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2010-30884

  • FR Doc 2010-30884[Federal Register: December 9, 2010 (Volume 75, Number 236)]

    [Proposed Rules]

    [Page 76666-76677]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr09de10-21]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 23

    RIN 3038-AC96

    Reporting, Recordkeeping, and Daily Trading Records Requirements

    for Swap Dealers and Major Swap Participants

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking.

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    SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

    is proposing regulations to implement new statutory provisions

    established under Title VII of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act (Dodd-Frank Act). Section 731 of the Dodd-Frank

    Act added new sections 4s(f) and (g) to the Commodity Exchange Act

    (CEA), which set forth reporting and recordkeeping requirements and

    daily trading records requirements for swap dealers and major swap

    participants. The proposed rules would establish the regulatory

    standards for compliance with these new sections of the CEA.

    DATES: Submit comments on or before February 7, 2011.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AC96

    and Reporting, Recordkeeping, and Daily Trading Records Requirements

    for Swap Dealers and Major Swap Participants, 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.

    [[Page 76667]]

    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, a petition for confidential treatment of the exempt

    information may be submitted according to the established procedures in

    Sec. 145.9 of the Commissions regulations, 17 CFR 145.9.

    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

    the Freedom of Information Act.

    FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Associate

    Director, 202-418-5684, sjosephson@cftc.gov; Frank N. Fisanich, Special

    Counsel, 202-418-5949, ffisanich@cftc.gov; or Christopher Hower,

    Attorney Advisor, 202-418-6703, chower@cftc.gov; Division of Clearing

    and Intermediary Oversight, Commodity Futures Trading Commission, Three

    Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\

    Title VII of the Dodd-Frank Act \2\ amended the Commodity Exchange Act

    (CEA) \3\ to establish a comprehensive regulatory framework 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 and major

    swap participants; (2) imposing clearing and trade execution

    requirements on standardized derivative products; (3) creating rigorous

    recordkeeping and real-time reporting regimes; and (4) enhancing the

    Commission's rulemaking and enforcement authorities with respect to all

    registered entities and intermediaries subject to the Commission's

    oversight.

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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

    Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/

    OTCDERIVATIVES/index.htm.

    \2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \3\ 7 U.S.C. 1 et seq.

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    Section 731 of the Dodd-Frank Act amends the CEA by adding a new

    Section 4s, which sets forth a number of requirements for swap dealers

    and major swap participants. Specifically, sections 4s(f) and 4s(g) of

    the CEA establish reporting and recordkeeping requirements and daily

    trading records requirements for swap dealers and major swap

    participants.

    Section 4s(f)(1) requires swap dealers and major swap participants

    to ``make such reports as are required by the Commission by rule or

    regulation regarding the transactions and positions and financial

    condition of the registered swap dealer or major swap participant.''

    \4\ Under sections 4s(f)(1)(B)(i) and (ii), the Commission is

    authorized to prescribe the books and records requirements of ``all

    activities related to the business of swap dealers or major swap

    participants,'' regardless of whether or not the entity has a

    prudential regulator. All books and records shall be open to inspection

    and examination by any representative of the Commission, and under

    section 4s(f)(1)(D), books and records relating to security-based swap

    agreements also must be open to inspection and examination by the

    Securities and Exchange Commission.

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    \4\ Recordkeeping related to the swap dealer's or major swap

    participant's financial condition reports will be prescribed in

    separate rulemaking proposals and are not included in the proposed

    rules below.

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    Section 4s(g)(1) requires that swap dealers and major swap

    participants ``maintain daily trading records of the swaps of the

    registered swap dealer and major swap participant and all related

    records (including related cash and forward transactions) and recorded

    communications, including electronic mail, instant messages, and

    recordings of telephone calls.'' Section 4s(g)(3) requires that daily

    trading records for each swap transaction be identifiable by

    counterparty, and section 4s(g)(4) specifies that swap dealers and

    major swap participants maintain a ``complete audit trail for

    conducting comprehensive and accurate trade reconstructions.''

    The Commission would adopt the regulations discussed below pursuant

    to authority granted under sections 4s(h)(1)(D), 4s(h)(3)(D), 4s(f),

    4s(g), and 8a(5) of the CEA.\5\ The Dodd-Frank Act requires the

    Commission to promulgate these provisions by July 15, 2011.

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    \5\ Section 8a(5) of the CEA authorizes the Commission to

    promulgate such regulations as, in the judgment of the Commission,

    are reasonably necessary to effectuate any of the provisions or to

    accomplish any of the purposes of the CEA.

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    The proposed regulations reflect consultation with staff of the

    following agencies: (i) The Securities and Exchange Commission; (ii)

    the Board of Governors of the Federal Reserve System; (iii) the Office

    of the Comptroller of the Currency; and (iv) the Federal Deposit

    Insurance Corporation. Staff from each of these agencies has had the

    opportunity to provide oral and/or written comments to the proposal,

    and the proposed regulations incorporate elements of the comments

    provided.

    The Commission requests comment on all aspects of the proposed

    regulations, as well as comment on the specific provisions and issues

    highlighted in the discussion below. The Commission further requests

    comment on an appropriate effective date for final regulations,

    including comment on whether it would be appropriate to have staggered

    or delayed effective dates for some regulations based on the nature or

    characteristics of the activities or entities to which they apply.

    Moreover, the Commission recognizes that there will be differences in

    the size and scope of the business of particular swap dealers and major

    swap participants. Therefore, comments are solicited on whether certain

    provisions of the proposed regulations should be modified or adjusted

    to reflect the differences among swap dealers and major swap

    participants.

    II. Proposed Regulations

    A. General Records Requirements

    Section 4s(f)(1)(B) of the CEA requires registered swap dealers and

    major swap participants to keep records of all activities related to

    their business. Section 4s(f)(2) directs the Commission to adopt rules

    governing recordkeeping for swap dealers and major swap participants.

    Proposed Sec. 23.201 sets forth the records swap dealers and major

    swap participants must maintain. The records required under the

    proposed rule would include full and complete swap transaction

    information, including all documents on which swap information is

    originally recorded. Under proposed Sec. 23.201(a)(1), such records

    would be required to be maintained in a manner

    [[Page 76668]]

    that is identifiable and searchable by transaction and by counterparty.

    The rule would require retention of all documents customarily generated

    in accordance with market practice that demonstrate the existence and

    nature of the transaction.

    Proposed Sec. 23.201(a)(2) would require retention of records of

    each position held by the swap dealer or major swap participant,

    identified by product and counterparty. Position records would be

    required to be linked to transaction records in a manner that permitted

    identification of the transaction that established the position.

    Position information would be retained in accordance with Commission

    regulations under part 45, which provides for unique product

    identifiers and unique counterparty identifiers.

    Proposed Sec. 23.201(a)(3) would require swap dealers and major

    swap participants to maintain records for transactions executed on a

    swap execution facility (SEF) or designated contract market (DCM) or

    cleared by a derivatives clearing organization (DCO). It should be

    noted, that for transactions that are executed on a SEF or DCM, or

    cleared on a DCO, many of the requirements of the daily trading record

    rule, described below, would be easily achieved through procedures

    established by the SEF, DCM, or DCO (e.g., confirming the transaction,

    valuing the transaction, or margining the position).

