Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers

1See Public Law 111–203, 701 through 774. The Dodd-Frank Act assigns primary responsibility for the oversight of the U.S. OTC derivatives markets to the Commission and the Commodity Futures Trading Commission (‘‘CFTC’’). The Commission has oversight authority with respect to a ‘‘security￾based swap’’ as defined in Section 3(a)(68) of the Exchange Act (15 U.S.C. 78c(a)(68)), including to implement a registration and oversight program for a ‘‘security-based swap dealer’’ as defined in
Section 3(a)(71) and a ‘‘major security-based swap
participant’’ as defined in Section 3(a)(67). The CFTC has oversight authority with respect to a ‘‘swap’’ as defined in Section 1(a)(47) of the Commodity Exchange Act (‘‘CEA’’) (7 U.S.C. 1(a)(47)), including to implement a registration and oversight program for a ‘‘swap dealer’’ as defined in Section 1(a)(49) of the CEA (7 U.S.C. 1(a)(49)) and a ‘‘major swap participant’’ as defined in
Section 1(a)(33) of the CEA (7 U.S.C. 1(a)(33)). The
Commission and the CFTC jointly have adopted rules to further define these terms See 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 48208 (Aug. 13, 2012); Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant,’’ Exchange Act Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012). 2 15 U.S.C. 78o–10 (‘‘Section 15F of the Exchange Act’’ or ‘‘Section 15F’’). SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 200, 240, and 249 [Release No. 34–87005; File No. S7–05–14] RIN 3235–AL45 Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: In accordance with the Dodd￾Frank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’), the Securities and Exchange Commission (‘‘Commission’’), pursuant to the Securities Exchange Act of 1934 (‘‘Exchange Act’’), is adopting recordkeeping, reporting, and notification requirements applicable to security-based swap dealers (‘‘SBSDs’’) and major security-based swap participants (‘‘MSBSPs’’), securities count requirements applicable to certain SBSDs, and additional recordkeeping requirements applicable to broker￾dealers to account for their security￾based swap and swap activities. The Commission also is making substituted compliance available with respect to recordkeeping, reporting, and notification requirements under Section 15F of the Exchange Act and the rules thereunder. DATES:
Effective date: February 14, 2020.
Compliance date: The compliance dates are discussed in section III.B. of this release. FOR FURTHER INFORMATION CONTACT:
Michael A. Macchiaroli, Associate Director, at (202) 551–5525; Thomas K. McGowan, Associate Director, at (202) 551–5521; Randall W. Roy, Deputy Associate Director, at (202) 551–5522; Joseph I. Levinson, Senior Special Counsel, at (202) 551–5598; Raymond A. Lombardo, Assistant Director, at (202) 551–5755; Timothy C. Fox, Branch Chief, at (202) 551–5687; Valentina Minak Deng, Special Counsel, at (202) 551–5778; Rose Russo Wells, Special Counsel, at (202) 551–5527; or Abraham Jacob, Special Counsel, at (202) 551– 5583; Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–7010. SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Final Rules and Rule Amendments
A. Recordkeeping

1. Introduction
2. Records To Be Made and Kept Current
3. Record Maintenance and Preservation
   Requirements
   B. Reporting
4. Introduction
5. Periodic Filing of FOCUS Report
6. Filing of Annual Audited Financial
   Reports and Other Reports
   C. Notification
7. Introduction
8. Amendments to Rule 17a–11 and New
   Rule 18a–8
9. Additional Amendments to Rule 17a–11
   and Modifications to Rule 18a–8 D. Quarterly Securities Count and Capital Charge for Unresolved Securities Differences
10. Introduction
11. Rule 18a–9
    E. Alternative Compliance Mechanisms
12. Limited Alternative Compliance
    Mechanism—Rules 17a–3 and 18a–5
13. Full Alternative Compliance
    Mechanism—Rule 18a–10
    F. Cross-Border Application and Availability of Substituted Compliance
14. Cross-Border Application of
    Recordkeeping and Reporting Requirements
15. Availability of Substituted Compliance
    in Connection With Recordkeeping and Reporting Requirements G. Amendments to Rule 18a–1 H. Delegation of Authority
    III. Explanation of Dates
    A. Effective Date
    B. Compliance Date
    C. Effect on Existing Commission
    Exemptive Relief
    D. Application to Substituted Compliance
    IV. Paperwork Reduction Act
    A. Summary of Collections of Information Under the Rule Amendments and New Rules
16. Amendments to Rule 17a–3 and New
    Rule 18a–5
17. Amendments to Rule 17a–4 and New
    Rule 18a–6
18. Amendments to Rule 17a–5 and New
    Rule 18a–7
19. Amendments to Rule 17a–11 and New
    Rule 18a–8
20. Amendments to Rule 17a–12
21. New Rule 18a–9
22. Amendments to Rule 18a–10
23. Amendments to Rule 3a71–6
    B. Use of Information
    C. Respondents
    D. Total Initial and Annual Recordkeeping and Reporting Burden
24. Amendments to Rule 17a–3 and New
    Rule 18a–5
25. Amendments to Rule 17a–4 and New
    Rule 18a–6
26. Amendments to Rule 17a–5 and New
    Rule 18a–7
27. Amendments to Rule 17a–11 and New
    Rule 18a–8
28. Amendments to Rule 17a–12
29. New Rule 18a–9
30. Amendments to Rule 18a–10
31. Amendments to Rule 3a71–6
    E. Collection of Information Is Mandatory F. Confidentiality G. Retention Period for Recordkeeping Requirements
    V. Economic Analysis
    A. Introduction
    B. Baseline of Economic Analysis
32. Available Data From the Security-Based
    Swap Market
33. Security-Based Swap Market: Market
    Participants and Activity
34. Existing Regulation of OTC Derivatives
    Market Participants and Broker-Dealers
    C. Analysis of the Adopted Program and
    Alternatives
35. Benefits of Recordkeeping, Reporting,
    Notification, and Securities Count Requirements
36. Costs of the Recordkeeping, Reporting,
    Notification, and Securities Count Requirements
37. Economic Effects of the Approach to
    Recordkeeping, Reporting, Notification, and Securities Count Requirements
38. Cross-Border Application and
    Substituted Compliance
    D. Impact on Efficiency, Competition, and Capital Formation E. Alternatives to the Adopted Recordkeeping, Reporting, Notification, and Securities Count Rules
    VI. Other Matters
    VII. Regulatory Flexibility Act Certification
    VIII. Statutory Basis
    I. Background
    Title VII of the Dodd-Frank Act (‘‘Title VII’’) established a new regulatory framework for the U.S. over￾the-counter (‘‘OTC’’) derivatives markets.1 Section 764 of the Dodd-Frank Act added Section 15F to the Exchange Act.2 Section 15F(f)(2) provides that the Commission shall adopt rules governing reporting and recordkeeping for SBSDs and MSBSPs. Section 15F(f)(1)(A)

3The term ‘‘prudential regulator’’ is defined in
Section 1(a)(39) of the CEA (7 U.S.C. 1(a)(39)) and
that definition is incorporated by reference in
Section 3(a)(74) of the Exchange Act. Pursuant to
the definition, the Board of Governors of the Federal Reserve System (‘‘Federal Reserve’’), the Office of the Comptroller of the Currency (‘‘OCC’’), the Federal Deposit Insurance Corporation (‘‘FDIC’’), the Farm Credit Administration, or the Federal Housing Finance Agency (collectively, the ‘‘prudential regulators’’) is the ‘‘prudential regulator’’ of an SBSD, MSBSP, swap dealer, or major swap participant if the entity is directly supervised by that agency. 4A nonbank SBSD or MSBSP could be dually registered with the Commission as a broker-dealer (respectively, a ‘‘broker-dealer SBSD’’ or ‘‘broker￾dealer MSBSP’’) or registered with the Commission only as an SBSD or MSBSP (respectively, a ‘‘stand￾alone SBSD’’ or ‘‘stand-alone MSBSP’’). Any of these registrants or a bank SBSD or bank MSBSP also could register with the CFTC as a futures commission merchant (‘‘FCM’’), swap dealer, or major swap participant. 5See 15 U.S.C. 78q(a)(1) (‘‘Section 17 of the Exchange Act’’ or ‘‘Section 17’’). Section 771 of the Dodd-Frank Act states that unless otherwise provided by its terms, Subtitle B of Title VII (relating to the regulation of the security-based swap markets) does not divest any appropriate Federal banking agency, the Commission, the CFTC, or any other Federal or State agency, of any authority derived from any other provision of applicable law. 6While it is anticipated that some broker-dealers and banks will register as SBSDs in order to engage in security-based swap activities, it is unclear whether broker-dealers or banks will register as MSBSPs. 7 In this release, the term ‘‘broker-dealer’’ includes an OTC derivatives dealer unless otherwise noted. See 17 CFR 240.3b–12 (defining the term ‘‘OTC derivatives dealer’’). Consequently, the terms ‘‘stand-alone broker-dealer,’’ ‘‘broker￾dealer SBSD,’’ and ‘‘broker-dealer MSBSP’’ include entities that are OTC derivatives dealers unless otherwise noted. 8See Recordkeeping and Reporting Proposing Release; Capital Rule for Certain Security-Based Swap Dealers, Exchange Act Release No. 71958 (Apr. 17, 2014), 79 FR 25194 (May 2, 2014) (‘‘Recordkeeping and Reporting Proposing Release’’). 9See id. at 25196–97 (providing the rationale for modeling the proposed requirements on the relevant broker-dealer requirements). 10The comment letters are available at https:// www.sec.gov/comments/s7-05-14/s70514.shtml. 11See Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 69490 (May 1, 2013), 78 FR 30968 (May 23, 2013) (‘‘Cross-Border Proposing Release’’). 12The comment letters are available at https:// www.sec.gov/comments/s7-02-13/s70213.shtml. 13The amendments to Rule 17a–12 replace the phrase ‘‘Part IIB’’ with the phrase ‘‘Part II’’ each time it appears in the rule, thereby requiring OTC derivatives dealers to file FOCUS Report Part II, as
amended, instead of FOCUS Report Part IIB. 14The FOCUS Report is also known as Form X– 17A–5. 15See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation Requirements for Broker￾Dealers, Exchange Act Release No. 86175 (Jun. 21, Continued provides that SBSDs and MSBSPs shall make such reports as are required by the Commission, by rule or regulation, regarding the transactions and positions and financial condition of the SBSD or MSBSP. Section 15F(f)(1)(B)(ii) provides that SBSDs and MSBSPs without a prudential regulator 3 (respectively, ‘‘nonbank SBSDs’’ and ‘‘nonbank MSBSPs’’) shall keep books and records in such form and manner and for such period as may be prescribed by the Commission by rule or regulation.4
Section 15F(f)(1)(B)(i) provides that
SBSDs and MSBSPs for which there is a prudential regulator (respectively, ‘‘bank SBSDs’’ and ‘‘bank MSBSPs’’) shall keep books and records of all activities related to their business as an SBSD or MSBSP in such form and manner and for such period as may be prescribed by the Commission by rule or regulation. Section 15F(g) of the Exchange Act requires SBSDs and MSBSPs to maintain daily trading records with respect to security-based swaps and provides that the Commission shall adopt rules governing daily trading records for SBSDs and MSBSPs. Finally, Section 15F(i)(2) of the Exchange Act provides that the Commission shall adopt rules governing documentation standards for SBSDs and MSBSPs.
Section 17(a)(1) of the Exchange Act
provides the Commission with authority to adopt rules requiring broker-dealers— which would include broker-dealer SBSDs and MSBSPs—to make and keep for prescribed periods such records, furnish such copies thereof, and make and disseminate such reports as the Commission, by rule, prescribes as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act.5 The Commission anticipates that a number of broker-dealers will register as SBSDs.6 The Commission expects that some broker-dealers that are not registered as SBSDs or MSBSPs (‘‘stand￾alone broker-dealers’’) nonetheless will engage in security-based swap and swap activities.7 In April 2014, the Commission proposed recordkeeping, reporting, and notification requirements applicable to SBSDs and MSBSPs, securities count requirements applicable to certain SBSDs, and additional recordkeeping requirements applicable to broker￾dealers to account for their security￾based swap and swap activities.8 The proposed requirements were modeled on existing broker-dealer requirements.9 The Commission received a number of comments in response to these proposals.10 Separately, the Commission proposed rules governing the cross-border treatment of recordkeeping and reporting requirements with respect to SBSDs and MSBSPs.11 The Commission received comments in response to these cross￾border proposals as well.12 The Commission carefully considered the comments received on the proposals described above and, as discussed below, made modifications in light of the comments in crafting final rules and amendments. In this document, the Commission is amending certain existing rules and adopting new rules. In particular, the Commission is amending existing rules 17 CFR 240.17a–3 (‘‘Rule 17a–3’’), 17 CFR 240.17a–4 (‘‘Rule 17a–4’’), 17 CFR 240.17a–5 (‘‘Rule 17a–5’’), and 17 CFR 240.17a–11 (‘‘Rule 17a–11’’), and adopting new rules 17 CFR 240.18a–5 (‘‘Rule 18a–5’’), 17 CFR 240.18a–6 (‘‘Rule 18a–6’’), 17 CFR 240.18a–7 (‘‘Rule 18a–7’’), 17 CFR 240.18a–8 (‘‘Rule 18a–8’’), and 17 CFR 240.18a–9 (‘‘Rule 18a–9’’). The amendments and new rules establish recordkeeping, reporting, and notification requirements for SBSDs and MSBSPs and securities count requirements for stand-alone SBSDs (collectively ‘‘recordkeeping and reporting requirements’’). The amendments to Rules 17a–3 and 17a–4 also establish additional recordkeeping requirements applicable to stand-alone broker-dealers to the extent they engage in security-based swap or swap activities. The Commission also is adopting largely technical amendments to Rules 17a–3, 17a–4, 17a–5, and 17a– 11 as well as a conforming amendment to existing rule 17 CFR 240.17a–12 (‘‘Rule 17a–12’’).13 Further, the Commission is adopting amendments to Parts II and III of the Financial and Operational Combined Uniform Single Report (‘‘FOCUS Report’’),14 and adopting Part IIC of the FOCUS Report.
Part II of the FOCUS Report, as
amended, and Part IIC of the FOCUS Report, as adopted, will be used by registrants to report financial and operational information. Part III of the FOCUS Report will accompany the annual reports that certain of the registrants will file. The Commission also is amending existing rule 17 CFR 240.3a71–6 (‘‘Rule 3a71–6’’) with respect to the cross-border application of the recordkeeping and reporting rules and the availability of substituted compliance. On June 21, 2019, the Commission adopted, among other requirements, capital and margin requirements for nonbank SBSDs and MSBSPs and segregation requirements for SBSDs.15

2019), 84 FR 43872 (Aug. 22, 2019) (‘‘Capital, Margin, and Segregation Adopting Release’’). 16See Capital, Margin, and Segregation Adopting Release at 43943–46. 17See Section 712(a)(2) of the Dodd-Frank Act. 18The CFTC has adopted recordkeeping and reporting rules for swap dealers and major swap participants. See Swap Dealer and Major Swap Participant Recordkeeping, Reporting, and Duties Rules; Futures Commission Merchant and Introducing Broker Conflicts of Interest Rules; and Chief Compliance Officer Rules for Swap Dealers, Major Swap Participants, and Futures Commission Merchants, 77 FR 20128 (Apr. 3, 2012). 19A commenter requested clarification as to whether an OTC derivatives dealer dually registered as an SBSD or MSBSP would be subject to Rules 17a–3 and 17a–4, as amended, or Rules 18a–5 and 18a–6. An OTC derivatives dealer dually registered as an SBSD or MSBSP is subject to Rules 17a–3 and 17a–4 (rather than Rules 18a–5 and 18a–6). The undesignated introductory paragraphs to Rules 17a– 3, 17a–4, 18a–5, and 18a–6 have been modified to clarify this application of the rules. In addition, as explained further below, an OTC derivatives dealer dually registered as an SBSD will be subject to Rules 18a–1, 18a–4, 18a–7, 18a–8, and 17a–13 rather than 15c3–1, 15c3–3, 17a–5, 17a–11, and Rules 18a–9. As a result, the Commission has made the following conforming modifications to Rules 17a–3, 17a–4, 18a–7, and 18a–8: (1) Where Rules 17a–3 and 17a–4 refer to Rules 17a–5 or 17a–12, the Commission has added references to Rule 18a–7; (2) where Rules 17a–3 and 17a–4 refer to Rule 15c3– 1, the Commission has added references to Rule 18a–1, if appropriate; and (3) where Rules 17a–3 and 17a–4 refer to Rule 15c3–3, the Commission has added references to Rule 18a–4. 20Broker-dealer SBSDs and MSBSPs are required to make and keep current all the records required to be made and kept current by broker-dealers under Rule 17a–3, as amended, plus the additional records required specifically of an SBSD or MSBSP. 21See Rule 18a–5, as adopted. Paragraphs (a) and (b) of Rule 18a–5 now read ‘‘make and keep current’’ instead of ‘‘make and keep’’ as proposed, to clarify the implicit requirement that a firm’s records should be current. This language is consistent with Rule 17a–3, as amended, on which Rule 18a–5 is modeled. 22The Commission did not propose to include in Rule 18a–5 requirements that would parallel those set forth in paragraphs (a)(4), (13) through (16), (19), and (20) of Rule 17a–3. See Recordkeeping and Reporting Proposing Release, 79 FR at 25200, n. 67. 23See Letter from Mary Kay Scucci, Managing Director, Securities Industry and Financial Markets Association (Sept. 5, 2014) (‘‘SIFMA 9/5/2014 Letter’’). 24See paragraph (b) of Rule 17a–3, as amended; paragraph (c) of Rule 18a–5, as adopted. As discussed in more detail below in section II.E.2. of this release, the Commission also is amending Rule 18a–10. Rule 18a–10 establishes a full alternative compliance
mechanism that will permit certain stand-alone SBSDs that are registered as swap dealers and that predominantly engage in a swaps business to elect to comply with the capital, margin, and segregation requirements of the CEA and the CFTC’s rules in lieu of complying with the capital, margin, and segregation requirements of the Commission’s rules. The Commission is amending Rule 18a–10 in this document to permit firms that will operate under Rule 18a–10 to elect to comply with the recordkeeping and reporting requirements of the CEA and the CFTC’s rules in lieu of complying with Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9. Consequently, a stand-alone SBSD that qualifies to use the full alternative compliance mechanism of Rule 18a–10 can comply with the recordkeeping requirements of the CEA and the CFTC’s rules in lieu of complying with the requirements of Rule 18a–5. As discussed below, these capital, margin, and segregation requirements are integrated into the recordkeeping and reporting requirements being adopted in this document. Moreover, at the same time that the Commission adopted the capital, margin, and segregation requirements, the Commission adopted an alternative compliance mechanism (17 CFR 240.18a–10 ‘‘Rule 18a–10’’).16 The Commission is amending Rule 18a–10 in this document to incorporate recordkeeping and reporting requirements into its provisions. The Commission also is amending an SBSD capital rule (17 CFR 240.18a–1 ‘‘Rule 18a–1’’). The Commission staff consulted with staff from the prudential regulators and the CFTC in drafting these final rules and amendments.17 In addition, relevant CFTC rules were considered as
part of this rulemaking effort.18
II. Final Rules and Rule Amendments
A. Recordkeeping

1. Introduction
   The Commission is adopting a recordkeeping program for SBSDs and MSBSPs under Sections 15F and 17(a) of the Exchange Act that is modeled on the recordkeeping requirements for broker-dealers as set forth in Rules 17a– 3 and 17a–4. Under this recordkeeping program, broker-dealer SBSDs and MSBSPs—as broker-dealers—will be subject to Rules 17a–3 and 17a–4.19 The Commission is adopting amendments to these rules to implement the recordkeeping requirements mandated under the Dodd-Frank Act with respect to broker-dealer SBSDs and MSBSPs and to account for the security-based swap and swap activities of stand-alone broker-dealers. Stand-alone and bank SBSDs and MSBSPs will be subject to Rules 18a–5 and 18a–6, which are modeled on Rules 17a–3 and 17a–4, respectively, as amended. Rules 18a–5 and 18a–6 do not include a parallel requirement for every requirement in Rules 17a–3 and 17a–4 because some of the requirements in Rules 17a–3 and 17a–4 relate to activities that are either not expected or not permitted to be conducted by stand￾alone and bank SBSDs and MSBSPs. Further, the recordkeeping requirements applicable to bank SBSDs and MSBSPs are more limited in scope because: (1) The Commission’s authority under
   Section 15F(f)(1)(B)(i) of the Exchange
   Act is tied to activities related to the conduct of the firm’s business as an SBSD or MSBSP; (2) bank SBSDs and MSBSPs are subject to recordkeeping requirements applicable to banks with respect to their banking activities; and (3) the prudential regulators—rather than the Commission—are responsible for capital, margin, and other prudential requirements applicable to bank SBSDs and MSBSPs. For these reasons, the recordkeeping requirements for bank SBSDs and MSBSPs are tailored more specifically to their security-based swap activities as an SBSD or MSBSP.
2. Records To Be Made and Kept
   Current
   The Commission is adopting amendments to Rule 17a–3 to account for the security-based swap and swap activities of broker-dealers, including broker-dealer SBSDs and MSBSPs.20 The Commission is adopting Rule 18a– 5—which is modeled on Rule 17a–3, as amended—to require stand-alone and bank SBSDs and MSBSPs to make and keep current certain records.21 As stated above, Rule 18a–5 does not include a parallel requirement for every requirement in Rule 17a–3.22 Paragraph (a) of Rule 18a–5 contains one set of recordkeeping requirements applicable to stand-alone SBSDs and MSBSPs, and paragraph (b) of Rule 18a–5 contains a separate set of recordkeeping requirements applicable to bank SBSDs and MSBSPs that are more limited in scope. A commenter urged the Commission to harmonize its recordkeeping requirements for SBSDs and MSBSPs with the CFTC’s final recordkeeping requirements for swap dealers and major swap participants to the maximum extent possible, with the goal of permitting firms to utilize a single recordkeeping system for swap and security-based swap transactions and positions.23 As discussed in more detail below in section II.E.1. of this release, in response to the comment and to promote harmonization with CFTC requirements, the Commission is adopting a limited alternative compliance mechanism in Rules 17a–3 and 18a–5.24 In particular, an SBSD or MSBSP that also is registered with the CFTC as a swap dealer or major swap participant may comply with the recordkeeping requirements of the CEA and the rules thereunder in lieu of the requirements (discussed below) to make and keep current trade blotters, customer account ledgers, and stock records solely with respect to information required to be included in those records regarding security-based swap transactions and positions if the SBSD or MSBSP meets certain conditions. The conditions include,

25See paragraphs (a)(1) and (3), (a)(5)(ii), (a)(6)(ii), and (a)(7)(ii) of Rule 17a–3, as amended; paragraphs (a)(1) and (3), (a)(4)(ii), (a)(5), (b)(1) and (2), (b)(3)(ii), and (b)(4) and (5) of Rule 18a–5, as adopted. 26See paragraphs (a)(1) and (3), (a)(5)(ii), and (a)(6) of Rule 17a–3, as amended; paragraphs (a)(1) and (3) through (5) and (b)(1) through (5) of Rule 18a–5, as adopted. 27See, e.g., Recordkeeping and Reporting Proposing Release, 79 FR at 25201. 28See SIFMA 9/5/2014 Letter; Letter from Senator Carl Levin, Chairman of Permanent Subcommittee on Investigations, U.S. Senate (July 3, 2014) (‘‘Levin Letter’’). 29See SIFMA 9/5/2014 Letter. 30 17 CFR 242.900–242.909. See Regulation SBSR—Reporting and Dissemination of Security￾Based Swap Information, Exchange Act Release No. 74244 (Feb. 11, 2015), 80 FR 14563 at 14631–14632 (Mar. 19, 2015). 31See 17 CFR 242.900(qq). 32See 17 CFR 242.903 (‘‘Rule 903’’). 33See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR at 14631–32. 34While the Commission to date has only recognized the GLEIS as an IRSS, the rules being adopted in this document do not preclude the use of UICs issued by any other organization that is recognized as an IRSS in the future. 35See 17 CFR 242.901 (‘‘Rule 901’’); Regulation SBSR—Reporting and Dissemination of Security￾Based Swap Information, Exchange Act Release No. 78321 (July 14, 2016), 81 FR 53545 (Aug. 12, 2016). 36See Recordkeeping and Reporting Proposing Release, 79 FR at 25201. 37See SIFMA 9/5/2014 Letter. among other things, that the SBSD or MSBSP preserves all of the data elements necessary to create a trade blotter, customer account ledger, or stock record reflecting security-based swap and swap transactions and positions and upon request promptly furnishes to representatives of the Commission such a trade blotter, customer account ledger, or stock record that includes security-based swap and swap transactions and positions in the format required by Rule 17a–3 or 18a– 5, as applicable. This provision will permit an SBSD or MSBSP that also is registered with the CFTC as a swap dealer or major swap participant to maintain a single recordkeeping system for security-based swap and swap transactions and positions in accordance with the CFTC’s rules with respect to these required records. Rules 17a–3 and 18a–5 require broker￾dealers, SBSDs, and MSBSPs to make and keep current daily trading records, ledger accounts, a securities record, memoranda of brokerage orders, and/or memoranda of proprietary trades that include certain data elements with respect to security-based swap transactions.25 The data elements are:
(1) The type of security-based swap; (2) the reference security, index, or obligor; (3) the date and time of execution; (4) the effective date; (5) the scheduled termination date; (6) the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed; (7) the unique transaction identifier; and (8) the counterparty’s unique identification code (collectively, the ‘‘transaction data elements’’).26 As proposed, the counterparty’s unique identification code data element was the unique counterparty identifier.27 Commenters suggested that the Commission replace the requirement to record the unique counterparty identifier with a requirement to record the counterparty’s legal entity identifier (‘‘LEI’’).28 One commenter further stated that the Commission should allow firms to use different counterparty identifiers for internal purposes provided that they are able to translate their internal counterparty identifiers into the standard LEI convention.29 For the sake of consistency with previously adopted Commission rules, the Commission is replacing the requirement to record the unique counterparty identifier throughout Rule 17a–3, as amended, and Rule 18a–5, as adopted, with a requirement to use the counterparty’s unique identification code (‘‘UIC’’), as defined in Regulation SBSR.30 In particular, Regulation SBSR requires market participants—including broker-dealers, SBSDs, and MSBSPs—to report certain data elements to security￾based swap data repositories (‘‘SDRs’’). One of the required data elements is a UIC, which Rule 900 of Regulation SBSR defines as ‘‘a unique identification code assigned to a person, unit of a person, product, or transaction.’’ 31 SDRs must use UICs assigned by an internationally recognized standards-setting system (‘‘IRSS’’) if an IRSS has been recognized by the Commission and issues that type of UIC.32 In the release adopting Regulation SBSR, the Commission recognized the Global Legal Entity Identifier System (‘‘GLEIS’’)—which is responsible for issuing LEIs—as an IRSS that satisfies the requirements of Rule 903 of Regulation SBSR.33 Under Rule 903, if an IRSS recognized by the Commission has assigned a UIC to a person, unit of a person, or product, each SDR must employ that UIC for reporting purposes under Regulation SBSR, and SDR participants must obtain such UICs for use under Regulation SBSR. Although a firm may use different counterparty identifiers for internal purposes, the firm’s records compiled pursuant to the recordkeeping rules being adopted in this document must record the counterparty’s UIC. To date, LEIs are the only specific type of UIC that must be used under Regulation SBSR.34 In addition to that modification, the final requirements modify the transaction data elements by replacing the data elements ‘‘the termination or maturity date’’ and ‘‘the notional amount’’ with the data elements ‘‘the scheduled termination date’’ and ‘‘the notional amount(s) and the currenc(ies) in which the notional
amount(s) is expressed’’, respectively. This aligns the terminology identifying the data elements with the terminology used in Regulation SBSR.35 The Commission stated when proposing the recordkeeping requirements that ‘‘[w]here a data element that would need to be documented in the daily trading records of security-based swap transactions under the proposed amendments to Rule 17a–3 or proposed Rule 18a–5 is substantively the same as a data element that would need to be reported under proposed Rule 901, the Commission preliminarily believes that the type of information that would need to be documented in the daily trading records could be the same data element reported under proposed Rule 901.’’ 36 The following data element requirements being adopted in this document use the same terminology as Rule 901 of Regulation SBSR: (1) The date and time of execution; (2) the effective date; (3) the scheduled termination date; and (4) the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed. The Commission clarifies that for these data elements registrants may record the same information provided pursuant to the requirements of Rule 901 to satisfy the related requirements of Rules 17a– 3, as amended, and 18a–5, as adopted. Finally, a commenter urged the Commission to provide firms with the flexibility to keep the proposed required trade blotters, general ledgers, ledgers for customer accounts, and stock record (discussed below) in various formats without mandating a particular format as long as all required information is kept and accessible to the Commission.37 For example, with respect to the stock record, the commenter urged the Commission to provide SBSDs and MSBSPs flexibility in the manner in which they create records for security-based swap transactions and not mandate a detailed specified format (particularly with respect to tracking collateral received and pledged), provided that all required information is recorded and retained and can be pulled together upon request to create something that recognizably

