliminarily believes
that the proposed rules will facilitate the sharing of information held
by repositories with relevant authorities, which should assist those
authorities in acting in accordance with their regulatory mandate, or
legal responsibility or authority. At the same time, although
regulatory access raises important issues regarding the confidentiality
of the information, the Commission preliminarily believes that the
proposed rules should appropriately reduce the risk of breaching the
confidentiality of the data by providing for a reasonable assurance
that confidentiality will be maintained before access is granted.
    Additionally, we note that the magnitude of the costs and benefits
of the proposed rules depend in part on the type of access granted to
relevant authorities. Ongoing, unrestricted direct electronic access by
relevant authorities may be most beneficial in terms of facilitating
efficient access to data necessary for those authorities to act in
accordance with their regulatory mandate, or legal responsibility or
authority, but at the cost of increasing the risk of improper
disclosure of confidential information. Restricting each relevant
authority's access to only that data consistent with that authority's
regulatory mandate, or legal responsibility or authority reduces the
quantity of data that could become subject to improper disclosure. On
the other hand, restricting a relevant authority's access to data may
make it more difficult for it to effectively act in accordance with its
regulatory mandate or legal responsibility or authority.
    The potential economic effects stemming from the proposed rules can
be grouped into several categories. In this section, we first discuss
the general costs and benefits of the proposed rules, including the
benefits of reducing data fragmentation, data duplication and enhancing
regulatory oversight, as well as the risks associated with potential
breaches of data confidentiality. Next, we discuss the effects of the
rules on efficiency, competition and capital formation. Finally, we
discuss specific costs and benefits linked to the proposed rules.
1. General Costs and Benefits
    As discussed above, the proposed rules would implement the
statutory provisions that require a security-based swap data repository
to disclose information to certain relevant authorities, conditional
upon the authority agreeing to keep the information confidential and to
indemnify the repository and the Commission for any expenses arising
from litigation relating to the information provided. The proposal also
would set forth a conditional exemption from the requirement that
entities requesting data agree to provide indemnification. The
exemption would be conditional on the requested information relating to
a regulatory mandate and/or legal responsibility of the entity
requesting the data, and on the entity entering into an MOU with the
Commission addressing the confidentiality of the information provided
and any other matters as determined by the Commission.
a. Anticipated Benefits
    The proposed rules should facilitate access to security-based swap
transaction and position data by entities that require such information
to fulfill their regulatory mandate or legal responsibility or
authority. Market participants accordingly should benefit from relevant
domestic authorities other than the Commission having access to the
data necessary to fulfill their responsibilities. In particular, such
access could help promote stability in the security-based swap market
particularly during periods of market turmoil,\171\ and thus could
indirectly contribute to improved stability in related financial
markets, including equity and bond markets.\172\
---------------------------------------------------------------------------

    \171\ SDR Adopting Release, 80 FR 14531 (``Enhanced transparency
could produce additional market-wide benefits by promoting stability
in the [security-based swap] market, particularly during periods of
market turmoil, and it should indirectly contribute to improved
stability in related financial markets, including equity and bond
markets.'').
    \172\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy
Perspectives of OTC Derivatives Market Infrastructure, Federal
Reserve Bank of New York Staff Report No. 424 (Jan. 2010, as revised
Mar. 2010), note 95, supra (``Transparency can have a calming
influence on trading patterns at the onset of a potential financial
crisis, and thus act as a source of market stability to a wider
range of markets, including those for equities and bonds.'').

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

    Moreover, as noted in part II.A(3)(a), the Commission anticipates,
when making a determination concerning a relevant authority's access to
security-based swap data, considering whether the relevant authority
agrees to provide the Commission and other U.S. authorities with
reciprocal assistance in matters within their jurisdiction. Allowing
access to security-based swap data held by registered security-based
swap data repositories by non-U.S. authorities may be expected to help
facilitate the Commission's own ability to access data held by
repositories outside the United States.\173\ Accordingly, to the extent
the Commission obtains access, the proposed rules further may be
expected to assist the Commission in fulfilling its regulatory
responsibilities, including by detecting market manipulation, fraud and
other market abuses by providing the Commission with greater access to
global security-based swap information.\174\
---------------------------------------------------------------------------

    \173\ See note 94, supra, and accompanying text.
    \174\ See SDR Adopting Release, 80 FR 14450 (``Requiring U.S.
persons that perform the functions of an SDR to be operated in a
manner consistent with the Title VII regulatory framework and
subject to the Commission's oversight, among other things, helps
ensure that relevant authorities are able to monitor the build-up
and concentration of risk exposure in the [security-based swap]
market, reduce operational risk in that market, and increase
operational efficiency.''); id. at 14529 (``In conjunction with
Regulation SBSR, the SDR Rules should assist the Commission in
fulfilling its regulatory mandates and legal responsibilities such
as detecting market manipulation, fraud, and other market abuses by
providing it with greater access to [security-based swap]
information than that provided under the voluntary reporting
regime.''); see also DTCC comment (Nov. 15, 2010) at 1 (``A
registered SDR should be able to provide (i) enforcement agents with
necessary information on trading activity; (ii) regulatory agencies
with counterparty-specific information about systemic risk based on
trading activity; (iii) aggregate trade information for publication
on market-wide activity; and (iv) a framework for real-time
reporting from swap execution facilities and derivatives
clearinghouses.'').
---------------------------------------------------------------------------

    The ability of other relevant authorities to access data held in
trade repositories registered with the Commission, as well as the
ability of the Commission to access data held in repositories
registered with other regulators, may be especially crucial during
times of market turmoil. Increased data sharing should provide the
Commission and other relevant authorities more-complete information to
monitor risk exposures taken by individual entities and exposures
connected to particular reference entities, and should promote global
stability through enhanced regulatory transparency. Security-based swap
data repositories registered with the Commission are required to retain
complete records of security-based swap transactions and maintain the
integrity of those records.\175\ Based on discussions with other
regulators, the Commission believes repositories registered with other
authorities are likely to have comparable requirements. As a result,
rules to facilitate regulatory access to those records in line with the
recipient authorities' regulatory mandate, or legal responsibility or
authority are designed to help position the Commission and other
authorities to: detect market manipulation, fraud and other market
abuses; monitor the financial responsibility and soundness of market
participants; perform market surveillance and macroprudential
supervision; resolve issues and positions after an institution fails;
monitor compliance with relevant regulatory requirements; and respond
to market turmoil.\176\
---------------------------------------------------------------------------

