[Federal Register Volume 75, Number 246 (Thursday, December 23, 2010)]
[Proposed Rules]
[Pages 80898-80945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31133]
[[Page 80897]]
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Part II
Commodity Futures Trading Commission
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17 CFR Part 49
Swap Data Repositories; Proposed Rule
Federal Register / Vol. 75 , No. 246 / Thursday, December 23, 2010 /
Proposed Rules
[[Page 80898]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 49
RIN 3038-AD20
Swap Data Repositories
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is proposing rules to implement new statutory
provisions introduced by Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act''). Section 728 of the
Dodd-Frank Act amends the Commodity Exchange Act (``CEA'' or the
``Act'') by adding new Section 21, which establishes registration
requirements, statutory duties, core principles and certain compliance
obligations for registered swap data repositories (``SDRs'') and
directs the Commission to adopt rules governing persons that are
registered, as such, under this Section.
DATES: Comments must be received by February 22, 2011.
ADDRESSES: You may submit comments, identified by RIN 3038-AC20, by any
of the following methods:
Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: http://www.Regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that may be exempt from disclosure under the Freedom of
Information Act (``FOIA''),\1\ a petition for confidential treatment of
the exempt information may be submitted according to the established
procedures in Sec. 145.9 of the Commission's regulations.\2\ The
Commission reserves the right, but shall have no obligation, to review,
pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
FOIA.
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\1\ 5 U.S.C. 552.
\2\ 17 CFR 145.9.
FOR FURTHER INFORMATION CONTACT: Jeffrey P. Burns, Assistant General
Counsel, Office of the General Counsel, at (202) 418-5101,
[email protected]; Susan Nathan, Senior Special Counsel, Division of
Market Oversight, at (202) 418-5133, [email protected] and Adedayo
Banwo, Counsel, Office of the General Counsel, at (202) 418-6249,
[email protected], Commodity Futures Trading Commission, Washington, DC
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20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. The Proposed Regulations: Part 49
A. Requirements of Registration
B. Duties of Registered SDRs
1. Acceptance of Data
2. Confirmation of Data Accuracy
3. Recordkeeping Requirements
4. Direct Electronic Access by the Commission
5. Monitoring, Screening and Analyzing Swap Data
6. Maintenance of Data Privacy
7. Access to SDR Data
8. Emergency Procedures
C. Designation of Chief Compliance Officer
D. Core Principles Applicable to SDRs
1. Antitrust Considerations (Core Principle 1)
2. Introduction--Governance Arrangements (Core Principle 2) and
Conflicts of Interest (Core Principle 3)
3. Governance Arrangements (Core Principle 2)
4. Conflicts of Interest (Core Principle 3)
E. Additional Duties
1. System Safeguards
2. Financial Resources
3. Disclosure Requirements of Swap Data Repositories
4. Non-Discriminatory Access and Fees
F. Real Time Reporting
G. Procedures for Implementing Swap Data Repository Rules
III. Effectiveness and Transition Period
IV. General Request for Comments
V. Related Matters
A. Paperwork Reduction Act
B. Cost-Benefit Analysis
C. Antitrust Considerations
D. Regulatory Flexibility Act
VI. List of Subjects
I. Background
On July 21, 2010, President Obama signed into law the Dodd-Frank
Act.\3\ Title VII of the Dodd-Frank Act \4\ amended the CEA \5\ to
establish a comprehensive new regulatory framework for swaps and
security-based swaps. The legislation was enacted to reduce risk,
increase transparency, and promote market integrity within the
financial system by, among other things: (1) Providing for the
registration and comprehensive regulation of swap dealers (``SDs'') and
major swap participants (``MSPs''); (2) imposing clearing and trade
execution requirements on standardized derivative products; (3)
creating robust recordkeeping and real-time reporting regimes; and (4)
enhancing the Commission's rulemaking and enforcement authorities with
respect to, among others, all registered entities and intermediaries
subject to the Commission's oversight.
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\3\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010), available at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
\4\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\5\ 7 U.S.C. 1, et seq.
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To enhance transparency, promote standardization and reduce
systemic risk, Section 728 of the Dodd-Frank Act establishes a newly-
created registered entity--the SDR \6\--to collect and maintain data
and information related to swap transactions as prescribed by the
[[Page 80899]]
Commission \7\ and to make such data and information directly and
electronically available to regulators. Section 2(a)(13)(G) of the CEA,
adopted by Section 727 of the Dodd-Frank Act, requires all swaps--
cleared or uncleared--to be reported to an SDR. Section 728 of the
Dodd-Frank Act added to the CEA new Section 21 governing registration
and regulation of SDRs, and directed the Commission to adopt
regulations governing SDR duties and responsibilities specified in the
legislation. Section 21 requires that SDRs be registered with the
Commission,\8\ allows a derivatives clearing organization (``DCO'') to
register as an SDR, and specifies that persons required to be
registered as SDRs must register with the Commission whether or not
they are also licensed as a bank or registered as a security-based swap
data repository with the Securities and Exchange Commission
(``SEC'').\9\ To register with the Commission and maintain
registration, SDRs are required to comply with the duties and core
principles set forth in Section 21 of the CEA as well as other
requirements that the Commission may prescribed by rule.\10\
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\6\ Section 721 of the Dodd-Frank Act amends Section 1a of the
CEA to add the definition of SDR. Section 1a provides that the term
``swap data repository means any person that collects and maintains
information or records with respect to transactions or positions in,
or the terms and conditions of, swaps entered into by third parties
for the purpose of providing a centralized recordkeeping facility
for swaps.'' 7 U.S.C. 1a(48). Currently there are global trade
repositories for credit, interest rate, and equity swaps. Since
2009, all G-14 dealers have submitted credit swap data to the
Depository Trust & Clearing Corporation's (``DTCC'') Trade
Information Warehouse. In January 2010, TriOptima launched the
Global OTC Derivatives Interest Rate Trade Reporting Repository
after selection by the Rates Steering Committee of the International
Swaps and Derivatives Association to provide a trade repository to
collect information on trades in interest rate swaps. In August
2010, DTCC also launched the Equity Derivatives Reporting Repository
for equity swaps and other equity derivatives. Other entities may
also perform trade repository functions on a regional or more
localized basis. In addition, a variety of firms also provide
ancillary services and functions essential to the efficient
operation of trade reporting of swaps. Trade repositories for other
asset classes such as commodities and foreign currency have yet to
be formally established but are expected to be developed in the near
future in connection with the effective date of the Dodd-Frank Act.
\7\ Regulations governing the SDRs' data collection and
recordkeeping responsibilities are the subject of a separate
proposed rulemaking under part 45 of the Commission's regulations.
See 17 CFR part 45.
\8\ The Dodd-Frank Act mandates that the Commission promulgate
rules to implement these provisions by July 15, 2011. See Section
712 of the Dodd-Frank Act.
\9\ If a DCO so registers, then to the extent that final rules
on governance and conflicts of interest, discussed infra Section
II.D.2, differ between a DCO and an SDR, the DCO must meet the more
stringent set of rules.
\10\ Section 21(f)(4)(A) of the CEA, added by the Dodd-Frank
Act, authorizes the Commission to develop one or more additional
duties applicable to SDRs. 7 U.S.C. 24a(f)(4).
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Pursuant to the specific duties outlined in Section 21(c) of the
CEA, SDRs must (1) accept data; (2) confirm with both counterparties to
the swap the accuracy of the data that was submitted; (3) maintain data
according to standards prescribed by the Commission; (4) provide direct
electronic access to the Commission or any designee of the Commission;
(5) provide public reporting of swap data in the form and frequency as
the Commission may require; (6) establish automated systems for
monitoring and analyzing data (including the use of end-user clearing
exemptions) at the direction of the Commission; (7) maintain user
privacy; (8) on a confidential basis, pursuant to Section 8 of the
CEA,\11\ upon request and after notifying the Commission, make data
available to other specified regulators; and (9) establish and maintain
emergency procedures. As a separate matter, prior to sharing
information with specified entities, the SDR must, pursuant to Section
21(d) of the CEA, receive a written agreement from each such entity
stating that it will abide by the confidentiality provisions of Section
8 of the CEA and agree to indemnify the SDR and the Commission for any
litigation expenses relating to information provided under Section 8.
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\11\ Section 8 of the CEA, 7 U.S.C. 12(e), establishes among
other things the conditions under which the Commission may furnish
information obtained in connection with the administration of the
CEA to any department or agency of the United States; such
information shall not be disclosed by such department or agency
except in any action or proceeding under the laws of the United
States to which it, the Commission or the United States is a party.
Similarly, the Commission may furnish such information to a foreign
futures authority if the Commission is satisfied that the
information will not be disclosed by such foreign futures authority
except in connection with an adjudicatory action or proceeding
brought under the laws of such foreign government or political
subdivision, or foreign futures authority, is a party.
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Section 21(e) of the CEA requires that each SDR have a chief
compliance officer (``CCO'') and specifies the duties of the CCO.
Section 21(f) of the CEA establishes four core principles for SDRs.
First, an SDR is prohibited from adopting any rule or taking any action
that results in any unreasonable restraint of trade or imposing any
material anticompetitive burden on the trading, clearing or reporting
of transactions. Second, each SDR must establish governance
arrangements that are transparent to fulfill the public interest
requirements and to support the objectives of the federal government,
owners and participants. Third, each SDR must establish and enforce
rules to minimize conflicts of interest in the SDR's decision-making
processes and establish a process for resolving conflicts of interest.
Lastly, a fourth core principle provides that the Commission must
establish additional duties for registered SDRs to minimize conflicts
of interest, protect data, ensure compliance and guarantee the safety
and security of the SDR and may develop additional duties taking into
account evolving standards of the United States and the international
community.\12\
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\12\ See Section 21(f)(4) of the CEA, 7 U.S.C. 24a(f)(4).
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The Commission notes that in May 2010, a working group jointly
established by the Committee on Payment and Settlement Systems
(``CPPS'') of the Bank of International Settlements (``BIS'') and the
Technical Committee of the International Organization of Securities
Commissions (``IOSCO'') published a consultative report entitled
``Considerations for Trade Repositories in the OTC Derivatives
Markets''(``Working Group Report'').\13\ The Working Group Report
presents a set of factors to consider in connection with the design,
operation and regulation of SDRs. A significant consideration of the
Working Group Report is access to SDR data by appropriate regulators.
As noted in this Working Group Report, a trade repository ``should
support market transparency by making data available to relevant
authorities and the public in line with their respective information
needs.'' \14\ The Commission believes that the Dodd-Frank Act and
proposed part 49 of the Commission's Regulations are consistent with
the goals of the Working Group Report. Unless inconsistent with the
statutory framework set forth in Section 21 of the CEA and related
provisions, the Commission proposes that SDRs will largely follow the
recommendations in the Working Group Report to enhance transparency,
promote standardization and reduce systemic risk in the swaps market.
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\13\ See CPSS-IOSCO Consultative Report, Considerations for
Trade Repositories in the OTC Derivatives (May 2010), available at
http://www.bis.org/publ/cpss90.pdf.
\14\ Id.
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Additionally, Section 752(a) of the Dodd-Frank Act directs the
Commission to consult and coordinate with foreign regulatory
authorities regarding the establishment of consistent international
standards for the regulation of swaps and various ``swap entities.''
\15\ Consistent with this directive, the Commission believes that the
data maintained by SDRs must be available to all appropriate foreign
regulators consistent with their regulatory responsibilities and the
Dodd-Frank Act. Accordingly, in support of its cooperative
international approach to the regulation of SDRs, the Commission has
consulted with various foreign regulatory authorities in promulgating
the proposed rules.
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\15\ The Dodd-Frank Act provides:
In order to promote effective and consistent global regulation
of swaps and security-based swaps, the Commodity Futures Trading
Commission, the Securities and Exchange Commission, and the
prudential regulators (as that term is defined in Section 1a(39) of
the Commodity Exchange Act), as appropriate, shall consult and
coordinate with foreign regulatory authorities on the establishment
of consistent international standards with respect to the regulation
(including fees) of swaps, security-based swaps, swap entities, and
security-based swap entities and may agree to such information-
sharing arrangements as may be deemed to be necessary or appropriate
in the public interest or for the protection of investors, swap
counterparties, and security-based swap counterparties.
Section 752(a) of the Dodd-Frank Act.
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The Commission also notes the recent issuance by the European
Commission
[[Page 80900]]
of its regulatory proposal related to OTC derivatives, central
counterparties and trade depositories.\16\ It is the Commission's
intention to harmonize its approach with that of the European
Commission to the extent possible consistent with the statutory
provisions of Dodd-Frank Act relating to SDRs.
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\16\ See Proposal for a Regulation of the European Parliament
and of the Council on OTC Derivatives, Central Counterparties, and
Trade Depositories (the ``European Commission Proposal''), COM
(2010) 484/5.
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The Commission submits further that Section 21 of the CEA does not
provide the Commission with the authority to exempt any entity
performing the functions of an SDR from the registration requirements
or any other regulatory duties established by the Dodd-Frank Act.
However, swap activity that is strictly of a ``non-U.S.'' nature would
be excluded from Commission registration and regulation. Specifically,
Section 2(i) of the CEA, as amended by Section 722 of the Dodd-Frank
Act, excludes from U.S. jurisdiction all swap activity that does not
have a ``direct and significant connection with activities in, or
effect on, commerce of the United States'', or which contravene
regulations necessary to prevent evasion.\17\
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\17\ Section 2(i) of the CEA, as amended by Section 722(d) of
the Dodd-Frank Act, provides:
(i) APPLICABILITY.--The provisions of this Act relating to swaps
that were enacted by the Wall Street Transparency and Accountability
Act of 2010 (including any rule prescribed or regulation promulgated
under that Act), shall not apply to activities outside the United
States unless those activities--
(1) have a direct and significant connection with activities in,
or effect on, commerce of the United States; or
(2) contravene such rules or regulations as the Commission may
prescribe or promulgate as are necessary or appropriate to prevent
the evasion of any provision of this Act that was enacted by the
Wall Street Transparency and Accountability Act of 2010.
7 U.S.C. 2(i)(1)-(2).
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II. The Proposed Regulations: Part 49
As discussed above, part 49 will contain the provisions that apply
to registration and regulation of SDRs. Proposed Sec. 49.3 will
establish the procedures and substantive requirements for registration
as an SDR. Compliance with the statutory duties described in Section
21(c) of the CEA is described in proposed Sec. 49.9 and detailed in
proposed Sec. Sec. 49.10 through 49.18. Core principles applicable to
SDRs as outlined in Section 21(f) are set forth in proposed Sec. Sec.
49.19 through 49.22. The additional duties promulgated pursuant to
Section 21(f)(4) of the CEA (Core Principle 4) are set forth in
proposed Sec. Sec. 49.23 through 49.27.
A. Requirements of Registration
Proposed Sec. Sec. 49.3-49.4 and 49.6-49.7 provide the substantive
requirements and framework for SDR registration. The Proposed
Regulations include provisions relating to: (1) Procedures for
registration; (2) provisional registration; (3) an annual filing
requirement; (4) withdrawal of application for registration; (5)
reinstatement of dormant registration; (6) withdrawal of registration;
(7) registration of successor entities; and (8) SDRs located in foreign
jurisdictions. Each of the proposed Regulations is discussed below in
turn.
1. Procedures for Registration--Proposed Sec. 49.3
To implement the requirements of Section 21(a) of the CEA, as
amended by Section 728 of the Dodd-Frank Act, and to ensure the
Commission's ability to administer part 49 of the Commission's
Regulations generally, the Commission proposes in Sec. 49.3 to
establish application and approval procedures for any entity seeking
registration as a SDR. The Commission, in connection with proposed
Sec. 49.3, is proposing to require each SDR applicant to file for
registration on proposed Form SDR.
(a) Proposed Form SDR. Proposed Sec. 49.3(a) provides that
applications for registration as an SDR must be filed electronically
with the Commission on new Form SDR. Proposed Form SDR will be used for
an initial or provisional registration as an SDR as well as any updates
or amendments to registration. Each applicant will be required to
provide the Commission with documents and descriptions pertaining to
the (i) business organization, (ii) financial resources, (iii)
technological capabilities and (iv) accessibility of services of the
SDR.
SDR applicants will be required to provide documents describing the
applicant's legal status, including a copy of the constitution,
articles of incorporation or association with all amendments, existing
by-laws, rules or instruments corresponding with, and a description of
the organizational and governance structure. SDRs must also submit
copies of any applicable rules and regulations (as defined in revised
Sec. 40.1),\18\ disclose any affiliates along with a brief description
of the nature of the affiliation, and submit copies of any agreements
between the SDR and third parties that will assist the SDR in complying
with the duties set forth in Section 21(c) and the core principles
specified in Section 21(f). If the applicant is a foreign entity, the
entity is required to certify and provide an opinion of counsel that
the SDR, as a matter of law, is able to provide the Commission with
prompt access to the books and records of the SDR and that the SDR can
submit to onsite inspection and examination by the Commission.
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\18\ See Commission, Notice of Proposed Rulemaking: Revisions to
part 40 (Provisions Common to Registered Entities), 75 FR 67282
(Nov. 2, 2010).
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Financial information filed as part of Form SDR would include (i) a
balance sheet, (ii) statement of income and expenses, (iii) statement
of sources and application of revenues and (iv) all notes or schedules,
as of the most recent fiscal year. A balance sheet and an income and
expense statement for each affiliate, as of the end of the most recent
fiscal year, will also be required for those affiliates of the SDR that
provide SDR regulatory services. If the applicant is a newly-created
entity without sufficient time in operation, the applicant should
provide pro forma financial statements for the most recent six months,
or since inception of the entity, whichever occurs first. Except for
pro forma financial statements prepared for newly-created entities,
financial statements shall be prepared in conformity with generally
accepted accounting principles (``GAAP'') applied on a basis consistent
with that of the preceding financial statement.
Applicants will be required to demonstrate operational capability
through documentation such as technical manuals and/or third party
service provider agreements that will be employed to provide services
to the SDR. Applicants will also be required to set forth practices and
procedures for accepting swap data and providing services to market
participants. As required by proposed Sec. 49.27, access must be fair,
open and non-discriminatory.
(b) 180-Day Review Procedures. An entity that seeks to register as
a SDR is required to electronically file Form SDR with the Commission
in accordance with the instructions contained in Form SDR. The
Commission will review Form SDR and, at or prior to the conclusion of a
180-day period, by order either (i) grant registration; (ii) extend the
180-day review period for good cause; or (ii) deny the application for
registration. If deemed appropriate, the Commission may grant
registration as a SDR subject to conditions. The 180-day review period
will commence once a completed submission on Form SDR is submitted to
the Commission, as determined solely in the discretion of the
Commission. If the Commission denies an application for registration,
it will specify the grounds for such denial. In the event the
Commission denies an applicant
[[Page 80901]]
registration, such person may request an opportunity for a hearing
before the Commission.
(c) Standard for Approval. The Commission, in reviewing
applications for SDR registration, will review whether SDR applicants
are properly organized and have the capacity to assure the prompt,
accurate and reliable performance of the SDR duties in Section 21(c),
core principles in Section 21(f) and additional duties of Section
21(f)(4). Subject to the ability of the Commission to extend the 180-
day period as noted above, the Commission would deny registration if it
appears at the end of the 180-day period that the application (i) is
materially incomplete; \19\ (ii) fails in form or substance to meet the
requirements of Section 21 of the CEA and proposed part 49 of the
Commission's Regulations; \20\ and/or (iii) is amended or supplemented
in a manner that is inconsistent with proposed Sec. 49.3. The
Commission, in each instance of the denial of an application for
registration, will provide notification setting forth the deficiencies
in the application, or the manner in which the application fails to
meet the requirements of proposed part 49 of the Commission's
Regulations.\21\
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\19\ An SDR applicant that is denied registration based on an
incomplete application would be permitted to re-file an application
with the Commission.
\20\ The Commission would deny the registration of a SDR
applicant that is unable to demonstrate compliance with the
statutory duties set forth in Section 21(c) of the CEA, 7 U.S.C.
24a(c) and proposed Sec. 49.9 as well as the core principles set
forth in Section 21(f) of the CEA, 7 U.S.C. 24a(f), and proposed
Sec. 49.19.
\21\ This provision is comparable to the designated contract
market (``DCM'') and DCO applications set forth in Section 6 of the
CEA, 7 U.S.C. 8.
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(d) Amendments and Annual Filing. Proposed Sec. 49.3(a)(3)
provides that if any information reported on Form SDR or any subsequent
amendment becomes inaccurate, the SDR is required to promptly file an
amendment on Form SDR updating such information. This requirement is
applicable regardless of whether the information becomes inaccurate
before or after an application for registration has been granted.
Proposed Sec. 49.3(a)(3) also requires that each registered SDR
annually file an amendment on Form SDR within 60 days after the end of
each calendar year.
(e) Service of Process. The Commission is proposing in proposed
Sec. 49.3(a)(5) to require each SDR to designate and authorize on Form
SDR an agent in the United States, other than a Commission official, to
accept any notice or service of process, pleadings, or other documents
in any action or proceedings against the SDR to enforce the CEA and
related Regulations. If an SDR appoints another agent to accept such
notice or service of process, then the SDR would be required to file
promptly an amendment on Form SDR updating this information.\22\
Proposed Sec. 49.3(a)(5) is intended to conserve the Commission's
resources and to minimize any logistical obstacles (e.g., locating
defendants or respondents abroad) that the Commission may encounter
when attempting to effect service.
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\22\ See proposed Sec. 49.3(a)(5).
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(f) Provisional Registration. Proposed Sec. 49.3(b) permits the
Commission, upon the request of an applicant, to grant a provisional
registration of an SDR, if such applicant is in substantial compliance
with the standards set forth in proposed Sec. 49.3(a)(4). This
application for provisional registration would be filed on proposed
Form SDR. Such provisional registration will expire on the earlier of:
(i) The date that the Commission grants or denies registration of the
SDR; or (ii) the date that the Commission rescinds the provisional
registration of the SDR. The Commission may rescind such provisional
registration on the same grounds as those set forth in proposed Sec.
49.3(a)(3).
The proposed provisional registration would enable an SDR to comply
with the Dodd-Frank Act upon its effective date (i.e., the later of 360
days after the date of its enactment or 60 days after publication of
the final rule implementing Section 21 of the CEA). The provisional
registration would also allow the Commission to implement the
registration requirements of the Dodd-Frank Act for SDRs while
providing the Commission sufficient time to fully review the
application of an SDR. An SDR that is provisionally registered with the
Commission would be subject to Section 21 of the CEA and related
regulations during the period in which the Commission is reviewing the
SDR's application of registration.
The Commission believes that the provisional registration should
not be a permanent provision of part 49. Accordingly, proposed Sec.
49.3(b) includes a ``sunset'' provision so that provisional
registration would terminate 365 days from the effective date of
proposed Sec. 49.3(b).
Notwithstanding the availability of a provisional registration, the
Commission encourages each SDR to apply for registration as soon as
possible following the Commission's adoption of final part 49, to
permit sufficient time for an SDR to answer any questions that the
Commission staff may have and to provide additional information or
documentation, if necessary. The Commission will review applications in
the order in which they are received. Applications seeking provisional
registration that are received close to the effective date of the SDR
registration requirement may not be reviewed and approved by the
effective date.
(g) Withdrawal of Application for Registration. Proposed Sec.
49.3(c) permits an applicant for registration as an SDR to withdraw its
application by filing a request with the Commission. Such a voluntary
withdrawal by the applicant SDR will not affect any action taken or to
be taken by the Commission based upon conduct occurring during the time
that the application for registration was pending with the Commission.
(h) Reinstatement of Dormant Registration. Proposed Sec. 49.3(d)
provides that the Commission must affirmatively re-instate the
registration of a dormant SDR (as defined in revised Sec. 40.1 of the
Commission's Regulations) \23\ prior to such dormant SDR accepting or
re-accepting swap data.
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\23\ See Provisions Common to Registered Entities, supra note
18.
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(i) Delegation of Authority. Proposed Sec. 49.3(e) delegates
authority to the Director of the Division of Market Oversight (or
designee) with the consultation of the General Counsel of the
Commission (or designee) for certain matters relating to the
sufficiency of the application on Form SDR filed with the Commission.
In particular, the Commission in this proposed Regulation delegates to
the Director of the Division of Market Oversight or designee, with the
consultation of the General Counsel or designee, the authority to
notify an applicant for registration as an SDR under Section 21 of the
CEA that such application for registration is materially incomplete and
that the running of the 180-day period is stayed. This delegation of
authority does not prohibit the Commission from otherwise exercising
its authority that would be delegated under this proposed Regulation.
The Director of the Division of Market Oversight may also submit to the
Commission for its consideration any matter which has been delegated
under this proposed Regulation.
2. Withdrawal From Registration--Proposed Sec. 49.4
Consistent with Section 7 of the CEA, proposed Sec. 49.4 permits a
registered SDR to withdraw from registration by filing a notice of
withdrawal with the Commission at least 90 days prior to the
[[Page 80902]]
named withdrawal date. As part of its notice of withdrawal, the SDR is
required to: (1) Designate another SDR to serve as the custodian of the
withdrawing SDR's books and records; (2) specify the location of the
data and records; and (3) provide an opinion of counsel that the SDR is
authorized to make such data and records available. Prior to the filing
of a notice of withdrawal, a SDR must file an amended Form SDR to
update any inaccurate information.
The withdrawal of a SDR's registration will be effective on the
60th day after receipt by the Commission of the notice of withdrawal,
unless the Commission determines to extend or curtail the effectiveness
of an SDR's registration by order, deemed necessary or appropriate and
in the public interest.
Proposed Sec. 49.4(c) provides that after an opportunity for
hearing, the Commission may revoke the registration of a registered SDR
if the Commission finds that any registered SDR has obtained its
registration by making any false and misleading material statements or
has violated or failed to comply with any provision of the CEA and
Commission Regulations. Pending final determination of whether the
registration of an SDR should be revoked, the Commission may suspend
the registration of the SDR if it appears to the Commission, after
notice and opportunity for hearing, to be necessary or appropriate in
the public interest.
3. Equity Interest Transfer Notification--Proposed Sec. 49.5
Proposed Sec. 49.5 would require SDRs to file with the Commission
a notice of the equity interest transfer of ten percent or more, no
later than the business day, as defined in revised Sec. 40.1,\24\
following the date on which the SDR enters into a firm obligation to
transfer the equity interest.\25\ The notification must include and be
accompanied by: (i) Any relevant agreement(s), including preliminary
agreements; (ii) any associated changes to relevant corporate
documents; (iii) a chart outlining any new ownership or corporate or
organizational structure; (iv) a brief description of the purpose and
any impact of the equity interest transfer; and (v) a representation
from the registered SDR that it meets all of the requirements of
Section 21 of the CEA and Commission regulations adopted thereunder.
The SDR would also be required to amend any information that is no
longer accurate on Form SDR consistent with the procedures set forth in
proposed Sec. 49.3.
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\24\ See Provisions Common to Registered Entities, supra note
18.
\25\ The Commission is proposing a 10 percent threshold because
it believes that a change in ownership of such magnitude may have an
impact on the operations of the SDR. The Commission believes that
such impact may be present even if the change in ownership does not
constitute a change in control. Given the potential impact that a
change in ownership might have on the operations of a SDR, the
Commission believes that it is appropriate to require such SDR to
certify after such change that it continues to comply with all
obligations under the CEA and Commission regulations.
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The proposed Regulation requires that the registered SDR keep the
Commission informed of the projected date that the transaction
resulting in the equity interest transfer will be consummated, and
provide to the Commission any new agreements or modifications to the
original agreement(s) filed pursuant to this proposed Regulation. The
registered SDR is required to notify the Commission of the consummation
of the transaction on the business day in which it occurs. The proposed
Regulation will enable Commission staff to consider whether any
conditions contained in an equity transfer agreement(s) are
inconsistent with the duties, responsibilities and core principles of a
SDR.
Proposed Sec. 49.5(c) would require the SDR upon a 10% or greater
change in ownership to certify, within two business days following the
date on which the change in ownership occurs, that such SDR meets all
of the requirements of Section 21 of the CEA and proposed Regulations
under Part 49 of the Commission's regulations. The proposed Regulation
also requires that the SDR include as part of its certification whether
any aspects of the SDR's operations will change as a result of the
change in ownership, and if so, the SDR must provide a description of
the changes. Proposed Sec. 49.5(c) also provides that the
certification may rely on, and be supported by, prior materials and
information submitted as part of an application for registration or new
filings if necessary to update its previous filings.
The Commission notes that there may be differences in notification
procedures for transfers or changes in equity ownership of registered
entities proposed by the Commission.
Request for Comment. The Commission requests comment regarding the
proposed notification procedures as follows:
Should there be uniformity or differentiation in
procedures applied to different registered entities?
4. Registration of Successor Entities--Proposed Sec. 49.6
Proposed Sec. 49.6(a) sets forth the process of registering
successor entities of an SDR as the result of corporate change of
control or other similar events. Specifically, the proposed Regulation
provides that in the event of a corporate reorganization, merger,
acquisition, bankruptcy or other similar corporate event that creates a
new entity, the SDR is required to request a transfer of its
registration, rules, and other matters, within 30 days of the
succession. The registration of the predecessor SDR entity will be
deemed to remain effective as the registration of the successor if the
successor, within 30 days after such succession, files an application
for registration on Form SDR, and the predecessor files a request for
withdrawal of registration. The proposed Regulation would further
provide that the registration of the predecessor SDR shall cease to be
effective 90 days after the application for registration on Form SDR is
filed by the successor SDR.\26\ In other words, the 90-day period would
not begin to run until a complete Form SDR has been filed by the
successor with the Commission.
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\26\ See proposed Sec. 49.6(a).
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The following are examples of the types of successions that would
be required to be completed by filing an application: (1) An
acquisition, through which an unregistered entity purchases or assumes
substantially all of the assets and liabilities of the SDR and then
operates the business of the SDR, (2) a consolidation of two or more
registered entities, resulting in their conducting business through a
new unregistered entity, which assumes substantially all of the assets
and liabilities of the predecessor entities, and (3) dual successions,
through which one registered entity subdivides its business into two or
more new unregistered entities.
Proposed Sec. 49.6(b) sets forth the process of registering
successor entities of an SDR as the result of a change in the
predecessor SDR's date or state of incorporation, form of organization,
or composition of a partnership. In these cases, the successor SDR,
within 30 days after the succession, must amend the registration of the
predecessor SDR on Form SDR to reflect the changes. Such amendment
would be deemed an application for registration filed by the
predecessor and adopted by the successor. In all three types of
successions, the predecessor must cease operating as an SDR. The
Commission
[[Page 80903]]
preliminarily believes that it is appropriate to allow a successor to
file an amendment to the predecessor's Form SDR in these types of
successions because such successions do not typically result in a
change of control of the SDR. The purpose of proposed Sec. 49.6 is to
enable a successor SDR to operate without an interruption of business
by relying for a limited period of time on the registration of the
predecessor SDR until the successor's own registration becomes
effective. The proposed Regulation is intended to facilitate the
legitimate transfer of business between two or more SDRs and to be used
only where there is a direct and substantial business nexus between the
predecessor and the successor SDR. The proposed Regulation would not
allow a registered SDR to sell its registration, eliminate substantial
liabilities, spin off personnel, or facilitate the transfer of the
registration of a ``shell'' organization that does not conduct any
business. No entity would be permitted to rely on proposed Sec. 49.6
unless it is acquiring or assuming substantially all of the assets and
liabilities of the predecessor's SDR business.
Proposed Sec. 49.6 would not apply to reorganizations that involve
only registered SDRs. In those situations, the registered SDRs can
continue to rely on their existing registrations. The proposed rule
would also not apply to situations in which the predecessor intends to
continue to engage in SDR activities. Otherwise, confusion may result
as to the identities and registration statuses of the parties.
5. Swap Data Repositories Located in Foreign Jurisdictions--Proposed
Sec. 49.7
Proposed Sec. 49.7 relates to those SDR applicants that are
located outside of the United States. This proposed Regulation is
intended to enable the Commission to obtain necessary swap data and
related books and records maintained by a SDR located outside of the
United States. Proposed Sec. 49.7 would require each SDR located
outside of the United States to provide an opinion of counsel that the
SDR can, as a matter of law, provide the Commission with prompt access
to its books and records and submit to onsite inspection and
examination by the Commission. The Commission notes that each
jurisdiction may have a different legal framework that may limit or
restrict the Commission's ability to receive information from an SDR.
An opinion of counsel regarding prompt access to books and records and
onsite inspection and examination will allow the Commission to better
evaluate an SDR's capability to meet the requirements of registration
and ongoing supervision. Failure to provide an opinion of counsel may
be a basis for the Commission to deny an application for registration.
Request for Comment. The Commission requests comment on the
questions set forth below regarding registration.
(1) Are the instructions in proposed Form SDR clear? If not,
identify any instructions that should be clarified and, if possible,
offer alternatives.
(2) Would any of the requested information on proposed Form SDR be
burdensome for an SDR to supply? If so, explain.
(3) Should the Commission require any additional information on
proposed Form SDR? If so, what information and why?
(4) Are there any items on proposed Form SDR that the Commission
should not request? If so, which items and why?
(5) Is the Commission's proposed registration process appropriate
and sufficiently clear? If not, why not and what would be a better
alternative?
