2010-30884

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

[Proposed Rules]

[Page 76666-76677]

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

[DOCID:fr09de10-21]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 23

RIN 3038-AC96

 

Reporting, Recordkeeping, and Daily Trading Records Requirements

for Swap Dealers and Major Swap Participants

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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

is proposing regulations to implement new statutory provisions

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

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

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

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

daily trading records requirements for swap dealers and major swap

participants. The proposed rules would establish the regulatory

standards for compliance with these new sections of the CEA.

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

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

and Reporting, Recordkeeping, and Daily Trading Records Requirements

for Swap Dealers and Major Swap Participants, by any of the following

methods:

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

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

through the Web site.

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

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

Street, NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

[[Page 76667]]

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

Follow the instructions for submitting comments.

Please submit your comments using only one method.

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

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

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

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

information that may be exempt from disclosure under the Freedom of

Information Act, a petition for confidential treatment of the exempt

information may be submitted according to the established procedures in

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

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

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

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

inappropriate for publication, such as obscene language. All

submissions that have been redacted or removed that contain comments on

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

file and will be considered as required under the Administrative

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

the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Sarah E. Josephson, Associate

Director, 202-418-5684, [email protected]; Frank N. Fisanich, Special

Counsel, 202-418-5949, [email protected]; or Christopher Hower,

Attorney Advisor, 202-418-6703, [email protected]; Division of Clearing

and Intermediary Oversight, Commodity Futures Trading Commission, Three

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

SUPPLEMENTARY INFORMATION:

I. Background

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

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

(CEA) \3\ to establish a comprehensive regulatory framework to reduce

risk, increase transparency, and promote market integrity within the

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

registration and comprehensive regulation of swap dealers and major

swap participants; (2) imposing clearing and trade execution

requirements on standardized derivative products; (3) creating rigorous

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

Commission's rulemaking and enforcement authorities with respect to all

registered entities and intermediaries subject to the Commission's

oversight.

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

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

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

OTCDERIVATIVES/index.htm.

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

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

2010.''

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

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

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

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

the CEA establish reporting and recordkeeping requirements and daily

trading records requirements for swap dealers and major swap

participants.

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

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

regulation regarding the transactions and positions and financial

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

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

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

activities related to the business of swap dealers or major swap

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

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

and examination by any representative of the Commission, and under

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

agreements also must be open to inspection and examination by the

Securities and Exchange Commission.

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

participant's financial condition reports will be prescribed in

separate rulemaking proposals and are not included in the proposed

rules below.

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

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

registered swap dealer and major swap participant and all related

records (including related cash and forward transactions) and recorded

communications, including electronic mail, instant messages, and

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

trading records for each swap transaction be identifiable by

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

major swap participants maintain a ``complete audit trail for

conducting comprehensive and accurate trade reconstructions.''

The Commission would adopt the regulations discussed below pursuant

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

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

Commission to promulgate these provisions by July 15, 2011.

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

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

are reasonably necessary to effectuate any of the provisions or to

accomplish any of the purposes of the CEA.

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The proposed regulations reflect consultation with staff of the

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

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

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

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

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

and the proposed regulations incorporate elements of the comments

provided.

The Commission requests comment on all aspects of the proposed

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

highlighted in the discussion below. The Commission further requests

comment on an appropriate effective date for final regulations,

including comment on whether it would be appropriate to have staggered

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

characteristics of the activities or entities to which they apply.

Moreover, the Commission recognizes that there will be differences in

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

swap participants. Therefore, comments are solicited on whether certain

provisions of the proposed regulations should be modified or adjusted

to reflect the differences among swap dealers and major swap

participants.

II. Proposed Regulations

A. General Records Requirements

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

major swap participants to keep records of all activities related to

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

governing recordkeeping for swap dealers and major swap participants.

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

swap participants must maintain. The records required under the

proposed rule would include full and complete swap transaction

information, including all documents on which swap information is

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

would be required to be maintained in a manner

[[Page 76668]]

that is identifiable and searchable by transaction and by counterparty.