    Proposed Sec. 23.201(b) would require that swap dealers and major

    swap participants keep basic business records, including, among other

    things, minutes from meetings of the entity's governing body,

    organizational charts, and documentation of audits conducted.

    Additionally, certain financial records,\6\ records of complaints \7\

    against personnel, and marketing materials would be required to be

    kept. Under proposed Sec. 23.201(c), swap dealers and major swap

    participants would be required to maintain records of information

    required to be submitted to a swap data repository.

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    \6\ Financial condition reporting, including reporting for

    compliance with capital rules, will be proposed in a separate

    rulemaking.

    \7\ A complaint is defined in proposed rule 23.200 as any formal

    or informal complaint, grievance, criticism, or concern communicated

    to the swap dealer or major swap participant in any format relating

    to, arising from, or in connection with, any trading conduct or

    behavior or with the swap dealer or major swap participant's

    performance (or failure to perform) any of its regulatory

    obligations, and includes any and all observations, comments,

    remarks, interpretations, clarifications, notes, and examinations as

    to such conduct or behavior communicated or documented by the

    complainant, swap dealer, or major swap participant.

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    Finally, under proposed Sec. 23.201(d) swap dealers and major swap

    participants would be required to maintain records of information

    required to be reported on a real-time public basis and records of

    information relating to large notional swaps in accordance with

    proposed part 43 and CEA section 2(a)(13).\8\ Specifically, with regard

    to large notional swaps, swap dealers and major swap participants

    should retain a record of the rationale for determining that the swap

    is a large notional swap in accordance with new part 43 of the

    Commission regulations. Additionally, for the purposes of real-time

    reporting under part 43, if less specific information relating to a

    required data field is reported to protect the identities of the

    parties to a swap (e.g., underlying asset or tenor), a swap dealer or

    major swap participant must retain a record of the rationale for why

    reporting less specific information is necessary to protect the

    anonymity of the parties to the swap.

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    \8\ The proposed real-time reporting rules under part 43 are

    available on the Commission's Web site at http://www.cftc.gov.

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    The Commission requests comment on all aspects of proposed Sec.

    23.201. In particular, the Commission solicits comment on the following

    questions:

    Should the Commission provide greater specificity on the

    requirement that transaction records be kept in a form and manner

    identifiable and searchable by transaction and counterparty?

    Are there additional types of records that should be

    required to be kept by swap dealers and major swap participants? For

    example, should drafts of documents be kept?

    B. Daily Trading Records

    Section 4s(g)(1) of the CEA requires that swap dealers and major

    swap participants maintain daily trading records of their swaps and

    ``all related records (including related cash and forward

    transactions).'' This section also requires that swap dealers and major

    swap participants maintain recorded communications, including

    electronic mail, instant messages, and recordings of telephone calls.

    Section 4s(g)(2) provides that the daily trading records shall include

    such information as the Commission shall require by rule or regulation.

    Section 4s(g)(3) requires that daily trading records for each swap

    transaction be identifiable by counterparty, and section 4s(g)(4)

    specifies that swap dealers and major swap participants maintain a

    ``complete audit trail for conducting comprehensive and accurate trade

    reconstructions.''

    Proposed Sec. 23.202 would prescribe daily trading record

    requirements, which would include trade information related to pre-

    execution, execution, and post-execution data. Proposed Sec. 23.202(a)

    would require swap dealers and major swap participants to ensure (1)

    that they preserve all information necessary to conduct a comprehensive

    and accurate trade reconstruction for each swap, and (2) that they

    maintain each transaction record as a separate electronic file

    identifiable and searchable by transaction and counterparty.

    Proposed Sec. 23.202(a)(1) would require registrants to keep pre-

    execution trade information. This would include records of all oral and

    written communications that lead to the execution of a swap, whether

    communicated by telephone, voicemail, facsimile, instant messaging,

    chat rooms, electronic mail, mobile device, or other digital or

    electronic media. This rule would require swap dealers and major swap

    participants to maintain recordings of telephone calls and other

    communications created in the normal course of its business, but would

    not establish an affirmative new requirement to create recordings of

    all telephone conversations if the complete audit trail requirement can

    be met through other means, such as electronic messaging or trading.

    Significant technological advancements in recent years,

    particularly with respect to the cost of capturing and retaining copies

    of electronic material, including telephone communications, have made

    the prospect of establishing recordkeeping requirements for digital and

    electronic communications more economically feasible and systemically

    prudent. Evidence of these trends was examined in March 2008 by the

    United Kingdom's Financial Services Authority (``FSA''), which studied

    the issue of mandating the recording and retention of voice

    conversations and electronic communications.\9\ The FSA issued a Policy

    Statement detailing its findings and ultimately implemented rules

    relating to the recording and retention of such communications,

    including a recent determination that all financial service firms will

    be required to record any relevant communication by

    [[Page 76669]]

    employees on their work cell phones.\10\ Similar rules that mandate

    recording of certain voice and/or telephone conversations have been

    promulgated by the Hong Kong Securities and Futures Commission \11\ and

    by the Autorit[eacute] des March[eacute]s Financiers in France,\12\ and

    have been recommended by the International Organization of Securities

    Commissions (IOSCO).\13\

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    \9\ Financial Services Authority, ``Policy Statement: Telephone

    Recording: recording of voice conversations and electronic

    communications,'' (March 2008).

    \10\ Julia Werdigier, ``Britain to Tape Traders' Cell Phones to

    Fight Fraud,'' New York Times (Nov. 12, 2010).

    \11\ Code of Conduct for Persons Licensed by or Registered with

    the Securities and Futures Commission para. 3.9 (2010) (H.K.).

    \12\ General Regulation of the Autorit[eacute] des

    March[eacute]s Financiers art. 313-51 (2010) (Fr.).

    \13\ Press Release, International Organization of Securities

    Commissions, ``IOSCO Publishes Recommendations to Enhance Commodity

    Futures Markets Oversight,'' (Mar. 5, 2009), http://www.iosco.org/

    news/pdf/IOSCONEWS137.pdf. The IOSCO members on the committee

    formulating the recommendations included Brazil, Canada (Ontario and

    Quebec), Dubai, France, Germany, Hong Kong, Italy, Japan, Norway,

    Switzerland, the United Kingdom, and the United States.

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    While technological advancements have made capturing and retaining

    such material more economically feasible, modern technologies likewise

    have altered the methods by which market participants conduct their

    business, especially the means through which such persons communicate

    solicitations, bids, offers, orders, instructions, trading, and prices.

    On February 5, 2009, the Commission's Division of Market Oversight

    (DMO) issued an advisory, which made clear that the existing language

    of Sec. 1.35 of the Commission's regulations ``appl[ies] to records

    that are created or retained in an electronic format, including e-mail,

    instant messages, and other forms of communication created or

    transmitted electronically for all trading.'' \14\ The advisory, which

    specifically addresses the Commission's recordkeeping requirements as

    applicable to futures commission merchants, introducing brokers, and

    DCM members, states that ``[t]he Commission's recordkeeping

    regulations, by their terms, do not distinguish between whatever medium

    is used to record the information covered by the regulations, including

    e-mails, instant messages, and any other form of communication created

    or transmitted electronically.''

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    \14\ A copy of the advisory, titled ``Advisory for Futures

    Commission Merchants, Introducing Brokers, and Members of a Contract

    Market over Compliance with Recordkeeping Requirements,'' is

    available on the Commission's Web site at http://www.cftc.gov.

