2010-31133

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

[Proposed Rules]

[Page 80897-80945]

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

[DOCID:fr23de10-29]

[[Page 80897]]

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

Part II

Commodity Futures Trading Commission

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

17 CFR Part 49

Swap Data Repositories; Proposed Rule

[[Page 80898]]

-----------------------------------------------------------------------80898

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 49

RIN 3038-AD20

Swap Data Repositories

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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

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

``Commission'') is proposing rules to implement new statutory

provisions introduced by Title VII of the Dodd-Frank Wall Street Reform

and Consumer Protection Act (``Dodd-Frank Act''). Section 728 of the

Dodd-Frank Act amends the Commodity Exchange Act (``CEA'' or the

``Act'') by adding new Section 21, which establishes registration

requirements, statutory duties, core principles and certain compliance

obligations for registered swap data repositories (``SDRs'') and

directs the Commission to adopt rules governing persons that are

registered, as such, under this Section.

DATES: Comments must be received by February 22, 2011.

ADDRESSES: You may submit comments, identified by RIN 3038-AC20, by any

of the following methods:

Agency Web site, via its Comments Online process: http://

comments.cftc.gov. Follow the instructions for submitting comments

through the Web site.

Mail: David A. Stawick, Secretary of the Commission,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

Federal eRulemaking Portal: http://www.Regulations.gov.

Follow the instructions for submitting comments.

Please submit your comments using only one method.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that may be exempt from disclosure under the Freedom of

Information Act (``FOIA''),\1\ a petition for confidential treatment of

the exempt information may be submitted according to the established

procedures in Sec. 145.9 of the Commission's regulations.\2\ The

Commission reserves the right, but shall have no obligation, to review,

pre-screen, filter, redact, refuse or remove any or all of your

submission from http://www.cftc.gov that it may deem to be

inappropriate for publication, such as obscene language. All

submissions that have been redacted or removed that contain comments on

the merits of the rulemaking will be retained in the public comment

file and will be considered as required under the Administrative

Procedure Act and other applicable laws, and may be accessible under

FOIA.

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

\1\ 5 U.S.C. 552.

\2\ 17 CFR 145.9.

FOR FURTHER INFORMATION CONTACT: Jeffrey P. Burns, Assistant General

Counsel, Office of the General Counsel, at (202) 418-5101,

[email protected]; Susan Nathan, Senior Special Counsel, Division of

Market Oversight, at (202) 418-5133, [email protected] and Adedayo

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

[email protected], Commodity Futures Trading Commission, Washington, DC

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

20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

II. The Proposed Regulations: Part 49

A. Requirements of Registration

B. Duties of Registered SDRs

1. Acceptance of Data

2. Confirmation of Data Accuracy

3. Recordkeeping Requirements

4. Direct Electronic Access by the Commission

5. Monitoring, Screening and Analyzing Swap Data

6. Maintenance of Data Privacy

7. Access to SDR Data

8. Emergency Procedures

C. Designation of Chief Compliance Officer

D. Core Principles Applicable to SDRs

1. Antitrust Considerations (Core Principle 1)

2. Introduction--Governance Arrangements (Core Principle 2) and

Conflicts of Interest (Core Principle 3)

3. Governance Arrangements (Core Principle 2)

4. Conflicts of Interest (Core Principle 3)

E. Additional Duties

1. System Safeguards

2. Financial Resources

3. Disclosure Requirements of Swap Data Repositories

4. Non-Discriminatory Access and Fees

F. Real Time Reporting

G. Procedures for Implementing Swap Data Repository Rules

III. Effectiveness and Transition Period

IV. General Request for Comments

V. Related Matters

A. Paperwork Reduction Act

B. Cost-Benefit Analysis

C. Antitrust Considerations

D. Regulatory Flexibility Act

VI. List of Subjects

I. Background

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

Act.\3\ Title VII of the Dodd-Frank Act \4\ amended the CEA \5\ to

establish a comprehensive new regulatory framework for swaps and

security-based swaps. The legislation was enacted to reduce risk,

increase transparency, and promote market integrity within the

financial system by, among other things: (1) Providing for the

registration and comprehensive regulation of swap dealers (``SDs'') and

major swap participants (``MSPs''); (2) imposing clearing and trade

execution requirements on standardized derivative products; (3)

creating robust recordkeeping and real-time reporting regimes; and (4)

enhancing the Commission's rulemaking and enforcement authorities with

respect to, among others, all registered entities and intermediaries

subject to the Commission's oversight.

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

\3\ See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Public Law 111-203, 124 Stat. 1376 (2010), available at http://

www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.

\4\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

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

2010.''

\5\ 7 U.S.C. 1, et seq.

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

To enhance transparency, promote standardization and reduce

systemic risk, Section 728 of the Dodd-Frank Act establishes a newly-

created registered entity--the SDR \6\--to collect and maintain data

and information related to swap transactions as prescribed by the

[[Page 80899]]

Commission \7\ and to make such data and information directly and

electronically available to regulators. Section 2(a)(13)(G) of the CEA,

adopted by Section 727 of the Dodd-Frank Act, requires all swaps--

cleared or uncleared--to be reported to an SDR. Section 728 of the

Dodd-Frank Act added to the CEA new Section 21 governing registration

and regulation of SDRs, and directed the Commission to adopt

regulations governing SDR duties and responsibilities specified in the

legislation. Section 21 requires that SDRs be registered with the

Commission,\8\ allows a derivatives clearing organization (``DCO'') to

register as an SDR, and specifies that persons required to be

registered as SDRs must register with the Commission whether or not

they are also licensed as a bank or registered as a security-based swap

data repository with the Securities and Exchange Commission

(``SEC'').\9\ To register with the Commission and maintain

registration, SDRs are required to comply with the duties and core

principles set forth in Section 21 of the CEA as well as other

requirements that the Commission may prescribed by rule.\10\

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

\6\ Section 721 of the Dodd-Frank Act amends Section 1a of the

CEA to add the definition of SDR. Section 1a provides that the term

``swap data repository means any person that collects and maintains

information or records with respect to transactions or positions in,

or the terms and conditions of, swaps entered into by third parties

for the purpose of providing a centralized recordkeeping facility

for swaps.'' 7 U.S.C. 1a(48). Currently there are global trade

repositories for credit, interest rate, and equity swaps. Since

2009, all G-14 dealers have submitted credit swap data to the

Depository Trust & Clearing Corporation's (``DTCC'') Trade

Information Warehouse. In January 2010, TriOptima launched the

Global OTC Derivatives Interest Rate Trade Reporting Repository

after selection by the Rates Steering Committee of the International

Swaps and Derivatives Association to provide a trade repository to

collect information on trades in interest rate swaps. In August

2010, DTCC also launched the Equity Derivatives Reporting Repository

for equity swaps and other equity derivatives. Other entities may

also perform trade repository functions on a regional or more

localized basis. In addition, a variety of firms also provide

ancillary services and functions essential to the efficient

operation of trade reporting of swaps. Trade repositories for other

asset classes such as commodities and foreign currency have yet to

be formally established but are expected to be developed in the near

future in connection with the effective date of the Dodd-Frank Act.

\7\ Regulations governing the SDRs' data collection and

recordkeeping responsibilities are the subject of a separate

proposed rulemaking under part 45 of the Commission's regulations.

See 17 CFR part 45.

\8\ The Dodd-Frank Act mandates that the Commission promulgate

rules to implement these provisions by July 15, 2011. See Section

712 of the Dodd-Frank Act.

\9\ If a DCO so registers, then to the extent that final rules

on governance and conflicts of interest, discussed infra Section

II.D.2, differ between a DCO and an SDR, the DCO must meet the more

stringent set of rules.

\10\ Section 21(f)(4)(A) of the CEA, added by the Dodd-Frank

Act, authorizes the Commission to develop one or more additional

duties applicable to SDRs. 7 U.S.C. 24a(f)(4).

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

Pursuant to the specific duties outlined in Section 21(c) of the

CEA, SDRs must (1) accept data; (2) confirm with both counterparties to

the swap the accuracy of the data that was submitted; (3) maintain data

according to standards prescribed by the Commission; (4) provide direct

electronic access to the Commission or any designee of the Commission;

(5) provide public reporting of swap data in the form and frequency as

the Commission may require; (6) establish automated systems for

monitoring and analyzing data (including the use of end-user clearing

exemptions) at the direction of the Commission; (7) maintain user

privacy; (8) on a confidential basis, pursuant to Section 8 of the

CEA,\11\ upon request and after notifying the Commission, make data

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

emergency procedures. As a separate matter, prior to sharing

information with specified entities, the SDR must, pursuant to Section

21(d) of the CEA, receive a written agreement from each such entity

stating that it will abide by the confidentiality provisions of Section

8 of the CEA and agree to indemnify the SDR and the Commission for any

litigation expenses relating to information provided under Section 8.

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

\11\ Section 8 of the CEA, 7 U.S.C. 12(e), establishes among

other things the conditions under which the Commission may furnish

information obtained in connection with the administration of the

CEA to any department or agency of the United States; such

information shall not be disclosed by such department or agency

except in any action or proceeding under the laws of the United

States to which it, the Commission or the United States is a party.

Similarly, the Commission may furnish such information to a foreign

futures authority if the Commission is satisfied that the

information will not be disclosed by such foreign futures authority

except in connection with an adjudicatory action or proceeding

brought under the laws of such foreign government or political

subdivision, or foreign futures authority, is a party.

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

Section 21(e) of the CEA requires that each SDR have a chief

compliance officer (``CCO'') and specifies the duties of the CCO.

Section 21(f) of the CEA establishes four core principles for SDRs.

First, an SDR is prohibited from adopting any rule or taking any action

that results in any unreasonable restraint of trade or imposing any

material anticompetitive burden on the trading, clearing or reporting

of transactions. Second, each SDR must establish governance

arrangements that are transparent to fulfill the public interest

requirements and to support the objectives of the federal government,

owners and participants. Third, each SDR must establish and enforce

rules to minimize conflicts of interest in the SDR's decision-making

processes and establish a process for resolving conflicts of interest.

Lastly, a fourth core principle provides that the Commission must

establish additional duties for registered SDRs to minimize conflicts

of interest, protect data, ensure compliance and guarantee the safety

and security of the SDR and may develop additional duties taking into

account evolving standards of the United States and the international

community.\12\

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

\12\ See Section 21(f)(4) of the CEA, 7 U.S.C. 24a(f)(4).

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

The Commission notes that in May 2010, a working group jointly

established by the Committee on Payment and Settlement Systems

(``CPPS'') of the Bank of International Settlements (``BIS'') and the

Technical Committee of the International Organization of Securities

Commissions (``IOSCO'') published a consultative report entitled

``Considerations for Trade Repositories in the OTC Derivatives

Markets''(``Working Group Report'').\13\ The Working Group Report

presents a set of factors to consider in connection with the design,

operation and regulation of SDRs. A significant consideration of the

Working Group Report is access to SDR data by appropriate regulators.

As noted in this Working Group Report, a trade repository ``should

support market transparency by making data available to relevant

authorities and the public in line with their respective information

needs.'' \14\ The Commission believes that the Dodd-Frank Act and

proposed part 49 of the Commission's Regulations are consistent with

the goals of the Working Group Report. Unless inconsistent with the

statutory framework set forth in Section 21 of the CEA and related

provisions, the Commission proposes that SDRs will largely follow the

recommendations in the Working Group Report to enhance transparency,

promote standardization and reduce systemic risk in the swaps market.

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

\13\ See CPSS-IOSCO Consultative Report, Considerations for

Trade Repositories in the OTC Derivatives (May 2010), available at

http://www.bis.org/publ/cpss90.pdf.

\14\ Id.

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

Additionally, Section 752(a) of the Dodd-Frank Act directs the

Commission to consult and coordinate with foreign regulatory

authorities regarding the establishment of consistent international

standards for the regulation of swaps and various ``swap entities.''

\15\ Consistent with this directive, the Commission believes that the

data maintained by SDRs must be available to all appropriate foreign

regulators consistent with their regulatory responsibilities and the

Dodd-Frank Act. Accordingly, in support of its cooperative

international approach to the regulation of SDRs, the Commission has

consulted with various foreign regulatory authorities in promulgating

the proposed rules.

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

\15\ The Dodd-Frank Act provides:

In order to promote effective and consistent global regulation

of swaps and security-based swaps, the Commodity Futures Trading

Commission, the Securities and Exchange Commission, and the

prudential regulators (as that term is defined in Section 1a(39) of

the Commodity Exchange Act), as appropriate, shall consult and

coordinate with foreign regulatory authorities on the establishment

of consistent international standards with respect to the regulation

(including fees) of swaps, security-based swaps, swap entities, and

security-based swap entities and may agree to such information-

sharing arrangements as may be deemed to be necessary or appropriate

in the public interest or for the protection of investors, swap

counterparties, and security-based swap counterparties.

Section 752(a) of the Dodd-Frank Act.

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

The Commission also notes the recent issuance by the European

Commission

[[Page 80900]]

of its regulatory proposal related to OTC derivatives, central

counterparties and trade depositories.\16\ It is the Commission's

intention to harmonize its approach with that of the European

Commission to the extent possible consistent with the statutory

provisions of Dodd-Frank Act relating to SDRs.

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

\16\ See Proposal for a Regulation of the European Parliament

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

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

(2010) 484/5.

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

The Commission submits further that Section 21 of the CEA does not

provide the Commission with the authority to exempt any entity

performing the functions of an SDR from the registration requirements

or any other regulatory duties established by the Dodd-Frank Act.

However, swap activity that is strictly of a ``non-U.S.'' nature would

be excluded from Commission registration and regulation. Specifically,

Section 2(i) of the CEA, as amended by Section 722 of the Dodd-Frank

Act, excludes from U.S. jurisdiction all swap activity that does not

have a ``direct and significant connection with activities in, or

effect on, commerce of the United States'', or which contravene

regulations necessary to prevent evasion.\17\

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

\17\ Section 2(i) of the CEA, as amended by Section 722(d) of

the Dodd-Frank Act, provides:

(i) APPLICABILITY.--The provisions of this Act relating to swaps

that were enacted by the Wall Street Transparency and Accountability

Act of 2010 (including any rule prescribed or regulation promulgated

under that Act), shall not apply to activities outside the United

States unless those activities--

(1) have a direct and significant connection with activities in,

or effect on, commerce of the United States; or

(2) contravene such rules or regulations as the Commission may

prescribe or promulgate as are necessary or appropriate to prevent

the evasion of any provision of this Act that was enacted by the

Wall Street Transparency and Accountability Act of 2010.

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

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

II. The Proposed Regulations: Part 49

As discussed above, part 49 will contain the provisions that apply

to registration and regulation of SDRs. Proposed Sec. 49.3 will

establish the procedures and substantive requirements for registration

as an SDR. Compliance with the statutory duties described in Section

21(c) of the CEA is described in proposed Sec. 49.9 and detailed in

proposed Sec. Sec. 49.10 through 49.18. Core principles applicable to

SDRs as outlined in Section 21(f) are set forth in proposed Sec. Sec.

49.19 through 49.22. The additional duties promulgated pursuant to

Section 21(f)(4) of the CEA (Core Principle 4) are set forth in

proposed Sec. Sec. 49.23 through 49.27.

A. Requirements of Registration

Proposed Sec. Sec. 49.3-49.4 and 49.6-49.7 provide the substantive

requirements and framework for SDR registration. The Proposed

Regulations include provisions relating to: (1) Procedures for

registration; (2) provisional registration; (3) an annual filing

requirement; (4) withdrawal of application for registration; (5)

reinstatement of dormant registration; (6) withdrawal of registration;

(7) registration of successor entities; and (8) SDRs located in foreign

jurisdictions. Each of the proposed Regulations is discussed below in

turn.

1. Procedures for Registration--Proposed Sec. 49.3

To implement the requirements of Section 21(a) of the CEA, as

amended by Section 728 of the Dodd-Frank Act, and to ensure the

Commission's ability to administer part 49 of the Commission's

Regulations generally, the Commission proposes in Sec. 49.3 to

establish application and approval procedures for any entity seeking

registration as a SDR. The Commission, in connection with proposed

Sec. 49.3, is proposing to require each SDR applicant to file for

registration on proposed Form SDR.

(a) Proposed Form SDR. Proposed Sec. 49.3(a) provides that

applications for registration as an SDR must be filed electronically

with the Commission on new Form SDR. Proposed Form SDR will be used for

an initial or provisional registration as an SDR as well as any updates

or amendments to registration. Each applicant will be required to

provide the Commission with documents and descriptions pertaining to

the (i) business organization, (ii) financial resources, (iii)

technological capabilities and (iv) accessibility of services of the

SDR.

SDR applicants will be required to provide documents describing the

applicant's legal status, including a copy of the constitution,

articles of incorporation or association with all amendments, existing

by-laws, rules or instruments corresponding with, and a description of

the organizational and governance structure. SDRs must also submit

copies of any applicable rules and regulations (as defined in revised

Sec. 40.1),\18\ disclose any affiliates along with a brief description

of the nature of the affiliation, and submit copies of any agreements

between the SDR and third parties that will assist the SDR in complying

with the duties set forth in Section 21(c) and the core principles

specified in Section 21(f). If the applicant is a foreign entity, the

entity is required to certify and provide an opinion of counsel that

the SDR, as a matter of law, is able to provide the Commission with

prompt access to the books and records of the SDR and that the SDR can

submit to onsite inspection and examination by the Commission.

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

\18\ See Commission, Notice of Proposed Rulemaking: Revisions to

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

(Nov. 2, 2010).

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

Financial information filed as part of Form SDR would include (i) a

balance sheet, (ii) statement of income and expenses, (iii) statement

of sources and application of revenues and (iv) all notes or schedules,

as of the most recent fiscal year. A balance sheet and an income and

expense statement for each affiliate, as of the end of the most recent

fiscal year, will also be required for those affiliates of the SDR that

provide SDR regulatory services. If the applicant is a newly-created

entity without sufficient time in operation, the applicant should

provide pro forma financial statements for the most recent six months,

or since inception of the entity, whichever occurs first. Except for

pro forma financial statements prepared for newly-created entities,

financial statements shall be prepared in conformity with generally

accepted accounting principles (``GAAP'') applied on a basis consistent

with that of the preceding financial statement.

Applicants will be required to demonstrate operational capability

through documentation such as technical manuals and/or third party

service provider agreements that will be employed to provide services

to the SDR. Applicants will also be required to set forth practices and

procedures for accepting swap data and providing services to market

participants. As required by proposed Sec. 49.27, access must be fair,

open and non-discriminatory.

(b) 180-Day Review Procedures. An entity that seeks to register as

a SDR is required to electronically file Form SDR with the Commission

in accordance with the instructions contained in Form SDR. The

Commission will review Form SDR and, at or prior to the conclusion of a

180-day period, by order either (i) grant registration; (ii) extend the

180-day review period for good cause; or (ii) deny the application for

registration. If deemed appropriate, the Commission may grant

registration as a SDR subject to conditions. The 180-day review period

will commence once a completed submission on Form SDR is submitted to

the Commission, as determined solely in the discretion of the

Commission. If the Commission denies an application for registration,

it will specify the grounds for such denial. In the event the

Commission denies an applicant

[[Page 80901]]

registration, such person may request an opportunity for a hearing

before the Commission.

(c) Standard for Approval. The Commission, in reviewing

applications for SDR registration, will review whether SDR applicants

are properly organized and have the capacity to assure the prompt,

accurate and reliable performance of the SDR duties in Section 21(c),

core principles in Section 21(f) and additional duties of Section

21(f)(4). Subject to the ability of the Commission to extend the 180-

day period as noted above, the Commission would deny registration if it

appears at the end of the 180-day period that the application (i) is

materially incomplete; \19\ (ii) fails in form or substance to meet the

requirements of Section 21 of the CEA and proposed part 49 of the

Commission's Regulations; \20\ and/or (iii) is amended or supplemented

in a manner that is inconsistent with proposed Sec. 49.3. The

Commission, in each instance of the denial of an application for

registration, will provide notification setting forth the deficiencies

in the application, or the manner in which the application fails to

meet the requirements of proposed part 49 of the Commission's

Regulations.\21\

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

\19\ An SDR applicant that is denied registration based on an

incomplete application would be permitted to re-file an application

with the Commission.

\20\ The Commission would deny the registration of a SDR

applicant that is unable to demonstrate compliance with the

statutory duties set forth in Section 21(c) of the CEA, 7 U.S.C.

24a(c) and proposed Sec. 49.9 as well as the core principles set

forth in Section 21(f) of the CEA, 7 U.S.C. 24a(f), and proposed

Sec. 49.19.

\21\ This provision is comparable to the designated contract

market (``DCM'') and DCO applications set forth in Section 6 of the

CEA, 7 U.S.C. 8.

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

(d) Amendments and Annual Filing. Proposed Sec. 49.3(a)(3)

provides that if any information reported on Form SDR or any subsequent

amendment becomes inaccurate, the SDR is required to promptly file an

amendment on Form SDR updating such information. This requirement is

applicable regardless of whether the information becomes inaccurate

before or after an application for registration has been granted.

Proposed Sec. 49.3(a)(3) also requires that each registered SDR

annually file an amendment on Form SDR within 60 days after the end of

each calendar year.

(e) Service of Process. The Commission is proposing in proposed

Sec. 49.3(a)(5) to require each SDR to designate and authorize on Form

SDR an agent in the United States, other than a Commission official, to

accept any notice or service of process, pleadings, or other documents

in any action or proceedings against the SDR to enforce the CEA and

related Regulations. If an SDR appoints another agent to accept such

notice or service of process, then the SDR would be required to file

promptly an amendment on Form SDR updating this information.\22\

Proposed Sec. 49.3(a)(5) is intended to conserve the Commission's

resources and to minimize any logistical obstacles (e.g., locating

defendants or respondents abroad) that the Commission may encounter

when attempting to effect service.

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

\22\ See proposed Sec. 49.3(a)(5).

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

(f) Provisional Registration. Proposed Sec. 49.3(b) permits the

Commission, upon the request of an applicant, to grant a provisional

registration of an SDR, if such applicant is in substantial compliance

with the standards set forth in proposed Sec. 49.3(a)(4). This

application for provisional registration would be filed on proposed

Form SDR. Such provisional registration will expire on the earlier of:

(i) The date that the Commission grants or denies registration of the

SDR; or (ii) the date that the Commission rescinds the provisional

registration of the SDR. The Commission may rescind such provisional

registration on the same grounds as those set forth in proposed Sec.

49.3(a)(3).

The proposed provisional registration would enable an SDR to comply

with the Dodd-Frank Act upon its effective date (i.e., the later of 360

days after the date of its enactment or 60 days after publication of

the final rule implementing Section 21 of the CEA). The provisional

registration would also allow the Commission to implement the

registration requirements of the Dodd-Frank Act for SDRs while

providing the Commission sufficient time to fully review the

application of an SDR. An SDR that is provisionally registered with the

Commission would be subject to Section 21 of the CEA and related

regulations during the period in which the Commission is reviewing the

SDR's application of registration.

The Commission believes that the provisional registration should

not be a permanent provision of part 49. Accordingly, proposed Sec.

49.3(b) includes a ``sunset'' provision so that provisional

registration would terminate 365 days from the effective date of

proposed Sec. 49.3(b).

Notwithstanding the availability of a provisional registration, the

Commission encourages each SDR to apply for registration as soon as

possible following the Commission's adoption of final part 49, to

permit sufficient time for an SDR to answer any questions that the

Commission staff may have and to provide additional information or

documentation, if necessary. The Commission will review applications in

the order in which they are received. Applications seeking provisional

registration that are received close to the effective date of the SDR

registration requirement may not be reviewed and approved by the

effective date.

(g) Withdrawal of Application for Registration. Proposed Sec.

49.3(c) permits an applicant for registration as an SDR to withdraw its

application by filing a request with the Commission. Such a voluntary

withdrawal by the applicant SDR will not affect any action taken or to

be taken by the Commission based upon conduct occurring during the time

that the application for registration was pending with the Commission.

(h) Reinstatement of Dormant Registration. Proposed Sec. 49.3(d)

provides that the Commission must affirmatively re-instate the

registration of a dormant SDR (as defined in revised Sec. 40.1 of the

Commission's Regulations) \23\ prior to such dormant SDR accepting or

re-accepting swap data.

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

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

18.

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

(i) Delegation of Authority. Proposed Sec. 49.3(e) delegates

authority to the Director of the Division of Market Oversight (or

designee) with the consultation of the General Counsel of the

Commission (or designee) for certain matters relating to the

sufficiency of the application on Form SDR filed with the Commission.

In particular, the Commission in this proposed Regulation delegates to

the Director of the Division of Market Oversight or designee, with the

consultation of the General Counsel or designee, the authority to

notify an applicant for registration as an SDR under Section 21 of the

CEA that such application for registration is materially incomplete and

that the running of the 180-day period is stayed. This delegation of

authority does not prohibit the Commission from otherwise exercising

its authority that would be delegated under this proposed Regulation.

The Director of the Division of Market Oversight may also submit to the

Commission for its consideration any matter which has been delegated

under this proposed Regulation.

2. Withdrawal From Registration--Proposed Sec. 49.4

Consistent with Section 7 of the CEA, proposed Sec. 49.4 permits a

registered SDR to withdraw from registration by filing a notice of

withdrawal with the Commission at least 90 days prior to the

[[Page 80902]]

named withdrawal date. As part of its notice of withdrawal, the SDR is

required to: (1) Designate another SDR to serve as the custodian of the

withdrawing SDR's books and records; (2) specify the location of the

data and records; and (3) provide an opinion of counsel that the SDR is

authorized to make such data and records available. Prior to the filing

of a notice of withdrawal, a SDR must file an amended Form SDR to

update any inaccurate information.

The withdrawal of a SDR's registration will be effective on the

60th day after receipt by the Commission of the notice of withdrawal,

unless the Commission determines to extend or curtail the effectiveness

of an SDR's registration by order, deemed necessary or appropriate and

in the public interest.

Proposed Sec. 49.4(c) provides that after an opportunity for

hearing, the Commission may revoke the registration of a registered SDR

if the Commission finds that any registered SDR has obtained its

registration by making any false and misleading material statements or

has violated or failed to comply with any provision of the CEA and

Commission Regulations. Pending final determination of whether the

registration of an SDR should be revoked, the Commission may suspend

the registration of the SDR if it appears to the Commission, after

notice and opportunity for hearing, to be necessary or appropriate in

the public interest.

3. Equity Interest Transfer Notification--Proposed Sec. 49.5

Proposed Sec. 49.5 would require SDRs to file with the Commission

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

later than the business day, as defined in revised Sec. 40.1,\24\

following the date on which the SDR enters into a firm obligation to

transfer the equity interest.\25\ The notification must include and be

accompanied by: (i) Any relevant agreement(s), including preliminary

agreements; (ii) any associated changes to relevant corporate

documents; (iii) a chart outlining any new ownership or corporate or

organizational structure; (iv) a brief description of the purpose and

any impact of the equity interest transfer; and (v) a representation

from the registered SDR that it meets all of the requirements of

Section 21 of the CEA and Commission regulations adopted thereunder.

The SDR would also be required to amend any information that is no

longer accurate on Form SDR consistent with the procedures set forth in

proposed Sec. 49.3.

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

\24\ See Provisions Common to Registered Entities, supra note

18.

\25\ The Commission is proposing a 10 percent threshold because

it believes that a change in ownership of such magnitude may have an

impact on the operations of the SDR. The Commission believes that

such impact may be present even if the change in ownership does not

constitute a change in control. Given the potential impact that a

change in ownership might have on the operations of a SDR, the

Commission believes that it is appropriate to require such SDR to

certify after such change that it continues to comply with all

obligations under the CEA and Commission regulations.

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

The proposed Regulation requires that the registered SDR keep the

Commission informed of the projected date that the transaction

resulting in the equity interest transfer will be consummated, and

provide to the Commission any new agreements or modifications to the

original agreement(s) filed pursuant to this proposed Regulation. The

registered SDR is required to notify the Commission of the consummation

of the transaction on the business day in which it occurs. The proposed

Regulation will enable Commission staff to consider whether any

conditions contained in an equity transfer agreement(s) are

inconsistent with the duties, responsibilities and core principles of a

SDR.

Proposed Sec. 49.5(c) would require the SDR upon a 10% or greater

change in ownership to certify, within two business days following the

date on which the change in ownership occurs, that such SDR meets all

of the requirements of Section 21 of the CEA and proposed Regulations

under Part 49 of the Commission's regulations. The proposed Regulation

also requires that the SDR include as part of its certification whether

any aspects of the SDR's operations will change as a result of the

change in ownership, and if so, the SDR must provide a description of

the changes. Proposed Sec. 49.5(c) also provides that the

certification may rely on, and be supported by, prior materials and

information submitted as part of an application for registration or new

filings if necessary to update its previous filings.

The Commission notes that there may be differences in notification

procedures for transfers or changes in equity ownership of registered

entities proposed by the Commission.

Request for Comment. The Commission requests comment regarding the

proposed notification procedures as follows:

Should there be uniformity or differentiation in

procedures applied to different registered entities?

4. Registration of Successor Entities--Proposed Sec. 49.6

Proposed Sec. 49.6(a) sets forth the process of registering

successor entities of an SDR as the result of corporate change of

control or other similar events. Specifically, the proposed Regulation

provides that in the event of a corporate reorganization, merger,

acquisition, bankruptcy or other similar corporate event that creates a

new entity, the SDR is required to request a transfer of its

registration, rules, and other matters, within 30 days of the

succession. The registration of the predecessor SDR entity will be

deemed to remain effective as the registration of the successor if the

successor, within 30 days after such succession, files an application

for registration on Form SDR, and the predecessor files a request for

withdrawal of registration. The proposed Regulation would further

provide that the registration of the predecessor SDR shall cease to be

effective 90 days after the application for registration on Form SDR is

filed by the successor SDR.\26\ In other words, the 90-day period would

not begin to run until a complete Form SDR has been filed by the

successor with the Commission.

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

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

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

The following are examples of the types of successions that would

be required to be completed by filing an application: (1) An

acquisition, through which an unregistered entity purchases or assumes

substantially all of the assets and liabilities of the SDR and then

operates the business of the SDR, (2) a consolidation of two or more

registered entities, resulting in their conducting business through a

new unregistered entity, which assumes substantially all of the assets

and liabilities of the predecessor entities, and (3) dual successions,

through which one registered entity subdivides its business into two or

more new unregistered entities.

Proposed Sec. 49.6(b) sets forth the process of registering

successor entities of an SDR as the result of a change in the

predecessor SDR's date or state of incorporation, form of organization,

or composition of a partnership. In these cases, the successor SDR,

within 30 days after the succession, must amend the registration of the

predecessor SDR on Form SDR to reflect the changes. Such amendment

would be deemed an application for registration filed by the

predecessor and adopted by the successor. In all three types of

successions, the predecessor must cease operating as an SDR. The

Commission

[[Page 80903]]

preliminarily believes that it is appropriate to allow a successor to

file an amendment to the predecessor's Form SDR in these types of

successions because such successions do not typically result in a

change of control of the SDR. The purpose of proposed Sec. 49.6 is to

enable a successor SDR to operate without an interruption of business

by relying for a limited period of time on the registration of the

predecessor SDR until the successor's own registration becomes

effective. The proposed Regulation is intended to facilitate the

legitimate transfer of business between two or more SDRs and to be used

only where there is a direct and substantial business nexus between the

predecessor and the successor SDR. The proposed Regulation would not

allow a registered SDR to sell its registration, eliminate substantial

liabilities, spin off personnel, or facilitate the transfer of the

registration of a ``shell'' organization that does not conduct any

business. No entity would be permitted to rely on proposed Sec. 49.6

unless it is acquiring or assuming substantially all of the assets and

liabilities of the predecessor's SDR business.

Proposed Sec. 49.6 would not apply to reorganizations that involve

only registered SDRs. In those situations, the registered SDRs can

continue to rely on their existing registrations. The proposed rule

would also not apply to situations in which the predecessor intends to

continue to engage in SDR activities. Otherwise, confusion may result

as to the identities and registration statuses of the parties.

5. Swap Data Repositories Located in Foreign Jurisdictions--Proposed

Sec. 49.7

Proposed Sec. 49.7 relates to those SDR applicants that are

located outside of the United States. This proposed Regulation is

intended to enable the Commission to obtain necessary swap data and

related books and records maintained by a SDR located outside of the

United States. Proposed Sec. 49.7 would require each SDR located

outside of the United States to provide an opinion of counsel that the

SDR can, as a matter of law, provide the Commission with prompt access

to its books and records and submit to onsite inspection and

examination by the Commission. The Commission notes that each

jurisdiction may have a different legal framework that may limit or

restrict the Commission's ability to receive information from an SDR.

An opinion of counsel regarding prompt access to books and records and

onsite inspection and examination will allow the Commission to better

evaluate an SDR's capability to meet the requirements of registration

and ongoing supervision. Failure to provide an opinion of counsel may

be a basis for the Commission to deny an application for registration.

Request for Comment. The Commission requests comment on the

questions set forth below regarding registration.

(1) Are the instructions in proposed Form SDR clear? If not,

identify any instructions that should be clarified and, if possible,

offer alternatives.

(2) Would any of the requested information on proposed Form SDR be

burdensome for an SDR to supply? If so, explain.