38Certain stand-alone SBSDs may qualify to use the full alternative compliance mechanism of Rule 18a–10, in which case they may comply with the recordkeeping requirements of the CEA and the CFTC’s rules in lieu of complying with the requirements of Rule 18a–5. 39See Recordkeeping and Reporting Proposing Release, 79 FR at 25201. 40See undesignated introductory paragraph of Rule 17a–3, as amended; undesignated introductory paragraph of Rule 18a–5, as adopted. 41See Recordkeeping and Reporting Proposing Release, 79 FR at 25201. 42See SIFMA 9/5/2014 Letter. 43See paragraph (b) of Rule 17a–3, as amended; paragraph (c) of Rule 18a–5, as adopted. 44See paragraph (a)(1) of Rule 17a–3, as amended; paragraphs (a)(1) and (b)(1) of Rule 18a–5, as adopted. These paragraphs require that the trade blotters (or other records of original entry) include the following transaction data elements: (1) The type of security-based swap; (2) the reference security, index, or obligor; (3) the date and time of execution; (4) the effective date; (5) the scheduled termination date; (6) the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed; (7) the unique transaction identifier; and (8) the counterparty’s UIC. As discussed above, these data elements were modified from the proposal to require the counterparty’s UIC and to conform to Rule 901. 45See Recordkeeping and Reporting Proposing Release, 79 FR at 25201–02. 46See SIFMA 9/5/2014 Letter. 47However, a stand-alone SBSD that qualifies to use the full alternative compliance mechanism of Rule 18a–10 may comply with the recordkeeping requirements of the CEA and the CFTC’s rules in lieu of complying with the requirements of Rule 18a–5. 48See paragraph (a)(2) of Rule 18a–5, as adopted. would be a record of the firm’s security￾based swap transactions. These types of records are fundamental business records that a prudent company should make and retain in the ordinary course to document and track, among other things, its operations, financial account balances and transactions, asset and liability accounts, and custodial positions. The daily creation of these records builds an historical audit trail that can be used to reconstruct the sequence of transactions and changes in balances and positions, and to reconcile with third-party accounts. Having the records in place also can assist a firm account for transactions, balances, and positions if data feeds or other information systems that feed into the records are disrupted. Moreover, broker￾dealers have been required to make and retain these types of records for their securities business and transactions for many years, and the Commission does not believe that doing so imposes a great burden. Further, based on staff experience, the Commission believes that creating a daily record of this information will facilitate the prompt production of the materials necessary for examinations and the oversight of broker-dealers, SBSDs, and MSBSPs. For these
reasons, as discussed below, the Commission is adopting the requirements substantially as proposed. However, except for the general ledger, the firm can utilize the limited alternative compliance mechanism with respect to these records as they pertain to security-based swap and swap transactions and positions if the conditions of the limited alternative compliance mechanism are met.38 a. Amendments to Rule 17a–3 and New Rule 18a–5 Undesignated Introductory Paragraph The Commission proposed adding an undesignated introductory paragraph to Rule 17a–3 explaining that the rule applies to a broker-dealer, including a broker-dealer dually registered with the Commission as an SBSD or MSBSP.39 The paragraph further explained that an SBSD or MSBSP that is not dually registered as a broker-dealer (i.e., a stand-alone SBSD or MSBSP, or bank SBSD or MSBSP) is subject to the books and records requirements in proposed Rule 18a–5. Similarly, proposed Rule 18a–5 included an undesignated introductory paragraph explaining that the rule applies to an SBSD or MSBSP that is not dually registered as a broker￾dealer and that a broker-dealer that is dually registered as an SBSD or MSBSP is subject to the books and records requirements in Rule 17a–3. The Commission received no comments on the proposed undesignated introductory paragraphs and is adopting them with non-substantive modifications to clarify which rule (17a–3 or 18a–5) applies to a given type of entity.40 Trade Blotters Paragraph (a)(1) of Rule 17a–3 requires broker-dealers to make and keep current trade blotters (or other records of original entry) containing an itemized daily record of all transactions in securities, all receipts and deliveries of securities, all receipts and disbursements of cash, and all other debits and credits. The Commission proposed to amend this paragraph to require that the trade blotters of broker￾dealers, including broker-dealer SBSDs and MSBSPs, contain specific information about security-based swaps, including by recording specific transaction data elements.41 The Commission proposed to include parallel trade blotter requirements in Rule 18a–5 to apply to stand-alone and bank SBSDs and MSBSPs. As discussed above, a commenter urged the Commission to provide firms with the flexibility to keep the proposed trade blotters in various formats without mandating a particular format as long as all required information is kept and accessible to the Commission.42 For the reasons discussed above, the Commission does not believe this would be appropriate. However, the Commission clarifies that a firm can create two separate trade blotters (one for security-based swaps and one for other types of positions). Moreover, as discussed in more detail below in
section II.E.1. of this release, to promote
harmonization with CFTC requirements and increase flexibility, an SBSD or MSBSP that is also registered as a swap dealer or major swap participant may opt to use the limited alternative compliance mechanism with respect to these records as they pertain to security￾based swap and swap transactions and positions.43 For these reasons, the Commission is adopting the trade blotter requirements substantially as proposed.44 General Ledger Paragraph (a)(2) of Rule 17a–3 requires broker-dealers, including broker-dealer SBSDs and MSBSPs, to make and keep current ledgers (or other records) reflecting all assets and liabilities, income and expense and capital accounts. These records reflect the overall financial condition of the broker-dealer and in the Commission’s view can incorporate security-based swap activities without the need for a clarifying amendment. The Commission proposed a parallel provision in Rule 18a–5 requiring stand-alone SBSDs and MSBSPs to make and keep current the same types of general ledgers.45 As discussed above, a commenter urged the Commission to provide firms with the flexibility to keep the proposed general ledger in various formats as long as all required information is kept and accessible to the Commission.46 For the reasons discussed above, the Commission does not believe this would be appropriate. Moreover, as discussed above, the Commission does not believe it would be appropriate to apply the limited alternative compliance mechanism for this record because the information that must be recorded in a general ledger is broader than security￾based swap information.47 For this reason, the Commission is adopting the general ledger requirement as proposed.48 Ledgers for Customer and Non￾Customer Accounts Paragraph (a)(3) of Rule 17a–3 requires broker-dealers to make and keep current certain ledger accounts (or other records) relating to securities and

49See Recordkeeping and Reporting Proposing Release, 79 FR at 25202. 50See SIFMA 9/5/2014 Letter. 51See paragraph (b) of Rule 17a–3, as amended; paragraph (c) of Rule 18a–5, as adopted. Moreover, a stand-alone SBSD that qualifies to use the full alternative compliance mechanism of Rule 18a–10 may comply with the recordkeeping requirements of the CEA and the CFTC’s rules in lieu of complying with the requirements of Rule 18a–5. 52See paragraph (a)(3) of Rule 17a–3, as amended; paragraphs (a)(3) and (b)(2) of Rule 18a–5, as adopted. These paragraphs require that the ledgers include the following transaction data elements: (1) The type of security-based swap; (2) the reference security, index, or obligor; (3) the date and time of execution; (4) the effective date; (5) the scheduled termination date; (6) the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed; (7) the unique transaction identifier; and (8) the counterparty’s UIC. As discussed above, these data elements were modified from the proposal to require the counterparty’s UIC and to conform to Rule 901. 53See Recordkeeping and Reporting Proposing Release, 79 FR at 25202. 54See SIFMA 9/5/2014 Letter. 55See paragraph (b) of Rule 17a–3, as amended; paragraph (c) of Rule 18a–5, as adopted. Moreover, a stand-alone SBSD that qualifies to use the full alternative compliance mechanism of Rule 18a–10 may comply with the recordkeeping requirements of the CEA and the CFTC’s rules in lieu of complying with the requirements of Rule 18a–5. 56See SIFMA 9/5/2014 Letter. 57See paragraph (a)(5)(ii) of Rule 17a–3, as amended; paragraphs (a)(4) and (b)(3) of Rule 18a– 5, as adopted. These paragraphs require a securities record or ledger reflecting separately for each security-based swap the following transaction data elements: (1) The reference security, index, or obligor; (2) the unique transaction identifier; and (3) the counterparty’s UIC. As discussed above, these data elements were modified from the proposal to require the counterparty’s UIC and to conform to Rule 901. The broker-dealer stock record requirement for securities other than security-based swaps that pre-existed these amendments is being preserved in paragraph (a)(5)(i) of Rule 17a–3, as amended. 58See Recordkeeping and Reporting Proposing Release, 79 FR at 25202–03. 59 Generally, persons engaged in brokerage activities are required to register as brokers under Continued commodities transactions in customer and non-customer cash and margin accounts. The Commission proposed to amend this paragraph to require that broker-dealers, including broker-dealer SBSDs and MSBSPs, make and keep current ledger accounts (or other records) that record specific security￾based swap transaction data elements.49 The Commission proposed in Rule 18a– 5 that stand-alone SBSDs and MSBSPs be required to make and keep current the same types of ledgers (or other records). However, the proposed rule text did not refer to ‘‘cash and margin
accounts’’ because these types of accounts involve activities that may not be undertaken by stand-alone SBSDs and MSBSPs because they are not registered as broker-dealers. The Commission proposed in Rule 18a–5 that bank SBSDs and MSBSPs make and keep current ledger accounts (or other records) relating to securities and commodity transactions, but only with respect to their security-based swap customers and non-customers. As discussed above, a commenter urged the Commission to provide firms with the flexibility to keep the proposed ledgers for customer accounts in various formats as long as all required information is kept and accessible to the Commission.50 For the reasons discussed above, the Commission does not believe this would be appropriate. However, as discussed in more detail below in section II.E.1. of this release, to promote harmonization with CFTC requirements and provide additional flexibility, an SBSD or MSBSP that is also registered as a swap dealer or major swap participant may opt to use the limited alternative compliance mechanism with respect to these ledgers as they pertain to security-based swap and swap transactions and positions.51 For these reasons, the Commission is adopting the ledger account requirements substantially as proposed.52 Stock Record Paragraph (a)(5) of Rule 17a–3 requires broker-dealers to make and keep current a securities record (also referred to as a ‘‘stock record’’). This is a record of the broker-dealer’s custody and movement of securities. The ‘‘long’’ side of the record accounts for the broker-dealer’s responsibility as a custodian of securities and shows, for example, the securities the firm has received from customers and securities owned by the broker-dealer. The ‘‘short’’ side of the record shows where the securities are located, such as at a securities depository. The Commission proposed to amend this paragraph to require that the securities record of broker-dealers, including broker-dealer SBSDs and MSBSPs, specifically account for security-based swap activity by reflecting separately for each security-based swap certain of the transaction data elements and other information.53 In addition, the Commission proposed parallel securities record requirements in Rule 18a–5 for stand-alone and bank SBSDs and MSBSPs. However, the requirements for bank SBSDs and MSBSPs were limited to positions related to their business as an SBSD or MSBSP. As discussed above, a commenter urged the Commission to provide firms with the flexibility to keep the proposed stock record in various formats as long as all required information is kept and accessible to the Commission.54 For the reasons discussed above, the Commission does not believe this would be appropriate. However, as discussed in more detail below in section II.E.1. of this release, to promote harmonization with CFTC requirements and increase flexibility, an SBSD or MSBSP that is also registered as a swap dealer or major swap participant may opt to use the
limited alternative compliance mechanism with respect to the stock record as it pertains to security-based swap and swap transactions and positions.55 The Commission also clarifies that the requirement as adopted does not necessarily require the use of two separate stock records (i.e., one for securities and one for security-based swaps); instead, a broker-dealer SBSD may elect to use a single stock record that incorporates all of its securities customers, including security-based swap customers. A commenter stated that the Commission should replace the terms ‘‘long’’ and ‘‘short’’ in the proposed requirements with ‘‘bought’’ and ‘‘sold,’’ respectively.56 The commenter explained that the former two terms were ‘‘not really applicable’’ to security￾based swaps. The Commission agrees and the final amendment and rule use the terms ‘‘bought’’ and ‘‘sold.’’ For the reasons discussed above, the Commission is adopting the stock record requirements with this modification but otherwise substantially as proposed.57 Memoranda of Brokerage Orders Paragraph (a)(6) of Rule 17a–3 requires broker-dealers to make and keep current a memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of a security. The memorandum must show the terms and conditions of each brokerage order. The Commission proposed to amend this paragraph to require broker-dealers, including broker-dealer SBSDs and MSBSPs, to make and keep current a memorandum of each brokerage order given or received for the purchase or sale of a security-based swap.58 Further, the rule required that certain of the security-based swap transaction data elements be documented in the memorandum. The Commission proposed a parallel provision in Rule 18a–5 for bank SBSDs and MSBSPs. The Commission did not propose a parallel provision for stand-alone SBSDs and MSBSPs because these registrants are not permitted to engage in the business of effecting brokerage orders in security￾based swaps without registering as a broker-dealer or a bank.59

Section 15 of the Exchange Act. However, Section
3(a)(4) of the Exchange Act permits banks to engage in certain limited securities brokerage activities. See also 17 CFR 247.100–781 (joint Commission and the Federal Reserve rules establishing further exemptions permitting banks to engage in certain securities brokerage activities without registering as a broker-dealer). Consequently, a bank SBSD or MSBSP may act as a broker or agent in a security￾based swap transaction. In such instances, the brokerage order record requirements of paragraph (b)(4) of Rule 18a–5 would apply. 60See SIFMA 9/5/2014 Letter. 61See paragraph (a)(6)(ii) of Rule 17a–3, as amended; paragraph (b)(4) of Rule 18a–5, as adopted. These paragraphs require that the memorandum include the following security-based swap transaction data elements: (1) The type of security-based swap; (2) the reference security, index, or obligor; (3) the date and time of execution; (4) the effective date; (5) the scheduled termination date; (6) the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed; (7) the unique transaction identifier; and (8) the counterparty’s UIC. As discussed above, these data elements were modified from the proposals to require the counterparty’s UIC and to conform to Rule 901. The broker-dealer memorandum requirement for securities other than security-based swaps that pre-existed these amendments is being preserved in paragraph (a)(6)(i) of Rule 17a–3, as amended. 62See Recordkeeping and Reporting Proposing Release, 79 FR at 25203–04. 63See paragraph (a)(7)(ii) of Rule 17a–3, as amended; paragraphs (a)(5) and (b)(4) of Rule 18a– 5, as adopted. These paragraphs require that the memorandum include the following security-based swap transaction data elements: (1) The type of security-based swap; (2) the reference security, index, or obligor; (3) the date and time of execution; (4) the effective date; (5) the scheduled termination date; (6) the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed; (7) the unique transaction identifier; and (8) the counterparty’s UIC. As discussed above, these data elements were modified from the proposals to require the counterparty’s UIC and to conform to Rule 901. The broker-dealer memorandum requirement for securities (other than security￾based swaps) that pre-existed these amendments is being preserved in paragraph (a)(7)(i) of Rule 17a– 3, as amended. 64See 17 CFR 240.15Fi–2 (‘‘Rule 15Fi–2’’); see also Trade Acknowledgment and Verification of Security-Based Swap Transactions, Exchange Act Release No. 78011 (June 8, 2016), 81 FR 39807 (June 17, 2016). 65See Recordkeeping and Reporting Proposing Release, 79 FR at 25204. 66See SIFMA 9/5/2014 Letter. 67See paragraph (a)(8)(ii) of Rule 17a–3, as amended; paragraphs (a)(6) and (b)(6) of Rule 18a– 5, as adopted. The broker-dealer confirmation requirement for securities other than security-based swaps that pre-existed these amendments is being preserved in paragraph (a)(8)(i) of Rule
17a–3, as amended. A commenter expressed general support for the proposed requirements but asked the Commission to confirm that the order ticket requirement only applies when there are in fact orders received for execution (i.e., where the orders are potentially executed on a security-based swap execution facility), and not where there is a negotiation that results in a transaction without any executable order or other instruction given.60 Furthermore, the commenter also asked the Commission to confirm that no order ticket needs to be created by the broker-dealer or its affiliated SBSD when a registered broker-dealer acts as an agent in connection with negotiated transactions between an affiliated SBSD and its customers without any executable order being received. In response, the Commission clarifies that the firm must receive an executable order or other instruction to trigger the memorandum requirement (i.e., an order or instruction that the broker-dealer, SBSD, or MSBSP has agreed to execute on behalf of the counterparty). Consequently, preliminary negotiations or responding to questions about a potential transaction alone do not trigger the recordkeeping requirement. For these reasons, the Commission is adopting these requirements substantially as proposed.61 Memoranda of Proprietary Orders Paragraph (a)(7) of Rule 17a–3 requires broker-dealers to make and keep current a memorandum of each purchase and sale for the account of the broker-dealer. Generally, this paragraph requires broker-dealers to document the terms of securities transactions where they are acting as a dealer or otherwise trading for their own account. The Commission proposed to amend this paragraph to require the terms of security-based swap transactions to be documented as well.62 In addition, the Commission proposed parallel memorandum requirements in Rule 18a–5 for stand-alone and bank SBSDs and MSBSPs, but only with respect to security-based swap transactions. The Commission received no comment that specifically addressed these proposed requirements and is adopting them substantially as proposed.63 Confirmations Paragraph (a)(8) of Rule 17a–3 requires broker-dealers to keep copies of all trade confirmations. In addition, the Commission has adopted rules that require SBSDs and MSBSPs to provide trade acknowledgments containing the details of a security-based swap transaction within prescribed timeframes and to establish, maintain, and enforce written policies and procedures that are reasonably designed to obtain prompt verification of the terms of the trade acknowledgments.64 In particular, Rule 15Fi–2 requires SBSDs and MSBSPs to promptly verify the accuracy of, or otherwise dispute with their counterparties, the terms of trade acknowledgments they receive. The Commission proposed to amend paragraph (a)(8) of Rule 17a–3 to require that broker-dealers, including broker￾dealer SBSDs and MSBSPs, make and keep current copies of the security￾based swap trade acknowledgments
and verifications made pursuant to Rule 15Fi–2.65 The Commission also proposed in Rule 18a–5 that stand-alone SBSDs and MSBSPs make and keep current copies of: (1) Confirmations of all purchases or sales of securities that are not security-based swaps; and (2) security-based swap trade acknowledgments and verifications made pursuant to Rule 15Fi–2. The Commission further proposed parallel confirmation requirements in Rule 18a– 5 for bank SBSDs and MSBSPs. However, the requirement to make and keep current copies of confirmations of all purchases and sales of securities that are not security-based swaps would be limited to transactions that related to their business as an SBSD or MSBSP. A commenter stated that the Commission should not require a bank SBSD or MSBSP to make and keep current copies of all confirmations of all purchases and sales of securities (other than security-based swaps) or, in the alternative, the Commission should narrowly interpret when securities transactions are ‘‘related to the business’’ of a bank as an SBSD or MSBSP.66 The Commission disagrees that confirmations should not be made for transactions when the security is not a security-based swap. A confirmation of any securities transaction that occurs within a security-based swap account will assist examiners in reviewing all the activities in the account and whether the firm is acting in accordance with applicable securities laws. The Commission notes, however, that a bank SBSD or MSBSP must make and keep current copies of confirmations relating to transactions in securities, other than security-based swaps, only if the transaction relates to its business as an SBSD or MSBSP. Consequently, the final requirements do not apply to a security transaction that relates solely to the bank acting as a bank and not as an SBSD or MSBSP. For these reasons, the Commission is adopting the requirements as proposed.67 Accountholder Information Paragraph (a)(9) of Rule 17a–3 requires broker-dealers to make a record for each securities accountholder that contains certain information about the person. The Commission proposed to amend this paragraph to require broker￾dealers, including broker-dealer SBSDs and MSBSPs, to record certain

68See Recordkeeping and Reporting Proposing Release, 79 FR at 25204. 69See SIFMA 9/5/2014 Letter. 70See SIFMA 9/5/2014 Letter; Letter from Institute of International Bankers and Securities Industry and Financial Markets Association (June 21, 2018) (‘‘IIB/SIFMA 6/21/2018 Letter’’). 71See Proposed Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements, Exchange Act Release No. 85823 (May 10, 2019), 84 FR 24206 (May 14, 2019) (‘‘Cross-Border Application Proposing Release’’). 72See paragraph (a)(8)(iv) of Rule 17a–3, as amended; paragraphs (a)(7) and (b)(7) of Rule 18a– 5, as adopted. These paragraphs require that SBSDs and MSBSPs record for each security-based swap account the counterparty’s UIC, along with other information. For the reasons discussed above, the ‘‘unique counterparty identifier’’ transaction data element in the proposed requirement was replaced with the counterparty’s UIC. The broker-dealer accountholder requirement for securities other than security-based swaps that pre-existed these amendments is being preserved in paragraphs (a)(1)(i) through (iii) of Rule 17a–3, as amended. 73See Recordkeeping and Reporting Proposing Release, 79 FR at 25204–05. 74See SIFMA 9/5/2014 Letter. 75See paragraph (a)(8) of Rule 18a–5, as adopted. 76The broker-dealer net capital rule is codified at 17 CFR 240.15c3–1 (‘‘Rule 15c3–1’’). 77See Recordkeeping and Reporting Proposing Release, 79 FR at 25205. 78See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 68071 (Oct. 18, 2012), 77 FR 70241, 70217–57 (Nov. 23, 2012) (‘‘Capital, Margin, and Segregation Proposing Release’’) (proposing Rules 18a–1 and 18a–2). 79See SIFMA 9/5/2014 Letter. The commenter also made substantive recommendations concerning the proposed net capital requirements for SBSDs and MSBSPs that are beyond the scope of this release. 80See Capital, Margin, and Segregation Adopting Release, 84 FR at 43879–908. 81See paragraph (a)(9) of Rule 18a–5, as adopted. based swap accountholders.68 The Commission proposed parallel requirements in Rule 18a–5 for stand￾alone and bank SBSDs and MSBSPs with respect to recording the information about security-based swap accountholders. A commenter stated that it is not common practice in the swaps market to obtain signatures of persons authorized to transact business on behalf of a counterparty in a swap account and recommended instead that broker￾dealers, SBSDs, and MSBSPs be permitted to satisfy this requirement by establishing policies and procedures relating to counterparty trade authorization.69 It is a prudent business practice for financial institutions to formalize relationships with their counterparties and to take orders from individuals only if they are authorized to enter into transactions on behalf of the counterparty. This provides greater legal
certainty in terms of enforcing the rights of the financial institution and its counterparty. Obtaining the signatures of persons authorized to transact on behalf of the counterparty is one way to promote these objectives, but the Commission agrees with the commenter that it is not the only way. Maintaining a record of persons authorized to transact on behalf of the counterparty such as a copy of a corporate resolution granting the person such authority is another way. Consequently, the Commission is modifying the text of the final rules so that the means of establishing a record of the authorization of each person to whom the counterparty has granted authority to transact business in the security￾based swap account are not limited to obtaining signatures of such persons. In particular, the final rules provide that, for each security-based swap account, the broker-dealer, SBSD, or MSBSP must make and retain a record of the authorization of each person the counterparty has granted authority to transact business in the security-based swap account. This record could be, for example, a signature of the person, a copy of the corporate resolution of the counterparty granting the person authority to trade on its behalf, or a communication from the counterparty identifying the person as having been granted authority to act on its behalf. In addition to promoting the objectives described above, this record will assist Commission staff in examining whether a given transaction has been appropriately authorized. Another commenter raised concerns about disclosures to the Commission regarding clients, associated persons, or other such persons arising from confidentiality requirements under the local laws of certain non-U.S. jurisdictions.70 The Commission understands that some foreign laws and regulations may limit or prevent disclosure of customer information to the Commission. These types of restrictions may include privacy laws, which generally restrict disclosure of certain identifying information about a natural person or entity, and so-called ‘‘blocking statutes’’ (including secrecy laws) that prevent the disclosure of information relating to third parties and/or foreign governments. In response, the Commission notes that it has proposed in a separate release additional provisions that are designed to address concerns about the cross￾border application of certain requirements that will be or have been proposed to be applicable to SBSDs and MSBSPs.71 For the foregoing reasons, the Commission is adopting the accountholder requirements with the modifications discussed above.72 Options Positions Paragraph (a)(10) of Rule 17a–3 requires broker-dealers to make and keep current a record of all options positions. The Commission did not propose to amend this paragraph to account for security-based swaps. In addition, because the records required under this paragraph are not specific to security-based swaps, the Commission did not propose to include an analogous
provision applicable to bank SBSDs and MSBSPs. However, in order to facilitate the monitoring of the financial condition of stand-alone SBSDs and MSBSPs, the Commission proposed a parallel provision in Rule 18a–5 applicable to these entities.73 One commenter expressed support for this proposed requirement.74 The Commission is adopting the options position recordkeeping requirement as proposed.75 Trial Balances and Computation of Net Capital Paragraph (a)(11) of Rule 17a–3 requires broker-dealers, including broker-dealer SBSDs and MSBSPs, to make and keep current a record of the proof of money balances of all ledger accounts in the form of trial balances and certain records relating to the computation of aggregate indebtedness and net capital under the broker-dealer net capital rule.76 The Commission did not propose that bank SBSDs and MSBSPs make similar records as the prudential regulators administer the capital requirements applicable to these entities.77 The Commission did propose a parallel requirement in Rule 18a–5 for stand-alone SBSDs and MSBSPs to facilitate the review and monitoring of their financial condition and their compliance with the regulatory capital requirements in proposed Rules 18a–1 and 18a–2, respectively.78 One commenter noted the importance of including recordkeeping and reporting requirements with respect to trial balances and the computation of net capital.79 The Commission has adopted capital requirements for stand-alone SBSDs and MSBSPs in Rules 18a–1 and 18a–2, respectively.80 Consequently, the Commission is adopting the trial balances and computation of net capital recordkeeping requirement for stand￾alone SBSDs and MSBSPs as proposed.81

82See Recordkeeping and Reporting Proposing Release, 79 FR at 25205. 83See, e.g., SIFMA 9/5/2014 Letter; IIB/SIFMA 6/ 21/2018 Letter. 84See 17 CFR 15Fb6–2 (‘‘Rule 15Fb6–2’’). 85Section 15F(b)(6) of the Exchange Act provides that it shall be unlawful for an SBSD or MSBSP to permit any associated person of the SBSD or MSBSP who is subject to a statutory disqualification to effect or be involved in effecting security-based swaps on its behalf, if the SBSD or MSBSP knows, or in the exercise of reasonable care should have known, of the statutory disqualification, except to the extent otherwise provided by rule, regulation, or order of the Commission. Rule 15Fb6–2: (1) Prohibits an SBSD or MSBSP from acting as an SBSD or MSBSP unless it has certified electronically that it neither knows, nor in the exercise of reasonable care should have known, that any person associated with the SBSD or MSBSP ‘‘who effects or is involved in effecting security-based swaps on behalf of the [SBSD] or [MSBSP] is subject to a statutory disqualification’’; and (2) requires the Chief Compliance Officer (or his or her designee) of the SBSD or MSBSP to review and sign the questionnaire or application for employment executed by every associated person who is a natural person and who effects or is involved in effecting security-based swaps on the SBSD’s or MSBSP’s behalf, and that this questionnaire or application shall serve as the basis for a background check of the associated person to verify that the person is not subject to a statutory disqualification. 86See paragraphs (a)(10)(i) and (b)(8)(i) of Rule 18a–5, as adopted. The Commission is also modifying paragraph (b)(8)(i) of Rule 18a–5 as proposed to eliminate the phrase ‘‘whose activities relate to the business of the security-based swap dealer or major security-based swap participant.’’ As discussed above, the Commission proposed this limitation on the scope of the questionnaire or application for employment to address bank SBSDs and MSBSPs. This limitation is no longer necessary in light of the final rule’s limitation to an associated person ‘‘who effects or is involved in effecting security-based swaps on the security-based swap dealer’s or major security-based swap participant’s behalf.’’ 87See SIFMA 9/5/2014 Letter. 88See Cross-Border Application Proposing Release, 84 FR at 24206. 89See paragraphs (a)(10) and (b)(8) of Rule 18a– 5, as adopted. 90See Capital, Margin, and Segregation Proposing Release, 77 FR at 70252–54. 91See Recordkeeping and Reporting Proposing Release, 79 FR at 25205–06. 92See Capital, Margin, and Segregation Adopting Release, 84 FR at 43874. 93Paragraph (a)(24) of Rule 17a–3, as proposed; paragraph (a)(11) of Rule 18a–5, as proposed. The proposed recordkeeping requirements would have been set forth in these paragraphs. Since the publication of the recordkeeping and reporting proposing release, a new paragraph (a)(24) has been adopted by the Commission. See Form CRS Relationship Summary; Amendments
to Form ADV, Exchange Act Release No. 86032 (June 5, 2019), 84 FR 33492, (July 12, 2019); 17 CFR 240.17a–3(a)(24). Paragraph (a)(11) of Rule 18a–5 is being designated as ‘‘[Reserved].’’ 94See Recordkeeping and Reporting Proposing Release, 79 FR at 25206–07. See also Capital, Margin, and Segregation Proposing Release, 77 FR at 70261–63 (proposing Rule 18a–3, requiring, among other things, that nonbank SBSDs perform two daily calculations for each security-based swap account (the equity in the account and a margin amount) and nonbank MSBSPs to perform one daily calculation (the equity in the account)). 95See SIFMA 9/5/2014 Letter. 96Capital, Margin, and Segregation Adopting Release, 84 FR at 43909–17. Associated Persons Paragraph (a)(12) of Rule 17a–3 requires broker-dealers, including broker-dealer SBSDs and MSBSPs, to make and keep current a questionnaire or application for employment for each associated person that contains information about the associated person (the ‘‘questionnaire requirement’’) as well other information about associated persons. The Commission proposed parallel requirements in Rule 18a–5 for stand-alone and bank SBSDs and MSBSPs.82 Further, the Commission proposed to amend the definition of ‘‘associated person’’ in Rule 17a–3 to include in the definition a person associated with an SBSD or MSBSP as defined in Section 3(a)(70) of the Exchange Act. The Commission proposed a parallel definition in Rule 18a–5. However, the proposed Rule 18a–5 definition was more limited as applied to bank SBSDs and MSBSPs in that it covered persons whose activities relate to the conduct of the bank’s business as an SBSD or MSBSP. Commenters requested that the Commission limit the proposed questionnaire requirement for stand￾alone and bank SBSDs and MSBSPs to associated persons who effect or are involved in effecting security-based swaps on the firm’s behalf.83 The Commission agrees with the comments. The questionnaire requirement, as proposed, was designed to provide a basis for assessing compliance with
Section 15F(b)(6) of the Exchange Act
and a related rule thereunder.84 Both the statute and the rule (Rule 15Fb6–2) apply to associated persons who effect or are involved in effecting security￾based swaps on behalf of the SBSD or MSBSP.85 Accordingly, the Commission is narrowing the scope of the questionnaire requirement in Rule 18a– 5 for stand-alone and bank SBSDs and MSBSPs so that it applies only with respect to associated persons who effect or are involved in effecting security￾based swaps on the firm’s behalf.86 A commenter also requested that the Commission modify the proposal for foreign SBSDs and MSBSPs so that the questionnaire requirement does not apply to associated persons who effect or are involved in effecting security￾based swap transactions with non-U.S. persons or foreign branches.87 As noted above, the questionnaire requirement is intended to support the substantive prohibition in Section 15F(b)(6) of the Exchange Act and the related certification and background check requirements in Rule 15Fb6–2. The Commission recognizes, however, as noted by the commenters, that there may be situations in which an SBSD or MSBSP is prohibited by applicable non￾U.S. law from receiving, creating, or maintaining records with respect to certain of the information that needs to be recorded pursuant to the questionnaire requirement. Consequently, the Commission has proposed in a separate release additional provisions in Rule 18a–5 that would address situations where the law of a non-U.S. jurisdiction in which an associated person is employed or located may prohibit a stand-alone or bank SBSD or MSBSP from receiving, or creating or maintaining a record of, any of the information mandated by the questionnaire requirement.88 Finally, for the sake of clarity, the Commission emphasizes that these associated person recordkeeping requirements apply to natural persons and not to legal entities that may be associated persons. For the reasons stated above, the Commission is adopting the associated person recordkeeping requirements with the modifications discussed above.89 Liquidity Stress Test In 2012, the Commission proposed liquidity stress test requirements for entities that are or would be authorized to use internal models to compute net capital; namely, certain stand-alone broker-dealers (‘‘ANC broker-dealers’’) as well as certain broker-dealer and stand-alone SBSDs.90 Consequently, the Commission proposed that these entities be required to make and keep current certain records relating to the liquidity stress test requirements, if applicable.91 The Commission has deferred consideration of the proposed liquidity stress test requirements.92 Accordingly, the Commission is deferring consideration of the related recordkeeping requirements.93 Account Equity and Margin Calculations The Commission proposed to amend Rule 17a–3 to require broker-dealer SBSDs and MSBSPs to make and keep current a record of the daily calculations that would be required under the proposed margin rule for non-cleared
security-based swaps—Rule 18a–3.94 The Commission proposed a parallel requirement in Rule 18a–5 for stand￾alone SBSDs and MSBSPs. A commenter expressed support for the proposal 95 and the Commission has adopted Rule 18a–3 requiring the daily calculations.96 For the reasons discussed in the proposing release, the