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    It is also noteworthy that the Commission's enforcement success in

    cases involving market manipulation and false reporting often has

    correlated directly with the existence of high-quality recordings of

    voice communications and of electronic communications between the

    persons involved. Conversely, the Commission's enforcement capabilities

    have been limited in cases where such voice recordings and copies of

    electronic communications were not available.

    Accordingly, the Commission is proposing Sec. 23.202(a)(1), which

    would require swap dealers and major swap participants to maintain

    records of all communications provided or received concerning

    information that leads to the execution of a swap, whether conveyed by

    telephone, voicemail, facsimile, instant messaging, chat rooms,

    electronic mail, mobile device, or other digital or electronic media.

    As noted above, the proposed Sec. 23.202(a) would require that each

    recorded communication be maintained as a separate electronic file

    identifiable and searchable by transaction and counterparty.

    The Commission solicits comments on the potential costs and effects

    of requiring that all pre-execution communications be recorded.

    Additionally, the Commission requests comment on whether it should

    require a record of the source of quotations, including the source of

    any input if the quotation is generated by a formula or model. Comments

    also are requested regarding whether the retention period for pre-

    execution communications should be shorter than the retention period

    applicable to other business records.

    Proposed Sec. 23.202(a)(2) would require the recording of

    execution information, including all terms of each swap and the date

    and time, to the nearest minute, that the swap was executed. Post-

    execution data, such as records of all confirmations, reconciliations,

    and margining of swaps would be required under proposed Sec.

    23.202(a)(3). The collateralization of risk exposure resulting from the

    business of the swap dealer or major swap participant would be recorded

    under Sec. 23.202(a)(4).

    Proposed Sec. 23.202(b) would require that swap dealers and major

    swap participants retain information of cash or forward transactions

    that are related to swaps as required by section 4s(g)(1). Proposed

    Sec. 23.200 defines a related cash or forward transaction as ``a

    purchase or sale for immediate or deferred physical shipment or

    delivery of an asset related to a swap where the swap and the related

    cash or forward transaction are used to hedge, mitigate the risk of, or

    offset one another.'' The recordkeeping requirements for related cash

    and forward transactions generally track the same requirements as

    swaps. The Commission believes that requiring one approach to

    recordkeeping will be simpler for swap dealers and major swap

    participants to implement and will provide the Commission with

    information necessary for its regulatory oversight.

    The Commission requests comment on all aspects of proposed Sec.

    23.202. With respect to records regarding related cash and forward

    transactions, the Commission solicits comment upon whether the

    Commission has provided sufficient clarity concerning what type of

    information would be required to be retained. The Commission also

    requests comment on whether it should require swap dealers and major

    swap participants to keep records related to high frequency trading,

    and what the nature of those records should be.

    C. Retention and Inspection of Records

    Proposed Sec. 23.203 prescribes the form and manner in which

    records shall be retained, and prescribes the period of time for which

    maintenance of records is required. Generally speaking, Sec. 23.203

    corresponds to the recordkeeping requirements of Sec. 1.31 insofar as

    records are required to be kept for a period of at least 5 years, and

    shall be readily accessible for the first two years of that period.

    Proposed Sec. 23.203(a) would require that records be kept at the

    principal place of business of the swap dealer or major swap

    participant. If the principal place of business is outside of the

    United States, then the swap dealer or major swap participant must

    provide the requested records at a place designated by a representative

    of the Commission within 72 hours of receiving the request.

    Proposed Sec. 23.203(b) would require that all records be

    maintained in accordance with Sec. 1.31 of the Commission's

    regulations, except that records of, or related to, each swap

    transaction be retained until the termination, maturity, expiration,

    transfer, assignment, or novation of the swap, and for five years after

    such time. In other words, the swap dealer or major swap participant

    must maintain records for the life of the swap or the period in which

    the entity holds the position on its books (whichever is shorter), plus

    five additional years. Additionally, records of any swap data must be

    maintained in accordance with requirements under part 45, which was

    recently proposed by the Commission.\15\

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    \15\ The proposed rules under part 45 are available on the

    Commission's Web site at http://www.cftc.gov.

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    [[Page 76670]]

    In addition to any other comments on retention and inspection

    requirements, the Commission requests comment on the approach it has

    proposed for the retention of swap data.

    D. Reports to Swap Data Repositories and Real-time Public Reporting

    Section 4(s)(f)(1)(A) of the CEA requires each registered swap

    dealer and major swap participant to make such reports as are required

    by the Commission by rule or regulation regarding the transactions and

    positions and financial condition of the registered swap dealer or

    major swap participant.

    Proposed Sec. 23.204 implements the reporting requirements of

    Commission rules to be prescribed under CEA section 4r(a) related to

    reporting of swaps to a swap data repository. Proposed Sec. 23.205

    implements the reporting requirements of Commission rules to be

    prescribed under CEA section 2(a)(13) related to real-time public

    reporting of swap transactions and pricing data.\16\ Each of the

    reports required under the proposed rules would assist the Commission

    to monitor the swap markets and the operations of swap dealers and

    major swap participants and to enforce their compliance with the

    Commission's rules.

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    \16\ In a recent release of proposed Part 43 and pursuant to CEA

    section 2(a)(13)(A), reporting parties, for the purposes of real-

    time public reporting, will be obligated to report certain data

    fields relating to swaps ``as soon as technologically practicable''

    following the execution of a swap.

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    III. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \17\ requires that agencies

    consider whether the rules they propose will have a significant

    economic impact on a substantial number of small entities. The

    Commission previously has established certain definitions of ``small

    entities'' to be used in evaluating the impact of its regulations on

    small entities in accordance with the RFA.\18\ The proposed rules would

    affect swap dealers and major swap participants.

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    \17\ 5 U.S.C. 601 et seq.

    \18\ 47 FR 18618, Apr. 30, 1982.

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    Swap dealers and major swap participants are new categories of

    registrants. Accordingly, the Commission has not previously addressed

    the question of whether such persons are, in fact, small entities for

    purposes of the RFA. The Commission previously has determined, however,

    that futures commission merchants are not small entities for purposes

    of the RFA.\19\ The Commission's determination was based, in part, upon

    the obligation of futures commission merchants to meet the minimum

    financial requirements established by the Commission to enhance the

    protection of customers' segregated funds and protect the financial

    condition of futures commission merchants generally.\20\ Like futures

    commission merchants, swap dealers will be subject to minimum capital

    and margin requirements and are expected to comprise the largest global

    financial firms. In addition, the Commission is required to exempt from

    swap dealer designation any entities that engage in a de minimis level

    of swaps dealing in connection with transactions with or on behalf of

    customers. The Commission anticipates that this exemption would exclude

    small entities from registration. For essentially the same reasons that

    futures commission merchants have previously been determined not to be

    small entities and in light of the exemption from the definition of

    swap dealer for those engaging in a de minimus level of swap dealing,

    the Commission is hereby proposing that swap dealers not be considered

    ``small entities'' for purposes of the RFA for this rulemaking.

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    \19\ Id. at 18619.

    \20\ Id.