(6) If a SDR located outside of the United States is registered,
should the registration process for the foreign SDR be any different
than the Commission's proposed registration process?
(7) Are there any factors that the Commission should take into
consideration to ensure that a SDR located outside the United States
seeking to register as an SDR can, in compliance with applicable
foreign laws, provide the Commission with access to the SDR's books and
records that are required pursuant to proposed Sec. 49.7 and can
submit to onsite inspection and examination by the Commission?
(8) Should the Commission consider any other factors relating to a
SDR located outside of the United States with respect to the
Commission's registration rules or in general?
(9) Is the Commission's proposed rule regarding provisional
registration appropriate? If not, why not?
(10) What conditions should apply to the granting of a provisional
registration? What criteria should the Commission consider for
approving provisional registration applications?
(11) Are the timeframes in the proposed registration process
appropriate? If not, why not and what would be more appropriate
timeframes?
(12) Are the proposed factors in determining whether the Commission
should grant or deny an application for registration appropriate and
sufficiently clear? If not, why not? Should the Commission take into
consideration any other factors in determining whether to grant or deny
an SDR's application for registration?
B. Duties of Registered SDRs
Section 21(c) of the CEA sets forth the minimum duties that a SDR
is required to perform to become registered and to maintain
registration. These statutory duties require that SDRs (i) accept swap
data as prescribed by the Commission; (ii) confirm with both
counterparties to a swap the accuracy of the data; (iii) maintain the
data submitted; (iv) provide the Commission or its designee with direct
electronic access to the swap data; (v) provide the necessary
information as prescribed by the Commission to comply with the public
reporting requirements set forth in Section 2(a)(13) of the CEA; (vi)
establish automated systems for monitoring, screening, and analyzing
swap data; (vii) maintain the privacy or confidentiality of any and all
swap data that the SDR receives; (viii) provide access to the swap data
to certain ``appropriate'' domestic and foreign regulators; and (ix)
adopt and implement emergency procedures. In addition, the Commission
pursuant to its authority under Sections 21(f)(4) and 8a(5) \27\ of the
CEA also proposes to add by regulation four additional duties which
would require that registered SDRs (i) adopt and implement system
safeguards, including business continuity and disaster recovery (``BC-
DR'') plans; (ii) maintain sufficient financial resources; (iii)
furnish market participant with a disclosure document setting forth the
risks and costs associated with using the services of the SDR; and (iv)
provide fair and open access and fees and charges that are equitable
and non-discriminatory.
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\27\ Section 8a(5) of the CEA, 7 U.S.C. 12a(5), authorizes the
Commission to promulgate such rules and regulations as, in the
judgment of the Commission, are reasonably necessary to effectuate
any of the provisions or accomplish any of the purposes of the CEA.
In connection with SDRs, Section 21(a)(3)(A)(ii), 7 U.S.C.
24a(a)(3)(A)(ii) specifically requires that a SDR to be registered
and maintain its registration must comply with any requirement that
the Commission may impose by rule or regulation pursuant to Section
8a(5) of the CEA.
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The following subsections describe in detail the Regulations
proposed by the Commission to implement SDR statutory duties set forth
in Section 21(c) of the CEA.
1. Acceptance of Data--Section 21(c)(1) of the CEA
The Commission in a companion release \28\ is proposing in new part
45 to
[[Page 80904]]
the Commission's Regulations the data elements that must be reported
and applicable to DCMs, DCOs, swap execution facilities (``SEFs''),
foreign boards of trade (``FBOTs''),\29\ SDs, MSPs and/or end-users in
connection with the reporting of such swap data to SDRs.\30\ These data
elements and standards would include the reporting of continuation data
throughout the life of the swap.\31\ In addition, the Data NPRM
provides specific requirements for SDRs relating to (i) determining
which counterparty must report to the SDR; \32\ (ii) third party
facilitation of swap data reporting; \33\ (iii) reporting to a single
SDR in connection with the reporting of swap data; \34\ (iv) required
data standards; and (v) the reporting of errors and omissions.
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\28\ See Commission, Notice of Proposed Rulemaking: Swap Data
Recordkeeping and Reporting Requirements, 75 FR 76574 (Dec. 8, 2010)
(the ``Data NPRM'').
\29\ Proposed Sec. 48.1 defines a FBOT as ``any board of trade,
exchange or market located outside of the United States, its
territories or possessions, whether incorporated or unincorporated,
where foreign agreements, contracts or transactions are entered
into.'' See Commission, Notice of Proposed Rulemaking: Registration
of Foreign Boards of Trade, 75 FR 70974 (Nov. 19, 2010) (expected to
be codified at 17 CFR part 48). Since 1996, FBOT requests to provide
direct access to their electronic trading and order matching systems
(trading systems) from within the U.S. have been addressed by
Commission staff via the no-action process set forth in Commission
Regulation 140.99. See, e.g., Deutsche Terminborse, CFTC No-Action
Letter, 1994-1996 Transfer Binder], Comm. Fut. L. Rep. (CCH) ]
26,669 (Feb. 29, 1996), available at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/96-28.pdf.
\30\ As detailed in the Data NPRM, SDRs will also be required by
proposed Sec. 45.4(a) to issue unique swap identifiers (``USIs''),
used to identify each particular swap transaction, when both
counterparties to a swap are not SDs or MSPs. The SDR would be
required to transmit the USI to each counterparty and DCO (if
applicable) involved in the swap as soon as technologically
practicable.
\31\ See proposed Sec. 45.3(b) detailed in the Data NPRM, supra
note 28.
\32\ Proposed Sec. 45.5 establishes a mechanism for
counterparties to follow in choosing the counterparty to report in
situations where both counterparties have the same hierarchical
status, in order to prevent confusion or delay concerning this
choice. Where both counterparties are SDs, or both are MSPs, or both
are non-SD/MSP counterparties, the proposed regulations require the
counterparties to agree as one term of their swap transaction which
counterparty will fulfill reporting obligations with respect to that
swap. In addition, and notwithstanding the other provisions in
proposed Sec. 45.5, where only one counterparty to a swap is a U.S.
person, the proposed Regulation would require the U.S. person to be
the reporting counterparty.
\33\ The Commission in proposed Sec. 45.6 permits registered
entities and counterparties to contract with third-party service
providers to facilitate their reporting obligations. However,
registered entities and counterparties remain fully responsible for
their reporting obligations.
\34\ Proposed Sec. 45.7 would require that all swap data for a
given swap must be reported to the SDR to which required primary
economic terms data for that swap is first reported. The SDR
receiving the initial report must transmit its own identity,
together with the USI for the swap to each counterparty to the swap,
to the SEF or DCM, if any, on which the swap was executed, and to
the DCO, if any, to which the swap is submitted for clearing.
Thereafter, the proposed Regulation requires that all data reported
for the swap by any registered entity or any counterparty to the
swap, and all corrections of errors and omissions in previously
reported data, must be reported to that same SDR (or to its
successor in the event that it ceases to operate).
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As part of proposed Sec. 49.10, market participants will be
required to fulfill their reporting obligations to SDRs in a reliable,
secure, and efficient manner. Proposed Sec. 49.10 specifically
requires that SDRs adopt policies and procedures that will enable the
SDR to electronically accept data and other regulatory information.\35\
These policies and procedures must provide specific technological
protocols for market participants in submitting swaps data to the SDR.
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\35\ See Section 21(c)(1) of the CEA, 7 U.S.C. 24a(c)(1).
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Proposed Sec. 49.10 will also require SDRs to accept all swaps in
an asset classes for which they have registered. The requirement is
intended to minimize the number of swaps that are not accepted by any
SDR by enabling market participants to easily identify a SDR that
accepts particular asset classes. As described in proposed Sec. 49.3
relating to registration, each SDR applying for registration on Form
SDR will be required to specify the specific asset classes for which it
will accept swap data. Proposed Sec. 49.2(a)(2) defines the term
``asset class'' as those swaps in a particular broad category of goods,
services or commodities underlying a swap. The asset classes include
credit, equity, interest rates, currency,\36\ other commodities and
such other asset classes as may be determined by the Commission.\37\ In
proposing these five major asset categories, the Commission considered
market statistics that distinguish between those general types of
underlying instruments, as well as market infrastructures that have
been established for these five types of instruments. The first
category would encompass the underlying of any swap which is based, in
whole or in part, on one or more reference rates, such as swaps of
payments determined by fixed and floating rates. The second category
would encompass the underlying of any swap that is based, in whole or
in part, on rates of exchange between different currencies, changes in
such rates or other aspects of such rates, including a foreign exchange
option. The currency asset class includes foreign exchange swaps, as
defined in Section 1a(25) of the CEA. The third category would
encompass the underlying of any swap that is based, in whole or in
part, on one or more broad-based indices related to instruments of
indebtedness, including but not limited to any swap that is an index
credit default swap or a total return swap on one or more indices of
debt instruments.\38\ The fourth category would encompass the
underlying of any swap that is based, in whole or in part, on one or
more broad-based indices of equity securities, such as a total return
swap on one or more equity indices. The fifth category would encompass
the underlying of any swap not included in the interest rate, currency,
credit or equity asset class categories, including, without limitation,
any swap for which the primary underlying notional item is a physical
commodity or the price or any other aspect of a physical commodity.
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\36\ Section 1a(47)(iii) of the CEA states:
Notwithstanding a written determination by the Secretary under
clause (i), all foreign exchange swaps and foreign exchange forwards
shall be reported to either a swap data repository, or, if there is
no swap data repository that would accept such swaps or forwards, to
the Commission pursuant to section 4r within such time period as the
Commission may by rule or regulation prescribe.
7 U.S.C. 1a(47)(E)(iii). Clause (i) of Section 1a(47)(E)
provides:
Foreign exchange swaps and foreign exchange forwards shall be
considered swaps under this paragraph unless the Secretary makes a
written determination under section 1b that either foreign exchange
swaps or foreign exchange forwards or both--
(I) should be not be regulated as swaps under this Act; and
(II) are not structured to evade the Dodd-Frank Wall Street
Reform and Consumer Protection Act in violation of any rule
promulgated by the Commission pursuant to section 721(c) of that
Act.
7 U.S.C. 1a(47)(E)(iii).
See also, Department of the Treasury, Notice and Request for
Comments: Determination of Foreign Exchange Swaps and Forwards, 75
FR 66829 (Oct. 29, 2010) and 75 FR 66426 (Oct. 28, 2010).
\37\ As detailed in proposed Sec. 49.27, SDRs would be required
to provide fair and open access to their services. The Commission
submits that SDRs would not be permitted to discriminate in
connection with the access to their services. As a result, market
participants with sufficient technology resources for connectivity
and the payment of fees would be granted access to the services of
the SDR.
\38\ This category does not encompass the underlying of a
derivatives contract that is based on an instrument of indebtedness
solely in connection with the swap's financing leg.
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In addition, part 43 of the Commission's proposed regulations
states that SDRs acting as ``real-time disseminators'' for the purposes
of real-time reporting may require additional information to (1) match
the real-time swap transaction and pricing data to data reported to the
SDR; and/or (2) confirm that parties to a swap have reported in a
timely manner pursuant to Section 2(a)(13)(F) of the CEA. Such
additional information requested by an SDR acting as a real-time
disseminator may include a transaction identification
[[Page 80905]]
code, the names of the parties to the swap, or such other additional
information as may be necessary.\39\ Additionally, part 43 of the
Commission's proposed regulations will also require registered SDRs to
calculate the appropriate minimum block size for swaps for purposes of
real-time reporting.
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\39\ See proposed Sec. 43.4(c) set forth in Notice of Proposed
Rulemaking: Real Time Public Reporting of Swap Transaction Data, 75
FR 76140 (Dec. 7, 2010) (the ``Real Time NPRM'').
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Proposed Sec. 49.10(c) would also require an SDR to establish
sufficient policies and procedures to prevent a valid swap from being
invalidated, altered or modified through the confirmation or recording
process of the SDR. The Commission is concerned that a validly executed
swap may, through contractual provisions or other practices of an SDR,
be improperly invalidated. To this end, the Commission submits that
SDRs should not be in a position to alter, amend or invalidate
otherwise valid swaps of counterparties through the reporting process.
In addition, proposed Sec. 49.10(d) would also require SDRs to
establish procedures and provide facilities for effectively resolving
disputes over the accuracy of the swap data and positions that are
recorded in the SDR. In this manner, disputes can be resolved quickly
and efficiently so that the integrity and reliability of SDR data
reporting and recordkeeping is facilitated.
Request for Comment. The Commission requests comment on the
question set forth below on acceptance of data:
(1) Should the Commission require an SDR to accept all swaps of a
given asset class? If not, what other mechanism should the Commission
use to prevent ``orphaned'' swaps (i.e., those swaps not accepted by an
SDR)?
(2) How should the Commission address swaps that do not clearly
belong to a particular asset class or that could arguably belong to
more than one asset class? Should the Commission allow an SDR that
accepts swaps in one asset class to accept any swap that arguably
belongs to that asset class, but which could also belong to a second
asset class, without requiring the SDR to then accept all swaps in the
second asset class?
(3) Are there any circumstances under which a validly, executed
swap should be modified or altered other than by the express agreement
of the counterparties? What should be the role of the SDR in these
circumstances? Should the SDR be able to alter or modify an existing
swap based on a contractual arrangement with a reporting party?
2. Confirmation of Data Accuracy--Section 21(c)(2) of the CEA
Section 21(c)(2) of the CEA, as adopted by Section 728 of the Dodd-
Frank Act, requires SDRs to ``confirm with both counterparties to the
swap the accuracy of the data that was submitted.'' \40\ Proposed Sec.
49.11 provides that an SDR must establish and adopt policies and
procedures to ensure the accuracy of swap data that is reported to an
SDR by DCMs, DCOs, SEFs, FBOTs, SDs, MSPs and/or end-users or certain
third party service providers such as confirmation or matching service
providers acting on their behalf. The specific form and content of the
swaps data will be established by the Commission in proposed part 45 of
the Commission's regulations relating to data elements and standards.
In particular, proposed Sec. 49.11 requires that the SDR confirm with
both counterparties to the swap the accuracy of the data and
information submitted.\41\
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\40\ Section 21(c)(2) of the CEA, 7 U.S.C. 24a(c)(2).
\41\ The Data NPRM details and defines ``confirmation'' and
``confirmation data.'' The term confirmation is proposed in Sec.
45.1(b) to mean ``the full, signed legal confirmation by the
counterparties of all of the terms of a swap.'' The term
``confirmation data'' is proposed in Sec. 45.1(c) to mean ``all of
the terms of a swap matched and agreed upon by the counterparties in
confirming the swap.'' See Data NPRM, supra note 28.
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Proposed Sec. 49.11 provides that in connection with the required
confirmation, the SDR must confirm with each counterparty to the swap
and receive acknowledgement of all data submitted as well as
corrections of any errors.\42\ The acknowledgement and correction of
errors must pertain to all information submitted by either counterparty
or entity that has been delegated the reporting obligation. The SDR
must keep a record of corrected errors and make that record available
upon request to the Commission. Confirmation is unnecessary when the
reporting obligation is borne by a SEF, DCM, DCO or a confirmation or
matching service provider to whom the swap counterparty has delegated
its reporting obligation. In these situations, the SDR must still
ensure that the data and information it receives from such entity is
accurate.
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\42\ This requirement does not apply to real-time public
reporting. See proposed Sec. 43.3(f), supra note 39.
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In addition, proposed part 43 of the Commission's regulations
relating to real-time reporting requires that registered SDRs which
accept and publicly disseminate swap transaction and pricing data to
also disseminate any cancellations and corrections to such data.\43\
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\43\ See proposed Regulations 43.3(f)(3)-(4), supra note 39.
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3. Recordkeeping Requirements--Section 21(c)(3) of the CEA
Proposed Sec. 49.12, which implements Section 21(c)(3) of the CEA,
requires SDRs to, in accordance with the requirements of proposed Sec.
45.2(f), maintain the books and records of all activity and data
relating to swaps reported to the SDR.\44\ Proposed Sec. 45.2(f),
relating to swap data recordkeeping requirements, requires that SDRs
maintain reported swap data, consistent with the data elements
described in proposed Sec. 45.9, throughout the life of such swap
transaction plus an additional five year period, during which time the
swap data must be readily accessible by the SDR and available to the
Commission via real-time electronic access. In addition, proposed Sec.
45.2(f) would also require the SDR to provide subsequent archival
storage.\45\ This archival storage would require the SDR to be able to
retrieve such swap data within three business days.
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\44\ See Data NPRM, supra note 28.
\45\ The Commission in the Data NPRM is requesting comment
relating to the time period in which an SDR should be required to
maintain archival storage of swap data records.
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Consistent with proposed Sec. 45.2(g), proposed Sec. 49.12(c)
would also require the books and records maintained by a SDR to be open
to inspection upon request by any representative of the Commission, the
United States Department of Justice, the SEC or by any representative
of a prudential regulator as authorized by the Commission. The SDR
would be required to provide copies to the Commission, either by
electronic means, in hard copy, or both, as requested by the
Commission.
Proposed Sec. 49.12(d) would require each SDR that publicly
disseminates swap data in real time to comply with the real time public
reporting and recordkeeping requirements prescribed in part 43. In
connection with real-time reporting, proposed Sec. 49.2(a)(9) defines
``position'' to mean the gross and net notional amounts of open swap
transactions aggregated by one or more attributes, including, but not
limited to, the (i) underlying instrument, index, or reference entity;
(ii) counterparty; (iii) asset class; (iv) long risk of the underlying
instrument, index, or reference entity; and (v) short risk of the
underlying instrument, index, or reference entity. Position data is
required to be provided by SDRs to certain entities pursuant to Section
[[Page 80906]]
2(a)(13) of the CEA.\46\ The proposed term is designed to be
sufficiently specific so that SDRs are aware of the types of positions
that regulators may require an SDR to provide, while at the same time,
provide enough flexibility to encompass the types of positions that
regulators and the industry will find important as new types of swaps
are developed.
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\46\ See Section 727 of the Dodd-Frank Act.
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The Dodd-Frank Act specifically directs the Commission to issue
regulations to limit the amount of positions, other than bona fide
hedge positions, that may be held by any person with respect to
commodity futures and option contracts in exempt and agricultural
commodities.\47\ The Data NPRM accordingly has proposed data reporting
requirements that would require all persons reporting to SDRs to
include futures contract equivalents for each swap transaction.\48\ As
set forth below, the Commission requests comment on position data and
how it should be maintained and monitored.
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\47\ See Commission, Notice of Proposed Rulemaking: Position
Reports for Physical Commodity Swaps, 75 FR 67258 (November 2,
2010). The Commission in this proposal would require position data
for not only futures and option contracts but also for economically
equivalent swaps.
\48\ See Data NPRM, supra note 28.
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Request for Comment. The Commission requests comment on the
questions set forth below on data maintenance:
(1) Is the appropriate time period for readily accessible access to
the transaction data the life of the particular swap plus at least five
years after expiration of the swap? Should the Commission provide
different recordkeeping requirements for transaction data and position
data? For transaction data, would ten years after expiration of the
applicable swap be more appropriate and why? What would be the benefits
and burdens associated with each of these time periods? Are there other
retention periods that would be more appropriate?
(2) What is the appropriate time period for archival storage of SDR
data and records?
(3) What are the costs/benefits of requiring longer data retention
requirements?
(4) Should position data be maintained and monitored by SDRs? If
not, in what manner should the Commission monitor speculative position
limits that may include swaps? What would be the proper role of an SDR?
What entity or entities should have the responsibility to aggregate and
maintain the position data for regulatory purposes?
(5) Should the Commission specify particular standards or
procedures for calculating positions?
4. Direct Electronic Access to SDR by the Commission--Section 21(c)(4)
of the CEA
A critical function and responsibility of an SDR as set forth in
Section 21(c)(4)(A) of the CEA is to provide ``direct electronic
access'' to the Commission or its designee, which could include another
registered entity.\49\ For purposes of proposed Sec. 49.17, ``direct
electronic access'' is defined as ``an electronic system, platform or
framework that provides internet or web-based access to real-time swap
transaction data.'' \50\
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\49\ The term ``registered entity'' is defined in Section 1a(40)
of the CEA to include (i) a board of trade designated as a contract
market under Section 5 of the CEA; (ii) a DCO registered under
Section 5b of the CEA; (iii) a SEF registered under Section 5h of
the CEA; (iv) a SDR registered under Section 21 of the CEA; and (v)
with respect to a contract that the Commission determines is a
significant price discovery contract, any electronic trading
facility on which the contract is executed or traded. 7 U.S.C.
1a(40).
\50\ See proposed Sec. 49.17(b)(3).
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Proposed Sec. 49.17 provides for two requirements in connection
with ``direct electronic access'' that each SDR must develop. First,
proposed Sec. 49.17 would require a SDR to provide the Commission or
its designee with connectivity and access to the SDR's database of swap
data and web-based services. Connectivity access and web-based services
will allow the Commission or its designee to receive any and all
information regarding a swap transaction that may be required for
regulatory, examination and/or enforcement purposes on a real-time
basis. Second, proposed Sec. 49.17 would also require the SDR to
electronically deliver to the Commission or its designee, certain data
in the form and manner prescribed by the Commission.
Section 21(c)(5) of the CEA requires a registered SDR, at the
direction of the Commission, to establish automated systems for
monitoring, screening, and analyzing swap data. Pursuant to proposed
Sec. 49.17,\51\ registered SDRs in connection with providing ``direct
electronic access'' will also be required to provide the Commission
with monitoring tools, capable of screening and analyzing swap data,
identical to those provided to compliance staff and the CCO of the
registered SDR, including, but not limited to, access to the staff of
the registered SDR and/or third party service providers or agents
familiar with the operations of the registered SDR, who can provide
assistance to the Commission regarding data structure and content, web-
based services and various software.
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\51\ Section 21(c)(5) of the CEA reads: ``A swap data repository
shall-- * * * at the direction of the Commission, establish
automated systems for monitoring, screening, and analyzing swap
data, including compliance and frequency of end user clearing
exemption claims by individual and affiliated entities.''
7 U.S.C. 24a(c)(5).
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Proposed Sec. 49.17 further provides that the swap data provided
to the Commission by a registered SDR will be accessible only by
authorized persons. The Commission will provide registered SDRs with a
list of authorized users on a quarterly basis so that proper security
protocols may be efficiently implemented.
Request for Comment. The Commission requests comment on the
following issues related to swap data access.
(1) What are the advantages and disadvantages of requiring SDRs to
provide a direct streaming of the data to the Commission or its
designee? Should the Commission require periodic electronic transfer of
data as an alternative? If so, how often should such transfer occur
(e.g., hourly, a few times a day, every few days, once a week)?
(2) What are the advantages and disadvantages of requiring SDRs to
provide a user interface that permits the Commission or its designee
access to the data maintained by the SDR and that provides the
Commission or its designee with the ability to query or analyze the
data in the same manner that is available to the SDR?
(3) What would be the most feasible and cost-effective method for
an SDR to provide direct electronic access to the Commission or its
designee?
(4) Are there other methods of providing direct electronic access
to the Commission or its designee that the Commission should consider?
(5) Are there specific reports or sets of data that the Commission
should consider obtaining from SDRs to monitor risk exposures of
individual counterparties to swap transactions, to monitor
concentrations of risk exposures, or for other purposes?
(6) In addition to the data already subject to the Commission's
request, are there additional reports or sets of data that the
Commission should consider obtaining from SDRs to evaluate systemic
risk or that could be used for prudential supervision?
(7) Are there any other reports or sets of data that the Commission
should consider obtaining from SDRs?
[[Page 80907]]
5. Monitoring, Screening and Analyzing Swap Data--Section 21(c)(5) of
the CEA
Section 21(c)(5) of the CEA, as amended by Section 728 of the Dodd
Frank Act, requires SDRs to implement such automated systems for
``monitoring, screening, and analyzing swap data'' as the Commission
may direct. In addition, Section 21(c)(5) also requires SDRs to
establish automated systems to monitor, screen, and analyze data for
end-user clearing exemption claims by individuals and affiliated
entities.'' The Commission proposes to implement the requirements of
Section 21(c)(5) through proposed Sec. Sec. 49.13 and 49.14, which
closely resembles the statutory text, by requiring SDRs to monitor,
screen, and analyze swap data in their possession, as directed by the
Commission, including data related to end-user clearing exemptions
claims.\52\ Proposed Sec. 49.13 also requires SDRs to establish and
maintain sufficient information technology, staff, and other resources
to fulfill these tasks. Section 21 of the CEA reflects SDRs'
significant responsibilities in the new swaps market regulatory
structure established by the Dodd-Frank Act. SDRs will function not
only as warehouses for all swap transaction data, but also as potential
sources of regulatory information for the Commission and other
appropriate regulators.
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\52\ Section 2(h)(7) of the CEA, 7 U.S.C. 2(h)(7) provides that
the clearing requirement of Section 2(h)(1)(A) shall not apply to a
swap if one of the counterparties (i) is not a financial entity;
(ii) is using swaps to hedge or mitigate commercial risk; and (iii)
notifies the Commission, in a manner set forth by the Commission,
how it generally meets the financial obligations associated with
entering into non-cleared swaps.
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By its terms, Section 21(c)(5), requires that such automated
systems be established ``at the direction of the Commission,'' but does
not provide for specific functions which SDRs should undertake with
respect to the swap transaction data in their possession.\53\
Similarly, while suggesting a role for SDRs in monitoring end-user
clearing exemption claims, the only specific requirement of Section
21(c)(5) is that SDRs have systems in place capable of fulfilling such
requirements as the Commission may assign. The Commission proposes to
implement the requirements of Section 21(c)(5) via proposed Sec. 49.13
which, as summarized below, requires that SDRs: (1) Monitor, screen,
and analyze all swap data in their possession as the Commission may
require; (2) develop systems and resources as necessary to execute any
monitoring, screening, or analyzing functions assigned by the
Commission; and (3) monitor, screen, and analyze swap transactions
which are reported to the SDR as exempt from clearing pursuant to
Section 2(h)(7) of the CEA (i.e., end-user clearing exemption).
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\53\ Id.
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(a) Proposed Sec. 49.13(a)
Proposed Sec. 49.13(a) requires SDRs to monitor, screen, and
analyze all swap data in their possession in such a manner as the
Commission may require. An SDR's duties in this respect include routine
monitoring, screening, and analysis to accomplish any swap surveillance
objectives established by the Commission, and specific monitoring,
screening, and analysis tasks based on ad hoc requests by the
Commission. The Commission expects that SDRs will be required to
compile, extract, filter, and report information necessary to assist
the Commission in the fulfillment of its regulatory obligations with
respect to swap markets. However proposed Sec. 49.13(b) only requires
that SDRs undertake these functions at the Commission's request. The
Commission will consider specific tasks to be performed by SDRs at a
later date, as its knowledge of the regulatory oversight needs with
respect to the swap markets increases.
(b) Proposed Sec. 49.13(b)
Proposed Sec. 49.13(b) obligates SDRs to maintain sufficient
information technology, staff, and other resources as necessary to
fulfill any requirements that may arise through proposed Sec.
49.13(a). It also requires SDRs to monitor their resources at least
annually, and to make adjustments as needed to remain in regulatory
compliance. Proposed Sec. 49.13(b) is modeled on existing and proposed
Commission requirements applicable to other registered entities. For
example, part 38 of the Commission's Regulations requires DCMs to have
``arrangements and resources for effective trade practice
surveillance'' and ``arrangements, resources and authority for
effective rule enforcement.'' \54\ With respect to SDRs, the Commission
also recognizes the necessity for adequate resource requirements given
its expectation that SDRs may play a significant role in assisting the
Commission to fulfill its regulatory mandate.
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\54\ See 17 CFR 38, Appendix B, Core Principle 2(a)(1)-(2). See
also Notice of Proposed Rulemaking Relating to Core Principle and
Other Requirements for Designated Contract Markets approved for
publication by the Commission at an open meeting on Dec. 1, 2010 and
expected to be published shortly in the Federal Register (to be
codified at 17 CFR part 38).
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(c) Proposed Sec. 49.14
Pursuant to Section 2(h)(7) of the CEA, the Dodd-Frank Act creates
a framework by which certain swap transactions may be exempt from the
mandatory clearing requirement.\55\ Swap transactions may be exempt
from clearing if one of the counterparties to a swap is (i) not a
financial entity; \56\ (ii) is using swaps to hedge or mitigate
commercial risk; \57\ and (iii) notifies the Commission as to how it
generally meets its financial obligations associated with entering into
non-cleared swaps (the so-called ``end-user'' clearing exemption).\58\
The Commission is expected in a subsequent proposed rulemaking to
require that swap counterparties claiming the clearing exemption submit
supplemental information along with transaction data and notification
for any swap transaction claimed under the clearing exception.
Counterparties may be required to answer entity-related identification
questions, identify how they generally expect to meet their financial
obligations associated with the non-cleared swaps, identify whether the
swap claimed under the exemption is being used to hedge or mitigate
commercial risk, and identify whether the transaction was approved by a
governing body of the entity.
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\55\ See Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).
\56\ See Section 2(h)(7)(A)(i) of the CEA, 7 U.S.C.
2(h)(7)(A)(i).
\57\ See Section 2(h)(7)(A)(ii) of the CEA, 7 U.S.C.
2(h)(7)(A)(ii).
\58\ See Section 2(h)(7)(A)(iii) of the CEA., 7 U.S.C.
2(h)(7)(A)(iii).
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Section 2(h)(7) of the CEA--and more specifically Section
2(h)(7)(F) of the CEA--also enables the Commission to monitor the use
of clearing exemption claims and to prevent abuses by prescribing
rules, issuing interpretations, or requesting information from persons
claiming the clearing exemption.\59\ Although exempt from clearing,
counterparties claiming the clearing exemption must nonetheless report
the swap transaction to an SDR, and must provide the notification
required pursuant to Section 2(h)(7)(A)(iii) of the CEA, including
information regarding how the counterparty generally meets its
financial obligations associated with non-cleared swaps, and any
additional information which the Commission deems necessary to prevent
abuse pursuant to Section 2(h)(7)(F) of the CEA.
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\59\ See Section 2(h)(7)(F) of the CEA, 7 U.S.C. 2(h)(7)(F).
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Proposed Sec. 49.14 is designed to implement the Commission's
program
[[Page 80908]]
to monitor and prevent abuse of end-user clearing exemption claims. It
requires SDRs to have automated systems capable of identifying,
aggregating, sorting and filtering all swap transactions reported to an
SDR that are exempt from clearing pursuant to Section 2(h)(7) of the
CEA. Such systems are also required for information provided by end-
users to the SDR regarding how an end-user meets the requirements of
Sections 2(h)(7)(A)(i)-(iii) of the CEA and any regulations promulgated
by the Commission thereunder. The Commission believes it is important
to monitor the use and claims of end user exemptions to prevent abuse
and assure compliance with the required disclosures. At this time the
Commission is only requiring that SDRs establish the infrastructure to
fulfill the requirements of this rule, and any requirements for
specific data processing will be set forth at a later time.
Request for Comment. The Commission requests comment on the
following issue relating to the monitoring of margin.
Should the Commission require SDRs to establish automated
systems for monitoring, screening, and analyzing the reporting of
margin required, and of margin on deposit, as proposed in new part 23
of the Commissions Regulations? \60\
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\60\ See Commission, Notice of Proposed Rulemaking: Regulations
Establishing and Governing Duties of Swap Dealers and Major Swap
Participants, 75 FR 71397 (Nov. 23, 2010).
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6. Maintenance of Data Privacy--Section 21(c)(6) of the CEA
Proposed Sec. 49.16 would implement the statutory requirements of
Section 21(c)(6) of the CEA as adopted by Section 728 of the Dodd-Frank
Act to maintain the privacy and confidentiality of swap data provided
to the SDR. In particular, Section 21(c)(6) of the CEA provides that an
SDR shall ``maintain the privacy of any and all swap transaction
information that the swap data repository receives from a SD,
counterparty, or any other registered entity''.\61\ Proposed Sec.
49.16 would also partially implement Section 21(f)(3) of the CEA, as
adopted by Section 728 of the Dodd-Frank Act.\62\ Such section sets
forth a conflicts of interest ``core principle'' applicable to an
SDR.\63\ As detailed further below, the Commission has identified
certain conflicts that may implicate access, disclosure, or use of SDR
Information.\64\ SDR Information includes any information that an SDR
receives from a reporting entity (i.e., the submitter(s) of the data,
including, without limitation, market participants \65\ such as DCMs,
DCOs, SEFs, SDs, MSPs, end-users and/or any other counterparties). The
Commission emphasizes that SDRs will receive two separate ``streams''
of data: (i) data related to real-time public reporting which by its
nature is publicly available and (ii) core data that is intended for
use by the Commission and other regulators which is subject to
statutory confidential treatment. Accordingly, pursuant to Sections
21(c)(6) and 21(f)(3) (Core Principle 3--Conflicts of Interest) of the
CEA, SDR information that is not subject to real-time public reporting
should be treated as non-public and strictly confidential, so that it
may not be accessed, disclosed, or used for purposes not related to SDR
responsibilities under the CEA or the regulations thereunder, unless
such use is explicitly agreed to by the reporting entities (i.e., the
submitter(s) of the data). However, aggregated data that cannot be
attributed to individual transactions or market participants may be
made publicly available by SDRs.
