impose substantial additional burdens on a registered SDR. A registered
SDR would be required to have the ability to collect and maintain SBS
transaction reports and update relevant records under the SDR
Registration Proposing Release.\238\ Likewise, a registered SDR would
have the capacity to disseminate additional, corrected SBS transaction
reports under proposed Rule 902. The Commission preliminarily believes
that the burdens associated with proposed Rule 905--including systems
development, support, and maintenance--are addressed in the
Commission's analysis of those other rules. Thus, the Commission
preliminarily believes that proposed Rule 905(b) would impose only an
incremental additional burden on registered SDRs. The Commission
preliminarily estimates that to develop and publicly provide the
necessary protocols would impose on each registered SDR an initial one-
time burden of approximately 730 burden hours.\239\ The Commission
estimates that to review and update such protocols on an ongoing basis
would impose an annual burden on each SDR of approximately 1,460 burden
hours.\240\
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    \238\ See supra note 6.
    \239\ This figure is based on the following: [(Sr. Programmer at
80 hours) + (Compliance Manager at 160 hours) + (Compliance Attorney
at 250 hours) + (Compliance Clerk at 120 hours) + (Sr. System
Analyst at 80 hours) + (Director of Compliance at 40 hours)] = 730
burden hours.
    \240\ This figure is based on the following: [(Sr. Programmer at
160 hours) + (Compliance Manager at 320 hours) + (Compliance
Attorney at 500 hours) + (Compliance Clerk at 240 hours) + (Sr.
System Analyst at 160 hours) + (Director of Compliance at 80 hours)]
= 1,460 burden hours.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the
initial (first-year) aggregate annualized burden on registered SDRs
under proposed Rule 905 would be 21,900 burden hours, which corresponds
to 2,190 burden hours for each registered SDR.\241\ The Commission
further preliminarily estimates that the ongoing aggregate annualized
burden on registered SDRs under proposed Rule 905 would be 14,600
burden hours, which corresponds to 1,460 burden hours for each
registered SDR.\242\
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    \241\ This figure is based on the following: [(730 burden hours
to develop protocols) + (1,460 burden hours annual support)) x (10
registered SDRs)] = 21,900 burden hours, which corresponds to 2,190
burden hours per registered SDR.
    \242\ This figure is based on the following: [(1,460 burden
hours annual support) x (10 registered SDRs)] = 14,600 burden hours,
which corresponds to 1,460 burden hours per registered SDR.
---------------------------------------------------------------------------

5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is
proposing the SDR Registration Proposed Rules, which would include
recordkeeping requirements for SBS transaction data received by a
registered SDR pursuant to proposed Regulation SBSR.\243\ Specifically,
proposed Rule 13n-5(b)(5) under the Exchange Act would require a
registered SDR to maintain the transaction data for not less than five
years after the applicable SBS expires and historical positions and
historical market values for not less than five years. Accordingly, SBS
transaction reports received by a registered SDR pursuant to proposed
Rule 905 would be required to be retained for not less than five years.
---------------------------------------------------------------------------

    \243\ See SDR Registration Proposing Release, supra note 6.
---------------------------------------------------------------------------

    With respect to information disseminated by a registered SDR in
compliance with proposed Rule 905(b)(2), proposed Rule 13n-7(b) under
the Exchange Act would require a registered SDR to keep and preserve at
least one copy of all documents, including all policies and procedures
required by the Exchange Act and the rules or regulations thereunder
for a period of not less than five years, the first two years in a
place that is immediately available to the staff of the Commission for
inspection and examination.\244\ This requirement would encompass
amended real-time SBS transaction reports disseminated by the
registered SDR. Accordingly, SBS transaction reports disseminated by a
registered SDR pursuant to proposed Rule 905(b)(2) would be required to
be retained for not less than five years.
---------------------------------------------------------------------------

    \244\ See id.
---------------------------------------------------------------------------

6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory
collection of information.
7. Confidentiality of Responses to Collection of Information
    Information collected pursuant to proposed Rule 905 would be widely
available to the extent that it corrects information previously
reported pursuant to proposed Rule 901(c) and incorporated into SBS
transaction reports that are publicly disseminated by a registered SDR
pursuant to proposed Rule 902. Generally, however, a registered SDR
would be under an obligation to maintain the confidentiality of any
information collected pursuant to proposed Rule 901, pursuant to
Sections 13(n)(5) of the Exchange Act and proposed Rule 13n-9
thereunder.\245\ To the extent that the Commission receives
confidential information pursuant this collection of

information, such information would be kept confidential, subject to
the provisions of the Freedom of Information Act.
---------------------------------------------------------------------------

    \245\ See SDR Registration Proposing Release, supra note 6.
---------------------------------------------------------------------------

8. Request for Comment
    The Commission requests public comment on its burden estimates. The
Commission also solicits comment as follows:
    222. Is the proposed collection of information necessary for the
performance of the functions of the agency? Would the information have
practical utility?
    223. How accurate are the Commission's preliminary estimates of the
burdens of the proposed collection of information associated with
proposed Rule 905? In particular, how many entities would incur
collection of information burdens pursuant to proposed Rule 905?
    224. Would covered entities incur any initial burdens associated
with systems design, programming, expanding systems capacity, and
establishing compliance programs pursuant to proposed Rule 905?
    225. What entities may be subject to proposed Rule 905? In what
ways would these entities be impacted? Would any such entity or class
of entities be impacted differently than others?
    226. How many entities might be impacted by proposed Rule 905? Are
the Commission's preliminary estimates as to the number of participants
in the SBS market that would be required to report and retain
information pursuant to the proposed rule accurate?
    227. Are there additional burdens that the Commission has not
addressed in its preliminary burden estimates?
    228. Can you suggest any ways to enhance the quality, utility, and
clarity of the information to be collected?
    229. Can you suggest any ways to minimize the burden of collection
of information on those who would be required to respond, including
through the use of automated collection techniques or other forms of
information technology?

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

    Certain provisions of proposed Rule 906 of Regulation SBSR contain
``collection of information requirements'' within the meaning of the
PRA. The title of this collection is ``Rule 906--Duties of All
Participants.''
1. Summary of Collection of Information
    Proposed Rule 906(a) would set forth a procedure designed to ensure
that a registered SDR obtains relevant ID information for both
counterparties to a SBS, not just the IDs of the reporting party.
Proposed Rule 906(a) would require a registered SDR to identify any SBS
reported to it for which it does not have participant ID and (if
applicable) broker ID, desk ID, and trader ID of each counterparty.
Proposed Rule 906(a) would further require the registered SDR, once a
day, to send a report to each participant identifying, for each SBS to
which that participant is a counterparty, the SBS(s) for which the
registered SDR lacks participant ID and (if applicable) broker ID, desk
ID, and trader ID. Additionally, under proposed Rule 906(a), a
participant that receives such a report would be required to provide
the missing ID information to the registered SDR within 24 hours.
    Proposed Rule 906(b) would require a participant to provide a
registered SDR with information identifying the participant's ultimate
parent(s) and affiliate(s) that may also be participants of the
registered SDR. Additionally, under proposed Rule 906(b), the
participant would be required to promptly notify the registered SDR of
any changes to the information provided.
    Proposed Rule 906(c) would require each participant that is a SBS
dealer or major SBS participant to establish, maintain, and enforce
written policies and procedures that are reasonably designed to ensure
compliance with any SBS transaction reporting obligations in a manner
consistent with proposed Regulation SBSR and the registered SDR's
applicable policies and procedures. In addition, proposed Rule 906(c)
would require each such participant to review and update its policies
and procedures at least annually.
2. Proposed Use of Information
    The information required to be provided by participants pursuant to
proposed Rule 906(a) would complete missing elements of SBS transaction
reports so that the registered SDR would have, and could make available
to regulators, accurate and complete records for reported SBS.
    Similarly, proposed Rule 906(b) would be used to ensure that the
registered SDR would have, and could make available to regulators,
accurate and complete records for reported SBS regarding participant
parents and affiliates. The Commission would use this information in
its ongoing efforts to monitor and enforce compliance with the federal
securities laws, including proposed Regulation SBSR.
    The policies and procedures required under proposed Rule 906(c)
would be used by participants to aid in their compliance with proposed
Regulation SBSR, and also used by the Commission as part of its ongoing
efforts to monitor and enforce compliance with the federal securities
laws, including proposed Regulation SBSR.
3. Respondents
    Proposed Rules 906(a) and (b) would apply to all participants of
registered SDRs. Based on the information currently available to the
Commission, the Commission preliminarily estimates that there may be up
to 5,000 participants. Proposed Rule 906(c) would apply to participants
that are SBS dealers or major SBS participants. The Commission believes
that such entities would constitute the majority of reporting parties,
so that it is reasonable to use the figure of 1,000 respondents for
purposes of estimating collection of information burdens under the PRA.
    Proposed Rule 906 also imposes certain duties on registered SDRs.
As noted above, the Commission is preliminarily estimating that there
would be ten registered SDRs.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    Proposed Rule 906(a) would require a registered SDR, once a day, to
send a report to each participant identifying, for each SBS to which
that participant is a counterparty, the SBS(s) for which the registered
SDR lacks participant ID and (if applicable) broker ID, desk ID, and
trader ID. The Commission preliminarily estimates that there would be a
one-time, initial burden of 112 burden hours for a registered SDR to
create a report template and develop the necessary systems and
processes to produce a daily report required by proposed Rule
906(a).\246\ Further, the Commission preliminarily estimates that there
would be an ongoing annualized burden of 308 burden hours for a
registered SDR to generate and issue the daily reports, and to enter
into its systems the ID information supplied by participants in
response to the daily reports.\247\
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    \246\ The Commission has derived the total estimated burdens
based on the following estimates, which are based on the information
provided to the Commission: (Senior Systems Analyst at 40 hours) +
(Sr. Programmer at 40 hours) + (Compliance Manager at 16 hours) +
(Director of Compliance at 8 hours) + (Compliance Attorney at 8
hours) = 112 burden hours.
    \247\ The Commission has derived the total estimated burdens
based on the following estimates, which are based on the information
provided to the Commission: (Senior Systems Analyst at 24 hours) +
(Sr. Programmer at 24 hours) + (Compliance Clerk at 260 hours) = 308
burden hours.
---------------------------------------------------------------------------

    Accordingly, the Commission preliminarily estimates that the
initial

aggregate annualized burden for registered SDRs under proposed Rule
906(a) would be 4,200 burden hours, which corresponds to 420 burden
hours per registered SDR.\248\ The Commission preliminarily estimates
that the ongoing aggregate annualized burden for registered SDRs under
proposed Rule 906(a) would be 3,080 burden hours, which corresponds to
308 burden hours per registered SDR.\249\
---------------------------------------------------------------------------

    \248\ The Commission derived its estimate from the following:
[(112 + 308 burden hours) x (10 registered SDRs)] = 4,200 burden
hours, which corresponds to 420 burden hours per registered SDR.
    \249\ The Commission derived its estimate from the following:
[(308 burden hours) x (10 registered SDRs)] = 3,080 burden hours,
which corresponds to 308 burden hours per registered SDR.
---------------------------------------------------------------------------

    In addition, proposed Rule 906(a) would require any participant
that receives a daily report from a registered SDR to provide the
missing UICs to the registered SDR within 24 hours. The Commission
preliminarily estimates participants that are reporting parties would
bear no initial or ongoing burdens under proposed Rule 906(a). This
estimate is based on the Commission's preliminary belief that a
reporting party would structure its reporting program to be in
compliance with proposed Regulation SBSR, and consequently, would send
complete information as relates to itself for each SBS transaction
submitted to a registered SDR. The Commission further preliminarily
estimates that the initial and ongoing annualized burden under proposed
Rule 906(a) to participants that are not reporting parties would be
1,277,500 burden hours, which corresponds to 255.5 burden hours per
participant.\250\ This figure is based on the Commission's preliminary
estimates of (1) 5,000 participants; (2) 9 transactions per day per
participant; \251\ and (3) a missing information rate of 80%,\252\ or
approximately 7 transactions per day per participant.
---------------------------------------------------------------------------