    \175\ See SDR Adopting Release, 80 FR 14531 (``The SDR
Requirements [Exchange Act section 13(n) and the rules and
regulations thereunder], including requirements that SDRs register
with the Commission, retain complete records of [security-based
swap] transactions, maintain the integrity and confidentiality of
those records, and disseminate appropriate information to the public
are intended to help ensure that the data held by SDRs is reliable
and that the SDRs provide information that contributes to the
transparency of the [security-based swap] market while protecting
the confidentiality of information provided by market
participants.''); see also Exchange Act section 13(n)(5)(C), 15
U.S.C. 78m(n)(5)(c) (requiring SDRs to maintain security-based swap
data)); Exchange Act rules 13n-5(b)(3) and (4) (requiring SDRs to
establish, maintain, and enforce policies and procedures reasonably
designed to ensure that transaction data and positions are accurate
and to maintain the transaction data and positions for specified
periods of time).
    \176\ See, e.g., SDR Proposing Release, 75 FR 77307, 77356,
corrected at 76 FR 79320 (stating that the ``data maintained by an
SDR may also assist regulators in (i) preventing market
manipulation, fraud, and other market abuses; (ii) performing market
surveillance, prudential supervision, and macroprudential (systemic
risk) supervision; and (iii) resolving issues and positions after an
institution fails,'' and further stating that ``increased
transparency on where exposure to risk reside in financial markets .
. . will allow regulators to monitor and act before the risks become
systemically relevant. Therefore, SDRs will help achieve systemic
risk monitoring.''); Cross-Border Proposing Release, 78 FR 31186-
31187 (discussing benefits of providing relevant foreign authorities
with access to data maintained by SDRs).
---------------------------------------------------------------------------

    Additionally, improving the availability of data regarding the
security-based swap market should give the Commission and other
relevant authorities improved insight into how regulations are
affecting, or may affect, the market. This may be expected to help
increase regulatory effectiveness by allowing the Commission and other
regulators to better craft regulation to achieve desired goals.
    In addition, the Commission believes that providing relevant
foreign authorities with access to data maintained by repositories may
help reduce costs to market participants by reducing the potential for
duplicative security-based swap transaction reporting requirements in
multiple jurisdictions.\177\ The Commission anticipates that relevant
foreign authorities will likely impose their own reporting requirements
on market participants within their jurisdictions.\178\ Given the
global nature of the security-based swap market and the large number of
cross-border transactions, the Commission recognizes that it is likely
that such transactions may be subject to the reporting requirements of
at least two jurisdictions.\179\ However, the Commission preliminarily
believes that if relevant authorities are able to access security-based
swap data in trade repositories outside their jurisdiction, such as
repositories registered with the Commission, as needed, then relevant
authorities may be more inclined to permit market participants involved
in such transactions to fulfill their reporting requirements by
reporting the transactions to a single trade repository.\180\ If market
participants can report a transaction to a single trade repository
rather than to separate trade repositories in each applicable

jurisdiction, their compliance costs may be reduced. Similarly, to the
extent that security-based swap data repositories provide additional
ancillary services,\181\ if market participants choose to make use of
such services, they would likely find such services that make use of
all of their data held in a single trade repository more useful than
services that are applied only to a portion of that market
participant's transactions. Ancillary services applied to only a
portion of a participant's transactions could result if data were
divided across multiple repositories as a result of regulations
requiring participants to report data to separate trade repositories in
each applicable jurisdiction.
---------------------------------------------------------------------------

    \177\ Cf. Cleary Gottlieb comment (Sept. 20, 2011) at 31 (the
indemnification requirement ``could be a significant impediment to
effective regulatory coordination, since non-U.S. regulators may
establish parallel requirements for U.S. regulators to access swap
data reported in their jurisdictions.'').
    \178\ For example, EU law requires that counterparties to
derivatives contracts report the details of the contract to a trade
repository, registered or recognized in accordance with EU law, no
later than the working day following the conclusion, modification or
termination of the contract. See EMIR art. 9; see also EC Delegated
Regulation no. 148/2013 (regulatory technical standards implementing
the reporting requirement).
    \179\ For example, as noted above, market data regarding single-
name CDS transactions involving U.S.-domiciled counterparties and/or
U.S.-domiciled reference entities indicates that 13 percent of such
transactions involve two U.S.-domiciled counterparties, while 48
percent involve a U.S.-domiciled counterparty and a foreign-
domiciled counterparty. See note 141, supra, and accompanying text.
    \180\ For example, EU law anticipates the possibility that
market participants may be able to satisfy their EU reporting
obligations by reporting to a trade repository established in a
third country, so long as that repository has been recognized by the
European Securities and Markets Authority. See EMIR art. 77; see
also Regulation SBSR, rule 908(c) (providing that to the extent that
the Commission has issued a substituted compliance order/
determination, compliance with Title VII regulatory reporting and
public dissemination requirements may be satisfied by compliance
with the comparable rules of a foreign jurisdiction).
    \181\ According to one commenter, ancillary services ``may
include: asset servicing, confirmation, verification and affirmation
facilities, collateral management, settlement, trade compression and
netting services, valuation, pricing and reconciliation
functionalities, position limits management, dispute resolution,
counterparty identity verification and others.'' See MarkitSERV
comment (Jan. 24, 2011) at 4 (comment in response to SDR Proposing
Release).
---------------------------------------------------------------------------

b. Anticipated Costs
    The Commission believes that although there are benefits to
security-based swap data repositories providing access to relevant
authorities to data maintained by the repositories, such access will
likely involve certain costs and potential risks. For example, the
Commission expects that repositories will maintain data that are
proprietary and highly sensitive \182\ and that are subject to strict
privacy requirements.\183\ Extending access to such data to anyone,
including relevant authorities, increases the risk that the
confidentiality of the data maintained by repositories may not be
preserved.\184\ A relevant authority's inability to protect the
confidentiality of data maintained by repositories could erode market
participants' confidence in the integrity of the security-based swap
market and increase the overall risks associated with trading.\185\ As
we discuss below, this may ultimately lead to reduced trading activity
and liquidity in the market, hindering price discovery and impeding the
capital formation process.\186\
---------------------------------------------------------------------------

    \182\ As the Commission noted in the SDR Proposing Release, such
data could include information about a market participant's trades
or its trading strategy; it may also include non-public personal
information. SDR Proposing Release, 75 FR 77339.
    \183\ See Exchange Act section 13(n)(5)(F), 15 U.S.C.
78m(n)(5)(F) (requiring an SDR to maintain the privacy of security-
based swap transaction information); Exchange Act rules 13n-4(b)(8)
and 13n-9 (implementing Exchange Act section 13(n)(5)(F)).
    \184\ See, e.g., ESMA comment (Jam. 17, 2011) at 2 (noting that
relevant authorities must ensure the confidentiality of security-
based swap data provided to them).
    \185\ For example, should it become generally known by market
participants that a particular dealer had taken a large position in
order to facilitate a trade by a customer and was likely to take
offsetting positions to reduce its exposure, other market
participants may take positions in advance of the dealer attempting
to take its offsetting positions. This ``front running'' of the
dealer's trades would likely raise its trading costs. Should the
dealer believe that its market exposure may become public before it
has the opportunity to hedge, the price quote offered to its
customer to establish the original position would reflect the
increased hedging cost.
    \186\ See SDR Proposing Release, 75 FR 77307 (``Failure to
maintain privacy of [SDR data] could lead to market abuse and
subsequent loss of liquidity.'').
---------------------------------------------------------------------------