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\61\ See Section 21(c)(6) of the CEA, 7 U.S.C. 24a(c)(6).
\62\ See Section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3).
\63\ According to such ``core principle,'' each SDR shall
``establish and enforce rules to minimize conflicts of interest in
[its] decision-making process * * *'' and ``establish a process for
resolving conflicts of interest * * *'' Id.
\64\ The term ``SDR Information'' is defined in proposed Sec.
49.2(a)(15) to mean ``any information that the swap data repository
maintains.'' Proposed Sec. 49.17(f) and (g) contain more specific
prohibitions on access or use of SDR Information.
\65\ The term ``market participant'' is defined in proposed
Sec. 49.2(a)(6) to mean any person participating in the swap
market, including, but not limited to, DCMs, DCOs, SEFs, SDs, MSPs,
and any other counterparties to a swap transaction.
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Request for Comment. The Commission requests comment on the
questions set forth below regarding the limitations on the use of SDR
Information.
(1) Has the Proposal correctly defined ``SDR Information''?
(2) Are there any other concerns regarding the use of SDR
Information that the Commission should consider?
(3) Would public availability of aggregated swap data be consistent
with an SDR's obligation to keep swap data confidential?
Proposed Sec. 49.16 would require the SDR to establish, maintain,
and enforce specific policies and procedures to protect the privacy or
confidentiality of any and all SDR Information. This would also include
privacy or confidentiality policies and procedures for the sharing of
SDR Information with SDR affiliates \66\ as well as certain non-
affiliated third parties.\67\ As noted above, swap data that is
publicly disseminated in real-time by SDRs pursuant to proposed part 43
of the Commission's Regulation would not be subject to the privacy and
confidentiality requirements set forth in proposed Sec. 49.16.
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\66\ The term ``affiliate'' is defined in proposed Sec.
49.2(a)(1) to mean a person that ``directly, or indirectly,
controls, is controlled by, or is under common control with, the
swap data repository.''
\67\ The term ``non-affiliated third party'' is defined in
proposed Sec. 49.2(a)(7) to mean ``any person except (i) swap data
repository, (ii) the swap data repository's affiliate, or (iii) a
person employed by a swap data repository and any entity that is not
the swap data repository's affiliate (and ``non-affiliated third
party'' includes such entity that jointly employs the person).''
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Proposed Sec. 49.16 would also require the SDR to establish and
maintain safeguards, policies, and procedures that would, at a minimum,
address the misappropriation or misuse of swap data that the Commission
is prohibited (save for limited exceptions) from disclosing pursuant to
Section 8 of the CEA (``Section 8 Material'').\68\ Section 8 Material
is that information or material described in Section 8(a) of the CEA
that the Commission is prohibited from publishing if it ``would
separately disclose the business transactions or market positions of
any person and trade secrets or names of customers.'' \69\
[[Page 80909]]
Such information would typically include trade data, position data,
business transactions, trade secrets and any other non-public personal
information about a market participant or any of its customers.
Moreover, proposed Sec. 49.16 would require an SDR to also protect SDR
information that is not Section 8 Material as well as intellectual
property that may include trading strategies.
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\68\ The term ``Section 8 Material'' is defined in proposed
Sec. 49.2(a)(13) as ``the business transactions, trade data, or
market positions of any person and trade secrets or names of
customers.'' The legislative history of Section 8 of the CEA
reflects substantial Congressional concern with protecting the
legitimate interests of certain market participants. In particular,
Congressional members were concerned that ``bona fide hedging
transactions'' and ``legitimate'' or ``necessary'' speculative
transactions would be impracticable if disclosure of positions or
transactions was permitted. Congress was also concerned that
publication of the names and market positions of large traders would
facilitate manipulation and place traders at a competitive
disadvantage. Section 8(e) generally provides that ``upon request,''
the CFTC may furnish ``any information'' in its possession. 7 U.S.C.
12(e). See generally 61 Cong. Rec. 1321 (1921); Regulation of Grain
Exchanges, Hearing on H.R. 8829 Before the H. Comm. on Agriculture,
73rd Cong. (1934).
\69\ Section 8(a) of the CEA outlines the scope and authority of
the Commission to publish or otherwise publicly disclose information
that is gathered in the course of its investigative and market
surveillance activities. While the Section authorizes the Commission
to publish or disclose the information obtained through the use of
its powers, it expressly provides that, except in specifically
prescribed circumstances, the Commission may not lawfully:
publish data and information that would separately disclose the
business transactions or market positions of any person and trade
secrets or names of customers * * *. 7 U.S.C. 12(a).
The statutory bar to disclosure of ``business transactions,
market positions and trade secrets'' is qualified by several
narrowly-defined exceptions set forth in Section 8(e) of the CEA. 7
U.S.C. 12(e). Section 8(e) generally provides that ``upon request,''
the CFTC may furnish ``any information'' in its possession
``obtained in connection with its administration of the [CEA]'' to
another U.S. government department or agency, individual states,
foreign futures authorities and foreign governments and any
committee of the U.S. Congress that is ``acting within the scope of
its jurisdiction.'' Id. In addition, Section 8(e) also provides an
exception for information that was previously disclosed publicly and
Section 8(b) permits disclosure of Section 8 Material in connection
with congressional, administrative or judicial proceedings. Id.
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The Commission submits that the abovementioned SDR safeguards,
policies, and procedures addressing privacy and confidentiality--as
well as misuse and misappropriation--of data should provide (i)
limitations on access related to Section 8 Material and other SDR
Information; (ii) standards related to controlling persons associated
with the SDR trading for their personal benefit or the benefit of
others; and (iii) adequate oversight to ensure SDR compliance with
proposed Sec. 49.17. As set forth in proposed Sec. 49.17 discussed
below in the section entitled ``Access to SDR Data,'' the SDR may share
swap data and information with certain appropriate domestic and foreign
regulators. Commercial use of the data maintained by an SDR--exclusive
of real-time reporting data--would be strictly circumscribed as
provided in proposed Sec. 49.17.
7. Access to SDR Data--Section 21(c)(7) of the CEA
Section 21(c)(7) \70\ of the CEA requires a registered SDR, on a
confidential basis pursuant to Section 8 of the CEA, upon request and
after notifying the Commission, to make available all data \71\
obtained by the registered SDR, to ``Appropriate Domestic Regulators''
and ``Appropriate Foreign Regulators.''
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\70\ Section 21(c)(7) of the CEA reads:
A swap data repository shall-- * * * on a confidential basis
pursuant to Section 8, upon request, and after notifying the
Commission of the request, make available all data obtained by the
swap data repository, including individual counterparty trade and
position data, to--(A) each appropriate prudential regulator; (B)
the Financial Stability Oversight Council; (C) the Securities and
Exchange Commission; (D) the Department of Justice; and (E) any
other person that the Commission determines to be appropriate * * *.
7 U.S.C. 24a(c)(7). Included in the definition of Appropriate
Domestic Regulators are all domestic entities listed in Section
21(c)(7) and other persons that the Commission has determined to be
appropriate.
\71\ The sharing of data with an Appropriate Domestic Regulator
by a registered SDR is subject to the confidentiality and
indemnification restrictions in Section 21(d) of the CEA, 7 U.S.C.
24a(d).
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(a) Appropriate Domestic Regulator. An ``Appropriate Domestic
Regulator'' is defined in proposed Sec. 49.17 as (i) the SEC; (ii)
each prudential regulator identified in Section 1a(39) of the CEA with
respect to requests related to any of such regulator's statutory
authorities, without limitation to the activities listed for each
regulator in Section 1a(39); (iii) the Financial Stability Oversight
Council (``FSOC''); \72\ (iv) the Department of Justice; (v) the
Federal Reserve Bank of New York (``FRBNY''); (vi) the Office of
Financial Research (``OFR'') \73\ and (vii) any other person the
Commission deems appropriate.\74\
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\72\ FSOC consists of the Department of the Treasury
(``Treasury''), the Board of Governors of the Federal Reserve System
(the ''Fed''), the Office of the Comptroller of the Currency
(``OCC''), the Bureau of Consumer Financial Protection, the SEC, the
Commission, the Federal Deposit Insurance Corporation (``FDIC''),
the Federal Housing Financial Agency, National Credit Union
Administration Board and an independent member appointed by the
President, by and with the advice and consent of the Senate, having
insurance expertise.
\73\ Under Section 152 of the Dodd-Frank Act, OFR will be
established within the Department of the Treasury. OFR is intended
to help facilitate improved financial market data gathering and
analyses for financial regulators, including the new FSOC, which is
responsible for monitoring the financial system as a whole in order
to promote financial stability. OFR will support the FSOC and its
member agencies by providing them with better financial data,
information, and analysis so that policymakers and market
participants have a more complete understanding of risk in the
financial system. The data and analysis provided by the OFR will
enhance the ability to identify emerging threats in financial
markets, and will help ensure that the government has the
information and analytical tools it needs to respond appropriately
to future crises.
\74\ The definition of ``Appropriate Domestic Regulator'' set
forth above specifically includes those federal agencies or
departments that are identified as prudential regulators in Section
1a(39) of the CEA. Each prudential regulator will have access to all
data related to any of its statutory authorities, without limitation
to the activities listed for each regulator in Section 1a(39).
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Although Section 21(c)(7) of the CEA does not specifically provide
for the sharing of information between an SDR and the FRBNY or OFR, the
Commission in proposed Sec. 49.17 is proposing to deem the FRBNY and
OFR as ``appropriate'' persons under Section 21(c)(7) of the CEA. The
FRBNY is one of 12 regional Federal Reserve Banks, which together with
the Board of Governors of the Federal Reserve System comprise the
Federal Reserve System. Each of the Federal Reserve Banks has features
and/or characteristics of private corporations and quasi-public federal
agencies.\75\ OFR will be an office within the Department of the
Treasury with the primary function to support the FSOC in the
monitoring and containment of systemic risk. OFR will also be a
resource for the FSOC and all of its member agencies. In particular,
OFR will support the agencies in their efforts to supervise financial
institutions and the financial system as well as in their work to
implement the Act. In addition, regulatory agencies will have access to
new data collected by the OFR, which will improve regulators' ability
to monitor risks within their respective focus areas.
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\75\ The FRBNY oversees the Second Federal Reserve District,
which includes the state of New York, the 12 northern counties of
the state of New Jersey, Fairfield County in the state of
Connecticut, Puerto Rico and the U.S. Virgin Islands. Though it
serves a geographically small area compared with those of other
Federal Reserve Banks, the FRBNY is the largest Reserve Bank as
measured by assets and volume of activity.
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(b) Appropriate Foreign Regulator. An ``Appropriate Foreign
Regulator'' is defined in proposed Sec. 49.17 and contains a two-part
analysis. First, proposed Sec. 49.17 defines as an Appropriate Foreign
Regulator as those ``foreign regulators'' \76\ with an existing
memorandum of understanding (``MOU'') or other similar type of
information sharing arrangement executed with the Commission. Second,
proposed Sec. 49.17 provides that foreign regulators without an MOU
with the Commission may be deemed ``Appropriate Foreign Regulators'' as
determined on a case-by-case basis by the Commission.
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\76\ The term ``foreign regulator'' is defined in proposed Sec.
49.2(a)(4) to mean ``a foreign futures authority as defined in
Section 1a(26) of the Commodity Exchange Act, foreign financial
supervisors, foreign central banks and foreign ministries.''
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Proposed Sec. 49.17 details the filing procedures for foreign
regulators who do not currently have an MOU with the Commission to
obtain the status of an ``Appropriate Foreign Regulator.'' The foreign
regulator in its application \77\ filed with the Commission is required
to provide sufficient facts and details to permit the Commission to
analyze whether the foreign regulator has appropriate confidentiality
procedures and whether the foreign regulator is otherwise subject to
local laws, regulations and/or customs that would require disclosure of
information in contravention of the CEA.
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\77\ The form and manner of this filing will be prescribed by
the Commission.
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In its review of applications filed by foreign regulators seeking
the status of an ``Appropriate Regulator'' under proposed Sec. 49.17,
the Commission must
[[Page 80910]]
be satisfied that any information potentially provided by a registered
SDR will not be disclosed except in limited circumstances such as an
adjudicatory action or proceeding involving the foreign regulator.\78\
In addition, the Commission on an ongoing basis, reserves the right in
connection with any determination of an ``Appropriate Foreign
Regulator'' to revisit or reassess a prior determination consistent
with the CEA.
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\78\ See supra text accompanying note 69.
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(c) Procedure for Gaining Access to an SDR. Pursuant to proposed
Sec. 49.17, an Appropriate Domestic Regulator or Appropriate Foreign
Regulator will be required to request access with the registered SDR.
The request will set forth in sufficient detail the basis for such
request. The Appropriate Domestic Regulator or Appropriate Foreign
Regulator must also certify (i) its statutory authority and (ii) that
it is acting within the scope of its jurisdiction.
A registered SDR must notify the Commission promptly by electronic
means of any request received from an Appropriate Domestic Regulator or
Appropriate Foreign Regulator. The registered SDR will then provide
access to the requested swap data if satisfied that the Appropriate
Domestic or Appropriate Foreign Regulator is acting within the scope of
its authority.
Request for Comment. The Commission requests the following comments
relating to regulator access of data maintained by SDRs.
(1) What mechanisms or other processes should the Commission
consider in connection with Appropriate Domestic Regulators and/or
Appropriate Foreign Regulators access to the data maintained by SDRs?
(2) Should the Commission provide that Appropriate Domestic
Regulators and Appropriate Foreign Regulators specifically request
access from an SDR for each individual data request? Or, should the
Commission provide for a single prospective data access request to SDRs
by Appropriate Domestic and Foreign Regulators followed up by a
certification at intervals determined by the Commission? For each
specific instance of access or regulatory use of an SDR's data by
Appropriate Domestic Regulators and Appropriate Foreign Regulators,
should the Commission be notified in each case by the SDR?
(3) Given the regulatory outlines set forth by the Dodd-Frank Act,
what would be an appropriate way for regulators to access the swap data
held by SDRs for the purpose of fulfilling their regulatory
responsibilities?
(d) Confidentiality and Indemnification Agreement. Consistent with
proposed Sec. 49.18, the Appropriate Domestic Regulator or Appropriate
Foreign Regulator prior to receipt of any requested data or information
from a registered SDR must execute a ``Confidentiality and
Indemnification Agreement'' with the registered SDR. This requirement
is mandated by Section 21(d) of the CEA and applies to those entities
set forth in Section 21(c)(7) of the CEA. Upon execution of a
Confidentiality and Indemnification Agreement with a registered SDR,
the Appropriate Domestic Regulator or Appropriate Foreign Regulator is
required to notify and provide a copy of the Confidentiality and
Indemnification Agreement to the Commission.
The specific entities identified in Section 21(c)(7) include: (i)
Each appropriate prudential regulator specified in Section 1a(39) of
the; (ii) FSOC; (iii) SEC; (iv) Department of Justice; and (v) any
other person the Commission deems appropriate, including foreign
financial supervisors, foreign central banks and foreign ministries.
Pursuant to the general authority of the Commission as set forth in
Section 21(c)(7)(E) of the CEA to deem any other person
``appropriate,'' the Commission proposes, for purposes of this
Regulation, to deem ``appropriate'' the FRBNY, OFR and those foreign
regulators with an existing MOU or other similar type of information
sharing arrangement executed with the Commission.\79\
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\79\ Any other Foreign Regulator that would require access to
SDR data would need to be specifically approved and deemed
``appropriate'' by the Commission as set forth in proposed Sec.
49.17.
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Proposed Sec. 49.18 implementing Section 21(d) of the CEA requires
that the Confidentiality and Indemnification Agreement executed with
each Appropriate Domestic Regulator and/or Appropriate Foreign
Regulator provide that such entity abide by the confidentiality
requirements set forth in Section 8 of the CEA relating to the swap
data that is to be provided by the registered SDR. Moreover, the
Confidentiality and Indemnification Agreement must also provide that
each Section 21(c)(7) entity agree to indemnify the registered SDR and
the Commission for any expenses arising from litigation relating to the
information provided under Section 8 of the CEA.
The Commission is mindful of the potential difficulty that certain
domestic and foreign regulators may have in executing a Confidentiality
and Indemnification Agreement with an SDR pursuant to Section 21(d) of
the CEA\80\ due to various statutory laws, regulations and/or customs.
This provision could have the unintended effect of inhibiting access to
the data maintained by SDRs, and, possibly hindering the ability of
certain foreign regulators to fulfill their corresponding statutory
mandates. To promote and ensure international harmonization as
envisioned in Section 752 of the Dodd-Frank Act, the Commission
continues to coordinate with its foreign regulatory counterparts on
pending and proposed regulatory initiatives. To the extent consistent
with the regulatory framework set forth in the Dodd-Frank Act, and the
CEA generally, the Commission will endeavor to provide sufficient
access to SDR data to appropriate domestic and foreign regulatory
authorities.
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\80\ Section 21(d) of the CEA provides:
Before the swap data repository may share information with any
entity described in subsection (c)(7)-(1) the swap data repository
shall receive a written agreement from each entity stating that the
entity shall abide by the confidentiality requirements described in
Section 8 relating to the information on swap transactions that is
provided; and (2) each entity shall agree to indemnify the swap data
repository and the Commission for any expenses arising from
litigation related to the information provided under section 8.
See 7 U.S.C. 24a(d).
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The Commission believes that access to the swap data maintained by
SDR will assist regulators to, among other things, monitor risk
exposures of individual counterparties to swap and swap transactions,
monitor concentrations of risk exposures, and evaluate systemic risks.
The Commission notes that, pursuant to Section 8(e) of the CEA, the
Commission may share confidential information in its possession
obtained in connection with its administration of the CEA to ``any
foreign futures authority, department or agency of any foreign
government or any political subdivision thereof'' acting within the
scope of their jurisdiction.\81\
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\81\ See 7 U.S.C. 12(e).
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Request for Comment: The Commission requests comment from those
regulators that may be affected by Section 21(d) of the CEA and the
proposed related Regulations. In particular, the Commission requests
comment on the following questions:
Are the proposed time frames for Commission response
relating to access to swap data maintained by a SDR by Appropriate
Domestic and Appropriate Foreign Regulators reasonable? Should the
Commission provide for an expedited or emergency procedure?
[[Page 80911]]
(e) Access to SDRs by Third Party Service Providers. Section
21(c)(3) \82\ of the CEA directs registered SDRs to maintain data in
such form and manner as may be required by the Commission. Section
21(c)(6) \83\ of the CEA requires registered SDRs to maintain the
privacy of any and all swap data that the registered SDR receives from
a SD, counterparty, or any other registered entity. The operations of
registered SDRs may require them to provide occasional access to data
and information to third party service providers for the purpose of
obtaining certain technology and SDR infrastructure services. Proposed
Sec. 49.17 permits such access provided these third party service
providers have implemented strict confidentiality procedures that
protect data and information from improper disclosure. Prior to swap
data access, third party service providers will be required to execute
a ``Confidentiality Agreement'' setting forth minimum confidentiality
procedures and permissible uses of data received.
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\82\ Section 21(c)(3) reads: ``A swap data repository shall-- *
* * maintain the data described in paragraph (1) in such form, in
such manner, and for such period as may be required by the
Commission.'' 7 U.S.C. 24a(c)(3).
\83\ Section 21(c)(6) reads: ``A swap data repository shall-- *
* * maintain the privacy of any and all swap transaction information
that the swap data repository receives from a swap dealer,
counterparty, or any other registered entity.'' 7 U.S.C. 24a(c)(6).
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(f) Access to SDRs by Market Participants. Section 21(c)(6) of the
CEA requires registered SDRs to maintain the privacy and
confidentiality of any and all swap transaction information that the
registered SDR receives from a SD, counterparty, or any other
registered entity. As mentioned above, Section 21(f)(3) \84\ of the CEA
requires an SDR to establish and enforce rules to mitigate conflicts of
interest, among other things. As detailed further below, the Commission
has identified certain conflicts that may implicate access to SDR
Information. Consequently, in partial implementation of Sections
21(c)(6) and 21(f)(3) of the CEA, proposed Sec. 49.17 generally
prohibits access to swaps data maintained by a registered SDR by market
participants, such as commercial end-users, SDs and MSPs unless the
specific data was originally submitted by such party.
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\84\ See supra text accompanying notes 62-63.
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(g) Commercial Use of Data Maintained by the SDR. As outlined by
Sections 21(c)(6) and (c)(7) of the CEA, Congress in the Dodd-Frank Act
was concerned with maintaining the confidentiality of information
provided to registered SDRs by SDs, counterparties or any other
Commission-registered entity.\85\ Furthermore, as outlined in Section
21(f)(3) of the CEA, Congress in the Dodd-Frank Act was concerned that
conflicts of interest may affect SDR operations. As detailed below, the
Commission has identified certain conflicts of interest that may
implicate commercial use of SDR Information (other than swap data
subject to real-time public dissemination). In response to concerns
reflected in Sections 21(c)(6), 21(c)(7), and 21(f)(3), the Commission
believes that ``commercial use'' of any data submitted and maintained
by an SDR must be severely restricted. The privacy and confidentiality
concerns set forth in Section 21(c)(6) of the CEA do not apply to the
swap data subject to proposed part 43 of the Commission's Regulations,
which set forth the requirements for real-time public reporting of swap
data by SDRs.
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\85\ 7 U.S.C. 24a(c)(6)-(7).
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Therefore, in partial implementation of Sections 21(c)(6),
21(c)(7), and 21(f)(3), proposed Sec. 49.17 generally provides that
SDR Information (as defined in proposed Sec. 49.2(a)(13)) may not be
used for commercial or business purposes by the registered SDR or any
of its affiliated entities. In connection with its obligation to
maintain the privacy and confidentiality of SDR Information as outlined
in Sections 21(c)(6), 21(c)(7), and 21(f)(3) of the CEA, registered
SDRs are required to adopt and implement adequate ``firewalls'' to
protect the swaps data required to be maintained under proposed Sec.
45.2 \86\ and Section 21(c)(3) of the CEA from any improper, commercial
use.
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\86\ See Data NPRM, supra note 28.
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Proposed Sec. 49.17 permits a limited exception to the commercial
use restrictions for market participants, such as end-users, SDs and
MSPs, who submit SDR Information maintained by the registered SDR. The
exception requires that the registered SDR must receive the express
written consent of the counterparties to the swap. The Commission is
concerned that a registered SDR may attempt to use this limited
``commercial use'' exception as a condition for the reporting of end-
users, SDs and/or MSPs swap transactions. Accordingly, in proposed
Sec. 49.27 the Commission submits that a registered SDR must be
equitable and must not discriminate against submitters of data
regardless of whether such a submitter has agreed to any ``commercial
use'' of its data.
8. Emergency Procedures--Section 21(c)(8) of the CEA
Section 21(c)(8) of the CEA, as amended by Section 728 of the Dodd-
Frank Act, provides that a ``swap data repository shall establish and
maintain emergency procedures, backup facilities, and a plan for
disaster recovery that allows for the timely recovery and resumption of
operations and the fulfillment of the responsibilities and obligations
of the organization.'' \87\ Section 21(c)(8) of the CEA reflects SDRs'
critical role as central storehouses of information in the new swap
market structure established by the Dodd-Frank Act. In particular, it
recognizes that SDRs must be available to meet their statutory
obligations in all circumstances, and that swap data must be readily
accessible to the Commission and other regulators even in emergency
situations. To effectuate the purposes of Section 21(c)(8) of the CEA,
the Commission proposes Sec. 49.23, which requires SDRs to adopt
specific policies and procedures for the responsible exercise of
emergency authority in the event of natural, man-made, information
technology, and other, emergencies.
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\87\ Section 21(c)(8) of the CEA. 7 U.S.C. 24a(c)(8).
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While SDRs are a new type of registered entity created by Dodd-
Frank, proposed Sec. 49.23 applies existing emergency procedure
concepts borrowed from analogues in the Commission's regulatory
experience. For example, prior to the enactment of the Dodd-Frank Act,
DCMs were subject to former DCM Core Principle 6, which contemplated
exigent circumstances that might justify the exercise of emergency
authority by a DCM.\88\ The application guidance for former DCM Core
Principle 6 set forth the Commission's requirements for emergency
procedures. It stated, in part, that a DCM ``should have clear
procedures and guidelines for contract market decision-making regarding
emergency intervention in the market, including procedures and
guidelines to avoid conflicts of interest while carrying out such
decision making.'' \89\ The application guidance also stated that a
DCM's procedures and guidelines for the exercise of emergency authority
should include ``notifying the Commission of the exercise of [emergency
authority], explaining how conflicts of interest are minimized, and
documenting the contract market's decision-making process and the
[[Page 80912]]
reasons for using its emergency authority.'' \90\
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\88\ Former Section 5(d)(6) of the CEA, 7 U.S.C. 7(d)(6).
\89\ 17 CFR part 38, App. B, Application Guidance for former
Core Principle 6.
\90\ Id.
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The Commission has generally found that procedures implemented by
DCMs in response to former DCM Core Principle 6 allowed for adequate
responses in the event of emergencies.\91\ Accordingly, the Commission
is proposing new application guidance and acceptable practices to
implement emergency procedures core principles for both DCMs and SEFs
that are modeled on former DCM Core Principle 6 and its application
guidance.\92\ Similarly, the Commission's proposed Sec. 49.23 for SDR
emergency procedures is modeled on relevant provisions of the statutory
text, application guidance, and acceptable practices, as applicable,
for the former and current DCM and SEF emergency procedures core
principles.
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\91\ The Commission notes that former DCM Core Principle 6, and
its successor Core Principle 6 pursuant to Section 735 of the Dodd-
Frank Act, both incorporate market-specific emergencies and
responses into their statutory requirements. For example, under both
core principles, a DCM's emergency authority must include the
authority to liquidate or transfer open positions in any contract;
the authority to suspend or curtail trading in any contract; and the
authority to require market participants in any contract to meet
special margin requirements. The emergency policies and procedures
required of SDRs pursuant to proposed Sec. 49.23 do not incorporate
these market-specific concepts as they are not relevant to SDRs.
\92\ The new DCM emergency procedures core principle is also
enumerated as DCM Core Principle 6 and codified in Section 5(d)(6)
of the CEA, 7 U.S.C. 7(d)(6); it is substantively similar to its
predecessor. The new SEF emergency procedures core principle is
enumerated as SEF Core Principle 8 and codified in Section 5h(f)(8)
of the CEA, 7 U.S.C. 7b-3(f)(8).
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(a) Emergency Policies and Procedures Required--Proposed Sec. 49.23(a)
Proposed Sec. 49.23(a) requires that an SDR establish policies and
procedures for the exercise of emergency authority in the event of any
emergency, including but not limited to, natural, man-made, and
information technology emergencies. Proposed Sec. 49.23(a) will mirror
language in the application guidance for former DCM Core Principle 6,
which states that DCMs must ``have clear procedures and guidelines for
contract market decision-making regarding emergency intervention. * * *
'' Similar language is also proposed in the guidance and acceptable
practices for new DCM Core Principle 6 and new SEF Core Principle 8.
Proposed Sec. 49.23(a) and the new DCM Core Principle 6 and new SEF
Core Principle 8 reflect the Commission's view that these policies must
be transparent to the Commission and to market participants whose
transaction data resides at the SDR.
(b) Invocation of Emergency Authority--Proposed Sec. 49.23(b)
Proposed Sec. 49.23(b) requires an SDR to enumerate the
circumstances under which it is authorized to invoke its emergency
authority, and the procedures that it must follow to declare an
emergency. Such policies and procedures must also address the range of
measures that an SDR is authorized to take when exercising emergency
authority.
Proposed Sec. 49.23(b) helps ensure that an SDR can respond
quickly to an emergency but reduces the possibility that SDRs will
exercise such authority arbitrarily. Similar to the Commission's view
on the development of emergency policies and procedures, proposed Sec.
49.23(b) reflects the Commission's view that the use of emergency
authority should be governed by transparent standards and be
predictable to the Commission and to swap market participants.
(c) Designation of Persons Authorized to Act in an Emergency--Proposed
Sec. 49.23(c)
Proposed Sec. 49.23(c) requires an SDR to designate, and notify
the Commission of, one or more persons authorized to exercise emergency
authority on its behalf. In the event that such designated persons are
unavailable, an SDR must also establish a chain of command. The
Commission believes that the proposed regulation reduces the
possibility that emergency situations will be exacerbated by a lack of
leadership and inadequate line of decisional authority.
(d) Conflicts of Interest--Proposed Sec. 49.23(d)
Proposed Sec. 49.23(d) requires that SDR policies and procedures
include provisions to avoid conflicts of interest in any decision made
pursuant to emergency authority. SDR policies and procedures must also
require that the SDR's CCO be consulted in any emergency decision that
may raise potential conflicts of interest.\93\ The Commission believes
that specific policies and procedures designed to avoid conflicts in
the exercise of emergency authority will focus SDR decision-makers'
attention and guide their decisions in ways that minimize the risk for
actual or perceived conflicts of interest.
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\93\ Section 21(e) of the CEA, 7 U.S.C. 24a(e) creates the
position of CCO and prescribes detailed responsibilities to CCOs.
Section 21(e)(2)(C) tasks CCOs with ``resolv[ing] any conflicts of
interest that may arise'' in consultation with the SDR's board of
directors, a body performing a similar function as the board, or the
senior officer of the SDR. Proposed Sec. 49.26 specifically
implements new Section 21(e). 7 U.S.C. 24a(2)(C).
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(e) Notification to the Commission--Proposed Sec. 49.23(e)
Proposed Sec. 49.23(e) requires that an SDR's policies and
procedures include provisions for the exercise of emergency authority
to notify the Commission as soon as reasonably practicable regarding
any invocation of emergency authority by the SDR. When notifying the
Commission of an exercise of emergency authority, an SDR must explain
the reasons for taking such emergency action, explain how conflicts of
interest were minimized, and document the decision-making process. In
addition, any underlying documentation must be made available to the
Commission upon request. These proposed provisions will help keep the
Commission informed of emergency situations, allow the Commission to
participate as necessary, and facilitate any review that the Commission
may wish to conduct at a later date.
Request for Comment. The Commission requests comment on the
questions set forth below on SDR duties:
(1) Should the Commission impose any additional duties on SDRs? For
example, should SDRs be required to provide downstream processing
services or ancillary services (e.g., managing life-cycle events and
asset servicing)?
(2) Should the Commission establish more specific requirements to
avoid contract invalidation by an SDR?
C. Designation of Chief Compliance Officer
Section 21(e) of the CEA, as amended by Section 728 of the Dodd-
Frank Act, creates an internal regulatory framework for all SDRs, with
the position of CCO serving as a focal point for compliance with the
CEA and applicable Commission Regulations. The three-part structure of
Section 21(e) requires, first, that every SDR designate an individual
to serve as CCO.\94\ Second, it enumerates specific duties for CCOs and
establishes their responsibilities within an SDR.\95\ Third, it
outlines the
[[Page 80913]]
requirements of a mandatory annual report from SDRs to the Commission,
which must be prepared and signed by an SDR's CCO.\96\ The Commission
proposes to implement Section 21(e) of the CEA through proposed Sec.
49.22, which further develops the already robust CCO requirements
enacted by the Dodd-Frank Act. Section 21(e) of the CEA and proposed
Sec. 49.22 are summarized below.
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\94\ See Section 21(e)(1) of the CEA, 7 U.S.C. 24a(e)(1).
\95\ See Section 21(e)(2) of the CEA, adopted as part of the
Dodd-Frank Act, providing that a CCO shall:
(A) report directly to the board or to the senior officer of the
swap data repository; (B) review the compliance of the swap data
repository with respect to the requirements and core principles
described in this section; (C) in consultation with the board of the
swap data repository, a body performing a function similar to the
board of the swap data repository, or the senior officer of the swap
data repository, resolve any conflicts of interest that may arise;
(D) be responsible for administering each policy and procedure that
is required to be established pursuant to this section; (E) ensure
compliance with this Act (including regulations) relating to
agreements, contracts, or transactions, including each rule
prescribed by the Commission under this section; (F) establish
procedures for the remediation of noncompliance issues identified by
the chief compliance officer through any--(i) compliance office
review; (ii) look-back; (iii) internal or external audit finding;
(iv) self-reported error; or (v) validated complaint; and (G)
establish and follow appropriate procedures for the handling,
management response, remediation, retesting, and closing of
noncompliance issues.
7 U.S.C. 24a(e)(2).
\96\ See Section 21(e)(3)(A) of the CEA, adopted as part of the
Dodd-Frank Act, providing that a CCO shall:[A]nnually prepare and
sign a report that contains a description of--(i) the compliance of
the swap data repository of the chief compliance officer with
respect to this Act (including regulations); and (ii) each policy
and procedure of the swap data repository of the chief compliance
officer (including the code of ethics and conflict of interest
policies of the swap data repository). (B) REQUIREMENTS.--A
compliance report under subparagraph (A) shall--(i) accompany each
appropriate financial report of the swap data repository that is
required to be furnished to the Commission pursuant to this section;
and (ii) include a certification that, under penalty of law, the
compliance report is accurate and complete.