97See paragraph (a)(25) of Rule 17a–3, as amended; paragraph (a)(12) of Rule 18a–5, as adopted. As proposed, these paragraphs referred to the ‘‘amount of equity’’ in the account and the ‘‘margin amount.’’ Rule 18a–3, as adopted, refers instead to the ‘‘current exposure’’ and ‘‘initial margin amount.’’ Consequently, the paragraphs of the recordkeeping rules as adopted refer to the ‘‘current exposure’’ and ‘‘initial margin amount.’’ 98See Recordkeeping and Reporting Proposing Release, 79 FR at 25207. See also Capital, Margin, and Segregation Proposing Release, 77 FR at 70278– 82 (proposing Rule 18a–4 requiring, among other things, that SBSDs maintain possession or control over excess securities collateral). 99See SIFMA 9/5/2014 Letter. 100Capital, Margin, and Segregation Adopting Release, 84 FR at 43930–44. 101See paragraph (a)(26) of Rule 17a–3, as amended; paragraphs (a)(13) and (b)(9) of Rule 18a– 5, as adopted. The Commission proposed that Rule 18a–4 apply to all SBSDs, but in response to comment adopted security-based swap segregation requirements for broker-dealers, including broker￾dealer SBSDs, in the broker-dealer segregation rule, which is codified at 17 CFR 240.15c3–3 (‘‘Rule 15c3–3’’). As a result, the Commission is modifying the cross references in paragraph (a)(26) of Rule 17a–3 to reflect the placement of the customer protection requirements for broker-dealer SBSDs in paragraph (p) of Rule 15c3–3 rather than in paragraph (b) of Rule 18a–4 as proposed. Paragraphs (a)(13) and (b)(9) of Rule 18a–5, as adopted, which apply to stand-alone and bank SBSDs, respectively, are not affected by this change. 102See Recordkeeping and Reporting Proposing Release, 79 FR at 25207–08. 103See SIFMA 9/5/2014 Letter. 104Capital, Margin, and Segregation Adopting Release, 84 FR at 43938–42. 105See paragraph (a)(27) of Rule 17a–3, as amended; paragraphs (a)(14) and (b)(10) of Rule 18a–5, as adopted. Because the segregation requirements were codified in Rules 15c3–3 and 18a–4, the Commission is modifying the cross references in new paragraph (a)(27) of Rule 17a–3 to new paragraph (p) of Rule 15c3–3 rather than in paragraph (b) of new Rule 18a–4 as proposed. Paragraphs (a)(14) and (b)(10) of Rule 18a–5 are not affected by this change. 106See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at 39807. 107See Recordkeeping and Reporting Proposing Release, 79 FR at 25208. 108See SIFMA 9/5/2014 Letter. 109See paragraph (a)(28) of Rule 17a–3, as amended; paragraphs (a)(15) and (b)(11) of Rule 18a–5, as adopted. For the reasons discussed above, the Commission modified the proposed rule text in these paragraphs to replace the requirement to record the ‘‘unique counterparty identifier’’ with the counterparty’s UIC. See paragraph (a)(28) of Rule 17a–3, as proposed to be amended; paragraphs (a)(15) and (b)(11) of Rule 18a–5, as proposed to be adopted. 110See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR
at 39820. 111See 17 CFR 240.15Fh–1 (‘‘Rule 15Fh–1’’); 17 CFR 240.15Fh–2 (‘‘Rule 15Fh–2’’); 17 CFR 240.15Fh–3 (‘‘Rule 15Fh–3’’); 17 CFR 240.15Fh–4 (‘‘Rule 15Fh–4’’); 17 CFR 240.15Fh–5 (‘‘Rule 15Fh– 5’’); 17 CFR 240.15Fh–6 (‘‘Rule 15Fh–6’’); 17 CFR 240.15Fk–1 (‘‘Rule 15Fk–1’’). See also Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Continued Commission is adopting daily calculation recordkeeping requirements substantially as proposed.97 Possession or Control Requirements The Commission proposed to amend Rule 17a–3 to require broker-dealer SBSDs to make and keep current a record of compliance with the possession or control requirements in the proposed segregation rule for SBSDs—Rule 18a–4.98 The Commission proposed a parallel requirement in Rule 18a–5 for stand-alone SBSDs. A commenter supported the proposal 99 and the Commission has adopted Rule 18a–4 prescribing possession or control requirements.100 For the reasons discussed in the proposing release, the Commission is adopting the security￾based swap possession or control recordkeeping requirements substantially as proposed.101 Customer Reserve Account Requirements The Commission proposed to amend Rule 17a–3 to require broker-dealer SBSDs to make and keep current a record of security-based swap reserve account computations pursuant to proposed Rule 18a–4.102 The Commission proposed a parallel requirement in Rule 18a–5 for stand￾alone SBSDs. A commenter expressed support for the proposal 103 and the Commission has amended Rule 15c3–3 and adopted Rule 18a–4 to prescribe security-based swap reserve account requirements.104 For the reasons discussed in the proposing release, the Commission is adopting the security￾based swap customer reserve account recordkeeping requirements substantially as proposed.105 Unverified Transactions It is prudent practice for counterparties to promptly confirm the terms of executed OTC derivatives transactions.106 The Commission adopted Rule 15Fi–2 to promote this practice. As discussed above, Rule 15Fi–2 requires, among other things, that SBSDs and MSBSPs provide trade acknowledgments containing the details of security-based swap transactions and promptly verify the accuracy of, or otherwise dispute with their counterparties, the terms of trade acknowledgments they receive. To promote compliance with then proposed Rule 15Fi–2 and the risk management practices of SBSDs and MSBSPs, the Commission proposed to amend Rule 17a–3 and include parallel provisions in Rule 18a–5 that would require these entities to make and keep current a record of each security-based swap trade acknowledgment that is not verified within five business days of execution.107 While the Commission did not prescribe a timeframe for security￾based swap trade acknowledgments to be verified, paragraph (e) of Rule 15Fi– 2 requires procedures reasonably designed to obtain ‘‘prompt verification.’’ A commenter urged the Commission not to establish a rigid threshold
of five business days and suggested that the Commission ‘‘enter into a constructive dialogue with interested constituencies to establish best practices for trade verification.’’108 The requirement to make a record of security-based swap trade acknowledgments not verified within five business days is not intended to establish a maximum timeframe within which verification should be obtained pursuant to Rule 15Fi–2. Instead, it is designed to require SBSDs and MSBSPs to make a record of the transactions that have gone unverified for a significant length of time, as the delay in obtaining verification may indicate, for example, the existence of a disagreement with the counterparty as to the terms of the transaction. The Commission believes that five business days represents an appropriate amount of time to wait before requiring a record to be made. This timeframe is designed to strike an appropriate balance in terms of a time period that is not too short and would capture information that is not relevant to Rule15Fi–2 or that is too long and would not promote compliance with Rule 15Fi–2. For these reasons, the Commission is adopting the unverified transaction recordkeeping requirements substantially as proposed.109 Finally, the Commission has previously noted that in complying with the trade acknowledgement and verification requirements, policies and procedures reasonably designed to ensure prompt verification of a transaction may include policies and procedures under which an SBSD or MSBSP relies on its counterparty’s negative affirmation to the terms of a trade acknowledgment. The Commission has stated that those policies and procedures generally should require the SBSD or MSBSP to document its counterparty’s agreement to rely on negative affirmation.110 As such, transactions verified by negative affirmation do not need to be recorded as unverified under Rules 17a–3 and 18a–5. Records Relating to Business Conduct Standards The Commission has adopted rules to establish business conduct and chief compliance officer requirements for SBSDs and MSBSPs.111 The

Participants, Exchange Act Release No. 77617 (Apr. 14, 2016), 81 FR 29960 (May 13, 2016). 112See Recordkeeping and Reporting Proposing Release, 79 FR at 25208. 113Paragraph (b)(2) of Rule 15Fk–1 requires chief compliance officers of SBSDs and MSBSPs to take reasonable steps to ensure that the registrant establishes, maintains, and reviews written policies and procedures reasonably designed to achieve compliance with the Exchange Act and the rules and regulations thereunder relating to its business as an SBSD or MSBSP. 114See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 76 FR 42396. 115See SIFMA 9/5/2014 Letter. 116See id. See also Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 81 FR 29960. 117See paragraph (a)(30) of Rule 17a–3, as amended; paragraphs (a)(17) and (b)(13) of Rule 18a–5, as adopted. For the sake of clarity, the rules as adopted require ‘‘[a] record documenting’’ compliance with the business conduct standards, as opposed to ‘‘[a] record that demonstrates’’ such compliance as proposed. In addition, because Rule 15Fh–6 applies only to SBSDs, and not to MSBSPs, the Commission is removing the proposed reference to MSBSPs in paragraphs (a)(16) and (b)(12) of Rule 18a–5. On October 31, 2018, it issued a statement setting forth the Commission’s position that, for a period of five years from the Registration Compliance Date for SBSDs and MSBSPs (as defined in Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR at 48988 and discussed below in section III.B. of this release), certain actions with respect to specific provisions of the business conduct standards will not provide a basis for a Commission enforcement action. See Commission Statement on Certain Provisions of Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 84511 (Oct. 31, 2018), 83 FR 55486 (Nov. 6, 2018) (‘‘Statement on Business Conduct Standards’’). To the extent SBSDs and MSBSPs rely on the statement, the Commission encourages them to maintain records of the written representations described in the statement until such time as the statement is no longer in force. 118See Recordkeeping and Reporting Proposing Release, 79 FR at 25209. 119The amendments replace the word ‘‘shall’’ with the word ‘‘must’’ or ‘‘will’’ in the following paragraphs of Rule 17a–3, as amended: (a) Introductory text, (a)(6)(i)(A), (a)(7)(i), (a)(10) and (11), (a)(12)(i), (a)(16)(ii), (a)(17)(i), (a)(18)(i), (a)(19)(i), (b), (d), (e), and (f). 120The amendments replace the phrase ‘‘shall mean’’ with the word ‘‘means’’ in the following paragraphs of Rule 17a–3, as amended: (a)(6)(i)(A) and (a)(16)(ii)(A) and (B). 121The Commission is adopting the following stylistic and corrective changes to Rule 17a–3, as amended: (1) Adding to paragraph (a)(1) the phrase ‘‘such
securities were’’; (2) adding to paragraph (a)(4)(vi) the word ‘‘and’’ after the semicolon; (3) replacing the word ‘‘of’’ with the word ‘‘or’’ in paragraph (a)(5), resulting in the phrase ‘‘for its account or for the account of its customers or partners’’; (4) replacing the phrase ‘‘purchase or sale of securities’’ with the phrase ‘‘purchase or sale of a security’’ in the first sentence of paragraph (a)(6)(i); (5) replacing the word ‘‘and’’ with the word ‘‘or’’ in paragraph (a)(7), resulting in the phrase ‘‘A memorandum of each purchase or sale’’; (6) replacing the phrase ‘‘in respect of’’ with the phrase ‘‘with respect to’’ in paragraph (a)(9); (7) adding the phrase ‘‘, as applicable:’’ After the word requirements in these rules address (among other things):

• Verification of the status of the
  counterparty;
• Certain disclosures related to the
  daily mark and its calculation;
• Disclosures regarding material
  incentives, conflicts of interest, material risks, and characteristics of the security￾based swap, and certain clearing rights;
• Certain ‘‘know your counterparty’’
  and suitability obligations for SBSDs;
• Supervisory requirements,
  including written policies and procedures;
• Certain requirements regarding
  interactions with special entities;
• Provisions intended to prevent
  SBSDs from engaging in certain ‘‘pay to play’’ activities; and
• Certain minimum requirements
  relating to chief compliance officers.
  To promote compliance with these then-proposed requirements, the Commission proposed to amend Rule 17a–3 and include parallel provisions in Rule 18a–5 that would require all SBSDs to make and keep current a record that demonstrates their compliance with Rule 15Fh–6 (regarding political contributions by certain SBSDs).112 In addition, the Commission proposed to amend Rule 17a–3 and include parallel provisions in Rule 18a–5 to require that all SBSDs and MSBSPs make and keep current a record that demonstrates their compliance with Rules 15Fh–1 through 15Fh–5 and Rule 15Fk–1, as applicable.113 These recordkeeping requirements would require covered firms to keep supporting documents evidencing their compliance with the business conduct and chief compliance officer requirements; a mere attestation of compliance would not be sufficient. To the extent that the rules require providing or receiving written disclosures or written representations, the SBSD or MSBSP would be required to retain a copy of the disclosures or representations. A commenter asked the Commission to confirm that the proposed requirements would not create additional recordkeeping obligations with respect to the business conduct standards,114 particularly with respect to the requirements relating to compliance with such requirements.115 The commenter also generally stated that the Commission should not adopt additional recordkeeping rules relating to the pay-to-play provisions set forth in the Commission’s business conduct release.116 In response to the commenter’s concern, the Commission notes that the proposed recordkeeping requirements were not intended to add additional substantive business conduct or pay-to￾play requirements. The relevant substantive requirements are prescribed in the business conduct and pay-to-play rules; the recordkeeping requirements are designed to require records of compliance with those already existing substantive requirements. The Commission acknowledges, however, that they would impose new requirements to document a registrant’s compliance with several of the substantive business conduct and pay￾to-play requirements as well as new requirements to provide written documentation where the business conduct and pay-to-play rules allowed for oral disclosure. These proposed documentation requirements were designed to assist Commission examiners in reviewing compliance with the business conduct and pay-to￾play requirements, and the anticipated additional burdens they will impose on registrants are discussed below in Sections IV and V. For these reasons, the Commission is adopting the business conduct standards recordkeeping requirements substantially as proposed.117 b. Additional Amendments to Rule 17a– 3 and Modifications to Rule 18a–5 The Commission proposed several amendments to Rule 17a–3 to eliminate obsolete text, improve readability, and modernize terminology. The Commission received no comments addressing these proposed amendments and, as discussed below,
  is adopting them substantially as proposed. Reference is made throughout Rule 17a–3 to ‘‘members’’ of a national securities exchange as a distinct class of registrant in addition to ‘‘brokers’’ and ‘‘dealers.’’ The Commission proposed to remove these references to ‘‘members’’ given that the rule applies to brokers￾dealers, which would include members of a national securities exchange that are brokers-dealers.118 The rule being adopted does not remove these references to ‘‘members’’ to avoid confusion as to whether their removal resulted in a substantive change to the rule. The Commission is adopting a global change to replace the word ‘‘shall’’ in the rule with the word ‘‘must’’ or ‘‘will’’ where appropriate.119 Similarly, when defining terms, the Commission is replacing the phrase ‘‘shall mean’’ with the word ‘‘means.’’ 120 The Commission is also adopting certain stylistic, corrective, and punctuation amendments to improve the rule’s readability.121 The Commission is

‘‘indicating’’ in paragraph (a)(9); (8) including the word ‘‘and’’ between the second-to-last and last subparagraphs of paragraph (a)(9) (instead of after every subparagraph); (9) replacing cross-reference in paragraph (a)(12) to ‘‘paragraph (h)(4)’’ with a cross-reference to ‘‘paragraph (f)(4)’’ due to the proposed deletion of two paragraphs; (10) amending paragraph (a)(12)(i)(G) to refer to a ‘‘broker or dealer’’ instead of a ‘‘broker-dealer’’; (11) replacing the superfluous ‘‘or’’ with a comma in the phrase ‘‘wrongful taking of property or bribery’’ in paragraph (a)(12)(i)(G); (12) clarifying in paragraph (a)(1) that the unit and aggregate purchase or sale price, if any includes the financial terms for security-based swaps; (13) replacing ‘‘,’’ with ‘‘;’’ after the phrase ‘‘a notation of that entry’’ in paragraph (a)(6)(i)(A) for consistency with 17 CFR 240.17a–3(a)(6)(i)(A) and paragraph (b)(4) of Rule 18a–5, as adopted; (14) replacing ‘‘In the case of’’ with ‘‘For each’’ in paragraph (a)(9)(iv) for consistency with paragraphs (a)(7) and (b)(7) of Rule 18a–5, as adopted; (15) adding quotation marks around the term ‘‘associated person’’ in paragraph (a)(12)(i) for consistency with paragraph (a)(12)(i) of Rule 17a–3 and paragraphs (a)(10)(i) and (b)(8)(i) of Rule 18a–5, as adopted; (16) replacing ‘‘or any broker or dealer’’ with ‘‘, or any broker, dealer, security-based swap dealer or major security-based swap participant’’ in paragraph (a)(12)(i)(F) for consistency with paragraphs (a)(10)(i)(F) and (b)(8)(i)(F) of Rule 18a–5, as adopted; (17) adding ‘‘, or’’ after the phrase ‘‘wrongful taking of property’’ in paragraph (a)(12)(i)(G) for consistency with paragraph (a)(12)(i)(G) of Rule 17a–3 and paragraphs (a)(10)(i)(G) and (b)(8)(i)(G) of Rule 18a–5, as adopted; (18) replacing ‘‘17 CFR 240.17a–3’’ with ‘‘this section’’ in paragraph (b)(v); and (19) replacing ‘‘§§ 240.17a–3 and 17a–4’’ with ‘‘this
section and § 240.17a–4’’ in paragraph (b).
122See undesignated introductory paragraph of Rule 17a–3, as amended. 123See paragraph (a)(6) of Rule 17a–3, as amended. 124See paragraph (a)(11) of Rule 17a–3, as amended. 125See paragraph (a)(12) of Rule 17a–3, as amended. 126See paragraph (b) of Rule 17a–3, as amended; paragraph (c) of Rule 18a–5, as adopted. 127Paragraph (c) of Rule 17a–3, as amended, provides that a broker or dealer registered pursuant to Section 15 of the Act, that introduces accounts on a fully-disclosed basis, is not required to make or keep such records of transactions cleared for such broker or dealer as are made and kept by a clearing broker or dealer pursuant to the requirements of §§ 240.17a–3 and 240.17a–4. Nothing herein will be deemed to relieve such broker or dealer from the responsibility that such books and records be accurately maintained and preserved as specified in §§ 240.17a–3 and 240.17a– 4. 128The Defense Savings Bond initiated by the U.S. Treasury and the U.S. Defense Savings Stamps introduced by the U.S. Postal Service were measures to finance the U.S. effort in World Wars I and II. The bonds matured in 10 years from the date of issuance. The Defense Savings Bonds were replaced by Series E savings bonds, which ceased to be issued as of June 1980. Today, these instruments are not widely held and are valued more as collectibles than for their face value. See information available at www.treasurydirect.gov. 129See Preservation of Records and Reports of Certain Stabilizing Activities, 18 FR 2879 (May 19,
1953) (‘‘It has been pointed out to the Commission
that the accounting entries appropriate in the case of the usual securities transaction are unnecessarily burdensome and expensive as to these rights transactions because of the small sums involved and because in many cases there is no continuing relationship between the customer and the firm’’). 130 In particular, the Commission made the following changes to Rule 18a–5, as adopted: (1) Removing ‘‘such’’ from the phrase ‘‘Each such Continued simplifying the text in paragraph (a) of Rule 17a–3 to state that Rule 17a–3 applies to ‘‘every broker or dealer,’’ since the newly adopted undesignated introductory paragraph already provides sufficient detail as to the types of registrants to which the rule applies.122 In recognition of the fact that broker￾dealers may execute orders for non￾customers, the Commission is amending paragraph (a)(6) of Rule 17a–3 to specify that a broker-dealer must maintain a copy of the customer’s or non￾customer’s subscription agreement.123 The Commission is restructuring paragraph (a)(11) of Rule 17a–3 to eliminate paragraphs (a)(11)(i) and (ii).124 Under these amendments, the text formerly located in paragraph (a)(11)(i) of Rule 17a–3 is set forth in the second sentence of paragraph (a)(11) of Rule 17a–3, as amended, and the text of paragraph (a)(11)(ii) has been deleted from the rule. The Commission proposed to amend the ‘‘Provided, however’’ paragraph in paragraph (a)(12) of Rule 17a–3 that follows paragraph (a)(12)(i)(H) by replacing the list of entities enumerated in the paragraph with the term ‘‘a self￾regulatory organization.’’ 125 The Commission is amending the paragraph substantially as proposed but adding the phrase ‘‘a registered national securities association or a registered national securities exchange’’ rather than the term ‘‘a self-regulatory organization’’ in order to more accurately reflect the nature of the entities listed in the paragraph prior to these amendments. The Commission is also redesignating this paragraph as paragraph (a)(12)(i)(I) of Rule 17a–3. As discussed in more detail in section II.E.1. of this release, the Commission is adopting a limited alternative compliance mechanism in Rules 17a–3 and 18a–5.126 The provisions of the limited alternative compliance mechanism are in paragraph (b) of Rule 17a–3 and in paragraph (c) of Rule 18a–
5. As a result, the Commission is
redesignating paragraphs (b) through (g) of Rule 17a–5 as paragraphs (c) through (g) and is redesignating proposed paragraph (c) of Rule 18a–5 as paragraph (d). The Commission also is amending paragraph (b) of Rule 17a–3 (and, as mentioned above, is redesignating it as paragraph (c)). Paragraph (b)(1) was designed to avoid duplication so that an introducing broker-dealer will not be required to make and keep current the same records that would customarily be made by the firm’s clearing broker￾dealer. However, the language in paragraph (b)(1) beginning with the phrase ‘‘Provided, That’’ is outdated insofar is it references a capital standard that has been superseded, and the Commission is deleting it accordingly. In revising paragraph (b)(1), the intent of the provision—to avoid the duplicative creation of records related to transactions introduced by one broker or dealer and cleared by a different broker or dealer—remains the same. However, the Commission is eliminating the outdated capital standard reference.127 The Commission is also deleting paragraph (b)(2), as it would be redundant of paragraph (b) of Rule 17a– 3, as amended. The Commission is deleting paragraphs (c) and (d) of Rule 17a–3. Paragraph (c) references instruments such as U.S. Defense Savings Stamps and U.S. Defense Savings Bonds that are no longer widely circulated and thus a specific carve-out for these instruments from the general rule set forth in paragraph (a) of Rule 17a–3 is no longer appropriate.128 Paragraph (d) provides a de minimis exception from paragraph (a) of Rule 17a–3 for any cash transaction of $100 or less involving only subscription rights or warrants which by their terms expire within 90 days after their issuance. This exception was adopted in 1953 to reduce the burden and expense of making accounting entries for these transactions. The burden associated with these accounting entries is no longer significant in light of the technological advances in recordkeeping systems since 1953.129 In addition, the removal of this exception will affect only a small number of transactions. As a consequence of the removal of paragraphs (c) and (d) from Rule 17a–3, paragraphs (e), (f), (g), and (h) are being redesignated as paragraphs (d), (e), (f), and (g), respectively. Paragraph (e) of Rule 17a–3 references Municipal Securities Rulemaking Board (‘‘MSRB’’) Rule G–8 and states that compliance with that rule will be deemed to be compliance with this
section. The Commission is adding the
phrase ‘‘or any successor rule’’ to the reference to Rule G–8 so that the reference does not become superseded over time. The Commission also made a number of non-substantive modifications to the text of Rule 18a–5 in addition to the modifications discussed above in
section II.A.2.a. of this release.130

security-based swap dealer’’ in paragraph (a) for consistency with paragraph (b) of Rule 18a–5, as adopted; (2) replacing ‘‘if any contract price’’ with ‘‘if any (including the financial terms for security￾based swaps)’’ in paragraph (a)(1) for consistency with paragraph (b)(1) of Rule 18a–5, as adopted; (3) adding ‘‘such securities were’’ before the phrase ‘‘purchase or received or to whom sold or delivered’’ in paragraphs (a)(1) and (b)(1) for consistency with paragraph (a)(1) of Rule 17a–3, as amended; (4) replacing ‘‘purchase or sale’’ with ‘‘transactions’’ in the third sentence of paragraphs (a)(1) and (b)(1) for consistency with paragraph (a)(1) of Rule 17a–3, as amended; (5) replacing ‘‘the termination or maturity date’’ with ‘‘the scheduled termination date’’ in paragraphs (a)(1), (3), and (5) and (b)(1), (2), and (4) for consistency with paragraph (a)(1) of Rule 17a–3, as amended; (6) replacing the phrase ‘‘the notional amount’’ with ‘‘the notional amount(s) and the currenc(ies) in which the notional amount(s) is expressed’’ in paragraphs (a)(1), (3), and (5) and (b)(1), (2), and (4) for consistency with paragraph (a)(1) of Rule 17a– 3, as amended; (7) adding ‘‘counterparty’s’’ before the phrase ‘‘legal entity identifier’’ in paragraphs (a)(1), (3), (5), and (15) and (b)(1), (2), (4), and (11) for consistency with paragraph (a)(1) of Rule 17a– 3, as amended; (8) removing ‘‘,’’ after ‘‘expense’’ in paragraph (a)(2) for consistency with paragraph (a)(2) of Rule 17a–3, as amended; (9) adding ‘‘(including security-based swaps) after the phrase ‘‘deliveries of securities’’ in paragraphs (a)(3) and (b)(2) for consistency with paragraph (a)(3) of Rule 17a–3, as amended; (10) replacing ‘‘,’’ with ‘‘;’’ after the phrase ‘‘all other debits and credits to such account’’ in paragraph (a)(3) for consistency with paragraph (a)(3) of Rule 17a–3, as amended; (11) replacing ‘‘in the case of security-based swap’’ with ‘‘for a security-based swaps’’ in paragraph (a)(3) for consistency with paragraph (a)(3) of Rule 17a–3, as amended, and paragraph (b)(2) of Rule 18a–5, as adopted; (12) removing ‘‘ledger accounts (or other records) itemizing separately,’’ in paragraph (a)(3) for consistency with paragraph (a)(3) of Rule 17a– 3, as amended, and paragraph (b)(2) of Rule 18a– 5, as adopted; (13) replacing ‘‘subject’’ with ‘‘subjects’’ in paragraph (a)(4)(i) for consistency with paragraph (a)(5)(i) of Rule 17a–3, as amended, and paragraph (b)(3)(i) of Rule 18a–5, as adopted; (14) adding ‘‘for’’ before the phrase ‘‘the account of its customers’’ in paragraph (a)(4)(i) for consistency with paragraph (a)(5)(i) of Rule 17a–3, as amended, and paragraph (b)(3)(i) of Rule 18a–5, as adopted; (15) replacing ‘‘locations’’ with ‘‘location’’ in paragraph (a)(4)(i) for consistency with paragraph (a)(5)(i) of Rule 17a–3, as amended, and paragraph (b)(3)(i) of Rule 18a–5, as adopted; (16) removing the ‘‘,’’ after the phrase ‘‘in all cases’’ in paragraph (a)(4)(i) for
consistency with paragraph (a)(5)(i) of Rule 17a–3, as amended, and paragraph (b)(3)(i) of Rule 18a–5, as adopted; (17) replacing ‘‘§ 240.15Fi– 1’’ with ‘‘§ 240.15Fi–2’’ in paragraphs (a)(6) and (15) and (b)(11) to reflect a change in reference; (18) replacing ‘‘security-based swap dealer, major security-based swap participant’’ with ‘‘security￾based swap dealer or major security-based swap participant’’ in paragraphs (a)(10)(ii) and (b)(8)(ii) for grammatical correctness and internal consistency; (19) removing ‘‘,’’ after ‘‘§ 240.15Fh–5’’ in paragraph (a)(17) for consistency with paragraph (a)(30) of Rule 17a–3, as amended, and paragraph (b)(13) of Rule 18a–5, as adopted; (20) replacing ‘‘a security-based swap dealer or a major security based swap participant’’ with ‘‘such’’ in paragraph (b)(1) for clarity; (21) replacing ‘‘if any (includes the contract price for security-based swaps)’’ with ‘‘(if any, including the financial terms for security-based swaps)’’ in paragraph (b)(1) for consistency with paragraph (a)(1) of Rule 17a–3, as amended; (22) replacing ‘‘and in addition, for security-based swaps’’ with ‘‘and in addition, for a security-based swap’’ in paragraph (b)(2) for consistency with paragraph (a)(3) of Rule 17a–3, as amended, and paragraph (a)(3) of Rule 18a–5, as adopted; (23) replacing ‘‘the time of cancellation, if applicable’’ with ‘‘the time of execution or cancellation’’ in paragraph (b)(4) for consistency with paragraph (a)(6)(i)(A) in Rule 17a–3, as adopted; (24) changing the fourth sentence in paragraph (b)(4) to read ‘‘An order entered pursuant to the exercise of discretionary authority by the security-based swap dealer or major security-based swap participant, or associated person thereof, must be so designated.’’ for consistency with paragraph (a)(6)(i)(A) in Rule 17a–3, as adopted; (25) adding a citation to 15 U.S.C. 78c(a)(70) to paragraph (c)(1) for internal consistency; (26) replacing ‘‘The term, as to a person supervised by a prudential regulator,’’ in paragraph (c)(2) with ‘‘The term associated person, as to an entity supervised by a prudential regulator’’ to clarify that the term referenced in the paragraph is ‘‘associated person’’; (27) adding parentheses around the phrase ‘‘if any, including the financial terms for security-based swaps’’ in paragraph (b)(1) for consistency with paragraph (a)(1) of Rule 17a– 3, as amended; (28) replacing ‘‘will’’ with ‘‘does’’ in paragraph (h)(4) of Rule 17a–3, as amended, for consistency with Section 3(a)(70) of the Exchange Act; and (29) consolidating paragraphs (a)(19) and (b)(15) and designating it paragraph (c) and redesignating paragraph (c) as paragraph (d). 131Broker-dealer SBSDs and MSBSPs are subject to all the record maintenance and preservation requirements applicable to broker-dealers under Rule 17a–4, as amended, plus the additional requirements specifically applicable only to SBSDs and MSBSPs. 132The Commission did not propose to include in Rule 18a–6 requirements
that would parallel the requirements in paragraphs (b)(11), (g), (h), (k), and (l) of Rule 17a–4, as amended. These requirements relate to activities that would not be relevant to stand-alone SBSDs or MSBSPs. Other requirements in Rule 17a–4, as amended, not included as parallel requirements in Rule 18a–6, as adopted, are discussed below. 133See Recordkeeping and Reporting Proposing Release, 79 FR at 25211. 134See undesignated introductory paragraph of Rule 17a–4, as amended; undesignated introductory paragraph of Rule 18a–6, as adopted. 135Specifically, the six-year preservation requirement applies to records required under paragraphs (a)(1) through (3), (5), (21), and (22) of Rule 17a–3, as amended. 136See Recordkeeping and Reporting Proposing Release, 79 FR at 25211–12.
3. Record Maintenance and Preservation
Requirements
Rule 17a–4 requires a broker-dealer to preserve certain types of records if it makes or receives them. The rule also prescribes the time period that these records and the records required to be made and kept current under Rule 17a– 3 must be preserved and the manner in which they must be preserved. The Commission is adopting amendments to Rule 17a–4 that are designed to account for the security-based swap activities of broker-dealers, including broker-dealer SBSDs and MSBSPs.131 The Commission also is adopting a number of largely technical amendments to Rule 17a–4. The Commission is adopting Rule 18a–6—which is modeled on Rule 17a–4, as amended—to establish record maintenance and preservation requirements for stand-alone and bank SBSDs and MSBSPs. Rule 18a–6 does not include a parallel requirement for every requirement in Rule 17a–4.132 In addition, the recordkeeping requirements in Rule 18a–6 applicable to bank SBSDs and MSBSPs are more limited in scope than the requirements in the rule applicable to stand-alone SBSDs and MSBSPs. a. Rule 17a–4 and Rule 18a–6 Undesignated Introductory Paragraph The Commission proposed adding an undesignated introductory paragraph to Rule 17a–4 explaining that the rule applies to a broker-dealer, including a broker-dealer SBSD or MSBSP, while a stand-alone or bank SBSD or MSBSP is subject to Rule 18a–6.133 Similarly, the Commission proposed an undesignated introductory paragraph to Rule 18a–6 explaining that the rule would apply to a stand-alone or bank SBSD or MSBSP, while a broker-dealer SBSD or MSBSP is subject to Rule 17a–4. The Commission received no comments on the proposed undesignated introductory paragraphs to Rules 17a–4 and 18a–6 and is adopting them with non￾substantive modifications to clarify which rule (17a–4 or 18a–6) applies to a given type of entity.134 Six Year Preservation Requirement for Certain Rule 17a–3 and Rule 18a–5 Records Paragraph (a) of Rule 17a–4 provides that brokers-dealers subject to Rule 17a– 3 must preserve for a period of not less than six years, the first two years in an easily accessible place, certain categories of records required to be made and kept current under Rule 17a– 3 (the ‘‘six year preservation requirement’’).135 Consequently, under this existing requirement, broker-dealer SBSDs and MSBSPs are required to preserve for six years the same categories of records as stand-alone broker-dealers. As discussed above, paragraphs (a) and (b) of Rule 18a–5 contain certain recordkeeping requirements that parallel existing requirements in Rule 17a–3, as amended. Under these parallel requirements, stand-alone and bank SBSDs and MSBSPs must make and keep current certain categories of records that broker-dealers must maintain pursuant to the six year preservation requirement in Rule 17a–4. Consequently, as proposed, paragraphs (a)(1) and (2) of Rule 18a–6 would require that these categories of records must be preserved for a period of not less than six years, the first two years
in an easily accessible place.136 The Commission received no comments on