The rule would require retention of all documents customarily generated

in accordance with market practice that demonstrate the existence and

nature of the transaction.

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

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

identified by product and counterparty. Position records would be

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

identification of the transaction that established the position.

Position information would be retained in accordance with Commission

regulations under part 45, which provides for unique product

identifiers and unique counterparty identifiers.

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

swap participants to maintain records for transactions executed on a

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

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

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

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

rule, described below, would be easily achieved through procedures

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

valuing the transaction, or margining the position).

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

swap participants keep basic business records, including, among other

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

organizational charts, and documentation of audits conducted.

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

against personnel, and marketing materials would be required to be

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

participants would be required to maintain records of information

required to be submitted to a swap data repository.

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\6\ Financial condition reporting, including reporting for

compliance with capital rules, will be proposed in a separate

rulemaking.

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

or informal complaint, grievance, criticism, or concern communicated

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

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

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

performance (or failure to perform) any of its regulatory

obligations, and includes any and all observations, comments,

remarks, interpretations, clarifications, notes, and examinations as

to such conduct or behavior communicated or documented by the

complainant, swap dealer, or major swap participant.

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

participants would be required to maintain records of information

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

information relating to large notional swaps in accordance with

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

to large notional swaps, swap dealers and major swap participants

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

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

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

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

required data field is reported to protect the identities of the

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

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

reporting less specific information is necessary to protect the

anonymity of the parties to the swap.

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

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

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The Commission requests comment on all aspects of proposed Sec.

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

questions:

Should the Commission provide greater specificity on the

requirement that transaction records be kept in a form and manner

identifiable and searchable by transaction and counterparty?

Are there additional types of records that should be

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

example, should drafts of documents be kept?

B. Daily Trading Records

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

swap participants maintain daily trading records of their swaps and

``all related records (including related cash and forward

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

swap participants maintain recorded communications, including

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

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

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

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

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

specifies that swap dealers and major swap participants maintain a

``complete audit trail for conducting comprehensive and accurate trade

reconstructions.''

Proposed Sec. 23.202 would prescribe daily trading record

requirements, which would include trade information related to pre-

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

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

that they preserve all information necessary to conduct a comprehensive

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

maintain each transaction record as a separate electronic file

identifiable and searchable by transaction and counterparty.

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

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

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

communicated by telephone, voicemail, facsimile, instant messaging,

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

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

participants to maintain recordings of telephone calls and other

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

not establish an affirmative new requirement to create recordings of

all telephone conversations if the complete audit trail requirement can

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

Significant technological advancements in recent years,

particularly with respect to the cost of capturing and retaining copies

of electronic material, including telephone communications, have made

the prospect of establishing recordkeeping requirements for digital and

electronic communications more economically feasible and systemically

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

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

the issue of mandating the recording and retention of voice

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

Statement detailing its findings and ultimately implemented rules

relating to the recording and retention of such communications,

including a recent determination that all financial service firms will

be required to record any relevant communication by

[[Page 76669]]

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

recording of certain voice and/or telephone conversations have been

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

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

have been recommended by the International Organization of Securities

Commissions (IOSCO).\13\

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

Recording: recording of voice conversations and electronic

communications,'' (March 2008).

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

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

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

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

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

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

\13\ Press Release, International Organization of Securities

Commissions, ``IOSCO Publishes Recommendations to Enhance Commodity

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

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

formulating the recommendations included Brazil, Canada (Ontario and

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

Switzerland, the United Kingdom, and the United States.

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While technological advancements have made capturing and retaining

such material more economically feasible, modern technologies likewise

have altered the methods by which market participants conduct their

business, especially the means through which such persons communicate

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

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

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

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

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

instant messages, and other forms of communication created or

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

specifically addresses the Commission's recordkeeping requirements as

applicable to futures commission merchants, introducing brokers, and

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

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

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

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

or transmitted electronically.''