7 U.S.C. 24a(e)(3)(A)-(B).
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The first provision of Section 21(e)-21(e)(1)--provides only for
the self-explanatory requirement that each SDR designate an individual
to serve as its CCO. The second provision of Section 21(e) offers a
detailed description of a CCO's role within an SDR. Specifically,
Section 21(e)(2) includes seven enumerated duties incumbent upon all
CCOs, and thereby outlines the internal regulatory structure of an SDR
as contemplated by the Dodd-Frank Act. The enumerated duties of CCOs
include: (1) Reporting directly to the SDR's board of directors or to
its senior officer; (2) reviewing an SDR's compliance with the
requirements and core principles described in Section 21; (3) resolving
any conflicts of interest that may arise, in consultation with the
board of directors or the senior officer of the SDR; (4) administering
any policy or procedure that is required to be established by an SDR
pursuant to Section 21; (5) ensuring compliance with the CEA and
Commission Regulations as they pertain to agreements, contracts, or
transactions entered into by an SDR; (6) establishing procedures for
the remediation of noncompliance issues identified by the CCO; and (7)
establishing and following appropriate procedures for the handling,
management response, remediation, retesting, and closing of
noncompliance issues.\97\
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\97\ 7 U.S.C. 24a(e)(2).
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Finally, the third provision of Section 21(e)-21(e)(3)--requires
CCOs to prepare and sign annual compliance reports on behalf of their
SDRs. The annual compliance reports must describe an SDR's compliance
with the CEA and Commission Regulations. They must also describe the
policies and procedures of the SDR, including the code of ethics and
conflict of interest policies. In addition, the annual compliance
reports must include ``a certification that, under penalty of law, the
report is accurate and complete.'' \98\ The annual compliance report
must be furnished to the Commission as it may prescribe.
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\98\ 7 U.S.C. 24a(e)(3)(B)(ii).
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Proposed Sec. 49.22 develops each of these statutory provisions in
greater detail and grants CCOs the regulatory authority necessary to
fulfill responsibilities in each regard.
1. Definition of Board of Directors--Proposed Sec. 49.22(a)
Proposed Sec. 49.22(a) defines ``board of directors'' as ``the
board of directors of a swap data repository or for those swap data
repositories whose organizational structure does not include a board of
directors, a body performing a function similar to a board of
directors.'' The proposed definition reflects the various forms of
business associations which an SDR could conceivably take, including
forms which do not include a corporate board of directors. It also
reflects the flexibility in Section 728 of the Dodd-Frank Act, which
refers, for example, to ``a body performing a function similar to a
board'' in discussing the duties of a CCO pursuant to Section
21(e)(2)(C) of the CEA.
Request for Comment. The Commission requests comment on the
following.
(1) Should the Commission develop additional rules around the types
of bodies which may perform board-like functions at an SDR, depending
on their business form?
(2) Should the proposed definition of board of directors
appropriately address issues related to parent companies, subsidiaries,
affiliates, and SDRs located in foreign jurisdictions? Does the
proposed rule allow for sufficient flexibility with regard to an SDR's
business structure?
2. Designation and qualifications of Chief Compliance Officer--Proposed
Sec. 49.22(b)
Proposed Sec. 49.22(b)(1) requires an SDR to establish the
position of CCO, designate an individual to serve in that capacity and
provide that individual with the authority and resources to develop and
enforce policies and procedures necessary to fulfill the duties set
forth for CCOs in the Dodd-Frank Act and Commission regulations. In
addition, proposed Sec. 49.22(b)(1) provides that CCOs must have
supervisory authority over all staff acting in furtherance of the CCO's
statutory and regulatory obligations. In short, proposed Sec.
49.22(b)(1) establishes CCOs as the focal-point of an SDR's regulatory
compliance functions.
Proposed Sec. 49.22(b)(2) details minimum competency standards for
CCOs. It requires that CCOs have the background and skills necessary to
fulfill the responsibilities of the position, and prohibits anyone who
would be disqualified from registration under Sections 8a(2) or 8a(3)
of the CEA from serving as a CCO. Although the CCO would not be
required to register with the Commission, as the primary individual
with responsibility for ensuring an SDR's legal compliance, the
Commission believes that CCOs should meet the same standard as those
individuals who are required to register, as set forth in the list of
statutory disqualifications under Sections 8a(2) and (3) of the CEA.
These standards largely consist of a high degree of responsibility and
requirements relating to integrity and honesty in financial and
business dealings.
The Commission is seeking comment on whether additional limitations
should be placed on persons who may be designated as a CCO. For
example, the function of the CCO and in-house or general counsel may
have inherent tension between, for example, the duty to defend the swap
data repository and duties as a CCO.
Request for Comment.
(1) The Commission requests comment on whether the provisions of
proposed Sec. 49.22(b)(1) are sufficient to ensure that a CCO has the
authority and resources necessary to fulfill his or her statutory and
regulatory obligations.
(2) The Commission also requests comment regarding the
qualifications that should be required of a CCO, and whether the
requirements expressed in proposed Sec. 49.22(b)(2) are sufficient.
(3) Should there be additional restrictions placed on who is
qualified to be designated as a CCO? The Commission requests comment on
[[Page 80914]]
whether restricting a CCO from serving as the General Counsel or other
attorney within the legal department of a SDR would address conflict of
interest concerns.
3. Appointment, Supervision, and Removal of Chief Compliance Officer--
Proposed Sec. 49.22(c)
Taken together, proposed Sec. Sec. 49.22(c)(1), 49.22(c)(2), and
49.22(c)(3) provide the supervisory regime applicable to CCOs. Proposed
Sec. 49.22(c)(1) requires that a CCO be appointed by a majority of the
SDR's board of directors or senior officer, and that a majority of the
board or senior officer be responsible for approving the CCO's
compensation. An SDR must notify the Commission within two business
days of appointing a new CCO. The proposed regulation also requires the
CCO to meet at least annually with the board of directors to discuss
the effectiveness of the CCO's administration of the compliance
policies adopted by the registrant. The meeting or meetings would
create an opportunity for a CCO and the directors to speak freely about
any sensitive issues of concern to any of them, including any
reservations about the cooperativeness or compliance practices of the
registrant's management. Finally, proposed Sec. 49.22(c)(1) also
provides that the senior officer of a SDR may assume responsibility for
appointing the CCO and approving his or her compensation.
Proposed Sec. 49.22(c)(2) addresses routine oversight of an SDR's
CCO. It allows an SDR with a board of directors to grant oversight
authority to either its board or to its senior officer. The proposed
regulation is modeled on the terms of Section 21(e)(2)(A) of the CEA,
which requires a CCO to ``report directly to the board or to the senior
officer of the swap data repository.''
Request for Comment. The Commission requests comment regarding the
appropriate reporting relationship for the CCO of an SDR that has both
a senior officer and a board of directors.
(1) In such cases, should a CCO report to the SDR's board rather
than to its senior officer?
(2) What potential conflicts of interest might arise if a CCO
reports to the senior officer rather than to the board, and how might
those conflicts be mitigated?
(3) In addition, the Commission requests comment regarding whether
``senior officer'' of an SDR should be a defined term, and if so, how
the term should be defined.
4. Removal of CCO--Proposed Sec. 49.22(c)(3)
Proposed Sec. 49.22(c)(3) requires approval of a majority of an
SDR's board of directors to remove a CCO. The Commission believes that
these removal provisions will help insulate CCOs and their decision-
making from day-to-day commercial pressures that they may otherwise
experience. If an SDR does not have a board, the proposed regulation
provides that the CCO may be removed by its senior officer. Proposed
Sec. 49.22(c)(3) also requires an SDR to notify the Commission in
writing within two business days of the removal or voluntary departure
of its CCO by providing a statement describing the circumstances
surrounding his or her departure.\99\ The Commission believes that this
provision will help protect CCOs from undue influence or retaliatory
termination by the board or the senior officer of the SDR.
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\99\ Upon the removal or voluntary departure of a CCO, proposed
Sec. 49.22(c)(3) requires and SDR to appoint an interim CCO
immediately and a permanent replacement as soon as practicable. See
proposed Sec. 49.22(c)(3).
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Proposed Sec. Sec. 49.22(c)(1) and 49.22(c)(3) seek to provide an
SDR's CCO with a measure of independence from management in the
performance of his or her duties, and to ensure that such duties are
executed in the most effective and impartial manner possible.
Request for Comment. The Commission requests comment on any
additional measures that should be required to adequately protect CCOs
from undue influence in the performance of their duties. The Commission
is particularly interested in how it might offer such protection to a
CCO who reports to his or her senior officer, either at the SDR's
choosing or because the SDR does not have a board of directors. In
addition, the Commission also requests comment on whether the provision
that would require a majority of a board of directors to remove the CCO
is sufficiently specific.
5. Duties of the Chief Compliance Officer--Proposed Sec. 49.22(d)
Proposed Sec. 49.22(d) details the duties of a CCO, as well as his
or her authority within an SDR. The proposed regulation codifies and
expands upon the CCO duties already set forth in Section 21(e)(2) of
the CEA. These duties include overseeing and reviewing compliance with
the CEA and Commission regulations, as well as resolving, in
consultation with the board of directors or the senior officer, any
conflicts of interest that may arise. The proposed Regulation also
lists a number of potential conflicts that may confront a CCO. The list
of conflicts of interest indicates the types of conflicts that the
Commission believes an SDR's CCOs should be aware of, but it is not
exhaustive.
Proposed Sec. 49.22(d) also requires that the CCO establish and
administer a written code of ethics and policies and procedures
designed to prevent violations of the CEA and Commission regulations.
The Commission believes that such written documentation will serve as a
useful guide for the SDR's management and staff, as well as for swap
participants who will be submitting data to the SDR. It will also help
the Commission to evaluate the SDR's compliance and adherence to its
own internal standards. Finally, proposed Sec. 49.22(d) requires that
a CCO establish and follow procedures for the remediation and closing
of any noncompliance issues that are identified. To assist the CCO in
meeting this responsibility, proposed Sec. 49.22(b)(1), summarized
above, grants a CCO oversight authority over all compliance functions
and staff acting in furtherance of those compliance functions. The
CCO's authority would also extend to any activities performed by the
SDR to verify that other entities are in compliance with applicable
laws and regulations, such as the verification of the timeliness of
certain swap data, pursuant to proposed Sec. 49.15. The Commission
recognizes that the staff that assists a CCO may not be dedicated to
the CCO full-time; however, the proposed regulation would ensure that a
CCO has authority over any staff and resources while they are acting in
furtherance of compliance functions.
Request for Comment. The Commission requests comment regarding
proposed Sec. 49.22(d). Comments should address any additional CCO
duties which the Commission should include in the proposed regulation.
In addition, they should specifically address a CCO's role in managing
conflicts of interest within an SDR, the types of conflicts which
commenters believe might arise within an SDR, and how and by whom those
conflicts should be resolved.
6. Preparation and Submission of Annual Compliance Report--Proposed
Sec. Sec. 49.22(e) and 49.22(f)
Section 21(e)(3) of the CEA requires a CCO to prepare an annual
compliance report. As discussed above, the Commission believes that
this annual compliance report should give the Commission a complete and
accurate picture of an SDR's compliance
[[Page 80915]]
program. Proposed Sec. 49.22(e) details the information that must be
included in the annual compliance report. The report must include: (i)
A description of the SDR's written policies and procedures, code of
ethics and conflicts of interest policies; (ii) a detailed review of
the SDR compliance with Section 21 of the CEA, including an assessment
by the CCO of the effectiveness of the SDR's policies and procedures in
ensuring compliance with Section 21 of the CEA and a discussion of
areas for improvement; (iii) a description of any material changes to
the policies and procedures that were made to these since the last
annual compliance report; (iv) a description of the financial,
managerial, operational, and staffing resources set aside for the SDR's
compliance program; (v) a description of any material compliance
matters, including instances of noncompliance, that were identified in
the year prior to the filing of the report; and (vi) any objections to
the annual compliance report by the board or senior officer of the SDR.
In addition to the above information, proposed Sec. 49.22(e) also
requires the annual report to include a certification by the CCO that,
under penalty of law, the compliance report is accurate and complete.
Proposed Sec. 49.22(f)(1) sets forth the procedures for the review
of the annual compliance report by the board of directors of the SDR or
senior officer, prior to submission to the Commission. While the board
or senior officer has a chance to review the annual compliance report
before submission, the report is not subject to their approval.
Proposed Sec. 49.22(f)(1) explicitly prohibits the board or senior
officer from forcing the CCO to make any material changes to the
report. The purpose of this review is to permit the members of the
board or the senior officer to provide the Commission with any
objections they might have to the report. The Commission believes that
the prohibition against the board and senior officer making changes to
the annual compliance report will allow the CCO to make a complete and
accurate assessment of the SDR's compliance program.
Proposed Sec. 49.22(f)(2) describes the process for submission of
the report to the Commission. The proposed Regulation requires that the
annual compliance report be electronically provided to the Commission
not more than 60 days after the end of the calendar year. If a CCO
determines that an annual compliance report filed with the Commission
has a material error or if material non-compliance is identified after
filing, proposed Sec. 49.22(f)(3) would require a SDR to promptly file
an amended report. This amended report must also include the
certification by the CCO as to the accuracy and completeness made in
the initial submission of the report. If a CCO is unable to file an
annual compliance report within 60 days of the end of the calendar
year, proposed Sec. 49.22(f)(4) would permit a CCO to request the
Commission to grant an extension of time to file its compliance report
based on substantial undue hardship. Extensions for the filing deadline
would be granted at the discretion of the Commission. Additionally, to
protect the trade secrets of the SDR and the security of the data held
by the SDR, the proposed Regulation requires that annual compliance
reports filed pursuant to Sec. 49.22 be treated as exempt from
mandatory public disclosure for purposes of FOIA \100\ and the Sunshine
Act \101\ and parts 145 and 147 of Commission Regulations.
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\100\ See 5 U.S.C. 552.
\101\ See 5 U.S.C. 552b(b).
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Request for Comment. The Commission request comment on its proposed
regulations regarding the preparation and submission of an SDR's annual
compliance report.
(1) Should the annual compliance report contain additional content
beyond what is proposed in Sec. 49.22(e)? Are additional provisions
necessary to ensure that an SDR's board of directors cannot adversely
influence the content of an annual compliance report as drafted by the
CCO?
(2) In the alternative, are additional provisions necessary to
insure that individual directors or other SDR employees have an
adequate opportunity to register any concerns or objections they might
have to the contents of an annual compliance report?
The Commission also requests comment relating to insulating an
SDR's CCO from undue influence or coercion.
(1) Should the Commission adopt a regulation that prohibits an
officer, director or employee of the SDR or related person to coerce,
manipulate, mislead, or fraudulently influence the CCO in performing
his or her duties?
(2) Is it necessary to adopt regulations to address potential
conflicts between and among an SDR's compliance, commercial, and
ownership interests?
(3) If so, what should such regulations entail, and what specific
conflicts of interest should they address?
7. Recordkeeping--Proposed Sec. 49.22(g)
Proposed Sec. 49.22(g) details SDRs' recordkeeping requirements
for records relating to a CCO's areas of responsibility. This proposed
regulation requires an SDR to maintain: (i) A copy of its written
policies and procedures, including its code of ethics and conflicts of
interest policies; (ii) copies of all materials, including written
reports provided to the board of directors in connection with review of
the annual report, as well as the board minutes or other similar
written records, that record the submission of the annual compliance
report to an SDR's board of directors or its senior officer; and (iii)
any other records relevant to an SDR's annual report. The records
required to be maintained pursuant to this section are designed to
provide Commission staff with a basis to determine whether an SDR has
complied with the CEA and applicable Commission Regulations. The
Commission also wants to preserve its ability to reconstruct why
certain information was included or excluded in an annual report, in
the event that such reconstruction becomes necessary under a future
audit or investigation.
The SDR would be required to maintain these records in accordance
with Sec. 1.31 of the Commission's Regulations. Following Sec. 1.31,
all records must be kept for a period of five years.
Request for Comment. The Commission requests comment regarding
whether the requirements of proposed Sec. 49.22(g) are sufficient to
create a complete and easily auditable record of a board of directors'
or senior officer's review of an annual compliance report to ensure
that the report, as drafted by the CCO, was not altered.
D. Core Principles Applicable to SDRs
Section 21(f) of the CEA details the ``core principles'' that are
applicable to SDRs. These core principles include (i) antitrust
considerations; (ii) governance arrangements; and (iii) conflicts of
interest.\102\
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\102\ Section 21(f)(4), 7 U.S.C. 24a(f)(4), establishes a fourth
core principle which authorizes the Commission to establish
additional duties for registered SDRs. The Commission is proposing
to add several additional duties pursuant to this authority; these
proposed duties are discussed in Section E, below.
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Registered SDRs will be required to comply with the core principles
as described in proposed Sec. 49.19. Unless otherwise determined by
the Commission by order, rule or regulation, an SDR would have
reasonable discretion in establishing the manner in which it complies
with the core principles described in proposed Sec. 49.19. The
following subsections describe in detail the Regulations
[[Page 80916]]
proposed by the Commission to implement the ``core principles.''
1. Antitrust Considerations (Core Principle 1)
Consistent with Section 15(a) of the CEA,\103\ the Commission in
proposing Sec. 49.19 believes that an SDR should (unless necessary or
appropriate to achieve the purposes of the CEA) avoid adopting any
rule, regulation or policy, or taking any action that results in an
unreasonable restraint of trade or imposing any material
anticompetitive burden on the trading, clearing, reporting and/or
processing of swaps (``Core Principle 1'').
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\103\ Section 15(b) of the CEA provides:
The Commission shall take into consideration the public interest
to be protected by the antitrust laws and endeavor to take the least
anticompetitive means of achieving the objectives of this chapter,
as well as the policies and purposes of this chapter, in issuing any
order or adopting any Commission rule or regulation (including any
exemption under Section 6(c) or 6c(b) of this title), or in
requiring or approving any bylaw, rule, or regulation of a contract
market or registered futures association established pursuant to
Section 21 of this title.
7 U.S.C. 19.
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2. Introduction--Governance Arrangements (Core Principle 2) and
Conflicts of Interest (Core Principle 3)
Section 21(f)(2) of the CEA requires that each SDR establish
governance arrangements that are transparent to fulfill public interest
requirements and to support the objectives of the Federal Government,
owners, and participants (``Core Principle 2'').\104\ Section 21(f)(3)
of the CEA provides that each SDR must establish and enforce rules to
minimize conflicts of interest in the decision-making process of the
SDR and to establish a process for resolving such conflicts (``Core
Principle 3'').\105\ In many respects, Core Principles 2 and 3 are
interrelated, although each provides a separate source of authority for
the Commission.\106\
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\104\ See Section 21(f)(2) of the CEA, 7 U.S.C. 24a(f)(2) as
added by Section 728 of the Dodd-Frank Act.
\105\ See Section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3) as
added by Section 728 of the Dodd-Frank Act.
\106\ In Section 4(a), the Commission identifies potential
conflicts of interest in the operation of a registered SDR. Such
conflicts may implicate (i) SDR access, pricing, and provision of
services and (ii) disclosure or use of SDR Information. As further
discussed, such conflicts of interest may originate in the control
of an SDR by one reporting entity or a small subset of reporting
entities (a ``control group''). Such control may result from
representation on SDR governing bodies, whether through (i)
ownership of voting equity or the exercise of voting rights or (ii)
other direct or indirect means. The existence of such conflicts may
frustrate the public interest, as well as the objectives of the
Federal Government, certain owners, and participants, in
facilitating the reporting of swap transactions. Therefore, in
establishing governance arrangements that are transparent as to (i)
the sources of such control and (ii) the decisions resulting from
such control, the SDR may be satisfying Core Principles 2 and 3
simultaneously.
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In order to ensure proper implementation of Core Principles 2 and
3, respectively, the Commission proposes regulations regarding (i) the
transparency of SDR governance arrangements and (ii) SDR identification
and mitigation of existing and potential conflicts of interest.\107\
The proposed rules reflect consultation with staff of the following
agencies: (i) The SEC; (ii) the Fed; (iii) OCC; (iv) FDIC; and (v) the
Treasury Department. Additionally, the proposed rules were informed by:
(1) The joint public roundtable that Commission and SEC staff conducted
on September 14, 2010 (the ``SDR Roundtable''); \108\ and (2) answers
to a survey that the Commission informally circulated to existing trade
repositories \109\ and other companies that may be interested in
registering as SDRs in the future (the ``SDR Survey'').\110\ Finally,
mindful of the importance of international harmonization, the proposed
rules incorporate certain elements of the European Commission Proposal
\111\ and the Working Group Report.\112\ The Commission intends for the
proposed rules, as well as the final rules, to meet or exceed the
standards set forth by the Working Group Report relating to trade
repositories.\113\
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\107\ The Commission notes that entities dually registered with
the Commission and the SEC would be required to comply with both
sets of rules.
\108\ See Press Release, Commission, CFTC, SEC Announce
Panelists, Room Update and Webcast Address for September 15 Public
Roundtable to Discuss Swap Execution Facilities and Security-Based
Swap Execution Facilities (Sept. 14, 2010), http://www.cftc.gov/PressRoom/PressReleases/pr5895-10.html; Press Release, Commission,
CFTC, SEC Announce Panelists for September 14 Public Roundtable to
Discuss Swap and Security-Based Swap Data, Swap and Security-Based
Swap Data Repositories and Real Time Reporting (Sept. 13, 2010),
http://www.cftc.gov/PressRoom/PressReleases/pr5892-10.html; Press
Release, Commission, CFTC, SEC to host public roundtable to discuss
swap data, swap data repositories and real time reporting (Sept. 7,
2010), available at http://www.cftc.gov/PressRoom/PressReleases/pr5886-10.html. See also Transcript, Public Roundtable to Discuss
Swap Data, Swap Data Repositories and Real Time Reporting (Sept. 14,
2010), available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative18sub091410.pdf (the ``SDR Roundtable
Tr.'').
\109\ Although SDRs are new entities created pursuant to the
Dodd-Frank Act, similarly-functioning entities called trade
repositories have been in existence for quite some time.
\110\ Commission staff circulated the informal survey to five
entities and received answers to certain questions. See http://www.cftc.gov/LawRegulation/DoddFrankAct/OTC_9_DCOGovernance.html
(last visited Nov. 1, 2010).
\111\ See European Commission Proposal, supra note 16.
\112\ See Working Group Report, supra note 13.
\113\ Id.
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3. Governance Arrangements (Core Principle 2)
In addition to proposed Regulations discussed in sections II.B.6,
II.B.7 and II.E.4,\114\ the Commission proposes to impose, pursuant to
proposed Sec. 49.20 (implementing Core Principle 2), certain minimum
standards for the transparency of SDR governance arrangements.
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\114\ See proposed Sec. Sec. 49.16 regarding maintenance of
data privacy, discussed in section II.B.6 of this proposed
rulemaking; 49.17 regarding access to SDR data, discussed in section
II.B.7. of this proposed rulemaking; and 49.27 regarding equitable
and non-discriminatory access and fees, discussed in section II.E.4
of this proposed rulemaking.
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(a) Transparency of Governance Arrangements
The Commission proposes to mandate minimum standards for the
transparency of SDR governance arrangements.\115\ Pursuant to such
standards, an SDR must:
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\115\ In addition, the Commission proposes to require each
registered SDR to establish governance arrangements that are well
defined and include a clear organizational structure with consistent
lines of responsibility and effective internal controls. As the SDR
must have such arrangements to (i) properly identify the sources of
potential conflicts of interest and (ii) establish an appropriate
process for resolving such conflicts, such arrangements also satisfy
Core Principle 3.
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Include a statement in its charter documents regarding the
transparency of its governance arrangements, and the manner in which
such transparency supports the objectives of the Federal Government;
Make available certain information to the public and
relevant authorities; \116\
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\116\ Such information includes: (i) The registered SDR mission
statement; (ii) the mission statement and/or charter of the
registered SDR Board of Directors and certain committees; (iii) the
board of directors nominations process of the registered SDR, as
well as the process for assigning members of the board of directors
or other persons to certain committees; (iv) names of all members of
(a) the board of directors and (b) certain committees; (v) a
description of how the board of directors and certain committees
consider an independent perspective in their decision-making
processes; (vi) the lines of responsibility and accountability for
each operational unit of the registered SDR; and (vii) summaries of
significant decisions implicating the public interest, the rationale
for such decisions, and the process for reaching such decisions.
These significant decisions include decisions relating to pricing of
repository services, the offering of ancillary services, access to
data, and the use of SDR Information.
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Ensure that the information made available is current,
accurate, clear and readily accessible; and
Disclose summaries of significant decisions in a
sufficiently comprehensive and detailed fashion so
[[Page 80917]]
that the public and relevant authorities would have the ability to
discern the SDR policies or procedures implicated and the manner in
which SDR decisions implement or amend such policies or procedures.
In addition, although a registered SDR is not required to disclose
minutes of board of directors or committee meetings to the public, it
must furnish this information to the Commission upon request.
Request for Comment. The Commission requests comment on the
questions set forth below.
(1) Are the requirements described above sufficiently clear? If
not, why not? What would be a better alternative?
(2) Should the Commission require the SDR to make any other
information available to the public? To the relevant authorities?
Conversely, should the Commission permit the SDR to maintain the
confidentiality of any information that the Commission currently
contemplates making public?
(3) Should the Commission prescribe more detailed standards on the
manner in which an SDR must ensure that its information is ``current,
accurate, clear, and readily accessible''? If so, which standards?
(4) Should the Commission require the SDR to disclose summaries of
significant decisions? Why or why not? Has the Commission correctly
identified which decisions should be considered significant? It not,
what would be a better alternative? In what manner should these
decisions be disclosed?
(5) Are the requirements described above necessary or appropriate
to implement Core Principle 2? If not, why not?
(6) What other measures should the Commission consider to implement
Core Principle 2? Should such measures supplement or replace the
requirements described above? Why?
(b) Consideration of an Independent Perspective
Proposed Sec. 49.20(c) would require each registered SDR to
establish, maintain, and enforce policies and procedures to ensure that
(i) its board of directors, as well as (ii) any SDR committee that has
the authority to (A) act on behalf of the board of directors or (B)
amend or constrain the action thereof, adequately considers a
perspective independent of competitive, commercial, or industry
interests in its deliberations.\117\ The Commission believes that the
board of directors, as well as each abovementioned committee, would be
more likely to contemplate the manner in which a decision might affect
all constituencies, and less likely to concentrate on the manner in
which a decision affects the interests of the control group, if it
integrates an independent perspective in its deliberations. Hence, in
counterbalancing the perspective of certain reporting entities
controlling an SDR, the integration of an independent perspective would
aid in addressing the conflicts of interest identified herein. The
Commission believes that it is particularly important for an
independent perspective to be reflected in the nominations process for
the board of directors, as well as the process for assigning members of
the board of directors or other persons to the abovementioned
committees. Therefore, proposed Sec. 49.20(c) would also require each
registered SDR to establish, maintain, and enforce policies and
procedures to ensure that such nominations and assignment processes
adequately incorporates an independent perspective.
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\117\ See 75 FR 63732, 63737-38 (Oct. 18, 2010) (regarding the
importance of the independent perspective in mitigating conflicts of
interest).
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Along with the requirements noted above, the Commission is
proposing that a registered SDR meet certain reporting requirements
relating to its board of directors, as well as each SDR committee that
has the authority to (i) act on behalf of its board of directors or
(ii) amend or constrain the action thereof. Specifically, the
Commission proposes to require an SDR to submit the following within
thirty (30) days after an election of the board of directors: (i) For
the board of directors, as well as each such committee, a list of all
members; (ii) a description of the relationship, if any, between such
members and the SDR or its affiliates; and (iii) any amendments to the
policies and procedures that the SDR maintains with respect to
consideration of the independent perspective. The Commission believes
that such disclosure promotes the transparency of governance
arrangements and improves the detection and prevention of conflicts of
interest, and which may actually deter such conflicts in the first
instance.
Request for Comment. The Commission requests comment on the
questions set forth below.
Consideration of an Independent Perspective
(1) To ensure the consideration of an independent perspective,
should the Commission require a registered SDR to have public directors
on (i) its board of directors and (ii) any committee that has the
authority to (A) act on behalf of the board of directors or (B) amend
or constrain the action of the board of directors?
a. If not, why not and what would be a better alternative to
improve governance and mitigate conflicts of interest?
b. If so, what should be the required composition of the board of
directors and each such committee? Should there be a minimum
requirement on the number or percentage of public directors? If so,
what should the minimum requirement be and why?
c. How should the Commission define ``public director'' for
registered SDRs?
d. Would providing for fair representation on an SDR board of
directors and each such committee be preferable to, or complementary
to, mandating a specific number or percentage of public directors?
(2) Should the Commission require a registered SDR to establish a
nominating committee? Is the nominating committee necessary or
appropriate for the mitigation of the conflicts of interest identified
herein, or of any other conflict of interest? If not, why not and what
would be a better alternative? If so, should the nominating committee
have a certain percentage, minimum number, or be comprised solely of
public directors? Why?
(3) Should the Commission require a registered SDR to establish any
other committees to mitigate conflicts of interest? If so, what would
be the responsibilities of such a committee? Should the Commission
require such a committee to have a certain percentage, a minimum
number, or be comprised solely of public directors? Why?
Limitations on Ownership of Voting Equity and the Exercise of Voting
Rights
(4) Should the Commission impose limitations on the ownership of
voting or non-voting equity and the exercise of voting rights on
reporting entities or other market participants? If so, what should the
required ownership and voting limitations be? Are such limits necessary
or appropriate for mitigating the conflicts of interest identified
herein, or any other conflicts of interest?
(5) Would SDR compositional requirements be more or less effective
than ownership or voting limitations at addressing conflicts of
interest? Would SDR compositional requirements, on their own, be
sufficient to address conflicts of interest concerns (assuming that
such restrictions are necessary for this purpose) or are both
restrictions on governance and ownership needed?
(6) If the Commission were to require ownership and voting
limitations, should the Commission permit the SDR board of directors to
waive the
[[Page 80918]]
limitations for a person who is not an SDR participant (and its related
persons) provided that certain conditions are met? If so, under what
conditions? Should the waiver be subject to the review of the
Commission?
(7) Would an aggregate limit on the ownership of voting equity and
the exercise of voting rights be appropriate for SDRs? If so, should
such aggregate limit be applied only to reporting entities? Which
reporting entities? What should such aggregate limit be? Why?
(8) Should any ownership and voting limitations be extended to the
parent company of an SDR?
(9) If the Commission were to impose ownership or voting
limitations, should the Commission require remediation by an SDR of any
interest that a reporting entity or a related person holds or exercises
in excess of the limitations?
(10) If the Commission were to impose ownership or voting limits,
should the limitations be phased-in for SDRs to provide a grace period
for those entities that would not meet the limits at the outset, but
that could potentially meet them at a later date, e.g., one or two
years after SDR registration with the Commission?
(11) If the Commission were to impose ownership and voting
limitations, how might such limitations influence the competitive
dynamics of the SDR market?
(12) If the Commission were to impose ownership or voting
limitations, how might such limitations address changes in conflicts of
interest resulting from the evolution of the regulated swaps market?
(13) Are there potential ways to more narrowly target voting and
ownership limitations?
(14) Should the Commission require parent companies of SDRs to
comply with the substantive requirements applicable to SDR boards of
directors?
(15) Should the Commission require parent companies' officers,
directors, employees and agents to be subject to Commission authority?
(16) Should the Commission require that the books and records of
SDR parent companies be open to inspection by the Commission?
(c) Substantive Requirements for SDR Boards of Directors (and Certain
SDR Committees)
(i) Expertise
The Commission is proposing a number of substantive requirements
for SDR boards of directors and certain SDR committees to mitigate
existing and potential conflicts of interest. Proposed Sec.
49.20(c)(5) would require that the SDR board of directors, SDR senior
management, and members of any SDR committee that has the authority to
(i) act on behalf of the board of directors or (ii) amend or constrain
the actions thereof, in each case, have (A) sufficiently good
reputations, (B) the requisite skills and expertise to fulfill their
responsibilities in the management and governance of the registered
SDR, (C) a clear understanding of such responsibilities, and (D) the
ability to exercise sound judgment about SDR affairs.
(ii) Other Substantive Requirements
In addition to the expertise requirement, the Commission in
proposed Sec. 49.20(c) proposes the following requirements, which aim
to enhance the accountability of SDR boards of directors to the
Commission, with respect to the manner in which such boards of
directors cause the registered SDRs to discharge all statutory and
regulatory responsibilities\118\ under the Dodd-Frank Act, as it amends
the CEA:
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\118\ See proposed Sec. Sec. 49.16, 49.17 and 49.27.
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The roles and responsibilities of SDR boards of directors
must be clearly articulated, especially in respect of the manner in
which each such board of directors ensures that the registered SDR
complies with all statutory and regulatory responsibilities under the
Dodd-Frank Act, as it amends the CEA.
Each SDR board of directors shall review its performance
and that of its individual members annually. It should consider
periodically using external facilitators for such reviews.
A registered SDR must have procedures to remove a member
from its board of directors, where the conduct of such member is likely
to be prejudicial to the sound and prudent management of the SDR.
Request for Comment. The Commission requests comment on the
questions set forth below.
(1) Are the proposed substantive requirements for board of
directors (and certain SDR committees) necessary or appropriate to
mitigate SDR conflicts of interest, in light of the proposed minimum
standards on (A) transparency, (B) identification and resolution of
conflicts of interest, and (C) access, use, or disclosure of SDR
Information? If not, why not?