137See paragraphs (a)(1) and (2) of Rule 18a–6, as adopted. 138Specifically, paragraph (b)(1) of Rule 17a–4 applies the three-year preservation requirement to the records required to be made and kept current under paragraphs (a)(4), (6) through (10), (16), and (18) through (20) and (e) of Rule 17a–3, as amended. Prior to these amendments, Rule 17a–4 did not cross-reference paragraph (a)(11) of Rule 17a–3. The Commission is correcting this omission by adding a cross reference to paragraph (a)(11) of Rule 17a– 3 in paragraph (b)(1) of Rule 17a–4, as amended. This requires broker-dealers to preserve these records for three years, the first two years in an easily accessible place. Based on staff experience, the Commission believes that broker-dealers have been preserving these records in a manner consistent with this requirement. 139See Recordkeeping and Reporting Proposing Release, 79 FR at 25212. 140See paragraph (b)(1) of Rule 17a–4, as amended; paragraphs (b)(1) and (2) of Rule 18a–6, as adopted. The Commission is adopting the following stylistic and corrective changes: (1) Removing the reference to paragraph (a)(24) of Rule 17a–3 since that paragraph is not being adopted as proposed; (2) replacing ‘‘made pursuant to paragraphs § 240.18a–5(a)(1), (a)(2), (a)(3), and (a)(4)’’ with ‘‘made pursuant to § 240.18a–5(a)(1) through (4)’’ in paragraph (a)(1) of Rule 18a–6, as adopted, for grammatical correctness; (3) replacing ‘‘made pursuant to paragraphs § 240.18a–5(b)(1), (b)(2), and (b)(3)’’ with ‘‘made pursuant to § 240.18a–5(b)(1) through (3)’’ in paragraph (a)(2) of Rule 18a–6, as adopted, for grammatical correctness; (4) replacing ‘‘;’’ with ‘‘.’’ for each paragraph in Rule 18a–6, as adopted, for internal consistency; (5) removing ‘‘as applicable’’ in paragraph (b)(1)(viii) of Rule 18a–6, as adopted, as it is not necessary since only Part II is referenced in Rule 18a–6, as adopted; (6) replacing ‘‘security￾based swap customers’’ with ‘‘non-security-based swap customers’’ in paragraph (b)(1)(viii)(B) of Rule 18a–6, as adopted, to correct an error and for consistency with paragraph (b)(8)(ii) of Rule 17a– 4, as amended; (7) removing ‘‘,’’ after ‘‘cost’’ in paragraph (b)(1)(viii)(H) of Rule 18a–6, as adopted, for consistency with paragraph (b)(8)(ix) of Rule 17a–4, as amended; (8) removing ‘‘;’’ after ‘‘and’’ in paragraph (b)(1)(viii)(N) of Rule 18a–6, as adopted, for consistency with paragraph (b)(8)(xvi) of Rule 17a–4, as amended; (9) removing ‘‘Records which contain’’ in paragraph (b)(2)(v) of Rule 18a–6, as adopted, for clarity; and (10) replacing ‘‘; and’’ with ‘‘.’’ in paragraph (b)(2)(vii) of Rule 18a–6, as adopted, for internal consistency. 141See Recordkeeping and Reporting Proposing Release, 79 FR at 25212–13. 142See Recordkeeping and Reporting Proposing Release, 79 FR at 25213. 143See paragraph (m)(5) of Rule 17a–4, as amended. The definition as adopted is shorter than proposed to improve clarity and now reads: ‘‘[t]he term business as
such includes security-based swap activity.’’ 144See Recordkeeping and Reporting Proposing Release, 79 FR at 25213. 145See paragraph (b)(1)(ii) of Rule 18a–6, as adopted. 146See Recordkeeping and Reporting Proposing Release, 79 FR at 25213. 147See paragraph (b)(1)(iii) of Rule 18a–6, as adopted. paragraphs (a)(1) and (2) of proposed Rule 18a–6 and is adopting them as proposed.137 Three Year Preservation Requirement for Certain Rule 17a–3 and Rule 18a–5 Records Paragraph (b)(1) of Rule 17a–4 provides that broker-dealers subject to Rule 17a–3 must preserve for at least three years, the first two years in an easily accessible place, certain records required to be made and kept current under Rule 17a–3 (the ‘‘three year preservation requirement’’).138 The Commission did not propose to amend or change any of the existing cross￾references to Rule 17a–3 in paragraph (b)(1) of Rule 17a–4. The Commission did, however, propose adding cross￾references to certain new paragraphs that are being added to Rule 17a–3 to address security-based swap activities of broker-dealers, including broker-dealer SBSDs and MSBSPs.139 As discussed above, paragraphs (a) and (b) of Rule 18a–5 require stand-alone and bank SBSDs and MSBSPs make and keep current certain categories of records that broker-dealers must maintain pursuant to the three year preservation requirement, as amended to incorporate the new records relating to security￾based swap activities. Consequently, as proposed, paragraphs (b)(1) and (2) of Rule 18a–6 would similarly require that these categories of records be preserved for a period of not less than three years, the first two years in an easily accessible place. The Commission received no comments on these proposed preservation requirements and is adopting them substantially as proposed.140 Three Year Preservation Requirement for Certain Other Records Paragraphs (b)(2) through (13) of Rule 17a–4 also provide that a broker-dealer subject to Rule 17a–3 must preserve for a period of not less than three years, the first two years in an easily accessible place, other categories of records if the broker-dealer makes or receives the record. These are not categories of records a broker-dealer is required to make and keep current under Rule 17a– 3 but rather types of records that a broker-dealer may make or receive in the ordinary course of business. As discussed in more detail below, the Commission proposed to amend certain of the provisions in paragraphs (b)(2) through (13) of Rule 17a–4 to account for security-based swaps and to require that broker-dealers, including broker￾dealer SBSDs and MSBSPs, preserve certain additional records related to security-based swap activities.141 Further, as discussed below, the Commission proposed requirements in paragraph (b) of Rule 18a–6 that would require stand-alone and bank SBSDs and MSBSPs to preserve similar records. In addition, the categories of records identified in paragraphs (b)(3) through (5) and (7) of Rule 17a–4
must be retained only if they relate to the broker￾dealer’s business as such (i.e., business as a broker-dealer). Security-based swap activities of a broker-dealer that is not registered as an SBSD or MSBSP are
part of the broker-dealer’s business as
such for the purposes of Rule 17a–4 just like activities relating to other types of securities. In the case of a broker-dealer SBSD or MSBSP, the Commission proposed to amend Rule 17a–4 to clarify that the business as such of these entities would include the firm’s business as an SBSD or MSBSP.142 The Commission received no comment on the proposed definition and is adopting it substantially as proposed.143 Bank Records Paragraph (b)(2) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve all check books, bank statements, cancelled checks, and cash reconciliations. The Commission did not propose to amend this paragraph to specifically account for security-based swaps. However, the Commission did propose a parallel requirement in Rule 18a–6 applicable to stand-alone SBSDs and MSBSPs.144 The Commission received no comments on this proposed bank record preservation requirement and is adopting it as proposed.145 Bills Paragraph (b)(3) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve all bills receivable or payable, paid or unpaid, relating to the business of the broker-dealer. The Commission proposed a parallel requirement in Rule 18a–6 that would require stand-alone SBSDs and MSBSPs to preserve these types of bills.146 The Commission received no comments on this proposed bill preservation requirement and is adopting it as proposed.147 Communications Paragraph (b)(4) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve originals of all communications received and copies of all communications sent (and any approvals thereof) by the broker-dealer (including inter-office memoranda and communications) relating to its business as such, including all communications which are subject to the rules of a self￾regulatory organization (‘‘SRO’’) of which the broker-dealer is a member regarding communications with the

148Paragraph (b)(4) of Rule 17a–4 further provides that the term communications as used in the paragraph includes sales scripts. 149See, e.g., Use of Electronic Media by Broker￾Dealers, Transfer Agents, and Investment Advisers for Delivery of Information; Additional Examples Under the Securities Act of 1933, Securities Exchange Act of 1934, and Investment Company Act of 1940, Exchange Act Release No. 37182 (May 9, 1996), 61 FR 24644 (May 15, 1996), at n. 32; Reporting Requirements for Brokers or Dealers Under the Securities Exchange Act of 1934, Exchange Act Release No. 38245 (Feb. 5, 1997), 62 FR 6469 (Feb. 12, 1997); Books and Records Requirements for Brokers and Dealers Under the Securities Exchange Act of 1934, Exchange Act Release No. 44992 (Oct. 26, 2001), 66 FR 55818, 55825 (Nov. 2, 2001). 150See Recordkeeping and Reporting Proposing Release, 79 FR at 25213–14. 151See SIFMA 9/5/2014 Letter. 152See 17 CFR 23.202(a)(1) (requiring CFTC￾registered swap dealers and major swap participants to ‘‘make and keep pre-execution trade information, including, at a minimum, records of all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading, and prices, that lead to the execution of a swap, whether communicated by telephone . . .’’). 153See paragraph (b)(4) of Rule 17a–4, as amended; paragraphs (b)(1)(iv) and (b)(2)(ii) of Rule 18a–6, as adopted. 154See Recordkeeping and Reporting Proposing Release, 79 FR at 25214. 155See Capital, Margin, and Segregation Proposing Release, 77 FR at 70221–29. 156See Capital, Margin, and Segregation Proposing Release, 77 FR at 70256–57. A broker￾dealer MSBSP is subject to the net capital requirements in Rule 15c3–1. 157See Capital, Margin, and Segregation Adopting Release, 84 FR at 44052–68. 158See paragraph (b)(1)(v) of Rule 18a–6, as adopted. 159See Recordkeeping and Reporting Proposing Release, 79 FR at 25214. public.148 The term ‘‘communications,’’ as used in paragraph (b)(4) of Rule 17a– 4, includes all electronic communications (e.g., emails and instant messages).149 Communications related to security-based swap activities would be communications relating to the business as such of a broker-dealer, including a broker-dealer SBSD and MSBSP. The Commission had not previously interpreted the term ‘‘communications’’ to include telephonic communications. However, Section 15F(g)(1) of the Exchange Act provides that each registered SBSD and MSBSP shall maintain daily trading records of the security-based swaps of the registered SBSD or MSBSP and all related records (including related cash or forward transactions) and recorded communications, including electronic mail, instant messages, and recordings of telephone calls, for such period as may be required by the Commission by rule or regulation. Therefore, to implement Section 15F(g)(1) of the Exchange Act, the Commission proposed amendments to the preservation requirement in paragraph (b)(4) of Rule 17a–4
to require recordings of telephone calls required to be maintained pursuant to Section 15F(g)(1) of the Exchange Act.150 Under this requirement, a broker-dealer SBSD or MSBSP would be required to preserve for three years telephone calls that it records to the extent the recordings are required to be maintained pursuant to Section 15F(g)(1). The Commission proposed communication preservation requirements for stand￾alone and bank SBSDs and MSBSPs that would parallel those in Rule 17a–4, as proposed to be amended, to further implement Section 15F(g)(1). The provision applicable to bank SBSDs and MSBSPs would limit the requirement to communications that relate to the business of an SBSD or MSBSP. The Commission emphasizes that the
Section 15(g)(1) of the Exchange Act and
the new rules requiring the retention of telephone calls do not establish requirements to record telephone calls. Instead, the rules require firms to retain recordings of telephone calls that are within the scope of Section 15(g)(1) of the Exchange Act. Thus, if the firm records a telephone call voluntarily or for some other reason, it will need to retain the recording if the call falls within the scope of Section 15(g)(1) of the Exchange Act. However, a firm’s decision not to record a telephone call that falls within the scope of Section 15(g)(1) of the Exchange Act will not implicate these new retention requirements. A commenter urged the Commission to apply a one-year retention requirement as was adopted by the CFTC with respect to retaining recordings of telephone calls.151 In response, the Commission notes that applying the three-year retention requirement to these recordings is designed to allow staff examiners access to records they may need to review the past activities of SBSDs and MSBSPs, given that examinations are conducted using a risk-based program. In addition, the Commission believes that a three￾year retention period will benefit counterparties in that it will preserve information that may help support them if, for example, a dispute arises about a transaction with an SBSD or MSBSP. A three-year retention period also is consistent with the retention period applicable to the vast majority of broker￾dealer records, as compared to a one year period. Further, although the CFTC requires registrants to make and keep records of all oral communications pertaining to pre-execution trade information, including telephone calls, the Commission’s record retention rule applies only to recordings of telephone calls, i.e., those voluntarily made by the registrant.152 The Commission is adopting the communications preservation requirements as proposed.153 Trial Balances Paragraph (b)(5) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve all trial balances, computations of aggregate indebtedness and net capital (and working papers in connection therewith), financial statements, branch office reconciliations, and internal audit working papers relating to the firm’s business as a broker-dealer. The Commission proposed including a parallel requirement in Rule 18a–6 applicable to stand-alone SBSDs and MSBSPs.154 In contrast to Rule 17a–4, the provision in Rule 18a–6, as proposed, did not refer to computations of ‘‘aggregate indebtedness’’ because the proposed capital rules for stand-alone SBSDs and MSBSPs—Rules 18a–1 and 18a–2, respectively—did not include such a calculation.155 Further, to account for the capital standard for stand-alone MSBSPs, the proposed requirement referred to tangible net worth.156 The Commission received no comments on the proposal and adopted Rules 18a–1 and 18a–2.157 Consequently, the Commission is adopting the trial balance preservation requirements as proposed.158 Account Documents
Paragraph (b)(6) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve all guarantees of accounts and all powers of attorney and other evidence of the granting of any discretionary authority given in respect of any account as well as copies of resolutions empowering an agent to act on behalf of a corporation. The Commission proposed parallel requirements in Rule 18a–6 for stand￾alone and bank SBSDs and MSBSPs to preserve similar types of records, but only with respect to security-based swap accounts.159 For example, bank SBSDs and MSBSPs would not be required to maintain these records with respect to accounts involving exclusively banking related services. The Commission received no comments on the proposed account documentation

160See paragraphs (b)(1)(vi) and (b)(2)(iii) of Rule 18a–6, as adopted. 161See Recordkeeping and Reporting Proposing Release, 79 FR at 25214. 162See paragraph (b)(7) of Rule 17a–4, as amended; paragraphs (b)(1)(vii) and (b)(2)(iv) of Rule 18a–6, as adopted. The Commission is adopting the following stylistic and corrective changes: (1) Replacing ‘‘;’’ with ‘‘.’’ for each paragraph in Rule 18a–6 for internal consistency; (2) removing ‘‘as applicable’’ in paragraph (b)(1)(viii) of Rule 18a–6, as adopted, as it is not necessary since only Part II is referenced in Rule 18a–6, as adopted; (3) replacing ‘‘security-based swap customers’’ with ‘‘non-security-based swap customers’’ in paragraph (b)(1)(viii)(B) of Rule 18a– 6, as adopted, to correct an error and for consistency with paragraph (b)(8)(ii) of Rule 17a– 4, as amended; (4) removing ‘‘,’’ after ‘‘cost’’ in paragraph (b)(1)(viii)(H) of Rule 18a–6, as adopted, for consistency with paragraph (b)(8)(ix) of Rule 17a–4, as amended; (5) removing ‘‘;’’ after ‘‘and’’ in paragraph (b)(1)(viii)(N) of Rule 18a–6, as adopted, for consistency with paragraph (b)(8)(xvi) of Rule 17a–4, as amended; (6) removing ‘‘Records which contain’’ in paragraph (b)(2)(v) of Rule 18a–6, as adopted, for clarity; (7) replacing ‘‘; and’’ with ‘‘.’’ in paragraph (b)(2)(vii) of Rule 18a–6, as adopted, for internal consistency. 163See Recordkeeping and Reporting Proposing Release, 79 FR at 25214–16. See Capital, Margin, and Segregation Proposing Release, 77 FR at 70221– 24, 70278–82 (discussing the proposed risk margin amount and possession or control requirements respectively). 164See Capital, Margin, and Segregation Adopting Release, 84 FR at 43883–86 (risk margin amount calculation), 43935–38 (possession or control requirement). 165See paragraph (b)(8) of Rule 17a–4, as amended; paragraphs (b)(1)(viii) and (b)(2)(v) of Rule 18a–6, as adopted. The adopted rule text modifies the proposed rule text in the following non-substantive ways. The Commission proposed to amend paragraph (b)(8) of Rule 17a–4 to add a reference to proposed Form SBS in the introductory text after references to certain parts of the FOCUS Report. It is no longer necessary to include this cross-reference, because as discussed below, the Commission is revising Part II and adopting Part IIC of the FOCUS Report instead of adopting Form SBS. However, non-substantive changes in connection with those revisions are being made to improve the clarity of paragraph (b)(8); namely, references to the parts of Form X–17A–5 now read ‘‘Part II or Part IIA of Form X–17A–5 (§ 249.617 of this chapter)’’ to improve readability, and the word ‘‘audited’’ is being removed from the phrase ‘‘annual audited financial statements’’ for consistency with Rules 17a–5 and 18a–7. Paragraph (b)(1)(viii) of Rule 18a– 6, as adopted, reflects the following technical changes from paragraph (b)(1)(viii) of Rule 18a–6, as proposed to be adopted: (1) Paragraph (b)(1)(viii) references ‘‘Part II of Form
X–17A–5 (§ 249.617 of this chapter)’’ instead of ‘‘Part II of Form X–17A– 5 (§ 249.617 of this chapter), as applicable,’’ because there is no need to reference ‘‘as applicable’’ when only one part of Form X–17A–5 is being referenced; (2) paragraph (b)(1)(viii)(B) refers to ‘‘non-security￾based swap customers’’ instead of ‘‘security-based swap customers’’ for consistency with paragraph (b)(8)(ii) of Rule 17a–4, as amended; (3) paragraph (b)(1)(viii)(H) no longer includes a comma after the word ‘‘cost’’ for consistency with paragraph (b)(8)(ix) of Rule 17a–4, as amended; and (4) paragraph (b)(1)(viii)(N) no longer includes a semicolon after the word ‘‘and’’ for consistency with paragraph (b)(8)(xvi), as amended. 166See 17 CFR 240.15c3–4 (‘‘Rule 15c3–4’’). 167See Capital, Margin, and Segregation Proposing Release, 77 FR at 70250–51, 70256–57. 168See Recordkeeping and Reporting Proposing Release, 79 FR at 25216. 169See Section 15F(d)(2)(A) of the Exchange Act (providing that the Commission may not prescribe Continued preservation requirements and is adopting them as proposed.160 Written Agreements Paragraph (b)(7) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve all written agreements (or copies thereof) entered into by the firm relating to its business as such, including agreements with respect to any account. The Commission proposed to amend this paragraph to require the preservation of written agreements with respect to a security-based swap customer or non-customer—including governing documents or any document establishing the terms and conditions of security-based swaps of the customer or non-customer—with the account records of the customer or non￾customer.161 The Commission proposed parallel requirements in Rule 18a–6 for stand-alone and bank SBSDs and MSBSPs. The provision applicable to bank SBSDs and MSBSPs would limit the preservation requirement to written agreements relating to the registrant’s business as an SBSD or MSBSP. The Commission received no comments on the proposed written agreement preservation requirements and is adopting them substantially as proposed.162 Information Supporting Financial Reports Paragraphs (b)(8)(i) through (xv) of Rule 17a–4 require a broker-dealer, including a broker-dealer SBSD or MSBSP, to preserve records containing various types of information that support amounts included in the broker￾dealer’s FOCUS Report prepared as of the broker-dealer’s audit date and amounts in the annual audited financial statements the broker-dealer is required to file under Rule 17a–5 or 17a–12, as applicable. The paragraphs specifically identify the types of supporting information that must be preserved, including money balances, securities positions (which will include security￾based swap positions), futures positions, commodity positions, and options positions, among other things. The Commission proposed to: (1) Amend certain of these paragraphs to require the preservation of the
same type of supporting information required of commodity positions, but for swap positions; (2) add a paragraph to require a broker-dealer SBSDs to preserve records that contain detail relating to the calculation of the risk margin amount under the proposed SBSD capital rules; and (3) add a new paragraph to require broker-dealer SBSDs to preserve records containing detail relating to the possession or control requirements in the proposed SBSD segregation rule.163 The Commission proposed requirements in Rule 18a–6 for stand-alone SBSDs and MSBSPs that paralleled the requirements in paragraphs (b)(8)(i) through (xv) of Rule 17a–4, as proposed to be amended. Finally, the Commission proposed that bank SBSDs preserve records containing detail relating to the possession or control requirements in the proposed SBSD segregation rule (but not any of the other preservation requirements). The Commission received no comments on these proposals and has adopted the SBSD capital rules requiring a risk margin amount calculation and the SBSD segregation rules prescribing a possession or control requirement.164 Consequently, the Commission is adopting the information supporting financial statement preservation requirements substantially as proposed.165 Rule 15c3–4 Risk Management Records OTC derivatives dealers and ANC broker-dealers are subject to risk management requirements.166 In particular, Rule 15c3–4 requires these broker-dealers to establish, document, and maintain a system of internal risk management controls to assist in managing the risks associated with the firm’s business activities, including market, credit, leverage, liquidity, legal, and operational risks. The rule also requires periodic reviews (which may be performed by internal audit staff) and annual reviews (which must be conducted by independent public accountants) of the firm’s risk management systems. Paragraph (b)(10) of Rule 17a–4 requires broker-dealers subject to Rule 15c3–4 to preserve the records required to be made under the rule and the results of the periodic reviews required to be conducted under the rule. The Commission proposed that nonbank SBSDs and MSBSPs be required to comply with Rule 15c3–4.167 Broker-dealer SBSDs will be subject to paragraph (b)(10) of Rule 17a–4. The Commission proposed a parallel provision in Rule 18a–6 to require nonbank SBSDs and MSBSPs to preserve the same types of records relating to Rule 15c3–4.168 The Commission did not propose that bank SBSDs and MSBSPs comply with Rule 15c3–4 169 and thus did not propose a

rules imposing prudential requirements on SBSDs and MSBSPs for which there is a prudential regulator). 170See Capital, Margin, and Segregation Adopting Release, 84 FR at 43906–07. 171See paragraph (b)(1)(ix) of Rule 18a–6, as adopted. 172See Capital, Margin, and Segregation Proposing Release, 77 FR at 70340. 173See Recordkeeping and Reporting Proposing Release, 79 FR at 25216–17. 174See Capital, Margin, and Segregation Adopting Release, 84 FR at 44060; paragraph (e)(2)(iii)(F)(2) of Rule 18a–1. 175See paragraph (b)(1)(x) of Rule 18a–6, as adopted. 176See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR 14567; Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 81 FR 53546. 177See Recordkeeping and Reporting Proposing Release, 79 FR at 25217. 178See paragraph (b)(14) of Rule 17a–4, as amended; paragraphs (b)(1)(xi) and (b)(2)(vi) of Rule 18a–6, as adopted. 179See Recordkeeping and Reporting Proposing Release, 79 FR at 25217. 180See paragraph (b)(15) of Rule 17a–4, as amended; paragraphs (b)(1)(xii) and (b)(2)(vii) of Rule 18a–6, as adopted. 181See Recordkeeping and Reporting Proposing Release, 79 FR at 25218. As noted above in section II.A.2.a. of this release, on October 31, 2018, the Commission issued a statement, which set forth the Commission’s position that, for a period of five years from the Registration Compliance Date for SBSDs and MSBSPs (as defined in Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR at 48988 and discussed below in section III.B. of this release), certain actions with respect to specific provisions of the business conduct standards will not provide a basis for a Commission enforcement action. See Statement on Business Conduct Standards, 83 FR at 55486. To the extent SBSDs and MSBSPs rely on the statement, the Commission encourages them to maintain records of the written representations described in the statement until such time as the statement is no longer in force. 182See paragraph (b)(16) of Rule 17a–4, as amended; paragraphs (b)(1)(xiii) and (b)(2)(viii) of Rule 18a–6, as adopted. 183See Recordkeeping and Reporting Proposing Release, 79 FR at 25218. 184See Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 65543 (Oct. 12, 2011), 76 FR 65784 (Oct. 24, 2011); see also Cross-Border Proposing Release, 78 FR 30968. parallel record preservation requirement for these entities. The Commission received no comments on these proposals and has adopted the requirement that nonbank SBSDs and MSBSPs comply with Rule 15c3–4.170 Consequently, the Commission is adopting the risk management records preservation requirements as proposed.171 Credit Risk Determinations Paragraph (c)(4)(vi)(A) of § 240.15c3– 1e (appendix E to Rule 15c3–1) requires an ANC broker-dealer to make and keep current a record of the basis of its internal credit assessments of
counterparties for purposes of the credit risk charges it must take as part of its net capital computation. Paragraph (b)(12) of Rule 17a–4 requires an ANC broker-dealer to preserve these records. A broker-dealer SBSD approved to use models to compute net capital will be subject to the recordkeeping provision in paragraph (c)(4)(vi)(A) of appendix E to Rule 15c3–1 and the corresponding record preservation requirement in paragraph (b)(12) of Rule 17a–4. The proposed capital rule for SBSDs included a parallel provision requiring a stand-alone SBSD approved to use models to make and keep current the same type of record of the basis of its internal credit assessments of counterparties.172 Therefore, the Commission proposed a parallel corresponding record preservation requirement in Rule 18a–6 for such a stand-alone SBSD.173 The Commission received no comments on the proposal and adopted the requirement in the capital rule for stand-alone SBSDs to make and keep current these records.174 Consequently, the Commission is adopting the credit risk determination preservation record requirement as proposed.175 Regulation SBSR As discussed above, the Commission has adopted Regulation SBSR, which assigns the duty to report a security￾based swap transaction to a registered SDR.176 The Commission proposed to amend paragraph (b)(14) of Rule 17a–4 to require that broker-dealers, including broker-dealer SBSDs and MSBSPs, preserve the information they are required to submit to a registered SDR under Regulation SBSR.177 In addition, the Commission proposed to include parallel preservation requirements in Rule 18a–6 for stand-alone and bank SBSDs. The Commission received no comments on the proposed Regulation SBSR record preservation requirements and is adopting them as proposed.178 Records Relating to Business Conduct Standards As discussed above, the Commission has adopted Rules 15Fh–1 through 15Fh–6 and Rule 15Fk–1. These rules require, among other things, that SBSDs and MSBSPs make certain disclosures, provide certain notices, and make other records. The Commission proposed to amend paragraph (b) of Rule 17a–4 to add a requirement that broker-dealer SBSDs and MSBSPs preserve copies of documents, communications, and notices related to the business conduct and chief compliance officer requirements in Rules 15Fh–1 through 15Fh–6 and Rule 15Fk–1.179 In addition, the Commission proposed to adopt parallel record preservation requirements in Rule 18a–6 for stand￾alone and bank SBSDs and MSBSPs. The Commission received no comments on the proposed business conduct record preservation requirements and is adopting them as proposed.180
Section 15F(h)(4)(C) of the Exchange
Act imposes duties on SBSDs that act as advisors to special entities. Paragraph (a) of Rule 15Fh–2 defines what it means to act as an advisor to a special entity. If an SBSD is acting in this capacity, Section 15F(h)(4)(C) and paragraph (b) of Rule 15Fh–4 require the SBSD to make reasonable efforts to obtain such information as it considers necessary to make a reasonable determination that a security-based swap or trading strategy involving a security-based swap is in the best interests of the special entity. Section 15F(h)(5)(A) and paragraph (a) of Rule 15Fh–5 require an SBSD or MSBSP that is acting as a counterparty to a special entity to have a reasonable basis to believe that the special entity has a ‘‘qualified independent representative,’’ as that term is defined in the rule. The Commission proposed to amend paragraph (b) of Rule 17a–4 to add a requirement that broker-dealer SBSDs and MSBSPs preserve records relating to the determinations made pursuant to
Section 15F(h)(4)(C) and Section
15F(h)(5)(A) of the Exchange Act.181 In addition, the Commission proposed parallel record preservation requirements in Rule 18a–6 for stand￾alone and bank SBSDs. The Commission received no comments on the proposed special entity advisor record preservation requirements and is adopting them as proposed.182 Corporate Documents Paragraph (d) of Rule 17a–4 requires broker-dealers to preserve during the life of the enterprise corporate documents such as articles of incorporation, minute books, and stock certificate books. It also requires broker￾dealers to preserve during the life of the enterprise registration and licensing information such as all Forms BD, Forms BDW, and licenses or other documentation showing registration with a securities regulatory authority. The Commission proposed to amend paragraph (d) of Rule 17a–4 to add references to proposed Form SBSE–BD and proposed Form SBSE–W.183 These were the registration and withdrawal of registration forms, respectively, the Commission proposed for broker-dealer SBSDs and MSBSPs.184 The