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

Commission Merchants, Introducing Brokers, and Members of a Contract

Market over Compliance with Recordkeeping Requirements,'' is

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

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

cases involving market manipulation and false reporting often has

correlated directly with the existence of high-quality recordings of

voice communications and of electronic communications between the

persons involved. Conversely, the Commission's enforcement capabilities

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

electronic communications were not available.

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

would require swap dealers and major swap participants to maintain

records of all communications provided or received concerning

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

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

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

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

recorded communication be maintained as a separate electronic file

identifiable and searchable by transaction and counterparty.

The Commission solicits comments on the potential costs and effects

of requiring that all pre-execution communications be recorded.

Additionally, the Commission requests comment on whether it should

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

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

also are requested regarding whether the retention period for pre-

execution communications should be shorter than the retention period

applicable to other business records.

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

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

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

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

and margining of swaps would be required under proposed Sec.

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

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

under Sec. 23.202(a)(4).

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

swap participants retain information of cash or forward transactions

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

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

purchase or sale for immediate or deferred physical shipment or

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

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

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

and forward transactions generally track the same requirements as

swaps. The Commission believes that requiring one approach to

recordkeeping will be simpler for swap dealers and major swap

participants to implement and will provide the Commission with

information necessary for its regulatory oversight.

The Commission requests comment on all aspects of proposed Sec.

23.202. With respect to records regarding related cash and forward

transactions, the Commission solicits comment upon whether the

Commission has provided sufficient clarity concerning what type of

information would be required to be retained. The Commission also

requests comment on whether it should require swap dealers and major

swap participants to keep records related to high frequency trading,

and what the nature of those records should be.

C. Retention and Inspection of Records

Proposed Sec. 23.203 prescribes the form and manner in which

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

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

corresponds to the recordkeeping requirements of Sec. 1.31 insofar as

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

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

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

principal place of business of the swap dealer or major swap

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

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

provide the requested records at a place designated by a representative

of the Commission within 72 hours of receiving the request.

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

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

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

transaction be retained until the termination, maturity, expiration,

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

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

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

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

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

maintained in accordance with requirements under part 45, which was

recently proposed by the Commission.\15\

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

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

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[[Page 76670]]

In addition to any other comments on retention and inspection

requirements, the Commission requests comment on the approach it has

proposed for the retention of swap data.

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

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

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

by the Commission by rule or regulation regarding the transactions and

positions and financial condition of the registered swap dealer or

major swap participant.

Proposed Sec. 23.204 implements the reporting requirements of

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

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

implements the reporting requirements of Commission rules to be

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

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

reports required under the proposed rules would assist the Commission

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

major swap participants and to enforce their compliance with the

Commission's rules.

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

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

time public reporting, will be obligated to report certain data

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

following the execution of a swap.

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III. Related Matters

A. Regulatory Flexibility Act

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

consider whether the rules they propose will have a significant

economic impact on a substantial number of small entities. The

Commission previously has established certain definitions of ``small

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

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

affect swap dealers and major swap participants.

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

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

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Swap dealers and major swap participants are new categories of

registrants. Accordingly, the Commission has not previously addressed

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

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

that futures commission merchants are not small entities for purposes

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

the obligation of futures commission merchants to meet the minimum

financial requirements established by the Commission to enhance the

protection of customers' segregated funds and protect the financial

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

commission merchants, swap dealers will be subject to minimum capital

and margin requirements and are expected to comprise the largest global

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

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

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

customers. The Commission anticipates that this exemption would exclude

small entities from registration. For essentially the same reasons that

futures commission merchants have previously been determined not to be

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

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

the Commission is hereby proposing that swap dealers not be considered

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

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\19\ Id. at 18619.

\20\ Id.

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The Commission also has determined previously that large traders

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

the Commission considered that a large trading position was indicative

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

definition, maintain substantial positions in swaps or maintain

outstanding swap positions that create substantial counterparty

exposure that could have serious adverse effects on the financial

stability of the United States banking system or financial markets.