    \250\ This figure is based on the following: [(7 missing
information reports per non-reporting-party participant per day) x
(365 days/year) x (Compliance Clerk at 0.1 hours/report) x (5,000
participants)] = 1,277,500 burden hours, which corresponds to 255.5
burden hours per participant.
    \251\ This figure is based on the following: [((15,458,824
estimated annual SBS transactions)/5,000 estimated participants))/
(365 days/year)] = 8.47, or approximately 9 transactions per day.
See supra note 185. The Commission understands that many of these
transactions may arise from previously executed SBS transactions.
    \252\ In other words, the Commission is estimating that 80% of
the time the reporting party would not know and thus would not be
able to report the necessary UICs of its counterparty. Therefore, a
registered SDR would have to obtain the missing UICs through the
process described in proposed Rule 906(a).
---------------------------------------------------------------------------

    Proposed Rule 906(b) would require every participant to provide the
registered SDR an initial parent/affiliate report and subsequent
reports, as needed. The Commission preliminarily estimates that each
participant would submit two reports each year.\253\ In addition, the
Commission preliminarily estimates that there would be 5,000
participants and that each one may connect to two registered SDRs.
Accordingly, the Commission preliminarily estimates that the initial
and ongoing aggregate annualized burden associated with proposed Rule
906(b) would be 10,000 burden hours, which corresponds to 2 burden
hours per participant.\254\
---------------------------------------------------------------------------

    \253\ During the first year, the Commission preliminarily
estimates each participant would submit its initial report and one
update report. In subsequent years, the Commission preliminarily
estimates that each participant would submit two update reports.
    \254\ This figure is based on the following: [(Compliance Clerk
at 0.5 hours per report) x (2 reports/year/SDR connection) x (2 SDR
connections/participant) x (5,000 participants)] = 10,000 burden
hours, which corresponds to 2 burden hours per participant.
---------------------------------------------------------------------------

    Proposed Rule 906(c) would require each participant that is a SBS
dealer or major SBS participant to establish, maintain, and enforce
written policies and procedures that are reasonably designed to ensure
compliance with any SBS transaction reporting obligations in a manner
consistent with proposed Regulation SBSR and the registered SDR's
applicable policies and procedures. Proposed Rule 906(c) would also
require the review and updating of such policies and procedures at
least annually. The Commission preliminary estimates that the one-time,
initial burden for each covered participant to adopt written policies
and procedures as required under proposed Rule 906(c) would be
approximately 216 burden hours.\255\ Drawing on the Commission's
experience with other rules that require entities to establish and
maintain policies and procedures,\256\ this figure is based on the
estimated number of hours to develop a set of written policies and
procedures, program systems, implement internal controls and oversight,
train relevant employees, and perform necessary testing.
---------------------------------------------------------------------------

    \255\ This figure is based on the following: [(Sr. Programmer at
40 hours) + (Compliance Manager at 40 hours) + (Compliance Attorney
at 40 hours) + (Compliance Clerk at 40 hours) + (Sr. Systems Analyst
at 32 hours) + (Director of Compliance at 24 hours)] = 216 burden
hours per covered participant.
    \256\ See Securities Exchange Act Release Nos. 62174 (May 26,
2010), 75 FR 32556 (June 8, 2010) (proposing Rule 613 of Regulation
NMS); 61908 (April 14, 2010), 75 FR 21456 (proposing large trader
reporting system).
---------------------------------------------------------------------------

    In addition, the Commission preliminarily estimates the burden of
maintaining such policies and procedures, including a full review at
least annually, as required by proposed Rule 906(c), would be
approximately 120 burden hours for each covered participant.\257\ This
figure includes an estimate of hours related to reviewing existing
policies and procedures, making necessary updates, conducting ongoing
training, maintaining internal controls systems, and performing
necessary testing. Accordingly, the Commission preliminarily estimates
that the initial aggregate annualized burden associated with proposed
Rule 906(c) would be 336,000 burden hours, which corresponds to 336
burden hours per covered participant.\258\ The Commission preliminarily
estimates that the ongoing aggregate annualized burden associated with
proposed Rule 906(c) would be 120,000 burden hours, which corresponds
to 120 burden hours per covered participant.\259\
---------------------------------------------------------------------------

    \257\ This figure is based on the following: [(Sr. Programmer at
8 hours) + (Compliance Manager at 24 hours) + (Compliance Attorney
at 24 hours) + (Compliance Clerk at 24 hours) + (Sr. Systems Analyst
at 16 hours) + (Director of Compliance at 24 hours)] = 120 burden
hours per covered participant.
    \258\ This figure is based on the following: [(216 + 120 burden
hours) x (1,000 covered participants)] = 336,000 burden hours.
    \259\ This figure is based on the following: [(120 burden hours)
x (1,000 covered participants)] = 120,000 burden hours.
---------------------------------------------------------------------------

    Therefore, the Commission preliminarily estimates that the initial
aggregate annualized burden associated with proposed Rule 906 would be
1,518,200 burden hours,\260\ and the ongoing aggregate annualized
burden would be 1,301,080 burden hours for all covered entities.\261\
---------------------------------------------------------------------------

    \260\ This figure is based on the following: [(4,200 burden
hours for registered SDRs under proposed Rule 906(a)) + (1,277,500
burden hours for non-reporting-party participants under proposed
Rule 906(a)) + (10,000 burden hours for participants under proposed
Rule 906(b)) + (336,000 burden hours for covered participants under
proposed Rule 906(c))] = 1,627,700 burden hours.
    \261\ This figure is based on the following: [(3,080 burden
hours for registered SDRs under proposed Rule 906(a)) + (1,277,500
burden hours for non-reporting-party participants under proposed
Rule 906(a)) + (10,000 burden hours for participants under proposed
Rule 906(b)) + (120,000 burden hours for covered participants under
proposed Rule 906(c))] = 1,410,580 burden hours.
---------------------------------------------------------------------------

5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is
issuing the SDR Registration Proposing Release, which would include
recordkeeping requirements for SBS transaction data received by a
registered SDR pursuant to proposed Regulation SBSR.\262\ Specifically,
proposed Rule 13n-5(b)(5) under the Exchange Act would require a
registered SDR to

maintain the transaction data for not less than five years after the
applicable SBS expires and historical positions and historical market
values for not less than five years.
---------------------------------------------------------------------------

    \262\ See supra note 6.
---------------------------------------------------------------------------

    With regard to other information that a registered SDR may receive
from participants pursuant to proposed Rule 906, proposed Rule 13n-7(b)
would require a registered SDR to keep and preserve at least one copy
of all documents, including all documents and policies and procedures
required by the Exchange Act and the rules or regulations thereunder
for a period of not less than five years, the first two years in a
place that is immediately available to the staff of the Commission for
inspection and examination.\263\ This requirement would encompass
materials received by a registered SDR from participants pursuant to
proposed Rule 906.
---------------------------------------------------------------------------

    \263\ See id.
---------------------------------------------------------------------------

6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory
collection of information.
7. Confidentiality of Responses to Collection of Information
    A registered SDR would be under an obligation to maintain the
confidentiality of any information collected pursuant to proposed Rule
906. To the extent that the Commission receives confidential
information pursuant this collection of information, such information
would be kept confidential, subject to the provisions of the Freedom of
Information Act.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The
Commission also solicits comment as follows:
    230. Is the proposed collection of information necessary for the
performance of the functions of the agency? Would the information have
practical utility?
    231. In what ways would entities covered by Rule 906 be impacted?
Would any such entity or class of entities be impacted differently than
others?
    232. What would be the burdens on participants to provide to a
registered SDR and keep updated information about their ultimate
parents and affiliates that are also participants?
    233. How many entities might be impacted by proposed Rule 906? Are
the Commission's preliminary estimates as to the number of participants
in the SBS market that would be required to report and retain
information pursuant to the proposed rule accurate?
    234. Can you suggest any ways to enhance the quality, utility, and
clarity of the information to be collected?
    235. Can you suggest any ways to minimize the burden of collection
of information on those who would be required to respond, including
through the use of automated collection techniques or other forms of
information technology?
    236. Would proposed Rule 906 create any additional burdens not
discussed here? If so, please identify and quantify these burdens.

H. Policies and Procedures of Registered Security-Based Swap Data
Repositories--Rule 907 of Regulation SBSR

    Certain provisions of proposed Rule 907 of Regulation SBSR contain
``collection of information requirements'' within the meaning of the
PRA. The title of this collection is ``Rule 907--Policies and
Procedures of Registered Security-Based Swap Data Repositories.'' The
Commission is applying for a new OMB Control Number for this collection
in accordance with 44 U.S.C. 3507(j) and 5 CFR 1320.13.
1. Summary of Collection of Information
    Proposed Rule 907 would require a registered SDR to establish and
maintain compliance with written policies and procedures: (1) That
enumerate the specific data elements of a SBS or a life cycle event
that a reporting party would report; (2) that specify data formats,
connectivity requirements, and other protocols for submitting
information; (3) for specifying how reporting parties are to report
corrections to previously submitted information, making corrections to
information in its records that is subsequently discovered to be
erroneous, and applying an appropriate indicator to any transaction
report required to be disseminated by proposed Rule 905(b)(2), which
would denote that the report relates to a previously disseminated
transaction; (4) describing how reporting parties shall report and,
consistent with the enhancement of price discovery, how the registered
SDR shall publicly disseminate, reports of, and adjustments due to,
life cycle events; SBS transactions that do not involve an opportunity
to negotiate any material terms, other than the counterparty; and any
other SBS transactions that, in the estimation of the registered SDR,
do not accurately reflect the market; (5) for assigning transaction IDs
and UICs related to its participants; and (6) for periodically
obtaining from each participant information that identifies the
participant's ultimate parent(s) and any other participant(s) with
which the counterparty is affiliated, using applicable UICs.
    In addition, proposed Rule 907(b)(1) would require a registered SDR
to establish and maintain written policies and procedures for
calculating and publicizing block trade thresholds for all SBS
instruments reported to the registered SDR in accordance with the
criteria and formula for determining block size as specified by the
Commission.
    Under proposed Rules 907(c) and (d), a registered SDR would be
required to make its policies and procedures publicly available on its
website, and review, and update as necessary, its policies and
procedures at least annually, indicating the date on which they were
last reviewed. Finally, proposed Rule 907(e) would require a registered
SDR to have the capacity to provide to the Commission, upon request,
information or reports related to the timeliness, accuracy, and
completeness of data reported to it pursuant to proposed Regulation
SBSR and the registered SDR's policies and procedures thereunder.
2. Proposed Use of Information
    The policies and procedures required under proposed Rule 907 would
be used by registered SDRs to aid in their compliance with Regulation
SBSR, and also used by the Commission as part of its ongoing efforts to
monitor and enforce compliance with the federal securities laws,
including proposed Regulation SBSR. These policies and procedures also
would be used by participants of a registered SDR to understand the
specific data elements of SBS transactions that they must report, the
specific data formats they would be required to use, and for
understanding what constitutes a block trade in a SBS instrument.
Furthermore, market participants would use the information about block
trades calculated and publicized by a registered SDR to understand the
block trade thresholds for specific SBS instruments, and for
understanding the registered SDR's dissemination protocols generally.
Finally, any information or reports provided to the Commission pursuant
to proposed Rule 907(e) would be used by the Commission to assess the
timeliness, accuracy, and completeness of data reported pursuant to
proposed Regulation SBSR and as part of its general oversight of the
SBS markets.

