80 FR 55182 - Access to Data Obtained by Security-Based Swap Data Repositories and Exemption From Indemnification Requirement
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 177 (September 14, 2015)
Federal Register Volume 80, Issue 177 (September 14, 2015)
| Page Range | 55182-55211 | |
| FR Document | 2015-22844 |
[Federal Register Volume 80, Number 177 (Monday, September 14, 2015)] [Proposed Rules] [Pages 55182-55211] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-22844] [[Page 55181]] Vol. 80 Monday, No. 177 September 14, 2015 Part II Securities and Exchange Commission ----------------------------------------------------------------------- 17 CFR Part 240 Access to Data Obtained by Security-Based Swap Data Repositories and Exemption From Indemnification Requirement; Proposed Rule Federal Register / Vol. 80 , No. 177 / Monday, September 14, 2015 / Proposed Rules [[Page 55182]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 240 [Release No. 34-75845; File No. S7-15-15] RIN 3235-AL74 Access to Data Obtained by Security-Based Swap Data Repositories and Exemption From Indemnification Requirement AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: Pursuant to section 763(i) of Title VII (``Title VII'') of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''), the Securities and Exchange Commission (``Commission'') is proposing amendments to rule 13n-4 under the Securities Exchange Act of 1934 (``Exchange Act'') related to regulatory access to security-based swap data held by security-based swap data repositories. The proposed rule amendments would implement the conditional Exchange Act requirement that security-based swap data repositories make data available to certain regulators and other authorities, and would set forth a conditional exemption from the statutory indemnification requirement associated with that regulatory access provision. DATES: Submit comments on or before October 29, 2015. ADDRESSES: Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or Send an email to [email protected]. Please include File Number S7-15-15 on the subject line; or Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-15-15. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments are also available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the SEC's Web site. To ensure direct electronic receipt of such notifications, sign up through the ``Stay Connected'' option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: Carol McGee, Assistant Director, or Joshua Kans, Senior Special Counsel, at (202) 551-5870; Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010. SUPPLEMENTARY INFORMATION: The Commission is proposing to add paragraphs (b)(9) and (b)(10) to Exchange Act rule 13n-4 to implement the statutory requirement that security-based swap data repositories conditionally provide data to certain regulators and other authorities. The Commission also is proposing to add paragraph (d) to rule 13n-4 to provide a conditional exemption from the associated statutory indemnification requirement. I. Background A. Statutory Requirements for Access to Security-Based Swap Data Repository Information Title VII of the Dodd-Frank Act amended the Exchange Act to provide a comprehensive regulatory framework for security-based swaps, including the regulation of security-based swap data repositories.\1\ --------------------------------------------------------------------------- \1\ Public Law 111-203, section 761(a) (adding Exchange Act section 3(a)(75) (defining ``security-based swap data repository'')) and section 763(i) (adding Exchange Act section 13(n) (establishing a regulatory regime for security-based swap data repositories)). References in this release to the terms ``data repository,'' ``trade repository,'' ``repository'' or ``SDR'' generally address security-based swap data repositories unless stated otherwise. --------------------------------------------------------------------------- Those amendments, among other things, require that security-based swap data repositories make data available to certain regulators and other entities. In particular, the amendments conditionally require that security-based swap data repositories ``on a confidential basis pursuant to section 24, upon request, and after notifying the Commission of the request, make available all data obtained by the security-based swap data repository, including individual counterparty trade and position data.'' \2\ The repositories must make that data available to: ``each appropriate prudential regulator''; \3\ the Financial Stability Oversight Council (``FSOC''); the Commodity Futures Trading Commission (``CFTC''); the Department of Justice; and ``any other person that the Commission determines to be appropriate,'' including foreign financial supervisors (including foreign futures authorities), foreign central banks and foreign ministries.\4\ --------------------------------------------------------------------------- \2\ Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G). The confidentiality requirements addressed by Exchange Act section 24, 15 U.S.C. 78x, are addressed below. See note 84, infra. \3\ As discussed below, the term ``prudential regulator'' encompasses the Board of Governors of the Federal Reserve System and certain other regulators, with regard to certain categories of regulated entities. See note 44, infra. \4\ Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G). --------------------------------------------------------------------------- This access to data is conditional, however. In part, before a repository shares such data, the repository ``shall receive a written agreement from each entity stating that the entity shall abide by the confidentiality requirements described in section 24 relating to the information on security-based swap transactions that is provided.'' \5\ Moreover, before such data is shared, ``each entity shall agree to indemnify the security-based swap data repository and the Commission for any expenses arising from litigation relating to the information provided under section 24.'' \6\ --------------------------------------------------------------------------- \5\ Exchange Act section 13(n)(5)(H)(i), 15 U.S.C. 78m(n)(5)(H)(i). \6\ Exchange Act section 13(n)(5)(H)(ii), 15 U.S.C. 78m(n)(5)(H)(ii). --------------------------------------------------------------------------- B. Prior Proposals and Comments Received 1. 2010 proposal In 2010, the Commission proposed several rules to implement statutory provisions related to the registration process, duties and core principles applicable to security-based swap data repositories.\7\ That proposal, among other things, encompassed rules that [[Page 55183]] incorporated the statutory language that set forth the data access provisions.\8\ --------------------------------------------------------------------------- \7\ See Security-Based Swap Data Repository Registration, Duties, and Core Principles, Exchange Act Release No. 63347 (Nov. 19, 2010), 75 FR 77306 (Dec. 10, 2010), corrected at 75 FR 79320 (Dec. 20, 2010) and 76 FR 2287 (Jan. 13, 2011) (``SDR Proposing Release''). \8\ See SDR Proposing Release, 75 FR 77368 (paragraphs (b)(9) and (b)(10) of proposed Exchange Act rule 13n-4 incorporated relevant language of Exchange Act sections 13(n)(5)(G) and (H). --------------------------------------------------------------------------- In proposing those rules, the Commission recognized that ``regulators may be legally prohibited or otherwise restricted from agreeing to indemnify third parties, including SDRs as well as the Commission,'' and that the ``indemnification provision could chill requests for access to data obtained by SDRs, thereby hindering the ability of others to fulfill their regulatory mandates and responsibilities.'' \9\ The Commission added that it expected that a repository ``would not go beyond the minimum requirements of the statute so as not to preclude [recipient entities described by the statute] from obtaining the data maintained by an SDR.'' \10\ The Commission further noted that the Commission itself had the authority to share nonpublic information with, among others, certain domestic and foreign regulatory authorities.\11\ --------------------------------------------------------------------------- \9\ 75 FR 77318-19. \10\ 75 FR 77319. \11\ Id. --------------------------------------------------------------------------- In response, four commenters addressed the data access provisions.\12\ Those commenters generally supported providing relevant authorities with access to security-based swap data maintained by repositories when the access is within the scope of those authorities' mandates, but expressed particular concerns relating to the indemnification requirement and to the scope of authorities' access to data. Two commenters concurred that relevant authorities likely would be unable to agree to indemnify data repositories or the Commission.\13\ One commenter expressed the concern that the statutory requirement is vague and could result in a data repository providing access to persons without proper authority.\14\ Another commenter recommended that the Commission adopt rules to help streamline the indemnification requirement for an ``efficient exchange of information.'' \15\ --------------------------------------------------------------------------- \12\ Cleary Gottlieb comment (Sept. 20, 2011) at 31-32 (comment was provided in response to a joint SEC-CFTC roundtable regarding the cross-border application of Title VII, and can be found at http://www.sec.gov/comments/4-636/4-636.shtml), DTCC comment (Nov. 15, 2010) at 3, ESMA comment (Jan. 17, 2011) at 2 and Managed Funds Association comment (Jan. 24, 2011) at 3. \13\ Prior to the proposed rules, one of those commenters described the indemnification requirement as contravening the purpose of data repositories and jeopardizing market stability by diminishing regulators' ability to carry out oversight functions. See DTCC comment (Nov. 15, 2010) at 3. This comment and other comments that addressed data repository issues in response to a general request for comments regarding the implementation of Title VII are located on the Commission's Web site at http://www.sec.gov/comments/df-title-vii/swap-data-repositories/swap-data-repositories.shtml. Subsequently, in response to the proposed rules, that commenter further: (1) Stated that the indemnification requirement should not apply where relevant authorities carry out their regulatory responsibilities in accordance with international agreements and while maintaining the confidentiality of data provided to them; (2) suggested that the Commission provide model indemnification language; and (3) urged that ``any indemnity should be limited in scope to minimize the potential reduction in value of registered SDRs to the regulatory community.'' See DTCC comment (Jan. 24, 2011) at 12. These and other comments addressing the proposed implementation of the data access provisions (as well as other aspects of the Commission's 2010 proposal regarding security-based swap data repository registration, duties and core principles) are located on the Commission's Web site at http://www.sec.gov/comments/s7-35-10/s73510.shtml. Another commenter stated that because indemnification would not be feasible, ``it would be problematic for [the Commission and the CFTC] to require non-U.S. SDRs to register with the Commissions,'' and that the indemnification requirement could impede effective regulatory coordination. See Cleary Gottlieb comment (Sept. 20, 2011) at 31-32. That commenter further stated that when a non-U.S. data repository registers with the Commission ``but is also subject to regulatory oversight by an appropriate non-U.S. regulator,'' the SEC should adopt the CFTC's interpretation ``that the non-U.S. regulator is not as a result subject to Dodd-Frank's notice and indemnification provisions.'' See id. The Commission since then has issued final rules and interpretations regarding the cross-border application of the registration requirement for security-based swap data repositories, which exempts certain non-U.S. data repositories subject to regulation abroad from having to comply with requirements otherwise applicable to repositories. See Exchange Act Release No. 74246 (Feb. 11, 2015), 80 FR 14438, 14450-51, 14516-17, 14556 (Mar. 19, 2015) (``SDR Adopting Release'') (generally stating that a non- U.S. person that performs the functions of a security-based swap data repository within the United States is required to register with the Commission absent an exemption, and adopting Exchange Act rule 13n-12 to provide an exemption from data repository requirements for certain non-U.S. persons when regulators with supervisory authority over those non-U.S. persons have entered into a memorandum of understanding (``MOU'') or other arrangement with the Commission regarding the confidentiality of data collected and maintained by such non-U.S. person, access by the Commission to such data, and any other matters determined by the Commission). Also, under the preliminary interpretation discussed below, the conditions to the Exchange Act data access requirements would not restrict access when a repository registered with the Commission also is registered or licensed with a foreign authority that obtains the data pursuant to foreign law. See part IV.A, infra. \14\ That commenter particularly expressed concern regarding the possibility of ``unfettered access'' to security-based swap information by regulators, including foreign financial supervisors, foreign central banks and foreign ministries, ``beyond their regulatory authority and mandate.'' See Managed Funds Association comment (Jan. 24, 2011) at 3. That comment further recommended that the Commission take an approach similar to that taken by rules proposed by the CFTC, requiring any regulator requesting access to such data to certify the statutory authority for the request and detail the basis for the request. See id. at 3-4. The CFTC subsequently adopted that certification requirement as a final rule, but did not adopt the proposed requirement that the regulator also detail the basis for the request. See note 31, infra, and accompanying text. \15\ That commenter also reiterated the notion that relevant authorities must ensure the confidentiality of security-based swap data provided to them, and that the indemnification requirement ``undermines the key principle of trust according to which exchange of information [among relevant authorities] should occur.'' See ESMA comment (Jan. 17, 2011) at 2. --------------------------------------------------------------------------- 2. 2013 Cross-Border Proposal a. Proposed Exemption to Indemnification Requirement In 2013, the Commission proposed a number of rules related to the cross-border application of the Title VII security-based swap requirements. At that time, recognizing the significance of commenter concerns and understanding that certain authorities may be unable to agree to indemnify a data repository and the Commission, the Commission preliminarily concluded that the indemnification requirement could frustrate the purposes of the statutory requirement that repositories make available data to relevant authorities. The Commission further took the view that the indemnification requirement should not be applied rigidly so as to frustrate the statutory purposes of data repositories, and hinder relevant authorities' ability to fulfill their regulatory mandates and legal responsibilities.\16\ --------------------------------------------------------------------------- \16\ See Exchange Act Release No. 69490 (May 1, 2013), 78 FR 30968, 31048-49 (May 23, 2013) (``Cross-Border Proposing Release''). --------------------------------------------------------------------------- To address these concerns, the Commission proposed an exemption to provide that a data repository ``is not required'' to comply with the indemnification requirement, conditioned on: (1) An entity requesting the information ``to fulfill a regulatory mandate and/or legal responsibility''; (2) the request pertaining ``to a person or financial product subject to the jurisdiction, supervision or oversight of the entity''; and (3) the entity having entered into a supervisory and enforcement memorandum of understanding (``MOU'') or other arrangement addressing the confidentiality of the information provided and any other matter as determined by the Commission.\17\ The Commission took the preliminary view that the proposed exemption was consistent with commenters' views, including one commenter's suggestion that the indemnification requirement not apply when relevant authorities carry out their responsibilities in accordance with international agreements and while maintaining the [[Page 55184]] confidentiality of data provided to them.\18\ --------------------------------------------------------------------------- \17\ See id. at 31209 (paragraph (d) of proposed Exchange Act rule 13n-4). \18\ See id. at 31049 (addressing DTCC comment from Jan. 24, 2011). The Commission also stated that the proposal was consistent with commenter suggestions that the exemption be ``location agnostic'' (by treating relevant domestic and foreign authorities similarly), and that the exemption was intended to help preserve the ``spirit of cooperation and coordination'' between regulators around the world. See id. --------------------------------------------------------------------------- The Commission further stated that the exemption's proposed condition that the request be for the purpose of fulfilling a relevant authority's regulatory mandate or legal responsibility was aligned with statutory requirements to protect the security-based swap information maintained by a repository, including proprietary and highly sensitive data, from unauthorized disclosure, misappropriation or misuse.\19\ The Commission also expressed the preliminary view that the proposed condition that the Commission enter into an MOU or other arrangement with a relevant authority represented an effective way to streamline the indemnification requirement for an ``efficient exchange of information'' to help protect the confidentiality of information and further the purposes of the Dodd-Frank Act.\20\ --------------------------------------------------------------------------- \19\ See id. at 31049-50. \20\ See id. at 31050. The Commission moreover expressed the preliminary view that, in determining whether to enter into such an MOU or other arrangement, the Commission would consider, among other things, whether: (1) ``The relevant authority needs security-based swap information from an SDR to fulfill its regulatory mandate or legal responsibilities; (2) the relevant authority agrees to protect the confidentiality of the security-based swap information provided to it; (3) the relevant authority agrees to provide the Commission with reciprocal assistance in securities matters within the Commission's jurisdiction; and (4) a supervisory and enforcement MOU or other arrangement would be in the public interest.'' See id. at 31049-50. --------------------------------------------------------------------------- b. Additional guidance In the Cross-Border Proposing Release, the Commission also addressed the application of the statutory requirement that repositories notify the Commission regarding data requests. The Commission stated its preliminarily belief that repositories could satisfy that requirement by providing the Commission with notice of an initial request by a relevant authority, and maintaining records of the initial request and all subsequent requests.\21\ The Commission further expressed preliminary views regarding the process for determining which additional authorities may obtain information from data repositories pursuant to these data access provisions.\22\ --------------------------------------------------------------------------- \21\ See id. at 31046-47. \22\ See id. at 31047-48 (indicating that the Commission would make such determinations by order, and that the Commission would consider a variety of factors, including whether there is a supervisory and enforcement MOU between the Commission and the relevant authority, and whether the relevant authority has a legitimate need for the information). --------------------------------------------------------------------------- c. Comments In response to this proposal, the Commission received one comment that addressed the data access provisions, including the indemnification requirement. That commenter stated that the proposal ``did not erase the need for a legislative solution to clarify the scope and applicability'' of the indemnification requirement.\23\ The commenter further recommended that the Commission incorporate, as part of the exemption, a ``safe harbor provision from liability for information shared pursuant to global information sharing agreements.'' \24\ --------------------------------------------------------------------------- \23\ See DTCC cross-border comment (Aug. 21, 2013) at 6-7 (expressing concern that the indemnification provision would continue to limit data sharing across jurisdictions, leading foreign regulators to seek to establish ``national'' repositories that would fragment data among jurisdictions). That comment and other comments responding to the cross-border proposal are located on the Commission's Web site at: http://www.sec.gov/comments/s7-02-13/s70213.shtml. \24\ See DTCC cross-border comment at 8. --------------------------------------------------------------------------- The commenter also objected to the prospect that repositories would be required to notify the Commission of an initial information request, stating that such a requirement could lead authorities to hesitate to make requests if that would trigger notice, ``particularly if such request is pursuant to an investigation.'' The commenter instead recommended that the Commission consider the notification requirement to be satisfied if the request is made ``pursuant to an established information sharing agreement.'' \25\ --------------------------------------------------------------------------- \25\ See id. at 7. --------------------------------------------------------------------------- 3. Final Rules Reserving Action on the Data Access Provisions In February 2015, the Commission adopted a number of final rules governing the registration process, duties and core principles applicable to security-based swap data repositories.\26\ Those final rules, however, neither addressed the statutory data access requirements applicable to data repositories, nor provided an exception to the indemnification requirement. The Commission instead stated that final resolution of the issue would benefit from further consideration and public comment.\27\ --------------------------------------------------------------------------- \26\ See SDR Adopting Release. \27\ See id., 80 FR 14487-88 (further noting that repositories will have to comply with all statutory requirements, including the indemnification requirement, when the current exemptive relief from requirements applicable to repositories expires). As a result, in adopting those final rules the Commission reserved paragraphs (b)(9) and (b)(10) of Exchange Act rule 13n-4 (which as proposed would have addressed the data access obligations of registered security-based swap data repositories), and did not adopt the indemnification exemption proposed as paragraph (d) of rule 13n-4. --------------------------------------------------------------------------- C. Treatment of These Issues in the Swaps Context The Dodd-Frank Act also revised the Commodity Exchange Act (``CEA'') to impose comparable data access requirements--including confidentiality and indemnification conditions--upon swap data repositories that are subject to CFTC jurisdiction.\28\ --------------------------------------------------------------------------- \28\ See CEA sections 21(c)(7), (d), 7 U.S.C. 24a(c)(7), (d). --------------------------------------------------------------------------- 1. Certification of Scope of Jurisdiction To implement those requirements, the CFTC adopted rules that in part identify the domestic \29\ and foreign regulators \30\ to which a swap data repository must make swap data available. The rules provide that when those regulators seek access to data maintained by a swap data repository, they must file a request with the swap data repository and certify that they are acting within the scope of their jurisdiction.\31\ --------------------------------------------------------------------------- \29\ The CFTC has defined ``Appropriate Domestic Regulator'' to mean: (i) The SEC; (ii) each prudential regulator ``with respect to requests related to any of such regulator's statutory authorities, without limitation to the activities listed for each regulator'' in the statutory definition; (iii) the Financial Stability Oversight Council; (iv) the Department of Justice; (v) any Federal Reserve Bank; (vi) the Office of Financial Research; and (vii) any other person the CFTC deems appropriate. See 17 CFR 49.17(b)(1). \30\ The CFTC has defined ``Appropriate Foreign Regulator'' to mean foreign regulators ``with an existing memorandum of understanding or other similar type of information sharing arrangement'' executed with the CFTC, and/or foreign regulators ``without an MOU as determined on a case-by-case basis'' by the CFTC. See 17 CFR 49.17(b)(2). \31\ See 17 CFR 49.17(d)(1). In this regard, the CFTC did not adopt proposed requirements to require regulators to set forth the basis for their requests in sufficient detail, and to require a swap data repository to provide access only if it is satisfied that the regulator is acting within the scope of its authority. See 76 FR 54538, 54553 (Sept. 1, 2011). --------------------------------------------------------------------------- 2. Scope of Confidentiality and Indemnification Requirements The CFTC implementing rules generally require domestic and foreign regulators to execute confidentiality and indemnification agreements with the swap data repository prior to receipt of any requested swap data.\32\ The CFTC, [[Page 55185]] however, also recognized that it might be difficult for certain regulators to implement those confidentiality and indemnification requirements.\33\ Accordingly, the CFTC provided that a domestic regulator with regulatory jurisdiction over a swap data repository registered with it pursuant to separate statutory authority may access such data without the need to enter into confidentiality or indemnification agreements if: (i) The domestic regulator executes an MOU or similar information sharing arrangement with the CFTC; and (ii) the CFTC designates the domestic regulator to receive direct electronic access.\34\ --------------------------------------------------------------------------- \32\ See 17 CFR 49.17(d)(6), 49.18(b). \33\ See 76 FR 54554. \34\ See 17 CFR 49.17(d)(2), 49.18(c); 76 FR 54554 (also referencing a separate statutory provision, CEA section 21(c)(4)(A), 7 U.S.C. 24a(c)(4)(A), that requires swap data repositories to provide ``direct electronic access'' to the CFTC and its designees). There are differences between the Commission's proposed approach, discussed below, and the approach the CFTC has taken in adopting rules to implement the data access requirement under the CEA. In part, while the CFTC rule requires that entities accessing swap data certify that they are acting within the scope of their jurisdiction, the Commission's proposal instead anticipates considering an entity's interest in the security-based swap information when determining whether to determine that entity may access security-based swap information. See part II.A.3.a, infra. Also, the Commission's proposed exemption from the indemnification requirement is conditioned in part on an entity requesting security- based swap information in connection with a regulatory mandate, or legal responsibility or authority. See part III.B.1.a, infra. --------------------------------------------------------------------------- The CFTC implementing rules further provided that a foreign regulator with supervisory responsibility over a swap data repository registered with the foreign regulator pursuant to foreign law and/or regulation would not need to enter into such confidentiality or indemnification agreements.\35\ In addition, the CFTC noted that the confidentiality and indemnification requirements would not apply when the CFTC itself shares information in its possession with foreign authorities.\36\ --------------------------------------------------------------------------- \35\ See 17 CFR 49.17(d)(3), 49.18(c); 76 FR 54555 n.166 (adding that the CFTC does not interpret the notification and indemnification provisions to apply ``in circumstances in which an Appropriate Foreign Regulator possesses independent sovereign legal authority to obtain access to the information and data held and maintained by an SDR''). \36\ See 76 FR 54554. --------------------------------------------------------------------------- The CFTC subsequently issued an interpretative statement that the indemnification and confidentiality provisions under the CEA generally apply only to such data reported pursuant to the CEA and CFTC regulations, and that those confidentiality and indemnification provisions ``should not operate to inhibit or prevent foreign regulatory authorities from accessing data in which they have an independent regulatory interest (even if that data also has been reported pursuant to the CEA and [CFTC] regulations).'' \37\ The CFTC further stated that a registered swap data repository would not be subject to the indemnification and confidentiality provisions under the CEA if the swap data repository is ``registered, recognized or otherwise authorized in a foreign jurisdiction's regulatory regime,'' when the data sought to be accessed by the foreign regulatory authority has been reported to the swap data repository ``pursuant to the foreign jurisdiction's regulatory regime.'' \38\ --------------------------------------------------------------------------- \37\ See Swap Data Repositories: Interpretative Statement Regarding the Confidentiality and Indemnification Provisions of the Commodity Exchange Act, 77 FR 65177, 65180-81 (Oct. 25, 2012). \38\ See id. The CFTC added that this principle applies even if the applicable data also is reported pursuant to CFTC rules, and that foreign and domestic regulatory authorities also may receive data from the CFTC (rather than the swap data repository) without execution of a confidentiality and indemnification agreement. See id. at 65181. --------------------------------------------------------------------------- D. The Current Proposal The Commission today is proposing rules related to the data access obligation applicable to security-based swap data repositories, including rules to provide a conditional exemption from the indemnification requirement. This new proposal builds upon the earlier proposals, but with certain changes. Among other aspects, as discussed below, the proposal would provide for the statutory confidentiality agreement requirement to be satisfied via the use of MOUs or other agreements between the Commission and the entity accessing data from a security-based swap data repository. The proposal also encompasses an indemnification exemption that would be effective when the relevant conditions are met, in contrast to the earlier proposed approach of conditionally allowing a data repository to elect whether to waive the indemnification requirement. Taken as a whole, the proposal would provide that when the conditions to the data access provisions are satisfied--including as applicable the conditions to the indemnification exemption--a repository would be required to provide security-based swap data to relevant authorities. II. Proposed Data Access Rules The Commission is proposing rules, to implement the data access provisions of Exchange Act sections 13(n)(5)(G) and (H),\39\ that address commenter concerns and reflect the Commission's further consideration of the issues. Under the proposal: --------------------------------------------------------------------------- \39\ 15 U.S.C. 78m(n)(5)(G) and (H). --------------------------------------------------------------------------- Security-based swap data repositories generally would be required, on a confidential basis after notifying the Commission, to make available security-based swap data, including individual counterparty trade and position data, to certain entities that are identified in the proposed rules and any other persons that are determined by the Commission to be appropriate.\40\ --------------------------------------------------------------------------- \40\ See proposed Exchange Act rule 13n-4(b)(9). --------------------------------------------------------------------------- The data access requirement would be subject to a confidentiality provision that conditions the data access requirement on there being an agreement between the Commission and the entity (in the form of an MOU or otherwise) that addresses the confidentiality of the information received.\41\ --------------------------------------------------------------------------- \41\ See proposed Exchange Act rule 13n-4(b)(10). --------------------------------------------------------------------------- In addition, as discussed below, there would be a conditional exemption to the statutory provision that conditions the data access on the recipient of the data agreeing to indemnify the repository and the Commission for expenses arising from litigation related to the information provided.\42\ --------------------------------------------------------------------------- \42\ See proposed Exchange Act rule 13n-4(b)(ii). --------------------------------------------------------------------------- A. Data Access Requirement 1. Application to Prudential Regulators and Federal Reserve Banks The Exchange Act specifically states that a repository is conditionally obligated to make information available to, among others, ``each appropriate prudential regulator.'' \43\ The proposed rules would specifically identify, as being eligible to access data, each of the entities encompassed within the statutory ``prudential regulator'' definition: The Board of Governors of the Federal Reserve System (``Board''), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (``FDIC''), the Farm Credit Administration, and the Federal Housing Finance Agency.\44\ --------------------------------------------------------------------------- \43\ See Exchange Act section 13(n)(5)(G)(i), 15 U.S.C. 78m(n)(5)(G)(i). \44\ See proposed Exchange Act rule 13n-4(b)(9)(i)-(v). Exchange Act section 3(a)(74), 15 U.S.C. 78c(a)(74), defines ``prudential regulator'' by reference to the CEA. The CEA, in turn, defines ``prudential regulator'' to encompass: (a) The Board, (b) the Office of the Comptroller of the Currency, (c) the FDIC, (d) the Farm Credit Administration or (e) the Federal Housing Finance Agency--in each case with respect to swap dealers, major swap participants, security-based swap dealers or major security-based swap participants (cumulatively, ``dealers'' or ``major participants'') that fall within the regulator's authority. See CEA section 1a(39); 7 U.S.C. 1a(39). For example, the definition provides that the Board is a prudential regulator with regard to, among others, certain dealers and major participants that are: State-chartered banks and agencies, foreign banks that do not operate insured branches, or members of bank holding companies. Also, for example, the definition provides that the Office of the Comptroller of the Currency is a prudential regulator with regard to, among others, certain dealers or major participants that are national banks, federally chartered branches or agencies of foreign banks or federal saving associations. --------------------------------------------------------------------------- [[Page 55186]] Under this approach of specifically identifying each of those regulators, rather than generally referring to ``appropriate prudential regulators,'' the ability of those regulators to access security-based swap data would not vary depending on whether entities regulated by the regulators are acting as security-based swap dealers, as major security-based swap participants, or in some other capacity.\45\ For similar reasons, under this approach those regulators' access also would not vary depending on whether the regulator acts in a ``prudential'' capacity in connection with the information.\46\ --------------------------------------------------------------------------- \45\ This approach particularly addresses the fact that the statutory ``prudential regulator'' definition noted above specifically refers to those regulators in connection with dealers and major participants that fall within their authority. In the Commission's preliminary view the application of the data access provision should not vary depending on whether an entity regulated by the regulator is acting as a dealer or major participant, or in some other capacity. Such a reading would not further the purposes of Title VII, and the Dodd-Frank Act more generally, including facilitating regulator access to security-based swap information to help address the risks associated with those instruments. Accordingly, the proposed rule does not limit those regulators' access to security-based swap information based on the capacity in which a regulated entity is acting. \46\ Those regulators' ability to access security-based swap data accordingly would not be limited to situations in which they act in the capacity of a prudential supervisor. Thus, for example, the FDIC would conditionally be authorized to access security-based swap data from a repository in connection with all of its statutory capacities, including its prudential supervisory capacity as well as other capacities such as the FDIC's resolution authority pursuant to the Federal Deposit Insurance Act and the Orderly Liquidation Authority provisions of Title II of the Dodd-Frank Act. --------------------------------------------------------------------------- The proposed rules also would include ``any Federal Reserve Bank'' among the entities conditionally eligible to access security-based swap data from repositories,\47\ in accordance with the Exchange Act provision that extends data access to ``any other person that the Commission determines to be appropriate.'' \48\ Consistent with the standards the Commission expects to consider in connection with determining other entities to be authorized to access such data-- including consideration of a relevant authority's interest in accessing security-based swap data based on its regulatory mandate, or legal responsibility or authority \49\--the Commission preliminarily believes that it is appropriate for the Federal Reserve Banks to be able to access such data. The Commission particularly understands that the Federal Reserve Banks occupy important oversight roles under delegated authority from the Board, including supervision of banks that are under the Board's authority, and gathering and analyzing information to inform the Federal Open Market Committee regarding financial conditions.\50\ We further understand that the Federal Reserve Banks, as well as the Board, would use data from security-based swap data repositories to fulfill statutory responsibilities related to prudential supervision and financial stability.\51\ The Commission accordingly believes preliminarily that the Federal Reserve Banks' access to security-based swap data held by repositories would appropriately fall within their regulatory mandate and legal responsibility or authority, and that the Federal Reserve Banks should conditionally have access to the security-based swap data.\52\ --------------------------------------------------------------------------- \47\ See proposed Exchange Act rule 13n-4(b)(9)(i). \48\ See Exchange Act section 13(n)(5)(G)(v), 15 U.S.C. 78m(n)(5)(G)(v). The CFTC has identified the Federal Reserve Banks as being ``appropriate domestic regulators'' that may access swap data from swap data repositories. See note 29 supra. \49\ See part II.A.3, infra. \50\ Section 11(k) of the Federal Reserve Act grants the Board authority ``to delegate, by published order or rule . . . any of its functions, other than those relating to rulemaking or pertaining to monetary and credit policies to . . . members or employees of the Board, or Federal Reserve banks.'' 12 U.S.C. 248(k). The Federal Reserve Banks carry out the Board's activities including the supervision, examination and regulation of financial institutions as directed by the Board and under its supervision. See the Board's Rules of Organization, sec. 3(j) FRRS 8-008 (providing that the Director of the Board's Division of Banking Supervision and Regulation ``coordinates the System's supervision of banks and bank holding companies and oversees and evaluates the Reserve Banks' examination procedures''). The Board further has delegated extensive authority to the Reserve Banks with respect to numerous supervisory matters. See 12 CFR 265.11 (functions delegated by the Board to the Federal Reserve Banks). \51\ We understand that the Board and the Federal Reserve Banks jointly would use the data in support of the prudential supervision of institutions under the Board's jurisdiction, such as state member banks, bank holding companies, and Edge Act corporations. See, e.g., section 9 of the Federal Reserve Act, 12 U.S.C. 321-338a (supervision of state member banks); the Bank Holding Company Act, 12 U.S.C. 1841-1852 (supervision of bank holding companies); the Edge Act, 12 U.S.C. 610 et seq. (supervision of Edge Act corporations). We also understand that the Board and the Federal Reserve Banks would use the data in support of the implementation of monetary policy, such as through market surveillance and research. See, e.g., section 12A of the Federal Reserve Act, 12 U.S.C. 263 (establishing the Federal Open Market Committee); and section 2A of the Federal Reserve Act, 12 U.S.C. 225a (setting monetary policy objectives). In addition, we understand that the Board and the Federal Reserve Banks would use the data in fulfilling the Board's responsibilities with respect to assessing, monitoring and mitigating systemic risk, such as supervision of systemically important institutions. See, e.g., section 113 of the Dodd-Frank Act, 12 U.S.C. 5323 (SIFIs); and section 807 of the Dodd-Frank Act, 12 U.S.C. 5466 (designated FMUs). \52\ The Federal Reserve Banks' access to this information, like the access of the entities directly identified by the statute, would be subject to conditions related to confidentiality and indemnification as discussed below, including conditions to limit an authority's access to data by linking the scope of the exemption from the indemnification requirement to information that is related to persons or activities within an entity's regulatory mandate or its legal responsibility or authority, as specified in an MOU between the Commission and the entity. See parts II.C and III.C, infra. In proposing to permit the Federal Reserve Banks to access security-based swap information pursuant to the data access provisions, the Commission preliminarily believes that the Federal Reserve Banks' access should not be limited to information regarding security-based swap transactions entered into by banks supervised by the Board, but should be available more generally with regard to security-based swap transaction data. This is consistent with the fact that Title VII does not limit the Board's access to data in such a way. This view also reflects the breadth of the Federal Reserve Banks' responsibilities regarding prudential supervision and financial stability, as addressed above. --------------------------------------------------------------------------- A Federal Reserve Bank's ability to access such data would be subject to conditions related to confidentiality and indemnification (as would the ability of any other entity that is identified by statute or determined by the Commission to access such data).\53\ --------------------------------------------------------------------------- \53\ In this regard, the Commission notes that personnel of the Board and the Reserve Banks already are subject to a number of confidentiality requirements. See 18 U.S.C. 1905 (imposing criminal sanctions on U.S. government personnel who disclose non-public information except as provided by law), 18 U.S.C. 641 (imposing criminal sanctions on the unauthorized transfer of records), 5 CFR 2635.703 (Office of Government Ethics regulations prohibiting unauthorized disclosure of nonpublic information); see also Federal Reserve Bank Code of Conduct section 3.2 (requiring Reserve Bank employees to maintain the confidentiality of nonpublic information). --------------------------------------------------------------------------- 2. FSOC, CFTC, Department of Justice and Office of Financial Research The Exchange Act also states that FSOC, CFTC, and the Department of Justice may access security-based swap data.\54\ The proposed rules accordingly would identify those entities as being conditionally authorized to access such data.