2011-20817

Federal Register, Volume 76 Issue 170 (Thursday, September 1, 2011)[Federal Register Volume 76, Number 170 (Thursday, September 1, 2011)]

[Rules and Regulations]

[Pages 54538-54597]

From the Federal Register Online via the Government Printing Office [www.gpo.gov]

[FR Doc No: 2011-20817]

[[Page 54537]]

Vol. 76

Thursday,

No. 170

September 1, 2011

Part II

Commodity Futures Trading Commission

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17 CFR Part 49

Swap Data Repositories: Registration Standards, Duties and Core

Principles; Final Rule

Federal Register / Vol. 76 , No. 170 / Thursday, September 1, 2011 /

Rules and Regulations

[[Page 54538]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 49

RIN 3038-AD20

Swap Data Repositories: Registration Standards, Duties and Core

Principles

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or

``Commission'') is adopting its regulations to implement section 21 of

the Commodity Exchange Act (``CEA'' or ``Act''), which establishes

registration requirements, statutory duties, core principles and

certain compliance obligations for registered swap data repositories

(``SDRs''). Section 21 of the CEA was added by section 728 of the Dodd-

Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank

Act'').

DATES: Effective date is October 31, 2011. Applicants at that time may

apply for registration as SDRs but are not required to do so. Mandatory

registration and compliance with the registration rules will occur upon

the effective date of the swap definition rulemaking, which the

Commission will publish at a later date.

FOR FURTHER INFORMATION CONTACT: For questions relating to this

rulemaking: Jeffrey P. Burns, Assistant General Counsel, Office of the

General Counsel (``OGC''), at (202) 418.5101, [email protected]; Susan

Nathan, Senior Special Counsel, Division of Market Oversight (``DMO''),

at (202) 418.5133, [email protected]; or Adedayo Banwo, Counsel, OGC, at

(202) 418.6249, [email protected], Commodity Futures Trading Commission,

Washington, DC 20581. With respect to questions relating to

registration processing and compliance matters: Riva Spear Adriance,

Associate Director, DMO, at (202) 418.5494, [email protected] and

Sebastian Pujol Schott, Associate Deputy Director, Market Compliance,

DMO, at (202) 418.5641, [email protected], respectively.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Overview

B. International Considerations

C. Summary of the Proposed Part 49 Regulations

1. Proposed Regulations Related to Registration

2. Proposed Regulations Related to Statutory Duties of SDRs

3. Proposed Regulations Related to Data Acceptance, Accuracy and

Recordkeeping

4. Proposed Regulations Relating to Data Privacy,

Confidentiality and Access

5. Proposed Regulations Related to Emergency Procedures

6. Regulations Related to Designation of a Chief Compliance

Officer

7. Core Principles Applicable to SDRs

8. Proposed Regulations Relating to Additional Duties

9. Proposed Regulations Related to Real-Time Public Reporting

10. Proposed Regulations Relating to Implementation of SDR rules

D. Overview of Comments Received

II. Part 49 of the Commission's Regulations

A. Requirements of Registration

1. Procedures for Registration

2. Withdrawal From Registration

3. Equity Interest Transfer Notification

4. Swap Data Repositories Located in Foreign Jurisdictions

B. Duties of Registered SDRs

1. Acceptance of Data

2. Confirmation of Data Accuracy

3. Recordkeeping Requirements

4. Monitoring, Screening and Analyzing Swap Data

5. Real-Time Public Reporting

6. Maintenance of Data Privacy

7. Access to SDR Data

8. Emergency Authority Procedures and System Safeguards

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. Financial Resources

2. Disclosure Requirements of Swap Data Repositories

3. Non-Discriminatory Access and Fees

F. Procedures for Implementing Swap Data Repository Regulations

III. Effectiveness and Transition Period

IV. Related Matters

A. Paperwork Reduction Act

B. Cost-Benefit Analysis

C. Regulatory Flexibility Act

V. List of Subjects

I. Background

A. Overview

On July 21, 2010, President Obama signed into law the Dodd-Frank

Act.\1\ Title VII \2\ amended the CEA \3\ 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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\1\ 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.

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

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

2010.''

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

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To enhance transparency, promote standardization and reduce

systemic risk, section 727 of the Dodd-Frank Act added to the CEA new

section 2(a)(13)(G), which requires all swaps--whether cleared or

uncleared--to be reported to SDRs,\4\ which are new registered entities

created by section 728 of the Dodd-Frank Act.\5\ SDRs are required to

perform specified functions related to the collection and

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maintenance \6\ of swap transaction data and information and to make

such data and information directly and electronically available to

regulators. 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 promulgate rules governing those duties and

responsibilities. Section 21 requires that SDRs register with the

Commission regardless of whether they are also licensed as a bank or

registered as a security-based swap data repository with the Securities

and Exchange Commission (``SEC''), and to submit to inspection and

examination by the Commission.\7\

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\4\ Section 721 of the Dodd-Frank Act amends section 1a of the

CEA to add the definition of SDR. Pursuant to section 1a(48), 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).

\5\ The Commission notes that 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 and 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 (``ISDA'') 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 more limited basis

based on various business models and/or regional or localized

considerations. In addition, a variety of firms also provide

ancillary services and functions essential to the efficient

operation of trade reporting of swaps. Recently, ISDA in

anticipation of the implementation of swap data reporting and SDR

requirements related to the Dodd-Frank Act selected DTCC and a joint

venture between DTCC's Deriv/SERV and EFETnet as ``global''

repositories for interest rates available at http://www2.isda.org/attachment/MzExMQ==/InterestRatesRepositorySelection.pdf and

commodities available at http://www2.isda.org/attachment/MzIwNw==/CommodityRepositorySelection.pdf. In addition, the Global FX

Divisions of the Association of Financial Markets Europe (AFME),

Securities industry and Financial Markets (SIFMA) and the Asian

Securities industry and Financial Markets (ASIFMA) have recommended

a partnership with DTCC and SWIFT for the purpose of developing a

foreign exchange trade repository available at http://www.sifma.org/news/news.aspx?id=8589934651.

\6\ See Commission, Notice of Proposed Rulemaking: Swap Data

Recordkeeping and Reporting Requirements, 75 FR 76574 (Dec. 8, 2010)

(``Data NPRM''). The Data NPRM, among other things, proposed

regulations governing SDR data collection and reporting

responsibilities under part 45 of the Commission's regulations.

\7\ Section 21(a)(1)(B) permits derivatives clearing

organizations (``DCOs'') to register as SDRs.

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To register and maintain registration with the Commission, SDRs are

required to comply with specific duties and core principles enumerated

in section 21 as well as other requirements that the Commission may

prescribe by rule. As described more fully in the Commission's Notice

of Proposed Rulemaking (``SDR NPRM''),\8\ new section 21(c) mandates

that SDRs (1) accept data; (2) confirm with both counterparties the

accuracy of submitted data; (3) maintain data according to standards

prescribed by the Commission; (4) provide direct electronic access to

the Commission or any designee of the Commission (including another

registered entity); (5) provide public reporting of swap data in the

form and frequency required by the Commission; (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,\9\ upon request and after notifying the Commission, make

data available to other specified regulators; and (9) establish and

maintain emergency and business continuity-disaster recovery procedures

(``BC-DR''). In connection with the sharing of confidential information

with other regulators, the SDR must, pursuant to new section 21(d),

receive a written agreement from such regulator, prior to sharing the

information, stating that it will abide by the confidentiality

provisions of section 8 and agree to indemnify both the SDR and the

Commission against any litigation expenses relating to information

provided under section 8.

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\8\ Commission, Notice of Proposed Rulemaking: Swap Data

Repositories, 75 FR 80898 (Dec. 23, 2010).

\9\ Section 8(e) 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.

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New section 21(e) also added a provision that each SDR designate a

chief compliance officer (``CCO'') with specified duties. New section

21(f) established three focused core principles. First, unless

necessary or appropriate to achieve the purposes of the CEA, an SDR may

not adopt any rule or take any action that results in any unreasonable

restraint or trade, or impose any material anticompetitive burden on

the trading, clearing or reporting of transactions. Second, each SDR

must establish transparent governance arrangements to fulfill the

public interest requirements of the CEA and 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. Section 21(f) further directs the Commission to

establish additional duties for SDRs to minimize conflicts of interest,

protect data, ensure compliance and guarantee the safety and security

of the SDR.\10\

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\10\ Pursuant to this provision, the Commission also may develop

additional duties taking into account evolving standards of the

United States and the international community. Section 21(f)(4) of

the CEA, 7 U.S.C. 24a(f)(4). This provision is sometimes referred to

as ``Core Principle 4.''

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B. International Considerations

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.'' The Commission is

committed to a cooperative international approach to the registration

and regulation of SDRs and has consulted extensively with various

foreign regulatory authorities in promulgating both its proposed and

final regulations. In this regard, both the proposed and final part 49

regulations reflect the Commission's intent to harmonize our approach

to the extent possible with the European Commission's regulatory

proposal related to OTC derivatives, central counterparties and trade

repositories.\11\ The Commission's part 49 regulations also largely

adopt the recommendations of the May 2010 ``CPSS-IOSCO Consultative

Report, Considerations for Trade Repositories in the OTC Derivatives

Market'' (``Working Group Report'').\12\ The Commission believes that

the Dodd-Frank Act and the part 49 regulations are consistent with the

goals of the Working Group Report. As noted in the SDR NPRM, section 21

of the CEA does not authorize the Commission to exempt any entity

performing the functions of an SDR from the registration requirements

or any other duties established by the Dodd-Frank Act.\13\ Certain non-

U.S. swap activity is excluded, however, from the reach of the Dodd-

Frank Act and Commission regulations pursuant to section 2(i) of the

CEA.\14\

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\11\ See Proposal for a Regulation of the European Parliament

and of the Council on OTC Derivatives, Central Counterparties, and

Trade Repositories (the ``European Commission Proposal''), COM

(2010). See also SDR NPRM supra note 8 at 80899-80900 and note 16.

The proposal, if implemented, would become a part of the European

Union's framework for financial supervision. The European Union is

composed of 27 member states and the European Securities and Markets

Authority will supervise the European securities markets along with

the national regulators of the member states.

\12\ This working group was jointly established by the Committee

on Payment and Settlement Systems (``CPSS'') of the Bank of

International Settlements (``BIS'') and the Technical Committee of

the International Organization of Securities Commissions

(``IOSCO''). The Working Group Report presented a set of factors to

consider in connection with the design, operation and regulation of

SDRs. A significant focus of the Working Group Report is access to

SDR data by appropriate regulators: the report urges that a trade

repository ``should support market transparency by making data

available to relevant authorities and the public in line with their

respective information needs.'' The Working Group Report is

available at http://www.bis.org/publ/cpss90.pdf. See also CPSS-IOSCO

Consultative Report, Principles of Financial Market Infrastructures

(March 2011) available at http://www.bis.org/publ/cpss94.pdf. See

also Financial Stability Board, Implementing OTC Derivatives Market

Reforms, October 25, 2010 (``FSB Report''); FSB, Derivative Market

Reforms, Progress Report on Implementation, April 15, 2010 (``FSB

Progress Report'').

\13\ Section 721(d) of the Dodd-Frank Act, which as relevant

here amended the Commission's exemptive authority under section

4c(1) of the CEA, does not permit the Commission to grant exemptions

with respect to new section 21 of the CEA unless expressly

authorized.

\14\ 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'' unless

such activity contravenes regulations necessary to prevent evasion.

7 U.S.C. 2(i)(1)-(2).

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C. Summary of the Proposed Part 49 Regulations

Against this background, the Commission developed and published for

comment part 49 of the

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Commission's regulations establishing provisions applicable to the

registration and regulation of SDRs.\15\ Proposed part 49 of the

Commission's regulations included procedures and substantive

requirements to achieve and maintain registration as an SDR--including

proposed standards for compliance with each of the statutory duties

enumerated in section 21(c), the three core principles outlined in

section 21(f), and proposed additional duties consistent with the

authority conferred by section 21(f)(4).

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\15\ A full description and discussion of each proposed rule can

be found in the SDR NPRM, supra note 8.

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1. Proposed Regulations Related to Registration

Section 21(a)(1)(A) makes it unlawful for any person, unless

registered with the Commission, directly or indirectly to make use of

the mails or any means or instrumentality of interstate commerce to

perform the functions of an SDR. Consistent with this statutory

directive, the Commission proposed regulations establishing procedural

and substantive requirements governing registration as an SDR.\16\ The

proposed regulations required that SDRs specify the asset class or

classes for which they will accept swap data and undertake to accept

all swaps in asset classes for which they have specified.\17\ If the

applicant is a foreign entity, the proposed regulations specified that

it be required to certify, and provide an opinion of counsel, that as a

matter of law it is able to provide the Commission with prompt access

to its books and records and to submit to onsite inspection and

examination by the Commission.\18\ The proposal established the

standard of review as well as the standards for denial, suspension and

revocation of registration. In addition, the proposed rules provided a

``provisional registration'' for SDR applicants that are in substantial

compliance with the registration standards set forth in the

regulations.\19\ With respect to Commission review of SDR rules and

rule amendments, the proposed rules provided procedures by which an

applicant for SDR registration may either request that the Commission

approve any or all of its rules or self-certify that its rules comply

with the CEA or Commission regulations thereunder (``self

certification'').\20\

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\16\ Proposed Sec. Sec. 49.3-49.4 and 49.6-49.7; Proposed Form

SDR.

\17\ Proposed Sec. 49.10. 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, other

commodities, and such other asset classes as may be determined by

the Commission.

\18\ Proposed Sec. 49.7.

\19\ Proposed Sec. 49.3(b).

\20\ Proposed Sec. 49.8.

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The proposed regulations separately required SDRs to file with the

Commission a notice of an equity interest transfer of ten percent or

more, as defined in the Commission's revised part 40 rules \21\ and

specified the necessary information and related notifications.

Similarly, the proposed rules described the procedures and requirements

for registering successor entities of an SDR.\22\

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\21\ See Commission, Notice of Proposed Rulemaking: Revisions to

part 40 (Provisions Common to Registered Entities), 75 FR 67282

(Nov. 2, 2010)(``Part 40 NPRM'') and Final rule: Revisions to part

40 (Provisions Common to Registered Entities), 76 FR 44776 (July 27,

2011)(``Part 40 Adopting Release'') (collectively, ``part 40'').

\22\ Proposed Sec. 49.6.

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2. Proposed Regulations Related to Statutory Duties of SDRs

Section 21(c) of the CEA prescribes the minimum duties required of

SDRs. To register and maintain registration, an SDR must (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 (including

another registered entity) with direct electronic access to the swap

data; (v) provide the information 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 and

confidentiality of any and all swap data received by the SDR; (viii)

provide access to the swap data to specified appropriate domestic and

foreign regulators; and (ix) adopt and implement emergency and BC-DR

procedures.

Pursuant to the authority granted by sections 21(f)(4) \23\ and

8a(5) \24\ of the CEA, the Commission proposed to include in part 49

four additional duties requiring SDRs to (i) adopt and implement system

safeguards, including BC-DR plans; (ii) maintain sufficient financial

resources; (iii) furnish market participants with a disclosure document

setting forth the risks and costs associated with using the services of

an SDR; and (iv) provide fair and open access and fees and charges that

are equitable and non-discriminatory. Proposed Sec. Sec. 49.9-49.18

and 49.23-49.27 described the standards for compliance with each of

these duties.

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\23\ Section 21(f)(4) of the CEA; see supra note 10.

\24\ 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(3)(A)(ii), specifically requires that an SDR, to be registered

and maintain registration, must comply with any requirement that the

Commission may impose by rule or regulation pursuant to section

8a(5) of the CEA.

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3. Proposed Regulations Related to Data Acceptance, Accuracy and

Recordkeeping

Sections 21(c)(1)-(5) of the CEA, as adopted by section 728 of the

Dodd-Frank Act, address the duties of SDRs in connection with accepting

and maintaining swap data, ensuring accuracy and reliability, and

providing direct electronic data access to the Commission or its

designee.\25\ To implement section 21(c)(1), the Commission proposed

that SDRs adopt policies and procedures that will enable them to

electronically accept data and other regulatory information, and to

accept all swaps in an asset class, or classes, for which they have

registered.\26\ The Commission also proposed that SDRs establish

policies and procedures to prevent a valid swap from being invalidated,

altered or modified through the SDR's confirmation or recording

process, and provide facilities for effectively resolving disputes

concerning the accuracy of swap data and positions recorded by the

SDR.\27\

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\25\ In a companion rulemaking under new part 45 of its

regulations, the Commission has proposed data elements that must be

reported to SDRs and has in addition provided specific requirements

for SDRs relating to (i) determining which counterparty must report

the swap data to the SDR; (ii) third-party facilitation of swap data

reporting; (iii) reporting to a single SDR in connection with the

reporting of swap data; and (iv) reporting errors and omissions. See

Data NPRM supra note 6.

\26\ Proposed Sec. 49.10.

\27\ Id.

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Proposed Sec. 49.11 implemented section 21(c)(2) of the CEA and

specified that an SDR adopt policies and procedures to ensure the

accuracy of swap data reported to it, and must confirm with both

counterparties to the swap \28\ the accuracy of data and information

submitted by them.\29\

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\28\ These proposed confirmation requirements would not apply to

real-time public reporting. See proposed Sec. 43.3(f) set forth in

Commission, Notice of Proposed Rulemaking: Real-Time Public

Reporting of Swap Transaction Data, 74 FR 76140 (Dec. 7, 2010) (the

``Real-Time NPRM'').

\29\ As noted, the form and content of the swap data ultimately

will be established in the Commission's part 45 regulations related

to data elements and standards. The Data NPRM detailed and defined

the terms ``confirmation'' and ``confirmation data.'' See Data NPRM

supra note 6.

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Proposed Sec. 49.12 implemented section 21(c)(3) of the CEA and

required

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SDRs to maintain the books and records of all activity and data

relating to swaps reported to the SDR, consistent with recordkeeping

and reporting rules to be established in new parts 43 and 45 of the

Commission's regulations.\30\ As proposed, Sec. 49.12 required that

SDR books and records be open to inspection on request by any

representative of the Commission, the United States Department of

Justice, the SEC or any representative of a prudential regulator

authorized by the Commission. The proposal would further require each

SDR that publicly disseminates swap data in real time to comply with

the real-time reporting requirements prescribed in part 43.\31\

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\30\ See Sec. 45.2 set forth in the Data NPRM supra note 6 and

Sec. 43.3 set forth in Real-Time NPRM supra note 28.

\31\ Id.

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The Commission proposed two requirements in connection with the

provision of direct electronic access mandated by section 21(c)(4) of

the CEA. First, SDRs would be required to provide the Commission or its

designee with connectivity and access to the SDR's database; second,

SDRs would be required to electronically deliver to the Commission or

its designee certain data in the form and manner prescribed by the

Commission.\32\ The Commission also proposed that SDRs be required to

provide it with monitoring tools identical to those provided to the

SDR's compliance staff and CCO.\33\ In connection with section

21(c)(5)'s mandate that SDRs establish automated systems for

monitoring, screening and analyzing swap data, the Commission proposed

that at this time SDRs establish the infrastructure necessary to

fulfill the statutory requirement.\34\

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\32\ Proposed Sec. 49.17.

\33\ Id.

\34\ Proposed Sec. Sec. 49.13 and 49.14. The latter proposal

was designed to implement the Commission's program to monitor and

prevent abuse of end-user clearing exemption claims. See section

2(h)(7) of the CEA, as amended, which creates a framework by which

certain swaps may be exempt from clearing if one of its

counterparties is (i) not a financial entity; (ii) is using swaps to

hedge or mitigate commercial risk; and (iii) notifies the Commission

as to how it generally meets the financial obligations associated

with entering into non-cleared swaps (the ``end-user clearing

exemption''). See Commission, Notice of Proposed Rulemaking: End-

User Exemption to Mandatory Clearing of Swaps, 75 FR 80747 (Dec. 23,

2010) (``End-User NPRM'').

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4. Proposed Regulations Relating to Data Privacy, Confidentiality and

Access

Section 21(c)(6) of the CEA requires that an SDR maintain the

privacy of all swap transaction information that it receives from an

SD, counterparty or any other registered entity. The Commission

recognized that data related to real-time public reporting is, by its

nature, publicly available, while detailed core data intended for use

by the Commission and other regulators is subject to statutory

confidential treatment. Accordingly, the Commission proposed to

implement section 21(c)(6)'s mandate--and also in part the conflicts of

interest core principle applicable to SDRs (``Core Principle 3'')--by

requiring that ``SDR Information'' that is not subject to real-time

reporting be treated as non-public and confidential and may not be

accessed, disclosed, or used for purposes unrelated to SDR

responsibilities under the CEA unless the submitters of the data

explicitly agree to such use.\35\ The proposed regulation also directed

SDRs to establish and maintain safeguards, policies and procedures

addressing the misappropriation or misuse of swap data that the

Commission is prohibited from disclosing pursuant to section 8 of the

CEA (``Section 8 Material'') \36\ or similar material, such as

intellectual property.

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\35\ Proposed Sec. 49.16. However, aggregated data that cannot

be attributed to individual transactions or market participants may

be made publicly available by SDRs.

\36\ Id. Section 8(a) of the CEA prohibits the Commission from

disclosing information or material if it ``would separately disclose

the business transactions or market positions of any person and

trade secrets or names of customers.'' See also the definition of

``Section 8 Material'' in Sec. 49.2(a)(14).

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The Commission proposed to prohibit the use of SDR data for

commercial or business purposes by the SDR or any of its affiliated

entities with a limited exception where the SDR has received the

express written consent of the market participants who submitted the

swap data.\37\ The proposal required that SDRs develop and maintain

firewalls to protect data they are required to maintain, and permitted

access to third-party service providers so long as they have

implemented stringent confidentiality procedures to protect data and

information from improper disclosure.\38\

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\37\ Proposed Sec. 49.17(g)(2).

\38\ Id. This proposal was intended to partially implement

section 21(c)(6)'s privacy provisions as well as the provisions of

section 21(f)(3), which requires an SDR to establish and enforce

rules to mitigate conflicts of interest. See SDR NPRM supra note 8

at 80911.

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Section 21(c)(7) requires that an SDR make data available to

certain domestic and foreign regulators (``Appropriate Domestic

Regulator'' or ``Appropriate Foreign Regulator'') under specified

circumstances. To implement this provision, the Commission proposed

definitions and standards for determining appropriateness--such as an

existing memorandum of understanding (``MOU'') or similar agreement

executed with the Commission--as well as procedures for gaining access

to data maintained by SDRs.\39\ Separately, section 21(d) mandates that

prior to receipt of any requested data or information from an SDR, the

Appropriate Foreign or Appropriate Domestic Regulator must execute a

``Confidentiality and Indemnification Agreement'' with the SDR. The

Commission proposed to implement this provision by requiring that such

an agreement be executed between SDRs and each appropriate

regulator.\40\ The Commission acknowledged in the SDR NPRM that this

requirement could have the unintended effect of inhibiting access to

data maintained by SDRs. Consistent with the international

harmonization envisioned by section 752 of the Dodd-Frank Act, the

Commission stated that it will endeavor to provide sufficient access to

SDR data to Appropriate Foreign and Domestic Regulators. In that

regard, the Commission noted that pursuant to section 8(e) of the CEA

it may share confidential information in its possession with any

foreign futures authority, department or agency of any foreign

government or political subdivision thereof.\41\

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\39\ Id.

\40\ Proposed Sec. 49.18.

\41\ SDR NPRM supra note 8 at 80910.

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5. Proposed Regulations Related to Emergency Procedures

To implement section 21(c)(8), the Commission proposed Sec. 49.23

to require SDRs to adopt specific policies and procedures for the

exercise of emergency authority. The Commission based its proposals on

existing emergency authority concepts--in particular, the application

guidance for former designated contract market (``DCM'') Core Principle

6.\42\ As proposed, Sec. 49.23 required SDRs to enumerate the

circumstances in which it is authorized to invoke its emergency

authority, applicable procedures, and the range of measures it is

authorized to take in response to an emergency. Further, the emergency

policies and procedures adopted by an SDR must specifically address

conflicts of interest and include a requirement that the SDR's CCO be

consulted in any emergency that may raise conflicts of interest. The

proposal further required an SDR to identify to the Commission the

persons authorized to exercise emergency authority and the chain of

command, and to promptly notify the

[[Page 54542]]

Commission of any emergency action taken.

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\42\ Id. at 80911.

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6. Regulations Related to Designation of a Chief Compliance Officer

Section 21(e) establishes the CCO as a focal point for compliance.

The Commission implemented section 21(e) in proposed Sec. 49.22, which

further developed and detailed CCO statutory requirements and

responsibilities. Specifically, proposed Sec. 49.22 established the

supervisory regime applicable to CCOs; specified removal provisions;

specified the duties and authorities of CCOs; and detailed the

information that must be included in the required annual compliance

report and the procedure for submission of the report to the

Commission.

7. Core Principles Applicable to SDRs

Unlike prescriptive rules, core principles generally provide the

registered entity with reasonable discretion in establishing the manner

of compliance with each specified principle. Section 21(f) enumerates

three focused core principles applicable to SDRs: (1) Antitrust

considerations (``Core Principle 1''); (2) governance arrangements

(``Core Principle 2''); and (3) conflicts of interest, Core Principle

3.\43\ With respect to Core Principle 1, antitrust considerations, the

Commission proposed in Sec. 49.19 that, unless necessary or

appropriate to achieve the purposes of the CEA, SDRs should avoid

adopting any rule, regulation or policy or taking any action that

results in an unreasonable restraint of trade or imposes any material

anticompetitive burden on the trading, clearing, reporting, and/or

processing of swaps.

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\43\ Section 21(f)(4), the ``fourth core principle,'' grants

broad rulemaking authority to the Commission to establish additional

duties for SDRs. The Commission proposed to add several additional

duties pursuant to this authority; they are discussed in section II.

E, below.

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Core Principle 2 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 3 provides that each SDR

establish and enforce rules to minimize conflicts of interest in its

decision-making processes and establish a process for resolving such

conflicts. In order to ensure proper implementation of Core Principles

2 and 3, the Commission proposed Sec. 49.20 (focusing on the

transparency of SDR governance arrangements) and Sec. 49.21

(addressing SDR identification and mitigation of existing and potential

conflicts of interest).

Proposed Sec. 49.20 prescribed minimum standards for the

transparency of SDR governance arrangements and required that the SDR

make available certain information to the Commission and the public

that is current, accurate, clear and readily accessible; and that it

disclose summaries of significant decisions. In addition, proposed

Sec. 49.20 required each SDR to ensure that an independent perspective

be reflected in the nominations process for its board of directors as

well as the process for assigning members of the board or others to SDR

committees. Finally, the proposal included a number of substantive

requirements for SDR boards of directors and committees. In

implementing Core Principle 3, the Commission proposed in Sec. 49.21

that each SDR maintain and enforce rules that would identify and

mitigate existing and potential conflicts of interest in its decision-

making processes.

8. Proposed Regulations Relating to Additional Duties

As noted above, section 21(f)(4) provides authority under which the

Commission may prescribe additional duties for SDRs. Pursuant to

section 21(f)(4) and section 8a(5) of the CEA, the Commission proposed

to include in part 49 four additional duties that would require SDRs to

(i) adopt and implement system safeguards, including BC-DR plans; \44\

(ii) maintain sufficient financial resources; \45\ (iii) furnish to

market participants a disclosure document setting forth the risks and

costs associated with using the services of an SDR; \46\ and (iv)

provide fair and open access to the SDR and fees that are equitable and

non-discriminatory.\47\

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\44\ Proposed Sec. 49.24.

\45\ Proposed Sec. 49.25.

\46\ Proposed Sec. 49.26.

\47\ Proposed Sec. 49.27.

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9. Proposed Regulations Related to Real-Time Public Reporting

As discussed above, section 727 of the Dodd-Frank Act established

certain public reporting requirements for all swap transactions and

participants, creating new section 2(a)(13)(B) which establishes the

reporting requirements pursuant to which the Commission is authorized

to promulgate rules mandating the public availability of swap

transaction and pricing data in ``real time.'' \48\ To implement these

provisions, the Commission proposed a real-time public reporting

framework for swap transaction and pricing data in new part 43 of its

Regulations.\49\ Proposed Sec. 49.15 details SDRs' ability to accept

and publicly disseminate swap transaction and pricing data on a swap

market as well as those executed off-exchange; its provisions apply to

off-facility swap transactions and to all swap transactions executed on

a SEF or DCM that fulfill the public dissemination requirement of

proposed part 43 by reporting to a registered SDR. As proposed, Sec.

49.15 required SDRs to establish electronic reporting systems necessary

to receive and publicly disseminate all required data fields and

further requires SDRs who disseminate swap transaction and pricing data

in real time to promptly notify the Commission when such data is not

timely reported.

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\48\ 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.''

\49\ See Real-Time NPRM supra note 28.

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10. Proposed Regulations Relating to Implementation of SDR Rules

Proposed Sec. 40.8 was intended to conform SDR implementation

procedures to the proposed amendments to the Commission's part 40

regulations addressing provisions common to all registered

entities.\50\ The proposal provided that an applicant for registration

as an SDR may request Commission approval of some or all of its rules

or, alternatively, may self-certify its rules. Proposed Sec. 40.8

specified procedures applicable to both alternatives.

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\50\ See Part 40 supra note 21.

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D. Overview of Comments Received 51

The Commission received a total of 29 comments from a broad range

of

[[Page 54543]]

interested persons, including existing trade repositories and potential

SDRs, foreign regulatory authorities, trade organizations, banks,

commercial end-users, and DCMs. While commenters generally expressed

support for the proposed part 49 rules, they also offered

recommendations for clarification or modification of specific

provisions. Comments generally focused on one or more of a dozen broad

themes, including (i) SDRs as a public utility; (ii) commercialization

of data; (iii) indemnification requirements; (iv) monitoring, screening

and analyzing swap data; (v) ability of SDRs to invalidate or modify

the terms of an executed swap; (vi) real-time public reporting; (vii)

pricing; (viii) bundling of services; (ix) registration; (x) governance

and conflicts of interest; (xi) access to data; and (xii)

implementation and phase-in.\52\ Individual comments will be described

and discussed as appropriate throughout this section.