3. Respondents
    As noted above, the Commission preliminarily estimates that ten
registered SDRs would be subject to proposed Rule 907.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    The Commission preliminarily estimates that the one-time, initial
burden for a registered SDR to adopt written policies and procedures as
required under proposed Rule 907 would be approximately 15,000
hours.\264\ Drawing on the Commission's experience with other rules
that require entities to establish and maintain policies and
procedures,\265\ this figure is based on the estimated number of hours
to develop a set of written policies and procedures, program systems,
implement internal controls and oversight, train relevant employees,
and perform necessary testing.\266\ In addition, the Commission
preliminarily estimates the annual burden of maintaining such policies
and procedures, including a full review at least annually, making
available its policies and procedures on the registered SDR's website,
and compiling statistics on non-compliance, as required under proposed
Rule 907, would be approximately 30,000 hours for each registered
SDR.\267\ This figure includes an estimate of hours related to
reviewing existing policies and procedures, making necessary updates,
conducting ongoing training, maintaining relevant systems and internal
controls systems, calculating and publishing block trade thresholds,
performing necessary testing, monitoring participants, and compiling
data.
---------------------------------------------------------------------------

    \264\ This figure is based on the following: [(Sr. Programmer at
1,667 hours) + (Compliance Manager at 3,333 hours) + (Compliance
Attorney at 5,000 hours) + (Compliance Clerk at 2,500 hours) + (Sr.
System Analyst at 1,667 hours) + (Director of Compliance at 833
hours)] = 15,000 burden hours per registered SDR.
    \265\ See infra at note 256.
    \266\ This figure includes time necessary to design and program
systems and implement policies and procedures to calculate and
publish block trade thresholds for all SBS instruments reported to
the registered SDR, as would be required by proposed Rule 907(b). It
also includes time necessary to design and program systems and
implement policies and procedures to determine which reported trades
would not be considered block trades. This figure also includes time
necessary to design and program systems and implement policies and
procedures to assign certain IDs, as would be required by proposed
Rule 907(a)(5).
    \267\ This figure is based on the following: [(Sr. Programmer at
3,333 hours) + (Compliance Manager at 6,667 hours) + (Compliance
Attorney at 10,000 hours) + (Compliance Clerk at 5,000 hours) + (Sr.
System Analyst at 3,333 hours) + (Director of Compliance at 1,667
hours)] = 30,000 burden hours per registered SDR.
---------------------------------------------------------------------------

    The Commission preliminarily believes that, as part of its core
functions, a registered SDR would have the capacity to provide to the
Commission, upon request, information or reports related to the
timeliness, accuracy, and completeness of data reported to it pursuant
to proposed Regulation SBSR and the registered SDR's policies and
procedures. Proposed Rule 13n-5(b) would require a registered SDR to
establish, maintain, and enforce written policies and procedures to
satisfy itself by reasonable means that the transaction data that has
been submitted to the security-based swap data repository is accurate,
and also to ensure that the transaction data and positions that it
maintains are accurate.\268\ The Commission preliminarily believes that
these capabilities would enable a registered SDR to provide the
Commission information or reports as may be requested pursuant to
proposed Rule 907(e). Thus, the Commission does not believe that
proposed Rule 907(e) would impose any additional burdens on a
registered SDR.
---------------------------------------------------------------------------

    \268\ See SDR Registration Proposing Release, supra note 6,
proposed Rules 13n-5(b)(1)(iii) and 13n-5(b)(3) under the Exchange
Act.
---------------------------------------------------------------------------

    Based on the Commission's experience and input from self-regulatory
organizations, the Commission preliminarily believes that a registered
SDR would need to hire 15 full-time staff to fulfill the obligations
outlined in proposed Rule 907. Accordingly, the Commission
preliminarily estimates that the initial annualized burden associated
with proposed Rule 907 would be approximately 45,000 hours per
registered SDR, which corresponds to an initial annualized aggregate
burden of approximately 450,000 hours.\269\ The Commission
preliminarily estimates that the ongoing annualized burden associated
with proposed Rule 907 would be approximately 30,000 hours per
registered SDR,\270\ which corresponds to an ongoing annualized
aggregate burden of approximately 300,000 hours.\271\
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    \269\ This figure is based on the following: [((15,000 burden
hours per registered SDR) + (30,000 burden hours per registered
SDR)) x (10 registered SDRs)] = 450,000 initial annualized aggregate
burden hours during the first year.
    \270\ This figure is based on the following: [(Sr. Programmer at
3,333 hours) + (Compliance Manager at 6,667 hours) + (Compliance
Attorney at 10,000 hours) + (Compliance Clerk at 5,000 hours) + (Sr.
System Analyst at 3,333 hours) + (Director of Compliance at 1,667
hours)] = 30,000 burden hours per registered SDR.
    \271\ This figure is based on the following: [(30,000 burden
hours per registered SDR) x (10 registered SDRs)] = 300,000 ongoing,
annualized aggregate burden hours.
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5. Recordkeeping Requirements
    Concurrently with proposed Regulation SBSR, the Commission is
proposing the SDR Proposed Rules.\272\ Specifically, proposed Rule 13n-
7(b) would require a registered SDR to keep and preserve at least one
copy of all documents, including all documents and policies and
procedures required by the Exchange Act and the rules or regulations
thereunder, for a period of not less than five years, the first two
years in a place that is immediately available to the staff of the
Commission for inspection and examination.\273\ This requirement would
encompass policies and procedures established by a registered SDR
pursuant to proposed Rule 907. This requirement would also encompass
any information or reports provided to the Commission pursuant to
proposed Rule 907(e).
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    \272\ See SDR Registration Proposing Release, supra note 6.
    \273\ See id., proposed Rule 13n-7(b) under the Exchange Act.
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6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory
collection of information.
7. Confidentiality of Responses to Collection of Information
    All of the policies and procedures required by proposed Rule 907
would have to be made available by a registered SDR on its website and
would not, therefore, be confidential. Any information obtained by the
Commission from a registered SDR pursuant to proposed Rule 907(e)
relating to the timeliness, accuracy, and completeness of data reported
to the registered SDR would be for regulatory purposes and would be
kept confidential.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The
Commission also solicits comment as follows:
    1. Is the proposed collection of information necessary for the
performance of the functions of the agency? Would the information have
practical utility?
    2. How many entities might be impacted by proposed Rule 907? Are
the Commission's preliminary estimates as to the number of registered
SDRs that would be subject to proposed Rule 907 accurate?
    3. How accurate are the Commission's preliminary estimates of the
burdens of

the proposed collection of information associated with proposed Rule
907?
    4. Can you suggest any ways to enhance the quality, utility, and
clarity of the information to be collected?
    5. Does the Commission's proposed Rule 907 minimize burdens by
reserving to registered SDRs the flexibility to develop and implement
tailored policies and procedures, or would more specificity in the rule
text better minimize associated burdens?
    6. Can you suggest any ways to minimize the burden of collection of
information on those who would be required to respond, including
through the use of automated collection techniques or other forms of
information technology?
    7. Would proposed Rule 907 create any additional burdens not
discussed here? If so, please identify and quantify these burdens.

I. Jurisdictional Matters--Rule 908 of Regulation SBSR

    The Commission preliminarily does not believe that proposed Rule
908 would be a ``collection of information'' within the meaning of the
PRA, as the rule would merely describe the jurisdictional reach of
proposed Regulation SBSR. The Commission requests comment on this
preliminary assessment of proposed Rule 908. Would proposed Rule 908
impose any collection of information requirements that the Commission
has not considered?

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

    Certain provisions of proposed Rule 909 contain ``collection of
information requirements'' within the meaning of the PRA. The title of
this collection is ``Rule 909--Registration of Security-Based Swap Data
Repository as Securities Information Processor.''
1. Summary of Collection of Information
    Proposed Rule 909 would require a registered SDR to register with
the Commission as a SIP. To comply with this requirement, a registered
SDR would need to submit a Form SIP.\274\ As a registered SIP, a
registered SDR would be required to keep its Form SIP current, and
submit amendments as required by Rule 609(b) of Regulation NMS under
the Exchange Act.\275\
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    \274\ 17 CFR 249.1001.
    \275\ 17 CFR 242.609(b).
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2. Proposed Use of Information
    The information required by proposed Rule 909 would permit the
Commission to register a registered SDR as a SIP, and to maintain
updated information about the registered SDR/SIP over time.
3. Respondents
    The Commission preliminarily estimates that there would be ten
registered SDRs. Thus, the Commission preliminarily estimates that ten
entities would have to register as SIPs as required by proposed Rule
909.
4. Total Initial and Annual Reporting and Recordkeeping Burdens
    As described in the SDR Registration Proposing Release,\276\ an
entity wishing to register with the Commission as a registered SDR
would have to submit proposed Form SDR, which is modeled after existing
Form SIP. The Commission has estimated the burden for completing Form
SIP to be 400 hours. Therefore, the Commission also has estimated the
burden for completing proposed Form SDR to be 400 hours (specifically,
150 hours of legal compliance work and 250 hours of clerical compliance
work).\277\ Any entity that is required to complete proposed Form SDR
also would have to complete Form SIP. Because of the substantial
overlap in the forms, much of the burden for completing Form SIP would
be subsumed in completing proposed Form SDR. Therefore, the Commission
preliminarily estimates that, having completed a proposed Form SDR, an
entity would need only one-quarter of the time to then complete Form
SIP, or 100 hours (specifically, 37.5 hours of legal compliance work
and 62.5 hours of clerical compliance work). Accordingly, the
Commission is preliminarily estimating that the one-time initial
registration burden for all registered SDR/SIPs would be 1,000
hours.\278\
---------------------------------------------------------------------------

    \276\ See supra note 6.
    \277\ This figure is based on the following: [(Compliance
Attorney at 150 hours) + (Compliance Clerk at 250 hours)] = 400
burden hours per SDR. See SDR Registration Proposing Release, supra
note 6 at notes 183 and 234.
    \278\ This figure is based on the following: [(Compliance
Attorney at 37.5 hours) + (Compliance Clerk at 62.5 hours) x (10
registrants)] = 400 burden hours.
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    With regard to ongoing burdens, the Commission preliminarily
estimates that the aggregate annualized burden for providing amendments
to Form SIP would be one-tenth of the burden to complete the initial
form or 400 burden hours, which corresponds to 40 burden hours for each
registered SDR. This figure is based on a preliminary estimate that
each of ten registered SDRs would submit one amendment on Form SIP each
year. SIP registration also would require a registered SDR to provide
notice to the Commission of prohibitions or limitations on access to
its services. The Commission preliminarily believes that the notice
would be a simple form, and that prohibitions or limitations on access
to information provided by a registered SDR would be not be prevalent.
Thus, the Commission does not believe that providing such notice would
result in any material burden. The Commission solicits comments as to
the accuracy of these estimates.
5. Recordkeeping Requirements
    Pursuant to proposed Rule 13n-7(b) under the Exchange Act,\279\ a
registered SDR would be required to keep and preserve at least one copy
of all documents, including all documents and policies and procedures
required by the Exchange Act and the rules or regulations thereunder,
for a period of not less than five years, the first two years in a
place that is immediately available to the staff of the Commission for
inspection and examination. This requirement would encompass any
regulatory documents and related work papers completed by the
registered SDR as part of its business, including Form SIP as required
by proposed Rule 909.
---------------------------------------------------------------------------

    \279\ See SDR Registration Proposing Release, supra note 6.
---------------------------------------------------------------------------

6. Collection of Information Is Mandatory
    Each collection of information discussed above would be a mandatory
collection of information.
7. Confidentiality of Responses to Collection of Information
    Form SIP is not confidential.
8. Request for Comment
    The Commission requests public comment on its burden estimates. The
Commission also solicits comment as follows:
    8. How many entities might be impacted by proposed Rule 909? Are
the Commission's preliminary estimates as to the number of registered
SDRs that would be subject to proposed Rule 909 accurate?
    9. How accurate are the Commission's preliminary estimates of the
burdens of the proposed collection of information associated with
proposed Rule 909? Given that a SDR would be required to complete Form
SDR to register with the Commission, how long would it take to also
complete Form SIP?
    10. How many amendments per year would a registered SDR/SIP have to
file to Form SIP? What would be the average burden per amendment?

    11. Can you suggest any ways to enhance the quality, utility, and
clarity of the information to be collected?
    12. Can you suggest any ways to minimize the burden of collection
of information on those who would be required to respond, including
through the use of automated collection techniques or other forms of
information technology?
    13. Would proposed Rule 909 or SIP registration create burdens for
registered SDRs or other entities not contemplated here? If so, please
identify and quantify these burdens.

K. Phase-In Period--Rule 910 of Regulation SBSR

    The Commission preliminarily does not believe that proposed Rule
910 would be a ``collection of information'' within the meaning of the
PRA. Proposed Rule 910 merely describes when a registered SDR and its
participants would be required to comply with the various parts of
proposed Regulation SBSR, and would not create any additional
collection of information requirements. The Commission requests public
comment on its burden estimates. The Commission also solicits comment
whether proposed Rule 910 imposes any collection of information
requirements that the Commission has not considered.