(2) How might the proposed substantive requirements influence the
competitive dynamics of the SDR market?
(3) How might the proposed substantive requirements address changes
in conflicts of interest resulting from the evolution of the regulated
swaps market?
(4) What other substantive requirements should the Commission
consider imposing on an SDR board of directors? How might such
requirements affect the competitive dynamics of the SDR market?
(5) Should the Commission focus on ensuring fair representation? If
so, should the Commission view fair representation as complementing or
replacing an independent perspective? What entities should be included
in fair representation? Would the value of fair representation differ
depending on the organizational structure of the SDR (e.g., an at-cost
utility or a for-profit entity)? The Commission particularly welcomes
factual examples.
(6) If the Commission decides to focus on ensuring fair
representation as either an alternative to, or a complement of, an
independent perspective, what changes should the Commission make to the
proposed substantive requirements?
(7) In what ways can a SDR board of directors incorporate an
independent perspective into its decision-making process?
(8) Should the nominations process require the right to petition
for alternative candidates? If so, to whom should such right be granted
(e.g., certain groups of market participants)?
4. Conflicts of Interest (Core Principle 3)
(a) Conflicts of Interest
Based on discussions at the SDR Roundtable, as well as answers to
the SDR Survey, the Commission has identified several potential
conflicts of interest, including but not limited to, discrimination
against certain reporting entities and unfair or anticompetitive
disclosure. A control group may compete with other reporting entities
in the execution or clearing of swap transactions and may have an
incentive to leverage its influence over the registered SDR to gain a
competitive advantage in relation to other reporting entities.
Additionally, because the Dodd-Frank Act requires all swaps (whether
cleared or uncleared) to be reported to a registered SDR,\119\ swap
data\120\ and SDR analyses of SDR
[[Page 80919]]
Information could have great commercial value.\121\ A control group may
have an incentive to (i) limit or burden access to such analyses on a
discriminatory basis or (ii) disclose or use the data of other
reporting entities for its own competitive purposes (e.g., front-
running). The control group may also have an incentive to cause the SDR
to provide such data to an affiliate for derivative applications or
ancillary services (especially if such applications or services are
bundled).
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\119\ See Section 2(a)(13)(G) of the CEA, as amended by Section
727 of the Dodd-Frank Act.
\120\ For example, such data would enable regulatory
authorities, such as the Commission, to ascertain the exposure of
reporting entities and their counterparties to swap transactions.
See generally 7 U.S.C. 24a(c)(7). See also SDR Roundtable Tr., supra
note108, at 55-56 (Comments from Jiro Okochi, CEO and Co-Founder,
Reval, stating ``In terms of the actual data itself, I think one of
the goals of the reform is to allow more transparency and efficiency
in the marketplace * * *'').
\121\ Warehouse Trust Response to the SDR Survey, at p. 4,
available at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/derivative9sub100510-wt.pdf (stating that ``SDR data is
extremely valuable and could be sold either stand alone or enhanced
with other market data and analysis'').
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Request for Comment. The Commission requests comment on the
questions set forth below on potential conflicts of interest.
(1) Has the Proposal correctly identified the conflicts of interest
that a registered SDR may confront? Has the Proposal accurately
specified the possible effects of such conflicts of interest on SDR
operations? What are other possible effects?
(2) What other conflicts of interest may exist? What are the
effects of such conflicts?
(3) How might conflicts of interest change as registered SDRs
become more established?
(4) How might conflicts of interest change as the swaps market
evolves under regulation?
(b) Mitigation of Conflicts of Interest
To mitigate conflicts of interest, the Commission proposes to
mandate, pursuant to proposed Sec. 49.21, that each registered SDR
maintain and enforce rules (i) that would identify, on an ongoing
basis, existing and potential conflicts of interest, and (ii) that
would enable the SDR to make decisions if a conflict exists. Such rules
would complement the abovementioned provisions.
(c) Policies and Procedures to Identify and Mitigate Conflicts of
Interest
To ensure that the mitigation in Core Principle 3 is effected, the
Commission proposes to require each registered SDR to establish,
maintain and enforce rules to identify existing and potential conflicts
of interest in its decision-making process. As discussed above, a
control group can dominate an SDR to further its economic interests to
the detriment of other reporting entities. Therefore, the Commission
believes that it is critical for a registered SDR to establish,
maintain and enforce policies and procedures to mitigate such a
conflict. Moreover, the Commission believes that an SDR should engage
in the identification and mitigation of conflicts of interest on an
ongoing basis since conflicts can arise or change at any time. Further,
the Commission proposes to require such SDR to have rules for making
decisions in the event of a conflict of interest. The Commission
believes such rules should require, at a minimum, the recusal of any
person involved in the conflict from such decision-making. Such recusal
rules will alleviate certain concerns regarding the impartiality of the
SDR decision-making process.
Request for Comment. The Commission requests comment on the
questions set forth below.
(1) Are the requirements described above sufficiently clear? If
not, why not? What would be a better alternative?
(2) Should the Commission prescribe more detailed standards for SDR
rules on identifying conflicts of interest? If so, which standards?
(3) Should the Commission prescribe more detailed standards for SDR
rules on decision-making in the event of a conflict of interest? If so,
which standards?
E. Additional Duties
In addition to the ``core principles'' set forth above in section
D, Section 21(f)(4) of the CEA established a fourth core principle
under which the Commission may prescribe additional duties for SDRs for
the purpose of minimizing conflicts of interest, protecting data,
ensuring compliance and guaranteeing the safety and security of the
SDR. In this regard, pursuant to its authority under Sections 21(f)(4)
and 8a(5) of the CEA the Commission proposes to require four additional
duties that would require an SDR to (i) adopt and implement system
safeguards, including business continuity and disaster recovery plans;
(ii) maintain sufficient financial resources; (iii) furnish to market
participants a disclosure document setting forth the risks and costs
associated with using the services of the SDR; and (iv) provide fair
and open access to the SDR and fees that are equitable and non-
discriminatory. These additional duties are discussed in turn below.
1. System Safeguards
Proposed Sec. 49.24 would require SDRs to (1) establish and
maintain a program of risk oversight to identify and minimize sources
of operational risk through the development of appropriate controls and
procedures and the development of automated systems that are reliable,
secure, and have adequate scalable capacity; (2) establish and maintain
emergency procedures, backup facilities, and a plan for disaster
recovery that allow for the timely recovery and resumption of
operations and the fulfillment of the responsibilities and obligations
of the SDR, i.e., BC-DR Plans; and (3) periodically conduct tests to
verify that backup resources are sufficient to ensure continued
fulfillment of all duties of the SDR established by the CEA or the
Commission's regulations.
The proposed regulation would require an SDR's program of risk
analysis and oversight to address six categories of risk analysis and
oversight, including information security; BC-DR planning and
resources; capacity and performance planning; systems operations;
systems development and quality assurance; and physical security and
environmental controls. It would require each SDR to maintain a BC-DR
plan and have BC-DR resources sufficient to enable recovery and
resumption of its operations and resumption of its ongoing fulfillment
of its duties and obligations as an SDR during the next business day
following any disruption of its operations, either through sufficient
infrastructure and personnel resources of its own or through sufficient
contractual arrangements with other SDRs or disaster recovery service
providers.\122\ The proposed regulation would require each SDR to
notify Commission staff of various security-related events and provide
relevant documents to the Commission; and to conduct regular, periodic,
objective testing and review of its automated systems. It would also
require each SDR, to the extent practicable, to coordinate its BC-DR
plan with SEFs, DCMs, DCOs, SDs, and MSPs who report swap data to the
SDR, as well as initiate coordinated testing of such plans, and to take
into account in its own BC-DR plan, the BC-DR plans of relevant
telecommunications, power, water, and other essential service
providers.
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\122\ See Commission, Notice of Proposed Rulemaking: Business
Continuity and Disaster Recovery, 75 FR 42,633 (July 22, 2010);
Interagency Paper on Sound Practices to Strengthen the Resilience of
the U.S. Financial System issued by the Board of Governors of the
Federal Reserve System, the Department of the Treasury and the SEC,
68 FR 17,809 (Apr. 11, 2003); SEC, Policy Statement Relating to
Business Continuity Planning for Trading Markets, Exchange Act
Release No. 48,545 (Sept. 25, 2003), 68 FR 56,656 (Oct. 1, 2003).
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Because automated systems play a central and critical role in
today's financial markets, oversight of these systems will be an
essential part of the effective regulatory oversight of swaps.
[[Page 80920]]
Prompt and adequate notice to the Commission concerning systems
malfunctions, systems security incidents, or any events leading to the
activation of an SDR's BC-DR plan will assist the Commission's
oversight and its ability to assess systemic risk levels. Additionally
and because SDRs will hold data needed by financial regulators from
multiple jurisdictions, safeguarding such systems will be essential to
mitigation of systemic risk world-wide. The ability of SDRs to recover
and resume operations promptly in the event of a disruption of their
operations will be highly important to the U.S. and world economy. It
would present unacceptable risks to the U.S. and world financial system
if SDRs that hold data concerning swaps and thus comprise critical
components of the world financial system were to become unavailable for
an extended period of time for any reason. Adequate system safeguards
are crucial to mitigation of such risks.
Request for Comment. The Commission requests comment on whether the
time periods specified in proposed Sec. 49.24 with respect to
submission of annual reviews and written notices of material system
outages and material systems changes the correct time periods to use?
Should any of the proposed time periods be shortened or lengthened? If
so, please explain your reasoning.
2. Financial Resources
Proposed Sec. 49.25 would require an SDR to maintain financial
resources sufficient to enable it to perform its functions in
compliance with the duties set forth in proposed Sec. 49.9 and the
core principles set forth in proposed Sec. 49.19.\123\ The Commission
believes that requiring SDRs to maintain sufficient financial resources
will help to ensure the protection of the swap data maintained by the
SDR as well as the safety and security of the SDR.
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\123\ An entity that operates as both a SDR and DCO would also
be required to comply with the financial resource requirements of
Core Principle B set forth in Section 5b(c)(2)(B) of the CEA, 7
U.S.C. 7a-1(c)(2)(B).
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Proposed Sec. 49.25 (a)(3) provides that financial resources \124\
will be considered sufficient for an SDR if their value is at least
equal to the total amount that would enable the SDR, or applicant for
SDR registration, to cover its operating costs for a period of at least
one year, calculated on a rolling basis. The types of financial
resources to meet this obligation would include the SDR's own capital
and any other financial resource acceptable to the Commission. The
financial resources required in proposed Sec. 49.25 must be the
independent or dedicated resources of the SDR and may not be resources
used for other purposes or by affiliated entities, i.e., the same
assets or capital may not be used for multiple purposes.
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\124\ The financial resources allocated by the swap data
repository to meet these requirements must include unencumbered,
liquid financial assets (i.e., cash and/or highly liquid securities)
equal to at least six months' operating costs. If any portion of
such financial resources is not sufficiently liquid, the SDR may
take into account a committed line of credit or similar facility for
the purpose of meeting this requirement.
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Proposed Sec. 49.25(c) provides that SDRs, in computing its
financial resource requirement, may make a reasonable calculation of
its projected operating costs over a 12-month period.\125\ This would
be performed on a quarterly basis. Financial resources of a SDR would
also be valued under proposed Sec. 49.25(d) on at least a quarterly
basis.
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\125\ The SDR shall have reasonable discretion in determining
the methodology used to compute such projected operating costs. The
Commission may review the methodology and require changes as
appropriate.
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Proposed Sec. 49.25(f) sets forth the reporting requirements to
the Commission. Specifically, no later than 17 business days after the
close of each fiscal quarter or at any time upon Commission request, a
SDR is required to report the amount of financial resources required by
proposed Sec. 49.25(a) together with financial statements, including
the balance sheet, income statement, and statement of cash flows of the
SDR or of its parent company.
Request for Comment. The Commission requests comment on whether the
methodology set forth above for determining sufficient financial
resources would provide the necessary resources to ensure the financial
integrity of the SDR. If not, please provide a different methodology or
manner for calculating sufficient SDR financial resources.
3. Disclosure Requirements of Swap Data Repositories
Proposed Sec. 49.26 would require an SDR furnish to market
participants a disclosure document (``SDR Disclosure Document'')
setting forth the risks and costs associated with using the services of
the SDR. The Commission believes that this requirement will benefit
market participants and the swap market generally by helping to (i)
minimize conflicts of interest and (ii) ensure SDR compliance with its
statutory responsibilities and duties.
The Commission in proposed Sec. 49.26 would require that each SDR
Disclosure Document contain the following information:
The SDR's criteria for providing others with access to
services offered and data maintained by the SDR;
The SDR's criteria for those seeking to connect to or link
with the SDR;
A description of the SDR's policies and procedures
regarding its safeguarding of data and operational reliability, as
described in proposed Sec. 49.24;
The SDR's policies and procedures designed to protect the
privacy and confidentiality of any and all swap transaction information
that the SDR receives from market participants, as described in
proposed Sec. 49.16;
The SDR's policies and procedures regarding its non-
commercial and/or commercial use of the swap data;
The SDR's dispute resolution procedures involving market
participant;
A description of all the SDR's services, including any
ancillary services;
The SDR's updated schedule of any fees, rates, dues,
unbundled prices, or other charges for all of its services, including
any ancillary services; any discounts or rebates offered; and the
criteria to benefit from such discounts or rebates; and
A description of the SDR's governance arrangements.
Request for Comment. The Commission requests comment on the
following questions:
(1) How should the SDR Disclosure Document be furnished to market
participants? Would public availability on a SDR's Web site be
sufficient? Any other available alternatives?
(2) How useful would the SDR Disclosure Document be for market
participants?
4. Non-Discriminatory Access and Fees
Proposed Sec. 49.27 is intended to establish non-discriminatory
access to the services provided by SDRs because all swap transactions
must be reported to a SDR pursuant to Section 2(a)(13)(G) of the CEA.
The Commission believes that the intent and purpose of Section 21 of
the CEA is for SDRs to provide open and equal access to its services.
Consistent with open and equal access to SDR services, the Commission
further believes that fees or charges adopted by an SDR must be
equitable and otherwise non-discriminatory.
(a) Access. Proposed Sec. 49.27(a) would require that the services
provided by SDRs be available to all market participants, such as DCMs,
SEFs, DCOs, SDs, MSPs and any other counterparty, on a fair, open and
equal
[[Page 80921]]
basis. SDRs that register and agree to accept swap data in a particular
asset class (such as interest rates or commodities) could not offer
their services on a discriminatory basis to select market participants
or select categories of market participants. The Commission believes,
pursuant to Section 21 of the CEA, that access should be fair, open and
equitable. As a component of fair, open and equal access, the
Commission submits that SDRs must ensure that they have the necessary
operational capability to provide services to market participants that
would seek access for the reporting of swap transactions consistent
with Section 21 of the CEA.
(b) Fees. Proposed Sec. 49.27(b) would ensure that fees or other
charges established by a SDR are not used as a means to deny access to
some market participants by employing disparate and/or discriminatory
pricing. The Commission is especially concerned that SDRs could attempt
to adopt disparate pricing for performing their statutory duties and
obligations set forth in Section 21 of the CEA. The Commission believes
that such action would be inconsistent with Core Principle 3 discussed
above, the CEA generally and the guiding principles set forth in the
Dodd-Frank Act.
The Commission recognizes that the ability to receive swap data in
the form and manner proposed by part 45 of the Commission's regulations
and the ongoing maintenance of such data may involve significant costs,
including, but not limited to, technology, personnel, technical support
and appropriate BC-DR plans. The Commission in this proposed Sec.
49.27(b) seeks to ensure that the fees charged to DCMs, DCOs, SEFs,
SDs, MSPs, and any other counterparties are equitable and do not become
an artificial barrier to access, thereby potentially reducing
competition for SDR services.
The Commission submits that an equitable fee would be a uniform and
non-discriminatory set of fees for both ``core'' regulatory services
provided by the SDR as well as any ``ancillary'' or ``supplemental''
services such as life-cycle analysis, confirmation, compression,
dispute resolution, and mark-to-market valuation.
Any preferential pricing such as volume discounts or reductions
would not be generally viewed as equitable by the Commission. Proposed
Sec. 49.27(b) provides that SDRs shall not offer preferential pricing
arrangements to any market participant, including volume discounts or
reductions unless such discounts or reductions apply to all market
participants uniformly and are not otherwise established in a manner
that would effectively limit the application of such discount or
reduction to a select number of market participants. Proposed Sec.
49.27 also would require SDRs to provide fee transparency to market
participants. At a minimum, the proposed Sec. 49.27 would require SDRs
to set forth on its Web site a schedule of fees and charges as well as
in the Disclosure Document discussed above in proposed Sec. 49.26.
In addition, part 43 of the Commission's proposed regulations
relating to real-time reporting would prohibit a registered SDR from
offering a discount based on the volume of swap transaction and pricing
data reported to the registered SDR for public dissemination, unless
such discount is offered to all reporting parties and swap
markets.\126\
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\126\ See proposed Sec. 43.3(i), supra note 39.
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Request for Comment. The Commission requests comment on the
questions set forth below on fees:
(1) Are there circumstances in which it would be fair or reasonable
for an SDR to charge a counterparty to a swap a fee to satisfy itself
that the swap data submitted to the SDR by the other counterparty to
the swap is accurate?
(2) In what instances would an SDR differentiate among its users
with respect to fees, dues, other charges, discounts, and rebates?
Should any of those instances be explicitly prohibited or restricted?
(3) Are there any other requirements that the Commission should
impose on an SDR that would promote competition?
F. Real Time Reporting
Proposed Sec. 49.15 details SDRs' ability to accept and publicly
disseminate swap transaction and pricing data for public reporting of
swap transactions executed on a DCM as well as those executed off-
exchange.\127\ The Dodd-Frank Act's real-time public reporting
requirements and the text of proposed Sec. 49.15 are summarized below.
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\127\ As explained below, proposed Sec. 49.15 applies to off-
facility swap transactions. See proposed Sec. 49.15.
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Section 727 of the Dodd-Frank Act establishes certain public
reporting requirements for all swap transactions and participants, and
identifies the purpose of such public reporting as ``to make swap
transaction and pricing data available to the public in such form and
at such times as the Commission determines appropriate to enhance price
discovery.'' \128\ Section 2(a)(13)(B) establishes the reporting
requirements pursuant to which the Commission is authorized to
promulgate regulations mandating the public availability of swap
transaction and pricing data in ``real-time.'' \129\ By its terms,
Section 2(a)(13)(A) of the CEA defines real-time public reporting to
mean ``as soon as technologically practicable after the time at which
the swap transaction has been executed.'' Section 2(a)(13)(D) of the
CEA permits the Commission to require registered entities to publicly
disseminate swap transaction and pricing data.
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\128\ Section 2(a)(13)(A) of the CEA, 7 U.S.C. 2(a)(13)(A).
\129\ See Section 2(a)(13)(C) of the CEA, 7 U.S.C. 2(a)(13)(C)
(authorizing and requiring the Commission to provide, by rule, for
the real-time public availability of swap transaction and pricing
data for four types of swap transactions: (1) Swaps that are subject
to the mandatory clearing requirement, including those swaps that
may qualify for an exemption; (2) swaps that are not subject to the
mandatory clearing requirement but are cleared at a registered
derivatives clearing organization; (3) bilateral swap transactions
between two counterparties that are reported to a registered swap
data repository or the Commission in accordance with Section 2(h)(6)
of the Act; and (4) swaps that are determined to be required to be
cleared but are not cleared.). Pursuant to section 2(a)(13)(F)
parties to a swap are required to report to a registered entity in a
timely manner as prescribed by the Commission. Timeliness standards
are prescribed in part 43. See supra note 39.
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To implement Section 2(a)(13) of the CEA, the Commission is
proposing a real-time public reporting framework for swap transaction
and pricing data in a new part 43 of the Commission's regulations that
is subject to a separate rulemaking.\130\ Proposed Section 43.2(v)
defines ``reportable swap transaction'' to mean any executed swap,
novation, swap unwind, partial novation, partial swap unwind or such
other post-execution events that affect the price of the swap. A
reportable swap transaction includes not only the execution of a swap
contract, but also certain price-affecting events that occur over the
``life'' of a swap. The proposed regulations in part 43 require
registered SDRs to publicly disseminate ``off-facility'' swap data and
allows SDRs to choose to disseminate publicly for swaps executed on a
swap market. The proposed regulations in part 43 organize swap
transactions into a number of distinct categories for purposes of real-
time public reporting, including (1) swap transactions executed on a
``swap market'' as defined in proposed Sec. 43.2(z) \131\, and (2)
``off-facility'' swaps as defined in proposed Sec. 43.2(p).\132\
[[Page 80922]]
Proposed Sec. 49.15 applies to off-facility swap transactions and to
all swap transactions executed on a SEF or DCM that fulfill their
public dissemination requirement \133\ by reporting to a registered
SDR.
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\130\ See supra note 39.
\131\ Proposed Sec. 43.2(z) defines ``swap market'' as ``any
registered swap execution facility or registered designated contract
market that makes swaps available for trading.'' See supra note 39.
\132\ Proposed Sec. 43.2(p) defines ``off-facility'' swaps as
``any reportable swap transaction that is not executed on or subject
to the rules of a swap market.'' See supra note 39.
\133\ The proposed part 43 Regulations will provide that a swap
market may fulfill its public dissemination requirement by either
(i) sending the required data to a registered SDR that accepts and
publicly disseminates such data; or (ii) by utilizing a third-party
service provider to perform this function. See supra note 39.
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Under proposed part 43, registered SDRs that disseminate swap
transaction and pricing data to the public in real-time, must make the
data available and accessible in an electronic format that is capable
of being downloaded, saved and/or analyzed.\134\ Proposed Sec. 43.3(i)
requires registered SDRs who disseminate publicly to retain all data
related to a reportable swap transaction (including large notional
swaps and block trades) for a period of not less than five years
following the time at which such reportable swap transaction is
publicly disseminated.
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\134\ The Commission is proposing this provision to address the
concern that a registered SDR may flash real-time swap transaction
and pricing data to selected market participants before making such
information available to the public and all market participants.
Requiring registered SDRs to allow market participants and the
public to download, save and/or analyze the real-time swap
transaction and pricing data upon public dissemination, ensures
equal access to real-time swap transaction and pricing data. See
proposed Sec. 43.3(e), supra note 39.
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Proposed part 43 of the Commission's Regulations also reflects the
Commission's belief in the economic utility of real-time swap data that
is promptly reported to the public. Accordingly, proposed Sec. 43.3(a)
proposes specific timeliness standards that must to be met for each
subcategory of swap transaction.
As noted above, proposed Sec. 49.15 applies to off-facility swap
transactions and all transactions executed on a SEF or DCM that fulfill
their public dissemination requirement by reporting to a registered SDR
that has undertaken to accept and publicly disseminate swap transaction
and pricing data in real time. For these transactions, the proposed
regulations in part 43 will require that one party to the swap
transaction report specified real-time data to such a registered SDR,
which, in turn, will be required to disseminate such data to the
public.\135\ In coordination with proposed part 43, proposed Sec.
49.15(b) requires SDRs to ``establish such electronic systems as are
necessary to receive real-time swap transaction data,'' and specifies
that such systems must be capable of publicly disseminating all data
fields specified by the Commission in proposed part 43.
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\135\ The Commission notes that proposed Sec. 43.3(b) also
provides for an alternative method of reporting by using a third-
party service provide for public dissemination. Reporting entities
electing to satisfy their real-time reporting requirements through a
third-party service provider would not need to report through an
SDR. See supra note 39.
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Proposed Sec. 49.15(c) requires SDRs who disseminate swap
transaction and pricing data in real time to promptly notify the
Commission when real-time swap data is not timely reported. This
proposed regulation also specifies the information that must be
included in any notification to the Commission of untimely reporting.
The notification must include all of the real-time swap data submitted;
identify the party to the swap that submitted the real-time swap data;
and contain the date and time the real-time swap transaction data was
received by the SDR. The Commission will take appropriate regulatory
action against the delinquent reporting party based on these
notifications.
Request for Comment. The Commission request comment on the
following questions relating to real-time reporting of swap
transactions.
(1) Should any party that receives swaps data pursuant to proposed
part 43 of the Commission's Regulations for the purpose of performing a
real-time reporting function be required to register as a swap data
repository?
(2) Should additional regulatory conditions and requirements apply
to a party receiving swaps data pursuant to proposed part 43 of the
Commission's Regulations for the purpose of performing a real-time
reporting function if such a party is not required to register as a
swap data repository?
G. Procedures for Implementing Swap Data Repository Rules
Proposed Sec. 49.8 is largely intended to conform to the proposed
changes to existing Sec. 40.5(b) (Voluntary submission of rules for
Commission review and approval).\136\ The proposed amendments to Sec.
40.5(b) are set forth in a separate rulemaking pertaining to
``Provisions Common to Registered Entities.'' \137\
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\136\ Proposed Sec. 40.3 is amended to require additional
information to be provided by registered entities submitting new
products for the Commission's review and approval. Proposed Sec.
40.5(b) codifies a new standard for the review of new rules or rule
amendments as established under the Dodd-Frank Act. See supra note
18.
\137\ Id.
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1. Request for Approval
Proposed Sec. 49.8 provides that an applicant for registration as
a SDR may request that the Commission approve under Section 5c(c) of
the CEA, any or all of its rules and subsequent amendments, prior to
implementation or, notwithstanding the provisions of Section 5c(c)(2)
of the CEA, at anytime thereafter, under the procedures set forth in
Sec. 40.5 of the Commission's Regulations. SDRs that submit operating
rules to the Commission for approval at the same time as an application
for registration pursuant to proposed Sec. 49.3 on Form SDR to
reinstate the registration of a dormant registered SDR, as defined in
Sec. 40.1, or while one of the foregoing is pending, will be deemed
approved by the Commission no earlier than when the swap data
repository is deemed to be registered or reinstated.
2. Self-certification of Rules
Rules of a registered swap data repository not voluntarily
submitted for prior Commission approval as described above must be
submitted to the Commission with a certification that the rule or rule
amendment complies with the CEA and Commission Regulations pursuant to
the procedures set forth in Sec. 40.6.
III. Effectiveness and Transition Period
The statutory deadline for final rules is July 15, 2011. Final
rules will become effective sixty (60) days after the Federal Register
publication of the final rules. The Commission expects all SDR
applicants to fully comply with the final rules. The Commission
requests comment on the nature and length of implementation and phase-
in periods that would be appropriate to allow potential SDRs and market
participants time to adapt to the new swaps regulatory structure and
implement the Proposal in an efficient and orderly manner.
Request for Comment. The Commission requests comment on the
questions set forth below.
(1) Is a phase-in period appropriate (especially for existing trade
repositories that may seek SDR registration)? If so, how long should
such phase-in period be?
(2) Conversely, should all applicants for SDR registration have to
demonstrate compliance with the final rules to receive registration?
Why or why not?
IV. General Request For Comments
In addition to any specific request for comment included above, the
Commission generally requests comment on all aspects of the Proposal.
Interested persons are invited to submit written presentations of
views, data, and arguments concerning the Proposal.
[[Page 80923]]
V. Related Matters
A. Paperwork Reduction Act
Provisions of proposed part 49 would result in new ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\138\ An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid Office of Management
and Budget (OMB) control number. The Commission therefore is submitting
this proposal to OMB for review in accordance with 44 U.S.C. 3507(d)
and 5 CFR 1320.11. The title for this collection of information is
``Part 49--Swap data repositories; registration and regulatory
requirements,'' OMB control number 3038-NEW. If adopted, responses to
this new collection of information would be mandatory.
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\138\ 44 U.S.C. 3501 et seq.
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The Commission will protect proprietary information according to
the Freedom of Information Act and 17 CFR part 145, ``Commission
Records and Information.'' In addition, Section 8(a)(1) of the Act
strictly prohibits the Commission, unless specifically authorized by
the Act, from making public ``data and information that would
separately disclose the business transactions or market positions of
any person and trade secrets or names of customers.'' The Commission
also is required to protect certain information contained in a
government system of records pursuant to the Privacy Act of 1974, 5
U.S.C. 552a.
1. Summary of the Proposed Requirements
The proposed regulations would establish a new registered entity
called a swap data repository (``SDR''), which would gather swap data
and make such data available to the Commission and other regulators.
The Commission believes there will be approximately 15 entities seeking
registration as SDRs.
2. Information Provided by Reporting Entities
As noted above, proposed part 49 will impose multiple new
collections of information requirements within the meaning of the PRA.
First, proposed part 49 would impose a registration requirement on all
SDRs. This registration requirement is composed of a one-time initial
registration as well as amendments to registration documents previously
submitted to the Commission by an SDR. Second, proposed part 49 imposes
a reporting requirement on registered SDRs. As part of this reporting
requirement, SDRs are required to provide access to the swap data it
holds to either the Commission or one of the Commission's designees.
Additionally, an annual compliance report must be submitted by an SDR's
CCO. Third, proposed part 49 imposes a recordkeeping requirement for
registered SDRs whereby a registered SDR is required to maintain
records of all swap transaction data for a period of at least five
years after a swap expires and must maintain a written copy of written
policies and procedures, including the code of ethics and conflicts of
interest policies in furtherance of compliance with the Act and
Commission regulations and any records relevant to the annual
compliance report. Lastly, proposed part 49 imposes a disclosure
requirement whereby registered SDRs must provide written disclosures
before accepting any swap data from a reporting entity or upon a
reporting entity's request.
Registration Requirement. Under proposed Sec. 49.3, SDRs would be
required to demonstrate compliance with specified registration
requirements on Form SDR. The proposed collection for this one-time
initial registration is estimated to involve 400 burden hours per SDR.
The Commission bases this estimate on consultation with other
regulators involving similar collections.\139\ As noted above, the
Commission believes 15 entities will be subject to this burden.
Accordingly, the Commission estimates that the one-time initial
registration burden for all SDRs will be approximately 6,000 annual
burden hours.
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\139\ The Securities and Exchange Commission (``SEC'')
calculated in 2008 that Form SIP takes 400 hours to complete.
Submission for OMB Review; Comment Request, 73 FR 34060 (June 16,
2008) (outlining the most recent SEC calculations regarding the PRA
burdens for Form SIP). While the requirements of Form SIP and Form
SDR are not identical, the Commission believes that there is
sufficient similarity for PRA purposes that the burden would be
roughly equivalent.
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Additionally, under proposed Sec. 49.3, registered SDRs must amend
Form SDR annually (i.e., within 60 days after the end of each calendar
year of such SDR) as well as when certain information specified on the
Form SDR becomes inaccurate.\140\ The Commission estimates that the
hourly burden for complying with each amendment requirement will be 15
burden hours per amendment for each SDR. The Commission estimates that
respondents will be required to file, on average, including the
mandatory annual amendment, three amendments per year, for an ongoing
annualized burden of approximately 45 hours per SDR and approximately
675 burden hours for all SDRs.
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\140\ An amendment to Form SDR may occur pending SDR
registration.
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In addition to amending Form SDR, the following filing requirements
may be imposed on an SDR in the following circumstances.\141\ Under
proposed Sec. 49.3, a SDR may withdraw its registration application by
filing an electronic request with the Secretary of the Commission at
the Commission's Washington, DC office. In the event an SDR is
registered and seeks to withdraw from registration, proposed Sec. 49.4
would require such SDR to give notice to the Commission, in writing,
requesting that its registration as an SDR be withdrawn. Such notice
must be made at least 90 days prior to the date named therein as the
date when the withdrawal of registration shall take effect. The
Commission estimates the burden hours associated with these filings,
which are in addition to and separate from the requirement to amend
Form SDR, to be 10 hours per filing. Additionally, the Commission
estimates that such filings will occur once over a period of two years
for all registered SDRs. Therefore, the average burden hours annualized
for all SDRs are expected to be 5 burden hours.
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\141\ Prior to filing a notice to withdraw or vacate an
application to register or filing for withdrawal of registration
status, an SDR shall file an amended Form SDR to update any
inaccurate information on the registration form (such burden hours
associated with amendments to Form SDR are calculated above).
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If an SDR is located outside of the United States and is seeking to
register, proposed Sec. 49.7 requires such SDR to, in addition to
filing a Form SDR, provide the Commission with an opinion of counsel
that the SDR, as a matter of law, is able to provide the Commission
with prompt access to the book and records of such SDR and that the SDR
can submit to onsite inspection and examination by the Commission. The
Commission estimates that the hourly burden for complying with each
opinion of counsel will be 20 burden hours per opinion for each SDR.
The Commission estimates that five SDRs will be located outside the
United States and therefore the aggregate burden hours associated with
this requirement is estimated to be 100 annual burden hours for those
SDRs.
Therefore, the total number of annual burden hours estimated to be
required by the proposed regulations for purposes of registration is
6,000 hours initially (Form SDR) \142\ and 680 hours
[[Page 80924]]
on an ongoing basis for any additional filings.
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\142\ The initial burden hours imposed will increase for SDRs
located outside the United States.
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Reporting Requirements. Under proposed Sec. 49.22, chief
compliance officers (``CCOs'') of registered SDRs would be required to
submit an annual compliance report that contains a description of the
SDR's written policies and procedures, including those related to the
code of ethics, conflicts of interest, and compliance with Section
21(c) core principles. If any material error is discovered in the
annual compliance report, the CCO must promptly file an amendment with
the Commission to correct such material error or omission. An amendment
shall contain the oath or certification required by proposed Sec.