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\51\ The initial comment period with respect to proposed part 49

closed on February 22, 2011. The comment periods for most proposed

rulemakings implementing the Dodd-Frank Act were reopened for 30

days from April 27 through June 2, 2011. Throughout this release,

comment letters (``CL'') are identified by ``CL'' and the submitter.

Each letter will be addressed as appropriate in connection with the

discussion, infra, of the final regulatory provision or provisions

to which they relate. All comment letters are available through the

Commission Web site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=939. Comments addressing the proposed part 49

regulations were received from: (1) American Benefits Council

(``ABC'') and the Committee on the Investment of Employee Benefits

Assets (``CIEBA'') on February 22, 2011 (``CL-ABC/CIEBA''); (2)

Americans for Financial Reform (``AFR'') on February 22, 2011 (``CL-

AFR''); (3) Argus Media Inc. (``Argus'') on February 22, 2011 (``CL-

Argus''); (4) Association of Institutional Investors (``AII'') on

June 2, 2011 (``CL-AII''); (5) Chris Barnard (``Barnard'') on May

25, 2011 (``CL-Barnard''); (6) Better Markets on February 22, 2011

(``CL-Better Markets''); (7) CIEBA on June 3, 2011 (``CL-CIEBA'');

(8) CME Group (``CME'') on February 22, 2011 (``CL-CME''); (9)

Council of Institutional Investors (``Council'') on February 18,

2011 (``CL-Council''); (10) Depository Trust & Clearing Corporation

(``DTCC'') on February 22, 2011 (``CL-DTCC I''); (11) DTCC on June

3, 2011 (``CL-DTCC II''); (12) DTCC on June 10, 2011 (``CL-DTCC

III''); (13) European Securities and Markets Authority (``ESMA'') on

January 17, 2011 (``CL-ESMA''); (14) Foreign Banking Organizations--

Barclays, BNP Paribas, Deutsche Bank, Royal Bank of Canada, The

Royal Bank of Scotland Group, Societe Generale and UBS (``Foreign

Banks'') on January 11, 2011 (``CL-Foreign Banks''); (15) Global

Foreign Exchange Division (``Global FX Division') formed in

cooperation with the Association for Financial Markets in Europe

(``AFME''), the Securities Industry and Financial Markets

Association (``SIFMA'') and the Asia Securities Industry and

Financial Markets Association (``ASIFMA'') on February 22, 2011

(``CL-Global FX Division''); (16) Managed Funds Association

(``MFA'') on February 21, 2011 (``CL-MFA''); (17) Markit on February

7, 2011 (``CL-Markit''); (18) MarkitSERV on February 7, 2011 (``CL-

MarkitSERV I''); (19) MarkitSERV on June 3, 2011 (``CL-MarkitSERV

II''); (20) MarkitSERV on June 3, 2011 (``CL-MarkitSERV III''); (21)

Not-For-Profit Electric End-User Coalition consisting of the

National Rural Electric Cooperative Association, the American Public

Power Association and the Large Public Power Council (``NFPE

Coalition'') on February 22, 2011 (CL-NFPE Coalition''); (22) The

Office of the Comptroller of the Currency (``OCC'') on June 30, 2011

(``CL-OCC''); (23) Regis--TR on February 22, 2011 (``CL-Regis-TR'');

(24) Reval.com, Inc. (``Reval'') on January 24, 2011 (``CL-Reval

I''); (25) Reval on February 18, 2011 (``CL-Reval II''); (26) Reval

on February 20, 2011 (``CL-Reval III''); (27) Securities Industry

and Financial Markets Association (``SIFMA'') Asset Management Group

(``AMG'') on February 7, 2011 (``CL-AMG''); (28) SunGard Energy &

Commodities (``Sungard'') on February 22, 2011 (``CL-Sungard''); and

(29) TriOptima on February 22, 2011 (``CL-TriOptima'').

In addition, five comment letters submitted in response to the

Data NPRM also referenced the proposed part 49 regulations. Those

commenters are: (1) DTCC on February 7, 2011 (``CL-Data-DTCC''); (2)

Encana Marketing (USA) Inc. (``Encana'') on February 7, 2011 (``CL-

Data-Encana''); (3) Foreign Banks on February 17, 2011 (``CL-Data-

Foreign Banks''); (4) Global FX Division on February 7, 2011 (``CL-

Data-Global FX Division''); and (5) InterContinentalExchange, Inc.

(``ICE'') on February 7, 2011 (``CL-Data-ICE''). The comments have

been considered in connection with the promulgation of these final

rules, and will be addressed in connection with the discussion of

the provisions to which they relate.

The Commission notes that both DTCC and CME submitted additional

late comment letters related to the SDR Rulemaking on July 21, 2011

and July 29, 2011, respectively. These late-filed comment letters

were received very close to the Commission's decision on the final

part 49 rules; the letters raised no new issues, and therefore, the

Commission is not providing a specific response to any issues raised

by the letters.

\52\ The Commission in its SDR NPRM requested comment on the

nature and length of any implementation or phase-in period for

proposed part 49. Six commenters responded, recommending variously

that there be separate phase-in periods for different asset classes

and/or that the Commission sequence the implementation of reporting

rules by first implementing parts 45 and 49. Subsequently, when

sufficient information is collected to fully study the markets,

rules related to real-time and block trading should be implemented.

The Commission has determined to separately address implementation

and sequencing issues and will consider and address comments related

to those concerns in connection with that action. In addition, 14

additional comments were received by the Commission in connection

with its request for comment on the order in which it should

consider final rulemakings made under the Dodd-Frank Act. See infra

note 315 for cites to the additional letters.

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II. Part 49 of the Commission's Regulations: The Final Rules

As proposed in the SDR NPRM, part 49 contains provisions governing

the registration and regulation of SDRs. The scope of part 49 is

established in Sec. 49.1; definitions are contained in Sec. 49.2.

Proposed Sec. Sec. 49.3-49.4 and 49.6-49.7, along with Form SDR,

establish the procedures and substantive requirements for registration

as an SDR. Proposed Sec. 49.5 governs equity interest transfers and

Sec. 49.8 establishes procedures under which an SDR must implement its

rules. Compliance with the statutory duties described in section 21(c)

of the CEA is established in Sec. 49.9 and detailed in Sec. Sec.

49.10 through 49.18 and Sec. Sec. 49.23 and 49.24. Core principles

applicable to SDRs as outlined in section 21(f) are set forth in

Sec. Sec. 49.19 through 49.22. Additional duties promulgated pursuant

to section 21(f)(4) of the CEA (``Core Principle 4'') are set forth in

Sec. Sec. 49.25 through 49.27. Unless otherwise discussed in this

section, the regulations are adopted as proposed.

A. Requirements of Registration

1. Procedures for Registration--Sec. 49.3

To implement the requirements of section 21(a), the Commission

proposed Sec. 49.3 to establish application and approval procedures.

Proposed Sec. 49.3 required each SDR applicant to file for

registration electronically on proposed Form SDR.\53\ Form SDR would

require each applicant to provide the Commission with documentation

relating to its business organization, financial resources,

technological capabilities, and accessibility of services.\54\ The

Commission is adopting Sec. Sec. 49.3-49.7 substantially as proposed

subject to the minor modifications discussed below.

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\53\ This form would be used for initial or provisional

registration as an SDR as well as for any amendments to the

applicant's registration status.

\54\ SDR NPRM supra 8 at 80900-80901.

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The Commission received one comment relating to registration

generally. CIEBA requested that the Commission clarify that it will

register any qualified applicant as an SDR.\55\ The Commission confirms

that it expects to register any applicant that satisfies the

requirements for registration established in section 21 of the CEA and

this part 49.\56\

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\55\ See CL-CIEBA supra note 51.

\56\ In particular, the Commission notes that section 21(B) of

the CEA, as amended by section 728 of the Dodd-Frank Act, expressly

provides that a DCO may register as an SDR.

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As discussed below, although it received no comments regarding

proposed Form SDR, the Commission has determined to make minor

technical and conforming changes to Form SDR and also to amend certain

provisions of Sec. Sec. 49.3-49.7.\57\

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\57\ The Commission in approving applicants for registration as

SDRs expects to provide an identifying code that is unique for each

``approved'' SDR in order to provide proper identification for each

SDR and the transactions that are reported to it.

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(a) Form SDR

The Commission is making certain technical amendments to Form SDR

to harmonize, to the extent possible, the SDR registration procedures

with the application procedures for DCMs, DCOs, and SEFs. For example,

the word ``material'' has been added to the registration instructions

to make clear that ``intentional misstatements or omissions of material

fact may constitute federal criminal violations.'' Because the

registration application must be filed electronically, Form SDR as

adopted no longer requires the applicant to provide two copies of Form

SDR and attached exhibits. Additionally, the Commission revised Item 8

to account for various organizational structures. Moreover, instead of

requesting ``State/Country'' of the entity's incorporation or filing,

the final Form SDR requests that the applicant note the

``Jurisdiction'' of the organization and list the jurisdictions in

which the applicant is qualified to do business. This information will

assist the Commission in determining whether other domestic and foreign

regulators should be contacted during the application process.

[[Page 54544]]

Both Sec. 49.3(a)(5) and Form SDR, as adopted, require that an

annual amendment on Form SDR be filed within 60 days of the end of each

fiscal year rather than on a calendar year basis. The Commission

believes that this is consistent with the CCO filing provisions set

forth in Sec. 49.22 and will provide the Commission with more timely

financial statements.

The Commission is also making technical amendments to the form to

eliminate redundant and ambiguous undefined language. For example, the

term ``Applicant'' is capitalized and is referred to as a proper person

to create consistency and references to ``facing page'' were removed as

this concept was not defined in Form SDR or the regulations.

Form SDR as adopted clarifies that in order to assist the

Commission in its review of an application, applicants for registration

are encouraged to supplement Form SDR with any additional information

that may be significant to their operation as an SDR. In addition, the

Commission in adopting final Form SDR clarifies that SDR applicants

must be mindful that certain information submitted for application

purposes may be made available to the public and therefore advises

applicant to request confidential treatment, where appropriate, when

submitting application materials.

(b) Provisional Registration

As proposed, Sec. 49.3(b) permitted the Commission, upon the

request of an applicant, to grant provisional registration as an SDR if

the applicant is in substantial compliance with the standards set forth

in proposed Sec. 49.3(a)(4).\58\ Because the Commission believed that

provisional registration should not be a permanent part of part 49,

proposed regulation 49.3(b) provided for a ``sunset'' provision so that

the provisional registration provision would terminate 365 days from

the effective date of the proposed regulations. The Commission has

determined to amend proposed Sec. 49.3(b) to remove this sunset

provision and provide that the Commission may terminate granting new

provisional registrations at a later date.\59\ The Commission believes

that removal of the sunset provision will allow the Commission to fully

evaluate applications for registration and provide greater flexibility

in establishing compliance deadlines with registration requirements

under Sec. 49.3. The Commission expects to work with applicants to

ensure that the transition from provisional registration to full

registration is as prompt and seamless as possible.

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\58\ Proposed Sec. 49.3(a)(4) delineated the standards for

approval of an SDR application: The SDR (i) is appropriately

organized, and has the capacity, to ensure the prompt, accurate and

reliable performance of its functions as an SDR; (ii) can comply

with any applicable provisions of the CEA and regulations

thereunder; (iii) can carry out its functions in a manner consistent

with the purposes of section 21 of the CEA; and (iv) can operate in

a fair, equitable and consistent manner.

\59\ No comments were received in response to the proposed

provisional registration provisions.

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In its comment letter, DTCC urged that applicants for provisional

registration be required to demonstrate operational capability, real-

time processing, multiple redundancy and robust information security

controls.\60\ The Commission agrees that SDRs should have sufficient

operational capabilities to operate on a 24-hour basis based on a 6-day

working week and accordingly has clarified in Sec. 49.3(b) that in

considering a grant of provisional registration it will require both

(i) a demonstrated ability to substantially comply with the standards

established in Sec. 49.3(a)(4) and statutory duties and core

principles; and (ii) demonstrated operational capability, real-time

processing, multiple redundancy and robust information security

controls.

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\60\ CL-DTCC I supra note 51 at 4.

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(c) Registration of Existing Registered Entities

Although comments addressing the proposed application and

registration procedures generally indicated satisfaction with the

Commission's proposal, CME recommended that DCOs wishing to register as

SDRs be given relief from ``duplicative'' registration and requested

that the Commission adopt an abbreviated notice registration procedure

for registered DCOs in good standing with the Commission.\61\

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\61\ See CL-CME supra note 51.

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The Commission acknowledges the merits of CME's suggestion that

there be a process to streamline the application procedures for

existing DCO registrants, and therefore, is adopting a modification to

Sec. 49.3. The Commission is making a minor revision to Sec.

49.3(a)(3) so that applicants are not subject to unnecessary

duplicative review by the staff of the Commission. Specifically, staff

in considering an application for registration as an SDR shall include

in its review an applicant's past relevant submissions to the

Commission and its compliance history. In addition, the Commission

believes that once it gains experience with the SDR registration

process it may re-evaluate whether a shortened or ``notice''

registration process should be available to existing non-SDR

registrants (such as a DCO) seeking registration as an SDR.\62\

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\62\ The Commission notes that the additional cost of providing

documents that may already be available to the Commission is

expected to be limited to the expense of providing electronic copies

of the exhibits set forth in Form SDR.

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2. Withdrawal From Registration--Sec. 49.4

As proposed, Sec. 49.4(a) outlined the process for withdrawal from

registration and specified that written notice of a request to withdraw

be served at least 90 days prior to the desired effective date of the

withdrawal. The Commission has corrected Sec. 49.4(a) to clarify that

notice must be served at least 60 days prior to the desired effective

date of the withdrawal; this correction achieves consistency with Sec.

49.4(b), which provides that a notice of withdrawal from registration

shall be effective on the 60th day after its filing with the

Commission.

3. Notification of Equity Interest Transfers--Sec. 49.5

As proposed, Sec. 49.5 required SDRs to file with the Commission a

notice of the equity interest transfer of ten percent or more, no later

than the business day following the date on which the SDR enters into a

firm obligation to transfer the equity interest. The Commission

proposed a ten percent threshold because it believes that a change in

ownership of such magnitude, even without a corresponding change in

control, may have an impact on the operations of the SDR.\63\

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\63\ SDR NPRM supra note 8 at 80902, n.25.

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The Commission received a single comment relating to this provision

which recommended that the Commission lower the notification threshold

from ten percent to five percent. The same commenter also urged that

the Commission obtain notification at or prior to the firm commitment

to transfer the equity interest.\64\ The Commission has considered

these comments and believes that the notification threshold as proposed

is adequate, based on its belief that a ten percent threshold

appropriately covers those transfers that may result in significant

control or lead to control of the SDR's management.

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\64\ See CL-Better Markets supra note 51.

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As proposed, Sec. 49.5(a) and (c) required filings with the

Commission relating to equity transfer notifications and certifications

electronically through dedicated e-mail addresses. The Commission

believes that future procedures may change, and therefore,

[[Page 54545]]

is revising these provisions so that SDRs file certain equity transfer

notifications and certifications in a format and manner to be specified

by the Secretary of the Commission. Accordingly, the Commission is

adopting this provision largely as proposed subject to the modification

described above.

4. Swap Data Repositories Located in Foreign Jurisdictions--Sec. 49.7

The Commission proposed Sec. 49.7 to enable it to obtain necessary

swap data and related books and records maintained by an SDR located

outside the United States. As proposed, Sec. 49.7 required each SDR

located outside 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 believes this provision

is necessary because different jurisdictions may have different legal

frameworks, which in turn may limit or restrict the Commission's

ability to receive information from an SDR. An opinion of counsel in

this regard will allow the Commission to better evaluate an SDR's

capability to meet the requirements of registration and ongoing

supervision.

The Commission requested comment on a series of questions relating

to registration of a foreign-based SDR.\65\ In response, the Commission

received several comments regarding the potential for ``duplicative''

registration requirements.\66\ With one exception, commenters supported

a system of cross-registration or ``recognition'' in order to reduce

potential burdens.

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\65\ Specifically, the Commission requested comment with respect

to whether (i) the registration process for the foreign SDR be any

different than the Commission's proposed registration process; (ii)

there are any factors that the Commission should consider to ensure

that an 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; and (iii) there are

any other factors the Commission should consider relating to an SDR

located outside of the United States See SDR NPRM supra 8 at 80903.

\66\ See CL-DTCC II; CL-Foreign Banks; CL-ESMA; CL-TriOptima;

CL-Regis-TR; CL-Reval supra note 51.

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ESMA in particular requested that the Commission consider a

recognition regime in which an SDR located in a foreign jurisdiction

could register with the Commission if (i) the laws and regulations of

the foreign jurisdiction are equivalent to those in the U.S.; and (ii)

a MOU has been signed by the Commission and the foreign regulator.\67\

ESMA suggested that the MOU would ensure access to all information the

Commission will need in order to fulfill its statutory duties.

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\67\ CL-ESMA supra note 51.

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Reval, however, urged that that all foreign-based SDRs be required

to comply with U.S. regulations and procedures, and to physically host

the data in the U.S. or create a daily backup of the data with an

entity in the U.S.\68\ DTCC also maintained that foreign-based SDRs

should not be approved by the Commission under reduced registration

requirements \69\ and asserted that an abbreviated or notice

registration procedure for foreign SDRs should be based on a comparable

regulatory structure for repositories in the home country of the

foreign SDR.

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\68\ CL-Reval II supra note 51.

\69\ CL-DTCC I supra note 51.

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The Commission notes that the Dodd-Frank Act and the CEA do not

authorize the Commission to exempt SDRs located in foreign

jurisdictions from the registration requirements set forth in section

21. At the same time, the Commission is cognizant of the global nature

of the swaps market and of concerns regarding regulatory

responsibilities and costs associated with requiring foreign-based SDRs

to comply with multiple, separate regulatory regimes. To that end, the

Commission expects to consult, cooperate, and exchange information with

foreign regulators in connection with the oversight of foreign-based

SDRs that are separately registered in jurisdictions outside of the

U.S.

The Commission is mindful of the commenters' concerns and

emphasizes that the extent of the Commission's ability to coordinate

with foreign regulators will depend largely on the comparability and

comprehensiveness of supervision and regulation by the foreign

jurisdiction in which the SDR is located. In considering the

feasibility of a particular recognition regime, the Commission intends

to review regulatory requirements and the supervision or oversight

programs of a ``home'' or foreign regulator of an SDR to determine the

extent to which the Commission potentially could rely on such foreign

regulators. The level of cooperation and the extent of any coordination

would be evaluated on an individual basis and would be governed by an

MOU. For example, the Commission and the foreign regulator should be

capable of exchanging regulatory reports (including examination

reports) and filings, as well as other information applicable to the

operation of such entity as an SDR. This exchange of information would

assist the Commission in determining whether the SDR located in a

foreign jurisdiction is in compliance with duties mandated under part

49. Such cooperation or coordination with foreign regulators would not

limit or in any way condition the discretion of the Commission in the

discharge of its regulatory responsibilities.

B. Duties of Registered SDRs

Section 21(c) sets forth the minimum duties that an 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 (including another registered entity)

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) \70\ of the CEA proposed that registered SDRs (i)

adopt and implement system safeguards, including BC-DR plans; (ii)

maintain sufficient financial resources; (iii) furnish market

participant with a disclosure document setting forth the risks and

costs associated with using the services of the SDR; and (iv) provide

fair and open access and fees and charges that are equitable and non-

discriminatory.

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\70\ 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 an SDR to be registered

and maintain its registration must comply with any requirement that

the Commission may impose by rule or regulation pursuant to section

8a(5) of the CEA.

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1. Acceptance of Data--Sec. 49.10

As proposed, Sec. 49.10 required that SDRs adopt policies and

procedures that would enable the SDR to electronically accept data and

other regulatory

[[Page 54546]]

information; \71\ accept all swaps in the asset class(es) \72\ for

which they have registered; \73\ 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; and

establish procedures and provide facilities for effectively resolving

disputes over the accuracy of the swap data and positions that are

recorded in the SDR.

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\71\ See section 21(c)(1) of the CEA, 7 U.S.C. 24a(c)(1). The

Commission proposed in new part 45 to the Commission's Regulations

the specific data elements that must be reported and applicable to

DCMs, DCOs, swap execution facilities (``SEFs''), foreign boards of

trade (``FBOTs''),1 SDs, MSPs, non-end-user SDs/MSPs and end-users

in connection with the reporting of such swap data to SDRs. These

data elements and standards would include the reporting of

continuation data throughout the life of the swap. In addition, the

Data NPRM also provides specific requirements for SDRs relating to

(i) determining which counterparty must report to the SDR; (ii)

third-party facilitation of swap data reporting; (iii) reporting to

a single SDR in connection with the reporting of swap data; (iv)

required data standards; and (v) the reporting of errors and

omissions. See Data NPRM supra note 6.

\72\ Proposed Sec. 49.2(a)(2) defined ``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, other commodities and such other

assets as may be determined by the Commission. See also Department

of the Treasury, Notice of Proposed Determination of Foreign

Exchange Swaps and Foreign Exchange Forwards Under the Commodity

Exchange Act, 76 FR 25774 (May 5, 2011) and Request for Comments:

Determination of Foreign Exchange Swaps and Forwards, 75 FR 66829

(Oct. 29, 2010) and 75 FR 66426 (Oct. 28, 2010).

\73\ 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.

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The Commission received one comment relating to the definition of

asset class that indicated cross-currency (also known as currency)

swaps are not properly characterized under the ``currency'' asset class

but instead are interest rate products.\74\ Therefore, the Commission

believes a modification is necessary to better reflect the fact that

the industry typically characterizes ''currency'' swaps as ``interest

rate swaps.'' This characterization is based on the attributes of

currency swaps that resemble the structure and operation exhibited by

interest rate swaps while in ``foreign exchange'' swaps, the underlying

foreign currency is exchanged by the parties. Accordingly, the

Commission is replacing the term ``currency'' in the definition of

asset class with ``foreign exchange'' as set forth in Sec. 49.2(a)(2)

to accurately reflect the asset classes employed in the swaps market.

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\74\ See CL-Global FX Division supra note 51 at 2.

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The Commission received a single comment relating to data formats

and protocols for data submission to SDRs.\75\ DTCC commented that a

registered SDR should have the flexibility to specify the acceptable

data formats, connectivity requirements, and other protocols for

submitting information.\76\ While the Commission generally agrees with

DTCC that SDRs should have flexibility to specify acceptable data

formats and other technical requirements, the Commission does not

believe that DTCC's recommendations are necessary to operational

flexibility. Several commenters supported \77\ the proposed requirement

in Sec. 49.10(b) that an SDR accept all swaps from any asset class or

classes for which it registers. CME, however, recommended that DCO-SDRs

should only be required to accept data for swaps that they clear and

not for uncleared/bilateral transactions.\78\ The Commission believes

that CME's approach would lead to greater data fragmentation.

Additionally, the Commission believes that pursuant to section

2(a)(13)(G), SDRs are required to accept cleared and uncleared swaps.

Accordingly, the Commission is adopting Sec. 49.10(b) substantially as

proposed, with the addition of the phrase ``unless otherwise prescribed

by the Commission'' so that the Commission may, in its discretion,

provide flexibility to the general rule that an SDR must accept all

swaps in an asset class for which it has registered. This flexibility

will be especially relevant in connection with the implementation or

phasing of reporting obligations of market participants.

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\75\ See CL-DTCC I supra note 51.

\76\ Id.

\77\ See CL-Better Markets, CL-DTCC I and CL-Global FX Division

supra note 51.

\78\ See CL-CME supra note 51.

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The Commission received four comments relating to proposed Sec.

49.10(c).\79\ The comments were supportive of the Commission's efforts

to prevent improper invalidation of swap transactions; as discussed

below, however, some commenters felt that further refinement of the

text is necessary.

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\79\ See CL-ABC/CIEBA, CL-AMG and CL-CIEBA supra note 51.

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ABC/CIEBA and AMG requested that the Commission clarify that Sec.

49.10(c) would prevent an SDR from adopting user agreements that

indirectly serve to modify or invalidate terms that have been agreed

upon by the counterparties.\80\ The Commission has adopted the

recommended clarification. ABC/CIEBA and AMG also requested that the

Commission seek to prevent confirmation and reporting platforms from

adopting provisions in their user agreements that would permit the

modification or invalidation without the consent of the

counterparties.\81\ CIEBA also separately suggested that the Commission

prohibit SDRs from using third-party service providers which invalidate

a swap without the consent of a counterparty.\82\ The Commission

believes that Sec. 49.10(c), as proposed, would clearly prohibit SDRs

as well as any agent or third-party service provider of the SDR to

modify or invalidate a swap transaction without the consent of the

counterparties.

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\80\ CL-ABC/CIEBA and CL-AMG supra note 51 at 3-4 and 9,

respectively.

\81\ Id.

\82\ CL-CIEBA supra note 51 at 5.

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2. Confirmation of Data Accuracy--Sec. 49.11

As proposed, Sec. 49.11 required SDRs to establish and adopt

policies and procedures to ensure the accuracy of swap data that is

reported to an SDR.\83\ In particular, proposed Sec. 49.11 required

that the SDR confirm with both counterparties to the swap the accuracy

of the data and information submitted \84\ and receive acknowledgement

of all data submitted as well as corrections of any errors.\85\ The SDR

NPRM specified that confirmation is unnecessary when the reporting

party is a SEF, DCM, DCO or a confirmation or matching service provider

to whom the swap counterparty has delegated its reporting obligation.

However, the SDR would still be required to ensure that the data and

information it receives from such entity is accurate.

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\83\ See Data NPRM supra note 6.

\84\ 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 6.

\85\ This requirement does not apply to real-time public

reporting. See proposed Sec. 43.3(f) supra note 28.

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As detailed in proposed part 45, the reporting of swap creation

data (primary economic terms data and confirmation data) and swap

continuation data will take place through different channels, depending

on the nature of the transaction and counterparties. Primary economic

terms data is required to be reported by a SEF or DCM if the swap is

executed on a platform, and by the reporting counterparty (SD, MSP, or

other counterparty) if the swap is not platform executed. Confirmation

data

[[Page 54547]]

will be reported by a DCO if the swap is cleared, and by the reporting

counterparty if the swap is uncleared. Swap continuation data will be

reported throughout the life of a swap by the DCO and/or the reporting

counterparty. Consistent with proposed part 45 and Sec. 49.12, SDRs

are required to accept swap data from these entities, as well as from

third-party service providers who may be acting on their behalf.

The Commission received five comments relating to an SDR's

obligation to confirm the accuracy of the reported swap data.\86\

Several commenters recommended that an SDR should not be required to

affirmatively communicate with both counterparties in order to confirm

the accuracy of data submitted. Reval commented that the SDR should

only be required to confirm the accuracy of the trade with the

reporting entity.\87\ DTCC \88\ and MarkitSERV \89\ both supported the

use of confirmation records in fulfilling the obligation of the SDR to

confirm data submissions.

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\86\ See CL-Reval II, CL-DTCC I, CL-MarkitSERV I, CL-ABC/CIEBA

and CL-Data-Encana supra note 51.

\87\ CL-Reval II supra note 51 at 6.

\88\ CL-DTCC I supra note 51 at 20.

\89\ CL-MarkitSERV I supra note 51 at 6.

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The Commission notes that section 21(c)(2) of the CEA states that

an SDR must confirm the accuracy of the data that was submitted with

both counterparties to the swap and does not draw any distinction

between submitted swap data that has or has not been legally confirmed.

However, the Commission agrees with the commenters that it may not be

necessary to affirmatively communicate with both counterparties in all

circumstances. Therefore, the Commission has modified the manner in

which an SDR may fulfill the requirement to confirm the accuracy of the

data. As adopted, Sec. 49.11 will not require an SDR to affirmatively

communicate with both counterparties when data is received from a SEF,

DCM, DCO, or third-party service provider under certain conditions.

Communication need not be direct and affirmative where the SDR has

formed a reasonable belief that the data is accurate, the data or

accompanying information reflects that both counterparties agreed to

the data, and the counterparties were provided with a 48-hour

correction period. The SDR must affirmatively communicate with both

counterparties to the swap when data is submitted directly by a swap

counterparty such as an SD, MSP or non-SD/MSP counterparty such as an

end-user.

Encana requested that the Commission provide additional guidance on

how proposed Sec. 45.10 and Sec. 49.11 work together. Both

regulations impose obligations on reporting parties and SDRs relating

to errors and omissions in the reporting of swap transaction data.\90\

The Commission submits that the regulations are complementary and are

both expected to protect the integrity and the accuracy of reported

data. While Sec. 45.10 provides an ongoing obligation for

counterparties to provide error corrections, Sec. 49.11 imposes a duty

on the SDR to provide a correction period to receive from

counterparties, within a short time period after the data has been

submitted, acknowledgment of the accuracy of the data.

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\90\ See CL-Encana supra note 51.

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3. Recordkeeping Requirements--Sec. 49.12

Proposed Sec. 49.12 implements section 21(c)(3) consistent with

existing Commission regulations and the Commission's proposed part 45

regulations \91\ and required that SDRs maintain swap data throughout

the existence of the swap and for five years following termination

during which time the records must be readily accessible by the SDR and

available to the Commission via real-time electronic access and in

archival storage capable of being retrieved within three business days.

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\91\ See Data NPRM supra note 6.

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The Commission received one comment \92\ recommending that swap

data be kept indefinitely.\93\ As proposed, Sec. 49.12(a) required

SDRs to maintain books and records as prescribed by proposed Sec.