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    The Commission also has determined previously that large traders

    are not ``small entities'' for RFA purposes.\21\ In that determination,

    the Commission considered that a large trading position was indicative

    of the size of the business. Major swap participants, by statutory

    definition, maintain substantial positions in swaps or maintain

    outstanding swap positions that create substantial counterparty

    exposure that could have serious adverse effects on the financial

    stability of the United States banking system or financial markets.

    Accordingly, for purposes of the RFA for this rulemaking, the

    Commission is hereby proposing that major swap participants not be

    considered ``small entities'' for essentially the same reasons that

    large traders have previously been determined not to be small entities.

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    \21\ Id. at 18620.

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    Moreover, the Commission is carrying out Congressional mandates by

    proposing this regulation. Specifically, the Commission is proposing

    these regulations to comply with the Dodd-Frank Act, the aim of which

    is to reduce systemic risks presented by swap dealers and swap market

    participants through comprehensive regulation. The Commission does not

    believe that there are regulatory alternatives to those being proposed

    that would be consistent with the statutory mandate. Accordingly, 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

    economic impact on a substantial number of small entities.

    B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \22\ imposes certain requirements

    on Federal agencies (including the Commission) in connection with their

    conducting or sponsoring any collection of information as defined by

    the PRA. This proposed rulemaking would result in new collection of

    information requirements within the meaning of the PRA. The Commission

    therefore is submitting this proposal to the Office of Management and

    Budget (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 ``Reporting,

    Recordkeeping, and Daily Trading Records Requirements for Swap Dealers

    and Major Swap Participants.'' 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 control number. The OMB has not

    yet assigned this collection a control number.

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    \22\ 44 U.S.C. 3501 et seq.

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    The collection of information under these proposed regulations is

    necessary to implement certain provisions of the CEA, as amended by the

    Dodd-Frank Act. Specifically, it is essential to ensuring that each

    swap dealer and major swap participant maintains records of all the

    activities related to its business including, but not limited to, daily

    trading records and transaction reporting as required by section 4s(f)

    of the Act. The recordkeeping requirement also is necessary for a

    complete audit trail to conduct comprehensive and accurate trade

    reconstructions. Commission staff would use the information required to

    be preserved or reported when conducting the Commission's examination

    and oversight program with respect to the applicable registrants.

    If the proposed regulations are adopted, responses to this

    collection of information would be mandatory. 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 CEA strictly prohibits the Commission,

    unless specifically authorized by the CEA, from making public ``data

    and information that would separately disclose the business

    transactions or market positions of any person and

    [[Page 76671]]

    trade secrets or names of customers.'' The Commission is also required

    to protect certain information contained in a government system of

    records according to the Privacy Act of 1974, 5 U.S.C. 552a.

    1. Information Provided by Reporting Entities/Persons

    Swap dealers and major swap participants would be required to

    comply with the recordkeeping requirements of Sec. Sec. 23.201,

    23.202, and 23.203 and the reporting requirements of Sec. Sec. 23.204

    and 23.205. The proposed regulations generally would require swap

    dealers and major swap participants to keep transaction and position

    records of their swaps (including daily trading records of swaps and

    related cash and forward transactions); to maintain specified business

    records (including records related to the swap dealer's or major swap

    participant's governance, financial status, and complaints); to report

    certain swap transaction data to swap data repositories; to satisfy

    certain real time public reporting requirements; and to maintain

    records of information reported to swap data repositories and for real

    time public reporting purposes.

    The annual burden associated with these proposed regulations is

    estimated to be 2,096 hours, at an annual cost of $209,600 for each

    swap dealer and major swap participant. Burden means the total time,

    effort, or financial resources expended by persons to generate,

    maintain, retain, disclose, or provide information to or for a federal

    agency. This hourly burden primarily results from the recordkeeping

    obligations that would be imposed by proposed Sec. Sec. 23.201 and

    23.202.

    Specifically, the Commission anticipates that swap dealers and

    major swap participants will spend approximately eight hours per

    trading day (2,016 hours per year) compiling and maintaining

    transaction records, including daily trading records. The Commission

    believes that swap dealers and major swap participants already maintain

    the vast majority of the required transaction records (particularly

    execution and post-execution records) as part of their customary and

    usual business practices and that any additional expenditure generally

    would be limited to the costs associated with developing and preserving

    certain pre-execution data and communications set forth in proposed

    Sec. 23.202, which currently may not be kept by affected registrants

    (for example, records of oral and written communications and records

    related to quotes, bids, and offers) as well as the time required to

    input any unique transaction terms into electronic recordkeeping

    systems. The Commission believes that registrants will expend an

    additional 63 hours per year compiling daily records of their

    positions, identified by product and counterparty, as required by

    proposed Sec. 23.201.

    The Commission estimates that each swap dealer and major swap

    participant will spend 5 hours per year compiling the complaint records

    required by the proposed regulations. This approximation is based on

    the belief that the affected registrants primarily engage in principal

    to principal transactions, which are less likely to generate complaints

    than transactions conducted on an agency basis. It also assumes that

    most registrants possess pre-existing complaint recordkeeping systems

    and thus, any hourly burden imposed would be limited to the time

    required to document and retain the specific complaint information

    mandated by the rule that is not already kept. Finally, the Commission

    estimates the hourly burden associated with compliance with the

    marketing communication recordkeeping requirement to be approximately

    12 hours per year. The Commission expects that swap dealers and market

    participants presently maintain records of most of their marketing

    presentations, advertisements, sales literature, and marketing

    communications as part of their customary business practices and, thus,

    any new hourly burden is limited to the requirement to maintain a

    record of compliance with relevant marketing regulations.

    The Commission believes that several aspects of the rule would not

    result in any additional hourly burdens upon affected registrants. For

    example, the required records of transactions executed on a swap

    execution facility or designated contract market or transactions

    cleared by a designated clearing organization would be the same

    transaction and daily trading records accounted for previously and,

    therefore, have not been assigned an extra hourly burden. The

    Commission also expects that swap dealers and major swap participants

    currently make and/or maintain their meeting minutes; organizational

    charts; the resumes of relevant managers; records of their assets,

    liabilities, income, and expenses; and other governance or financial

    records in the ordinary course of their businesses.

    Finally, the Commission does not anticipate that the requirements

    to report swap transactions to swap data repositories in accordance

    with proposed Sec. 23.204, to engage in real time public reporting of

    swap transaction and pricing data in accordance with proposed Sec.

    23.205, and to maintain the electronic systems and procedures necessary

    to report transactions and data in the manner required by the

    regulations would result in any additional hourly burdens or costs to

    swap dealers and major swap participants other than those set forth in

    the recently proposed part 45 regulations for swap data recordkeeping

    and reporting \23\ and in the recently proposed part 43 regulations

    governing real-time public reporting of swap transaction data \24\

    promulgated as part of the Commission's implementation of the Dodd-

    Frank Act.

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

    \23\ The proposed rules are available on the Commission's Web

    site at http://www.cftc.gov. The Commission has estimated the

    average hour burden incurred by swap dealers and major swap

    participants in connection with reporting to swap data repositories

    to be 2,080 hours. This estimate was based upon the assumption that

    a significant number of swap dealers and major swap participants

    would dedicate the equivalent of at least one full time employee to

    ensuring compliance with the relevant reporting obligations (2,080

    hours = 52 weeks x 5 days x 8 hours). The Commission noted that it

    believed this assumption to be reasonable due to the volume of swap

    transactions to be processed by such entities, the information

    required by proposed regulations and the frequency with which

    reports would be made. The Commission also estimated the cost of the

    obligation to report a unique swap identifier to other registered

    entities and swap participants to be 6 annual burden hours per

    entity and the estimated cost of reporting their ownership and

    affiliation information into a confidential database to be 2 hours

    per entity.