\55\ --------------------------------------------------------------------------- \54\ See Exchange Act sections 13(n)(5)(G)(ii)-(iv), 15 U.S.C. 78m(n)(5)(G)(ii)-(iv). \55\ See proposed Exchange Act rule 13n-4(b)(9)(vi)-(viii). --------------------------------------------------------------------------- The proposed rules further would make the Office of Financial Research (``OFR'') conditionally eligible to access such data,\56\ in accordance with the Exchange Act provision that that extends data access to ``any other person [[Page 55187]] that the Commission determines to be appropriate.'' --------------------------------------------------------------------------- \56\ See proposed Exchange Act rule 13n-4(b)(9)(ix), (x). --------------------------------------------------------------------------- The Commission preliminarily believes that such access by the OFR is appropriate in light of the OFR's regulatory mandate and legal responsibility and authority.\57\ The OFR was established by Title I of the Dodd-Frank Act to support FSOC and FSOC's member agencies by identifying, monitoring and assessing potential threats to financial stability thorough the collection and analysis of financial data gathered from across the public and private sectors.\58\ In connection with this statutory mandate to monitor and assess potential threats to financial stability, the OFR's access to security-based swap transaction data may be expected to help assist it in examining the manner in which derivatives exposures and counterparty risks flow through the financial system, and in otherwise assessing those risks. The Commission accordingly believes preliminarily that the OFR's access to security-based swap data held by repositories would appropriately fall within its regulatory mandate and legal responsibility and authority, and that the OFR should conditionally have access to the security-based swap data.\59\ --------------------------------------------------------------------------- \57\ See proposed Exchange Act rule 13n-4(b)(9)(ix). We note that the CFTC has identified the OFR as being an ``appropriate domestic regulator'' that may access swap data from swap data repositories. See note 29, supra. \58\ See Dodd-Frank Act section 153(a) (identifying the purpose of the OFR as: (1) Collecting data on behalf of FSOC and providing such data to FSOC and its member agencies; (2) standardizing the types and formats of data reported and collected; (3) performing applied research and essential long-term research; (4) developing tools for risk measurement and monitoring; (5) performing other related services; (6) making the results of the activities of the Office available to financial regulatory agencies; and (7) assisting those member agencies in determining the types and formats of data authorized by the Dodd-Frank Act to be collected by the member agencies); Dodd-Frank Act section 154(c) (requiring that OFR's Research and Analysis Center, on behalf of FSOC, develop and maintain independent analytical capabilities and computing resources to: (A) Develop and maintain metrics and reporting systems for risks to U.S. financial stability; (B) monitor, investigate, and report on changes in systemwide risk levels and patterns to FSOC and Congress; (C) conduct, coordinate, and sponsor research to support and improve regulation of financial entities and markets; (D) evaluate and report on stress tests or other stability-related evaluations of financial entities overseen by FSOC member agencies; (E) maintain expertise in such areas as may be necessary to support specific requests for advice and assistance from financial regulators; (F) investigate disruptions and failures in the financial markets, report findings and make recommendations to FSOC based on those findings; (G) conduct studies and provide advice on the impact of policies related to systemic risk; and (H) promote best practices for financial risk management). The OFR is also required to report annually to Congress its analysis of any threats to the financial stability of the United States. See Dodd-Frank Act section 154(d). \59\ As discussed below, the conditions to the proposed indemnification exemption would limit an entity's access to data by linking the scope of the exemption to information that related to persons or activities within an entity's regulatory mandate or legal responsibility or authority, as specified in an MOU between the Commission and the entity. See part III.C, infra. --------------------------------------------------------------------------- As with the other entities that may access data pursuant to the data access provision, the OFR's ability to access such data would be subject to conditions related to confidentiality and indemnification.\60\ --------------------------------------------------------------------------- \60\ As U.S. government personnel, OFR personnel are subject to the same general confidentiality requirements that are addressed above in the context of the Board and the Federal Reserve Banks. See note 53, supra. In addition, the OFR is required to keep data collected and maintained by the OFR data center secure and protected against unauthorized disclosure. See Dodd-Frank Act section 154(b)(3); see also 12 CFR 1600.1 (ethical conduct standards applicable to OFR employees, including post-employment restrictions linked to access to confidential information); 31 CFR 0.206 (Treasury Department prohibition on employees disclosing official information without proper authority). --------------------------------------------------------------------------- 3. Future Commission Determination of Additional Entities The proposal also would require that repositories provide data to any other person that the Commission determines to be appropriate. The Commission anticipates that entities that may seek such access would likely include foreign financial supervisors (including foreign futures authorities), foreign central banks and foreign ministries.\61\ One or more self-regulatory organizations also potentially may seek such access. The proposal further would provide that the Commission will make such determinations through the issuance of Commission orders, and that such determinations may be conditional or unconditional.\62\ A relevant authority would be able to request that the Commission make such a determination. --------------------------------------------------------------------------- \61\ See proposed Exchange Act rule 13n-4(b)(9)(x). \62\ See id. In those respects, the proposed rule would implement the corresponding statutory language, which provides the Commission with the authority to allow data access to ``any other person that the Commission determines to be appropriate.'' See Exchange Act section 13(n)(5)(G)(v), 15 U.S.C. 78m(n)(5)(G)(v). --------------------------------------------------------------------------- a. Determination Factors and Conditions The Commission continues to expect that it would consider a variety of factors in connection with making such a determination, and that it may impose associated conditions in connection with the determination. The Commission expects to consider the factors discussed below, as well as any other factors the Commission determines to be relevant.\63\ --------------------------------------------------------------------------- \63\ The factors discussed below that may be expected to be relevant to a Commission's determination that a person is eligible to access security-based swap information pursuant the statutory data access provisions--including factors related to the presence of a confidentiality MOU and related to a person's regulatory mandate, or legal responsibility or authority--parallel certain of the conditions to the exemption from the indemnification requirement. See parts III.B, C, infra. --------------------------------------------------------------------------- In part, the Commission expects to consider whether there is an MOU or other arrangement \64\ between the Commission and the relevant authority that is designed to protect the confidentiality of the security-based swap data provided to the authority.\65\ The Commission also expects to consider whether information accessed by the applicable authority would be subject to robust confidentiality safeguards. The Commission believes that these factors are important given the proprietary and highly sensitive nature of the data maintained by the repository.\66\ --------------------------------------------------------------------------- \64\ The Cross-Border Proposing Release specifically referred to a ``supervisory and enforcement MOU or other arrangement'' in this context. See Cross-Border Proposing Release, 78 FR 31047. The Commission is revising its proposed guidance to refer to MOUs and other arrangements generally--rather than ``supervisory and enforcement'' MOUs and arrangements--to allow the parties more flexibility in arriving at such confidentiality arrangements. \65\ Such an MOU or other arrangement may also satisfy the statutory requirement that a security-based swap data repository obtain a confidentiality agreement from the authority. See part II.B.1, infra (proposed Exchange Act rule 13n-4(b)(10)(i) would permit an agreement between the Commission and a relevant authority to satisfy the statutory condition that the repository obtain a confidentiality agreement from the authority). Moreover, this MOU or other arrangement further may satisfy the proposed indemnification exemption's condition that there be an arrangement between the Commission and an entity regarding the confidentiality of the information provided. See part III.C, infra. To the extent that a relevant authority's needs access to additional information, the relevant authority may request that the Commission consider revising its determination order, and MOU or other arrangement, as applicable. \66\ See Exchange Act section 13(n)(5)(H)(i). --------------------------------------------------------------------------- In making a determination the Commission also may consider the relevant authority's interest in access to security-based swap data based on the relevant authority's regulatory mandate, or legal responsibility or authority. Limiting the amount of information accessed by an authority in this manner may help minimize the risk of unauthorized disclosure, misappropriation, or misuse of security-based swap data because each relevant authority will only have access to information within its regulatory mandate, or legal responsibility or authority. [[Page 55188]] Consistent with this factor, the Commission preliminarily expects that such determination orders typically would incorporate conditions that specify the scope of a relevant authority's access to data, and that limit this access in a manner that reflects the relevant authority's regulatory mandates or legal responsibility or authority.\67\ Depending on the nature of the relevant authority's interest in the data, such conditions potentially could address factors such as the domicile of the counterparties to the security-based swap, and the domicile of the underlying reference entity.\68\ Focusing access to data in this way should help address one commenter's concerns regarding ``unfettered access'' to such proprietary data.\69\ --------------------------------------------------------------------------- \67\ To appropriately limit a relevant authority's access to only security-based swap data that is consistent with the MOU between the Commission and the relevant authority, a repository may, for example, need to customize permissioning parameters to reflect each relevant authority's electronic access to security-based swap data. See generally note 103, infra (discussing access criteria currently used by DTCC in connection with current voluntary disclosure practices). \68\ See note 105, infra, and accompanying text (discussing application of those factors in the context of the indemnification exemption). \69\ See note 14, supra (comment voicing concerns about ``unfettered access'' to security-based swap information by regulators, including foreign financial supervisors, foreign central banks and foreign ministries, beyond their regulatory authority and mandate). As discussed below, moreover, the availability of the proposed indemnification exemption would similarly be conditioned to reflect the recipient's regulatory mandates or legal responsibility or authority. See part III.C, infra. Accordingly, based on the expectation that persons who seek access pursuant to these provisions would rely on the indemnification exemption, there would be comparable limitations to access applicable to persons directly identified by Exchange Act sections 15(n)(5)(i) through (iv) (the ``prudential regulators,'' FSOC, CFTC and Department of Justice) or added by the proposed rules (the Federal Reserve Banks and the OFR). --------------------------------------------------------------------------- The Commission further anticipates taking into account any other factors that are appropriate to the determination, including whether such a determination would be in the public interest. This consideration likely would include whether the relevant authority agrees to provide the Commission and other U.S. authorities with reciprocal assistance in matters within their jurisdiction. b. Additional Matters Related to the Determinations The Commission contemplates taking various approaches in deciding whether to impose additional conditions in connection with its consideration of requests for determination orders. For example, the Commission may issue a determination order that is for a limited time. The Commission further may revoke a determination at any time. For example, the Commission may revoke a determination or request additional information from a relevant authority to support the continuation of the determination if for example a relevant authority fails to comply with the MOU, such as by failing to keep confidential security-based swap data provided to it by a repository. Even absent such a revocation, moreover, an authority's access to data pursuant to these provisions also would cease upon the termination of the MOU or other arrangement used to satisfy the confidentiality condition, or, as applicable, the indemnification exemption.\70\ --------------------------------------------------------------------------- \70\ See parts II.B and III.B, C, supra. --------------------------------------------------------------------------- The Commission preliminarily believes that the determination process described above represents a reasonable approach toward providing appropriate access to relevant authorities. Moreover, the Commission preliminarily believes that this process--particularly the link between access and the authority's interest in the information-- appropriately builds upon existing voluntary frameworks, in accordance with one commenter's suggestion that the applicable framework incorporate other cooperative efforts with regard to access to information.\71\ --------------------------------------------------------------------------- \71\ See DTCC comment (June 3, 2011) at 6-7 (``It is critical that the United States, the European Union and the other major global markets align their regulatory regimes to limit opportunities for market distorting arbitrage. The creation of a global credit default swap repository would not have occurred without the global regulatory cooperation achieved through the OTC Derivatives Regulators' Forum (`ODRF') and the OTC Derivatives Regulators Supervisors Group (`ODSG'). It is important that the global SDR framework incorporate their efforts, particularly the ODRF's guidelines on regulatory access to information stored in trade repositories for over-the-counter derivatives.''); DTCC comment (Jan. 24, 2011) at 3 (``DTCC relies upon the direction provided by the OTC Derivatives Regulators' Forum (`ODRF'), whose membership includes the SEC and the Commodity Futures Trading Commission (`CFTC'). DTCC's Trade Information Warehouse (the `Warehouse' or `TIW') has followed the ODRF's guidance, recognizing that broad agreement among global regulators is difficult to achieve. DTCC is committed to complying with the policies adopted by the regulators and working with the Commission in this regard.''). In this regard, DTCC further has stated that it routinely provides U.S. regulators with credit default swap data related to overseas transactions entered into by non-U.S. persons on U.S. reference entities, and that it provides European regulators with data related to transactions in the U.S. by U.S. persons on European reference entities. See DTCC comment (Jan. 24, 2011) at 12; see also DTCC comment (June 3, 2011) at 7-8. --------------------------------------------------------------------------- The Commission expects that repositories will provide relevant authorities with access to security-based swap data in accordance with the determination orders, and the Commission generally does not expect to be involved in reviewing, signing-off on or otherwise approving relevant authorities' requests for security-based swap data from repositories that are made in accordance with a determination order. Moreover, the Commission continues preliminarily to believe that it is not necessary to prescribe by rule specific processes to govern a repository's treatment of requests for access.\72\ --------------------------------------------------------------------------- \72\ See Cross-Border Proposing Release, 78 FR 31047-48. One commenter suggested that the Commission adopt an approach proposed by the CFTC, whereby a regulator requesting access to data first file a request for access and certify the statutory authority for the request and detail the basis for the request. See Managed Funds Association comment (Jan. 24, 2011) at 3-4. In contrast to that proposal, however, the final CFTC rules do not require relevant authorities to detail the basis for their requests, and do not require a swap data repository to provide access only if it is satisfied that the regulator is acting within the scope of its authority. See note 31, supra. --------------------------------------------------------------------------- Finally, the Commission notes that it may elect to apply these determination factors and consider applying protections similar to those in the data access provisions of Exchange Act sections 13(n)(5)(G) and (H) when designating authorities to receive direct access under section 13(n)(5)(D). Section 13(n)(5)(D) states that a repository must provide direct electronic access to the Commission ``or any designee of the Commission, including another registered entity.'' \73\ In practice, the Commission expects that security-based swap data repositories may satisfy their obligation to make available data pursuant to sections 13(n)(5)(G) and (H) by providing electronic access to appropriate authorities. To the extent a repository were to satisfy those requirements by some method other than electronic access, however, the Commission separately may consider whether to also designate particular authorities as being eligible for electronic access to the repository pursuant to section 13(n)(5)(D). In making such assessments under section 13(n)(5)(D), the Commission preliminarily believes that it may consider factors similar to the above determination factors, including the presence of confidentiality safeguards, and the authority's interest in the information based on its regulatory mandate or legal responsibility or authority. --------------------------------------------------------------------------- \73\ 15 U.S.C. 78m(n)(5)(D). --------------------------------------------------------------------------- 4. Notification Requirement The proposal would implement the statutory notification requirement--which states that a repository must notify the Commission when an entity requests that the repository make [[Page 55189]] available security-based swap data \74\--by requiring the repository to inform the Commission upon its receipt of the first request for data from a particular entity (which may include any request that the entity be provided ongoing online or electronic access to the data).\75\ A repository must keep such notifications and any related requests confidential.\76\ --------------------------------------------------------------------------- \74\ See Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G). As discussed below, see part IV, infra, the notification requirement does not apply to circumstances in which disclosures are made outside of the requirements of Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G), particularly when a dually regulated data repository makes disclosure pursuant to foreign law, or when the Commission provides security-based swap data to an entity. \75\ See proposed Exchange Act rule 13n-4(e). The rule does not require the repository to proactively inform the Commission of subsequent requests. \76\ Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G), and proposed rule 13n-4(b)(9) both require that a repository must make data available ``on a confidential basis.'' Failure by a repository to treat such notifications and requests as confidential could have adverse effects on the underlying basis for the requests. If, for example, a regulatory use of the data is improperly disclosed, such disclosure could signal a pending investigation or enforcement action, which could have detrimental effects. --------------------------------------------------------------------------- The repository further would have to maintain records of all information related to the initial and all subsequent requests for data access requests from that entity, including records of all instances of online or electronic access, and records of all data provided in connection with such requests or access.\77\ For these purposes, we believe that ``all information related to'' such requests would likely include, among other things: The identity of the requestor or person accessing the data; the date, time and substance of the request or access; and copies of all data reports or other aggregations of data provided in connection with the request or access. --------------------------------------------------------------------------- \77\ See proposed Exchange Act rule 13n-4(e). We note that Exchange Act rule 13n-7(b)(1) requires security- based swap data repositories to maintain copies of ``all documents and policies and procedures required by the Act and the rules and regulations thereunder, correspondence, memoranda, papers, books, notices, accounts and other such records as shall be made or received by it in the course of its business as such.'' See also SDR Adopting Release, 80 FR 14501 (``This rule includes all electronic documents and correspondence, such as data dictionaries, emails and instant messages, which should be furnished in their original electronic format.''). Proposed Exchange Act rule 13n-4(e) identifies specific types of records that must be maintained in the specific context of access request to repositories. --------------------------------------------------------------------------- In the Commission's preliminary view, the proposed notification requirement is designed to account for the way in which we believe entities are likely to access such data from repositories, by distinguishing steps that an entity takes to arrange access from subsequent electronic instructions and other means by which the recipient obtains data. By making relevant data available to the Commission in this manner, the proposed approach would place the Commission on notice that a recipient has the ability to access security-based swap data, and place the Commission in a position to examine such access as appropriate, while avoiding the inefficiencies that would accompany an approach whereby a repository must direct to the Commission information regarding each instance of access by each recipient. Moreover, the proposed approach would be consistent with the manner in which the Commission examines the records of regulated entities under the Commission's authority. The Commission recognizes that one commenter opposed any requirement that the Commission receive notice of a recipient's initial request, on the grounds that such notice may cause other authorities to hesitate to make such requests.\78\ While the Commission appreciates the commenter's concerns, the Commission preliminarily believes that it is necessary for the Commission to be informed of the initial request from a particular entity so that the Commission may assess whether the initial conditions to data access (i.e., MOUs or other arrangements as needed to satisfy the confidentiality condition and the indemnification exemption) \79\ have been met at the time the repository first is requested to provide the entity with information pursuant to the data access provisions, and, more generally, to facilitate the Commission's ongoing assessment of the repository's compliance with the data access provisions. The Commission also believes that commenter concerns that other regulators may be reluctant to place the Commission on notice of such initial requests are mitigated by the Commission's long history of cooperation with other authorities in supervisory and enforcement matters.\80\ --------------------------------------------------------------------------- \78\ See DTCC comment (Aug. 13, 2013) (``DTCC discourages the Commission from requiring a notification requirement upon initial request as suggested by the Cross-Border Proposal. Authorities will likely be hesitant to make such request to an SDR if it triggers a notice to another authority, particularly if such request is pursuant to an investigation. DTCC proposes that the Commission consider notification to be deemed satisfied if the request is made by an entity to the SDR pursuant to an established information sharing arrangement[.]''). \79\ See parts II.B and III.B, infra. \80\ The Commission also recognizes that the same commenter stated that ``regulators want direct electronic access to data in SDRs where that data is needed to fulfill regulatory responsibilities'' rather than access ``by request, with notice to another regulatory authority.'' See DTCC comment (Jan. 24, 2011) at 11-12. Data repositories in fact can provide direct electronic access to relevant authorities under the proposed interpretation. The proposed requirement that the repository inform the Commission when the relevant authority first requests access to security-based swap data maintained by the repository, and to retain records of subsequent access, is designed to facilitate such direct access. --------------------------------------------------------------------------- 5. Limitation to ``Security-Based Swap Data'' Repositories that obtain security-based swap data may also obtain data regarding other types of financial instruments, such as swaps under the CFTC's jurisdiction. We do not read the data access provisions of Exchange Act sections 13(n)(5)(G) and (H)--which were added by Subtitle B of Title VII (which focused on the regulatory treatment of security-based swaps) \81\ to the Exchange Act (which generally addresses the regulation of securities such as security-based swaps)--to require a repository to make available data that does not involve security-based swaps. The statutory confidentiality condition to the data access requirement further suggests that the data access provisions are intended to apply only to security-based swap data.\82\ Accordingly, the proposed rules specifically address access to ``security-based swap data'' obtained by a security-based swap data repository.\83\ --------------------------------------------------------------------------- \81\ See Dodd-Frank Act section 763(i) (addressing ``public reporting and repositories for security-based swaps,'' including the addition of section 13(n), 15 U.S.C. 78m(n), to the Exchange Act to address security-based swap data repositories); see generally Subtitle B to Title VII of the Dodd-Frank Act, section 761 et seq. (addressing ``Regulation of Security-Based Swap Markets''). \82\ In particular, the confidentiality condition to the data access provisions specifically requires that the recipient entity abide by confidentiality requirements for ``the information on security-based swap transactions that is provided,'' suggesting that the Exchange Act data access provisions are intended solely to address security-based swap data. See Exchange Act section 13(n)(5)(H)(i), 15 U.S.C. 78m(n)(5)(H)(i). Moreover, this approach is consistent with the CFTC's comparable rules, which apply only to swap data. See 17 CFR 49.17(d) and 49.18 (discussing regulators' access to swap data under the CEA). \83\ See proposed Exchange Act rule 13n-4(b)(9). --------------------------------------------------------------------------- B. Confidentiality Condition The Exchange Act provides that, prior to providing data, a repository ``shall receive a written agreement from each entity stating that the entity shall abide by the confidentiality requirements described in section 24 relating to the information on security-based swap transactions that is provided.'' \84\ --------------------------------------------------------------------------- \84\ See Exchange Act section 13(n)(5)(H)(i), 15 U.S.C. 78m(n)(5)(H)(i). Exchange Act section 24, 15 U.S.C. 78x, generally addresses disclosures of information by the Commission and its personnel. In relevant part it provides that the Commission may, ``in its discretion and upon a showing that such information is needed,'' provide all records and other information ``to such persons, both domestic and foreign, as the Commission by rule deems appropriate if the person receiving such records or information provides such assurances of confidentiality as the Commission deems appropriate.'' See Exchange Act section 24(c), 15 U.S.C. 78x(c); see also Exchange Act rule 24c-1(b) (providing that the Commission may, upon ``such assurances of confidentiality as the Commission deems appropriate,'' provide non-public information to persons such as domestic and foreign governments or their political subdivisions, authorities, agencies or instrumentalities, self-regulatory organizations and foreign financial authorities). --------------------------------------------------------------------------- [[Page 55190]] The proposed rule implementing this condition would require that, before a repository provides information pursuant to the data access provisions, ``there shall be in effect an arrangement between the Commission and the entity (in the form of a memorandum of understanding or otherwise) to address the confidentiality of the security-based swap information made available to the entity.'' \85\ The proposed rule further would provide that this arrangement would be deemed to satisfy the statutory requirement that the repository receive a written confidentiality agreement from the entity.\86\ --------------------------------------------------------------------------- \85\ See proposed Exchange Act rule13n-4(b)(10). \86\ See Exchange Act section 13(n)(5)(H)(1). As discussed below, see part IV, infra, the confidentiality condition does not apply to circumstances in which disclosures are made outside of the requirements of Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G), particularly when a dually regulated data repository makes disclosure pursuant to foreign law, or when the Commission provides security-based swap data to an entity. --------------------------------------------------------------------------- This proposed approach to implementing the confidentiality condition, in other words, would use an arrangement between the Commission and a regulator or other recipient entity to satisfy the statutory confidentiality condition. The approach would not necessitate the use of confidentiality agreements entered into by repositories.\87\ --------------------------------------------------------------------------- \87\ In this regard, the Commission notes that the statute does not require that the security-based swap data repository ``agree'' with the entity, ``enter into'' an agreement, or otherwise be a party to the confidentiality agreement. The statute merely states that the repository ``receive'' such an agreement. See Exchange Act section 13(n)(5)(H)(i), 15 U.S.C. 78m(n)(5)(H)(i). Accordingly, we believe that, at a minimum, the statutory language is ambiguous as to whether the data repository must itself be a party to the confidentiality agreement. In light of this ambiguity, we have preliminarily determined to read the statute to permit the Commission to enter into confidentiality agreements with the entity, with the repository receiving the benefits of the agreement. Accordingly, the Commission believes that it is appropriate to view a security-based swap data repository as having received a confidentiality agreement when the entity enters into a confidentiality agreement with the Commission and that agreement runs to the benefit of the repository. --------------------------------------------------------------------------- In the Commission's preliminary view, this approach reflects an appropriate way to satisfy the interests associated with the confidentiality condition, while facilitating the statutory data access provision's goal of promoting the flow of information to authorities. The approach further would build upon the Commission's experience in negotiating MOUs with other regulators in connection with enforcement and supervision, particularly the Commission's experience in connection with the development of provisions related to maintaining the confidentiality of information. As a result, the approach would potentially obviate the need for each individual repository to negotiate and enter into dozens of confidentiality agreements. By building upon the Commission's experience and expertise in this area, moreover, the Commission expects that this approach also would help avoid the possibility of uneven and potentially inconsistent application of confidentiality protections across data repositories and recipient entities. In proposing this approach, the Commission also is mindful that the statutory provision specifically references the ``confidentiality requirements described in section 24'' of the Exchange Act. In the Commission's preliminary view this statutory language articulates a standard which requires that there be adequate confidentiality assurances. Thus, the Commission preliminarily believes that the proposed provision, under which the Commission would negotiate and enter into agreements providing such confidentiality assurances, appropriately implements the statutory reference to section 24. C. Request for Comment The Commission requests comment regarding all aspects of these proposed rules regarding access to security-based swap data from repositories. Among other things, commenters particularly are invited to address the proposal that the confidentiality agreement requirement would be satisfied by an MOU or other agreement between the Commission and another entity. Commenters also are invited to address: The proposed limitation of the data access requirement to security-based swap data; the proposed provisions related to access by prudential regulators, the Federal Reserve Banks and the OFR; the criteria that the Commission should consider in evaluating whether to determine to permit additional entities to access data from repositories; whether the orders that make such determinations generally should encompass conditions that limit a relevant authority's access to information to reflect its regulatory mandate or legal responsibility or authority; whether the Commission should prescribe specific processes to govern requests for such access; and whether the Commission should prescribe a process to govern a repository's treatment of requests for access. In addition, commenters are invited to address the proposed rules implementing the notification requirement, including the proposed provisions regarding the maintenance of information related to data requests. In this regard, is there an alternative to requiring repositories to maintain copies of all data they provide in connection with the data access provisions that would still permit the Commission to assess the repository's ongoing compliance with those provisions? For example, are alternative approaches available such that the Commission should not require repositories to maintain actual copies of all reports or other aggregations of data provided pursuant to the data access provisions, such as if the repository instead implements policies and procedures sufficient to demonstrate a process for creating records that reflect the data provided, and the repository produces promptly copies of such records upon request by a representative of the Commission? \88\ Would such an alternative approach reduce the burdens on repositories while still permitting the Commission to assess ongoing compliance? --------------------------------------------------------------------------- \88\ For example, in adopting Exchange Act rule 17a-4(b)(13) to provide that broker-dealers must preserve certain written policies and procedures in connection with creditworthiness assessments, the Commission stated that although the rule does not require that a broker-dealer maintain a record of each such creditworthiness determination, a broker-dealer would need to be able to support each such determination, and that the broker-dealer may do so by either maintaining documentation of those determinations or by being in a position to ``replicate the original credit risk determination using the same process, information, and inputs employed to make the original determination.'' See Exchange Act Release No. 71194 (Dec. 27, 2013), 79 FR 1522, 1528-29, 1550 (Jan. 8, 2014). --------------------------------------------------------------------------- Commenters further are invited to address whether the Commission should determine that other domestic authorities, such as one or more self-regulatory organizations, should be eligible to access security- based swap data pursuant to these provisions. If so, should the access of such self-regulatory organizations be limited in any particular respects? [[Page 55191]] III. Proposed Exemption From the Indemnification Requirement A. Proposed Exemption The Exchange Act also conditions the data access requirement on each recipient entity agreeing ``to indemnify the security-based swap data repository and the Commission for any expenses arising from litigation relating to information provided under section 24.'' \89\ --------------------------------------------------------------------------- \89\ Exchange Act section 13(n)(5)(H)(ii), 15 U.S.C. 78m(n)(5)(H)(ii). As discussed below, see part IV, infra, the statutory indemnification requirement would not always be triggered by the disclosure of security-based swap information. In the event that the proposed exemption is unavailable, the Commission agrees with one commenter's view that ``any indemnity should be limited in scope to minimize the potential reduction in value of registered SDRs to the regulatory community.'' See DTCC comment (Jan. 24, 2011) at 12. Consistent with that view, as stated in the Cross-Border Proposing Release, the Commission would not expect that an indemnification agreement would include a provision requiring a relevant authority to indemnify the repository from the repository's own wrongful or negligent acts. See Cross-Border Proposing Release, 78 FR 31051 n.829. --------------------------------------------------------------------------- Pursuant to the Commission's authority under Exchange Act section 36,\90\ the Commission is proposing a conditional exemption from that statutory indemnification requirement. This proposed exemption would be effective whenever the applicable conditions are met, in contrast with the earlier proposal, which would have conditionally exempted regulators and other authorities from the indemnification requirement only at the election of the data repository.\91\ --------------------------------------------------------------------------- \90\ 15 U.S.C. 78mm (providing the Commission with general exemptive authority . . . ``to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors''). \91\ To implement this approach, the Commission proposes in relevant part that the indemnification requirement conditionally ``shall not be applicable'' with regard to the repository's disclosure of security-based swap information. See proposed Exchange Act rule 13n-4(d)(1). The earlier proposal would have conditionally provided that a registered security-based swap data repository ``is not required to comply'' with the indemnification requirement. See Cross-Border Proposing Release, 78 FR 31209 (paragraph (d) of proposed rule 13n-4). --------------------------------------------------------------------------- This proposed exemption reflects the Commission's preliminary concern that requiring authorities to agree to provide indemnification could lead to negative consequences in practice. The Commission continues to understand that certain authorities may be legally prohibited or otherwise limited from agreeing to indemnify data repositories or the Commission for expenses arising in connection with the information received from a repository.\92\ --------------------------------------------------------------------------- \92\ As stated in the Cross-Border Proposing Release, the Commission recognizes that certain domestic authorities, including some of those expressly identified in Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G), as a matter of law cannot provide an open-ended indemnification agreement. See Cross-Border Proposing Release, 78 FR 31048-49 (particularly noting that the Antideficiency Act prohibits certain U.S. federal agencies from obligating or expending federal funds in advance or in excess of an appropriation, apportionment, or certain administrative subdivisions of those funds, e.g., through an unlimited or unfunded indemnification). --------------------------------------------------------------------------- As a result, application of the indemnification requirement may chill some requests by regulators or other authorities for access to security-based swap data, which would hinder those authorities' ability to address their own regulatory mandate or legal responsibility or authority.\93\ The resulting lack of access also may impair coordination among regulators with regard to the oversight of market participants that engage in security-based swap transactions across national boundaries. For example, European Union (``EU'') law provides that the ability of certain non-EU regulators to access data from EU repositories is conditioned on there being an international agreement that ensures that EU authorities have ``immediate and continuous access to all of the information needed for the exercise of their duties.'' \94\ As a result, application of the indemnification requirement without an exemption being available potentially could preclude EU authorities from accessing data from U.S. security-based swap data repositories. Under such circumstances, it is possible that EU authorities may be unwilling to permit the Commission and other U.S. regulators to access security-based swap data from EU repositories. The resulting concerns associated with a lack of regulatory access to security-based swap data are particularly significant given that data access allows relevant authorities to be in a better position to, among other things, monitor risk exposures of individual counterparties to swap and security-based swap transactions, monitor concentrations of risk exposures and evaluate risks to financial stability.\95\ --------------------------------------------------------------------------- \93\ See DTCC cross-border comment (Aug. 21, 2013) at 6 (``The continued presence of the Indemnification Provision (even as modified by the exemption in the Cross-Border Proposal) may pose problems for Commission-regulated, U.S.-based SDRs and their ability to share information with third-party regulatory authorities. As a result, foreign regulators may seek to establish their own `national' repositories to ensure access to the information they need, fragmenting the data among jurisdictions. Similarly, non-U.S. trade repositories may find themselves subject to similar reciprocal impediments to sharing information with the Commission or other U.S. regulatory agencies absent a confidentiality and indemnification agreement.''); see also DTCC comment (Nov. 15, 2010) at 3 (``DTCC remains concerned that regulators are not likely to grant SDRs indemnification in exchange for access to the information and, accordingly, regulators may actually receive less aggregated market data. Such an outcome would result in a reduction of information accessible to regulators on a timely basis both domestically and internationally, which contravenes the purpose of SDRs and jeopardizes market stability.''); Cleary Gottlieb comment (Sept. 20, 2011) at 31 (``[T]he indemnification requirement could be a significant impediment to effective regulatory coordination, since non-US regulators may establish parallel requirements for U.S. regulators to access swap data reported in their jurisdictions.''); ESMA comment (Jan. 17, 2011) at 2 (``We believe that ensuring confidentiality is essential for exchanging information among regulators and such indemnification agreement undermines the key principle of trust according to which exchange of information should occur.''). \94\ See EU regulation 648/2012 (``EMIR''), art. 75(2). \95\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy Perspectives of OTC Derivatives Market Infrastructure, Federal Reserve Bank of New York Staff Report No. 424, dated January 2010, as revised March 2010 (with data from repositories regulators can ``explore the sizes and depths of the markets, as well as the nature of the products being traded. With this information, regulators are better able to identify and control risky market practices, and are better positioned to anticipate large market movements.''); see also DTCC comment (June 3, 2011) at 5 (noting that a data repositories should be able to provide: (i) Enforcement authorities with necessary trading information; (ii) regulatory agencies with counterparty-specific information about systemic risk based on trading activity; (iii) aggregate trade information on market-wide activity and aggregate gross and net open interest for publication; and (iv) real-time reporting from [security-based swap execution facilities] and bilateral counterparties and related dissemination). --------------------------------------------------------------------------- Such a result associated with application of the indemnification requirement further may make substituted compliance unavailable in connection with security-based swap data reporting requirements, given that under rules adopted by the Commission the availability of substituted compliance for those requirements is predicated in part on the Commission's ability to directly access data in foreign repositories.