45.2. Rather than specifically referencing and incorporating the

provisions of proposed Sec. 45.2, the Commission believes Sec.

49.12(a) should require SDRs to comply with any and all recordkeeping

provisions adopted under part 45.\94\ Accordingly, Sec. 49.12(a) as

adopted requires registered SDRs to ``maintain books and records in

accordance with the requirements of part 45 of this chapter regarding

the data required to be reported to the swap data repository.'' Under

Sec. 49.12(a), registered SDRs will be required to maintain swap data

for the time periods and under the standards to be set forth in part

45.\95\

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\92\ See CL-Barnard supra note 51 at 2.

\93\ The Commission has also received several comments in

connection with the proposed part 45 recordkeeping provisions.

Comments received in connection with proposed part 45 will be

reviewed in connection with that rulemaking; the Commission is

adopting Sec. 49.12(a) largely as proposed subject to the

modifications discussed below.

\94\ Like other rules that are tied to related rulemakings,

Sec. 49.12(c) will become effective 60 days after publication in

the Federal Register but compliance will not be required until such

time as the part 45 rules become effective.

\95\ The time period and standards in part 45 are currently

proposed as throughout the existence of the swap and for five years

following termination during which time the records must be readily

accessible by the SDR and available to the Commission via real-time

electronic access and in archival storage capable of being

retrievable within three business days.

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The Commission is revising proposed Sec. 49.12 to require SDRs to

comply with the time periods set forth in part 45 for maintaining books

and records. The Commission does not believe that SDRs should be

required to keep records indefinitely following the expiration of the

underlying transactions.

Proposed Sec. 49.12(c) required all books and records to be open

to inspection upon request by any representative of the Commission, the

United States Department of Justice, the SEC or prudential regulators

as authorized by the Commission. The Commission is revising Sec.

49.12(c) to remove the SEC and prudential regulators so that only the

Commission and the Department of Justice will have books and records

inspection rights.\96\ This change will maintain consistency with

existing Commission regulations on recordkeeping.\97\

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\96\ See proposed rule 13n-7 under the Securities Exchange Act

of 1934, 17 CFR 240.13n-7 set forth in the SEC's proposal relating

to security-based swap data repositories. The SEC in that proposal

did not provide inspection rights of the books and records of a

security-based swap data repository to the Commission or prudential

regulators. See SEC, Notice of Proposed Rulemaking: Security-Based

Swap Data Repository Registration, Duties and Core Principles, 75 FR

77306 (Dec. 10, 2010).

\97\ Commission regulation Sec. 1.31 requires that all ``books

and records required to be kept by the act or by these regulations

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

shall be readily accessible during the first 2 years of the 5-year

period. All such books and records shall be open to inspection by

any representative of the Commission or the United States Department

of Justice.'' The Commission notes that section 4r(c) of the CEA

adopted by Section 729 of the Dodd-Frank Act provides inspection

rights to, among others, the SEC, prudential regulators and the

FSOC. However, these rights are limited to counterparties that do

not clear or have their swap transactions reported to, or accepted

by, an SDR. Accordingly, the Commission lacks the statutory

authority to provide books and records inspection rights to those

named other regulators.

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The Commission believes that the proper procedure for Appropriate

Domestic Regulators to obtain SDR Information is through the mechanism

set forth in Sec. 49.17 (Access to SDR Data) discussed below in

section II.B.7.

The Commission is adopting Sec. 49.12(d) largely as proposed,

subject to a slight modification discussed below in connection with

Sec. 49.15 relating to real-time public reporting requirements.

[[Page 54548]]

4. Monitoring, Screening and Analyzing Swap Data--Sec. 49.13 and Sec.

49.14

Proposed Sec. Sec. 49.13 and 49.14 implement section 21 of the CEA

and together reflect SDRs' significant responsibilities in the new

swaps market regulatory structure established by the Dodd-Frank Act.

Under this new regulatory structure, SDRs will function not only as

repositories for swap transaction data, but also as potential sources

of support for the Commission's oversight of swaps markets and swap

market participants. Section 21(c)(5) of the CEA, as amended by section

728 of the Dodd-Frank Act, requires SDRs to establish ``automated

systems for monitoring, screening, and analyzing swap data, including

compliance and frequency of end-user clearing exemption claims by

individuals and affiliated entities.'' \98\ 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. The only specific requirement set

forth in section 21(c)(5) is that SDRs have systems in place capable of

fulfilling such requirements as the Commission may assign.

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\98\ Section 21(c)(5) of the CEA.

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Proposed Sec. Sec. 49.13 and 49.14 required 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).

The Commission received eight comment letters relating to proposed

Sec. Sec. 49.13 and 49.14.\99\ While the commenters were generally

supportive of the proposed rules and their objectives, they articulated

a number of concerns, including: (1) The level of detail concerning

routine and ad hoc monitoring, screening and analysis requirements; (2)

future compliance costs; and (3) the level of responsibilities imposed

on SDRs and/or retained by the Commission. Four of the commenters \100\

requested additional detail and clarity on the anticipated requirements

in proposed Sec. 49.13(a) and (b).

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\99\ These letters represent comments from five potential SDRs,

two non-profit organizations, and one individual . See CL-AFR, CL-

Barnard, CL-Better Markets, CL-CME, CL-DTCC I, CL-Reval II, CL-

Sungard, and CL-TriOptima supra note 51.

\100\ CL-Barnard, CL-CME, CL-Sungard and CL-TriOptima supra note

51.

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Sungard, in particular, expressed concern that proposed Sec.

49.13(a) provided only ``limited guidance'' on the requirements to be

imposed on SDRs' automated systems for monitoring, screening, and

analyzing swap data.\101\ Sungard referenced the SDR NPRM which stated

that the Commission ``will consider specific tasks to be performed by

SDRs at a later date'' and requested that in the final rule 49.13(a),

the Commission ``provide an implementation period and effective date

which are based on such later date.'' \102\ Sungard also commented that

the potentially rising cost of compliance with proposed Sec. 49.13(b),

which requires that SDRs maintain sufficient resources to fulfill the

requirements in Sec. 49.13(a), monitor their resources annually, and

make adjustment as needed to remain in regulatory compliance, might

harm the commercial viability of SDRs.\103\

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\101\ See CL-Sungard supra note 51 at 2.

\102\ Id. at 2. See also SDR NPRM supra note 8 at 80907.

\103\ Sungard made a number of recommendations to ensure the

commercial viability of SDRs, including (1) a constraint on the

growth in resources required under Sec. 49.13(b), (2) a mechanism

to recover at least a portion of resource costs in a manner other

than user fees, or (3) ``some other mechanism to allow for the

business planning necessary for the SDR to function while being

certain of compliance with applicable rules.'' Id.

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Three commenters \104\ suggested that the Commission should play a

larger role in the monitoring, screening, and analyzing of swap market

data; while two commenters \105\ took the opposing view and suggested

that data monitoring, screening, and analyzing should be performed

centrally by an SDR. Both AFR and Better Markets believed that

aggregated data monitoring and analysis should be performed by the

Commission rather than relying on SDRs.\106\ CME's comments raised

concerns with providing SDRs with surveillance responsibilities.\107\

DTCC, however, recommended that certain monitoring, screening, and

analyzing functions be performed centrally by an SDR.\108\ Reval

recommended that SDRs be more than a data warehouse and provide data

analysis to the Commission.\109\

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\104\ See CL-AFR, CL-Better Markets and CL-CME supra note 51.

\105\ See CL-DTCC I and CL-Reval II supra note 51.

\106\ AFR further suggested that the Commission develop ``the

capacity to perform key data analysis in-house, using raw data from

SDRs, instead of becoming dependent on privately owned SDRs to

measure aggregate exposures.'' Id. at 4. Better Markets suggested

that the Commission build its own ``single, in-house system'' for

monitoring and analyzing swap data rather than rely on individual

SDRs. CL-Better Markets supra note 51 at 8.

\107\ CME stated that it is ``not convinced that SDRs should be

given wide ranging surveillance responsibilities.'' CL-CME supra

note 51 at 5. And instead, opined that ``[m]arket-wide surveillance

duties are best placed with a regulator or self-regulatory

organization empowered with disciplinary powers * * *.'' Id.

\108\ CL-DTCC I supra note 51 at 24.

\109\ CL-Reval II supra note 51 at 7. Reval suggested that SDRs

should be required to provide an independent valuation of the swaps

submitted to the SDR, provide the relevant market data that goes

into the calculation of the swap value, verify the credit value

adjustment for uncleared trades, and provide the Commission with

historic, current, and future risk analysis to anticipate systemic

risk. Id. at 8.

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Commenters expressed concern that Sec. Sec. 49.13(a) and 49.14 do

not sufficiently describe the specific tasks SDRs are expected to

perform. The Commission recognizes that Sec. Sec. 49.13(a) and 49.14

do not contain specific requirements. Its intention in Sec. Sec.

49.13(a) and 49.14 is to codify the statutory requirements in section

21(c)(5) and establish that specific monitoring, screening, and

analyzing duties will be imposed when its knowledge of the markets is

more fully developed.\110\ At that time, the Commission will provide

SDRs with adequate notice to permit them to meet specific requirements

of Sec. Sec. 49.13(a) and 49.14.

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\110\ See proposed Sec. 49.13(a). SDR NPRM supra note 8 at

80907.

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Regarding proposed Sec. 49.13(b), the Commission believes that

SDRs and other regulated entities should always maintain sufficient

resources to comply with regulatory requirements under the CEA. The

Commission also recognizes the necessity for adequate resource

requirements for SDRs given the expectation that SDRs may play a

significant role in assisting the Commission to fulfill its regulatory

mandate. Therefore, the Commission has not implemented Sungard's

suggestion to impose a cap on the growth of required information

technology, staff, and other resources required under Sec. 49.13(b).

The Commission also notes that the requirement of Sec. 43.13(b) to

``establish and maintain sufficient information technology, staff, and

other resources'' is similar to provisions proposed and already

existing for DCMs and proposed for SEFs.\111\ Furthermore, any

increased

[[Page 54549]]

regulatory functions covered by proposed Sec. 49.13(b), which may

result in increase costs, will apply to all SDRs equally. As discussed

above, the Commission has also committed to giving sufficient notice

before imposing specific obligations under Sec. Sec. 49.13 and 49.14,

giving SDRs time to also address any resulting financial needs.

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\111\ See Core Principle 2, Acceptable Practices, in appendix B

to part 38 of the Commission's regulations. The Application Guidance

for this Core Principle requires designated contract markets to

``have arrangements and resources for effective trade practice

surveillance programs'' and ``have arrangements, resources and

authority for effective rule enforcement.'' 17 CFR 38, appendix B.

See also proposed Sec. 38.155(a) which requires a designated

contract market to ``establish and maintain sufficient compliance

department resources and staff to ensure that it can conduct

effective audit trail reviews, trade practice surveillance, market

surveillance, and real-time market monitoring.'' 75 FR 80572, 80613

(Dec. 22, 2010)(``DCM NPRM''). See also proposed Sec. 37.203(c)(1)

which requires a swap execution facility to ``establish and maintain

sufficient compliance department resources and staff to ensure that

it can conduct effective audit trail reviews, trade practice

surveillance, market surveillance and real-time market monitoring.''

Commission, Notice of Proposed Rulemaking: Core Principles and Other

Requirements for Swap Execution Facilities, 76 FR 1214, 1241 (Jan.

7, 2011)(``SEF NPRM'').

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AFR, Better Markets and CME recommended that the Commission play a

larger role than proposed in the monitoring, screening, and analyzing

of swap market data. Both AFR and Better Markets, in particular,

recommended that the Commission build its own systems for monitoring,

screening and analyzing swap data. The Commission believes that the

proper role of an SDR is to provide the Commission with a centralized

recordkeeping facility to facilitate its surveillance and oversight

responsibilities in the swaps markets. The Commission does not propose

that SDRs displace the Commission's regulatory responsibilities, but

neither does it propose to displace SDRs statutory obligations to

monitor, screen and analyze swap market data. The Commission largely

agrees with AFR and Better Markets in that the Commission should retain

the responsibility for surveillance and oversight of the swaps market;

however, the Commission believes it is unnecessary to duplicate systems

that will already be available through the SDR infrastructure.

Additionally, the Commission believes that SDRs, at the direction of

the Commission, will provide sufficient capacity for monitoring,

screening, and analyzing swap data. The Commission believes that the

approach of proposed Sec. Sec. 49.13 and 49.14 adequately balances the

Commission's regulatory responsibilities with SDRs statutory duties

and, as articulated by DTCC, ``promotes efficiency in the system.''

\112\

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\112\ CL-DTCC supra note 51 at 24.

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Commenters also made recommendations relating to uniform

recordkeeping and reporting requirements across different SDRs. The

Commission notes that it addressed this issue in a separate, related,

rulemaking.\113\ Nonetheless, the Commission does not agree with Better

Markets that it must also require SDR systems to be uniform and

compatible. The Commission believes that its designation of uniform

recordkeeping and reporting requirements will sustain a level of system

compatibility. In addition, when established, the monitoring,

screening, and analyzing tasks required of SDRs will likely impose a

level of uniformity of system outputs within similarly situated SDRs.

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\113\ See Data NPRM supra note 6.

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Lastly, the Commission agrees with Reval's assertion that in order

to minimize systemic risk, SDRs need to engage in certain data analysis

and reporting rather than function merely as warehouses of transaction

data. However, as articulated above, at this time the Commission has

not proposed, nor is it implementing, specific data analysis functions

for SDRs. The Commission intends to consider additional specific tasks

to be performed by SDRs when its knowledge and experience of the

regulatory oversight needs with respect to the swap markets has

developed more fully.

With the clarifications and modifications described above, the

Commission is adopting Sec. Sec. 49.13 and 49.14 substantially as

proposed.\114\

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\114\ The Commission is making two non-substantive modifications

to Sec. Sec. 49.13(a) and 49.14. The word ``perform'' will be added

to the last sentence in Sec. 49.13(a) and the word ``of'' will be

added to the last sentence in Sec. 49.14. These modifications are

being made to improve the sentence structure of both of these

sections.

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5. Real-Time Public Reporting--Sec. 49.15

Section 2(a)(13)(D) of the CEA permits the Commission to require

registered entities to publicly disseminate swap transaction and

pricing data. To implement section 2(a)(13), the Commission is

establishing a real-time public reporting framework in a new part 43 of

the Commission's regulations that is subject to a separate

rulemaking.\115\

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\115\ See Real-Time NPRM supra note 28. As noted above,

Sec. Sec. 49.12(d) and 49.15 will become effective 60 days from the

date of publication in the Federal Register, but compliance will not

be required until such time as the part 43 rules become effective.

See note 93 supra.

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As proposed, Sec. 49.12(d) and Sec. 49.15 together set forth the

requirements for SDRs regarding the public dissemination of swap

transaction and pricing data. Proposed Sec. 49.12(d) required each SDR

to comply generally with the requirements prescribed in part 43, while

proposed Sec. 49.15 described additional duties of an SDR relating to

the acceptance and public dissemination of swap transaction and pricing

data in real-time.

The Commission received a total of seven comments relating to

proposed Sec. Sec. 49.12(d) and 49.15.\116\ Markit and Argus urged the

Commission to adopt tighter restrictions on the commercial non-public

dissemination of real-time data,\117\ while Markit also recommended

that the part 43 rules explicitly state that ownership of swap

transaction data does not transfer from counterparties to other

regulated entities such as DCMs, SEFs and DCOs.\118\ AMG and AII both

requested that the Commission phase-in block size determinations and

time-limits for real-time dissemination.\119\ NFPE Coalition also

requested a clarification regarding aspects of the real-time reporting

requirements and suggested that SDRs should not be used to determine

the timeliness of real-time public reporting.\120\ ICE and DTCC

believed that SDRs should be designated as the sole vehicle for the

dissemination of swap data \121\ while DTCC also expressed the concern

that public dissemination could disclose the identities of swap

counterparties.\122\ Better Markets also recommended that the

Commission have real-time streaming or instantaneous access to swap

transaction data in order to fulfill its regulatory obligations.\123\

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\116\ See CL-Markit, CL-AMG, CL-Argus, CL-AII, CL-NFPE

Coalition, CL-DTCC I and CL-DTCC II supra note 51.

\117\ CL-Markit and CL-Argus supra note 51.

\118\ CL-Markit supra note 51.

\119\ CL-AMG and CL-AII supra note 51.

\120\ CL-NFPE Coalition supra note 51.

\121\ CL-Data-ICE, CL-DTCC I and CL-DTCC II supra note 51.

\122\ CL-DTCC I supra note 51.

\123\ CL-Better Markets supra note 51.

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The Commission is adopting Sec. 49.15 substantially as proposed.

As adopted, Sec. 49.15(a) will no longer limit the real-time reporting

of swap transactions for SDRs to ``off facility swaps.'' The Commission

is currently considering comments received in connection with the

proposed part 43 regulations,\124\ including those relating to an SDR's

role in the public dissemination of swap transaction and pricing data

in real time. The Commission may include limitations on the type of

public reporting and dissemination for SDRs. As adopted, Sec.

49.15(c), relating to the untimely submission of swap data for real-

time public reporting and dissemination purposes will not reference the

specific time periods and notification procedures proposed in part 43.

Instead, Sec. 49.15(c) will require SDRs to ``notify the Commission of

any swap transaction for which the real-time swap data was not received

by the swap data repository in accordance with part 43 of

[[Page 54550]]

this chapter.'' The Commission believes this change provides

appropriate flexibility to adjust SDR responsibilities with regard to

the untimely reporting of swap transaction data in accordance with any

future adoption of part 43. The Commission will consider the comment

received in connection with proposed Sec. 49.15(c) when addressing the

relevant provisions in part 43, which is expected to be finalized

subsequent to this rulemaking.

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\124\ Real-Time NPRM supra note 28.

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In response to comments received \125\ concerning the commercial

use of real-time public swap data and the commercialization of data

generally, the Commission submits that persons responsible \126\ for

the public dissemination of swap data are prohibited from distributing

such data prior to public dissemination. Such pre-publicly available

dissemination would constitute a ``commercial use'' under Sec.

49.17(g). Therefore, SDRs may not make commercial use of real-time swap

data before dissemination to the public, including any analysis for

commercial purposes. As set forth in 49.17(g)(1), the Commission also

notes that SDRs must maintain appropriate firewalls to protect swap

data from unlawful commercial uses.

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\125\ See CL-Markit and CL-Argus supra note 51.

\126\ Although SDRs are permitted to delegate the performance of

various functions to 3rd party service providers, the SDR retains

the responsibility for compliance with this and other regulatory

restrictions.

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Additionally, as discussed above, in light of the comments received

and as a result of its consideration of proposed Sec. 49.15, the

Commission will continue to consider the role SDRs will play in the

public dissemination of real-time swap data and will address these

issues in the context of the part 43 rules.

6. Maintenance of Data Privacy--Sec. 49.16

To implement the statutory requirements of sections 21(c)(6)\127\

and 21(f)(3)\128\ of the CEA, as added by section 728 of the Dodd-Frank

Act,\129\ the Commission proposed in Sec. 49.16 that SDRs maintain the

privacy and confidentiality of reported swap data.

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\127\ 7 U.S.C. 24a(c)(6). For a discussion of commercial data

privacy, see generally Department of Commerce, Internet Policy Task

Force, Commercial Data Privacy and Innovation in the Internet

Economy: A Dynamic Policy Framework (Dec. 2010) and Federal Trade

Commission (FTC), Preliminary Staff Report, Protecting Consumer

Privacy in an Era of Rapid Change (Dec. 2010). See also FTC, Final

Rule: Standards for Safeguarding Customer Information, 67 FR 36484

(May 23, 2002).

\128\ 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. See infra section II D. 4.

\129\ See section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3).

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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 an SD, counterparty, or any other

registered entity.'' Section 21(f)(3) of the CEA also sets forth a

conflict of interest ``core principle'' applicable to an SDR. As

detailed further below, the Commission has identified certain conflicts

that may implicate access, disclosure, or use of SDR Information.\130\

SDR Information includes any information that an SDR receives from a

reporting counterparty,\131\ including market participants \132\ such

as DCMs, DCOs, SEFs, SDs, MSPs and non-SD/MSP counterparties.

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\130\ The term ``SDR Information'' is defined in proposed Sec.

49.2(a)(15) to mean ``any information that the swap data repository

maintains.'' Sec. 49.17(f) and (g) discussed below contain more

specific prohibitions on access or use of SDR Information.

\131\ The term ``reporting counterparty'' is set forth in

proposed Sec. 45.5 of the Data Rulemaking NPRM. The proposed

definition is based on section 4r(3) of the CEA.

\132\ The term ``market participant'' is defined in proposed

Sec. 49.2(a)(6) to mean any person participating in the swap

market, including, but not limited to, DCMs, DCOs, SEFs, SDs, MSPs,

and any other counterparties to a swap transaction.

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The Commission emphasizes that SDRs are expected to receive two

separate ``streams'' of data: (i) Data related to real-time public

reporting which by its nature is publicly available and (ii) data that

is intended for use by the Commission and other regulators which is

subject to statutory confidential treatment (``Core Data'').

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 held strictly confidential such 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. However, aggregated

data that cannot be attributed to individual transactions or market

participants may be disclosed by an SDR on a voluntary basis or as

required by the Commission.

As proposed, Sec. 49.16 required SDRs to establish, maintain, and

enforce specific policies and procedures to protect the privacy or

confidentiality of any and all SDR Information, including privacy or

confidentiality policies and procedures for the sharing of SDR

Information with SDR affiliates \133\ as well as certain non-affiliated

third parties.\134\ Proposed Sec. 49.16 also required SDRs 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 Section 8 Material.\135\ As discussed, 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.'' \136\ Such information would

typically

[[Page 54551]]

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

required an SDR to also protect information that is not Section 8

Material as well as intellectual property that may include trading

strategies.

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\133\ 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.''

\134\ 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).''

\135\ 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. 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).

\136\ 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.'' Section 8(b) of the CEA permits disclosure of

Section 8 Material in connection with certain congressional,

administrative or judicial proceedings. In addition, section 8(e)

also provides an exception for information that was previously

disclosed publicly pursuant to section 8.

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The Commission submits that these 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 Sec. 49.17. As set forth in

Sec. 49.17 discussed below in the section entitled ``Access to SDR

Data,'' an 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--is

strictly circumscribed as provided in Sec. 49.17. 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 Sec. 49.16.

The Commission received two comments relating to privacy and

confidentiality concerns.\137\ DTCC specifically supported the

Commission's efforts to keep swap data reported to SDRs confidential

but noted the possibility of unintentional disclosure of participant

identities in connection with the public dissemination of swap data.

The concern raised by DTCC focused on the perceived potential for

market participants to extrapolate identities of counterparties to a

transaction that is publicly reported pursuant to the real-time public

reporting requirements. The Commission, however, believes that the

manner in which real-time public reporting will occur pursuant to part

43 will mitigate this concern because counterparty identities will not

be disclosed and the actual underlying notional amount will not be

associated with any particular transaction. MFA similarly believes that

the requirements of Sec. 49.16 may not be sufficient to protect the

confidentiality of trading positions.

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\137\ See CL-DTCC I and CL-MFA supra note 51.

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The Commission agrees with MFA that the confidentiality of position

level data held by an SDR is extremely important and notes that Sec.

49.16, as proposed, would require that each SDR ``[e]stablish 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 Intellectual

property * * *'' \138\ Accordingly, the Commission believes that this

requirement covers the matters that MFA proposed for inclusion in Sec.

49.16. ``Section 8 Material'' as defined in proposed Sec. 49.2(a)(11)

means the ``business transactions, trade data or market positions of

any person and trade secrets or names of customers.'' The details of

any master agreements governing a swap would clearly fall within a

``business transaction'' referenced in the definition of Section 8

Material.

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\138\ Proposed Sec. 49.16(a)(2) set forth in SDR NPRM supra

note 51 at 80931.

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In connection with MFA's desire to have the legal standard of care

set forth in Sec. 49.16, the Commission submits that SDRs, rather than

the Commission, are in the better position to establish appropriate

procedures to protect the confidentiality of SDR data consistent with

Sec. 49.16. In addition, the Commission believes that MFA's

recommendation to hold current and former SDR employees, directors,

officers, agents and representatives liable by regulation for any

breach of the SDR's privacy policies and procedures is beyond the scope

of section 21(c)(6). Consistent with MFA's comments, the Commission

believes that SDRs must be prohibited, as a condition of accepting data

from reporting entities, from requiring the waiver of any legal rights

such entities may have with respect to breaches of confidentiality by

the SDR. The Commission also received comments on confidentiality and

aggregated data from DTCC, which was concerned that market participants

may be able to identify the parties to a particular transaction through

extrapolation even though the disclosed data is ``aggregated.'' \139\

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\139\ CL-DTCC I supra note 51.

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In order to clarify its position with respect to the disclosure of

``aggregated data,'' the Commission believes that it is permissible

under the Dodd-Frank Act and part 49 of the Commission's regulations

for an SDR to disclose, for non-commercial purposes, data on an

aggregated basis such that the disclosed data reasonably cannot be

attributed to individual transactions or market participants. In

addition, the Commission submits that if requested by the Commission,

an SDR would be required to disclose aggregated data in such form and

manner as the Commission prescribes.

Accordingly, the Commission is adopting Sec. 49.16 largely as

proposed with the addition of (i) paragraph (b) to clarify that an SDR

is prohibited from requiring a waiver of a reporting entity's legal

rights for breaches of confidentiality by the SDR or affiliated

entities; and (ii) paragraph (c) to clarify that SDRs may disclose

aggregated data voluntarily or as requested by the Commission.

7. Access to SDR Data--Sec. 49.17

(a) Definition of Appropriate Domestic Regulator

As detailed in the SDR NPRM, the Commission in proposed Sec. 49.17

specifically included the Federal Reserve Bank of New York (``FRBNY'')

as an ``Appropriate Domestic Regulator'' because section 21(c)(7) of

the CEA does not specifically provide for the sharing of information

between an SDR and the FRBNY. The Commission believes that only

including the FRBNY as an Appropriate Domestic Regulator is overly

restrictive, and therefore, is revising the definition of ``Appropriate

Domestic Regulator'' to include any ``Federal Reserve Bank.'' \140\

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\140\ The Commission notes that the expansion of ``Appropriate

Domestic Regulator'' to include any Federal Reserve Bank will serve

to ensure that the Board of Governors of the Federal Reserve System

(``FRB'') will be able to effectively and efficiently perform its

statutory responsibilities as prescribed by the Federal Reserve Act

(``FRA'').

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(b) Commission Access

As detailed in the SDR NPRM, a critical function and responsibility

of an SDR is to provide ``direct electronic access'' to the Commission

or its designee, which could include another registered entity.\141\

The Commission in Sec. 49.17(b)(3) defined the term ``direct

electronic access'' as ``an electronic system, platform or framework

that provides internet or web-based access to real-time swap

transaction data.'' The Commission believes that a clarification to the

definition of ``direct electronic access'' is necessary to include

[[Page 54552]]

``scheduled data transfers to the Commission's electronic systems.''

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\141\ See section 21(c)(4)(A) of the CEA. 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) an 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).

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The Commission received seven comments on direct electronic

access.\142\ Although most commenters were generally supportive of the

Commission's approach, a few objected to certain provisions of Sec.

49.17(c) as proposed. Each comment is discussed below.

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\142\ See CL-Better Markets, CL-AFR and CL-Reval I supra note

51. Compare CL-DTCC II, CL-Data-DTCC, CL-CME and CL-NFPE Coalition

supra note 51.

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In connection with the Commission's request for comment,\143\

Better Markets and AFR both registered their preference for real-time

direct streaming of swap data versus periodic electronic transfer of

data.\144\ The Commission agrees with both Better Markets and AFR that

real-time access to swap data is necessary for adequate oversight and

surveillance of the swaps market.

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\143\ The Commission in the SDR NPRM requested comment on real-

time access as follows: ``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)?'' SDR NPRM supra note 51 at 80906.

\144\ CL-AFR and CL-Better Markets supra note 51 at 3 and 7-8,

respectively.

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In response to a Commission request \145\ for comment relating to

the most cost-effective method or manner in providing direct electronic

access, Reval stated that SDRs should be required to provide the

Commission with internet browser-based access to a hosted SDR solution.

Consistent with Reval's comments, the Commission believes that an

internet or Web-based method to access reported swap data held and

maintained by SDRs would be the least disruptive and most efficient

process.

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\145\ The Commission in the SDR NPRM requested the comment on

the following: ``What would be the most feasible and cost-effective

method for an SDR to provide direct electronic access to the

Commission or its designee?'' SDR NPRM supra note 8 at 80906.

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DTCC noted its experience with the Trade Information Warehouse for

OTC credit derivatives \146\ and recommended that the Commission permit

SDRs to adopt in their discretion the manner and method of providing

data sets to the Commission. The Commission believes that the manner

and method of obtaining access to the swap data held by SDRs is the

function and prerogative of the Commission and should not be left to

the judgment or discretion of the SDR and its management. In connection

with its separate comment letter responsive to the Data NPRM, DTCC also

asserted that the Commission should allow sufficient reporting

flexibility. As set forth above, the Commission does not believe that

SDRs should have the discretion or ability to determine the appropriate

data sets that should be provided to the Commission.

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\146\ CL-DTCC II supra note 51.

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CME stated that it is impractical to provide Commission staff with

access identical to that provided to the SDR's CCO because of technical

considerations.\147\ CME also disagreed with the premise of ``direct

electronic access'' set forth in Sec. 49.17(c), maintaining that SDRs

should not be required to provide ``proprietary'' systems to the

Commission without compensation and without adequate assurances that

the swap data would remain confidential. Moreover, CME asserted that

``real-time'' electronic access to the swap data maintained by an SDR

is not necessary.

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\147\ CL-CME supra note 51 at 5-6.