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

Commission is hereby proposing that major swap participants not be

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

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

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\21\ Id. at 18620.

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Moreover, the Commission is carrying out Congressional mandates by

proposing this regulation. Specifically, the Commission is proposing

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

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

participants through comprehensive regulation. The Commission does not

believe that there are regulatory alternatives to those being proposed

that would be consistent with the statutory mandate. Accordingly, the

Chairman, on behalf of the Commission, hereby certifies pursuant to 5

U.S.C. 605(b) that the proposed rules will not have a significant

economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

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

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

conducting or sponsoring any collection of information as defined by

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

information requirements within the meaning of the PRA. The Commission

therefore is submitting this proposal to the Office of Management and

Budget (OMB) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR

1320.11. The title for this collection of information is ``Reporting,

Recordkeeping, and Daily Trading Records Requirements for Swap Dealers

and Major Swap Participants.'' An agency may not conduct or sponsor,

and a person is not required to respond to, a collection of information

unless it displays a currently valid control number. The OMB has not

yet assigned this collection a control number.

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

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The collection of information under these proposed regulations is

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

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

swap dealer and major swap participant maintains records of all the

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

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

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

complete audit trail to conduct comprehensive and accurate trade

reconstructions. Commission staff would use the information required to

be preserved or reported when conducting the Commission's examination

and oversight program with respect to the applicable registrants.

If the proposed regulations are adopted, responses to this

collection of information would be mandatory. The Commission will

protect proprietary information according to the Freedom of Information

Act and 17 CFR part 145, ``Commission Records and Information.'' In

addition, section 8(a)(1) of the CEA strictly prohibits the Commission,

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

and information that would separately disclose the business

transactions or market positions of any person and

[[Page 76671]]

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

to protect certain information contained in a government system of

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

1. Information Provided by Reporting Entities/Persons

Swap dealers and major swap participants would be required to

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

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

and 23.205. The proposed regulations generally would require swap

dealers and major swap participants to keep transaction and position

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

related cash and forward transactions); to maintain specified business

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

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

certain swap transaction data to swap data repositories; to satisfy

certain real time public reporting requirements; and to maintain

records of information reported to swap data repositories and for real

time public reporting purposes.

The annual burden associated with these proposed regulations is

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

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

effort, or financial resources expended by persons to generate,

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

agency. This hourly burden primarily results from the recordkeeping

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

23.202.

Specifically, the Commission anticipates that swap dealers and

major swap participants will spend approximately eight hours per

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

transaction records, including daily trading records. The Commission

believes that swap dealers and major swap participants already maintain

the vast majority of the required transaction records (particularly

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

usual business practices and that any additional expenditure generally

would be limited to the costs associated with developing and preserving

certain pre-execution data and communications set forth in proposed

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

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

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

input any unique transaction terms into electronic recordkeeping

systems. The Commission believes that registrants will expend an

additional 63 hours per year compiling daily records of their

positions, identified by product and counterparty, as required by

proposed Sec. 23.201.

The Commission estimates that each swap dealer and major swap

participant will spend 5 hours per year compiling the complaint records

required by the proposed regulations. This approximation is based on

the belief that the affected registrants primarily engage in principal

to principal transactions, which are less likely to generate complaints

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

most registrants possess pre-existing complaint recordkeeping systems

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

required to document and retain the specific complaint information

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

estimates the hourly burden associated with compliance with the

marketing communication recordkeeping requirement to be approximately

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

participants presently maintain records of most of their marketing

presentations, advertisements, sales literature, and marketing

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

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

record of compliance with relevant marketing regulations.

The Commission believes that several aspects of the rule would not

result in any additional hourly burdens upon affected registrants. For

example, the required records of transactions executed on a swap

execution facility or designated contract market or transactions

cleared by a designated clearing organization would be the same

transaction and daily trading records accounted for previously and,

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

Commission also expects that swap dealers and major swap participants

currently make and/or maintain their meeting minutes; organizational

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

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

records in the ordinary course of their businesses.