\96\ --------------------------------------------------------------------------- \96\ See Regulation SBSR, rule 908(c)(2)(iii)(C), 17 CFR 242.908(c)(2)(iii)(C) (conditioning the availability of substituted compliance in part on the Commission having ``direct electronic access to the security-based swap data held by a trade repository or foreign regulatory authority to which security-based swaps are reported pursuant to the rules of that foreign jurisdiction''); see also Exchange Act Release No. 74244 (Feb. 11, 2015), 80 FR 14564, 14661 (Mar.19, 2015) (``Regulation SBSR Adopting Release'') (``granting substituted compliance without direct electronic access would not be consistent with the underlying premise of substituted compliance: That a comparable regulatory result is reached through compliance with foreign rules rather than with the corresponding U.S. rules.''). --------------------------------------------------------------------------- The Commission recognizes that indemnification may help support confidentiality safeguards by making a recipient liable for expenses that a repository or the Commission incurs in connection with breaches of confidentiality. Nonetheless, the [[Page 55192]] countervailing considerations noted above indicate that indemnification--of either the repository or the Commission--should not be required so long as appropriate confidentiality protections are provided in other ways. For these reasons the Commission preliminarily believes that it is necessary and appropriate in the public interest, and consistent with the protection of investors, that the indemnification requirement be subject to an exemption that applies whenever the applicable conditions are satisfied.\97\ --------------------------------------------------------------------------- \97\ The Commission is not incorporating a commenter's suggestion that there be ``a safe harbor provision from liability for information shared pursuant to global information sharing agreements into the Indemnification Exemption for SDRs operating pursuant to information sharing arrangements, as defined in the Indemnification Exemption, or comparable to those published by the OTC Derivatives Regulators Forum (``ODRF'') or CPSS-IOSCO.'' See DTCC cross-border comment (Aug. 21, 2013) at 7; see also DTCC comment (Jan. 24, 2011) at 3 (urging the Commission to aim for regulatory comity as reflected in ODRF and CPSS-IOSCO standards); DTCC comment (June 3, 2011) at 6-7 (urging that the global framework incorporate efforts of the ODRF and the OTC Derivatives Regulators Supervisors Group). To the extent that the commenter suggests that there be a safe harbor from the indemnification requirement, the Commission preliminarily believes that this proposed exemption, which is more narrowly tailored than the commenter's suggestion, would sufficiently address a repository's need for certainty. The Commission further notes that a repository's statutory duty to maintain the privacy of the information received is separate and distinct from its statutorily mandated duty to provide security- based swap data to relevant authorities when specific conditions are satisfied, and that the privacy of security-based swap data provided to relevant authorities was addressed by Congress through the confidentiality agreement requirement in Exchange Act section 13(n)(5)(H), 15 U.S.C. 78m(n)(5)(H). --------------------------------------------------------------------------- B. Confidentiality Arrangement Condition The proposal in part would condition the indemnification exemption upon there being in effect one or more arrangements (in the form of an MOU or otherwise) between the Commission and the entity that addresses the confidentiality of the security-based swap information provided and other matters as determined by the Commission.\98\ The Commission preliminarily believes that such an MOU or other arrangement would address similar confidentiality interests that appear to be reflected by the statutory indemnification requirement, particularly given that the disclosure of confidential information inconsistent with such arrangements can lead to the termination of the arrangement and the loss of data access. Just as an indemnification agreement may be expected to incentivize the confidential treatment of information, such a confidentiality arrangement would help strengthen the authority's incentive to maintain the confidentiality of information. --------------------------------------------------------------------------- \98\ See proposed Exchange Act rule 13n-4(d)(2)(ii). --------------------------------------------------------------------------- The Commission anticipates that in determining whether to enter into such an MOU or other arrangement, it would consider, among other things, whether: (a) Security-based swap information from a repository would help fulfill the relevant authority's regulatory mandate, or legal responsibility or authority; (b) the relevant authority provides such assurances of confidentiality as the Commission deems appropriate with respect to the security-based swap information provided to the authority; (c) the relevant authority is subject to statutory and/or regulatory confidentiality safeguards; (d) the relevant authority agrees to provide the Commission with reciprocal assistance in matters within the Commission's jurisdiction; and (e) an MOU or other arrangement would be in the public interest. These considerations are comparable to the criteria that the Commission anticipates considering as it determines whether an entity is eligible to access information pursuant to the data access provisions.\99\ Accordingly, for regulators or other authorities whose access is subject to a determination order, the same confidentiality MOUs or other agreements that are needed to satisfy the indemnification exemption may also serve to satisfy those prerequisites to the determinations.\100\ --------------------------------------------------------------------------- \99\ See notes 64 through 69, supra, and accompanying text. \100\ Those entities that are expressly identified in the statute or the implementing rules (and thus are not subject to the determination process) also would need to enter into a separate MOU or other agreement to satisfy the confidentiality agreement condition. --------------------------------------------------------------------------- C. Condition Regarding Regulatory Mandate or Legal Responsibility or Authority The proposal further would condition the indemnification exemption on the requirement that the information relate to persons or activities within the recipient entity's regulatory mandate, or legal responsibility or authority.\101\ This proposed condition should reduce the potential for disclosure of confidential information by limiting the quantity of information each recipient may access. This limitation on access also should help address commenter concerns regarding ``unfettered access'' to security-based swap data.\102\ This approach of limiting the availability of data to reflect such considerations also has parallels to the approach that one commenter indicated that it follows on a voluntary basis for providing relevant authorities with access to certain credit default swap information.\103\ --------------------------------------------------------------------------- \101\ See proposed Exchange Act rule 13n-4(d)(1). \102\ See note 14, supra. \103\ See note 71, supra (DTCC statement that it routinely provides U.S. regulators with data related to overseas credit default swap transactions entered into by non-U.S. persons on U.S. reference entities, and that it provides European regulators with data related to credit default swap transactions in the U.S. by U.S. persons on European reference entities). --------------------------------------------------------------------------- The proposal would implement this requirement by further conditioning the indemnification exemption by requiring that the MOU or other arrangement between the Commission and the entity accessing the data would specify the types of security-based swap information that would relate to the recipient entity's regulatory mandate, or legal responsibility or authority.\104\ While the relevant factors for specifying which information is within an entity's regulatory mandate, or legal responsibility or authority for these purposes may vary depending on the relevant facts and circumstances, such factors potentially would include the location of a counterparty to the transaction and the location of the reference entity.\105\ In this way, the MOU or other arrangement would help reduce uncertainty regarding how the associated condition to the indemnification exemption may apply [[Page 55193]] to particular types of information requests, and would provide direction to repositories regarding which disclosures would be covered by the indemnification exemption.\106\ --------------------------------------------------------------------------- \104\ See proposed Exchange Act rule 13n-4(d)(2)(ii). \105\ As an example, in the event of a request for access by a foreign authority that is responsible for security-based swap market surveillance and enforcement--and subject to negotiation of such an MOU or other arrangement between the Commission and that authority-- criteria indicative of data regarding a transaction being within the authority's regulatory mandate or legal responsibility or authority may include: (i) One or more of the counterparties to the transaction being domiciled or having a principal place of business in the foreign jurisdiction (including branches of entities that are domiciled or that have a principal place of business in that jurisdiction); (ii) one or more of the counterparties being a subsidiary of a person domiciled or having a principal place of business in the foreign jurisdiction; (iii) one or more of the counterparties being a fund or other collective investment vehicle with an adviser that is domiciled or that have a principal place of business in the foreign jurisdiction; (iv) one or more of the counterparties being registered with the authority as a dealer or in some other capacity; or (v) the reference entity for the security- based swap being domiciled or having a principal place of business in the foreign jurisdiction. As another example, in the case of a foreign authority that is responsible for prudential regulation, criteria indicative of data regarding a transaction being within the entity's regulatory mandate or legal responsibility or authority may include one or more of the counterparties to the transaction being part of a consolidated organization that is supervised by the prudential authority, including all affiliates within that consolidated organization. \106\ The Commission anticipates that data repositories would be able to rely on the guidance provided by such arrangements when assessing whether particular information would be subject to the indemnification exemption, thus permitting an authority to access that information without an indemnification agreement. --------------------------------------------------------------------------- D. Request for Comment The Commission requests comment on all aspects of the proposed exemption to the statutory indemnification requirement. Commenters particularly are invited to address whether the exemption's proposed scope would adequately address the concerns associated with implementing the indemnification requirement. Among other things, commenters are invited to address whether alternative approaches or other considerations more effectively reflect the access and confidentiality interests associated with the Dodd-Frank Act? Also, should additional conditions be incorporated into the exemption? Commenters further are invited to address whether the proposal appropriately would make use of an MOU or other arrangement to provide sufficient guidance to a repository regarding an entity's regulatory mandate, or legal responsibility or authority in connection with a request for security-based swap data. In this respect, would the proposed approach provide a repository with an adequate degree of guidance regarding which disclosures of information may or may not be subject to protection? Are there particular criteria that would be useful for incorporating into the MOU or other arrangement to help delimit which information would fall within an entity's regulatory mandate, or legal responsibility or authority? IV. Applicability of Exchange Act Data Access and Indemnification Provisions The Exchange Act provisions addressed above--sections 13(n)(5)(G) and (H) \107\--establish one means by which certain regulators and other authorities may access security-based swap data from repositories. It is important to recognize, however, that those provisions do not exclusively govern the means by which such regulators or other authorities might access security-based swap data. --------------------------------------------------------------------------- \107\ 15 U.S.C. 78m(n)(5)(G) and (H). --------------------------------------------------------------------------- In particular, in the circumstances discussed below, regulators and other authorities in certain circumstances may access security-based swap data via authority that is independent of the above provisions. In those circumstances, the Commission preliminarily believes that the conditions associated with those data access provisions--particularly the provisions regarding indemnification, notification and confidentiality agreements--should not govern access arising from such independent authority. A. Data Access Authorized by Foreign Law The Commission continues to believe preliminarily, as discussed in the Cross-Border Proposing Release, that ``the Indemnification Requirement does not apply when an SDR is registered with the Commission and is also registered or licensed with a foreign authority and that authority is obtaining security-based swap information directly from the SDR pursuant to that foreign authority's regulatory regime.'' \108\ In those circumstances, the dually registered data repository would be subject to a data access obligation that is independent of the Exchange Act data access obligation, and the notification, confidentiality and indemnification conditions to the Exchange Act data access provision would not apply. --------------------------------------------------------------------------- \108\ See Cross-Border Proposing Release, 78 FR 31049 n.807. --------------------------------------------------------------------------- B. Receipt of Information Directly From the Commission The Exchange Act also provides that relevant authorities may obtain security-based swap data from the Commission, rather than directly from data repositories.\109\ --------------------------------------------------------------------------- \109\ See Cross-Border Proposing Release, 78 FR 31045. --------------------------------------------------------------------------- First, Exchange Act section 21(a)(2) \110\ states that, upon request of a foreign securities authority, the Commission may provide assistance in connection with an investigation the foreign securities authority is conducting to determine whether any person has violated, is violating or is about to violate any laws or rules relating to securities matters that the requesting authority administers or enforces.\111\ That section further provides that, as part of this assistance, the Commission in its discretion may conduct an investigation to collect information and evidence pertinent to the foreign securities authority's request for assistance.\112\ --------------------------------------------------------------------------- \110\ 15 U.S.C. 78u(a)(2). \111\ Exchange Act section 3(a)(50), 15 U.S.C. 78c(a)(50), broadly defines ``foreign securities authority'' to include ``any foreign government, or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to securities matters.'' \112\ Exchange Act section 21(a)(2), 15 U.S.C. 78u(a)(2), also states that the Commission may provide such assistance without regard to whether the facts stated in the request also would constitute a violation of U.S. law. That section further states that when the Commission decides whether to provide such assistance to a foreign securities authority, the Commission shall consider whether the requesting authority has agreed to provide reciprocal assistance in securities matters to the United States, and whether compliance with the request would prejudice the public interest of the United States. --------------------------------------------------------------------------- In addition, the Commission may share ``nonpublic information in its possession'' with, among others, any ``federal, state, local, or foreign government, or any political subdivision, authority, agency or instrumentality of such government . . . [or] a foreign financial regulatory authority.'' \113\ This authority is subject to the recipient providing ``such assurances of confidentiality as the Commission deems appropriate.'' \114\ --------------------------------------------------------------------------- \113\ See Exchange Act rule 24c-1(c) (implementing Exchange Act section 24(c), 15 U.S.C. 78x(c), which states that the Commission may, ``in its discretion and upon a showing that such information is needed,'' provide records and other information ``to such persons, both domestic and foreign, as the Commission by rule deems appropriate,'' subject to assurances of confidentiality). \114\ See id. --------------------------------------------------------------------------- In the Commission's view, and consistent with Commission practice for many years, these sections provide the Commission with separate, additional authority to assist domestic and foreign authorities in certain circumstances, such as, for example, by providing security- based swap data directly to the authority. At those times, the authority would receive information not from the data repository, but instead from the Commission. C. Request for Comment The Commission requests comment on these preliminary interpretations regarding the scope of the data access requirement and conditions set forth in Exchange Act sections 13(n)(5)(G) and (H). V. Paperwork Reduction Act Certain provisions of the proposed rules contain ``collection of information'' requirements within the meaning of the Paperwork Reduction Act of 1995 (``PRA'').\115\ The SEC has submitted them to the Office of Management and Budget (``OMB'') for review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The title of the new collection of information is ``Security-Based Swap Data Repository Data Access Requirements.'' An agency may not conduct or sponsor, and a [[Page 55194]] person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. OMB has not yet assigned a control number to the new collection of information. --------------------------------------------------------------------------- \115\ 44 U.S.C. 3501 et seq. --------------------------------------------------------------------------- A. Summary of Collection of Information The proposal would require security-based swap data repositories to make security-based swap data available to other parties, including certain government bodies. This data access obligation would be conditioned on confidentiality and indemnification requirements, and the indemnification requirement itself would be subject to a conditional exemption. The proposal further would require such repositories to create and maintain information regarding such data access. B. Proposed Use of Information The data access requirement and associated conditions would provide the regulators and other authorities that receive the relevant security-based swap data with tools to assist with the oversight of the security-based swap market and of dealers and other participants in the market, and to assist with the monitoring of risks associated with that market. C. Respondents The data access requirement will apply to every person required to be registered with the Commission as a security-based swap data repository--that is every U.S. person performing the functions of a security-based swap data repository, and to every non-U.S. person performing the functions of a security-based swap data repository within the United States absent an exemption.\116\ Commission staff is aware of seven persons that have, to date, filed applications for registration with the CFTC as swap data repositories, three of which have withdrawn their applications and four of which are provisionally registered with the CFTC. It is reasonable to estimate that a similar number of persons provisionally registered with the CFTC may seek to register with the Commission as security-based swap data repositories. Therefore, the Commission estimates, for PRA purposes, that ten persons might register with the Commission as security-based swap data repositories.\117\ --------------------------------------------------------------------------- \116\ As discussed above, see note 13, supra, the Commission has determined that a non-U.S. person that performs the functions of a security-based swap data repository within the United States is required to register with the Commission absent an exemption. The Commission also has adopted Exchange Act rule 13n-12 to provide an exemption from data repository requirements for certain non-U.S. persons. \117\ The Commission used the same estimate when adopting final rules to implement statutory provisions related to the registration process, duties and core principles applicable to security-based swap data repositories. See SDR Adopting Release, 80 FR 14521. --------------------------------------------------------------------------- The conditions to data access under these proposed rules further will affect all persons that may seek access to security-based swap data pursuant to these provisions. As discussed below, these may include up to 30 domestic entities. D. Total Annual Reporting and Recordkeeping Burden 1. Data Access Generally The data access provisions may implicate various types of PRA burdens and costs: (i) Burdens and costs that regulators and other authorities incur in connection with negotiating MOUs or other arrangements with the Commission in connection with the data access provisions; (ii) burdens and costs that certain authorities that have not been determined by statute or Commission rule may incur in connection with requesting that the Commission grant them access to repository data; \118\ (iii) burdens and costs associated with information technology systems that repositories develop in connection with providing data to regulators and other authorities; and (iv) burdens and costs associated with the requirement that repositories notify the Commission of requests for access to security-based swap data, including associated recordkeeping requirements. --------------------------------------------------------------------------- \118\ These include MOUs and other arrangements in connection with: The determination of additional entities that may access security-based swap data (see part II.A.3, supra), the confidentiality condition (see part II.B.1, supra) and the indemnification exemption (see parts III.B.2, 3, supra). --------------------------------------------------------------------------- a. MOUs As discussed above, entities that access security-based swap data pursuant to these data access provisions would be required to enter into MOUs or other arrangements with the Commission to address the confidentiality condition and the indemnification exemption. In some cases, those entities also would enter into MOUs or other arrangements in connection with the Commission's determination of the entity as authorized to access such data (to the extent that the entity's access is already determined by statute or by the proposed rules). For purposes of the PRA requirements, the Commission estimates that up to 30 domestic entities potentially might enter into such MOUs or other arrangements, reflecting the nine entities specifically identified by statute or the proposed rules, and up to 21 additional domestic governmental entities or self-regulatory organizations that may seek access to such data. Based on the Commission's experience in negotiating similar MOUs that address regulatory cooperation, including confidentiality issues associated with regulatory cooperation, the Commission preliminarily believes that each regulator on average would expend 500 hours in negotiating such MOUs.\119\ --------------------------------------------------------------------------- \119\ It may be expected that the initial MOU or other arrangement that is entered into between the Commission and another regulator may take up to 1,000 hours for that regulator to negotiate. In practice, however, subsequent MOUs and other arrangements involving other recipient entities would be expected to require significantly less time on average, by making use of using the prior MOUs as a basis for negotiation. Based on these principles, the Commission preliminarily estimates that the average amount of time that domestic and foreign recipients of data would incur in connection with negotiating these arrangements would be 500 hours. To the extent that each of those 30 domestic entities were to seek to access data pursuant to these provisions, and each of the applicable MOUs or other arrangements were to take 500 hours on average, the total burden would amount to 15,000 hours. --------------------------------------------------------------------------- b. Requests for Access Separately, certain entities that are not identified by statute and/or the proposed rules may request that the Commission determine that they may access such security-based swap data. For those entities, in light of the relevant information that the Commission preliminarily would consider in connection with such determinations (apart from the MOU issues addressed above)--including information regarding how the entity would be expected to use the information, information regarding the entity's regulatory mandate or legal responsibility or authority, and information regarding reciprocal access--the Commission preliminarily estimates that each such entity would expend 40 hours in connection with such request. As noted above, the Commission estimates that 21 domestic entities not encompassed in the proposed rule may seek access to the data. Accordingly, to the extent that 21 domestic entities were to request access (apart from the nine entities identified by statute or the proposed rule), the Commission estimates a total burden of 840 hours for these entities to prepare and submit requests for access. c. Systems Costs The Commission previously addressed the PRA costs associated with the Exchange Act's data access [[Page 55195]] requirement in 2010, when the Commission initially proposed rules to implement those data access requirements in conjunction with other rules to implement the duties applicable to security-based swap data repositories. At that time, based on discussions with market participants, the Commission estimated that a series of proposed rules to implement duties applicable to security-based swap data repositories--including the proposed data access rules as well as other rules regarding repository duties (e.g., proposed rules requiring repositories to accept and maintain data received from third parties, to calculate and maintain position information, and to provide direct electronic access to the Commission and its designees)--together would result in an average one-time start-up burden per repository of 42,000 hours and $10 million in information technology costs for establishing systems compliant with all of those requirements. The Commission further estimated the average per-repository ongoing annual costs of such systems to be 25,200 hours and $6 million.\120\ --------------------------------------------------------------------------- \120\ See SDR Proposing Release, 75 FR 77348-49. The Commission previously estimated, for PRA purposes, that ten persons may register with the Commission as security-based swap data repositories. See SDR Adopting Release, 80 FR 14521, 14523. Based on the estimate of ten respondents, the Commission estimated total one- time costs of 420,000 hours and $10 million, and total annual ongoing systems costs of 252,000 and $60 million. See SDR Proposing Release, 75 FR 77349. --------------------------------------------------------------------------- The Commission incorporated those same burden estimates earlier this year, when the Commission adopted final rules to implement the duties applicable to security-based swap data repositories, apart from the data access requirement.\121\ --------------------------------------------------------------------------- \121\ See SDR Adopting Release, 80 FR 14523. The Commission submitted the PRA burden associated with that release to OMB for approval, and the OMB has approved that collection of information. --------------------------------------------------------------------------- Subject to the connectivity issues addressed below, the Commission believes that the burden estimates associated with the 2010 proposed repository rules encompassed the costs and burdens associated with the proposed data access requirements in conjunction with other system- related requirements applicable to security-based swap dealers. To comply with those other system-related requirements--including in particular requirements that repositories provide direct electronic access to the Commission and its designees--we preliminarily believe that it is reasonable to expect that repositories may use the same systems as they would also use to comply with the data access requirements at issue here, particularly given that both types of access requirements would require repositories to provide security- based swap information to particular recipients subject to certain parameters.\122\ As a result, subject to per-recipient connectivity burdens addressed below, the Commission preliminarily believes that would be no additional burdens associated with information technology costs to implement the data access requirements of the proposed rule. --------------------------------------------------------------------------- \122\ The Commission also anticipates that repositories would use the same systems in connection with the Exchange Act data access requirements as they use in connection with the corresponding requirements under the CEA. --------------------------------------------------------------------------- The Commission also recognizes, however, that once the relevant systems have been set up, repositories may be expected to incur addition incremental burdens and costs associated with setting up access to security-based swap data consistent with the recipient's regulatory mandate or legal responsibility or authority.\123\ The Commission preliminarily believes that, for any particular recipient, security-based swap data repositories on average would incur a burden of 26 hours.\124\ As discussed below, based on the estimate that approximately 300 relevant authorities may make requests for data from security-based swap data repositories,\125\ the Commission preliminarily estimates that each repository would incur a one-time burden of 7,800 hours in connection with providing that connectivity.\126\ --------------------------------------------------------------------------- \123\ In addressing those burdens, the Commission expects that the MOUs or other arrangements that are used to satisfy the conditions of the indemnification exemption will set forth objective criteria that delimit the scope of a recipient's ability to access security-based swap data pursuant to the indemnification exemption. The Commission further expects that repositories would use those criteria to program their data systems to reflect the scope of the recipient's access to repository data. Absent such objective and programmable criteria, repositories would be expected to incur greater burdens to assess whether an authority's request satisfies the relevant conditions, particularly with regard to whether particular information relates to persons or activities within the entity's regulatory mandate or legal responsibility or authority. \124\ This estimate is based on the view that for each recipient requesting data, a repository would incur a 25 hour burden associated with programming or otherwise inputting the relevant parameters, encompassing 20 hours of programmer analyst time and five hours of senior programmer time. The estimate also encompasses one hour of attorney time in connection with each such recipient. \125\ See part VI.C.3.ii, infra. \126\ Across an estimated ten repositories, accordingly, the Commission estimates that repositories cumulatively would incur a one-time burden of 78,000 hours in connection with providing such connectivity. --------------------------------------------------------------------------- d. Providing Notification of Requests, and Associated Records Requirements Under the proposed rules, repositories would be required to inform the Commission when they receive the first request for security-based swap data from a particular entity.\127\ As discussed below, based on the estimate that approximately 300 relevant authorities may make requests for data from security-based swap data repositories, the Commission estimates that each repository would provide the Commission with actual notice approximately 300 times.\128\ Moreover, based on the estimate that ten persons may register with the Commission as security- based swap data repository, the Commission estimates that repositories in the aggregate would provide the Commission with actual notice a total of 3,000 times. The Commission preliminarily estimates that each such notice would take no more than one-half hour to make on average, leading to a cumulative estimate of 1,500 hours associated with the notice requirement. --------------------------------------------------------------------------- \127\ See proposed Exchange Act rule 13n-4(e) (further requiring the repository to maintain records of the initial and all subsequent requests). \128\ See part VI.C.3.a.ii, infra. --------------------------------------------------------------------------- The proposed rule further requires that repositories must maintain records of all information related to the initial and all subsequent requests for data access, including records of all instances of online or electronic access, and records of all data provided in connection with such access.\129\ The Commission estimates that there cumulatively may be 360,000 subsequent data requests or access per year across all security-based swap data repositories, for which repositories must maintain records as required by the proposed rule.\130\ Based on its experience with recordkeeping costs associated with security-based swaps generally, the Commission preliminarily estimates that for each repository this requirement would create an initial burden of roughly 360 hours, and an annualized burden of roughly 280 hours and $40,000 in information technology costs.\131\ --------------------------------------------------------------------------- \129\ See proposed Exchange Act rule 13n-4(e). \130\ See part VI.C.3.a.ii, infra. \131\ Across an estimated ten repositories, accordingly, the Commission preliminarily estimates that repositories cumulatively will incur an initial burden of roughly 3,600 hours in information technology costs, and an annualized burden of roughly 2,800 hours and $400,000 in information technology costs. --------------------------------------------------------------------------- 2. Confidentiality Condition The Commission preliminarily does not believe that the confidentiality provision of the proposal would be [[Page 55196]] associated with collections of information that would result in a reporting or recordkeeping burden for security-based swap data repositories. This is because, under the proposal, the confidentiality condition would be satisfied by an MOU or other arrangement between the Commission and the recipient entity (i.e., another regulatory authority) addressing confidentiality. We preliminarily expect that in practice that the condition will be addressed by MOUs or other arrangements entered into by the Commission, and that repositories accordingly would not be involved in the drafting or negotiation of confidentiality agreements. As discussed above, moreover, the confidentiality provision would be expected to impose burdens on authorities that seek to access data pursuant to these provisions, as a result of the need to negotiate confidentiality MOUs or other arrangements.\132\ --------------------------------------------------------------------------- \132\ See part V.D.1.a, supra. --------------------------------------------------------------------------- E. Collection of Information Is Mandatory The conditional data access requirements of Exchange Act sections 13(n)(5)(G) and (H) and the underlying rules are mandatory for all security-based swap data repositories. The confidentiality condition is mandatory for all entities that seek access to data under those requirements. Also, the conditions to the indemnification exemption are mandatory to entities that seek to rely on the exemption, which the Commission believes will be all entities that seek data pursuant to these requirements. F. Confidentiality The Commission will make public requests for a determination that an authority is appropriate to conditionally access security-based swap data, as well as Commission determinations issued in response to such requests. The Commission preliminarily expects that it will make publicly available the MOUs or other arrangements with the Commission used to satisfy the confidentiality and indemnification conditions. Initial notices of requests for access provided to the Commission by repositories will be kept confidential, subject to the provisions of applicable law. To the extent that the Commission obtains subsequent requests for access that would be required to be maintained by the repositories, the Commission also will keep those records confidential, subject to the provisions of applicable law. G. Request for Comment We request comment on our approach and the accuracy of the current estimates. Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits comments to: (1) Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) evaluate the accuracy of the Commission's estimate of burden of the collection of information; (3) determine whether there are ways to enhance the quality, utility and clarity of the information to be collected; and (4) evaluate whether there are ways to minimize the burden of the collection of information on those who are required to respond, including through the use of automated collection techniques or other forms of information technology. In this regard, the Commission particularly requests comment regarding the systems-related costs associated with these data access requirements. Among other things, commenters are invited to address the burdens associated with establishing and programming systems to provide regulators and other authorities with connectivity to repository data systems, including whether such costs would be incremental to the systems-related costs associated with the existing rule requiring that repositories provide direct electronic access to the Commission and its designees, and whether such systems-related costs would encompass capacity-related elements linked to the total number of regulators and other authorities that access repositories pursuant to these data access provisions. Commenters also are invited to address the estimated burdens associated with the requirement that repositories maintain records in connection with the notification requirement. The Commission further requests comment regarding the burdens associated with the negotiation of MOUs or other arrangements between the Commission and other authorities, including the average time required for those regulators to negotiate such MOUs or other arrangements, and whether those other authorities may incur costs to retain outside counsel in connection with such negotiations. Persons submitting comments on the collection of information requirements should direct the comments to the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a copy to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090, with reference to File No. S7-___. Requests for materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. S7-___, and be submitted to the Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549-2736. OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this release. Consequently, a comment to OMB is assured of having its full effect if OMB receives it within 30 days of publication. VI. Economic Analysis As discussed above, the Commission is proposing rules to implement data access requirements for relevant authorities other than the Commission that the Dodd-Frank Act imposes on security-based swap repositories, and to provide an exemption from the associated indemnification requirement. To carry out their regulatory mandate, or legal responsibility or authority, certain relevant entities other than the Commission may periodically need access to security-based swap data collected and maintained by SEC-registered security-based swap data repositories, and the proposed rules are intended to facilitate such access. The Commission is sensitive to the economic effects of its rules, including the costs and benefits and the effects of its rules on efficiency, competition, and capital formation. Section 3(f) \133\ of the Exchange Act requires the Commission, whenever it engages in rulemaking pursuant to the Exchange Act, to consider or determine whether an action is necessary or appropriate in the public interest, and to consider, in addition to the protection of investors, whether the action would promote efficiency, competition, and capital formation. In addition, section 23(a)(2) \134\ of the Exchange Act requires the Commission, when promulgating rules under the Exchange Act, to consider the impact such rules would have on competition. Exchange Act section 23(a)(2) also provides that the Commission shall not adopt any rule which would impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. --------------------------------------------------------------------------- \133\ 15 U.S.C. 78c(f). \134\ 15 U.S.C. 78w(a)(2). --------------------------------------------------------------------------- [[Page 55197]] A. Economic Considerations 1. Title VII Transparency Framework The security-based swap market prior to the passage of the Dodd- Frank Act has been described as being opaque, in part because transaction-level data were not widely available to market participants or to regulators.\135\ To increase the transparency of the over-the- counter derivatives market to both market participants and regulatory authorities, Title VII requires the Commission to undertake a number of rulemakings, including rules the Commission adopted earlier this year to address the registration process, duties and core principles applicable to security-based swap data repositories,\136\ and to address regulatory reporting and public dissemination of security-based swap information.\137\ Among other matters, those rules address market transparency by requiring security-based swap data repositories, absent an exemption, to collect and maintain accurate security-based swap transaction data, and address regulatory transparency by requiring security-based swap data repositories to provide the Commission with direct electronic access to such data.