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The Commission disagrees with CME's view regarding Commission

direct electronic access. As stated previously, section 21(c)(4)(A) of

the CEA mandates that SDRs provide the Commission (or any Commission

designee) with direct electronic access.\148\ Accordingly, the

Commission submits that this requirement to provide the Commission with

direct electronic access is not qualified or at the discretion of the

SDR. With respect to CME's concern relating to improper disclosure of

confidential swap data, the Commission notes that section 8 of the CEA

prohibits the Commission from disclosing information ``that would

separately disclose the business transactions or market positions of

any person and trade secrets or names of customers.'' \149\

Accordingly, the Commission believes that CME's comments are

unwarranted and should not serve to limit direct electronic access by

the Commission and its staff.

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\148\ Id.

\149\ See 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.

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NFPE Coalition commented that the Commission should not have access

to entity data submitted by non-financial entities, including the

identity of such entities, unless they engage in swaps to the extent

that their exposure could pose a systemic risk. The Commission notes

that the Dodd-Frank Act generally provides regulators with the ability

to monitor and oversee the swaps markets by reviewing and analyzing the

data to be held by SDRs. The Commission submits that the ability to

review and analyze all swap transactions (whether by a financial or

non-financial entity) is essential in order for the entire market to be

sufficiently monitored and analyzed. The Commission does not agree with

the NFPE Coalition's view that non-financial entity transactions should

remain confidential given the direct statutory requirements in section

21(c)(6) of the CEA that SDRs ``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.''

Based on the analysis set forth above relating to proposed Sec.

49.17(c) and an SDR's statutory duty to provide the Commission or its

designee with direct electronic access, the Commission is adopting

Sec. 49.17(c) as proposed. In addition, as discussed above, the

Commission is also adopting a minor revision to the definition of

``direct electronic access'' set forth in Sec. 49.17(b)(3) to clarify

that ``direct electronic access'' would include ``scheduled data

transfers to Commission's electronic systems.''

(c) Other Regulator Access to SDR Data

Section 21(c)(7) \150\ 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 \151\

obtained by the registered SDR, to ``Appropriate Domestic Regulators''

and ``Appropriate Foreign Regulators.''

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\150\ 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.

\151\ The sharing of data with an Appropriate Domestic Regulator

by a registered SDR is subject to the confidentiality and

indemnification restrictions in section 21(d) of the CEA, 7 U.S.C.

24a(d).

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The Commission also proposed that the term ``Appropriate Foreign

Regulator'' be defined in Sec. 49.17. As proposed, the definition of

``Appropriate Foreign Regulator'' has two parts or elements. First,

Sec. 49.17(b)(2) defines an Appropriate Foreign Regulator as those

``foreign regulators'' \152\ with an existing MOU or

[[Page 54553]]

other similar type of information sharing arrangement executed with the

Commission. Second, Sec. 49.17(b)(2) 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.

Accordingly, Sec. 49.17 as proposed set forth detailed filing

procedures for foreign regulators who do not currently have an MOU with

the Commission to obtain the status of ``Appropriate Foreign

Regulator.'' The Commission received no comments relating to the

proposed definition of Appropriate Domestic Regulator and Appropriate

Foreign Regulator. Accordingly, the Commission is adopting Sec.

49.17(b) as proposed.

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\152\ The term ``foreign regulator'' is defined in proposed

Sec. 49.2(a)(4) to mean ``a foreign futures authority as defined in

section 1a(26) of the Commodity Exchange Act, foreign financial

supervisors, foreign central banks and foreign ministries.''

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The procedure for Appropriate Domestic Regulators or Appropriate

Foreign Regulators to gain access to the data held and maintained by an

SDR was detailed in proposed Sec. 49.17(d). First, an Appropriate

Domestic Regulator or Appropriate Foreign Regulator is required to

request access with the registered SDR in sufficient detail so that the

SDR is able to determine the basis of the request. As part of this

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. The registered SDR

must then notify the Commission promptly by electronic means of any

request received from an Appropriate Domestic Regulator or Appropriate

Foreign Regulator. As proposed, the registered SDR will then provide

access to the requested swap data if satisfied that the Appropriate

Domestic Regulator or Appropriate Foreign Regulator is acting within

the scope of its authority.

The Commission received one comment from the OCC expressing concern

that SDRs would serve a ``gate keeping'' function relating to regulator

access.\153\ OCC maintained that SDRs should not be permitted to

question the statutory authority of a regulator to receive swaps data

maintained by the SDR. Although other commenters \154\ did not

specifically comment on the procedure set forth in Sec. 49.17(d)

relating to regulators' access, these commenters generally indicated

that SDRs should operate in a manner that would freely provide

information to regulators. These commenters viewed the purpose of SDRs

as one of assisting regulators in fulfilling their regulatory

obligations. The theme of these comments is that SDRs should serve as

an impartial vehicle for assisting regulators.

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\153\ CL-OCC supra note 51.

\154\ See CL-DTCC I, CL-TriOptima, CL-Regis--TR and CL-ESMA

supra note 51.

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Upon review of the comments received and the access procedure

generally, the Commission believes that other regulator access

(Appropriate Domestic Regulator and Appropriate Foreign Regulators)

should not be constrained or limited by SDRs. Therefore, the Commission

is revising proposed Sec. 49.17(d) so that Appropriate Domestic

Regulator and Appropriate Foreign Regulators when filing a request for

access are only required to certify that they are acting within the

scope of their jurisdiction. As proposed, Sec. 49.17(d)(i) required

the Appropriate Domestic Regulator or Appropriate Foreign Regulator to

set forth in sufficient detail the basis for its request. The

Commission is eliminating this requirement in Sec. 49.17(d) as

adopted. In addition, proposed Sec. 49.17(d)(3) required an SDR to

provide access to the requested swap data ``if satisfied that the

Appropriate Domestic Regulator or Appropriate Foreign Regulator is

acting within the scope of its authority.'' The Commission is also

revising proposed Sec. 49.17(d)(3) so that Appropriate Domestic

Regulators' and Appropriate Foreign Regulators' access to SDR swap data

is provided once the SDR notifies the Commission of the request.

(d) Confidentiality and Indemnification Agreement

For the purpose of implementing section 21(c)(7) and (d) of the

CEA, the Commission proposed Sec. 49.18. Consistent with section

21(d),\155\ Sec. 49.18, as proposed, provided that an 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. The Commission further provided in proposed Sec. 49.18 that an

Appropriate Domestic Regulator or Appropriate Foreign Regulator must

notify and provide a copy of the Confidentiality and Indemnification

Agreement to the Commission.

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\155\ 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.

7 U.S.C. 24a(d).

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Proposed Sec. 49.18 required 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

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 received four comments \156\ relating to the

confidentiality and indemnification agreement requirement and/or

information sharing among regulators.

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

\156\ See CL-DTCC I, CL-TriOptima, CL-ESMA and CL-Foreign Banks

supra note 51.

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DTCC stated that proposed Sec. 49.18 is not consistent with the

OTC Derivatives Regulators' Forum (``ODRF'') \157\ guidelines which

generally provide that ``[a]uthorities, including central banks,

prudential supervisors, resolution authorities and market regulators,

with a material interest in [credit derivatives] information in

furtherance of their regulatory and/or governmental responsibilities

should have unfettered access to the relevant data, irrespective of the

location of the trade repository.'' \158\ Accordingly, DTCC recommended

that the indemnification provisions of section 21(d) as proposed in

Sec. 49.18 should not apply where regulators are carrying out

regulatory responsibilities, acting in a manner consistent with

international agreements and maintaining the confidentiality of the

data.\159\ With this recommendation, DTCC requested the

[[Page 54554]]

Commission together with other global regulators provide ``model

indemnity language'' for use by all repositories or SDRs.

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\157\ ODRF includes representatives from central banks,

prudential supervisors and market regulators from over 20 countries

globally. The ODRF is not a standard-setting body, but instead,

supports the application of standards set by other bodies in the

international regulatory community. The Forum provides an

environment for regulators and authorities to exchange views and to

share information related to OTC derivatives central counterparties

and trade repositories on a regular basis. It also provides mutual

assistance among the authorities in carrying out their respective

responsibilities with respect to OTC derivatives. However, it is

important to note that the ODRF does not supersede any regulator's

statutory mission or national and otherwise applicable laws.

\158\ See letter from OTC Derivatives Regulators' Forum to the

Warehouse Trust Company, dated June 18, 2010. Available at: http://www.dtcc.com/downloads/legal/imp_notices/2010/derivserv/tiw044.zip.

See also Working Group Report supra note 12.

\159\ Id.

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TriOptima specifically encouraged the Commission to ``adopt as

flexible as interpretation as possible'' of the indemnification

provision proposed in Sec. 49.18.\160\ Similarly, ESMA questioned the

necessity of an indemnification agreement between a foreign regulator

and a U.S.-registered SDR.\161\ ESMA stated that this proposal would

undermine the trust necessary among various regulators in connection

with data access from SDRs. Although not specific to the

indemnification provision, the Foreign Banks also commented that

regulators should support cross-border information sharing efforts so

that a complete picture of the overall swaps market is available for

supervision and surveillance purposes.\162\

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\160\ CL-TriOptima supra note 51 at 3-4.

\161\ CL-ESMA supra note 51.

\162\ CL-Foreign Banks supra note 51 at 7.

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The Commission is mindful that the Confidentiality and

Indemnification Agreement requirement set forth in section 21(d) and

Sec. 49.18 may be difficult for certain domestic and foreign

regulators to execute with an SDR due to various home country laws and

regulations. We note in this regard that section 752 of the Dodd-Frank

Act seeks to ``promote effective and consistent global regulation of

swaps'' and provides that the CFTC and foreign regulators ``may agree

to such information-sharing arrangements as may be deemed to be

necessary or appropriate in the public interest * * *.'' In light of

this statutory directive, the Commission continues to work to provide

sufficient access to SDR data to appropriate domestic and foreign

regulatory authorities.

The Commission believes that, under the circumstances described

below, certain Appropriate Domestic Regulators may be provided access

to the swap data reported and maintained by SDRs without being subject

to the notice and indemnification provisions of section 21(c)(7) and

(d).\163\ First, the SDR must be subject to the regulatory

jurisdiction, and register with, the Appropriate Domestic Regulator.

Second, consistent with section 21(c)(4)(A) of the CEA, the SDR would

be permitted to provide direct electronic access to such Appropriate

Domestic Regulator as a designee of the Commission.\164\ Under these

circumstances, the Appropriate Domestic Regulator would be provided

direct electronic access to the SDR subject to the same terms and

conditions as would apply to the Commission.\165\

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\163\ Pursuant to the directive set forth in section 712(a) of

the Dodd-Frank Act, 15 U.S.C. 8302, the Commission has interpreted

this provision as providing the basis to permit access to the swap

data maintained by SDRs to Appropriate Domestic Regulators that have

concurrent regulatory jurisdiction over such SDRs, without the

application of the notice and indemnification provisions of sections

21(c)(7) and (d) of the CEA, respectively. As indicated above, the

SDR, among other things, must be subject to the regulatory

oversight, and be registered with, the Appropriate Domestic

Regulator.

\164\ As part of such designation, the Commission would require

an Appropriate Domestic Regulator to enter into a MOU or similar

type of information sharing arrangement with the Commission. See

section 8(e) of the CEA, 7 U.S.C. 12(a).

\165\ The Commission notes that certain SDRs are likely to

register with both the Commission and the SEC because the same

entity will offer its services for both swaps and security-based

swaps. In addition, the Board of Governors of the Federal Reserve

System currently supervises the Warehouse Trust, the global

repository for credit derivatives. The Commission expects Warehouse

Trust to register with the Commission as an SDR and continue to be a

member of the Federal Reserve System, thereby, subject to the

concurrent jurisdiction of the Commission and the Board of Governors

of the Federal Reserve System.

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In connection with foreign regulatory authorities, the Commission

believes that confidential swap data reported to, and maintained, by an

SDR may be appropriately accessed by an Appropriate Foreign Regulator

without the execution of a Confidentiality and Indemnification

Agreement when the Appropriate Foreign Regulator is acting in a

regulatory capacity with respect to a SDR that is also registered with

the Appropriate Foreign Regulator.\166\ In such dual-registration

cases, the Appropriate Foreign Regulator may receive information

directly from the SDR without notice to the Commission and/or the

execution of the Confidentiality and Indemnification Agreement, subject

to applicable statutory confidentiality provisions set forth in section

8 of the CEA.\167\

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\166\ See section 752 of the Dodd-Frank Act, 15 U.S.C. 8325.

Consistent with the directive in section 752 to ``promote effective

and consistent global regulation of swaps,'' the Commission does not

interpret the notice and indemnification provisions set forth in

sections 21(c)(7) and (d) of the CEA to apply in circumstances in

which an Appropriate Foreign Regulator possesses independent

sovereign legal authority to obtain access to the information and

data held and maintained by an SDR.

\167\ See Written Testimony of Gary Gensler, Chairman of the

Commission, before the U.S House Committee on Financial Services on

June 16, 2011 available at http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-86.html and letter from Gary Gensler,

Chairman of the Commission, and Mary Schapiro, Chairman of the SEC,

to Michael Barnier, European Commissioner for Internal Markets and

Services, European Commission, dated June 8, 2011.

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Lastly, The Commission notes that the notice and indemnification

requirements set forth in section 21(c)(7) and (d) of the CEA would not

apply when the Commission, pursuant to section 8(e) of the CEA, shares

confidential information in its possession obtained in connection with

the 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.

Thus, Appropriate Foreign Regulators may, pursuant to section 8(e),

receive SDR Information from the Commission without the execution of

the Confidentiality and Indemnification Agreement.

Accordingly, the Commission is adopting Sec. 49.18 as revised to

provide that SDRs that are dually-registered with the Commission and an

Appropriate Domestic or Foreign Regulator may provide access without

the execution of a Confidentiality and Indemnification Agreement. The

Commission is similarly revising Sec. 49.17(d), as noted above, so

that Appropriate Domestic and Foreign Regulators with regulatory

responsibilities over SDRs are not required to file data access

requests with their regulated repository or SDR.

(e) Third-Party Service Providers Employed by SDRs

The Commission in the SDR NPRM recognized that SDRs from time to

time may contract with third parties in order to fulfill certain

operational and data-related obligations. Data access to a third-party

service provider may be especially important in connection with certain

technology and infrastructure services.

The Commission received one comment letter relating to proposed

Sec. 49.17(e). MFA was concerned that Sec. 49.17(e) may not be

sufficient to protect data and information held and maintained by SDRs

from improper disclosure.\168\ MFA recommended that the Commission

require the confidentiality procedures between an SDR and a third-party

service provider to follow the same standard of care and protocol that

applies to an SDR's obligation to protect confidential swap

information.

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\168\ CL-MFA supra note 51.

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The Commission agrees with MFA's recommendation and accordingly has

revised Sec. 49.17(e) to require that any ``Confidentiality

Agreement'' between an SDR and a third party include a provision that

the third-party service provider have the same or equivalent

confidentiality procedures as the SDR outlined in Sec. 49.16.

[[Page 54555]]

(f) Counterparty Access to SDRs

The Commission proposed Sec. 49.17(f) to generally prohibit access

to the swaps data maintained by a registered SDR by market

participants, such as SDs and MSPs, unless the specific data was

originally submitted by such party. The underlying basis for this

regulation was to maintain the privacy and confidentiality of the

reported data while also limiting potential access to reported swap

data to the rightful parties to a swap.

The statutory authority for proposed Sec. 49.17(f) is two-fold.

First, section 21(c)(6) of the CEA requires registered SDRs to maintain

the privacy of any and all swap transaction information that the

registered SDR receives from an SD, counterparty, or any other

registered entity. Second, section 21(f)(3) \169\ of the CEA requires

an SDR to establish and enforce rules to mitigate conflicts of

interest.

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\169\ See infra section II.D.4.

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The Commission received two comment letters relating to Sec.

49.17(f). ABC/CIBEA noted that Sec. 49.17(f), as proposed, generally

prohibits access to swap data maintained by an SDR subject to an

exception permitting access ``* * * if the specific data was originally

submitted by such party.'' \170\ ABC/CIEBA asserts that this provision

would only include the reporting party, and therefore, recommended the

Commission revise Sec. 49.17(f) so that the exception provides

``[d]ata and information related to a particular swap that is

maintained by the registered swap data repository may be accessed by

either counterparty to that particular swap.'' \171\ The Global FX

Division similarly indicated that Sec. 49.17(f) should be modified to

permit both counterparties to a swap to view the reported data that is

held and maintained by such SDR.\172\

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\170\ CL-ABC/CIEBA supra note 51.

\171\ CL-ABC/CIEBA supra note 51 at 6.

\172\ CL-Global FX Division supra note 51.

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Based on the comments noted above, the Commission is adopting Sec.

49.17(f) largely as proposed with a revision to Sec. 49.17(f)(2) to

allow both counterparties to a swap to access information held and

maintained at an SDR for that particular swap.

(g) Commercial Use of Data

The Commission in the SDR NPRM proposed Sec. 49.17(g) to generally

prohibit an SDR from using the data it accepts and maintains for

commercial or business purposes. As part of this prohibition, Sec.

49.17(g) required a registered SDR to adopt and implement adequate

``firewalls'' to protect the swaps data from any improper, commercial

use. Proposed Sec. 49.17(g)(2) provided for a limited exception to the

commercial use prohibition if the submitters of the data provide

express written consent to the SDR that its reported data can be used

for commercial purposes. The statutory basis for Sec. 49.17(g), as

proposed, is established in sections 21(c)(6) and 21(f)(3) of the

CEA.\173\

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\173\ See section 728 of the Dodd-Frank Act.

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Section 21(c)(6) provides that an SDR 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.'' As indicated in the SDR NPRM, SDRs are expected to

receive two separate ``streams'' of data: (i) Data related to real-time

public reporting which by its nature is publicly available; and (ii)

``core'' regulatory data that is intended for use by the Commission and

other regulators which is subject to statutory confidential treatment

(``Core Data''). Accordingly, SDR Information that is not subject to

real-time public reporting should be treated as non-public and subject

to the prohibitions on commercial use set for in proposed Sec.

49.17(g). In this manner, the Core Data could 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 submitters of the data.

Section 21(f)(3) of the CEA, Core Principle 3, also 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.\174\ Because of the inherent

conflicts in connection with maintaining swap data and SDR operations

(e.g., the incentive to develop ancillary services using swap data),

the Commission proposed that ``commercial use'' of any data submitted

and maintained by an SDR must be severely restricted. The Commission

was also concerned that an SDR may attempt to use this limited

``commercial use'' exception as a precondition for accepting non-SD/

non-MSP, SD and/or MSP swap transactions. Accordingly, proposed Sec.

49.27 required registered SDRs to provide fair, open and equal access

to its services and must not discriminate against submitters of data

regardless of whether such a submitter has agreed to any ``commercial

use'' of its data. The Commission received a total of six comment

letters relating to the commercialization of data.\175\ Each of these

comments is discussed in turn below.

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\174\ 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.

\175\ See CL-Markit, CL-CME, CL-Argus, CL-DTCC I, CL-DTCC II and

CL-Better Markets supra note 51.

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Markit sought clarification regarding the application of proposed

Sec. 49.17(g) to the (i) preservation of data ownership rights and

(ii) the permissible uses of data by an SDR.\176\ Markit recommended

that regulations relating to the real-time reporting of swap data make

clear that swap data ownership does not transfer to the SEF, DCM or any

other regulated entity, as appropriate.

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

\176\ CL-Markit I supra note 51 at 2.

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

The Commission believes that (i) counterparty ``consent'' to real-

time reporting proposed in part 43 does not provide consent under

proposed Sec. 49.17(g) adequate to permit an SDR to use such Core Data

for commercial purposes; and (ii) regulated entities responsible for

the public dissemination of real-time swap data should be restricted

from making commercial use of that data prior to public dissemination.

The Commission does not agree with Markit's suggestion that the

commercial use of real-time data by SDRs requires the consent of the

data owners but, as discussed, has modified Sec. 49.17(g)(3) to

prohibit SDRs from making commercial use of real-time data before

disseminating such data publicly.

CME commented that the Commission should adopt more stringent

requirements to protect commercialization of data received from any

entity. Accordingly, CME recommended the Commission revise proposed

Sec. 49.17(g) so that: (i) The SDR must receive express written

consent before commercializing any data received, whether the entity is

a swap counterparty or other registered entity (such as a DCO); (ii)

the term ``market participant'' should apply more broadly than just to

counterparties; and (iii) information submitted by a DCO to an SDR

should not be considered to be aggregated data exempt from the

commercialization prohibition.\177\

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\177\ CL-CME supra note 51 at 4-5.

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The Commission shares the CME's view that information submitted to

an SDR by a registered entity, such as a DCO, is not aggregated data

exempt from the commercialization prohibition.

The Commission notes that the definition of ``market participant''

set forth in proposed Sec. 49.2(a)(6) applies to various registered

entities such as DCMs, DCOs and SEFs and, therefore, is not limited to

swap counterparties.

[[Page 54556]]

However, in terms of proposed Sec. 49.17(g) and the underlying privacy

provision related to SDRs set forth in section 21(c)(6) of the CEA, the

Commission agrees with the CME's recommendation for additional clarity

regarding market participants that are able to consent to the

commercial use of data. Therefore, consistent with CME's comment, the

Commission is revising proposed Sec. 49.17(g) by replacing the term

``market participant'' with the language of section 21(c)(6) of the CEA

which states ``swap dealer, counterparty, or any other registered

entity.''

Argus commented that proposed Sec. 49.17(g) may not be sufficient

to prevent the indirect commercial use of confidential data held by an

SDR. In its role of collecting and disseminating information for real-

time reporting of swap transactions, Argus believes that SDRs may seek

to ``monetize'' or commercially use ``real-time'' data.

The Commission believes that Sec. 49.17(g) adequately protects

swap data reported to an SDR from improper disclosure to affiliates of

the SDR and other third parties. In particular, the Commission notes

that Sec. 49.17(g)(1) specifically requires that an SDR ``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.'' \178\ As a preliminary matter, the

Commission believes that adequate controls or firewalls would require

SDR staff that is involved with any commercial use of real-time data to

be restricted from obtaining access to any Core Data. The Commission

does not support Argus' recommendation that would prohibit the

commercial use of real-time data by an SDR if such SDR has access to

non real-time data.

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

\178\ 17 CFR 49.17(g)(1).

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DTCC commented that data reported and maintained by SDRs should not

be ``commercialized.'' \179\ As a result, DTCC believes that a

prohibition against commercial uses or practices relating to commercial

use of SDR data will lead to a more cost efficient and less risky swap

market. DTCC also submitted that SDRs should provide open access to

offered services while preserving trading parties' control over the

reported data maintained by the SDR.\180\ Accordingly, DTCC believes

that the particular SDR for which a trade is reported should be based

on the counterparty's selection and not by a SEF, DCO, confirmation

facility or other service provider.

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\179\ CL-DTCC I supra note 51 at 3.

\180\ CL-DTCC II supra note 51 at 3.

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The Commission generally agrees with DTCC's views relating to

commercialization of data. However, with respect to the selection of

the SDR by the reporting counterparty,\181\ the Commission notes that

the reporting counterparty may contractually delegate its decision to

an agent such as a SEF, DCO, confirmation facility or other service

provider. Accordingly, the Commission does not believe Sec. 49.17(g)

requires a revision on this point.

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\181\ See proposed Sec. Sec. 45.5-45.7 of the Commission's

Regulations set forth in the Data NPRM supra note 6.

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Better Markets asserted that if the SDR uses data for ``commercial

purposes'' the SDR must be required to provide the data to the public

on equal terms as to price, priority and speed of transmittal.\182\ The

Commission believes that generally the reporting counterparty may

consent to the commercial use of its data without an additional

requirement on an SDR to provide such data access to the public on

equal terms.

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\182\ Id. at 13.

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The Commission continues to believe that conflicts are inherent in

the reporting and maintaining of swap data by SDRs, and submits that

the ``commercial use'' of Core Data should be restricted. However, as

noted above, an SDR could, consistent with section 8 of the CEA,

commercially use swap data that was reported on a real-time basis

pursuant to proposed part 43 of the Commission's Regulations. However,

the Commission notes that an SDR would be in violation of Sec.

49.17(g) and if it were to require the express consent of a market

participant to use any reported data held and maintained by the SDR as

a condition for the reporting of such swap transaction data.

Accordingly, the Commission is adopting Sec. 49.17(g) largely as

proposed subject to the revisions noted above.

8. Emergency Authority Procedures and System Safeguards--Sec. Sec.

49.23 and 49.24

Section 21(c)(8) of the CEA requires SDRs to ``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.'' Proposed Sec. Sec. 49.23 and 49.24 of the

Commission's regulations implement section 21(c)(8).

Proposed Sec. 49.23, consistent with former DCM Core Principle 6

\183\ and new application guidance for both DCMs and SEFs,\184\

required SDRs to set forth emergency contingency plans, including the

designation of officials to act in the event of an emergency, chains of

command and emergency conflict of interest policies and

procedures.\185\ Consistent with new core principle 20 for DCMs and new

core principle 14 for SEFs added by sections 735 and 733 of the Dodd

Frank Act, respectively, proposed Sec. 49.24 required system

safeguards for SDRs including business continuity and resumption of

services plans and coordinated system testing.\186\

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\183\ Former section 5(d)(6) of the CEA, 7 U.S.C. 7(d)(6); 17

CFR part 38, App. B, Application Guidance for former Core Principle

6.

\184\ 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).

\185\ See SDR NPRM supra note 8 at 80911-80912.

\186\ Core principle 20 (DCMs) and core principle 14 (SEFs) are

virtually identical and provide that each respective registered

entity shall ``(A) 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; (B) 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 board of trade [or swap execution facility]; and

(C) periodically conduct tests to verify that backup resources are

sufficient to ensure continued order processing and trade matching,

price reporting, market surveillance, and maintenance of a

comprehensive and accurate audit trail.'' The new DCM Core Principle

20 is codified in section 5(d)(20) of the CEA, 7 U.S.C. 7(d)(20).

The new SEF Core Principle 14 is codified in section 5h(f)(14) of

the CEA, 7 U.S.C. 7b-3(f)(14). See DCM NPRM and SEF NPRM, supra note

111.

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Proposed Sec. 49.24(d) specifically required that SDRs have

sufficient BC-DR plans and resources to enable a resumption of the

SDR's operations within one business day following a disruption in SDR

operations. For SDRs determined by the Commission to be ``critical,''

\187\ proposed Sec. 49.24(e)

[[Page 54557]]

required that they (i) implement a disaster recovery plan and BC-DR

resources sufficient to enable a same-day recovery time objective in

the event that its normal capabilities become inoperable, including a

wide-scale disruption; and (ii) maintain geographic dispersal of

infrastructure and personnel sufficient to enable achievement of a

same-day recovery time objective, in the event of a wide-scale

disruption.

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\187\ The Commission in Sec. 49.24 has not defined a

``critical'' SDR, but instead, believes a determination of

``critical'' is a fact-intensive analysis. However, the Commission

submits that a ``critical'' SDR would be an SDR that is integral to

the swaps market generally or based on a particular asset class.

Generally, the Commission will evaluate each SDR on a case-by-case

basis, giving consideration to whether the SDR provides essential

reporting and other services (such as swap confirmation and/or risk

management) that is integral to the swaps market. Because of the

nature of the swaps market and the essential reporting and

maintenance of accurate data, the Commission is likely to view

``critical'' on a collective rather than individual basis. The

Commission may also consider other relevant factors that it finds

important such as whether a single or select number of SDRs maintain

the vast majority of swap transaction data. See Commission, Notice

of Proposed Rulemaking: Business Continuity and Disaster Recovery,

75 FR 42,633 (July 22, 2010); Interagency Paper on Sound Practices

to Strengthen the Resilience of the U.S. Financial System issued by

the Board of Governors of the Federal Reserve System, the Department

of the Treasury and the SEC, 68 FR 17,809 (Apr. 11, 2003); SEC,

Policy Statement Relating to Business Continuity Planning for

Trading Markets, Exchange Act Release No. 48,545 (Sept. 25, 2003),

68 FR 56,656 (Oct. 1, 2003).

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The Commission received no comments regarding the provisions in

proposed Sec. 49.23. The Commission received one comment from Chris

Barnard regarding proposed Sec. 49.24(j).\188\ Barnard, in connection

with proposed recordkeeping requirements, indicated his view that

proposed Sec. 49.24(j) should be amended so that SDRs are required to

keep system safeguard records indefinitely. The Commission notes that

apart from the specific recordkeeping for reported swap transactions

set forth in proposed Sec. 49.12, the general recordkeeping

requirements set forth in Sec. 1.31 of the Commission Regulation's

would apply to BC-DR testing records.\189\ The Commission believes that

Sec. 1.31 subjects SDRs to adequate record retention requirements for

BC-DR testing, and therefore, has not adopted Barnard's recommendation.

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\188\ CL-Barnard supra note 51 at 2.

\189\ Sec. 1.31(a)(1) specifically provides that ``[a]ll books

and records required to be kept by the Act or by these regulations

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

shall be readily accessible during the first 2 years of the 5-year

period. All such books and records shall be open to inspection by

any representative of the Commission or the United States Department

of Justice.''See 17 CFR 1.31(a)(1).

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Upon review of the comment received and the proposed emergency

procedures and system safeguard regulations, the Commission is adopting

Sec. 49.23 and Sec. 49.24 as proposed.

C. Designation of Chief Compliance Officer--Sec. 49.22

Section 21(e) of the CEA, as amended by section 728 of the Dodd-

Frank Act, establishes the position of CCO and enumerates specific

responsibilities for CCOs at all SDRs. Section 21(e) contains three

parts, which, taken together, establish CCOs as the focal points for

SDRs' compliance with the CEA and applicable Commission regulations.