Finally, the Commission does not anticipate that the requirements

to report swap transactions to swap data repositories in accordance

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

swap transaction and pricing data in accordance with proposed Sec.

23.205, and to maintain the electronic systems and procedures necessary

to report transactions and data in the manner required by the

regulations would result in any additional hourly burdens or costs to

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

the recently proposed part 45 regulations for swap data recordkeeping

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

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

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

Frank Act.

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

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

average hour burden incurred by swap dealers and major swap

participants in connection with reporting to swap data repositories

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

a significant number of swap dealers and major swap participants

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

ensuring compliance with the relevant reporting obligations (2,080

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

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

transactions to be processed by such entities, the information

required by proposed regulations and the frequency with which

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

obligation to report a unique swap identifier to other registered

entities and swap participants to be 6 annual burden hours per

entity and the estimated cost of reporting their ownership and

affiliation information into a confidential database to be 2 hours

per entity.

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

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

with the real-time reporting requirements.

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

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

known to the Commission until the registration requirements for these

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

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

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

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

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

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

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

with the recordkeeping and reporting obligations imposed by the

proposed regulations. The Commission estimated the number of affected

entities based on industry data.

According to recent Bureau of Labor Statistics, the mean hourly

wage of an

[[Page 76672]]

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

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

Commodity Contracts Intermediation and Brokerage'' industry is

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

large financial institutions whose operations management employees'

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

cost burden of these proposed regulations based upon an average salary

of $100 per hour.

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

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Accordingly, the estimated hour burden was calculated as follows:

Recordkeeping: Transaction Records (including Daily Trading

Records)

Number of registrants: 300.

Frequency of collection: Daily.

Estimated number of responses per registrant: 252 [252 trading

days].

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

252 trading days].

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

days x 8 hours per trading day].

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

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

Recordkeeping: Position Records

Number of registrants: 300.

Frequency of collection: Daily.

Estimated number of responses per registrant: 252 [252 trading

days].

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

252 trading days].

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

x .25 hours per record].

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

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

Recordkeeping: Complaints

Number of registrants: 300.

Frequency of collection: As needed.

Estimated number of responses per registrant: 5.

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

complaints per registrant].

Estimated annual burden per registrant: 5.

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

complaints per registrant].

Recordkeeping: Marketing Communications

Number of registrants: 300.

Frequency of collection: As needed.

Estimated number of responses per registrant: 12 (monthly

compilation of records).

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

12 monthly compilations].

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

months].

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

12 monthly compilations].

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

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

hour].

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

anticipates that swap dealers and major swap participants may incur

certain start-up costs in connection with the proposed recordkeeping

obligations. Such costs would include the expenditures related to

developing and installing new technology or re-programming or updating

existing recordkeeping technology and systems to enable the swap dealer

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

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

swap dealers and major swap participants generally could adapt their

current infrastructure to accommodate the new or amended technology and

thus no significant infrastructure expenditures would be needed. The

Commission estimates the programming burden hours associated with

technology improvements to be 160 hours.

According to recent Bureau of Labor Statistics, the mean hourly

wages of computer programmers under occupation code 15-1021 and

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

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

participants generally will be large entities that may engage employees

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

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

start-up burden associated with the required technological improvements

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

in the aggregate.

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

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2. Information Collection Comments

The Commission invites the public and other federal agencies to

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

Commission specifically request comment upon its determination that

certain of the proposed recordkeeping requirements would not impose any

additional information collection burdens upon affected registrants and

the appropriateness of the burden hours attributed to other

recordkeeping obligations.\27\ Pursuant to 44 U.S.C. 3506(c)(2)(B), the

Commission solicits comments in order to: (i) Evaluate whether the

proposed collection of information is necessary for the proper

performance of the functions of the Commission, including whether the

information will have practical utility; (ii) evaluate the accuracy of

the Commission's estimate of the burden of the proposed collection of

information; (iii) determine whether there are ways to enhance the

quality, utility, and clarity of the information to be collected; and

(iv) minimize the burden of the collection of information on those who

are to respond, including through the use of automated collection

techniques or other forms of information technology.