    \24\ The Commission has estimated that swap dealers and major

    swap participants will incur 2,080 annual burden hours in connection

    with the real-time reporting requirements.

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

    It is not currently known how many swap dealers and major swap

    participants will become subject to these rules, and this will not be

    known to the Commission until the registration requirements for these

    entities become effective after July 16, 2011, the date on which the

    Dodd-Frank Act becomes effective. The Commission believes that there

    are likely to be approximately 200 swap dealers and 50 major swap

    participants that would be required to register with the Commission. It

    has chosen to take a more conservative approach for PRA purposes,

    however, and has estimated that there will be a combined number of 300

    swap dealers and major swap participants who will be required to comply

    with the recordkeeping and reporting obligations imposed by the

    proposed regulations. The Commission estimated the number of affected

    entities based on industry data.

    According to recent Bureau of Labor Statistics, the mean hourly

    wage of an

    [[Page 76672]]

    employee under occupation code 11-3031, ``Financial Managers,'' (which

    includes operations managers) that is employed by the ``Securities and

    Commodity Contracts Intermediation and Brokerage'' industry is

    $74.41.\25\ Because swap dealers and major swap participants include

    large financial institutions whose operations management employees'

    salaries may exceed the mean wage, the Commission has estimated the

    cost burden of these proposed regulations based upon an average salary

    of $100 per hour.

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

    \25\ http://www.bls.gov/oes/current/oes113031.htm.

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

    Accordingly, the estimated hour burden was calculated as follows:

    Recordkeeping: Transaction Records (including Daily Trading

    Records)

    Number of registrants: 300.

    Frequency of collection: Daily.

    Estimated number of responses per registrant: 252 [252 trading

    days].

    Estimated aggregate number of responses: 75,600 [300 registrants x

    252 trading days].

    Estimated annual burden per registrant: 2,016 hours [252 trading

    days x 8 hours per trading day].

    Estimated aggregate annual hour burden: 604,800 hours [300

    registrants x 252 trading days x 8 hours per trading day].

    Recordkeeping: Position Records

    Number of registrants: 300.

    Frequency of collection: Daily.

    Estimated number of responses per registrant: 252 [252 trading

    days].

    Estimated aggregate number of responses: 75,600 [300 registrants x

    252 trading days].

    Estimated annual burden per registrant: 63 hours [252 trading days

    x .25 hours per record].

    Estimated aggregate annual hour burden: 18,900 hours [300

    registrants x 252 trading days x .25 hours per record].

    Recordkeeping: Complaints

    Number of registrants: 300.

    Frequency of collection: As needed.

    Estimated number of responses per registrant: 5.

    Estimated aggregate number of responses: 1,500 [300 registrants x 5

    complaints per registrant].

    Estimated annual burden per registrant: 5.

    Estimated aggregate annual hour burden: 1,500 [300 registrants x 5

    complaints per registrant].

    Recordkeeping: Marketing Communications

    Number of registrants: 300.

    Frequency of collection: As needed.

    Estimated number of responses per registrant: 12 (monthly

    compilation of records).

    Estimated aggregate number of responses: 3,600 [300 registrants x

    12 monthly compilations].

    Estimated annual burden per registrant: 12 hours [1 hour x 12

    months].

    Estimated aggregated annual hour burden: 3,600 [300 registrants x

    12 monthly compilations].

    Based upon the above, the aggregate hour burden cost for all

    registrants is 628,800 burden hours and $62,880,000 [628,800 x $100 per

    hour].

    In addition to the per hour burden discussed above, the Commission

    anticipates that swap dealers and major swap participants may incur

    certain start-up costs in connection with the proposed recordkeeping

    obligations. Such costs would include the expenditures related to

    developing and installing new technology or re-programming or updating

    existing recordkeeping technology and systems to enable the swap dealer

    or major swap participant to collect, capture, process, maintain, and

    re-produce any newly required records. The Commission believes that

    swap dealers and major swap participants generally could adapt their

    current infrastructure to accommodate the new or amended technology and

    thus no significant infrastructure expenditures would be needed. The

    Commission estimates the programming burden hours associated with

    technology improvements to be 160 hours.

    According to recent Bureau of Labor Statistics, the mean hourly

    wages of computer programmers under occupation code 15-1021 and

    computer software engineers under program codes 15-1031 and 1032 are

    between $34.10 and $44.94.\26\ Because swap dealers and major swap

    participants generally will be large entities that may engage employees

    with wages above the mean, the Commission has conservatively chosen to

    use a mean hourly programming wage of $60 per hour. Accordingly, the

    start-up burden associated with the required technological improvements

    would be $9,600 [$60 x 160 hours] per affected registrant or $2,880,000

    in the aggregate.

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    \26\ http://www.bls.gov/oes/current/oes113031.htm.

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

    2. Information Collection Comments

    The Commission invites the public and other federal agencies to

    comment on any aspect of the recordkeeping burdens discussed above. The

    Commission specifically request comment upon its determination that

    certain of the proposed recordkeeping requirements would not impose any

    additional information collection burdens upon affected registrants and

    the appropriateness of the burden hours attributed to other

    recordkeeping obligations.\27\ 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.

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

    \27\ The Commission notes that, because it has not regulated

    swap dealers, swap market participants, or the swaps market in the

    past, it has not previously collected data on the number of

    particular swap market participants or the average number of daily

    transactions in which particular types of swaps market participants

    engage.

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

    Comments may be submitted directly to the Office of Information and

    Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

    OIRAsubmissions@omb.eop.gov. 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 document in the Federal Register. Therefore, a comment is best

    assured of having its full effect if OMB receives it within 30 days of

    publication.

    C. Cost-Benefit Analysis

    Section 15(a) of the CEA \28\ requires the Commission to consider

    the costs and benefits of its actions before issuing a rulemaking under

    the CEA. By its terms, section 15(a) does not require the Commission to

    quantify the costs and benefits of a new regulation or to determine

    whether the benefits of the rule outweigh its costs; rather, it

    requires that the Commission ``consider'' the costs and benefits of its

    actions.

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

    \28\ 7 U.S.C. 19(a).

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

    [[Page 76673]]

    Section 15(a) further specifies that costs and benefits of a

    proposed rulemaking shall be evaluated in light of five broad areas of

    market and public concern: (1) Protection of market participants and

    the public; (2) efficiency, competitiveness, and financial integrity of

    futures markets; (3) price discovery; (4) sound risk management

    practices; and (5) other public interest considerations. The Commission

    may, in its discretion, give greater weight to any one of the five

    enumerated considerations and could, in its discretion, 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 CEA.

    Summary of proposed requirements. The proposed regulations would

    implement certain provisions of section 731 of the Dodd-Frank Act,

    which adds new sections 4s(f) and 4s(g) to the Commodity Exchange Act.

    The proposed regulations would set forth certain duties imposed upon

    swap dealers and major swap participants registered with the Commission

    with regard to recordkeeping and reporting of information and data in

    connection with such entities' activities in the swap market.

