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2010-31133

  • FR Doc 2010-31133[Federal Register: December 23, 2010 (Volume 75, Number 246)]

    [Proposed Rules]

    [Page 80897-80945]

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

    [DOCID:fr23de10-29]

    [[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

    [[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,

    jburns@cftc.gov; Susan Nathan, Senior Special Counsel, Division of

    Market Oversight, at (202) 418-5133, snathan@cftc.gov and Adedayo

    Banwo, Counsel, Office of the General Counsel, at (202) 418-6249,

    abanwo@cftc.gov, 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.

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

    \23\ See Provisions Common to Registered Entities, supra note

    18.

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

    (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.

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

    \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.

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

    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.

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

    \26\ See proposed Sec. 49.6(a).

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

    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.

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

    \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.

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

    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).

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

    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.

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

    \35\ See Section 21(c)(1) of the CEA, 7 U.S.C. 24a(c)(1).

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

    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.

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

    \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.

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

    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.

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

    \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'').

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

    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\

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

    \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.

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

    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.

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

    \42\ This requirement does not apply to real-time public

    reporting. See proposed Sec. 43.3(f), supra note 39.

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

    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\

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

    \43\ See proposed Regulations 43.3(f)(3)-(4), supra note 39.

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

    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.

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

    \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.

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

    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.

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

    \46\ See Section 727 of the Dodd-Frank Act.

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

    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.

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

    \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.

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

    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\

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

    \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).

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

    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.

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

    \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).

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

    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.

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

    \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.

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

    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).

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

    \53\ Id.

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

    (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.

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

    \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).

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

    (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.

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

    \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).

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

    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.

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

    \59\ See Section 2(h)(7)(F) of the CEA, 7 U.S.C. 2(h)(7)(F).

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

    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\

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

    \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).

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

    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.

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

    \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.

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

    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.

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

    \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).''

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

    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.

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

    \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.

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

    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.''

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

    \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).

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

    (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).

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

    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.

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

    \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.

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

    (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.''

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

    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.

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

    \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.

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

    \78\ See supra text accompanying note 69.

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

    (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\

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

    \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.

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

    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.

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

    \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).

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

    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\

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

    \81\ See 7 U.S.C. 12(e).

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

    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.

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

    \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).

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

    (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.

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

    \84\ See supra text accompanying notes 62-63.

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

    (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.

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

    \85\ 7 U.S.C. 24a(c)(6)-(7).

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

    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.

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

    \86\ See Data NPRM, supra note 28.

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

    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.

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

    \87\ Section 21(c)(8) of the CEA. 7 U.S.C. 24a(c)(8).

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

    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\

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

    \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.

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

    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.

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

    \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).

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

    (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.

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

    \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).

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

    (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.

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

    \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\

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

    \97\ 7 U.S.C. 24a(e)(2).

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

    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.

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

    \98\ 7 U.S.C. 24a(e)(3)(B)(ii).

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

    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.

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

    \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).

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

    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.

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

    \100\ See 5 U.S.C. 552.

    \101\ See 5 U.S.C. 552b(b).

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

    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.

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

    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'').

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

    \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.

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

    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.

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

    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.

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

    \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.

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

    (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:

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

    \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.

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

    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\

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

    \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.

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

    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.

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

    \117\ See 75 FR 63732, 63737-38 (Oct. 18, 2010) (regarding the

    importance of the independent perspective in mitigating conflicts of

    interest).

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

    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:

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

    \118\ See proposed Sec. Sec. 49.16, 49.17 and 49.27.

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

    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).

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

    \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'').

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

    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).

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

    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.

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

    \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).

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

    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.

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

    \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.

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

    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.

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

    \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.

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

    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\

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

    \126\ See proposed Sec. 43.3(i), supra note 39.

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

    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.

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

    \127\ As explained below, proposed Sec. 49.15 applies to off-

    facility swap transactions. See proposed Sec. 49.15.

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

    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.

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

    \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.

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

    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.

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

    \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.

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

    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.

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

    \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.

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

    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.

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

    \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.

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

    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\

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

    \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.

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

    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.

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

    \138\ 44 U.S.C. 3501 et seq.

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

    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.

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

    \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.

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

    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.

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

    \140\ An amendment to Form SDR may occur pending SDR

    registration.

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

    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.

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

    \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).

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

    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.

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

    \142\ The initial burden hours imposed will increase for SDRs

    located outside the United States.

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

    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 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 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.

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

    \143\ 7 U.S.C. 19(a).

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

    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\

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

    \144\ 7 U.S.C. 19.

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

    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.

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

    \145\ 5 U.S.C. 601 et seq.

    \146\ 5 U.S.C. 601 et seq.

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

    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.

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

    \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.

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

    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 submissions@cftc.gov 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

    submissions@cftc.gov and the Division of Market Oversight at

    DMOSubmissions@cftc.gov, 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 submissions@cftc.gov, and the Division

    of Market Oversight, at DMOSubmissions@cftc.gov, 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

    [[Page 80938]]

    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

    submissions@cftc.gov.

    BILLING CODE 6351-01-P

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    BILLING CODE 6351-01-C

    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 t80898he 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]

    BILLING CODE 6351-01-P

    Last Updated: December 23, 2010