Section 21(e) requires, first, that every SDR designate an individual

to serve as CCO.\190\ Second, it enumerates specific duties for CCOs

and establishes their responsibilities within an SDR.\191\ Third, it

outlines the requirements of a mandatory annual report from SDRs to the

Commission, which must be prepared and signed by an SDR's CCO.\192\

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\190\ See section 21(e)(1) of the CEA, 7 U.S.C. 24a(e)(1).

\191\ 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).

\192\ 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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Proposed Sec. 49.22 expanded upon the statutory provisions of

section 21(e) of the CEA and granted CCOs the authority necessary to

fulfill their responsibilities.\193\ Proposed Sec. 49.22 is composed

of six general parts. Proposed Sec. 49.22(a) defined the term ``board

of directors.'' Proposed Sec. 49.22(b) set forth the requirement that

each SDR must appoint a CCO, and detailed the minimum qualifications

for the CCO. Proposed Sec. 49.22(c) provided for the supervisory

structure that the CCO is subject to within an SDR. Proposed Sec.

49.22(d) enumerated the duties and responsibilities of the CCO.

Proposed Sec. Sec. 49.22(e) and (f) detailed the information that must

be included in the annual compliance report and set forth the process

by which this report must be submitted to the Commission. Lastly,

proposed Sec. 49.22(g) detailed the recordkeeping requirements that

the swap data repository must follow in relation to compliance matters

and the annual compliance report that is submitted to the Commission.

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\193\ See SDR NPRM supra note 51.

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The Commission requested comment on a number of issues relating to

proposed Sec. 49.22. Of particular note were two issues relating to

the appointment and supervisory structure of the CCO. Due to concerns

about potential conflicts of interest, the Commission requested comment

on whether a CCO should be permitted to also serve as the general

counsel of an SDR or as a member of the SDR's legal department. The

Commission also requested comment on any additional measures that could

be required of an SDR to adequately protect CCOs from undue influence

in the performance of their duties.\194\ These issues, and any comments

received, are discussed in greater detail below.

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\194\ SDR NPRM supra note 8 at 80914.

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The Commission received six comments relating to the SDR's CCO

provisions, including three from potential SDRs, one from an operator

of a number of registered DCMs, one from a public interest

organization, and one from a private individual.\195\

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\195\ The potential SDR commenters included: TriOptima, Reval

and DTCC. The public interest organization commenter was Better

Markets and the private individual commenter was Chris Barnard. CME

submitted a comment letter on behalf of the four DCMs which it

operates. See CL-TriOptima, CL-Reval, CL-DTCC I, CL-Better Markets,

CL-Barnard and CL-CME supra note 51.

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In response to persuasive arguments by various commenters, Sec.

49.22 as adopted includes a number of revisions. The Commission is

modifying: (1) The qualifications of a CCO to include a requirement

that the CCO not serve as the general counsel of the SDR or be a member

of the SDR's legal department; (2) the procedures relating to removing

the CCO to require that an SDR notify the Commission when a CCO is

removed; (3) the enumerated duties of the CCO to clarify that potential

conflicts of interest listed are not exhaustive and that the CCO is not

required to guarantee compliance with Commission regulations, but only

to take reasonable steps to ensure compliance; (4) the required

contents of the annual compliance report that must be submitted to the

Commission to reflect that policies and procedures cannot guarantee

compliance with Commission regulations; (5) the

[[Page 54558]]

procedures relating to the submission of the annual compliance report

to the Commission to clarify that the report must be submitted with the

annual amendment to Form SDR and to remove certain provisions relating

to the process by which the Commission may disclose the report to other

parties; and (6) additional provisions as detailed below.

1. Definition of Board of Directors

The Commission in proposed Sec. 49.22(a) defined the term ``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.'' \196\ The Commission also requested comment

on a number of issues, including whether: (1) There should be

additional rules around the types of bodies which may perform board-

like functions at an SDR; (2) the proposed definition of board of

directors appropriately address issues related to parent companies,

subsidiaries, affiliates, and SDRs located in foreign jurisdictions;

and (3) the proposed rule allowed for sufficient flexibility with

regard to an SDR's business structure.\197\

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\196\ SDR NPRM supra note 8 at 80934.

\197\ SDR NPRM supra note 8 at 80913.

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The Commission received no comments on the proposed definition of

board of directors.

The Commission believes that the flexibility of the proposed

definition of board of directors adequately reflects the various forms

of business associations which an SDR could conceivably take, including

forms which do not include a corporate board of directors. Accordingly,

the Commission is adopting Sec. 49.22(a) as proposed.

2. Designation and Qualifications of Chief Compliance Officer

The Commission received three comments related to the designation

and qualifications of an SDR's CCO, as described in proposed Sec.

49.22(b)(1) and Sec. 49.22(b)(2), respectively. Two of these comments,

from Chris Barnard and Better Markets, relate to whether a CCO should

be allowed to serve as general counsel of the SDR. The third comment,

from CME, discusses its concern regarding the CCO's authority to

``enforce'' policies and procedures necessary to fulfill the duties set

forth for CCOs.\198\

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\198\ CL-CME supra note 51 at 7.

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Better Markets and Chris Barnard commented that the CCO should not

be allowed to serve as general counsel or be a member of the legal

department of the SDR. Both commenters were concerned about the

conflicts of interest that would result from a CCO also representing

the SDR in legal matters. In addition to its comment regarding CCO's

serving as general counsel, Better Markets also commented that in

situations where there are a number of affiliate organizations, ``a

single senior CCO should have overall responsibility of each affiliated

and controlled entity, even if individual entities within the group

have CCOs.'' \199\

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\199\ CL-Better Markets supra note 51 at 10.

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Proposed Sec. 49.22(b)(1), pertaining to the designation of a CCO,

also addresses the authority and resources available to a CCO. In

connection, CME commented that the use of the word ``enforce'' in

proposed Sec. 49.22(b)(1)(i) gives the CCO authority that should be

reserved for senior management.

The Commission agrees with the comments made by Better Markets and

Chris Barnard regarding the inherent conflicts of interest that would

occur if a CCO were to serve as general counsel of an SDR or as an

attorney in the legal department. Any member of the legal department of

an SDR must act as an advocate for the SDR and pursue the SDR's self-

interest as narrowly defined by management. If a CCO were to serve as

general counsel of the SDR or as a member of the legal department, this

role as an advocate may diverge with the CCO's statutory and regulatory

responsibilities. The Commission believes that placing both sets of

obligations in a single individual creates potential conflicts of

interest, and therefore, has determined to mitigate such potential

conflicts by prohibiting the CCO of an SDR from serving in the SDR's

legal department.\200\ As a result, the Commission is revising proposed

Sec. 49.22(b)(2) to add Sec. 49.22(b)(2)(ii), which states that

``[t]he chief compliance officer may not be a member of the swap data

repository's legal department or serve as its general counsel.''

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\200\ The Dodd-Frank Act also created the position of CCO for a

number of other regulated entities, including swap execution

facilities. For these other regulated entities the Commission

determined that the conflicts of interest associated with a CCO

serving as in-house counsel were substantial and prohibited the CCO

from serving as in-house counsel for these regulated entities. See

proposed Sec. 37.1501(b)(2)(ii) and SEF NPRM supra note 111 at

1251.

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In other respects, the Commission disagrees with commenters' views

on the structure and conception of the CCO position. Section 21(e)(2)

of the CEA requires the CCO to ``resolve any conflicts of interest that

may arise'' and ``ensure compliance with this Act.'' \201\ These duties

suggest that the CCO is more than just an advisor to management and

would have the ability to enforce compliance with the CEA and

Commission regulations. While the CEA does not specifically use the

word ``enforce,'' the Commission believes that this language is

necessary to ensure that CCOs have the authority to fulfill their

statutory and regulatory obligations and is consistent with the

statutory directive for the CCO to ``ensure compliance with the Act

(including regulations).'' \202\ These considerations are particularly

important given an SDR CCO's unique responsibilities with respect to

fair and open access requirements set forth in Sec. 49.27 and

protecting commercially valuable swap data from improper use. The

Commission notes that the authority granted to the CCO pursuant to

Sec. 49.22(b)(1)(i) does not include the ability to hire and fire SDR

personnel other than its compliance staff. For purposes of

clarification, however, the Commission is adopting a minor modification

to Sec. 49.22(b)(1)(ii) to state that ``[t]he chief compliance officer

shall have supervisory authority over all staff acting at the direction

of the chief compliance officer.'' Section 49.22(b)(1)(ii) now provides

greater clarity as to the SDR staff that must be under the managerial

oversight of the CCO.

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\201\ Sections 21(e)(2)(C) and (E) of the CEA.

\202\ Section 21(e)(2)(E) of the CEA.

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The Commission believes that Sec. 49.22(b) effectively establishes

the CCO as the focal point of regulatory compliance at an SDR and

ensures that the CCO will have the authority to fulfill his or her

duties as set forth in the CEA and Commission regulations. Accordingly,

the Commission is adopting Sec. 49.22(b)(1) and Sec. 49.22(b)(2)

subject to the above modifications.

3. Appointment, Supervision and Removal of Chief Compliance Officer

As set forth in the SDR NPRM, proposed Sec. Sec. 49.22(c)(1),

49.22(c)(2) and 49.22(c)(3) provide the supervisory regime applicable

to CCOs \203\ by requiring 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; by allowing an SDR with a board of directors to grant

oversight authority to either its board or to its senior officer; and

by requiring the approval of a majority of an SDR's board of directors

for CCO removal (or in the

[[Page 54559]]

case where a SDR has no board of directors, its senior officer).\204\

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\203\ SDR NPRM supra note 8 at 80914.

\204\ Id. at 80934.

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Proposed Sec. Sec. 49.22(c)(1) and 49.22(c)(3) sought ``to provide

an SDR's CCO with a measure of independence from management in the

performance of his or her duties.'' \205\ However, the Commission

requested comment regarding any additional measures that should be

required to adequately protect CCOs from undue influence. The

Commission was 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.

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\205\ Id. at 80914.

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The Commission specifically requested comments on (1) whether a CCO

should 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; and (3) whether ``senior officer'' of an SDR

should be a defined term, and if so, how the term should be

defined.\206\ In addition, the Commission also requested comment on

whether the provision that would require a majority of a board of

directors to remove the CCO is sufficiently specific.\207\

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

\206\ SDR NPRM supra note 8 at 80914.

\207\ Id.

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

The Commission received four comments relating to the appointment,

supervision and removal of a CCO. Three of these comments suggested

additional measures to protect the CCO from excessive influence by

management. The fourth commenter requested that, in the final rule,

SDRs be granted ``a reasonable amount of flexibility in determining how

certain aspects of the CCO role (e.g., reporting lines, measures to

ensure CCO independence) will be designed.'' \208\

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

\208\ See CL-CME supra note 51 at 7.

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Chris Barnard and Better Markets both recommended that the ability

to appoint or remove the CCO be granted to only the independent public

directors of the board and not of the entire board. Better Markets also

commented that the CCO ``must have a direct reporting line to the

independent directors or Audit Committee.'' \209\ Additionally, Better

Markets stated that the CCO should be required to meet with the entire

board of directors and the senior officer at least once a year and meet

with the independent directors at least quarterly. Better Markets

believes that these quarterly meetings should be required to ensure

that the independent members of the board can adequately supervise the

CCO. With regard to compensation, Better Markets commented that the

CCO's compensation should be set by the independent members of the

board and should not be the responsibility of the senior officer. Chris

Barnard also commented on compensation, stating that the compensation

of the CCO must be ``specifically designed in such a way that avoids

potential conflicts of interest with its compliance role.'' \210\

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\209\ CL-Better Markets supra note 51 at 11.

\210\ CL-Barnard supra note 51 at 3.

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

Reval commented that a CCO should have ``a direct reporting line to

the senior officer of the company,'' but should also report to a

compliance or audit committee at the board level and have the ability

to take any compliance matters to this committee if the CCO does not

feel the senior officer has properly addressed the issue.\211\

Additionally, in response to the Commission's request for comment,

Reval commented that it was not necessary for the Commission to define

``senior officer.''

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\211\ CL-Reval supra note 51 at 10.

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As stated above, the proposal, in connection with the oversight and

reporting structure of the CCO, was modeled on 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.'' \212\ However, the

Commission notes that Sec. 49.22(c) sets forth the minimum standards,

so that SDRs may implement additional measures if deemed necessary to

insulate the CCO from influence. The Commission encourages SDRs to

review and enact conflict mitigation procedures as appropriate for

their specific corporate and/or organizational structure.

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

\212\ Section 21(e)(2)(A) of the CEA.

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

While a majority of commenters expressed their concern that the

proposed rules do not sufficiently protect the independence of the CCO,

the Commission believes that the package of protections offered in the

proposed rules are appropriately calibrated to insulate the CCO from

day-to-day commercial pressure. The proposed rules set forth detailed

appointment, supervisory and removal procedures that protect the CCO

from undue influence. Accordingly, the Commission does not believe it

is necessary to adopt commenters' recommendations. The Commission has

revised proposed Sec. 49.22(c)(1) in one respect, however, by

eliminating the requirement that a CCO's appointment and compensation

require the approval of a majority of an SDR's board of directors. The

Commission believes that board approval is a sufficient requirement,

and that SDRs should have appropriate discretion to determine the

voting percentage necessary to appoint a CCO or determine their salary.

However, to further protect the CCO, the Commission will clarify

and expand on the notification procedures regarding the appointment and

removal of a CCO. Proposed Sec. 49.22(c)(3) required an SDR to notify

the Commission within two business days of appointing any new CCO.

While this would effectively require an SDR to notify the Commission

whenever a CCO is removed, the Commission believes that an explicit

requirement is appropriate. Therefore, the Commission is adding the

following sentence to Sec. 49.22(c)(3): ``The swap data repository

shall notify the Commission of such removal within two business days.''

The Commission believes that the appointment, supervisory and

removal provisions of Sec. 49.22(c) will serve to effectively protect

the CCO from undue influence and will ensure that the CCO will be

sufficiently shielded against retaliatory termination by the board or

the senior officer of the SDR. Accordingly, the Commission is adopting

Sec. 49.22(c)(2) as proposed and is adopting Sec. Sec. 49.22(c)(1)

and 49.22(c)(3) subject to the above modifications.

4. Duties of the Chief Compliance Officer

Proposed Sec. 49.22(d) detailed the duties of a CCO and is based

on the CCO duties set forth in section 21(e)(2) of the CEA. The

proposed rule listed the following as duties of the CCO: (1) Overseeing

and reviewing compliance with the CEA and Commission regulations; (2)

in consultation with the board of directors or the senior officer,

resolving any conflicts of interest that may arise; (3) establishing

and administering written policies and procedures designed to prevent

violations of the CEA and Commission regulations; (4) ensuring

compliance with the CEA and Commission regulations relating to

agreements, contracts, or transactions, and with commission regulations

under section 21 of the CEA; (5) establishing procedures for the

remediation of noncompliance issues identified by the chief compliance

officer; (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. In expanding on the CCO's duty to resolve conflicts of

[[Page 54560]]

interest, the proposed rule also listed a number of potential conflicts

that may confront a CCO.\213\ This list of conflicts of interest was

intended to indicate ``the types of conflicts that the Commission

believes an SDR's CCOs should be aware of, but [was] not exhaustive.''

\214\ Additionally, to assist the CCO in meeting these

responsibilities, proposed Sec. 49.22(b)(1), granted a CCO oversight

authority over all compliance functions and staff acting in furtherance

of those compliance functions.

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\213\ SDR NPRM supra note 8 at 80934.

\214\ Id. at 80914.

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In the SDR NPRM, the Commission requested comment on any additional

CCO duties which the Commission should include, particularly addressing

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. The Commission also

requested comment on whether the Commission should adopt a rule that

prohibits an officer, director or person employed by the SDR or related

person to coerce, manipulate, mislead, or fraudulently influence the

CCO in performing his or her duties.\215\

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\215\ Id.

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The Commission received four comments relating to the duties of an

SDR's CCO.\216\ Three of the commenters--TriOptima, DTCC and CME--

expressed concern that the enumerated duties of the CCO may cause the

CCO to infringe on traditionally management functions. CME also stated

the Commission should not require the CCO to ``ensure'' compliance with

the CEA and Commission regulations. Additionally, as summarized below,

Better Markets and DTCC commented on the CCO's duty to resolve any

conflicts of interest that may arise.

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

\216\ See CL-TriOptima, CL-DTCC I, CL-CME and CL-Better Markets

supra note 51.

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

DTCC expressed its belief that the CCO should not be ``required to

be responsible for the overall operation of the SDR's business.'' \217\

DTCC noted that while there are regulatory components in many areas,

oversight of certain functions such as operational readiness and data

security should not be the responsibility of the CCO, but should

instead remain with senior management. TriOptima expressed similar

concerns and stated its belief that the CCO's duties should focus on

establishing, monitoring and reporting on the SDR's compliance

policies. CME took issue with what it believes is an overly broad set

of responsibilities assigned to CCOs; it objects to, among other

provisions, a CCO's duty to ``resolve conflicts of interest.'' \218\

While the CEA directs an SDR's CCO to, among other things, ``resolve

any conflicts of interest that may arise,'' \219\ CME believes that the

word ``resolving'' in proposed Sec. 49.22(d)(2) gives the CCO

authority that should be reserved for senior management.

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

\217\ CL-DTCC I supra note 51 at 27.

\218\ CL-CME supra note 51 at 7.

\219\ Section 21(e)(2)(C) of the CEA.

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

CME also commented on proposed Sec. 49.22(d)(4), which listed

``ensuring compliance with the Act and Commission regulations relating

to agreements, contracts, or transactions and with Commission

regulations under section 21 of the Act'' as one of the CCO's

duties.\220\ CME believes that instead of requiring the CCO to

``ensure'' compliance, the rule should require the CCO to ``establish

policies and procedures reasonably designed to ensure compliance.''

\221\

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

\220\ SDR NPRM supra note 8 at 80934.

\221\ CL-CME supra note 51 at 4.

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

DTCC also requested that the Commission provide greater detail as

to which conflicts of interest the CCO is responsible for resolving. It

believes that ``the Commission should clarify that the CCO's specific

responsibilities related to conflicts are limited to compliance with

the provisions of section 21 of the CEA and the final rules thereunder

as they relate to the swap operations of an SDR.'' \222\ DTCC also

suggested a materiality threshold for conflicts that require the CCO to

consult with the board of directors. Lastly, Better Markets requested

that the CCO be required to consult with both the independent members

of the board of directors and the senior officer of the SDR when

resolving conflicts of interest.

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

\222\ CL-DTCC I supra note 51 at 28.

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The Commission does not agree with those commenters that suggest

that the proposed duties of the CCO improperly infringe on areas that

are traditionally management functions. Many of the commenters based

their objections on their view that the role of a CCO should be limited

to monitoring compliance and advising management on compliance issues.

The Commission does not believe that this limited view is appropriate

for the CCO of an SDR. In listing the duties of a CCO, section 21(e)(2)

of the CEA specifies that the CCO shall ``resolve any conflicts of

interest that may arise'' and ``ensure compliance with this Act.''

\223\ As stated above, successful execution of these duties will

require that a CCO have the ability to enforce compliance with the CEA

and Commission regulations. The Commission believes the language of the

CEA suggests that the CCO is more than just an advisor to management on

compliance issues.

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\223\ Sections 21(e)(2)(C) and (E) of the CEA, 7 U.S.C.

24a(e)(2)(C) and (E).

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

In that regard, the Commission understands that a single individual

cannot guarantee an SDR's compliance with the CEA and Commission

regulations. However, an individual can take reasonable steps to ensure

compliance. Accordingly, the Commission is revising Sec. 49.22(d)(4)

to state that one of the CCO's duties shall include ``taking reasonable

steps to ensure 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.''

The Commission also disagrees with DTCC's comment that a CCO's duty

to resolve conflicts of interest should be limited to those conflicts

that relate to the swap operations of an SDR or that there be a

materiality threshold for the CCO to consult with the board of the SDR.

The Commission based this duty on the language of section 21(e)(2)(C)

of the CEA. This section does not limit the CCO's duty to resolve

conflicts to only those that relate to the swap operations of an SDR,

nor does it suggest that there be a materiality threshold for

consultation with the board of directors. Similarly, the Commission

does not agree with Better Market's recommendation to add a requirement

that the CCO consult with both the independent members of the board and

the senior officer when resolving conflicts of interest. However, the

Commission notes that while section 21(e)(2)(C) of the CEA and Sec.

49.22(d)(2) do not require SDRs to consult both the independent members

of the board and the senior officer when resolving conflicts of

interest, the Commission would be supportive of any SDR that enacts

this measure.

In proposed Sec. Sec. 49.22(d)(2)(i)-(iii), the Commission

identified a number of potential conflicts that may confront a

CCO.\224\ While the SDR NPRM expressly stated that this list of

conflicts ``is not exhaustive,'' the Commission believes that Sec.

49.22(d)(2) should be modified to clarify this point.\225\ Therefore,

the

[[Page 54561]]

Commission has revised proposed Sec. 49.22(d)(2) to add the word

``including'' before the list of potential conflicts of interest.

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\224\ SDR NPRM supra note 8 at 80934.

\225\ See SDR NPRM supra note 8 at 80914 which states: ``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.''

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The Commission believes the revisions to Sec. 49.22(d) discussed

above will provide greater clarity and effectiveness with respect to

the duties of an SDR's CCO. Accordingly, the Commission is adopting

Sec. 49.22(d) largely as proposed, with the modifications detailed

above for Sec. 49.22(d)(2), and Sec. 49.22(d)(4).

5. Preparation and Submission of Annual Compliance Report

The Commission in proposed Sec. 49.22(e) detailed the information

that must be included in the annual compliance report, including a

description of the SDR's written policies and procedures, 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 description of any

material changes to the policies and procedures that were made to these

since the last annual compliance report.\226\ In addition, proposed

Sec. 49.22(e) also required the annual report to include a

certification by the CCO that, under penalty of law, the compliance

report is accurate and complete.\227\

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\226\ SDR NPRM supra note 8 at 80934.

\227\ Id. at 80934-80935.

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

Proposed Sec. 49.22(f)(1) set forth the procedures for review of

the annual compliance report by the board of directors or senior

officer of the SDR prior to submission to the Commission and proposed

Sec. 49.22(f)(2) described the process for the submission of the

report.\228\

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\228\ See proposed Sec. Sec. 49.22(f)(1) and(2). Id. at 80935.

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The Commission requested comment with respect to whether the annual

compliance report should contain additional content beyond what is

proposed in Sec. 49.22(e) and whether additional provisions are

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.\229\ Alternatively, the Commission also requested comment on any

additional provisions that might be necessary to ensure 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 received three comments

regarding the preparation and submission of the annual compliance

report. Both CME and DTCC commented primarily on the required

provisions of the report, whereas Better Markets commented on the

procedures for review by the board and submission to the Commission.

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

\229\ Id. at 80915.

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CME suggested that the Commission require that the SDR's senior

officer, not its CCO, make the required certification under Sec.

49.22(e)(7). DTCC expressed its belief that the report should be

limited to detailing compliance with requirements of the CEA and the

policies and procedures of the SDR that relate to its swap activities.

Better Markets supported the requirement that the CCO present the

report to the board of directors prior to its submission to the

Commission and proposed that the Board be required to approve the

report in its entirety or detail where and why it disagrees with any

provision. Better Markets also proposed that this approval or statement

of disagreement be submitted to the Commission along with the report.

DTCC also expressed its concern about public release of the reports and

stated its belief that the annual report should be kept confidential by

the Commission and should not be available to the public or to market

participants.

The Commission understands that compliance with the CEA and

Commission regulations cannot be guaranteed by an individual or by any

policies or procedures and accordingly is revising proposed Sec.

49.22(e)(2)(i) to require that the annual compliance report identify

``the policies and procedures that are designed to ensure compliance

with each subsection and core principle, including each duty specified

in section 21(c).'' The Commission is also removing proposed Sec.

49.22(e)(6). While some commenters were supportive of the provision,

the Commission has determined that it is not necessary as a mandatory

requirement. The annual compliance report is a product of the CCO and

intended to reflect his or her assessment of an SDR's compliance. The

board of directors may append its own comments if desired, but the

statutory text and the Commission's implementing regulations do not

require it.

The Commission disagrees with CME's comment regarding the

certification requirement for the annual compliance report. While the

CEA does not explicitly require that the CCO certify the report, it

does require that the CCO ``annually prepare and sign'' and that the

report ``include a certification that, under penalty of law, the

compliance report is accurate and complete.'' \230\ The Commission

believes that these two requirements read together provide sufficient

basis for the CCO to certify that the report is accurate and complete.

However, the Commission is modifying Sec. 49.22(e) to explicitly state

that the CCO ``sign'' the annual compliance report in order to follow

the statutory text more closely. The Commission also disagrees with

DTCC's comment regarding limiting the scope of the report. There is no

indication in the CEA that the report should be limited to only the

swap activities of the SDR and the Commission believes there is no

reason for the report to be limited in such a manner.

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\230\ Section 21(e)(3) of the CEA.

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The Commission also disagrees with Better Market's suggestion to

require the board to approve the report in its entirety or submit a

statement detailing its objection. The Commission believes that

requiring the board to approve the report would increase the risk that

the CCO would be subject to undue influence by the board or by

management. The proposed rule, as modified above, strikes the

appropriate balance between ensuring that the board cannot adversely

influence the content of a report and giving the board the opportunity

to express their opinion of the report to the Commission. Additionally,

the Commission acknowledges DTCC's concerns regarding public release of

the report but believes that part 145 of Commission regulations

sufficiently ensures that the annual compliance report will remain

confidential. The Commission also does not believe Sec. 49.22(f)(5) is

necessary to protect the report from unnecessary release to the public

or market participants. Therefore, the Commission has modified Sec.

49.22(f) to remove Sec. 49.22(f)(5).

Section 21(e)(3)(B)(i) of the CEA requires that an annual

compliance report ``accompany each appropriate financial report of the

swap data repository that is required to be furnished to the Commission

pursuant to this section.'' \231\ Under the proposed rules, since an

SDR's year-end financial information must be submitted as an exhibit to

Form SDR, the annual compliance report was required to accompany this

annual amendment to Form SDR.\232\ Because this language was missing

from proposed Sec. 49.22(f)(2), the Commission has revised Sec.

49.22(f)(2) to state that ``The annual compliance report shall be

provided electronically

[[Page 54562]]

to the Commission not more than 60 days after the end of the registered

swap data repository's fiscal year, concurrently with the filing of the

annual amendment to Form SDR that must be submitted to the Commission

pursuant to Sec. 49.3(a)(5) of this part.''

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\231\ Section 21(e)(3)(B)(i) of the CEA.

\232\ See Exhibits M and N of proposed Form SDR set forth in the

SDR NPRM supra note 8 at 80943.

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The Commission believes that Sec. Sec. 49.22(e) and (f)

successfully establish requirements to ensure that the annual

compliance report accomplishes the regulatory goal of providing the

Commission with a complete and accurate picture of an SDR's regulatory

compliance program. Accordingly, the Commission is adopting Sec. Sec.

49.22(e) and (f) as proposed, with the exception that Sec. Sec.

49.22(e), 49.22(e)(2)(i), 49.22(e)(6), 49.22(f)(2), and 49.22(f)(5) are

revised as detailed above.

6. Recordkeeping

Proposed Sec. 49.22(g) detailed recordkeeping requirements for

records relating to a CCO's areas of responsibility. This proposed

regulation required an SDR to maintain: (1) A copy of its written

policies and procedures, including its code of ethics and conflicts of

interest policies; (2) 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 (3)

any records relevant to an SDR's annual report. The proposed rule

required SDRs to maintain these records in accordance with Sec. 1.31

of the Commission's regulations.

The Commission received one comment regarding the compliance

recordkeeping provisions in proposed Sec. 49.22(g) from Chris Barnard,

who recommended that compliance records be kept indefinitely.

As stated in the SDR NPRM, the Commission designed Sec. 49.22(g)

to ensure that Commission staff would be able to obtain the information

necessary to determine whether an SDR has complied with the CEA and

applicable regulations.\233\ The Commission believes that proposed

Sec. 49.22(g) successfully accomplishes this goal in accordance with

existing Commission regulation Sec. 1.31 which requires that regulated

entities maintain records for five years. Accordingly, the Commission

is adopting Sec. 49.22(g) as proposed.

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\233\ Id. at 80915.

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D. Core Principles Applicable to SDRs--Sec. 49.19

Proposed Sec. Sec. 49.19-49.21 implement the three substantive

core principles prescribed by section 21(f) of the CEA for registered

SDRs.\234\ The Commission is largely adopting the core principles as

proposed. Each core principle is discussed in turn below.

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\234\ Section 21(f)(4), 7 U.S.C. 24a(f)(4), establishes as a

fourth core principle Commission authority to establish additional

rules for registered SDRs. The Commission proposed and is today

adopting Sec. Sec. 49.25-49.27 pursuant to this authority. These

rules are discussed in section E, below.

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1. Antitrust Considerations (Core Principle 1)

Core Principle 1 directs SDRs to consider competition issues in

connection with its rules and/or activities.\235\ The Commission is

adopting as proposed Sec. 49.19 (Core Principle 1),\236\ which

provides that unless appropriate to achieve the purposes of the CEA, a

registered SDR 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. Like all core principles, Sec. 49.19 directly incorporates

statutory language, and the absence of particular guidance or safe

harbors at this time does not diminish an SDR's obligation to comply

with the core principle itself.

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\235\ The Commission itself is required to consider the

antitrust laws in fulfilling its statutory obligations. Section

15(b) of the CEA provides that the Commission shall take into

consideration the public interest to be protected by the

antitrustlaws and endeavor to take the least anticompetitive means

of achieving the objective of this chapter, as well as the policies

and purposes of this chapter, in issuing any order or adopting any

Commission rule or regulation * * * or in requiring or approving any

bylaw, rule or regulation of a contract market or registered futures

association * * *

\236\ The Commission received no comments in connection with

proposed Sec. 49.19.