49.22(e)(7) that, to the best of the CCO's knowledge and reasonable
belief, and under penalty of law, the annual compliance report is
accurate and complete. Based on the Commission's discussions with
industry and other regulators, the Commission estimates that these
reports (and any amendments which may be necessary) are estimated to
involve an average of 5 annual burden hours per respondent per year,
for an aggregate of 75 aggregate annual burden hours.
A CCO would also be responsible under proposed Sec. 49.22 for,
among other things, establishing procedures for the remediation of
noncompliance issues, and establishing and following appropriate
procedures for the handling, management response, remediation,
retesting, and closing of noncompliance issues. The Commission
estimates that these two requirements will require 520 hours to create
and 120 hours to administer per year per respondent, for a total burden
of 7800 hours initially and 1800 hours on average, annually.
Under proposed Sec. 49.10, SDRs would be required to establish,
maintain, and enforce policies and procedures for the reporting of swap
data of the SDR and shall accept and promptly record all swap data in
its selected asset class and other regulatory information that is
required to be reported pursuant to part 45. Once such swap data is
accepted, proposed Sec. 49.17 would require an SDR to provide direct
electronic access to the Commission or its designees and, pursuant to
proposed Sec. 49.17(d), make such data available to other parties,
including other regulators (i.e., Appropriate Domestic Regulators and
Appropriate Foreign Regulators). In the event an Appropriate Domestic
Regulator or Appropriate Foreign Regulator files a request to gain
access to the swaps data maintained by an SDR, proposed Sec. 49.17
provides that the registered SDR must notify the Commission
electronically and in a format specified by the Secretary of the
Commission. Under proposed Sec. 49.16, SDRs would be required to
develop written policies and procedures to protect the confidentiality
of data, and, under proposed Sec. 49.11, ensure that submitted data is
accurate. Prior to an Appropriate Domestic Regulator or Appropriate
Foreign Regulator receiving the data, proposed Sec. 49.17 requires
that a ``Confidentiality and Indemnification Agreement'' between the
Appropriate Domestic Regulator or Appropriate Foreign Regulator and the
registered SDR be executed. Proposed Sec. Sec. 49.23 and 49.24 specify
the reporting requirements for a registered SDR's emergency policies
and procedures and system safeguards. Proposed Sec. 49.23 would
require registered SDRs to establish procedures for the exercise of
emergency authority in the event of an emergency. A registered SDR
policies and procedures shall include provisions to notify the
Commission as soon as reasonably practicable of any exercise of
emergency authority. When notifying the Commission of any exercise of
emergency authority, a SDR shall explain the reasons for taking such
emergency action, explain how conflicts of interest were minimized, and
document the decision-making process. Underlying documentation shall be
made available to the Commission upon request. Proposed Sec. 49.24
provides that a registered SDR must maintain a BC-DR plan which can be
invoked in the case of an emergency. A registered SDR shall provide to
the Commission, upon request, current copies of its BC-DR plan and
other emergency procedures, its assessments of its operational risk and
other documents requested by Commission staff for purpose of
maintaining a current profile of the SDR's automated systems. Proposed
Sec. 49.24 also requires a registered SDR to notify the Commission
staff of: (1) All system malfunction; (2) cyber security incidents or
targeted threats that actually or potentially jeopardize automated
system operation, reliability, security, or capacity; and (3) any
activation of the SDR's BD-DR plan. Additionally, an SDR shall give the
Commission staff timely notice of all (1) planned changes to automated
systems that may impact the reliability, security, or adequate scalable
capacity of such systems; and (2) planned changes to the SDR's program
of risk analysis and oversight. The Commission estimates that the
start-up burden associated with the reporting requirements in this
paragraph will be 40,000 hours per respondent for a total of 600,000
aggregate burden hours for all respondents. The Commission further
estimates that the total ongoing annual burden of these systems to be
15,000 hours per respondent for a total of 225,000 aggregate burden
hours for all respondents.
Proposed Sec. 49.25 would require a registered SDR to report to
the Commission (and provide sufficient documentation to substantiate
the calculations made therein) the amount of financial resources
available to the SDR to meet the requirements set forth in proposed
Sec. 49.25, the value of each financial resource available, and
provide a financial statement, including the balance sheet, income
statement, and statement of cash flows of the registered SDR. In
addition to providing documentation of the methodology used to compute
its financial requirement, a registered SDR must also provide copies of
any agreement establishing or amending a credit facility, insurance
coverage, or other arrangement evidencing or otherwise supporting the
SDR's conclusions. The Commission estimates the financial statement
will result in 200 annual burden hours per SDR for 3000 aggregate
annual burden hours.
Recordkeeping Requirement. Under proposed Sec. 49.12, registered
SDRs, which are estimated to be approximately 15 entities, would be
required to maintain the swap transaction data it receives for a period
of not less than five (5) years after the applicable swap expires,
during which time the records must be readily available by the SDR and
available to the Commission via real-time electronic access.
Thereafter, the swap data must be archived and retrievable by the SDR
within 3 business days. In addition to requiring SDRs to maintain
records of swap transaction and pricing data, the proposed Regulations
impose an additional recordkeeping requirement on SDRs whereby they
must maintain: (a) A copy of written policies and procedures, including
the code of ethics and conflicts of interest policies in furtherance of
compliance with the Act and Commission regulations, and (b) any records
relevant to the annual compliance report. These proposed recordkeeping
obligations are estimated to involve, initially, 300 burden hours, for
an aggregate of 4500 annual burden hours. The Commission further
estimates that the ongoing annual burden would be 254 hours per
respondent for a total ongoing annual burden of 3810 hours.
Disclosure Requirements. Proposed Sec. 49.26 provides that before
accepting any swap data from a reporting entity or upon a reporting
entity's request, a
[[Page 80925]]
registered SDR shall furnish to the reporting entity a disclosure
document. This disclosure document must contain written information
which reasonably enables the reporting entity to identify and
accurately evaluate the risks and costs associated with using the
services of the SDR. The proposed disclosure obligation is estimated to
involve a one-time initial burden of 100 hours per respondent (i.e.,
preparation of template disclosure document), for a total initial
burden of 1,500 hours. The Commission expects this requirement will
result in an ongoing annual burden of one hour per respondent, for a
total annual burden of 15 hours for all registered SDRs.
3. Information Collection Comments
The Commission invites the public and other Federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
solicits comments in order to: (i) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (ii) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information; (iii)
determine whether there are ways to enhance the quality, utility, and
clarity of the information to be collected; and (iv) minimize the
burden of the collection of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
Comments may be submitted directly to the OMB's Office of
Information and Regulatory Affairs, by fax at (202) 395-6566 or by e-
mail at [email protected]. Please provide the Commission with
a copy of submitted comments so that all comments can be summarized and
addressed in the final rule preamble. Refer to the Addresses section of
this notice of proposed rulemaking for comment submission instructions
to the Commission. A copy of the supporting statements for the
collections of information discussed above may be obtained by visiting
RegInfo.gov. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this release in the Federal Register. Consequently, a comment to OMB is
most assured of being fully effective if received by OMB (and the
Commission) within 30 days after publication of this notice of proposed
rulemaking. Nothing in the foregoing affects the deadline enumerated
above for public comment to the Commission on the proposed rules.
B. Cost-Benefit Analysis
Section 15(a) of the CEA \143\ requires that the Commission, before
promulgating a regulation or issuing an order, to consider the costs
and benefits of its action. By its terms, Section 15(a) of the CEA does
not require the Commission to quantify the costs and benefits of a new
regulation or to determine whether the benefits of the regulation
outweigh its costs. Rather, Section 15(a) of the CEA simply requires
the Commission to ``consider the costs and benefits'' of its action.
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\143\ 7 U.S.C. 19(a).
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Section 15(a) of the CEA further specifies that costs and benefits
shall be evaluated in light of the following considerations: (1)
Protection of market participants and the public; (2) efficiency and
competition; (3) financial integrity of the futures markets and price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. Accordingly, the Commission could, in its
discretion, give greater weight to any one of the five considerations
and could determine that, notwithstanding its costs, a particular
regulation was necessary or appropriate to protect the public interest
or to effectuate any of the provisions or to accomplish any of the
purposes of the Act.
1. Costs
The Commission has determined that if the proposed regulations are
not enacted, there will be a continued lack of transparency in the
swaps market for both market participants and regulators. Increased
costs to market participants will result from inefficiencies in the
market related to price discovery and risk management and the inability
of regulators to monitor systemic risk. This will ultimately result in
greater market risk for all market participants and greater systemic
risk for the larger economy.
2. Benefits
The Commission has determined that the proposed regulations would
benefit market participants and the public by improving governance
arrangements to prevent conflicts of interests that if not addressed,
would serve the interests of one group of constituents over other
groups, including market participants and the public. Additionally, the
proposed regulations will improve efficiency and competition by
identifying and mitigating conflicts of interests, which will lead to
improved efficiency in decision-making on the one hand, and benefit
competition by increasing open access to markets, on the other hand.
The proposed regulations will also spur competition in the data and
trade repository industry by setting forth clear registration
guidelines and requirements for becoming SDRs and requiring more
transparency and access for existing repositories. Enhanced
transparency in the markets will also facilitate price discovery, which
will decrease risk and, in turn, increase financial integrity. The
increased transparency resulting from the proposed rules will lead to
improved risk management practices, and the new governance arrangements
more effectively balance different interests so that the risks
presented by a ``control group'' or other interests will not dominate
decision-making in the organization. Lastly, the proposed rules will
give the Commission and other federal regulators access to data
accepted by registered SDRs. Such access will promote greater risk
management and give regulators a better measure of systematic risk
throughout the financial markets. The proposed rules, for the reasons
cited above, operate in the best interests of the public.
3. Public Comment
The Commission invites public comment on its cost-benefit
considerations. Commenters are also invited to submit any data or other
information that they may have quantifying or qualifying the costs and
benefits of this proposal with their comment letters.
C. Antitrust Considerations
Section 15(b) of the Act requires ``[t]he Commission [to] take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of this Act, as well as the policies and purposes of this
Act, in issuing any order or adopting any Commission rule or regulation
* * *'' \144\
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\144\ 7 U.S.C. 19.
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The Commission does not anticipate that these proposed regulations
will result in anticompetitive behavior. However, because these
proposed regulations are creating a new registered entity for a new
market (i.e., swaps market), the Commission encourages comments from
the public on this regulation's potential anticompetitive nature.
[[Page 80926]]
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \145\ requires that
agencies consider whether the regulations they propose will have a
significant economic impact on a substantial number of small entities
and, if so, provide a regulatory flexibility analysis respecting the
impact.\146\ The proposed Regulations by the Commission will affect
only SDRs, which will comprise a new category of registered entity.
Accordingly, the Commission has not previously addressed the question
of whether SDRs are, in fact, small entities for purposes of the RFA.
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\145\ 5 U.S.C. 601 et seq.
\146\ 5 U.S.C. 601 et seq.
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The Commission has previously established certain definitions of
``small entities'' to be used in evaluating the impact of its rules
under the RFA.\147\ The Commission previously determined that
derivatives clearing organizations (``DCOs'') are not small entities
because they clear contracts executed on contract markets such as
designated contract markets (``DCMs''). The Commission's decision was
based in part on its previous determination that DCMs are not small
entities because of ``the central role'' they play in ``the regulatory
scheme concerning futures trading.'' \148\ Because of the ``importance
of futures trading in the national economy,'' to register as a DCM, a
board of trade has to meet stringent requirements set forth in Section
5 of the Act, 7 U.S.C. 7.\149\ DCOs are subject to similar stringent
requirements, including substantial financial resource requirements,
set forth in Section 5b of the Act, 7 U.S.C. 7a-1.
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\147\ Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18,618 (Apr. 30, 1982).
\148\ Id.
\149\ Id. at note 3.
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The Dodd-Frank Act defines a SDR as any person that collects and
maintains information or records with respect to transactions or
positions in, or the terms and conditions of, swaps entered into by
third parties for the purpose of providing a centralized recordkeeping
facility for swaps. Similar to DCOs and DCMs, SDRs will play a central
role both in the regulatory scheme for swaps trading and in the overall
market for swap transactions. Additionally, the amount and complexity
of swap transaction data expected to be reported, maintained and
disseminated by SDRs is expected to require significant financial
resources to build the systems necessary to comply with the statutory
mandates set forth in the Dodd-Frank Act. SDRs will receive data from
DCOs and DCMs, amongst others. Additionally, SDRs will be required to
maintain certain minimum financial resources to perform its statutory
duties set forth in proposed Sec. 49.9 and the core principles set
forth in proposed Sec. 49.19. Although the financial requirements will
vary for SDRs (i.e., an SDR's financial resources shall be considered
sufficient if their value is at least equal to a total amount that
would enable the SDR, or applicant for registration, to cover its
operating costs for a period of at least one year, calculated on a
rolling basis), for the basic purpose of the financial integrity of the
swaps market, the Commission can make no size distinction among
registered SDRs. The Commission believes that the financial resources
required to be registered as an SDR and to meet the statutory
obligations of an SDR would essentially prohibit ``small entities.''
Therefore, for purposes of the RFA, the Commission is hereby
determining that SDRs, like DCOs and DCMs, are not ``small entities.''
Thus, the Chairman, on behalf of the Commission, hereby certifies
pursuant to 5 U.S.C. 605(b) that the proposed rules, will not have a
significant impact on a substantial number of small entities.
VI. List of Subjects
List of Subjects in 17 CFR Part 49
Swap data repositories; registration and regulatory requirements.
In consideration of the foregoing, and pursuant to the authority in
the Commodity Exchange Act, as amended, and in particular Sections
8a(5) and 21 of the Act, the Commission hereby proposes to amend
Chapter I of Title 17 of the Code of Federal Regulation by adding a new
part 49 as follows:
PART 49--SWAP DATA REPOSITORIES
Sec
49.1 Scope.
49.2 Definitions.
49.3 Procedures for registration.
49.4 Withdrawal from registration.
49.5 Equity interest transfers.
49.6 Registration of successor entities.
49.7 Swap data repositories located in foreign jurisdictions.
49.8 Procedures for implementing registered swap data repository
rules.
49.9 Duties of registered swap data repositories.
49.10 Acceptance of data.
49.11 Confirmation of data accuracy.
49.12 Swap data repository recordkeeping requirements.
49.13 Monitoring, screening and analyzing swap data.
49.14 Monitoring, screening and analyzing end-user clearing
exemption claims by individual and affiliated entities.
49.15 Real-time public reporting of swap data.
49.16 Privacy and confidentiality requirements of swap data
repositories.
49.17 Access to SDR data.
49.18 Confidentiality and indemnification agreement.
49.19 Core principles applicable to registered swap data
repositories.
49.20 Governance arrangements (Core Principle 2).
49.21 Conflicts of interest (Core Principle 3).
49.22 Chief compliance officer.
49.23 Emergency policies and procedures.
49.24 System safeguards.
49.25 Financial resources.
49.26 Disclosure requirements of swap data repositories.
49.27 Access and fees.
Appendix A to part 49--Form SDR
Authority: 7 U.S.C. 12a and 24a, as amended by Title VII of the
Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010), unless otherwise noted.
Sec. 49.1 Scope.
The provisions of this part apply to any swap data repository as
defined under Section 1a(48) of the Act which is registered or is
required to register as such with the Commission pursuant to Section
21(a) of the Act.
Sec. 49.2 Definitions.
(a) As used in this part:
(1) Affiliate. The term ``affiliate'' means a person that directly,
or indirectly, controls, is controlled by, or is under common control
with, the swap data repository.
(2) Asset Class. The term ``asset class'' means the particular
broad category of goods, services or commodities underlying a swap. The
asset classes include credit, equity, interest rates, currency, other
commodities, and such other asset classes as may be determined by the
Commission.
(3) Control. The term ``control'' (including the terms ``controlled
by'' and ``under common control with'') means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise.
(4) Foreign Regulator. The term ``Foreign Regulator'' means a
foreign futures authority as defined in Section 1a(26) of the Act,
foreign financial supervisors, foreign central banks and foreign
ministries.
(5) Commercial Use. The term ``commercial use'' means the use of
swap data held and maintained by a
[[Page 80927]]
registered swap data repository for a profit or business purposes. The
use of swap data for regulatory purposes and/or responsibilities by a
registered swap data repository would not be considered a commercial
use regardless of whether the registered swap data repository charges a
fee for reporting such swap data.
(6) Market Participant. The term ``market participant'' means any
person participating in the swap market, including, but not limited to,
designated contract markets, derivatives clearing organizations, swaps
execution facilities, swap dealers, major swap participants, and any
other counterparties to a swap transaction.
(7) Non-affiliated third party. The term ``non-affiliated third
party'' means any person except:
(i) The swap data repository,
(ii) The swap data repository's affiliate, or
(iii) A person employed by a swap data repository and any entity
that is not the swap data repository's affiliate (and ``non-affiliated
third party'' includes such entity that jointly employs the person).
(8) Person Associated with a Swap Data Repository. The term
``person associated with a swap data repository'' means:
(i) Any partner, officer, or director of such swap data repository
(or any person occupying a similar status or performing similar
functions);
(ii) Any person directly or indirectly controlling, controlled by,
or under common control with such swap data repository;
(iii) Or any employee of such swap data repository.
(9) Position. The term ``position'' means the gross and net
notional amounts of open swap transactions aggregated by one or more
attributes, including, but not limited to, the:
(i) Underlying instrument;
(ii) Index, or reference entity;
(iii) Counterparty;
(iv) Asset class;
(v) Long risk of the underlying instrument, index, or reference
entity; and
(vi) Short risk of the underlying instrument, index, or reference
entity.
(10) Reporting Entity. The term ``reporting entity'' means those
entities that are required to report swap data to a registered swap
data repository. These reporting entities include designated contract
markets, swaps execution facilities, derivatives clearing
organizations, swap dealers, major swap participants and certain end-
users.
(11) Section 8 Material. The term ``Section 8 Material'' means the
business transactions, trade data, or market positions of any person
and trade secrets or names of customers.
(12) Swap Data. The term ``swap data'' means the specific data
elements and information set forth in part 45 of this chapter that is
required to be reported by a reporting entity to a registered swap data
repository.
(13) SDR Information. The term ``SDR Information'' means any
information that the swap data repository maintains.
(14) Registered Swap Data Repository. The term ``registered swaps
data repository'' means a swaps data repository that is registered
under Section 21 of the Act.
(15) Independent Perspective. The term ``independent perspective''
means a viewpoint that is impartial regarding competitive, commercial,
or industry concerns and contemplates the effect of a decision on all
constituencies involved.
(b) Defined Terms. Capitalized terms not defined in this part shall
have the meanings assigned to them in Sec. 1.3 of this chapter.
Sec. 49.3 Procedures for registration.
(a) Application Procedures. (1) An applicant, person or entity
desiring to be registered as a swap data repository shall file
electronically an application for registration on Form SDR provided in
appendix A to this part, with the Secretary of the Commission at its
headquarters in Washington, DC at [email protected] in accordance
with the instructions contained therein.
(2) The application shall include information sufficient to
demonstrate compliance with core principles specified in Section 21 of
the Act and the regulations thereunder. Form SDR consists of
instructions, general questions and a list of Exhibits (documents,
information and evidence) required by the Commission in order to
determine whether an applicant is able to comply with the core
principles. An application will not be considered to be materially
complete unless the applicant has submitted, at a minimum, the exhibits
as required in Form SDR. If the application is not materially complete,
the Commission shall notify the applicant that the application will not
be deemed to have been submitted for purposes of the 180-day review
procedures.
(3) 180-Day Review Procedures. The Commission will review the
application for registration as a swap data repository within 180 days
of the date of the filing of such application. At or prior to the
conclusion of the 180-day period, the Commission will either by order
grant registration; extend, by order, the 180-day review period for
good cause; or deny the application for registration as a swap data
repository. The 180-day review period shall commence once a completed
submission on Form SDR is submitted to the Commission. The
determination of when such submission on Form SDR is complete shall be
at the sole discretion of the Commission. If deemed appropriate, the
Commission may grant registration as a swap data repository subject to
conditions. If the Commission denies an application for registration as
a swap data repository, it shall specify the grounds for such denial.
In the event of a denial of registration for a swap data repository,
any person so denied shall be afforded an opportunity for a hearing
before the Commission.
(4) Standard for Approval. The Commission shall grant the
registration of a swap data repository if the Commission finds that
such swap data repository is appropriately organized, and has the
capacity, to ensure the prompt, accurate and reliable performance of
its functions as a swap data repository, comply with any applicable
provisions of the Act and regulations thereunder, carry out its
functions in a manner consistent with the purposes of Section 21 of the
Act and the regulations thereunder, and operate in a fair, equitable
and consistent manner. The Commission shall deny registration of a swap
data repository if it appears that the application is materially
incomplete; fails in form or substance to meet the requirements of
Section 21 of the Act and part 49; or is amended or supplemented in a
manner that is inconsistent with this Sec. 49.3. The Commission shall
notify the applicant seeking registration that the Commission is
denying the application setting forth the deficiencies in the
application, and/or the manner in which the application fails to meet
the requirements of this part.
(5) Amendments and Annual Filing. If any information reported on
Form SDR or in any amendment thereto is or becomes inaccurate for any
reason, whether before or after the application for registration has
been granted, the swap data repository shall promptly file an amendment
on Form SDR updating such information. In addition, the swap data
repository shall annually file an amendment on Form SDR within 60 days
after the end of each calendar year of such swap data repository.
(6) Service of Process. Each swap data repository shall designate
and authorize on Form SDR an agent in the United States, other than a
Commission official, who shall accept any notice or service
[[Page 80928]]
of process, pleadings, or other documents in any action or proceedings
brought against the swap data repository to enforce the Act and the
regulations thereunder.
(b) Provisional Registration. The Commission, upon the request of
an applicant, may grant provisional registration of a swap data
repository if such applicant is in substantial compliance with the
standards set forth in paragraph (a)(4) of this section. Such
provisional registration of a swap data repository shall expire on the
earlier of: the date that the Commission grants or denies registration
of the swap data repository; or the date that the Commission rescinds
the temporary registration of the swap data repository. This paragraph
(b) of this section shall terminate within 365 days of the
effectiveness of this Regulation. A provisional registration granted by
the Commission does not affect the right of the Commission to grant or
deny permanent registration as provided under paragraph (a)(3) of this
section.
(c) Withdrawal of Application for Registration. An applicant for
registration may withdraw its application submitted pursuant to
paragraph (a) of this section by filing with the Commission such a
request. Withdrawal of an application for registration shall not affect
any action taken or to be taken by the Commission based upon actions,
activities, or events occurring during the time that the application
for registration was pending with the Commission, and shall not
prejudice the filing of a new application by such applicant.
(d) Reinstatement of Dormant Registration. Before accepting or re-
accepting swap transaction data, a dormant registered swap data
repository as defined in Sec. 40.1(e) of this chapter shall reinstate
its registration under the procedures set forth in paragraph (a) of
this section; provided, however, that an application for reinstatement
may rely upon previously submitted materials that still pertain to, and
accurately describe, current conditions.
(e) Delegation of Authority. (1) The Commission hereby delegates,
until it orders otherwise, to the Director of the Division of Market
Oversight or the Director's delegates, with the consultation of the
General Counsel or the General Counsel's delegates, the authority to
notify an applicant seeking registration as a swap data repository
pursuant to Section 21 of the Act that the application is materially
incomplete and the 180-day period review period is extended.
(2) The Director of the Division of Market Oversight may submit to
the Commission for its consideration any matter which has been
delegated in this paragraph.
(3) Nothing in this paragraph prohibits the Commission, at its
election, from exercising the authority delegated in paragraph (e)(1)
of this section.
(f) Request for Confidential Treatment. An applicant for
registration may request confidential treatment for materials submitted
in its application as set forth in Sec. 145.9 of this chapter. The
applicant shall identify with particularity information in the
application that will be subject to a request for confidential
treatment.
Sec. 49.4 Withdrawal from registration.
(a)(1) A registered swap data repository may withdraw its
registration by giving notice in writing to the Commission requesting
that its registration as a swap data repository be withdrawn, which
notice shall be served at least ninety days prior to the date named
therein as the date when the withdrawal of registration shall take
effect. The request to withdraw shall be made by a person duly
authorized by the registrant and shall specify:
(i) The name of the registrant for which withdrawal of registration
is being requested;
(ii) The name, address and telephone number of the swap data
repository that will have custody of data and records of the
registrant;
(iii) The address where such data and records will be located; and
(iv) A statement that the custodial swap data repository is
authorized to make such data and records available in accordance with
Sec. 1.44.
(2) Prior to filing a request to withdraw, a registered swap data
repository shall file an amended Form SDR to update any inaccurate
information. A withdrawal of registration shall not affect any action
taken or to be taken by the Commission based upon actions, activities
or events occurring during the time that the facility was designated by
the Commission.
(b) A notice of withdrawal from registration filed by a swap data
repository shall become effective for all matters (except as provided
in this paragraph (b)) on the 60th day after the filing thereof with
the Commission, within such longer period of time as to which such swap
data repository consents or which the Commission, by order, may
determine as necessary or appropriate in the public interest.
(c) Revocation of Registration for False Application. If, after
notice and opportunity for hearing, the Commission finds that any
registered swap data repository has obtained its registration by making
any false and misleading statements with respect to any material fact
or has violated or failed to comply with any provision of the Act and
regulations thereunder, the Commission, by order, may revoke the
registration. Pending final determination whether any registration
shall be revoked, the Commission, by order, may suspend such
registration, if such suspension appears to the Commission, after
notice and opportunity for hearing, to be necessary or appropriate and
in the public interest.
Sec. 49.5 Equity interest transfers.
(a) Equity transfer notification. Upon entering into any
agreement(s) that could result in an equity interest transfer of ten
percent or more in the swap data repository, the swap data repository
shall file a notification of the equity interest transfer with the
Secretary of the Commission at its Washington, DC headquarters at
[email protected] and the Division of Market Oversight at
[email protected], no later than the business day, as defined in
Sec. 40.1 of this chapter, following the date on which the swap data
repository enters into a firm obligation to transfer the equity
interest. The swap data repository shall also amend any information
that is no longer accurate on Form SDR consistent with the procedures
set forth in Sec. 49.3 of this part.
(b) Required information. The notification must include and be
accompanied by: any relevant agreement(s), including any preliminary
agreements; any associated changes to relevant corporate documents; a
chart outlining any new ownership or corporate or organizational
structure; a brief description of the purpose and any impact of the
equity interest transfer; and a representation from the swap data
repository that it meets all of the requirements of Section 21 of the
Act and Commission regulations adopted thereunder. The swap data
repository shall keep the Commission apprised of the projected date
that the transaction resulting in the equity interest transfer will be
consummated, and must provide to the Commission any new agreements or
modifications to the original agreement(s) filed pursuant to this
section. The swap data repository shall notify the Commission of the
consummation of the transaction on the day in which it occurs.
(c) Certification. (1) Upon a transfer of an equity interest of ten
percent or more
[[Page 80929]]
in a registered swap data repository, the registered swap data
repository shall file with the Secretary of the Commission at its
Washington DC headquarters, at [email protected], and the Division
of Market Oversight, at [email protected], a certification that
the registered swap data repository meets all of the requirements of
Section 21 of the Act and Commission regulations adopted thereunder, no
later than two business days, as defined in Sec. 40.1 of this chapter,
following the date on which the equity interest of ten percent or more
was acquired. Such certification shall state whether changes to any
aspects of the swap data repository's operations were made as a result
of such change in ownership, and include a description of any such
change(s).
(2) The certification required under this paragraph may rely on and
be supported by reference to an application for registration as a swap
data repository or prior filings made pursuant to a rule submission
requirement, along with any necessary new filings, including new
filings that provide any and all material updates of prior submissions.
Sec. 49.6 Registration of successor entities.
(a) In the event of a corporate transaction, such as a re-
organization, merger, acquisition, bankruptcy or other similar
corporate event, that creates a new entity, in which the swap data
repository continues to operate, the swap data repository shall request
a transfer of the registration, rules, and other matters, no later than
30 days after the succession. The registration of the predecessor shall
be deemed to remain effective as the registration of the successor if
the successor, within 30 days after such succession, files an
application for registration on Form SDR, and the predecessor files a
request for vacation of registration on Form SDR provided, however,
that the registration of the predecessor swap data repository shall
cease to be effective 90 days after the application for registration on
Form SDR is filed by the successor swap data repository.
(b) If the succession is based solely on a change in the
predecessor's date or state of incorporation, form of organization, or
composition of a partnership, the successor may, within 30 days after
the succession, amend the registration of the predecessor swap data
repository on Form SDR to reflect these changes. This amendment shall
be an application for registration filed by the predecessor and adopted
by the successor.
Sec. 49.7 Swap data repositories located in foreign jurisdictions.
Any swap data repository located outside of the United States
applying for registration pursuant to Sec. 49.3 of this part shall
certify on Form SDR and provide an opinion of counsel that the swap
data repository, as a matter of law, is able to provide the Commission
with prompt access to the books and records of such swap data
repository and that the swap data repository can submit to onsite
inspection and examination by the Commission.
Sec. 49.8 Procedures for implementing registered swap data repository
rules.
(a) Request for Commission approval of rules. An applicant for
registration as a swap data repository may request that the Commission
approve under Section 5c(c) of the Act, any or all of its rules and
subsequent amendments thereto, prior to their implementation or,
notwithstanding the provisions of Section 5c(c)(2) of the Act, at
anytime thereafter, under the procedures of Sec. 40.5 of this chapter.
(b) Notwithstanding the timeline under Sec. 40.5(c) of this
chapter, the rules of a swap data repository that have been submitted
for Commission approval at the same time as an application for
registration under Sec. 49.3 of this part to reinstate the
registration of a dormant registered swap data repository, as defined
in Sec. 40.1 of this chapter, will be deemed approved by the
Commission no earlier than when the swap data repository is deemed to
be registered or reinstated.
(c) Self-certification of rules. Rules of a registered swap data
repository not voluntarily submitted for prior Commission approval
pursuant to paragraph (a) of this section must be submitted to the
Commission with a certification that the rule or rule amendment
complies with the Act or rules thereunder pursuant to the procedures of
Sec. 40.6 of this chapter, as applicable.
Sec. 49.9 Duties of registered swap data repositories.
(a) Duties. To be registered, and maintain registration, as a swap
data repository, a registered swap data repository shall:
(1) Accept data as prescribed in Sec. 49.10 for each swap;
(2) Confirm, as prescribed in Sec. 49.11, with both counterparties
to the swap the accuracy of the data that was submitted;
(3) Maintain, as prescribed in Sec. 49.12, the data described in
part 45 of the Commission's Regulations in such form and manner as
provided therein and in the Act and the rules and regulations
thereunder;
(4) Provide direct electronic access to the Commission (or any
designee of the Commission, including another registered entity) as
prescribed in Sec. 49.17;
(5) Provide the information set forth in Sec. 49.15 to comply with
the public reporting requirements set forth in Section 2(a)(13) of the
Act;
(6) Establish automated systems for monitoring, screening, and
analyzing swap data as prescribed in Sec. 49.13;
(7) Establish automated systems for the monitoring, screening and
analyzing end-user clearing exemption claims as prescribed in Sec.
49.14;
(8) Maintain the privacy of any and all swap data and any other
related information that the swap data repository receives from a
reporting entity as prescribed in Sec. 49.16;
(9) Upon request of certain appropriate domestic and foreign
regulators, provide access to swap data and information held and
maintained by the swap data repository as prescribed in Sec. 49.17;
(10) Adopt and establish appropriate emergency policies and
procedures as prescribed in Sec. 49.23.
(11) Designate an individual to serve as a chief compliance officer
who shall comply with Sec. 49.22; and
(12) Subject itself to inspection and examination by the
Commission.
(b) This Regulation is not intended to limit, or restrict, the
applicability of other provisions of the Act, including, but not
limited to, Section 2(a)(13) of the Act and rules and regulations
promulgated thereunder.
Sec. 49.10 Acceptance of data.
(a) A registered swap data repository shall establish, maintain,
and enforce policies and procedures for the reporting of swap data to
the registered swap data repository and shall accept and promptly
record all swap data in its selected asset class and other regulatory
information that is required to be reported pursuant to part 45 of this
chapter by designated contract markets, derivatives clearing
organizations, swap execution facilities, swap dealers, major swap
participants and/or end-users.
(1) Electronic Connectivity. For the purpose of accepting all swap
data as required by part 45, the registered swap data repository shall
adopt policies and procedures, including technological protocols, which
provide for electronic connectivity between the swap data repository
and designated contract markets, derivatives clearing organizations,
swaps execution facilities, swap dealers, major swap participants and/
or end-users who report such data. The technological
[[Page 80930]]
protocols established by a swap data repository shall provide for the
receipt of swap creation data, swap continuation data, real-time public
reporting data, and all other data and information required to be
reported to such swap data repository. The swap data repository shall
ensure that its mechanisms for data acceptance are reliable and secure.
(b) A registered swap data repository shall set forth in its
application for registration as described in Sec. 49.3 the specific
asset class or classes for which it will accept swaps data. If a swap
data repository accepts swap data of a particular asset class, then it
shall accept data from all swaps of that asset class.