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

    The Commission preliminarily does not believe that proposed Rule
911 would be a ''collection of information'' within the meaning of the
PRA. Proposed Rule 911 would restrict the ability of a reporting party
to report a SBS to one registered SDR rather than another, but would
not otherwise create any duties or impose any collection of information
requirements beyond those already required by proposed Rule 901. The
Commission requests public comment on its burden estimates. The
Commission also solicits comment whether proposed Rule 911 imposes any
collection of information requirements that the Commission has not
considered.

M. Amendments to Rule 31

    The proposed amendments to Rule 31 under the Exchange Act do not
contain any ``collection of information requirements'' within the
meaning of the PRA. Rule 31(a)(11) sets forth a list of ``exempt
sales'' to which Section 31 fees do not apply. The proposed amendment
of Rule 31 would add ``security-based swaps'' to the list of ``exempt
sales,'' and thereby exempt SBSs from Section 31 fees. The proposed
amendment would require no collection of information, nor would it
impose any burden on parties to SBS transactions. The Commission
requests public comment on its burden estimates. The Commission also
solicits comment whether the proposed amendment to Rule 31 imposes any
collection of information requirements that the Commission has not
considered.

XIV. Cost-Benefit Analysis

    On July 21, 2010, the President signed the Dodd-Frank Act into law.
The Dodd-Frank Act was enacted to, among other things, promote the
financial stability of the United States by improving accountability
and transparency in the financial system.\280\ Subtitle B of Title VII
designates the Commission to oversee the SBS markets and develop
appropriate regulations.
---------------------------------------------------------------------------

    \280\ See Public Law 111-203 Preamble.
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    The OTC derivatives markets, which have been described as
opaque,\281\ have grown exponentially in recent years \282\ and are
capable of affecting significant sectors of the U.S. economy. One of
the primary goals of Title VII is to increase the transparency and
efficiency of the OTC derivatives market and to reduce the potential
for counterparty and systemic risk.\283\
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    \281\ With respect to CDSs, for example, the Government
Accountability Office found that ``comprehensive and consistent data
on the overall market have not been readily available,'' that
``authoritative information about the actual size of the CDS market
is generally not available,'' and that regulators currently are
unable ``to monitor activities across the market.'' Government
Accountability Office, ``Systemic Risk: Regulatory Oversight and
Recent Initiatives to Address Risk Posed by Credit Default Swaps,''
GAO-09-397T (March 2009), at 2, 5, 27. See Robert E. Litan, ``The
Derivatives Dealers' Club and Derivatives Market Reform,'' Brookings
Institution (April 7, 2010) at 15-20; Michael Mackenzie, Era of an
opaque swaps market ends, Fin. Times (June 25, 2010).
    \282\ The BIS semi-annual reports on the swap markets summarizes
developments in the OTC derivatives markets. The report breaks down
trading volumes and other statistics for various classes of
derivatives, including CDS, interest rate and foreign exchange
derivatives, and equity and commodity derivatives. The report covers
derivatives trading within the G10 countries. The most recent
report, available at http://www.bis.org/statistics/derstats.htm,
covers the period through the last quarter of 2009.
    \283\ See ``Financial Regulatory Reform--A New Foundation:
Rebuilding Financial Supervision and Regulation,'' U.S. Department
of the Treasury, at 47-48 (June 17, 2009).
---------------------------------------------------------------------------

    The Dodd-Frank Act amends the Exchange Act to require the
Commission to adopt rules providing for, among other things: (1) The
reporting of SBS to a registered SDR or to the Commission; and (2)
real-time public dissemination of SBS transaction, volume, and pricing
information. To accomplish this mandate, the Commission today is
proposing Regulation SBSR, a set of reporting and related rules for SBS
transactions.
    In general, proposed Regulation SBSR would provide for the
reporting of SBS information that falls into three broad categories:
(1) Information that must be reported in real time pursuant to proposed
Rule 901(c); (2) additional information that must be reported pursuant
to proposed Rule 901(d) within specified timeframes, depending on
whether the transaction is traded or confirmed electronically or
manually; and (3) life cycle events that must be reported pursuant to
proposed Rule 901(e). Proposed Regulation SBSR would require registered
SDRs to publicly disseminate certain SBS information in real time.
Proposed Regulation SBSR would identify the SBS information that would
be required to be reported, establish reporting obligations, and
specify the timeframes for reporting and disseminating information.
Proposed Regulation SBSR would require SBS market participants and
registered SDRs to establish appropriate policies and procedures
governing the transaction reporting process. In addition, proposed
Regulation SBSR would require each registered SDR to register with the
Commission as a SIP. Together, Regulation SBSR is designed to provide a
more transparent market for SBSs.
    Broadly, the Commission anticipates that Regulation SBSR may have
several overarching benefits to the SBS markets. These include the
following:
    Improvements in Market Quality. The Commission's rules on reporting
and public dissemination of SBS transaction data could have very
significant benefits to the SBS market. Comprehensive, timely, and
accurate reporting should allow for better regulation of the SBS
market, which should promote greater confidence and participation in
the market. Post-trade transparency could result in lower transaction
costs, greater price competition, and greater participation in the
market. These benefits could extend beyond the SBS market to the
securities markets more generally, which are increasingly
interconnected.
    Improved Risk Management. As SBS market participants implement
transaction reporting programs, they would be required to review their
current positions in SBSs and report those open positions to a
registered SDR. Incorporating all positions into an OMS sufficient to
permit ongoing reporting as required under proposed Regulation SBSR
could result in a direct and immediate benefit to market

participants by potentially reducing the risk associated with current
open positions. Further, because proposed Regulation SBSR would require
market participants to inventory their positions in SBS to determine
what needs to be reported, the proposal should enable more robust risk
monitoring and management going forward.
    Economies and Greater Efficiency. Automation and systems
development associated with SBS transaction reporting required by
proposed Regulation SBSR could provide market participants new tools to
process transactions at a lower expense per transaction. Such increased
efficiency would enable participants to handle increased volumes of
SBSs with less marginal expense, or existing volumes of SBSs with
greater efficiency. In addition, proposed Regulation SBSR is designed
to further the development of internationally recognized standards for
establishing reference identifiers in the financial services industry.
A common set of reference identifiers for participants and products
could yield significant efficiencies in both the public and private
sectors. Information about financial firms operating in different
functional areas and different jurisdictions could more readily be
identified by regulators. In addition, financial firms could eliminate
the use of multiple proprietary reference systems and move to a single,
widely accepted system.
    Improved Commission Oversight. SBS transaction reporting under
proposed Regulation SBSR would provide a means for the Commission to
gain a better understanding of the SBS market--including aggregate
positions both in specific SBS instruments and positions taken by
individual entities or groups--by requiring transaction data both on
newly executed SBS and unexpired pre-enactment SBS to be reported to a
registered SDR. The reporting of SBS transactions should thus provide
the Commission and other regulators a better understanding of the
current risks in the SBS market. For example, having such data
available would help Commission staff to analyze the SBS market as a
whole in a manner that is not possible currently. In this way,
Regulation SBSR would support the Commission's supervisory function
over the SBS market, as required by Congress in the Dodd-Frank Act.
    Further, proposed Regulation SBSR should facilitate completing the
reports the Commission is required to provide to Congress on SBSs and
the SBS marketplace.\284\
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    \284\ See Section 719 of the Dodd-Frank Act.
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    While the Commission believes that proposed Regulation SBSR would
result in significant benefits to SBS market participants, the
Commission is cognizant that the proposed rules would entail costs, as
more fully discussed below. The proposed rules could, for example,
require market participants to begin retaining additional data related
to SBS transactions. The rules also could require market participants
to modify existing internal processes and systems. The Commission
estimates that the rules comprising proposed Regulation SBSR could
affect 5,000 participants, including 1,000 reporting parties, and
several million SBSs annually.
    The Commission is sensitive to the costs and benefits associated
with proposed Regulation SBSR. The Commission requests comment on the
costs and benefits associated with the individual rules, and its cost-
benefit analysis thereof, including identification and assessments of
any costs and benefits not discussed in this analysis. The Commission
also seeks comment on the accuracy of any of the benefits identified
and also welcomes comments on the accuracy of any of the cost
estimates. Finally, the Commission encourages commenters to identify,
discuss, analyze, and supply relevant data, information, or statistics
regarding any such costs or benefits.

A. Definitions--Rule 900 of Regulation SBSR

1. Benefits
    By defining key terms, proposed Rule 900 would provide increased
clarity about the scope and application of proposed Regulation SBSR.
This should help market participants subject to the proposal understand
their obligations and make appropriate compliance plans. Clearly
defined terms should also help the Commission in its oversight
responsibilities.
2. Costs
    The Commission preliminarily believes that proposed Rule 900 would
not entail any material costs to market participants. Proposed Rule 900
would define terms used in Regulation SBSR. The rule would not impose
any obligation or duty.
3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 900 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    248. How can the Commission more accurately estimate the costs and
benefits of proposed Rule 900?
    249. Would proposed Rule 900 create any additional costs or
benefits not discussed here?

B. Reporting Obligations--Rule 901 of Regulation SBSR

    Pursuant to proposed Rule 901, all SBS transactions must be
reported. Together, sections (a), (b), (c), (d), (e), (h), and (i) of
proposed Rule 901 set forth the parameters that SBS counterparties must
follow to report SBS transactions to a registered SDR or, if there is
no registered SDR that would accept the information, to the Commission.
Proposed Rule 901(a) would specify which counterparty would be the
``reporting party'' for a SBS transaction. Proposed Rule 901(b) would
require a reporting party to report the information required under
proposed Rule 901 to a registered SDR or, if there is no registered SDR
that would accept the information, to the Commission. Proposed Rule 901
divides the SBS information that would be required to be reported into
three broad categories: (1) Information that would be required to be
reported in real time pursuant to proposed Rule 901(c) and publicly
disseminated pursuant to proposed Rule 902; (2) additional information
that would be required to be reported pursuant to proposed Rule
901(d)(1) within the timeframes specified in proposed Rule 901(d)(2);
and (3) life cycle events that must be reported pursuant to proposed
Rule 901(e), the timeframes for which would vary depending on whether
the transaction was executed and confirmed electronically or manually.
The information that would be reported under proposed Rule 901(d)(1)
would not be publicly disseminated. Proposed Rule 901(i) would require
the reporting of the information detailed in proposed Rules 901(c) and
(d), to the extent such information is available, for pre-enactment
SBSs and transitional SBSs.
    Proposed Rule 901(f) would require a registered SDR to time stamp,
to the second, its receipt of any information submitted to it pursuant
to proposed Rules 901(c), (d), or (e). Proposed Rule 901(g) would
require a registered SDR to assign a transaction ID to each SBS
reported by a reporting party.
1. Benefits
    The SBS transaction information required to be reported pursuant to
proposed Rule 901 would benefit market participants and the SBS