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2. Governance Arrangements (Core Principle 2) and Conflicts of Interest

(Core Principle 3)

Section 21(f)(2) of the CEA, Core Principle 2, 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. Section 21(f)(3) of the

CEA, Core Principle 3, 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. In the SDR NPRM, the Commission proposed regulations

regarding (i) the transparency of SDR governance arrangements (Proposed

Sec. 49.20) and (ii) SDR identification and mitigation of existing and

potential conflicts of interest (Proposed Sec. 49.21), in order to

implement Core Principles 2 and 3, respectively.

The Commission received ten comments from interested parties.\237\

As discussed below, the Commission is adopting Sec. 49.20 and Sec.

49.21 substantially as proposed, subject to the revisions described

below.

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\237\ See CL-AFR, CL-CME, CL-Council, CL-DTCC I, CL-DTCC II, CL-

Reval II, CL-TriOptima, CL-Better Markets, CL-ABC/CIEBA and CL-

Barnard supra note 51.

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3. Governance Arrangements (Core Principle 2)--Sec. 49.20

(a) Transparency of Governance Arrangements

Proposed Sec. 49.20(a) required 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.\238\ In addition, proposed Sec. 49.20(b)

mandated certain minimum standards for the transparency of SDR

governance arrangements. These minimum standards required an SDR to:

(1) 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;

(2) make available certain information to the public and relevant

authorities;\239\ (3) ensure that the information made available is

current, accurate, clear and readily accessible; and (4) disclose

summaries of significant decisions in a sufficiently comprehensive and

detailed fashion so 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

[[Page 54563]]

implement or amend such policies or procedures.\240\ Proposed Sec.

49.20(b) would not require SDRs to publicly disclose minutes of board

of directors or committee meetings, however, disclosure to the

Commission would be required upon request.

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\238\ See SDR NPRM supra note 8 at 80932-80933.

\239\ 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. SDR NPRM supra note 8 at

80916.

\240\ SDR NPRM supra note 8 at 80933 n.116.

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The Commission received no comments addressing proposed Sec.

49.20(a), but received two comment letters related to proposed Sec.

49.20(b). One comment, from the Council, discussed the need for greater

transparency in certain areas including SDR director independence.

TriOptima's comment related to the public disclosure of summaries of

significant decisions implicating the public interest.

The Council commented that the Commission's proposal relating to

the public disclosure of an SDR's mission statement, board nomination

process and board committee assignment process is consistent with the

Council's best practices for corporate boards.\241\ However, the

Council requested that the Commission consider whether there should be

greater transparency with respect to: (1) Director independence; (2)

the board's role in risk oversight; and (3) director compensation in

the final rule.\242\

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\241\ CL-Council supra note 51 at 1.

\242\ Id. at 2.

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TriOptima expressed its concern regarding proposed Sec.

49.20(b)(vii), which required each registered SDR to make available to

the public and relevant authorities, including the Commission,

summaries of significant decisions implicating the public

interest.\243\ As an alternative to public disclosure, TriOptima

proposed that the Commission require SDRs to make ongoing reports to

the Commission regarding board of directors and committee decisions

that affect SDR compliance with the applicable regulations,

particularly changes to its procedures and compliance status.\244\

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\243\ CL-TriOptima supra note 51 at 5.

\244\ Id.

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The Commission has considered the Council's comments regarding the

need for greater transparency with respect to: (1) Director

independence; (2) the board's role in risk oversight and (3) director

compensation, and has concluded that the proposed minimum transparency

requirements are sufficient to support the objectives of the Federal

Government and fulfill the public interest. With respect to TriOptima's

proposed alternative regarding the public disclosure of significant

decisions, the Commission declines to adopt TriOptima's recommendation

to report only SDR board of directors or committee decisions that would

affect the SDR's compliance with the Commission's regulations and to

limit such reporting to the Commission solely. Since an SDR is required

to have governance arrangements that are transparent to fulfill the

public interest,\245\ the Commission believes that the public should be

fully informed of the manner in which an SDR satisfies such

requirement. The Commission emphasizes, however, that SDRs should not

be required to disclose Section 8 Material (as defined in Sec.

49.2(a)(14)) or, where appropriate, information that the SDR may have

received on a confidential basis from a reporting entity. Accordingly,

the Commission has adopted Sec. 49.20(a) as proposed and has revised

Sec. 49.20(b) to exclude the disclosure of Section 8 Material and,

where appropriate, information received by an SDR from a reporting

entity on a confidential basis.

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\245\ Section 21(f)(2) of the CEA, 7 U.S.C. 24a(f)(2).

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(b) Consideration of an Independent Perspective

In proposed Sec. 49.20(c)(1)(i)(A), the Commission required that

each registered SDR 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.\246\ As

discussed in the SDR NPRM, ``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.'' \247\ Therefore, in

counterbalancing the perspective of certain reporting entities

controlling an SDR, the Commission believes that the integration of an

independent perspective would aid in addressing the conflicts of

interest identified in the SDR NPRM. The Commission also proposed that

the independent perspective 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 class of

committees. Thus, proposed Sec. 49.20(c)(1)(i)(B) also required each

registered SDR to establish, maintain, and enforce policies and

procedures to ensure that such nominations and assignment processes

adequately incorporate an independent perspective. In addition to the

independent perspective requirement, the Commission proposed to promote

the transparency of governance arrangements through proposed Sec.

49.20(c)(1)(ii), which required that a registered SDR meet certain

reporting requirements relating to its board of directors, as well as

each SDR committee of the type mentioned above.\248\

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\246\ SDR NPRM supra note 8 at 80917 (discussing the importance

of the independent perspective in mitigating conflicts of interest).

\247\ Id.

\248\ Specifically, the Commission proposed 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. See SDR NPRM supra note 8 at 80933.

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The Commission received no comments regarding the reporting

requirements in Sec. 49.20(c)(1)(ii) and has adopted this regulation

as proposed. The Commission received three comment letters regarding

its proposed independent perspective requirement.\249\

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\249\ See CL-DTCC II, CL-Barnard and CL-Reval II supra note 51.

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DTCC recommended that SDR conflicts of interest be mitigated

through the imposition of structural governance requirements designed

to ensure an independent perspective on the board of directors and

committees, as well as broad representation from all classes of market

participants.\250\ In addition, DTCC indicated that an SDR should have

governance that is independent from its affiliates and that such

independence and the broad representation of market participants would

support the Commission's open access provisions.\251\ Barnard suggested

that the Commission require an SDR to have independent public directors

on their boards of directors and any committee that has authority to

act on behalf of the board directors or amend or constrain the action

of the board of directors.\252\ Reval recommended that the Commission

prohibit a representative of a reporting entity from sitting on a board

committee that

[[Page 54564]]

nominates public directors or governs compliance, or on any other

relevant committee.\253\

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\250\ CL-DTCC I supra note 51 at 16.

\251\ Id.

\252\ CL-Barnard supra note 51 at 3.

\253\ CL-Reval supra note 51 at 5.

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The Commission agrees with DTCC regarding the importance of open

access, and notes that proposed Sec. Sec. 49.20 and 49.21 complement

the proposed SDR open access requirements set forth in Sec. 49.27. The

Commission notes that an SDR could choose to have governance that is

independent from affiliates, as one of a number of complementary

methods to ensure the consideration of an independent perspective.

However, the Commission declines to include a ``fair representation''

requirement as DTCC recommends. Section 21(f)(2) of the CEA requires an

SDR to establish governance arrangements that are transparent (i) to

fulfill public interest requirements; and (ii) to support the

objectives of the Federal Government, owners, and participants. The

Commission observes that even if an SDR is governed by a broad cross-

section of market participants, such governance may not serve the

public interest. For example, if an SDR is governed by three

constituencies with equal voice and two are conflicted (but in the same

direction), the decision of such conflicted constituencies would stand.

With respect to requiring an SDR to include public directors on its

board of directors and any committee that has authority to act on

behalf of the board directors or amend or constrain the action of the

board of directors, the Commission declines to mandate the method in

which an SDR incorporates the consideration of an independent

perspective on its board of directors or committees. As discussed

below, the Commission believes that it is appropriate to afford SDRs

more flexibility in determining their ownership, and governance,

structures. The Commission notes that an SDR's implementation of the

``public director'' concept (e.g., as explicitly set forth for DCOs,

DCMs and SEFs) would be one method of meeting the requirement to

consider an independent perspective with a greater degree of certainty.

The Commission also declines to adopt Reval's recommendation with

respect to the board and committee nominations processes. The

Commission believes that the inclusion of an independent perspective in

the board nominations process, as well as on board committees that

govern compliance (or other relevant committees), is sufficient to

counterbalance the perspective of reporting entities that sit on such

bodies, especially given the Commission's preference to afford SDRs

flexibility. Accordingly, the Commission is adopting the ``independent

perspective'' requirement in Sec. 49.20(c)(1) as proposed.

(c) Structural Governance Requirements and Limitations on Ownership of

Voting Equity and the Exercise of Voting Rights

Although the Commission did not propose specific structural

governance requirements relating to the composition of the Board of

Directors and the establishment of board committees for SDRs or

limitations on ownership of SDR voting equity and the exercise of

voting rights, the Commission requested comment on the imposition of

such requirements and limitations in the SDR NPRM.\254\ Six commenters

\255\ addressed the necessity of such requirements for SDRs, and two

commenters \256\ discussed the effect of such requirements on

competition.

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\254\ SDR NPRM supra note 8 at 80917.

\255\ See CL-AFR, CL-Barnard, CL-Better Markets, CL-DTCC I, CL-

Reval and CL-TriOptima supra note 51.

\256\ See CL-Reval and CL-TriOptima supra note 51.

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AFR, Barnard and Better Markets \257\ suggested that, at a minimum,

the SDR governance regulations should contain the same board

composition requirements and ownership and voting limitations that the

Commission proposed for DCOs, DCMs, and SEFs in the Conflicts of

Interest Notice of Proposed Rulemaking.\258\ AFR submitted that ``the

information controlled by SDRs can create conflicts that are

potentially as great as many of the conflicts that could exist for

other derivatives infrastructure organizations'' such as DCOs, DCMs,

and SEFs,\259\ while Better Markets submitted that the potential

conflicts of interest for an SDR stem from the SDR being dominated by

or subject to the direct or indirect influence of their major

customers--large financial institutions which generate the data that an

SDR collects, manages and distributes.\260\ For these reasons, both AFR

and Better Markets believe that SDR governance regulations should

parallel the governance rules of a DCO, DCM and SEF.

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\257\ CL-AFR supra note 51 at 2; CL-Barnard, supra note 51 at 3

(stating that there should be a level playing field between SDRs and

DCOs with respect to board membership requirements and ownership and

voting limits); and CL-Better Markets supra note 51 at 10.

\258\ Commission, Notice of Proposed Rulemaking: Requirements

For Derivatives Clearing Organizations, Designated Contract Markets,

And Swap Execution Facilities Regarding The Mitigation Of Conflicts

Of Interest, 75 FR 63732 (Oct. 18, 2010) (``Conflicts of Interest

NPRM''). In the Conflicts of Interest NPRM, the Commission proposed

rules to mitigate potential conflicts of interest in the operation

of a DCO, DCM, and SEF through (i) structural governance

requirements and (ii) limits on the ownership of voting equity and

the exercise of voting power. The proposed structural governance

requirements include composition requirements for DCO, DCM, or SEF

Boards of Directors. Specifically, such boards must be composed of

at least 35 percent, but no less than two, public directors. With

respect to limits on ownership of voting equity and the exercise of

voting power, the proposed rules limit DCM or SEF members (and

related persons) from beneficially owning more than twenty (20)

percent of any class of voting equity in the registered entity or

from directly or indirectly voting an interest exceeding twenty (20)

percent of the voting power of any class of equity interest in the

registered entity. With respect to a DCO only, the proposed rules

require a DCO to choose one of two alternative limits on the

ownership of voting equity or the exercise of voting power. Under

the first alternative, no individual member may beneficially own

more than twenty (20) percent of any class of voting equity in the

DCO or directly or indirectly vote an interest exceeding twenty (20)

percent of the voting power of any class of equity interest in the

DCO. In addition, the enumerated entities, whether or not they are

DCO members, may not collectively own on a beneficial basis more

than forty (40) percent of any class of voting equity in a DCO, or

directly or indirectly vote an interest exceeding forty (40) percent

of the voting power of any class of equity interest in the DCO.

Under the second alternative, no DCO member or enumerated entity,

regardless of whether it is a DCO member, may own more than five (5)

percent of any class of voting equity in the DCO or directly or

indirectly vote an interest exceeding five (5) percent of the voting

power of any class of equity interest in the DCO. The proposed rules

also provide a procedure for the DCO to apply for, and the

Commission to grant, a waiver of the limits specified in the first

and second alternative.

\259\ CL-AFR supra note 51 at 2.

\260\ CL-Better Markets supra note 51 at 9-10.

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Only one commenter stated that ownership and voting limitations

should not be considered for SDRs.\261\ DTCC indicated that the

imposition of such limitations ``would be an imprecise tool with which

to achieve the policy goals of the Commission regarding conflicts of

interest.'' \262\

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\261\ See CL-DTCC I and CL-DTCC II supra note 51 at 16 and 2,

respectively.

\262\ Id.

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Reval and TriOptima expressed the concern that, as proposed,

Sec. Sec. 49.20 and 49.21 would create an ``uncompetitive

environment'' by deterring independent service providers from

registering as SDRs.\263\ Both Reval and TriOptima recommended that the

Commission impose certain structural governance requirements and/or

ownership and voting limitations to market participants that own or

control an SDR to mitigate such an anticompetitive effect.

Specifically, Reval recommended that the Commission require that (i) no

financial entity, swap dealer, or major swap participant be allowed to

become an SDR, (ii) no SDR permit its equity or

[[Page 54565]]

debt to be held by any market participant that, together with its

related persons, would have more than 5 percent of the notional

principal swap volume in the asset class for which the SDR is

registering, and (iii) no SDR permit any market participant to hold

more than 5 percent of its equity (or alternatively, 20 percent, if the

Commission believes that 5 percent is too low a threshold).\264\

TriOptima recommended that potential conflicts of interest and

compliance with the applicable Core Principles be addressed by more

tailored rules that distinguish between ``Independent SDRs'' and ``Tied

SDRs,'' which are actually or presumptively, controlled by swap market

participants.\265\ Therefore, TriOptima suggested that the Commission

adopt a two-tiered approach to mitigating SDR conflicts of

interest.\266\ Under this approach, ``Tied SDRs'' would be subject to

the full panoply of conflicts of interest and governance requirements,

including (i) restrictions on ownership and voting rights, (ii)

provisions for board nominations procedures and public directors, and

(iii) requirements for policies and procedures to ensure that board

members and certain committees do not favor the interests of a control

group. In contrast, ``Independent SDRs'' would be subject only to

requirements that concentrate on procedures, reporting and examination,

which would ensure that changes in the SDR's business, governance

structure or organization do not adversely affect impartiality.\267\

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\263\ CL-Reval supra note 51 at 5 and CL-TriOptima supra note 51

at 4.

\264\ CL-Reval supra note 51 at 4. Reval suggested that bank-

related trade repositories be permitted to be a third-party

reporting entity that can, on behalf of its owners, report to a

registered SDR.

\265\ CL-TriOptima supra note 51 at 4. TriOptima defines a Tied

SDR as an SDR with voting stock that is more than 50 percent owned

or controlled, directly or indirectly, by one or more market

participants, or where a majority of its board was nominated or

appointed, directly or indirectly, by one or more market

participants, or where the Commission has determined, after

examination and review, that an SDR is under effective control of

one or more market participants. TriOptima defines an Independent

SDR as one that meets none of the above criteria.

\266\ CL-TriOptima supra note 51 at 4.

\267\ Id.

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In determining the appropriate regulatory approach for the

governance and the mitigation of potential conflicts of interest in the

operation of DCOs, DCMs, SEFs and SDRs, the Commission examined the

ways in which such entities exercised discretion in performing their

respective functions. The Commission notes that the discretion

exercised by a DCO, DCM or SEF with respect to their ability to

influence participation on the entity (e.g., execution, clearing

membership, portfolio compression) or the acceptance of all trades in

an asset class differs significantly from that of an SDR. The

Commission agrees with DTCC that an SDR lacks discretion similar to

that exercised by DCOs, DCMs and SEFs in its collection and maintenance

of data related to swap transactions in that ``the SDR is not defining

the reporting party, timeliness, or content for public dissemination,

and similarly the SDR is not defining the reporting party, content, or

process for regulatory access. The SDR does not have significant

influence over the inclusion or omission of information in the

reporting process, nor does it control the output of the process.''

\268\ Accordingly, the Commission believes that it is appropriate to

afford SDRs more flexibility in determining their ownership and

governance structures, in contrast to DCOs, DCMs and SEFs and declines

to impose additional structural governance requirements and ownership

and voting limitations on SDRs. However, the Commission may in the

future re-examine SDR governance requirements based on changing

conditions and/or market developments.

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\268\ CL-DTCC I supra note 51 at 16.

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The Commission has also considered and rejected Reval and

TriOptima's recommendations to impose limitations on SDR ownership and

voting equity as well as separate regulatory schemes for independent

and tied/market participant owned or controlled SDRs. Preliminarily,

the Commission notes that the Dodd-Frank Act neither endorses nor

discourages a particular SDR market structure (e.g., the ``public

utility'' or the ``for-profit'' model); from a policy perspective, so

long as an entity complies with the CEA and the regulations thereunder,

the Commission has no preference whether the entity is an ``Independent

SDR,'' a ``Tied SDR,'' or a market-participant owned or controlled SDR.

The Commission acknowledges that control of an SDR by one or more

reporting entities may lead to conflicts of interest; however, the

Commission notes that ownership is only one form of control. The

Commission believes that the substantive requirements (e.g.,

transparency of governance arrangements, consideration of an

independent perspective, policies and procedures on conflicts of

interest) proposed in part 49 appropriately mitigate SDR conflicts of

interest, especially in conjunction with (i) non-discrimination

requirements regarding access and fees; and (ii) limitations on

disclosure and use of non-public information. Moreover, the Commission

notes that these substantive requirements are the minimum requirements

necessary to ensure the adequacy of governance arrangements and the

amelioration of conflicts of interest, for an ``Independent SDR,'' a

``Tied SDR,'' or a market-participant owned or controlled SDR.

(d) Substantive Requirements for SDR Boards of Directors (and

Certain SDR Committees)

The Commission proposed 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)

required 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 the following attributes: (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.

In addition to the expertise requirement, the Commission proposed

other substantive requirements in Sec. 49.20(c) to enhance the

accountability of SDR boards of directors to the Commission.

The Commission received one comment regarding the substantive

requirements for SDR boards of directors and certain committees. DTCC

addressed the expertise requirement in proposed Sec. 49.20(c)(5). DTCC

recognized the value of requiring that an SDR board incorporate an

independent perspective, but questioned whether potential directors

that do not directly participate in the markets would have

``sufficient, timely, and comprehensive expertise on issues critical to

the extraordinarily complex financial operations of an SDR.'' \269\

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\269\ CL-DTCC I supra note 51 at 16-17.

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Since the operations of an SDR are not specialized in the same

manner as, for example, a DCO, the Commission questions whether the

``comprehensive'' expertise referenced by DTCC is necessary. The

Commission is not persuaded that it will be difficult to find directors

that can (i) bring an independent perspective; and (ii) sufficient,

timely and comprehensive expertise. In addition, the Commission is not

convinced that directors with an independent perspective would lack

incentive to acquire any necessary

[[Page 54566]]

expertise (especially because such directors may be removed).

Accordingly, the Commission is adopting Sec. 49.20(c)(5) as proposed.

The Commission received no comments on the proposed substantive

requirements mandated by Sec. 49.20(c)(1)(i)(C) and Sec. 49.20(c)(2)-

(4) and is adopting these regulations as proposed.

4. Conflicts of Interest (Core Principle 3)--Sec. 49.21

In the SDR NPRM, the Commission discussed the conflicts of interest

that a registered SDR may confront in its operations.\270\ As the

Commission noted, such conflicts may involve (i) discrimination against

certain reporting entities in SDR access, pricing, and provision of

services; and (ii) unfair or anticompetitive disclosure or use of SDR

Information.\271\ The Commission noted that 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. As the Commission stated, 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.

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\270\ SDR NPRM supra note 8 at 80918-80919.

\271\ Id. at 80916 n.106. In addition, the Commission stated

that ``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.'' Id.

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In addition, the Commission discussed the commercial value of swap

data and SDR analyses of SDR information and the incentive that a

control group may have 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).'' \272\ The Commission also stated that ``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).'' \273\

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\272\ Id. at 80919.

\273\ Id.

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The Commission is concerned that a control group can dominate an

SDR to further its economic interests to the detriment of other

reporting entities. The Commission proposed Sec. 49.21 to implement

Core Principle 3 and to mitigate this and other conflicts that may

arise in the operation of an SDR. Proposed Sec. 49.21(a) required each

registered SDR to establish and enforce rules to minimize conflicts of

interest in the decision-making process of the SDR, and establish a

process for resolving such conflicts of interest. The Commission also

proposed in Sec. 49.21(b) 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. As stated in the SDR NPRM, the

Commission believes such rules should require, at a minimum, the

recusal of any person involved in the conflict from such decision-

making.

The Commission received three comments on the identification of

conflicts of interest and proposed Sec. 49.21.\274\ AFR expressed

concern regarding the vulnerability of SDRs to significant conflicts of

interest that could interfere with their public utility mission.\275\

Specifically, AFR expressed concern that ``the owners of SDRs could use

preferential access to the information gathered to favor some market

participants at the expense of others, or to deny transparent pricing

information to customers.'' \276\ DTCC reiterated its view that

potential conflicts of interest are best addressed by open access

provisions, governance that is independent from its affiliates, and a

market participant owned SDR.\277\ ABC/CIEBA voiced concerns relating

to swap counterparties who are SDs/MSPs electing the SDR to be used

where the SD/MSP has an ownership or governance interest in the SDR.

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

\274\ See CL-AFR, CL-DTCC I and CL-ABC/CIEBA supra note 51.

\275\ CL-AFR supra note 51 at 1.

\276\ Id. at 2.

\277\ CL-DTCC I and CL-DTCC II supra note 51 at 17 and 2,

respectively.

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For swaps that could be cleared by multiple SDRs, ABC/CIEBA

suggested that, if the Commission required the swap counterparty that

is not the SD/MSP to elect the SDR to be used, then such requirement

may address potential conflicts of interest where the SD/MSP has an

ownership or governance interest in a particular SDR and then attempts

to steer reported trades to the SDR.\278\

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\278\ CL-ABC/CIEBA supra note 51 at 13.

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The Commission is adopting Sec. 49.21(a) and (b) as proposed. The

Commission believes that the substantive requirements of Sec. Sec.

49.20 and 49.21 (e.g., transparency of governance arrangements,

consideration of an independent perspective, policies and procedures on

conflicts of interest) appropriately mitigate SDR conflicts of

interest, especially in conjunction with (i) non-discrimination

requirements regarding access and fees; and (ii) limitations on

disclosure and use of non-public information. In addition, Sec. 49.21

simply requires an SDR to have policies and 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. Even

assuming that the specified requirements resolve all current conflicts

of interest, they may not be sufficient to address future conflicts.

Thus, the Commission believes that having policies and procedures to

resolve future as well as current conflicts is central to compliance

with Core Principle 3. With respect to ABC/CIEBA's comment, the

Commission believes that if an SD/MSP elects to report transactions at

an SDR that it owns or governs, that action may constitute a SD/MSP

conflict (presuming that such election does not serve the interests of

its swap counterparties), but not an SDR conflict under Core Principle

3. The Commission will consider this comment in connection with its

final rulemaking for Swap Data Recordkeeping and Reporting

Requirements.\279\

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\279\ See Data NPRM supra note 6.

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5. Core Principle Compliance

Both proposed Sec. 49.20(d) and Sec. 49.21(c) required the SDR's

CCO to review the compliance of the SDR with Core Principles 2 and 3,

respectively. The Commission received one comment letter discussing SDR

and DCO core principle compliance. CME suggested that a DCO that is

also registered as an SDR should be able to achieve compliance with SDR

core principles by demonstrating compliance with applicable DCO core

principles.\280\ The Commission has considered CME's comment and

maintains that DCOs which are SDRs are responsible for compliance with

the SDR core principles. Should a particular DCO core principle be

identical in its requirements to an SDR core principle, compliance with

the latter could be demonstrated by showing compliance with the

former.\281\

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\280\ CL-CME supra note 51 at 2-3.

\281\ The Commission reiterates that if a DCO registers as an

SDR the DCO would be expected to meet the more stringent set of

rules to the extent that the SDR and DCO final rules on governance

and conflicts of interest differ. See also SDR NPRM supra note 8 at

80899 n.9.

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[[Page 54567]]

E. Additional Duties

In addition to the core principles set forth above in section D,

section 21(f)(4) of the CEA authorized the Commission to 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 its SDR NPRM, the Commission

proposed four additional duties that would require an SDR to (i) adopt

and implement system safeguards, including BC-DR 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. In

connection with final part 49 regulations, the Commission has adopted

only three of the four proposed additional duties pursuant to section

21(f)(4). The Commission has determined that the statutory authority

for adopting proposed Sec. 49.24 relating to system safeguards is

properly and adequately established in section 21(c)(8) of the CEA, and

this is not an additional duty imposed under the authority of section

21(f)(4). Accordingly, the Commission believes that it is unnecessary

to use its discretion under section 21(f)(4) of the CEA to adopt Sec.

49.24. A description of the three additional duties and related

comments are discussed in turn below.

1. Financial Resources--Sec. 49.25

Proposed Sec. 49.25(a)(1) required an SDR to maintain sufficient

financial resources to fulfill its responsibilities as set forth in

proposed Sec. 49.9 and the core principles set forth in proposed Sec.

49.19. As described in the SDR NPRM, 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.'' \282\

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\282\ SDR NPRM supra note 8 at 80937.

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Proposed Sec. 49.25(b) established that the financial resources

relied upon by the SDR to meet its obligations under paragraph (a) may

include the SDR's own capital and any other financial resource

acceptable to the Commission.\283\ Additionally, proposed Sec.

49.25(c) provided that an SDR must compute, at least on a quarterly

basis, its financial resource requirement, making a reasonable

calculation of its projected operating costs over a 12-month period.

The proposed rule allowed the SDR reasonable discretion in determining

the methodology used to compute such projected operating costs,

although the Commission reserved the right to review the methodology

utilized by the SDR and require changes as appropriate.\284\ Similarly,

under proposed Sec. 49.25(d), an SDR must undertake to compute, at

least quarterly, ``the current market value of each financial resource

used to meet its obligations under [Sec. 49.25(a)]'' with appropriate

reductions in value (haircuts) applied to reflect market and credit

risk.

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\283\ Id.

\284\ Id.

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The Commission requested comment on ``whether the methodology set

forth [in Sec. 49.25] for determining sufficient financial resources

would provide the necessary resources to ensure the financial integrity

of the SDR.'' \285\ If not, the Commission requested that commenters

submit different methodologies or manner for calculating sufficient SDR

financial resources.\286\

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\285\ SDR NPRM supra note 8 at 80920.

\286\ Id.

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

The Commission received three comments relating to the financial

resources required of SDRs.\287\ While the letters were generally

supportive of the proposed rules and their objectives, the commenters

articulated concern with respect to (1) the length of the resource

requirement; (2) the types of financial resources required by the

Commission; (3) the use of a parent company's financial resources for

purposes of Sec. 49.25; and (4) the reporting of an SDR's solvency

ratio.

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\287\ See CL-Barnard, CL-Reval and CL-TriOptima supra note 51.

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

One area of concern was the proposed requirement in Sec.

49.25(a)(3) that an SDR's financial resources would only be considered

sufficient if their value were equal to the total operating costs of

the SDR for a period of at least one year. Reval believed that SDRs

should not be required to have 12 months of operating expenses on an

on-going basis. It argued that requiring 12 months of operating

expenses on hand ``would not be how most businesses operate and would

be prohibitive to many new businesses from forming an SDR * * * .''

\288\ In addition, it noted that such a requirement would ``be a

constraint limiting the SDRs from: improving technology, having the

proper resources, and making other long-term investments.'' \289\ Chris

Barnard, on the other hand, articulated support for the ``requirement

that an SDR maintain financial resources exceeding the total amount

that would cover its operating costs for a 1-year rolling period.''

\290\

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\288\ CL-Reval supra note 51 at 10.

\289\ Id.

\290\ CL-Barnard supra note 51 at 4. The Commission notes that

its proposal under Sec. 49.25(a)(3) required that the financial

resource of an SDR be at least equal to its operating costs for at

least one year, calculated on a rolling basis.

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A second area of concern was the types of financial resources

deemed acceptable by the Commission in proposed Sec. 49.25(b). Reval's

comment letter argued for broader allowances in the measures used to

determine whether an SDR has sufficient resources. It suggested the

Commission consider an SDR's profitability, level of positive operating

cash flow, and cash balance. Reval also suggested that perhaps

initially an SDR should be allowed to demonstrate sufficient working

capital either directly, or through its parent company, or from debt,

letters of credit or capital call structures. Under Reval's plan, after

an initial 12-month period an SDR should ``be able to demonstrate that

it has adequate financial support from one or more of the following:

positive operating cash flow, six months of operating expenses on hand,

or profitability on a quarterly basis.'' \291\

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

\291\ CL-Reval supra note 51 at 10-11.

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

Reval and TriOptima offered comments on parent company

contributions to SDR resources and, conversely, on their contribution

to an SDR's calculated resource requirements for purposes of Sec.