    To help mitigate these risks and potential costs to market
participants, the Exchange Act and the proposed rules impose certain
conditions on relevant authorities' access to data maintained by
repositories.\187\ In part, the Exchange Act and the proposed rules
limit the authorities that may access data maintained by a security-
based swap data repository to a specific list of domestic authorities
and other persons, including foreign authorities, determined by the
Commission to be appropriate,\188\ and further require that a
repository notify the Commission when the repository receives an
authority's initial request for data maintained by the repository.\189\
Restricting access to security-based swap data available to relevant
authorities should reduce the risk of unauthorized disclosure,
misappropriation or misuse of security-based swap data because each
relevant authority will only have access to information within its
regulatory mandate, or legal responsibility or authority.
---------------------------------------------------------------------------

    \187\ Exchange Act section 13(n)(5)(G) and (H), 15 U.S.C.
78m(n)(5)(G) and (H); see also Exchange Act rules 13n-4(b)(9)
(implementing Exchange Act sections 13(n)(5)(G), 15 U.S.C.
78m(n)(5)(G)) and (b)(10) (implementing Exchange Act section
13(n)(5)(H), 15 U.S.C. 78m(n)(5)(H)).
    \188\ As discussed above in part II.A.3(a), the Commission
anticipates that such determinations may be conditioned, in part, by
specifying the scope of a relevant authority's access to data, and
may limit this access to reflect the relevant authority's regulatory
mandate, or legal responsibility or authority.
    \189\ See Exchange Act section 13(n)(5)(G), 15 U.S.C.
78m(n)(5)(G); proposed Exchange Act rule 13n-4(b)(9).
---------------------------------------------------------------------------

    The proposed rules further require that, before a repository shares
security-based swap information with a relevant authority, there must
be an arrangement (in the form of a MOU or otherwise) between the
Commission and the relevant authority that addresses the
confidentiality of the security-based swap information provided, and
under which the relevant authority agrees to indemnify the Commission
and the repository for any expenses arising from litigation relating to
the information provided.\190\ While the proposal also conditionally
exempts the relevant authority requesting data from the indemnification
requirement, it does so only if the requested information relates to a
regulatory mandate or legal responsibility or authority of the entity
requesting the data, and there is in effect an arrangement between the
Commission and such relevant authority that addresses the
confidentiality of the information provided.\191\ The arrangement
should further reduce the likelihood of confidential trade or position
data being inadvertently made public.
---------------------------------------------------------------------------

    \190\ See Exchange Act section 13(n)(5)(H), 15 U.S.C.
78m(n)(5)(H); proposed Exchange Act rule 13n-4(b)(10).
    \191\ See proposed Exchange Act rule 13n-4(d).
---------------------------------------------------------------------------

    Although the statutory indemnification requirement could provide a
strong incentive for relevant authorities to take appropriate care in
safeguarding data they might receive from a registered SDR, the
Commission recognizes the significance of commenter concerns regarding
the impact of requiring indemnification,\192\ and understands that
certain authorities may be unable to agree to indemnify a data
repository and the Commission. Therefore, the Commission preliminarily
believes that the indemnification requirement could frustrate the
purposes of the statutory requirement that repositories make available
data to relevant authorities. The Commission preliminarily believes
that the proposed approach appropriately balances confidentiality
concerns associated with regulatory access with the benefits accruing
to security-based swap market participants from increased regulatory
transparency.
---------------------------------------------------------------------------

    \192\ See note 13, supra.
---------------------------------------------------------------------------

2. Effects on Efficiency, Competition and Capital Formation
    The rules described in this proposal are intended to facilitate
access for relevant authorities to data stored in SEC-registered
repositories and therefore affect such repositories, but do not
directly affect security-based swap market participants. As discussed
below, access by relevant authorities to security-based swap data could
indirectly affect market participants through the benefits that accrue
from the relevant authorities' improved ability to fulfill their
regulatory mandate or legal responsibility or authority as well as the
potential impact of disclosure of confidential data.

However, because the Commission preliminarily believes that its rules
will condition access to security-based swap data on the agreement of
the relevant authorities to protect the confidentiality of the data,
the Commission expects these rules to have little effect on the
structure or operations of the security-based swap market. Therefore,
the Commission preliminarily believes that effects of the proposed
rules on efficiency, competition and capital formation will be
small.\193\ Nevertheless, there are some potential effects,
particularly with respect to efficiency and capital formation, which
flow from efficient collection and aggregation of security-based swap
data. We describe these effects below.
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    \193\ See part VI.C.1b above for a discussion of the potential
impact on capital formation of inadequate data confidentiality
protections. The Commission preliminarily believes that the proposed
approach balances the need for data confidentiality and the need for
regulatory transparency.
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    In part VI.B of this release, the Commission describes the baseline
used to evaluate the economic impact of the proposed rules, including
the impact on efficiency, competition and capital formation. In
particular, the Commission noted that the security-based swap data
currently available from the DTCC-TIW is the result of a voluntary
reporting system and access to that data is made consistent with
guidelines published by the ODRF.
    Under the voluntary reporting regime, CDS transaction data
involving counterparties and reference entities from most jurisdictions
is reported to a single entity, the DTCC-TIW. The DTCC-TIW, using the
ODRF guidelines, then allows relevant authorities, including the
Commission, to obtain data necessary to carry out their respective
authorities and responsibilities with respect to OTC derivatives and
the regulated entities that use derivatives.\194\ As various regulators
implement reporting rules within their jurisdictions, counterparties
within those jurisdictions may or may not continue to report to the
DTCC-TIW. As a result, the ability of the Commission and other relevant
authorities to obtain the data required consistent with their
regulatory mandate, or legal responsibility or authority, may require
the ability to access data held in a trade repository outside of their
own jurisdictions. That is, because the market is global and
interconnected, effective regulatory monitoring of the security-based
swap market may require regulators to have access to information on the
global market, particularly during times of market turmoil. The
proposed data access rule amendments and indemnification exemption
should facilitate access of relevant authorities other than the
Commission to security-based swap data held in repositories, and may
indirectly facilitate Commission access to data held by trade
repositories registered with regulators other than the Commission. To
the extent that the proposed data access rules and indemnification
exemption facilitate the ability of repositories to collect security-
based swap information involving counterparties across multiple
jurisdictions, there may be benefits in terms of efficient collection
and aggregation of security-based swap data.
---------------------------------------------------------------------------

    \194\ See note 149, supra.
---------------------------------------------------------------------------