(3) Should the Commission require any additional information on

proposed Form SDR? If so, what information and why?

(4) Are there any items on proposed Form SDR that the Commission

should not request? If so, which items and why?

(5) Is the Commission's proposed registration process appropriate

and sufficiently clear? If not, why not and what would be a better

alternative?

(6) If a SDR located outside of the United States is registered,

should the registration process for the foreign SDR be any different

than the Commission's proposed registration process?

(7) Are there any factors that the Commission should take into

consideration to ensure that a SDR located outside the United States

seeking to register as an SDR can, in compliance with applicable

foreign laws, provide the Commission with access to the SDR's books and

records that are required pursuant to proposed Sec. 49.7 and can

submit to onsite inspection and examination by the Commission?

(8) Should the Commission consider any other factors relating to a

SDR located outside of the United States with respect to the

Commission's registration rules or in general?

(9) Is the Commission's proposed rule regarding provisional

registration appropriate? If not, why not?

(10) What conditions should apply to the granting of a provisional

registration? What criteria should the Commission consider for

approving provisional registration applications?

(11) Are the timeframes in the proposed registration process

appropriate? If not, why not and what would be more appropriate

timeframes?

(12) Are the proposed factors in determining whether the Commission

should grant or deny an application for registration appropriate and

sufficiently clear? If not, why not? Should the Commission take into

consideration any other factors in determining whether to grant or deny

an SDR's application for registration?

B. Duties of Registered SDRs

Section 21(c) of the CEA sets forth the minimum duties that a SDR

is required to perform to become registered and to maintain

registration. These statutory duties require that SDRs (i) accept swap

data as prescribed by the Commission; (ii) confirm with both

counterparties to a swap the accuracy of the data; (iii) maintain the

data submitted; (iv) provide the Commission or its designee with direct

electronic access to the swap data; (v) provide the necessary

information as prescribed by the Commission to comply with the public

reporting requirements set forth in Section 2(a)(13) of the CEA; (vi)

establish automated systems for monitoring, screening, and analyzing

swap data; (vii) maintain the privacy or confidentiality of any and all

swap data that the SDR receives; (viii) provide access to the swap data

to certain ``appropriate'' domestic and foreign regulators; and (ix)

adopt and implement emergency procedures. In addition, the Commission

pursuant to its authority under Sections 21(f)(4) and 8a(5) \27\ of the

CEA also proposes to add by regulation four additional duties which

would require that registered SDRs (i) adopt and implement system

safeguards, including business continuity and disaster recovery (``BC-

DR'') plans; (ii) maintain sufficient financial resources; (iii)

furnish market participant with a disclosure document setting forth the

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

provide fair and open access and fees and charges that are equitable

and non-discriminatory.

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

\27\ Section 8a(5) of the CEA, 7 U.S.C. 12a(5), authorizes the

Commission to promulgate such rules and regulations as, in the

judgment of the Commission, are reasonably necessary to effectuate

any of the provisions or accomplish any of the purposes of the CEA.

In connection with SDRs, Section 21(a)(3)(A)(ii), 7 U.S.C.

24a(a)(3)(A)(ii) specifically requires that a SDR to be registered

and maintain its registration must comply with any requirement that

the Commission may impose by rule or regulation pursuant to Section

8a(5) of the CEA.

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

The following subsections describe in detail the Regulations

proposed by the Commission to implement SDR statutory duties set forth

in Section 21(c) of the CEA.

1. Acceptance of Data--Section 21(c)(1) of the CEA

The Commission in a companion release \28\ is proposing in new part

45 to

[[Page 80904]]

the Commission's Regulations the data elements that must be reported

and applicable to DCMs, DCOs, swap execution facilities (``SEFs''),

foreign boards of trade (``FBOTs''),\29\ SDs, MSPs and/or end-users in

connection with the reporting of such swap data to SDRs.\30\ These data

elements and standards would include the reporting of continuation data

throughout the life of the swap.\31\ In addition, the Data NPRM

provides specific requirements for SDRs relating to (i) determining

which counterparty must report to the SDR; \32\ (ii) third party

facilitation of swap data reporting; \33\ (iii) reporting to a single

SDR in connection with the reporting of swap data; \34\ (iv) required

data standards; and (v) the reporting of errors and omissions.

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

\28\ See Commission, Notice of Proposed Rulemaking: Swap Data

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

(the ``Data NPRM'').

\29\ Proposed Sec. 48.1 defines a FBOT as ``any board of trade,

exchange or market located outside of the United States, its

territories or possessions, whether incorporated or unincorporated,

where foreign agreements, contracts or transactions are entered

into.'' See Commission, Notice of Proposed Rulemaking: Registration

of Foreign Boards of Trade, 75 FR 70974 (Nov. 19, 2010) (expected to

be codified at 17 CFR part 48). Since 1996, FBOT requests to provide

direct access to their electronic trading and order matching systems

(trading systems) from within the U.S. have been addressed by

Commission staff via the no-action process set forth in Commission

Regulation 140.99. See, e.g., Deutsche Terminborse, CFTC No-Action

Letter, 1994-1996 Transfer Binder], Comm. Fut. L. Rep. (CCH) ]

26,669 (Feb. 29, 1996), available at http://www.cftc.gov/idc/groups/

public/@lrlettergeneral/documents/letter/96-28.pdf.

\30\ As detailed in the Data NPRM, SDRs will also be required by

proposed Sec. 45.4(a) to issue unique swap identifiers (``USIs''),

used to identify each particular swap transaction, when both

counterparties to a swap are not SDs or MSPs. The SDR would be

required to transmit the USI to each counterparty and DCO (if

applicable) involved in the swap as soon as technologically

practicable.

\31\ See proposed Sec. 45.3(b) detailed in the Data NPRM, supra

note 28.

\32\ Proposed Sec. 45.5 establishes a mechanism for

counterparties to follow in choosing the counterparty to report in

situations where both counterparties have the same hierarchical

status, in order to prevent confusion or delay concerning this

choice. Where both counterparties are SDs, or both are MSPs, or both

are non-SD/MSP counterparties, the proposed regulations require the

counterparties to agree as one term of their swap transaction which

counterparty will fulfill reporting obligations with respect to that

swap. In addition, and notwithstanding the other provisions in

proposed Sec. 45.5, where only one counterparty to a swap is a U.S.

person, the proposed Regulation would require the U.S. person to be

the reporting counterparty.

\33\ The Commission in proposed Sec. 45.6 permits registered

entities and counterparties to contract with third-party service

providers to facilitate their reporting obligations. However,

registered entities and counterparties remain fully responsible for

their reporting obligations.

\34\ Proposed Sec. 45.7 would require that all swap data for a

given swap must be reported to the SDR to which required primary

economic terms data for that swap is first reported. The SDR

receiving the initial report must transmit its own identity,

together with the USI for the swap to each counterparty to the swap,

to the SEF or DCM, if any, on which the swap was executed, and to

the DCO, if any, to which the swap is submitted for clearing.

Thereafter, the proposed Regulation requires that all data reported

for the swap by any registered entity or any counterparty to the

swap, and all corrections of errors and omissions in previously

reported data, must be reported to that same SDR (or to its

successor in the event that it ceases to operate).

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

As part of proposed Sec. 49.10, market participants will be

required to fulfill their reporting obligations to SDRs in a reliable,

secure, and efficient manner. Proposed Sec. 49.10 specifically

requires that SDRs adopt policies and procedures that will enable the

SDR to electronically accept data and other regulatory information.\35\

These policies and procedures must provide specific technological

protocols for market participants in submitting swaps data to the SDR.

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

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

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

Proposed Sec. 49.10 will also require SDRs to accept all swaps in

an asset classes for which they have registered. The requirement is

intended to minimize the number of swaps that are not accepted by any

SDR by enabling market participants to easily identify a SDR that

accepts particular asset classes. As described in proposed Sec. 49.3

relating to registration, each SDR applying for registration on Form

SDR will be required to specify the specific asset classes for which it

will accept swap data. Proposed Sec. 49.2(a)(2) defines the term

``asset class'' as those swaps in a particular broad category of goods,

services or commodities underlying a swap. The asset classes include

credit, equity, interest rates, currency,\36\ other commodities and

such other asset classes as may be determined by the Commission.\37\ In

proposing these five major asset categories, the Commission considered

market statistics that distinguish between those general types of

underlying instruments, as well as market infrastructures that have

been established for these five types of instruments. The first

category would encompass the underlying of any swap which is based, in

whole or in part, on one or more reference rates, such as swaps of

payments determined by fixed and floating rates. The second category

would encompass the underlying of any swap that is based, in whole or

in part, on rates of exchange between different currencies, changes in

such rates or other aspects of such rates, including a foreign exchange

option. The currency asset class includes foreign exchange swaps, as

defined in Section 1a(25) of the CEA. The third category would

encompass the underlying of any swap that is based, in whole or in

part, on one or more broad-based indices related to instruments of

indebtedness, including but not limited to any swap that is an index

credit default swap or a total return swap on one or more indices of

debt instruments.\38\ The fourth category would encompass the

underlying of any swap that is based, in whole or in part, on one or

more broad-based indices of equity securities, such as a total return

swap on one or more equity indices. The fifth category would encompass

the underlying of any swap not included in the interest rate, currency,

credit or equity asset class categories, including, without limitation,

any swap for which the primary underlying notional item is a physical

commodity or the price or any other aspect of a physical commodity.

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

\36\ Section 1a(47)(iii) of the CEA states:

Notwithstanding a written determination by the Secretary under

clause (i), all foreign exchange swaps and foreign exchange forwards

shall be reported to either a swap data repository, or, if there is

no swap data repository that would accept such swaps or forwards, to

the Commission pursuant to section 4r within such time period as the

Commission may by rule or regulation prescribe.

7 U.S.C. 1a(47)(E)(iii). Clause (i) of Section 1a(47)(E)

provides:

Foreign exchange swaps and foreign exchange forwards shall be

considered swaps under this paragraph unless the Secretary makes a

written determination under section 1b that either foreign exchange

swaps or foreign exchange forwards or both--

(I) should be not be regulated as swaps under this Act; and

(II) are not structured to evade the Dodd-Frank Wall Street

Reform and Consumer Protection Act in violation of any rule

promulgated by the Commission pursuant to section 721(c) of that

Act.

7 U.S.C. 1a(47)(E)(iii).

See also, Department of the Treasury, Notice and Request for

Comments: Determination of Foreign Exchange Swaps and Forwards, 75

FR 66829 (Oct. 29, 2010) and 75 FR 66426 (Oct. 28, 2010).

\37\ As detailed in proposed Sec. 49.27, SDRs would be required

to provide fair and open access to their services. The Commission

submits that SDRs would not be permitted to discriminate in

connection with the access to their services. As a result, market

participants with sufficient technology resources for connectivity

and the payment of fees would be granted access to the services of

the SDR.

\38\ This category does not encompass the underlying of a

derivatives contract that is based on an instrument of indebtedness

solely in connection with the swap's financing leg.

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

In addition, part 43 of the Commission's proposed regulations

states that SDRs acting as ``real-time disseminators'' for the purposes

of real-time reporting may require additional information to (1) match

the real-time swap transaction and pricing data to data reported to the

SDR; and/or (2) confirm that parties to a swap have reported in a

timely manner pursuant to Section 2(a)(13)(F) of the CEA. Such

additional information requested by an SDR acting as a real-time

disseminator may include a transaction identification

[[Page 80905]]

code, the names of the parties to the swap, or such other additional

information as may be necessary.\39\ Additionally, part 43 of the

Commission's proposed regulations will also require registered SDRs to

calculate the appropriate minimum block size for swaps for purposes of

real-time reporting.

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

\39\ See proposed Sec. 43.4(c) set forth in Notice of Proposed

Rulemaking: Real Time Public Reporting of Swap Transaction Data, 75

FR 76140 (Dec. 7, 2010) (the ``Real Time NPRM'').

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

Proposed Sec. 49.10(c) would also require an SDR to establish

sufficient policies and procedures to prevent a valid swap from being

invalidated, altered or modified through the confirmation or recording

process of the SDR. The Commission is concerned that a validly executed

swap may, through contractual provisions or other practices of an SDR,

be improperly invalidated. To this end, the Commission submits that

SDRs should not be in a position to alter, amend or invalidate

otherwise valid swaps of counterparties through the reporting process.

In addition, proposed Sec. 49.10(d) would also require SDRs to

establish procedures and provide facilities for effectively resolving

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

recorded in the SDR. In this manner, disputes can be resolved quickly

and efficiently so that the integrity and reliability of SDR data

reporting and recordkeeping is facilitated.

Request for Comment. The Commission requests comment on the

question set forth below on acceptance of data:

(1) Should the Commission require an SDR to accept all swaps of a

given asset class? If not, what other mechanism should the Commission

use to prevent ``orphaned'' swaps (i.e., those swaps not accepted by an

SDR)?

(2) How should the Commission address swaps that do not clearly

belong to a particular asset class or that could arguably belong to

more than one asset class? Should the Commission allow an SDR that

accepts swaps in one asset class to accept any swap that arguably

belongs to that asset class, but which could also belong to a second

asset class, without requiring the SDR to then accept all swaps in the

second asset class?

(3) Are there any circumstances under which a validly, executed

swap should be modified or altered other than by the express agreement

of the counterparties? What should be the role of the SDR in these

circumstances? Should the SDR be able to alter or modify an existing

swap based on a contractual arrangement with a reporting party?

2. Confirmation of Data Accuracy--Section 21(c)(2) of the CEA

Section 21(c)(2) of the CEA, as adopted by Section 728 of the Dodd-

Frank Act, requires SDRs to ``confirm with both counterparties to the

swap the accuracy of the data that was submitted.'' \40\ Proposed Sec.

49.11 provides that an SDR must establish and adopt policies and

procedures to ensure the accuracy of swap data that is reported to an

SDR by DCMs, DCOs, SEFs, FBOTs, SDs, MSPs and/or end-users or certain

third party service providers such as confirmation or matching service

providers acting on their behalf. The specific form and content of the

swaps data will be established by the Commission in proposed part 45 of

the Commission's regulations relating to data elements and standards.

In particular, proposed Sec. 49.11 requires that the SDR confirm with

both counterparties to the swap the accuracy of the data and

information submitted.\41\

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

\40\ Section 21(c)(2) of the CEA, 7 U.S.C. 24a(c)(2).

\41\ The Data NPRM details and defines ``confirmation'' and

``confirmation data.'' The term confirmation is proposed in Sec.

45.1(b) to mean ``the full, signed legal confirmation by the

counterparties of all of the terms of a swap.'' The term

``confirmation data'' is proposed in Sec. 45.1(c) to mean ``all of

the terms of a swap matched and agreed upon by the counterparties in

confirming the swap.'' See Data NPRM, supra note 28.

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

Proposed Sec. 49.11 provides that in connection with the required

confirmation, the SDR must confirm with each counterparty to the swap

and receive acknowledgement of all data submitted as well as

corrections of any errors.\42\ The acknowledgement and correction of

errors must pertain to all information submitted by either counterparty

or entity that has been delegated the reporting obligation. The SDR

must keep a record of corrected errors and make that record available

upon request to the Commission. Confirmation is unnecessary when the

reporting obligation is borne by a SEF, DCM, DCO or a confirmation or

matching service provider to whom the swap counterparty has delegated

its reporting obligation. In these situations, the SDR must still

ensure that the data and information it receives from such entity is

accurate.

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

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

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

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

In addition, proposed part 43 of the Commission's regulations

relating to real-time reporting requires that registered SDRs which

accept and publicly disseminate swap transaction and pricing data to

also disseminate any cancellations and corrections to such data.\43\

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

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

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

3. Recordkeeping Requirements--Section 21(c)(3) of the CEA

Proposed Sec. 49.12, which implements Section 21(c)(3) of the CEA,

requires SDRs to, in accordance with the requirements of proposed Sec.

45.2(f), maintain the books and records of all activity and data

relating to swaps reported to the SDR.\44\ Proposed Sec. 45.2(f),

relating to swap data recordkeeping requirements, requires that SDRs

maintain reported swap data, consistent with the data elements

described in proposed Sec. 45.9, throughout the life of such swap

transaction plus an additional five year period, during which time the

swap data must be readily accessible by the SDR and available to the

Commission via real-time electronic access. In addition, proposed Sec.

45.2(f) would also require the SDR to provide subsequent archival

storage.\45\ This archival storage would require the SDR to be able to

retrieve such swap data within three business days.

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

\44\ See Data NPRM, supra note 28.

\45\ The Commission in the Data NPRM is requesting comment

relating to the time period in which an SDR should be required to

maintain archival storage of swap data records.

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

Consistent with proposed Sec. 45.2(g), proposed Sec. 49.12(c)

would also require the books and records maintained by a SDR to be open

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

United States Department of Justice, the SEC or by any representative

of a prudential regulator as authorized by the Commission. The SDR

would be required to provide copies to the Commission, either by

electronic means, in hard copy, or both, as requested by the

Commission.

Proposed Sec. 49.12(d) would require each SDR that publicly

disseminates swap data in real time to comply with the real time public

reporting and recordkeeping requirements prescribed in part 43. In

connection with real-time reporting, proposed Sec. 49.2(a)(9) defines

``position'' to mean the gross and net notional amounts of open swap

transactions aggregated by one or more attributes, including, but not

limited to, the (i) underlying instrument, index, or reference entity;

(ii) counterparty; (iii) asset class; (iv) long risk of the underlying

instrument, index, or reference entity; and (v) short risk of the

underlying instrument, index, or reference entity. Position data is

required to be provided by SDRs to certain entities pursuant to Section

[[Page 80906]]

2(a)(13) of the CEA.\46\ The proposed term is designed to be

sufficiently specific so that SDRs are aware of the types of positions

that regulators may require an SDR to provide, while at the same time,

provide enough flexibility to encompass the types of positions that

regulators and the industry will find important as new types of swaps

are developed.

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

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

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

The Dodd-Frank Act specifically directs the Commission to issue

regulations to limit the amount of positions, other than bona fide

hedge positions, that may be held by any person with respect to

commodity futures and option contracts in exempt and agricultural

commodities.\47\ The Data NPRM accordingly has proposed data reporting

requirements that would require all persons reporting to SDRs to

include futures contract equivalents for each swap transaction.\48\ As

set forth below, the Commission requests comment on position data and

how it should be maintained and monitored.

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

\47\ See Commission, Notice of Proposed Rulemaking: Position

Reports for Physical Commodity Swaps, 75 FR 67258 (November 2,

2010). The Commission in this proposal would require position data

for not only futures and option contracts but also for economically

equivalent swaps.

\48\ See Data NPRM, supra note 28.

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

Request for Comment. The Commission requests comment on the

questions set forth below on data maintenance:

(1) Is the appropriate time period for readily accessible access to

the transaction data the life of the particular swap plus at least five

years after expiration of the swap? Should the Commission provide

different recordkeeping requirements for transaction data and position

data? For transaction data, would ten years after expiration of the

applicable swap be more appropriate and why? What would be the benefits

and burdens associated with each of these time periods? Are there other

retention periods that would be more appropriate?

(2) What is the appropriate time period for archival storage of SDR

data and records?

(3) What are the costs/benefits of requiring longer data retention

requirements?

(4) Should position data be maintained and monitored by SDRs? If

not, in what manner should the Commission monitor speculative position

limits that may include swaps? What would be the proper role of an SDR?

What entity or entities should have the responsibility to aggregate and

maintain the position data for regulatory purposes?

(5) Should the Commission specify particular standards or

procedures for calculating positions?

4. Direct Electronic Access to SDR by the Commission--Section 21(c)(4)

of the CEA

A critical function and responsibility of an SDR as set forth in

Section 21(c)(4)(A) of the CEA is to provide ``direct electronic

access'' to the Commission or its designee, which could include another

registered entity.\49\ For purposes of proposed Sec. 49.17, ``direct

electronic access'' is defined as ``an electronic system, platform or

framework that provides internet or web-based access to real-time swap

transaction data.'' \50\

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

\49\ The term ``registered entity'' is defined in Section 1a(40)

of the CEA to include (i) a board of trade designated as a contract

market under Section 5 of the CEA; (ii) a DCO registered under

Section 5b of the CEA; (iii) a SEF registered under Section 5h of

the CEA; (iv) a SDR registered under Section 21 of the CEA; and (v)

with respect to a contract that the Commission determines is a

significant price discovery contract, any electronic trading

facility on which the contract is executed or traded. 7 U.S.C.

1a(40).

\50\ See proposed Sec. 49.17(b)(3).

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

Proposed Sec. 49.17 provides for two requirements in connection

with ``direct electronic access'' that each SDR must develop. First,

proposed Sec. 49.17 would require a SDR to provide the Commission or

its designee with connectivity and access to the SDR's database of swap

data and web-based services. Connectivity access and web-based services

will allow the Commission or its designee to receive any and all

information regarding a swap transaction that may be required for

regulatory, examination and/or enforcement purposes on a real-time

basis. Second, proposed Sec. 49.17 would also require the SDR to

electronically deliver to the Commission or its designee, certain data

in the form and manner prescribed by the Commission.

Section 21(c)(5) of the CEA requires a registered SDR, at the

direction of the Commission, to establish automated systems for

monitoring, screening, and analyzing swap data. Pursuant to proposed

Sec. 49.17,\51\ registered SDRs in connection with providing ``direct

electronic access'' will also be required to provide the Commission

with monitoring tools, capable of screening and analyzing swap data,

identical to those provided to compliance staff and the CCO of the

registered SDR, including, but not limited to, access to the staff of

the registered SDR and/or third party service providers or agents

familiar with the operations of the registered SDR, who can provide

assistance to the Commission regarding data structure and content, web-

based services and various software.

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

\51\ Section 21(c)(5) of the CEA reads: ``A swap data repository

shall-- * * * at the direction of the Commission, establish

automated systems for monitoring, screening, and analyzing swap

data, including compliance and frequency of end user clearing

exemption claims by individual and affiliated entities.''

7 U.S.C. 24a(c)(5).

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

Proposed Sec. 49.17 further provides that the swap data provided

to the Commission by a registered SDR will be accessible only by

authorized persons. The Commission will provide registered SDRs with a

list of authorized users on a quarterly basis so that proper security

protocols may be efficiently implemented.

Request for Comment. The Commission requests comment on the

following issues related to swap data access.

(1) What are the advantages and disadvantages of requiring SDRs to

provide a direct streaming of the data to the Commission or its

designee? Should the Commission require periodic electronic transfer of

data as an alternative? If so, how often should such transfer occur

(e.g., hourly, a few times a day, every few days, once a week)?

(2) What are the advantages and disadvantages of requiring SDRs to

provide a user interface that permits the Commission or its designee

access to the data maintained by the SDR and that provides the

Commission or its designee with the ability to query or analyze the

data in the same manner that is available to the SDR?

(3) What would be the most feasible and cost-effective method for

an SDR to provide direct electronic access to the Commission or its

designee?

(4) Are there other methods of providing direct electronic access

to the Commission or its designee that the Commission should consider?

(5) Are there specific reports or sets of data that the Commission

should consider obtaining from SDRs to monitor risk exposures of

individual counterparties to swap transactions, to monitor

concentrations of risk exposures, or for other purposes?

(6) In addition to the data already subject to the Commission's

request, are there additional reports or sets of data that the

Commission should consider obtaining from SDRs to evaluate systemic

risk or that could be used for prudential supervision?

(7) Are there any other reports or sets of data that the Commission

should consider obtaining from SDRs?

[[Page 80907]]

5. Monitoring, Screening and Analyzing Swap Data--Section 21(c)(5) of

the CEA

Section 21(c)(5) of the CEA, as amended by Section 728 of the Dodd

Frank Act, requires SDRs to implement such automated systems for

``monitoring, screening, and analyzing swap data'' as the Commission

may direct. In addition, Section 21(c)(5) also requires SDRs to

establish automated systems to monitor, screen, and analyze data for

end-user clearing exemption claims by individuals and affiliated

entities.'' The Commission proposes to implement the requirements of

Section 21(c)(5) through proposed Sec. Sec. 49.13 and 49.14, which

closely resembles the statutory text, by requiring SDRs to monitor,

screen, and analyze swap data in their possession, as directed by the

Commission, including data related to end-user clearing exemptions

claims.\52\ Proposed Sec. 49.13 also requires SDRs to establish and

maintain sufficient information technology, staff, and other resources

to fulfill these tasks. Section 21 of the CEA reflects SDRs'

significant responsibilities in the new swaps market regulatory

structure established by the Dodd-Frank Act. SDRs will function not

only as warehouses for all swap transaction data, but also as potential

sources of regulatory information for the Commission and other

appropriate regulators.

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

\52\ Section 2(h)(7) of the CEA, 7 U.S.C. 2(h)(7) provides that

the clearing requirement of Section 2(h)(1)(A) shall not apply to a

swap if one of the counterparties (i) is not a financial entity;

(ii) is using swaps to hedge or mitigate commercial risk; and (iii)

notifies the Commission, in a manner set forth by the Commission,

how it generally meets the financial obligations associated with

entering into non-cleared swaps.

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

By its terms, Section 21(c)(5), requires that such automated

systems be established ``at the direction of the Commission,'' but does

not provide for specific functions which SDRs should undertake with

respect to the swap transaction data in their possession.\53\

Similarly, while suggesting a role for SDRs in monitoring end-user

clearing exemption claims, the only specific requirement of Section

21(c)(5) is that SDRs have systems in place capable of fulfilling such

requirements as the Commission may assign. The Commission proposes to

implement the requirements of Section 21(c)(5) via proposed Sec. 49.13

which, as summarized below, requires that SDRs: (1) Monitor, screen,

and analyze all swap data in their possession as the Commission may

require; (2) develop systems and resources as necessary to execute any

monitoring, screening, or analyzing functions assigned by the

Commission; and (3) monitor, screen, and analyze swap transactions

which are reported to the SDR as exempt from clearing pursuant to

Section 2(h)(7) of the CEA (i.e., end-user clearing exemption).

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

\53\ Id.

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

(a) Proposed Sec. 49.13(a)

Proposed Sec. 49.13(a) requires SDRs to monitor, screen, and

analyze all swap data in their possession in such a manner as the

Commission may require. An SDR's duties in this respect include routine

monitoring, screening, and analysis to accomplish any swap surveillance

objectives established by the Commission, and specific monitoring,

screening, and analysis tasks based on ad hoc requests by the

Commission. The Commission expects that SDRs will be required to

compile, extract, filter, and report information necessary to assist

the Commission in the fulfillment of its regulatory obligations with

respect to swap markets. However proposed Sec. 49.13(b) only requires

that SDRs undertake these functions at the Commission's request. The

Commission will consider specific tasks to be performed by SDRs at a

later date, as its knowledge of the regulatory oversight needs with

respect to the swap markets increases.

(b) Proposed Sec. 49.13(b)

Proposed Sec. 49.13(b) obligates SDRs to maintain sufficient

information technology, staff, and other resources as necessary to

fulfill any requirements that may arise through proposed Sec.

49.13(a). It also requires SDRs to monitor their resources at least

annually, and to make adjustments as needed to remain in regulatory

compliance. Proposed Sec. 49.13(b) is modeled on existing and proposed

Commission requirements applicable to other registered entities. For

example, part 38 of the Commission's Regulations requires DCMs to have

``arrangements and resources for effective trade practice

surveillance'' and ``arrangements, resources and authority for

effective rule enforcement.'' \54\ With respect to SDRs, the Commission

also recognizes the necessity for adequate resource requirements given

its expectation that SDRs may play a significant role in assisting the

Commission to fulfill its regulatory mandate.

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

\54\ See 17 CFR 38, Appendix B, Core Principle 2(a)(1)-(2). See

also Notice of Proposed Rulemaking Relating to Core Principle and

Other Requirements for Designated Contract Markets approved for

publication by the Commission at an open meeting on Dec. 1, 2010 and

expected to be published shortly in the Federal Register (to be

codified at 17 CFR part 38).

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

(c) Proposed Sec. 49.14

Pursuant to Section 2(h)(7) of the CEA, the Dodd-Frank Act creates

a framework by which certain swap transactions may be exempt from the

mandatory clearing requirement.\55\ Swap transactions may be exempt

from clearing if one of the counterparties to a swap is (i) not a

financial entity; \56\ (ii) is using swaps to hedge or mitigate

commercial risk; \57\ and (iii) notifies the Commission as to how it

generally meets its financial obligations associated with entering into

non-cleared swaps (the so-called ``end-user'' clearing exemption).\58\

The Commission is expected in a subsequent proposed rulemaking to

require that swap counterparties claiming the clearing exemption submit

supplemental information along with transaction data and notification

for any swap transaction claimed under the clearing exception.

Counterparties may be required to answer entity-related identification

questions, identify how they generally expect to meet their financial

obligations associated with the non-cleared swaps, identify whether the

swap claimed under the exemption is being used to hedge or mitigate

commercial risk, and identify whether the transaction was approved by a

governing body of the entity.

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

\55\ See Section 2(h)(1)(A) of the CEA, 7 U.S.C. 2(h)(1)(A).

\56\ See Section 2(h)(7)(A)(i) of the CEA, 7 U.S.C.

2(h)(7)(A)(i).

\57\ See Section 2(h)(7)(A)(ii) of the CEA, 7 U.S.C.

2(h)(7)(A)(ii).

\58\ See Section 2(h)(7)(A)(iii) of the CEA., 7 U.S.C.

2(h)(7)(A)(iii).

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

Section 2(h)(7) of the CEA--and more specifically Section

2(h)(7)(F) of the CEA--also enables the Commission to monitor the use

of clearing exemption claims and to prevent abuses by prescribing

rules, issuing interpretations, or requesting information from persons

claiming the clearing exemption.\59\ Although exempt from clearing,

counterparties claiming the clearing exemption must nonetheless report

the swap transaction to an SDR, and must provide the notification

required pursuant to Section 2(h)(7)(A)(iii) of the CEA, including

information regarding how the counterparty generally meets its

financial obligations associated with non-cleared swaps, and any

additional information which the Commission deems necessary to prevent

abuse pursuant to Section 2(h)(7)(F) of the CEA.

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

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

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

Proposed Sec. 49.14 is designed to implement the Commission's

program

[[Page 80908]]

to monitor and prevent abuse of end-user clearing exemption claims. It

requires SDRs to have automated systems capable of identifying,

aggregating, sorting and filtering all swap transactions reported to an

SDR that are exempt from clearing pursuant to Section 2(h)(7) of the

CEA. Such systems are also required for information provided by end-

users to the SDR regarding how an end-user meets the requirements of

Sections 2(h)(7)(A)(i)-(iii) of the CEA and any regulations promulgated

by the Commission thereunder. The Commission believes it is important

to monitor the use and claims of end user exemptions to prevent abuse

and assure compliance with the required disclosures. At this time the

Commission is only requiring that SDRs establish the infrastructure to

fulfill the requirements of this rule, and any requirements for

specific data processing will be set forth at a later time.

Request for Comment. The Commission requests comment on the

following issue relating to the monitoring of margin.

Should the Commission require SDRs to establish automated

systems for monitoring, screening, and analyzing the reporting of

margin required, and of margin on deposit, as proposed in new part 23

of the Commissions Regulations? \60\

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

\60\ See Commission, Notice of Proposed Rulemaking: Regulations

Establishing and Governing Duties of Swap Dealers and Major Swap

Participants, 75 FR 71397 (Nov. 23, 2010).

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

6. Maintenance of Data Privacy--Section 21(c)(6) of the CEA

Proposed Sec. 49.16 would implement the statutory requirements of

Section 21(c)(6) of the CEA as adopted by Section 728 of the Dodd-Frank

Act to maintain the privacy and confidentiality of swap data provided

to the SDR. In particular, Section 21(c)(6) of the CEA provides that an

SDR shall ``maintain the privacy of any and all swap transaction

information that the swap data repository receives from a SD,

counterparty, or any other registered entity''.\61\ Proposed Sec.

49.16 would also partially implement Section 21(f)(3) of the CEA, as

adopted by Section 728 of the Dodd-Frank Act.\62\ Such section sets

forth a conflicts of interest ``core principle'' applicable to an

SDR.\63\ As detailed further below, the Commission has identified

certain conflicts that may implicate access, disclosure, or use of SDR

Information.\64\ SDR Information includes any information that an SDR

receives from a reporting entity (i.e., the submitter(s) of the data,

including, without limitation, market participants \65\ such as DCMs,

DCOs, SEFs, SDs, MSPs, end-users and/or any other counterparties). The

Commission emphasizes that SDRs will receive two separate ``streams''

of data: (i) data related to real-time public reporting which by its

nature is publicly available and (ii) core data that is intended for

use by the Commission and other regulators which is subject to

statutory confidential treatment. Accordingly, pursuant to Sections

21(c)(6) and 21(f)(3) (Core Principle 3--Conflicts of Interest) of the

CEA, SDR information that is not subject to real-time public reporting

should be treated as non-public and strictly confidential, so that it

may not be accessed, disclosed, or used for purposes not related to SDR

responsibilities under the CEA or the regulations thereunder, unless

such use is explicitly agreed to by the reporting entities (i.e., the

submitter(s) of the data). However, aggregated data that cannot be

attributed to individual transactions or market participants may be

made publicly available by SDRs.

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

\61\ See Section 21(c)(6) of the CEA, 7 U.S.C. 24a(c)(6).

\62\ See Section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3).