49.25. Reval suggested that ``[n]ot allowing the SDR to be financially

supported by a parent company may also limit the pool of companies

willing to register to become an SDR as it would involve raising new

capital for a start-up business.'' \292\ TriOptima believes that the

``proposed rule should be drafted broadly enough to recognize that an

SDR may be a stand-alone entity or a unit or division of a larger

entity'' and that the financial resource requirements be limited to the

activities of the SDR ``and not to the broader activities of the entity

as a whole.'' \293\

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\292\ CL-Reval supra note 51 at 10.

\293\ CL-TriOptima letter supra note 51 at 6.

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Lastly, Chris Barnard suggested that, in addition to the proposed

requirements in Sec. 49.25, an SDR should be required to calculate and

regularly publish a solvency ratio and that such ratio should not fall

below 105%.\294\ Barnard also believes that the ``CFTC should be

immediately notified when the Solvency Ratio falls below 105%.'' \295\

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\294\ CL-Barnard supra note 51 at 4.

\295\ CL-Barnard supra note 51 at 4.

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Proposed Sec. 49.25 was intended to ensure the protection of the

swap data maintained by the SDRs, the financial

[[Page 54568]]

safety and security of SDRs, and an orderly wind-down of individual

SDRs without disruption to the markets., The framework established by

the Dodd-Frank Act and envisioned in the Commission's proposed

regulations places important responsibilities upon all SDRs to serve as

centralized storehouses of swap transaction data, facilitate

regulators' surveillance of swaps markets, and help mitigate systemic

risk in the financial system. As described above, SDRs'

responsibilities will include accepting swap data from counterparties,

confirming the accuracy of the swap data, and maintaining data

according to standards prescribed by the Commission. SDRs may also

disseminate swap transaction data to the public, on a real-time basis,

and will engage in monitoring, screening, and analyzing swap data to

assist the Commission in the fulfillment of its regulatory objectives

with respect to the swap markets. Given the vital importance of the

functions described above, the Commission believes that adequate

financial resource requirements are of the upmost importance for all

SDRs. Accordingly, the Commission disagrees with Reval's suggestion

that an SDR should be subject to the proposed financial resource

requirements only for the initial 12 months, and to a lower standard

after the first year of operation, as the important responsibilities

placed upon an SDR continue past its first year of operation.

Additionally, sufficient resources to execute an orderly wind-down will

be crucial to any SDR no matter how long it has been in business. The

Commission believes that proposed Sec. 49.25(a) strikes a proper

balance between the potential barrier to entry posed by its financial

resources requirements, on the one hand, and the protection of a

systemically important entity, on the other.\296\

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\296\ The Commission in the final adoption of Sec. 49.25(a)(2),

relating to DCOs that also operate as SDRs, revised the reference to

DCO financial resource requirements to refer to Sec. 39.11 of the

Commission's Regulations rather than ``core principles.''

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The Commission acknowledges the detailed alternatives articulated

in Reval's comment letter regarding the types of financial resources

that should be acceptable in satisfaction of the requirements proposed

in Sec. 49.25(a). In particular, Reval suggested that measures to

determine if an SDR has sufficient resources to ensure the financial

integrity of the SDR could include the SDRs profitability, level of

positive operating cash flow, and cash balance. After considering these

alternative measures, however, the Commission has determined to adopt

Sec. 49.25(b) as proposed. The Commission again notes that the purpose

of proposed Sec. 49.25 was not only to ensure the continued viability

of an operating SDR, but also the orderly wind-down of a failing SDR.

As such, the intent of the rule is to be certain that each SDR has

sufficient capital on hand to cover its operating costs for one year,

regardless of its profitability or cash flow; Reval's proposed

alternatives do not capture this intent. The Commission emphasizes that

the provision Sec. 49.25(b)(2) stating that the acceptable financial

resources include an SDR's own capital and ``any other financial

resources deemed acceptable by the Commission'' was meant to capture

other types of resources on a case-by-case basis and provide

flexibility to SDRs and the Commission.\297\

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

\297\ For example, the Commission believes that commitments from

equity investors to provide the resources necessary to fulfill the

SDR's responsibilities would satisfy the requirements of Sec.

49.25(b).

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The Commission also disagrees with Reval that, at least initially,

an SDR should be able to demonstrate sufficient working capital through

a letter of credit or similar type of credit facility. The Commission

clarifies that a letter of credit should not be taken into account in

calculating the financial resource requirement in proposed Sec.

49.25(a). However, an SDR may be able to take into account a committed

letter of credit or line of credit for the six month liquidity

requirement in proposed Sec. 49.25(e) if there are no, or very few,

restrictions on the credit and, for example, the credit is available

even if the SDR's financial position changes in a materially adverse

manner.

Finally, the Commission is not adopting Reval's recommendation that

an SDR should be allowed to be financially supported by a parent

company. The Commission believes that when relying on the resources of

a parent company, there is a risk that future capital contributions,

even if contractually obligated, will not be paid if an SDR must wind-

down its business. Due to the risk of potential harm caused from

possible data loss and market disruptions, the Commission does not view

this as a viable alternative. Conversely, the Commission does agree

with TriOptima that an SDR's financial resource requirements should be

limited to the activities of the SDR and not to the broader activities

of the parent company.

The Commission also declines to adopt Barnard's recommendation that

an SDR be required to calculate and publish its solvency ratio.

Accordingly, for the reasons discussed above, the Commission is

adopting Sec. 49.25 as proposed.

3. Disclosure Requirements of Swap Data Repositories--Sec. 49.25

The Commission proposed that SDRs furnish market participants a

disclosure document (``SDR Disclosure Document'') setting forth the

risks and costs associated with using the services of the SDR.

Specifically, Sec. 49.26 required 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.

The Commission in proposing this disclosure requirement believed it

would 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 received a comment from DTCC related to the proposal

that SDRs furnish a disclosure document outlining the costs and risks

of using such services.\298\ DTCC noted in particular the requirements

set forth in Sec. 49.26 and indicated that they provide market

participants with sufficient disclosure of the costs and risks through

disclosure documents and other information provided on their Web site.

[[Page 54569]]

The Commission believes that the prominent posting of the SDR

Disclosure Document itself or the information contained in the SDR

Disclosure Document on an SDR's Web site is sufficient for compliance

with this Sec. 49.26.

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\298\ CL-DTCC I supra note 51 at 25.

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The Commission notes that the disclosure of SDR costs and risks

will provide market participants with information regarding SDR

operations that is essential for informed decision-making.

Specifically, the Commission believes that it is especially important

for market participants to know an SDR's policies and procedures

relating to the safeguarding and use of reported data as well as the

operational capability and reliability of the SDR.

After reviewing Sec. 49.26 generally and the comment received, the

Commission is adopting Sec. 49.26 as proposed.

4. Access and Fees--Sec. 49.27

The Commission proposed in Sec. 49.27 to establish open, non-

discriminatory access to the services provided by SDRs. The Commission

believes that the Dodd-Frank Act requires SDRs to provide services on a

non-discriminatory basis based largely on the requirement in section

2(a)(13)(G) of the CEA \299\ that all swap transactions be reported to

an SDR. The Commission further believes that the intent and purpose of

section 21 of the CEA \300\ is for SDRs to provide open and equal

access to its services. Consistent with the principles of open and

equal access to SDR services, the Commission submits that the fees or

charges adopted by an SDR must also be equitable and otherwise non-

discriminatory.

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\299\ See section 727 of the Dodd-Frank Act.

\300\ See section 728 of the Dodd-Frank Act.

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(a) Access

As proposed, Sec. 49.27(a) required 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 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 continues to

believe that access should be fair, open and equal.

The Commission received four comment letters from interested

parties relating to open access.\301\ Several additional comments

relating to fees (discussed below) that raise open access issues will

also be discussed in connection with the fee provisions of Sec.

49.27(b).

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\301\ See CL-ABC/CIEBA, CL-DTCC II and CL-MarkitServ I supra

note 51.

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ABC/CIEBA asserted that the ``open access'' provision set forth in

proposed Sec. 49.27(a) could allow an SDR to set discriminatory

restrictions on the type of swap transaction terms it could receive to

the detriment of benefit and pension plans. ABC/CIEBA requested the

Commission in its adoption of Sec. 49.27(a) provide additional clarity

that an SDR may not ``* * * require, as a condition to reporting a swap

transaction or providing information to an SDR, that a counterparty be

exposed to more liability (via a user agreement or otherwise) than it

would have otherwise been exposed to had its transaction not been

reported to the SDR.'' \302\

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\302\ CL-ABC/CIEBA supra note 51 at 5.

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

The Commission in the SDR NPRM recognized the potential difficulty

for plan fiduciaries in managing benefit plans, and accordingly,

proposed Sec. 49.10(c) to partly address concerns regarding the

modification or invalidation of swap transaction terms. In addition,

Sec. 49.27(a), as proposed, was intended to prevent discriminatory

access to SDR services.

The Commission believes that ABC/CIEBA's proposed clarification is

overly broad, and may place an SDR in a position to determine whether

any given counterparty will be exposed to additional liability--even a

non- reporting counterparty's. The Commission submits that this could

place the SDR in a position of evaluating risks outside of the

statutory mandate imposed by the Dodd-Frank Act. Therefore, the

Commission believes that the measures proposed in Sec. Sec. 49.10(c)

and 49.27(a) to prevent modification and invalidation and to ensure

fair and equal access adequately address ABC/CIEBA's concerns.

DTCC commented that SDRs should provide open access to services

offered while also preserving the trading parties' control over the

reported data maintained by the SDR.\303\ DTCC specifically believes

that agents of a reporting party (such as a SEF, DCO, confirmation

facility or other service provider) must be acting on behalf of the

reporting counterparty and submits that the particular SDR for which

the trade is reported should be based on the counterparty's selection

and not by the SEF, DCO, confirmation facility or other service

provider.

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

\303\ CL-DTCC II supra note 51 at 3.

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Although the Commission largely shares DTCC's views regarding the

authority of the reporting counterparty to choose or select the

particular SDR for the reporting of swaps, the Commission submits that

this authority to select a particular SDR may be contractually

delegated to other parties. In addition, the rules and regulations of a

particular SEF, DCM or DCO may provide for the reporting to a

particular SDR. However, the Commission notes that this would not

prevent the counterparties from also reporting their swap transaction

data to an additional SDR for recordkeeping and other risk management

or ancillary purposes consistent with the requirements set forth in

proposed part 45 of the Commission's Regulations. Accordingly, the

Commission believes that the reporting of swap transaction data to SDRs

is adequately addressed in proposed part 45 of the Commission's

Regulations \304\ and section 4r(3) of the CEA.

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\304\ See Data NPRM supra note 6.

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MarkitSERV commented that it generally supports the proposed open

access and fee provision set forth in Sec. 49.27.\305\ However,

MarkitSERV believes that if Sec. 49.27 is implemented, as proposed, it

may have some unintended consequences. In particular, MarkitSERV

asserted that without clarification as to the meaning of ``non-

discriminatory'' fees and ``preferential pricing arrangements,'' the

``dealer-pays'' fee structure historically used by SDR-like entities

could be seen as preferential.

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

\305\ CL-MarkitServ I supra note 51.

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MarkitSERV believes that the current ``dealer pays'' pricing model

ensures fair and open access because buy-side participants are often

smaller entities that may find it difficult to afford SDR fees.

MarkitSERV is concerned that without clarification the proposed

regulation could cause an increase in costs for buy-side market

participants, and thereby, discourage the use of SDRs. The Commission

believes that this argument ignores the statutory mandate that all

swaps whether cleared or uncleared must be reported to an SDR.\306\

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\306\ Section 2(a)(13)(G) of the CEA, 7 U.S.C. 2(a)(13)(G).

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

The Commission further believes that, consistent with fair, open

and equal access, an SDR may appropriately utilize any pricing model

subject to Sec. 49.27(b)'s requirement that such fees be non-

discriminatory. The Commission notes that ``open access'' and ``non-

discriminatory'' fees are complementary notions of fair dealing and

open market access that are necessary in order for compliance with the

statutory mandate

[[Page 54570]]

set forth in the Dodd-Frank Act that all swaps be reported to an SDR.

The Commission also received several comments in connection with

the issue of bundling or tying of SDR regulatory services with

ancillary services.\307\ DTCC urged the Commission to prohibit the

bundling of core regulatory services mandated by the Dodd-Frank and

part 49 with non-core or ancillary services. Similarly, MarkitSERV also

recommended that the SDR regulations be amended to explicitly prohibit

tying of core services and ancillary services. MarkitSERV also

commented that SDRs be allowed (but not required) to offer an array of

services that are ancillary to those narrowly defined duties outlined

in the Dodd-Frank Act and part 49. TriOptima requested clarification on

the ability of an SDR or its affiliates to offer ancillary services on

terms commercially agreed to between the SDR and its customer/

subscriber.

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\307\ See CL-DTCC, CL-MarkitSERV, CL-MarkitSERV II and CL-

TriOptima supra note 51. The Commission understands ancillary

services to consist of asset servicing; confirmation, verification

and affirmation facilities; collateral management, settlement, trade

compression and netting services; valuation, pricing and

reconciliation functionalities; position limits management; dispute

resolution; and counterparty identify verification.

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The Commission believes that it is appropriate for SDRs to offer

ancillary services to market participants. However, SDRs in offering

such ancillary services are prohibited from bundling these services

with mandated regulatory services such as swap data reporting.

Accordingly, the Commission is revising Sec. 49.27 to clarify that

SDRs are prohibited from requiring market participants to make use of

SDR ancillary services in order to gain access to the SDR's mandated

regulatory services.

For the reasons discussed above, the Commission is adopting Sec.

49.27(a) largely as proposed with the modification relating to bundling

noted above.

(b) Fees

As proposed, Sec. 49.27(b) ensured that fees or other charges

established by an SDR are not used as a means to deny access to some

market participants by employing disparate and/or discriminatory

pricing. The Commission continues to be 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 SDRs will be subjected to

significant costs both in connection with part 49, as well as the

recordkeeping and reporting of swap data as proposed in part 45 and

real-time public reporting as proposed in part 43.\308\ These costs, in

part, include the ability to accept and maintain reported swaps data,

technology, personnel, technical support and appropriate BC-DR plans.

Accordingly, Sec. 49.27(b), as proposed, seeks to ensure that the fees

charged to reporting parties are equitable and do not become an

artificial barrier to access. The Commission is concerned that the

swaps markets are dominated by a select number of financial entities

and related utilities, and therefore, sought through proposed Sec.

49.27 to promote fair and open competition for SDR services.

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\308\ See SDR NPRM supra note 8 and Real-Time NPRM supra note

28.

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As proposed, Sec. 49.27(b) prohibited SDRs from offering

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 market participant or a select number

of market participants. Proposed Sec. 49.27 also would require SDRs to

provide fee transparency to market participants through its Web site as

well as in the Disclosure Document discussed above in Sec. 49.26.

The Commission received seven comment letters relating to SDR

pricing from various interested parties.\309\

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\309\ See CL-Reval I, CL-MarkitSERV I, CL-Sungard, CL-DTCC I,

CL-AFR and CL-Better Market supra note 51.

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Reval commented that the core component of pricing will be a per

transaction charge with each SDR having varying costs and quality of

service. Reval thought that a comparison of pricing among SDRs may be

difficult because of the many aspects that will comprise SDR pricing.

Reval submitted that SDRs should be able to charge for client

implementation, consulting or development services that are separate

and apart from the ``core'' regulatory services of SDR reporting. Given

the level of transparency as proposed by the Commission in Sec. 49.27,

Reval expects robust price competition under the assumption that

several SDRs become registered.

MarkitSERV generally supported the principle set forth in proposed

Sec. 49.27 that fees charged by SDRs must be equitable and established

in a uniform and non-discriminatory manner. However, as discussed

above, MarkitSERV questioned the application of ``non-discriminatory''

fees and ``preferential pricing arrangements,'' based on its belief

that current repository fee structures are preferential. For example,

MarkitSERV commented that current trade repositories commonly require

only dealer participants to pay for the cost of reporting swaps.\310\

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\310\ CL-MarkitSERV I supra note 51 at 4. The Commission submits

in a reporting party fee pricing model that reporting fees paid by

SD/MSP reporting counterparties to an SDR would be factored into the

pricing between the SD/MSP and its buy-side customer so that the

buy-side customer does not directly pay for reporting.

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As discussed above, MarkitSERV is concerned that, without

clarification, the regulation as proposed could increase the costs for

end-users (buy-side participants) and thereby discourage end-users from

using SDRs. In addition to the reasons discussed above, the Commission

believes that this argument fails to address the reporting regime set

forth in the Data NPRM and section 4r of the CEA, and further, assumes

that a single entity serves as the SDR so that buy-side participants

are unable to ``shop'' for competitive pricing.

MarkitSERV recommended that the Commission explicitly endorse the

``dealer pays'' commercial model. DTCC echoed MarkitSERV's approach

with its view that fee structures should reflect an ``at cost'' pricing

model with only SDs subject to fees.\311\ Alternatively, MarkitSERV

thought the Commission could clarify Sec. 49.27, as proposed, so that

different fee structures for different classes of participants would

not be deemed discriminatory as long as the pricing model is not

discriminatory within those classes. In addition, MarkitSERV also

asserted that adopting a ``reporting party pays'' pricing model would

meet the Commission's objectives of uniform and non-discriminatory

fees. Lastly, MarkitSERV asserted that the application of Sec. 49.27

to ancillary services may prove detrimental to the market. MarkitSERV

believes that because ancillary services are non-core services, and

therefore, may be provided independently by un-regulated third-party

service providers, these services should be priced commercially and

consistently with market practices if they are also offered by SDRs.

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\311\ CL-DTCC I supra note 51 at 3.

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Sungard acknowledged the Commission's rationale for applying an

[[Page 54571]]

equitable standard to fees charged by SDRs and supports the

Commission's decision in Sec. 49.27 to refrain from acting as a ``rate

setter'' with respect to the establishment of SDR fees. Sungard

specifically noted that proposed Sec. 49.27(b)(3) does not call for

specific Commission review and approval of fees. The Commission notes

that although SDR fees would not be ``approved,'' any and all fees

charged by SDRs will be filed with the Commission and subject to

sufficient transparency and disclosure via the SDR's Web site and SDR

Disclosure Document. AFR recommended that all market participants be

treated equally by requiring SDRs to provide the Commission with a

justification for its fees.

The Commission does not endorse or adopt any particular business or

pricing model but instead believes that any regulation should permit a

variety of business models to flourish. Accordingly, the Commission is

adopting Sec. 49.27 as proposed. The Commission submits that a

determination of what may constitute an ``equitable'' and ``non-

discriminatory'' price must be performed on a case-by-case basis. In

response to DTCC, the Commission believes that the cost of offering a

service or product is not determinative, but is one factor in this

analysis.\312\ The Commission in proposing Sec. 49.27 was careful not

to designate or sanction any particular pricing or business model

relating to SDRs. Instead, the Commission seeks to foster or encourage

competition as the best way in which to keep swap reporting costs to a

minimum.

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\312\ See e.g. Report of SEC Advisory Committee On Market

Information: A Blueprint For Responsible Change (September 14, 2001)

(known as the ``Seligman Report'') available at http://www.sec.gov/divisions/marketreg/marketinfo/finalreport.htm. See also, SEC,

Concept Release: Regulation of Market Information Fees and Revenues,

Securities Exchange Act Release No. 42208 (December 9, 1999), 64 FR

70613 (December 17, 1999). Cost basis pricing in connection with

national securities exchange market data fees was recently discussed

in NetCoalition v. Securities and Exchange Commission, 615 F.3d 525

(DC Cir. 2010).

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Given the varying cost structures and business models that may

emerge, the Commission will not approve or set ``fees.'' In addition,

the Commission believes that the Dodd-Frank Act and the CEA requires

the Commission, to the extent possible, to promote competition between

and among various SDRs. The Commission notes that Sec. 49.27 would

prohibit SDRs from establishing fees in a manner that restrict fair,

free and open access to SDR services.

Both AFR and Better Markets argue that the Commission should

prohibit volume discounts in SDR pricing based on their belief that

most reporting flow will be ``dealer dominated,'' and therefore,

unfairly discriminate against non-SDs/MSPs (i.e. end-users). This may

be true for more ``customized'' swap transactions; however, for those

more standardized transactions that may be executed on a SEF or DCM,

reporting to an SDR would be part of the SEF's or DCM's transaction

services. Accordingly, the reporting flow in these cases would be

determined by the SEF or DCM and not the SD/MSP. In addition, SDs/MSPs

will be required to negotiate customer agreements with non-SD/MSP

counterparties so that volume pricing discounts should otherwise be

reflected in the pricing structure to the non-SD/MSP counterparty. This

will especially be the case because any fees charged by SDRs for

services must be transparent and disclosed publicly.

Accordingly, the Commission will permit volume discounts as long as

these discounts are not structured in a way that is anti-competitive.

However, the Commission expects to study the effect of volume discounts

that are offered by SDRs, and will re-evaluate both its view and Sec.

49.27, if warranted.

With respect to MarkitSERV and DTCC's comments relating to the

``dealer pays'' commercial pricing model, the Commission is not

entirely persuaded regarding this recommendation but does agree that an

SDR may appropriately utilize a pricing model by which the reporting

entity is required to pay the SDR reporting fees. In this manner, the

reporting entity--SD, MSP or non-SD/MSP--and its counterparty will as

part of their agreement negotiate the payment of SDR fees. Consistent

with MarkitSERV's comments, the Commission believes that SDRs may

charge participants a reasonable fee to recoup additional costs

associated with accepting and processing ``customized'' reportable

transactions to the SDR.

F. Procedures for Implementing Swap Data Repository Rules

The Commission's part 40 regulations contain provisions related to

submissions to the Commission by registered entities of new products

and rules. In order to implement new statutory provisions imposed by

the Dodd-Frank Act, the Commission has adopted amendments to its part

40 rules.\313\ These amendments implement a new statutory framework for

certification and approval procedures for new products, new rules and

rule amendments submitted to the Commission by registered entities and,

as relevant to this rulemaking, include new registered entities such as

SDRs.

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\313\ See Part 40 supra note 21.

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In this connection, the Commission proposed Sec. 49.8 to conform

to the framework established in the part 40 rules. The proposed rule

provided that an applicant for registration as an SDR may request that

the Commission approve, pursuant to section 5c(c) of the CEA, any or

all of its rules and subsequent amendments, either prior to

implementation or, notwithstanding the provisions of section 5c(c)(2)

of the CEA, at any time thereafter, under the procedures established in

Sec. 40.5 of the Commission's Regulations. Under the proposal, rules

of an SDR 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 under the procedures specified in Sec. 40.6.

The Commission received no comments on Sec. 49.8. Based on its

review of the proposed regulation and the absence of comments, the

Commission is adopting Sec. 49.8 as proposed.

III. Effectiveness and Transition Period

Consistent with section 754 of the Dodd-Frank Act, part 49 of the

Commission's Regulations will be effective on October 31, 2011

(``Effective Date''). Once part 49 is effective, the Commission will

accept applications to register as an SDR on new Form SDR adopted by

the Commission in this Adopting Release.\314\ As explained below and as

noted elsewhere in this Adopting Release, the compliance date for

various regulatory requirements is contingent upon the adoption and

effectiveness of other, related, regulatory provisions and definitions.

Because the Commission believes that the suite of rules implementing

the Dodd-Frank Act are complex and interconnected, it has determined

that implementation can best be accomplished through a separate

rulemaking. The Commission expects in this separate rulemaking to

establish an implementation and phase-in plan for

[[Page 54572]]

the numerous rulemakings related to the Dodd-Frank Act.\315\

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\314\ The Commission notes that although it is unable to mandate

registration as an SDR prior to the effective date of the swap

definition rulemaking, SDRs can file applications with, and be

granted approval, on a provisional basis, prior to that date. See

Commission and SEC, Notice of Proposed Joint Rulemaking: Further

Definition of ``Swap,'' ``Security-Based Swap,'' and ``Security-

Based Swap Agreement;'' Mixed Swaps; Security-Based Swap Agreement

Recordkeeping, 76 FR 29818 (May 23, 2011). Authority for

registration in advance of an effective date is provided in section

712(f) of the Dodd-Frank Act, 15 U.S.C. 8302(f).

\315\ In connection with the SDR Rulemaking, the Commission

received fourteen comments that directly relate to implementation

and phase-in. These comments resulted from the Commission re-opening

of the comment period for several rulemakings, including the SDR

Rulemaking, and a request for comment on the order in which it

should consider final rulemakings made under the Dodd-Frank Act. See

Commission, Reopening and Extension of Comment Periods for

Rulemakings Implementing the Dodd-Frank Wall Street Reform and

Consumer Protection Act, 76 FR 25274 (May 4, 2011). Comments

addressing implementation and phase-in were received from: (1)

Working Group of Commercial Energy Firms (``WGCEF'') on March 23,

2011; (2) CME on March 23, 2011; (3) Financial Services Roundtable

on April 6, 2011; (4) Financial Services Forum, Futures Industry

Association, International Swaps and Derivatives Association and the

Securities Industry and Financial Markets Association on May 4,

2011; (5) Financial Services Roundtable, on May 12, 2011; (6) Swaps

& Derivatives Market Association on June 1, 2011; (7) AII on June 2,

2011; (8) Wholesale Markets Brokers' Association Americas on June 3,

2011; (9) Encana on June 7, 2011; (10) Chris Barnard on June 8,

2011; (11) Alternative Investment Management Association on June 10,

2011; (12) Futures Industry Association, Institute of International

Bankers, International Swaps and Derivatives Association, Investment

Company Institute, Securities Industry and Financial Markets

Association, U.S. Chamber of Commerce on June 10, 2011; (13) AII on

June 10, 2011; and (14) MarkitSERV on June 10, 2011. All comment

letters are available through the Commission Web site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=939.

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The Commission in this Adopting Release has not established a

``compliance date'' for SDRs that differs from the effective date of

part 49. The Commission believes that the adoption of registration

requirements (including a provisional registration) and applicable

statutory duties and core principles does not itself necessitate a

delayed compliance date with part 49 for registered SDRs. In

particular, the adoption of the provisional registration process set

forth in Sec. 49.3(b) should provide SDR applicants with sufficient

time to fully comply with part 49 while at the same time permitting

those SDR that are operational to function. Entities that currently

operate in a manner similar to an SDR and seek to be registered under

part 49 will require operational and systems changes in order to comply

with part 49. For those entities that do not currently operate as a

repository or in a similar capacity, the Commission believes that

significant operational and technology resources would be required in

order for such entities to register and comply with part 49.

The Commission notes that SDRs will not otherwise be fully

operational as of the effective date of part 49 but instead will

require an implementation or compliance period based on requirements

for reporting swap transaction data as well as the real-time

dissemination of swap data that are the subject of separate rulemakings

by the Commission.\316\ In both the Data and Real-Time Rulemakings, a

delayed effectiveness date or compliance date is likely given the

complexities and technology changes that must be implemented on an

industry-wide basis.

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\316\ See Data NRPM and Real-Time NPRM supra notes 6 and 28,

respectively.

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IV. Related Matters

A. Paperwork Reduction Act

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless it displays a

currently valid control number issued by the Office of Management and

Budget (``OMB''). The final part 49 rules result in information

collection requirements within the meaning of the Paperwork Reduction

Act of 1995 (``PRA'').\317\ The Commission submitted its proposing

release and supporting documentation to OMB for review in accordance

with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The Commission requested that

OMB approve, and assign a new control number for, the collections of

information covered by the proposing release. The information

collection burdens created by the Commission's proposed rules, which

were discussed in detail in the proposing release,\318\ are identical

to the collective information collection burdens of the final rules.

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\317\ 44 U.S.C. 3301 et seq.

\318\ SDR NPRM supra note 8 at 80923-80925.

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The Commission invited the public and other Federal agencies to

comment on any aspect of the information collection requirements

discussed in the NPRM.\319\ Pursuant to 44 U.S.C. 3506(c)(2)(B), the

Commission solicited comments in order to: (i) Evaluate whether the

proposed collections of information were 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 estimates of the burden of the proposed collections 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 collections of information on those who

are to respond, including through the use of automated collection

techniques or other forms of information technology. The Commission

received no comment on its burden estimates or on any other aspect of

the information collection requirements contained in its proposing

release.

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\319\ Id. at 80925.

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The title for the collection of information under part 49 is ``Swap

Data Repositories Registration and Regulatory Requirements.'' OMB has

approved and assigned OMB control number 3038-0086 to this collection

of information.

B. Cost-Benefit Considerations

Section 15(a) of the CEA explicitly requires the Commission to

consider the costs and benefits of its actions before promulgating a

regulation under the CEA. In particular, costs and benefits must be

evaluated in light of five broad areas of market and public concern:

(1) Protection of market participants and the public; (2) efficiency,

competitiveness and financial integrity of futures markets; (3) price

discovery; (4) sound risk management practices; and (5) other public

interest considerations. The Commission may, in its discretion, give

greater weight to any one of the five enumerated areas depending upon

the nature of the regulatory action.

Section 728 of the Dodd-Frank Act provides the Commission with

authority to adopt and implement rules and regulations regarding the

registration and regulation of SDRs. Pursuant to that authority the

Commission proposed the adoption of new part 49 to the Commission's

regulations to require persons that meet the definition of an SDR to

register and comply with specific duties and core principles enumerated

in section 21 as well as other requirements that the Commission may

prescribe by regulation. In particular, the Commission proposed to (1)

create a new part 49 of its regulations for the registration and

regulation of SDRs and (2) the adoption of a new form, Form SDR, to

register as an SDR with the Commission.

The cost-benefit discussion in the proposing release \320\ analyzed

the costs and benefits of adopting new part 49 to the market generally

and to the limited number of potential entities expected to register as

SDRs. Specifically, the Commission determined that the proposed

regulations would benefit market participants and the public by

improving transparency in the swaps market and fostering competition in

the data and trade repository industries. In addition, by providing

regulators with access to the data maintained by SDRs, the Commission

believed that its proposal would promote greater risk management and

give global regulators a better measure of systematic risk

[[Page 54573]]

throughout the financial markets.\321\ The Commission stated in the SDR

NPRM that the failure to enact proposed part 49 regulations would be a

cost measured by the absence of transparency in the swaps market. This

determination was based on the belief that costs would appear as a

result of market inefficiencies related to price discovery and risk

management and the inability of regulators to properly monitor systemic

risk.\322\

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\320\ SDR NPRM supra note 8 at 80925.