\138\ --------------------------------------------------------------------------- \135\ With respect to one type of security-based swap, credit default swaps (``CDSs''), the Government Accountability Office found that ``comprehensive and consistent data on the overall market have not been readily available,'' ``authoritative information about the actual size of the [CDS] market is generally not available'' and regulators currently are unable ``to monitor activities across the market.'' Government Accountability Office, GAO-09-397T, Systemic Risk: Regulatory Oversight and Recent Initiatives to Address Risk Posed by Credit Default Swaps, at 2, 5, 27, (2009) available at: http://www.gao.gov/new.items/d09397t.pdf; see also Robert E. Litan, The Derivatives Dealers' Club and Derivatives Market Reform: A Guide for Policy Makers, Citizens and Other Interested Parties, Brookings Institution (Apr. 7, 2010), http://www.brookings.edu/~/media/ research/files/papers/2010/4/07%20derivatives%20litan/ 0407_derivatives_litan.pdf; Michael Mackenzie, Era of an Opaque Swaps Market Ends, Financial Times, June 25, 2010, available at: http://www.ft.com/intl/cms/s/0/f49f635c-8081-11df-be5a-00144feabdc0.html#axzz3HLUjYNI7. \136\ See SDR Adopting Release, note 13, supra. \137\ See Regulation SBSR Adopting Release. \138\ See Exchange Act rule 13n-5 (requiring repositories to comply with data collection and data maintenance standards related to transaction and position data); Exchange Act rule 13n-4(b)(5) (requiring repositories to provide direct electronic access to the Commission and its designees). --------------------------------------------------------------------------- Consistent with the goal of increasing transparency to regulators, the data access provisions at issue here set forth a framework for security-based swap data repositories to provide access to security- based swap data to relevant authorities other than the Commission. The proposed rules would implement that framework for repositories to provide data access to other relevant entities in order to fulfill their regulatory mandate, or legal responsibility or authority. 2. Transparency in the Market for Security-Based Swaps The proposed data access rules and indemnification exemption, in conjunction with the transparency-related requirements generally applicable to security-based swap data repositories, are designed to, among other things, make available to the Commission and other relevant authorities data that will provide a broad view of the security-based swap market and help monitor for pockets of risk and potential market abuses that might not otherwise be observed by those authorities.\139\ Unlike most other securities transactions, security-based swaps involve ongoing financial obligations between counterparties during the life of transactions that typically span several years. Counterparties to a security-based swap rely on each other's creditworthiness and bear this credit risk and market risk until the security-based swap terminates or expires. This can lead to market instability when a large market participant, such as a security-based swap dealer, major security-based swap market participant, or central counterparty (``CCP'') becomes financially distressed. The default of a large market participant could introduce the potential for sequential counterparty failure; the resulting uncertainty could reduce the willingness of market participants to extend credit, and substantially reduce liquidity and valuations for particular types of financial instruments.\140\ --------------------------------------------------------------------------- \139\ See, e.g., Exchange Act section 13(n)(5)(D), 15 U.S.C. 78m(n)(5)(D), and rule 13n-4(b)(5) (requiring SDRs to provide direct electronic access to the Commission). See also 156 Cong. Rec. S5920 (daily ed. July 15, 2010) (statement of Sen. Lincoln) (``These new `data repositories' will be required to register with the CFTC and the SEC and be subject to the statutory duties and core principles which will assist the CFTC and the SEC in their oversight and market regulation responsibilities.''). \140\ See, e.g., Markus K. Brunnermeier and Lasse Heje Pedersen, Market Liquidity and Funding Liquidity, 22 Review of Financial Studies 2201 (2009); Denis Gromb and Dimitri Vayanos, A Model of Financial Market Liquidity Based on Intermediary Capital, 8 Journal of the European Economic Association 456 (2010). --------------------------------------------------------------------------- A broad view of the security-based swap market, including information regarding aggregate market exposures to particular reference entities (or securities), positions taken by individual entities or groups, and data elements necessary to determine the market value of the transaction, may be expected to provide the Commission and other relevant authorities with a better understanding of the actual and potential risks in the market and promote better risk monitoring efforts. The information provided by security-based swap data repositories also may be expected to help the Commission and other relevant authorities investigate market manipulation, fraud and other market abuses. 3. Global Nature of the Security-Based Swap Market As highlighted in more detail in the Economic Baseline below, the security-based swap market is a global market. Based on market data in the Depository Trust and Clearing Corporation's Trade Information Warehouse (``DTCC-TIW''), the Commission estimates that only 12 percent of the global transaction volume that involves either a U.S.-domiciled counterparty or a U.S-domiciled reference entity (as measured by gross notional) between 2008 and 2014 was between two U.S.-domiciled counterparties, compared to 48 percent entered into between one U.S.- domiciled counterparty and a foreign-domiciled counterparty and 40 percent entered into between two foreign-domiciled counterparties.\141\ --------------------------------------------------------------------------- \141\ The data the Commission receives from the DTCC-TIW does not include transactions between two non-U.S. domiciled counterparties that reference a non-U.S. entity or security. This is approximately 19 percent of global transaction volume. See note 152, infra. Therefore, factoring in these transactions, approximately 10 percent of global transaction volume involves two U.S.-domiciled counterparties, 39 percent involve one U.S.-domiciled counterparty and one foreign counterparty, and 51 percent are between two foreign-domiciled counterparties. --------------------------------------------------------------------------- In light of the security-based swap market's global nature there is the possibility that regulatory data may be fragmented across jurisdictions, particularly because a large fraction of transaction volume includes at least one counterparty that is not a U.S. person \142\ and the applicable U.S. regulatory reporting rules depend on the U.S. person status of the counterparties.\143\ As discussed further below, [[Page 55198]] fragmentation of data can increase the difficulty in consolidating and interpreting security-based swap market data from repositories, potentially reducing the general economic benefits derived from transparency of the security-based swap market to regulators. Absent a framework for the cross-border sharing of data reported pursuant to regulatory requirements in various jurisdictions, the relevant authorities responsible for monitoring the security-based swap market may not be able to access data consistent with their regulatory mandate, or legal responsibility or authority. --------------------------------------------------------------------------- \142\ This statement is based on staff analysis of voluntary CDS transaction data reported to the DTCC-TIW, which includes self- reported counterparty domicile. See note 161, infra. The Commission notes that the DTCC-TIW entity domicile may not be completely consistent with the Commission's definition of ``U.S. person'' in all cases but preliminarily believes that these two characteristics have a high correlation. \143\ See Regulation SBSR rule 908(a) (generally requiring regulatory reporting and public dissemination when at least one direct or indirect counterparty is a U.S. person). Note that current voluntary reporting considers the self-reported domicile of the counterparty but the recently adopted SBSR rules consider the counterparty's status as a U.S. person. --------------------------------------------------------------------------- 4. Economic Purposes of the Rulemaking The proposed data access requirements and indemnification exemption are designed to increase the quality and quantity of transaction and position information available to relevant authorities about the security-based swap market while helping to maintain the confidentiality of that information. The increased availability of security-based swap information may be expected to help relevant authorities act in accordance with their regulatory mandate, or legal responsibility or authority, and to respond to market developments. Moreover, by facilitating access to security-based swap data for relevant authorities, including non-U.S. authorities designated by the Commission, the Commission anticipates an increased likelihood that the Commission itself will have commensurate access to security-based swap data stored in trade repositories located in foreign jurisdictions.\144\ This may be particularly important in identifying transactions in which the Commission has a regulatory interest (e.g., transactions involving a U.S. reference entity or security) but may not have been reported to a registered security-based swap data repository due to the transactions occurring outside of the U.S. between two non- U.S. persons.\145\ This should assist the Commission in fulfilling its regulatory mandate and legal responsibility and authority, including by facilitating the Commission's ability to detect and investigate market manipulation, fraud and other market abuses, by providing the Commission with greater access to security-based swap information than that provided under the current voluntary reporting regime.\146\ --------------------------------------------------------------------------- \144\ As discussed above, for example, EU law conditions the ability of non-EU authorities to access data from EU repositories on EU authorities having ``immediate and continuous'' access to the information they need. See note 94, supra, and accompanying text. Also, as discussed above, the Commission anticipates considering whether or not the relevant authority requesting access agrees to provide the Commission and other U.S. authorities with reciprocal assistance in matters within their jurisdiction when making a determination as to whether the requesting authority shall be granted access to security-based swap data held in registered SDRs. See part II.A.3(a) supra. \145\ For example, it is possible to replicate the economic exposure of either a long or short position in a debt security that trades in U.S. markets by trading in U.S. treasury securities and credit default swaps that reference the debt security. Transactions between two non-U.S. persons on a U.S. reference entity supervised by the Commission or novations between two non-U.S. persons that reduce exposure to a U.S. registrant may provide information to the Commission about the market's views concerning the financial stability or creditworthiness of the registered entity. \146\ See part VI.B, supra, for a description of the data the Commission receives from DTCC-TIW under the current voluntary reporting regime. --------------------------------------------------------------------------- Such data access may be especially critical during times of market turmoil, by giving the Commission and other relevant authorities information to examine risk exposures incurred by individual entities or in connection with particular reference entities. Increasing the available data about the security-based swap market should further give the Commission and other relevant authorities better insight into how regulations are affecting or may affect the market, which may allow the Commission and other regulators to better craft regulations to achieve desired goals, and therefore increase regulatory effectiveness. B. Baseline To assess the economic impact of the proposed data access rules and indemnification exemption, the Commission is using as a baseline the security-based swap market as it exists today, including applicable rules that have already been adopted and excluding rules that have been proposed but not yet finalized. Thus we include in the baseline the rules that the Commission adopted earlier this year to govern the registration process, duties and core principles applicable to security-based swap data repositories, and to govern regulatory reporting and public dissemination of security-based swap transactions. Because those rules were adopted only recently, there are not yet any registered swap data repositories, and the Commission does not yet have access to regulatory reporting data. Hence, our characterization of the economic baseline, including the quantity and quality of security-based swap data available to the Commission and other relevant authorities and the extent to which data are fragmented, considers the anticipated effects of the final SDR rules and Regulation SBSR. The Commission acknowledges limitations in the degree to which it can quantitatively characterize the current state of the security-based swap market. As described in more detail below, because the available data on security-based swap transactions do not cover the entire market, the Commission has developed an understanding of market activity using a sample that includes only certain portions of the market. 1. Regulatory Transparency in the Security-Based Swap Market There currently is no robust, widely accessible source of information about individual security-based swap transactions. In 2006, a group of major dealers expressed their commitment in support of DTCC's initiative to create a central trade industry warehouse for credit derivatives.\147\ Moreover, in 2009, the leaders of the G20-- whose members include the United States, 18 other countries, and the European Union--called for global improvements in the functioning, transparency, and regulatory oversight of over-the-counter (``OTC'') derivatives markets and agreed, among other things, that OTC derivatives contracts should be reported to trade repositories.\148\ A single repository, the DTCC-TIW, makes the data reported to it under the voluntary reporting regime available to the Commission and other relevant authorities in accordance with the agreement between DTCC-TIW and the OTC Derivatives Regulatory Forum (``ODRF''), of which the Commission is a member.\149\ Although many jurisdictions have implemented rules concerning reporting of security-based swaps to trade repositories,\150\ the Commission understands that many market participants continue to report voluntarily to the DTCC-TIW. --------------------------------------------------------------------------- \147\ See Letter to Timothy Geithner, President, Federal Reserve Bank of New York, Mar. 10, 2006, available at: http://www.newyorkfed.org/newsevents/news/markets/2006/industryletter2.pdf. \148\ See G20 Leaders Statement from the 2009 Pittsburgh Summit, available at: http://www.g20.utoronto.ca/2009/2009communique0925.html. \149\ See note 71, supra. \150\ See Eighth Progress Report on Implementation of OTC Derivatives Market Reforms (Nov. 2014), available at: http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf. --------------------------------------------------------------------------- The data that the Commission receives from DTCC-TIW do not encompass CDS transactions that both: (i) Do not involve any U.S. counterparty, and (ii) are not based on a U.S. reference entity.\151\ Based on a comparison of [[Page 55199]] weekly transaction volume publicly disseminated by DTCC-TIW with data provided to the Commission under the voluntary arrangement, we estimate that the transaction data provided to the Commission covers approximately 77 percent of the global single-name credit default swap market.\152\ --------------------------------------------------------------------------- \151\ The Commission notes that the identification of entity domicile in the voluntary data reported to DTCC-TIW may not be consistent with the Commission's definition of ``U.S. person'' in all cases. \152\ In 2014, DTCC-TIW reported on its Web site new trades in single-name CDSs with gross notional of $15.4 trillion. During the same period, data provided to the Commission by DTCC-TIW, which include only transactions with a U.S. counterparty or transactions written on a U.S. reference entity or security, included new trades with gross notional equaling $12.4 trillion, or 81% of the total reported by DTCC-TIW. --------------------------------------------------------------------------- While DTCC-TIW generally provides detailed data on positions and transactions to regulators that are members of the ODRF, DTCC-TIW makes only summary information available to the public.\153\ --------------------------------------------------------------------------- \153\ The DTCC-TIW publishes weekly transaction and position reports for single-name credit default swaps. In addition, ICE Clear Credit provides aggregated volumes of clearing activity, and large multilateral organizations periodically further report measures of market activity. For example, the Bank for International Settlements (``BIS'') reports gross notional outstanding for single-name credit default swaps and equity forwards and swaps semiannually. --------------------------------------------------------------------------- 2. Current Security-Based Swap Market The Commission's analysis of the current state of the security- based swap market is based on data obtained from DTCC-TIW, particularly data regarding the activity of market participants for single-name credit-default swaps from 2008 to 2014. While other repositories also may collect data on transactions in total return swaps on equity and debt, the Commission does not currently have access to such data for those products (or for other products that are security-based swaps). Although the definition of ``security-based swap'' is not limited to single-name credit-default swaps, the Commission believes that the single-name credit default swap data are sufficiently representative of the security-based swap market and therefore can directly inform the analysis of the state of the current security-based swap market.\154\ The Commission believes that DTCC-TIW's data for single-name credit default swaps appear reasonably comprehensive because they include data on almost all single-name credit default swap transactions and market participants trading in single-name credit default swaps.\155\ --------------------------------------------------------------------------- \154\ According to data published by BIS, the global notional amount outstanding in equity forwards and swaps as of December 2014 was $2.50 trillion. The notional amount outstanding was approximately $9.04 trillion for single-name CDSs, approximately $6.75 trillion for multi-name index CDSs, and approximately $0.61 trillion for multi-name, non-index CDSs. See Bank of International Settlement, BIS Quarterly Review, Statistical Annex, Table 19 (June 2015), available at: http://www.bis.org/publ/qtrpdf/r_qt1506.htm. For purposes of this analysis, the Commission assumes that multi- name index CDSs are not narrow-based security index CDSs, and therefore do not fall within the definition of security-based swap. See Exchange Act section 3(a)(68)(A), 15 U.S.C. 78c(a)(68)(A); see also Further Definition of ``Swap,'' ``Security-Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48207 (Aug. 13, 2012). The Commission also assumes that instruments reported as equity forwards and swaps include instruments such as total return swaps on individual equities that fall with the definition of security-based swap. Based on these assumptions, single-name CDS appear to constitute roughly 80 percent of the security-based swap market. Although the BIS data reflects the global OTC derivatives market, and not only the U.S. market, the Commission is not aware of any reason to believe that these ratios differ significantly in the U.S. market. \155\ See ISDA, CDS Marketplace, Exposures & Activity, available at: http://www.isdacdsmarketplace.com/exposures_and_activity (``DTCC Deriv/SERV's Trade Information Warehouse is the only comprehensive trade repository and post-trade processing infrastructure for OTC credit derivatives in the world. Its Deriv/SERV matching and confirmation service electronically matches and confirms more than 98% of credit default swaps transactions globally.''). --------------------------------------------------------------------------- Based on this information, our analysis below indicates that the current security-based swap market: (i) Is global in scope, and (ii) is concentrated among a small number of dealing entities. Although under the voluntary reporting regime discussed above there was a single repository, as various jurisdictions have implemented mandatory reporting rules in their jurisdictions the number of trade repositories holding security-based swap data has grown.\156\ --------------------------------------------------------------------------- \156\ See, for example, the list of trade repositories registered by ESMA, available at: http://www.esma.europa.eu/content/List-registered-Trade-Repositories. As of May 28, 2015, there were six repositories registered by ESMA, all of which are authorized to receive data on credit derivatives. --------------------------------------------------------------------------- a. Security-Based Swap Market Participants A key characteristic of security-based swap activity is that it is concentrated among a relatively small number of entities that engage in dealing activities.\157\ Based on the Commission's analysis of DTCC-TIW data, there were 1,879 entities engaged directly in trading credit default swaps between November 2006 and December 2014.\158\ Table 1 below highlights that of these entities, there were 17, or approximately 0.9 percent, that were ISDA-recognized dealers.\159\ ISDA-recognized dealers executed the vast majority of transactions (82.6 percent) measured by the number of counterparties (each transaction has two counterparties or transaction sides). Many of these dealers are regulated by entities other than, or in addition to, the Commission. In addition, thousands of other market participants appear as counterparties to security-based swap transactions, including, but not limited to, investment companies, pension funds, private (hedge) funds, sovereign entities, and non-financial companies. --------------------------------------------------------------------------- \157\ See Exchange Act Release No.72472 (Jun. 25, 2014), 79 FR 47278, 47293 (Aug. 12, 2014) (``Cross-Border Definitions Adopting Release''). All data in this section cites updated data from that release and its accompanying discussion. \158\ These 1,879 transacting agents represent over 10,000 accounts representing principal risk holders. See Cross-Border Definitions Adopting Release, 79 FR 47293-94 (discussing the number of transacting agents and accounts of principal risk holders). As noted above, the data provided to the Commission by the DTCC- TIW only includes transactions that either include at least one U.S.-domiciled counterparty or reference a U.S. entity or security. Therefore, any entity that is not domiciled in the U.S., never trades with a U.S.-domiciled entity and never buys or sells protection on a U.S. reference entity or security would not be included in this analysis. \159\ For the purpose of this analysis, the ISDA-recognized dealers are those identified by ISDA as a recognized dealer in any year during the relevant period. Dealers are only included in the ISDA-recognized dealer category during the calendar year in which they are so identified. The complete list of ISDA recognized dealers is: JP Morgan Chase NA (and Bear Stearns), Morgan Stanley, Bank of America NA (and Merrill Lynch), Goldman Sachs, Deutsche Bank AG, Barclays Capital, Citigroup, UBS, Credit Suisse AG, RBS Group, BNP Paribas, HSBC Bank, Lehman Brothers, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, Credit Agricole, Wells Fargo, and Nomura. See ISDA, Operations Benchmarking Surveys, available at: http://www2.isda.org/functional-areas/research/surveys/operations-benchmarking-surveys. [[Page 55200]] Table 1--The Number of Transacting Agents in the Single-Name CDS Market by Counterparty Type and the Fraction of Total Trading Activity, From November 2006 Through December 2014, Represented by Each Counterparty Type ---------------------------------------------------------------------------------------------------------------- Transaction Transacting agents Number Percent share (percent) ---------------------------------------------------------------------------------------------------------------- Investment Advisers........................................... 1,419 75.5 10.9 SEC registered............................................ 572 30.4 6.9 Banks......................................................... 260 13.8 5.0 Pension Funds................................................. 29 1.5 0.1 Insurance Companies........................................... 38 2.0 0.3 ISDA-Recognized Dealers \160\................................. 17 0.9 82.6 Other......................................................... 116 6.2 1.2 ------------------------------------------------- Total..................................................... 1,879 100 100 ---------------------------------------------------------------------------------------------------------------- Although the security-based swap market is global in nature, approximately 60 percent of the transaction volume in the 2008-2014 period included at least one U.S.-domiciled entity (see Figure 1). Moreover, 48 percent of the single-name CDS transactions reflected in DTCC-TIW data that include at least one U.S.-domiciled counterparty or a U.S. reference entity or security were between U.S.-domiciled entities and foreign-domiciled counterparties. --------------------------------------------------------------------------- \160\ For the purpose of this analysis, the ISDA-recognized dealers are those identified by ISDA as belonging to the G14 or G16 dealer group during the period: JP Morgan Chase NA (and Bear Stearns), Morgan Stanley, Bank of America NA (and Merrill Lynch), Goldman Sachs, Deutsche Bank AG, Barclays Capital, Citigroup, UBS, Credit Suisse AG, RBS Group, BNP Paribas, HSBC Bank, Lehman Brothers, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, Credit Agricole, Wells Fargo and Nomura. See, e.g., http://www.isda.org/c_and_a/pdf/ISDA-Operations-Survey-2010.pdf. [GRAPHIC] [TIFF OMITTED] TP14SE15.000 The fraction of new accounts with transaction activity that are domiciled in the U.S. fell through the 2008-2014 period. Figure 2 below is a chart of: (1) The percentage of new accounts with a domicile in the United States,\161\ (2) the [[Page 55201]] percentage of new accounts with a domicile outside the United States, and (3) the percentage of new accounts that are domiciled outside the United States but managed by a U.S. entity, foreign accounts that include new accounts of a foreign branch of a U.S. bank, and new accounts of a foreign subsidiary of a U.S. entity. Over time, a greater share of accounts entering the DTCC-TIW data either have had a foreign domicile or have had a foreign domicile while being managed by a U.S. person. The increase in foreign accounts may reflect an increase in participation by foreign accountholders, and the increase in foreign accounts managed by U.S. persons may reflect the flexibility with which market participants can restructure their market participation in response to regulatory intervention, competitive pressures and other factors. There are, however, alternative explanations for the shifts in new account domicile in Figure 2. Changes in the domicile of new accounts through time may reflect improvements in reporting by market participants to DTCC-TIW. Additionally, because the data include only accounts that are domiciled in the United States, transact with U.S.- domiciled counterparties or transact in single-name CDSs with U.S. reference entities or securities, changes in the domicile of new accounts may reflect increased transaction activity between U.S. and non-U.S. counterparties. --------------------------------------------------------------------------- \161\ The domicile classifications in DTCC-TIW are based on the market participants' own reporting and have not been verified by Commission staff. Prior to enactment of the Dodd-Frank Act, account holders did not formally report their domicile to DTCC-TIW because there was no systematic requirement to do so. After enactment of the Dodd-Frank Act, the DTCC-TIW has collected the registered office location of the account. This information is self-reported on a voluntary basis. It is possible that some market participants may misclassify their domicile status because the databases in DTCC-TIW do not assign a unique legal entity identifier to each separate entity. It is also possible that the domicile classifications may not correspond precisely to the definition of ``U.S. person'' under the rules defined in Exchange Act rule 3a71-3(a)(4), 17 CFR 240.3a71-3(a)(4). Notwithstanding these limitations, the Commission believes that the cross-border and foreign activity demonstrates the nature of the single-name CDS market. --------------------------------------------------------------------------- We note that cross-border rules related to regulatory reporting and public dissemination of security-based swap transactions depend on, among other things, the U.S. person status of the counterparties.\162\ The analyses behind Figures 1 and 2 show that the security-based swap market is global, with an increasing share of the market characterized by cross-border trade. --------------------------------------------------------------------------- \162\ See note 143, supra. \163\ Following publication of the Warehouse Trust Guidance on CDS data access, TIW surveyed market participants, asking for the physical address associated with each of their accounts (i.e., where the account is organized as a legal entity). This is designated the registered office location by TIW. When an account does not report a registered office location, we have assumed that the settlement country reported by the investment adviser or parent entity to the fund or account is the place of domicile. This treatment assumes that the registered office location reflects the place of domicile for the fund or account. [GRAPHIC] [TIFF OMITTED] TP14SE15.001 b. Security-Based Swap Data Repositories No security-based swap data repositories are currently registered with the Commission. The Commission is aware of one entity in the market (i.e., the DTCC-TIW) that has been accepting voluntary reports of single-name and index credit default swap transactions. In 2014, DTCC-TIW received approximately 4 million records of single-name credit default swap transactions, of which approximately 868,000 were price- forming transactions.\164\ --------------------------------------------------------------------------- \164\ Price-forming credit default swap transactions include all new transactions, assignments, modifications to increase the notional amounts of previously executed transactions and terminations of previously executed transactions. Transactions terminated or entered into in connection with a compression exercise, and expiration of contracts at maturity, are not considered price-forming and are therefore excluded, as are replacement trades and all bookkeeping-related trades. --------------------------------------------------------------------------- [[Page 55202]] The CFTC has provisionally registered four swap data repositories.\165\ These swap data repositories are: BSDR LLC, Chicago Mercantile Exchange Inc., DTCC Data Repository LLC, and ICE Trade Vault, LLC. The Commission believes that these entities will likely register with the Commission as security-based swap data repositories and that other persons may seek to register with both the CFTC and the Commission as swap data repositories and security-based swap data repositories, respectively.\166\ --------------------------------------------------------------------------- \165\ CFTC rule 49.3(b) provides for provisional registration of a swap data repository. 17 CFR 49.3(b). \166\ For the purpose of estimating PRA related costs, the number of swap data repositories is estimated to be as high as ten. See part V.C, supra. --------------------------------------------------------------------------- Efforts to regulate the swap and security-based swap markets are underway not only in the United States, but also abroad. Consistent with the call of the G20 leaders for global improvements in the functioning, transparency and regulatory oversight of OTC derivatives markets,\167\ substantial progress has been made in establishing the trade repository infrastructure to support the reporting of OTC derivatives transactions.\168\ Currently, multiple trade repositories operate, or are undergoing approval processes to do so, in a number of different jurisdictions.\169\ Combined with the fact that the requirements for trade reporting differ across jurisdictions, the result is that security-based swap data is fragmented across many locations, stored in a variety of formats, and subject to many different rules for authorities' access. The data in these trade repositories accordingly will need to be aggregated in various ways if authorities are to obtain a comprehensive and accurate view of the global OTC derivatives markets. --------------------------------------------------------------------------- \167\ See note 148, supra, and accompanying text. \168\ See Eighth Progress Report on Implementation of OTC Derivatives Market Reforms (Nov. 2014), available at: http://www.financialstabilityboard.org/wp-content/uploads/r_141107.pdf. \169\ Id. --------------------------------------------------------------------------- C. Economic Costs and Benefits, Including Impact on Efficiency, Competition, and Capital Formation As discussed above, the security-based swap market to date largely has developed as an opaque OTC market with limited dissemination of transaction-level price and volume information.\170\ Accordingly, the Commission envisions that registered security-based swap data repositories, by storing the security-based swap transaction and position data required to be reported to them by market participants, will become an essential part of the infrastructure of the market in part by providing the data to relevant authorities in accordance with their regulatory mandate, or legal responsibility or authority. --------------------------------------------------------------------------- \170\ See part VI.B.1, supra (addressing limited information currently available to market participants and regulators). --------------------------------------------------------------------------- In proposing these rules to implement the Exchange Act data access requirement and to provide a conditional exemption from the indemnification requirement, the Commission has attempted to balance different goals. On the one hand, the Commission preliminarily believes that the proposed rules will facilitate the sharing of information held by repositories with relevant authorities, which should assist those authorities in acting in accordance with their regulatory mandate, or legal responsibility or authority. At the same time, although regulatory access raises important issues regarding the confidentiality of the information, the Commission preliminarily believes that the proposed rules should appropriately reduce the risk of breaching the confidentiality of the data by providing for a reasonable assurance that confidentiality will be maintained before access is granted. Additionally, we note that the magnitude of the costs and benefits of the proposed rules depend in part on the type of access granted to relevant authorities. Ongoing, unrestricted direct electronic access by relevant authorities may be most beneficial in terms of facilitating efficient access to data necessary for those authorities to act in accordance with their regulatory mandate, or legal responsibility or authority, but at the cost of increasing the risk of improper disclosure of confidential information. Restricting each relevant authority's access to only that data consistent with that authority's regulatory mandate, or legal responsibility or authority reduces the quantity of data that could become subject to improper disclosure. On the other hand, restricting a relevant authority's access to data may make it more difficult for it to effectively act in accordance with its regulatory mandate or legal responsibility or authority. The potential economic effects stemming from the proposed rules can be grouped into several categories. In this section, we first discuss the general costs and benefits of the proposed rules, including the benefits of reducing data fragmentation, data duplication and enhancing regulatory oversight, as well as the risks associated with potential breaches of data confidentiality. Next, we discuss the effects of the rules on efficiency, competition and capital formation. Finally, we discuss specific costs and benefits linked to the proposed rules. 1. General Costs and Benefits As discussed above, the proposed rules would implement the statutory provisions that require a security-based swap data repository to disclose information to certain relevant authorities, conditional upon the authority agreeing to keep the information confidential and to indemnify the repository and the Commission for any expenses arising from litigation relating to the information provided. The proposal also would set forth a conditional exemption from the requirement that entities requesting data agree to provide indemnification. The exemption would be conditional on the requested information relating to a regulatory mandate and/or legal responsibility of the entity requesting the data, and on the entity entering into an MOU with the Commission addressing the confidentiality of the information provided and any other matters as determined by the Commission. a. Anticipated Benefits The proposed rules should facilitate access to security-based swap transaction and position data by entities that require such information to fulfill their regulatory mandate or legal responsibility or authority. Market participants accordingly should benefit from relevant domestic authorities other than the Commission having access to the data necessary to fulfill their responsibilities. In particular, such access could help promote stability in the security-based swap market particularly during periods of market turmoil,\171\ and thus could indirectly contribute to improved stability in related financial markets, including equity and bond markets.\172\ --------------------------------------------------------------------------- \171\ SDR Adopting Release, 80 FR 14531 (``Enhanced transparency could produce additional market-wide benefits by promoting stability in the [security-based swap] market, particularly during periods of market turmoil, and it should indirectly contribute to improved stability in related financial markets, including equity and bond markets.''). \172\ See Darrell Duffie, Ada Li, and Theo Lubke, Policy Perspectives of OTC Derivatives Market Infrastructure, Federal Reserve Bank of New York Staff Report No. 424 (Jan. 2010, as revised Mar. 2010), note 95, supra (``Transparency can have a calming influence on trading patterns at the onset of a potential financial crisis, and thus act as a source of market stability to a wider range of markets, including those for equities and bonds.''). --------------------------------------------------------------------------- [[Page 55203]] Moreover, as noted in part II.A(3)(a), the Commission anticipates, when making a determination concerning a relevant authority's access to security-based swap data, considering whether the relevant authority agrees to provide the Commission and other U.S. authorities with reciprocal assistance in matters within their jurisdiction. Allowing access to security-based swap data held by registered security-based swap data repositories by non-U.S. authorities may be expected to help facilitate the Commission's own ability to access data held by repositories outside the United States.\173\ Accordingly, to the extent the Commission obtains access, the proposed rules further may be expected to assist the Commission in fulfilling its regulatory responsibilities, including by detecting market manipulation, fraud and other market abuses by providing the Commission with greater access to global security-based swap information.\174\ --------------------------------------------------------------------------- \173\ See note 94, supra, and accompanying text. \174\ See SDR Adopting Release, 80 FR 14450 (``Requiring U.S. persons that perform the functions of an SDR to be operated in a manner consistent with the Title VII regulatory framework and subject to the Commission's oversight, among other things, helps ensure that relevant authorities are able to monitor the build-up and concentration of risk exposure in the [security-based swap] market, reduce operational risk in that market, and increase operational efficiency.''); id. at 14529 (``In conjunction with Regulation SBSR, the SDR Rules should assist the Commission in fulfilling its regulatory mandates and legal responsibilities such as detecting market manipulation, fraud, and other market abuses by providing it with greater access to [security-based swap] information than that provided under the voluntary reporting regime.''); see also DTCC comment (Nov. 15, 2010) at 1 (``A registered SDR should be able to provide (i) enforcement agents with necessary information on trading activity; (ii) regulatory agencies with counterparty-specific information about systemic risk based on trading activity; (iii) aggregate trade information for publication on market-wide activity; and (iv) a framework for real-time reporting from swap execution facilities and derivatives clearinghouses.''). --------------------------------------------------------------------------- The ability of other relevant authorities to access data held in trade repositories registered with the Commission, as well as the ability of the Commission to access data held in repositories registered with other regulators, may be especially crucial during times of market turmoil. Increased data sharing should provide the Commission and other relevant authorities more-complete information to monitor risk exposures taken by individual entities and exposures connected to particular reference entities, and should promote global stability through enhanced regulatory transparency. Security-based swap data repositories registered with the Commission are required to retain complete records of security-based swap transactions and maintain the integrity of those records.\175\ Based on discussions with other regulators, the Commission believes repositories registered with other authorities are likely to have comparable requirements. As a result, rules to facilitate regulatory access to those records in line with the recipient authorities' regulatory mandate, or legal responsibility or authority are designed to help position the Commission and other authorities to: detect market manipulation, fraud and other market abuses; monitor the financial responsibility and soundness of market participants; perform market surveillance and macroprudential supervision; resolve issues and positions after an institution fails; monitor compliance with relevant regulatory requirements; and respond to market turmoil.\176\ --------------------------------------------------------------------------- \175\ See SDR Adopting Release, 80 FR 14531 (``The SDR Requirements [Exchange Act section 13(n) and the rules and regulations thereunder], including requirements that SDRs register with the Commission, retain complete records of [security-based swap] transactions, maintain the integrity and confidentiality of those records, and disseminate appropriate information to the public are intended to help ensure that the data held by SDRs is reliable and that the SDRs provide information that contributes to the transparency of the [security-based swap] market while protecting the confidentiality of information provided by market participants.''); see also Exchange Act section 13(n)(5)(C), 15 U.S.C. 78m(n)(5)(c) (requiring SDRs to maintain security-based swap data)); Exchange Act rules 13n-5(b)(3) and (4) (requiring SDRs to establish, maintain, and enforce policies and procedures reasonably designed to ensure that transaction data and positions are accurate and to maintain the transaction data and positions for specified periods of time). \176\ See, e.g., SDR Proposing Release, 75 FR 77307, 77356, corrected at 76 FR 79320 (stating that the ``data maintained by an SDR may also assist regulators in (i) preventing market manipulation, fraud, and other market abuses; (ii) performing market surveillance, prudential supervision, and macroprudential (systemic risk) supervision; and (iii) resolving issues and positions after an institution fails,'' and further stating that ``increased transparency on where exposure to risk reside in financial markets . . . will allow regulators to monitor and act before the risks become systemically relevant. Therefore, SDRs will help achieve systemic risk monitoring.''); Cross-Border Proposing Release, 78 FR 31186- 31187 (discussing benefits of providing relevant foreign authorities with access to data maintained by SDRs). --------------------------------------------------------------------------- Additionally, improving the availability of data regarding the security-based swap market should give the Commission and other relevant authorities improved insight into how regulations are affecting, or may affect, the market. This may be expected to help increase regulatory effectiveness by allowing the Commission and other regulators to better craft regulation to achieve desired goals. In addition, the Commission believes that providing relevant foreign authorities with access to data maintained by repositories may help reduce costs to market participants by reducing the potential for duplicative security-based swap transaction reporting requirements in multiple jurisdictions.