\63\ According to such ``core principle,'' each SDR shall

``establish and enforce rules to minimize conflicts of interest in

[its] decision-making process * * *'' and ``establish a process for

resolving conflicts of interest * * *'' Id.

\64\ The term ``SDR Information'' is defined in proposed Sec.

49.2(a)(15) to mean ``any information that the swap data repository

maintains.'' Proposed Sec. 49.17(f) and (g) contain more specific

prohibitions on access or use of SDR Information.

\65\ The term ``market participant'' is defined in proposed

Sec. 49.2(a)(6) to mean any person participating in the swap

market, including, but not limited to, DCMs, DCOs, SEFs, SDs, MSPs,

and any other counterparties to a swap transaction.

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

Request for Comment. The Commission requests comment on the

questions set forth below regarding the limitations on the use of SDR

Information.

(1) Has the Proposal correctly defined ``SDR Information''?

(2) Are there any other concerns regarding the use of SDR

Information that the Commission should consider?

(3) Would public availability of aggregated swap data be consistent

with an SDR's obligation to keep swap data confidential?

Proposed Sec. 49.16 would require the SDR to establish, maintain,

and enforce specific policies and procedures to protect the privacy or

confidentiality of any and all SDR Information. This would also include

privacy or confidentiality policies and procedures for the sharing of

SDR Information with SDR affiliates \66\ as well as certain non-

affiliated third parties.\67\ As noted above, swap data that is

publicly disseminated in real-time by SDRs pursuant to proposed part 43

of the Commission's Regulation would not be subject to the privacy and

confidentiality requirements set forth in proposed Sec. 49.16.

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

\66\ The term ``affiliate'' is defined in proposed Sec.

49.2(a)(1) to mean a person that ``directly, or indirectly,

controls, is controlled by, or is under common control with, the

swap data repository.''

\67\ The term ``non-affiliated third party'' is defined in

proposed Sec. 49.2(a)(7) to mean ``any person except (i) swap data

repository, (ii) the swap data repository's affiliate, or (iii) a

person employed by a swap data repository and any entity that is not

the swap data repository's affiliate (and ``non-affiliated third

party'' includes such entity that jointly employs the person).''

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

Proposed Sec. 49.16 would also require the SDR to establish and

maintain safeguards, policies, and procedures that would, at a minimum,

address the misappropriation or misuse of swap data that the Commission

is prohibited (save for limited exceptions) from disclosing pursuant to

Section 8 of the CEA (``Section 8 Material'').\68\ Section 8 Material

is that information or material described in Section 8(a) of the CEA

that the Commission is prohibited from publishing if it ``would

separately disclose the business transactions or market positions of

any person and trade secrets or names of customers.'' \69\

[[Page 80909]]

Such information would typically include trade data, position data,

business transactions, trade secrets and any other non-public personal

information about a market participant or any of its customers.

Moreover, proposed Sec. 49.16 would require an SDR to also protect SDR

information that is not Section 8 Material as well as intellectual

property that may include trading strategies.

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

\68\ The term ``Section 8 Material'' is defined in proposed

Sec. 49.2(a)(13) as ``the business transactions, trade data, or

market positions of any person and trade secrets or names of

customers.'' The legislative history of Section 8 of the CEA

reflects substantial Congressional concern with protecting the

legitimate interests of certain market participants. In particular,

Congressional members were concerned that ``bona fide hedging

transactions'' and ``legitimate'' or ``necessary'' speculative

transactions would be impracticable if disclosure of positions or

transactions was permitted. Congress was also concerned that

publication of the names and market positions of large traders would

facilitate manipulation and place traders at a competitive

disadvantage. Section 8(e) generally provides that ``upon request,''

the CFTC may furnish ``any information'' in its possession. 7 U.S.C.

12(e). See generally 61 Cong. Rec. 1321 (1921); Regulation of Grain

Exchanges, Hearing on H.R. 8829 Before the H. Comm. on Agriculture,

73rd Cong. (1934).

\69\ Section 8(a) of the CEA outlines the scope and authority of

the Commission to publish or otherwise publicly disclose information

that is gathered in the course of its investigative and market

surveillance activities. While the Section authorizes the Commission

to publish or disclose the information obtained through the use of

its powers, it expressly provides that, except in specifically

prescribed circumstances, the Commission may not lawfully:

publish data and information that would separately disclose the

business transactions or market positions of any person and trade

secrets or names of customers * * *. 7 U.S.C. 12(a).

The statutory bar to disclosure of ``business transactions,

market positions and trade secrets'' is qualified by several

narrowly-defined exceptions set forth in Section 8(e) of the CEA. 7

U.S.C. 12(e). Section 8(e) generally provides that ``upon request,''

the CFTC may furnish ``any information'' in its possession

``obtained in connection with its administration of the [CEA]'' to

another U.S. government department or agency, individual states,

foreign futures authorities and foreign governments and any

committee of the U.S. Congress that is ``acting within the scope of

its jurisdiction.'' Id. In addition, Section 8(e) also provides an

exception for information that was previously disclosed publicly and

Section 8(b) permits disclosure of Section 8 Material in connection

with congressional, administrative or judicial proceedings. Id.

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

The Commission submits that the abovementioned SDR safeguards,

policies, and procedures addressing privacy and confidentiality--as

well as misuse and misappropriation--of data should provide (i)

limitations on access related to Section 8 Material and other SDR

Information; (ii) standards related to controlling persons associated

with the SDR trading for their personal benefit or the benefit of

others; and (iii) adequate oversight to ensure SDR compliance with

proposed Sec. 49.17. As set forth in proposed Sec. 49.17 discussed

below in the section entitled ``Access to SDR Data,'' the SDR may share

swap data and information with certain appropriate domestic and foreign

regulators. Commercial use of the data maintained by an SDR--exclusive

of real-time reporting data--would be strictly circumscribed as

provided in proposed Sec. 49.17.

7. Access to SDR Data--Section 21(c)(7) of the CEA

Section 21(c)(7) \70\ of the CEA requires a registered SDR, on a

confidential basis pursuant to Section 8 of the CEA, upon request and

after notifying the Commission, to make available all data \71\

obtained by the registered SDR, to ``Appropriate Domestic Regulators''

and ``Appropriate Foreign Regulators.''

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

\70\ Section 21(c)(7) of the CEA reads:

A swap data repository shall-- * * * on a confidential basis

pursuant to Section 8, upon request, and after notifying the

Commission of the request, make available all data obtained by the

swap data repository, including individual counterparty trade and

position data, to--(A) each appropriate prudential regulator; (B)

the Financial Stability Oversight Council; (C) the Securities and

Exchange Commission; (D) the Department of Justice; and (E) any

other person that the Commission determines to be appropriate * * *.

7 U.S.C. 24a(c)(7). Included in the definition of Appropriate

Domestic Regulators are all domestic entities listed in Section

21(c)(7) and other persons that the Commission has determined to be

appropriate.

\71\ The sharing of data with an Appropriate Domestic Regulator

by a registered SDR is subject to the confidentiality and

indemnification restrictions in Section 21(d) of the CEA, 7 U.S.C.

24a(d).

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

(a) Appropriate Domestic Regulator. An ``Appropriate Domestic

Regulator'' is defined in proposed Sec. 49.17 as (i) the SEC; (ii)

each prudential regulator identified in Section 1a(39) of the CEA with

respect to requests related to any of such regulator's statutory

authorities, without limitation to the activities listed for each

regulator in Section 1a(39); (iii) the Financial Stability Oversight

Council (``FSOC''); \72\ (iv) the Department of Justice; (v) the

Federal Reserve Bank of New York (``FRBNY''); (vi) the Office of

Financial Research (``OFR'') \73\ and (vii) any other person the

Commission deems appropriate.\74\

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

\72\ FSOC consists of the Department of the Treasury

(``Treasury''), the Board of Governors of the Federal Reserve System

(the ''Fed''), the Office of the Comptroller of the Currency

(``OCC''), the Bureau of Consumer Financial Protection, the SEC, the

Commission, the Federal Deposit Insurance Corporation (``FDIC''),

the Federal Housing Financial Agency, National Credit Union

Administration Board and an independent member appointed by the

President, by and with the advice and consent of the Senate, having

insurance expertise.

\73\ Under Section 152 of the Dodd-Frank Act, OFR will be

established within the Department of the Treasury. OFR is intended

to help facilitate improved financial market data gathering and

analyses for financial regulators, including the new FSOC, which is

responsible for monitoring the financial system as a whole in order

to promote financial stability. OFR will support the FSOC and its

member agencies by providing them with better financial data,

information, and analysis so that policymakers and market

participants have a more complete understanding of risk in the

financial system. The data and analysis provided by the OFR will

enhance the ability to identify emerging threats in financial

markets, and will help ensure that the government has the

information and analytical tools it needs to respond appropriately

to future crises.

\74\ The definition of ``Appropriate Domestic Regulator'' set

forth above specifically includes those federal agencies or

departments that are identified as prudential regulators in Section

1a(39) of the CEA. Each prudential regulator will have access to all

data related to any of its statutory authorities, without limitation

to the activities listed for each regulator in Section 1a(39).

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

Although Section 21(c)(7) of the CEA does not specifically provide

for the sharing of information between an SDR and the FRBNY or OFR, the

Commission in proposed Sec. 49.17 is proposing to deem the FRBNY and

OFR as ``appropriate'' persons under Section 21(c)(7) of the CEA. The

FRBNY is one of 12 regional Federal Reserve Banks, which together with

the Board of Governors of the Federal Reserve System comprise the

Federal Reserve System. Each of the Federal Reserve Banks has features

and/or characteristics of private corporations and quasi-public federal

agencies.\75\ OFR will be an office within the Department of the

Treasury with the primary function to support the FSOC in the

monitoring and containment of systemic risk. OFR will also be a

resource for the FSOC and all of its member agencies. In particular,

OFR will support the agencies in their efforts to supervise financial

institutions and the financial system as well as in their work to

implement the Act. In addition, regulatory agencies will have access to

new data collected by the OFR, which will improve regulators' ability

to monitor risks within their respective focus areas.

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

\75\ The FRBNY oversees the Second Federal Reserve District,

which includes the state of New York, the 12 northern counties of

the state of New Jersey, Fairfield County in the state of

Connecticut, Puerto Rico and the U.S. Virgin Islands. Though it

serves a geographically small area compared with those of other

Federal Reserve Banks, the FRBNY is the largest Reserve Bank as

measured by assets and volume of activity.

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

(b) Appropriate Foreign Regulator. An ``Appropriate Foreign

Regulator'' is defined in proposed Sec. 49.17 and contains a two-part

analysis. First, proposed Sec. 49.17 defines as an Appropriate Foreign

Regulator as those ``foreign regulators'' \76\ with an existing

memorandum of understanding (``MOU'') or other similar type of

information sharing arrangement executed with the Commission. Second,

proposed Sec. 49.17 provides that foreign regulators without an MOU

with the Commission may be deemed ``Appropriate Foreign Regulators'' as

determined on a case-by-case basis by the Commission.

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

\76\ The term ``foreign regulator'' is defined in proposed Sec.

49.2(a)(4) to mean ``a foreign futures authority as defined in

Section 1a(26) of the Commodity Exchange Act, foreign financial

supervisors, foreign central banks and foreign ministries.''

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

Proposed Sec. 49.17 details the filing procedures for foreign

regulators who do not currently have an MOU with the Commission to

obtain the status of an ``Appropriate Foreign Regulator.'' The foreign

regulator in its application \77\ filed with the Commission is required

to provide sufficient facts and details to permit the Commission to

analyze whether the foreign regulator has appropriate confidentiality

procedures and whether the foreign regulator is otherwise subject to

local laws, regulations and/or customs that would require disclosure of

information in contravention of the CEA.

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

\77\ The form and manner of this filing will be prescribed by

the Commission.

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

In its review of applications filed by foreign regulators seeking

the status of an ``Appropriate Regulator'' under proposed Sec. 49.17,

the Commission must

[[Page 80910]]

be satisfied that any information potentially provided by a registered

SDR will not be disclosed except in limited circumstances such as an

adjudicatory action or proceeding involving the foreign regulator.\78\

In addition, the Commission on an ongoing basis, reserves the right in

connection with any determination of an ``Appropriate Foreign

Regulator'' to revisit or reassess a prior determination consistent

with the CEA.

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

\78\ See supra text accompanying note 69.

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

(c) Procedure for Gaining Access to an SDR. Pursuant to proposed

Sec. 49.17, an Appropriate Domestic Regulator or Appropriate Foreign

Regulator will be required to request access with the registered SDR.

The request will set forth in sufficient detail the basis for such

request. The Appropriate Domestic Regulator or Appropriate Foreign

Regulator must also certify (i) its statutory authority and (ii) that

it is acting within the scope of its jurisdiction.

A registered SDR must notify the Commission promptly by electronic

means of any request received from an Appropriate Domestic Regulator or

Appropriate Foreign Regulator. The registered SDR will then provide

access to the requested swap data if satisfied that the Appropriate

Domestic or Appropriate Foreign Regulator is acting within the scope of

its authority.

Request for Comment. The Commission requests the following comments

relating to regulator access of data maintained by SDRs.

(1) What mechanisms or other processes should the Commission

consider in connection with Appropriate Domestic Regulators and/or

Appropriate Foreign Regulators access to the data maintained by SDRs?

(2) Should the Commission provide that Appropriate Domestic

Regulators and Appropriate Foreign Regulators specifically request

access from an SDR for each individual data request? Or, should the

Commission provide for a single prospective data access request to SDRs

by Appropriate Domestic and Foreign Regulators followed up by a

certification at intervals determined by the Commission? For each

specific instance of access or regulatory use of an SDR's data by

Appropriate Domestic Regulators and Appropriate Foreign Regulators,

should the Commission be notified in each case by the SDR?

(3) Given the regulatory outlines set forth by the Dodd-Frank Act,

what would be an appropriate way for regulators to access the swap data

held by SDRs for the purpose of fulfilling their regulatory

responsibilities?

(d) Confidentiality and Indemnification Agreement. Consistent with

proposed Sec. 49.18, the Appropriate Domestic Regulator or Appropriate

Foreign Regulator prior to receipt of any requested data or information

from a registered SDR must execute a ``Confidentiality and

Indemnification Agreement'' with the registered SDR. This requirement

is mandated by Section 21(d) of the CEA and applies to those entities

set forth in Section 21(c)(7) of the CEA. Upon execution of a

Confidentiality and Indemnification Agreement with a registered SDR,

the Appropriate Domestic Regulator or Appropriate Foreign Regulator is

required to notify and provide a copy of the Confidentiality and

Indemnification Agreement to the Commission.

The specific entities identified in Section 21(c)(7) include: (i)

Each appropriate prudential regulator specified in Section 1a(39) of

the; (ii) FSOC; (iii) SEC; (iv) Department of Justice; and (v) any

other person the Commission deems appropriate, including foreign

financial supervisors, foreign central banks and foreign ministries.

Pursuant to the general authority of the Commission as set forth in

Section 21(c)(7)(E) of the CEA to deem any other person

``appropriate,'' the Commission proposes, for purposes of this

Regulation, to deem ``appropriate'' the FRBNY, OFR and those foreign

regulators with an existing MOU or other similar type of information

sharing arrangement executed with the Commission.\79\

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

\79\ Any other Foreign Regulator that would require access to

SDR data would need to be specifically approved and deemed

``appropriate'' by the Commission as set forth in proposed Sec.

49.17.

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

Proposed Sec. 49.18 implementing Section 21(d) of the CEA requires

that the Confidentiality and Indemnification Agreement executed with

each Appropriate Domestic Regulator and/or Appropriate Foreign

Regulator provide that such entity abide by the confidentiality

requirements set forth in Section 8 of the CEA relating to the swap

data that is to be provided by the registered SDR. Moreover, the

Confidentiality and Indemnification Agreement must also provide that

each Section 21(c)(7) entity agree to indemnify the registered SDR and

the Commission for any expenses arising from litigation relating to the

information provided under Section 8 of the CEA.

The Commission is mindful of the potential difficulty that certain

domestic and foreign regulators may have in executing a Confidentiality

and Indemnification Agreement with an SDR pursuant to Section 21(d) of

the CEA\80\ due to various statutory laws, regulations and/or customs.

This provision could have the unintended effect of inhibiting access to

the data maintained by SDRs, and, possibly hindering the ability of

certain foreign regulators to fulfill their corresponding statutory

mandates. To promote and ensure international harmonization as

envisioned in Section 752 of the Dodd-Frank Act, the Commission

continues to coordinate with its foreign regulatory counterparts on

pending and proposed regulatory initiatives. To the extent consistent

with the regulatory framework set forth in the Dodd-Frank Act, and the

CEA generally, the Commission will endeavor to provide sufficient

access to SDR data to appropriate domestic and foreign regulatory

authorities.

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

\80\ Section 21(d) of the CEA provides:

Before the swap data repository may share information with any

entity described in subsection (c)(7)-(1) the swap data repository

shall receive a written agreement from each entity stating that the

entity shall abide by the confidentiality requirements described in

Section 8 relating to the information on swap transactions that is

provided; and (2) each entity shall agree to indemnify the swap data

repository and the Commission for any expenses arising from

litigation related to the information provided under section 8.

See 7 U.S.C. 24a(d).

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

The Commission believes that access to the swap data maintained by

SDR will assist regulators to, among other things, monitor risk

exposures of individual counterparties to swap and swap transactions,

monitor concentrations of risk exposures, and evaluate systemic risks.

The Commission notes that, pursuant to Section 8(e) of the CEA, the

Commission may share confidential information in its possession

obtained in connection with its administration of the CEA to ``any

foreign futures authority, department or agency of any foreign

government or any political subdivision thereof'' acting within the

scope of their jurisdiction.\81\

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

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

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

Request for Comment: The Commission requests comment from those

regulators that may be affected by Section 21(d) of the CEA and the

proposed related Regulations. In particular, the Commission requests

comment on the following questions:

Are the proposed time frames for Commission response

relating to access to swap data maintained by a SDR by Appropriate

Domestic and Appropriate Foreign Regulators reasonable? Should the

Commission provide for an expedited or emergency procedure?

[[Page 80911]]

(e) Access to SDRs by Third Party Service Providers. Section

21(c)(3) \82\ of the CEA directs registered SDRs to maintain data in

such form and manner as may be required by the Commission. Section

21(c)(6) \83\ of the CEA requires registered SDRs to maintain the

privacy of any and all swap data that the registered SDR receives from

a SD, counterparty, or any other registered entity. The operations of

registered SDRs may require them to provide occasional access to data

and information to third party service providers for the purpose of

obtaining certain technology and SDR infrastructure services. Proposed

Sec. 49.17 permits such access provided these third party service

providers have implemented strict confidentiality procedures that

protect data and information from improper disclosure. Prior to swap

data access, third party service providers will be required to execute

a ``Confidentiality Agreement'' setting forth minimum confidentiality

procedures and permissible uses of data received.

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

\82\ Section 21(c)(3) reads: ``A swap data repository shall-- *

* * maintain the data described in paragraph (1) in such form, in

such manner, and for such period as may be required by the

Commission.'' 7 U.S.C. 24a(c)(3).

\83\ Section 21(c)(6) reads: ``A swap data repository shall-- *

* * maintain the privacy of any and all swap transaction information

that the swap data repository receives from a swap dealer,

counterparty, or any other registered entity.'' 7 U.S.C. 24a(c)(6).

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

(f) Access to SDRs by Market Participants. Section 21(c)(6) of the

CEA requires registered SDRs to maintain the privacy and

confidentiality of any and all swap transaction information that the

registered SDR receives from a SD, counterparty, or any other

registered entity. As mentioned above, Section 21(f)(3) \84\ of the CEA

requires an SDR to establish and enforce rules to mitigate conflicts of

interest, among other things. As detailed further below, the Commission

has identified certain conflicts that may implicate access to SDR

Information. Consequently, in partial implementation of Sections

21(c)(6) and 21(f)(3) of the CEA, proposed Sec. 49.17 generally

prohibits access to swaps data maintained by a registered SDR by market

participants, such as commercial end-users, SDs and MSPs unless the

specific data was originally submitted by such party.

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

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

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

(g) Commercial Use of Data Maintained by the SDR. As outlined by

Sections 21(c)(6) and (c)(7) of the CEA, Congress in the Dodd-Frank Act

was concerned with maintaining the confidentiality of information

provided to registered SDRs by SDs, counterparties or any other

Commission-registered entity.\85\ Furthermore, as outlined in Section

21(f)(3) of the CEA, Congress in the Dodd-Frank Act was concerned that

conflicts of interest may affect SDR operations. As detailed below, the

Commission has identified certain conflicts of interest that may

implicate commercial use of SDR Information (other than swap data

subject to real-time public dissemination). In response to concerns

reflected in Sections 21(c)(6), 21(c)(7), and 21(f)(3), the Commission

believes that ``commercial use'' of any data submitted and maintained

by an SDR must be severely restricted. The privacy and confidentiality

concerns set forth in Section 21(c)(6) of the CEA do not apply to the

swap data subject to proposed part 43 of the Commission's Regulations,

which set forth the requirements for real-time public reporting of swap

data by SDRs.

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

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

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

Therefore, in partial implementation of Sections 21(c)(6),

21(c)(7), and 21(f)(3), proposed Sec. 49.17 generally provides that

SDR Information (as defined in proposed Sec. 49.2(a)(13)) may not be

used for commercial or business purposes by the registered SDR or any

of its affiliated entities. In connection with its obligation to

maintain the privacy and confidentiality of SDR Information as outlined

in Sections 21(c)(6), 21(c)(7), and 21(f)(3) of the CEA, registered

SDRs are required to adopt and implement adequate ``firewalls'' to

protect the swaps data required to be maintained under proposed Sec.

45.2 \86\ and Section 21(c)(3) of the CEA from any improper, commercial

use.

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

\86\ See Data NPRM, supra note 28.

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

Proposed Sec. 49.17 permits a limited exception to the commercial

use restrictions for market participants, such as end-users, SDs and

MSPs, who submit SDR Information maintained by the registered SDR. The

exception requires that the registered SDR must receive the express

written consent of the counterparties to the swap. The Commission is

concerned that a registered SDR may attempt to use this limited

``commercial use'' exception as a condition for the reporting of end-

users, SDs and/or MSPs swap transactions. Accordingly, in proposed

Sec. 49.27 the Commission submits that a registered SDR must be

equitable and must not discriminate against submitters of data

regardless of whether such a submitter has agreed to any ``commercial

use'' of its data.

8. Emergency Procedures--Section 21(c)(8) of the CEA

Section 21(c)(8) of the CEA, as amended by Section 728 of the Dodd-

Frank Act, provides that a ``swap data repository shall establish and

maintain emergency procedures, backup facilities, and a plan for

disaster recovery that allows for the timely recovery and resumption of

operations and the fulfillment of the responsibilities and obligations

of the organization.'' \87\ Section 21(c)(8) of the CEA reflects SDRs'

critical role as central storehouses of information in the new swap

market structure established by the Dodd-Frank Act. In particular, it

recognizes that SDRs must be available to meet their statutory

obligations in all circumstances, and that swap data must be readily

accessible to the Commission and other regulators even in emergency

situations. To effectuate the purposes of Section 21(c)(8) of the CEA,

the Commission proposes Sec. 49.23, which requires SDRs to adopt

specific policies and procedures for the responsible exercise of

emergency authority in the event of natural, man-made, information

technology, and other, emergencies.

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

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

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

While SDRs are a new type of registered entity created by Dodd-

Frank, proposed Sec. 49.23 applies existing emergency procedure

concepts borrowed from analogues in the Commission's regulatory

experience. For example, prior to the enactment of the Dodd-Frank Act,

DCMs were subject to former DCM Core Principle 6, which contemplated

exigent circumstances that might justify the exercise of emergency

authority by a DCM.\88\ The application guidance for former DCM Core

Principle 6 set forth the Commission's requirements for emergency

procedures. It stated, in part, that a DCM ``should have clear

procedures and guidelines for contract market decision-making regarding

emergency intervention in the market, including procedures and

guidelines to avoid conflicts of interest while carrying out such

decision making.'' \89\ The application guidance also stated that a

DCM's procedures and guidelines for the exercise of emergency authority

should include ``notifying the Commission of the exercise of [emergency

authority], explaining how conflicts of interest are minimized, and

documenting the contract market's decision-making process and the

[[Page 80912]]

reasons for using its emergency authority.'' \90\

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

\88\ Former Section 5(d)(6) of the CEA, 7 U.S.C. 7(d)(6).

\89\ 17 CFR part 38, App. B, Application Guidance for former

Core Principle 6.

\90\ Id.

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

The Commission has generally found that procedures implemented by

DCMs in response to former DCM Core Principle 6 allowed for adequate

responses in the event of emergencies.\91\ Accordingly, the Commission

is proposing new application guidance and acceptable practices to

implement emergency procedures core principles for both DCMs and SEFs

that are modeled on former DCM Core Principle 6 and its application

guidance.\92\ Similarly, the Commission's proposed Sec. 49.23 for SDR

emergency procedures is modeled on relevant provisions of the statutory

text, application guidance, and acceptable practices, as applicable,

for the former and current DCM and SEF emergency procedures core

principles.

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

\91\ The Commission notes that former DCM Core Principle 6, and

its successor Core Principle 6 pursuant to Section 735 of the Dodd-

Frank Act, both incorporate market-specific emergencies and

responses into their statutory requirements. For example, under both

core principles, a DCM's emergency authority must include the

authority to liquidate or transfer open positions in any contract;

the authority to suspend or curtail trading in any contract; and the

authority to require market participants in any contract to meet

special margin requirements. The emergency policies and procedures

required of SDRs pursuant to proposed Sec. 49.23 do not incorporate

these market-specific concepts as they are not relevant to SDRs.

\92\ The new DCM emergency procedures core principle is also

enumerated as DCM Core Principle 6 and codified in Section 5(d)(6)

of the CEA, 7 U.S.C. 7(d)(6); it is substantively similar to its

predecessor. The new SEF emergency procedures core principle is

enumerated as SEF Core Principle 8 and codified in Section 5h(f)(8)

of the CEA, 7 U.S.C. 7b-3(f)(8).

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

(a) Emergency Policies and Procedures Required--Proposed Sec. 49.23(a)

Proposed Sec. 49.23(a) requires that an SDR establish policies and

procedures for the exercise of emergency authority in the event of any

emergency, including but not limited to, natural, man-made, and

information technology emergencies. Proposed Sec. 49.23(a) will mirror

language in the application guidance for former DCM Core Principle 6,

which states that DCMs must ``have clear procedures and guidelines for

contract market decision-making regarding emergency intervention. * * *

'' Similar language is also proposed in the guidance and acceptable

practices for new DCM Core Principle 6 and new SEF Core Principle 8.

Proposed Sec. 49.23(a) and the new DCM Core Principle 6 and new SEF

Core Principle 8 reflect the Commission's view that these policies must

be transparent to the Commission and to market participants whose

transaction data resides at the SDR.

(b) Invocation of Emergency Authority--Proposed Sec. 49.23(b)

Proposed Sec. 49.23(b) requires an SDR to enumerate the

circumstances under which it is authorized to invoke its emergency

authority, and the procedures that it must follow to declare an

emergency. Such policies and procedures must also address the range of

measures that an SDR is authorized to take when exercising emergency

authority.

Proposed Sec. 49.23(b) helps ensure that an SDR can respond

quickly to an emergency but reduces the possibility that SDRs will

exercise such authority arbitrarily. Similar to the Commission's view

on the development of emergency policies and procedures, proposed Sec.

49.23(b) reflects the Commission's view that the use of emergency

authority should be governed by transparent standards and be

predictable to the Commission and to swap market participants.

(c) Designation of Persons Authorized to Act in an Emergency--Proposed

Sec. 49.23(c)

Proposed Sec. 49.23(c) requires an SDR to designate, and notify

the Commission of, one or more persons authorized to exercise emergency

authority on its behalf. In the event that such designated persons are

unavailable, an SDR must also establish a chain of command. The

Commission believes that the proposed regulation reduces the

possibility that emergency situations will be exacerbated by a lack of

leadership and inadequate line of decisional authority.

(d) Conflicts of Interest--Proposed Sec. 49.23(d)

Proposed Sec. 49.23(d) requires that SDR policies and procedures

include provisions to avoid conflicts of interest in any decision made

pursuant to emergency authority. SDR policies and procedures must also

require that the SDR's CCO be consulted in any emergency decision that

may raise potential conflicts of interest.\93\ The Commission believes

that specific policies and procedures designed to avoid conflicts in

the exercise of emergency authority will focus SDR decision-makers'

attention and guide their decisions in ways that minimize the risk for

actual or perceived conflicts of interest.

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

\93\ Section 21(e) of the CEA, 7 U.S.C. 24a(e) creates the

position of CCO and prescribes detailed responsibilities to CCOs.

Section 21(e)(2)(C) tasks CCOs with ``resolv[ing] any conflicts of

interest that may arise'' in consultation with the SDR's board of

directors, a body performing a similar function as the board, or the

senior officer of the SDR. Proposed Sec. 49.26 specifically

implements new Section 21(e). 7 U.S.C. 24a(2)(C).

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

(e) Notification to the Commission--Proposed Sec. 49.23(e)

Proposed Sec. 49.23(e) requires that an SDR's policies and

procedures include provisions for the exercise of emergency authority

to notify the Commission as soon as reasonably practicable regarding

any invocation of emergency authority by the SDR. When notifying the

Commission of an exercise of emergency authority, an SDR must explain

the reasons for taking such emergency action, explain how conflicts of

interest were minimized, and document the decision-making process. In

addition, any underlying documentation must be made available to the

Commission upon request. These proposed provisions will help keep the

Commission informed of emergency situations, allow the Commission to

participate as necessary, and facilitate any review that the Commission

may wish to conduct at a later date.

Request for Comment. The Commission requests comment on the

questions set forth below on SDR duties:

(1) Should the Commission impose any additional duties on SDRs? For

example, should SDRs be required to provide downstream processing

services or ancillary services (e.g., managing life-cycle events and

asset servicing)?

(2) Should the Commission establish more specific requirements to

avoid contract invalidation by an SDR?

C. Designation of Chief Compliance Officer

Section 21(e) of the CEA, as amended by Section 728 of the Dodd-

Frank Act, creates an internal regulatory framework for all SDRs, with

the position of CCO serving as a focal point for compliance with the

CEA and applicable Commission Regulations. The three-part structure of

Section 21(e) requires, first, that every SDR designate an individual

to serve as CCO.\94\ Second, it enumerates specific duties for CCOs and

establishes their responsibilities within an SDR.\95\ Third, it

outlines the

[[Page 80913]]

requirements of a mandatory annual report from SDRs to the Commission,

which must be prepared and signed by an SDR's CCO.\96\ The Commission

proposes to implement Section 21(e) of the CEA through proposed Sec.

49.22, which further develops the already robust CCO requirements

enacted by the Dodd-Frank Act. Section 21(e) of the CEA and proposed

Sec. 49.22 are summarized below.

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

\94\ See Section 21(e)(1) of the CEA, 7 U.S.C. 24a(e)(1).

\95\ See Section 21(e)(2) of the CEA, adopted as part of the

Dodd-Frank Act, providing that a CCO shall:

(A) report directly to the board or to the senior officer of the

swap data repository; (B) review the compliance of the swap data

repository with respect to the requirements and core principles

described in this section; (C) in consultation with the board of the

swap data repository, a body performing a function similar to the

board of the swap data repository, or the senior officer of the swap

data repository, resolve any conflicts of interest that may arise;

(D) be responsible for administering each policy and procedure that

is required to be established pursuant to this section; (E) ensure

compliance with this Act (including regulations) relating to

agreements, contracts, or transactions, including each rule

prescribed by the Commission under this section; (F) establish

procedures for the remediation of noncompliance issues identified by

the chief compliance officer through any--(i) compliance office

review; (ii) look-back; (iii) internal or external audit finding;

(iv) self-reported error; or (v) validated complaint; and (G)

establish and follow appropriate procedures for the handling,

management response, remediation, retesting, and closing of

noncompliance issues.

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

\96\ See Section 21(e)(3)(A) of the CEA, adopted as part of the

Dodd-Frank Act, providing that a CCO shall:[A]nnually prepare and

sign a report that contains a description of--(i) the compliance of

the swap data repository of the chief compliance officer with

respect to this Act (including regulations); and (ii) each policy

and procedure of the swap data repository of the chief compliance

officer (including the code of ethics and conflict of interest

policies of the swap data repository). (B) REQUIREMENTS.--A

compliance report under subparagraph (A) shall--(i) accompany each

appropriate financial report of the swap data repository that is

required to be furnished to the Commission pursuant to this section;

and (ii) include a certification that, under penalty of law, the

compliance report is accurate and complete.