    To the extent that the proposed data access provisions and the
indemnification exemption increase the quantity of transaction and
position information available to regulatory authorities about the
security-based swap market, the ability of the Commission and other
relevant authorities to respond in an appropriate and timely manner to
market developments could enhance investor protection through improved
detection, and facilitating the investigation of fraud and other market
abuses. Moreover, as noted above, we do not anticipate that the
proposed rules would directly affect market participants, such
enhancements in investor protections may decrease the risks and
indirect costs of trading and could therefore encourage greater
participation in the security-based swap market for a wider range of
entities seeking to engage in a broad range of hedging and trading
activities.\195\ While we believe that increased participation is a
possible outcome of the Commission's transparency initiatives,
including these proposed rules, relative to the level of participation
in this market if these initiatives were not undertaken, we
preliminarily believe that the benefits that flow from improved
detection, facilitating the investigation of fraud and other market
abuses, and more-efficient data aggregation are the more direct
benefits of the rules.
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    \195\ Indirect trading costs refer to costs other than direct
transaction costs. Front running costs described above provide an
example of indirect trading costs. In the context of investor
protection, the risk of fraud represents a cost of trading in a
market with few investor protections or safeguards.
---------------------------------------------------------------------------

    In addition, the improvement in the quantity of data available to
regulatory authorities, including the Commission, should improve their
ability to monitor concentrations of risk exposures and evaluate risks
to financial stability and could promote the overall stability in the
capital markets.\196\
---------------------------------------------------------------------------

    \196\ See note 95, supra.
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    Aside from the effects that the proposed data access rules may have
on regulatory oversight and market participation, we expect the
proposed rules potentially to affect how SDRs are structured. In
particular, the proposed data access rules and indemnification
exemption could reduce the potential for SDRs to be established along
purely jurisdictional lines, with multiple repositories established in
different countries or jurisdictions. That is, effective data sharing
may reduce the need for repositories to be established along
jurisdictional lines, reducing the likelihood that a single security-
based swap transaction must be reported to multiple swap-data
repositories. As noted previously by the Commission, due to high fixed
costs and increasing economies of scale, the total cost of providing
trade repository services to the market for security-based swaps may be
lower if the total number of repositories is not increased due to a
regulatory environment that results in trade repositories being
established along jurisdictional lines.\197\ To the extent that the
proposed rules result in fewer repositories that potentially compete
across jurisdictional lines, cost savings realized by fewer
repositories operating on a larger scale could result in reduced fees,
with the subsequent cost to market participants to comply with
reporting requirements being lower.\198\
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    \197\ See SDR Adopting Release, 80 FR 14533 (discussion of high
fixed costs and increasing economies of scale in the provision of
security-based swap data repository services); see also SDR Adopting
Release, 80 FR 14479 (discussion of rule 13n-4(c)(1)(i), which
requires each SDR to ensure that any dues, fees or other charges
that it imposes, and any discounts or rebates that it offers, are
fair and reasonable and not unreasonably discriminatory;
particularly noting that ``[o]ne factor that the Commission has
taken into consideration to evaluate the fairness and reasonableness
of fees, particularly those of a monopolistic provider of a service,
is the cost incurred to provide the service'').''
    \198\ Alternatively, fewer repositories could result in those
few repositories having the ability to take advantage of the reduced
level of competition to charge higher prices.
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    Furthermore, multiple security-based swap data repositories with
duplication of reporting requirements for cross-border transactions
increase data fragmentation and data duplication, both of which
increase the potential for difficulties in data aggregation. To the
extent that the proposed data access rule amendments and
indemnification exemption facilitate the establishment of SDRs that
accept transactions from multiple jurisdictions, there may be

benefits in terms of efficient collection and aggregation of security-
based swap data. As discussed above, to the extent that the
indemnification exemption allows relevant authorities to have better
access to the data necessary to form a more complete picture of the
security-based swap market--including information regarding risk
exposures and asset valuations--the exemption should help the
Commission and other relevant authorities perform their oversight
functions in a more effective manner.
    However, while reducing the likelihood of having multiple SDRs
established along jurisdictional lines would resolve many of the
challenges involved in aggregating security-based swap data, there may
be costs associated with having fewer repositories. In particular, the
existence of multiple repositories may reduce operational risks, such
as the risk that a catastrophic event or the failure of a repository
leaves no registered repositories to which transactions can be
reported, impeding the ability of the Commission and relevant
authorities to obtain information about the security-based swap market.
    Finally, as we noted above, a relevant authority's inability to
protect the privacy of data maintained by repositories could erode
market participants' confidence in the integrity of the security-based
swap market. More specifically, confidentiality breaches, including the
risk that trading strategies may no longer be anonymous due to a
breach, may increase the overall risks associated with trading or
decrease the profits realized by certain traders. Increased risks or
decreased profits may reduce incentives to participate in the security-
based swap markets, which may lead to reduced trading activity and
liquidity in the market. Depending on the extent of confidentiality
breaches, as well as the extent to which such breaches lead to market
exits, disclosures of confidential information could hinder price
discovery and impede the capital formation process.\199\
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    \199\ See SDR Proposing Release, 75 FR 77307 (``Failure to
maintain privacy of [SDR data] could lead to market abuse and
subsequent loss of liquidity.'').
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3. Additional Costs and Benefits of Specific Rules
    Apart from the general costs and benefits associated with the
structure of the Exchange Act data access provisions and proposed
implementing rules, certain discrete aspects of the proposed rules and
related interpretation raise additional issues related to economic
costs and benefits.
a. Benefits
i. Determination of Recipient Authorities
    The Commission is proposing an approach to determining whether an
authority, other than those expressly identified in the Exchange Act
and the implementing rules,\200\ should be provided access to data
maintained by SDRs. The Commission believes that this proposed approach
has the benefit of appropriately limiting relevant authorities' access
to data maintained by repositories to protect the confidentiality of
the data.\201\ The Commission expects that relevant authorities from a
number of jurisdictions may seek to obtain a determination by the
Commission that they may appropriately have access to repository data.
Each of these jurisdictions may have a distinct approach to
supervision, regulation or oversight of its financial markets or market
participants and to the protection of proprietary and other
confidential information. The Commission believes that the proposed
factors--which among other things would consider whether an authority
has an interest in access to security-based swap data based on the
relevant authority's regulatory mandate or legal responsibility or
authority, whether there is an MOU or other arrangement between the
Commission and the relevant authority that addresses the
confidentiality of the security-based swap data provided to the
authority, and whether information accessed by the applicable authority
would be subject to robust confidentiality safeguards \202\--
appropriately condition an authority's ability to access data on the
confidentiality protections the authority will afford that data. This
focus further would be strengthened by the Commission's ability to
revoke its determination where necessary, including, for example, if a
relevant authority fails to keep such data confidential.\203\ This
approach should increase market participants' confidence that their
confidential trade data will be protected, reducing perceived risks of
transacting in security-based swaps.
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    \200\ See part II.A for a discussion of specific authorities
included in the implementing rules.
    \201\ See ESMA comment (Jan. 17, 2011) at 2 (noting that
relevant authorities must ensure the confidentiality of security-
based swap data provided to them).
    \202\ See part II.A.3.a, supra.
    \203\ See part II.A.4, supra.
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    The Commission also believes that its proposed approach in
determining the appropriate relevant authorities would reduce the
potential for fragmentation and duplication of security-based swap data
among trade repositories by facilitating mutual access to the data.
Narrower approaches such as allowing regulatory access to security-
based swap data only to those entities specifically identified in the
Exchange Act \204\ may increase fragmentation and duplication, and
hence increase the difficulty in consolidating and interpreting
security-based swap market data from repositories, potentially reducing
the general economic benefits discussed above.
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    \204\ See Exchange Act section 3(a)(74), 15 U.S.C. 78c(a)(74).
---------------------------------------------------------------------------