    Costs. With respect to costs, the Commission has determined that

    for swap dealers and major swap participants, costs to institute

    recordkeeping and reporting systems and personnel in order to satisfy

    the new regulatory requirements are far outweighed by the benefits to

    the financial system as a whole. As described above, it is expected

    that the any additional cost imposed by the recordkeeping requirements

    of proposed regulations 23.201, 23.202, and 23.203 \29\ would be

    minimal because the information and data required to be recorded is

    information and data a prudent swap dealer or major swap participant

    would already maintain during the ordinary course of its business.

    Moreover, most swap dealers and major swap participants have adequate,

    existing resources and recordkeeping structures that are capable of

    adjusting to the new regulatory framework without material diversion of

    resources away from commercial operations.

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

    \29\ As discussed previously, the cost burdens associated with

    the reporting requirements contained in proposed regulation 23.204

    and 23.205 are addressed in separately proposed rulemakings.

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

    Benefits. With respect to benefits, the Commission has determined

    that the proposed regulations would require a swap dealer or major swap

    participant to keep records and make reports that will result in

    reduced risk and greater market integrity in the swap market. Reporting

    to swap data repositories under 23.204 will provide regulators with a

    more transparent view of the swap market when such data is aggregated.

    Such reporting would further the goal of avoiding market disruptions

    and financial losses to market participants and the general public.

    Therefore, the Commission believes it is prudent to prescribe

    recordkeeping and reporting requirements for swap dealers and major

    swap participants.

    The proposed regulations also would promote appropriate back office

    data management, thereby fostering better risk management. The proposed

    regulations also would reward efficiency insofar as swap dealers and

    major swap participants that operate efficiently would have lower

    operating costs and thus would require fewer resources to comply with

    the regulations. Finally, the proposed regulations are designed to

    ensure that swap dealers and major swap participants can sustain their

    market operations and meet their financial obligations to market

    participants, thus contributing to the integrity of the financial

    markets. Therefore, the Commission believes it is prudent to require

    risk management requirements for swap dealers and major swap

    participants.

    Public Comment. The Commission invites public comment on its cost-

    benefit considerations. Commentators are also invited to submit any

    data or other information that they may have quantifying or qualifying

    the costs and benefits of the proposed rules with their comment

    letters.

    List of Subjects in 17 CFR Part 23

    Antitrust, Commodity futures, Conduct standards, Conflict of

    Interests, Major swap participants, Reporting and recordkeeping, Swap

    dealers, Swaps.

    For the reasons stated in this release, the Commission proposes to

    amend 17 CFR part 23 as proposed to be added by FR Doc. 2010-29024,

    published on November 23, 2010 (75 FR 71379) as follows:

    PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

    1. The authority citation for part 23 to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,

    9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.

    2. Subpart F, (consisting of Sec. Sec. 23.200, 23.201, 23.202,

    23.203, 23.204 and 23.205) is added to read as follows:

    Subpart F--Reporting, Recordkeeping, and Daily Trading Records

    Requirements for Swap Dealers and Major Swap Participants

    Sec.

    23.200 Definitions.

    23.201 Required records.

    23.202 Daily trading records.

    23.203 Records; retention and inspection.

    23.204 Reporting to swap data repositories.

    23.205 Real-time public reporting.

    Subpart F--Reporting, Recordkeeping, and Daily Trading Records

    Requirements for Swap Dealers and Major Swap Participants

    Sec. 23.200 Definitions.

    For purposes of subpart F, the following terms shall be defined as

    provided.

    (a) Business trading unit means any department, division, group, or

    personnel of a swap dealer or major swap participant or any of its

    affiliates, whether or not identified as such, that performs or is

    involved in any pricing, trading, sales, purchasing, marketing,

    advertising, solicitation, structuring, or brokerage activities on

    behalf of a registrant.

    (b) Clearing unit means any department, division, group, or

    personnel of a registrant or any of its affiliates, whether or not

    identified as such, that performs any proprietary or customer clearing

    activities on behalf of a registrant.

    (c) Complaint means any formal or informal complaint, grievance,

    criticism, or concern communicated to the swap dealer or major swap

    participant in any format relating to, arising from, or in connection

    with, any trading conduct or behavior or with the swap dealer or major

    swap participant's performance (or failure to perform) any of its

    regulatory obligations, and includes any and all observations,

    comments, remarks, interpretations, clarifications, notes, and

    examinations as to such conduct or behavior communicated or documented

    by the complainant, swap dealer, or major swap participant.

    (d) Counterparty means any party to a derivative. When referring to

    a derivative between a swap dealer or major swap participant and any

    other person, ``counterparty'' means such other person.

    (e) Executed means the completion of the execution process.

    (f) Execution means, with respect to a swap, an agreement by the

    parties (whether orally, in writing,

    [[Page 76674]]

    electronically, or otherwise) to the terms of a swap that legally binds

    the parties to such swap terms under applicable law.

    (g) Governing body typically means, with respect to:

    (1) A sole proprietorship, the proprietor;

    (2) A corporation, its board of directors;

    (3) A partnership, any general partner;

    (4) A limited liability company or limited liability partnership,

    the manager, managing member or those members vested with management

    authority; and

    (5) Any other person, the body or person with ultimate decision-

    making authority over the activities of such person.

    (h) Prudential regulator has the meaning given to such term in

    section 1a(39) of the Commodity Exchange Act and includes the Board of

    Governors of the Federal Reserve System, the Office of the Comptroller

    of the Currency, the Federal Deposit Insurance Corporation, the Farm

    Credit Association, and the Federal Housing Finance Agency, as

    applicable to the swap dealer or major swap participant. The term also

    includes the Federal Deposit Insurance Corporation, with respect to any

    financial company as defined in section 201 of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act or any insured depository

    institution under the Federal Deposit Insurance Act, and with respect

    to each affiliate of any such company or institution.

    (i) Registered entity has the meaning given to such term in section

    1a(40) of the Commodity Exchange Act, and includes boards of trade

    designated as contract markets, derivatives clearing organizations,

    swap execution facilities, and swap data repositories.

    (j) Related cash or forward transaction means a purchase or sale

    for immediate or deferred physical shipment or delivery of an asset

    related to a swap where the swap and the related cash or forward

    transaction are used to hedge, mitigate the risk of, or offset one

    another.

    (k) Swap confirmation means the consummation (electronically or

    otherwise) of legally binding documentation (electronic or otherwise)

    that memorializes the agreement of the parties to all the terms of the

    swap. A confirmation must be in writing (whether electronic or

    otherwise) and must legally supersede any previous agreement

    (electronically or otherwise).

    Sec. 23.201 Required records.

    (a) Transaction and position records. Each swap dealer and major

    swap participant shall keep full, complete, and systematic records,

    together with all pertinent data and memoranda, of all its swaps

    activities. Such records shall include:

    (1) Transaction records. Records of each transaction, including all

    documents on which transaction information is originally recorded. Such

    records shall be kept in a form and manner identifiable and searchable

    by transaction and by counterparty, and shall include:

    (i) All documents customarily generated in accordance with market

    practice that demonstrate the existence and nature of an order or

    transaction, including, but not limited to, records of all orders

    (filled, unfilled, or cancelled); correspondence; journals; memoranda;

    ledgers; confirmations; risk disclosure documents; statements of

    purchase and sale; contracts; invoices; warehouse receipts; documents

    of title; and

    (ii) The daily trading records required to be kept in accordance

    with Sec. 23.202.