7 U.S.C. 24a(e)(3)(A)-(B).

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

The first provision of Section 21(e)-21(e)(1)--provides only for

the self-explanatory requirement that each SDR designate an individual

to serve as its CCO. The second provision of Section 21(e) offers a

detailed description of a CCO's role within an SDR. Specifically,

Section 21(e)(2) includes seven enumerated duties incumbent upon all

CCOs, and thereby outlines the internal regulatory structure of an SDR

as contemplated by the Dodd-Frank Act. The enumerated duties of CCOs

include: (1) Reporting directly to the SDR's board of directors or to

its senior officer; (2) reviewing an SDR's compliance with the

requirements and core principles described in Section 21; (3) resolving

any conflicts of interest that may arise, in consultation with the

board of directors or the senior officer of the SDR; (4) administering

any policy or procedure that is required to be established by an SDR

pursuant to Section 21; (5) ensuring compliance with the CEA and

Commission Regulations as they pertain to agreements, contracts, or

transactions entered into by an SDR; (6) establishing procedures for

the remediation of noncompliance issues identified by the CCO; and (7)

establishing and following appropriate procedures for the handling,

management response, remediation, retesting, and closing of

noncompliance issues.\97\

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

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

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

Finally, the third provision of Section 21(e)-21(e)(3)--requires

CCOs to prepare and sign annual compliance reports on behalf of their

SDRs. The annual compliance reports must describe an SDR's compliance

with the CEA and Commission Regulations. They must also describe the

policies and procedures of the SDR, including the code of ethics and

conflict of interest policies. In addition, the annual compliance

reports must include ``a certification that, under penalty of law, the

report is accurate and complete.'' \98\ The annual compliance report

must be furnished to the Commission as it may prescribe.

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

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

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

Proposed Sec. 49.22 develops each of these statutory provisions in

greater detail and grants CCOs the regulatory authority necessary to

fulfill responsibilities in each regard.

1. Definition of Board of Directors--Proposed Sec. 49.22(a)

Proposed Sec. 49.22(a) defines ``board of directors'' as ``the

board of directors of a swap data repository or for those swap data

repositories whose organizational structure does not include a board of

directors, a body performing a function similar to a board of

directors.'' The proposed definition reflects the various forms of

business associations which an SDR could conceivably take, including

forms which do not include a corporate board of directors. It also

reflects the flexibility in Section 728 of the Dodd-Frank Act, which

refers, for example, to ``a body performing a function similar to a

board'' in discussing the duties of a CCO pursuant to Section

21(e)(2)(C) of the CEA.

Request for Comment. The Commission requests comment on the

following.

(1) Should the Commission develop additional rules around the types

of bodies which may perform board-like functions at an SDR, depending

on their business form?

(2) Should the proposed definition of board of directors

appropriately address issues related to parent companies, subsidiaries,

affiliates, and SDRs located in foreign jurisdictions? Does the

proposed rule allow for sufficient flexibility with regard to an SDR's

business structure?

2. Designation and qualifications of Chief Compliance Officer--Proposed

Sec. 49.22(b)

Proposed Sec. 49.22(b)(1) requires an SDR to establish the

position of CCO, designate an individual to serve in that capacity and

provide that individual with the authority and resources to develop and

enforce policies and procedures necessary to fulfill the duties set

forth for CCOs in the Dodd-Frank Act and Commission regulations. In

addition, proposed Sec. 49.22(b)(1) provides that CCOs must have

supervisory authority over all staff acting in furtherance of the CCO's

statutory and regulatory obligations. In short, proposed Sec.

49.22(b)(1) establishes CCOs as the focal-point of an SDR's regulatory

compliance functions.

Proposed Sec. 49.22(b)(2) details minimum competency standards for

CCOs. It requires that CCOs have the background and skills necessary to

fulfill the responsibilities of the position, and prohibits anyone who

would be disqualified from registration under Sections 8a(2) or 8a(3)

of the CEA from serving as a CCO. Although the CCO would not be

required to register with the Commission, as the primary individual

with responsibility for ensuring an SDR's legal compliance, the

Commission believes that CCOs should meet the same standard as those

individuals who are required to register, as set forth in the list of

statutory disqualifications under Sections 8a(2) and (3) of the CEA.

These standards largely consist of a high degree of responsibility and

requirements relating to integrity and honesty in financial and

business dealings.

The Commission is seeking comment on whether additional limitations

should be placed on persons who may be designated as a CCO. For

example, the function of the CCO and in-house or general counsel may

have inherent tension between, for example, the duty to defend the swap

data repository and duties as a CCO.

Request for Comment.

(1) The Commission requests comment on whether the provisions of

proposed Sec. 49.22(b)(1) are sufficient to ensure that a CCO has the

authority and resources necessary to fulfill his or her statutory and

regulatory obligations.

(2) The Commission also requests comment regarding the

qualifications that should be required of a CCO, and whether the

requirements expressed in proposed Sec. 49.22(b)(2) are sufficient.

(3) Should there be additional restrictions placed on who is

qualified to be designated as a CCO? The Commission requests comment on

[[Page 80914]]

whether restricting a CCO from serving as the General Counsel or other

attorney within the legal department of a SDR would address conflict of

interest concerns.

3. Appointment, Supervision, and Removal of Chief Compliance Officer--

Proposed Sec. 49.22(c)

Taken together, proposed Sec. Sec. 49.22(c)(1), 49.22(c)(2), and

49.22(c)(3) provide the supervisory regime applicable to CCOs. Proposed

Sec. 49.22(c)(1) requires that a CCO be appointed by a majority of the

SDR's board of directors or senior officer, and that a majority of the

board or senior officer be responsible for approving the CCO's

compensation. An SDR must notify the Commission within two business

days of appointing a new CCO. The proposed regulation also requires the

CCO to meet at least annually with the board of directors to discuss

the effectiveness of the CCO's administration of the compliance

policies adopted by the registrant. The meeting or meetings would

create an opportunity for a CCO and the directors to speak freely about

any sensitive issues of concern to any of them, including any

reservations about the cooperativeness or compliance practices of the

registrant's management. Finally, proposed Sec. 49.22(c)(1) also

provides that the senior officer of a SDR may assume responsibility for

appointing the CCO and approving his or her compensation.

Proposed Sec. 49.22(c)(2) addresses routine oversight of an SDR's

CCO. It allows an SDR with a board of directors to grant oversight

authority to either its board or to its senior officer. The proposed

regulation is modeled on the terms of Section 21(e)(2)(A) of the CEA,

which requires a CCO to ``report directly to the board or to the senior

officer of the swap data repository.''

Request for Comment. The Commission requests comment regarding the

appropriate reporting relationship for the CCO of an SDR that has both

a senior officer and a board of directors.

(1) In such cases, should a CCO report to the SDR's board rather

than to its senior officer?

(2) What potential conflicts of interest might arise if a CCO

reports to the senior officer rather than to the board, and how might

those conflicts be mitigated?

(3) In addition, the Commission requests comment regarding whether

``senior officer'' of an SDR should be a defined term, and if so, how

the term should be defined.

4. Removal of CCO--Proposed Sec. 49.22(c)(3)

Proposed Sec. 49.22(c)(3) requires approval of a majority of an

SDR's board of directors to remove a CCO. The Commission believes that

these removal provisions will help insulate CCOs and their decision-

making from day-to-day commercial pressures that they may otherwise

experience. If an SDR does not have a board, the proposed regulation

provides that the CCO may be removed by its senior officer. Proposed

Sec. 49.22(c)(3) also requires an SDR to notify the Commission in

writing within two business days of the removal or voluntary departure

of its CCO by providing a statement describing the circumstances

surrounding his or her departure.\99\ The Commission believes that this

provision will help protect CCOs from undue influence or retaliatory

termination by the board or the senior officer of the SDR.

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

\99\ Upon the removal or voluntary departure of a CCO, proposed

Sec. 49.22(c)(3) requires and SDR to appoint an interim CCO

immediately and a permanent replacement as soon as practicable. See

proposed Sec. 49.22(c)(3).

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

Proposed Sec. Sec. 49.22(c)(1) and 49.22(c)(3) seek to provide an

SDR's CCO with a measure of independence from management in the

performance of his or her duties, and to ensure that such duties are

executed in the most effective and impartial manner possible.

Request for Comment. The Commission requests comment on any

additional measures that should be required to adequately protect CCOs

from undue influence in the performance of their duties. The Commission

is particularly interested in how it might offer such protection to a

CCO who reports to his or her senior officer, either at the SDR's

choosing or because the SDR does not have a board of directors. In

addition, the Commission also requests comment on whether the provision

that would require a majority of a board of directors to remove the CCO

is sufficiently specific.

5. Duties of the Chief Compliance Officer--Proposed Sec. 49.22(d)

Proposed Sec. 49.22(d) details the duties of a CCO, as well as his

or her authority within an SDR. The proposed regulation codifies and

expands upon the CCO duties already set forth in Section 21(e)(2) of

the CEA. These duties include overseeing and reviewing compliance with

the CEA and Commission regulations, as well as resolving, in

consultation with the board of directors or the senior officer, any

conflicts of interest that may arise. The proposed Regulation also

lists a number of potential conflicts that may confront a CCO. The list

of conflicts of interest indicates the types of conflicts that the

Commission believes an SDR's CCOs should be aware of, but it is not

exhaustive.

Proposed Sec. 49.22(d) also requires that the CCO establish and

administer a written code of ethics and policies and procedures

designed to prevent violations of the CEA and Commission regulations.

The Commission believes that such written documentation will serve as a

useful guide for the SDR's management and staff, as well as for swap

participants who will be submitting data to the SDR. It will also help

the Commission to evaluate the SDR's compliance and adherence to its

own internal standards. Finally, proposed Sec. 49.22(d) requires that

a CCO establish and follow procedures for the remediation and closing

of any noncompliance issues that are identified. To assist the CCO in

meeting this responsibility, proposed Sec. 49.22(b)(1), summarized

above, grants a CCO oversight authority over all compliance functions

and staff acting in furtherance of those compliance functions. The

CCO's authority would also extend to any activities performed by the

SDR to verify that other entities are in compliance with applicable

laws and regulations, such as the verification of the timeliness of

certain swap data, pursuant to proposed Sec. 49.15. The Commission

recognizes that the staff that assists a CCO may not be dedicated to

the CCO full-time; however, the proposed regulation would ensure that a

CCO has authority over any staff and resources while they are acting in

furtherance of compliance functions.

Request for Comment. The Commission requests comment regarding

proposed Sec. 49.22(d). Comments should address any additional CCO

duties which the Commission should include in the proposed regulation.

In addition, they should specifically address a CCO's role in managing

conflicts of interest within an SDR, the types of conflicts which

commenters believe might arise within an SDR, and how and by whom those

conflicts should be resolved.

6. Preparation and Submission of Annual Compliance Report--Proposed

Sec. Sec. 49.22(e) and 49.22(f)

Section 21(e)(3) of the CEA requires a CCO to prepare an annual

compliance report. As discussed above, the Commission believes that

this annual compliance report should give the Commission a complete and

accurate picture of an SDR's compliance

[[Page 80915]]

program. Proposed Sec. 49.22(e) details the information that must be

included in the annual compliance report. The report must include: (i)

A description of the SDR's written policies and procedures, code of

ethics and conflicts of interest policies; (ii) a detailed review of

the SDR compliance with Section 21 of the CEA, including an assessment

by the CCO of the effectiveness of the SDR's policies and procedures in

ensuring compliance with Section 21 of the CEA and a discussion of

areas for improvement; (iii) a description of any material changes to

the policies and procedures that were made to these since the last

annual compliance report; (iv) a description of the financial,

managerial, operational, and staffing resources set aside for the SDR's

compliance program; (v) a description of any material compliance

matters, including instances of noncompliance, that were identified in

the year prior to the filing of the report; and (vi) any objections to

the annual compliance report by the board or senior officer of the SDR.

In addition to the above information, proposed Sec. 49.22(e) also

requires the annual report to include a certification by the CCO that,

under penalty of law, the compliance report is accurate and complete.

Proposed Sec. 49.22(f)(1) sets forth the procedures for the review

of the annual compliance report by the board of directors of the SDR or

senior officer, prior to submission to the Commission. While the board

or senior officer has a chance to review the annual compliance report

before submission, the report is not subject to their approval.

Proposed Sec. 49.22(f)(1) explicitly prohibits the board or senior

officer from forcing the CCO to make any material changes to the

report. The purpose of this review is to permit the members of the

board or the senior officer to provide the Commission with any

objections they might have to the report. The Commission believes that

the prohibition against the board and senior officer making changes to

the annual compliance report will allow the CCO to make a complete and

accurate assessment of the SDR's compliance program.

Proposed Sec. 49.22(f)(2) describes the process for submission of

the report to the Commission. The proposed Regulation requires that the

annual compliance report be electronically provided to the Commission

not more than 60 days after the end of the calendar year. If a CCO

determines that an annual compliance report filed with the Commission

has a material error or if material non-compliance is identified after

filing, proposed Sec. 49.22(f)(3) would require a SDR to promptly file

an amended report. This amended report must also include the

certification by the CCO as to the accuracy and completeness made in

the initial submission of the report. If a CCO is unable to file an

annual compliance report within 60 days of the end of the calendar

year, proposed Sec. 49.22(f)(4) would permit a CCO to request the

Commission to grant an extension of time to file its compliance report

based on substantial undue hardship. Extensions for the filing deadline

would be granted at the discretion of the Commission. Additionally, to

protect the trade secrets of the SDR and the security of the data held

by the SDR, the proposed Regulation requires that annual compliance

reports filed pursuant to Sec. 49.22 be treated as exempt from

mandatory public disclosure for purposes of FOIA \100\ and the Sunshine

Act \101\ and parts 145 and 147 of Commission Regulations.

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

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

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

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

Request for Comment. The Commission request comment on its proposed

regulations regarding the preparation and submission of an SDR's annual

compliance report.

(1) Should the annual compliance report contain additional content

beyond what is proposed in Sec. 49.22(e)? Are additional provisions

necessary to ensure that an SDR's board of directors cannot adversely

influence the content of an annual compliance report as drafted by the

CCO?

(2) In the alternative, are additional provisions necessary to

insure that individual directors or other SDR employees have an

adequate opportunity to register any concerns or objections they might

have to the contents of an annual compliance report?

The Commission also requests comment relating to insulating an

SDR's CCO from undue influence or coercion.

(1) Should the Commission adopt a regulation that prohibits an

officer, director or employee of the SDR or related person to coerce,

manipulate, mislead, or fraudulently influence the CCO in performing

his or her duties?

(2) Is it necessary to adopt regulations to address potential

conflicts between and among an SDR's compliance, commercial, and

ownership interests?

(3) If so, what should such regulations entail, and what specific

conflicts of interest should they address?

7. Recordkeeping--Proposed Sec. 49.22(g)

Proposed Sec. 49.22(g) details SDRs' recordkeeping requirements

for records relating to a CCO's areas of responsibility. This proposed

regulation requires an SDR to maintain: (i) A copy of its written

policies and procedures, including its code of ethics and conflicts of

interest policies; (ii) copies of all materials, including written

reports provided to the board of directors in connection with review of

the annual report, as well as the board minutes or other similar

written records, that record the submission of the annual compliance

report to an SDR's board of directors or its senior officer; and (iii)

any other records relevant to an SDR's annual report. The records

required to be maintained pursuant to this section are designed to

provide Commission staff with a basis to determine whether an SDR has

complied with the CEA and applicable Commission Regulations. The

Commission also wants to preserve its ability to reconstruct why

certain information was included or excluded in an annual report, in

the event that such reconstruction becomes necessary under a future

audit or investigation.

The SDR would be required to maintain these records in accordance

with Sec. 1.31 of the Commission's Regulations. Following Sec. 1.31,

all records must be kept for a period of five years.

Request for Comment. The Commission requests comment regarding

whether the requirements of proposed Sec. 49.22(g) are sufficient to

create a complete and easily auditable record of a board of directors'

or senior officer's review of an annual compliance report to ensure

that the report, as drafted by the CCO, was not altered.

D. Core Principles Applicable to SDRs

Section 21(f) of the CEA details the ``core principles'' that are

applicable to SDRs. These core principles include (i) antitrust

considerations; (ii) governance arrangements; and (iii) conflicts of

interest.\102\

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

\102\ Section 21(f)(4), 7 U.S.C. 24a(f)(4), establishes a fourth

core principle which authorizes the Commission to establish

additional duties for registered SDRs. The Commission is proposing

to add several additional duties pursuant to this authority; these

proposed duties are discussed in Section E, below.

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

Registered SDRs will be required to comply with the core principles

as described in proposed Sec. 49.19. Unless otherwise determined by

the Commission by order, rule or regulation, an SDR would have

reasonable discretion in establishing the manner in which it complies

with the core principles described in proposed Sec. 49.19. The

following subsections describe in detail the Regulations

[[Page 80916]]

proposed by the Commission to implement the ``core principles.''

1. Antitrust Considerations (Core Principle 1)

Consistent with Section 15(a) of the CEA,\103\ the Commission in

proposing Sec. 49.19 believes that an SDR should (unless necessary or

appropriate to achieve the purposes of the CEA) avoid adopting any

rule, regulation or policy, or taking any action that results in an

unreasonable restraint of trade or imposing any material

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

processing of swaps (``Core Principle 1'').

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

\103\ Section 15(b) of the CEA provides:

The Commission shall take into consideration the public interest

to be protected by the antitrust laws and endeavor to take the least

anticompetitive means of achieving the objectives of this chapter,

as well as the policies and purposes of this chapter, in issuing any

order or adopting any Commission rule or regulation (including any

exemption under Section 6(c) or 6c(b) of this title), or in

requiring or approving any bylaw, rule, or regulation of a contract

market or registered futures association established pursuant to

Section 21 of this title.

7 U.S.C. 19.

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

2. Introduction--Governance Arrangements (Core Principle 2) and

Conflicts of Interest (Core Principle 3)

Section 21(f)(2) of the CEA requires that each SDR establish

governance arrangements that are transparent to fulfill public interest

requirements and to support the objectives of the Federal Government,

owners, and participants (``Core Principle 2'').\104\ Section 21(f)(3)

of the CEA provides that each SDR must establish and enforce rules to

minimize conflicts of interest in the decision-making process of the

SDR and to establish a process for resolving such conflicts (``Core

Principle 3'').\105\ In many respects, Core Principles 2 and 3 are

interrelated, although each provides a separate source of authority for

the Commission.\106\

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

\104\ See Section 21(f)(2) of the CEA, 7 U.S.C. 24a(f)(2) as

added by Section 728 of the Dodd-Frank Act.

\105\ See Section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3) as

added by Section 728 of the Dodd-Frank Act.

\106\ In Section 4(a), the Commission identifies potential

conflicts of interest in the operation of a registered SDR. Such

conflicts may implicate (i) SDR access, pricing, and provision of

services and (ii) disclosure or use of SDR Information. As further

discussed, such conflicts of interest may originate in the control

of an SDR by one reporting entity or a small subset of reporting

entities (a ``control group''). Such control may result from

representation on SDR governing bodies, whether through (i)

ownership of voting equity or the exercise of voting rights or (ii)

other direct or indirect means. The existence of such conflicts may

frustrate the public interest, as well as the objectives of the

Federal Government, certain owners, and participants, in

facilitating the reporting of swap transactions. Therefore, in

establishing governance arrangements that are transparent as to (i)

the sources of such control and (ii) the decisions resulting from

such control, the SDR may be satisfying Core Principles 2 and 3

simultaneously.

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

In order to ensure proper implementation of Core Principles 2 and

3, respectively, the Commission proposes regulations regarding (i) the

transparency of SDR governance arrangements and (ii) SDR identification

and mitigation of existing and potential conflicts of interest.\107\

The proposed rules reflect consultation with staff of the following

agencies: (i) The SEC; (ii) the Fed; (iii) OCC; (iv) FDIC; and (v) the

Treasury Department. Additionally, the proposed rules were informed by:

(1) The joint public roundtable that Commission and SEC staff conducted

on September 14, 2010 (the ``SDR Roundtable''); \108\ and (2) answers

to a survey that the Commission informally circulated to existing trade

repositories \109\ and other companies that may be interested in

registering as SDRs in the future (the ``SDR Survey'').\110\ Finally,

mindful of the importance of international harmonization, the proposed

rules incorporate certain elements of the European Commission Proposal

\111\ and the Working Group Report.\112\ The Commission intends for the

proposed rules, as well as the final rules, to meet or exceed the

standards set forth by the Working Group Report relating to trade

repositories.\113\

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

\107\ The Commission notes that entities dually registered with

the Commission and the SEC would be required to comply with both

sets of rules.

\108\ See Press Release, Commission, CFTC, SEC Announce

Panelists, Room Update and Webcast Address for September 15 Public

Roundtable to Discuss Swap Execution Facilities and Security-Based

Swap Execution Facilities (Sept. 14, 2010), http://www.cftc.gov/

PressRoom/PressReleases/pr5895-10.html; Press Release, Commission,

CFTC, SEC Announce Panelists for September 14 Public Roundtable to

Discuss Swap and Security-Based Swap Data, Swap and Security-Based

Swap Data Repositories and Real Time Reporting (Sept. 13, 2010),

http://www.cftc.gov/PressRoom/PressReleases/pr5892-10.html; Press

Release, Commission, CFTC, SEC to host public roundtable to discuss

swap data, swap data repositories and real time reporting (Sept. 7,

2010), available at http://www.cftc.gov/PressRoom/PressReleases/

pr5886-10.html. See also Transcript, Public Roundtable to Discuss

Swap Data, Swap Data Repositories and Real Time Reporting (Sept. 14,

2010), available at http://www.cftc.gov/idc/groups/public/@swaps/

documents/file/derivative18sub091410.pdf (the ``SDR Roundtable

Tr.'').

\109\ Although SDRs are new entities created pursuant to the

Dodd-Frank Act, similarly-functioning entities called trade

repositories have been in existence for quite some time.

\110\ Commission staff circulated the informal survey to five

entities and received answers to certain questions. See http://

www.cftc.gov/LawRegulation/DoddFrankAct/OTC_9_DCOGovernance.html

(last visited Nov. 1, 2010).

\111\ See European Commission Proposal, supra note 16.

\112\ See Working Group Report, supra note 13.

\113\ Id.

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

3. Governance Arrangements (Core Principle 2)

In addition to proposed Regulations discussed in sections II.B.6,

II.B.7 and II.E.4,\114\ the Commission proposes to impose, pursuant to

proposed Sec. 49.20 (implementing Core Principle 2), certain minimum

standards for the transparency of SDR governance arrangements.

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

\114\ See proposed Sec. Sec. 49.16 regarding maintenance of

data privacy, discussed in section II.B.6 of this proposed

rulemaking; 49.17 regarding access to SDR data, discussed in section

II.B.7. of this proposed rulemaking; and 49.27 regarding equitable

and non-discriminatory access and fees, discussed in section II.E.4

of this proposed rulemaking.

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

(a) Transparency of Governance Arrangements

The Commission proposes to mandate minimum standards for the

transparency of SDR governance arrangements.\115\ Pursuant to such

standards, an SDR must:

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

\115\ In addition, the Commission proposes to require each

registered SDR to establish governance arrangements that are well

defined and include a clear organizational structure with consistent

lines of responsibility and effective internal controls. As the SDR

must have such arrangements to (i) properly identify the sources of

potential conflicts of interest and (ii) establish an appropriate

process for resolving such conflicts, such arrangements also satisfy

Core Principle 3.

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

Include a statement in its charter documents regarding the

transparency of its governance arrangements, and the manner in which

such transparency supports the objectives of the Federal Government;

Make available certain information to the public and

relevant authorities; \116\

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

\116\ Such information includes: (i) The registered SDR mission

statement; (ii) the mission statement and/or charter of the

registered SDR Board of Directors and certain committees; (iii) the

board of directors nominations process of the registered SDR, as

well as the process for assigning members of the board of directors

or other persons to certain committees; (iv) names of all members of

(a) the board of directors and (b) certain committees; (v) a

description of how the board of directors and certain committees

consider an independent perspective in their decision-making

processes; (vi) the lines of responsibility and accountability for

each operational unit of the registered SDR; and (vii) summaries of

significant decisions implicating the public interest, the rationale

for such decisions, and the process for reaching such decisions.

These significant decisions include decisions relating to pricing of

repository services, the offering of ancillary services, access to

data, and the use of SDR Information.

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

Ensure that the information made available is current,

accurate, clear and readily accessible; and

Disclose summaries of significant decisions in a

sufficiently comprehensive and detailed fashion so

[[Page 80917]]

that the public and relevant authorities would have the ability to

discern the SDR policies or procedures implicated and the manner in

which SDR decisions implement or amend such policies or procedures.

In addition, although a registered SDR is not required to disclose

minutes of board of directors or committee meetings to the public, it

must furnish this information to the Commission upon request.

Request for Comment. The Commission requests comment on the

questions set forth below.

(1) Are the requirements described above sufficiently clear? If

not, why not? What would be a better alternative?

(2) Should the Commission require the SDR to make any other

information available to the public? To the relevant authorities?

Conversely, should the Commission permit the SDR to maintain the

confidentiality of any information that the Commission currently

contemplates making public?

(3) Should the Commission prescribe more detailed standards on the

manner in which an SDR must ensure that its information is ``current,

accurate, clear, and readily accessible''? If so, which standards?

(4) Should the Commission require the SDR to disclose summaries of

significant decisions? Why or why not? Has the Commission correctly

identified which decisions should be considered significant? It not,

what would be a better alternative? In what manner should these

decisions be disclosed?

(5) Are the requirements described above necessary or appropriate

to implement Core Principle 2? If not, why not?

(6) What other measures should the Commission consider to implement

Core Principle 2? Should such measures supplement or replace the

requirements described above? Why?

(b) Consideration of an Independent Perspective

Proposed Sec. 49.20(c) would require each registered SDR to

establish, maintain, and enforce policies and procedures to ensure that

(i) its board of directors, as well as (ii) any SDR committee that has

the authority to (A) act on behalf of the board of directors or (B)

amend or constrain the action thereof, adequately considers a

perspective independent of competitive, commercial, or industry

interests in its deliberations.\117\ The Commission believes that the

board of directors, as well as each abovementioned committee, would be

more likely to contemplate the manner in which a decision might affect

all constituencies, and less likely to concentrate on the manner in

which a decision affects the interests of the control group, if it

integrates an independent perspective in its deliberations. Hence, in

counterbalancing the perspective of certain reporting entities

controlling an SDR, the integration of an independent perspective would

aid in addressing the conflicts of interest identified herein. The

Commission believes that it is particularly important for an

independent perspective to be reflected in the nominations process for

the board of directors, as well as the process for assigning members of

the board of directors or other persons to the abovementioned

committees. Therefore, proposed Sec. 49.20(c) would also require each

registered SDR to establish, maintain, and enforce policies and

procedures to ensure that such nominations and assignment processes

adequately incorporates an independent perspective.

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

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

importance of the independent perspective in mitigating conflicts of

interest).

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

Along with the requirements noted above, the Commission is

proposing that a registered SDR meet certain reporting requirements

relating to its board of directors, as well as each SDR committee that

has the authority to (i) act on behalf of its board of directors or

(ii) amend or constrain the action thereof. Specifically, the

Commission proposes to require an SDR to submit the following within

thirty (30) days after an election of the board of directors: (i) For

the board of directors, as well as each such committee, a list of all

members; (ii) a description of the relationship, if any, between such

members and the SDR or its affiliates; and (iii) any amendments to the

policies and procedures that the SDR maintains with respect to

consideration of the independent perspective. The Commission believes

that such disclosure promotes the transparency of governance

arrangements and improves the detection and prevention of conflicts of

interest, and which may actually deter such conflicts in the first

instance.

Request for Comment. The Commission requests comment on the

questions set forth below.

Consideration of an Independent Perspective

(1) To ensure the consideration of an independent perspective,

should the Commission require a registered SDR to have public directors

on (i) its board of directors and (ii) any committee that has the

authority to (A) act on behalf of the board of directors or (B) amend

or constrain the action of the board of directors?

a. If not, why not and what would be a better alternative to

improve governance and mitigate conflicts of interest?

b. If so, what should be the required composition of the board of

directors and each such committee? Should there be a minimum

requirement on the number or percentage of public directors? If so,

what should the minimum requirement be and why?

c. How should the Commission define ``public director'' for

registered SDRs?

d. Would providing for fair representation on an SDR board of

directors and each such committee be preferable to, or complementary

to, mandating a specific number or percentage of public directors?

(2) Should the Commission require a registered SDR to establish a

nominating committee? Is the nominating committee necessary or

appropriate for the mitigation of the conflicts of interest identified

herein, or of any other conflict of interest? If not, why not and what

would be a better alternative? If so, should the nominating committee

have a certain percentage, minimum number, or be comprised solely of

public directors? Why?

(3) Should the Commission require a registered SDR to establish any

other committees to mitigate conflicts of interest? If so, what would

be the responsibilities of such a committee? Should the Commission

require such a committee to have a certain percentage, a minimum

number, or be comprised solely of public directors? Why?

Limitations on Ownership of Voting Equity and the Exercise of Voting

Rights

(4) Should the Commission impose limitations on the ownership of

voting or non-voting equity and the exercise of voting rights on

reporting entities or other market participants? If so, what should the

required ownership and voting limitations be? Are such limits necessary

or appropriate for mitigating the conflicts of interest identified

herein, or any other conflicts of interest?

(5) Would SDR compositional requirements be more or less effective

than ownership or voting limitations at addressing conflicts of

interest? Would SDR compositional requirements, on their own, be

sufficient to address conflicts of interest concerns (assuming that

such restrictions are necessary for this purpose) or are both

restrictions on governance and ownership needed?

(6) If the Commission were to require ownership and voting

limitations, should the Commission permit the SDR board of directors to

waive the

[[Page 80918]]

limitations for a person who is not an SDR participant (and its related

persons) provided that certain conditions are met? If so, under what

conditions? Should the waiver be subject to the review of the

Commission?

(7) Would an aggregate limit on the ownership of voting equity and

the exercise of voting rights be appropriate for SDRs? If so, should

such aggregate limit be applied only to reporting entities? Which

reporting entities? What should such aggregate limit be? Why?

(8) Should any ownership and voting limitations be extended to the

parent company of an SDR?

(9) If the Commission were to impose ownership or voting

limitations, should the Commission require remediation by an SDR of any

interest that a reporting entity or a related person holds or exercises

in excess of the limitations?

(10) If the Commission were to impose ownership or voting limits,

should the limitations be phased-in for SDRs to provide a grace period

for those entities that would not meet the limits at the outset, but

that could potentially meet them at a later date, e.g., one or two

years after SDR registration with the Commission?

(11) If the Commission were to impose ownership and voting

limitations, how might such limitations influence the competitive

dynamics of the SDR market?

(12) If the Commission were to impose ownership or voting

limitations, how might such limitations address changes in conflicts of

interest resulting from the evolution of the regulated swaps market?

(13) Are there potential ways to more narrowly target voting and

ownership limitations?

(14) Should the Commission require parent companies of SDRs to

comply with the substantive requirements applicable to SDR boards of

directors?

(15) Should the Commission require parent companies' officers,

directors, employees and agents to be subject to Commission authority?

(16) Should the Commission require that the books and records of

SDR parent companies be open to inspection by the Commission?

(c) Substantive Requirements for SDR Boards of Directors (and Certain

SDR Committees)

(i) Expertise

The Commission is proposing a number of substantive requirements

for SDR boards of directors and certain SDR committees to mitigate

existing and potential conflicts of interest. Proposed Sec.

49.20(c)(5) would require that the SDR board of directors, SDR senior

management, and members of any SDR committee that has the authority to

(i) act on behalf of the board of directors or (ii) amend or constrain

the actions thereof, in each case, have (A) sufficiently good

reputations, (B) the requisite skills and expertise to fulfill their

responsibilities in the management and governance of the registered

SDR, (C) a clear understanding of such responsibilities, and (D) the

ability to exercise sound judgment about SDR affairs.

(ii) Other Substantive Requirements

In addition to the expertise requirement, the Commission in

proposed Sec. 49.20(c) proposes the following requirements, which aim

to enhance the accountability of SDR boards of directors to the

Commission, with respect to the manner in which such boards of

directors cause the registered SDRs to discharge all statutory and

regulatory responsibilities\118\ under the Dodd-Frank Act, as it amends

the CEA:

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

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

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

The roles and responsibilities of SDR boards of directors

must be clearly articulated, especially in respect of the manner in

which each such board of directors ensures that the registered SDR

complies with all statutory and regulatory responsibilities under the

Dodd-Frank Act, as it amends the CEA.

Each SDR board of directors shall review its performance

and that of its individual members annually. It should consider

periodically using external facilitators for such reviews.

A registered SDR must have procedures to remove a member

from its board of directors, where the conduct of such member is likely

to be prejudicial to the sound and prudent management of the SDR.

Request for Comment. The Commission requests comment on the

questions set forth below.

(1) Are the proposed substantive requirements for board of

directors (and certain SDR committees) necessary or appropriate to

mitigate SDR conflicts of interest, in light of the proposed minimum

standards on (A) transparency, (B) identification and resolution of

conflicts of interest, and (C) access, use, or disclosure of SDR

Information? If not, why not?

(2) How might the proposed substantive requirements influence the

competitive dynamics of the SDR market?

(3) How might the proposed substantive requirements address changes

in conflicts of interest resulting from the evolution of the regulated

swaps market?

(4) What other substantive requirements should the Commission

consider imposing on an SDR board of directors? How might such

requirements affect the competitive dynamics of the SDR market?

(5) Should the Commission focus on ensuring fair representation? If

so, should the Commission view fair representation as complementing or

replacing an independent perspective? What entities should be included

in fair representation? Would the value of fair representation differ

depending on the organizational structure of the SDR (e.g., an at-cost

utility or a for-profit entity)? The Commission particularly welcomes

factual examples.