185Paragraph (m)(3) of Rule 17a–4, as amended, defines the term ‘‘securities regulatory authority’’ to have the meaning set forth in paragraph (f)(3) of Rule 17a–3, as amended. Paragraph (h)(1) of Rule 18a–6, as adopted, defines the term ‘‘securities regulatory authority’’ in the same way as that term is defined in paragraph (f)(3) of Rule 17a–3, as amended. The Commission proposed to amend the definition of ‘‘securities regulatory authority’’ to include the CFTC and a prudential regulator to the extent the prudential regulator oversees entity’s security-based swap activities. The Commission believes the better approach is to specifically reference the CFTC and the prudential regulator in a given recordkeeping provision where the inclusion of a reference to the CFTC or prudential regulator is appropriate given the type of registrant and the nature of the records. As a result, the Commission is adding references to the CFTC to paragraph (d) of Rule 17a–4, as amended, and a reference to the CFTC to paragraph (c) of Rule 18a– 6, as adopted. 186See Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 75611 (Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015). 187The paragraphs as adopted contain updated cross-references to the CFR citations for Form SBSE, Form SBSE–A, Form SBSE–BD, and Form SBE–W (i.e., 17 CFR 249.1600, 17 CFR 249.1600a, 17 CFR 249.1600b, and 17 CFR 249.1601, respectively). 188See 17 CFR 240.15Fb2–1(a). 189See paragraph (d) of Rule 17a–4, as amended; paragraph (c) of Rule 18a–6, as adopted. 190See paragraphs (a)(10) and (b)(8) of Rule 18a– 5, as adopted. 191See Recordkeeping and Reporting Proposing Release, 79 FR at 25218. 192See paragraph (d)(1) of Rule 18a–6, as adopted. Paragraph (h)(2) of Rule 18a–6, as adopted, defines the term ‘‘associated person’’ to have the same meaning as that term is defined in paragraph (c) of Rule 18a–5, as adopted. 193As discussed earlier, paragraph (m)(3) of Rule 17a–4 defines the term ‘‘securities regulatory authority’’ to have the meaning set forth in paragraph (f)(3) of Rule 17a–3, as amended. The Commission proposed to amend the definition of ‘‘securities regulatory authority’’ to include the CFTC and a prudential regulator to the extent the prudential regulator oversees security-based swap activities. The Commission believes the better approach is to specifically identify the CFTC and prudential regulator in a given recordkeeping provision where the inclusion of a reference to the CFTC or prudential regulator is appropriate given the type of registrant and the nature of the records. See paragraph (f)(3) of Rule 17a–3, as amended. As a result, the Commission is amending paragraph (e)(6) of Rule 17a–4 by adding references to reports requested or required by the CFTC. 194See Recordkeeping and Reporting Proposing Release, 79 FR at 25218–19. 195See paragraphs (d)(2)(i) and (ii) of Rule 18a– 6, as adopted. The Commission is replacing the term
‘‘regulatory authority’’ with the term ‘‘securities regulatory authority’’ in paragraphs (d)(2)(i) and (ii) of Rule 18a–6, as adopted. Paragraph (h)(1) of Rule 18a–6, as adopted, defines the term securities regulatory authority in the same way as that term is defined in paragraph (f)(3) of Rule 17a–3, as amended. As noted above, the Commission proposed to amend the definition of the term ‘‘securities regulatory authority’’ cross￾referenced in paragraph (f)(3) of Rule 17a–3 to include the CFTC and prudential regulators but is declining to do so. In lieu of amending the definition of the term ‘‘securities regulatory authority,’’ the Commission is adding references to reports requested or required by the CFTC to paragraph (d)(2)(i) of Rule 18a–6, as adopted, and to reports requested or required by the CFTC or the prudential regulators to paragraph (d)(2)(ii) of Rule 18a–6, as adopted. The Commission staff consulted with staff from the prudential regulators and the CFTC in drafting the final rules discussed in this release, including paragraph (d)(2)(ii) of Rule 18a– 6 (applicable to bank SBSDs and MSBSPs). The Commission recognizes that a bank SBSD or MSBSP may need to notify its prudential regulator(s) before furnishing (pursuant to paragraph (g) of Rule 18a–
6) certain records identified in paragraph (d)(2)(ii)
of Rule 18a–6.
196See Recordkeeping and Reporting Proposing Release, 79 FR at 25219. 197See paragraphs (d)(3)(i) and (ii) of Rule 18a– 6, as adopted. Commission proposed a parallel requirement in Rule 18a–6 for stand￾alone and bank SBSDs and MSBSPs, except that rule text referred to the registration forms these entities would use (i.e., Forms SBSE and SBSE–A, respectively) rather than Form SBSE– BD.185 The Commission received no comments on these proposals and has adopted the forms.186 However, to correct an inadvertent omission, they now also require preservation of Form SBSE–C (17 CFR 249.1600c).187 The registration rule for SBSDs and MSBSPs requires firms applying to register as an SBSD or MSBSP to file Form SBSE–C (which contains two separate certifications) in addition to Forms SBSE, SBSE–A, and/or SBSE–BD.188 For these reasons, the Commission is adopting the corporate document preservation requirements with the modifications discussed above.189 Associated Persons As discussed above, paragraph (a)(12) of Rule 17a–3 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to make and keep current records of information about associated persons, and the Commission is adopting parallel requirements in Rule 18a–5 to require a stand-alone or bank SBSD or MSBSP to make and keep current the same types of records.190 Paragraph (e)(1) of Rule 17a–4 requires broker-dealers to maintain and preserve the associated person’s records in an easily accessible place until at least three years after the associated person’s employment and any other connection with the broker-dealer has terminated. The Commission proposed to include a parallel requirement in Rule 18a–6 for stand-alone and bank SBSDs and MSBSPs to maintain and preserve their records about associated persons.191 The Commission received no comments on these proposed associated persons record preservation requirements and is adopting them as proposed.192 Regulatory Authority Reports Paragraph (e)(6) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to maintain and preserve in an easily accessible place each report that a securities regulatory authority has requested or required the firm to make and furnish to it pursuant to an order of settlement, and each regulatory exam report until three years after the date of the report.193 The Commission proposed parallel record preservation requirements in Rule 18a–6 for stand￾alone SBSDs and MSBSPs to maintain and preserve the same types of reports until three years after the date of the report.194 The Commission proposed a parallel requirement in Rule 18a–6 for bank SBSDs and MSBSPs but only if the reports relate to security-based swap activities. The Commission received no comments on these proposed regulatory authority reports preservation requirements and is adopting them as proposed.195 Compliance, Supervisory, and Procedures Manuals Paragraph (e)(7) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or
MSBSP, to maintain and preserve in an easily accessible place each compliance, supervisory, and procedures manual, including any updates, modifications, and revisions, describing the policies and practices of the broker-dealer with respect to compliance with applicable laws and rules and supervision of the activities of each natural person associated with the broker-dealer until three years after the termination of the use of the manual. The Commission proposed a parallel requirement in Rule 18a–6 for stand-alone SBSDs and MSBSPs to maintain and preserve the same types of compliance, supervisory, and procedures manuals for the same period of time.196 The Commission proposed a parallel requirement in Rule 18a–6 for bank SBSDs and MSBSPs but only if the manuals involve compliance with applicable laws and rules relating to security-based swap activities. The Commission received no comments on these proposed compliance, supervisory, and procedures manual preservation requirements and is adopting them as proposed.197 Electronic Storage Paragraph (f) of Rule 17a–4 provides that the records a broker-dealer, including a broker-dealer SBSD or MSBSP, is required to maintain and preserve under Rules 17a–3 and 17a–4 may be immediately produced or reproduced on micrographic media or by means of electronic storage media and be maintained and preserved for the required time in that form. The use of

198See paragraph (f)(2)(ii)(A) of Rule 17a–4. 199See Recordkeeping and Reporting Proposing Release, 79 FR at 25219. 200The Commission believes that most broker￾dealers use electronic storage media rather than micrographic media for the same reasons. 201See, e.g., SIFMA 9/5/2014 Letter; Letter from Walt L. Lukken, President and Chief Executive Officer, Futures Industry Association (Nov. 29,
2018) (‘‘FIA Letter’’).
202See, e.g., SIFMA 9/5/2014 Letter.
203See FIA Letter. The CFTC modified CEA Rule
1.31 to remove its WORM requirement in May 2017.
See Recordkeeping, 82 FR 24479 (May 30, 2017). 204See Reporting Requirements for Brokers or Dealers Under the Securities Exchange Act of 1934, Exchange Act Release No. 38245 (Jan. 31, 1997), 62 FR 6469 (Feb. 12, 1997). 205Electronic Storage of Broker-Dealer Records, Exchange Act Release No. 47806 (May 7, 2003), 68 FR 25281 (May 12, 2003). 206Electronic Storage of Broker-Dealer Records, 68 FR 25282. 207This requirement was in paragraph (e)(2)(ii)(A) of Rule 18a–6, as proposed. 208This requirement was in paragraph (e)(2)(i) of Rule 18a–6, as proposed. 209See paragraph (e) of Rule 18a–6, as adopted. The Commission also is deleting the phrase ‘‘on any medium acceptable under § 240.18a–6’’ from paragraph (e)(3)(iii) of Rule 18a–6. In addition, the Commission is also replacing throughout paragraph (e) references to information placed ‘‘on’’ electric storage systems with references to information placed ‘‘in’’ such systems. 210See paragraph (e)(2)(ii) of Rule 18a–6, as adopted. 211See paragraph (e)(3)(i) of Rule 18a–6, as adopted. 212See paragraph (e)(3)(ii) of Rule 18a–6, as adopted. electronic storage media is subject to certain conditions, including that the media must preserve the records exclusively in a manner that is non￾rewriteable and non-erasable (also known as a write once, read many or ‘‘WORM’’).198 The Commission proposed including a parallel record maintenance and preservation requirement in Rule 18a–6, but only with respect to electronic storage media.199 The Commission believes that SBSDs and MSBSPs that are not dually registered as broker-dealers would not use micrographic media to maintain and preserve records because electronic storage media is more technologically advanced and offers greater flexibility in managing records.200 The Commission received comments that its electronic storage requirements for SBSDs and MSBSPs, including for broker-dealers dually registered as SBSDs, should not mandate that the records be preserved exclusively in a WORM format.201 One commenter further urged the Commission, in any event, ‘‘not to expand the WORM requirement to SBSDs at this time.’’ 202 The Commission also received comment requesting that it act on a rule petition filed by several organizations in November 2017 and harmonize its final rule with the CFTC’s corresponding requirements, which were recently modified to eliminate a similar WORM requirement.203 The Commission’s electronic record storage requirements in Rule 17a–4 are based on the ‘‘importance for recordkeeping of ready access, reliability, and permanence of records.’’ 204 The Commission has described the recordkeeping requirements in Rules 17a–3 and 17a–4 as ‘‘integral to the Commission’s investor protection function because the preserved records are the primary means of monitoring compliance with applicable securities laws, including antifraud provisions and financial responsibility standards.’’ 205 Any modification to the electronic storage requirements in Rule 17a–4 may raise
issues that are distinct from those raised by stand-alone and bank SBSDs and MSBSPs. Accordingly, the Commission believes that any change to these requirements should be addressed in a separate regulatory initiative in which the Commission intends to consider electronic storage media issues. However, the Commission is clarifying that the WORM requirement does not mandate the use of a specific type of media. In particular, the Commission issued guidance in 2003 to clarify that the WORM requirement can be met using an ‘‘electronic storage system that prevents the overwriting, erasing or otherwise altering of a record during its required retention period through the use of integrated hardware and software control codes.’’ 206 This statement in the release—because it refers to ‘‘hardware’’ control codes—has raised questions as to whether an electronic storage system that relies exclusively on software coding to meet the WORM requirement is permitted under the rule. The Commission is clarifying that a software solution that prevents the overwriting, erasing, or otherwise altering of a record during its required retention period would meet the requirements of the rule. For example, the rule does not require the use of a specific medium such as optical disk, CD–ROM, or magnetic tape to meet the WORM requirement. The Commission recognizes that the entities that may register as stand-alone or bank SBSDs or MSBSPs may have existing electronic storage systems that do not meet the WORM requirement and therefore could incur substantial costs in building a recordkeeping system that meets this requirement. For these reasons, the Commission is modifying Rule 18a–6 to eliminate the requirement that the electronic storage system preserve the records exclusively in a non-rewriteable and non-erasable format (i.e., a WORM format).207 In connection with this modification, the Commission is eliminating the proposed requirement that the stand-alone or bank SBSD or MSBSP notify the Commission at least 90 days before using electronic storage media other than optical disk technology because this provision is no longer relevant given the absence of the WORM requirement in the rule as adopted.208 The Commission also is modifying the proposed rule text by replacing the phrase ‘‘electronic storage media’’ throughout paragraph (e) of Rule 18a–6, as adopted, with the phrase ‘‘electronic storage system’’ to further clarify that the final rule does not require the use of a particular storage media such as optical disk or CD–ROM (as is the case with Rule 17a–4, as noted above).209 The Commission is modifying the provision of the rule that required the original and duplicate units of the storage media to be serialized and time￾dated to clarify that this must be done if applicable (i.e., if the firm uses a storage media such as optical disk or CD–ROM).210 The Commission also is modifying the provision of the rule that required the firm to have available facilities for immediate,
easily readable projection or productions of electronic storage media images and for producing easily readable images; the final rule instead provides that the facilities can be for the projection or production of images or records that are maintained on the electronic storage system.211 This modification is designed to accommodate electronic storage systems that do not use optical disk or CD–ROM media. Further, the Commission is modifying the provision of the rule that required the firm to be ready at all times to immediately provide an facsimile enlargement which the staff of the Commission may request; the final rule requires instead that the firm must be ready at all times to immediately provide in a readable format any record or index stored on the electronic storage system which the staff of the Commission may request.212 The elimination of the WORM requirement as the exclusive means of storing records electronically will provide flexibility to stand-alone and bank SBSDs and MSBSPs in terms of establishing and maintaining electronic storage systems and will eliminate a potential conflict with the requirements of the CFTC. However, eliminating the WORM requirement does not change the

213See Recordkeeping and Reporting Proposing Release, 79 FR at 25313. 214See FIA Letter. 215See Recordkeeping and Reporting Proposing Release, 79 FR at 25312. 216See FIA Letter. 217See Reporting Requirements for Brokers or Dealers Under the Securities Exchange Act of 1934, Exchange Act Release No. 38245 (Feb. 5, 1997), 62 FR 6469 (Feb. 12, 1997). 218 Id. at 6471. 219 Id. 220 Id. At 6473. 221 Id. 222Electronic Storage of Broker-Dealer Records, 68 FR 25283. 223 Id. 224See paragraph (e) of Rule 18a–6, as adopted. The Commission is also making the following non￾substantive changes to paragraph (e) of Rule 18a– 6, as adopted: (1) Inserting the word ‘‘an’’ before the phrase ‘‘electronic storage system,’’ replacing the phrase ‘‘as defined in this section’’ with the phrase ‘‘as defined in this paragraph (e),’’ and replacing the word ‘‘meet’’ with the word ‘‘meets’’ in the introductory paragraph; (2) replacing the phrase ‘‘any digital storage medium or system’’ with ‘‘any digital storage system’’ in paragraph (e)(1); (3) inserting the word ‘‘an’’ before the phrase ‘‘electronic storage system,’’ and deleting the phrase ‘‘comply with the following instructions’’ in paragraph (e)(2); (4) deleting the phrase ‘‘to any system acceptable under this paragraph (e) as required by the Commission,’’ and adding the phrase ‘‘into a readable format’’ between the words ‘‘download’’ and ‘‘indexes’’ in paragraph (e)(2)(iii); (5) deleting the proposed text of paragraphs (e)(2)(i), (e)(2)(ii) introductory text, and (e)(2)(ii)(A) and re￾numbering proposed paragraphs (e)(2)(ii)(B) through (D) as paragraphs (e)(2)(i) through (iii), respectively; (6) inserting the word ‘‘an’’ before the phrase ‘‘electronic storage system’’ in paragraph (e)(3); (7) replacing the phrase ‘‘to provide, and immediately provide,’’ with the phrase ‘‘to immediately provide’’ in paragraph (e)(3)(ii); (8) deleting the comma after the word ‘‘original,’’ replacing the phrase ‘‘the record’’ with the phrase ‘‘a record,’’ and adding the phrase ‘‘the electronic storage system on’’ between the words ‘‘on’’ and ‘‘any’’ in paragraph (e)(3)(iii), (9) replacing the word ‘‘media’’ with the word ‘‘storage’’ in paragraph (e)(3)(iv); (10) deleting the phrase ‘‘The security￾based swap dealer or major security-based swap participant must,’’ capitalizing the word ‘‘Have,’’ and adding the word ‘‘the’’ before the phrase ‘‘electronic storage system’’ in paragraph (e)(3)(v); and (11) replacing the words ‘‘media’’ or ‘‘medium’’ with the word ‘‘system,’’ deleting the phrase ‘‘to any acceptable system under this section,’’ replacing the phrase ‘‘to any medium acceptable under § 240.18a–6’’ with ‘‘to a readable format,’’ and replacing the phrase ‘‘upon being provided with the appropriate electronic storage’’ with the phrase ‘‘upon being provided with access to the appropriate electronic storage’’ in paragraph (e)(3)(vii). underlying requirements in Rules 18a– 5 and 18a–6 that stand-alone and bank SBSDs and MSBSPs make and keep
certain records, preserve those and other records for required time periods, and furnish promptly legible, true, complete, and current copies of records to a representative of the Commission. A firm’s obligation to comply with these requirements is the same irrespective of whether it stores records in paper form or electronically and, therefore, a firm that elects to store records electronically should keep these obligations in mind in designing, implementing, and maintaining an electronic storage system. The Commission also is modifying the final rule to eliminate the proposed provision that required at least one third party to have access to and the ability to download information from the electronic storage media and for that third party to execute an undertaking that the third party would provide the Commission with the information necessary download information from the electronic storage media.213 This provision was designed to facilitate the Commission’s access to electronically stored records. A commenter stated that this requirement (along with the WORM requirement) was ‘‘outdated in light of the changed technological environment.’’ 214 The commenter further stated that it requires broker￾dealers to provide third-party access to firm systems and client information, which ‘‘needlessly exposes firms to data leakage and cybersecurity threats.’’ As noted above, the Commission believes that any change to the broker-dealer electronic storage provisions should be addressed in a separate regulatory initiative where the Commission intends to consider electronic storage media issues in a broader context, including with respect to other market participants. Accordingly, for the purposes of Rule 18a–6, the Commission believes it is appropriate not to adopt the proposed requirement. Finally, paragraph (e)(3)(v) of Rule 18a–6, as proposed, would require firms that use an electronic storage system to have an audit system providing for accountability regarding the inputting of records to the electronic storage system and inputting of any changes made to every original and duplicate record.215 This provision was modeled on the audit system requirement prescribed in paragraph (f)(3)(v) of Rule 17a–4. A commenter stated that firms report substantial difficulty assessing whether they have complied with the audit system requirement of Rule 17a–4.216 The Commission explained the audit system requirement when it adopted the electronic storage provisions of Rule 17a–4.217 In particular, the Commission stated that the rule requires an audit system to be utilized only when records required to be maintained under Rule 17a–4 are being entered or when any additions to existing records are made.218 Consequently, an audit record is not required when a record is accessed but cannot be altered by the reader.219 The Commission further stated that, although it was not specifying the contents of each audit system, data automatically or otherwise stored (in the computer or
in hard copy) regarding inputting of records and changes to existing records will be part of that system.220 The Commission envisioned that the identities of individuals actually inputting records and making particular changes, and the identity of documents changed and the identity of new documents created, are the kind of information that automatically would be collected pursuant to the audit system requirements.221 In addition, as part of the 2003 guidance with respect to the WORM requirement, the Commission stated that the audit system would need to provide accountability regarding the length of time records are stored in a non￾rewriteable and nonerasable manner.222 The Commission further stated that this should include senior management level approval of how the system is configured to store records for their required retention periods in a non￾rewriteable and nonerasable manner.223 The audit system requirements of Rule 18a–6 are modeled on the existing requirements of Rule 17a–4. Consequently, firms can rely on the Commission’s description of the Rule 17a–4 requirements—as set forth above—for the purposes of Rule 18a–6. For the foregoing reasons, the Commission is adopting the electronic storage requirements with the modifications discussed above.224 Prompt Production of Records Paragraph (i) of Rule 17a–4 applies when a broker-dealer, including a broker-dealer SBSD or MSBSP, uses a third party to prepare or maintain the records required to be maintained and preserved pursuant to Rules 17a–3 and 17a–4. It requires the third party to file an undertaking with the Commission stating, among other things, that the records are the property of the broker￾dealer and will be promptly furnished to the Commission or its designee. Paragraph (j) of Rule 17a–4 requires a broker-dealer, including a broker-dealer SBSD or MSBSP, to furnish promptly to a representative of the Commission legible, true, complete, and current copies of those records of the broker￾dealer that are required to be preserved under Rule 17a–4, or any other records of the broker-dealer subject to examination under Section 17(b) of the Exchange Act that are requested by the

225Section 17(b) of the Exchange Act provides, among other things, that all records of a broker￾dealer are subject at any time, or from time to time, to such reasonable, periodic, special, or other examinations by representatives of the Commission and the appropriate regulatory agency of the broker￾dealer as the Commission or the appropriate regulatory agency deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act. 226See Recordkeeping and Reporting Proposing Release, 79 FR at 25219–20. 227Section 15F(f)(1)(C) of the Exchange Act provides that SBSDs and MSBSPs shall keep books and records described in sections 15F(f)(1)(B)(i) and (ii) open to inspection and examination by any representative of the Commission. In addition,
Section 15F(j) imposes duties on SBSDs and
MSBSPs with respect to monitoring of trading, risk management procedures, disclosing information to the Commission and the prudential regulators, obtaining information, conflicts of interest, and antitrust considerations. With respect to disclosing information, Section 15F(j)(3) provides that an SBSD and MSBSP shall disclose to the Commission and to the prudential regulator for the SBSD or MSBSP, as applicable, information concerning: (1) Terms and conditions of its security-based swaps; (2) security-based swap trading operations, mechanisms, and practices; (3) financial integrity protections relating to security-based swaps; and (4) other information relevant to its trading in security￾based swaps. 228See paragraphs (f) and (g) of Rule 18a–6, as adopted. 229See Recordkeeping and Reporting Proposing Release, 79 FR at 25220–21. 230The amendments replace the phrase ‘‘Every broker and dealer’’ with the phrase ‘‘Every broker or dealer’’ in the following paragraphs of Rule 17a– 4 as proposed to be amended: (a) through (e) and (j). 231The amendments replace the word ‘‘shall’’ with the word ‘‘must’’ or ‘‘will’’ in the following paragraphs of Rule 17a–4: (a), (b) introductory text, (b)(11), (c), (d), (e) introductory text, (e)(8), (f)(2) and (3), (g), (i), (j), (k)(1), and (l). 232The amendments replace the phrase ‘‘shall have’’ with the word ‘‘has’’ in the following paragraphs of Rule 17a–4: (m)(1) through (4). 233The Commission is adopting the following stylistic and corrective changes to Rule 17a–4: (1) In paragraph (a), replacing the phrases ‘‘paragraphs § ’’ and ‘‘paragraph § ’’ with the symbols ‘‘§§ ’’ and ‘‘§ ’’, respectively; (2) adding the word ‘‘and’’ between phrase ‘‘money balance’’ and the word ‘‘position’’ in paragraph (b)(8)(i) for consistency with paragraph (b)(8)(ii); (3) replacing the phrase ‘‘§ 242.901 et seq. of this chapter’’ with the phrase ‘‘§§ 242.901 through 242.909 of this chapter’’ in paragraph (b)(14); (4) replacing the phrase ‘‘out of the money options’’ with the phrase ‘‘out-of-the￾money options’’ in paragraph (b)(8)(ix); (5) replacing the phrase ‘‘paragraph (a)(12) of § 240.17a–3’’ with the phrase ‘‘§ 240.17a–3(a)(12)’’ in paragraph (e)(1); (6) replacing the phrase ‘‘paragraph (a)(13) of § 240.17a–3’’ with the phrase ‘‘§ 240.17a–3(a)(13)’’ in paragraph (e)(2); (7) replacing the phrase ‘‘paragraph (a)(15) of § 240.17a–3’’ with the phrase ‘‘§ 240.17a–3(a)(15)’’ in paragraph (e)(3); (8) replacing the phrase ‘‘for the life’’ with the phrase ‘‘during the life’’ in paragraph (e)(3); (9) replacing the phrase ‘‘paragraph (a)(14) of § 240.17a–13’’ with ‘‘§ 240.17a–13(a)(14)’’ in paragraph (e)(4); (10) replacing the phrase ‘‘this paragraph’’ with the phrase ‘‘this section’’ in paragraph (f); (11) replacing the phrase ‘‘each index’’ with the phrase ‘‘the index’’ in paragraph (f)(3)(iv)(B); (12) replacing the phrase ‘‘the self￾regulatory organizations’’ with the phrase ‘‘any self￾regulatory organization’’ in paragraph (f)(3)(vi); (13)
replacing the phrase ‘‘Rule 17a–4’’ with the phrase ‘‘§ 240.17a–4’’ in paragraph (f)(3)(vii); and (14) in paragraph (g), replacing the phrase ‘‘section 15 of the Securities Exchange Act of 1934 as amended (48 Stat. 895, 49 Stat. 1377; 15 U.S.C. 78o)’’ with the phrase ‘‘section 15 of the Act (15 U.S.C. 78o).’’ 234See Rule 17a–4, as amended. In addition to the differences discussed above between Rule 17a–4, as proposed to be amended, and Rule 17a–4, as amended, the Commission is adopting the following non-substantive changes to Rule 17a–4: (1) Removing the phrase ‘‘including a broker or dealer also registered as a security-based swap dealer or major security based swap participant under
Section 15F(b) of the Act (15 U.S.C. 78x–8(b))’’ from
the undesignated introductory paragraph for clarity; (2) removing ‘‘on the schedule’’ in paragraph (b)(8)(xiii) for clarity; (3) removing ‘‘or Form SBS’’ in paragraph (b)(8)(xiii) as it is no longer applicable; (4) adding ‘‘security-based swap’’ before the phrase ‘‘possession or control requirements’’ in paragraph (b)(8)(xiv) for clarity; (5) correcting references from § 240.18a–4 to § 240.15c3–3 in paragraph (b)(8)(xiv); (6) replacing ‘‘on Form SBS’’ with ‘‘in Part II of Form X–17A–5’’; and (7) replacing ‘‘;’’ with ‘‘,’’ in paragraphs (b)(14) and (15) for internal consistency. 235See Rule 18a–6, as adopted. In particular, the non-substantive modifications to Rule 18a–6 are: (1) Replacing ‘‘record maintenance and preservation requirements’’ with ‘‘books and records requirements’’ in the undesignated introductory paragraph for internal consistency; (2) replacing ‘‘;’’ with ‘‘.’’ for each paragraph in Rule 18a–6 for internal consistency; (3) replacing ‘‘records required for corporation or partnerships), all Forms SBSE (§ 249.617 of this chapter), Forms SBSE–A, Forms SBSE–W (§ 249.617 of this chapter),’’ with ‘‘records required for corporations or partnerships), all Forms SBSE (§ 249.617 of this chapter), all Forms SBSE– A, all Forms SBSE–W (§ 249.617 of this chapter),’’ in paragraph (c) for consistency with paragraph (d) of Rule 17a–4, as amended; (4) pluralize ‘‘production’’ to ‘‘productions’’ in paragraph (e)(3)(i) for consistency with paragraph (f)(3)(i) of Rule 17a–4, as amended; (5) removing quotation marks around ‘‘the undersigned’’ in paragraph (e)(3)(vii) for consistency with paragraph (f)(3)(vii) of Rule 17a–4, as amended; (6) removing ‘‘under the Act’’ from paragraph (e)(3)(vii) for consistency with paragraph (f)(3)(vii) of Rule 17a–4, as amended; (7) adding ‘‘by the registrant’’ after the phrase ‘‘arrangements for the downloading of any record required to be maintained and preserved’’ in paragraph (e)(3)(vii) for consistency with paragraph (f)(3)(vii) of Rule 17a–4, as amended; (8) replacing representative of the Commission.225 The Commission proposed including parallel requirements in Rule 18a–6 for stand-alone and bank SBSDs and MSBSPs.226 The proposed requirement for these entities to promptly produce records referenced Section 15F of the Exchange Act (rather than Section 17(b)).227 The Commission received no comments on these proposed prompt production requirements and is adopting them as proposed.228 b. Additional Amendments to Rule 17a– 4 and Modifications to Rule 18a–6 The Commission proposed several amendments to Rule 17a–4 to eliminate obsolete text, improve readability, and modernize terminology.229 Reference is made throughout Rule 17a–4 to ‘‘members’’ of a national securities exchange as a distinct class of registrant in addition to broker-dealers. The Commission proposed to remove these references to ‘‘members’’ given that the rule applies to brokers-dealers, which would include members of a national securities exchange that
are brokers￾dealers. The rule being adopted in this document does not remove these references to ‘‘members’’ to avoid confusion as to whether their removal resulted in a substantive change to the rule. The Commission proposed a second global change that would replace the phrase ‘‘Every broker and dealer’’ with ‘‘Every broker or dealer.’’ 230 The Commission also proposed a global change to replace the use of the word ‘‘shall’’ in the rule with the word ‘‘must’’ or ‘‘will’’ where appropriate.231 In paragraph (m) of Rule 17a–4, the Commission proposed to replace the words ‘‘shall have’’ with the word ‘‘has.’’ 232 The Commission also proposed certain stylistic, corrective, and punctuation amendments to improve the readability of Rule 17a– 4.233 Further, as discussed above, the Commission is eliminating the requirements in current paragraphs (c) and (d) of Rule 17a–3 and, as a consequence, current paragraphs (e) through (h) have been redesignated as paragraphs (d) through (g), respectively. The Commission proposed to amend Rule 17a–4 to make corresponding changes to cross-references to these paragraphs of Rule 17a–3. The Commission proposed amendments to paragraph (b)(8) of Rule 17a–4 that would replace the phrase ‘‘annual audited financial statements’’ with the phrase ‘‘the annual financial statements’’ to reflect the broader range of documents required by Rule 17a–5. Due to the addition of paragraphs (b)(8)(xiv) and (xvi) to Rule 17a–4, as discussed above, the Commission proposed to redesignate paragraphs (b)(8)(xiv) and (xv) as paragraphs (b)(8)(xv) and (xvii), respectively. The Commission proposed amendments to paragraph (h) of Rule 17a–4 that would add, after the phrase ‘‘Rule G–9 of the Municipal Securities Rulemaking Board,’’ the phrase ‘‘or any successor rule’’ to address the possibility of a future change in how the MSRB’s rules are designated. The Commission received no comments on these proposed amendments and is adopting them substantially as proposed, with the modification discussed above about retaining references to ‘‘members.’’ 234 The Commission is also making certain non-substantive modifications to Rule 18a–6 as proposed in addition to those discussed above.235