marketplace. First, the Commission preliminarily believes that, by
setting out the requirements for the reporting of each SBS transaction
to a registered SDR, proposed Rule 901 would provide the registered SDR
with the SBS transaction information necessary to support public
dissemination, as required by proposed Rule 902. Additionally, by
requiring real-time reporting of certain SBS transaction data, proposed
Rule 901, together with proposed Rule 902, would provide the necessary
framework to enable public dissemination of SBS transactions in real
time as required under proposed Rule 902. Together, proposed Rules 901
and 902 will enable market participants and regulatory authorities to
know the current state of the SBS markets and track it over time.
    To comply with proposed Rule 901, reporting parties--which are the
largest and most actively engaged participants in the SBS market--would
likely need to establish and maintain OMSs capable of supporting real-
time and additional reporting. The Commission anticipates that proposed
Rule 901 would have the effect of promoting efforts by reporting
parties to inventory their positions in SBSs, as each determines what
information needs to be reported. This effect could encourage
management review of internal procedures and controls by these
reporting parties.
    In addition, proposed Rule 901 would provide a means for the
Commission to gain a better understanding of the SBS market, including
the size and scope of that market, as the Commission would have access
to data held by a registered SDR.\285\ Having such data available
should help Commission staff to analyze the SBS market as a whole and
identify risks. In this way, proposed Rule 901 would support the
Commission's supervisory function over the SBS market as required by
Congress in the Dodd-Frank Act. Proposed Rule 901 also could facilitate
the reports the Commission is required to provide to Congress on SBS
and the SBS marketplace.\286\
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    \285\ See, e.g., 15 U.S.C. 78m(n)(5)(D) (requiring a registered
SDR to provide the Commission with direct electronic access to its
data).
    \286\ See Section 719 of the Dodd-Frank Act.
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    The information reported by reporting parties pursuant to proposed
Rule 901 would be used by registered SDRs to publicly disseminate real-
time reports of SBS transactions, and to retain SBS transaction and
position information for use by regulators. The reporting requirements
of proposed Rule 901 are designed to ensure that important information
about SBSs is reported and, ultimately available to market
participants, through the market data feed disseminated by a registered
SDR.
    The Commission further preliminarily believes that the time stamp
and transaction ID required to be added by the registered SDR under
proposed Rules 901(f) and (g) would facilitate data management by the
registered SDR, as well as market supervision and oversight by the
Commission and other regulatory authorities.
    Generally, the availability of additional market information, along
with the ability of the Commission and other regulators to use
information about SBS transactions reported to and held by registered
SDRs, would result in more robust prudential and systemic regulation.
The Commission and other regulators would use information about SBS
transactions reported to and held by registered SDRs to conduct both
prudential and systemic regulation, as well as to examine for improper
behavior and to take enforcement actions, as appropriate. Specifying
general types of information to be reported and publicly disseminated
could increase the efficiency and level of standardization in the SBS
market.
    Proposed Rule 901 would prescribe only broad categories of SBS data
to be reported. However, proposed Rule 907(a)(1) would require each
registered SDR to enumerate specific data elements to be reported, and
to specify acceptable data formats. This approach would provide for the
efficient accommodation of evolving industry conventions in the
reporting of SBS data. The requirement that all trades be reported to a
registered SDR for public dissemination, regardless of trading venue,
would reduce the coordination costs that would exist if numerous
parties were independently disseminating SBS data. In this way,
proposed Rule 901 would increase the uniformity in the SBS data that is
disseminated under proposed Rule 902.
    Proposed Rule 901(i) would also provide important benefits. By
requiring reporting of pre-enactment and transitional SBS transactions,
proposed Rule 901(i) would provide the Commission with insight as to
outstanding notional size, number of transactions, and number and type
of participants in the SBS market. This would provide a starting
benchmark against which to assess the development of the SBS market
over time and, thus, represents a first step toward a more transparent
and well regulated market for SBSs. The data reported pursuant to
proposed Rule 901(i) also could help the Commission prepare the reports
that it is required to provide to Congress. Further, proposed Rule
901(i) would require market participants to inventory their positions
in SBS to determine what information needs to be reported, which could
benefit market participants by encouraging management review of their
internal procedures and controls.
    The transaction ID required by proposed Rule 901(g) also would
provide an important benefit by facilitating the reporting of
subsequent, related SBS transactions that may be submitted to a
registered SDR (e.g., a transaction report regarding a SBS life cycle
event, or report to correct an error in a previously submitted report).
Regulators also would benefit by having an easy way to refer to
specific prior transactions.
    Proposed Rule 901 would require reporting parties, to the extent
they do not already possess systems for electronically capturing and
transmitting data about their SBS transactions, to build or otherwise
obtain such systems. Such systems would be necessary to report data
within the timeframes set forth in proposed Rules 901(c) and (d),
because it is unlikely that manual processes could capture and report
in real time the numerous data elements relating to a SBS. There could
be substantial benefits in the form of reduced operational risk in
requiring all reporting parties to have such capability. Systematizing
all SBS transaction information more quickly would support effective
risk management, as counterparties, registered SDRs, clearing agencies
(in some cases), and regulators would obtain accurate knowledge of new
SBS transactions more quickly. Reporting parties that obtain such
systems could see additional benefits in being able to process and risk
manage their existing positions more effectively, or use their expanded
capability to participate further in the SBS market.
    Finally, proposed Rule 901 could result in significant benefits by
encouraging the creation and widespread use of generally accepted
standards for reference information. Proposed Rule 901 would require
the reporting of a participant ID of each counterparty and, as
applicable, the broker ID, desk ID, and trader ID of the reporting
party or its broker. The Commission preliminarily believes that
reporting of this information would help ensure effective oversight,
enforcement, and surveillance of the SBS market by the Commission and
other regulators. For example, activity could be tracked by a
particular participant, a particular desk, or a particular trader.
Regulators could observe patterns and connections in trading activity,
or examine whether

a trader had engaged in questionable trading activity across different
SBS instruments. These identifiers also would facilitate aggregation
and monitoring of the positions of SBS counterparties, which could be
of significant benefit for prudential oversight and systemic risk
management.
    The Commission understands that some efforts have been undertaken--
in both the private and public sectors, both domestically and
internationally--to establish a comprehensive and widely accepted
system for identifying entities that participate not just in the SBS
market, but in the financial markets generally. Such a system would be
of significant benefit to regulators worldwide, as each market
participant could readily be identified using a single reference code
regardless of the jurisdiction or product market in which the market
participant was engaging. Such a system also could be of significant
benefit to the private sector, as market participants would have a
common identification system for all counterparties and reference
entities, and would no longer have to use multiple proprietary
nomenclature systems. The enactment of the Dodd-Frank Act and the
establishment of a comprehensive system for reporting and dissemination
of SBSs--and for reporting and dissemination of swaps, under
jurisdiction of the CFTC--offer a unique opportunity to facilitate the
establishment of a comprehensive and widely accepted system for
identifying entities that participate not just in the SBS market, but
in the financial markets generally.
2. Costs
a. For Reporting Parties
    The proposed SBS reporting requirements would impose initial and
ongoing costs on reporting parties. The Commission preliminarily
believes that these costs would be a function of, among other things,
the number of reportable SBS transactions and the data elements
required to be collected for each SBS transaction.
    The Commission obtained information from publicly available sources
and consulted with industry participants in an effort to quantify the
number of aggregate SBS transactions on an annual basis. According to
publicly available data from DTCC, recently, there have been an average
of approximately 36,000 CDS transactions per day,\287\ corresponding to
a total number of CDS transactions of approximately 13,140,000 per
year. The Commission preliminarily believes that CDSs represent 85% of
all SBS transactions.\288\ Accordingly, and to the extent that
historical market activity is a reasonable predictor of future
activity,\289\ the Commission preliminarily estimates that the total
number of SBS transactions that would be subject to proposed Rule 901
on an annual basis would be approximately 15,460,000, which is an
average of approximately 42 per reporting party per day.\290\
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    \287\ See, e.g., http://www.dtcc.com/products/derivserv/data_
table_iii.php (weekly data as updated by DTCC).
    \288\ The Commission's estimate is based on internal analysis of
available SBS market data. The Commission is seeking comment about
the overall size of the SBS market.
    \289\ The Commission notes that regulation of the SBS markets,
including by means of proposed Regulation SBSR, could impact market
participant behavior.
    \290\ These figures are based on the following: [13,140,000/
0.85] = 15,458,824. [((15,458,824 estimated SBS transactions)/(1,000
estimated reporting parties))/(365 days/year)] = 42.35, or
approximately 42 transactions per day. The Commission understands
that many of these transactions may arise from previously executed
SBS transactions.
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    The Commission believes that SBS market participants would face
three categories of costs to comply with proposed Rule 901. First, each
market participant would have to develop an internal OMS capable of
capturing relevant SBS transaction information so that it can be
reported. The Commission understands that, because of the manner in
which participants transact certain SBSs with certain transaction
details being added post-execution, an OMS would likely need to link
both to a market participant's trade desk--to permit real-time
transaction reporting--and to the market participant's back office--to
facilitate reporting of complete transactions as required under
proposed Rule 901. The OMS would also have to include or be connected
to a system designed to store SBS transaction information.
    Second, each reporting party would have to implement a reporting
mechanism. This would include a system that ``packages'' SBS
transaction information from the entity's OMS, sends the information,
and tracks it. The reporting mechanism would also include necessary
data transmission lines to the appropriate registered SDR.
    Third, each reporting party would have to establish an appropriate
compliance program and support for the operation of the OMS and
reporting mechanism. Relevant elements of the compliance program would
include transaction verification and validation protocols, the ability
to identify and correct erroneous transaction reports, necessary
technical, administrative, and legal support. Additional operational
support would include new product development, systems upgrades, and
ongoing maintenance.
    Based on conversations with industry participants, the Commission
preliminarily believes that the reporting timeframes mandated by
proposed Rules 901(c), (d), and (e) may be costly to achieve for
reporting parties that do not currently have the capabilities to
perform those functions in those time frames, requiring additional
expenditure of resources to satisfy these requirements. For example,
reporting parties that do not currently have the capability to capture
SBS trade information and provide it to a registered SDR in real time
would be required by proposed Regulation SBSR to obtain such
capability.
    Proposed Rule 901 would not provide an explicit list of data
elements. Instead, proposed Regulation SBS would provide a registered
SDR with flexibility to determine the specifics of the form and format
for data to be reported under proposed Rule 901. Thus, to the extent
reported and disseminated SBS transaction data are not uniform, market
participants and regulators could face a cost to standardize and
interpret them.
    Internal Order Management. To comply with their reporting
obligations, reporting parties would be required to develop and
maintain an internal OMS that can capture relevant SBS data. The
Commission preliminarily estimates that, to capture SBS data in a
manner sufficient to facilitate reporting under proposed Rule 901 would
impose an initial one-time aggregate cost of approximately $96,650,000,
which corresponds to $96,650 for each reporting party.\291\ This
estimate includes an estimate of the costs required to amend internal
procedures, design or reprogram systems, and implement processes to
ensure that SBS transaction data are captured and preserved. The
Commission further preliminarily estimates that capturing SBS data in a
manner sufficient to facilitate reporting under proposed Rule 901 would
impose an ongoing annual aggregate cost of approximately $73,144,000,
which corresponds to

$73,144 for each reporting party.\292\ This figure would include day-
to-day support of the OMS, as well as an estimate of the amortized
annual cost associated with system upgrades and periodic ``re-
platforming'' (i.e., implementing significant updates based on new
technology). In addition, to capture and maintain relevant information
and documents, the Commission preliminarily estimates that all
reporting parties could incur an initial and ongoing aggregate
annualized cost of $1,000,000, which corresponds to $1,000 for each
reporting party.\293\ The figure is an estimate of the hardware and
associated maintenance costs for sufficient memory to capture and store
SBS transactions, including redundant back-up systems.
---------------------------------------------------------------------------

    \291\ This estimate is based on the following: [((Sr. Programmer
(160 hours) at $285 per hour) + (Sr. Systems Analyst (160 hours) at
$251 per hour) + (Compliance Manager (10 hours) at $294 per hour) +
(Director of Compliance (5 hours) at $426 per hour) + (Compliance
Attorney (20 hours) at $291 per hour) x (1,000 reporting parties)] =
$96,650,000. The Commission preliminarily believes that information
on SBS transactions is currently being retained by counterparties in
the ordinary course of business, and as a practical matter should
not result in any significant new burdens.
    \292\ This estimate is based on the following: [((Sr. Programmer
(32 hours) at $285 per hour) + (Sr. Systems Analyst (32 hours) at
$251 per hour) + (Compliance Manager (60 hours) at $294 per hour) +
(Compliance Clerk (240 hours) at $59 per hour) + (Director of
Compliance (24 hours) at $426 per hour + (Compliance Attorney (48
hours) at $291 per hour) x (1,000 reporting parties)] = $73,144,000.
    \293\ This estimate is based on discussions of Commission staff
with various market participants and is calculated as follows:
[$250/gigabyte of storage capacity x (4 gigabytes of storage) x
(1,000 participants)] = $1,000,000. The Commission preliminarily
believes that storage costs associated with saving relevant SBS
information and documents would not vary significantly between the
first year and subsequent years. Accordingly, the Commission has
preliminarily estimated the initial and ongoing storage costs to be
the same. Moreover, the Commission believes the per-entity annual
data storage figure of $1,000 to be a reasonable average. Some
reporting parties may face higher costs, while others would simply
use existing storage resources.
---------------------------------------------------------------------------