(6) If the Commission decides to focus on ensuring fair

representation as either an alternative to, or a complement of, an

independent perspective, what changes should the Commission make to the

proposed substantive requirements?

(7) In what ways can a SDR board of directors incorporate an

independent perspective into its decision-making process?

(8) Should the nominations process require the right to petition

for alternative candidates? If so, to whom should such right be granted

(e.g., certain groups of market participants)?

4. Conflicts of Interest (Core Principle 3)

(a) Conflicts of Interest

Based on discussions at the SDR Roundtable, as well as answers to

the SDR Survey, the Commission has identified several potential

conflicts of interest, including but not limited to, discrimination

against certain reporting entities and unfair or anticompetitive

disclosure. A control group may compete with other reporting entities

in the execution or clearing of swap transactions and may have an

incentive to leverage its influence over the registered SDR to gain a

competitive advantage in relation to other reporting entities.

Additionally, because the Dodd-Frank Act requires all swaps (whether

cleared or uncleared) to be reported to a registered SDR,\119\ swap

data\120\ and SDR analyses of SDR

[[Page 80919]]

Information could have great commercial value.\121\ A control group may

have an incentive to (i) limit or burden access to such analyses on a

discriminatory basis or (ii) disclose or use the data of other

reporting entities for its own competitive purposes (e.g., front-

running). The control group may also have an incentive to cause the SDR

to provide such data to an affiliate for derivative applications or

ancillary services (especially if such applications or services are

bundled).

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

\119\ See Section 2(a)(13)(G) of the CEA, as amended by Section

727 of the Dodd-Frank Act.

\120\ For example, such data would enable regulatory

authorities, such as the Commission, to ascertain the exposure of

reporting entities and their counterparties to swap transactions.

See generally 7 U.S.C. 24a(c)(7). See also SDR Roundtable Tr., supra

note108, at 55-56 (Comments from Jiro Okochi, CEO and Co-Founder,

Reval, stating ``In terms of the actual data itself, I think one of

the goals of the reform is to allow more transparency and efficiency

in the marketplace * * *'').

\121\ Warehouse Trust Response to the SDR Survey, at p. 4,

available at http://www.cftc.gov/idc/groups/public/@swaps/documents/

file/derivative9sub100510-wt.pdf (stating that ``SDR data is

extremely valuable and could be sold either stand alone or enhanced

with other market data and analysis'').

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

Request for Comment. The Commission requests comment on the

questions set forth below on potential conflicts of interest.

(1) Has the Proposal correctly identified the conflicts of interest

that a registered SDR may confront? Has the Proposal accurately

specified the possible effects of such conflicts of interest on SDR

operations? What are other possible effects?

(2) What other conflicts of interest may exist? What are the

effects of such conflicts?

(3) How might conflicts of interest change as registered SDRs

become more established?

(4) How might conflicts of interest change as the swaps market

evolves under regulation?

(b) Mitigation of Conflicts of Interest

To mitigate conflicts of interest, the Commission proposes to

mandate, pursuant to proposed Sec. 49.21, that each registered SDR

maintain and enforce rules (i) that would identify, on an ongoing

basis, existing and potential conflicts of interest, and (ii) that

would enable the SDR to make decisions if a conflict exists. Such rules

would complement the abovementioned provisions.

(c) Policies and Procedures to Identify and Mitigate Conflicts of

Interest

To ensure that the mitigation in Core Principle 3 is effected, the

Commission proposes to require each registered SDR to establish,

maintain and enforce rules to identify existing and potential conflicts

of interest in its decision-making process. As discussed above, a

control group can dominate an SDR to further its economic interests to

the detriment of other reporting entities. Therefore, the Commission

believes that it is critical for a registered SDR to establish,

maintain and enforce policies and procedures to mitigate such a

conflict. Moreover, the Commission believes that an SDR should engage

in the identification and mitigation of conflicts of interest on an

ongoing basis since conflicts can arise or change at any time. Further,

the Commission proposes to require such SDR to have rules for making

decisions in the event of a conflict of interest. The Commission

believes such rules should require, at a minimum, the recusal of any

person involved in the conflict from such decision-making. Such recusal

rules will alleviate certain concerns regarding the impartiality of the

SDR decision-making process.

Request for Comment. The Commission requests comment on the

questions set forth below.

(1) Are the requirements described above sufficiently clear? If

not, why not? What would be a better alternative?

(2) Should the Commission prescribe more detailed standards for SDR

rules on identifying conflicts of interest? If so, which standards?

(3) Should the Commission prescribe more detailed standards for SDR

rules on decision-making in the event of a conflict of interest? If so,

which standards?

E. Additional Duties

In addition to the ``core principles'' set forth above in section

D, Section 21(f)(4) of the CEA established a fourth core principle

under which the Commission may prescribe additional duties for SDRs for

the purpose of minimizing conflicts of interest, protecting data,

ensuring compliance and guaranteeing the safety and security of the

SDR. In this regard, pursuant to its authority under Sections 21(f)(4)

and 8a(5) of the CEA the Commission proposes to require four additional

duties that would require an SDR to (i) adopt and implement system

safeguards, including business continuity and disaster recovery plans;

(ii) maintain sufficient financial resources; (iii) furnish to market

participants a disclosure document setting forth the risks and costs

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

and open access to the SDR and fees that are equitable and non-

discriminatory. These additional duties are discussed in turn below.

1. System Safeguards

Proposed Sec. 49.24 would require SDRs to (1) establish and

maintain a program of risk oversight to identify and minimize sources

of operational risk through the development of appropriate controls and

procedures and the development of automated systems that are reliable,

secure, and have adequate scalable capacity; (2) establish and maintain

emergency procedures, backup facilities, and a plan for disaster

recovery that allow for the timely recovery and resumption of

operations and the fulfillment of the responsibilities and obligations

of the SDR, i.e., BC-DR Plans; and (3) periodically conduct tests to

verify that backup resources are sufficient to ensure continued

fulfillment of all duties of the SDR established by the CEA or the

Commission's regulations.

The proposed regulation would require an SDR's program of risk

analysis and oversight to address six categories of risk analysis and

oversight, including information security; BC-DR planning and

resources; capacity and performance planning; systems operations;

systems development and quality assurance; and physical security and

environmental controls. It would require each SDR to maintain a BC-DR

plan and have BC-DR resources sufficient to enable recovery and

resumption of its operations and resumption of its ongoing fulfillment

of its duties and obligations as an SDR during the next business day

following any disruption of its operations, either through sufficient

infrastructure and personnel resources of its own or through sufficient

contractual arrangements with other SDRs or disaster recovery service

providers.\122\ The proposed regulation would require each SDR to

notify Commission staff of various security-related events and provide

relevant documents to the Commission; and to conduct regular, periodic,

objective testing and review of its automated systems. It would also

require each SDR, to the extent practicable, to coordinate its BC-DR

plan with SEFs, DCMs, DCOs, SDs, and MSPs who report swap data to the

SDR, as well as initiate coordinated testing of such plans, and to take

into account in its own BC-DR plan, the BC-DR plans of relevant

telecommunications, power, water, and other essential service

providers.

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

\122\ See Commission, Notice of Proposed Rulemaking: Business

Continuity and Disaster Recovery, 75 FR 42,633 (July 22, 2010);

Interagency Paper on Sound Practices to Strengthen the Resilience of

the U.S. Financial System issued by the Board of Governors of the

Federal Reserve System, the Department of the Treasury and the SEC,

68 FR 17,809 (Apr. 11, 2003); SEC, Policy Statement Relating to

Business Continuity Planning for Trading Markets, Exchange Act

Release No. 48,545 (Sept. 25, 2003), 68 FR 56,656 (Oct. 1, 2003).

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

Because automated systems play a central and critical role in

today's financial markets, oversight of these systems will be an

essential part of the effective regulatory oversight of swaps.

[[Page 80920]]

Prompt and adequate notice to the Commission concerning systems

malfunctions, systems security incidents, or any events leading to the

activation of an SDR's BC-DR plan will assist the Commission's

oversight and its ability to assess systemic risk levels. Additionally

and because SDRs will hold data needed by financial regulators from

multiple jurisdictions, safeguarding such systems will be essential to

mitigation of systemic risk world-wide. The ability of SDRs to recover

and resume operations promptly in the event of a disruption of their

operations will be highly important to the U.S. and world economy. It

would present unacceptable risks to the U.S. and world financial system

if SDRs that hold data concerning swaps and thus comprise critical

components of the world financial system were to become unavailable for

an extended period of time for any reason. Adequate system safeguards

are crucial to mitigation of such risks.

Request for Comment. The Commission requests comment on whether the

time periods specified in proposed Sec. 49.24 with respect to

submission of annual reviews and written notices of material system

outages and material systems changes the correct time periods to use?

Should any of the proposed time periods be shortened or lengthened? If

so, please explain your reasoning.

2. Financial Resources

Proposed Sec. 49.25 would require an SDR to maintain financial

resources sufficient to enable it to perform its functions in

compliance with the duties set forth in proposed Sec. 49.9 and the

core principles set forth in proposed Sec. 49.19.\123\ The Commission

believes that requiring SDRs to maintain sufficient financial resources

will help to ensure the protection of the swap data maintained by the

SDR as well as the safety and security of the SDR.

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

\123\ An entity that operates as both a SDR and DCO would also

be required to comply with the financial resource requirements of

Core Principle B set forth in Section 5b(c)(2)(B) of the CEA, 7

U.S.C. 7a-1(c)(2)(B).

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

Proposed Sec. 49.25 (a)(3) provides that financial resources \124\

will be considered sufficient for an SDR if their value is at least

equal to the total amount that would enable the SDR, or applicant for

SDR registration, to cover its operating costs for a period of at least

one year, calculated on a rolling basis. The types of financial

resources to meet this obligation would include the SDR's own capital

and any other financial resource acceptable to the Commission. The

financial resources required in proposed Sec. 49.25 must be the

independent or dedicated resources of the SDR and may not be resources

used for other purposes or by affiliated entities, i.e., the same

assets or capital may not be used for multiple purposes.

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

\124\ The financial resources allocated by the swap data

repository to meet these requirements must include unencumbered,

liquid financial assets (i.e., cash and/or highly liquid securities)

equal to at least six months' operating costs. If any portion of

such financial resources is not sufficiently liquid, the SDR may

take into account a committed line of credit or similar facility for

the purpose of meeting this requirement.

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

Proposed Sec. 49.25(c) provides that SDRs, in computing its

financial resource requirement, may make a reasonable calculation of

its projected operating costs over a 12-month period.\125\ This would

be performed on a quarterly basis. Financial resources of a SDR would

also be valued under proposed Sec. 49.25(d) on at least a quarterly

basis.

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

\125\ The SDR shall have reasonable discretion in determining

the methodology used to compute such projected operating costs. The

Commission may review the methodology and require changes as

appropriate.

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

Proposed Sec. 49.25(f) sets forth the reporting requirements to

the Commission. Specifically, no later than 17 business days after the

close of each fiscal quarter or at any time upon Commission request, a

SDR is required to report the amount of financial resources required by

proposed Sec. 49.25(a) together with financial statements, including

the balance sheet, income statement, and statement of cash flows of the

SDR or of its parent company.

Request for Comment. The Commission requests comment on whether the

methodology set forth above for determining sufficient financial

resources would provide the necessary resources to ensure the financial

integrity of the SDR. If not, please provide a different methodology or

manner for calculating sufficient SDR financial resources.

3. Disclosure Requirements of Swap Data Repositories

Proposed Sec. 49.26 would require an SDR furnish to market

participants a disclosure document (``SDR Disclosure Document'')

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

the SDR. The Commission believes that this requirement will benefit

market participants and the swap market generally by helping to (i)

minimize conflicts of interest and (ii) ensure SDR compliance with its

statutory responsibilities and duties.

The Commission in proposed Sec. 49.26 would require that each SDR

Disclosure Document contain the following information:

The SDR's criteria for providing others with access to

services offered and data maintained by the SDR;

The SDR's criteria for those seeking to connect to or link

with the SDR;

A description of the SDR's policies and procedures

regarding its safeguarding of data and operational reliability, as

described in proposed Sec. 49.24;

The SDR's policies and procedures designed to protect the

privacy and confidentiality of any and all swap transaction information

that the SDR receives from market participants, as described in

proposed Sec. 49.16;

The SDR's policies and procedures regarding its non-

commercial and/or commercial use of the swap data;

The SDR's dispute resolution procedures involving market

participant;

A description of all the SDR's services, including any

ancillary services;

The SDR's updated schedule of any fees, rates, dues,

unbundled prices, or other charges for all of its services, including

any ancillary services; any discounts or rebates offered; and the

criteria to benefit from such discounts or rebates; and

A description of the SDR's governance arrangements.

Request for Comment. The Commission requests comment on the

following questions:

(1) How should the SDR Disclosure Document be furnished to market

participants? Would public availability on a SDR's Web site be

sufficient? Any other available alternatives?

(2) How useful would the SDR Disclosure Document be for market

participants?

4. Non-Discriminatory Access and Fees

Proposed Sec. 49.27 is intended to establish non-discriminatory

access to the services provided by SDRs because all swap transactions

must be reported to a SDR pursuant to Section 2(a)(13)(G) of the CEA.

The Commission believes that the intent and purpose of Section 21 of

the CEA is for SDRs to provide open and equal access to its services.

Consistent with open and equal access to SDR services, the Commission

further believes that fees or charges adopted by an SDR must be

equitable and otherwise non-discriminatory.

(a) Access. Proposed Sec. 49.27(a) would require that the services

provided by SDRs be available to all market participants, such as DCMs,

SEFs, DCOs, SDs, MSPs and any other counterparty, on a fair, open and

equal

[[Page 80921]]

basis. SDRs that register and agree to accept swap data in a particular

asset class (such as interest rates or commodities) could not offer

their services on a discriminatory basis to select market participants

or select categories of market participants. The Commission believes,

pursuant to Section 21 of the CEA, that access should be fair, open and

equitable. As a component of fair, open and equal access, the

Commission submits that SDRs must ensure that they have the necessary

operational capability to provide services to market participants that

would seek access for the reporting of swap transactions consistent

with Section 21 of the CEA.

(b) Fees. Proposed Sec. 49.27(b) would ensure that fees or other

charges established by a SDR are not used as a means to deny access to

some market participants by employing disparate and/or discriminatory

pricing. The Commission is especially concerned that SDRs could attempt

to adopt disparate pricing for performing their statutory duties and

obligations set forth in Section 21 of the CEA. The Commission believes

that such action would be inconsistent with Core Principle 3 discussed

above, the CEA generally and the guiding principles set forth in the

Dodd-Frank Act.

The Commission recognizes that the ability to receive swap data in

the form and manner proposed by part 45 of the Commission's regulations

and the ongoing maintenance of such data may involve significant costs,

including, but not limited to, technology, personnel, technical support

and appropriate BC-DR plans. The Commission in this proposed Sec.

49.27(b) seeks to ensure that the fees charged to DCMs, DCOs, SEFs,

SDs, MSPs, and any other counterparties are equitable and do not become

an artificial barrier to access, thereby potentially reducing

competition for SDR services.

The Commission submits that an equitable fee would be a uniform and

non-discriminatory set of fees for both ``core'' regulatory services

provided by the SDR as well as any ``ancillary'' or ``supplemental''

services such as life-cycle analysis, confirmation, compression,

dispute resolution, and mark-to-market valuation.

Any preferential pricing such as volume discounts or reductions

would not be generally viewed as equitable by the Commission. Proposed

Sec. 49.27(b) provides that SDRs shall not offer preferential pricing

arrangements to any market participant, including volume discounts or

reductions unless such discounts or reductions apply to all market

participants uniformly and are not otherwise established in a manner

that would effectively limit the application of such discount or

reduction to a select number of market participants. Proposed Sec.

49.27 also would require SDRs to provide fee transparency to market

participants. At a minimum, the proposed Sec. 49.27 would require SDRs

to set forth on its Web site a schedule of fees and charges as well as

in the Disclosure Document discussed above in proposed Sec. 49.26.

In addition, part 43 of the Commission's proposed regulations

relating to real-time reporting would prohibit a registered SDR from

offering a discount based on the volume of swap transaction and pricing

data reported to the registered SDR for public dissemination, unless

such discount is offered to all reporting parties and swap

markets.\126\

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

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

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

Request for Comment. The Commission requests comment on the

questions set forth below on fees:

(1) Are there circumstances in which it would be fair or reasonable

for an SDR to charge a counterparty to a swap a fee to satisfy itself

that the swap data submitted to the SDR by the other counterparty to

the swap is accurate?

(2) In what instances would an SDR differentiate among its users

with respect to fees, dues, other charges, discounts, and rebates?

Should any of those instances be explicitly prohibited or restricted?

(3) Are there any other requirements that the Commission should

impose on an SDR that would promote competition?

F. Real Time Reporting

Proposed Sec. 49.15 details SDRs' ability to accept and publicly

disseminate swap transaction and pricing data for public reporting of

swap transactions executed on a DCM as well as those executed off-

exchange.\127\ The Dodd-Frank Act's real-time public reporting

requirements and the text of proposed Sec. 49.15 are summarized below.

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

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

facility swap transactions. See proposed Sec. 49.15.

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

Section 727 of the Dodd-Frank Act establishes certain public

reporting requirements for all swap transactions and participants, and

identifies the purpose of such public reporting as ``to make swap

transaction and pricing data available to the public in such form and

at such times as the Commission determines appropriate to enhance price

discovery.'' \128\ Section 2(a)(13)(B) establishes the reporting

requirements pursuant to which the Commission is authorized to

promulgate regulations mandating the public availability of swap

transaction and pricing data in ``real-time.'' \129\ By its terms,

Section 2(a)(13)(A) of the CEA defines real-time public reporting to

mean ``as soon as technologically practicable after the time at which

the swap transaction has been executed.'' Section 2(a)(13)(D) of the

CEA permits the Commission to require registered entities to publicly

disseminate swap transaction and pricing data.

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

\128\ Section 2(a)(13)(A) of the CEA, 7 U.S.C. 2(a)(13)(A).

\129\ See Section 2(a)(13)(C) of the CEA, 7 U.S.C. 2(a)(13)(C)

(authorizing and requiring the Commission to provide, by rule, for

the real-time public availability of swap transaction and pricing

data for four types of swap transactions: (1) Swaps that are subject

to the mandatory clearing requirement, including those swaps that

may qualify for an exemption; (2) swaps that are not subject to the

mandatory clearing requirement but are cleared at a registered

derivatives clearing organization; (3) bilateral swap transactions

between two counterparties that are reported to a registered swap

data repository or the Commission in accordance with Section 2(h)(6)

of the Act; and (4) swaps that are determined to be required to be

cleared but are not cleared.). Pursuant to section 2(a)(13)(F)

parties to a swap are required to report to a registered entity in a

timely manner as prescribed by the Commission. Timeliness standards

are prescribed in part 43. See supra note 39.

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

To implement Section 2(a)(13) of the CEA, the Commission is

proposing a real-time public reporting framework for swap transaction

and pricing data in a new part 43 of the Commission's regulations that

is subject to a separate rulemaking.\130\ Proposed Section 43.2(v)

defines ``reportable swap transaction'' to mean any executed swap,

novation, swap unwind, partial novation, partial swap unwind or such

other post-execution events that affect the price of the swap. A

reportable swap transaction includes not only the execution of a swap

contract, but also certain price-affecting events that occur over the

``life'' of a swap. The proposed regulations in part 43 require

registered SDRs to publicly disseminate ``off-facility'' swap data and

allows SDRs to choose to disseminate publicly for swaps executed on a

swap market. The proposed regulations in part 43 organize swap

transactions into a number of distinct categories for purposes of real-

time public reporting, including (1) swap transactions executed on a

``swap market'' as defined in proposed Sec. 43.2(z) \131\, and (2)

``off-facility'' swaps as defined in proposed Sec. 43.2(p).\132\

[[Page 80922]]

Proposed Sec. 49.15 applies to off-facility swap transactions and to

all swap transactions executed on a SEF or DCM that fulfill their

public dissemination requirement \133\ by reporting to a registered

SDR.

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

\130\ See supra note 39.

\131\ Proposed Sec. 43.2(z) defines ``swap market'' as ``any

registered swap execution facility or registered designated contract

market that makes swaps available for trading.'' See supra note 39.

\132\ Proposed Sec. 43.2(p) defines ``off-facility'' swaps as

``any reportable swap transaction that is not executed on or subject

to the rules of a swap market.'' See supra note 39.

\133\ The proposed part 43 Regulations will provide that a swap

market may fulfill its public dissemination requirement by either

(i) sending the required data to a registered SDR that accepts and

publicly disseminates such data; or (ii) by utilizing a third-party

service provider to perform this function. See supra note 39.

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

Under proposed part 43, registered SDRs that disseminate swap

transaction and pricing data to the public in real-time, must make the

data available and accessible in an electronic format that is capable

of being downloaded, saved and/or analyzed.\134\ Proposed Sec. 43.3(i)

requires registered SDRs who disseminate publicly to retain all data

related to a reportable swap transaction (including large notional

swaps and block trades) for a period of not less than five years

following the time at which such reportable swap transaction is

publicly disseminated.

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

\134\ The Commission is proposing this provision to address the

concern that a registered SDR may flash real-time swap transaction

and pricing data to selected market participants before making such

information available to the public and all market participants.

Requiring registered SDRs to allow market participants and the

public to download, save and/or analyze the real-time swap

transaction and pricing data upon public dissemination, ensures

equal access to real-time swap transaction and pricing data. See

proposed Sec. 43.3(e), supra note 39.

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

Proposed part 43 of the Commission's Regulations also reflects the

Commission's belief in the economic utility of real-time swap data that

is promptly reported to the public. Accordingly, proposed Sec. 43.3(a)

proposes specific timeliness standards that must to be met for each

subcategory of swap transaction.

As noted above, proposed Sec. 49.15 applies to off-facility swap

transactions and all transactions executed on a SEF or DCM that fulfill

their public dissemination requirement by reporting to a registered SDR

that has undertaken to accept and publicly disseminate swap transaction

and pricing data in real time. For these transactions, the proposed

regulations in part 43 will require that one party to the swap

transaction report specified real-time data to such a registered SDR,

which, in turn, will be required to disseminate such data to the

public.\135\ In coordination with proposed part 43, proposed Sec.

49.15(b) requires SDRs to ``establish such electronic systems as are

necessary to receive real-time swap transaction data,'' and specifies

that such systems must be capable of publicly disseminating all data

fields specified by the Commission in proposed part 43.

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

\135\ The Commission notes that proposed Sec. 43.3(b) also

provides for an alternative method of reporting by using a third-

party service provide for public dissemination. Reporting entities

electing to satisfy their real-time reporting requirements through a

third-party service provider would not need to report through an

SDR. See supra note 39.

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

Proposed Sec. 49.15(c) requires SDRs who disseminate swap

transaction and pricing data in real time to promptly notify the

Commission when real-time swap data is not timely reported. This

proposed regulation also specifies the information that must be

included in any notification to the Commission of untimely reporting.

The notification must include all of the real-time swap data submitted;

identify the party to the swap that submitted the real-time swap data;

and contain the date and time the real-time swap transaction data was

received by the SDR. The Commission will take appropriate regulatory

action against the delinquent reporting party based on these

notifications.

Request for Comment. The Commission request comment on the

following questions relating to real-time reporting of swap

transactions.

(1) Should any party that receives swaps data pursuant to proposed

part 43 of the Commission's Regulations for the purpose of performing a

real-time reporting function be required to register as a swap data

repository?

(2) Should additional regulatory conditions and requirements apply

to a party receiving swaps data pursuant to proposed part 43 of the

Commission's Regulations for the purpose of performing a real-time

reporting function if such a party is not required to register as a

swap data repository?

G. Procedures for Implementing Swap Data Repository Rules

Proposed Sec. 49.8 is largely intended to conform to the proposed

changes to existing Sec. 40.5(b) (Voluntary submission of rules for

Commission review and approval).\136\ The proposed amendments to Sec.

40.5(b) are set forth in a separate rulemaking pertaining to

``Provisions Common to Registered Entities.'' \137\

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

\136\ Proposed Sec. 40.3 is amended to require additional

information to be provided by registered entities submitting new

products for the Commission's review and approval. Proposed Sec.

40.5(b) codifies a new standard for the review of new rules or rule

amendments as established under the Dodd-Frank Act. See supra note

18.

\137\ Id.

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

1. Request for Approval

Proposed Sec. 49.8 provides that an applicant for registration as

a SDR may request that the Commission approve under Section 5c(c) of

the CEA, any or all of its rules and subsequent amendments, prior to

implementation or, notwithstanding the provisions of Section 5c(c)(2)

of the CEA, at anytime thereafter, under the procedures set forth in

Sec. 40.5 of the Commission's Regulations. SDRs that submit operating

rules to the Commission for approval at the same time as an application

for registration pursuant to proposed Sec. 49.3 on Form SDR to

reinstate the registration of a dormant registered SDR, as defined in

Sec. 40.1, or while one of the foregoing is pending, will be deemed

approved by the Commission no earlier than when the swap data

repository is deemed to be registered or reinstated.

2. Self-certification of Rules

Rules of a registered swap data repository not voluntarily

submitted for prior Commission approval as described above must be

submitted to the Commission with a certification that the rule or rule

amendment complies with the CEA and Commission Regulations pursuant to

the procedures set forth in Sec. 40.6.

III. Effectiveness and Transition Period

The statutory deadline for final rules is July 15, 2011. Final

rules will become effective sixty (60) days after the Federal Register

publication of the final rules. The Commission expects all SDR

applicants to fully comply with the final rules. The Commission

requests comment on the nature and length of implementation and phase-

in periods that would be appropriate to allow potential SDRs and market

participants time to adapt to the new swaps regulatory structure and

implement the Proposal in an efficient and orderly manner.

Request for Comment. The Commission requests comment on the

questions set forth below.

(1) Is a phase-in period appropriate (especially for existing trade

repositories that may seek SDR registration)? If so, how long should

such phase-in period be?

(2) Conversely, should all applicants for SDR registration have to

demonstrate compliance with the final rules to receive registration?

Why or why not?

IV. General Request For Comments

In addition to any specific request for comment included above, the

Commission generally requests comment on all aspects of the Proposal.

Interested persons are invited to submit written presentations of

views, data, and arguments concerning the Proposal.

[[Page 80923]]

V. Related Matters

A. Paperwork Reduction Act

Provisions of proposed part 49 would result in new ``collection of

information'' requirements within the meaning of the Paperwork

Reduction Act of 1995 (``PRA'').\138\ An agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a currently valid Office of Management

and Budget (OMB) control number. The Commission therefore is submitting

this proposal to OMB for review in accordance with 44 U.S.C. 3507(d)

and 5 CFR 1320.11. The title for this collection of information is

``Part 49--Swap data repositories; registration and regulatory

requirements,'' OMB control number 3038-NEW. If adopted, responses to

this new collection of information would be mandatory.

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

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

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

The Commission will protect proprietary information according to

the Freedom of Information Act and 17 CFR part 145, ``Commission

Records and Information.'' In addition, Section 8(a)(1) of the Act

strictly prohibits the Commission, unless specifically authorized by

the Act, from making public ``data and information that would

separately disclose the business transactions or market positions of

any person and trade secrets or names of customers.'' The Commission

also is required to protect certain information contained in a

government system of records pursuant to the Privacy Act of 1974, 5

U.S.C. 552a.

1. Summary of the Proposed Requirements

The proposed regulations would establish a new registered entity

called a swap data repository (``SDR''), which would gather swap data

and make such data available to the Commission and other regulators.

The Commission believes there will be approximately 15 entities seeking

registration as SDRs.

2. Information Provided by Reporting Entities

As noted above, proposed part 49 will impose multiple new

collections of information requirements within the meaning of the PRA.

First, proposed part 49 would impose a registration requirement on all

SDRs. This registration requirement is composed of a one-time initial

registration as well as amendments to registration documents previously

submitted to the Commission by an SDR. Second, proposed part 49 imposes

a reporting requirement on registered SDRs. As part of this reporting

requirement, SDRs are required to provide access to the swap data it

holds to either the Commission or one of the Commission's designees.

Additionally, an annual compliance report must be submitted by an SDR's

CCO. Third, proposed part 49 imposes a recordkeeping requirement for

registered SDRs whereby a registered SDR is required to maintain

records of all swap transaction data for a period of at least five

years after a swap expires and must maintain a written copy of written

policies and procedures, including the code of ethics and conflicts of

interest policies in furtherance of compliance with the Act and

Commission regulations and any records relevant to the annual

compliance report. Lastly, proposed part 49 imposes a disclosure

requirement whereby registered SDRs must provide written disclosures

before accepting any swap data from a reporting entity or upon a

reporting entity's request.

Registration Requirement. Under proposed Sec. 49.3, SDRs would be

required to demonstrate compliance with specified registration

requirements on Form SDR. The proposed collection for this one-time

initial registration is estimated to involve 400 burden hours per SDR.

The Commission bases this estimate on consultation with other

regulators involving similar collections.\139\ As noted above, the

Commission believes 15 entities will be subject to this burden.

Accordingly, the Commission estimates that the one-time initial

registration burden for all SDRs will be approximately 6,000 annual

burden hours.

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

\139\ The Securities and Exchange Commission (``SEC'')

calculated in 2008 that Form SIP takes 400 hours to complete.

Submission for OMB Review; Comment Request, 73 FR 34060 (June 16,

2008) (outlining the most recent SEC calculations regarding the PRA

burdens for Form SIP). While the requirements of Form SIP and Form

SDR are not identical, the Commission believes that there is

sufficient similarity for PRA purposes that the burden would be

roughly equivalent.

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

Additionally, under proposed Sec. 49.3, registered SDRs must amend

Form SDR annually (i.e., within 60 days after the end of each calendar

year of such SDR) as well as when certain information specified on the

Form SDR becomes inaccurate.\140\ The Commission estimates that the

hourly burden for complying with each amendment requirement will be 15

burden hours per amendment for each SDR. The Commission estimates that

respondents will be required to file, on average, including the

mandatory annual amendment, three amendments per year, for an ongoing

annualized burden of approximately 45 hours per SDR and approximately

675 burden hours for all SDRs.

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

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

registration.

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

In addition to amending Form SDR, the following filing requirements

may be imposed on an SDR in the following circumstances.\141\ Under

proposed Sec. 49.3, a SDR may withdraw its registration application by

filing an electronic request with the Secretary of the Commission at

the Commission's Washington, DC office. In the event an SDR is

registered and seeks to withdraw from registration, proposed Sec. 49.4

would require such SDR to give notice to the Commission, in writing,

requesting that its registration as an SDR be withdrawn. Such notice

must be made at least 90 days prior to the date named therein as the

date when the withdrawal of registration shall take effect. The

Commission estimates the burden hours associated with these filings,

which are in addition to and separate from the requirement to amend

Form SDR, to be 10 hours per filing. Additionally, the Commission

estimates that such filings will occur once over a period of two years

for all registered SDRs. Therefore, the average burden hours annualized

for all SDRs are expected to be 5 burden hours.

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

\141\ Prior to filing a notice to withdraw or vacate an

application to register or filing for withdrawal of registration

status, an SDR shall file an amended Form SDR to update any

inaccurate information on the registration form (such burden hours

associated with amendments to Form SDR are calculated above).

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

If an SDR is located outside of the United States and is seeking to

register, proposed Sec. 49.7 requires such SDR to, in addition to

filing a Form SDR, provide the Commission with an opinion of counsel

that the SDR, as a matter of law, is able to provide the Commission

with prompt access to the book and records of such SDR and that the SDR

can submit to onsite inspection and examination by the Commission. The

Commission estimates that the hourly burden for complying with each

opinion of counsel will be 20 burden hours per opinion for each SDR.

The Commission estimates that five SDRs will be located outside the

United States and therefore the aggregate burden hours associated with

this requirement is estimated to be 100 annual burden hours for those

SDRs.

Therefore, the total number of annual burden hours estimated to be

required by the proposed regulations for purposes of registration is

6,000 hours initially (Form SDR) \142\ and 680 hours

[[Page 80924]]

on an ongoing basis for any additional filings.

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

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

located outside the United States.

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

Reporting Requirements. Under proposed Sec. 49.22, chief

compliance officers (``CCOs'') of registered SDRs would be required to

submit an annual compliance report that contains a description of the

SDR's written policies and procedures, including those related to the

code of ethics, conflicts of interest, and compliance with Section

21(c) core principles. If any material error is discovered in the

annual compliance report, the CCO must promptly file an amendment with

the Commission to correct such material error or omission. An amendment

shall contain the oath or certification required by proposed Sec.

49.22(e)(7) that, to the best of the CCO's knowledge and reasonable

belief, and under penalty of law, the annual compliance report is

accurate and complete. Based on the Commission's discussions with

industry and other regulators, the Commission estimates that these

reports (and any amendments which may be necessary) are estimated to

involve an average of 5 annual burden hours per respondent per year,

for an aggregate of 75 aggregate annual burden hours.

A CCO would also be responsible under proposed Sec. 49.22 for,

among other things, establishing procedures for the remediation of

noncompliance issues, and establishing and following appropriate

procedures for the handling, management response, remediation,

retesting, and closing of noncompliance issues. The Commission

estimates that these two requirements will require 520 hours to create

and 120 hours to administer per year per respondent, for a total burden

of 7800 hours initially and 1800 hours on average, annually.