    Furthermore, the Commission believes that its proposed approach in
conditioning access to security-based swap data held in SDRs by
requiring there to be in effect an arrangement between the Commission
and the authority in the form of a MOU would promote the intended
benefits of access by relevant authorities to data maintained by SDRs.
Under the proposed approach, rather than requiring regulatory
authorities to negotiate confidentiality agreements with multiple SDRs,
a single MOU between the Commission and the relevant authority can
serve as the confidentiality agreement that will satisfy the
requirement for a written agreement stating that the relevant authority
will abide by the confidentiality requirements described in section 24
of the Exchange Act relating to the security-based swap data. The
Commission routinely negotiates MOUs or other arrangements with
relevant authorities to secure mutual assistance or for other purposes,
and the Commission preliminarily believes that the proposed approach is
generally consistent with this practice.
    The Commission further preliminarily believes that negotiating a
single such agreement with the Commission will be less costly for the
authority requesting data than negotiating directly with each
registered SDR and eliminate the need for each SDR to negotiate as many
as 200 confidentiality agreements with requesting authorities. This
approach would also avoid the difficulties that may be expected to
accompany an approach that requires SDRs to enter into confidentiality
agreements--particularly questions regarding the parameters of an
adequate confidentiality agreement, and the presence of uneven and
potentially inconsistent confidentiality protections across SDRs and
recipient entities.

ii. Notification Requirement
    The Commission is proposing an approach by which SDRs may satisfy
the notification requirement by notifying the Commission upon the
initial request for security-based swap data by a relevant authority
and maintaining records of the initial request and all subsequent
requests.\205\ The Commission estimates that approximately 300 relevant
authorities may make requests for data from security-based swap data
repositories.\206\ Based on the Commission's experience in making
requests for security-based swap data from trade repositories, the
Commission estimates that each relevant authority will access security-
based swap data held in SDRs using electronic access. Such access may
be to satisfy a narrow request concerning a specific counterparty or
reference entity or security, to create a summary statistic of trading
activity or outstanding notional, or to satisfy a large request for
detailed transaction and position data. Requests may occur as seldom as
once per month if the relevant authority is downloading all data to
which it has access in order to analyze it on its own systems, or may
occur 100 or more times per month if multiple staff of the relevant
authority are making specific electronic requests concerning particular
counterparties or reference entities and associated positions or
transactions. Therefore, under the Commission's proposed approach to
notification requirement compliance, the Commission estimates based on
staff experience that each repository would provide the Commission with
actual notice as many as 300 times, and that repositories cumulatively
would maintain records of as many as 360,000 subsequent data requests
per year.\207\ The proposed rule would be expected to permit
repositories to respond to requests for data by relevant authorities
more promptly and at lower cost than if notification was required for
each request for data access, while helping to preserve the
Commission's ability to monitor whether the repository provides data to
each relevant entity consistent with the applicable conditions.
---------------------------------------------------------------------------

    \205\ See proposed Exchange Act rule 13n-4(e).
    \206\ See proposed Exchange Act rule 13n-4(b)(9)(i)-(v) for a
list of prudential regulators that may request data maintained by
SDRs from SDRs. The Exchange Act also states that FSOC, the CFTC,
and the Department of Justice may access security-based swap data.
See parts II.A.1, 2, supra. The Commission also expects that certain
self-regulatory organizations and registered futures associations
may request security-based swap data from repositories. Therefore,
the Commission estimates that up to approximately 30 relevant
authorities in the United States may seek to access security-based
swap data from repositories. The Commission preliminarily believes
that most requests will come from authorities in G20 countries, and
estimates that each of the G20 countries will also have no more and
likely fewer than 30 relevant authorities that may request data from
SDRs. Certain authorities from outside the G20 also may request
data. Accounting for all of those entities, the Commission estimates
that there will likely be a total of no more than 300 relevant
domestic and foreign authorities that may request security-based
swap data from repositories.
    \207\ The annual estimate of 360,000 is calculated based on 300
recipient entities each making 100 requests per month cumulatively
across all repositories. The estimate of 100 requests per authority
is based on staff experience with similar data requests in other
contexts.
---------------------------------------------------------------------------

    The Commission's proposed rule would also simplify relevant
authorities' direct access to security-based swap data needed in
connection with their regulatory mandate or legal responsibility or
authority, because repositories would not be required to provide the
Commission with actual notice of every request prior to providing
access to the requesting relevant authority.
iii. Use of Confidentiality Agreements Between the Commission and
Recipient Authorities
    The proposed rules in part would condition regulatory access on
there being an arrangement between the Commission and the recipient
entity, in the form of an MOU or otherwise, addressing the
confidentiality of the security-based swap information made available
to the recipient. The proposed rules add that those arrangements shall
be deemed to satisfy the statutory requirement for a written
confidentiality agreement.\208\
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    \208\ See proposed Exchange Act rule 13n-4(10)(i).
---------------------------------------------------------------------------

    As discussed above, the Commission preliminarily believes that this
approach reflects an appropriate way to satisfy the interests
associated with the confidentiality condition. The benefits associated
with this approach include obviating the need for repositories to
negotiate and enter into multiple confidentiality agreements, avoiding
difficulties regarding the parameters of an adequate confidentiality
agreement, and avoiding uneven and potentially inconsistent
confidentiality protections. The proposed approach also would build
upon the Commission's experience in negotiating such agreements.\209\
---------------------------------------------------------------------------