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

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

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

particular swap market participants or the average number of daily

transactions in which particular types of swaps market participants

engage.

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Comments may be submitted directly to the 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 document in the Federal Register. Therefore, a comment is best

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

publication.

C. Cost-Benefit Analysis

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

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

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

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

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

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

actions.

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

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[[Page 76673]]

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

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

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

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

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

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

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

enumerated considerations and could, in its discretion, determine that,

notwithstanding its costs, a particular regulation was necessary or

appropriate to protect the public interest or to effectuate any of the

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

Summary of proposed requirements. The proposed regulations would

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

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

The proposed regulations would set forth certain duties imposed upon

swap dealers and major swap participants registered with the Commission

with regard to recordkeeping and reporting of information and data in

connection with such entities' activities in the swap market.

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

for swap dealers and major swap participants, costs to institute

recordkeeping and reporting systems and personnel in order to satisfy

the new regulatory requirements are far outweighed by the benefits to

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

that the any additional cost imposed by the recordkeeping requirements

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

minimal because the information and data required to be recorded is

information and data a prudent swap dealer or major swap participant

would already maintain during the ordinary course of its business.

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

existing resources and recordkeeping structures that are capable of

adjusting to the new regulatory framework without material diversion of

resources away from commercial operations.

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

the reporting requirements contained in proposed regulation 23.204

and 23.205 are addressed in separately proposed rulemakings.

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Benefits. With respect to benefits, the Commission has determined

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

participant to keep records and make reports that will result in

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

to swap data repositories under 23.204 will provide regulators with a

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

Such reporting would further the goal of avoiding market disruptions

and financial losses to market participants and the general public.

Therefore, the Commission believes it is prudent to prescribe

recordkeeping and reporting requirements for swap dealers and major

swap participants.

The proposed regulations also would promote appropriate back office

data management, thereby fostering better risk management. The proposed

regulations also would reward efficiency insofar as swap dealers and

major swap participants that operate efficiently would have lower

operating costs and thus would require fewer resources to comply with

the regulations. Finally, the proposed regulations are designed to

ensure that swap dealers and major swap participants can sustain their

market operations and meet their financial obligations to market

participants, thus contributing to the integrity of the financial

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

risk management requirements for swap dealers and major swap

participants.

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

benefit considerations. Commentators are also invited to submit any

data or other information that they may have quantifying or qualifying

the costs and benefits of the proposed rules with their comment

letters.

List of Subjects in 17 CFR Part 23

Antitrust, Commodity futures, Conduct standards, Conflict of

Interests, Major swap participants, Reporting and recordkeeping, Swap

dealers, Swaps.

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

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

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

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

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

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

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

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

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

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

Requirements for Swap Dealers and Major Swap Participants

Sec.

23.200 Definitions.

23.201 Required records.

23.202 Daily trading records.

23.203 Records; retention and inspection.

23.204 Reporting to swap data repositories.

23.205 Real-time public reporting.

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

Requirements for Swap Dealers and Major Swap Participants

Sec. 23.200 Definitions.

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

provided.

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

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

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

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

advertising, solicitation, structuring, or brokerage activities on

behalf of a registrant.

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

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

identified as such, that performs any proprietary or customer clearing

activities on behalf of a registrant.

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

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

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

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

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

regulatory obligations, and includes any and all observations,

comments, remarks, interpretations, clarifications, notes, and

examinations as to such conduct or behavior communicated or documented

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

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

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

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

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

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

parties (whether orally, in writing,

[[Page 76674]]

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

the parties to such swap terms under applicable law.