\177\ The Commission anticipates that relevant foreign authorities will likely impose their own reporting requirements on market participants within their jurisdictions.\178\ Given the global nature of the security-based swap market and the large number of cross-border transactions, the Commission recognizes that it is likely that such transactions may be subject to the reporting requirements of at least two jurisdictions.\179\ However, the Commission preliminarily believes that if relevant authorities are able to access security-based swap data in trade repositories outside their jurisdiction, such as repositories registered with the Commission, as needed, then relevant authorities may be more inclined to permit market participants involved in such transactions to fulfill their reporting requirements by reporting the transactions to a single trade repository.\180\ If market participants can report a transaction to a single trade repository rather than to separate trade repositories in each applicable [[Page 55204]] jurisdiction, their compliance costs may be reduced. Similarly, to the extent that security-based swap data repositories provide additional ancillary services,\181\ if market participants choose to make use of such services, they would likely find such services that make use of all of their data held in a single trade repository more useful than services that are applied only to a portion of that market participant's transactions. Ancillary services applied to only a portion of a participant's transactions could result if data were divided across multiple repositories as a result of regulations requiring participants to report data to separate trade repositories in each applicable jurisdiction. --------------------------------------------------------------------------- \177\ Cf. Cleary Gottlieb comment (Sept. 20, 2011) at 31 (the indemnification requirement ``could be a significant impediment to effective regulatory coordination, since non-U.S. regulators may establish parallel requirements for U.S. regulators to access swap data reported in their jurisdictions.''). \178\ For example, EU law requires that counterparties to derivatives contracts report the details of the contract to a trade repository, registered or recognized in accordance with EU law, no later than the working day following the conclusion, modification or termination of the contract. See EMIR art. 9; see also EC Delegated Regulation no. 148/2013 (regulatory technical standards implementing the reporting requirement). \179\ For example, as noted above, market data regarding single- name CDS transactions involving U.S.-domiciled counterparties and/or U.S.-domiciled reference entities indicates that 13 percent of such transactions involve two U.S.-domiciled counterparties, while 48 percent involve a U.S.-domiciled counterparty and a foreign- domiciled counterparty. See note 141, supra, and accompanying text. \180\ For example, EU law anticipates the possibility that market participants may be able to satisfy their EU reporting obligations by reporting to a trade repository established in a third country, so long as that repository has been recognized by the European Securities and Markets Authority. See EMIR art. 77; see also Regulation SBSR, rule 908(c) (providing that to the extent that the Commission has issued a substituted compliance order/ determination, compliance with Title VII regulatory reporting and public dissemination requirements may be satisfied by compliance with the comparable rules of a foreign jurisdiction). \181\ According to one commenter, ancillary services ``may include: asset servicing, confirmation, verification and affirmation facilities, collateral management, settlement, trade compression and netting services, valuation, pricing and reconciliation functionalities, position limits management, dispute resolution, counterparty identity verification and others.'' See MarkitSERV comment (Jan. 24, 2011) at 4 (comment in response to SDR Proposing Release). --------------------------------------------------------------------------- b. Anticipated Costs The Commission believes that although there are benefits to security-based swap data repositories providing access to relevant authorities to data maintained by the repositories, such access will likely involve certain costs and potential risks. For example, the Commission expects that repositories will maintain data that are proprietary and highly sensitive \182\ and that are subject to strict privacy requirements.\183\ Extending access to such data to anyone, including relevant authorities, increases the risk that the confidentiality of the data maintained by repositories may not be preserved.\184\ A relevant authority's inability to protect the confidentiality of data maintained by repositories could erode market participants' confidence in the integrity of the security-based swap market and increase the overall risks associated with trading.\185\ As we discuss below, this may ultimately lead to reduced trading activity and liquidity in the market, hindering price discovery and impeding the capital formation process.\186\ --------------------------------------------------------------------------- \182\ As the Commission noted in the SDR Proposing Release, such data could include information about a market participant's trades or its trading strategy; it may also include non-public personal information. SDR Proposing Release, 75 FR 77339. \183\ See Exchange Act section 13(n)(5)(F), 15 U.S.C. 78m(n)(5)(F) (requiring an SDR to maintain the privacy of security- based swap transaction information); Exchange Act rules 13n-4(b)(8) and 13n-9 (implementing Exchange Act section 13(n)(5)(F)). \184\ See, e.g., ESMA comment (Jam. 17, 2011) at 2 (noting that relevant authorities must ensure the confidentiality of security- based swap data provided to them). \185\ For example, should it become generally known by market participants that a particular dealer had taken a large position in order to facilitate a trade by a customer and was likely to take offsetting positions to reduce its exposure, other market participants may take positions in advance of the dealer attempting to take its offsetting positions. This ``front running'' of the dealer's trades would likely raise its trading costs. Should the dealer believe that its market exposure may become public before it has the opportunity to hedge, the price quote offered to its customer to establish the original position would reflect the increased hedging cost. \186\ See SDR Proposing Release, 75 FR 77307 (``Failure to maintain privacy of [SDR data] could lead to market abuse and subsequent loss of liquidity.''). --------------------------------------------------------------------------- To help mitigate these risks and potential costs to market participants, the Exchange Act and the proposed rules impose certain conditions on relevant authorities' access to data maintained by repositories.\187\ In part, the Exchange Act and the proposed rules limit the authorities that may access data maintained by a security- based swap data repository to a specific list of domestic authorities and other persons, including foreign authorities, determined by the Commission to be appropriate,\188\ and further require that a repository notify the Commission when the repository receives an authority's initial request for data maintained by the repository.\189\ Restricting access to security-based swap data available to relevant authorities should reduce the risk of unauthorized disclosure, misappropriation or misuse of security-based swap data because each relevant authority will only have access to information within its regulatory mandate, or legal responsibility or authority. --------------------------------------------------------------------------- \187\ Exchange Act section 13(n)(5)(G) and (H), 15 U.S.C. 78m(n)(5)(G) and (H); see also Exchange Act rules 13n-4(b)(9) (implementing Exchange Act sections 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G)) and (b)(10) (implementing Exchange Act section 13(n)(5)(H), 15 U.S.C. 78m(n)(5)(H)). \188\ As discussed above in part II.A.3(a), the Commission anticipates that such determinations may be conditioned, in part, by specifying the scope of a relevant authority's access to data, and may limit this access to reflect the relevant authority's regulatory mandate, or legal responsibility or authority. \189\ See Exchange Act section 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G); proposed Exchange Act rule 13n-4(b)(9). --------------------------------------------------------------------------- The proposed rules further require that, before a repository shares security-based swap information with a relevant authority, there must be an arrangement (in the form of a MOU or otherwise) between the Commission and the relevant authority that addresses the confidentiality of the security-based swap information provided, and under which the relevant authority agrees to indemnify the Commission and the repository for any expenses arising from litigation relating to the information provided.\190\ While the proposal also conditionally exempts the relevant authority requesting data from the indemnification requirement, it does so only if the requested information relates to a regulatory mandate or legal responsibility or authority of the entity requesting the data, and there is in effect an arrangement between the Commission and such relevant authority that addresses the confidentiality of the information provided.\191\ The arrangement should further reduce the likelihood of confidential trade or position data being inadvertently made public. --------------------------------------------------------------------------- \190\ See Exchange Act section 13(n)(5)(H), 15 U.S.C. 78m(n)(5)(H); proposed Exchange Act rule 13n-4(b)(10). \191\ See proposed Exchange Act rule 13n-4(d). --------------------------------------------------------------------------- Although the statutory indemnification requirement could provide a strong incentive for relevant authorities to take appropriate care in safeguarding data they might receive from a registered SDR, the Commission recognizes the significance of commenter concerns regarding the impact of requiring indemnification,\192\ and understands that certain authorities may be unable to agree to indemnify a data repository and the Commission. Therefore, the Commission preliminarily believes that the indemnification requirement could frustrate the purposes of the statutory requirement that repositories make available data to relevant authorities. The Commission preliminarily believes that the proposed approach appropriately balances confidentiality concerns associated with regulatory access with the benefits accruing to security-based swap market participants from increased regulatory transparency. --------------------------------------------------------------------------- \192\ See note 13, supra. --------------------------------------------------------------------------- 2. Effects on Efficiency, Competition and Capital Formation The rules described in this proposal are intended to facilitate access for relevant authorities to data stored in SEC-registered repositories and therefore affect such repositories, but do not directly affect security-based swap market participants. As discussed below, access by relevant authorities to security-based swap data could indirectly affect market participants through the benefits that accrue from the relevant authorities' improved ability to fulfill their regulatory mandate or legal responsibility or authority as well as the potential impact of disclosure of confidential data. [[Page 55205]] However, because the Commission preliminarily believes that its rules will condition access to security-based swap data on the agreement of the relevant authorities to protect the confidentiality of the data, the Commission expects these rules to have little effect on the structure or operations of the security-based swap market. Therefore, the Commission preliminarily believes that effects of the proposed rules on efficiency, competition and capital formation will be small.\193\ Nevertheless, there are some potential effects, particularly with respect to efficiency and capital formation, which flow from efficient collection and aggregation of security-based swap data. We describe these effects below. --------------------------------------------------------------------------- \193\ See part VI.C.1b above for a discussion of the potential impact on capital formation of inadequate data confidentiality protections. The Commission preliminarily believes that the proposed approach balances the need for data confidentiality and the need for regulatory transparency. --------------------------------------------------------------------------- In part VI.B of this release, the Commission describes the baseline used to evaluate the economic impact of the proposed rules, including the impact on efficiency, competition and capital formation. In particular, the Commission noted that the security-based swap data currently available from the DTCC-TIW is the result of a voluntary reporting system and access to that data is made consistent with guidelines published by the ODRF. Under the voluntary reporting regime, CDS transaction data involving counterparties and reference entities from most jurisdictions is reported to a single entity, the DTCC-TIW. The DTCC-TIW, using the ODRF guidelines, then allows relevant authorities, including the Commission, to obtain data necessary to carry out their respective authorities and responsibilities with respect to OTC derivatives and the regulated entities that use derivatives.\194\ As various regulators implement reporting rules within their jurisdictions, counterparties within those jurisdictions may or may not continue to report to the DTCC-TIW. As a result, the ability of the Commission and other relevant authorities to obtain the data required consistent with their regulatory mandate, or legal responsibility or authority, may require the ability to access data held in a trade repository outside of their own jurisdictions. That is, because the market is global and interconnected, effective regulatory monitoring of the security-based swap market may require regulators to have access to information on the global market, particularly during times of market turmoil. The proposed data access rule amendments and indemnification exemption should facilitate access of relevant authorities other than the Commission to security-based swap data held in repositories, and may indirectly facilitate Commission access to data held by trade repositories registered with regulators other than the Commission. To the extent that the proposed data access rules and indemnification exemption facilitate the ability of repositories to collect security- based swap information involving counterparties across multiple jurisdictions, there may be benefits in terms of efficient collection and aggregation of security-based swap data. --------------------------------------------------------------------------- \194\ See note 149, supra. --------------------------------------------------------------------------- To the extent that the proposed data access provisions and the indemnification exemption increase the quantity of transaction and position information available to regulatory authorities about the security-based swap market, the ability of the Commission and other relevant authorities to respond in an appropriate and timely manner to market developments could enhance investor protection through improved detection, and facilitating the investigation of fraud and other market abuses. Moreover, as noted above, we do not anticipate that the proposed rules would directly affect market participants, such enhancements in investor protections may decrease the risks and indirect costs of trading and could therefore encourage greater participation in the security-based swap market for a wider range of entities seeking to engage in a broad range of hedging and trading activities.\195\ While we believe that increased participation is a possible outcome of the Commission's transparency initiatives, including these proposed rules, relative to the level of participation in this market if these initiatives were not undertaken, we preliminarily believe that the benefits that flow from improved detection, facilitating the investigation of fraud and other market abuses, and more-efficient data aggregation are the more direct benefits of the rules. --------------------------------------------------------------------------- \195\ Indirect trading costs refer to costs other than direct transaction costs. Front running costs described above provide an example of indirect trading costs. In the context of investor protection, the risk of fraud represents a cost of trading in a market with few investor protections or safeguards. --------------------------------------------------------------------------- In addition, the improvement in the quantity of data available to regulatory authorities, including the Commission, should improve their ability to monitor concentrations of risk exposures and evaluate risks to financial stability and could promote the overall stability in the capital markets.\196\ --------------------------------------------------------------------------- \196\ See note 95, supra. --------------------------------------------------------------------------- Aside from the effects that the proposed data access rules may have on regulatory oversight and market participation, we expect the proposed rules potentially to affect how SDRs are structured. In particular, the proposed data access rules and indemnification exemption could reduce the potential for SDRs to be established along purely jurisdictional lines, with multiple repositories established in different countries or jurisdictions. That is, effective data sharing may reduce the need for repositories to be established along jurisdictional lines, reducing the likelihood that a single security- based swap transaction must be reported to multiple swap-data repositories. As noted previously by the Commission, due to high fixed costs and increasing economies of scale, the total cost of providing trade repository services to the market for security-based swaps may be lower if the total number of repositories is not increased due to a regulatory environment that results in trade repositories being established along jurisdictional lines.\197\ To the extent that the proposed rules result in fewer repositories that potentially compete across jurisdictional lines, cost savings realized by fewer repositories operating on a larger scale could result in reduced fees, with the subsequent cost to market participants to comply with reporting requirements being lower.\198\ --------------------------------------------------------------------------- \197\ See SDR Adopting Release, 80 FR 14533 (discussion of high fixed costs and increasing economies of scale in the provision of security-based swap data repository services); see also SDR Adopting Release, 80 FR 14479 (discussion of rule 13n-4(c)(1)(i), which requires each SDR to ensure that any dues, fees or other charges that it imposes, and any discounts or rebates that it offers, are fair and reasonable and not unreasonably discriminatory; particularly noting that ``[o]ne factor that the Commission has taken into consideration to evaluate the fairness and reasonableness of fees, particularly those of a monopolistic provider of a service, is the cost incurred to provide the service'').'' \198\ Alternatively, fewer repositories could result in those few repositories having the ability to take advantage of the reduced level of competition to charge higher prices. --------------------------------------------------------------------------- Furthermore, multiple security-based swap data repositories with duplication of reporting requirements for cross-border transactions increase data fragmentation and data duplication, both of which increase the potential for difficulties in data aggregation. To the extent that the proposed data access rule amendments and indemnification exemption facilitate the establishment of SDRs that accept transactions from multiple jurisdictions, there may be [[Page 55206]] benefits in terms of efficient collection and aggregation of security- based swap data. As discussed above, to the extent that the indemnification exemption allows relevant authorities to have better access to the data necessary to form a more complete picture of the security-based swap market--including information regarding risk exposures and asset valuations--the exemption should help the Commission and other relevant authorities perform their oversight functions in a more effective manner. However, while reducing the likelihood of having multiple SDRs established along jurisdictional lines would resolve many of the challenges involved in aggregating security-based swap data, there may be costs associated with having fewer repositories. In particular, the existence of multiple repositories may reduce operational risks, such as the risk that a catastrophic event or the failure of a repository leaves no registered repositories to which transactions can be reported, impeding the ability of the Commission and relevant authorities to obtain information about the security-based swap market. Finally, as we noted above, a relevant authority's inability to protect the privacy of data maintained by repositories could erode market participants' confidence in the integrity of the security-based swap market. More specifically, confidentiality breaches, including the risk that trading strategies may no longer be anonymous due to a breach, may increase the overall risks associated with trading or decrease the profits realized by certain traders. Increased risks or decreased profits may reduce incentives to participate in the security- based swap markets, which may lead to reduced trading activity and liquidity in the market. Depending on the extent of confidentiality breaches, as well as the extent to which such breaches lead to market exits, disclosures of confidential information could hinder price discovery and impede the capital formation process.\199\ --------------------------------------------------------------------------- \199\ See SDR Proposing Release, 75 FR 77307 (``Failure to maintain privacy of [SDR data] could lead to market abuse and subsequent loss of liquidity.''). --------------------------------------------------------------------------- 3. Additional Costs and Benefits of Specific Rules Apart from the general costs and benefits associated with the structure of the Exchange Act data access provisions and proposed implementing rules, certain discrete aspects of the proposed rules and related interpretation raise additional issues related to economic costs and benefits. a. Benefits i. Determination of Recipient Authorities The Commission is proposing an approach to determining whether an authority, other than those expressly identified in the Exchange Act and the implementing rules,\200\ should be provided access to data maintained by SDRs. The Commission believes that this proposed approach has the benefit of appropriately limiting relevant authorities' access to data maintained by repositories to protect the confidentiality of the data.\201\ The Commission expects that relevant authorities from a number of jurisdictions may seek to obtain a determination by the Commission that they may appropriately have access to repository data. Each of these jurisdictions may have a distinct approach to supervision, regulation or oversight of its financial markets or market participants and to the protection of proprietary and other confidential information. The Commission believes that the proposed factors--which among other things would consider whether an authority has an interest in access to security-based swap data based on the relevant authority's regulatory mandate or legal responsibility or authority, whether there is an MOU or other arrangement between the Commission and the relevant authority that addresses the confidentiality of the security-based swap data provided to the authority, and whether information accessed by the applicable authority would be subject to robust confidentiality safeguards \202\-- appropriately condition an authority's ability to access data on the confidentiality protections the authority will afford that data. This focus further would be strengthened by the Commission's ability to revoke its determination where necessary, including, for example, if a relevant authority fails to keep such data confidential.\203\ This approach should increase market participants' confidence that their confidential trade data will be protected, reducing perceived risks of transacting in security-based swaps. --------------------------------------------------------------------------- \200\ See part II.A for a discussion of specific authorities included in the implementing rules. \201\ See ESMA comment (Jan. 17, 2011) at 2 (noting that relevant authorities must ensure the confidentiality of security- based swap data provided to them). \202\ See part II.A.3.a, supra. \203\ See part II.A.4, supra. --------------------------------------------------------------------------- The Commission also believes that its proposed approach in determining the appropriate relevant authorities would reduce the potential for fragmentation and duplication of security-based swap data among trade repositories by facilitating mutual access to the data. Narrower approaches such as allowing regulatory access to security- based swap data only to those entities specifically identified in the Exchange Act \204\ may increase fragmentation and duplication, and hence increase the difficulty in consolidating and interpreting security-based swap market data from repositories, potentially reducing the general economic benefits discussed above. --------------------------------------------------------------------------- \204\ See Exchange Act section 3(a)(74), 15 U.S.C. 78c(a)(74). --------------------------------------------------------------------------- Furthermore, the Commission believes that its proposed approach in conditioning access to security-based swap data held in SDRs by requiring there to be in effect an arrangement between the Commission and the authority in the form of a MOU would promote the intended benefits of access by relevant authorities to data maintained by SDRs. Under the proposed approach, rather than requiring regulatory authorities to negotiate confidentiality agreements with multiple SDRs, a single MOU between the Commission and the relevant authority can serve as the confidentiality agreement that will satisfy the requirement for a written agreement stating that the relevant authority will abide by the confidentiality requirements described in section 24 of the Exchange Act relating to the security-based swap data. The Commission routinely negotiates MOUs or other arrangements with relevant authorities to secure mutual assistance or for other purposes, and the Commission preliminarily believes that the proposed approach is generally consistent with this practice. The Commission further preliminarily believes that negotiating a single such agreement with the Commission will be less costly for the authority requesting data than negotiating directly with each registered SDR and eliminate the need for each SDR to negotiate as many as 200 confidentiality agreements with requesting authorities. This approach would also avoid the difficulties that may be expected to accompany an approach that requires SDRs to enter into confidentiality agreements--particularly questions regarding the parameters of an adequate confidentiality agreement, and the presence of uneven and potentially inconsistent confidentiality protections across SDRs and recipient entities. [[Page 55207]] ii. Notification Requirement The Commission is proposing an approach by which SDRs may satisfy the notification requirement by notifying the Commission upon the initial request for security-based swap data by a relevant authority and maintaining records of the initial request and all subsequent requests.\205\ The Commission estimates that approximately 300 relevant authorities may make requests for data from security-based swap data repositories.\206\ Based on the Commission's experience in making requests for security-based swap data from trade repositories, the Commission estimates that each relevant authority will access security- based swap data held in SDRs using electronic access. Such access may be to satisfy a narrow request concerning a specific counterparty or reference entity or security, to create a summary statistic of trading activity or outstanding notional, or to satisfy a large request for detailed transaction and position data. Requests may occur as seldom as once per month if the relevant authority is downloading all data to which it has access in order to analyze it on its own systems, or may occur 100 or more times per month if multiple staff of the relevant authority are making specific electronic requests concerning particular counterparties or reference entities and associated positions or transactions. Therefore, under the Commission's proposed approach to notification requirement compliance, the Commission estimates based on staff experience that each repository would provide the Commission with actual notice as many as 300 times, and that repositories cumulatively would maintain records of as many as 360,000 subsequent data requests per year.\207\ The proposed rule would be expected to permit repositories to respond to requests for data by relevant authorities more promptly and at lower cost than if notification was required for each request for data access, while helping to preserve the Commission's ability to monitor whether the repository provides data to each relevant entity consistent with the applicable conditions. --------------------------------------------------------------------------- \205\ See proposed Exchange Act rule 13n-4(e). \206\ See proposed Exchange Act rule 13n-4(b)(9)(i)-(v) for a list of prudential regulators that may request data maintained by SDRs from SDRs. The Exchange Act also states that FSOC, the CFTC, and the Department of Justice may access security-based swap data. See parts II.A.1, 2, supra. The Commission also expects that certain self-regulatory organizations and registered futures associations may request security-based swap data from repositories. Therefore, the Commission estimates that up to approximately 30 relevant authorities in the United States may seek to access security-based swap data from repositories. The Commission preliminarily believes that most requests will come from authorities in G20 countries, and estimates that each of the G20 countries will also have no more and likely fewer than 30 relevant authorities that may request data from SDRs. Certain authorities from outside the G20 also may request data. Accounting for all of those entities, the Commission estimates that there will likely be a total of no more than 300 relevant domestic and foreign authorities that may request security-based swap data from repositories. \207\ The annual estimate of 360,000 is calculated based on 300 recipient entities each making 100 requests per month cumulatively across all repositories. The estimate of 100 requests per authority is based on staff experience with similar data requests in other contexts. --------------------------------------------------------------------------- The Commission's proposed rule would also simplify relevant authorities' direct access to security-based swap data needed in connection with their regulatory mandate or legal responsibility or authority, because repositories would not be required to provide the Commission with actual notice of every request prior to providing access to the requesting relevant authority. iii. Use of Confidentiality Agreements Between the Commission and Recipient Authorities The proposed rules in part would condition regulatory access on there being an arrangement between the Commission and the recipient entity, in the form of an MOU or otherwise, addressing the confidentiality of the security-based swap information made available to the recipient. The proposed rules add that those arrangements shall be deemed to satisfy the statutory requirement for a written confidentiality agreement.\208\ --------------------------------------------------------------------------- \208\ See proposed Exchange Act rule 13n-4(10)(i). --------------------------------------------------------------------------- As discussed above, the Commission preliminarily believes that this approach reflects an appropriate way to satisfy the interests associated with the confidentiality condition. The benefits associated with this approach include obviating the need for repositories to negotiate and enter into multiple confidentiality agreements, avoiding difficulties regarding the parameters of an adequate confidentiality agreement, and avoiding uneven and potentially inconsistent confidentiality protections. The proposed approach also would build upon the Commission's experience in negotiating such agreements.\209\ --------------------------------------------------------------------------- \209\ See part II.B.1, supra. --------------------------------------------------------------------------- iv. Indemnification Exemption The Commission also is proposing a conditional indemnification exemption, recognizing that application of the indemnification requirement could prevent some relevant domestic and foreign authorities from obtaining security-based swap information from repositories, because they cannot provide an indemnification agreement.\210\ Effectively prohibiting some authorities other than the Commission from obtaining access to security-based swap data maintained by repositories potentially would greatly reduce the market transparency to regulators provided by Title VII.\211\ Moreover, although relevant authorities could obtain security-based swap data from the Commission,\212\ repositories are likely to have systems in place and expertise that allows them to provide such data to relevant authorities quickly, and economic incentives to minimize their own cost of providing data. --------------------------------------------------------------------------- \210\ See part III.A, supra. \211\ See Proposing Release, 75 FR 77307 (describing expected benefits of SDRs, including the market transparency benefits of access by regulators); id. at 77356 (``The ability of the Commission and other regulators to monitor risk and detect fraudulent activity depends on having access to market data.''); see also part VI.B.1 of this release discussing transparency in the security-based swap market. \212\ See part IV.B, supra (discussing information sharing under Exchange Act sections 21 and 24); see also Proposing Release, 75 FR 77319. --------------------------------------------------------------------------- The Commission also preliminarily believes that the absence of an exemption to the indemnification requirement could increase the likelihood that foreign authorities would require duplicate reporting of cross-border transactions to repositories within the foreign jurisdiction. To the extent that relevant foreign authorities are effectively restricted in obtaining data maintained by SEC-registered repositories, the Commission's own ability to access security-based swap data may similarly be restricted.\213\ More generally, the resulting restrictions on regulatory access may likely lead to duplication and fragmentation of security-based swap data among trade repositories in multiple jurisdictions, which may increase other costs that relevant authorities may incur, including, for example, the difficulty of aggregating data across multiple repositories.\214\ --------------------------------------------------------------------------- \213\ See note 94, supra, and accompanying text. \214\ See Proposing Release, 75 FR 77358. The costs associated with aggregating the data of multiple repositories would likely be significantly higher under the circumstances described here, as different jurisdictions might impose different requirements regarding how data is to be reported and maintained. --------------------------------------------------------------------------- The Commission preliminarily believes that the proposed indemnification exemption further would be beneficial by mitigating the risks associated with permitting relevant [[Page 55208]] authorities to obtain access to data maintained by repositories. The exemption would be available only for requests that are consistent with each requesting authority's regulatory mandate, or legal responsibility or authority. The Commission preliminarily believes that these conditions would significantly reduce the confidentiality concerns relating to relevant authorities' access to data maintained by repositories.\215\ Limiting an authority's access to data to that relating to its mandate, or legal responsibility or authority would reduce the opportunity for improper disclosure of the data in part because such limits reduce the quantity of data that is subject to potential improper disclosure, and because an authority is likely to be familiar with the need to maintain the confidentiality of data that relates to its mandate or legal responsibility or authority. Further, the Commission will have an opportunity to evaluate the confidentiality protections provided by the relevant authority in the context of negotiations of an MOU or other arrangement.\216\ Should the Commission believe the relevant authority has failed to comply with the confidentiality provisions of the MOU, it may terminate access by revoking a determination by the Commission that the relevant entity was appropriate, or by terminating the MOU or other arrangement used to satisfy the confidentiality condition, or, as applicable, the indemnification exemption.\217\ --------------------------------------------------------------------------- \215\ See, e.g., ESMA comment (Jan. 17, 2011) at 2 (noting that relevant authorities must ensure the confidentiality of security- based swap data provided to them). \216\ For the indemnification exemption to apply to the requests of a particular requesting authority, the authority would be required to enter into an MOU or other arrangement with the Commission, which would enable the Commission to determine, prior to operation of the indemnification exemption, that the authority has a regulatory mandate, or legal responsibility or authority to access data maintained by SDRs, that the authority agrees to protect the confidentiality of any security-based swap information provided to it and that the authority will provide reciprocal assistance in securities matters within the Commission's jurisdiction. See part III, supra (discussing the proposed indemnification exemption). \217\ See part II.A.3, supra. --------------------------------------------------------------------------- b. Costs The Commission recognizes that the proposed approach to providing access to relevant authorities other than the Commission to security- based swap data held in repositories has the potential to involve certain costs and risks. The relevant authorities requesting securities-based swap data would incur some costs in seeking a Commission order deeming the authority appropriate to receive security-based swap data. These costs would include the negotiation of an MOU to address the confidentiality of the security-based swap information it seeks to obtain and providing information to justify that the security-based swap data relates to the entity's regulatory mandate or legal responsibility or authority. As discussed above, the Commission estimates that up to 300 entities potentially might enter into such MOUs or other arrangements.\218\ Based on the Commission staff's experience in negotiating MOUs that address regulatory cooperation, the Commission preliminarily estimates the cost to each relevant authority requesting data associated with negotiating such an arrangement of approximately $205,000 per entity for a total of $61,500,000.\219\ --------------------------------------------------------------------------- \218\ See part VI.C.3.a.ii, supra. \219\ These figures are based on 300 entities each requiring 500 personnel hours on average to negotiate an MOU. See part V.D.1.a, supra. The cost per entity is 400 hours x attorney at $380 per hour + 100 hours x deputy general counsel at $530 per hour = $205,000, or a total of $61,500,000. We use salary figures from SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by SEC staff to account for a 1800-hour year-week and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. --------------------------------------------------------------------------- In addition, authorities that are not specified by the proposed rule may request that that the Commission determine them to be appropriate to receive access to such security-based swap data. Given the relevant information that the Commission preliminarily would consider in connection with such designations (apart from the MOU issues addressed above)--including information regarding how the authority would be expected to use the information, information regarding the authority's regulatory mandate or legal responsibility or authority, and information regarding reciprocal access--the Commission preliminarily estimates the cost associated with such a request to be approximately $15,200 per requesting entity for a total of $4,560,000.\220\ --------------------------------------------------------------------------- \220\ These figures are based on roughly 300 entities (noting that certain entities designated by statute or rule would not need to prepare such requests) requiring 40 personnel hours to prepare a request for access. See part V.D.1.b, supra. The cost per entity is 40 hours x attorney at $380 per hour = $15,200, or a total of $4,560.000. We use salary figures from SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by SEC staff to account for a 1800-hour year-week and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. --------------------------------------------------------------------------- Security-based swap data repositories would incur some costs to verify that an entity requesting data entered into the requisite agreements concerning confidentiality with the Commission, and that the entity either has agreed to indemnify the Commission and the repository, or that the indemnification exemption applies. The Commission generally expects that such verification costs would be minimal because information regarding such Commission arrangements would generally be readily available.\221\ --------------------------------------------------------------------------- \221\ As a general matter, the Commission provides a list of MOUs and other arrangements on its public Web site, which are available at: http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml. --------------------------------------------------------------------------- To the extent that the security-based swap data repository provides the requested data through direct electronic means, the repository may incur some cost in providing the requesting authority access to the system that provides such access and setting data permissions to allow access only to the information that relates to the authority's regulatory mandate, or legal responsibility or authority. The Commission preliminarily believes most of the costs associated with providing such access would be the fixed costs incurred in designing and building the systems to provide the direct electronic access required by the recently adopted SDR rules.\222\ The Commission preliminarily believes the marginal cost of providing access to an additional relevant authority and setting the associated permissions is approximately $6,295.