    \209\ See part II.B.1, supra.
---------------------------------------------------------------------------

iv. Indemnification Exemption
    The Commission also is proposing a conditional indemnification
exemption, recognizing that application of the indemnification
requirement could prevent some relevant domestic and foreign
authorities from obtaining security-based swap information from
repositories, because they cannot provide an indemnification
agreement.\210\ Effectively prohibiting some authorities other than the
Commission from obtaining access to security-based swap data maintained
by repositories potentially would greatly reduce the market
transparency to regulators provided by Title VII.\211\ Moreover,
although relevant authorities could obtain security-based swap data
from the Commission,\212\ repositories are likely to have systems in
place and expertise that allows them to provide such data to relevant
authorities quickly, and economic incentives to minimize their own cost
of providing data.
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    \210\ See part III.A, supra.
    \211\ See Proposing Release, 75 FR 77307 (describing expected
benefits of SDRs, including the market transparency benefits of
access by regulators); id. at 77356 (``The ability of the Commission
and other regulators to monitor risk and detect fraudulent activity
depends on having access to market data.''); see also part VI.B.1 of
this release discussing transparency in the security-based swap
market.
    \212\ See part IV.B, supra (discussing information sharing under
Exchange Act sections 21 and 24); see also Proposing Release, 75 FR
77319.
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    The Commission also preliminarily believes that the absence of an
exemption to the indemnification requirement could increase the
likelihood that foreign authorities would require duplicate reporting
of cross-border transactions to repositories within the foreign
jurisdiction. To the extent that relevant foreign authorities are
effectively restricted in obtaining data maintained by SEC-registered
repositories, the Commission's own ability to access security-based
swap data may similarly be restricted.\213\ More generally, the
resulting restrictions on regulatory access may likely lead to
duplication and fragmentation of security-based swap data among trade
repositories in multiple jurisdictions, which may increase other costs
that relevant authorities may incur, including, for example, the
difficulty of aggregating data across multiple repositories.\214\
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    \213\ See note 94, supra, and accompanying text.
    \214\ See Proposing Release, 75 FR 77358. The costs associated
with aggregating the data of multiple repositories would likely be
significantly higher under the circumstances described here, as
different jurisdictions might impose different requirements
regarding how data is to be reported and maintained.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed
indemnification exemption further would be beneficial by mitigating the
risks associated with permitting relevant

authorities to obtain access to data maintained by repositories. The
exemption would be available only for requests that are consistent with
each requesting authority's regulatory mandate, or legal responsibility
or authority. The Commission preliminarily believes that these
conditions would significantly reduce the confidentiality concerns
relating to relevant authorities' access to data maintained by
repositories.\215\ Limiting an authority's access to data to that
relating to its mandate, or legal responsibility or authority would
reduce the opportunity for improper disclosure of the data in part
because such limits reduce the quantity of data that is subject to
potential improper disclosure, and because an authority is likely to be
familiar with the need to maintain the confidentiality of data that
relates to its mandate or legal responsibility or authority. Further,
the Commission will have an opportunity to evaluate the confidentiality
protections provided by the relevant authority in the context of
negotiations of an MOU or other arrangement.\216\ Should the Commission
believe the relevant authority has failed to comply with the
confidentiality provisions of the MOU, it may terminate access by
revoking a determination by the Commission that the relevant entity was
appropriate, or by terminating the MOU or other arrangement used to
satisfy the confidentiality condition, or, as applicable, the
indemnification exemption.\217\
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    \215\ See, e.g., ESMA comment (Jan. 17, 2011) at 2 (noting that
relevant authorities must ensure the confidentiality of security-
based swap data provided to them).
    \216\ For the indemnification exemption to apply to the requests
of a particular requesting authority, the authority would be
required to enter into an MOU or other arrangement with the
Commission, which would enable the Commission to determine, prior to
operation of the indemnification exemption, that the authority has a
regulatory mandate, or legal responsibility or authority to access
data maintained by SDRs, that the authority agrees to protect the
confidentiality of any security-based swap information provided to
it and that the authority will provide reciprocal assistance in
securities matters within the Commission's jurisdiction. See part
III, supra (discussing the proposed indemnification exemption).
    \217\ See part II.A.3, supra.
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b. Costs
    The Commission recognizes that the proposed approach to providing
access to relevant authorities other than the Commission to security-
based swap data held in repositories has the potential to involve
certain costs and risks.
    The relevant authorities requesting securities-based swap data
would incur some costs in seeking a Commission order deeming the
authority appropriate to receive security-based swap data. These costs
would include the negotiation of an MOU to address the confidentiality
of the security-based swap information it seeks to obtain and providing
information to justify that the security-based swap data relates to the
entity's regulatory mandate or legal responsibility or authority. As
discussed above, the Commission estimates that up to 300 entities
potentially might enter into such MOUs or other arrangements.\218\
Based on the Commission staff's experience in negotiating MOUs that
address regulatory cooperation, the Commission preliminarily estimates
the cost to each relevant authority requesting data associated with
negotiating such an arrangement of approximately $205,000 per entity
for a total of $61,500,000.\219\
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    \218\ See part VI.C.3.a.ii, supra.
    \219\ These figures are based on 300 entities each requiring 500
personnel hours on average to negotiate an MOU. See part V.D.1.a,
supra. The cost per entity is 400 hours x attorney at $380 per hour
+ 100 hours x deputy general counsel at $530 per hour = $205,000, or
a total of $61,500,000. We use salary figures from SIFMA's
Management & Professional Earnings in the Securities Industry 2013,
modified by SEC staff to account for a 1800-hour year-week and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
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    In addition, authorities that are not specified by the proposed
rule may request that that the Commission determine them to be
appropriate to receive access to such security-based swap data. Given
the relevant information that the Commission preliminarily would
consider in connection with such designations (apart from the MOU
issues addressed above)--including information regarding how the
authority would be expected to use the information, information
regarding the authority's regulatory mandate or legal responsibility or
authority, and information regarding reciprocal access--the Commission
preliminarily estimates the cost associated with such a request to be
approximately $15,200 per requesting entity for a total of
$4,560,000.\220\
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    \220\ These figures are based on roughly 300 entities (noting
that certain entities designated by statute or rule would not need
to prepare such requests) requiring 40 personnel hours to prepare a
request for access. See part V.D.1.b, supra. The cost per entity is
40 hours x attorney at $380 per hour = $15,200, or a total of
$4,560.000. We use salary figures from SIFMA's Management &
Professional Earnings in the Securities Industry 2013, modified by
SEC staff to account for a 1800-hour year-week and multiplied by
5.35 to account for bonuses, firm size, employee benefits and
overhead.
---------------------------------------------------------------------------

    Security-based swap data repositories would incur some costs to
verify that an entity requesting data entered into the requisite
agreements concerning confidentiality with the Commission, and that the
entity either has agreed to indemnify the Commission and the
repository, or that the indemnification exemption applies. The
Commission generally expects that such verification costs would be
minimal because information regarding such Commission arrangements
would generally be readily available.\221\
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    \221\ As a general matter, the Commission provides a list of
MOUs and other arrangements on its public Web site, which are
available at: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml.
---------------------------------------------------------------------------