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

(1) A sole proprietorship, the proprietor;

(2) A corporation, its board of directors;

(3) A partnership, any general partner;

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

the manager, managing member or those members vested with management

authority; and

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

making authority over the activities of such person.

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

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

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

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

Credit Association, and the Federal Housing Finance Agency, as

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

includes the Federal Deposit Insurance Corporation, with respect to any

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

Street Reform and Consumer Protection Act or any insured depository

institution under the Federal Deposit Insurance Act, and with respect

to each affiliate of any such company or institution.

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

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

designated as contract markets, derivatives clearing organizations,

swap execution facilities, and swap data repositories.

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

for immediate or deferred physical shipment or delivery of an asset

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

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

another.

(k) Swap confirmation means the consummation (electronically or

otherwise) of legally binding documentation (electronic or otherwise)

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

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

otherwise) and must legally supersede any previous agreement

(electronically or otherwise).

Sec. 23.201 Required records.

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

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

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

activities. Such records shall include:

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

documents on which transaction information is originally recorded. Such

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

by transaction and by counterparty, and shall include:

(i) All documents customarily generated in accordance with market

practice that demonstrate the existence and nature of an order or

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

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

ledgers; confirmations; risk disclosure documents; statements of

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

of title; and

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

with Sec. 23.202.

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

dealer and major swap participant, identified by product and

counterparty, including records reflecting whether each position is

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

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

identification of the transactions that established the position.

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

or designated contract market or cleared by a derivatives clearing

organization. Records of each transaction executed on a swap execution

facility or designated contract market or cleared by a derivatives

clearing organization maintained in compliance with the Act and

Commission regulations.

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

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

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

including but not limited to:

(1) Governance.

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

committee minutes, including handouts and presentation materials;

(ii) Organizational charts for its governing body and relevant

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

and all other relevant units or divisions;

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

officers, and directors;

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

director positions, including job responsibilities and scope of

authority;

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

consultant reports (including management responses); and

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

(2) Financial records.

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

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

regulations; and

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

and Commission regulations.

(3) Complaints.

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

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

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

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

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

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

was resolved.

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

or major swap participant has been provided with a notice containing

the physical address, email or other widely available electronic

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

major swap participant to which any complaints may be directed.

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

presentations, advertisements, literature, and communications, and a

record documenting that the swap dealer or major swap participant has

complied with, or adopted policies and procedures reasonably designed

to establish compliance with, all applicable federal requirements,

Commission regulations, and the rules of any self-regulatory

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

member.

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

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

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

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

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

participant made the report.

(d) Records of real-time reporting data.

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

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

be reported in

[[Page 76675]]

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

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

report.

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

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

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

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

for reporting a less specific data field.

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

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

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

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

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

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

Sec. 23.202 Daily trading records.

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

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

it executes, including all documents on which transaction information

is originally recorded. Each swap dealer and major swap participant

shall ensure that its records include all information necessary to

conduct a comprehensive and accurate trade reconstruction for each

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

transaction record as a separate electronic file identifiable and

searchable by transaction and counterparty.

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

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

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

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

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

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

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

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

to:

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

permit complete and accurate trade reconstruction; and

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

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

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

prior to execution.

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

participant shall make and keep trade execution records, including:

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

or settlement instructions, initial and variation margin requirements,

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

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

of execution of each swap, shall be immediately recorded electronically

for further processing);

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

this chapter, for each swap;

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

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

timestamp or other timing device;

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

executed, including its unique counterparty identifier, as required by

Sec. 45.4(b) of this chapter;

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

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

agreement or swap credit support agreement;

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

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

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

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

transaction; and

(x) Any other information relevant to the swap.

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

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

information containing an itemized record of all relevant post-trade

processing and events.

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

of the following, as applicable:

(A) Confirmation;

(B) Termination;

(C) Novation;

(D) Amendment;

(E) Assignment;

(F) Netting;

(G) Compression;

(H) Reconciliation;

(I) Valuation;

(J) Margining;

(K) Collateralization; and

(L) Central clearing.