\321\ Id.

\322\ Id.

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The Commission has considered the costs and benefits of the final

regulations pursuant to section 15(a) of the Act. The Commission has

considered the public comments received regarding costs and benefits in

response to the SDR NPRM. A discussion of the final regulations in

light of section 15(a) factors is set out immediately below, followed

by a discussion of comments on cost-benefit considerations received in

response to the SDR NRPM.

1. Protection of Market Participants and the Public

The Commission believes that the registration and regulation of

SDRs under part 49 of the Commission's Regulations will serve to better

protect market participants by providing the Commission and other

regulators with important oversight tools to monitor, measure, and

comprehend the swaps markets. It is expected that the Commission's

surveillance and enforcement capabilities will accordingly be enhanced

by the adoption of part 49. In addition, the greater transparency to be

furnished by mandated reporting to SDRs will also better improve the

management of systemic risk throughout the financial markets by the

Commission as well as the FSOC and OFR.

The Commission has estimated that the initial start up cost for the

estimated 15 SDR registrants to become registered under part 49 is

between $105.5 and $135.5 million, including between $60 and $90

million for initial technological capital costs.\323\ Ongoing

operations are estimated to be between $47.07 and $77.072 million

annually for all SDRs, which includes between $30 and $60 million

dedicated to ongoing annual technological costs.\324\

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\323\ These estimates were provided to the Office of Management

and Budget in compliance with the Paperwork Reduction Act of 1995

(``PRA''), 44 U.S.C. 3501 et seq. The estimates were arrived at by

considering the document entitled ``Possible Role for NFA as a

Utility for Swap Transactions,'' which appears on the NFA Web site

at http://www.cftc.gov/idc/groups/[email protected]/documents/file/derivative13sub083110-nfa.pdf. These estimates do not include

personnel costs. Because the Commission has not regulated the swap

market, it has not previously collected data on actual costs.

Accordingly, the Commission solicited comment on any aspect of the

reporting and recordkeeping burdens associated with the proposed

rules, including the accuracy of the Commission's estimates of the

burdens, in connection with OMB's review of the proposed rules and

the attendant information collections. See SDR NPRM supra note 8 at

80925. No comments were received. The Commission's submissions to

OMB, including supporting documentation, may be obtained by visiting

the Web site RegInfo.gov.

\324\ This estimate was obtained in consultation with the

Commission's IT staff.

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The Commission is unable to estimate accurately the cost of

recordkeeping given existing technologies, the current state of the

swaps market and the potential growth in the future. The difficulty in

estimating future and ongoing costs for SDRs is significantly related

to the range of duties that can vary by asset class as well as the

probability that SDR responsibilities will increase and change over

time.

2. Efficiency, Competitiveness, and Financial Integrity of Futures

Markets

The Commission believes that the adoption of the SDR regulation set

forth in part 49 together with the swap data recordkeeping and

reporting requirements proposed in part 45 will provide a robust source

of information on activities in the swaps market that is expected to

promote increased efficiency and competition. To date, the swaps market

generally has been characterized by a lack of transparency with a

select number of dealers dominating the business. Although dealers will

likely continue to have a significant presence in the swaps market, the

transparency that is envisioned in the Dodd-Frank Act and thereby

implemented by part 49 is expected to provide enhanced competition for

services, and accordingly, lead to greater efficiencies for market

participants executing swap transactions.

In addition, greater transparency for the Commission and other

regulators will provide better oversight of the swaps market and its

various market participants. Specifically, based on Sec. 49.17, SDRs

will provide transaction data, including price points and counterparty

matches, to a host of regulatory agencies (including the Commission)

providing regulators additional tools for various surveillance and

enforcement programs. This type of transparency is currently

unavailable to regulators monitoring the swaps market. In addition,

empirical data obtained from SDRs will also be employed by the

Commission and other regulatory agencies to further study the behavior

of the swaps market.

The Commission also believes that the introduction of SDRs will

further automate the execution and reporting of swap transactions. This

is likely to benefit market participants and reduce transactional risks

through SDRs and related service providers offering important ancillary

services such as confirmation and matching services, valuations,

pricing, reconciliation functions, position limits management, dispute

resolution and counterparty identification. The ability of regulators

to access the swap data maintained by SDRs will assist regulators to,

among other things, monitor risk exposures of individual counterparties

to swap transactions, monitor concentrations of risk exposure, and

evaluate systemic risk. In addition, the ability of DCOs to also

register as SDRs will help regulators better identify the significant

participants in the swap market and better assess their financial

exposures.

The Commission believes that the ``cost'' of the ``public'' or

regulatory function of an SDR could potentially conflict with its

commercial interests. This is especially true for those SDRs that seek

registration that are privately-owned and managed. As a result, the

Commission in adopting Sec. 49.17(g) and Sec. 49.21 has sought to

identify various conflicts inherent in SDR operations with the

expectation that these conflicts be minimized to the greatest extent

possible.

The Commission notes that SDRs could potentially commercialize the

swap transactional data that is reported to it through relationships

and alliances with various market data vendors and similar firms.

Moreover, the disclosure of certain proprietary swap data potentially

could compromise the submitters' intellectual property rights or

proprietary interests--for example, investment strategies, technology

systems and algorithmic trading systems. The Commission has attempted

to minimize this possibility through the adoption of Sec. 49.17(g)

which prohibits the commercial use of data by SDRs unless consented to

by the reporting party. The Commission believes that ancillary services

provided by SDRs or related entities may also create incentives for

SDRs to further promote such ancillary services. This conflict could be

manifested in the manner in which swaps are required to be reported and

through various legal provisions in user agreements between the SDR and

reporting party.

In the Commission's view, fees charged by SDRs for reporting and

storage of data will depend upon a

[[Page 54574]]

number of factors including, but not limited to, the (1) SDR's cost

structure; (2) availability of competitors; and (3) regulatory

oversight of fees. A variety of different business models could develop

whereby the reporting and storage of data to the SDR is but one facet

of the SDR's operations with various ancillary services taking on

greater importance.

Because of the global nature of the swaps market, ``regulatory

arbitrage'' could occur in connection with the reporting of swap data

to an SDR or repository if there are significant differences in the

regulatory regimes in the U.S. and abroad. In such a scenario, SDs

could find it advantageous to report their trades to a foreign-based

repository that is not subject to the stringent requirements embodied

in the Dodd-Frank Act. The Commission and other regulators globally

have been working to reduce the instances of regulatory arbitrage that

may occur in connection with the regulation of the swaps markets. In

particular, regulators have focused on SDRs and the reporting of swaps

as an area that should be relatively consistent or uniform worldwide.

The Commission continues to work with other regulators to coordinate

and harmonize laws and regulations relating to SDRs or repositories.

3. Price Discovery

The Commission believes that part 49, together with such Dodd-Frank

Act requirements as mandatory clearing and trading, will promote

greater price efficiency and increased competition for swaps and other

related financial instruments. Part 49's provisions relating to

regulator access will permit the Commission, other domestic regulators

and foreign regulators to examine potential price discrepancies and

other trading inconsistencies in the swaps market.

The Commission notes that requirements set forth in Sec. 49.13,

relating to an SDR's obligation to confirm the accuracy of reported

data, will create additional cost burdens for SDRs that may marginally

increase based on the scope and volume of data transmitted. In adopting

Sec. 49.13, the Commission recognizes the potential cost burdens of

this regulation based on section 21(c)(2) of the CEA, and has sought to

reduce the effect on SDRs by permitting an SDR to rely on the accuracy

of reported data if submitted by an electronic matching/confirmation

platform.

Where there are multiple SDRs for a particular asset class, the

Commission is concerned that swap data may be vulnerable to

fragmentation due to the potential for swaps in such an asset class to

be reported to more than one SDR. In addition, the Commission submits

that permitting a DCO acting as an SDR to limit its reporting to

``cleared'' swap transactions would further fragment data

reporting.\325\ The Commission also notes that if SDR regulations

adopted by the Commission and the SEC significantly diverge, SDRs and

market participants would accordingly be subject to potentially higher

fees and charges because of conflicting and/or duplicative

requirements.

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\325\ See CL-CME supra note 51.

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4. Sound Risk Management Practices

The Commission believes that part 49 and related part 45, which

addresses the reporting and recordkeeping of swap transactions by all

market participants, will greatly strengthen the risk management

practices of the swap industry. Prior to this time, participants in the

swaps markets have operated largely unregulated and without obligation

to disclose transactions to regulators and/or the public. The Dodd-

Frank Act specifically changed the transparency of the swaps market

with the adoption of section 21 of the CEA and the establishment of

SDRs as the entity to which swap transaction data will be reported and

maintained for the use of regulators. The Commission believes that the

reporting of all swap transactions to an SDR will serve to improve risk

management practices by market participants through better knowledge of

open positions and SDR services related to various trade, collateral,

and risk management practices that are likely to be offered. The

Commission notes that total transaction costs incurred by market

participants will invariably increase as a result of additional

reporting and business conduct obligations.

As adopted, Sec. 49.17 (c) provides the Commission with direct

electronic access to SDR data on a real-time basis. This access will

enable the Commission to better monitor the swap market and promptly

react to potential market emergencies from unreasonable risks and

exposures. In addition, the requirement that SDRs have in place a CCO--

mandated by section 21(e) of the CEA and implemented in Sec. 49.22--

will further support the importance of risk management and proper

conflict of interest management going forward.

Consistent with the Dodd-Frank Act, part 49 provides that swap data

reported and maintained by SDRs will be made available to both U.S. and

foreign regulators in an effort to increase global transparency and

reduce systemic risk. Because of the global and international aspects

of the swaps market, the Commission has sought, to the extent possible,

to coordinate and cooperate with foreign regulators in order to

facilitate access to swap data.

To ensure that swap data will not impermissibly be disclosed or

breached, potentially subjecting SDRs and the Commission to litigation

risks and expenses, the Dodd-Frank Act in section 21(d) of the CEA

mandated that domestic and foreign regulators (except for Supervisory

Appropriate Foreign Regulators) must execute a confidentiality and

indemnification agreement with the SDR prior to receiving access to SDR

information. Section 49.18, implementing section 21(d) of the CEA,

provides that other domestic and foreign regulators must comply with

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.

This confidentiality and indemnification agreement would require the

regulator to indemnify the SDR and the Commission for any expenses

arising from litigation relating to the information provided under

section 8 of the CEA. The Commission received a comment regarding

access to SDR data by foreign regulators that raised concerns with

respect to confidentiality and the role of the Commission as a

gatekeeper.\326\

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\326\ See CL-MFA supra note 51 at 3-4. MFA urged that the

Commission actively participate in verifying the validity of access

requests by foreign regulators. The Commission believes it is

inappropriate to place unnecessary burdens on foreign regulators'

access to swap data held by U.S. SDRs. The confidentiality and

indemnification agreement required to be executed between the SDR

and foreign regulators, as well as any memorandum of understanding

MOU between the Commission and foreign regulators, should ensure

that data is accessed appropriately and maintained confidentially.

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The Commission believes that regulator access (both domestic and

foreign) to the data held by an SDR is essential for appropriate risk

management to be performed by regulators. This is especially important

for regulators to be able to monitor the swap market and certain

participants relating to systemic risk.

5. Other Public Interest Considerations

The Commission believes that increased transparency resulting from

the data collected from SDRs will facilitate greater understanding of

how the swaps market interacts with and affects financial markets and

the overall economy. Increased transparency and disclosure through SDRs

to various

[[Page 54575]]

regulators will support oversight and enforcement efforts and

capabilities. In addition, empirical data that will be provided to the

Commission from SDRs in all asset classes should provide the

Commission, legislators and the public with a better understanding of

the market, thereby producing more effective public policy to reduce

overall systemic risk.

The Dodd-Frank Act and implementing regulations such as part 49

will likely have extraterritorial effects because of the global nature

of the swaps market and market participant operations. Consequently,

the Commission is cognizant of the potential for part 49 to overlap

with foreign regulations with respect to repositories or SDRs that also

operate in foreign jurisdictions. Duplicative or overlapping

regulations would potentially burden SDRs and firms that operate

globally. The Commission in implementing part 49 expects to rely on

foreign regulators and regulations to the extent possible consistent

with the Dodd-Frank Act. However, section 4(c) of the CEA, as amended

by the Dodd-Frank Act, severely limits the Commission's ability to

accommodate SDRs because of the prohibition against providing any

exemptive relief under section 21.

Pursuant to section 2(a)(13)(G) and proposed part 43 of the

Commission's regulations, the Commission expects SDRs to play a

significant role in the public dissemination of swap data. Because it

is likely that SDRs will assume a major role in the real time

dissemination of swap data, SDRs may incur greater costs in the

development of increased technology and operational resources. The

Commission is unable presently to quantify those costs; they will be

addressed in the context of the part 43 rules.

6. Comments

In the SDR NPRM, the Commission solicited comment on its

consideration of these costs and benefits. The Commission received two

comments with respect to the cost benefit analysis in the SDR

NPRM.\327\ In addition, several market participants commented more

generally that the registration procedures as proposed by the

Commission in part 49 are burdensome and could be revised to reduce the

burden on applicants for registration.\328\ CME Group asserted that the

Commission's primary focus in implementing the Dodd-Frank Act should be

on the least costly, least burdensome and most efficient alternatives

available. In that regard, CME suggested that DCOs that are also SDRs

can achieve compliance with SDR core principles by demonstrating

compliance with analogous DCO core principles. By the same token, CME

urges that the Commission offer registration relief to DCOs wishing to

register as SDRs in order to reduce the burden of filing duplicative

materials. After careful consideration, the Commission has concluded,

first, that the burden of filing duplicative materials is limited to

the costs of providing these materials electronically. Second, with

respect to core principle compliance, where a particular DCO core

principle is identical in its requirements to an SDR core principle,

the Commission believes that compliance with the latter could be

demonstrated by compliance with the former. Potential non-U.S. SDRs

expressed concern with respect to the burden of registering in multiple

countries or jurisdictions. The Dodd-Frank Act does not permit

exceptions to its registration requirements; however, as noted above in

the discussion related to registration, the Commission is undertaking

to work cooperatively with foreign regulators toward establishing,

where appropriate, a form of recognition regime to partly alleviate the

perceived burden.\329\

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\327\ CL-CME and CL-NFPE Coalition supra note 51.

\328\ See CL-CME, CL-Foreign Banks, CL-TriOptima, CL-Regis-TR

and CL-DTCC I supra note 51. These comments are discussed above in

connection with the Commission's registration procedures set forth

in Sec. 49.3.

\329\ See CL-NFPE Coalition supra note 51. As a separate matter,

the NFPE Coalition highlighted what it views as the potential

increased burden on end-users who employ swaps to hedge against

commercial risk. The NFPE Coalition expressed concern that non-

financial entities would be treated in a substantially similar

manner as swap dealers or financial services firms, thereby

unnecessarily increasing the burdens on such non-financial entities.

The Commission believes that these concerns are more properly

addressed in the Data and Real-Time Reporting rulemakings. See Data

NPRM supra note 6 and Real-Time NPRM supra note 28.

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Consistent with section 15(a) of the CEA, the Commission believes

that part 49 as adopted is in the public interest and will further

protect participants and the public, promote efficiency, competition

and the financial integrity of financial markets, promote accurate and

efficient price discovery, enhance sound risk management practices and

address other public interest considerations such as access to SDR data

by other domestic and foreign regulators.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

requires that agencies consider the impact of their rules on small

businesses. The Commission noted in the proposing release that although

it has established certain definitions of ``small entity'' to be used

in evaluating the impact of its rules under the RFA,\330\ it had not

previously addressed the question of whether SDRs are small entities

for purposes of the RFA. For the reasons set forth in the proposing

release, the Commission determined that, similar to DCOs and DCMs, SDRs

are not ``small entities'' for purposes of the RFA. Accordingly, the

Chairman, on behalf of the Commission, certified in the NPRM pursuant

to 5 U.S.C. 605(b) that the actions to be taken herein will not have a

significant economic impact on a substantial number of small

entities.\331\

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\330\ The Commission previously has established that, because of

the central role they play in the regulatory scheme concerning

futures trading, the importance of futures trading in the national

economy, and the stringent requirements of the CEA, DCOs and DCMs

are not small entities. See SDR NPRM supra note 8 at 80926.

\331\ SDR NPRM supra note 8 at 80926.

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V. 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 adopts an amendment to

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.

[[Page 54576]]

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. No. 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, foreign exchange,

other commodities, and such other asset classes as may be determined by

the Commission.

(3) Commercial Use. The term ``commercial use'' means the use of

swap data held and maintained by a 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.

(4) 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.

(5) 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.

(6) 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.

(7) 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.

(8) 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).

(9) 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; or

(iii) Any person employed by such swap data repository.

(10) 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.

(11) Registered Swap Data Repository. The term ``registered swap

data repository'' means a swap data repository that is registered under

Section 21 of the Act.

(12) 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 non-

swap dealers/non-major swap participant counterparties.

(13) SDR Information. The term ``SDR Information'' means any

information that the swap data repository receives or maintains.

(14) 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.

(15) 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.

(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 in a format and in the manner specified

by the Secretary of the Commission 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. In considering an

application for registration as a swap data repository, the staff of

the Commission shall include in its review, an applicant's past

relevant submissions and compliance history. At or prior to

[[Page 54577]]

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 fiscal year.

(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 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 and is able to

demonstrate operational capability, real-time processing, multiple

redundancy and robust security controls. 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) shall

terminate within such time as determined by the Commission. 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. Sec. 40.8 and 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 sixty 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

[[Page 54578]]

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 or 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 headquarters in Washington, DC in a

format and in the manner specified by the Secretary of the Commission,

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 in a registered swap data repository, the registered

swap data repository shall file with the Secretary of the Commission at

its headquarters in Washington, DC in a format and in the manner

specified by the Secretary of the Commission, 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 or 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 swap 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 swap data that was submitted;

(3) Maintain, as prescribed in Sec. 49.12, the swap data described

in part 45 of the

[[Page 54579]]

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 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, including business continuity and disaster recovery plans,

as prescribed in Sec. 49.23 and Sec. 49.24.

(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 and

part 43 of this chapter by designated contract markets, derivatives

clearing organizations, swap execution facilities, swap dealers, major

swap participants and/or non-swap dealer/non-major swap participant

counterparties.

(1) Electronic Connectivity. For the purpose of accepting all swap

data as required by part 45 and part 43, 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 certain other non-swap dealer/non-major swap

participant counterparties who report such data. The technological

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 swap 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, unless otherwise

prescribed by the Commission.

(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. The policies and

procedures must ensure that the swap data repository's user agreements

are designed to prevent any such invalidation or modification.

(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 part 45 that it receives from

reporting entities or certain third-party service providers acting on

their behalf, such as confirmation or matching service providers.

(b) A registered swap data repository shall confirm the accuracy of

all swap data that is submitted pursuant to part 45.

(1) Confirmation of data accuracy for swap creation data as defined

in part 45.

(i) A registered swap data repository has confirmed the accuracy of

swap creation data that was submitted directly by a counterparty if the

swap data repository has notified both counterparties of the data that

was submitted and received from both counterparties acknowledgement of

the accuracy of the swap data and corrections for any errors.

(ii) A registered swap data repository has confirmed the accuracy

of swap creation data that was submitted by a swap execution facility,

designated contract market, derivatives clearing organization, or

third-party service provider who is acting on behalf of a counterparty,

if the swap data repository has complied with each of the following:

(A) The swap data repository has formed a reasonable belief that

the swap data is accurate;

(B) The swap data that was submitted, or any accompanying

information, evidences that both counterparties agreed to the data; and

(C) The swap data repository has provided both counterparties with

a 48 hour correction period after which a counterparty is assumed to

have acknowledged the accuracy of the swap data.

(2) Confirmation of data accuracy for swap continuation data as

defined in part 45.

(i) A registered swap data repository has confirmed the accuracy of

the swap continuation data that was submitted directly by a

counterparty if the swap data repository has notified both

counterparties of the data that was submitted and provided both

counterparties with a 48 hour correction period after which a

counterparty is assumed to have acknowledged the accuracy of the data.

(ii) A registered swap data repository has confirmed the accuracy

of swap continuation data that was submitted by a swap execution

facility, designated contract market, derivatives clearing

organization, or third-party service provider who is acting on behalf

of a counterparty, if the swap data repository has complied with each

of the following:

(A) The swap data repository has formed a reasonable belief that

the swap data is accurate; and

(B) The swap data repository has provided both counterparties with

a 48 hour correction period after which a counterparty is assumed to

have acknowledged the accuracy of the swap data.

(c) A registered swap data repository shall keep a record of

corrected errors that is available upon request to the Commission.

[[Page 54580]]

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 part 45 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 and the United States Department of Justice. 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 shall comply with the real

time public reporting and recordkeeping requirements prescribed in

Sec. 49.15 and 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 perform 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 of 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, 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 ensuring the public dissemination of 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 in accordance with part 43 of this chapter.

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 swap 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.

(b) Swap data repositories shall not, as a condition of accepting

swap data from reporting entities, require the waiver of any privacy

rights by such reporting entities.

(c) Subject to Section 8 of the Act, swap data repositories may

disclose aggregated swap data on a voluntary basis or as requested, in

the form and manner, prescribed by the Commission.

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) Any Federal Reserve Bank;

[[Page 54581]]

(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 swap 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 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 employs appropriate confidentiality

procedures and to satisfy itself that the information will be disclosed

only as permitted by Section 8(e) 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, as 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 and also provides scheduled data

transfers to Commission electronic systems.

(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, services that provide automated

transfer of data to Commission systems, 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

substantially similar 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) General Procedure for Gaining Access to

Registered Swap Data Repository Data. Appropriate Domestic Regulators

and Appropriate Foreign Regulators seeking to gain access to the swap

data maintained by a swap data repository are required to apply for

access by filing a request for access with the registered swap data

repository and certifying that it is acting within the scope of its

jurisdiction.

(2) Appropriate Domestic Regulator with Regulatory Responsibility

over a Swap Data Repository. An Appropriate Domestic Regulator that has

regulatory jurisdiction over a swap data repository registered with it

pursuant to a separate statutory authority that is also registered with

the Commission pursuant to this chapter is not subject to this

paragraph (d) and Sec. 49.18(b) as long as the following conditions

are met:

(i) The Appropriate Domestic Regulator executes a memorandum of

understanding or similar information sharing arrangement with the

Commission; and

(ii) The Commission, consistent with Section 21(c)(4)(A) of the

Act, designates the Appropriate Domestic Regulator to receive direct

electronic access.

(3) Appropriate Foreign Regulator with Regulatory Responsibility

over a Swap Data Repository. An Appropriate Foreign Regulator that has

supervisory authority over a swap data repository registered with it

pursuant to foreign law and/or regulation that is also registered with

the Commission pursuant to this chapter is not otherwise subject to

this paragraph (d) and Sec. 49.18(b).

(4) Obligations of the Registered Swap Data Repository in

Connection with Appropriate Domestic Regulator or 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.

(5) Timing. Once the swap 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 swap data.

(6) 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 swap data access, the third-party service provider and

the

[[Page 54582]]

registered swap data repository shall execute a ``Confidentiality

Agreement'' setting forth minimum confidentiality procedures and

permissible uses of the information maintained by the swap data

repository that are equivalent to the privacy procedures for swap data

repositories outlined in Sec. 49.16.

(f) Access by Market Participants. (1) General. Access of swap data

maintained by the registered swap data repository to market

participants is generally prohibited.

(2) Exception. Data and information related to a particular swap

that is maintained by the registered swap data repository may be

accessed by either counterparty to that particular swap.

(g) Commercial Uses of Data Accepted and Maintained by the

Registered Swap Data Repository Prohibited. Swap data accepted and

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'' or controls to protect the reported

swap 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. (A) The swap dealer, counterparty or any other

registered entity that submits the swap data maintained by the

registered swap data repository may permit the commercial or business

use of that data by express written consent.

(B) Swap data repositories shall not as a condition of the

reporting of swap transaction data require a reporting party to consent

to the use of any reported data for commercial or business purposes.

(3) Swap data repositories responsible for the public dissemination

of real-time swap data shall not make commercial use of such data prior

to its public dissemination.

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 swap

data to certain domestic and foreign regulators.

(b) Confidentiality and Indemnification Agreement. Prior to the

registered swap data repository providing access to the swap 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.

(c) Certain Appropriate Domestic and Foreign Regulators with

Regulatory Responsibility over a Swap Data Repository. The requirements

set forth above in paragraph (b) shall not apply to certain Appropriate

Domestic and Foreign Regulators with regulatory responsibility over a

swap data repository as described in Sec. 49.17(d)(2) and (3). The

swap data repository and such Appropriate Domestic or Foreign Regulator

in each case is required to comply with Section 8 of the Act and any

other relevant statutory confidentiality provisions.

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 necessary

or 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) Financial Resources. Registered swap data repositories shall

maintain sufficient financial resources as set forth in Sec. 49.25;

(2) 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

(3) 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 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

[[Page 54583]]

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 swap data, and use of Section 8 Material,

other SDR Information, and intellectual property (as referenced in

Sec. 49.16 of this part). Such summaries of significant decisions

shall not require the registered swap data repository to disclose

Section 8 Material or, where appropriate, information that the swap

data repository received on a confidential basis from a reporting

entity.

(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 swap data repository 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 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, as applicable, 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 that of a board of directors.

[[Page 54584]]

(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 at the direction of the chief compliance officer.

(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 and shall be subject to the following requirements:

(i) No individual disqualified from registration pursuant to

Sections 8a(2) or 8a(3) of the Act may serve as a chief compliance

officer.

(ii) The chief compliance officer may not be a member of the swap

data repository's legal department or serve as its general counsel.

(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 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. (i)

Removal of a registered swap data repository's chief compliance officer

shall require the approval 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;

(ii) The swap data repository shall notify the Commission of such

removal within two business days; and

(iii) 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

including:

(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) Taking reasonable steps to ensure 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 and

sign 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 are designed to

ensure compliance with each subsection and 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; and

(6) A certification by the chief compliance officer that, to the

best of 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 a 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

[[Page 54585]]

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, concurrently with the filing of the

annual amendment to Form SDR that must be submitted to the Commission

pursuant to Sec. 49.3(a)(5) of this part.

(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)(67) 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.

(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 authority 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;

(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) of this section, 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

[[Page 54586]]

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) Registered 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 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 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 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 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 registered swap data repository shall

maintain sufficient financial resources to perform its

[[Page 54587]]

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 applicable to derivatives clearing organizations

under Sec. 39.11 of this chapter.

(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 registered

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 registered 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 registered 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 registered 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 swap 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 swap 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. (1) A registered 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 a 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.

(2) Consistent with the principles of open access set forth in

paragraph (a)(1) of this Regulation, a registered swap data repository

shall not tie or bundle the offering of mandated regulatory services

with other ancillary services that a swap data repository may provide

to market participants.

(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 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

[[Page 54588]]

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 registered 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

COMMODITY FUTURES TRADING COMMISSION

FORM SDR

SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR

REGISTRATION REGISTRATION INSTRUCTIONS

Intentional misstatements or omissions of material fact may constitute

federal criminal violations (7 U.S.C. Sec. 13 and 18 U.S.C. Sec.

1001) or grounds for disqualification from registration.

DEFINITIONS

Unless the context requires otherwise, all terms used in this Form

SDR 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 SDR, 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. 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. The

Commission may determine that additional information is required from

the Applicant in order to process its application. An Applicant is

therefore encouraged to supplement this Form SDR with any additional

information that may be significant to its operation as a swap data

repository and to the Commission's review of its application. A Form

SDR 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.

6. Except in cases where confidential treatment is requested by the

Applicant and granted by the Commission pursuant to the Freedom of

Information Act and Commission Regulation Sec. 145.9, 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. 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 Regulations Sec. 40.8, and Sec. 145.9.

UPDATING INFORMATION ON THE FORM SDR

1. Section 21 requires that if any information contained in Items 1

through 17, 23, 29, and Item 53 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 first page of Form SDR, the

signature page (Item 13), 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 the Applicant's fiscal year. Applicants must complete the

first page and provide updated information or exhibits.

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 and in the manner specified by the Secretary of the

Commission.

BILLING CODE 6351-01-P

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Issued in Washington, DC, on August 4, 2011, by the Commission.

David A. Stawick,

Secretary of the Commission.

Appendix To Swap Data Repositories: Registration Standards, Duties and

Core

Principles--Commission Voting Summary

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

Federal Regulations.

Appendix 1--Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Dunn, Chilton

and O'Malia voted in the affirmative; Commissioner Sommers voted in

the negative.

Appendix 2--Chairman Gary Gensler Statement

I support the final rulemaking to establish registration and

regulatory requirements for swap data repositories (SDRs). When this

rule is fully implemented, all swaps--whether cleared or uncleared--

will be reported to an SDR registered with the Commodity Futures

Trading Commission (CFTC). Registration will enable the Commission

and other regulators to monitor market participants for compliance

with the Dodd-Frank Wall Street Reform and Consumer Protection Act

as well as CFTC regulations. The rule implements congressional

direction that the Commission and other regulators have direct

access to the information maintained by SDRs. It requires SDRs to

verify the accuracy and completeness of all of the swaps data they

accept. It also contains provisions to permit SDRs to aggregate

certain information for regulators and the public. This rule will

enhance transparency in the swaps market and help reduce systemic

risk.

[FR Doc. 2011-20817 Filed 8-31-11; 8:45 am]

BILLING CODE 6351-01-C

Last Updated: September 1, 2011