    To the extent that the security-based swap data repository provides
the requested data through direct electronic means, the repository may
incur some cost in providing the requesting authority access to the
system that provides such access and setting data permissions to allow
access only to the information that relates to the authority's
regulatory mandate, or legal responsibility or authority. The
Commission preliminarily believes most of the costs associated with
providing such access would be the fixed costs incurred in designing
and building the systems to provide the direct electronic access
required by the recently adopted SDR rules.\222\ The Commission
preliminarily believes the marginal cost of providing access to an
additional relevant authority and setting the associated permissions is
approximately $6,295.\223\ Based on an estimated 300 entities
requesting access to each of ten registered SDRs, we estimate the total
cost of connecting entities to SDRs to be approximately $18,885,000.
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    \222\ See SDR Adopting Release, 80 FR 14523 (estimating the
aggregate one-time systems costs for ten respondents to be 420,000
hours and $10 million, and estimating the aggregate ongoing systems
costs as being 252,000 hours and $60 million); see also part
IV.D.1.c, supra.
    \223\ This figure is based on the view that, for each recipient
requesting data, a repository would incur an 25 hour burden
associated with programming or otherwise inputting the relevant
parameters, encompassing 20 hours of programmer analyst time and
five hours of senior programmer time. The estimate also encompasses
one hour of attorney time in connection with each such recipient.
See part V.D.1.c, supra. The cost per entity is 20 hours x
programmer analyst at $220 per hour + 5 hours x senior programmer at
$303 per hour + 1 hour x attorney at $380 per hour = $6,295, We use
salary figures from SIFMA's Management & Professional Earnings in
the Securities Industry 2013, modified by SEC staff to account for a
1800-hour year-week and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    The Commission further recognizes that the conditions in the
proposed indemnification exemption would not necessarily provide
repositories and the Commission with the same level of confidentiality-
related protection that an indemnification agreement would provide
(i.e., coverage for any expenses

arising from litigation relating to information provided to a relevant
authority). The Commission preliminarily believes, however, that the
conditions in the proposed indemnification exemption, related to the
need for a confidentiality arrangement and requiring that the
information provided relate to a regulatory mandate, or legal
responsibility or authority of the recipient entity, would provide
appropriate protection of the confidentiality of data maintained by
SDRs, albeit one that is different from the protection provided by an
indemnification agreement that addresses potential costs of litigation
associated with the data provided to it by the SDR.
    In addition, under the Commission's proposed notification
compliance rule, SDRs would be required to notify the Commission of the
initial request for data but would not have to inform the Commission of
all relevant authorities' requests for data prior to a SDR fulfilling
such requests. Based on the estimate that approximately 300 relevant
authorities may make requests for data from security-based swap data
repositories, the Commission estimates that a repository would provide
the Commission with actual notice approximately 300 times.\224\
Moreover, based on the estimate that ten persons may register with the
Commission as SDRs,\225\ this suggests that repositories in the
aggregate would provide the Commission with actual notice up to a total
of 3,000 times. The Commission preliminarily estimates that the total
of providing such notice to be $57,000 per SDR for a total of
$570,000.\226\
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    \224\ See part VI.C.3.ii, supra.
    \225\ See note 117, supra, and accompanying text.
    \226\ These figures are based each of ten SDRs providing notice
for each of 300 requesting entities. See part V.D.1.d, supra. The
cost per SDR is 300 requesting entities x 0.5 hours x attorney at
$380 per hour = $57,000, or a total of $570,000. We use salary
figures from SIFMA's Management & Professional Earnings in the
Securities Industry 2013, modified by SEC staff to account for a
1800-hour year-week and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
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    Pursuant to rule, SDRs would be required to maintain records of
subsequent requests.\227\ Not receiving actual notice of all requests
may impact the Commission's ability to track such requests, but the
Commission preliminarily believes that the benefits of receiving actual
notice of each request would not justify the additional costs that
repositories would incur in providing such notices and the potential
delay in relevant authorities receiving data that they need to fulfill
their regulatory mandate, or legal responsibility or authority. At the
same time, providing notice of initial requests will help to preserve
the Commission's ability to monitor whether the repository provides
data to each relevant entity consistent with the applicable conditions.
As discussed above, the Commission preliminarily estimates that the
average initial paperwork burden associated with maintaining certain
records related to data requests or access would be roughly 360 hours,
and that the annualized burden would be roughly 280 hours and $120,000
for each repository.\228\ Assuming a maximum of ten security-based swap
data repositories, the estimated aggregate one-time dollar cost would
be roughly $1 million,\229\ and the estimated aggregate annualized
dollar cost would be roughly $1.2 million.\230\
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    \227\ See part V.D.1.d, supra. As noted above, existing rules
require SDRs to maintain copies of all documents they make or
receive in their course of business, including electronic documents.
See note 77, supra.
    \228\ See part V.D.1.d, supra.
    \229\ The Commission preliminarily anticipates that a repository
would assign the associated responsibilities primarily to a
compliance manager and a senior systems analyst. The total estimated
dollar cost would be roughly $100,000 per repository, reflecting the
cost of a compliance manager at $283 per hour for 300 hours, and a
senior systems analyst at $260 per hour for 60 hours. Across the
estimated ten repositories, this would amount to roughly $1 million.
    \230\ The Commission preliminarily anticipates that a repository
would assign the associated responsibilities primarily to a
compliance manager. The total estimated dollar cost would be roughly
$120,000 per repository, reflecting $40,000 annualized information
technology costs, as well as a compliance manager at $283 per hour
for 280 hours. Across the estimated ten repositories, this would
amount to roughly $1.2 million.
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D. Alternatives

    The Commission considered a number of alternative approaches to
implementing the Exchange Act data access provisions, including the
indemnification requirement, but, for the reasons discussed below, is
not proposing them.
1. No Indemnification Exemption
    The Commission considered not proposing any exemptive relief from
the indemnification requirement. As discussed above, application of the
indemnification requirement may prevent some relevant authorities from
accessing security-based swap data directly from repositories
registered with the Commission.\231\ Although relevant authorities
could obtain such data from the Commission,\232\ that alternative would
be expected to be associated with delays and higher costs, particularly
during periods of market stress and particularly since repositories are
likely to have expertise in providing such data to relevant authorities
and economic incentives for doing so efficiently.\233\
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    \231\ See, e.g., DTCC comment (Nov. 15, 2010) at 3 (discussing
how the indemnification requirement would result in the reduction of
information accessible to regulators on a timely basis and would
greatly diminish regulators' ability to carry out oversight
functions).
    \232\ See part IV.B, supra, discussing information sharing under
Exchange Act sections 21 and 24; see also SDR Proposing Release, 75
FR 77319.
    \233\ See part VI.C.3.a.iv, supra.
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    To the extent that relevant foreign authorities are effectively
restricted in obtaining data maintained by SEC-registered repositories,
the Commission's own ability to access security-based swap data may
similarly be restricted.\234\ More generally, the resulting
restrictions on regulatory access may likely lead to duplication and
fragmentation of security-based swap data among trade repositories in
multiple jurisdictions, which may increase other costs that relevant
authorities may incur, including, for example, the difficulty of
aggregating data across multiple repositories.\235\
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    \234\ See note 94, supra, and accompanying text.
    \235\ See note 214, supra.
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2. Repository Option To Waive Indemnification
    The Commission also considered whether to adopt the approach set
forth in the Cross-Border Proposing Release, to allow the SDR the
option to waive the indemnification requirement.\236\ As discussed
above, however, the Commission preliminarily believes that the proposed
approach would more effectively address the relevant concerns
associated with implementing the indemnification provision.\237\ Also,
requiring each repository to elect whether to waive the indemnification
requirement for each requesting entity would likely impose additional
costs on repositories and may result in inconsistent treatment of data
requests across repositories.
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    \236\ See note 91, supra, and accompanying text.
    \237\ See part III.A, supra.
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3. Additional Conditions to Indemnification Requirement or Proposed
Indemnification Exemption
    The Commission also considered whether to prescribe additional
conditions or limitations to the indemnification requirement or the
proposed indemnification exemption. In part, the Commission considered
one commenter's suggestion that the Commission provide model
indemnification language in connection with the indemnification
requirement,