\223\ Based on an estimated 300 entities requesting access to each of ten registered SDRs, we estimate the total cost of connecting entities to SDRs to be approximately $18,885,000. --------------------------------------------------------------------------- \222\ See SDR Adopting Release, 80 FR 14523 (estimating the aggregate one-time systems costs for ten respondents to be 420,000 hours and $10 million, and estimating the aggregate ongoing systems costs as being 252,000 hours and $60 million); see also part IV.D.1.c, supra. \223\ This figure is based on the view that, for each recipient requesting data, a repository would incur an 25 hour burden associated with programming or otherwise inputting the relevant parameters, encompassing 20 hours of programmer analyst time and five hours of senior programmer time. The estimate also encompasses one hour of attorney time in connection with each such recipient. See part V.D.1.c, supra. The cost per entity is 20 hours x programmer analyst at $220 per hour + 5 hours x senior programmer at $303 per hour + 1 hour x attorney at $380 per hour = $6,295, We use salary figures from SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by SEC staff to account for a 1800-hour year-week and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. --------------------------------------------------------------------------- The Commission further recognizes that the conditions in the proposed indemnification exemption would not necessarily provide repositories and the Commission with the same level of confidentiality- related protection that an indemnification agreement would provide (i.e., coverage for any expenses [[Page 55209]] arising from litigation relating to information provided to a relevant authority). The Commission preliminarily believes, however, that the conditions in the proposed indemnification exemption, related to the need for a confidentiality arrangement and requiring that the information provided relate to a regulatory mandate, or legal responsibility or authority of the recipient entity, would provide appropriate protection of the confidentiality of data maintained by SDRs, albeit one that is different from the protection provided by an indemnification agreement that addresses potential costs of litigation associated with the data provided to it by the SDR. In addition, under the Commission's proposed notification compliance rule, SDRs would be required to notify the Commission of the initial request for data but would not have to inform the Commission of all relevant authorities' requests for data prior to a SDR fulfilling such requests. Based on the estimate that approximately 300 relevant authorities may make requests for data from security-based swap data repositories, the Commission estimates that a repository would provide the Commission with actual notice approximately 300 times.\224\ Moreover, based on the estimate that ten persons may register with the Commission as SDRs,\225\ this suggests that repositories in the aggregate would provide the Commission with actual notice up to a total of 3,000 times. The Commission preliminarily estimates that the total of providing such notice to be $57,000 per SDR for a total of $570,000.\226\ --------------------------------------------------------------------------- \224\ See part VI.C.3.ii, supra. \225\ See note 117, supra, and accompanying text. \226\ These figures are based each of ten SDRs providing notice for each of 300 requesting entities. See part V.D.1.d, supra. The cost per SDR is 300 requesting entities x 0.5 hours x attorney at $380 per hour = $57,000, or a total of $570,000. We use salary figures from SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by SEC staff to account for a 1800-hour year-week and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead. --------------------------------------------------------------------------- Pursuant to rule, SDRs would be required to maintain records of subsequent requests.\227\ Not receiving actual notice of all requests may impact the Commission's ability to track such requests, but the Commission preliminarily believes that the benefits of receiving actual notice of each request would not justify the additional costs that repositories would incur in providing such notices and the potential delay in relevant authorities receiving data that they need to fulfill their regulatory mandate, or legal responsibility or authority. At the same time, providing notice of initial requests will help to preserve the Commission's ability to monitor whether the repository provides data to each relevant entity consistent with the applicable conditions. As discussed above, the Commission preliminarily estimates that the average initial paperwork burden associated with maintaining certain records related to data requests or access would be roughly 360 hours, and that the annualized burden would be roughly 280 hours and $120,000 for each repository.\228\ Assuming a maximum of ten security-based swap data repositories, the estimated aggregate one-time dollar cost would be roughly $1 million,\229\ and the estimated aggregate annualized dollar cost would be roughly $1.2 million.\230\ --------------------------------------------------------------------------- \227\ See part V.D.1.d, supra. As noted above, existing rules require SDRs to maintain copies of all documents they make or receive in their course of business, including electronic documents. See note 77, supra. \228\ See part V.D.1.d, supra. \229\ The Commission preliminarily anticipates that a repository would assign the associated responsibilities primarily to a compliance manager and a senior systems analyst. The total estimated dollar cost would be roughly $100,000 per repository, reflecting the cost of a compliance manager at $283 per hour for 300 hours, and a senior systems analyst at $260 per hour for 60 hours. Across the estimated ten repositories, this would amount to roughly $1 million. \230\ The Commission preliminarily anticipates that a repository would assign the associated responsibilities primarily to a compliance manager. The total estimated dollar cost would be roughly $120,000 per repository, reflecting $40,000 annualized information technology costs, as well as a compliance manager at $283 per hour for 280 hours. Across the estimated ten repositories, this would amount to roughly $1.2 million. --------------------------------------------------------------------------- D. Alternatives The Commission considered a number of alternative approaches to implementing the Exchange Act data access provisions, including the indemnification requirement, but, for the reasons discussed below, is not proposing them. 1. No Indemnification Exemption The Commission considered not proposing any exemptive relief from the indemnification requirement. As discussed above, application of the indemnification requirement may prevent some relevant authorities from accessing security-based swap data directly from repositories registered with the Commission.\231\ Although relevant authorities could obtain such data from the Commission,\232\ that alternative would be expected to be associated with delays and higher costs, particularly during periods of market stress and particularly since repositories are likely to have expertise in providing such data to relevant authorities and economic incentives for doing so efficiently.\233\ --------------------------------------------------------------------------- \231\ See, e.g., DTCC comment (Nov. 15, 2010) at 3 (discussing how the indemnification requirement would result in the reduction of information accessible to regulators on a timely basis and would greatly diminish regulators' ability to carry out oversight functions). \232\ See part IV.B, supra, discussing information sharing under Exchange Act sections 21 and 24; see also SDR Proposing Release, 75 FR 77319. \233\ See part VI.C.3.a.iv, supra. --------------------------------------------------------------------------- To the extent that relevant foreign authorities are effectively restricted in obtaining data maintained by SEC-registered repositories, the Commission's own ability to access security-based swap data may similarly be restricted.\234\ More generally, the resulting restrictions on regulatory access may likely lead to duplication and fragmentation of security-based swap data among trade repositories in multiple jurisdictions, which may increase other costs that relevant authorities may incur, including, for example, the difficulty of aggregating data across multiple repositories.\235\ --------------------------------------------------------------------------- \234\ See note 94, supra, and accompanying text. \235\ See note 214, supra. --------------------------------------------------------------------------- 2. Repository Option To Waive Indemnification The Commission also considered whether to adopt the approach set forth in the Cross-Border Proposing Release, to allow the SDR the option to waive the indemnification requirement.\236\ As discussed above, however, the Commission preliminarily believes that the proposed approach would more effectively address the relevant concerns associated with implementing the indemnification provision.\237\ Also, requiring each repository to elect whether to waive the indemnification requirement for each requesting entity would likely impose additional costs on repositories and may result in inconsistent treatment of data requests across repositories. --------------------------------------------------------------------------- \236\ See note 91, supra, and accompanying text. \237\ See part III.A, supra. --------------------------------------------------------------------------- 3. Additional Conditions to Indemnification Requirement or Proposed Indemnification Exemption The Commission also considered whether to prescribe additional conditions or limitations to the indemnification requirement or the proposed indemnification exemption. In part, the Commission considered one commenter's suggestion that the Commission provide model indemnification language in connection with the indemnification requirement, [[Page 55210]] but concluded preliminarily that the benefits of such model language are largely mitigated by an indemnification exemption that would condition the indemnification exemption upon there being in effect one or more arrangements (in the form of an MOU or otherwise) between the Commission and the entity that addresses the confidentiality of the security-based swap information provided and other matters as determined by the Commission.\238\ --------------------------------------------------------------------------- \238\ See note 98, supra. --------------------------------------------------------------------------- 4. Use of Confidentiality Arrangements Directly Between Repositories and Recipients The Commission considered the alternative approach of permitting confidentiality agreement between SDRs and the recipient of the information to satisfy the confidentiality condition to the data access requirement. The Commission preliminarily believes, however, that the proposed approach, which would make use of confidentiality arrangements between the Commission and the recipients of the data, would avoid difficulties such as questions regarding the parameters of the confidentiality agreement, and the presence of uneven and inconsistent confidentiality protections.\239\ This also would avoid the need for SDRs to potentially negotiate and enter into dozens of confidentiality agreements, instead such costs would be borne by the Commission. --------------------------------------------------------------------------- \239\ See part II.B.1, supra. --------------------------------------------------------------------------- 6. Notice of Individual Requests for Data Access Finally, the Commission considered requiring repositories to provide notice to the Commission of all requests for data prior to repositories fulfilling such requests, rather than the proposed approach of requiring such notice only of the first request from a particular recipient, with the repository maintaining records of all subsequent requests.\240\ The Commission preliminarily believes that the benefits of receiving actual notice for each and every request would not justify the additional costs that would be imposed on repositories to provide such notice, and providing notice of subsequent requests may not be feasible if data is provided by direct electronic access. --------------------------------------------------------------------------- \240\ See part II.A.4, supra. --------------------------------------------------------------------------- E. Comments on the Economic Analysis The Commission requests comment on all aspects of this economic analysis. Commenters particularly are requested to address whether there are other costs or benefits--not addressed above--that the Commission should take into account when adopting final rules. Commenters also are requested to address whether the Commission has appropriately weighed the costs and benefits of the potential alternative approaches addressed above, and whether there are other potential alternative approaches that the Commission should assess. VII. Consideration of Impact on the Economy For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (``SBREFA'') \241\ the Commission must advise OMB whether the proposed regulation constitutes a ``major'' rule. Under SBREFA, a rule is considered ``major'' where, if adopted, it results or is likely to result in: (1) An annual effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers or individual industries; or (3) significant adverse effect on competition, investment or innovation. --------------------------------------------------------------------------- \241\ Public Law 104-121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C., 15 U.S.C. and as a note to 5 U.S.C. 601). --------------------------------------------------------------------------- The Commission requests comment on the potential impact of the proposed rules and amendments on the economy on an annual basis. Commenters are requested to provide empirical data and other factual support for their views to the extent possible. VIII. Regulatory Flexibility Act Certification Section 3(a) of the Regulatory Flexibility Act of 1980 (``RFA'') \242\ requires the Commission to undertake an initial regulatory flexibility analysis of the proposed rules on ``small entities.'' Section 605(b) of the RFA \243\ provides that this requirement shall not apply to any proposed rule or proposed rule amendment which, if adopted, would not have a significant economic impact on a substantial number of small entities. Pursuant to 5 U.S.C. 605(b), the Commission hereby certifies that the proposed rules would not, if adopted, have a significant economic impact on a substantial number of small entities. In developing these proposed rules, the Commission has considered their potential impact on small entities. For purposes of Commission rulemaking in connection with the RFA, a small entity includes: (1) When used with reference to an ``issuer'' or a ``person,'' other than an investment company, an ``issuer'' or ``person'' that, on the last day of its most recent fiscal year, had total assets of $5 million or less; \244\ or (2) a broker-dealer with total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to Rule 17a-5(d) under the Exchange Act,\245\ or, if not required to file such statements, a broker-dealer with total capital (net worth plus subordinated liabilities) of less than $500,000 on the last day of the preceding fiscal year (or in the time that it has been in business, if shorter); and is not affiliated with any person (other than a natural person) that is not a small business or small organization.\246\ --------------------------------------------------------------------------- \242\ 5 U.S.C. 603(a). \243\ 5 U.S.C. 605(b). \244\ See 17 CFR 240.0-10(a). \245\ 17 CFR 240.17a-5(d). \246\ See 17 CFR 240.0-10(c). For purposes of the Regulatory Flexibility Act, the definition of ``small entity'' also encompasses ``small governmental jurisdictions,'' which in relevant part means governments of locales with a population of less than fifty thousand. 5 U.S.C. 601(5), (6). Although the Commission anticipates that this proposal may be expected to have an economic impact on various governmental entities that access data pursuant to Dodd-Frank's data access provisions, the Commission does not anticipate that any of those governmental entities would be small entities. --------------------------------------------------------------------------- In initially proposing rules regarding the registration process, duties and core principles applicable to SDRs, the Commission stated that it preliminarily did not believe that any persons that would register as repositories would be considered small entities.\247\ The Commission further stated that it preliminarily believed that most, if not all, SDRs would be part of large business entities with assets in excess of $5 million and total capital in excess of $500,000, and, as a result, the Commission certified that the proposed rules would not have a significant impact on a substantial number of small entities and requested comments on this certification.\248\ The Commission reiterated that conclusion earlier this year in adopting final rules generally addressing repository registration, duties and core principles.\249\ --------------------------------------------------------------------------- \247\ See 75 FR 77365. \248\ See id. (basing the conclusions on review of public sources of financial information about the current repositories that are providing services in the OTC derivatives market). \249\ See SDR Adopting Release, 80 FR 14549 (noting that the Commission did not receive any comments that specifically addressed whether the applicable rules would have a significant economic impact on small entities). --------------------------------------------------------------------------- The Commission continues to hold the view that any persons that would register as SDRs would not be considered small entities. Accordingly, the Commission certifies that the proposed rules--related to regulatory access to data held by SDRs and providing a conditional exemption from [[Page 55211]] the associated indemnification requirement--would not have a significant economic impact on a substantial number of small entities for purposes of the RFA. The Commission encourages written comments regarding this certification. The Commission solicits comment as to whether the proposed rules could have an effect on small entities that has not been considered. The Commission requests that commenters describe the nature of any impact on small entities and provide empirical data to support the extent of such impact. Statutory Basis and Text of Proposed Rules Pursuant to the Exchange Act, and particularly sections 3(b), 13(n), 23(a) and 36 thereof, 15 U.S.C. 78c(b), 78m(n), 78w(a) and 78mm, the Commission is proposing to amend rule 13n-4 by adding paragraphs (b)(9), (b)(10), (d) and (e) to that rule. List of Subjects in 17 CFR Part 240 Confidential business information, Reporting and recordkeeping requirements, Securities. Text of Proposed Rules For the reasons stated in the preamble, the Commission is proposing to amend Title 17, Chapter II, of the Code of Federal Regulations as follows: PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 0 1. The authority citation for part 240 continues to read, in part, as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010), unless otherwise noted. * * * * * 0 2. In Sec. 240.13n-4, amend paragraph (b)(8) by removing the word ``and'' at the end of the paragraph and adding paragraphs (b)(9), (b)(10), (d), and (e). The additions read as follows: Sec. 240.13n-4 Duties and core principles of security-based swap data repository. * * * * * (b) * * * (9) On a confidential basis, pursuant to section 24 of the Act (15 U.S.C. 78x), upon request, and after notifying the Commission of the request in a manner consistent with paragraph (e) of this section, make available security-based swap data obtained by the security-based swap data repository, including individual counterparty trade and position data, to the following: (i) The Board of Governors of the Federal Reserve System and any Federal Reserve Bank; (ii) The Office of the Comptroller of the Currency; (iii) The Federal Deposit Insurance Corporation; (iv) The Farm Credit Administration; (v) The Federal Housing Finance Agency; (vi) The Financial Stability Oversight Council; (vii) The Commodity Futures Trading Commission; (viii) The Department of Justice; (ix) The Office of Financial Research; and (x) Any other person that the Commission determines to be appropriate, conditionally or unconditionally, by order, including, but not limited to-- (A) Foreign financial supervisors (including foreign futures authorities); (B) Foreign central banks; and (C) Foreign ministries; (10) Before sharing information with any entity described in paragraph (b)(9) of this section, there shall be in effect an arrangement between the Commission and the entity (in the form of a memorandum of understanding or otherwise) to address the confidentiality of the security-based swap information made available to the entity; this arrangement shall be deemed to satisfy the requirement, set forth in section 13(n)(5)(H)(i) of the Act (15 U.S.C. 78m(n)(5)(H)(i)), that the security-based swap data repository receive a written agreement from the entity stating that the entity shall abide by the confidentiality requirements described in section 24 of the Act (15 U.S.C. 78x) relating to the information on security-based swap transactions that is provided; and * * * * * (d) Exemption from the indemnification requirement. The indemnification requirement set forth in section 13(n)(5)(H)(ii) of the Act (15 U.S.C. 78m(n)(5)(H)(ii)) shall not be applicable to an entity described in paragraph (b)(9) of this section with respect to disclosure of security-based swap information by the security-based swap data repository to such entity if: (1) Such information relates to persons or activities within the entity's regulatory mandate, or legal responsibility or authority; and (2) There is in effect one or more arrangements (in the form of memoranda of understanding or otherwise) between the Commission and such entity that: (i) Address the confidentiality of the security-based swap information provided and any other matters as determined by the Commission; and (ii) Specify the types of security-based swap information that would relate to persons or activities within the entity's regulatory mandate, legal responsibility or authority for purposes of paragraph (d)(1) of this section. (e) Notification requirement compliance. To satisfy the notification requirement of the data access provisions of paragraph (b)(9) of this section, a security-based swap data repository shall inform the Commission upon its receipt of the first request for security-based swap data from a particular entity (which may include any request to be provided ongoing online or electronic access to the data), and the repository shall maintain records of all information related to the initial and all subsequent requests for data access from that entity, including records of all instances of online or electronic access, and records of all data provided in connection with such requests or access. * * * * * By the Commission. Dated: September 4, 2015. Brent J. Fields, Secretary. [FR Doc. 2015-22844 Filed 9-11-15; 8:45 am] BILLING CODE 8011-01-P
![55182 Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Proposed Rules
SECURITIES AND EXCHANGE proposed.shtml). Comments are also particular, the amendments
COMMISSION available for Web site viewing and conditionally require that security-based
printing in the Commission’s Public swap data repositories ‘‘on a
17 CFR Part 240 Reference Room, 100 F Street NE., confidential basis pursuant to section
[Release No. 34–75845; File No. S7–15–15] Washington, DC 20549 on official 24, upon request, and after notifying the
business days between the hours of Commission of the request, make
RIN 3235–AL74 10:00 a.m. and 3:00 p.m. All comments available all data obtained by the
received will be posted without change; security-based swap data repository,
Access to Data Obtained by Security- the Commission does not edit personal including individual counterparty trade
Based Swap Data Repositories and identifying information from and position data.’’ 2 The repositories
Exemption From Indemnification submissions. You should submit only must make that data available to: ‘‘each
Requirement information that you wish to make appropriate prudential regulator’’; 3 the
AGENCY: Securities and Exchange available publicly. Financial Stability Oversight Council
Commission. Studies, memoranda, or other (‘‘FSOC’’); the Commodity Futures
substantive items may be added by the Trading Commission (‘‘CFTC’’); the
ACTION: Proposed rule.
Commission or staff to the comment file Department of Justice; and ‘‘any other
SUMMARY: Pursuant to section 763(i) of during this rulemaking. A notification of person that the Commission determines
Title VII (‘‘Title VII’’) of the Dodd-Frank the inclusion in the comment file of any to be appropriate,’’ including foreign
Wall Street Reform and Consumer such materials will be made available financial supervisors (including foreign
Protection Act of 2010 (‘‘Dodd-Frank on the SEC’s Web site. To ensure direct
futures authorities), foreign central
Act’’), the Securities and Exchange electronic receipt of such notifications,
banks and foreign ministries.4
Commission (‘‘Commission’’) is sign up through the ‘‘Stay Connected’’
option at www.sec.gov to receive This access to data is conditional,
proposing amendments to rule 13n–4
notifications by email. however. In part, before a repository
under the Securities Exchange Act of
FOR FURTHER INFORMATION CONTACT: shares such data, the repository ‘‘shall
1934 (‘‘Exchange Act’’) related to
Carol McGee, Assistant Director, or receive a written agreement from each
regulatory access to security-based swap
data held by security-based swap data Joshua Kans, Senior Special Counsel, at entity stating that the entity shall abide
repositories. The proposed rule (202) 551–5870; Division of Trading and by the confidentiality requirements
amendments would implement the Markets, Securities and Exchange described in section 24 relating to the
conditional Exchange Act requirement Commission, 100 F Street NE., information on security-based swap
that security-based swap data Washington, DC 20549–7010. transactions that is provided.’’ 5
repositories make data available to SUPPLEMENTARY INFORMATION: The Moreover, before such data is shared,
certain regulators and other authorities, Commission is proposing to add ‘‘each entity shall agree to indemnify
and would set forth a conditional paragraphs (b)(9) and (b)(10) to the security-based swap data repository
exemption from the statutory Exchange Act rule 13n–4 to implement and the Commission for any expenses
indemnification requirement associated the statutory requirement that security- arising from litigation relating to the
with that regulatory access provision. based swap data repositories information provided under section
conditionally provide data to certain 24.’’ 6
DATES: Submit comments on or before
October 29, 2015. regulators and other authorities. The B. Prior Proposals and Comments
Commission also is proposing to add
ADDRESSES: Comments may be Received
paragraph (d) to rule 13n–4 to provide
submitted by any of the following a conditional exemption from the 1. 2010 proposal
methods: associated statutory indemnification
Electronic Comments requirement. In 2010, the Commission proposed
several rules to implement statutory
• Use the Commission’s Internet I. Background provisions related to the registration
comment form (http://www.sec.gov/ process, duties and core principles
A. Statutory Requirements for Access to
rules/proposed.shtml); or applicable to security-based swap data
Security-Based Swap Data Repository
• Send an email to rule-comments@ repositories.7 That proposal, among
Information
sec.gov. Please include File Number S7– other things, encompassed rules that
15–15 on the subject line; or Title VII of the Dodd-Frank Act
• Use the Federal eRulemaking Portal amended the Exchange Act to provide a
2 Exchange Act section 13(n)(5)(G), 15 U.S.C.
(http://www.regulations.gov). Follow the comprehensive regulatory framework
78m(n)(5)(G). The confidentiality requirements
instructions for submitting comments. for security-based swaps, including the addressed by Exchange Act section 24, 15 U.S.C.
regulation of security-based swap data 78x, are addressed below. See note 84, infra.
Paper Comments repositories.1 3 As discussed below, the term ‘‘prudential
• Send paper comments to Secretary, Those amendments, among other regulator’’ encompasses the Board of Governors of
the Federal Reserve System and certain other
Securities and Exchange Commission, things, require that security-based swap regulators, with regard to certain categories of
100 F Street NE., Washington, DC data repositories make data available to regulated entities. See note 44, infra.
20549–1090. certain regulators and other entities. In 4 Exchange Act section 13(n)(5)(G), 15 U.S.C.
All submissions should refer to File 78m(n)(5)(G).
tkelley on DSK3SPTVN1PROD with PROPOSALS2
1 Public Law 111–203, section 761(a) (adding 5 Exchange Act section 13(n)(5)(H)(i), 15 U.S.C.
Number S7–15–15. This file number 78m(n)(5)(H)(i).
Exchange Act section 3(a)(75) (defining ‘‘security-
should be included on the subject line based swap data repository’’)) and section 763(i) 6 Exchange Act section 13(n)(5)(H)(ii), 15 U.S.C.
if email is used. To help us process and (adding Exchange Act section 13(n) (establishing a 78m(n)(5)(H)(ii).
review your comments more efficiently, regulatory regime for security-based swap data 7 See Security-Based Swap Data Repository
please use only one method. The repositories)). Registration, Duties, and Core Principles, Exchange
References in this release to the terms ‘‘data Act Release No. 63347 (Nov. 19, 2010), 75 FR 77306
Commission will post all comments on repository,’’ ‘‘trade repository,’’ ‘‘repository’’ or (Dec. 10, 2010), corrected at 75 FR 79320 (Dec. 20,
the Commission’s Internet Web site ‘‘SDR’’ generally address security-based swap data 2010) and 76 FR 2287 (Jan. 13, 2011) (‘‘SDR
(http://www.sec.gov/rules/ repositories unless stated otherwise. Proposing Release’’).
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incorporated the statutory language that expressed the concern that the statutory streamline the indemnification
set forth the data access provisions.8 requirement is vague and could result in requirement for an ‘‘efficient exchange
In proposing those rules, the a data repository providing access to of information.’’ 15
Commission recognized that ‘‘regulators persons without proper authority.14
may be legally prohibited or otherwise 2. 2013 Cross-Border Proposal
Another commenter recommended that
restricted from agreeing to indemnify the Commission adopt rules to help a. Proposed Exemption to
third parties, including SDRs as well as Indemnification Requirement
the Commission,’’ and that the suggested that the Commission provide model In 2013, the Commission proposed a
‘‘indemnification provision could chill indemnification language; and (3) urged that ‘‘any
indemnity should be limited in scope to minimize number of rules related to the cross-
requests for access to data obtained by the potential reduction in value of registered SDRs border application of the Title VII
SDRs, thereby hindering the ability of to the regulatory community.’’ See DTCC comment security-based swap requirements. At
others to fulfill their regulatory (Jan. 24, 2011) at 12. These and other comments that time, recognizing the significance of
mandates and responsibilities.’’ 9 The addressing the proposed implementation of the data
access provisions (as well as other aspects of the commenter concerns and understanding
Commission added that it expected that Commission’s 2010 proposal regarding security- that certain authorities may be unable to
a repository ‘‘would not go beyond the based swap data repository registration, duties and agree to indemnify a data repository and
minimum requirements of the statute so core principles) are located on the Commission’s the Commission, the Commission
as not to preclude [recipient entities Web site at http://www.sec.gov/comments/s7-35-10/
s73510.shtml. preliminarily concluded that the
described by the statute] from obtaining indemnification requirement could
Another commenter stated that because
the data maintained by an SDR.’’ 10 The indemnification would not be feasible, ‘‘it would be frustrate the purposes of the statutory
Commission further noted that the problematic for [the Commission and the CFTC] to requirement that repositories make
Commission itself had the authority to require non-U.S. SDRs to register with the
available data to relevant authorities.
share nonpublic information with, Commissions,’’ and that the indemnification
requirement could impede effective regulatory The Commission further took the view
among others, certain domestic and coordination. See Cleary Gottlieb comment (Sept. that the indemnification requirement
foreign regulatory authorities.11 20, 2011) at 31–32. should not be applied rigidly so as to
In response, four commenters That commenter further stated that when a non- frustrate the statutory purposes of data
addressed the data access provisions.12 U.S. data repository registers with the Commission
‘‘but is also subject to regulatory oversight by an repositories, and hinder relevant
Those commenters generally supported appropriate non-U.S. regulator,’’ the SEC should authorities’ ability to fulfill their
providing relevant authorities with adopt the CFTC’s interpretation ‘‘that the non-U.S. regulatory mandates and legal
access to security-based swap data regulator is not as a result subject to Dodd-Frank’s responsibilities.16
maintained by repositories when the notice and indemnification provisions.’’ See id. The
Commission since then has issued final rules and To address these concerns, the
access is within the scope of those interpretations regarding the cross-border Commission proposed an exemption to
authorities’ mandates, but expressed application of the registration requirement for provide that a data repository ‘‘is not
particular concerns relating to the security-based swap data repositories, which required’’ to comply with the
indemnification requirement and to the exempts certain non-U.S. data repositories subject
to regulation abroad from having to comply with indemnification requirement,
scope of authorities’ access to data. Two requirements otherwise applicable to repositories. conditioned on: (1) An entity requesting
commenters concurred that relevant See Exchange Act Release No. 74246 (Feb. 11, the information ‘‘to fulfill a regulatory
authorities likely would be unable to 2015), 80 FR 14438, 14450–51, 14516–17, 14556 mandate and/or legal responsibility’’; (2)
agree to indemnify data repositories or (Mar. 19, 2015) (‘‘SDR Adopting Release’’)
(generally stating that a non-U.S. person that the request pertaining ‘‘to a person or
the Commission.13 One commenter performs the functions of a security-based swap financial product subject to the
data repository within the United States is required jurisdiction, supervision or oversight of
8 See SDR Proposing Release, 75 FR 77368 to register with the Commission absent an the entity’’; and (3) the entity having
(paragraphs (b)(9) and (b)(10) of proposed Exchange exemption, and adopting Exchange Act rule 13n–
Act rule 13n-4 incorporated relevant language of 12 to provide an exemption from data repository entered into a supervisory and
Exchange Act sections 13(n)(5)(G) and (H). requirements for certain non-U.S. persons when enforcement memorandum of
9 75 FR 77318–19. regulators with supervisory authority over those understanding (‘‘MOU’’) or other
10 75 FR 77319. non-U.S. persons have entered into a memorandum arrangement addressing the
11 Id. of understanding (‘‘MOU’’) or other arrangement
with the Commission regarding the confidentiality confidentiality of the information
12 Cleary Gottlieb comment (Sept. 20, 2011) at 31–
of data collected and maintained by such non-U.S. provided and any other matter as
32 (comment was provided in response to a joint
SEC–CFTC roundtable regarding the cross-border
person, access by the Commission to such data, and determined by the Commission.17 The
any other matters determined by the Commission). Commission took the preliminary view
application of Title VII, and can be found at
Also, under the preliminary interpretation
http://www.sec.gov/comments/4-636/4-636.shtml), discussed below, the conditions to the Exchange that the proposed exemption was
DTCC comment (Nov. 15, 2010) at 3, ESMA Act data access requirements would not restrict consistent with commenters’ views,
comment (Jan. 17, 2011) at 2 and Managed Funds
Association comment (Jan. 24, 2011) at 3.
access when a repository registered with the including one commenter’s suggestion
Commission also is registered or licensed with a that the indemnification requirement
13 Prior to the proposed rules, one of those
foreign authority that obtains the data pursuant to
commenters described the indemnification foreign law. See part IV.A, infra. not apply when relevant authorities
requirement as contravening the purpose of data 14 That commenter particularly expressed carry out their responsibilities in
repositories and jeopardizing market stability by concern regarding the possibility of ‘‘unfettered accordance with international
diminishing regulators’ ability to carry out oversight access’’ to security-based swap information by
functions. See DTCC comment (Nov. 15, 2010) at 3. agreements and while maintaining the
regulators, including foreign financial supervisors,
This comment and other comments that addressed foreign central banks and foreign ministries,
data repository issues in response to a general ‘‘beyond their regulatory authority and mandate.’’
15 That commenter also reiterated the notion that
request for comments regarding the implementation See Managed Funds Association comment (Jan. 24, relevant authorities must ensure the confidentiality
of Title VII are located on the Commission’s Web 2011) at 3. That comment further recommended of security-based swap data provided to them, and
tkelley on DSK3SPTVN1PROD with PROPOSALS2
site at http://www.sec.gov/comments/df-title-vii/ that the Commission take an approach similar to that the indemnification requirement ‘‘undermines
swap-data-repositories/swap-data- that taken by rules proposed by the CFTC, requiring the key principle of trust according to which
repositories.shtml. any regulator requesting access to such data to exchange of information [among relevant
Subsequently, in response to the proposed rules, certify the statutory authority for the request and authorities] should occur.’’ See ESMA comment
that commenter further: (1) Stated that the detail the basis for the request. See id. at 3–4. The (Jan. 17, 2011) at 2.
16 See Exchange Act Release No. 69490 (May 1,
indemnification requirement should not apply CFTC subsequently adopted that certification
where relevant authorities carry out their regulatory requirement as a final rule, but did not adopt the 2013), 78 FR 30968, 31048–49 (May 23, 2013)
responsibilities in accordance with international proposed requirement that the regulator also detail (‘‘Cross-Border Proposing Release’’).
agreements and while maintaining the the basis for the request. See note 31, infra, and 17 See id. at 31209 (paragraph (d) of proposed
confidentiality of data provided to them; (2) accompanying text. Exchange Act rule 13n–4).
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![Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Proposed Rules 55185
however, also recognized that it might interest (even if that data also has been further consideration of the issues.
be difficult for certain regulators to reported pursuant to the CEA and Under the proposal:
implement those confidentiality and [CFTC] regulations).’’ 37 The CFTC • Security-based swap data
indemnification requirements.33 further stated that a registered swap data repositories generally would be
Accordingly, the CFTC provided that a repository would not be subject to the required, on a confidential basis after
domestic regulator with regulatory indemnification and confidentiality notifying the Commission, to make
jurisdiction over a swap data repository provisions under the CEA if the swap available security-based swap data,
registered with it pursuant to separate data repository is ‘‘registered, including individual counterparty trade
statutory authority may access such data recognized or otherwise authorized in a and position data, to certain entities that
without the need to enter into foreign jurisdiction’s regulatory are identified in the proposed rules and
confidentiality or indemnification regime,’’ when the data sought to be any other persons that are determined
agreements if: (i) The domestic regulator accessed by the foreign regulatory by the Commission to be appropriate.40
executes an MOU or similar information authority has been reported to the swap • The data access requirement would
sharing arrangement with the CFTC; and data repository ‘‘pursuant to the foreign be subject to a confidentiality provision
(ii) the CFTC designates the domestic jurisdiction’s regulatory regime.’’ 38 that conditions the data access
regulator to receive direct electronic requirement on there being an
access.34 D. The Current Proposal agreement between the Commission and
The CFTC implementing rules further the entity (in the form of an MOU or
provided that a foreign regulator with The Commission today is proposing otherwise) that addresses the
supervisory responsibility over a swap rules related to the data access confidentiality of the information
data repository registered with the obligation applicable to security-based received.41
foreign regulator pursuant to foreign law swap data repositories, including rules • In addition, as discussed below,
and/or regulation would not need to to provide a conditional exemption from there would be a conditional exemption
enter into such confidentiality or the indemnification requirement. This to the statutory provision that
indemnification agreements.35 In new proposal builds upon the earlier conditions the data access on the
addition, the CFTC noted that the proposals, but with certain changes. recipient of the data agreeing to
confidentiality and indemnification Among other aspects, as discussed indemnify the repository and the
requirements would not apply when the below, the proposal would provide for Commission for expenses arising from
CFTC itself shares information in its the statutory confidentiality agreement litigation related to the information
possession with foreign authorities.36 requirement to be satisfied via the use provided.42
The CFTC subsequently issued an of MOUs or other agreements between A. Data Access Requirement
interpretative statement that the the Commission and the entity
indemnification and confidentiality accessing data from a security-based 1. Application to Prudential Regulators
provisions under the CEA generally swap data repository. The proposal also and Federal Reserve Banks
apply only to such data reported encompasses an indemnification The Exchange Act specifically states
pursuant to the CEA and CFTC exemption that would be effective when that a repository is conditionally
regulations, and that those the relevant conditions are met, in obligated to make information available
confidentiality and indemnification contrast to the earlier proposed to, among others, ‘‘each appropriate
provisions ‘‘should not operate to approach of conditionally allowing a prudential regulator.’’ 43 The proposed
inhibit or prevent foreign regulatory data repository to elect whether to rules would specifically identify, as
authorities from accessing data in which waive the indemnification requirement. being eligible to access data, each of the
they have an independent regulatory entities encompassed within the
Taken as a whole, the proposal would
33 See provide that when the conditions to the statutory ‘‘prudential regulator’’
76 FR 54554.
34 See data access provisions are satisfied— definition: The Board of Governors of
17 CFR 49.17(d)(2), 49.18(c); 76 FR 54554
(also referencing a separate statutory provision, including as applicable the conditions the Federal Reserve System (‘‘Board’’),
CEA section 21(c)(4)(A), 7 U.S.C. 24a(c)(4)(A), that to the indemnification exemption—a the Office of the Comptroller of the
requires swap data repositories to provide ‘‘direct Currency, the Federal Deposit Insurance
electronic access’’ to the CFTC and its designees).
repository would be required to provide
security-based swap data to relevant Corporation (‘‘FDIC’’), the Farm Credit
There are differences between the Commission’s
proposed approach, discussed below, and the authorities. Administration, and the Federal
approach the CFTC has taken in adopting rules to Housing Finance Agency.44
implement the data access requirement under the II. Proposed Data Access Rules
CEA. In part, while the CFTC rule requires that 40 See proposed Exchange Act rule 13n–4(b)(9).
entities accessing swap data certify that they are The Commission is proposing rules, 41 See proposed Exchange Act rule 13n–4(b)(10).
acting within the scope of their jurisdiction, the to implement the data access provisions 42 See proposed Exchange Act rule 13n–4(b)(ii).