Under proposed Sec. 49.10, SDRs would be required to establish,

maintain, and enforce policies and procedures for the reporting of swap

data of the SDR and shall accept and promptly record all swap data in

its selected asset class and other regulatory information that is

required to be reported pursuant to part 45. Once such swap data is

accepted, proposed Sec. 49.17 would require an SDR to provide direct

electronic access to the Commission or its designees and, pursuant to

proposed Sec. 49.17(d), make such data available to other parties,

including other regulators (i.e., Appropriate Domestic Regulators and

Appropriate Foreign Regulators). In the event an Appropriate Domestic

Regulator or Appropriate Foreign Regulator files a request to gain

access to the swaps data maintained by an SDR, proposed Sec. 49.17

provides that the registered SDR must notify the Commission

electronically and in a format specified by the Secretary of the

Commission. Under proposed Sec. 49.16, SDRs would be required to

develop written policies and procedures to protect the confidentiality

of data, and, under proposed Sec. 49.11, ensure that submitted data is

accurate. Prior to an Appropriate Domestic Regulator or Appropriate

Foreign Regulator receiving the data, proposed Sec. 49.17 requires

that a ``Confidentiality and Indemnification Agreement'' between the

Appropriate Domestic Regulator or Appropriate Foreign Regulator and the

registered SDR be executed. Proposed Sec. Sec. 49.23 and 49.24 specify

the reporting requirements for a registered SDR's emergency policies

and procedures and system safeguards. Proposed Sec. 49.23 would

require registered SDRs to establish procedures for the exercise of

emergency authority in the event of an emergency. A registered SDR

policies and procedures shall include provisions to notify the

Commission as soon as reasonably practicable of any exercise of

emergency authority. When notifying the Commission of any exercise of

emergency authority, a SDR shall explain the reasons for taking such

emergency action, explain how conflicts of interest were minimized, and

document the decision-making process. Underlying documentation shall be

made available to the Commission upon request. Proposed Sec. 49.24

provides that a registered SDR must maintain a BC-DR plan which can be

invoked in the case of an emergency. A registered SDR shall provide to

the Commission, upon request, current copies of its BC-DR plan and

other emergency procedures, its assessments of its operational risk and

other documents requested by Commission staff for purpose of

maintaining a current profile of the SDR's automated systems. Proposed

Sec. 49.24 also requires a registered SDR to notify the Commission

staff of: (1) All system malfunction; (2) cyber security incidents or

targeted threats that actually or potentially jeopardize automated

system operation, reliability, security, or capacity; and (3) any

activation of the SDR's BD-DR plan. Additionally, an SDR shall give the

Commission staff timely notice of all (1) planned changes to automated

systems that may impact the reliability, security, or adequate scalable

capacity of such systems; and (2) planned changes to the SDR's program

of risk analysis and oversight. The Commission estimates that the

start-up burden associated with the reporting requirements in this

paragraph will be 40,000 hours per respondent for a total of 600,000

aggregate burden hours for all respondents. The Commission further

estimates that the total ongoing annual burden of these systems to be

15,000 hours per respondent for a total of 225,000 aggregate burden

hours for all respondents.

Proposed Sec. 49.25 would require a registered SDR to report to

the Commission (and provide sufficient documentation to substantiate

the calculations made therein) the amount of financial resources

available to the SDR to meet the requirements set forth in proposed

Sec. 49.25, the value of each financial resource available, and

provide a financial statement, including the balance sheet, income

statement, and statement of cash flows of the registered SDR. In

addition to providing documentation of the methodology used to compute

its financial requirement, a registered SDR must also provide copies of

any agreement establishing or amending a credit facility, insurance

coverage, or other arrangement evidencing or otherwise supporting the

SDR's conclusions. The Commission estimates the financial statement

will result in 200 annual burden hours per SDR for 3000 aggregate

annual burden hours.

Recordkeeping Requirement. Under proposed Sec. 49.12, registered

SDRs, which are estimated to be approximately 15 entities, would be

required to maintain the swap transaction data it receives for a period

of not less than five (5) years after the applicable swap expires,

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

available to the Commission via real-time electronic access.

Thereafter, the swap data must be archived and retrievable by the SDR

within 3 business days. In addition to requiring SDRs to maintain

records of swap transaction and pricing data, the proposed Regulations

impose an additional recordkeeping requirement on SDRs whereby they

must maintain: (a) A copy of written policies and procedures, including

the code of ethics and conflicts of interest policies in furtherance of

compliance with the Act and Commission regulations, and (b) any records

relevant to the annual compliance report. These proposed recordkeeping

obligations are estimated to involve, initially, 300 burden hours, for

an aggregate of 4500 annual burden hours. The Commission further

estimates that the ongoing annual burden would be 254 hours per

respondent for a total ongoing annual burden of 3810 hours.

Disclosure Requirements. Proposed Sec. 49.26 provides that before

accepting any swap data from a reporting entity or upon a reporting

entity's request, a

[[Page 80925]]

registered SDR shall furnish to the reporting entity a disclosure

document. This disclosure document must contain written information

which reasonably enables the reporting entity to identify and

accurately evaluate the risks and costs associated with using the

services of the SDR. The proposed disclosure obligation is estimated to

involve a one-time initial burden of 100 hours per respondent (i.e.,

preparation of template disclosure document), for a total initial

burden of 1,500 hours. The Commission expects this requirement will

result in an ongoing annual burden of one hour per respondent, for a

total annual burden of 15 hours for all registered SDRs.

3. Information Collection Comments

The Commission invites the public and other Federal agencies to

comment on any aspect of the reporting and recordkeeping burdens

discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission

solicits comments in order to: (i) Evaluate whether the proposed

collection of information is necessary for the proper performance of

the functions of the Commission, including whether the information will

have practical utility; (ii) evaluate the accuracy of the Commission's

estimate of the burden of the proposed collection of information; (iii)

determine whether there are ways to enhance the quality, utility, and

clarity of the information to be collected; and (iv) minimize the

burden of the collection of information on those who are to respond,

including through the use of automated collection techniques or other

forms of information technology.

Comments may be submitted directly to the OMB's Office of

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

mail at [email protected] Please provide the Commission with

a copy of submitted comments so that all comments can be summarized and

addressed in the final rule preamble. Refer to the Addresses section of

this notice of proposed rulemaking for comment submission instructions

to the Commission. A copy of the supporting statements for the

collections of information discussed above may be obtained by visiting

RegInfo.gov. OMB is required to make a decision concerning the

collection of information between 30 and 60 days after publication of

this release in the Federal Register. Consequently, a comment to OMB is

most assured of being fully effective if received by OMB (and the

Commission) within 30 days after publication of this notice of proposed

rulemaking. Nothing in the foregoing affects the deadline enumerated

above for public comment to the Commission on the proposed rules.

B. Cost-Benefit Analysis

Section 15(a) of the CEA \143\ requires that the Commission, before

promulgating a regulation or issuing an order, to consider the costs

and benefits of its action. By its terms, Section 15(a) of the CEA does

not require the Commission to quantify the costs and benefits of a new

regulation or to determine whether the benefits of the regulation

outweigh its costs. Rather, Section 15(a) of the CEA simply requires

the Commission to ``consider the costs and benefits'' of its action.

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

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

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

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

shall be evaluated in light of the following considerations: (1)

Protection of market participants and the public; (2) efficiency and

competition; (3) financial integrity of the futures markets and price

discovery; (4) sound risk management practices; and (5) other public

interest considerations. Accordingly, the Commission could, in its

discretion, give greater weight to any one of the five considerations

and could determine that, notwithstanding its costs, a particular

regulation was necessary or appropriate to protect the public interest

or to effectuate any of the provisions or to accomplish any of the

purposes of the Act.

1. Costs

The Commission has determined that if the proposed regulations are

not enacted, there will be a continued lack of transparency in the

swaps market for both market participants and regulators. Increased

costs to market participants will result from inefficiencies in the

market related to price discovery and risk management and the inability

of regulators to monitor systemic risk. This will ultimately result in

greater market risk for all market participants and greater systemic

risk for the larger economy.

2. Benefits

The Commission has determined that the proposed regulations would

benefit market participants and the public by improving governance

arrangements to prevent conflicts of interests that if not addressed,

would serve the interests of one group of constituents over other

groups, including market participants and the public. Additionally, the

proposed regulations will improve efficiency and competition by

identifying and mitigating conflicts of interests, which will lead to

improved efficiency in decision-making on the one hand, and benefit

competition by increasing open access to markets, on the other hand.

The proposed regulations will also spur competition in the data and

trade repository industry by setting forth clear registration

guidelines and requirements for becoming SDRs and requiring more

transparency and access for existing repositories. Enhanced

transparency in the markets will also facilitate price discovery, which

will decrease risk and, in turn, increase financial integrity. The

increased transparency resulting from the proposed rules will lead to

improved risk management practices, and the new governance arrangements

more effectively balance different interests so that the risks

presented by a ``control group'' or other interests will not dominate

decision-making in the organization. Lastly, the proposed rules will

give the Commission and other federal regulators access to data

accepted by registered SDRs. Such access will promote greater risk

management and give regulators a better measure of systematic risk

throughout the financial markets. The proposed rules, for the reasons

cited above, operate in the best interests of the public.

3. Public Comment

The Commission invites public comment on its cost-benefit

considerations. Commenters are also invited to submit any data or other

information that they may have quantifying or qualifying the costs and

benefits of this proposal with their comment letters.

C. Antitrust Considerations

Section 15(b) of the Act requires ``[t]he Commission [to] take into

consideration the public interest to be protected by the antitrust laws

and endeavor to take the least anticompetitive means of achieving the

objectives of this Act, as well as the policies and purposes of this

Act, in issuing any order or adopting any Commission rule or regulation

* * *'' \144\

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

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

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

The Commission does not anticipate that these proposed regulations

will result in anticompetitive behavior. However, because these

proposed regulations are creating a new registered entity for a new

market (i.e., swaps market), the Commission encourages comments from

the public on this regulation's potential anticompetitive nature.

[[Page 80926]]

D. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \145\ requires that

agencies consider whether the regulations they propose will have a

significant economic impact on a substantial number of small entities

and, if so, provide a regulatory flexibility analysis respecting the

impact.\146\ The proposed Regulations by the Commission will affect

only SDRs, which will comprise a new category of registered entity.

Accordingly, the Commission has not previously addressed the question

of whether SDRs are, in fact, small entities for purposes of the RFA.

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

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

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

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

The Commission has previously established certain definitions of

``small entities'' to be used in evaluating the impact of its rules

under the RFA.\147\ The Commission previously determined that

derivatives clearing organizations (``DCOs'') are not small entities

because they clear contracts executed on contract markets such as

designated contract markets (``DCMs''). The Commission's decision was

based in part on its previous determination that DCMs are not small

entities because of ``the central role'' they play in ``the regulatory

scheme concerning futures trading.'' \148\ Because of the ``importance

of futures trading in the national economy,'' to register as a DCM, a

board of trade has to meet stringent requirements set forth in Section

5 of the Act, 7 U.S.C. 7.\149\ DCOs are subject to similar stringent

requirements, including substantial financial resource requirements,

set forth in Section 5b of the Act, 7 U.S.C. 7a-1.

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

\147\ Policy Statement and Establishment of Definitions of

``Small Entities'' for Purposes of the Regulatory Flexibility Act,

47 FR 18,618 (Apr. 30, 1982).

\148\ Id.

\149\ Id. at note 3.

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

The Dodd-Frank Act defines a SDR as any person that collects and

maintains information or records with respect to transactions or

positions in, or the terms and conditions of, swaps entered into by

third parties for the purpose of providing a centralized recordkeeping

facility for swaps. Similar to DCOs and DCMs, SDRs will play a central

role both in the regulatory scheme for swaps trading and in the overall

market for swap transactions. Additionally, the amount and complexity

of swap transaction data expected to be reported, maintained and

disseminated by SDRs is expected to require significant financial

resources to build the systems necessary to comply with the statutory

mandates set forth in the Dodd-Frank Act. SDRs will receive data from

DCOs and DCMs, amongst others. Additionally, SDRs will be required to

maintain certain minimum financial resources to perform its statutory

duties set forth in proposed Sec. 49.9 and the core principles set

forth in proposed Sec. 49.19. Although the financial requirements will

vary for SDRs (i.e., an SDR's financial resources shall be considered

sufficient if their value is at least equal to a total amount that

would enable the SDR, or applicant for registration, to cover its

operating costs for a period of at least one year, calculated on a

rolling basis), for the basic purpose of the financial integrity of the

swaps market, the Commission can make no size distinction among

registered SDRs. The Commission believes that the financial resources

required to be registered as an SDR and to meet the statutory

obligations of an SDR would essentially prohibit ``small entities.''

Therefore, for purposes of the RFA, the Commission is hereby

determining that SDRs, like DCOs and DCMs, are not ``small entities.''

Thus, the Chairman, on behalf of the Commission, hereby certifies

pursuant to 5 U.S.C. 605(b) that the proposed rules, will not have a

significant impact on a substantial number of small entities.

VI. List of Subjects

List of Subjects in 17 CFR Part 49

Swap data repositories; registration and regulatory requirements.

In consideration of the foregoing, and pursuant to the authority in

the Commodity Exchange Act, as amended, and in particular Sections

8a(5) and 21 of the Act, the Commission hereby proposes to amend

Chapter I of Title 17 of the Code of Federal Regulation by adding a new

part 49 as follows:

PART 49--SWAP DATA REPOSITORIES

Sec

49.1 Scope.

49.2 Definitions.

49.3 Procedures for registration.

49.4 Withdrawal from registration.

49.5 Equity interest transfers.

49.6 Registration of successor entities.

49.7 Swap data repositories located in foreign jurisdictions.

49.8 Procedures for implementing registered swap data repository

rules.

49.9 Duties of registered swap data repositories.

49.10 Acceptance of data.

49.11 Confirmation of data accuracy.

49.12 Swap data repository recordkeeping requirements.

49.13 Monitoring, screening and analyzing swap data.

49.14 Monitoring, screening and analyzing end-user clearing

exemption claims by individual and affiliated entities.

49.15 Real-time public reporting of swap data.

49.16 Privacy and confidentiality requirements of swap data

repositories.

49.17 Access to SDR data.

49.18 Confidentiality and indemnification agreement.

49.19 Core principles applicable to registered swap data

repositories.

49.20 Governance arrangements (Core Principle 2).

49.21 Conflicts of interest (Core Principle 3).

49.22 Chief compliance officer.

49.23 Emergency policies and procedures.

49.24 System safeguards.

49.25 Financial resources.

49.26 Disclosure requirements of swap data repositories.

49.27 Access and fees.

Appendix A to part 49--Form SDR

Authority: 7 U.S.C. 12a and 24a, as amended by Title VII of the

Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

Stat. 1376 (2010), unless otherwise noted.

Sec. 49.1 Scope.

The provisions of this part apply to any swap data repository as

defined under Section 1a(48) of the Act which is registered or is

required to register as such with the Commission pursuant to Section

21(a) of the Act.

Sec. 49.2 Definitions.

(a) As used in this part:

(1) Affiliate. The term ``affiliate'' means a person that directly,

or indirectly, controls, is controlled by, or is under common control

with, the swap data repository.

(2) Asset Class. The term ``asset class'' means the particular

broad category of goods, services or commodities underlying a swap. The

asset classes include credit, equity, interest rates, currency, other

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

Commission.

(3) Control. The term ``control'' (including the terms ``controlled

by'' and ``under common control with'') means the possession, direct or

indirect, of the power to direct or cause the direction of the

management and policies of a person, whether through the ownership of

voting securities, by contract, or otherwise.

(4) Foreign Regulator. The term ``Foreign Regulator'' means a

foreign futures authority as defined in Section 1a(26) of the Act,

foreign financial supervisors, foreign central banks and foreign

ministries.

(5) Commercial Use. The term ``commercial use'' means the use of

swap data held and maintained by a

[[Page 80927]]

registered swap data repository for a profit or business purposes. The

use of swap data for regulatory purposes and/or responsibilities by a

registered swap data repository would not be considered a commercial

use regardless of whether the registered swap data repository charges a

fee for reporting such swap data.

(6) Market Participant. The term ``market participant'' means any

person participating in the swap market, including, but not limited to,

designated contract markets, derivatives clearing organizations, swaps

execution facilities, swap dealers, major swap participants, and any

other counterparties to a swap transaction.

(7) Non-affiliated third party. The term ``non-affiliated third

party'' means any person except:

(i) The swap data repository,

(ii) The swap data repository's affiliate, or

(iii) A person employed by a swap data repository and any entity

that is not the swap data repository's affiliate (and ``non-affiliated

third party'' includes such entity that jointly employs the person).

(8) Person Associated with a Swap Data Repository. The term

``person associated with a swap data repository'' means:

(i) Any partner, officer, or director of such swap data repository

(or any person occupying a similar status or performing similar

functions);

(ii) Any person directly or indirectly controlling, controlled by,

or under common control with such swap data repository;

(iii) Or any employee of such swap data repository.

(9) Position. The term ``position'' means the gross and net

notional amounts of open swap transactions aggregated by one or more

attributes, including, but not limited to, the:

(i) Underlying instrument;

(ii) Index, or reference entity;

(iii) Counterparty;

(iv) Asset class;

(v) Long risk of the underlying instrument, index, or reference

entity; and

(vi) Short risk of the underlying instrument, index, or reference

entity.

(10) Reporting Entity. The term ``reporting entity'' means those

entities that are required to report swap data to a registered swap

data repository. These reporting entities include designated contract

markets, swaps execution facilities, derivatives clearing

organizations, swap dealers, major swap participants and certain end-

users.

(11) Section 8 Material. The term ``Section 8 Material'' means the

business transactions, trade data, or market positions of any person

and trade secrets or names of customers.

(12) Swap Data. The term ``swap data'' means the specific data

elements and information set forth in part 45 of this chapter that is

required to be reported by a reporting entity to a registered swap data

repository.

(13) SDR Information. The term ``SDR Information'' means any

information that the swap data repository maintains.

(14) Registered Swap Data Repository. The term ``registered swaps

data repository'' means a swaps data repository that is registered

under Section 21 of the Act.

(15) Independent Perspective. The term ``independent perspective''

means a viewpoint that is impartial regarding competitive, commercial,

or industry concerns and contemplates the effect of a decision on all

constituencies involved.

(b) Defined Terms. Capitalized terms not defined in this part shall

have the meanings assigned to them in Sec. 1.3 of this chapter.

Sec. 49.3 Procedures for registration.

(a) Application Procedures. (1) An applicant, person or entity

desiring to be registered as a swap data repository shall file

electronically an application for registration on Form SDR provided in

appendix A to this part, with the Secretary of the Commission at its

headquarters in Washington, DC at [email protected] in accordance

with the instructions contained therein.

(2) The application shall include information sufficient to

demonstrate compliance with core principles specified in Section 21 of

the Act and the regulations thereunder. Form SDR consists of

instructions, general questions and a list of Exhibits (documents,

information and evidence) required by the Commission in order to

determine whether an applicant is able to comply with the core

principles. An application will not be considered to be materially

complete unless the applicant has submitted, at a minimum, the exhibits

as required in Form SDR. If the application is not materially complete,

the Commission shall notify the applicant that the application will not

be deemed to have been submitted for purposes of the 180-day review

procedures.

(3) 180-Day Review Procedures. The Commission will review the

application for registration as a swap data repository within 180 days

of the date of the filing of such application. At or prior to the

conclusion of the 180-day period, the Commission will either by order

grant registration; extend, by order, the 180-day review period for

good cause; or deny the application for registration as a swap data

repository. The 180-day review period shall commence once a completed

submission on Form SDR is submitted to the Commission. The

determination of when such submission on Form SDR is complete shall be

at the sole discretion of the Commission. If deemed appropriate, the

Commission may grant registration as a swap data repository subject to

conditions. If the Commission denies an application for registration as

a swap data repository, it shall specify the grounds for such denial.

In the event of a denial of registration for a swap data repository,

any person so denied shall be afforded an opportunity for a hearing

before the Commission.

(4) Standard for Approval. The Commission shall grant the

registration of a swap data repository if the Commission finds that

such swap data repository is appropriately organized, and has the

capacity, to ensure the prompt, accurate and reliable performance of

its functions as a swap data repository, comply with any applicable

provisions of the Act and regulations thereunder, carry out its

functions in a manner consistent with the purposes of Section 21 of the

Act and the regulations thereunder, and operate in a fair, equitable

and consistent manner. The Commission shall deny registration of a swap

data repository if it appears that the application is materially

incomplete; fails in form or substance to meet the requirements of

Section 21 of the Act and part 49; or is amended or supplemented in a

manner that is inconsistent with this Sec. 49.3. The Commission shall

notify the applicant seeking registration that the Commission is

denying the application setting forth the deficiencies in the

application, and/or the manner in which the application fails to meet

the requirements of this part.

(5) Amendments and Annual Filing. If any information reported on

Form SDR or in any amendment thereto is or becomes inaccurate for any

reason, whether before or after the application for registration has

been granted, the swap data repository shall promptly file an amendment

on Form SDR updating such information. In addition, the swap data

repository shall annually file an amendment on Form SDR within 60 days

after the end of each calendar year of such swap data repository.

(6) Service of Process. Each swap data repository shall designate

and authorize on Form SDR an agent in the United States, other than a

Commission official, who shall accept any notice or service

[[Page 80928]]

of process, pleadings, or other documents in any action or proceedings

brought against the swap data repository to enforce the Act and the

regulations thereunder.

(b) Provisional Registration. The Commission, upon the request of

an applicant, may grant provisional registration of a swap data

repository if such applicant is in substantial compliance with the

standards set forth in paragraph (a)(4) of this section. Such

provisional registration of a swap data repository shall expire on the

earlier of: the date that the Commission grants or denies registration

of the swap data repository; or the date that the Commission rescinds

the temporary registration of the swap data repository. This paragraph

(b) of this section shall terminate within 365 days of the

effectiveness of this Regulation. A provisional registration granted by

the Commission does not affect the right of the Commission to grant or

deny permanent registration as provided under paragraph (a)(3) of this

section.

(c) Withdrawal of Application for Registration. An applicant for

registration may withdraw its application submitted pursuant to

paragraph (a) of this section by filing with the Commission such a

request. Withdrawal of an application for registration shall not affect

any action taken or to be taken by the Commission based upon actions,

activities, or events occurring during the time that the application

for registration was pending with the Commission, and shall not

prejudice the filing of a new application by such applicant.

(d) Reinstatement of Dormant Registration. Before accepting or re-

accepting swap transaction data, a dormant registered swap data

repository as defined in Sec. 40.1(e) of this chapter shall reinstate

its registration under the procedures set forth in paragraph (a) of

this section; provided, however, that an application for reinstatement

may rely upon previously submitted materials that still pertain to, and

accurately describe, current conditions.

(e) Delegation of Authority. (1) The Commission hereby delegates,

until it orders otherwise, to the Director of the Division of Market

Oversight or the Director's delegates, with the consultation of the

General Counsel or the General Counsel's delegates, the authority to

notify an applicant seeking registration as a swap data repository

pursuant to Section 21 of the Act that the application is materially

incomplete and the 180-day period review period is extended.

(2) The Director of the Division of Market Oversight may submit to

the Commission for its consideration any matter which has been

delegated in this paragraph.

(3) Nothing in this paragraph prohibits the Commission, at its

election, from exercising the authority delegated in paragraph (e)(1)

of this section.

(f) Request for Confidential Treatment. An applicant for

registration may request confidential treatment for materials submitted

in its application as set forth in Sec. 145.9 of this chapter. The

applicant shall identify with particularity information in the

application that will be subject to a request for confidential

treatment.

Sec. 49.4 Withdrawal from registration.

(a)(1) A registered swap data repository may withdraw its

registration by giving notice in writing to the Commission requesting

that its registration as a swap data repository be withdrawn, which

notice shall be served at least ninety days prior to the date named

therein as the date when the withdrawal of registration shall take

effect. The request to withdraw shall be made by a person duly

authorized by the registrant and shall specify:

(i) The name of the registrant for which withdrawal of registration

is being requested;

(ii) The name, address and telephone number of the swap data

repository that will have custody of data and records of the

registrant;

(iii) The address where such data and records will be located; and

(iv) A statement that the custodial swap data repository is

authorized to make such data and records available in accordance with

Sec. 1.44.

(2) Prior to filing a request to withdraw, a registered swap data

repository shall file an amended Form SDR to update any inaccurate

information. A withdrawal of registration shall not affect any action

taken or to be taken by the Commission based upon actions, activities

or events occurring during the time that the facility was designated by

the Commission.

(b) A notice of withdrawal from registration filed by a swap data

repository shall become effective for all matters (except as provided

in this paragraph (b)) on the 60th day after the filing thereof with

the Commission, within such longer period of time as to which such swap

data repository consents or which the Commission, by order, may

determine as necessary or appropriate in the public interest.

(c) Revocation of Registration for False Application. If, after

notice and opportunity for hearing, the Commission finds that any

registered swap data repository has obtained its registration by making

any false and misleading statements with respect to any material fact

or has violated or failed to comply with any provision of the Act and

regulations thereunder, the Commission, by order, may revoke the

registration. Pending final determination whether any registration

shall be revoked, the Commission, by order, may suspend such

registration, if such suspension appears to the Commission, after

notice and opportunity for hearing, to be necessary or appropriate and

in the public interest.

Sec. 49.5 Equity interest transfers.

(a) Equity transfer notification. Upon entering into any

agreement(s) that could result in an equity interest transfer of ten

percent or more in the swap data repository, the swap data repository

shall file a notification of the equity interest transfer with the

Secretary of the Commission at its Washington, DC headquarters at

[email protected] and the Division of Market Oversight at

[email protected], no later than the business day, as defined in

Sec. 40.1 of this chapter, following the date on which the swap data

repository enters into a firm obligation to transfer the equity

interest. The swap data repository shall also amend any information

that is no longer accurate on Form SDR consistent with the procedures

set forth in Sec. 49.3 of this part.

(b) Required information. The notification must include and be

accompanied by: any relevant agreement(s), including any preliminary

agreements; any associated changes to relevant corporate documents; a

chart outlining any new ownership or corporate or organizational

structure; a brief description of the purpose and any impact of the

equity interest transfer; and a representation from the swap data

repository that it meets all of the requirements of Section 21 of the

Act and Commission regulations adopted thereunder. The swap data

repository shall keep the Commission apprised of the projected date

that the transaction resulting in the equity interest transfer will be

consummated, and must provide to the Commission any new agreements or

modifications to the original agreement(s) filed pursuant to this

section. The swap data repository shall notify the Commission of the

consummation of the transaction on the day in which it occurs.

(c) Certification. (1) Upon a transfer of an equity interest of ten

percent or more

[[Page 80929]]

in a registered swap data repository, the registered swap data

repository shall file with the Secretary of the Commission at its

Washington DC headquarters, at [email protected], and the Division

of Market Oversight, at [email protected], a certification that

the registered swap data repository meets all of the requirements of

Section 21 of the Act and Commission regulations adopted thereunder, no

later than two business days, as defined in Sec. 40.1 of this chapter,

following the date on which the equity interest of ten percent or more

was acquired. Such certification shall state whether changes to any

aspects of the swap data repository's operations were made as a result

of such change in ownership, and include a description of any such

change(s).

(2) The certification required under this paragraph may rely on and

be supported by reference to an application for registration as a swap

data repository or prior filings made pursuant to a rule submission

requirement, along with any necessary new filings, including new

filings that provide any and all material updates of prior submissions.

Sec. 49.6 Registration of successor entities.

(a) In the event of a corporate transaction, such as a re-

organization, merger, acquisition, bankruptcy or other similar

corporate event, that creates a new entity, in which the swap data

repository continues to operate, the swap data repository shall request

a transfer of the registration, rules, and other matters, no later than

30 days after the succession. The registration of the predecessor shall

be deemed to remain effective as the registration of the successor if

the successor, within 30 days after such succession, files an

application for registration on Form SDR, and the predecessor files a

request for vacation of registration on Form SDR provided, however,

that the registration of the predecessor swap data repository shall

cease to be effective 90 days after the application for registration on

Form SDR is filed by the successor swap data repository.

(b) If the succession is based solely on a change in the

predecessor's date or state of incorporation, form of organization, or

composition of a partnership, the successor may, within 30 days after

the succession, amend the registration of the predecessor swap data

repository on Form SDR to reflect these changes. This amendment shall

be an application for registration filed by the predecessor and adopted

by the successor.

Sec. 49.7 Swap data repositories located in foreign jurisdictions.

Any swap data repository located outside of the United States

applying for registration pursuant to Sec. 49.3 of this part shall

certify on Form SDR and provide an opinion of counsel that the swap

data repository, as a matter of law, is able to provide the Commission

with prompt access to the books and records of such swap data

repository and that the swap data repository can submit to onsite

inspection and examination by the Commission.

Sec. 49.8 Procedures for implementing registered swap data repository

rules.

(a) Request for Commission approval of rules. An applicant for

registration as a swap data repository may request that the Commission

approve under Section 5c(c) of the Act, any or all of its rules and

subsequent amendments thereto, prior to their implementation or,

notwithstanding the provisions of Section 5c(c)(2) of the Act, at

anytime thereafter, under the procedures of Sec. 40.5 of this chapter.

(b) Notwithstanding the timeline under Sec. 40.5(c) of this

chapter, the rules of a swap data repository that have been submitted

for Commission approval at the same time as an application for

registration under Sec. 49.3 of this part to reinstate the

registration of a dormant registered swap data repository, as defined

in Sec. 40.1 of this chapter, will be deemed approved by the

Commission no earlier than when the swap data repository is deemed to

be registered or reinstated.

(c) Self-certification of rules. Rules of a registered swap data

repository not voluntarily submitted for prior Commission approval

pursuant to paragraph (a) of this section must be submitted to the

Commission with a certification that the rule or rule amendment

complies with the Act or rules thereunder pursuant to the procedures of

Sec. 40.6 of this chapter, as applicable.

Sec. 49.9 Duties of registered swap data repositories.

(a) Duties. To be registered, and maintain registration, as a swap

data repository, a registered swap data repository shall:

(1) Accept data as prescribed in Sec. 49.10 for each swap;

(2) Confirm, as prescribed in Sec. 49.11, with both counterparties

to the swap the accuracy of the data that was submitted;

(3) Maintain, as prescribed in Sec. 49.12, the data described in

part 45 of the Commission's Regulations in such form and manner as

provided therein and in the Act and the rules and regulations

thereunder;

(4) Provide direct electronic access to the Commission (or any

designee of the Commission, including another registered entity) as

prescribed in Sec. 49.17;

(5) Provide the information set forth in Sec. 49.15 to comply with

the public reporting requirements set forth in Section 2(a)(13) of the

Act;

(6) Establish automated systems for monitoring, screening, and

analyzing swap data as prescribed in Sec. 49.13;

(7) Establish automated systems for the monitoring, screening and

analyzing end-user clearing exemption claims as prescribed in Sec.

49.14;

(8) Maintain the privacy of any and all swap data and any other

related information that the swap data repository receives from a

reporting entity as prescribed in Sec. 49.16;

(9) Upon request of certain appropriate domestic and foreign

regulators, provide access to swap data and information held and

maintained by the swap data repository as prescribed in Sec. 49.17;

(10) Adopt and establish appropriate emergency policies and

procedures as prescribed in Sec. 49.23.

(11) Designate an individual to serve as a chief compliance officer

who shall comply with Sec. 49.22; and

(12) Subject itself to inspection and examination by the

Commission.

(b) This Regulation is not intended to limit, or restrict, the

applicability of other provisions of the Act, including, but not

limited to, Section 2(a)(13) of the Act and rules and regulations

promulgated thereunder.

Sec. 49.10 Acceptance of data.

(a) A registered swap data repository shall establish, maintain,

and enforce policies and procedures for the reporting of swap data to

the registered swap data repository and shall accept and promptly

record all swap data in its selected asset class and other regulatory

information that is required to be reported pursuant to part 45 of this

chapter by designated contract markets, derivatives clearing

organizations, swap execution facilities, swap dealers, major swap

participants and/or end-users.

(1) Electronic Connectivity. For the purpose of accepting all swap

data as required by part 45, the registered swap data repository shall

adopt policies and procedures, including technological protocols, which

provide for electronic connectivity between the swap data repository

and designated contract markets, derivatives clearing organizations,

swaps execution facilities, swap dealers, major swap participants and/

or end-users who report such data. The technological

[[Page 80930]]

protocols established by a swap data repository shall provide for the

receipt of swap creation data, swap continuation data, real-time public

reporting data, and all other data and information required to be

reported to such swap data repository. The swap data repository shall

ensure that its mechanisms for data acceptance are reliable and secure.

(b) A registered swap data repository shall set forth in its

application for registration as described in Sec. 49.3 the specific

asset class or classes for which it will accept swaps data. If a swap

data repository accepts swap data of a particular asset class, then it

shall accept data from all swaps of that asset class.

(c) A registered swap data repository shall establish policies and

procedures reasonably designed to prevent any provision in a valid swap

from being invalidated or modified through the confirmation or

recording process of the swap data repository.

(d) A registered swap data repository shall establish procedures

and provide facilities for effectively resolving disputes over the

accuracy of the swap data and positions that are recorded in the

registered swap data repository.