but concluded preliminarily that the benefits of such model language
are largely mitigated by an indemnification exemption that would
condition the indemnification exemption upon there being in effect one
or more arrangements (in the form of an MOU or otherwise) between the
Commission and the entity that addresses the confidentiality of the
security-based swap information provided and other matters as
determined by the Commission.\238\
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    \238\ See note 98, supra.
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4. Use of Confidentiality Arrangements Directly Between Repositories
and Recipients
    The Commission considered the alternative approach of permitting
confidentiality agreement between SDRs and the recipient of the
information to satisfy the confidentiality condition to the data access
requirement. The Commission preliminarily believes, however, that the
proposed approach, which would make use of confidentiality arrangements
between the Commission and the recipients of the data, would avoid
difficulties such as questions regarding the parameters of the
confidentiality agreement, and the presence of uneven and inconsistent
confidentiality protections.\239\ This also would avoid the need for
SDRs to potentially negotiate and enter into dozens of confidentiality
agreements, instead such costs would be borne by the Commission.
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    \239\ See part II.B.1, supra.
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6. Notice of Individual Requests for Data Access
    Finally, the Commission considered requiring repositories to
provide notice to the Commission of all requests for data prior to
repositories fulfilling such requests, rather than the proposed
approach of requiring such notice only of the first request from a
particular recipient, with the repository maintaining records of all
subsequent requests.\240\ The Commission preliminarily believes that
the benefits of receiving actual notice for each and every request
would not justify the additional costs that would be imposed on
repositories to provide such notice, and providing notice of subsequent
requests may not be feasible if data is provided by direct electronic
access.
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    \240\ See part II.A.4, supra.
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E. Comments on the Economic Analysis

    The Commission requests comment on all aspects of this economic
analysis. Commenters particularly are requested to address whether
there are other costs or benefits--not addressed above--that the
Commission should take into account when adopting final rules.
Commenters also are requested to address whether the Commission has
appropriately weighed the costs and benefits of the potential
alternative approaches addressed above, and whether there are other
potential alternative approaches that the Commission should assess.

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA'') \241\ the Commission must advise OMB whether
the proposed regulation constitutes a ``major'' rule. Under SBREFA, a
rule is considered ``major'' where, if adopted, it results or is likely
to result in: (1) An annual effect on the economy of $100 million or
more; (2) a major increase in costs or prices for consumers or
individual industries; or (3) significant adverse effect on
competition, investment or innovation.
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    \241\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
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    The Commission requests comment on the potential impact of the
proposed rules and amendments on the economy on an annual basis.
Commenters are requested to provide empirical data and other factual
support for their views to the extent possible.

VIII. Regulatory Flexibility Act Certification

    Section 3(a) of the Regulatory Flexibility Act of 1980 (``RFA'')
\242\ requires the Commission to undertake an initial regulatory
flexibility analysis of the proposed rules on ``small entities.''
Section 605(b) of the RFA \243\ provides that this requirement shall
not apply to any proposed rule or proposed rule amendment which, if
adopted, would not have a significant economic impact on a substantial
number of small entities. Pursuant to 5 U.S.C. 605(b), the Commission
hereby certifies that the proposed rules would not, if adopted, have a
significant economic impact on a substantial number of small entities.
In developing these proposed rules, the Commission has considered their
potential impact on small entities. For purposes of Commission
rulemaking in connection with the RFA, a small entity includes: (1)
When used with reference to an ``issuer'' or a ``person,'' other than
an investment company, an ``issuer'' or ``person'' that, on the last
day of its most recent fiscal year, had total assets of $5 million or
less; \244\ or (2) a broker-dealer with total capital (net worth plus
subordinated liabilities) of less than $500,000 on the date in the
prior fiscal year as of which its audited financial statements were
prepared pursuant to Rule 17a-5(d) under the Exchange Act,\245\ or, if
not required to file such statements, a broker-dealer with total
capital (net worth plus subordinated liabilities) of less than $500,000
on the last day of the preceding fiscal year (or in the time that it
has been in business, if shorter); and is not affiliated with any
person (other than a natural person) that is not a small business or
small organization.\246\
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    \242\ 5 U.S.C. 603(a).
    \243\ 5 U.S.C. 605(b).
    \244\ See 17 CFR 240.0-10(a).
    \245\ 17 CFR 240.17a-5(d).
    \246\ See 17 CFR 240.0-10(c).
    For purposes of the Regulatory Flexibility Act, the definition
of ``small entity'' also encompasses ``small governmental
jurisdictions,'' which in relevant part means governments of locales
with a population of less than fifty thousand. 5 U.S.C. 601(5), (6).
Although the Commission anticipates that this proposal may be
expected to have an economic impact on various governmental entities
that access data pursuant to Dodd-Frank's data access provisions,
the Commission does not anticipate that any of those governmental
entities would be small entities.
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    In initially proposing rules regarding the registration process,
duties and core principles applicable to SDRs, the Commission stated
that it preliminarily did not believe that any persons that would
register as repositories would be considered small entities.\247\ The
Commission further stated that it preliminarily believed that most, if
not all, SDRs would be part of large business entities with assets in
excess of $5 million and total capital in excess of $500,000, and, as a
result, the Commission certified that the proposed rules would not have
a significant impact on a substantial number of small entities and
requested comments on this certification.\248\ The Commission
reiterated that conclusion earlier this year in adopting final rules
generally addressing repository registration, duties and core
principles.\249\
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    \247\ See 75 FR 77365.
    \248\ See id. (basing the conclusions on review of public
sources of financial information about the current repositories that
are providing services in the OTC derivatives market).
    \249\ See SDR Adopting Release, 80 FR 14549 (noting that the
Commission did not receive any comments that specifically addressed
whether the applicable rules would have a significant economic
impact on small entities).
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    The Commission continues to hold the view that any persons that
would register as SDRs would not be considered small entities.
Accordingly, the Commission certifies that the proposed rules--related
to regulatory access to data held by SDRs and providing a conditional
exemption from

the associated indemnification requirement--would not have a
significant economic impact on a substantial number of small entities
for purposes of the RFA. The Commission encourages written comments
regarding this certification. The Commission solicits comment as to
whether the proposed rules could have an effect on small entities that
has not been considered. The Commission requests that commenters