(c) A registered swap data repository shall establish policies and
procedures reasonably designed to prevent any provision in a valid swap
from being invalidated or modified through the confirmation or
recording process of the swap data repository.
(d) A registered swap data repository shall establish procedures
and provide facilities for effectively resolving disputes over the
accuracy of the swap data and positions that are recorded in the
registered swap data repository.
Sec. 49.11 Confirmation of data accuracy.
(a) A registered swap data repository shall establish policies and
procedures to ensure the accuracy of swap data and other regulatory
information required to be reported by this part 49 that it receives
from reporting entities or certain third party service providers such
as confirmation or matching service providers acting on their behalf.
(b) With respect to data and other regulatory information submitted
by a reporting entity or certain third party service providers acting
on a reporting entity's behalf, the swap data repository shall confirm
with both counterparties to the swap the accuracy of the data and
information submitted. This requirement applies to all reported swap
data except for data reported for purposes of real-time public
reporting.
(c) A registered swap data repository in connection with the
process of confirming the accuracy of the data and information
submitted shall communicate with both counterparties to the swap and
receive acknowledgement of the data and information submitted as well
as any correction of any errors. The acknowledgement and correction of
errors shall pertain to all information submitted by either
counterparty and any entity that has been delegated the reporting
obligation. The swap data repository shall keep a record of corrected
errors that is available upon request to the Commission.
Sec. 49.12 Swap data repository recordkeeping requirements.
(a) A registered swap data repository shall maintain its books and
records in accordance with the requirements of Sec. 45.2 of this
chapter regarding the swap data required to be reported to the swap
data repository.
(b) A registered swap data repository shall maintain swap data
(including all historical positions) throughout the existence of the
swap and for five years following final termination of the swap, during
which time the records must be readily accessible by the swap data
repository and available to the Commission via real-time electronic
access; and in archival storage for which such swap data is retrievable
by the swap data repository within three business days.
(c) All records required to be kept pursuant to this Regulation
shall be open to inspection upon request by any representative of the
Commission, the United States Department of Justice, the Securities and
Exchange Commission, or by any representative of a prudential regulator
as authorized by the Commission. Copies of all such records shall be
provided, at the expense of the swap data repository or person required
to keep the record, to any representative of the Commission upon
request, either by electronic means, in hard copy, or both, as
requested by the Commission.
(d) A registered swap data repository that accepts and disseminates
swap transaction and pricing data shall comply with the real time
public reporting and recordkeeping requirements prescribed in part 43
of this chapter.
(e) A registered swap data repository shall establish policies and
procedures to calculate positions for position limits and any other
purpose as required by the Commission, for all persons with swaps that
have not expired maintained by the registered swap data repository.
Sec. 49.13 Monitoring, screening and analyzing swap data.
(a) Duty to Monitor, Screen and Analyze Data. A registered swap
data repository shall monitor, screen, and analyze all swap data in its
possession in such a manner as the Commission may require. A swap data
repository shall routinely monitor, screen, and analyze swap data for
the purpose of any standing swap surveillance objectives which the
Commission may establish as well as specific monitoring, screening, and
analysis tasks based on ad hoc requests by the Commission.
(b) Capacity to Monitor, Screen and Analyze Data. A registered swap
data repository shall establish and maintain sufficient information
technology, staff, and other resources to fulfill the requirements in
this Sec. 49.13 in a manner prescribed by the Commission. A swap data
repository shall monitor the sufficiency of such resources at least
annually, and adjust its resources as its responsibilities, or the
volume of swap transactions subject to monitoring, screening, and
analysis, increase.
Sec. 49.14 Monitoring, screening and analyzing end-user clearing
exemption claims by individual and affiliated entities.
A registered swap data repository shall have automated systems
capable of identifying, aggregating, sorting, and filtering all swap
transactions that are reported to it which are exempt from clearing
pursuant to Section 2(h)(7) of the Act. Such capabilities shall be
applicable to any information provided to a swap data repository by or
on behalf of an end user regarding how such end user meets the
requirements Sections 2(h)(7)(A)(i), 2(h)(7)(A)(ii), and
2(h)(7)(A)(iii) of the Act and any Commission regulations thereunder.
Sec. 49.15 Real-time public reporting of swap data.
(a) Scope. The provisions of this Sec. 49.15 apply to real-time
public reporting of swap data for off-facility swaps, as defined in
part 43 of this chapter.
(b) Systems to Accept and Disseminate Swap Data In Connection With
Real-Time Public Reporting. A registered swap data repository shall
establish such electronic systems as are necessary to accept and
publicly disseminate real-time swap data submitted to meet the real-
time public reporting obligations of part 43 of this chapter. Any
electronic systems established for this purpose must be capable of
accepting and publicly disseminating all data fields required by part
43 of this chapter.
(c) Duty to Notify the Commission of Untimely Data. A registered
swap data repository must notify the Commission of any swap transaction
for which the real-time swap data was not received by the swap data
repository within the time period required by Sec. 43.3(a)(3). This
notification must be submitted electronically to the Commission within
forty-eight hours of when the swap data repository first receives an
untimely real-time swap data report from one of the parties to the swap
transaction. The notification submitted to the Commission must include
all real-time swap data submitted for the relevant
[[Page 80931]]
swap transaction; identify the party to the swap that submitted the
real-time swap data; and contain the date and time, to the nearest
second, the real-time swap data was received by the swap data
repository.
Sec. 49.16 Privacy and confidentiality requirements of swap data
repositories.
(a) Each swap data repository shall:
(1) Establish, maintain, and enforce written policies and
procedures reasonably designed to protect the privacy and
confidentiality of any and all SDR Information that is not subject to
real-time public reporting set forth in part 43 of this chapter. Such
policies and procedures shall include, but are not limited to, policies
and procedures to protect the privacy and confidentiality of any and
all SDR Information (except for data disseminated under part 43) that
the swap data repository shares with affiliates and non-affiliated
third parties; and
(2) Establish and maintain safeguards, policies, and procedures
reasonably designed to prevent the misappropriation or misuse, directly
or indirectly, of:
(i) Section 8 Material;
(ii) Other SDR Information; and/or
(iii) Intellectual property, such as trading strategies or
portfolio positions, by the swap data repository or any person
associated with the swap data repository. Such safeguards, policies,
and procedures shall include, but are not limited to,
(A) limiting access to such Section 8 Material, other SDR
Information, and intellectual property,
(B) standards controlling persons associated with the swap data
repository trading for their personal benefit or the benefit of others,
and
(C) adequate oversight to ensure compliance with this subparagraph.
Sec. 49.17 Access to SDR data.
(a) Purpose. This Section provides a procedure by which the
Commission, other domestic regulators and foreign regulators may obtain
access to the swaps data held and maintained by registered swap data
repositories. Except as specifically set forth in this Regulation, the
Commission's duties and obligations regarding the confidentiality of
business transactions or market positions of any person and trade
secrets or names of customers identified in Section 8 of the Act are
not affected.
(b) Definitions. For purposes of this Sec. 49.17, the following
terms shall be defined as follows:
(1) Appropriate Domestic Regulator. The term ``Appropriate Domestic
Regulator'' shall mean:
(i) The Securities and Exchange Commission;
(ii) Each prudential regulator identified in Section 1a(39) of the
Act with respect to requests related to any of such regulator's
statutory authorities, without limitation to the activities listed for
each regulator in Section 1a(39);
(iii) The Financial Stability Oversight Council;
(iv) The Department of Justice;
(v) The Federal Reserve Bank of New York;
(vi) The Office of Financial Research; and
(vii) Any other person the Commission deems appropriate.
(2) Appropriate Foreign Regulator. The term ``Appropriate Foreign
Regulator'' shall mean those Foreign Regulators with an existing
memorandum of understanding or other similar type of information
sharing arrangement executed with the Commission and/or Foreign
Regulators without an MOU as determined on a case-by-case basis by the
Commission.
(i) Filing Requirements. For those Foreign Regulators who do not
currently have a memorandum of understanding with the Commission, the
Commission has determined to provide the following filing process for
those Foreign Regulators that may require data or information
maintained by a registered swap data repository. The filing requirement
set forth in this Sec. 49.17 will assist the Commission in its
analysis of whether a specific Foreign Regulator should be considered
``appropriate'' for purposes of Section 21(c)(7) of the Commodity
Exchange Act.
(A) The Foreign Regulator is required to file an application in the
form and manner prescribed by the Commission.
(B) The Foreign Regulator in its application is required to provide
sufficient facts and procedures to permit the Commission to analyze
whether the Foreign Regulator has appropriate confidentiality
procedures and whether the Foreign Regulator is otherwise subject to
local laws, regulations and/or customs that would require disclosure of
information in contravention of the Act.
(ii) The Commission in its analysis of Foreign Regulator
applications shall be satisfied that any information potentially
provided by a registered swap data repository will not be disclosed
except in limited circumstances such as an adjudicatory action or
proceeding involving the Foreign Regulator that are identified in
Section 8 of the Act.
(iii) The Commission reserves the right in connection with any
determination of an ``Appropriate Foreign Regulator'' to revisit or
reassess a prior determination consistent with the Act.
(3) Direct Electronic Access. For the purposes of this regulation,
the term ``direct electronic access'' shall mean an electronic system,
platform or framework that provides internet or web-based access to
real-time swap transaction data.
(c) Commission Access.
(1) Direct Electronic Access. A registered swap data repository
shall provide direct electronic access to the Commission or the
Commission's designee, including another registered entity, in order
for the Commission to carry out its legal and statutory
responsibilities under the Act and related regulations.
(2) Monitoring Tools. A registered swap data repository is required
to provide the Commission with proper tools for the monitoring,
screening and analyzing of swap transaction data, including, but not
limited to, web-based services, various software and access to the
staff of the swap data repository and/or third party service providers
or agents familiar with the operations of the registered swap data
repository, which can provide assistance to the Commission regarding
data structure and content. These monitoring tools shall be identical
in analytical capability as those provided to the compliance staff and
the Chief Compliance Officer of the swap data repository.
(3) Authorized Users. The swap transaction data provided to the
Commission by a registered swap data repository shall be accessible
only by authorized users. The swap data repository shall maintain and
provide a list of authorized users in the manner and frequency
determined by the Commission.
(d) Other Regulators--(1) Procedure for Gaining Access to
Registered Swap Data Repository Data. Appropriate Domestic Regulators
and Appropriate Foreign Regulators seeking to gain access to the swaps
data maintained by a swap data repository are required to apply for
access as follows:
(i) File a request for access with the registered swap data
repository setting forth in sufficient detail the basis of its request;
and
(ii) Certify the statutory authority for its request and that it is
acting within the scope of its jurisdiction;
(2) Obligations of the Registered Swap Data Repository in
Connection with Appropriate Domestic Regulator or
[[Page 80932]]
Appropriate Foreign Regulator Requests for Data Access.
(i) A registered swap data repository shall promptly notify the
Commission regarding any request received by an Appropriate Domestic
Regulator or Appropriate Foreign Regulator to gain access to the swaps
transaction data maintained by such swap data repository.
(ii) The registered swap data repository shall notify the
Commission electronically in a format specified by the Secretary of the
Commission.
(3) Timing. Once the swaps data repository provides the Commission
with notification of a request for data access by an Appropriate
Domestic Regulator or Appropriate Foreign Regulator as required by
paragraph (d)(2) of this section, such swap data repository shall
provide access to the requested swaps data if satisfied that the
Appropriate Domestic Regulator or Appropriate Foreign Regulator is
acting within the scope of its authority.
(4) Confidentiality and Indemnification Agreement. Consistent with
Sec. 49.18 of this part, the Appropriate Domestic Regulator or
Appropriate Foreign Regulator prior to receipt of any requested data or
information shall execute a ``Confidentiality and Indemnification
Agreement'' with the registered swap data repository as set forth in
Section 21(d) of the Act.
(e) Third Party Service Providers to a Registered Swap Data
Repository. Access to the data and information maintained by a
registered swap data repository may be necessary for certain third
parties that provide various technology and data-related services to a
registered swap data repository. Third party access to the swap data
maintained by a swap data repository is permissible subject to the
following conditions:
(1) Both the registered swap data repository and the third party
service provider shall have strict confidentiality procedures that
protect data and information from improper disclosure.
(2) Prior to swaps data access, the third party service provider
and the registered swaps data repository shall execute a
``Confidentiality Agreement'' setting forth minimum confidentiality
procedures and permissible uses of the information maintained by the
swaps data repository.
(f) Access by Market Participants-- (1) General. Access of swap
data maintained by the registered swaps data repository to market
participants is generally prohibited.
(2) Exception. Data and information maintained by the registered
swap data repository may be accessed by market participants if the
specific data was originally submitted by such party.
(g) Commercial Uses of Data Maintained by the Registered Swap Data
Repository Prohibited. Data maintained by the swap data repository
generally may not be used for commercial or business purposes by the
swap data repository or any of its affiliated entities.
(1) The registered swap data repository is required to adopt and
implement adequate ``firewalls'' to protect the data required to be
maintained under Sec. 49.12 of this part and Section 21(b) of the Act
from any improper, commercial use.
(2) Exception. Market participants who submit the data maintained
by the registered swap data repository may permit the commercial or
business use of that data by express written consent.
Sec. 49.18 Confidentiality and indemnification agreement.
(a) Purpose. This section sets forth the obligations of registered
swap data repositories to execute a ``Confidentiality and
Indemnification Agreement'' in connection with providing access to
swaps data to certain domestic regulators and ``appropriate foreign
regulators.''
(b) Confidentiality and Indemnification Agreement. Prior to the
registered swap data repository providing access to the swaps data with
any Appropriate Domestic Regulator or Appropriate Foreign Regulator as
defined in Sec. 49.17(b), the swap data repository shall receive a
written agreement from each such entity stating that the entity shall
abide by the confidentiality requirements described in Section 8 of the
Act relating to the swap data that is provided; and each such entity
shall agree to indemnify the swap data repository and the Commission
for any expenses arising from litigation relating to the information
provided under Section 8 of the Act.
Sec. 49.19 Core principles applicable to registered swap data
repositories.
(a) Compliance with Core Principles. To be registered, and maintain
registration, a swap data repository shall comply with the core
principles as described in this paragraph. Unless otherwise determined
by the Commission by rule or regulation, a swap data repository shall
have reasonable discretion in establishing the manner in which the swap
data repository complies with the core principles described in this
paragraph.
(b) Antitrust Considerations (Core Principle 1). Unless appropriate
to achieve the purposes of the Act, a registered swap data repository
shall avoid adopting any rule or taking any action that results in any
unreasonable restraint of trade; or imposing any material
anticompetitive burden on trading, clearing or reporting swaps.
(c) Governance Arrangements (Core Principle 2). Registered swap
data repositories shall establish governance arrangements as set forth
in Sec. 49.20.
(d) Conflicts of Interest (Core Principle 3). Registered swap data
repositories shall manage and minimize conflicts of interest and
establish processes for resolving such conflicts of interest as set
forth in Sec. 49.21.
(e) Additional Duties (Core Principle 4). Registered swap data
repositories shall also comply with the following additional duties:
(1) System Safeguards. Registered swap data repositories shall
establish and maintain a program of system safeguards, including
business continuity and disaster recovery plans as set forth in Sec.
49.24;
(2) Financial Resources. Registered swap data repositories shall
maintain sufficient financial resources as set forth in Sec. 49.25;
(3) Disclosure Requirements of Registered Swap Data Repositories.
Registered swap data repositories shall furnish an appropriate
disclosure document setting forth the risks and costs of swap data
repository services as detailed in Sec. 49.26; and
(4) Access and Fees. Registered swap data repositories shall adhere
to Commission requirements regarding fair and open access and the
charging of any fees, dues or other similar type charges as detailed in
Sec. 49.27.
Sec. 49.20 Governance arrangements (Core Principle 2).
(a) General. (1) Each registered swap data repository shall
establish governance arrangements that are transparent to fulfill
public interest requirements, and to support the objectives of the
Federal Government, owners, and participants.
(2) Each registered swap data repository shall establish governance
arrangements that are well-defined and include a clear organizational
structure with consistent lines of responsibility and effective
internal controls, including with respect to administration,
accounting, and the disclosure of confidential information. Sec. 49.22
of this part contains rules on internal controls applicable to
administration and accounting. Sec. 49.16 of this part contains rules
on internal
[[Page 80933]]
controls applicable to the disclosure of confidential information.
(b) Transparency of Governance Arrangements. (1) Each registered
swap data repository shall state in its charter documents that its
governance arrangements are transparent to support, among other things,
the objectives of the Federal Government pursuant to Section 21(f)(2)
of the Act.
(2) Each registered swap data repository shall, at a minimum, make
the following information available to the public and relevant
authorities, including the Commission:
(i) The mission statement of the registered swap data repository;
(ii) The mission statement and/or charter of the board of
directors, as well as of each committee of the registered swap data
repository that has:
(A) The authority to act on behalf of the board of directors or
(B) The authority to amend or constrain actions of the board of
directors;
(iii) The board of directors nomination process for the registered
swap data repository, as well as the process for assigning members of
the board of directors or other persons to any committee referenced in
paragraph (b)(2)(ii) of this section;
(iv) For the board of directors and each committee referenced in
paragraph (b)(2)(ii) of this section, the names of all members;
(v) A description of the manner in which the board of directors, as
well as any committee referenced in paragraph (b)(2)(ii) of this
section, considers an Independent Perspective in its decision-making
process, as Sec. 49.2(a)(14) of this part defines such term;
(vi) The lines of responsibility and accountability for each
operational unit of the registered swap data repository to any
committee thereof and/or the board of directors; and
(vii) Summaries of significant decisions implicating the public
interest, the rationale for such decisions, and the process for
reaching such decisions. Such significant decisions shall include
decisions relating to pricing of repository services, offering of
ancillary services, access to data, and use of Section 8 Material,
other SDR Information, and intellectual property (as referenced in
Sec. 49.16 of this part).
(3) The registered swap data repository shall ensure that the
information specified in paragraph (b)(2)(i) to (vii) of this section
is current, accurate, clear, and readily accessible, for example, on
its Web site. The swap data repository shall set forth such information
in a language commonly used in the commodity futures and swap markets
and at least one of the domestic language(s) of the jurisdiction in
which the swap data repository is located.
(4) Furthermore, the registered swap data repository shall disclose
the information specified in paragraph (b)(2)(vii) of this section in a
sufficiently comprehensive and detailed fashion so as to permit the
public and relevant authorities, including the Commission, to
understand the policies or procedures of the swap data repository
implicated and the manner in which the decision implements or amends
such policies or procedures. A swap data repository shall not disclose
minutes from meetings of its board of directors or committees to the
public, although it shall disclose such minutes to the Commission upon
request.
(c) The Board of Directors-- (1) General. (i) Each registered swap
data repository shall establish, maintain, and enforce (including,
without limitation, pursuant to paragraph (c)(4) of this Regulation)
written policies or procedures:
(A) To ensure that its board of directors, as well as any committee
that has:
(1) Authority to act on behalf of its board of directors or
(2) Authority to amend or constrain actions of its board of
directors, adequately considers an Independent Perspective in its
decision-making process;
(B) To ensure that the nominations process for such board of
directors, as well as the process for assigning members of the board of
directors or other persons to such committees, adequately incorporates
an Independent Perspective; and
(C) To clearly articulate the roles and responsibilities of such
board of directors, as well as such committees, especially with respect
to the manner in which they ensure that a registered swap data
repository complies with all statutory and regulatory responsibilities
under the Act and the regulations promulgated thereunder.
(ii) Each registered swap data repository shall submit to the
Commission, within thirty days after each election of its board of
directors:
(A) For the board of directors, as well as each committee
referenced in paragraph (c)(1)(i)(A) of this section, a list of all
members;
(B) A description of the relationship, if any, between such members
and the registered swap data repository or any reporting entity thereof
(or, in each case, affiliates thereof, as Sec. 49.2(a)(1) of this part
defines such term); and
(C) Any amendments to the written policies and procedures
referenced in paragraph (c)(1)(i) of this section.
(2) Compensation. The compensation of non-executive members of the
board of directors of a registered swap data repository shall not be
linked to the business performance of such swap data repository.
(3) Annual Self-Review. The board of directors of a registered swap
data repository shall review its performance and that of its individual
members annually. It should consider periodically using external
facilitators for such reviews.
(4) Board Member Removal. A registered swap data repository shall
have procedures to remove a member from the board of directors, where
the conduct of such member is likely to be prejudicial to the sound and
prudent management of the swap data repository.
(5) Expertise. Each registered swap data repository shall ensure
that members of its board of directors, members of any committee
referenced in paragraph (c)(1)(i)(A) of this Regulation, and its senior
management, in each case, are of sufficiently good repute and possess
the requisite skills and expertise to fulfill their responsibilities in
the management and governance of the swap data repository, to have a
clear understanding of such responsibilities, and to exercise sound
judgment about the affairs of the swap data repository.
(d) Compliance with Core Principle. The chief compliance officer of
the registered swap data repository shall review the compliance of the
swap data repository with this core principle.
Sec. 49.21 Conflicts of interest (Core Principle 3).
(a) General. (1) Each registered swap data repository shall
establish and enforce rules to minimize conflicts of interest in the
decision-making process of the swap data repository, and establish a
process for resolving such conflicts of interest.
(2) Nothing in this section shall supersede any requirement
applicable to the SDR pursuant to Sec. 49.20 of this part.
(b) Policies and Procedures. (1) Each registered swap data
repository shall establish, maintain, and enforce written procedures
to:
(i) Identify, on an ongoing basis, existing and potential conflicts
of interest; and
(ii) Make decisions in the event of a conflict of interest. Such
procedures shall include rules regarding the recusal, in applicable
circumstances, of
[[Page 80934]]
parties involved in the making of decisions.
(2) As further described in Sec. 49.20 of this part, the chief
compliance officer of the registered swap data repository shall, in
consultation with the board of directors or a senior officer of the
swap data repository, resolve any such conflicts of interest.
(c) Compliance with Core Principle. The chief compliance officer of
the registered swap data repository shall review the compliance of the
swap data repository with this core principle.
Sec. 49.22 Chief compliance officer.
(a) Definition of Board of Directors. For purposes of this part 49,
the term ``board of directors'' means the board of directors of a
registered swap data repository, or for those swap data repositories
whose organizational structure does not include a board of directors, a
body performing a function similar to a board of directors.
(b) Designation and qualifications of chief compliance officer--(1)
Chief Compliance Officer Required. Each registered swap data repository
shall establish the position of chief compliance officer, and designate
an individual to serve in that capacity.
(i) The position of chief compliance officer shall carry with it
the authority and resources to develop and enforce policies and
procedures necessary to fulfill the duties set forth for chief
compliance officers in the Act and Commission regulations.
(ii) The chief compliance officer shall have supervisory authority
over all staff acting in furtherance of the chief compliance officer's
statutory and regulatory obligations.
(2) Qualifications of Chief Compliance Officer. The individual
designated to serve as chief compliance officer shall have the
background and skills appropriate for fulfilling the responsibilities
of the position. No individual disqualified from registration pursuant
to Sections 8a(2) or 8a(3) of the Act may serve as a chief compliance
officer.
(c) Appointment, Supervision, and Removal of Chief Compliance
Officer--(1) Appointment and Compensation of Chief Compliance Officer
Determined by Board of Directors. A registered swap data repository's
chief compliance officer shall be appointed by its board of directors.
The board of directors shall also approve the compensation of the chief
compliance officer and shall meet with the chief compliance officer at
least annually. The appointment of the chief compliance officer and
approval of the chief compliance officer's compensation shall require
the approval of a majority of the board of directors. The senior
officer of the swap data repository may fulfill these responsibilities.
A swap data repository shall notify the Commission of the appointment
of a new chief compliance officer within two business days of such
appointment.
(2) Supervision of Chief Compliance Officer. A registered swap data
repository's chief compliance officer shall report directly to the
board of directors or to the senior officer of the swap data
repository, at the swap data repository's discretion.
(3) Removal of Chief Compliance Officer by Board of Directors.
Removal of a registered swap data repository's chief compliance officer
shall require the approval of a majority of the swap data repository's
board of directors. If the swap data repository does not have a board
of directors, then the chief compliance officer may be removed by the
senior officer of the swap data repository. The swap data repository
shall notify the Commission within two business days of appointing any
new chief compliance officer, whether interim or permanent.
(d) Duties of Chief Compliance Officer. The chief compliance
officer's duties shall include, but are not limited to, the following:
(1) Overseeing and reviewing the swap data repository's compliance
with Section 21 of the Act and any related rules adopted by the
Commission;
(2) In consultation with the board of directors, a body performing
a function similar to the board, or the senior officer of the swap data
repository, resolving any conflicts of interest that may arise:
(i) Conflicts between business considerations and compliance
requirements;
(ii) Conflicts between business considerations and the requirement
that the registered swap data repository provide fair and open access
as set forth in Sec. 49.27 of this part; and
(iii) Conflicts between a registered swap data repository's
management and members of the board of directors;
(3) Establishing and administering written policies and procedures
reasonably designed to prevent violation of the Act and any rules
adopted by the Commission;
(4) Ensuring compliance with the Act and Commission regulations
relating to agreements, contracts, or transactions, and with Commission
regulations under Section 21 of the Act, including confidentiality and
indemnification agreements entered into with foreign or domestic
regulators pursuant to Section 21(d) of the Act;
(5) Establishing procedures for the remediation of noncompliance
issues identified by the chief compliance officer through a compliance
office review, look-back, internal or external audit finding, self-
reported error, or validated complaint;
(6) Establishing and following appropriate procedures for the
handling, management response, remediation, retesting, and closing of
noncompliance issues; and
(7) Establishing and administering a written code of ethics
designed to prevent ethical violations and to promote honesty and
ethical conduct.
(e) Annual Compliance Report Prepared by Chief Compliance Officer.
The chief compliance officer shall, not less than annually, prepare an
annual compliance report, that at a minimum, contains the following
information covering the time period since the date on which the swap
data repository became registered with the Commission or since the end
of the period covered by a previously filed annual compliance report,
as applicable:
(1) A description of the registered swap data repository's written
policies and procedures, including the code of ethics and conflict of
interest policies;
(2) A review of applicable Commission regulations and each
subsection and core principle of Section 21 of the Act, that, with
respect to each:
(i) Identifies the policies and procedures that ensure compliance
with each subsection and the core principle, including each duty
specified in Section 21(c);
(ii) Provides a self-assessment as to the effectiveness of these
policies and procedures; and
(iii) Discusses areas for improvement, and recommends potential or
prospective changes or improvements to its compliance program and
resources;
(3) A list of any material changes to compliance policies and
procedures since the last annual compliance report;
(4) A description of the financial, managerial, and operational
resources set aside for compliance with respect to the Act and
Commission regulations;
(5) A description of any material compliance matters, including
noncompliance issues identified through a compliance office review,
look-back, internal or external audit finding, self-reported error, or
validated complaint, and explains how they were resolved;
(6) Any objections to the annual compliance report by those persons
who have oversight responsibility for the chief compliance officer; and
(7) A certification by the chief compliance officer that, to the
best of
[[Page 80935]]
his or her knowledge and reasonable belief, and under penalty of law,
the annual compliance report is accurate and complete.
(f) Submission of Annual Compliance Report by Chief Compliance
Officer to the Commission. (1) Prior to submission of the annual
compliance report to the Commission, the chief compliance officer shall
provide the annual compliance report to the board of the registered
swap data repository for its review. If the swap data repository does
not have board, then the annual compliance report shall be provided to
the senior officer for their review. Members of the board and the
senior officer may not require the chief compliance officer to make any
changes to the report. Submission of the report to the board or senior
officer, and any subsequent discussion of the report, shall be recorded
in board minutes or similar written record, as evidence of compliance
with this requirement.
(2) The annual compliance report shall be provided electronically
to the Commission not more than 60 days after the end of the registered
swap data repository's fiscal year.
(3) Promptly upon discovery of any material error or omission made
in a previously filed compliance report, the chief compliance officer
shall file an amendment with the Commission to correct any material
error or omission. An amendment shall contain the oath or certification
required under paragraph (e)(7) of this section.
(4) A registered swap data repository may request the Commission
for an extension of time to file its compliance report based on
substantial, undue hardship. Extensions for the filing deadline may be
granted at the discretion of the Commission.
(5) Annual compliance reports filed pursuant to this section will
be treated as exempt from mandatory public disclosure for purposes of
the Freedom of Information Act and the Government in the Sunshine Act
and parts 145 and 147 of this chapter, but will be available for
official use by any official or employee of the United States and any
State, by any self-regulatory organization of which the person filing
the report is a member, and by any other person to whom the Commission
believes disclosure is in the public interest.
(g) Recordkeeping. (1) The registered swap data repository shall
maintain:
(i) A copy of the written policies and procedures, including the
code of ethics and conflicts of interest policies adopted in
furtherance of compliance with the Act and Commission regulations;
(ii) Copies of all materials, including written reports provided to
the board of directors or senior officer in connection with the review
of the annual compliance report under paragraph (f)(1) of this section
and the board minutes or similar written record of such review, that
record the submission of the annual compliance report to the board of
directors or senior officer; and
(iii) Any records relevant to the registered swap data repository's
annual compliance report, including, but not limited to, work papers
and other documents that form the basis of the report, and memoranda,
correspondence, other documents, and records that are:
(A) Created, sent or received in connection with the annual
compliance report and
(B) Contain conclusions, opinions, analyses, or financial data
related to the annual compliance report.
(2) The registered swap data repository shall maintain records in
accordance with Sec. 1.31 of this chapter.
Sec. 49.23 Emergency policies and procedures.
(a) Emergency Policies and Procedures Required. A registered swap
data repository shall establish policies and procedures for the
exercise of emergency authority in the event of any emergency,
including but not limited to natural, man-made, and information
technology emergencies. Such policies and procedures shall also require
a swap data repository to exercise its emergency authority upon request
by the Commission. A swap data repository's policies and procedures for
the exercise of emergency authority shall be transparent to the
Commission and to market participants whose swap transaction data
resides at the swap data repository.
(b) Invocation of Emergency Authority. A registered swap data
repository's policies and procedures for the exercise of emergency
authority shall enumerate the circumstances under which the swap data
repository is authorized to invoke its emergency authority and the
procedures that it shall follow to declare an emergency. Such policies
and procedures shall also address the range of measures that it is
authorized to take when exercising such emergency authority.
(c) Designation of Persons Authorized to act in an Emergency. A
registered swap data repository shall designate one or more officials
of the swap data repository as persons authorized to exercise emergency
authority on its behalf. A swap data repository shall also establish a
chain of command to be used in the event that the designated person(s)
is unavailable. A swap data repository shall notify the Commission of
the person(s) designated to exercise emergency authority.
(d) Conflicts of Interest. A registered swap data repository's
policies and procedures for the exercise of emergency authority shall
include provisions to avoid conflicts of interest in any decisions made
pursuant to emergency authority. Such policies and procedures shall
also include provisions to consult the swap data repository's chief
compliance officer in any emergency decision that may raise potential
conflicts of interest.
(e) Notification to the Commission. A registered swap data
repository's policies and procedures for the exercise of emergency
authority shall include provisions to notify the Commission as soon as
reasonably practicable regarding any invocation of emergency authority.
When notifying the Commission of any exercise of emergency authority, a
swap data repository shall explain the reasons for taking such
emergency action, explain how conflicts of interest were minimized, and
document the decision-making process. Underlying documentation shall be
made available to the Commission upon request.
Sec. 49.24 System safeguards.
(a) Each registered swap data repository shall, with respect to all
swap data in its custody:
(1) Establish and maintain a program of risk analysis and oversight
to identify and minimize sources of operational risk through the
development of appropriate controls and procedures and the development
of automated systems that are reliable, secure, and have adequate
scalable capacity;
(2) Establish and maintain emergency procedures, backup facilities,
and a business continuity-disaster recovery plan that allow for the
timely recovery and resumption of operations and the fulfillment of the
duties and obligations of the swap data repository; and
(3) Periodically conduct tests to verify that backup resources are
sufficient to ensure continued fulfillment of all duties of the swap
data repository established by the Act or the Commission's regulations.
(b) A registered swap data repository's program of risk analysis
and oversight with respect to its operations and automated systems
shall address each of the following categories of risk analysis and
oversight:
(1) Information security;
(2) Business continuity-disaster recovery planning and resources;
[[Page 80936]]
(3) Capacity and performance planning;
(4) Systems operations;
(5) Systems development and quality assurance; and
(6) Physical security and environmental controls.
(c) In addressing the categories of risk analysis and oversight
required under paragraph (b) above, a registered swap data repository
should follow generally accepted standards and best practices with
respect to the development, operation, reliability, security, and
capacity of automated systems.
(d) A registered swap data repository shall maintain a business
continuity-disaster recovery plan and business continuity-disaster
recovery resources, emergency procedures, and backup facilities
sufficient to enable timely recovery and resumption of its operations
and resumption of its ongoing fulfillment of its duties and obligations
as a swap data repository following any disruption of its operations.
Such duties and obligations include, without limitation, the duties set
forth in Sec. 49.9 and the core principles set forth in Sec. 49.19;
and maintenance of a comprehensive audit trail. The swap data
repository's business continuity-disaster recovery plan and resources
generally should enable resumption of the swap data repository's
operations and resumption of ongoing fulfillment of the swap data
repository's duties and obligations during the next business day
following the disruption.