    (2) Position records. Records of each position held by each swap

    dealer and major swap participant, identified by product and

    counterparty, including records reflecting whether each position is

    ``long'' or ``short'' and whether the position is cleared. Position

    records shall be linked to transaction records in a manner that permits

    identification of the transactions that established the position.

    (3) Records of transactions executed on a swap execution facility

    or designated contract market or cleared by a derivatives clearing

    organization. Records of each transaction executed on a swap execution

    facility or designated contract market or cleared by a derivatives

    clearing organization maintained in compliance with the Act and

    Commission regulations.

    (b) Business records. Each swap dealer and major swap participant

    shall keep full, complete, and systematic records of all activities

    related to its business as a swap dealer or major swap participant,

    including but not limited to:

    (1) Governance.

    (i) Minutes of meetings of the governing body and relevant

    committee minutes, including handouts and presentation materials;

    (ii) Organizational charts for its governing body and relevant

    committees, business trading unit, clearing unit, risk management unit,

    and all other relevant units or divisions;

    (iii) Biographies or resumes of managers, senior supervisors,

    officers, and directors;

    (iv) Job descriptions for manager, senior supervisor, officer, and

    director positions, including job responsibilities and scope of

    authority;

    (v) Internal and external audit, risk management, compliance, and

    consultant reports (including management responses); and

    (vi) Business and strategic plans for the business trading unit.

    (2) Financial records.

    (i) Records reflecting all assets and liabilities, income and

    expenses, and capital accounts as required by the Act and Commission

    regulations; and

    (ii) All other financial records required to be kept under the Act

    and Commission regulations.

    (3) Complaints.

    (i) A record of each complaint received by the swap dealer or major

    swap participant concerning any partner, member, officer, employee, or

    agent. The record shall include the complainant's name, address, and

    account number; the date the complaint was received; the name of all

    persons identified in the complaint; a description of the nature of the

    complaint; the disposition of the complaint, and the date the complaint

    was resolved.

    (ii) A record indicating that each counterparty of the swap dealer

    or major swap participant has been provided with a notice containing

    the physical address, email or other widely available electronic

    address, and telephone number of the department of the swap dealer or

    major swap participant to which any complaints may be directed.

    (4) Marketing and sales materials. All marketing and sales

    presentations, advertisements, literature, and communications, and a

    record documenting that the swap dealer or major swap participant has

    complied with, or adopted policies and procedures reasonably designed

    to establish compliance with, all applicable federal requirements,

    Commission regulations, and the rules of any self-regulatory

    organization of which the swap dealer or major swap participant is a

    member.

    (c) Records of data reported to a swap data repository. With

    respect to each swap, each swap dealer and major swap participant shall

    identify, retain, and produce for inspection all information and data

    required to be reported in accordance with part 45 of this chapter,

    along with a record of the date and time the swap dealer or major swap

    participant made the report.

    (d) Records of real-time reporting data.

    (1) Each swap dealer and major swap participant shall identify,

    retain, and produce for inspection all information and data required to

    be reported in

    [[Page 76675]]

    accordance with part 43 of this chapter, along with a record of the

    date and time the swap dealer or major swap participant made the

    report.

    (2) When the swap dealer or major swap participant reports a less

    specific data field in accordance with part 43 of this chapter in order

    to protect the anonymity of the participants to such swap as permitted

    under part 43 of this chapter, the record shall contain the rationale

    for reporting a less specific data field.

    (3) Each swap dealer and major swap participant shall identify and

    retain a record of any determination that any swap is a block trade or

    large notional swap, as defined in part 43 of this chapter. When the

    swap dealer or major swap participant enters into such a swap, the

    record shall contain the rationale for determining that the swap is a

    large notional swap, in accordance with part 43 of this chapter.

    Sec. 23.202 Daily trading records.

    (a) Daily trading records for swaps. Each swap dealer and major

    swap participant shall make and keep daily trading records of all swaps

    it executes, including all documents on which transaction information

    is originally recorded. Each swap dealer and major swap participant

    shall ensure that its records include all information necessary to

    conduct a comprehensive and accurate trade reconstruction for each

    swap. Each swap dealer and major swap participant shall maintain each

    transaction record as a separate electronic file identifiable and

    searchable by transaction and counterparty.

    (1) Pre-execution trade information. Each swap dealer and major

    swap participant shall make and keep pre-execution trade information,

    including, at a minimum, records of all oral and written communications

    provided or received concerning quotes, solicitations, bids, offers,

    instructions, trading, and prices, that lead to the execution of a

    swap, whether communicated by telephone, voicemail, facsimile, instant

    messaging, chat rooms, electronic mail, mobile device or other digital

    or electronic media. Such records shall include, but are not limited

    to:

    (i) Reliable timing data for the initiation of the trade that would

    permit complete and accurate trade reconstruction; and

    (ii) A record of the date and time, to the nearest minute, using

    Coordinated Universal Time (UTC), by timestamp or other timing device,

    for each quotation provided to, or received from, the counterparty

    prior to execution.

    (2) Execution trade information. Each swap dealer and major swap

    participant shall make and keep trade execution records, including:

    (i) All terms of each swap, including all terms regarding payment

    or settlement instructions, initial and variation margin requirements,

    option premiums, payment dates, and any other cash flows;

    (ii) The trade ticket for each swap (which, together with the time

    of execution of each swap, shall be immediately recorded electronically

    for further processing);

    (iii) The unique swap identifier, as required by Sec. 45.4(a) of

    this chapter, for each swap;

    (iv) A record of the date and time of execution of each swap, to

    the nearest minute, using Coordinated Universal Time (UTC), by

    timestamp or other timing device;

    (v) The name of the counterparty with which each such swap was

    executed, including its unique counterparty identifier, as required by

    Sec. 45.4(b) of this chapter;

    (vi) The date and title of the agreement to which each swap is

    subject, including but not limited to, any master swap netting

    agreement or swap credit support agreement;

    (vii) The product name of each swap, including its unique product

    identifier, as required by Sec. 45.4(c) of this chapter;

    (viii) The price at which the swap was executed;

    (ix) Fees or commissions and other expenses, identified by

    transaction; and

    (x) Any other information relevant to the swap.

    (3) Post-execution trade information. Each swap dealer and major

    swap participant shall make and keep records of post-execution trade

    information containing an itemized record of all relevant post-trade

    processing and events.

    (i) Records of post-trade processing and events shall include all

    of the following, as applicable:

    (A) Confirmation;

    (B) Termination;

    (C) Novation;

    (D) Amendment;

    (E) Assignment;

    (F) Netting;

    (G) Compression;

    (H) Reconciliation;

    (I) Valuation;

    (J) Margining;

    (K) Collateralization; and

    (L) Central clearing.