    Summing these costs, the Commission preliminarily estimates the
initial aggregate annualized cost for reporting parties for internal
order management under proposed Rule 901 would be $170,794,000, which
corresponds to $170,794 for each reporting party.\294\ The Commission
further preliminarily estimates that the ongoing aggregate annualized
costs on reporting parties for internal order management under proposed
Rule 901 would be $74,144,000, which corresponds to $74,144 for each
reporting party.\295\
---------------------------------------------------------------------------

    \294\ This estimate is based on the following: [(($96,650 +
$73,144 + $1,000) x (1,000 reporting parties)] = $170,794,000, which
corresponds to $170,794 burden hours per reporting party.
    \295\ This is estimate is based on the following: (($73,144 +
$1,000) x 1,000 reporting parties) = $74,144,000.
---------------------------------------------------------------------------

    SBS Reporting Mechanism. Each reporting party would incur initial
one-time costs to establish connectivity with and report SBS
transactions to a registered SDR. Depending on the number of SBS asset
classes that a reporting party transacts in and which registered SDRs
accept the resulting SBS transaction reports, multiple connections to
different registered SDRs could be necessary. For purposes of
estimating relevant costs, the Commission preliminarily estimates that,
on average, each reporting party would require connections to two
registered SDRs.\296\
---------------------------------------------------------------------------

    \296\ The Commission derived this estimate as follows. First,
the Commission believes that initially there would be only a limited
number of registered SDRs, and that the number would not exceed ten.
Many reporting parties might transact in only some classes of SBSs.
Thus, even if each registered SDR accepted transaction reports only
for a single SBS asset class, the total number of connections needed
by many reporting parties would likely be limited. The Commission
also preliminarily believes that, for operational efficiency, a
participant would seek to use only one registered SDR per asset
class to obtain repository services. Next, reporting parties that
required a significant number of connections to registered SDRs
could engage a third party--a dealer or connectivity services
provider--instead of independently establishing their own
connections. Accordingly, the Commission preliminarily believes that
one connection may suffice for many reporting parties.
---------------------------------------------------------------------------

    On this basis, the Commission preliminarily estimates that the cost
to establish and maintain connectivity to a registered SDR to
facilitate the reporting required by proposed Rule 901 would impose an
annual (first-year and ongoing) aggregate cost of approximately
$200,000,000, which corresponds to $200,000 for each reporting
party.\297\ The Commission understands that many reporting parties
already have established linkages to entities that may register as
SDRs, which could significantly reduce the out-of-pocket costs
associated with this establishing the reporting function contemplated
by proposed Rule 901.
---------------------------------------------------------------------------

    \297\ This estimate is based on discussions of Commission staff
with various market participants, as well as the Commission's
experience regarding connectivity between securities market
participants for data reporting purposes. The Commission derived the
total estimated expense from the following: ($100,000 hardware- and
software-related expenses, including necessary backup and
redundancy, per SDR connection) x (2 SDR connections per reporting
party) x (1,000 reporting parties) = $200,000,000.
---------------------------------------------------------------------------

    Moreover, the Commission believes that establishing a reporting
mechanism for SBS transactions would impose internal costs on each
reporting party, including the development of systems necessary to
capture and send information from the entity's OMS to the relevant
registered SDR, as well as corresponding testing and support. The
Commission preliminarily estimates an initial one-time aggregate cost
of $46,657,000, which corresponds to an initial one-time cost of
$46,657 for each reporting party.\298\ In addition, the Commission
preliminarily estimates that reporting specific SBS transactions to a
registered SDR as required by proposed Rule 901 would impose an annual
aggregate cost (first-year and ongoing) of approximately $5,400,000,
which corresponds to approximately $5,400 for each reporting
party.\299\
---------------------------------------------------------------------------

    \298\ This figure is based on discussions with various market
participants and is calculated as follows: [((Sr. Programmer (80
hours) at $285 per hour) + (Sr. Systems Analyst (80 hours) at $251
per hour) + (Compliance Manager (5 hours) at $294 per hour) +
(Director of Compliance (2 hours) at $426 per hour) + (Compliance
Attorney (5 hours) at $291 per hour) x (1,000 reporting parties)] =
$46,657,000. The Commission preliminarily believes that information
on SBS transactions is currently being retained by market
participants in the ordinary course of business, and as a practical
matter should not result in any significant new costs.
    \299\ The Commission preliminarily believes that the costs of
having an operational reporting system capable of effectively
processing these transactions are covered in the cost estimates for
a compliance and ongoing support system. See infra notes 302 to 305.
The Commission preliminarily believes that the actual reporting of
transactions represents an incremental additional cost. The
referenced figure is based on discussions with various market
participants and is calculated as follows: [(Compliance Clerk (40
hours) at $59 per hour) + (Sr. Computer Operator (40 hours) at $76
per hour)) x (1,000 reporting parties)] = $5,400,000.
---------------------------------------------------------------------------

    Thus, the Commission preliminarily estimates the initial, aggregate
annualized cost for reporting parties submitting SBS transaction
reports under proposed Rule 901 would be $252,057,000, which
corresponds to $252,057 for each reporting party.\300\ The Commission
further preliminarily estimates that the ongoing, aggregate annualized
cost on reporting parties for submitting SBS transaction reports under
proposed Rule 901 would be $205,400,000, which corresponds to $205,400
for each reporting party.\301\
---------------------------------------------------------------------------

    \300\ This estimate is based on the following: (($46,657 +
$5,400 + $200,000) x (1,000 reporting parties)) = $252,057,000,
which corresponds to $252,057 per reporting party.
    \301\ This estimate is based on the following: (($5,400 +
$200,000) x (1,000 reporting parties)) = $205,400,000, which
corresponds to $205,400 per reporting party.
---------------------------------------------------------------------------

    Compliance and Ongoing Support. As stated above, in complying with
proposed Rule 901, each reporting party also would need to establish
and maintain an appropriate compliance program and support for the
operation of the OMS and reporting mechanism, which would include
transaction verification and validation protocols and necessary
technical, administrative, and legal support. Additional operational
support would include new product development, systems upgrades, and
ongoing maintenance. The Commission preliminarily believes that initial
costs associated with this aspect of proposed Rule 901--i.e., the
establishment of relevant compliance capability--would also involve in
significant part the development of

appropriate policies and procedures, which, for those participants who
are SBS dealers or major SBS participants, is addressed in connection
with proposed Rule 906(c). A reporting party would need to design its
OMS to include tools to ensure accurate, complete reporting and employ
appropriate technical and compliance staff to maintain and support the
operation of its OMS on an ongoing basis.
    The Commission preliminarily estimates that designing and
implementing an appropriate compliance and support program would impose
an initial one-time aggregate cost of approximately $51,590,000, which
corresponds to a cost of $51,590 for each reporting party.\302\ The
Commission further preliminarily estimates that maintaining its
compliance and support program would impose an ongoing annual aggregate
cost of approximately $36,572,000, which corresponds to a cost of
$36,572 for each reporting party.\303\ This figure includes day-to-day
support of the OMS, as well as an estimate of the amortized annual cost
associated with system upgrades and periodic ``re-platforming.''
---------------------------------------------------------------------------

    \302\ This figure is based on discussions with various market
participants and is calculated as follows: [((Sr. Programmer (100
hours) at $285 per hour) + (Sr. Systems Analyst (40 hours) at $251
per hour) + (Compliance Manager (20 hours) at $294 per hour) +
(Director of Compliance (10 hours) at $426 per hour) + (Compliance
Attorney (10 hours) at $291 per hour) x (1,000 reporting parties)] =
$51,590,000.
    \303\ This figure is based on discussions with various market
participants and is calculated as follows: [((Sr. Programmer (16
hours) at $285 per hour) + (Sr. Systems Analyst (16 hours) at $251
per hour) + (Compliance Manager (30 hours) at $294 per hour) +
(Compliance Clerk (120 hours) at $59 per hour) + (Director of
Compliance (12 hours) at $426 per hour) + (Compliance Attorney (24
hours) at $291 per hour) x (1,000 reporting parties)] = $36,572,000.
---------------------------------------------------------------------------

    Therefore, the Commission preliminarily estimates the initial
aggregate annualized costs to reporting parties for compliance and
ongoing support under proposed Rule 901 would be $88,162,000, which
corresponds to $88,162 for each reporting party.\304\ The Commission
further preliminarily estimates that the ongoing aggregate annualized
cost on reporting parties for compliance and ongoing support under
proposed Rule 901 would be $36,572,000, which corresponds to $36,572
for each reporting party.\305\
---------------------------------------------------------------------------

    \304\ This estimate is based on the following: (($51,590 +
$36,572) x (1,000 reporting parties)] = $88,162,000, which
corresponds to $88,162 per reporting party.
    \305\ See supra note 303.
---------------------------------------------------------------------------

    Summing these costs, the Commission preliminarily estimates that
the initial, aggregate annualized costs associated with proposed Rule
901 would be $511,013,000, which corresponds to $511,013 per reporting
party.\306\ The Commission preliminarily estimates that the ongoing
aggregate annualized costs associated with proposed Rule 901 would be
$316,116,000, which corresponds to $316,116 per reporting party.\307\
---------------------------------------------------------------------------

    \306\ This estimate is based on the following: (($170,794 +
$252,057 + $88,162) x (1,000 reporting parties)) = $511,013,000,
which corresponds to $511,013 per reporting party.
    \307\ This estimate is based on the following: (($74,144 +
$205,400 + $36,572) x (1,000 reporting parties)) = $316,116,000,
which corresponds to $316,116 per reporting party.
---------------------------------------------------------------------------

    Finally, the Commission notes that it is possible that the costs
associated with required reporting pursuant to proposed Regulation SBSR
could represent a barrier to entry for new, smaller firms that might
not have the ability or desire to comply with these reporting
requirements. To the extent that proposed Regulation SBSR causes new
firms not to enter the SBS market, this would be a cost of the
proposal. Nevertheless, the Commission preliminarily believes that
firms would be able to contract with third-party service providers,
which could facilitate their compliance with proposed Regulation SBSR.
Accordingly, the Commission preliminarily does not believe it likely
that proposed Rule 901 would, as a practical matter, act as a barrier
to new entrants. The Commission requests comment on this issue.
    Reference information. The Commission, in proposed Regulation SBSR,
is not requiring the development of internationally recognized
standards for reference information that could be used across the
financial services industry. Therefore, the Commission believes that
the costs of developing and sustaining such a system should not be
considered costs of proposed Regulation SBSR. However, proposed
Regulation SBSR would require a registered SDR and its participants to
use UICs generated by such a system, if such system is able to generate
such UICs. Although the Commission believes there would be long-term
benefits for using UICs generated by such a system, there could be
short-term costs imposed on reporting parties to convert to such a
system. In addition, under these internationally recognized standards,
users of the reference information could have to pay reasonable fees to
support the system. These fees also would represent costs of proposed
Rule 901. The Commission requests comment on this issue and any
potential costs associated with the potential future use of
internationally recognized standards.
b. For Registered SDRs
    Proposed Rule 901(f) would require a registered SDR to time stamp,
to the second, its receipt of any information submitted to it pursuant
to proposed Rules 901(c), (d), or (e). Proposed Rule 901(g) would
require a registered SDR to assign a transaction ID to each SBS
reported by a reporting party. The Commission preliminarily believes
that these requirements would not be significant in the context of
designing and building the technological framework that would be
required of an SDR to become registered.\308\ Therefore, the Commission
preliminarily estimates that proposed Rules 901(f) and (g) would impose
an initial aggregate one-time cost of $342,040, which corresponds to
$34,204 per registered SDR.\309\ This figure is based on an estimate of
ten registered SDRs. With regard to ongoing costs, the Commission
preliminarily estimates that proposed Rules 901(f) and (g) would impose
an ongoing aggregate annual cost of $436,440, which corresponds to
$43,644 per registered SDR.\310\ This figure represents an estimate of
the support and maintenance costs for the time stamp and transaction ID
assignment elements of a registered SDR's systems.
---------------------------------------------------------------------------

    \308\ See SDR Registration Proposing Release, supra note 6.
    \309\ This figure is based on discussions with various market
participants and is calculated follows: [(Sr. Programmer (80 hours)
at $285 per hour) + (Sr. Systems Analyst (20 hours) at $251 per
hour) + (Compliance Manager (8 hours) at $294 per hour) + (Director
of Compliance (4 hours) at $426 per hour) + (Compliance Attorney (8
hours) at $291 per hour) x (10 registered SDRs)] = $342,040.
    \310\ This figure is based on discussions with various market
participants and is calculated as follows: [(Sr. Programmer (60
hours) at $285 per hour) + (Sr. Systems Analyst (48 hours) at $251
per hour) + (Compliance Manager (24 hours) at $294 per hour) +
(Director of Compliance (12 hours) at $426 per hour) + (Compliance
Attorney (8 hours) at $291 per hour) x (10 registered SDRs)] =
$436,440.
---------------------------------------------------------------------------

    Thus, the Commission preliminarily estimates that the initial
aggregate annualized cost associated with proposed Rules 901(f) and (g)
would be $778,480, which corresponds to $77,848 per registered
SDR.\311\ Correspondingly, the Commission preliminarily estimates that
the ongoing aggregate annualized cost associated with proposed Rules
901(f) and (g) would be $436,440, which corresponds to $43,644 per
registered SDR.\312\
---------------------------------------------------------------------------

    \311\ This figure is based on the following: ($34,016 + $42,240)
x (10 registered SDRs) = $778,480, which corresponds to $77,848 per
registered SDR.
    \312\ See supra note 310.