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

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

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

timestamp or other timing device; and

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

keep a record of each swap portfolio reconciliation, including the

number of portfolio reconciliation discrepancies and the number of swap

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

dispute and the age of outstanding valuation disputes, categorized by

transaction and counterparty);

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

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

participates, including the dates of the compression, the swaps

included in the compression, the identity of the counterparties

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

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

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

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

transaction and counterparty.

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

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

(i) Payments and interest received;

(ii) Moneys borrowed and moneys loaned;

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

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

for each counterparty;

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

swap dealer or major swap participant for each counterparty and the

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

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

receivable from each counterparty;

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

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

participant;

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

collateral, identifying in sufficient detail the amounts and types of

collateral transferred; and

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

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

charges or credits resulting from losses or gains on transactions.

(b) Daily trading records for related cash and forward

transactions. Each swap dealer and major swap participant shall make

and keep daily trading

[[Page 76676]]

records of all related cash or forward transactions it executes,

including all documents on which the related cash or forward

transaction information is originally recorded. Each swap dealer and

major swap participant shall ensure that its records include all

information necessary to conduct a comprehensive and accurate trade

reconstruction for each related cash or forward transaction. Each swap

dealer and major swap participant shall maintain each transaction

record as a separate electronic file identifiable and searchable by

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

not limited to:

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

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

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

forward transaction, whether communicated by telephone, voicemail,

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

device or other digital or electronic media;

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

would permit complete and accurate trade reconstruction;

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

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

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

prior to execution;

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

or forward transaction, to the nearest minute, using Coordinated

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

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

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

executed; and

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

cash or forward transaction and any other relevant financial

information.

Sec. 23.203 Records; retention and inspection.

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

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

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

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

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

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

territories or possessions, then upon the request of a Commission

representative, the swap dealer or major swap participant must provide

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

territories, or possessions designated by the representative within 72

hours after receiving the request.

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

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

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

the types of records the swap dealer or major swap participant

maintains at that office and the information contained in those

records.

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

this chapter shall be maintained in accordance with the provisions of

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

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

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

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

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

inspection by any representative of the Commission, the United States

Department of Justice, or any applicable prudential regulator. Records

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

inspection by any representative of the Commission, the United States

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

applicable prudential regulator.

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

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

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

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

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

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

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

inspection by any representative of the Commission, the United States

Department of Justice, or any applicable prudential regulator. Records

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

inspection by any representative of the Commission, the United States

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

applicable prudential regulator.

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

this chapter shall be maintained in accordance with the requirements of

Sec. 45.2 of this chapter.

Sec. 23.204 Reports to swap data repositories.

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

Each swap dealer and major swap participant shall report all

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

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

and major swap participant shall have the electronic systems and

procedures necessary to transmit electronically all information and

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

chapter.

Sec. 23.205 Real-time public reporting.

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

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

information and swap transaction and pricing data required to be

reported in accordance with the real-time public recording requirements

in part 43 of this chapter.

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

and major swap participant shall have the electronic systems and

procedures necessary to transmit electronically all information and

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

chapter.

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

Commission.

David A. Stawick,

Secretary of the Commission.

Appendices to Reporting, Recordkeeping, and Daily Trading Records

Requirements for Swap Dealers and Major Swap Participants--Commission

Voting Summary and Statements of Commissioners

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

Federal Regulations.

Appendix 1--Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Dunn,

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

Appendix 2--Statement of Chairman Gary Gensler

I support the proposed rule regarding reporting, recordkeeping

and daily trading records for swap dealers and major swap

participants. The rule establishes the records to be maintained by

swap dealers and major swap participants and the required reporting

by such entities. This proposal will help increase transparency and

promote market integrity. The proposed rules are consistent with the

Congressional requirement that swap dealers and major swap

participants

[[Page 76677]]

comply with rigorous recordkeeping and real-time reporting regimes.

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

BILLING CODE 6351-01-P

 

Last Updated: December 9, 2010