‘‘which are requested by a representative of the Commission’’ with ‘‘that are requested by a representative of the Commission’’ in paragraph (g) for consistency with paragraph (j) of Rule 17a–4, as amended. 236See Recordkeeping and Reporting Proposing Release, 79 FR at 25221–47. 237See Letter from Angie Karna, Managing Director, Nomura Global Financial Products Inc. (Sept. 10, 2014) (‘‘Nomura Letter’’). 238The undesignated introductory paragraphs to Rules 17a–5 and 18a–7 have been modified to clarify this application of the rules. 239Paragraph (p) of Rule 17a–5 provides that an OTC derivatives dealer may comply with Rule 17a– 5 by complying with the provisions of Rule 17a– 12. 240As discussed in this release, an OTC derivatives dealer dually registered as an SBSD is subject to Rules 17a–3, 17a–4, 17a–13, 18a–1, 18a– 4, 18a–7, and 18a–8 rather than Rules 18a–5, 18a– 6, 18a–9, 15c3–1, 15c3–3, 17a–5, and 17a–11, respectively. As a result, the Commission has made conforming modifications to Rule 18a–7. In particular, where Rule 18a–7 refers to Rule 18a–9, the Commission has added the following reference to Rule 17a–13: ‘‘or 240.17a–13, as applicable.’’ 241The Commission requested comment on whether all broker-dealers, SBSDs, and MSBSPs should file the same consolidated form. See Recordkeeping and Reporting Proposing Release, 79 FR at 25235–25236. The Commission received no comments specifically addressing this issue. 242See Memorandum from the Division of Trading and Markets regarding a March 25, 2019 meeting with representatives of the Institute of International Bankers (‘‘IIB 3/25/2019 Meeting’’). 243See Recordkeeping and Reporting Proposing Release, 79 FR at 25221. 244See IIB 3/25/2019 Meeting. 245See id. 246See Cross-Border Application Proposing Release, 84 FR 24206. B. Reporting

1. Introduction
   The Commission in this document is establishing a reporting program for SBSDs and MSBSPs under Sections 15F and 17(a) of the Exchange Act that is modeled on the reporting program for broker-dealers in Rule 17a–5. Rule 17a– 5 has two main elements: (1) A requirement that broker-dealers file periodic unaudited reports about their financial and operational condition using the FOCUS Report form; and (2) a requirement that broker-dealers annually file financial statements and certain reports, as well as reports covering those statements and reports prepared by an independent public accountant registered with the Public Company Accounting Oversight Board (‘‘PCAOB’’) in accordance with PCAOB standards. The Commission proposed to amend Rule 17a–5 to account for the security-based swap activities of stand￾alone broker-dealers and to establish a reporting regime for broker-dealer SBSDs and MSBSPs.236 The Commission further proposed new Rule 18a–7 (which was modeled on Rule 17a–5) to establish a reporting regime for stand-alone and bank SBSDs and MSBSPs. The Commission is adopting the proposed amendments to Rule 17a– 5 and new Rule 18a–7 with modifications, as discussed below. A commenter requested clarification as to whether an OTC derivatives dealer dually registered as an SBSD or MSBSP would be subject to Rule 17a–5 or instead to new Rule 18a–7.237 The applicability of Rule 17a–5 or 18a–7 will depend on whether the firm is subject to the capital requirements of Rule 15c3–1 (in which case Rule 17a– 5 will apply), is subject to the capital requirements of Rules 18a–1 or 18a–2 (in which case Rule 18a–7 will apply), or has a prudential regulator (in which case Rule 18a–7 will apply).238 Therefore, a stand-alone broker-dealer, including a stand-alone OTC derivatives dealer, (which is subject to Rule 15c3–

1. will continue to be subject to Rule
   17a–5.239 Similarly, a broker-dealer, other than an OTC derivatives dealer, that is also an SBSD (which is subject to Rule 15c3–1) will be subject to Rule 17a–5. A broker-dealer, including an OTC derivatives dealer, that is also an MSBSP (which is subject to Rule 15c3–
2. will be subject to Rule 17a–5. A
   stand-alone SBSD (which is subject to Rule 18a–1) will be subject to Rule 18a–

7. Similarly, an SBSD that is also an
   OTC derivatives dealer (‘‘OTCDD/ SBSD’’) (which is subject to Rule 18a–

1. will be subject to Rule 18a–7.240 A
   stand-alone MSBSP (which is subject to Rule 18a–2) will be subject to Rule 18a–

7. Finally, a bank SBSD or MSBSP
   (which has a prudential regulator) will be subject to Rule 18a–7. The Commission is also adopting amendments to the FOCUS Report. The Commission proposed to create a new
   part of the FOCUS Report—Form SBS—
   to be filed by all types of SBSDs and MSBSPs, while stand-alone broker￾dealers would continue filing FOCUS Report Parts II, IIA, IIB, or II CSE, as applicable.241 After further consideration of the issue, the Commission believes the best approach is to consolidate Form SBS and FOCUS Report Parts II, IIB, and II CSE into a single form: The FOCUS Report Part II. In addition, the Commission believes it is appropriate to adopt a new form—the FOCUS Report Part IIC—to be filed by bank SBSDs and MSBSPs rather than Form SBS as was proposed. The decision to require bank SBSDs and MSBSPs to file a separate form is based on the more limited information that they will need to provide on the form (as compared to FOCUS Report Part II filers). Consequently, broker-dealers that file the FOCUS Report Part II will continue to do so. ANC broker-dealers and OTC derivatives dealers also will file the FOCUS Report Part II, as will broker-dealer and stand-alone SBSDs and MSBSPs. Bank SBSDs and MSBSPs will file the FOCUS Report Part IIC. A commenter urged the Commission not to impose ‘‘position reporting requirements,’’ arguing that they are unnecessary in light of the ‘‘transaction reporting requirements’’ of Regulation SBSR.242 The Commission disagrees. The reporting requirements are designed to promote transparency of the financial and operational condition of a broker￾dealer, SBSD, or MSBSP to the Commission and, in the case of a portion of the annual reports, to the public.243 This information will assist the Commission staff in monitoring these firms and examining them for compliance with the securities laws. Position records are of a different nature, and serve a different purpose, than the transaction data that will be reported pursuant to Regulation SBSR. Specifically, position records provide an overview of a firm’s holdings at a specific point in time. The commenter states that position reporting requirements are unnecessary ‘‘for purposes of market surveillance.’’ 244 However, as discussed above, the recordkeeping requirements being adopted in this document are designed to elicit information about the financial and operation condition of the filer. Market surveillance is not the objective of the requirements. Finally, the commenter stated that if the Commission does adopt position reporting requirements, it ‘‘should limit the scope of such requirements for non￾U.S. SBSDs to transactions that are either (i) cleared on a U.S.-registered clearing agency or derivatives clearing organization or (ii) opposite a U.S. person counterparty.’’ 245 As discussed above, the purpose of the reporting requirements is to obtain information about the financial and operational condition of the filer. Limiting the requirements to a subset of the filer’s positions would not provide a complete picture of the filer’s financial and operational condition. Moreover, the Commission has proposed in a separate release additional provisions that are designed to address concerns about the
   cross-border application of certain requirements applicable to SBSDs and MSBSPs.246

247See Recordkeeping and Reporting Proposing Release, 79 FR at 25222. 248See undesignated introductory paragraph of Rule 17a–5, as amended; undesignated introductory paragraph of Rule 18a–7, as adopted. 249See Rule 17a–5, as amended. As a consequence of the removal of paragraph (a)(1) of Rule 17a–5, paragraphs (a)(2)(i) through (iv) are redesignated paragraphs (a)(1)(i) through (iv), respectively. Further, as a consequence of the removal of paragraph (a)(1), paragraphs (a)(3) through (7) of Rule 17a–5 are redesignated paragraphs (a)(2) through (6), respectively. 250Prior to these amendments, the requirement that an OTC derivatives dealer file FOCUS Report
Part IIB was set forth in paragraph (a) of Rule 17a–
12. While an ANC broker-dealer is required under
paragraph (a) of Rule 17a–5 to file FOCUS Report
Part II, FINRA Rule 4521(b) provides that ANC
broker-dealers must file supplemental and alternative reports as may be prescribed by FINRA. Under this rule, FINRA requires ANC broker￾dealers to file FOCUS Report Part II CSE in lieu of FOCUS Report Part IIA. See also Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change to Require Members That Use Appendix E to Calculate Net Capital to File Supplemental and Alternative Reports, 70 FR 49349 (Commission approval of amendments to NYSE Rule 418 requiring ANC broker-dealers to file Part II CSE). 251See Recordkeeping and Reporting Proposing Release, 79 FR at 25222–24. 252 In each case, the stand-alone or bank SBSD or MSBSP needed to file Form SBS with the Commission or its designee. The reference to a Commission designee was designed to provide the Commission with the option of requiring that these registrants file the FOCUS Report with a third party. Most broker-dealers file the FOCUS Report directly with their SROs pursuant to plans established by the SROs under paragraph (a)(3) (formerly paragraph (a)(4)) of Rule 17a–5, as amended. See Recordkeeping and Reporting Proposing Release, 79 FR at 25223. 253See Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices—FFIEC 031 (‘‘FFIEC Form 031’’ or ‘‘call report’’). See also 12 U.S.C. 161; 12 U.S.C. 324; 12 U.S.C. 1464; 12 U.S.C. 1817. 254See SIFMA 9/5/2014 Letter. 255See Recordkeeping and Reporting Proposing Release, 79 FR at 25224. Prior to these amendments, the FOCUS Report Parts II, IIA, IIB, and II CSE each had a section for the filer to execute the form. 256See paragraph (a) of Rule 17a–5, as amended; paragraphs (a)(1) and (2) of Rule 18a–7, as adopted. References in these paragraphs to Form SBS are changed to references to the FOCUS Report Part II and the FOCUS Report Part IIC, respectively. Similarly, references to Form SBS were also included in paragraphs (a)(1), (3), and (4), (b)(1), (d)(2)(i) and (iii), and (e)(3) of Rule 17a–5, as proposed to be amended. The references to proposed Form SBS are not being adopted and these provisions will continue to refer solely to the FOCUS Report. As discussed above, the requirement that an OTCDD/SBSD file the FOCUS Report Part II is prescribed in Rule 18a–7 (rather than 17a–5, as proposed). 257See paragraph (a)(5) of Rule 17a–5, as amended. 258See Recordkeeping and Reporting Proposing Release, 79 FR at 25224. 259See Capital, Margin, and Segregation Proposing Release, 77 FR at 70237–40.
2. Periodic Filing of FOCUS Report
a. Rule 17a–5 and Rule 18a–7 Undesignated Introductory Paragraph The Commission proposed amending Rule 17a–5 to add an undesignated introductory paragraph stating that: (1) The rule applies to a broker-dealer, including a broker-dealer SBSD or MSBSP; and (2) a stand-alone or bank SBSD or MSBSP is subject to the reporting requirements under proposed Rule 18a–7.247 The Commission also proposed amending Rule 17a–5 to remove paragraph (a)(1), which provides that paragraph (a) shall apply to every broker-dealer registered pursuant to
Section 15 of the Exchange Act, because
this text was redundant of the undesignated introductory paragraph of Rule 17a–5, as proposed to be added. Similarly, the Commission proposed that Rule 18a–7 have an undesignated introductory paragraph explaining that the rule applies to an SBSD or MSBSP that is not dually registered as a broker￾dealer (i.e., a stand-alone or bank SBSD or MSBSP). The Commission received no comments on the introductory paragraphs but, as discussed above, is modifying them to clarify which rule (17a–5 or 18a–7) applies to a given type of entity.248 The Commission received no comments on the proposed amendment to remove paragraph (a)(1) from Rule 17a–5 and is adopting it as proposed.249 Requirement To File the FOCUS Report Rule 17a–5 requires a broker-dealer, other than an OTC derivatives dealer, to file FOCUS Report Part II or IIA.250 The Commission proposed amending the rule to require a broker-dealer SBSD or MSBSP to file proposed Form SBS rather than the FOCUS Report Part II or IIA.251 The Commission also proposed including parallel requirements in Rule 18a–7 that: (1) Stand-alone SBSDs and MSBSPs be required to file proposed Form SBS with the Commission or its designee within seventeen business days after the end of each month; and (2) bank SBSDs and MSBSPs be required to file Form SBS with the Commission or its designee within seventeen business days after the end of each calendar quarter (instead of each month).252 The Commission proposed quarterly financial reporting for bank SBSDs and MSBSPs, instead of monthly reporting, because the prudential regulators currently require banks to file reports of financial and operational condition known as ‘‘call reports’’ on a quarterly basis.253 Under the proposal, the information reported by bank SBSDs and MSBSPs on the FOCUS Report Part IIC largely would be information that banks are required to provide in the call reports. In response to the Commission’s proposal to require bank SBSDs and MSBSPs to file Form SBS seventeen business days after the end of the quarter, a commenter requested that it change the deadline to match the prudential regulators’ requirement to file call reports thirty calendar days after the end of the quarter.254 To respond to the commenter’s concerns, as well as to promote harmonization with prudential regulators’ requirements, the Commission is adopting a thirty calendar-day requirement as requested by the commenter. Since the proposed seventeen business-day requirement would have corresponded with twenty￾four calendar days (with a conservative assumption of no public holidays), this will provide administrative relief to bank SBSDs and MSBSPs by allowing them six additional calendar days to file the FOCUS Report Part IIC with the Commission. The Commission also proposed amendments to Rule 17a–5 to make explicit the requirement that the FOCUS Report filed by a stand-alone broker￾dealer or the Form SBS filed by a broker-dealer SBSD or MSBSP must be ‘‘executed.’’ 255 The Commission proposed
parallel requirements in Rule 18a–7 to require that a Form SBS filed by a stand-alone or bank SBSD or MSBSP must be executed. The Commission received no comment on these proposals for executed forms. For the reasons discussed above, the Commission is adopting the FOCUS Report filing requirements substantially as proposed.256 Additional Reporting Requirements for Registrants That Use Models Rule 17a–5 requires ANC broker￾dealers to file additional reports on a monthly or quarterly basis with the FOCUS Report.257 The Commission proposed similar reporting requirements in Rule 18a–7 for stand-alone SBSDs approved to use internal models to compute net capital.258 These entities would be required to file most of the required documents within 17 business days after the end of each month. However, to correspond with the timing requirement in the proposed capital rule for these entities (Rule 18a–1),259 they would be required to file the following reports within seventeen business days after the end of each calendar quarter (instead of each month): A report identifying the number of business days for which the actual daily net trading loss exceeded the corresponding daily value at risk (‘‘VaR’’); and the results of backtesting of all internal models used to compute allowable capital, indicating the number of backtesting exceptions.

260See Capital, Margin, and Segregation Adopting Release, 84 FR at 44052. 261See paragraphs (a)(3)(i) through (ix) of Rule 18a–7, as adopted. As proposed, paragraph (a)(3)(vii) of Rule 18a–7 would have required a stand-alone SBSD authorized to use internal models to calculate net capital to report the results of a monthly liquidity stress test. As discussed above, the Commission is deferring consideration of the liquidity stress test requirements for these entities and, therefore, this paragraph is being designated as ‘‘[Reserved].’’ 262FOCUS Report Part IIB elicits similar information about derivatives positions and exposures but otherwise is more limited than FOCUS Report Part II CSE because OTC derivatives dealers are permitted to engage only in a narrow range of activities. See 17 CFR 240.3b–12; 17 CFR 240.15a–1. See also Recordkeeping and Reporting Proposing Release, 79 FR at 25224, n. 440. 263See Capital, Margin, and Segregation Adopting Release, 84 FR at 43959–60. 264 In addition to the differences between Form SBS, as proposed to be adopted, and FOCUS Report
Part II, as amended, as discussed below, broker￾dealers will note the following general changes: (1)
There are new sections added to the form that these firms may not be required to complete (e.g., Computation of Tangible Net Worth, which is required to be completed by stand-alone MSBSPs); (2) certain lines are worded differently or assigned different line item numbers (e.g., Pre-Amendment FOCUS Report Part II’s ‘‘Money differences’’ (line item numbers 5000, 5010, 5020, and 5030) is relabeled ‘‘Money suspense and balancing difference’’ (line item numbers 5610, 5610, 6010, and 6012) in FOCUS Report Part II, as amended); (3) to the extent these entities engage in security￾based swap or swap activities but are not SBSDs or MSBSPs, they will now have specific line items tailored to these products in which to input information; and (4) broker-dealers registered as FCMs are required to complete certain new sections the CFTC added to the CFTC’s Form 1–FR–FCM in
2013. See Enhancing Protections Afforded
Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organizations, 78 FR 68506, 68513 (Nov. 14, 2013); 17 CFR 1.10(h) (allowing broker-dealers to file the FOCUS Report instead of Form 1–FR–FCM so long as all information required to be furnished on and submitted with Form 1–FR–FCM is provided with the FOCUS Report)). 265For example, all of the forms contain a cover
page and contain (with variations): A statement of
financial condition, a computation of net capital, a computation of the net capital requirement, a statement of income (loss), a statement of changes in ownership equity, a statement of changes in subordinated liabilities, and a statement of ownership equity and subordinated liabilities maturing or proposing to be withdrawn within the next six months. In addition, all of the forms except FOCUS Report Part IIA elicit financial and operational data; both FOCUS Report Parts II and II CSE contain (with variations): A computation for determination of reserve requirements under Rule 15c3–3, information for possession or control requirements under Rule 15c3–3, and a schedule of segregation requirements; and both FOCUS Report Parts IIB and II CSE contain (with variations): A
schedule of aggregate securities and OTC
derivatives positions, a schedule of geographic distribution of OTC derivatives exposures, a credit concentration report, and a portfolio summary of OTC derivatives exposures by internal credit rating. 266The reporting requirements in Rule 18a–7 and the sections of the FOCUS Report applicable to bank SBSDs and MSBSPs are more limited in scope because bank SBSDs and MSBSPs are subject to the prudential regulators’ reporting requirements. Further, the prudential regulators—rather than the Commission—are responsible for capital, margin, and other prudential requirements applicable to bank SBSDs and MSBSPs. For these reasons, the reporting requirements for bank SBSDs and MSBSPs are tailored to their activities as an SBSD or an MSBSP (as opposed to their activities as banks). The Commission received no comment on these additional reporting proposals for stand-alone SBSDs and has adopted Rule 18a–1.260 Consequently, the Commission is adopting the additional reporting requirements, but with the modification that an OTCDD/SBSD must file them pursuant to Rule 18a–7 (rather than Rule 17a–5).261 b. FOCUS Report As discussed above, the Commission proposed Form SBS as the reporting form for all categories of SBSDs and MSBSPs. Proposed Form SBS was modeled on the FOCUS Report, particularly FOCUS Report Part II CSE. FOCUS Report Part II CSE served as the template for proposed Form SBS because it was designed to account for the use of internal models to compute net capital by ANC broker-dealers and elicits more detailed information about derivatives positions and exposures than FOCUS Report Parts II and IIA.262 Based on staff experience, including experience monitoring ANC broker￾dealers, the Commission anticipates that most SBSDs will use internal models to compute their net capital.263 However, as discussed above, the Commission is not adopting Form SBS as proposed, but is instead requiring the FOCUS Report Part II to be filed by nonbank SBSDs and MSBSPs. Further, the Commission is requiring that bank SBSDs and MSBSPs file FOCUS Report
Part IIC (rather than proposed Form SBS
or the FOCUS Report Part II, as amended). The information that must be provided by SBSDs and MSBSPs is substantively the same information elicited by proposed Form SBS, except that the information is now being elicited in FOCUS Report Parts II and
IIC. Accordingly, the Commission is
adopting changes to FOCUS Report Part II and the corresponding instructions to update the form, reflect the required filers, and account for these firms’ derivatives activity. Thus, ANC broker-dealers that filed
Part II CSE prior to these amendments
and OTC derivatives dealers that filed
Part IIB prior to these amendments
instead will be required to file FOCUS Report Part II, as amended—FOCUS Report Parts II CSE and IIB will be discontinued. From the perspective of these entities, the information they will be required to enter into the revised FOCUS Report Part II as compared to FOCUS Report Parts II CSE and IIB is substantively the same. Similarly, from the perspective of broker-dealers that were required to file FOCUS Report Part II prior to these amendments, the information they will be required to enter into the revised form is substantively the same.264 Importantly, there is already significant overlap among the four forms filed on the eFOCUS system of the Financial Industry Regulatory Authority (‘‘FINRA’’): The FOCUS Report Parts II, IIA, IIB, and II CSE.265 Much of this duplication and overlap between forms is eliminated by combining the forms into a single revised FOCUS Report Part II and modifying the form to include the line items that were in proposed Form SBS. The Commission believes that broker￾dealers registering as an SBSD or MSBSP will find the consolidation preferable, since rather than familiarizing themselves with a new form (Form SBS), such dual registrants can continue to file FOCUS Report Part II, as amended. The consolidation is also expected to enhance the Commission’s supervisory capacities, since it will be easier to compare different types of registrants’ FOCUS Report responses when they are filing the same form. Bank SBSDs and MSBSPs will file FOCUS Report Part IIC, which elicits more limited information than FOCUS Report Part II. Moreover, much of the information elicited is already reported by these entities on their call reports. The Commission believes that bank SBSDs and MSBSPs will find it simpler to utilize the shorter FOCUS Report Part IIC, which is tailored to these entities and focuses on their business as an SBSD or MSBSP. Indeed, bank SBSDs and MSBSPs would have shared only one section in common with other Form SBS filers (the cover page), so the vast majority of Form SBS would not have been applicable to these bank entities.266 In addition, the capital and margin requirements applicable to nonbank SBSDs and MSBSPs—which are the source of the information input into the revised FOCUS Report Part II— do not apply to bank SBSDs and MSBSPs. Bank SBSDs and MSBSPs are instructed to follow FFIEC Form 031’s instructions regarding a majority of the line items on FOCUS Report Part IIC, as adopted, since most of the sections require these entities to report general financial information that banks are already required to report on FFIEC Form 031. FOCUS Report Part II, as amended, continues to elicit financial and

267As used in this release, the term ‘‘line’’ refers to the lines in the left column on the FOCUS Report that describe the type of entries to be made on that line. The term ‘‘line item’’ refers to the fields into which information is entered. For example, Line 1 of the Statement of Income (Loss) section on revised FOCUS Report Part II is cash, Line Item 200 is the field to enter the allowable amount of cash, and Line Item 750 is the field to enter the total amount of cash. 268See Recordkeeping and Reporting Proposing Release, 79 FR at 25224–36. 269See FOCUS Report Part II instructions, as amended; FOCUS Report Part IIC instructions, as adopted. The amendments to the instructions include incorporating relevant instructions from proposed Form SBS into the instructions for FOCUS Report Parts II and IIC, as well as globally replacing ‘‘non-bank’’ with ‘‘nonbank’’ for internal consistency. 270See Recordkeeping and Reporting Proposing Release, 79 FR at 25225. 271See FOCUS Report Part II, as amended, Cover
Page. The following changes are being made: (1)
The line soliciting firms to check the type of registrant filing the form is updated to reflect that bank SBSDs and MSBSPs will not be required to file this part of the FOCUS Report Part II; (2) in response to commenters’ requests to more explicitly address OTC derivatives dealers, the option is added to check a box if the respondent is an OTC derivatives dealer (see, e.g., Nomura Letter); (3) in response to comment that Form SBS, as proposed to be adopted, did not reference foreign SBSDs or foreign MSBSPs, a line is added asking firms if the filer is a U.S. person (see SIFMA 9/5/2014 Letter); (4) a line is added asking whether the filer is authorized to use models to compute capital as a way to check that the firm is completing the correct net capital section in the form; (5) a typographical error is corrected so that the officer’s title under the signature line matches the officer’s title under the line for the signing officer to print his or her name; and (6) the date field is made more flexible by specifying ‘‘2___’’ instead of ‘‘20__.’’ 272See Recordkeeping and Reporting Proposing Release, 79 FR at 25226–27. 273See, e.g., SIFMA 9/5/2014 Letter. 274See FOCUS Report Part II, as amended, Statement of Financial Condition, Lines 8 and 22. 275See Recordkeeping and Reporting Proposing Release, 79 FR at 25227. 276See FOCUS Report Part II, as amended, Statement of Financial Condition, Lines 3A1, 3B1, 3C1, 3D1 (receivables), 17A (bank loans payable), 19A1, 19B1, 19C1, 19D1, and 19E1 (payables). Further, the Commission has adopted the SBSD segregation requirements that will generate amounts includable in these line items. See Capital, Margin, and Segregation Adopting Release, 84 FR at 43930– 43. 277See Recordkeeping and Reporting Proposing Release, 79 FR at 25227. 278See SIFMA 9/5/2014 Letter. 279See FOCUS Report Part II, as amended, Statement of Financial Condition, Schedule 1— operational information about a filer through sections consisting of uniquely numbered line items.267 To the extent a line item number has already been assigned in FOCUS Report Parts II, IIA, IIB, and/or II CSE, revised FOCUS Report Part II uses the same line item number. However, the amended form also includes new lines and corresponding line items that were proposed in Form SBS and are relevant to security-based swap and swap activities. These line items are identified by numbers on revised FOCUS Report Part II with a 5-digit number beginning with 12000 and generally increasing upward. Proposed Form SBS would have been divided into five parts.268 FOCUS Report Part II, as amended, and FOCUS Report Part IIC, as adopted, are not divided into parts. Dividing the form into parts was a more useful approach when bank entities would have been required to file the same form as nonbank entities. However, now that bank SBSDs and MSBSPs will separately file FOCUS Report Part IIC, there is no longer a need to subdivide the form into parts based on the type of registrant (e.g., bank SBSD
versus broker-dealer SBSD). In addition, separate parts are not necessary because the header at the top of each page of FOCUS Report Parts II and IIC identifies the type of registrants required to complete that page (as proposed in Form SBS). Nonetheless, the sections of revised FOCUS Report Part II appear in the same order as they appeared in proposed Form SBS, so they still follow the logic used to order the sections in the proposed form. The Commission is amending the instructions for FOCUS Report Part II and adopting instructions for FOCUS Report Part IIC to provide further guidance on the information to be entered into certain line items.269
i. Revised FOCUS Report Part II
Cover Page
The FOCUS Report Parts II, IIA, IIB, and II CSE prior to these amendments (collectively and individually, the ‘‘Pre￾Amendment FOCUS Reports’’) include a cover page that elicits basic information about the reporting firm. Proposed Form SBS included a cover page largely in the same format as the cover page in Pre￾Amendment FOCUS Report Part II, but with modifications to account for the additional registrants required to file the form.270 The Commission is adopting the cover page in proposed Form SBS by retaining the existing cover page in FOCUS Report Part II, as amended, with non-substantive changes largely to account for the additional registrants required to use this form (stand-alone broker-dealers, ANC broker-dealers, OTC derivatives dealers, and broker￾dealer and stand-alone SBSDs and MSBSPs) and in response to comment.271 Statement of Financial Condition The Pre-Amendment FOCUS Reports have a Statement of Financial Condition
section that elicits detail about filers’
assets, liabilities, and ownership equity. Proposed Form SBS similarly had a Statement of Financial Condition
section largely modeled on the parallel
section in Pre-Amendment FOCUS
Report Part II CSE.272 The Commission received a number of comments on this proposed section and has modified it in response to these comments. First, a commenter suggested that Lines 8 through 10 on the assets side of the Statement of Financial Condition
section (which elicited details about
securities, including security-based swaps, commodities, and swaps positions) should be simplified and consolidated into a single line item.273 As discussed below, the revised FOCUS Report Part II elicits details about these positions in other sections of the form. Accordingly, the Commission is consolidating these lines into Line 9 (Total net securities, commodities, and swaps positions) and making a corresponding modification in Line 24 of the liability side of the section (Total net securities, commodities, and swaps positions).274 Second, the Statement of Financial Condition section of proposed Form SBS required filers to report the amount of certain assets and liabilities that were includable in the broker-dealer customer reserve formula, the proposed SBSD reserve formula, and a catch-all ‘‘other’’ section in which information about assets and liabilities related to segregation requirements under the CEA would be entered if the filer is also registered with the CFTC.275 Given that Commission and CEA segregation requirements are the most widely applicable segregation requirements for FOCUS Report filers, the Commission is consolidating the reporting of these amounts into single lines to the extent applicable.276 Third, the Statement of Financial Condition section of proposed Form SBS required filers to report information about payables due to securities customers and non-customers, security￾based swap customers and non￾customers, and swap customers and non-customers.277 A commenter suggested simplifying the form by deleting payables to security-based swap and swap customers and non￾customers from the Statement of Financial Condition and capturing this information in the schedule that elicits detail on derivatives positions.278 The Commission agrees and has deleted these line items from this section and, instead, requires the information to be reported in Schedule 1 to FOCUS Report Part II, as amended.279 Similarly,