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3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 901 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    250. How can the Commission more accurately estimate the costs and
benefits?
    251. What are the costs currently borne by entities covered by
proposed Rule 901 with respect to the retention of records of SBS
transactions?
    252. How many entities would be affected by the proposed rule? How
many transactions would be subject to the proposed rule?
    253. Are there additional costs involved in complying with the rule
that have not been identified? What are the types, and amounts, of the
costs?
    254. Would the obligations imposed on reporting parties by proposed
Rule 901 be a significant enough barrier to entry to cause some firms
not to enter the SBS market? If so, how many firms might decline to
enter the market? How can the cost of their not entering the market be
tabulated? How should the Commission weigh such costs, if any, against
the anticipated benefits from increased transparency to the SBS market
from the proposal, as discussed above?
    255. Can commenters assess the benefits of having comprehensive and
accurate reporting of SBS transactions to registered SDRs, which would
provide access to such information to the Commission and other
regulators? What would have been the benefits to the SBS market if such
regulatory oversight had been in place sooner?
    256. What benefits and costs would there be to converting to a
reference identification system established by or on behalf of an IRSB?
What fees might be charged to support such a system? How much would
those fees be? Who would have to pay them?
    257. Would there be additional benefits from the proposed rule that
have not been identified?

C. Public Dissemination of Transaction Reports--Rule 902 of Regulation
SBSR

    Generally, proposed Rule 902 would require the public dissemination
of SBS transaction information. Proposed Rule 902(a) would set out the
core requirement that a registered SDR, immediately upon receipt of a
SBS transaction report of a SBS, must publicly disseminate information
about the SBS, except in the case of a block trade, that must consist
of all the information reported by the reporting party pursuant to
proposed Rule 901, plus any indicator or indicators contemplated by the
registered SDR's policies and procedures that are required by proposed
Rule 907.\313\
---------------------------------------------------------------------------

    \313\ In the circumstances necessitating a registered SDR's
systems to be unavailable for publicly disseminating transaction
data, the registered SDR would have to disseminate the transaction
data immediately upon its re-opening. Proposed Rule 902(c) would
prohibit the dissemination of certain information. See supra note
100 and accompanying text.
---------------------------------------------------------------------------

    Proposed Rule 902(b) would require a registered SDR to publicly
disseminate a transaction report of a block trade immediately upon
receipt of information about the block trade from the reporting party.
The transaction report would consist of all the information reported by
the reporting party pursuant to proposed Rule 901(c), except for the
notional size, plus the transaction ID and an indicator that the report
represents a block trade. The registered SDR would be required to
publicly disseminate a complete transaction report for such block trade
(including the transaction ID and the full notional size) at a later
time.
1. Benefits
    By reducing information asymmetries, post-trade transparency has
the potential to lower transaction costs, improve confidence in the
market, encourage participation by a larger number of market
participants, and increase liquidity in the SBS market. The current
market is opaque. Market participants, even dealers, lack an effective
mechanism to learn the prices at which other market participants
transact. In the absence of post-trade transparency, market
participants do not know whether the prices they are paying or would
pay are higher or lower than what others are paying for the same SBS
instruments. Currently, market participants resort to ``screen-
scraping'' e-mails containing indicative quotation information to
develop a sense of the market. Supplementing that effort with prompt
last-sale information would provide all market participants with more
extensive and more accurate information on which to make trading and
valuation determinations.
    SBSs are complex derivative instruments, and there exists no single
accepted way to model a SBS for pricing purposes. Post-trade pricing
and volume information could allow valuation models to be adjusted to
reflect how SBS counterparties have valued a SBS instrument at a
specific moment in time. Public, real-time dissemination of last-sale
information also could aid dealers in deriving better quotations,
because they would know the prices at which other market participants
have recently traded. This information could aid end users in
evaluating current quotations, because they could inquire from dealers
why the quotations that the dealers are providing them differ from the
prices of recently executed transactions. Furthermore, end users would
be afforded the means of testing whether quotations offered by dealers
before the last sale were close to the price at which the last sale was
executed. In this manner, post-trade transparency could promote price
competition and more efficient price discovery, and ultimately lower
transaction costs in the SBS market.
    Post-trade transparency of SBSs, as required by proposed Rule 902,
could benefit the financial markets generally by improving market
participants' ability to value SBSs, particularly if the trade
information is used as an input to, rather than as a substitute for,
independent valuations and pricing decisions by other market
participants. In transparent markets with sufficient liquidity,
valuations generally can be derived from recent quotations and/or last-
sale prices. However, in opaque markets or markets with low liquidity,
recent quotations or last-sale prices may not exist or, if they do
exist, may not be widely available. Therefore, market participants
holding assets that trade in opaque markets or markets with low
liquidity frequently rely instead on pricing models. These models might
be based on assumptions subject to the evaluator's discretion, and can
be imprecise. Thus, market participants holding the same asset but
using different valuation models might arrive at significantly
different values for the same asset.
    Valuation models could be improved to the extent that they consider
last-sale reports of the asset to be valued, reports of related assets,
or reports of benchmark products that include the asset to be valued or
closely related assets, even if those reports are dated. There is
evidence to suggest that post-trade transparency helps reduce the range
of valuations of assets that trade in illiquid markets.\314\ Thus,
post-trade transparency in the SBS market could result in more accurate
valuations of SBSs generally--particularly if trade information is used
as an input to,

rather than a substitute for, independent valuations by other market
participants--as it would allow all market participants to know how SBS
counterparties priced the SBS at a specific point in time. Especially
with complex instruments, investment decisions generally are predicated
a significant amount of due diligence to value the instruments
properly. A post-trade transparency system permits other market
participants to derive at least some informational benefit from
obtaining the views of the two counterparties who did a particular
trade.
---------------------------------------------------------------------------

    \314\ See Gjergji Cici, Scott Gibson, John J. Merrick, Jr.,
``Missing the Marks? Dispersion in Corporate Bond Valuations Across
Mutual Funds,'' draft paper available at http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=1104508.
---------------------------------------------------------------------------

    Furthermore, better valuations could create a benefit in the form
of more efficient capital allocation, which is premised on accurate
knowledge of asset prices. Asset prices that are too high could result
in a misallocation of capital, as investors demand more of an asset
that cannot deliver an economic risk-adjusted return. By the same
token, assets that are inappropriately undervalued could represent
investment opportunities that will likely not receive enough capital
because investors do not realize that a good risk-adjusted return is
available. To the extent that post-trade transparency of SBS
transactions enables asset valuations to move closer to their
fundamental value, capital could be more efficiently allocated.
    Better valuations resulting from post-trade transparency of SBSs
also could reduce prudential and systemic risks. Some financial
institutions, including many of the most systemically important
financial institutions, have large portfolios of SBSs. The financial
system could benefit if the portfolios of these institutions were more
accurately valued. To the extent that post-trade transparency affirms
the valuation of an institution's portfolio, regulators, the individual
firm, and the market as a whole could be more certain as to whether the
firm would or would not pose prudential or systemic risks. In some
cases, however, post-trade transparency in the SBS market might cause
an individual firm to revalue its positions and lower the overall value
of its portfolio. The sooner that accurate valuations can be made, the
more quickly that regulators and the individual firm could take
appropriate steps to minimize the firm's prudential risk profile, and
the more quickly that regulators and other market participants could
take appropriate steps to address any systemic risk concerns raised by
that firm.
    In addition, proposed Rule 902 is designed to maximize the
availability of information regarding SBS transactions to all market
participants in a way that the Commission preliminarily believes
``take[s] into account whether the public disclosure will materially
reduce market liquidity.'' \315\ Post-trade transparency, as
contemplated by proposed Rule 902, could reduce information asymmetries
among SBS market participants and thereby benefit market liquidity in
at least two ways. First, it could reduce the informational asymmetries
between market participants, allowing dealers to set quotes using
information beyond their own order flow. This could help smaller
dealers or other market participants to enter the market by reducing
the informational advantage and bargaining power of large dealers.
Second, investors with hedging needs who are at an informational
disadvantage to dealers and would have more information as to trade
prices. Such investors also could more accurately price the trade,
which would encourage their participation in the SBS market. Better
informed market participation by both dealers and investors--through
greater fairness in access to relevant pricing information--could
result in benefits in the form of an increase in overall market
liquidity.
---------------------------------------------------------------------------

    \315\ 15 U.S.C. 78m(m)(1)(E)(iv).
---------------------------------------------------------------------------

    Finally, real-time public dissemination of SBS transaction reports
could have effects on the overall volume of the SBS market, which could
have certain benefits. Greater transparency could result in greater
confidence in the SBS market, resulting in more market participants
being willing to trade, or the same number of market participants being
willing to trade more often. These additional transactions could result
in better allocation of risk across the financial system. On the other
hand, there could be a benefit even if fewer SBS transactions occur
because of proposed Regulation SBSR. This could be the case if market
participants that are unable or unwilling to properly manage the
attendant risks of participation in the SBS market are deterred from
participating, or if there were a reduction in the number of SBS
transactions where there is a significant information asymmetry between
the counterparties. In the latter case, there could be a benefit if
uninformed parties are deterred from unwittingly taking on imprudent
positions in SBSs.
2. Costs
    A potential cost of post-trade transparency that is often cited by
market participants, particularly dealers, is that it increases
inventory risks. Dealers often enter trades with their customers as a
liquidity supplier. A potential consequence of post-trade transparency
is that dealers trying to hedge inventory following a trade are put in
a weaker bargaining position relative to subsequent counterparties, and
will either raise the liquidity fee charged to their clients or refuse
to accommodate such trades. Such behavior could lead to lower trading
volume and reduce the ability of market participants to manage risk,
both of which could have a negative welfare effect on all market
participants.
    In an opaque market, market participants have to rely primarily on
their understanding of the market's fundamentals to arrive at a price
at which they would be willing to assume risk. With immediate real-time
public dissemination of a block trade, however, market participants who
might be willing to offset that risk--i.e., other dealers and natural
shorts--could extract rents from a dealer that takes a large risk
position from a counterparty. Because the initial dealer would not
internalize those higher costs, it would most likely seek to pass those
costs on to the counterparty in the form of a higher price for the
initial SBS. This could lead to less liquidity in the SBS market, and
thus lower trading volume and less ability for market participants to
manage risk. It also might be argued that increased post-trade
transparency could drive large trades to other markets that offer the
opacity desired by traders, creating fragmentation and harming price
efficiency and liquidity. This possibility is consistent with the
argument that large, informed traders may prefer a less transparent
trading environment that allows them to minimize the price impact of
their trades. Real-time public dissemination of SBS transaction
information, therefore, could cause certain market participants to
trade less frequently or to exit the market completely. It would be
difficult at this stage to estimate the likelihood of this occurring
and, if does occur, what the costs would be. The Commission invites
comment on this issue.
    Another potential cost of post-trade transparency in the SBS
market, as contemplated by proposed Rule 902, is that last-sale prints,
particularly in infrequently traded products, could be the result of
unusual conditions that do not reflect the economic fundamentals of the
SBS instrument. For instance, if a large market participant failed
resulting in the liquidation of its portfolio, fire sale prices could
have the effect of requiring other market participants to unduly mark
down the value of their portfolios. This could cause additional market
stress,