Sec. 49.11 Confirmation of data accuracy.

(a) A registered swap data repository shall establish policies and

procedures to ensure the accuracy of swap data and other regulatory

information required to be reported by this part 49 that it receives

from reporting entities or certain third party service providers such

as confirmation or matching service providers acting on their behalf.

(b) With respect to data and other regulatory information submitted

by a reporting entity or certain third party service providers acting

on a reporting entity's behalf, the swap data repository shall confirm

with both counterparties to the swap the accuracy of the data and

information submitted. This requirement applies to all reported swap

data except for data reported for purposes of real-time public

reporting.

(c) A registered swap data repository in connection with the

process of confirming the accuracy of the data and information

submitted shall communicate with both counterparties to the swap and

receive acknowledgement of the data and information submitted as well

as any correction of any errors. The acknowledgement and correction of

errors shall pertain to all information submitted by either

counterparty and any entity that has been delegated the reporting

obligation. The swap data repository shall keep a record of corrected

errors that is available upon request to the Commission.

Sec. 49.12 Swap data repository recordkeeping requirements.

(a) A registered swap data repository shall maintain its books and

records in accordance with the requirements of Sec. 45.2 of this

chapter regarding the swap data required to be reported to the swap

data repository.

(b) A registered swap data repository shall maintain swap data

(including all historical positions) throughout the existence of the

swap and for five years following final termination of the swap, during

which time the records must be readily accessible by the swap data

repository and available to the Commission via real-time electronic

access; and in archival storage for which such swap data is retrievable

by the swap data repository within three business days.

(c) All records required to be kept pursuant to this Regulation

shall be open to inspection upon request by any representative of the

Commission, the United States Department of Justice, the Securities and

Exchange Commission, or by any representative of a prudential regulator

as authorized by the Commission. Copies of all such records shall be

provided, at the expense of the swap data repository or person required

to keep the record, to any representative of the Commission upon

request, either by electronic means, in hard copy, or both, as

requested by the Commission.

(d) A registered swap data repository that accepts and disseminates

swap transaction and pricing data shall comply with the real time

public reporting and recordkeeping requirements prescribed in part 43

of this chapter.

(e) A registered swap data repository shall establish policies and

procedures to calculate positions for position limits and any other

purpose as required by the Commission, for all persons with swaps that

have not expired maintained by the registered swap data repository.

Sec. 49.13 Monitoring, screening and analyzing swap data.

(a) Duty to Monitor, Screen and Analyze Data. A registered swap

data repository shall monitor, screen, and analyze all swap data in its

possession in such a manner as the Commission may require. A swap data

repository shall routinely monitor, screen, and analyze swap data for

the purpose of any standing swap surveillance objectives which the

Commission may establish as well as specific monitoring, screening, and

analysis tasks based on ad hoc requests by the Commission.

(b) Capacity to Monitor, Screen and Analyze Data. A registered swap

data repository shall establish and maintain sufficient information

technology, staff, and other resources to fulfill the requirements in

this Sec. 49.13 in a manner prescribed by the Commission. A swap data

repository shall monitor the sufficiency of such resources at least

annually, and adjust its resources as its responsibilities, or the

volume of swap transactions subject to monitoring, screening, and

analysis, increase.

Sec. 49.14 Monitoring, screening and analyzing end-user clearing

exemption claims by individual and affiliated entities.

A registered swap data repository shall have automated systems

capable of identifying, aggregating, sorting, and filtering all swap

transactions that are reported to it which are exempt from clearing

pursuant to Section 2(h)(7) of the Act. Such capabilities shall be

applicable to any information provided to a swap data repository by or

on behalf of an end user regarding how such end user meets the

requirements Sections 2(h)(7)(A)(i), 2(h)(7)(A)(ii), and

2(h)(7)(A)(iii) of the Act and any Commission regulations thereunder.

Sec. 49.15 Real-time public reporting of swap data.

(a) Scope. The provisions of this Sec. 49.15 apply to real-time

public reporting of swap data for off-facility swaps, as defined in

part 43 of this chapter.

(b) Systems to Accept and Disseminate Swap Data In Connection With

Real-Time Public Reporting. A registered swap data repository shall

establish such electronic systems as are necessary to accept and

publicly disseminate real-time swap data submitted to meet the real-

time public reporting obligations of part 43 of this chapter. Any

electronic systems established for this purpose must be capable of

accepting and publicly disseminating all data fields required by part

43 of this chapter.

(c) Duty to Notify the Commission of Untimely Data. A registered

swap data repository must notify the Commission of any swap transaction

for which the real-time swap data was not received by the swap data

repository within the time period required by Sec. 43.3(a)(3). This

notification must be submitted electronically to the Commission within

forty-eight hours of when the swap data repository first receives an

untimely real-time swap data report from one of the parties to the swap

transaction. The notification submitted to the Commission must include

all real-time swap data submitted for the relevant

[[Page 80931]]

swap transaction; identify the party to the swap that submitted the

real-time swap data; and contain the date and time, to the nearest

second, the real-time swap data was received by the swap data

repository.

Sec. 49.16 Privacy and confidentiality requirements of swap data

repositories.

(a) Each swap data repository shall:

(1) Establish, maintain, and enforce written policies and

procedures reasonably designed to protect the privacy and

confidentiality of any and all SDR Information that is not subject to

real-time public reporting set forth in part 43 of this chapter. Such

policies and procedures shall include, but are not limited to, policies

and procedures to protect the privacy and confidentiality of any and

all SDR Information (except for data disseminated under part 43) that

the swap data repository shares with affiliates and non-affiliated

third parties; and

(2) Establish and maintain safeguards, policies, and procedures

reasonably designed to prevent the misappropriation or misuse, directly

or indirectly, of:

(i) Section 8 Material;

(ii) Other SDR Information; and/or

(iii) Intellectual property, such as trading strategies or

portfolio positions, by the swap data repository or any person

associated with the swap data repository. Such safeguards, policies,

and procedures shall include, but are not limited to,

(A) limiting access to such Section 8 Material, other SDR

Information, and intellectual property,

(B) standards controlling persons associated with the swap data

repository trading for their personal benefit or the benefit of others,

and

(C) adequate oversight to ensure compliance with this subparagraph.

Sec. 49.17 Access to SDR data.

(a) Purpose. This Section provides a procedure by which the

Commission, other domestic regulators and foreign regulators may obtain

access to the swaps data held and maintained by registered swap data

repositories. Except as specifically set forth in this Regulation, the

Commission's duties and obligations regarding the confidentiality of

business transactions or market positions of any person and trade

secrets or names of customers identified in Section 8 of the Act are

not affected.

(b) Definitions. For purposes of this Sec. 49.17, the following

terms shall be defined as follows:

(1) Appropriate Domestic Regulator. The term ``Appropriate Domestic

Regulator'' shall mean:

(i) The Securities and Exchange Commission;

(ii) Each prudential regulator identified in Section 1a(39) of the

Act with respect to requests related to any of such regulator's

statutory authorities, without limitation to the activities listed for

each regulator in Section 1a(39);

(iii) The Financial Stability Oversight Council;

(iv) The Department of Justice;

(v) The Federal Reserve Bank of New York;

(vi) The Office of Financial Research; and

(vii) Any other person the Commission deems appropriate.

(2) Appropriate Foreign Regulator. The term ``Appropriate Foreign

Regulator'' shall mean those Foreign Regulators with an existing

memorandum of understanding or other similar type of information

sharing arrangement executed with the Commission and/or Foreign

Regulators without an MOU as determined on a case-by-case basis by the

Commission.

(i) Filing Requirements. For those Foreign Regulators who do not

currently have a memorandum of understanding with the Commission, the

Commission has determined to provide the following filing process for

those Foreign Regulators that may require data or information

maintained by a registered swap data repository. The filing requirement

set forth in this Sec. 49.17 will assist the Commission in its

analysis of whether a specific Foreign Regulator should be considered

``appropriate'' for purposes of Section 21(c)(7) of the Commodity

Exchange Act.

(A) The Foreign Regulator is required to file an application in the

form and manner prescribed by the Commission.

(B) The Foreign Regulator in its application is required to provide

sufficient facts and procedures to permit the Commission to analyze

whether the Foreign Regulator has appropriate confidentiality

procedures and whether the Foreign Regulator is otherwise subject to

local laws, regulations and/or customs that would require disclosure of

information in contravention of the Act.

(ii) The Commission in its analysis of Foreign Regulator

applications shall be satisfied that any information potentially

provided by a registered swap data repository will not be disclosed

except in limited circumstances such as an adjudicatory action or

proceeding involving the Foreign Regulator that are identified in

Section 8 of the Act.

(iii) The Commission reserves the right in connection with any

determination of an ``Appropriate Foreign Regulator'' to revisit or

reassess a prior determination consistent with the Act.

(3) Direct Electronic Access. For the purposes of this regulation,

the term ``direct electronic access'' shall mean an electronic system,

platform or framework that provides internet or web-based access to

real-time swap transaction data.

(c) Commission Access.

(1) Direct Electronic Access. A registered swap data repository

shall provide direct electronic access to the Commission or the

Commission's designee, including another registered entity, in order

for the Commission to carry out its legal and statutory

responsibilities under the Act and related regulations.

(2) Monitoring Tools. A registered swap data repository is required

to provide the Commission with proper tools for the monitoring,

screening and analyzing of swap transaction data, including, but not

limited to, web-based services, various software and access to the

staff of the swap data repository and/or third party service providers

or agents familiar with the operations of the registered swap data

repository, which can provide assistance to the Commission regarding

data structure and content. These monitoring tools shall be identical

in analytical capability as those provided to the compliance staff and

the Chief Compliance Officer of the swap data repository.

(3) Authorized Users. The swap transaction data provided to the

Commission by a registered swap data repository shall be accessible

only by authorized users. The swap data repository shall maintain and

provide a list of authorized users in the manner and frequency

determined by the Commission.

(d) Other Regulators--(1) Procedure for Gaining Access to

Registered Swap Data Repository Data. Appropriate Domestic Regulators

and Appropriate Foreign Regulators seeking to gain access to the swaps

data maintained by a swap data repository are required to apply for

access as follows:

(i) File a request for access with the registered swap data

repository setting forth in sufficient detail the basis of its request;

and

(ii) Certify the statutory authority for its request and that it is

acting within the scope of its jurisdiction;

(2) Obligations of the Registered Swap Data Repository in

Connection with Appropriate Domestic Regulator or

[[Page 80932]]

Appropriate Foreign Regulator Requests for Data Access.

(i) A registered swap data repository shall promptly notify the

Commission regarding any request received by an Appropriate Domestic

Regulator or Appropriate Foreign Regulator to gain access to the swaps

transaction data maintained by such swap data repository.

(ii) The registered swap data repository shall notify the

Commission electronically in a format specified by the Secretary of the

Commission.

(3) Timing. Once the swaps data repository provides the Commission

with notification of a request for data access by an Appropriate

Domestic Regulator or Appropriate Foreign Regulator as required by

paragraph (d)(2) of this section, such swap data repository shall

provide access to the requested swaps data if satisfied that the

Appropriate Domestic Regulator or Appropriate Foreign Regulator is

acting within the scope of its authority.

(4) Confidentiality and Indemnification Agreement. Consistent with

Sec. 49.18 of this part, the Appropriate Domestic Regulator or

Appropriate Foreign Regulator prior to receipt of any requested data or

information shall execute a ``Confidentiality and Indemnification

Agreement'' with the registered swap data repository as set forth in

Section 21(d) of the Act.

(e) Third Party Service Providers to a Registered Swap Data

Repository. Access to the data and information maintained by a

registered swap data repository may be necessary for certain third

parties that provide various technology and data-related services to a

registered swap data repository. Third party access to the swap data

maintained by a swap data repository is permissible subject to the

following conditions:

(1) Both the registered swap data repository and the third party

service provider shall have strict confidentiality procedures that

protect data and information from improper disclosure.

(2) Prior to swaps data access, the third party service provider

and the registered swaps data repository shall execute a

``Confidentiality Agreement'' setting forth minimum confidentiality

procedures and permissible uses of the information maintained by the

swaps data repository.

(f) Access by Market Participants-- (1) General. Access of swap

data maintained by the registered swaps data repository to market

participants is generally prohibited.

(2) Exception. Data and information maintained by the registered

swap data repository may be accessed by market participants if the

specific data was originally submitted by such party.

(g) Commercial Uses of Data Maintained by the Registered Swap Data

Repository Prohibited. Data maintained by the swap data repository

generally may not be used for commercial or business purposes by the

swap data repository or any of its affiliated entities.

(1) The registered swap data repository is required to adopt and

implement adequate ``firewalls'' to protect the data required to be

maintained under Sec. 49.12 of this part and Section 21(b) of the Act

from any improper, commercial use.

(2) Exception. Market participants who submit the data maintained

by the registered swap data repository may permit the commercial or

business use of that data by express written consent.

Sec. 49.18 Confidentiality and indemnification agreement.

(a) Purpose. This section sets forth the obligations of registered

swap data repositories to execute a ``Confidentiality and

Indemnification Agreement'' in connection with providing access to

swaps data to certain domestic regulators and ``appropriate foreign

regulators.''

(b) Confidentiality and Indemnification Agreement. Prior to the

registered swap data repository providing access to the swaps data with

any Appropriate Domestic Regulator or Appropriate Foreign Regulator as

defined in Sec. 49.17(b), the swap data repository shall receive a

written agreement from each such entity stating that the entity shall

abide by the confidentiality requirements described in Section 8 of the

Act relating to the swap data that is provided; and each such entity

shall agree to indemnify the swap data repository and the Commission

for any expenses arising from litigation relating to the information

provided under Section 8 of the Act.

Sec. 49.19 Core principles applicable to registered swap data

repositories.

(a) Compliance with Core Principles. To be registered, and maintain

registration, a swap data repository shall comply with the core

principles as described in this paragraph. Unless otherwise determined

by the Commission by rule or regulation, a swap data repository shall

have reasonable discretion in establishing the manner in which the swap

data repository complies with the core principles described in this

paragraph.

(b) Antitrust Considerations (Core Principle 1). Unless appropriate

to achieve the purposes of the Act, a registered swap data repository

shall avoid adopting any rule or taking any action that results in any

unreasonable restraint of trade; or imposing any material

anticompetitive burden on trading, clearing or reporting swaps.

(c) Governance Arrangements (Core Principle 2). Registered swap

data repositories shall establish governance arrangements as set forth

in Sec. 49.20.

(d) Conflicts of Interest (Core Principle 3). Registered swap data

repositories shall manage and minimize conflicts of interest and

establish processes for resolving such conflicts of interest as set

forth in Sec. 49.21.

(e) Additional Duties (Core Principle 4). Registered swap data

repositories shall also comply with the following additional duties:

(1) System Safeguards. Registered swap data repositories shall

establish and maintain a program of system safeguards, including

business continuity and disaster recovery plans as set forth in Sec.

49.24;

(2) Financial Resources. Registered swap data repositories shall

maintain sufficient financial resources as set forth in Sec. 49.25;

(3) Disclosure Requirements of Registered Swap Data Repositories.

Registered swap data repositories shall furnish an appropriate

disclosure document setting forth the risks and costs of swap data

repository services as detailed in Sec. 49.26; and

(4) Access and Fees. Registered swap data repositories shall adhere

to Commission requirements regarding fair and open access and the

charging of any fees, dues or other similar type charges as detailed in

Sec. 49.27.

Sec. 49.20 Governance arrangements (Core Principle 2).

(a) General. (1) Each registered swap data repository shall

establish governance arrangements that are transparent to fulfill

public interest requirements, and to support the objectives of the

Federal Government, owners, and participants.

(2) Each registered swap data repository shall establish governance

arrangements that are well-defined and include a clear organizational

structure with consistent lines of responsibility and effective

internal controls, including with respect to administration,

accounting, and the disclosure of confidential information. Sec. 49.22

of this part contains rules on internal controls applicable to

administration and accounting. Sec. 49.16 of this part contains rules

on internal

[[Page 80933]]

controls applicable to the disclosure of confidential information.

(b) Transparency of Governance Arrangements. (1) Each registered

swap data repository shall state in its charter documents that its

governance arrangements are transparent to support, among other things,

the objectives of the Federal Government pursuant to Section 21(f)(2)

of the Act.

(2) Each registered swap data repository shall, at a minimum, make

the following information available to the public and relevant

authorities, including the Commission:

(i) The mission statement of the registered swap data repository;

(ii) The mission statement and/or charter of the board of

directors, as well as of each committee of the registered swap data

repository that has:

(A) The authority to act on behalf of the board of directors or

(B) The authority to amend or constrain actions of the board of

directors;

(iii) The board of directors nomination process for the registered

swap data repository, as well as the process for assigning members of

the board of directors or other persons to any committee referenced in

paragraph (b)(2)(ii) of this section;

(iv) For the board of directors and each committee referenced in

paragraph (b)(2)(ii) of this section, the names of all members;

(v) A description of the manner in which the board of directors, as

well as any committee referenced in paragraph (b)(2)(ii) of this

section, considers an Independent Perspective in its decision-making

process, as Sec. 49.2(a)(14) of this part defines such term;

(vi) The lines of responsibility and accountability for each

operational unit of the registered swap data repository to any

committee thereof and/or the board of directors; and

(vii) Summaries of significant decisions implicating the public

interest, the rationale for such decisions, and the process for

reaching such decisions. Such significant decisions shall include

decisions relating to pricing of repository services, offering of

ancillary services, access to data, and use of Section 8 Material,

other SDR Information, and intellectual property (as referenced in

Sec. 49.16 of this part).

(3) The registered swap data repository shall ensure that the

information specified in paragraph (b)(2)(i) to (vii) of this section

is current, accurate, clear, and readily accessible, for example, on

its Web site. The swap data repository shall set forth such information

in a language commonly used in the commodity futures and swap markets

and at least one of the domestic language(s) of the jurisdiction in

which the swap data repository is located.

(4) Furthermore, the registered swap data repository shall disclose

the information specified in paragraph (b)(2)(vii) of this section in a

sufficiently comprehensive and detailed fashion so as to permit the

public and relevant authorities, including the Commission, to

understand the policies or procedures of the swap data repository

implicated and the manner in which the decision implements or amends

such policies or procedures. A swap data repository shall not disclose

minutes from meetings of its board of directors or committees to the

public, although it shall disclose such minutes to the Commission upon

request.

(c) The Board of Directors-- (1) General. (i) Each registered swap

data repository shall establish, maintain, and enforce (including,

without limitation, pursuant to paragraph (c)(4) of this Regulation)

written policies or procedures:

(A) To ensure that its board of directors, as well as any committee

that has:

(1) Authority to act on behalf of its board of directors or

(2) Authority to amend or constrain actions of its board of

directors, adequately considers an Independent Perspective in its

decision-making process;

(B) To ensure that the nominations process for such board of

directors, as well as the process for assigning members of the board of

directors or other persons to such committees, adequately incorporates

an Independent Perspective; and

(C) To clearly articulate the roles and responsibilities of such

board of directors, as well as such committees, especially with respect

to the manner in which they ensure that a registered swap data

repository complies with all statutory and regulatory responsibilities

under the Act and the regulations promulgated thereunder.

(ii) Each registered swap data repository shall submit to the

Commission, within thirty days after each election of its board of

directors:

(A) For the board of directors, as well as each committee

referenced in paragraph (c)(1)(i)(A) of this section, a list of all

members;

(B) A description of the relationship, if any, between such members

and the registered swap data repository or any reporting entity thereof

(or, in each case, affiliates thereof, as Sec. 49.2(a)(1) of this part

defines such term); and

(C) Any amendments to the written policies and procedures

referenced in paragraph (c)(1)(i) of this section.

(2) Compensation. The compensation of non-executive members of the

board of directors of a registered swap data repository shall not be

linked to the business performance of such swap data repository.

(3) Annual Self-Review. The board of directors of a registered swap

data repository shall review its performance and that of its individual

members annually. It should consider periodically using external

facilitators for such reviews.

(4) Board Member Removal. A registered swap data repository shall

have procedures to remove a member from the board of directors, where

the conduct of such member is likely to be prejudicial to the sound and

prudent management of the swap data repository.

(5) Expertise. Each registered swap data repository shall ensure

that members of its board of directors, members of any committee

referenced in paragraph (c)(1)(i)(A) of this Regulation, and its senior

management, in each case, are of sufficiently good repute and possess

the requisite skills and expertise to fulfill their responsibilities in

the management and governance of the swap data repository, to have a

clear understanding of such responsibilities, and to exercise sound

judgment about the affairs of the swap data repository.

(d) Compliance with Core Principle. The chief compliance officer of

the registered swap data repository shall review the compliance of the

swap data repository with this core principle.

Sec. 49.21 Conflicts of interest (Core Principle 3).

(a) General. (1) Each registered swap data repository shall

establish and enforce rules to minimize conflicts of interest in the

decision-making process of the swap data repository, and establish a

process for resolving such conflicts of interest.

(2) Nothing in this section shall supersede any requirement

applicable to the SDR pursuant to Sec. 49.20 of this part.

(b) Policies and Procedures. (1) Each registered swap data

repository shall establish, maintain, and enforce written procedures

to:

(i) Identify, on an ongoing basis, existing and potential conflicts

of interest; and

(ii) Make decisions in the event of a conflict of interest. Such

procedures shall include rules regarding the recusal, in applicable

circumstances, of

[[Page 80934]]

parties involved in the making of decisions.

(2) As further described in Sec. 49.20 of this part, the chief

compliance officer of the registered swap data repository shall, in

consultation with the board of directors or a senior officer of the

swap data repository, resolve any such conflicts of interest.

(c) Compliance with Core Principle. The chief compliance officer of

the registered swap data repository shall review the compliance of the

swap data repository with this core principle.

Sec. 49.22 Chief compliance officer.

(a) Definition of Board of Directors. For purposes of this part 49,

the term ``board of directors'' means the board of directors of a

registered swap data repository, or for those swap data repositories

whose organizational structure does not include a board of directors, a

body performing a function similar to a board of directors.

(b) Designation and qualifications of chief compliance officer--(1)

Chief Compliance Officer Required. Each registered swap data repository

shall establish the position of chief compliance officer, and designate

an individual to serve in that capacity.

(i) The position of chief compliance officer shall carry with it

the authority and resources to develop and enforce policies and

procedures necessary to fulfill the duties set forth for chief

compliance officers in the Act and Commission regulations.

(ii) The chief compliance officer shall have supervisory authority

over all staff acting in furtherance of the chief compliance officer's

statutory and regulatory obligations.

(2) Qualifications of Chief Compliance Officer. The individual

designated to serve as chief compliance officer shall have the

background and skills appropriate for fulfilling the responsibilities

of the position. No individual disqualified from registration pursuant

to Sections 8a(2) or 8a(3) of the Act may serve as a chief compliance

officer.

(c) Appointment, Supervision, and Removal of Chief Compliance

Officer--(1) Appointment and Compensation of Chief Compliance Officer

Determined by Board of Directors. A registered swap data repository's

chief compliance officer shall be appointed by its board of directors.

The board of directors shall also approve the compensation of the chief

compliance officer and shall meet with the chief compliance officer at

least annually. The appointment of the chief compliance officer and

approval of the chief compliance officer's compensation shall require

the approval of a majority of the board of directors. The senior

officer of the swap data repository may fulfill these responsibilities.

A swap data repository shall notify the Commission of the appointment

of a new chief compliance officer within two business days of such

appointment.

(2) Supervision of Chief Compliance Officer. A registered swap data

repository's chief compliance officer shall report directly to the

board of directors or to the senior officer of the swap data

repository, at the swap data repository's discretion.

(3) Removal of Chief Compliance Officer by Board of Directors.

Removal of a registered swap data repository's chief compliance officer

shall require the approval of a majority of the swap data repository's

board of directors. If the swap data repository does not have a board

of directors, then the chief compliance officer may be removed by the

senior officer of the swap data repository. The swap data repository

shall notify the Commission within two business days of appointing any

new chief compliance officer, whether interim or permanent.

(d) Duties of Chief Compliance Officer. The chief compliance

officer's duties shall include, but are not limited to, the following:

(1) Overseeing and reviewing the swap data repository's compliance

with Section 21 of the Act and any related rules adopted by the

Commission;

(2) In consultation with the board of directors, a body performing

a function similar to the board, or the senior officer of the swap data

repository, resolving any conflicts of interest that may arise:

(i) Conflicts between business considerations and compliance

requirements;

(ii) Conflicts between business considerations and the requirement

that the registered swap data repository provide fair and open access

as set forth in Sec. 49.27 of this part; and

(iii) Conflicts between a registered swap data repository's

management and members of the board of directors;

(3) Establishing and administering written policies and procedures

reasonably designed to prevent violation of the Act and any rules

adopted by the Commission;

(4) Ensuring compliance with the Act and Commission regulations

relating to agreements, contracts, or transactions, and with Commission

regulations under Section 21 of the Act, including confidentiality and

indemnification agreements entered into with foreign or domestic

regulators pursuant to Section 21(d) of the Act;

(5) Establishing procedures for the remediation of noncompliance

issues identified by the chief compliance officer through a compliance

office review, look-back, internal or external audit finding, self-

reported error, or validated complaint;

(6) Establishing and following appropriate procedures for the

handling, management response, remediation, retesting, and closing of

noncompliance issues; and

(7) Establishing and administering a written code of ethics

designed to prevent ethical violations and to promote honesty and

ethical conduct.

(e) Annual Compliance Report Prepared by Chief Compliance Officer.

The chief compliance officer shall, not less than annually, prepare an

annual compliance report, that at a minimum, contains the following

information covering the time period since the date on which the swap

data repository became registered with the Commission or since the end

of the period covered by a previously filed annual compliance report,

as applicable:

(1) A description of the registered swap data repository's written

policies and procedures, including the code of ethics and conflict of

interest policies;

(2) A review of applicable Commission regulations and each

subsection and core principle of Section 21 of the Act, that, with

respect to each:

(i) Identifies the policies and procedures that ensure compliance

with each subsection and the core principle, including each duty

specified in Section 21(c);

(ii) Provides a self-assessment as to the effectiveness of these

policies and procedures; and

(iii) Discusses areas for improvement, and recommends potential or

prospective changes or improvements to its compliance program and

resources;

(3) A list of any material changes to compliance policies and

procedures since the last annual compliance report;

(4) A description of the financial, managerial, and operational

resources set aside for compliance with respect to the Act and

Commission regulations;

(5) A description of any material compliance matters, including

noncompliance issues identified through a compliance office review,

look-back, internal or external audit finding, self-reported error, or

validated complaint, and explains how they were resolved;

(6) Any objections to the annual compliance report by those persons

who have oversight responsibility for the chief compliance officer; and

(7) A certification by the chief compliance officer that, to the

best of

[[Page 80935]]

his or her knowledge and reasonable belief, and under penalty of law,

the annual compliance report is accurate and complete.

(f) Submission of Annual Compliance Report by Chief Compliance

Officer to the Commission. (1) Prior to submission of the annual

compliance report to the Commission, the chief compliance officer shall

provide the annual compliance report to the board of the registered

swap data repository for its review. If the swap data repository does

not have board, then the annual compliance report shall be provided to

the senior officer for their review. Members of the board and the

senior officer may not require the chief compliance officer to make any

changes to the report. Submission of the report to the board or senior

officer, and any subsequent discussion of the report, shall be recorded

in board minutes or similar written record, as evidence of compliance

with this requirement.

(2) The annual compliance report shall be provided electronically

to the Commission not more than 60 days after the end of the registered

swap data repository's fiscal year.

(3) Promptly upon discovery of any material error or omission made

in a previously filed compliance report, the chief compliance officer

shall file an amendment with the Commission to correct any material

error or omission. An amendment shall contain the oath or certification

required under paragraph (e)(7) of this section.

(4) A registered swap data repository may request the Commission

for an extension of time to file its compliance report based on

substantial, undue hardship. Extensions for the filing deadline may be

granted at the discretion of the Commission.

(5) Annual compliance reports filed pursuant to this section will

be treated as exempt from mandatory public disclosure for purposes of

the Freedom of Information Act and the Government in the Sunshine Act

and parts 145 and 147 of this chapter, but will be available for

official use by any official or employee of the United States and any

State, by any self-regulatory organization of which the person filing

the report is a member, and by any other person to whom the Commission

believes disclosure is in the public interest.

(g) Recordkeeping. (1) The registered swap data repository shall

maintain:

(i) A copy of the written policies and procedures, including the

code of ethics and conflicts of interest policies adopted in

furtherance of compliance with the Act and Commission regulations;

(ii) Copies of all materials, including written reports provided to

the board of directors or senior officer in connection with the review

of the annual compliance report under paragraph (f)(1) of this section

and the board minutes or similar written record of such review, that

record the submission of the annual compliance report to the board of

directors or senior officer; and

(iii) Any records relevant to the registered swap data repository's

annual compliance report, including, but not limited to, work papers

and other documents that form the basis of the report, and memoranda,

correspondence, other documents, and records that are:

(A) Created, sent or received in connection with the annual

compliance report and

(B) Contain conclusions, opinions, analyses, or financial data

related to the annual compliance report.

(2) The registered swap data repository shall maintain records in

accordance with Sec. 1.31 of this chapter.

Sec. 49.23 Emergency policies and procedures.

(a) Emergency Policies and Procedures Required. A registered swap

data repository shall establish policies and procedures for the

exercise of emergency authority in the event of any emergency,

including but not limited to natural, man-made, and information

technology emergencies. Such policies and procedures shall also require

a swap data repository to exercise its emergency authority upon request

by the Commission. A swap data repository's policies and procedures for

the exercise of emergency authority shall be transparent to the

Commission and to market participants whose swap transaction data

resides at the swap data repository.

(b) Invocation of Emergency Authority. A registered swap data

repository's policies and procedures for the exercise of emergency

authority shall enumerate the circumstances under which the swap data

repository is authorized to invoke its emergency authority and the

procedures that it shall follow to declare an emergency. Such policies

and procedures shall also address the range of measures that it is

authorized to take when exercising such emergency authority.

(c) Designation of Persons Authorized to act in an Emergency. A

registered swap data repository shall designate one or more officials

of the swap data repository as persons authorized to exercise emergency

authority on its behalf. A swap data repository shall also establish a

chain of command to be used in the event that the designated person(s)

is unavailable. A swap data repository shall notify the Commission of

the person(s) designated to exercise emergency authority.

(d) Conflicts of Interest. A registered swap data repository's

policies and procedures for the exercise of emergency authority shall

include provisions to avoid conflicts of interest in any decisions made

pursuant to emergency authority. Such policies and procedures shall

also include provisions to consult the swap data repository's chief

compliance officer in any emergency decision that may raise potential

conflicts of interest.

(e) Notification to the Commission. A registered swap data

repository's policies and procedures for the exercise of emergency

authority shall include provisions to notify the Commission as soon as

reasonably practicable regarding any invocation of emergency authority.

When notifying the Commission of any exercise of emergency authority, a

swap data repository shall explain the reasons for taking such

emergency action, explain how conflicts of interest were minimized, and

document the decision-making process. Underlying documentation shall be

made available to the Commission upon request.

Sec. 49.24 System safeguards.

(a) Each registered swap data repository shall, with respect to all

swap data in its custody:

(1) Establish and maintain a program of risk analysis and oversight

to identify and minimize sources of operational risk through the

development of appropriate controls and procedures and the development

of automated systems that are reliable, secure, and have adequate

scalable capacity;

(2) Establish and maintain emergency procedures, backup facilities,

and a business continuity-disaster recovery plan that allow for the

timely recovery and resumption of operations and the fulfillment of the

duties and obligations of the swap data repository; and

(3) Periodically conduct tests to verify that backup resources are

sufficient to ensure continued fulfillment of all duties of the swap

data repository established by the Act or the Commission's regulations.

(b) A registered swap data repository's program of risk analysis

and oversight with respect to its operations and automated systems

shall address each of the following categories of risk analysis and

oversight:

(1) Information security;

(2) Business continuity-disaster recovery planning and resources;

[[Page 80936]]

(3) Capacity and performance planning;

(4) Systems operations;

(5) Systems development and quality assurance; and

(6) Physical security and environmental controls.

(c) In addressing the categories of risk analysis and oversight

required under paragraph (b) above, a registered swap data repository

should follow generally accepted standards and best practices with

respect to the development, operation, reliability, security, and

capacity of automated systems.

(d) A registered swap data repository shall maintain a business

continuity-disaster recovery plan and business continuity-disaster

recovery resources, emergency procedures, and backup facilities

sufficient to enable timely recovery and resumption of its operations

and resumption of its ongoing fulfillment of its duties and obligations

as a swap data repository following any disruption of its operations.

Such duties and obligations include, without limitation, the duties set

forth in Sec. 49.9 and the core principles set forth in Sec. 49.19;

and maintenance of a comprehensive audit trail. The swap data

repository's business continuity-disaster recovery plan and resources

generally should enable resumption of the swap data repository's

operations and resumption of ongoing fulfillment of the swap data

repository's duties and obligations during the next business day

following the disruption.

(e) Swap data repositories determined by the Commission to be

critical swap data repositories are subject to more stringent

requirements as set forth below.

(1) Each swap data repository that the Commission determines is

critical must maintain a disaster recovery plan and business continuity

and disaster recovery resources, including infrastructure and

personnel, sufficient to enable it to achieve a same-day recovery time

objective in the event that its normal capabilities become temporarily

inoperable for any reason up to and including a wide-scale disruption.