Commission’s proposal instead anticipates
considering an entity’s interest in the security-based of Exchange Act sections 13(n)(5)(G) 43 See Exchange Act section 13(n)(5)(G)(i), 15
swap information when determining whether to and (H),39 that address commenter U.S.C. 78m(n)(5)(G)(i).
44 See proposed Exchange Act rule 13n–4(b)(9)(i)–
determine that entity may access security-based concerns and reflect the Commission’s
swap information. See part II.A.3.a, infra. Also, the (v).
Commission’s proposed exemption from the Exchange Act section 3(a)(74), 15 U.S.C.
37 See Swap Data Repositories: Interpretative
indemnification requirement is conditioned in part 78c(a)(74), defines ‘‘prudential regulator’’ by
on an entity requesting security-based swap Statement Regarding the Confidentiality and reference to the CEA. The CEA, in turn, defines
information in connection with a regulatory Indemnification Provisions of the Commodity ‘‘prudential regulator’’ to encompass: (a) The Board,
tkelley on DSK3SPTVN1PROD with PROPOSALS2
mandate, or legal responsibility or authority. See Exchange Act, 77 FR 65177, 65180–81 (Oct. 25, (b) the Office of the Comptroller of the Currency,
part III.B.1.a, infra. 2012). (c) the FDIC, (d) the Farm Credit Administration or
35 See 17 CFR 49.17(d)(3), 49.18(c); 76 FR 54555 38 See id. The CFTC added that this principle
(e) the Federal Housing Finance Agency—in each
n.166 (adding that the CFTC does not interpret the applies even if the applicable data also is reported case with respect to swap dealers, major swap
notification and indemnification provisions to pursuant to CFTC rules, and that foreign and participants, security-based swap dealers or major
apply ‘‘in circumstances in which an Appropriate domestic regulatory authorities also may receive security-based swap participants (cumulatively,
Foreign Regulator possesses independent sovereign data from the CFTC (rather than the swap data ‘‘dealers’’ or ‘‘major participants’’) that fall within
legal authority to obtain access to the information repository) without execution of a confidentiality the regulator’s authority. See CEA section 1a(39); 7
and data held and maintained by an SDR’’). and indemnification agreement. See id. at 65181. U.S.C. 1a(39).
36 See 76 FR 54554. 39 15 U.S.C. 78m(n)(5)(G) and (H). Continued
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available security-based swap data 74— other means by which the recipient 5. Limitation to ‘‘Security-Based Swap
by requiring the repository to inform the obtains data. By making relevant data Data’’
Commission upon its receipt of the first available to the Commission in this Repositories that obtain security-
request for data from a particular entity manner, the proposed approach would based swap data may also obtain data
(which may include any request that the place the Commission on notice that a regarding other types of financial
entity be provided ongoing online or recipient has the ability to access instruments, such as swaps under the
electronic access to the data).75 A security-based swap data, and place the CFTC’s jurisdiction. We do not read the
repository must keep such notifications Commission in a position to examine data access provisions of Exchange Act
and any related requests confidential.76 such access as appropriate, while sections 13(n)(5)(G) and (H)—which
The repository further would have to avoiding the inefficiencies that would were added by Subtitle B of Title VII
maintain records of all information accompany an approach whereby a (which focused on the regulatory
related to the initial and all subsequent repository must direct to the treatment of security-based swaps) 81 to
requests for data access requests from Commission information regarding each the Exchange Act (which generally
that entity, including records of all instance of access by each recipient. addresses the regulation of securities
instances of online or electronic access, Moreover, the proposed approach such as security-based swaps)—to
and records of all data provided in would be consistent with the manner in require a repository to make available
connection with such requests or which the Commission examines the data that does not involve security-
access.77 For these purposes, we believe records of regulated entities under the based swaps. The statutory
that ‘‘all information related to’’ such Commission’s authority.
requests would likely include, among confidentiality condition to the data
The Commission recognizes that one access requirement further suggests that
other things: The identity of the commenter opposed any requirement
requestor or person accessing the data; the data access provisions are intended
that the Commission receive notice of a to apply only to security-based swap
the date, time and substance of the recipient’s initial request, on the
request or access; and copies of all data data.82 Accordingly, the proposed rules
grounds that such notice may cause specifically address access to ‘‘security-
reports or other aggregations of data other authorities to hesitate to make
provided in connection with the request based swap data’’ obtained by a
such requests.78 While the Commission security-based swap data repository.83
or access. appreciates the commenter’s concerns,
In the Commission’s preliminary the Commission preliminarily believes B. Confidentiality Condition
view, the proposed notification that it is necessary for the Commission The Exchange Act provides that, prior
requirement is designed to account for to be informed of the initial request to providing data, a repository ‘‘shall
the way in which we believe entities are from a particular entity so that the receive a written agreement from each
likely to access such data from Commission may assess whether the entity stating that the entity shall abide
repositories, by distinguishing steps that initial conditions to data access (i.e., by the confidentiality requirements
an entity takes to arrange access from MOUs or other arrangements as needed described in section 24 relating to the
subsequent electronic instructions and to satisfy the confidentiality condition information on security-based swap
and the indemnification exemption) 79 transactions that is provided.’’ 84
74 See Exchange Act section 13(n)(5)(G), 15 U.S.C.
have been met at the time the repository
78m(n)(5)(G). As discussed below, see part IV, infra,
the notification requirement does not apply to first is requested to provide the entity can provide direct electronic access to relevant
circumstances in which disclosures are made with information pursuant to the data authorities under the proposed interpretation. The
outside of the requirements of Exchange Act section access provisions, and, more generally, proposed requirement that the repository inform the
13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G), particularly Commission when the relevant authority first
to facilitate the Commission’s ongoing requests access to security-based swap data
when a dually regulated data repository makes
disclosure pursuant to foreign law, or when the assessment of the repository’s maintained by the repository, and to retain records
Commission provides security-based swap data to compliance with the data access of subsequent access, is designed to facilitate such
an entity. provisions. The Commission also direct access.
75 See proposed Exchange Act rule 13n–4(e). The 81 See Dodd-Frank Act section 763(i) (addressing
believes that commenter concerns that ‘‘public reporting and repositories for security-
rule does not require the repository to proactively
inform the Commission of subsequent requests.
other regulators may be reluctant to based swaps,’’ including the addition of section
76 Exchange Act section 13(n)(5)(G), 15 U.S.C. place the Commission on notice of such 13(n), 15 U.S.C. 78m(n), to the Exchange Act to
78m(n)(5)(G), and proposed rule 13n–4(b)(9) both initial requests are mitigated by the address security-based swap data repositories); see
generally Subtitle B to Title VII of the Dodd-Frank
require that a repository must make data available Commission’s long history of Act, section 761 et seq. (addressing ‘‘Regulation of
‘‘on a confidential basis.’’ Failure by a repository to cooperation with other authorities in
treat such notifications and requests as confidential Security-Based Swap Markets’’).
could have adverse effects on the underlying basis supervisory and enforcement matters.80 82 In particular, the confidentiality condition to
for the requests. If, for example, a regulatory use of the data access provisions specifically requires that
the data is improperly disclosed, such disclosure 78 See DTCC comment (Aug. 13, 2013) (‘‘DTCC the recipient entity abide by confidentiality
could signal a pending investigation or enforcement discourages the Commission from requiring a requirements for ‘‘the information on security-based
action, which could have detrimental effects. notification requirement upon initial request as swap transactions that is provided,’’ suggesting that
77 See proposed Exchange Act rule 13n–4(e). suggested by the Cross-Border Proposal. Authorities the Exchange Act data access provisions are
will likely be hesitant to make such request to an intended solely to address security-based swap
We note that Exchange Act rule 13n–7(b)(1)
SDR if it triggers a notice to another authority, data. See Exchange Act section 13(n)(5)(H)(i), 15
requires security-based swap data repositories to
particularly if such request is pursuant to an U.S.C. 78m(n)(5)(H)(i).
maintain copies of ‘‘all documents and policies and
procedures required by the Act and the rules and investigation. DTCC proposes that the Commission Moreover, this approach is consistent with the
regulations thereunder, correspondence, consider notification to be deemed satisfied if the CFTC’s comparable rules, which apply only to swap
memoranda, papers, books, notices, accounts and request is made by an entity to the SDR pursuant data. See 17 CFR 49.17(d) and 49.18 (discussing
regulators’ access to swap data under the CEA).
tkelley on DSK3SPTVN1PROD with PROPOSALS2
other such records as shall be made or received by to an established information sharing
arrangement[.]’’). 83 See proposed Exchange Act rule 13n–4(b)(9).
it in the course of its business as such.’’ See also
79 See parts II.B and III.B, infra. 84 See Exchange Act section 13(n)(5)(H)(i), 15
SDR Adopting Release, 80 FR 14501 (‘‘This rule
includes all electronic documents and 80 The Commission also recognizes that the same U.S.C. 78m(n)(5)(H)(i).
correspondence, such as data dictionaries, emails commenter stated that ‘‘regulators want direct Exchange Act section 24, 15 U.S.C. 78x, generally
and instant messages, which should be furnished in electronic access to data in SDRs where that data addresses disclosures of information by the
their original electronic format.’’). Proposed is needed to fulfill regulatory responsibilities’’ Commission and its personnel. In relevant part it
Exchange Act rule 13n–4(e) identifies specific types rather than access ‘‘by request, with notice to provides that the Commission may, ‘‘in its
of records that must be maintained in the specific another regulatory authority.’’ See DTCC comment discretion and upon a showing that such
context of access request to repositories. (Jan. 24, 2011) at 11–12. Data repositories in fact Continued
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III. Proposed Exemption From the As a result, application of the U.S. security-based swap data
Indemnification Requirement indemnification requirement may chill repositories. Under such circumstances,
some requests by regulators or other it is possible that EU authorities may be
A. Proposed Exemption
authorities for access to security-based unwilling to permit the Commission
The Exchange Act also conditions the swap data, which would hinder those and other U.S. regulators to access
data access requirement on each authorities’ ability to address their own security-based swap data from EU
recipient entity agreeing ‘‘to indemnify regulatory mandate or legal repositories. The resulting concerns
the security-based swap data repository responsibility or authority.93 The associated with a lack of regulatory
and the Commission for any expenses resulting lack of access also may impair access to security-based swap data are
arising from litigation relating to coordination among regulators with particularly significant given that data
information provided under section regard to the oversight of market access allows relevant authorities to be
24.’’ 89 participants that engage in security- in a better position to, among other
Pursuant to the Commission’s based swap transactions across national things, monitor risk exposures of
authority under Exchange Act section boundaries. For example, European individual counterparties to swap and
36,90 the Commission is proposing a Union (‘‘EU’’) law provides that the security-based swap transactions,
conditional exemption from that ability of certain non-EU regulators to monitor concentrations of risk
statutory indemnification requirement. access data from EU repositories is exposures and evaluate risks to financial
This proposed exemption would be conditioned on there being an stability.95
effective whenever the applicable international agreement that ensures Such a result associated with
conditions are met, in contrast with the that EU authorities have ‘‘immediate application of the indemnification
earlier proposal, which would have and continuous access to all of the requirement further may make
conditionally exempted regulators and information needed for the exercise of substituted compliance unavailable in
other authorities from the their duties.’’ 94 As a result, application connection with security-based swap
indemnification requirement only at the of the indemnification requirement data reporting requirements, given that
election of the data repository.91 without an exemption being available under rules adopted by the Commission
This proposed exemption reflects the potentially could preclude EU the availability of substituted
Commission’s preliminary concern that authorities from accessing data from compliance for those requirements is
requiring authorities to agree to provide predicated in part on the Commission’s
indemnification could lead to negative expressly identified in Exchange Act section ability to directly access data in foreign
consequences in practice. The 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G), as a matter of repositories.96
Commission continues to understand law cannot provide an open-ended indemnification The Commission recognizes that
that certain authorities may be legally agreement. See Cross-Border Proposing Release, 78
FR 31048–49 (particularly noting that the
indemnification may help support
prohibited or otherwise limited from Antideficiency Act prohibits certain U.S. federal confidentiality safeguards by making a
agreeing to indemnify data repositories agencies from obligating or expending federal funds recipient liable for expenses that a
or the Commission for expenses arising in advance or in excess of an appropriation, repository or the Commission incurs in
in connection with the information apportionment, or certain administrative
connection with breaches of
received from a repository.92 subdivisions of those funds, e.g., through an
unlimited or unfunded indemnification). confidentiality. Nonetheless, the
93 See DTCC cross-border comment (Aug. 21,
89 Exchange Act section 13(n)(5)(H)(ii), 15 U.S.C.
2013) at 6 (‘‘The continued presence of the 95 See Darrell Duffie, Ada Li, and Theo Lubke,
78m(n)(5)(H)(ii). As discussed below, see part IV, Indemnification Provision (even as modified by the Policy Perspectives of OTC Derivatives Market
infra, the statutory indemnification requirement exemption in the Cross-Border Proposal) may pose Infrastructure, Federal Reserve Bank of New York
would not always be triggered by the disclosure of problems for Commission-regulated, U.S.-based Staff Report No. 424, dated January 2010, as revised
security-based swap information. SDRs and their ability to share information with March 2010 (with data from repositories regulators
In the event that the proposed exemption is third-party regulatory authorities. As a result, can ‘‘explore the sizes and depths of the markets,
unavailable, the Commission agrees with one foreign regulators may seek to establish their own as well as the nature of the products being traded.
commenter’s view that ‘‘any indemnity should be ‘national’ repositories to ensure access to the With this information, regulators are better able to
limited in scope to minimize the potential information they need, fragmenting the data among identify and control risky market practices, and are
reduction in value of registered SDRs to the jurisdictions. Similarly, non-U.S. trade repositories better positioned to anticipate large market
regulatory community.’’ See DTCC comment (Jan. may find themselves subject to similar reciprocal movements.’’); see also DTCC comment (June 3,
24, 2011) at 12. Consistent with that view, as stated impediments to sharing information with the 2011) at 5 (noting that a data repositories should be
in the Cross-Border Proposing Release, the Commission or other U.S. regulatory agencies able to provide: (i) Enforcement authorities with
Commission would not expect that an absent a confidentiality and indemnification necessary trading information; (ii) regulatory
indemnification agreement would include a agreement.’’); see also DTCC comment (Nov. 15, agencies with counterparty-specific information
provision requiring a relevant authority to 2010) at 3 (‘‘DTCC remains concerned that about systemic risk based on trading activity; (iii)
indemnify the repository from the repository’s own regulators are not likely to grant SDRs aggregate trade information on market-wide activity
wrongful or negligent acts. See Cross-Border indemnification in exchange for access to the and aggregate gross and net open interest for
Proposing Release, 78 FR 31051 n.829. information and, accordingly, regulators may publication; and (iv) real-time reporting from
90 15 U.S.C. 78mm (providing the Commission
actually receive less aggregated market data. Such [security-based swap execution facilities] and
with general exemptive authority . . . ‘‘to the an outcome would result in a reduction of bilateral counterparties and related dissemination).
extent that such exemption is necessary or information accessible to regulators on a timely 96 See Regulation SBSR, rule 908(c)(2)(iii)(C), 17
appropriate in the public interest, and is consistent basis both domestically and internationally, which CFR 242.908(c)(2)(iii)(C) (conditioning the
with the protection of investors’’). contravenes the purpose of SDRs and jeopardizes availability of substituted compliance in part on the
91 To implement this approach, the Commission market stability.’’); Cleary Gottlieb comment (Sept. Commission having ‘‘direct electronic access to the
proposes in relevant part that the indemnification 20, 2011) at 31 (‘‘[T]he indemnification requirement security-based swap data held by a trade repository
requirement conditionally ‘‘shall not be applicable’’ could be a significant impediment to effective or foreign regulatory authority to which security-
with regard to the repository’s disclosure of regulatory coordination, since non-US regulators based swaps are reported pursuant to the rules of
tkelley on DSK3SPTVN1PROD with PROPOSALS2
security-based swap information. See proposed may establish parallel requirements for U.S. that foreign jurisdiction’’); see also Exchange Act
Exchange Act rule 13n–4(d)(1). The earlier proposal regulators to access swap data reported in their Release No. 74244 (Feb. 11, 2015), 80 FR 14564,
would have conditionally provided that a registered jurisdictions.’’); ESMA comment (Jan. 17, 2011) at 14661 (Mar.19, 2015) (‘‘Regulation SBSR Adopting
security-based swap data repository ‘‘is not required 2 (‘‘We believe that ensuring confidentiality is Release’’) (‘‘granting substituted compliance
to comply’’ with the indemnification requirement. essential for exchanging information among without direct electronic access would not be
See Cross-Border Proposing Release, 78 FR 31209 regulators and such indemnification agreement consistent with the underlying premise of
(paragraph (d) of proposed rule 13n–4). undermines the key principle of trust according to substituted compliance: That a comparable
92 As stated in the Cross-Border Proposing which exchange of information should occur.’’). regulatory result is reached through compliance
Release, the Commission recognizes that certain 94 See EU regulation 648/2012 (‘‘EMIR’’), art. with foreign rules rather than with the
domestic authorities, including some of those 75(2). corresponding U.S. rules.’’).
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to particular types of information access security-based swap data via the foreign securities authority’s request
requests, and would provide direction authority that is independent of the for assistance.112
to repositories regarding which above provisions. In those In addition, the Commission may
disclosures would be covered by the circumstances, the Commission share ‘‘nonpublic information in its
indemnification exemption.106 preliminarily believes that the possession’’ with, among others, any
conditions associated with those data ‘‘federal, state, local, or foreign
D. Request for Comment access provisions—particularly the government, or any political
The Commission requests comment provisions regarding indemnification, subdivision, authority, agency or
on all aspects of the proposed notification and confidentiality instrumentality of such government . . .
exemption to the statutory agreements—should not govern access [or] a foreign financial regulatory
indemnification requirement. arising from such independent authority.’’ 113 This authority is subject
Commenters particularly are invited to authority. to the recipient providing ‘‘such
address whether the exemption’s assurances of confidentiality as the
A. Data Access Authorized by Foreign Commission deems appropriate.’’ 114
proposed scope would adequately
Law In the Commission’s view, and
address the concerns associated with
implementing the indemnification The Commission continues to believe consistent with Commission practice for
requirement. Among other things, preliminarily, as discussed in the Cross- many years, these sections provide the
commenters are invited to address Border Proposing Release, that ‘‘the Commission with separate, additional
whether alternative approaches or other Indemnification Requirement does not authority to assist domestic and foreign
considerations more effectively reflect apply when an SDR is registered with authorities in certain circumstances,
the access and confidentiality interests the Commission and is also registered or such as, for example, by providing
associated with the Dodd-Frank Act? licensed with a foreign authority and security-based swap data directly to the
Also, should additional conditions be that authority is obtaining security- authority. At those times, the authority
incorporated into the exemption? based swap information directly from would receive information not from the
Commenters further are invited to the SDR pursuant to that foreign data repository, but instead from the
address whether the proposal authority’s regulatory regime.’’ 108 In Commission.
appropriately would make use of an those circumstances, the dually
registered data repository would be C. Request for Comment
MOU or other arrangement to provide
sufficient guidance to a repository subject to a data access obligation that The Commission requests comment
regarding an entity’s regulatory is independent of the Exchange Act data on these preliminary interpretations
mandate, or legal responsibility or access obligation, and the notification, regarding the scope of the data access
authority in connection with a request confidentiality and indemnification requirement and conditions set forth in
for security-based swap data. In this conditions to the Exchange Act data Exchange Act sections 13(n)(5)(G) and
respect, would the proposed approach access provision would not apply. (H).
provide a repository with an adequate B. Receipt of Information Directly From V. Paperwork Reduction Act
degree of guidance regarding which the Commission Certain provisions of the proposed
disclosures of information may or may
The Exchange Act also provides that rules contain ‘‘collection of
not be subject to protection? Are there
relevant authorities may obtain security- information’’ requirements within the
particular criteria that would be useful
based swap data from the Commission, meaning of the Paperwork Reduction
for incorporating into the MOU or other
rather than directly from data Act of 1995 (‘‘PRA’’).115 The SEC has
arrangement to help delimit which
repositories.109 submitted them to the Office of
information would fall within an First, Exchange Act section Management and Budget (‘‘OMB’’) for
entity’s regulatory mandate, or legal 21(a)(2) 110 states that, upon request of a review in accordance with 44 U.S.C.
responsibility or authority? foreign securities authority, the 3507 and 5 CFR 1320.11. The title of the
IV. Applicability of Exchange Act Data Commission may provide assistance in new collection of information is
Access and Indemnification Provisions connection with an investigation the ‘‘Security-Based Swap Data Repository
foreign securities authority is Data Access Requirements.’’ An agency
The Exchange Act provisions
conducting to determine whether any may not conduct or sponsor, and a
addressed above—sections 13(n)(5)(G)
person has violated, is violating or is
and (H) 107—establish one means by
about to violate any laws or rules 112 Exchange Act section 21(a)(2), 15 U.S.C.
which certain regulators and other 78u(a)(2), also states that the Commission may
relating to securities matters that the
authorities may access security-based provide such assistance without regard to whether
requesting authority administers or
swap data from repositories. It is the facts stated in the request also would constitute
enforces.111 That section further a violation of U.S. law.
important to recognize, however, that
provides that, as part of this assistance, That section further states that when the
those provisions do not exclusively
the Commission in its discretion may Commission decides whether to provide such
govern the means by which such assistance to a foreign securities authority, the
conduct an investigation to collect
regulators or other authorities might Commission shall consider whether the requesting
information and evidence pertinent to
access security-based swap data. authority has agreed to provide reciprocal
In particular, in the circumstances assistance in securities matters to the United States,
108 See Cross-Border Proposing Release, 78 FR and whether compliance with the request would
discussed below, regulators and other 31049 n.807. prejudice the public interest of the United States.
authorities in certain circumstances may
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109 See Cross-Border Proposing Release, 78 FR 113 See Exchange Act rule 24c–1(c) (implementing
31045. Exchange Act section 24(c), 15 U.S.C. 78x(c), which
106 The Commission anticipates that data 110 15 U.S.C. 78u(a)(2). states that the Commission may, ‘‘in its discretion
repositories would be able to rely on the guidance 111 Exchange Act section 3(a)(50), 15 U.S.C. and upon a showing that such information is
provided by such arrangements when assessing 78c(a)(50), broadly defines ‘‘foreign securities needed,’’ provide records and other information ‘‘to
whether particular information would be subject to authority’’ to include ‘‘any foreign government, or such persons, both domestic and foreign, as the
the indemnification exemption, thus permitting an any governmental body or regulatory organization Commission by rule deems appropriate,’’ subject to
authority to access that information without an empowered by a foreign government to administer assurances of confidentiality).
indemnification agreement. or enforce its laws as they relate to securities 114 See id.
107 15 U.S.C. 78m(n)(5)(G) and (H). matters.’’ 115 44 U.S.C. 3501 et seq.
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A. Economic Considerations that framework for repositories to expected to provide the Commission
provide data access to other relevant and other relevant authorities with a
1. Title VII Transparency Framework
entities in order to fulfill their better understanding of the actual and
The security-based swap market prior regulatory mandate, or legal potential risks in the market and
to the passage of the Dodd-Frank Act responsibility or authority. promote better risk monitoring efforts.
has been described as being opaque, in The information provided by security-
part because transaction-level data were 2. Transparency in the Market for
based swap data repositories also may
not widely available to market Security-Based Swaps
be expected to help the Commission and
participants or to regulators.135 To The proposed data access rules and other relevant authorities investigate
increase the transparency of the over- indemnification exemption, in market manipulation, fraud and other
the-counter derivatives market to both conjunction with the transparency- market abuses.
market participants and regulatory related requirements generally
authorities, Title VII requires the applicable to security-based swap data 3. Global Nature of the Security-Based
Commission to undertake a number of repositories, are designed to, among Swap Market
rulemakings, including rules the other things, make available to the As highlighted in more detail in the
Commission adopted earlier this year to Commission and other relevant Economic Baseline below, the security-
address the registration process, duties authorities data that will provide a based swap market is a global market.
and core principles applicable to broad view of the security-based swap Based on market data in the Depository
security-based swap data market and help monitor for pockets of Trust and Clearing Corporation’s Trade
repositories,136 and to address risk and potential market abuses that Information Warehouse (‘‘DTCC–TIW’’),
regulatory reporting and public might not otherwise be observed by the Commission estimates that only 12
dissemination of security-based swap those authorities.139 Unlike most other percent of the global transaction volume
information.137 Among other matters, securities transactions, security-based that involves either a U.S.-domiciled
those rules address market transparency swaps involve ongoing financial counterparty or a U.S-domiciled
by requiring security-based swap data obligations between counterparties reference entity (as measured by gross
repositories, absent an exemption, to during the life of transactions that notional) between 2008 and 2014 was
collect and maintain accurate security- typically span several years. between two U.S.-domiciled
based swap transaction data, and Counterparties to a security-based swap counterparties, compared to 48 percent
address regulatory transparency by rely on each other’s creditworthiness entered into between one U.S.-
requiring security-based swap data and bear this credit risk and market risk domiciled counterparty and a foreign-
repositories to provide the Commission until the security-based swap terminates domiciled counterparty and 40 percent
with direct electronic access to such or expires. This can lead to market entered into between two foreign-
data.138 instability when a large market domiciled counterparties.141
Consistent with the goal of increasing participant, such as a security-based In light of the security-based swap
transparency to regulators, the data swap dealer, major security-based swap market’s global nature there is the
access provisions at issue here set forth market participant, or central possibility that regulatory data may be
a framework for security-based swap counterparty (‘‘CCP’’) becomes fragmented across jurisdictions,
data repositories to provide access to financially distressed. The default of a particularly because a large fraction of
security-based swap data to relevant large market participant could introduce transaction volume includes at least one
authorities other than the Commission. the potential for sequential counterparty counterparty that is not a U.S. person 142
The proposed rules would implement failure; the resulting uncertainty could and the applicable U.S. regulatory
reduce the willingness of market reporting rules depend on the U.S.
135 With respect to one type of security-based
participants to extend credit, and person status of the counterparties.143
swap, credit default swaps (‘‘CDSs’’), the substantially reduce liquidity and
Government Accountability Office found that As discussed further below,
‘‘comprehensive and consistent data on the overall valuations for particular types of
market have not been readily available,’’ financial instruments.140 141 The data the Commission receives from the
‘‘authoritative information about the actual size of A broad view of the security-based DTCC–TIW does not include transactions between
the [CDS] market is generally not available’’ and swap market, including information two non-U.S. domiciled counterparties that
regulators currently are unable ‘‘to monitor reference a non-U.S. entity or security. This is
activities across the market.’’ Government regarding aggregate market exposures to approximately 19 percent of global transaction
Accountability Office, GAO–09–397T, Systemic particular reference entities (or volume. See note 152, infra. Therefore, factoring in
Risk: Regulatory Oversight and Recent Initiatives to securities), positions taken by these transactions, approximately 10 percent of
Address Risk Posed by Credit Default Swaps, at 2, individual entities or groups, and data global transaction volume involves two U.S.-
5, 27, (2009) available at: http://www.gao.gov/ domiciled counterparties, 39 percent involve one
new.items/d09397t.pdf; see also Robert E. Litan, elements necessary to determine the U.S.-domiciled counterparty and one foreign
The Derivatives Dealers’ Club and Derivatives market value of the transaction, may be counterparty, and 51 percent are between two
Market Reform: A Guide for Policy Makers, Citizens foreign-domiciled counterparties.
and Other Interested Parties, Brookings Institution 139 See, e.g., Exchange Act section 13(n)(5)(D), 15 142 This statement is based on staff analysis of
(Apr. 7, 2010), http://www.brookings.edu/∼/media/ U.S.C. 78m(n)(5)(D), and rule 13n–4(b)(5) (requiring voluntary CDS transaction data reported to the
research/files/papers/2010/4/ SDRs to provide direct electronic access to the DTCC–TIW, which includes self-reported
07%20derivatives%20litan/0407_derivatives_ Commission). See also 156 Cong. Rec. S5920 (daily counterparty domicile. See note 161, infra. The
litan.pdf; Michael Mackenzie, Era of an Opaque ed. July 15, 2010) (statement of Sen. Lincoln) Commission notes that the DTCC–TIW entity
Swaps Market Ends, Financial Times, June 25, (‘‘These new ‘data repositories’ will be required to domicile may not be completely consistent with the
2010, available at: http://www.ft.com/intl/cms/s/0/ register with the CFTC and the SEC and be subject Commission’s definition of ‘‘U.S. person’’ in all
f49f635c-8081-11df-be5a-
tkelley on DSK3SPTVN1PROD with PROPOSALS2
to the statutory duties and core principles which cases but preliminarily believes that these two
00144feabdc0.html#axzz3HLUjYNI7. will assist the CFTC and the SEC in their oversight characteristics have a high correlation.
136 See SDR Adopting Release, note 13, supra.
and market regulation responsibilities.’’). 143 See Regulation SBSR rule 908(a) (generally
137 See Regulation SBSR Adopting Release. 140 See, e.g., Markus K. Brunnermeier and Lasse requiring regulatory reporting and public
138 See Exchange Act rule 13n–5 (requiring Heje Pedersen, Market Liquidity and Funding dissemination when at least one direct or indirect
repositories to comply with data collection and data Liquidity, 22 Review of Financial Studies 2201 counterparty is a U.S. person). Note that current
maintenance standards related to transaction and (2009); Denis Gromb and Dimitri Vayanos, A Model voluntary reporting considers the self-reported
position data); Exchange Act rule 13n–4(b)(5) of Financial Market Liquidity Based on domicile of the counterparty but the recently
(requiring repositories to provide direct electronic Intermediary Capital, 8 Journal of the European adopted SBSR rules consider the counterparty’s
access to the Commission and its designees). Economic Association 456 (2010). status as a U.S. person.