(e) Swap data repositories determined by the Commission to be
critical swap data repositories are subject to more stringent
requirements as set forth below.
(1) Each swap data repository that the Commission determines is
critical must maintain a disaster recovery plan and business continuity
and disaster recovery resources, including infrastructure and
personnel, sufficient to enable it to achieve a same-day recovery time
objective in the event that its normal capabilities become temporarily
inoperable for any reason up to and including a wide-scale disruption.
(2) A same-day recovery time objective is a recovery time objective
within the same business day on which normal capabilities become
temporarily inoperable for any reason up to and including a wide-scale
disruption.
(3) To ensure its ability to achieve a same-day recovery time
objective in the event of a wide-scale disruption, each swap data
repository that the Commission determines is critical must maintain a
degree of geographic dispersal of both infrastructure and personnel
such that:
(i) Infrastructure sufficient to enable the swap data repository to
meet a same-day recovery time objective after interruption is located
outside the relevant area of the infrastructure the entity normally
relies upon to conduct activities necessary to the reporting,
recordkeeping and/or dissemination of swap data, and does not rely on
the same critical transportation, telecommunications, power, water, or
other critical infrastructure components the entity normally relies
upon for such activities; and
(ii) Personnel sufficient to enable the swap data repository to
meet a same-day recovery time objective, after interruption of normal
swap data reporting, recordkeeping and/or dissemination by a wide-scale
disruption affecting the relevant area in which the personnel the
entity normally relies upon to engage in such activities are located,
live and work outside that relevant area.
(4) Each swap data repository that the Commission determines is
critical must conduct regular, periodic tests of its business
continuity and disaster recovery plans and resources and its capacity
to achieve a same-day recovery time objective in the event of a wide-
scale disruption. The swap data repository shall keep records of the
results of such tests, and make the results available to the Commission
upon request.
(f) A registered swap data repository that is not determined by the
Commission to be a critical swap data repository satisfies the
requirement to be able to resume operations and resume ongoing
fulfillment of the swap data repository's duties and obligations during
the next business day following a disruption by maintaining either:
(1) Infrastructure and personnel resources of its own that are
sufficient to ensure timely recovery and resumption of its operations,
duties and obligations as a registered swap data repository following
any disruption of its operations; or
(2) Contractual arrangements with other registered swap data
repositories or disaster recovery service providers, as appropriate,
that are sufficient to ensure continued fulfillment of all of the swap
data repository's duties and obligations following any disruption of
its operations, both with respect to all swaps reported to the swap
data repository and with respect to all swap data contained in the swap
data repository.
(g) A registered swap data repository shall notify Commission staff
promptly of all:
(1) Systems malfunctions;
(2) Cyber security incidents or targeted threats that actually or
potentially jeopardize automated system operation, reliability,
security, or capacity; and
(3) Any activation of the swap data repository's business
continuity-disaster recovery plan.
(h) A registered swap data repository shall give Commission staff
timely advance notice of all:
(1) Planned changes to automated systems that may impact the
reliability, security, or adequate scalable capacity of such systems;
and
(2) Planned changes to the swap data repository's program of risk
analysis and oversight.
(i) A registered swap data repository shall provide to the
Commission upon request current copies of its business continuity and
disaster recovery plan and other emergency procedures, its assessments
of its operational risks, and other documents requested by Commission
staff for the purpose of maintaining a current profile of the swap data
repository's automated systems.
(j) A registered swap data repository shall conduct regular,
periodic, objective testing and review of its automated systems to
ensure that they are reliable, secure, and have adequate scalable
capacity. It shall also conduct regular, periodic testing and review of
its business continuity-disaster recovery capabilities. Both types of
testing should be conducted by qualified, independent professionals.
Such qualified independent professionals may be independent contractors
or employees of the swap data repository, but should not be persons
responsible for development or operation of the systems or capabilities
being tested. Pursuant to Sec. Sec. 1.31, 49.12 and 45.2 of the
Commission's Regulations, the swap data repository shall keep records
of all such tests, and make all test results available to the
Commission upon request.
(k) To the extent practicable, a registered swap data repository
should:
(1) Coordinate its business continuity-disaster recovery plan with
those of the swap execution facilities, designated contract markets,
derivatives clearing organizations, swap dealers, and major swap
participants who report swap data to the swap data repository, and with
those of regulators identified in Section 21(c)(7) of the Act, in a
manner adequate to enable effective resumption of the registered swap
data repository's
[[Page 80937]]
fulfillment of its duties and obligations following a disruption
causing activation of the swap data repository's business continuity
and disaster recovery plan;
(2) Participate in periodic, synchronized testing of its business
continuity-disaster recovery plan and the business continuity-disaster
recovery plans of the swap execution facilities, designated contract
markets, derivatives clearing organizations, swap dealers, and major
swap participants who report swap data to the registered swap data
repository, and the business continuity-disaster recovery plans
required by the regulators identified in Section 21(c)(7) of the Act;
and
(3) Ensure that its business continuity-disaster recovery plan
takes into account the business continuity-disaster recovery plans of
its telecommunications, power, water, and other essential service
providers.
Sec. 49.25 Financial resources.
(a) General rule. (1) A swap data repository shall maintain
sufficient financial resources to perform its statutory duties set
forth in Sec. 49.9 and the core principles set forth in Sec. 49.19.
(2) An entity that operates as both a swap data repository and a
derivatives clearing organization shall also comply with the financial
resource requirements of Core Principle B set forth in Section
5b(c)(2)(B) of the Act.
(3) Financial resources shall be considered sufficient if their
value is at least equal to a total amount that would enable the swap
data repository, or applicant for registration, to cover its operating
costs for a period of at least one year, calculated on a rolling basis.
(4) The financial resources described in this paragraph (a) must be
independent and separately dedicated to ensure that assets and capital
are not used for multiple purposes.
(b) Types of financial resources. Financial resources available to
satisfy the requirements of paragraph (a) of this section may include:
(1) The swap data repository's own capital; and
(2) Any other financial resource deemed acceptable by the
Commission.
(c) Computation of financial resource requirement. A swap data
repository shall, on a quarterly basis, based upon its fiscal year,
make a reasonable calculation of its projected operating costs over a
12-month period in order to determine the amount needed to meet the
requirements of paragraph (a) of this section. The swap data repository
shall have reasonable discretion in determining the methodology used to
compute such projected operating costs. The Commission may review the
methodology and require changes as appropriate.
(d) Valuation of financial resources. At appropriate intervals, but
not less than quarterly, a swap data repository shall compute the
current market value of each financial resource used to meet its
obligations under paragraph (a) of this section. Reductions in value to
reflect market and credit risk (haircuts) shall be applied as
appropriate.
(e) Liquidity of financial resources. The financial resources
allocated by the swap data repository to meet the requirements of
paragraph (a) shall include unencumbered, liquid financial assets
(i.e., cash and/or highly liquid securities) equal to at least six
months' operating costs. If any portion of such financial resources is
not sufficiently liquid, the swap data repository may take into account
a committed line of credit or similar facility for the purpose of
meeting this requirement.
(f) Reporting requirements. (1) Each fiscal quarter, or at any time
upon Commission request, a swap data repository shall report to the
Commission the amount of financial resources necessary to meet the
requirements of paragraph (a), the value of each financial resource
available, computed in accordance with the requirements of paragraph
(d); and provide the Commission with a financial statement, including
the balance sheet, income statement, and statement of cash flows of the
swap data repository or of its parent company. Financial statements
shall be prepared in conformity with generally accepted accounting
principles (GAAP) applied on a basis consistent with that of the
preceding financial statement.
(2) The calculations required by this paragraph shall be made as of
the last business day of the swap data repository's fiscal quarter.
(3) The report shall be filed not later than 17 business days after
the end of the swap data repository's fiscal quarter, or at such later
time as the Commission may permit, in its discretion, upon request by
the swap data repository.
Sec. 49.26 Disclosure requirements of swap data repositories.
Before accepting any swap data from a reporting entity or upon a
reporting entity's request, a registered swap data repository shall
furnish to the reporting entity a disclosure document that contains the
following written information, which shall reasonably enable the
reporting entity to identify and evaluate accurately the risks and
costs associated with using the services of the swap data repository:
(a) The registered swap data repository's criteria for providing
others with access to services offered and data maintained by the swap
data repository;
(b) The registered swap data repository's criteria for those
seeking to connect to or link with the swap data repository;
(c) A description of the registered swap data repository's policies
and procedures regarding its safeguarding of data and operational
reliability to protect the confidentiality and security of such data,
as described in Sec. 49.24;
(d) The registered swap data repository's policies and procedures
reasonably designed to protect the privacy of any and all swap data
that the swap data repository receives from a reporting entity, as
described in Sec. 49.16;
(e) The registered swap data repository's policies and procedures
regarding its non-commercial and/or commercial use of the swap data
that it receives from a market participant, any registered entity, or
any other person;
(f) The registered swap data repository's dispute resolution
procedures;
(g) A description of all the registered swap data repository's
services, including any ancillary services;
(h) The registered swap data repository's updated schedule of any
fees, rates, dues, unbundled prices, or other charges for all of its
services, including any ancillary services; any discounts or rebates
offered; and the criteria to benefit from such discounts or rebates;
and
(i) A description of the registered swap data repository's
governance arrangements.
Sec. 49.27 Access and fees.
(a) Fair, Open and Equal Access. A swap data repository, consistent
with Section 21 of the Act, shall provide its services to market
participants, including but not limited to designated contract markets,
swap execution facilities, derivatives clearing organizations, swap
dealers, major swap participants and any other counterparties, on fair,
open and equal basis. For this purpose, a swap data repository shall
not provide access to its services on a discriminatory basis but is
required to provide its services to all market participants for swaps
it accepts in an asset class.
(b) Fees. (1) Any fees or charges imposed by a registered swap data
repository in connection with the reporting of swap data and any other
supplemental or ancillary services provided by such swap data
repository shall be equitable and established in a uniform and non-
discriminatory
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manner. Fees or charges shall not be used as an artificial barrier to
access to the swap data repository. Swap data repositories shall not
offer preferential pricing arrangements to any market participant on
any basis, including volume discounts or reductions unless such
discounts or reductions apply to all market participants uniformly and
are not otherwise established in a manner that would effectively limit
the application of such discount or reduction to a select number of
market participants.
(2) All fees or charges are to be fully disclosed and transparent
to market participants. At a minimum, the registered swap data
repository shall provide a schedule of fees and charges that is
accessible by all market participants on its Web site.
(3) The Commission notes that it will not specifically approve the
fees charged by swap data repositories. However, any and all fees
charged by swap data repositories must be consistent with the
principles set forth in paragraph (b)(1) of this section.
Appendix A to Part 49--Form SDR
UNITED STATES COMMODITY FUTURES TRADING COMMISSION
FORM SDR
SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR
REGISTRATION UNDER THE COMMODITY EXCHANGE ACT
REGISTRATION INSTRUCTIONS
Intentional misstatements or omissions of fact may constitute federal
criminal violations (7 U.S.C. 13 and 18 U.S.C. 1001) and/or
grounds for disqualification from registration.
DEFINITIONS
Unless the context requires otherwise, all terms used in the form
have the same meaning as in the Commodity Exchange Act, as amended, and
in the Regulations of the Commission thereunder.
For the purposes of this form, the term ``applicant'' shall include
any applicant for registration as a swap data repository or any
registered swap data repository that is amending Form SDR.
GENERAL INSTRUCTIONS
1. Two (2) copies of Form SDR and Exhibits thereto are to be filed
with the Commodity Futures Trading Commission by applicants for
registration as a swap data repository, or by a registered swap data
repository amending such registration, pursuant to Section 21 of the
Commodity Exchange Act and the regulations thereunder. Upon the filing
of an application for registration, the Commission will publish notice
of the filing and afford interested persons an opportunity to submit
written data, views and arguments concerning such application. No
application for registration shall be effective unless the Commission,
by order, grants such registration.
2. Individuals' names shall be given in full (last name, first
name, middle name).
3. Signatures must accompany each copy of the Form SDR filed with
the Commission. If this Form SDR is filed by a corporation, it must be
signed in the name of the corporation by a principal officer duly
authorized; if filed by a limited liability company, this Form SDR must
be signed in the name of the limited liability company by a member duly
authorized to sign on the limited liability company's behalf; if filed
by a partnership, this Form SDR must be signed in the name of the
partnership by a general partner authorized; if filed by an
unincorporated organization or association which is not a partnership,
it must be signed in the name of the organization or association by the
managing agent, i.e., a duly authorized person who directs, manages or
who participates in the directing or managing of its affairs.
4. If Form SDR is being filed as an initial application for
registration, all applicable items must be answered in full. If any
item is not applicable, indicate by ``none,'' ``not applicable,'' or
``N/A'' as appropriate.
5. Under Section 21 of the Commodity Exchange Act and the
regulations thereunder, the Commission is authorized to solicit the
information required to be supplied by this form from applicants for
registration as a swap data repository and from registered swap data
repositories amending their registration. Disclosure of the information
specified on this form is mandatory prior to processing of an
application for registration as a swap data repository. The information
will be used for the principal purpose of determining whether the
Commission should grant or deny registration to an applicant. Except in
cases where confidential treatment is requested by the applicant and
granted by the Commission pursuant to the Freedom of Information Act
and the regulations of the Commission thereunder, information supplied
on this form will be included routinely in the public files of the
Commission and will be available for inspection by any interested
person. A Form which is not prepared and executed in compliance with
applicable requirements and instructions may be returned as not
acceptable for filing. Acceptance of this Form SDR, however, shall not
constitute any finding that the Form SDR has been filed as required or
that the information submitted is true, current or complete.
UPDATING INFORMATION ON THE FORM SDR
1. Section 21 requires that if any information contained in Items 1
through 15, 21, 27, and Item 51 of this application, or any supplement
or amendment thereto, is or becomes inaccurate for any reason, an
amendment must be filed promptly, unless otherwise specified, on Form
SDR correcting such information.
2. Registrants filing Form SDR as an amendment (other than an
annual amendment) need file only the facing page, the signature page
(Item 11), and any pages on which an answer is being amended, together
with such exhibits as are being amended. The submission of an amendment
represents that all unamended items and exhibits remain true, current
and complete as previously filed.
ANNUAL AMENDMENT ON THE FORM SDR
Annual amendments on the Form SDR shall be submitted within 60 days
of the end of each calendar year. Applicants must complete the facing
page and provide updated information.
An applicant may request an extension of time for submitting the
annual amendment with the Secretary of the Commission based on
substantial, undue hardship. Extensions for filing annual amendments
may be granted at the discretion of the Commission.
WHERE TO FILE
File registration application and appropriate exhibits
electronically with the Commission at the Washington, D.C. headquarters
in a format specified by the Secretary of the Commission. Applications
should be sent to the attention of the Secretary of the Commission at
[email protected].
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EXHIBITS INSTRUCTIONS
The following exhibits must be included as part of Form SDR and
filed with the Commodity Futures Trading Commission by applicants for
registration as a swap data repository, or by registered swap data
repository amending such registration, pursuant to Section 21 of the
Commodity Exchange Act and regulations thereto. Such exhibits should be
labeled according to the items specified in this Form. If any exhibit
is not applicable, please specify the exhibit letter and indicate by
``none,'' ``not applicable,'' or ``N/A'' as appropriate. The applicant
must identify with particularity the information in these exhibits that
will be subject to a request for confidential treatment and supporting
documentation for such request pursuant to Commission Regulation Sec.
145.9.
If the applicant is a newly formed enterprise and does not have the
financial statements required pursuant to Items 25 and 26 of this form,
the applicant should provide pro forma financial statements for the
most recent
[[Page 80942]]
six months or since inception, whichever is less. Except for pro forma
financial statements prepared for newly-created entities, financial
statements shall be prepared in conformity with generally accepted
accounting principles (``GAAP'') applied on a basis consistent with
that of the preceding financial statement.
EXHIBITS I--BUSINESS ORGANIZATION
12. List as Exhibit A any person who owns ten (10) percent or more
of applicant's equity or possesses voting power of any class, either
directly or indirectly, through agreement or otherwise, or in any other
manner, may control or direct the management or policies of applicant.
``Control'' for this purpose is defined in Commission Regulation Sec.
49.2(a)(3).
State in Exhibit A the full name and address of each such person
and attach a copy of the agreement or, if there is none written,
describe the agreement or basis upon which such person exercises or may
exercise such control or direction.
13. Attach as Exhibit B to this application a narrative that sets
forth the fitness standards for the board of directors. Attach a list
of the present officers, directors, governors (and, in the case of an
applicant not a corporation, the members of all standing committees
grouped by committee), or persons performing functions similar to any
of the foregoing, of the swap data repository or of the entity
identified in Item 16 that performs the swap data repository activities
of the applicant, indicating for each:
a. Name
b. Title
c. Date of commencement and, if appropriate, termination of present
term of position
d. Length of time each present officer, director, or governor has
held the same position
e. Brief account of the business experience of each officer and
director over the last five (5) years
f. Any other business affiliations in the securities industry or
OTC derivatives industry
g. A description of:
(1) any order of the Commission with respect to such person
pursuant to Section 5e of the Act;
(2) any conviction or injunction within the past 10 years;
(3) any disciplinary action with respect to such person within the
last five (5) years;
(4) any disqualification under Sections 8b, and 8d of the Act;
(5) any disciplinary action under Section 8c of the Act;
(6) any violation pursuant to Section 9 of the Act.
h. For directors, list any committees on which they serve and any
compensation received by virtue of their directorship.
14. Attach as Exhibit C to this application the following
information about the chief compliance officer who has been appointed
by the board of directors of the swap data repository or a person or
group performing a function similar to such board of directors:
a. Name
b. Title
c. Dates of commencement and termination of present term of office
or position
d. Length of time the chief compliance officer has held the same
office or position
e. Brief account of the business experience of the chief compliance
officer over the last five (5) years
f. Any other business affiliations in the derivatives/securities
industry or swap data repository industry
g. A description of:
(1) any order of the Commission with respect to such person
pursuant to Section 5e of the Act;
(2) any conviction or injunction within the past 10 years;
(3) any disciplinary action with respect to such person within the
last five (5) years;
(4) any disqualification under Sections 8b, and 8d of the Act;
(5) any disciplinary action under Section 8c of the Act;
(6) any violation pursuant to Section 9 of the Act.
15. Attach as Exhibit D a copy of documents relating to the
governance arrangements of the applicant, including, but not limited
to:
a. the nomination and selection process of the members on the
applicant's board of directors, a person or group performing a function
similar to a board of directors (collectively, ``board''), or any
committee that has the authority to act on behalf of the board or amend
or constrain the action of the board, the responsibilities of each of
the board and such committee, and the composition of each board and
such committee;
b. the process for assigning members of the board or other persons
to any committees referenced in (a);
c. a description of the manner in which the board and the
committees referenced in (a) allows the applicant to comply with
applicable core principles, regulations, as well as the policies and
procedures of the applicant (including those involving consideration of
an Independent Perspective (as Commission Regulation Sec. 49.2(a)(14)
defines such term));
d. a description of the manner in which the board reviews its
performance and the performance of its members;
e. a description of the procedures to remove a member of the board,
where the conduct of such member is likely to be prejudicial to the
sound and prudent management of the applicant.
16. Attach as Exhibit E a narrative or graphic description of the
organizational structure of the applicant. Note: If the swap data
repository activities are conducted primarily by a division,
subdivision, or other segregable entity within the applicant's
corporation or organization, describe the relationship of such entity
within the overall organizational structure and attach as Exhibit E
only such description as applies to the segregable entity.
Additionally, prove any relevant jurisdictional information, including
any and all jurisdictions in which the applicant or any affiliated
entity is doing business and registration status, including pending
application (e.g., country, regulator, registration category, date of
registration). In addition, include a description of the lines of
responsibility and accountability for each operational unit of the
applicant to (i) any committee thereof and/or (ii) the board.
17. Attach as Exhibit F a copy of the conflicts of interest
policies and procedures implemented by the applicant to minimize
conflicts of interest in the decision-making process of the swap data
repository and to establish a process for the resolution of any such
conflicts of interest.
18. Attach as Exhibit G, a list of all affiliates of the swap data
repository and indicate the general nature of the affiliation. Provide
a copy of any agreements entered into or to be entered by the swap data
repository, including partnerships or joint ventures, or its
participants, that will enable the applicant to comply with the
registration requirements and core principles specified in Section 21
of the Commodity Exchange Act.
19. Attach as Exhibit H to this application a copy of the
constitution, articles of incorporation or association with all
amendments thereto, and existing by-laws, rules or instruments
corresponding thereto, of the applicant. A certificate of good standing
dated within one week of the date of the application shall be provided.
20. Where the applicant is a foreign entity seeking registration or
filing an amendment to an existing registration, attach as Exhibit I,
an opinion of
[[Page 80943]]
counsel that the swap data repository, as a matter of law, is able to
provide the Commission with prompt access to the books and records of
such swap data repository and that the swap data repository can submit
to onsite inspection and examination by the Commission.
21. Where the applicant is a foreign entity seeking registration,
attach as Exhibit I-1, to designate and authorize an agent in the
United States, other than a Commission official, to accept any notice
or service of process, pleadings, or other documents in any action or
proceedings brought against the swap data repository to enforce the Act
and the regulations thereunder.
22. Attach as Exhibit J, a current copy of the applicant's rules as
defined in Commission Regulation Sec. 40.1, consisting of all the
rules necessary to carry out the duties as a swap data repository.
23. Attach as Exhibit K, a description of the applicant's internal
disciplinary and enforcement protocols, tools, and procedures. Include
the procedures for dispute resolution.
24. Attach as Exhibit L, a brief description of any material
pending legal proceeding(s), other than ordinary and routine litigation
incidental to the business, to which the applicant or any of its
affiliates is a party or to which any of its or their property is the
subject. Include the name of the court or agency in which the
proceeding(s) are pending, the date(s) instituted, and the principal
parties thereto, a description of the factual basis alleged to underlie
the proceeding(s) and the relief sought. Include similar information as
to any such proceeding(s) known to be contemplated by the governmental
agencies.
EXHIBITS II--FINANCIAL INFORMATION
25. Attach as Exhibit M a balance sheet, statement of income and
expenses, statement of sources and application of revenues and all
notes or schedules thereto, as of the most recent fiscal year of the
applicant. If a balance sheet and statements certified by an
independent public accountant are available, such balance sheet and
statement shall be submitted as Exhibit M. Except for pro forma
financial statements prepared for newly-created entities, financial
statements shall be prepared in conformity with generally accepted
accounting principles (GAAP) applied on a basis consistent with that of
the preceding financial statement.
26. Attach as Exhibit N a balance sheet and an income and expense
statement for each affiliate of the swap data repository that also
engages in swap data repository activities as of the end of the most
recent fiscal year of each such affiliate. Except for pro forma
financial statements prepared for newly-created entities, financial
statements shall be prepared in conformity with GAAP applied on a basis
consistent with that of the preceding financial statement.
27. Attach as Exhibit O the following:
a. A complete list of all dues, fees and other charges imposed, or
to be imposed, by or on behalf of applicant for its swap data
repository services and identify the service or services provided for
each such due, fee, or other charge.
b. Furnish a description of the basis and methods used in
determining the level and structure of the dues, fees and other charges
listed above in paragraph a of this item.
c. If the applicant differentiates, or proposes to differentiate,
among its customers, or classes of customers in the amount of any dues,
fees, or other charges imposed for the same or similar services, so
state and indicate the amount of each differential. In addition,
identify and describe any differences in the cost of providing such
services, and any other factors, that account for such
differentiations.
EXHIBITS III--OPERATIONAL CAPABILITY
28. Attach as Exhibit P copies of all material contracts with any
swap execution facility, clearing agency, central counterparty, or
third party service provider. To the extent that form contracts are
used by the applicant, submit a sample of each type of form contract
used. In addition, include a list of swap execution facilities,
clearing agencies, central counterparties, and third party service
providers with whom the applicant has entered into material contracts.
Where swap data repository functions are performed by a third-party,
attach any agreements between or among the applicant and such third
party, and identify the services that will be provided.
29. Attach as Exhibit Q any technical manuals, other guides or
instructions for users of, or participants in, the market.
30. Attach as Exhibit R a description of system test procedures,
test conducted or test results that will enable the applicant to
comply, or demonstrate the applicant's ability to comply with the core
principles for swap data repositories.
31. Attach as Exhibit S a description in narrative form or by the
inclusion of functional specifications, of each service or function
performed as a swap data repository. Include in Exhibit S a description
of all procedures utilized for the collection, processing,
distribution, publication and retention (e.g., magnetic tape) of
information with respect to transactions or positions in, or the terms
and conditions of, swaps entered into by market participants.
32. Attach as Exhibit T a list of all computer hardware utilized by
the applicant to perform swap data repository functions, indicating
where such equipment (terminals and other access devices) is physically
located.
33. Attach as Exhibit U a description of the personnel
qualifications for each category of professional employees employed by
the swap data repository or the division, subdivision, or other
segregable entity within the swap data repository as described in Item
16.
34. Attach as Exhibit V a description of the measures or procedures
implemented by applicant to provide for the security of any system
employed to perform the functions of a swap data repository. Include a
general description of any physical and operational safeguards designed
to prevent unauthorized access (whether by input or retrieval) to the
system. Describe any circumstances within the past year in which the
described security measures or safeguards failed to prevent any such
unauthorized access to the system and any measures taken to prevent a
reoccurrence. Describe any measures used to verify the accuracy of
information received or disseminated by the system.
35. Attach as Exhibit W copies of emergency policies and procedures
and applicant's business continuity-disaster recovery plan. Include a
general description of any business continuity-disaster recovery
resources, emergency procedures, and backup facilities sufficient to
enable timely recovery and resumption of its operations and resumption
of its ongoing fulfillment of its duties and obligations as a swap data
repository following any disruption of its operations.
36. Where swap data repository functions are performed by automated
facilities or systems, attach as Exhibit X a description of all backup
systems or subsystems that are designed to prevent interruptions in the
performance of any swap data repository function as a result of
technical malfunctions or otherwise in the system itself, in any
permitted input or output system connection, or as a result of any
independent source. Include a narrative description of each type of
interruption that has lasted for more than two minutes and has occurred
within the six (6) months preceding the date of the filing, including
the date of each interruption,
[[Page 80944]]
the cause and duration. Also state the total number of interruptions
that have lasted two minutes or less.
37. Attach as Exhibit Y the following:
a. For each of the swap data repository functions:
(1) quantify in appropriate units of measure the limits on the swap
data repository's capacity to receive (or collect), process, store or
display (or disseminate for display or other use) the data elements
included within each function (e.g., number of inquiries from remote
terminals); and
(2) identify the factors (mechanical, electronic or other) that
account for the current limitations reported in answer to (1) on the
swap data repository's capacity to receive (or collect), process, store
or display (or disseminate for display or other use) the data elements
included within each function.
b. If the applicant is able to employ, or presently employs, the
central processing units of its system(s) for any use other than for
performing the functions of a swap data repository, state the
priorities of assignment of capacity between such functions and such
other uses, and state the methods used or able to be used to divert
capacity between such functions and such other uses.
EXHIBITS IV--ACCESS TO SERVICES
38. Attach as Exhibit Z the following:
a. As to each swap data repository service that the applicant
provides, state the number of persons who presently utilize, or who
have notified the applicant of their intention to utilize, the services
of the swap data repository.
b. For each instance during the past year in which any person has
been prohibited or limited in respect of access to services offered by
the applicant as a swap data repository, indicate the name of each such
person and the reason for the prohibition or limitation.
c. Define the data elements for purposes of the swap data
repository's real-time public reporting obligation. Appendix A to part
43 of the Commission's Regulations (Data Elements and Form for Real-
Time Reporting for Particular Markets and Contracts) sets forth the
specific data elements for real-time public reporting.
39. Attach as Exhibit AA copies of any agreements governing the
terms by which information may be shared by the swap data repository,
including with market participants. To the extent that form contracts
are used by the applicant, submit a sample of each type of form
contract used.
40. Attach as Exhibit BB a description of any specifications,
qualifications or other criteria that limit, are interpreted to limit,
or have the effect of limiting access to or use of any swap data
repository services furnished by the applicant and state the reasons
for imposing such specifications, qualifications, or other criteria,
including whether such specifications, qualifications or other criteria
are imposed.
41. Attach as Exhibit CC any specifications, qualifications, or
other criteria required of participants who utilize the services of the
applicant for collection, processing, preparing for distribution, or
public dissemination by the applicant.
42. Attach as Exhibit DD any specifications, qualifications, or
other criteria required of any person, including, but not limited to,
regulators, market participants, market infrastructures, venues from
which data could be submitted to the applicant, and third party service
providers who request access to data maintained by the applicant.
43. Attach as Exhibit EE policies and procedures implemented by the
applicant to review any prohibition or limitation of any person with
respect to access to services offered or data maintained by the
applicant and to grant such person access to such services or data if
such person has been discriminated against unfairly.
EXHIBITS--OTHER POLICIES AND PROCEDURES
44. Attach as Exhibit FF, a narrative and supporting documents that
may be provided under other Exhibits herein, that describe the manner
in which the applicant is able to comply with each core principle and
other requirements pursuant to Commission Regulation Sec. 49.17.
45. Attach as Exhibit GG policies and procedures implemented by the
applicant protect the privacy of any and all swap information that the
swap data repository receives from reporting entities.
46. Attach as Exhibit HH a description of safeguards, policies, and
procedures implemented by the applicant to prevent the misappropriation
or misuse of (a) any confidential information received by the
applicant, including, but not limited to ``Section 8 Material'' and
``SDR Information,'' as those terms are defined in Commission
Regulation Sec. 49.2, about a market participant or any of its
customers; and/or (c) intellectual property by applicant or any person
associated with the applicant for their personal benefit or the benefit
of others.
47. Attach Exhibit II policies and procedures implemented by the
applicant regarding its use of the SDR Information that it receives
from a market participant, any registered entity, or any person for
non-commercial and/or commercial purposes.
48. Attach as Exhibit JJ procedures and a description of facilities
of the applicant for effectively resolving disputes over the accuracy
of the transaction data and positions that are recorded in the swap
data repository.
49. Attach as Exhibit KK policies and procedures relating to the
applicant's calculation of positions.
50. Attach as Exhibit LL policies and procedures that are
reasonably designed to prevent any provision in a valid swap from being
invalidated or modified through the procedures or operations of the
applicant.
51. Attach as Exhibit MM a plan to ensure that the transaction data
and position data that are recorded in the applicant continue to be
maintained after the applicant withdraws from registration as a swap
data repository, which shall include procedures for transferring the
transaction data and position data to the Commission or its designee
(including another registered swap data repository).
Issued in Washington, DC on November 19, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following Statement will not appear in the Code of
Federal Regulations.
Statement of Chairman Gary Gensler Swap Data Repositories
I support the proposed rulemaking to establish registration
requirements and regulations of swap data repositories. This proposal
would implement Congress's mandate that all swaps--whether cleared or
uncleared--be reported to a swap data repository registered with the
Commission. Registration will enable the Commission to monitor swap
data repositories for compliance with the Dodd-Frank Act and Commission
regulations. The proposal implements Congress's direction that
regulators would have direct access to information maintained by swap
data repositories. The proposal requires swap data repositories to
verify the accuracy and completeness of all of the swaps data it
accepts. The proposed rule also includes a requirement that swap data
repositories would receive notifications with regard to non-financial
end-users hedging or mitigating commercial risk. The proposal also
includes important features where swap data repositories will
facilitate real time reporting of
[[Page 80945]]
swaps transactions. Lastly, the proposal includes provisions for swap
data repositories to aggregate certain information for regulators and
the public.
Dissenting Statement of Commissioner Jill E. Sommers
I disagree with several aspects of the proposal the Commission is
issuing today, but seek public comment on two particular areas that I
believe are important as they relate to the critical function of real-
time public reporting of swap data.
First, I request public comment on whether the Commission should
require registered swap data repositories (SDRs) to perform the real-
time reporting duties described in section 2(a)(13) of the Commodity
Exchange Act (CEA), as amended by the Dodd-Frank Act. Section 21(c) of
the CEA sets forth specific duties that SDRs must perform. It directs,
in relevant part, that SDRs ``shall . . . provide the information
described in paragraph (1) [i.e., swap data] in such form and at such
frequency as the Commission may require to comply with the public
reporting requirements contained in section 2(a)(13) [i.e., real-time
reporting].'' Section 21(c)(4)(B). The proposal contemplates that SDRs
will be required to perform real-time reporting for off-facility swaps,
but can choose not to perform this function for swaps executed on a
swap market, in which case the data can be submitted to a third-party
vendor for real-time reporting.
In my view, real-time reporting is one of the core functions that
Congress intended SDRs to perform. The structure the Commission is
proposing may needlessly fragment the public reporting of real-time
data and could undermine the purpose of real-time reporting, which is
to make data available to the public in a form that enhances price
transparency.
Second, I recognize that under Section 2(a)(13) of the CEA the
Commission may also require other registered entities to perform real-
time reporting, but I question the utility of allowing third-party
vendors to perform this important function. As such, I also seek public
comment on whether third-party vendors should be subject to some form
of regulatory oversight in the event the Commission permits them to
accept data for real-time reporting purposes.
[FR Doc. 2010-31133 Filed 12-22-10; 8:45 am]
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