(2) A same-day recovery time objective is a recovery time objective

within the same business day on which normal capabilities become

temporarily inoperable for any reason up to and including a wide-scale

disruption.

(3) To ensure its ability to achieve a same-day recovery time

objective in the event of a wide-scale disruption, each swap data

repository that the Commission determines is critical must maintain a

degree of geographic dispersal of both infrastructure and personnel

such that:

(i) Infrastructure sufficient to enable the swap data repository to

meet a same-day recovery time objective after interruption is located

outside the relevant area of the infrastructure the entity normally

relies upon to conduct activities necessary to the reporting,

recordkeeping and/or dissemination of swap data, and does not rely on

the same critical transportation, telecommunications, power, water, or

other critical infrastructure components the entity normally relies

upon for such activities; and

(ii) Personnel sufficient to enable the swap data repository to

meet a same-day recovery time objective, after interruption of normal

swap data reporting, recordkeeping and/or dissemination by a wide-scale

disruption affecting the relevant area in which the personnel the

entity normally relies upon to engage in such activities are located,

live and work outside that relevant area.

(4) Each swap data repository that the Commission determines is

critical must conduct regular, periodic tests of its business

continuity and disaster recovery plans and resources and its capacity

to achieve a same-day recovery time objective in the event of a wide-

scale disruption. The swap data repository shall keep records of the

results of such tests, and make the results available to the Commission

upon request.

(f) A registered swap data repository that is not determined by the

Commission to be a critical swap data repository satisfies the

requirement to be able to resume operations and resume ongoing

fulfillment of the swap data repository's duties and obligations during

the next business day following a disruption by maintaining either:

(1) Infrastructure and personnel resources of its own that are

sufficient to ensure timely recovery and resumption of its operations,

duties and obligations as a registered swap data repository following

any disruption of its operations; or

(2) Contractual arrangements with other registered swap data

repositories or disaster recovery service providers, as appropriate,

that are sufficient to ensure continued fulfillment of all of the swap

data repository's duties and obligations following any disruption of

its operations, both with respect to all swaps reported to the swap

data repository and with respect to all swap data contained in the swap

data repository.

(g) A registered swap data repository shall notify Commission staff

promptly of all:

(1) Systems malfunctions;

(2) Cyber security incidents or targeted threats that actually or

potentially jeopardize automated system operation, reliability,

security, or capacity; and

(3) Any activation of the swap data repository's business

continuity-disaster recovery plan.

(h) A registered swap data repository shall give Commission staff

timely advance notice of all:

(1) Planned changes to automated systems that may impact the

reliability, security, or adequate scalable capacity of such systems;

and

(2) Planned changes to the swap data repository's program of risk

analysis and oversight.

(i) A registered swap data repository shall provide to the

Commission upon request current copies of its business continuity and

disaster recovery plan and other emergency procedures, its assessments

of its operational risks, and other documents requested by Commission

staff for the purpose of maintaining a current profile of the swap data

repository's automated systems.

(j) A registered swap data repository shall conduct regular,

periodic, objective testing and review of its automated systems to

ensure that they are reliable, secure, and have adequate scalable

capacity. It shall also conduct regular, periodic testing and review of

its business continuity-disaster recovery capabilities. Both types of

testing should be conducted by qualified, independent professionals.

Such qualified independent professionals may be independent contractors

or employees of the swap data repository, but should not be persons

responsible for development or operation of the systems or capabilities

being tested. Pursuant to Sec. Sec. 1.31, 49.12 and 45.2 of the

Commission's Regulations, the swap data repository shall keep records

of all such tests, and make all test results available to the

Commission upon request.

(k) To the extent practicable, a registered swap data repository

should:

(1) Coordinate its business continuity-disaster recovery plan with

those of the swap execution facilities, designated contract markets,

derivatives clearing organizations, swap dealers, and major swap

participants who report swap data to the swap data repository, and with

those of regulators identified in Section 21(c)(7) of the Act, in a

manner adequate to enable effective resumption of the registered swap

data repository's

[[Page 80937]]

fulfillment of its duties and obligations following a disruption

causing activation of the swap data repository's business continuity

and disaster recovery plan;

(2) Participate in periodic, synchronized testing of its business

continuity-disaster recovery plan and the business continuity-disaster

recovery plans of the swap execution facilities, designated contract

markets, derivatives clearing organizations, swap dealers, and major

swap participants who report swap data to the registered swap data

repository, and the business continuity-disaster recovery plans

required by the regulators identified in Section 21(c)(7) of the Act;

and

(3) Ensure that its business continuity-disaster recovery plan

takes into account the business continuity-disaster recovery plans of

its telecommunications, power, water, and other essential service

providers.

Sec. 49.25 Financial resources.

(a) General rule. (1) A swap data repository shall maintain

sufficient financial resources to perform its statutory duties set

forth in Sec. 49.9 and the core principles set forth in Sec. 49.19.

(2) An entity that operates as both a swap data repository and a

derivatives clearing organization shall also comply with the financial

resource requirements of Core Principle B set forth in Section

5b(c)(2)(B) of the Act.

(3) Financial resources shall be considered sufficient if their

value is at least equal to a total amount that would enable the swap

data repository, or applicant for registration, to cover its operating

costs for a period of at least one year, calculated on a rolling basis.

(4) The financial resources described in this paragraph (a) must be

independent and separately dedicated to ensure that assets and capital

are not used for multiple purposes.

(b) Types of financial resources. Financial resources available to

satisfy the requirements of paragraph (a) of this section may include:

(1) The swap data repository's own capital; and

(2) Any other financial resource deemed acceptable by the

Commission.

(c) Computation of financial resource requirement. A swap data

repository shall, on a quarterly basis, based upon its fiscal year,

make a reasonable calculation of its projected operating costs over a

12-month period in order to determine the amount needed to meet the

requirements of paragraph (a) of this section. The swap data repository

shall have reasonable discretion in determining the methodology used to

compute such projected operating costs. The Commission may review the

methodology and require changes as appropriate.

(d) Valuation of financial resources. At appropriate intervals, but

not less than quarterly, a swap data repository shall compute the

current market value of each financial resource used to meet its

obligations under paragraph (a) of this section. Reductions in value to

reflect market and credit risk (haircuts) shall be applied as

appropriate.

(e) Liquidity of financial resources. The financial resources

allocated by the swap data repository to meet the requirements of

paragraph (a) shall include unencumbered, liquid financial assets

(i.e., cash and/or highly liquid securities) equal to at least six

months' operating costs. If any portion of such financial resources is

not sufficiently liquid, the swap data repository may take into account

a committed line of credit or similar facility for the purpose of

meeting this requirement.

(f) Reporting requirements. (1) Each fiscal quarter, or at any time

upon Commission request, a swap data repository shall report to the

Commission the amount of financial resources necessary to meet the

requirements of paragraph (a), the value of each financial resource

available, computed in accordance with the requirements of paragraph

(d); and provide the Commission with a financial statement, including

the balance sheet, income statement, and statement of cash flows of the

swap data repository or of its parent company. Financial statements

shall be prepared in conformity with generally accepted accounting

principles (GAAP) applied on a basis consistent with that of the

preceding financial statement.

(2) The calculations required by this paragraph shall be made as of

the last business day of the swap data repository's fiscal quarter.

(3) The report shall be filed not later than 17 business days after

the end of the swap data repository's fiscal quarter, or at such later

time as the Commission may permit, in its discretion, upon request by

the swap data repository.

Sec. 49.26 Disclosure requirements of swap data repositories.

Before accepting any swap data from a reporting entity or upon a

reporting entity's request, a registered swap data repository shall

furnish to the reporting entity a disclosure document that contains the

following written information, which shall reasonably enable the

reporting entity to identify and evaluate accurately the risks and

costs associated with using the services of the swap data repository:

(a) The registered swap data repository's criteria for providing

others with access to services offered and data maintained by the swap

data repository;

(b) The registered swap data repository's criteria for those

seeking to connect to or link with the swap data repository;

(c) A description of the registered swap data repository's policies

and procedures regarding its safeguarding of data and operational

reliability to protect the confidentiality and security of such data,

as described in Sec. 49.24;

(d) The registered swap data repository's policies and procedures

reasonably designed to protect the privacy of any and all swap data

that the swap data repository receives from a reporting entity, as

described in Sec. 49.16;

(e) The registered swap data repository's policies and procedures

regarding its non-commercial and/or commercial use of the swap data

that it receives from a market participant, any registered entity, or

any other person;

(f) The registered swap data repository's dispute resolution

procedures;

(g) A description of all the registered swap data repository's

services, including any ancillary services;

(h) The registered swap data repository's updated schedule of any

fees, rates, dues, unbundled prices, or other charges for all of its

services, including any ancillary services; any discounts or rebates

offered; and the criteria to benefit from such discounts or rebates;

and

(i) A description of the registered swap data repository's

governance arrangements.

Sec. 49.27 Access and fees.

(a) Fair, Open and Equal Access. A swap data repository, consistent

with Section 21 of the Act, shall provide its services to market

participants, including but not limited to designated contract markets,

swap execution facilities, derivatives clearing organizations, swap

dealers, major swap participants and any other counterparties, on fair,

open and equal basis. For this purpose, a swap data repository shall

not provide access to its services on a discriminatory basis but is

required to provide its services to all market participants for swaps

it accepts in an asset class.

(b) Fees. (1) Any fees or charges imposed by a registered swap data

repository in connection with the reporting of swap data and any other

supplemental or ancillary services provided by such swap data

repository shall be equitable and established in a uniform and non-

discriminatory

[[Page 80938]]

manner. Fees or charges shall not be used as an artificial barrier to

access to the swap data repository. Swap data repositories shall not

offer preferential pricing arrangements to any market participant on

any basis, including volume discounts or reductions unless such

discounts or reductions apply to all market participants uniformly and

are not otherwise established in a manner that would effectively limit

the application of such discount or reduction to a select number of

market participants.

(2) All fees or charges are to be fully disclosed and transparent

to market participants. At a minimum, the registered swap data

repository shall provide a schedule of fees and charges that is

accessible by all market participants on its Web site.

(3) The Commission notes that it will not specifically approve the

fees charged by swap data repositories. However, any and all fees

charged by swap data repositories must be consistent with the

principles set forth in paragraph (b)(1) of this section.

Appendix A to Part 49--Form SDR

UNITED STATES COMMODITY FUTURES TRADING COMMISSION

FORM SDR

SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR

REGISTRATION UNDER THE COMMODITY EXCHANGE ACT

REGISTRATION INSTRUCTIONS

Intentional misstatements or omissions of fact may constitute federal

criminal violations (7 U.S.C. ♠ 13 and 18 U.S.C. ♠ 1001) and/or

grounds for disqualification from registration.

DEFINITIONS

Unless the context requires otherwise, all terms used in the form

have the same meaning as in the Commodity Exchange Act, as amended, and

in the Regulations of the Commission thereunder.

For the purposes of this form, the term ``applicant'' shall include

any applicant for registration as a swap data repository or any

registered swap data repository that is amending Form SDR.

GENERAL INSTRUCTIONS

1. Two (2) copies of Form SDR and Exhibits thereto are to be filed

with the Commodity Futures Trading Commission by applicants for

registration as a swap data repository, or by a registered swap data

repository amending such registration, pursuant to Section 21 of the

Commodity Exchange Act and the regulations thereunder. Upon the filing

of an application for registration, the Commission will publish notice

of the filing and afford interested persons an opportunity to submit

written data, views and arguments concerning such application. No

application for registration shall be effective unless the Commission,

by order, grants such registration.

2. Individuals' names shall be given in full (last name, first

name, middle name).

3. Signatures must accompany each copy of the Form SDR filed with

the Commission. If this Form SDR is filed by a corporation, it must be

signed in the name of the corporation by a principal officer duly

authorized; if filed by a limited liability company, this Form SDR must

be signed in the name of the limited liability company by a member duly

authorized to sign on the limited liability company's behalf; if filed

by a partnership, this Form SDR must be signed in the name of the

partnership by a general partner authorized; if filed by an

unincorporated organization or association which is not a partnership,

it must be signed in the name of the organization or association by the

managing agent, i.e., a duly authorized person who directs, manages or

who participates in the directing or managing of its affairs.

4. If Form SDR is being filed as an initial application for

registration, all applicable items must be answered in full. If any

item is not applicable, indicate by ``none,'' ``not applicable,'' or

``N/A'' as appropriate.

5. Under Section 21 of the Commodity Exchange Act and the

regulations thereunder, the Commission is authorized to solicit the

information required to be supplied by this form from applicants for

registration as a swap data repository and from registered swap data

repositories amending their registration. Disclosure of the information

specified on this form is mandatory prior to processing of an

application for registration as a swap data repository. The information

will be used for the principal purpose of determining whether the

Commission should grant or deny registration to an applicant. Except in

cases where confidential treatment is requested by the applicant and

granted by the Commission pursuant to the Freedom of Information Act

and the regulations of the Commission thereunder, information supplied

on this form will be included routinely in the public files of the

Commission and will be available for inspection by any interested

person. A Form which is not prepared and executed in compliance with

applicable requirements and instructions may be returned as not

acceptable for filing. Acceptance of this Form SDR, however, shall not

constitute any finding that the Form SDR has been filed as required or

that the information submitted is true, current or complete.

UPDATING INFORMATION ON THE FORM SDR

1. Section 21 requires that if any information contained in Items 1

through 15, 21, 27, and Item 51 of this application, or any supplement

or amendment thereto, is or becomes inaccurate for any reason, an

amendment must be filed promptly, unless otherwise specified, on Form

SDR correcting such information.

2. Registrants filing Form SDR as an amendment (other than an

annual amendment) need file only the facing page, the signature page

(Item 11), and any pages on which an answer is being amended, together

with such exhibits as are being amended. The submission of an amendment

represents that all unamended items and exhibits remain true, current

and complete as previously filed.

ANNUAL AMENDMENT ON THE FORM SDR

Annual amendments on the Form SDR shall be submitted within 60 days

of the end of each calendar year. Applicants must complete the facing

page and provide updated information.

An applicant may request an extension of time for submitting the

annual amendment with the Secretary of the Commission based on

substantial, undue hardship. Extensions for filing annual amendments

may be granted at the discretion of the Commission.

WHERE TO FILE

File registration application and appropriate exhibits

electronically with the Commission at the Washington, D.C. headquarters

in a format specified by the Secretary of the Commission. Applications

should be sent to the attention of the Secretary of the Commission at

[email protected]

BILLING CODE 6351-01-P

[[Page 80939]]

[GRAPHIC] [TIFF OMITTED] TP23DE10.000

[[Page 80940]]

[GRAPHIC] [TIFF OMITTED] TP23DE10.001

[[Page 80941]]

[GRAPHIC] [TIFF OMITTED] TP23DE10.002

BILLING CODE 6351-01-C

EXHIBITS INSTRUCTIONS

The following exhibits must be included as part of Form SDR and

filed with the Commodity Futures Trading Commission by applicants for

registration as a swap data repository, or by registered swap data

repository amending such registration, pursuant to Section 21 of the

Commodity Exchange Act and regulations thereto. Such exhibits should be

labeled according to the items specified in this Form. If any exhibit

is not applicable, please specify the exhibit letter and indicate by

``none,'' ``not applicable,'' or ``N/A'' as appropriate. The applicant

must identify with particularity the information in these exhibits that

will be subject to a request for confidential treatment and supporting

documentation for such request pursuant to Commission Regulation Sec.

145.9.

If the applicant is a newly formed enterprise and does not have the

financial statements required pursuant to Items 25 and 26 of this form,

the applicant should provide pro forma financial statements for the

most recent

[[Page 80942]]

six months or since inception, whichever is less. Except for pro forma

financial statements prepared for newly-created entities, financial

statements shall be prepared in conformity with generally accepted

accounting principles (``GAAP'') applied on a basis consistent with

that of the preceding financial statement.

EXHIBITS I--BUSINESS ORGANIZATION

12. List as Exhibit A any person who owns ten (10) percent or more

of applicant's equity or possesses voting power of any class, either

directly or indirectly, through agreement or otherwise, or in any other

manner, may control or direct the management or policies of applicant.

``Control'' for this purpose is defined in Commission Regulation Sec.

49.2(a)(3).

State in Exhibit A the full name and address of each such person

and attach a copy of the agreement or, if there is none written,

describe the agreement or basis upon which such person exercises or may

exercise such control or direction.

13. Attach as Exhibit B to this application a narrative that sets

forth the fitness standards for the board of directors. Attach a list

of the present officers, directors, governors (and, in the case of an

applicant not a corporation, the members of all standing committees

grouped by committee), or persons performing functions similar to any

of the foregoing, of the swap data repository or of the entity

identified in Item 16 that performs the swap data repository activities

of the applicant, indicating for each:

a. Name

b. Title

c. Date of commencement and, if appropriate, termination of present

term of position

d. Length of time each present officer, director, or governor has

held the same position

e. Brief account of the business experience of each officer and

director over the last five (5) years

f. Any other business affiliations in the securities industry or

OTC derivatives industry

g. A description of:

(1) any order of the Commission with respect to such person

pursuant to Section 5e of the Act;

(2) any conviction or injunction within the past 10 years;

(3) any disciplinary action with respect to such person within the

last five (5) years;

(4) any disqualification under Sections 8b, and 8d of the Act;

(5) any disciplinary action under Section 8c of the Act;

(6) any violation pursuant to Section 9 of the Act.

h. For directors, list any committees on which they serve and any

compensation received by virtue of their directorship.

14. Attach as Exhibit C to this application the following

information about the chief compliance officer who has been appointed

by the board of directors of the swap data repository or a person or

group performing a function similar to such board of directors:

a. Name

b. Title

c. Dates of commencement and termination of present term of office

or position

d. Length of time the chief compliance officer has held the same

office or position

e. Brief account of the business experience of the chief compliance

officer over the last five (5) years

f. Any other business affiliations in the derivatives/securities

industry or swap data repository industry

g. A description of:

(1) any order of the Commission with respect to such person

pursuant to Section 5e of the Act;

(2) any conviction or injunction within the past 10 years;

(3) any disciplinary action with respect to such person within the

last five (5) years;

(4) any disqualification under Sections 8b, and 8d of the Act;

(5) any disciplinary action under Section 8c of the Act;

(6) any violation pursuant to Section 9 of the Act.

15. Attach as Exhibit D a copy of documents relating to the

governance arrangements of the applicant, including, but not limited

to:

a. the nomination and selection process of the members on the

applicant's board of directors, a person or group performing a function

similar to a board of directors (collectively, ``board''), or any

committee that has the authority to act on behalf of the board or amend

or constrain the action of the board, the responsibilities of each of

the board and such committee, and the composition of each board and

such committee;

b. the process for assigning members of the board or other persons

to any committees referenced in (a);

c. a description of the manner in which the board and the

committees referenced in (a) allows the applicant to comply with

applicable core principles, regulations, as well as the policies and

procedures of the applicant (including those involving consideration of

an Independent Perspective (as Commission Regulation Sec. 49.2(a)(14)

defines such term));

d. a description of the manner in which the board reviews its

performance and the performance of its members;

e. a description of the procedures to remove a member of the board,

where the conduct of such member is likely to be prejudicial to the

sound and prudent management of the applicant.

16. Attach as Exhibit E a narrative or graphic description of the

organizational structure of the applicant. Note: If the swap data

repository activities are conducted primarily by a division,

subdivision, or other segregable entity within the applicant's

corporation or organization, describe the relationship of such entity

within the overall organizational structure and attach as Exhibit E

only such description as applies to the segregable entity.

Additionally, prove any relevant jurisdictional information, including

any and all jurisdictions in which the applicant or any affiliated

entity is doing business and registration status, including pending

application (e.g., country, regulator, registration category, date of

registration). In addition, include a description of the lines of

responsibility and accountability for each operational unit of the

applicant to (i) any committee thereof and/or (ii) the board.

17. Attach as Exhibit F a copy of the conflicts of interest

policies and procedures implemented by the applicant to minimize

conflicts of interest in the decision-making process of the swap data

repository and to establish a process for the resolution of any such

conflicts of interest.

18. Attach as Exhibit G, a list of all affiliates of the swap data

repository and indicate the general nature of the affiliation. Provide

a copy of any agreements entered into or to be entered by the swap data

repository, including partnerships or joint ventures, or its

participants, that will enable the applicant to comply with the

registration requirements and core principles specified in Section 21

of the Commodity Exchange Act.

19. Attach as Exhibit H to this application a copy of the

constitution, articles of incorporation or association with all

amendments thereto, and existing by-laws, rules or instruments

corresponding thereto, of the applicant. A certificate of good standing

dated within one week of the date of the application shall be provided.

20. Where the applicant is a foreign entity seeking registration or

filing an amendment to an existing registration, attach as Exhibit I,

an opinion of

[[Page 80943]]

counsel that the swap data repository, as a matter of law, is able to

provide the Commission with prompt access to the books and records of

such swap data repository and that the swap data repository can submit

to onsite inspection and examination by the Commission.

21. Where the applicant is a foreign entity seeking registration,

attach as Exhibit I-1, to designate and authorize an agent in the

United States, other than a Commission official, to accept any notice

or service of process, pleadings, or other documents in any action or

proceedings brought against the swap data repository to enforce the Act

and the regulations thereunder.

22. Attach as Exhibit J, a current copy of the applicant's rules as

defined in Commission Regulation Sec. 40.1, consisting of all the

rules necessary to carry out the duties as a swap data repository.

23. Attach as Exhibit K, a description of the applicant's internal

disciplinary and enforcement protocols, tools, and procedures. Include

the procedures for dispute resolution.

24. Attach as Exhibit L, a brief description of any material

pending legal proceeding(s), other than ordinary and routine litigation

incidental to the business, to which the applicant or any of its

affiliates is a party or to which any of its or their property is the

subject. Include the name of the court or agency in which the

proceeding(s) are pending, the date(s) instituted, and the principal

parties thereto, a description of the factual basis alleged to underlie

the proceeding(s) and the relief sought. Include similar information as

to any such proceeding(s) known to be contemplated by the governmental

agencies.

EXHIBITS II--FINANCIAL INFORMATION

25. Attach as Exhibit M a balance sheet, statement of income and

expenses, statement of sources and application of revenues and all

notes or schedules thereto, as of the most recent fiscal year of the

applicant. If a balance sheet and statements certified by an

independent public accountant are available, such balance sheet and

statement shall be submitted as Exhibit M. Except for pro forma

financial statements prepared for newly-created entities, financial

statements shall be prepared in conformity with generally accepted

accounting principles (GAAP) applied on a basis consistent with that of

the preceding financial statement.

26. Attach as Exhibit N a balance sheet and an income and expense

statement for each affiliate of the swap data repository that also

engages in swap data repository activities as of the end of the most

recent fiscal year of each such affiliate. Except for pro forma

financial statements prepared for newly-created entities, financial

statements shall be prepared in conformity with GAAP applied on a basis

consistent with that of the preceding financial statement.

27. Attach as Exhibit O the following:

a. A complete list of all dues, fees and other charges imposed, or

to be imposed, by or on behalf of applicant for its swap data

repository services and identify the service or services provided for

each such due, fee, or other charge.

b. Furnish a description of the basis and methods used in

determining the level and structure of the dues, fees and other charges

listed above in paragraph a of this item.

c. If the applicant differentiates, or proposes to differentiate,

among its customers, or classes of customers in the amount of any dues,

fees, or other charges imposed for the same or similar services, so

state and indicate the amount of each differential. In addition,

identify and describe any differences in the cost of providing such

services, and any other factors, that account for such

differentiations.

EXHIBITS III--OPERATIONAL CAPABILITY

28. Attach as Exhibit P copies of all material contracts with any

swap execution facility, clearing agency, central counterparty, or

third party service provider. To the extent that form contracts are

used by the applicant, submit a sample of each type of form contract

used. In addition, include a list of swap execution facilities,

clearing agencies, central counterparties, and third party service

providers with whom the applicant has entered into material contracts.

Where swap data repository functions are performed by a third-party,

attach any agreements between or among the applicant and such third

party, and identify the services that will be provided.

29. Attach as Exhibit Q any technical manuals, other guides or

instructions for users of, or participants in, the market.

30. Attach as Exhibit R a description of system test procedures,

test conducted or test results that will enable the applicant to

comply, or demonstrate the applicant's ability to comply with the core

principles for swap data repositories.

31. Attach as Exhibit S a description in narrative form or by the

inclusion of functional specifications, of each service or function

performed as a swap data repository. Include in Exhibit S a description

of all procedures utilized for the collection, processing,

distribution, publication and retention (e.g., magnetic tape) of

information with respect to transactions or positions in, or the terms

and conditions of, swaps entered into by market participants.

32. Attach as Exhibit T a list of all computer hardware utilized by

the applicant to perform swap data repository functions, indicating

where such equipment (terminals and other access devices) is physically

located.

33. Attach as Exhibit U a description of the personnel

qualifications for each category of professional employees employed by

the swap data repository or the division, subdivision, or other

segregable entity within the swap data repository as described in Item

16.

34. Attach as Exhibit V a description of the measures or procedures

implemented by applicant to provide for the security of any system

employed to perform the functions of a swap data repository. Include a

general description of any physical and operational safeguards designed

to prevent unauthorized access (whether by input or retrieval) to the

system. Describe any circumstances within the past year in which the

described security measures or safeguards failed to prevent any such

unauthorized access to the system and any measures taken to prevent a

reoccurrence. Describe any measures used to verify the accuracy of

information received or disseminated by the system.

35. Attach as Exhibit W copies of emergency policies and procedures

and applicant's business continuity-disaster recovery plan. Include a

general description of any business continuity-disaster recovery

resources, emergency procedures, and backup facilities sufficient to

enable timely recovery and resumption of its operations and resumption

of its ongoing fulfillment of its duties and obligations as a swap data

repository following any disruption of its operations.

36. Where swap data repository functions are performed by automated

facilities or systems, attach as Exhibit X a description of all backup

systems or subsystems that are designed to prevent interruptions in the

performance of any swap data repository function as a result of

technical malfunctions or otherwise in the system itself, in any

permitted input or output system connection, or as a result of any

independent source. Include a narrative description of each type of

interruption that has lasted for more than two minutes and has occurred

within the six (6) months preceding the date of the filing, including

the date of each interruption,

[[Page 80944]]

the cause and duration. Also state the total number of interruptions

that have lasted two minutes or less.

37. Attach as Exhibit Y the following:

a. For each of the swap data repository functions:

(1) quantify in appropriate units of measure the limits on the swap

data repository's capacity to receive (or collect), process, store or

display (or disseminate for display or other use) the data elements

included within each function (e.g., number of inquiries from remote

terminals); and

(2) identify the factors (mechanical, electronic or other) that

account for the current limitations reported in answer to (1) on the

swap data repository's capacity to receive (or collect), process, store

or display (or disseminate for display or other use) the data elements

included within each function.

b. If the applicant is able to employ, or presently employs, the

central processing units of its system(s) for any use other than for

performing the functions of a swap data repository, state the

priorities of assignment of capacity between such functions and such

other uses, and state the methods used or able to be used to divert

capacity between such functions and such other uses.

EXHIBITS IV--ACCESS TO SERVICES

38. Attach as Exhibit Z the following:

a. As to each swap data repository service that the applicant

provides, state the number of persons who presently utilize, or who

have notified the applicant of their intention to utilize, the services

of the swap data repository.

b. For each instance during the past year in which any person has

been prohibited or limited in respect of access to services offered by

the applicant as a swap data repository, indicate the name of each such

person and the reason for the prohibition or limitation.

c. Define the data elements for purposes of the swap data

repository's real-time public reporting obligation. Appendix A to part

43 of the Commission's Regulations (Data Elements and Form for Real-

Time Reporting for Particular Markets and Contracts) sets forth the

specific data elements for real-time public reporting.

39. Attach as Exhibit AA copies of any agreements governing the

terms by which information may be shared by the swap data repository,

including with market participants. To the extent that form contracts

are used by the applicant, submit a sample of each type of form

contract used.

40. Attach as Exhibit BB a description of any specifications,

qualifications or other criteria that limit, are interpreted to limit,

or have the effect of limiting access to or use of any swap data

repository services furnished by the applicant and state the reasons

for imposing such specifications, qualifications, or other criteria,

including whether such specifications, qualifications or other criteria

are imposed.

41. Attach as Exhibit CC any specifications, qualifications, or

other criteria required of participants who utilize the services of the

applicant for collection, processing, preparing for distribution, or

public dissemination by the applicant.

42. Attach as Exhibit DD any specifications, qualifications, or

other criteria required of any person, including, but not limited to,

regulators, market participants, market infrastructures, venues from

which data could be submitted to the applicant, and third party service

providers who request access to data maintained by the applicant.

43. Attach as Exhibit EE policies and procedures implemented by the

applicant to review any prohibition or limitation of any person with

respect to access to services offered or data maintained by the

applicant and to grant such person access to such services or data if

such person has been discriminated against unfairly.

EXHIBITS--OTHER POLICIES AND PROCEDURES

44. Attach as Exhibit FF, a narrative and supporting documents that

may be provided under other Exhibits herein, that describe the manner

in which the applicant is able to comply with each core principle and

other requirements pursuant to Commission Regulation Sec. 49.17.

45. Attach as Exhibit GG policies and procedures implemented by the

applicant protect the privacy of any and all swap information that the

swap data repository receives from reporting entities.

46. Attach as Exhibit HH a description of safeguards, policies, and

procedures implemented by the applicant to prevent the misappropriation

or misuse of (a) any confidential information received by the

applicant, including, but not limited to ``Section 8 Material'' and

``SDR Information,'' as those terms are defined in Commission

Regulation Sec. 49.2, about a market participant or any of its

customers; and/or (c) intellectual property by applicant or any person

associated with the applicant for their personal benefit or the benefit

of others.

47. Attach Exhibit II policies and procedures implemented by the

applicant regarding its use of the SDR Information that it receives

from a market participant, any registered entity, or any person for

non-commercial and/or commercial purposes.

48. Attach as Exhibit JJ procedures and a description of facilities

of the applicant for effectively resolving disputes over the accuracy

of the transaction data and positions that are recorded in the swap

data repository.

49. Attach as Exhibit KK policies and procedures relating to the

applicant's calculation of positions.

50. Attach as Exhibit LL policies and procedures that are

reasonably designed to prevent any provision in a valid swap from being

invalidated or modified through the procedures or operations of the

applicant.

51. Attach as Exhibit MM a plan to ensure that the transaction data

and position data that are recorded in the applicant continue to be

maintained after the applicant withdraws from registration as a swap

data repository, which shall include procedures for transferring the

transaction data and position data to the Commission or its designee

(including another registered swap data repository).

Issued in Washington, DC on November 19, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

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

Federal Regulations.

Statement of Chairman Gary Gensler Swap Data Repositories

I support the proposed rulemaking to establish registration

requirements and regulations of swap data repositories. This proposal

would implement Congress's mandate that all swaps--whether cleared or

uncleared--be reported to a swap data repository registered with the

Commission. Registration will enable the Commission to monitor swap

data repositories for compliance with the Dodd-Frank Act and Commission

regulations. The proposal implements Congress's direction that

regulators would have direct access to information maintained by swap

data repositories. The proposal requires swap data repositories to

verify the accuracy and completeness of all of the swaps data it

accepts. The proposed rule also includes a requirement that swap data

repositories would receive notifications with regard to non-financial

end-users hedging or mitigating commercial risk. The proposal also

includes important features where swap data repositories will

facilitate real time reporting of

[[Page 80945]]

swaps transactions. Lastly, the proposal includes provisions for swap

data repositories to aggregate certain information for regulators and

the public.

Dissenting Statement of Commissioner Jill E. Sommers

I disagree with several aspects of the proposal the Commission is

issuing today, but seek public comment on two particular areas that I

believe are important as they relate to the critical function of real-

time public reporting of swap data.

First, I request public comment on whether the Commission should

require registered swap data repositories (SDRs) to perform the real-

time reporting duties described in section 2(a)(13) of the Commodity

Exchange Act (CEA), as amended by the Dodd-Frank Act. Section 21(c) of

the CEA sets forth specific duties that SDRs must perform. It directs,

in relevant part, that SDRs ``shall . . . provide the information

described in paragraph (1) [i.e., swap data] in such form and at such

frequency as the Commission may require to comply with the public

reporting requirements contained in section 2(a)(13) [i.e., real-time

reporting].'' Section 21(c)(4)(B). The proposal contemplates that SDRs

will be required to perform real-time reporting for off-facility swaps,

but can choose not to perform this function for swaps executed on a

swap market, in which case the data can be submitted to a third-party

vendor for real-time reporting.

In my view, real-time reporting is one of the core functions that

Congress intended SDRs to perform. The structure the Commission is

proposing may needlessly fragment the public reporting of real-time

data and could undermine the purpose of real-time reporting, which is

to make data available to t80898he public in a form that enhances price

transparency.

Second, I recognize that under Section 2(a)(13) of the CEA the

Commission may also require other registered entities to perform real-

time reporting, but I question the utility of allowing third-party

vendors to perform this important function. As such, I also seek public

comment on whether third-party vendors should be subject to some form

of regulatory oversight in the event the Commission permits them to

accept data for real-time reporting purposes.

[FR Doc. 2010-31133 Filed 12-22-10; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: December 23, 2010