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The CFTC has provisionally registered information.170 Accordingly, the this section, we first discuss the general
four swap data repositories.165 These Commission envisions that registered costs and benefits of the proposed rules,
swap data repositories are: BSDR LLC, security-based swap data repositories, including the benefits of reducing data
Chicago Mercantile Exchange Inc., by storing the security-based swap fragmentation, data duplication and
DTCC Data Repository LLC, and ICE transaction and position data required enhancing regulatory oversight, as well
Trade Vault, LLC. The Commission to be reported to them by market as the risks associated with potential
believes that these entities will likely participants, will become an essential breaches of data confidentiality. Next,
register with the Commission as part of the infrastructure of the market we discuss the effects of the rules on
security-based swap data repositories in part by providing the data to relevant efficiency, competition and capital
and that other persons may seek to authorities in accordance with their formation. Finally, we discuss specific
register with both the CFTC and the regulatory mandate, or legal costs and benefits linked to the
Commission as swap data repositories responsibility or authority. proposed rules.
and security-based swap data In proposing these rules to implement
the Exchange Act data access 1. General Costs and Benefits
repositories, respectively.166
requirement and to provide a As discussed above, the proposed
Efforts to regulate the swap and conditional exemption from the rules would implement the statutory
security-based swap markets are indemnification requirement, the provisions that require a security-based
underway not only in the United States, Commission has attempted to balance swap data repository to disclose
but also abroad. Consistent with the call different goals. On the one hand, the information to certain relevant
of the G20 leaders for global Commission preliminarily believes that authorities, conditional upon the
improvements in the functioning, the proposed rules will facilitate the authority agreeing to keep the
transparency and regulatory oversight of sharing of information held by information confidential and to
OTC derivatives markets,167 substantial repositories with relevant authorities, indemnify the repository and the
progress has been made in establishing which should assist those authorities in Commission for any expenses arising
the trade repository infrastructure to acting in accordance with their from litigation relating to the
support the reporting of OTC derivatives regulatory mandate, or legal information provided. The proposal also
transactions.168 Currently, multiple responsibility or authority. At the same would set forth a conditional exemption
trade repositories operate, or are time, although regulatory access raises from the requirement that entities
undergoing approval processes to do so, important issues regarding the requesting data agree to provide
in a number of different jurisdictions.169 confidentiality of the information, the indemnification. The exemption would
Combined with the fact that the Commission preliminarily believes that be conditional on the requested
requirements for trade reporting differ the proposed rules should appropriately information relating to a regulatory
across jurisdictions, the result is that reduce the risk of breaching the mandate and/or legal responsibility of
security-based swap data is fragmented confidentiality of the data by providing the entity requesting the data, and on
across many locations, stored in a for a reasonable assurance that the entity entering into an MOU with
variety of formats, and subject to many confidentiality will be maintained the Commission addressing the
different rules for authorities’ access. before access is granted. confidentiality of the information
The data in these trade repositories Additionally, we note that the provided and any other matters as
accordingly will need to be aggregated magnitude of the costs and benefits of determined by the Commission.
in various ways if authorities are to the proposed rules depend in part on a. Anticipated Benefits
obtain a comprehensive and accurate the type of access granted to relevant
The proposed rules should facilitate
view of the global OTC derivatives authorities. Ongoing, unrestricted direct
access to security-based swap
markets. electronic access by relevant authorities
transaction and position data by entities
may be most beneficial in terms of
C. Economic Costs and Benefits, that require such information to fulfill
facilitating efficient access to data
Including Impact on Efficiency, their regulatory mandate or legal
necessary for those authorities to act in
Competition, and Capital Formation responsibility or authority. Market
accordance with their regulatory
participants accordingly should benefit
As discussed above, the security- mandate, or legal responsibility or
from relevant domestic authorities other
based swap market to date largely has authority, but at the cost of increasing
than the Commission having access to
developed as an opaque OTC market the risk of improper disclosure of
the data necessary to fulfill their
with limited dissemination of confidential information. Restricting
responsibilities. In particular, such
transaction-level price and volume each relevant authority’s access to only
access could help promote stability in
that data consistent with that authority’s
the security-based swap market
regulatory mandate, or legal
of previously executed transactions. Transactions particularly during periods of market
terminated or entered into in connection with a responsibility or authority reduces the
turmoil,171 and thus could indirectly
compression exercise, and expiration of contracts at quantity of data that could become
maturity, are not considered price-forming and are contribute to improved stability in
subject to improper disclosure. On the
therefore excluded, as are replacement trades and related financial markets, including
other hand, restricting a relevant
all bookkeeping-related trades. equity and bond markets.172
165 CFTC rule 49.3(b) provides for provisional authority’s access to data may make it
registration of a swap data repository. 17 CFR more difficult for it to effectively act in 171 SDR Adopting Release, 80 FR 14531
49.3(b). accordance with its regulatory mandate
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(‘‘Enhanced transparency could produce additional
166 For the purpose of estimating PRA related
or legal responsibility or authority. market-wide benefits by promoting stability in the
costs, the number of swap data repositories is [security-based swap] market, particularly during
estimated to be as high as ten. See part V.C, supra.
The potential economic effects
periods of market turmoil, and it should indirectly
167 See note 148, supra, and accompanying text. stemming from the proposed rules can contribute to improved stability in related financial
168 See Eighth Progress Report on Implementation be grouped into several categories. In markets, including equity and bond markets.’’).
of OTC Derivatives Market Reforms (Nov. 2014), 172 See Darrell Duffie, Ada Li, and Theo Lubke,
available at: http://www.financialstabilityboard.org/ 170 See part VI.B.1, supra (addressing limited Policy Perspectives of OTC Derivatives Market
wp-content/uploads/r_141107.pdf. information currently available to market Infrastructure, Federal Reserve Bank of New York
169 Id. participants and regulators). Staff Report No. 424 (Jan. 2010, as revised Mar.
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Moreover, as noted in part II.A(3)(a), stability through enhanced regulatory regulators to better craft regulation to
the Commission anticipates, when transparency. Security-based swap data achieve desired goals.
making a determination concerning a repositories registered with the In addition, the Commission believes
relevant authority’s access to security- Commission are required to retain that providing relevant foreign
based swap data, considering whether complete records of security-based swap authorities with access to data
the relevant authority agrees to provide transactions and maintain the integrity maintained by repositories may help
the Commission and other U.S. of those records.175 Based on reduce costs to market participants by
authorities with reciprocal assistance in discussions with other regulators, the reducing the potential for duplicative
matters within their jurisdiction. Commission believes repositories security-based swap transaction
Allowing access to security-based swap registered with other authorities are reporting requirements in multiple
data held by registered security-based likely to have comparable requirements. jurisdictions.177 The Commission
swap data repositories by non-U.S. As a result, rules to facilitate regulatory anticipates that relevant foreign
authorities may be expected to help access to those records in line with the authorities will likely impose their own
facilitate the Commission’s own ability recipient authorities’ regulatory reporting requirements on market
to access data held by repositories mandate, or legal responsibility or participants within their
outside the United States.173 authority are designed to help position jurisdictions.178 Given the global nature
Accordingly, to the extent the the Commission and other authorities of the security-based swap market and
Commission obtains access, the to: detect market manipulation, fraud the large number of cross-border
proposed rules further may be expected and other market abuses; monitor the transactions, the Commission recognizes
to assist the Commission in fulfilling its financial responsibility and soundness that it is likely that such transactions
regulatory responsibilities, including by of market participants; perform market may be subject to the reporting
detecting market manipulation, fraud surveillance and macroprudential requirements of at least two
and other market abuses by providing supervision; resolve issues and jurisdictions.179 However, the
the Commission with greater access to positions after an institution fails; Commission preliminarily believes that
global security-based swap monitor compliance with relevant if relevant authorities are able to access
information.174 regulatory requirements; and respond to security-based swap data in trade
The ability of other relevant market turmoil.176 repositories outside their jurisdiction,
authorities to access data held in trade Additionally, improving the such as repositories registered with the
repositories registered with the availability of data regarding the Commission, as needed, then relevant
Commission, as well as the ability of the security-based swap market should give authorities may be more inclined to
Commission to access data held in the Commission and other relevant permit market participants involved in
repositories registered with other authorities improved insight into how such transactions to fulfill their
regulators, may be especially crucial regulations are affecting, or may affect, reporting requirements by reporting the
during times of market turmoil. the market. This may be expected to transactions to a single trade
Increased data sharing should provide help increase regulatory effectiveness by repository.180 If market participants can
the Commission and other relevant allowing the Commission and other report a transaction to a single trade
authorities more-complete information repository rather than to separate trade
to monitor risk exposures taken by 175 See SDR Adopting Release, 80 FR 14531 (‘‘The repositories in each applicable
individual entities and exposures SDR Requirements [Exchange Act section 13(n) and
connected to particular reference the rules and regulations thereunder], including 177 Cf. Cleary Gottlieb comment (Sept. 20, 2011)
requirements that SDRs register with the at 31 (the indemnification requirement ‘‘could be a
entities, and should promote global Commission, retain complete records of [security- significant impediment to effective regulatory
based swap] transactions, maintain the integrity and coordination, since non-U.S. regulators may
2010), note 95, supra (‘‘Transparency can have a confidentiality of those records, and disseminate establish parallel requirements for U.S. regulators to
calming influence on trading patterns at the onset appropriate information to the public are intended access swap data reported in their jurisdictions.’’).
of a potential financial crisis, and thus act as a to help ensure that the data held by SDRs is reliable 178 For example, EU law requires that
source of market stability to a wider range of and that the SDRs provide information that counterparties to derivatives contracts report the
markets, including those for equities and bonds.’’). contributes to the transparency of the [security- details of the contract to a trade repository,
173 See note 94, supra, and accompanying text. based swap] market while protecting the registered or recognized in accordance with EU law,
174 See SDR Adopting Release, 80 FR 14450 confidentiality of information provided by market no later than the working day following the
(‘‘Requiring U.S. persons that perform the functions participants.’’); see also Exchange Act section conclusion, modification or termination of the
of an SDR to be operated in a manner consistent 13(n)(5)(C), 15 U.S.C. 78m(n)(5)(c) (requiring SDRs contract. See EMIR art. 9; see also EC Delegated
with the Title VII regulatory framework and subject to maintain security-based swap data)); Exchange Regulation no. 148/2013 (regulatory technical
to the Commission’s oversight, among other things, Act rules 13n–5(b)(3) and (4) (requiring SDRs to standards implementing the reporting requirement).
helps ensure that relevant authorities are able to establish, maintain, and enforce policies and 179 For example, as noted above, market data
monitor the build-up and concentration of risk procedures reasonably designed to ensure that regarding single-name CDS transactions involving
exposure in the [security-based swap] market, transaction data and positions are accurate and to U.S.-domiciled counterparties and/or U.S.-
reduce operational risk in that market, and increase maintain the transaction data and positions for domiciled reference entities indicates that 13
operational efficiency.’’); id. at 14529 (‘‘In specified periods of time). percent of such transactions involve two U.S.-
conjunction with Regulation SBSR, the SDR Rules 176 See, e.g., SDR Proposing Release, 75 FR 77307,
domiciled counterparties, while 48 percent involve
should assist the Commission in fulfilling its 77356, corrected at 76 FR 79320 (stating that the a U.S.-domiciled counterparty and a foreign-
regulatory mandates and legal responsibilities such ‘‘data maintained by an SDR may also assist domiciled counterparty. See note 141, supra, and
as detecting market manipulation, fraud, and other regulators in (i) preventing market manipulation, accompanying text.
market abuses by providing it with greater access fraud, and other market abuses; (ii) performing 180 For example, EU law anticipates the
to [security-based swap] information than that market surveillance, prudential supervision, and possibility that market participants may be able to
provided under the voluntary reporting regime.’’); macroprudential (systemic risk) supervision; and satisfy their EU reporting obligations by reporting
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see also DTCC comment (Nov. 15, 2010) at 1 (‘‘A (iii) resolving issues and positions after an to a trade repository established in a third country,
registered SDR should be able to provide (i) institution fails,’’ and further stating that ‘‘increased so long as that repository has been recognized by
enforcement agents with necessary information on transparency on where exposure to risk reside in the European Securities and Markets Authority. See
trading activity; (ii) regulatory agencies with financial markets . . . will allow regulators to EMIR art. 77; see also Regulation SBSR, rule 908(c)
counterparty-specific information about systemic monitor and act before the risks become (providing that to the extent that the Commission
risk based on trading activity; (iii) aggregate trade systemically relevant. Therefore, SDRs will help has issued a substituted compliance order/
information for publication on market-wide achieve systemic risk monitoring.’’); Cross-Border determination, compliance with Title VII regulatory
activity; and (iv) a framework for real-time reporting Proposing Release, 78 FR 31186–31187 (discussing reporting and public dissemination requirements
from swap execution facilities and derivatives benefits of providing relevant foreign authorities may be satisfied by compliance with the
clearinghouses.’’). with access to data maintained by SDRs). comparable rules of a foreign jurisdiction).
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![55204 Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Proposed Rules
jurisdiction, their compliance costs may discuss below, this may ultimately lead indemnify the Commission and the
be reduced. Similarly, to the extent that to reduced trading activity and liquidity repository for any expenses arising from
security-based swap data repositories in the market, hindering price discovery litigation relating to the information
provide additional ancillary services,181 and impeding the capital formation provided.190 While the proposal also
if market participants choose to make process.186 conditionally exempts the relevant
use of such services, they would likely To help mitigate these risks and authority requesting data from the
find such services that make use of all potential costs to market participants, indemnification requirement, it does so
of their data held in a single trade the Exchange Act and the proposed only if the requested information relates
repository more useful than services rules impose certain conditions on to a regulatory mandate or legal
that are applied only to a portion of that relevant authorities’ access to data responsibility or authority of the entity
market participant’s transactions. maintained by repositories.187 In part, requesting the data, and there is in effect
Ancillary services applied to only a the Exchange Act and the proposed an arrangement between the
portion of a participant’s transactions rules limit the authorities that may Commission and such relevant authority
could result if data were divided across access data maintained by a security- that addresses the confidentiality of the
multiple repositories as a result of based swap data repository to a specific information provided.191 The
regulations requiring participants to list of domestic authorities and other arrangement should further reduce the
report data to separate trade repositories persons, including foreign authorities, likelihood of confidential trade or
in each applicable jurisdiction. determined by the Commission to be position data being inadvertently made
appropriate,188 and further require that public.
b. Anticipated Costs a repository notify the Commission Although the statutory
The Commission believes that when the repository receives an indemnification requirement could
although there are benefits to security- authority’s initial request for data provide a strong incentive for relevant
based swap data repositories providing maintained by the repository.189 authorities to take appropriate care in
access to relevant authorities to data Restricting access to security-based safeguarding data they might receive
maintained by the repositories, such swap data available to relevant from a registered SDR, the Commission
access will likely involve certain costs authorities should reduce the risk of recognizes the significance of
and potential risks. For example, the unauthorized disclosure, commenter concerns regarding the
Commission expects that repositories misappropriation or misuse of security- impact of requiring indemnification,192
will maintain data that are proprietary based swap data because each relevant and understands that certain authorities
and highly sensitive 182 and that are authority will only have access to may be unable to agree to indemnify a
subject to strict privacy requirements.183 information within its regulatory data repository and the Commission.
Extending access to such data to mandate, or legal responsibility or Therefore, the Commission
anyone, including relevant authorities, authority. preliminarily believes that the
increases the risk that the The proposed rules further require indemnification requirement could
confidentiality of the data maintained that, before a repository shares security- frustrate the purposes of the statutory
by repositories may not be preserved.184 based swap information with a relevant requirement that repositories make
A relevant authority’s inability to authority, there must be an arrangement available data to relevant authorities.
protect the confidentiality of data (in the form of a MOU or otherwise) The Commission preliminarily believes
maintained by repositories could erode between the Commission and the that the proposed approach
market participants’ confidence in the relevant authority that addresses the appropriately balances confidentiality
integrity of the security-based swap confidentiality of the security-based concerns associated with regulatory
market and increase the overall risks swap information provided, and under access with the benefits accruing to
associated with trading.185 As we which the relevant authority agrees to security-based swap market participants
181 According to one commenter, ancillary
from increased regulatory transparency.
take offsetting positions to reduce its exposure,
services ‘‘may include: asset servicing, other market participants may take positions in 2. Effects on Efficiency, Competition
confirmation, verification and affirmation facilities, advance of the dealer attempting to take its and Capital Formation
collateral management, settlement, trade offsetting positions. This ‘‘front running’’ of the
compression and netting services, valuation, pricing dealer’s trades would likely raise its trading costs. The rules described in this proposal
and reconciliation functionalities, position limits Should the dealer believe that its market exposure are intended to facilitate access for
management, dispute resolution, counterparty may become public before it has the opportunity to
identity verification and others.’’ See MarkitSERV hedge, the price quote offered to its customer to relevant authorities to data stored in
comment (Jan. 24, 2011) at 4 (comment in response establish the original position would reflect the SEC-registered repositories and
to SDR Proposing Release). increased hedging cost. therefore affect such repositories, but do
182 As the Commission noted in the SDR 186 See SDR Proposing Release, 75 FR 77307
not directly affect security-based swap
Proposing Release, such data could include (‘‘Failure to maintain privacy of [SDR data] could
information about a market participant’s trades or lead to market abuse and subsequent loss of
market participants. As discussed
its trading strategy; it may also include non-public liquidity.’’). below, access by relevant authorities to
personal information. SDR Proposing Release, 75 187 Exchange Act section 13(n)(5)(G) and (H), 15 security-based swap data could
FR 77339. U.S.C. 78m(n)(5)(G) and (H); see also Exchange Act indirectly affect market participants
183 See Exchange Act section 13(n)(5)(F), 15 rules 13n–4(b)(9) (implementing Exchange Act through the benefits that accrue from
U.S.C. 78m(n)(5)(F) (requiring an SDR to maintain sections 13(n)(5)(G), 15 U.S.C. 78m(n)(5)(G)) and
the privacy of security-based swap transaction (b)(10) (implementing Exchange Act section the relevant authorities’ improved
information); Exchange Act rules 13n–4(b)(8) and 13(n)(5)(H), 15 U.S.C. 78m(n)(5)(H)). ability to fulfill their regulatory mandate
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13n–9 (implementing Exchange Act section 188 As discussed above in part II.A.3(a), the or legal responsibility or authority as
13(n)(5)(F)). Commission anticipates that such determinations well as the potential impact of
184 See, e.g., ESMA comment (Jam. 17, 2011) at 2 may be conditioned, in part, by specifying the scope
(noting that relevant authorities must ensure the of a relevant authority’s access to data, and may
disclosure of confidential data.
confidentiality of security-based swap data limit this access to reflect the relevant authority’s
190 See Exchange Act section 13(n)(5)(H), 15
provided to them). regulatory mandate, or legal responsibility or
185 For example, should it become generally authority. U.S.C. 78m(n)(5)(H); proposed Exchange Act rule
known by market participants that a particular 189 See Exchange Act section 13(n)(5)(G), 15 13n–4(b)(10).
191 See proposed Exchange Act rule 13n–4(d).
dealer had taken a large position in order to U.S.C. 78m(n)(5)(G); proposed Exchange Act rule
facilitate a trade by a customer and was likely to 13n–4(b)(9). 192 See note 13, supra.
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However, because the Commission market turmoil. The proposed data could promote the overall stability in
preliminarily believes that its rules will access rule amendments and the capital markets.196
condition access to security-based swap indemnification exemption should Aside from the effects that the
data on the agreement of the relevant facilitate access of relevant authorities proposed data access rules may have on
authorities to protect the confidentiality other than the Commission to security- regulatory oversight and market
of the data, the Commission expects based swap data held in repositories, participation, we expect the proposed
these rules to have little effect on the and may indirectly facilitate rules potentially to affect how SDRs are
structure or operations of the security- Commission access to data held by trade structured. In particular, the proposed
based swap market. Therefore, the repositories registered with regulators data access rules and indemnification
Commission preliminarily believes that other than the Commission. To the exemption could reduce the potential
effects of the proposed rules on extent that the proposed data access for SDRs to be established along purely
efficiency, competition and capital rules and indemnification exemption jurisdictional lines, with multiple
formation will be small.193 facilitate the ability of repositories to repositories established in different
Nevertheless, there are some potential collect security-based swap information countries or jurisdictions. That is,
effects, particularly with respect to involving counterparties across multiple effective data sharing may reduce the
efficiency and capital formation, which jurisdictions, there may be benefits in need for repositories to be established
flow from efficient collection and terms of efficient collection and along jurisdictional lines, reducing the
aggregation of security-based swap data. aggregation of security-based swap data. likelihood that a single security-based
We describe these effects below. swap transaction must be reported to
In part VI.B of this release, the To the extent that the proposed data multiple swap-data repositories. As
Commission describes the baseline used access provisions and the noted previously by the Commission,
to evaluate the economic impact of the indemnification exemption increase the due to high fixed costs and increasing
proposed rules, including the impact on quantity of transaction and position economies of scale, the total cost of
efficiency, competition and capital information available to regulatory providing trade repository services to
formation. In particular, the authorities about the security-based the market for security-based swaps may
Commission noted that the security- swap market, the ability of the be lower if the total number of
based swap data currently available Commission and other relevant repositories is not increased due to a
from the DTCC–TIW is the result of a authorities to respond in an appropriate regulatory environment that results in
voluntary reporting system and access and timely manner to market trade repositories being established
to that data is made consistent with developments could enhance investor along jurisdictional lines.197 To the
guidelines published by the ODRF. protection through improved detection, extent that the proposed rules result in
Under the voluntary reporting regime, and facilitating the investigation of fewer repositories that potentially
CDS transaction data involving fraud and other market abuses. compete across jurisdictional lines, cost
counterparties and reference entities Moreover, as noted above, we do not savings realized by fewer repositories
from most jurisdictions is reported to a anticipate that the proposed rules would operating on a larger scale could result
single entity, the DTCC–TIW. The directly affect market participants, such in reduced fees, with the subsequent
DTCC–TIW, using the ODRF guidelines, enhancements in investor protections cost to market participants to comply
then allows relevant authorities, may decrease the risks and indirect with reporting requirements being
including the Commission, to obtain costs of trading and could therefore lower.198
data necessary to carry out their encourage greater participation in the Furthermore, multiple security-based
respective authorities and security-based swap market for a wider swap data repositories with duplication
responsibilities with respect to OTC range of entities seeking to engage in a of reporting requirements for cross-
derivatives and the regulated entities broad range of hedging and trading border transactions increase data
that use derivatives.194 As various activities.195 While we believe that fragmentation and data duplication,
regulators implement reporting rules increased participation is a possible both of which increase the potential for
within their jurisdictions, outcome of the Commission’s difficulties in data aggregation. To the
counterparties within those transparency initiatives, including these extent that the proposed data access rule
jurisdictions may or may not continue proposed rules, relative to the level of amendments and indemnification
to report to the DTCC–TIW. As a result, participation in this market if these exemption facilitate the establishment
the ability of the Commission and other initiatives were not undertaken, we of SDRs that accept transactions from
relevant authorities to obtain the data preliminarily believe that the benefits multiple jurisdictions, there may be
required consistent with their regulatory that flow from improved detection,
mandate, or legal responsibility or facilitating the investigation of fraud 196 See note 95, supra.
authority, may require the ability to and other market abuses, and more- 197 See SDR Adopting Release, 80 FR 14533
access data held in a trade repository efficient data aggregation are the more (discussion of high fixed costs and increasing
outside of their own jurisdictions. That direct benefits of the rules.
economies of scale in the provision of security-
is, because the market is global and based swap data repository services); see also SDR
In addition, the improvement in the Adopting Release, 80 FR 14479 (discussion of rule
interconnected, effective regulatory 13n–4(c)(1)(i), which requires each SDR to ensure
monitoring of the security-based swap quantity of data available to regulatory that any dues, fees or other charges that it imposes,
market may require regulators to have authorities, including the Commission, and any discounts or rebates that it offers, are fair
access to information on the global should improve their ability to monitor and reasonable and not unreasonably
tkelley on DSK3SPTVN1PROD with PROPOSALS2
concentrations of risk exposures and discriminatory; particularly noting that ‘‘[o]ne
market, particularly during times of factor that the Commission has taken into
evaluate risks to financial stability and consideration to evaluate the fairness and
193 See part VI.C.1b above for a discussion of the reasonableness of fees, particularly those of a
potential impact on capital formation of inadequate 195 Indirect trading costs refer to costs other than monopolistic provider of a service, is the cost
data confidentiality protections. The Commission direct transaction costs. Front running costs incurred to provide the service’’).’’
preliminarily believes that the proposed approach described above provide an example of indirect 198 Alternatively, fewer repositories could result
balances the need for data confidentiality and the trading costs. In the context of investor protection, in those few repositories having the ability to take
need for regulatory transparency. the risk of fraud represents a cost of trading in a advantage of the reduced level of competition to
194 See note 149, supra. market with few investor protections or safeguards. charge higher prices.
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![55206 Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Proposed Rules
benefits in terms of efficient collection additional issues related to economic appropriate relevant authorities would
and aggregation of security-based swap costs and benefits. reduce the potential for fragmentation
data. As discussed above, to the extent and duplication of security-based swap
a. Benefits
that the indemnification exemption data among trade repositories by
allows relevant authorities to have i. Determination of Recipient facilitating mutual access to the data.
better access to the data necessary to Authorities Narrower approaches such as allowing
form a more complete picture of the The Commission is proposing an regulatory access to security-based swap
security-based swap market—including approach to determining whether an data only to those entities specifically
information regarding risk exposures authority, other than those expressly identified in the Exchange Act 204 may
and asset valuations—the exemption identified in the Exchange Act and the increase fragmentation and duplication,
should help the Commission and other implementing rules,200 should be and hence increase the difficulty in
relevant authorities perform their provided access to data maintained by consolidating and interpreting security-
oversight functions in a more effective SDRs. The Commission believes that based swap market data from
manner. this proposed approach has the benefit repositories, potentially reducing the
However, while reducing the of appropriately limiting relevant general economic benefits discussed
likelihood of having multiple SDRs authorities’ access to data maintained by above.
established along jurisdictional lines repositories to protect the Furthermore, the Commission
would resolve many of the challenges confidentiality of the data.201 The believes that its proposed approach in
involved in aggregating security-based Commission expects that relevant conditioning access to security-based
swap data, there may be costs associated authorities from a number of swap data held in SDRs by requiring
with having fewer repositories. In jurisdictions may seek to obtain a there to be in effect an arrangement
particular, the existence of multiple determination by the Commission that between the Commission and the
repositories may reduce operational they may appropriately have access to authority in the form of a MOU would
risks, such as the risk that a catastrophic repository data. Each of these promote the intended benefits of access
event or the failure of a repository jurisdictions may have a distinct by relevant authorities to data
leaves no registered repositories to approach to supervision, regulation or maintained by SDRs. Under the
which transactions can be reported, oversight of its financial markets or proposed approach, rather than
impeding the ability of the Commission market participants and to the requiring regulatory authorities to
and relevant authorities to obtain protection of proprietary and other negotiate confidentiality agreements
information about the security-based confidential information. The with multiple SDRs, a single MOU
swap market. Commission believes that the proposed between the Commission and the
factors—which among other things relevant authority can serve as the
Finally, as we noted above, a relevant would consider whether an authority
authority’s inability to protect the confidentiality agreement that will
has an interest in access to security- satisfy the requirement for a written
privacy of data maintained by based swap data based on the relevant
repositories could erode market agreement stating that the relevant
authority’s regulatory mandate or legal authority will abide by the
participants’ confidence in the integrity responsibility or authority, whether
of the security-based swap market. More confidentiality requirements described
there is an MOU or other arrangement in section 24 of the Exchange Act
specifically, confidentiality breaches, between the Commission and the
including the risk that trading strategies relating to the security-based swap data.
relevant authority that addresses the The Commission routinely negotiates
may no longer be anonymous due to a confidentiality of the security-based
breach, may increase the overall risks MOUs or other arrangements with
swap data provided to the authority, relevant authorities to secure mutual
associated with trading or decrease the and whether information accessed by
profits realized by certain traders. assistance or for other purposes, and the
the applicable authority would be Commission preliminarily believes that
Increased risks or decreased profits may subject to robust confidentiality
reduce incentives to participate in the the proposed approach is generally
safeguards 202—appropriately condition consistent with this practice.
security-based swap markets, which an authority’s ability to access data on
may lead to reduced trading activity and The Commission further preliminarily
the confidentiality protections the
liquidity in the market. Depending on authority will afford that data. This believes that negotiating a single such
the extent of confidentiality breaches, as focus further would be strengthened by agreement with the Commission will be
well as the extent to which such the Commission’s ability to revoke its less costly for the authority requesting
breaches lead to market exits, determination where necessary, data than negotiating directly with each
disclosures of confidential information including, for example, if a relevant registered SDR and eliminate the need
could hinder price discovery and authority fails to keep such data for each SDR to negotiate as many as
impede the capital formation process.199 confidential.203 This approach should 200 confidentiality agreements with
increase market participants’ confidence requesting authorities. This approach
3. Additional Costs and Benefits of would also avoid the difficulties that
Specific Rules that their confidential trade data will be
protected, reducing perceived risks of may be expected to accompany an
Apart from the general costs and transacting in security-based swaps. approach that requires SDRs to enter
benefits associated with the structure of The Commission also believes that its into confidentiality agreements—
the Exchange Act data access provisions proposed approach in determining the particularly questions regarding the
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and proposed implementing rules, parameters of an adequate
certain discrete aspects of the proposed
200 See part II.A for a discussion of specific confidentiality agreement, and the
rules and related interpretation raise
authorities included in the implementing rules. presence of uneven and potentially
201 See ESMA comment (Jan. 17, 2011) at 2
inconsistent confidentiality protections
(noting that relevant authorities must ensure the
199 See SDR Proposing Release, 75 FR 77307 confidentiality of security-based swap data
across SDRs and recipient entities.
(‘‘Failure to maintain privacy of [SDR data] could provided to them).
202 See part II.A.3.a, supra.
lead to market abuse and subsequent loss of 204 See Exchange Act section 3(a)(74), 15 U.S.C.
liquidity.’’). 203 See part II.A.4, supra. 78c(a)(74).
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the associated indemnification § 240.13n–4 Duties and core principles of based swap transactions that is
requirement—would not have a security-based swap data repository. provided; and
significant economic impact on a * * * * * * * * * *
substantial number of small entities for (b) * * * (d) Exemption from the
purposes of the RFA. The Commission (9) On a confidential basis, pursuant indemnification requirement. The
encourages written comments regarding to section 24 of the Act (15 U.S.C. 78x), indemnification requirement set forth in
this certification. The Commission upon request, and after notifying the section 13(n)(5)(H)(ii) of the Act (15
solicits comment as to whether the Commission of the request in a manner U.S.C. 78m(n)(5)(H)(ii)) shall not be
proposed rules could have an effect on consistent with paragraph (e) of this applicable to an entity described in
small entities that has not been section, make available security-based paragraph (b)(9) of this section with
considered. The Commission requests swap data obtained by the security- respect to disclosure of security-based
that commenters describe the nature of based swap data repository, including swap information by the security-based
any impact on small entities and individual counterparty trade and swap data repository to such entity if:
provide empirical data to support the position data, to the following: (1) Such information relates to
extent of such impact. (i) The Board of Governors of the persons or activities within the entity’s
Statutory Basis and Text of Proposed Federal Reserve System and any Federal regulatory mandate, or legal
Rules Reserve Bank; responsibility or authority; and
(ii) The Office of the Comptroller of (2) There is in effect one or more
Pursuant to the Exchange Act, and the Currency; arrangements (in the form of
particularly sections 3(b), 13(n), 23(a) (iii) The Federal Deposit Insurance memoranda of understanding or
and 36 thereof, 15 U.S.C. 78c(b), 78m(n), Corporation; otherwise) between the Commission and
78w(a) and 78mm, the Commission is (iv) The Farm Credit Administration; such entity that:
proposing to amend rule 13n–4 by (v) The Federal Housing Finance (i) Address the confidentiality of the
adding paragraphs (b)(9), (b)(10), (d) and Agency; security-based swap information
(e) to that rule. (vi) The Financial Stability Oversight provided and any other matters as
List of Subjects in 17 CFR Part 240 Council; determined by the Commission; and
(vii) The Commodity Futures Trading (ii) Specify the types of security-based
Confidential business information, Commission; swap information that would relate to
Reporting and recordkeeping (viii) The Department of Justice; persons or activities within the entity’s
requirements, Securities. (ix) The Office of Financial Research; regulatory mandate, legal responsibility
Text of Proposed Rules and or authority for purposes of paragraph
(x) Any other person that the (d)(1) of this section.
For the reasons stated in the Commission determines to be (e) Notification requirement
preamble, the Commission is proposing appropriate, conditionally or compliance. To satisfy the notification
to amend Title 17, Chapter II, of the unconditionally, by order, including, requirement of the data access
Code of Federal Regulations as follows: but not limited to— provisions of paragraph (b)(9) of this
(A) Foreign financial supervisors section, a security-based swap data
PART 240—GENERAL RULES AND
(including foreign futures authorities); repository shall inform the Commission
REGULATIONS, SECURITIES
(B) Foreign central banks; and upon its receipt of the first request for
EXCHANGE ACT OF 1934
(C) Foreign ministries; security-based swap data from a
■ 1. The authority citation for part 240 (10) Before sharing information with particular entity (which may include
continues to read, in part, as follows: any entity described in paragraph (b)(9) any request to be provided ongoing
of this section, there shall be in effect an online or electronic access to the data),
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, arrangement between the Commission and the repository shall maintain
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
and the entity (in the form of a records of all information related to the
77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, memorandum of understanding or initial and all subsequent requests for
78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, otherwise) to address the confidentiality data access from that entity, including
78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, of the security-based swap information records of all instances of online or
80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– made available to the entity; this electronic access, and records of all data
4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. arrangement shall be deemed to satisfy provided in connection with such
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. the requirement, set forth in section requests or access.
1350; and Pub. L. 111–203, 939A, 124 Stat. 13(n)(5)(H)(i) of the Act (15 U.S.C. * * * * *
1376 (2010), unless otherwise noted. 78m(n)(5)(H)(i)), that the security-based
* * * * * By the Commission.
swap data repository receive a written
■ 2. In § 240.13n–4, amend paragraph agreement from the entity stating that Dated: September 4, 2015.
(b)(8) by removing the word ‘‘and’’ at the entity shall abide by the Brent J. Fields,
the end of the paragraph and adding confidentiality requirements described Secretary.
paragraphs (b)(9), (b)(10), (d), and (e). in section 24 of the Act (15 U.S.C. 78x) [FR Doc. 2015–22844 Filed 9–11–15; 8:45 am]
The additions read as follows: relating to the information on security- BILLING CODE 8011–01–P
tkelley on DSK3SPTVN1PROD with PROPOSALS2
VerDate Sep<11>2014 18:44 Sep 11, 2015 Jkt 235001 PO 00000 Frm 00031 Fmt 4701 Sfmt 9990 E:\FR\FM\14SEP2.SGM 14SEP2](https://thefederalregister.org/doc/80_FR_55359/page/30.svg)
Document Created: 2018-02-26 10:15:17
Document Modified: 2018-02-26 10:15:17
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Proposed rule. | |
| Dates | Submit comments on or before October 29, 2015. | |
| Contact | Carol McGee, Assistant Director, or Joshua Kans, Senior Special Counsel, at (202) 551-5870; Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010. | |
| FR Citation | 80 FR 55182 | |
| RIN Number | 3235-AL74 | |
| CFR Associated | Confidential Business Information; Reporting and Recordkeeping Requirements and Securities |
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