Aggregate Securities, Commodities, and Swaps Positions. 280See, e.g., SIFMA 9/5/2014 Letter. 281See FOCUS Report Part II, as amended,
Schedule 1—Aggregate Securities, Commodities,
and Swaps Positions.
282See FOCUS Report Part II, as amended, Statement of Financial Condition. The following non-substantive changes are being made: (1) A line item is added for firms to report non-allowable cash (e.g., petty or restricted cash); (2) the note on the second page of the Statement of Financial Condition clarifies that ‘‘Stand-alone MSBSPs should only complete the Allowable and Total columns’’ (emphasis added); this sentence is also added to the instructions for the Statement of Financial Condition; (3) an obsolete accounting reference is updated globally (including on Line 15E, which was proposed as Line 14E) to accurately reflect ‘‘ASC 860’’ instead of ‘‘SFAS 140’’; and (4) the instructions are updated to reflect the changes discussed in this section. 283See Recordkeeping and Reporting Proposing Release, 79 FR at 25227–28. 284See Capital, Margin, and Segregation Adopting Release, 84 FR at 43898–905. 285See Recordkeeping and Reporting Proposing Release, 79 FR at 25228. 286The FOCUS Report instructions clarify that contractual securities commitments not accounted for in the firm’s VaR model will continue to be accounted for in residual marketable securities (Line Item 3665). See FOCUS Report Part II instructions, as amended. 287See Email from Mary Kay Scucci, Managing Director, Securities Industry and Financial Markets Association (May 10, 2018) (‘‘SIFMA 5/10/2018 Email’’). 288See FOCUS Report Part II, as amended, Computation of Net Capital (Filer Authorized to Use Models), Line 10. For firms not using the Basel
2.5 framework, the calculations are consolidated
into Line 9 and the subsequent lines are renumbered accordingly. 289See FOCUS Report Part II, as amended, Computation of Net Capital (Filer Authorized to Use Models). The following change is being made:
Line 11 now refers to ‘‘certain counterparties’’ instead of ‘‘commercial end user counterparties’’ for consistency with Rules 15c3–1 and 18a–1, as adopted. See paragraph (a)(7) of Rule 15c3–1; paragraph (a)(2) Rule 18a–1, as adopted. 290See FOCUS Report Part II, as amended, Computation of Net Capital (Filer Not Authorized to Use Models). The following change is being made: Line 12 now clarifies in parentheses that Line 12 is equal to the ‘‘sum of Lines 9A through 9E, 10, and 11.’’ the commenter noted the imbalance of requiring the reporting of other derivatives payables on the liabilities side of the balance sheet, but not requiring the reporting of other derivatives receivable on the assets side of the balance sheet.280 The Commission agrees and filers no longer must report other derivatives payable on the Statement of Financial Condition
section and instead will report this
information on Schedule 1 to FOCUS Report Part II, as amended.281 Fourth, the Statement of Financial Condition section of proposed Form SBS directed filers to report ownership equity from sole proprietorships, partnerships, corporations, and limited partners. The Commission is adding a reference to ‘‘members’’ in Line 29 of the Statement of Financial Condition in FOCUS Report Part II, as amended, instead of solely referencing ‘‘limited partners.’’ This change recognizes the legal structure of limited liability companies as well. Fifth, lines are being added to the assets and liabilities sides of the Statement of Financial Condition for filers to report excess cash collateral pledged on derivative transactions (Lines 6 and 21 on FOCUS Report Part II, as amended). On the assets side, a broker-dealer or SBSD will report cash collateral posted to a counterparty that exceeds the amount of variation margin the firm has posted to cover current exposure. On the liability side, the broker-dealer or SBSD will report cash collateral posted from a counterparty that is in excess of the amount of variation margin the counterparty is required to post to cover current exposure. The addition of these lines requires firms to report the specific amounts on the asset side that are allowable and non-allowable assets. Establishing unique lines to report this information will avoid firms reporting the amounts in other lines that are not specifically tailored to present the information, which—based on staff experience—has resulted in firms reporting the information on several different lines. For the foregoing reasons, the Statement of Financial Condition section in proposed Form SBS is being adopted by retaining the parallel section in FOCUS Report Part II, as amended, with the modifications discussed above and certain other modifications.282 This section is required to be completed by stand-alone broker-dealers and broker-dealer and stand-alone SBSDs and MSBSPs. Computation of Net Capital The Pre-Amendment FOCUS Reports have a Computation of Net Capital
section. Proposed Form SBS included
two sections: One to be completed by SBSDs authorized to use internal models to compute net capital under the proposed capital requirements and the other to be completed by filers not authorized to use internal models for this purpose.283 The Commission has adopted capital requirements for nonbank SBSDs under which certain firms may be authorized to use internal models to compute net capital.284 The Computation of Net Capital
section for filers authorized to use
models was largely modeled on the parallel section in Pre-Amendment FOCUS Report Part II CSE. The section in proposed Form SBS had a line for filers to report their contractual securities commitments because this line appeared on the Computation of Net Capital section in Pre-Amendment FOCUS Report Part II.285 However, this line item does not apply to filers authorized to use models and is removing it from the section.286 In addition, a commenter requested that the Computation of Net Capital
section for filers authorized to use
internal models account for firms approved to use the Basel 2.5 framework to compute market risk deductions.287 The Commission agrees and has added new Line 10 that elicits detail about market risk deductions computed under the Basel 2.5 framework.288 This will provide the Commission and other relevant securities regulators with greater detail about the components of the firms’ calculations. For the foregoing reasons, the Computation of Net Capital section for filers authorized to use models in Form SBS is being adopted by adding that
section to FOCUS Report Part II, as
amended, with the modifications discussed above and certain other modifications.289 This section is required to be completed by stand-alone broker-dealers and broker-dealer and stand-alone SBSDs and MSBSPs authorized to use internal models to compute net capital. The Computation of Net Capital
section in proposed Form SBS for filers
not authorized to use models was largely the same as the parallel section in Pre-Amendment FOCUS Report Part
II. The Commission received no
comment on this section. However, the Commission is adding new Line 9.C.8., titled ‘‘Risk-based haircuts computed under 17 CFR 240.15c3–1a or 17 CFR 240.18a–1a’’ and updating the instructions to FOCUS Report Part II accordingly. This change is intended to provide a specific line to report this information. The staff has observed that because the form currently does not have a unique line to enter the information, firms enter the information on several different lines. The Commission is also adopting non￾substantive modifications to promote clarity.290 This section is required to be completed by stand-alone broker-dealers and broker-dealer and stand-alone SBSDs and MSBSPs not authorized to use internal models to compute net capital. Computation of Minimum Regulatory Capital Requirements The Pre-Amendment FOCUS Reports have a Computation of Minimum

291See Recordkeeping and Reporting Proposing Release, 79 FR at 25229. 292See Capital, Margin, and Segregation Adopting Release, 84 FR at 43879–906. 293See FOCUS Report Part II, as amended, Computation of Minimum Regulatory Capital Requirements (Broker-Dealer) and Computation of Minimum Regulatory Capital Requirements (Non￾Broker-Dealer SBSD). The following changes are being made: (1) Because Line 4 appeared twice in the broker-dealer version in Form SBS, as proposed to be adopted, the second Line 4 is renumbered Line 5 and the subsequent lines are renumbered accordingly; (2) in the broker-dealer version, Line 5Bi titled ‘‘Minimum CFTC net capital requirement’’ adds ‘‘(if applicable)’’ to the end of the line to clarify that not all firms will need to complete this line; (3) to reflect the staggered implementation of the risk margin amount computation in the nonbank SBSD capital rule, Line 5 refers generally to the percentage of the risk margin amount computed under the net capital rule rather than specifically referencing ‘‘8%’’ of the risk margin amount; (4) in the broker-dealer version, the sub-section titled ‘‘Computation of Aggregate Indebtedness’’ adds ‘‘(If Applicable)’’ to the end of the title to clarify that not all firms will need to complete this sub-section; (5) in the broker-dealer version, for clarity and for consistency with Pre￾Amendment FOCUS Report Part II, Line 10 now reads ‘‘Total aggregate indebtedness liabilities from Statement of Financial Condition (Item 1760)’’ instead of ‘‘Total liabilities from Statement of Financial Condition (Item 1760)’’; (6) in the stand￾alone SBSD version, the title of the Computation of Minimum Regulatory Capital Requirements section clarifies that it applies to a ‘‘non-broker-dealer SBSD’’ instead of to any ‘‘non-broker-dealer’’; (7) in the stand-alone SBSD version, Line 7 corrects a cross-reference to read ‘‘(greater of Lines 5 and 6)’’ rather than ‘‘(greater of Lines 4 and 5)’’; (8) in the stand-alone SBSD version, Line 9 corrects a cross￾reference so that it refers to ‘‘Line 7’’ instead of ‘‘Line 6’’; and (9) the instructions for the broker￾dealer version correct a cross-reference to CFTC Regulation 1.17 so that it refers to ‘‘8%’’ (instead of ‘‘4%’’) of the amount required to be segregated pursuant to the CEA. See 17 CFR 1.17(a)(1)(i)(B). 294See Capital, Margin, and Segregation Proposing Release, 77 FR at 70256–57. 295See Recordkeeping and Reporting Proposing Release, 79 FR at 25230. 296See Rule 18a–2, as adopted. 297See FOCUS Report Part II, as amended, Computation of Tangible Net Worth. 298See Self-Regulatory Organizations; FINRA; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified By Amendment No. 2, Adopting FINRA Rule 4524 (Supplemental FOCUS Information) and Proposed Supplementary
Schedule to the Statement of Income (Loss) Page of
FOCUS Reports, Exchange Act Release No. 66364 (Feb. 9, 2012), 77 FR 8938 (Feb. 15, 2012). 299See Recordkeeping and Reporting Proposing Release, 79 FR at 25229–30. 300The Commission renamed this section of the form in 2018. See Disclosure Update and Simplification, Exchange Act Release No. 83875 (Aug. 17, 2018), 83 FR 50148 (Oct. 4, 2018). 301See id. 302See revised FOCUS Report Part II, as amended, Statement of Income (Loss) or Statement of Comprehensive Income. The following changes are made: (1) On Line 5, ‘‘Profit or losses from underwriting and selling groups’’ is replaced with ‘‘Gains or losses from underwriting and selling groups’’ for consistency with the terminology used in Lines 2 and 3; (2) on Line 10, ‘‘Commodities revenue’’ is replaced with ‘‘Gains or losses on commodities’’ for consistency with the terminology used in Lines 1 through 5; (3) in the instructions for this section, ‘‘brokers’’ is globally replaced with ‘‘broker-dealers’’; (4) Line 36 is updated to read Regulatory Capital Requirements section in which a broker-dealer inputs the calculation of its minimum net capital requirement. Proposed Form SBS included two such sections: One to be completed by broker-dealer SBSDs and MSBSPs and the other to be completed by stand-alone SBSDs.291 Proposed Form SBS included these separate sections because the proposed minimum net capital computation applicable to a broker-dealer SBSD differs from the computation applicable to a stand-alone SBSD. The section for broker-dealer SBSDs was largely modeled on the parallel section in Pre￾Amendment FOCUS Report Part II used by broker-dealers. The section for stand￾alone SBSDs was a substantially scaled down version of that section reflecting the simpler calculation these entities would perform under the proposed nonbank SBSD capital rule (Rule 18a– 1). The Commission received no comment on either of the proposed sections and has adopted capital requirements for nonbank SBSDs under which these firms will need to calculate a minimum net capital requirement.292 However, because an OTCDD/SBSD will be subject to Rule 18a–1, the Computation of Minimum Regulatory Capital Requirements sections have been modified to indicate that an OTCDD/SBSD must complete the simpler section that will also be used by stand-alone SBSDs. Consequently, these sections in proposed Form SBS are being adopted with this modification and additional non-substantive modifications by retaining the parallel
section in FOCUS Report Part II, as
amended, to be used by stand-alone broker-dealers, broker-dealer SBSDs (other than OTCDD/SBSDs), and broker￾dealer MSBSPs, and adding the section for stand-alone SBSDs and OTCDD/ SBSDs.293 Computation of Tangible Net Worth The Commission’s proposed capital requirement for stand-alone MSBSPs and broker-dealer MSBSPs in Rule 18a– 2 was a tangible net worth test.294 Accordingly, proposed Form SBS included a Computation of Tangible Net Worth section to be completed by stand￾alone MSBSPs and broker-dealer MSBSPs.295 The Commission received no comment on this section. However, the Commission ultimately adopted Rule 18a–2 to apply solely to stand￾alone MSBSPs (i.e., not to broker-dealer MSBSPs, which are subject to Rule 15c3–1).296 Accordingly, the Computation of Tangible Net Worth
section in proposed Form SBS is being
adopted as an addition to the FOCUS Report Part II with the modification that it applies only to stand-alone MSBSPs.297 Statement of Income (Loss) or Statement of Comprehensive Income The Pre-Amendment FOCUS Reports have a Statement of Income (Loss)
section in which filers enter information
about revenues and expenses. In 2012, the Commission approved a FINRA rule change to adopt Form SSOI (Supplemental Statement of Income), which elicits more detailed information about revenues and expenses.298 Proposed Form SBS included a Statement of Income (Loss) section modeled on the more detailed Form SSOI to simplify the filings broker￾dealers would need to make with the Commission and their designated examining authority (‘‘DEA’’).299 The Commission proposed to incorporate Form SSOI into the Statement of Income (Loss) section of proposed Form SBS. The Commission understands, however, that firms sometimes are required to disclose their FOCUS Reports to third parties for commercial reasons, potentially raising privacy concerns. The Commission further understands that the income information disclosed in Form SSOI is highly proprietary, given the level of detail required to be disclosed in the form. Moreover, the Commission already has access to the information in Form SSOI. Consequently, the Commission believes that it is not necessary to incorporate all the Form SSOI elements into the Statement of Income (Loss).300 The Commission recently amended the Statement of Income (Loss) sections in FOCUS Report Parts II, IIA, and IIB to elicit information about comprehensive income and rename the sections ‘‘Statement of Income (Loss) or Statement of Comprehensive Income.’’ 301 Accordingly, the Statement of Income (Loss) in proposed Form SBS is being adopted by retaining the Statement of Income (Loss) or Statement of Comprehensive Income section in FOCUS Report Part II, as amended. However, the Commission is adding a new line—Line 3—to the Statement of Income (Loss) or Statement of Comprehensive Income, as amended. This line elicits information about gains or losses from derivatives trading that was elicited on Line Item 3926 on Form SSOI and FOCUS Report Part II CSE. The Commission is also adopting several other non-substantive modifications to this section of FOCUS Report Part II.302 The Statement of

‘‘Net income (current month only) before comprehensive income and provision for federal income taxes’’ (emphasis added) in response to broker-dealers’ requests for clarification after the adoption of the Commission’s Disclosure Update and Simplification release; (5) in the instructions for this section, the instruction for ‘‘principal transaction including unrealized gains and losses’’ is not included because it does not correspond with a specific line of this section; and (6) the Statement of Income (Loss) or Statement of Comprehensive Income section also contains non-substantive punctuation changes. 303See Recordkeeping and Reporting Proposing Release, 79 FR at 25226. 304See Capital, Margin, and Segregation Adopting Release, 84 FR at 43879–906. 305See FOCUS Report Part II, as amended, Capital Withdrawals and Capital Withdrawals— Recap. The following changes are being made: (1) For internal consistency and to avoid confusion with the schedules at the end of revised FOCUS Report Part II, the text at the bottom of the Capital Withdrawals section now refers to ‘‘This section’’ instead of ‘‘The schedule’’; (2) for internal consistency with Lines 1A and 1A2 in the Capital Withdrawals—Recap section which reference LLCs, the title for the Statement of Changes in Ownership Equity subsection now references LLCs in the parenthetical ‘‘(sole proprietorship, partnership, LLC or corporation)’’; (3) Line 1A in the Statement of Changes in Ownership Equity subsection replaces ‘‘Net income (loss)’’ with ‘‘Net income (loss) or comprehensive income (loss), as applicable’’ for consistency with the references to net income and comprehensive income in the remainder of the FOCUS Report, as amended in the Commission’s 2018 Disclosure Update and Simplification release; and (4) Line 1B in the Statement of Changes in Ownership Equity subsection titled ‘‘Additions (including non￾conforming capital of)’’ is assigned Line Item 4263 (for consistency with Pre-Amendment FOCUS Report Part II) instead of 4262. Pre-Amendment FOCUS Report Part II assigns ‘‘Additions (including non-conforming capital of)’’ the number 4263, while FOCUS Report Part II CSE assigns ‘‘Additions (including non-conforming capital of)’’ the number 4262). Since the form being adopted in this release is FOCUS Report Part II, it is preferable to be more consistent with Pre-Amendment FOCUS Report
Part II than FOCUS Report Part II CSE.
306See Recordkeeping and Reporting Proposing Release, 79 FR at 25226. 307See Capital, Margin, and Segregation Adopting Release, 84 FR at 43883–86. 308See FOCUS Report Part II, as amended, Financial and Operational Data. The following changes are being made: (1) For internal consistency and to avoid confusion with the schedules at the end of revised FOCUS Report Part II, this section is no longer referred to as a ‘‘schedule;’’ and (2) the word ‘‘mailed’’ is replaced with ‘‘sent’’ on Line 5 and the corresponding instructions to reflect that customer confirmations can be emailed in addition to mailed. 309See Recordkeeping and Reporting Proposing Release, 79 FR at 25226. 310See FOCUS Report Part II, as amended, Computation for Determination of Customer Reserve Requirements. To avoid confusion between the customer and security-based swap customer reserve requirements, this section is retitled ‘‘Computation for Determination of Customer Reserve Requirements’’ (emphasis added), and the instructions are updated accordingly. In addition, in response to commenters, the section includes a clarification that the notes referenced in this section appear in 17 CFR 240.15c3–3a (Rule 15c3–3a) (Exhibit A to Rule 15c3–3). See SIFMA 9/5/2014 Letter. 311See Recordkeeping and Reporting Proposing Release, 79 FR at 25226. 312See FOCUS Report Part II, as amended, Possession or Control for Customers. To avoid confusion between the customer and security-based swap customer possession and control requirements, this section is retitled ‘‘Possession or Control for Customers,’’ and the instructions are updated accordingly. 313See Financial Responsibility Rules for Broker￾Dealers, 78 FR at 51903. Paragraph (a)(16) of Rule 15c3–3 defines ‘‘PAB account’’ as ‘‘a proprietary securities account of a broker or dealer (which includes a foreign broker or dealer, or a foreign bank acting as a broker or dealer) other than a delivery-versus-payment account or a receipt￾versus-payment account.’’ The paragraph further provides that the ‘‘term does not include an account that has been subordinated to the claims of creditors of the carrying broker or dealer.’’ Income (Loss) or Statement of Comprehensive Income must be completed by stand-alone broker-dealers and broker-dealer and stand-alone SBSDs and MSBSPs. Capital Withdrawals and Capital Withdrawals—Recap The Pre-Amendment FOCUS Report Parts II, IIB, and II CSE have a Capital Withdrawal section and a Capital Withdrawals—Recap section that elicit details about filers’ ownership equity and subordinated liabilities maturing or proposed to be withdrawn within the next six months, and accruals which have not been deducted in the computation of net capital. Proposed Form SBS had these two sections, which were largely modeled on the parallel sections in Pre-Amendment FOCUS Report Parts II and II CSE.303 The Commission received no comment on these sections and has adopted capital requirements for nonbank SBSDs under which these firms will be
subject to a net capital requirement.304 Consequently, the Commission is adopting these sections in proposed Form SBS by retaining the parallel sections in FOCUS Report Part II, as amended, with certain non-substantive modifications.305 These sections are required to be completed by stand-alone broker-dealers, stand-alone SBSDs, and broker-dealer SBSDs and MSBSPs. Financial and Operational Data The Pre-Amendment FOCUS Report
Part II CSE included a Financial and
Operational Data section that elicited detail about filers’ operations, including operational deductions from capital and potential operational charges not deducted from capital. Proposed Form SBS had a Financial and Operational Data section modeled largely on the parallel section in Pre-Amendment FOCUS Report Part II CSE.306 The Commission received no comment on this proposed section and has adopted capital requirements for nonbank SBSDs under which these firms will need to calculate a minimum net capital requirement.307 Consequently, the Commission is adopting this section in proposed Form SBS by retaining the parallel section in FOCUS Report Part II, as amended, with non-substantive changes for clarity.308 The section must be completed by stand-alone broker￾dealers, stand-alone SBSDs, and broker￾dealer SBSDs and MSBSPs. Computation for Determination of Customer Reserve Requirements Pre-Amendment FOCUS Report Parts II and II CSE have a Computation for Determination of Reserve Requirements
section that elicited detail about filers’
customer reserve computation under the broker-dealer customer protection rule (Rule 15c3–3). Proposed Form SBS had a Computation for Determination of Customer Reserve Requirements section modeled largely on the parallel section in Pre-Amendment FOCUS Report Part II CSE.309 The Commission received no comment on this section in proposed Form SBS and is adopting it by retaining the parallel section in FOCUS Report Part II, as amended, with non￾substantive changes for clarity.310 This
section must be completed by stand￾alone broker-dealers and broker-dealer
SBSDs and MSBSPs.
Possession or Control for Customers Pre-Amendment FOCUS Report Parts II and II CSE have an Information for Possession or Control Requirements
section that elicits detail about
securities kept in possession or control for customers under Rule 15c3–3. Proposed Form SBS had a Possession or Control for Customers section modeled on the parallel section in Pre￾Amendment FOCUS Report Part II CSE.311 The Commission received no comment on this section of proposed Form SBS and is adopting it by retaining the parallel section in FOCUS Report Part II, as amended, with non￾substantive changes for clarity.312 This
section must be completed by stand￾alone broker-dealers and broker-dealer
SBSDs and MSBSPs.
Computation for Determination of PAB Requirements In 2013, the Commission amended Rule 15c3–3 to establish PAB reserve bank account requirements under which a broker-dealer must perform a reserve account calculation with respect to broker-dealer clients that is similar to the calculation for customers discussed above.313 Proposed Form SBS included a Computation for Determination of PAB Requirements section for filers to

314See Recordkeeping and Reporting Proposing Release, 79 FR at 25226. 315See revised FOCUS Report Part II, as amended, Computation for Determination of PAB Requirements. In addition, in response to commenters, the section includes a clarification that the notes referenced in this section appear in Exhibit A to Rule 15c3–3 (Rule 15c3–3a). See SIFMA 9/5/2014 Letter. 316See Recordkeeping and Reporting Proposing Release, 79 FR at 25226. 317See FOCUS Report Part II, as amended, Claiming an Exemption from Rule 15c3–3. The following changes are being made: (1) The instruction to ‘‘check one only’’ is replaced with ‘‘check all that apply’’ as a firm can claim more than one exemption from Rule 15c3–3; (2) the incorrect references to paragraphs ‘‘(k)(2)(A)’’ and ‘‘(k)(2)(B)’’ of Rule 15c3–3 are replaced with correct references to paragraphs (k)(2)(i) and (ii) of Rule 15c3–3; and (3) due to the inadvertent omission of instructions regarding this section, the instructions to FOCUS Report Part II, as amended, are updated to direct stand-alone broker-dealers, broker-dealer SBSDs, and broker-dealer MSBSPs that are claiming an exemption from Rule 15c3–3 to complete this
section.
318See Capital, Margin, and Segregation Proposing Release, 77 FR at 70282–87. 319See Recordkeeping and Reporting Proposing Release, 79 FR at 25230–31. 320See Capital, Margin, and Segregation Adopting Release, 84 FR at 43930–43. 321See FOCUS Report Part II, as amended, Computation for Determination of Security-Based Swap Customer Reserve Requirements. The following changes are being made: (1) References to Rule 18a–4 are removed from the section’s title, line items, and instructions to accurately reflect that the security-based swap customer reserve requirement adopted by the Commission is located in Rules 15c3–3 and 18a–4 (instead of solely in Rule 18a– 4 as initially proposed by the Commission); (2) the parenthetical ‘‘(See Note A)’’ is added to Line 1 for consistency with Line 1 of the Computation for Determination of Customer Reserve Requirements
section in revised FOCUS Report Part II, and in
response to commenters, the section includes a clarification that the notes referenced in this section appear in Exhibit B to Rule 15c3–3 or Exhibit A to Rule 18a–4, as applicable (see SIFMA 9/5/2014 Letter); and (3) in Lines 24 and 26, ‘‘Reserve Bank Account(s)’’ is replaced with ‘‘Reserve Account(s)’’ for consistency with paragraph (a)(9) of Rule 18a– 4, as adopted (see paragraph (a)(9) of Rule 18a–4, as adopted). 322See Capital, Margin, and Segregation Proposing Release, 77 FR at 70278–82. 323See Recordkeeping and Reporting Proposing Release, 79 FR at 25231. 324See Capital, Margin, and Segregation Adopting Release, 84 FR at 43930–43. 325See FOCUS Report Part II, as amended, Possession or Control for Security-Based Swap Customers. References to Rule 18a–4 are removed from the section’s title, line items, and instructions in order to accurately reflect that the possession or control requirements adopted by the Commission are located in Rules 15c3–3 and 18a–4 (instead of solely in Rule 18a–4 as initially proposed by the Commission). 326 327See FOCUS Report Part II, as amended, Claiming an Exemption from Rule 18a–4. 328See 17 CFR 1.10. See also Form 1–FR–FCM, available at http://www.nfa.futures.org/NFA￾registration/templates-and-forms/form1FR￾fcm.HTML. input this calculation.314 The Commission received no comment on this proposed section of Form SBS and is adding it to FOCUS Report Part II, as amended, with non-substantive changes for clarity.315 The section must be completed by stand-alone broker-dealers and broker-dealer SBSDs and MSBSPs. Claiming an Exemption From Rule 15c3–3 Pre-Amendment FOCUS Report Part II has a section for broker-dealers claiming an exemption from Rule 15c3–3 to identify the paragraph of the rule upon which the firm’s exemption is based. Proposed Form SBS had a similar
section modeled on the parallel section
in Pre-Amendment FOCUS Report Part II.316 The Commission received no comment on this section of proposed Form SBS and is adopting it by retaining the parallel section in FOCUS Report Part II, as amended, with non￾substantive changes for clarity and accuracy.317 This section must be completed by stand-alone broker-dealers and broker-dealer SBSDs and MSBSPs claiming an exemption from Rule 15c3–3. Computation for Determination of Security-Based Swap Customer Reserve Requirements The Commission’s proposed segregation requirements for SBSDs in Rule 18a–4 required them to maintain a security-based swap customer reserve account and to determine the amount kept in the account using the formula in 17 CFR 240.18a–4a (Exhibit A to Rule 18a–4).318 Accordingly, proposed Form SBS had a section titled ‘‘Computation for Determination of the Amount to be Maintained in the Special Reserve Account for the Exclusive Benefit of Security-Based Swap Customers’’ in which an SBSD would enter its security￾based swap reserve account calculation.319 The Commission received no comment on this section. However, the final segregation rules codified the security-based swap reserve account requirements in: (1) Rule 15c3– 3 to apply to stand-alone broker-dealers and broker-dealer SBSDs and MSBSPs; and (2) Rule 18a–4 to apply to stand￾alone SBSDs.320 Consequently, the Commission is adopting the section in proposed Form SBS by adding it to FOCUS Report Part II, as amended, with non-substantive changes for consistency internally and with Rules 15c3–3 and 18a–4.321 The modifications also include an instruction that the section must be completed by stand-alone broker-dealers in addition to broker￾dealer SBSDs and MSBSPs. Possession or Control for Security-Based Swap Customers The Commission’s proposed segregation requirements for SBSDs in Rule 18a–4 required them to maintain possession or control over excess security collateral.322 Accordingly, proposed Form SBS had a section titled ‘‘Information for Possession or Control Requirements Under Rule 18a–4’’ that elicits detail about excess securities collateral kept in possession or control for customers under proposed Rule 18a–
4.323 The Commission received no
comment on this section of proposed Form SBS. However, the final segregation rules codified the security￾based swap reserve account requirements in: (1) Rule 15c3–3 to apply to stand-alone broker-dealers and broker-dealer SBSDs and MSBSPs; and (2) Rule 18a–4 to apply to stand-alone SBSDs.324 Consequently, the Commission is adopting the section in proposed Form SBS by adding it to FOCUS Report Part II, as amended, with non-substantive changes for consistency internally and with Rules 15c3–3 and 18a–4.325 The modifications also include an instruction that the section must be completed by stand-alone broker-dealers in addition to broker￾dealer SBSDs and MSBSPs. Claiming an Exemption From Rule 18a–4 As adopted, Rule 18a–4 applies to stand-alone and bank SBSDs and to OTCDD/SBSDs.326 In addition, the final rule exempts these SBSDs from its requirements of if the SBSD meets certain conditions, including that the SBSD does not clear security-based swap transactions for other persons, provides notice to the counterparty regarding the right to segregate initial margin at an independent third-party custodian, and discloses in writing that any collateral received by the SBSD for non-cleared security-based swaps will not be subject to a segregation requirement and regarding how a claim of the counterparty for the collateral would be treated in a bankruptcy or other formal liquidation proceeding of the SBSD. In light of these modifications to the rule from the proposal (which did not provide an exemption), the Commission is adding a line item to the FOCUS Report Part II for a stand-alone SBSD or OTCDD/SBSD to indicate whether the firm is claiming an exemption from Rule 18a–4.327 Sections Completed by FCMs FCMs are required to periodically file Form 1–FR–FCM with the CFTC and their designated SRO.328 The form elicits financial and operational information about an FCM. To account