    (ii) Each swap dealer and major swap participant shall make and

    keep a record of all swap confirmations, along with the date and time,

    to the nearest minute, using Coordinated Universal Time (UTC), by

    timestamp or other timing device; and

    (iii) Each swap dealer and major swap participant shall make and

    keep a record of each swap portfolio reconciliation, including the

    number of portfolio reconciliation discrepancies and the number of swap

    valuation disputes (including the time-to-resolution of each valuation

    dispute and the age of outstanding valuation disputes, categorized by

    transaction and counterparty);

    (iv) Each swap dealer and major swap participant shall make and

    keep a record of each swap portfolio compression exercise in which it

    participates, including the dates of the compression, the swaps

    included in the compression, the identity of the counterparties

    participating in the exercise, the results of the compression, and the

    name of the third-party entity performing the compression, if any; and

    (v) Each swap dealer and major swap participant shall make and keep

    a record of each swap that it centrally clears, categorized by

    transaction and counterparty.

    (4) Ledgers. Each swap dealer and major swap participant shall make

    and keep ledgers (or other records) reflecting the following:

    (i) Payments and interest received;

    (ii) Moneys borrowed and moneys loaned;

    (iii) The daily calculation of the value of each outstanding swap;

    (iv) The daily calculation of current and potential future exposure

    for each counterparty;

    (v) The daily calculation of initial margin to be posted by the

    swap dealer or major swap participant for each counterparty and the

    daily calculation of initial margin to be posted by each counterparty;

    (vi) The daily calculation of variation margin payable to or

    receivable from each counterparty;

    (vii) The daily calculation of the value of all collateral, before

    and after haircuts, held by or posted by the swap dealer or major swap

    participant;

    (viii) All transfers of collateral, including any substitutions of

    collateral, identifying in sufficient detail the amounts and types of

    collateral transferred; and

    (ix) All charges against and credits to each counterparty's

    account, including funds deposited, withdrawn, or transferred, and

    charges or credits resulting from losses or gains on transactions.

    (b) Daily trading records for related cash and forward

    transactions. Each swap dealer and major swap participant shall make

    and keep daily trading

    [[Page 76676]]

    records of all related cash or forward transactions it executes,

    including all documents on which the related cash or forward

    transaction information is originally recorded. Each swap dealer and

    major swap participant shall ensure that its records include all

    information necessary to conduct a comprehensive and accurate trade

    reconstruction for each related cash or forward transaction. Each swap

    dealer and major swap participant shall maintain each transaction

    record as a separate electronic file identifiable and searchable by

    transaction and by counterparty. Such records shall include, but are

    not limited to:

    (1) A record of all oral and written communications provided or

    received concerning quotes, solicitations, bids, offers, instructions,

    trading, and prices, that lead to the conclusion of a related cash or

    forward transaction, whether communicated by telephone, voicemail,

    facsimile, instant messaging, chat rooms, electronic mail, mobile

    device or other digital or electronic media;

    (2) Reliable timing data for the initiation of the transaction that

    would permit complete and accurate trade reconstruction;

    (3) A record of the date and time, to the nearest minute, using

    Coordinated Universal Time (UTC), by timestamp or other timing device,

    for each quotation provided to, or received from, the counterparty

    prior to execution;

    (4) A record of the date and time of execution of each related cash

    or forward transaction, to the nearest minute, using Coordinated

    Universal Time (UTC), by timestamp or other timing device;

    (5) All terms of each related cash or forward transaction;

    (6) The price at which the related cash or forward transaction was

    executed; and

    (7) A record of the daily calculation of the value of the related

    cash or forward transaction and any other relevant financial

    information.

    Sec. 23.203 Records; retention and inspection.

    (a) Location of records. (1) All records required to be kept by a

    swap dealer or major swap participant by the Act and by Commission

    regulations shall be kept at the principal place of business of the

    swap dealer or major swap participant or such other principal office as

    shall be designated by the swap dealer or major swap participant. If

    the principal place of business is outside of the United States, its

    territories or possessions, then upon the request of a Commission

    representative, the swap dealer or major swap participant must provide

    such records as requested at the place in the United States, its

    territories, or possessions designated by the representative within 72

    hours after receiving the request.

    (2) Contact information. Each swap dealer and major swap

    participant shall maintain for each of its offices a listing, by name

    or title, of each person at that office who, without delay, can explain

    the types of records the swap dealer or major swap participant

    maintains at that office and the information contained in those

    records.

    (b) Record retention. (1) The records required to be maintained by

    this chapter shall be maintained in accordance with the provisions of

    Sec. 1.31, except as provided in paragraphs (b)(2) and (3) of this

    section. All records required to be kept by the Act and by Commission

    regulations shall be kept for a period of five years from the date the

    record was made and shall be readily accessible during the first two

    (2) years of the five-year period. All such records shall be open to

    inspection by any representative of the Commission, the United States

    Department of Justice, or any applicable prudential regulator. Records

    relating to swaps defined in section 1a(47)(A)(v) shall be open to

    inspection by any representative of the Commission, the United States

    Department of Justice, the Securities and Exchange Commission, or any

    applicable prudential regulator.

    (2) Records of any swap or related cash or forward transaction

    shall be kept until the termination, maturity, expiration, transfer,

    assignment, or novation date of the transaction, and for a period of

    five years after such date. Such records shall be readily accessible

    until the termination, maturity, expiration, transfer, assignment, or

    novation date of the transaction and during the first two years of the

    5-year period following such date. All such records shall be open to

    inspection by any representative of the Commission, the United States

    Department of Justice, or any applicable prudential regulator. Records

    relating to swaps defined in section 1a(47)(A)(v) shall be open to

    inspection by any representative of the Commission, the United States

    Department of Justice, the Securities and Exchange Commission, or any

    applicable prudential regulator.

    (3) Records of any swap data reported in accordance with part 45 of

    this chapter shall be maintained in accordance with the requirements of

    Sec. 45.2 of this chapter.

    Sec. 23.204 Reports to swap data repositories.

    (a) Reporting of swap transaction data to swap data repositories.

    Each swap dealer and major swap participant shall report all

    information and data in accordance with part 45 of this chapter.

    (b) Electronic reporting of swap transaction data. Each swap dealer

    and major swap participant shall have the electronic systems and

    procedures necessary to transmit electronically all information and

    data required to be reported in accordance with part 45 of this

    chapter.

    Sec. 23.205 Real-time public reporting.

    (a) Real-time public reporting of swap transaction and pricing

    data. Each swap dealer and major swap participant shall report all

    information and swap transaction and pricing data required to be

    reported in accordance with the real-time public recording requirements

    in part 43 of this chapter.

    (b) Electronic reporting of swap transaction data. Each swap dealer

    and major swap participant shall have the electronic systems and

    procedures necessary to transmit electronically all information and

    data required to be reported in accordance with part 43 of this

    chapter.

    Issued in Washington, DC, on December 1, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Reporting, Recordkeeping, and Daily Trading Records

    Requirements for Swap Dealers and Major Swap Participants--Commission

    Voting Summary and Statements of Commissioners

    Note: The following appendices will not appear in the Code of

    Federal Regulations.

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn,

    Sommers, Chilton and O'Malia voted in the affirmative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the proposed rule regarding reporting, recordkeeping

    and daily trading records for swap dealers and major swap

    participants. The rule establishes the records to be maintained by

    swap dealers and major swap participants and the required reporting

    by such entities. This proposal will help increase transparency and

    promote market integrity. The proposed rules are consistent with the

    Congressional requirement that swap dealers and major swap

    participants

    [[Page 76677]]

    comply with rigorous recordkeeping and real-time reporting regimes.

    [FR Doc. 2010-30884 Filed 12-8-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: December 9, 2010



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