particularly through the triggering of additional margin calls. In
these circumstances, independent evaluations and decision-making that
incorporates post-trade information can be important to stabilizing the
markets.
    Simultaneously with this proposal, the Commission is proposing new
Rules 13n-1 through 13n-11 under the Exchange Act relating to the SDR
registration process, the duties of SDRs, and their core
principles.\316\ The SDR Registration Proposing Release covers
anticipated collections of information with respect to various aspects
of establishing and operating an SDR, including its start-up and
ongoing operations, and describes the costs that complying with the
proposed rules would entail. The Commission preliminarily believes that
a registered SDR would be able to integrate the functions outlined in
new Rules 13n-1 through 13n-11 with the capability to publicly
disseminate real-time SBS transaction reports required under proposed
Rule 902 as part of its overall system development. Accordingly, the
Commission believes that the costs associated with enabling and
maintaining compliance with proposed Rule 902 would, as a practical
matter, represent a portion of the SDR's overall systems development
budget and process. For purposes of the PRA, the Commission
preliminarily estimated that implementing and complying with the real-
time public dissemination requirement of proposed Rule 902 would add an
additional 20% to the start-up and ongoing operational expenses that
would otherwise be required of a registered SDR.\317\
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    \316\ See SDR Registration Proposing Release, supra note 6.
    \317\ See Section V.D.2 (SDR Duties, Data Collection and
Maintenance, Automated Systems, and Direct Electronic Access) of the
SDR Registration Proposing Release. This estimate is based on the
input from potential SDRs and includes time necessary to design and
program a registered SDR's system to calculate and disseminate
initial and end of day block trade reports as well as annual costs
associated with systems testing and maintenance necessary for the
special handling of block trades. These figures do not include the
development of policies and procedures necessary to calculate block
trade thresholds pursuant to proposed Rule 907(b).
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    On this basis, the Commission preliminarily estimates that the
initial one-time aggregate costs associated with real-time public
dissemination for development and implementation of the systems needed
to disseminate the required transaction information and for necessary
software and hardware would be $40,004,000 million, which corresponds
to $4,000,400 per registered SDR.\318\ In addition, the Commission
preliminarily estimates that aggregate annual costs for systems and
connectivity upgrades associated with real-time public dissemination
would be $24,002,400 million, which corresponds to $2,400,240 per
registered SDR.\319\ Thus, the initial aggregate costs associated with
proposed Rule 902 would be $64,006,400, which corresponds to $6,400,640
per registered SDR.\320\
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    \318\ The Commission derived this estimate from the following: [
(Attorney (1,400 hours) at $316 per hour) + (Compliance Manager
(1,600 hours) at $294 per hour) + (Programmer Analyst (4,000 hours)
at $190 per hour) + (Senior Business Analyst (1,400 hours) at $234
per hour) x (10 registered SDRs)) + ($2,000,000 for necessary
hardware and software)] = $40,004,000. See SDR Registration
Proposing Release, supra note 6 at Section VI.B.2 (estimating the
total cost associated with establishing SDR technology systems).
    \319\ The Commission derived this estimate from the following:
[(Attorney (840 hours) at $316 per hour) + (Compliance Manager (960
hours) at $294 per hour) + (Programmer Analyst (2,400 hours) at $190
per hour) + (Senior Business Analyst (840 hours) at $234 per hour) x
(10 registered SDRs)) + ($1,200,000 for necessary hardware and
software upgrades)] = $24,002,400. See SDR Registration Proposing
Release, supra note 6, at Section VI.B.2 (estimating the annual
ongoing cost associated with operating and maintaining SDR
technology systems).
    \320\ This estimate is based on the following: [(($4,000,400) +
($2,400,240)) x (10 registered SDRs)] = $64,006,400, which
corresponds to $6,400,640 per registered SDR.
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    The SDR Registration Proposed Rules also address additional costs
on registered SDRs that are not included here.\321\
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    \321\ See SDR Registration Proposing Release, supra at note 6.
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3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 902 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    258. What would be the costs and benefits of post-trade
transparency in the SBS market, both in the long and the short term?
How would post-trade transparency alter the existing market structure?
    259. How would post-trade transparency in the SBS market affect the
ability to hedge? Would hedging become more costly or less costly over
time? Why?
    260. Would post-trade transparency have the same costs and benefits
on the SBS market similar as on other securities markets? Why or why
not?
    261. The SBS market is currently almost wholly institutional. Would
this characteristic impact the costs and benefits of post-trade
transparency on the SBS market? If so, how and how much? Are the needs
of market participants in the SBS market for access to transaction
information different than the needs of market participants in other
securities markets for access to transaction information?
    262. A significant amount of trading in the SBS market is currently
carried out by only a limited number of market participants. Would this
characteristic impact the costs and benefits of post-trade transparency
on the SBS market? If so, how and how much? For example, is there a
concern that it would be easier to determine the identity of the
counterparties to a SBS transaction in certain instances based on the
real-time transaction report? If so, what would be the harm, if any, of
such knowledge? Would the answer differ depending upon the liquidity of
the SBS instrument, or whether it was a customized SBS or not?
    263. The SBS market is generally more illiquid than other
securities markets that have post-trade transparency regimes. How would
this characteristic impact, if at all, the effect the costs and
benefits of post-trade transparency on the SBS market? Do commenters
believe that post-trade transparency could materially reduce market
liquidity in the SBS market, or particular subsets thereof? Why and
how? Please be specific in your response and provide data to the extent
possible.
    264. How would a post-trade transparency regime in SBSs affect the
costs of trading in the underlying securities? For example, how, if at
all, would the post-trade transparency regime affect liquidity in the
corporate bond market?
    265. Academic studies of other securities markets generally have
found that post-trade transparency reduces transaction costs and has
not reduced market liquidity. How do those markets differ or compare to
the SBS market? How would those similarities or differences affect
post-trade transparency in the SBS market?
    266. Do commenters believe that post-trade transparency could
materially reduce market liquidity in the SBS market, or particular
subsets thereof? Why and how?
    267. Would proposed Rule 902 create any additional costs or
benefits not discussed here?
    268. Are there any ways that the Commission can study the costs and
benefits of the dissemination delay for the size of a block trade by
creating different initial requirements by entities

or assets classes as part of the phase-in of the rule?

D. Coded Information--Rule 903 of Regulation SBSR

    To facilitate the reporting and dissemination of SBS transactions,
as would be required under proposed Rules 901 and 902, the Commission
understands that there may--or could be developed--industry conventions
for identifying SBSs or reference entities on which SBS are based
through readily available reference codes. Proposed Rule 903 addresses
this possibility. Specifically, proposed Rule 903 would provide that a
reporting party could provide information to a registered SDR pursuant
to proposed Rule 901, and a registered SDR could publicly disseminate
information pursuant to proposed Rule 902, using codes in place of
certain data elements, provided that the information necessary to
interpret such codes is widely available on a non-fee basis.
1. Benefits
    The use of such codes by a registered SDR and its participants
could give rise to significant potential benefits. First, the use of
codes could greatly improve the efficiency and accuracy of the trade
reporting system by streamlining the provision of data to the
registered SDR. Reporting just the code could replace several data
elements that otherwise would have to be reported separately. Second,
the development of a public coding system could also support greater
transparency. Coded transaction reports with key identifying
information for SBS transactions could facilitate the aggregation of
market transactions, particularly when the records are dispersed across
different registered SDRs. Third, the aggregation of SBS transaction
data through codes would also facilitate more efficient market analysis
studies, surveillance activities, and system risk monitoring by
regulators by streamlining the presentation of the SBS transaction
data. Without robust, common identifying information, the process of
aggregating market data across asset classes and entities could be
impaired, increasing the effort required for market analysis
activities.
2. Costs
    Proposed Rule 903 could impose certain costs on current SBS market
participants. Some SBS market participants have developed private
coding systems.\322\ To the extent that these systems are not widely
available, proposed Rule 903 would prohibit their adoption for use by
registered SDRs and their participants in connection with the reporting
and dissemination of SBS transactions required under proposed
Regulation SBSR. Consequently, the owners of these systems may no
longer be able to market and generate income (i.e., licensing fees)
from these systems, or recover development costs associated with their
systems.
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    \322\ The Commission is aware of one such product identification
system that involves six-digit reference entity identifiers and
three-digit reference obligations identifiers as well as a standard
three-digit maturity identifier.
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    The Commission preliminarily believes that proposed Rule 903 would
not impose any material costs on registered SDRs or their participants.
The development and use of a coding system that is widely available on
a non-fee basis would instead likely reduce the costs associated with
reporting and disseminating SBS transactions as required under proposed
Rules 901 and 902, as market participants would not have to incur any
fees to use codes.
3. Request for Comment
    The Commission requests comment on the costs and benefits of
proposed Rule 903 discussed above, as well as any costs and benefits
not already described that could result. The Commission also requests
data to quantify any potential costs or benefits. In addition, the
Commission requests comment on the following:
    269. How can the Commission more accurately estimate the costs and
benefits?
    270. Would proposed Rule 903 entail any benefits or costs not
considered by the Commission?
    271. Are there costs the Commission has not considered with respect
to the use of coding systems that are widely available on a non-fee
basis? Would the use of these coding systems in fact reduce the costs
associated with the obligations under proposed Rules 901 and 902?
    272. Are there coding systems that are widely available on a non-
fee basis? What, if any, costs may be associated with requiring the use
of a coding system that is widely available on a non-fee basis?
    273. What would be the costs and benefits of permitting the use of
codes that are available for a fee? Could allowing the use of such
codes create a regulatory monopoly in favor of the owner of the code's
intellectual property?

E. Operating Hours of Registered SDRs--Rule 904 of Regulation SBSR

    Proposed Rule 904 would require a registered SDR to design its
systems to allow for continuous receipt and dissemination of SBS data,
except that a registered SDR would be permitted to establish ``normal
closing hours.'' Such normal closing hours may occur only when, in the
estimation of the registered SDR, the U.S. markets and other major
markets are inactive. In addition, a registered SDR would be permitted
to declare, on an ad hoc basis, special closing hours to perform
routine system maintenance, subject to certain requirements.
1. Benefits
    The Commission preliminarily believes that it would be beneficial
to require a registered SDR to continuously receive and disseminate SBS
transaction information. The market for SBS is global, and the
Commission believes the public interest would be served by requiring
continuous real-time dissemination of any SBS transactions (with a
sufficient nexus to the United States to require reporting into a
registered SDR), no matter when they are executed. Thus, if U.S.
participants execute SBSs in Japan while the U.S. markets are closed,
market participants around the word would still be able to view real-
time reports of such transactions. Further, the Commission believes a
continuous dissemination regime would eliminate the temptation for
market participants to defer execution of SBS transactions until after
regular business hours to avoid real-time post-trade transparency.
    Paragraphs (c) to (e) of proposed Rule 904 would specify
requirements for handling and disseminating reported data during a
registered SDR's normal and special closing hours. The Commission
believes that these provisions would provide benefits in that they
clarify how SBSs executed while a registered SDR is in normal or
special closing hours would be reported and disseminated.
2. Costs
    The Commission believes that a registered SDR would not incur
significant costs in connection with proposed Rule 904. The Commission
today is also proposing Rules 13n-1 through 13n-11 under the Exchange
Act that would deal with SDR registration, duties, data collection and
maintenance, automated systems and other issues.\323\ That proposal
covers expenses with

respect to many aspects of establishing and operating an SDR,
including, implicitly, its hours of operation.