329See 17 CFR 1.10(h) (allowing broker-dealers to file the FOCUS Report instead of Form 1–FR–FCM so long as all information required to be furnished on and submitted with Form 1–FR–FCM is provided with the FOCUS Report). 330See Recordkeeping and Reporting Proposing Release, 79 FR at 25232–33. 331See FOCUS Report Part II, as amended, Computation of CFTC Minimum Capital Requirements, Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges, Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act, Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts, Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7, Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The following non-substantive changes were
made: (1) The parenthetical ‘‘(under)’’ is added to Line 16 of the Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges for consistency with the language used in Form 1– FR–FCM; and (2) instead of using the placeholder line item number ‘‘9999’’, the line item numbers recently assigned in FINRA’s eFOCUS system are used for the following lines: Lines 15 and 16 in the Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges, Lines 15 and 16 in the Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act, Lines 1 through 7 in the Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7, and Lines 9 through 11 in the Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7. 332See Recordkeeping and Reporting Proposing Release, 79 FR at 25233–34. 333See FOCUS Report Part II as amended; instructions to FOCUS Report Part II, as amended. 334See instructions to FOCUS Report Part II, as amended, Definitions; instructions to FOCUS Report Part IIC, as adopted, Definitions. 335Pre-Amendment FOCUS Report Part IIB has a similar schedule. 336See Recordkeeping and Reporting Proposing Release, 79 FR at 25234. 337See Memorandum from the Division of Trading and Markets regarding an April 30, 2015 meeting with representatives of the Securities Industry and Financial Markets Association (May 5,
2015) (‘‘SIFMA 4/30/2015 Meeting’’).
for broker-dealers that are dually registered as FCMs, Pre-Amendment FOCUS Report Parts II and II CSE incorporate, in substantially the same format, most of the sections in Form 1– FR–FCM. A broker-dealer dually registered as an FCM was permitted to file Pre-Amendment FOCUS Report Part II or II CSE (as applicable) with the CFTC and its designated SRO rather than Form 1–FR–FCM.329 Proposed Form SBS contained the following sections from Form 1–FR– FCM in order to permit dual registrants to file Form SBS (rather than Form 1– FR–FCM) with the CFTC and its designated SRO: (1) A Computation of CFTC Minimum Net Capital Requirement; (2) a Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) a Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the CEA; (4) a Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; (5) a Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7 (and Foreign Futures and Foreign
Options Secured Amounts Summary); and (6) a Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7 (and Funds Deposited in Separate
CFTC Regulation 30.7 Accounts) (17 CFR 30.7).330 The Commission received no comment on these sections of proposed Form SBS and is adopting them by retaining or adding them to FOCUS Report Part II, as amended, with non-substantive changes.331 These sections will be filed by broker-dealers that are dually registered with the CFTC as FCMs. The Commission believes that this will promote harmonization with CFTC requirements. Defined Terms in the Schedules to FOCUS Reports Parts II and IIC Pre-Amendment FOCUS Report Part II CSE has schedules that elicit information about derivatives positions, counterparties, and exposures. Proposed Form SBS included four schedules that were modeled largely on the schedules to Pre-Amendment FOCUS Report Part II CSE. As discussed in detail below, the Commission is adopting the schedules to proposed Form SBS by adding all four of them to FOCUS Report Part II, as amended, and including one of them in FOCUS Report Part IIC, as adopted. As proposed, the schedules contained the following common terms that were defined in the proposed instructions to Form SBS: (1) ‘‘gross replacement value’’, also referred to as ‘‘gross replacement value—receivable’’; (2) ‘‘gross replacement value—payables’’; (3) ‘‘net replacement value’’; (4) ‘‘current net exposure’’; (5) ‘‘total exposure’’; and (6) ‘‘margin collected.’’ 332 For the sake of clarity, the term ‘‘total exposure’’ is revised to the term ‘‘current net and potential exposure’’ in FOCUS Report Part II, as amended, and FOCUS Report Part IIC, as adopted, and in the instructions to the forms.333 The definition of the term is not revised. The Commission received no comment on the remaining terms and their definitions and is adopting them as proposed.334
Schedule 1 to FOCUS Report Part II
Pre-Amendment FOCUS Report Part II CSE has a schedule titled ‘‘Aggregate Securities and OTC Derivatives Positions’’ that required ANC broker￾dealers to report the month-end gross replacement value of aggregate long and short positions in various categories of financial instruments held by the firm.335 Schedule 1 to proposed Form SBS was modeled largely on this
schedule but instead of including a
single line for derivatives, it required filers to enter the aggregate long and short positions for cleared and non￾cleared: (1) Debt security-based swaps (other than credit default swaps); (2) equity security-based swaps; (3) credit default security-based swaps; and (4) other security-based swaps.336 It required the same information with respect to mixed swaps and the following categories of swaps: (1) interest rate swaps; (2) foreign exchange swaps; (3) commodity swaps; (4) debt index swaps (other than credit default swaps); (5) equity index swaps; (6) credit default swaps; and (7) other swaps. A commenter raised concerns about the practicality of reporting exposures to these subcategories of financial instruments, including the potential that firms will interpret them differently.337 The Commission believes it is important to record separately amounts attributable to security-based swaps, mixed swaps, and swaps given the Commission’s supervisory responsibilities regarding these products. The Commission further believes, however, that requiring reporting of the exposures to the subcategories of instruments could lead to inconsistent reporting across filers, which, in turn, could diminish the utility of receiving this information in terms of comparing firms. Accordingly,
Schedule 1 to the FOCUS Report Part II,
as amended, elicits the amounts attributable to cleared and non-cleared security-based swaps, mixed swaps, and swaps, and includes definitions for these products in the instructions, but no longer elicits information regarding the sub-categories. The Commission also received comment that ‘‘bought’’ and ‘‘sold’’ could help clarify the

338See, e.g., SIFMA 9/5/2014 Letter.
339For clarity and accuracy, the total line now reads ‘‘Total net securities, commodities, and swaps positions (sum of Lines 14 and 21)’’ instead of ‘‘Total (sum of Lines 1–17).’’ A commenter requested additional detail regarding firms’ hedging activities. See Levin Letter. The final rule does not require the linking of hedges as requested by the commenter. However, because the Commission believes that it would be difficult to identify and pair product hedges and therefore report hedges, the Commission believes that linking the totals in
Schedule 1 to the lines on the Statement of
Financial Condition will provide examiners with additional detail about filers’ securities and derivatives positions that partially addresses the concerns underlying this comment. 340See FOCUS Report Part II, as amended,
Schedule 1—Aggregate Securities, Commodities,
and Swaps Positions.
341Pre-Amendment FOCUS Report Part IIB has a
schedule titled ‘‘Credit-Concentration Report for
Twenty Largest Current Net Exposures.’’ 342See Recordkeeping and Reporting Proposing Release, 79 FR at 25234–35. 343See SIFMA 4/30/2015 Meeting. 344See FOCUS Report Part II, as amended,
Schedule 2—Credit Concentration Report for
Fifteen Largest Exposures in Derivatives. 345Pre-Amendment FOCUS Report Part IIB has a
schedule titled ‘‘Portfolio Summary of OTC
Derivatives Exposures’’ that elicits the credit rating category of the counterparty. 346See Recordkeeping and Reporting Proposing Release, 79 FR at 25235. 347See FOCUS Report Part II, as amended,
Schedule 3—Portfolio Summary of Derivatives
Exposures by Internal Credit Rating.
348Pre-Amendment FOCUS Report Part IIB has a
schedule titled ‘‘Geographic Distribution of OTC
Derivatives Exposures’’ that elicits the top ten country exposures by residence of main operating company. 349See Recordkeeping and Reporting Proposing Release, 79 FR at 25235. 350See FOCUS Report Part II, as amended,
Schedule 4—Geographic Distribution of Derivatives
Exposures for Ten Largest Countries.
schedule,338 and in response the
columns in Schedule 1 to FOCUS Report Part II, as amended, are relabeled ‘‘long/bought’’ and ‘‘short/sold’’ and the instructions are updated accordingly. The details in Schedule 1 may be of increased value to examiners if the totals in the schedule (Line Items 8370 and 8371) match the amounts reported for total securities, commodities, and swap positions in the Statement of Financial Condition (Line Items 12024 and 12044). Accordingly, the ‘‘Other securities and commodities’’ and ‘‘Securities with no ready market’’ lines are moved up to Lines 12 and 13 (instead of Lines 16 and 17) in Schedule 1 so that they can be included in the subtotal for ‘‘Total net securities and spot commodities.’’ In addition,
Schedule 1 now elicits ‘‘Counterparty
netting’’ and ‘‘Cash collateral netting’’ and includes these amounts in the subtotal for ‘‘Total derivative receivables and payables.’’ Consequently, the totals on Schedule 1, titled ‘‘Total net securities, commodities, and swaps positions,’’ are now equal to the sum of ‘‘Total net securities and spot commodities’’ and ‘‘Total derivative receivables and payables.’’ 339 For the foregoing reasons, the Commission is adopting Schedule 1 to proposed Form SBS by adding it to FOCUS Report Part II, as amended, with the modifications discussed above.340
Schedule 1 must be completed by stand￾alone broker-dealers and stand-alone
and broker-dealer SBSDs and MSBSPs.
Schedule 2 to FOCUS Report Part II
Pre-Amendment FOCUS Report Part II CSE has a schedule titled ‘‘Credit￾Concentration Report for Fifteen Largest Net Exposures in Derivatives’’ that requires ANC broker-dealers to provide details about the fifteen counterparties to which they have the largest credit exposures in derivatives.341 Schedule 2 to proposed Form SBS had two tables that were modeled largely on this
schedule.342 The first table would
require the filer to identify in the first column the fifteen counterparties to which the firm had the largest current net exposure, in order from the largest to the smallest current net exposure. The second table would require the filer to identify in the first column the fifteen counterparties to which the firm had the largest total exposure, in order from the largest to the smallest total exposure. A commenter raised concerns about the potential ramifications if counterparties obtained this information and disagreed with the internal credit rating assigned to them.343 The Commission acknowledges that firms may be required to disclose the FOCUS Report Part II to counterparties and other third parties for commercial reasons, and that this could cause internal credit ratings to be disclosed to the rated entity. The disclosure of this information or the potential disclosure of the information to the rated entity could negatively affect the integrity of the filer’s credit risk function. For example, it could give firms an incentive to assign a higher internal credit rating than warranted to avoid negatively affecting its relationship with a counterparty and potentially losing that entity’s business. Accordingly, the Commission is modifying the table so that it continues to require counterparty identifiers but no longer elicits the internal credit rating assigned to a particular counterparty. This information is available to Commission staff through its monitoring and examination programs. For the foregoing reasons, Commission is adopting Schedule 2 to proposed Form SBS by adding it to FOCUS Report Part II, as amended, with the modification discussed above.344
Schedule 2 must be completed by stand￾alone broker-dealers that are authorized
to calculate net capital using internal models and all stand-alone and broker￾dealer SBSDs and MSBSPs.
Schedule 3 to FOCUS Report Part II
Pre-Amendment FOCUS Report Part II CSE has a schedule titled ‘‘Portfolio Summary of OTC Derivatives Exposures by Internal Credit Rating’’ that required ANC broker-dealers to provide details about their aggregate credit exposures to counterparties grouped by the internal credit rating assigned to the counterparty.345 Schedule 3 to proposed Form SBS had a table modeled on this
schedule.346 The table would require
the filer to set forth its internal credit rating scale in the left hand column. For each notch in the rating scale, the filer would need to provide detail about aggregate amounts of exposures and collateral collected from the counterparties rated at that notch. The Commission received no comment on
Schedule 3 to proposed Form SBS and
is adopting it by adding the schedule to FOCUS Report Part II, as amended.347
Schedule 3 must be completed by stand￾alone broker-dealers that are authorized
to calculate net capital using internal models and all stand-alone and broker￾dealer SBSDs and MSBSPs.
Schedule 4 to FOCUS Report Part II
Pre-Amendment FOCUS Report Part II CSE has a schedule titled ‘‘Geographic Distribution of Derivatives Exposures for Ten Largest Countries’’ that required ANC broker-dealers to provide details about their OTC derivatives exposures grouped by country.348 Schedule 4 to proposed Form SBS included two tables modeled on this schedule.349 The first
table would require the filer to identify
in the left column the ten largest countries in terms of the filer’s aggregate current net exposure to counterparties located in the country, in order from the largest to the smallest current net exposure amounts. The second table would require the filer to identify in the left column the ten largest countries in terms of the filer’s total exposure to counterparties located in the country, in order from the largest to the smallest total exposure amounts. The Commission received no comment on
Schedule 4 and is adopting it by adding
the schedule to the FOCUS Report Part II, as amended.350 Schedule 4 must be completed by stand-alone broker-dealers

351See 12 U.S.C. 161; 12 U.S.C. 324; 12 U.S.C. 1464; 12 U.S.C. 1817. FFIEC Form 031 is available at http://www.ffiec.gov/pdf/FFIEC_forms/ FFIEC031_201303_f.pdf. 352For example, Line Item 0081 on FFIEC Form 031 is Line Item 0081b on FOCUS Report Part IIC. The letter ‘‘b’’ is added because some of the line items on FFIEC Form 031 are already assigned to other lines in the FOCUS Report. 353See SIFMA 9/5/2014 Letter. The commenter also noted that foreign bank SBSDs generally report financial information to their home jurisdiction in accordance with the International Financial Reporting Standards rather than U.S. Generally Accepted Accounting Principles. See id. However, these firms likely also file FFIEC Form 002, which is required to be prepared using U.S. Generally Accepted Accounting Principles. The FFIEC Form 002 instructions are available at http:// www.ffiec.gov/PDF/FFIEC_forms/FFIEC002_ 201409_i.pdf. 354Line Items 2200, 6631, and 6636 regarding foreign office deposits do not apply to FFIEC Form 041 filers, because they do not have foreign branches. Line Item 1395 regarding Tier 3 capital does not apply to FFIEC Form 041 filers, because they are not required to compute Tier 3 capital. 355 In addition to removing references to entities that will not file FOCUS Report Part IIC and removing references to sections and schedules that are not part of FOCUS Report Part IIC, the following change is made to FOCUS Report Part IIC’s general instructions: The instruction ‘‘Money amounts should be expressed in whole dollars.’’ is deleted because this instruction does not appear in the instructions accompanying FFIEC Form 031. Additional changes to FOCUS Report Part IIC’s instructions that relate to specific sections of the form are discussed in this release’s discussion of the applicable section. 356See Recordkeeping and Reporting Proposing Release, 79 FR at 25225. 357See FOCUS Report Part IIC, Cover Page. The following changes are being made: (1) The line soliciting firms to check the type of registrant filing the form is shortened to only reflect the registrants required to file FOCUS Report Part IIC (bank SBSDs and MSBSPs); (2) in response to comment that proposed Form SBS did not reference foreign SBSDs or foreign MSBSPs, a line is added asking firms whether the filer is a U.S. person (see SIFMA 9/5/2014 Letter); (3) the line soliciting firms to check the reason the firm is filing FOCUS Report
Part IIC is shortened to only reflect the range of
reasons bank SBSDs and MSBSPs would file the report: at the special request by the Commission, pursuant to Rule 18a–7, or other; (4) the line soliciting firms to ‘‘Check here if respondent is filing an audited report’’ is removed, because bank SBSDs and MSBSPs are not required to file annual reports with the Commission (see 17 CFR 240.18a– 7(c)(1)(i)); (5) a typographical error is corrected so the officer’s title printed under the signature line matches the officer’s title printed under the line for the signing officer to write out his or her name; and (6) a typographical error in the instructions is corrected so that the ‘‘Official use’’ line references line item 33 instead of 31. 358See Recordkeeping and Reporting Proposing Release, 79 FR at 25231. 359See FOCUS Report Part IIC, Balance Sheet (Information As Reported On FFIEC Form 031—
Schedule RC). The following changes are being
made: (1) Lines 4B, 4C, 13A1, 13A2, 13B1, and 13B2 are indented so their corresponding line items are not included in the Totals column; (2) on Line 8, the word ‘‘Investment’’ is replaced with ‘‘Investments’’; (3) on Line 23, the Line Item number ‘‘3828b’’ is replaced with ‘‘3838b’’; (4) in the instructions, clarification is added that ‘‘FFIEC Instructions’’ refers to ‘‘instructions accompanying FFIEC Form 031’’; and (5) because the instructions direct filers to prepare this section in accordance with the FFIEC Instructions, the following sentence is deleted: ‘‘In addition, the data reported on this
section should only be updated quarterly.’’
360See Recordkeeping and Reporting Proposing Release, 79 FR at 25231–32. that are authorized to calculate net capital using internal models and all stand-alone and broker-dealer SBSDs and MSBSPs.
ii. FOCUS Report Part IIC
As discussed above, the Commission is requiring bank SBSDs and MSBSPs to report certain general financial information on new FOCUS Report Part IIC to facilitate monitoring these registrants’ financial condition. The Commission’s reporting requirements for bank SBSDs and MSBSPs generally are designed to be tailored specifically to their activities as an SBSD or an MSBSP. Accordingly, FOCUS Report
Part IIC, as adopted, is based on FFIEC
Form 031, which most banks are required to file on a quarterly basis.351 FFIEC Form 031 elicits financial and operational information about a bank that is entered into uniquely numbered line items. FOCUS Report Part IIC, as adopted, requires bank SBSDs and MSBSPs to report certain information they already report on FFIEC Form 031. Specifically, it includes: (1) A Balance Sheet section that largely mirrors Schedule RC to FFIEC Form 031; (2) a Regulatory Capital section that is a scaled-down version of Schedule RC–R to FFIEC Form 031; and (3) an Income Statement
section that is a scaled-down version of
Schedule RI to FFIEC Form 031. If the
same line appears in both FFIEC Form 031 and FOCUS Report Part IIC, as adopted, the same line item number is used in both forms, except that the FOCUS Report Part IIC line item ends with an additional ‘‘b’’ character.352 One commenter pointed out that not all banks file FFIEC Form 031, noting that U.S. branches and agencies of foreign banks file FFIEC Form 002.353 The Commission acknowledges that there are multiple types of FFIEC reporting forms, but modeled the FOCUS Report Part IIC on the form it believes most bank SBSDs and MSBSPs will use. FFIEC Form 031 is filed by banks with both domestic and foreign offices, while FFIEC Form 041 is filed by banks with domestic offices only. All of the line items that appear on FOCUS Report Part IIC, as adopted, appear on both FFIEC Form 031 and FFIEC Form 041, except for three line items which do not apply to FFIEC Form 041 filers.354 In addition to the sections drawn from FFIEC Form 031, FOCUS Report Part IIC, as adopted, includes sections for: (1) A Computation for Determination of Security-Based Swap Customer Reserve Requirements; (2) Possession or Control for Security-Based Swap Customers; and (3) Schedule 1—Aggregate Security￾Based Swap and Swap Positions. Finally, the Commission is adopting instructions for FOCUS Report Part IIC, which closely track the instructions for proposed Form SBS and FOCUS Report
Part II, as amended.355
Cover Page
As discussed above, proposed Form SBS included a cover page modeled largely on the cover page to Pre￾Amendment FOCUS Report Part II.356 The Commission received no comment on the proposed cover page and is adopting it in FOCUS Report Part IIC with non-substantive changes largely to account for the fact that FOCUS Report
Part IIC will only be filed by bank
SBSDs and MSBSPs.357
Balance Sheet
A bank must report details about its assets, liabilities, and equity capital on
Schedule RC to FFIEC Form 031.
Schedule RC also includes a
Memoranda section that elicits information about the bank’s external auditors and fiscal year end. Proposed Form SBS had a Balance Sheet section to be completed by bank SBSDs and MSBSPs.358 The lines and line items in this section were the same as in
Schedule RC to FFIEC Form 031, except
that it did not include line items from the Memoranda section. The Commission received no comment on this proposed section and is adopting it in FOCUS Report Part IIC with non￾substantive changes for consistency with Schedule RC to FFIEC Form
031.359 This section must be completed
by bank SBSDs and MSBSPs.
Regulatory Capital
The prudential regulators are responsible for administering capital requirements for bank SBSDs and MSBSPs. A bank must report details about its regulatory capital on Schedule RC–R to FFIEC Form 031. Schedule RC– R also includes a Memoranda section that elicits detail about derivatives. Proposed Form SBS similarly included a regulatory capital section to be completed by bank SBSDs and MSBSPs.360 The lines and line items in this section were largely the same as in
Schedule RC–R to FFIEC Form 031.
More specifically, the proposed section required banks to enter the total amounts of the components of bank regulatory capital (i.e., total Tier 1, Tier 2, or Tier 3 capital) and other summary measures, rather than requiring the level

361See FOCUS Report Part IIC, Regulatory Capital (Information As Reported On FFIEC Form 031—
Schedule RC–R). The following changes are being
made; (1) on Line 7, the phrase ‘‘Total assets for leverage capital purposes’’ is replaced with ‘‘Total assets for the leverage ratio’’ and line item number ‘‘L138b’’ is replaced with ‘‘A224b’’; (2) on Lines 8 through 10, the same line item numbers are assigned to Columns A and B; and (3) because the instructions direct filers to prepare this section in accordance with the FFIEC Instructions, the following sentence is deleted: ‘‘In addition, the data reported on this section should only be updated quarterly.’’ 362See Recordkeeping and Reporting Proposing Release, 79 FR at 25232. 363See FOCUS Report Part IIC, Income Statement (Information As Reported On FFIEC Form 031—
Schedule RI). The following changes are being
made: (1) In FOCUS Report Part IIC, the parentheticals instructing filers which lines to total are deleted from Lines 9, 9F, and 9G, because one of these parentheticals contained an inaccurate cross-reference and this change preserves flexibility in case FFIEC Form 031’s lines are renumbered in the future; and (2) because the instructions direct filers to prepare this section in accordance with the FFIEC Instructions, the following sentence is deleted: ‘‘In addition, the data reported on this
section should only be updated quarterly.’’
364See Recordkeeping and Reporting Proposing Release, 79 FR at 25230–31. 365See FOCUS Report Part IIC, Computation for Determination of Security-Based Swap Customer Reserve Requirements. The following non￾substantive changes are being made: (1) References to Rule 18a–4 are removed from the section’s title, line items, and instructions to accurately reflect that the security-based swap customer reserve requirement adopted by the Commission is located in Rules 15c3–3 and 18a–4 (instead of solely in Rule 18a–4 as initially proposed by the Commission); (2) to improve clarity, the form and instructions reflect that the section is titled ‘‘Computation for Determination of Security-Based Swap Customer Reserve Requirements’’ instead of ‘‘Computation for Determination of the Amount to be Maintained in the Special Account for the Exclusive Benefit of Security-Based Swap Customers—Rule 18a–4, Exhibit A’’; (3) the
section’s heading and instructions are updated to
state that a stand-alone SBSD exempt from Rule 18a–4 is not required to complete this section to reflect that paragraph (f) of Rule 18a–4, as amended, provides an exemption from the rule for certain bank SBSDs; (4) the parenthetical ‘‘(See Note A)’’ is added to Line 1 for consistency with Line 1 of the Computation for Determination of Customer Reserve Requirements section in revised FOCUS Report Part II, and, in response to commenters, the
section includes a clarification that the notes
referenced in this section appear in Exhibit A to Rule 18a–4 (see SIFMA 9/5/2014 Letter); (5) in response to comment received, Lines 20 and 21 now correctly cross-reference ‘‘Line 19’’ instead of ‘‘Line 21’’ (See SIFMA 9/5/2014 Letter); (6) in Lines 23 and 25, ‘‘Reserve Bank Account(s)’’ is replaced with ‘‘Reserve Account(s)’’ for consistency with paragraph (a)(9) of Rule 18a–4; and (7) to eliminate extraneous text, the following sentence is deleted from the instructions: ‘‘The term ‘security-based swap customer’ is defined in 17 CFR 240.18a–4.’’ 366See Recordkeeping and Reporting Proposing Release, 79 FR at 25230–31. 367See FOCUS Report Part IIC, Possession or Control for Security-Based Swap Customers. The following changes are being made: (1) References to Rule 18a–4 are removed from the section’s title, line items, and instructions to accurately reflect that the possession or control requirements adopted by the Commission is located in Rules 15c3–3 and 18a–4 (instead of solely in Rule 18a–4 as initially proposed by the Commission); (2) to improve clarity, the form and instructions reflect that the
section is titled ‘‘Possession or Control for Security￾Based Swap Customers’’ instead of ‘‘Information for
Possession or Control Requirements under Rule 18a–4’’; and (3) the section’s heading and instructions are updated to state that a stand-alone SBSD exempt from Rule 18a–4 is not required to complete this section to reflect that paragraph (f) of Rule 18a–4, as amended, provides an exemption from the rule for certain bank SBSDs. 368See Capital, Margin, and Segregation Adopting Release, 84 FR at 43933–35. 369See FOCUS Report Part IIC, Claiming an Exemption from Rule 18a–4. 370See Recordkeeping and Reporting Proposing Release, 79 FR at 25235. 371See SIFMA 4/30/2015 Meeting. of detail required by the prudential regulators on Schedule RC–R. The Commission received no comment on this proposed section and is adopting it in FOCUS Report Part II, with non￾substantive changes for consistency with Schedule RC–R to FFIEC Form
031.361 This section must be completed
by bank SBSDs and MSBSPs.
Income Statement
A bank must report details about its income or loss and expenses on
Schedule RI to FFIEC Form 031.
Schedule RI also includes a Memoranda
section that elicits further details about
the bank’s income or loss. Proposed Form SBS included an income statement section to be completed by bank SBSDs and MSBSPs.362 The proposed income statement section included some—but not all—of the line items on Schedule RI. More specifically, to focus the reporting on summary information and information relevant to securities and derivatives activities, the proposed income statement section included only line items from Schedule RI that require the entry of: (1) Total amounts for categories of income, expense, and loss; (2) details about gains and losses on securities positions; (3) details about trading revenues; and (4) details about gains and losses on derivatives. The Commission received no comment on the proposed income statement section and is adopting it in FOCUS Report Part IIC with minor non￾substantive changes.363 This section must be completed by bank SBSDs and MSBSPs. Computation for Determination of Security-Based Swap Customer Reserve Requirements As discussed above, FOCUS Report
Part II, as amended, includes a section
for broker-dealers and stand-alone SBSDs to provide a computation of their security-based swap customer reserve requirements. Proposed Form SBS would have required bank SBSDs to complete an identical section.364 The Commission received no comment on applying this section to bank SBSDs and is adopting it in FOCUS Report Part IIC with non-substantive changes for consistency internally and with Rules 15c3–3 and 18a–4.365 Possession or Control for Security-Based Swap Customers As discussed above, FOCUS Report
Part II, as amended, includes a section
in which broker-dealers and stand-alone SBSDs enter information related to possession or control for security-based swap customers. Proposed Form SBS required bank SBSDs to complete an identical section.366 The Commission received no comment on applying this
section to bank SBSDs and is adopting
it in FOCUS Report Part IIC with non￾substantive changes for consistency internally and with Rules 15c3–3 and 18a–4.367 Claiming an Exemption From Rule 18a–4 As discussed above, Rule 18a–4, as adopted, exempts bank SBSDs from the requirements of the rule if the SBSD meets certain conditions.368 In light of this modification to the rule from the proposal (which did not provide an exemption), the Commission is adding a line item to the FOCUS Report Part IIC for a bank SBSD to indicate whether the firm is claiming an exemption from Rule 18a–4.369
Schedule 1 to FOCUS Report Part IIC
As discussed above, FOCUS Report
Part II, as amended, includes a Schedule
1 that elicits details about filers’ aggregate long and short positions in various categories of financial instruments, including sub-categories of security-based swaps and swaps. Proposed Form SBS would have required bank SBSDs and MSBSPs to complete a similar but more truncated version of this section.370 The Commission received no comment on applying this truncated version of the
schedule to bank SBSDs and MSBSPs.
However, as discussed above, the Commission did receive comment on the practicality of reporting exposures to subcategories of security-based swaps and swaps, including the potential that firms will interpret them differently.371 Accordingly, the Commission is modifying the proposed schedule for bank SBSDs and MSBSPs so that it no longer elicits details regarding the sub￾categories of security-based swaps and swaps. As discussed above, the Commission also received comment suggesting that references to ‘‘long’’ and ‘‘short’’ positions in security-based

372See id.
373The Commission did not propose in Rule 18a– 7 (and is not adopting) a requirement that is parallel to the exemption report requirement in paragraph (d)(4) of Rule 17a–5 because this provision would not apply to stand-alone SBSDs and MSBSPs. Rule 18a–7 also does not include requirements that parallel the requirements in paragraphs (d)(6) and (e)(4) of Rule 17a–5, as amended, requiring broker￾dealers to file certain reports with the Securities Investor Protection Corporation (‘‘SIPC’’) because stand-alone SBSDs and MSBSPs and OTCDD/ SBSDs will not be members of SIPC. In addition, Rule 18a–7 does not include a requirement that parallels the requirement for a broker-dealer, other than an OTC derivatives dealer, to file Form Custody with the firm’s DEA. Additional differences between Rule 18–7 and Rule 17a–5 are discussed below. 374See Capital, Margin, and Segregation Proposing Release, 77 FR at 70252–70254. 375See Recordkeeping and Reporting Release, 79 FR at 25237. 376See Capital, Margin, and Segregation Adopting Release, 84 FR at 43874. 377See paragraph (a)(5)(vii) of Rule 17a–5, as amended; paragraph (a)(3)(vii) of Rule 18a–7, as adopted. The proposed reporting requirements would have been set forth in these paragraphs, which instead are being designated ‘‘[Reserved].’’ 378See the broad definition of ‘‘customer’’ in paragraph (c)(4) of Rule 17a–5. 379See Capital, Margin, and Segregation Proposing Release, 77 FR at 25237–38. 380See paragraph (b) of Rule 18a–7, as adopted. swaps, mixed swaps, and swaps 372 should be changed to references to ‘‘long/bought’’ and ‘‘short/sold’’ positions. The Commission agrees and is making this modification. For the foregoing reasons, the Commission is adopting the requirement that bank SBSDs and MSBSPs must complete a truncated version of Schedule 1 by including it in FOCUS Report Part IIC, as adopted, with the modifications discussed above.
3. Filing of Annual Audited Financial
Reports and Other Reports
Rule 17a–5 generally requires a broker-dealer to, among other things, annually file reports audited by a PCAOB-registered independent public accountant, disclose certain financial information to customers, and notify the Commission of a change of accountant. The rule also requires the independent public accountant to notify the broker￾dealer if the accountant determines that the broker-dealer is not in compliance with certain broker-dealer financial responsibility rules or that a ‘‘material weakness,’’ as defined in paragraph (d)(3)(iii) of the rule, exists. As discussed above, the Commission is amending Rule 17a–5 so that it is applicable to broker-dealer SBSDs, other than OTCDD/SBSDs, and broker-dealer MSBSPs. With respect to stand-alone SBSDs and MSBSPs and OTCDD/ SBSDs, the Commission is adopting in new Rule 18a–7 many requirements that parallel requirements in Rule 17a–5, as amended. However, Rule 18a–7 does not include a parallel requirement for every requirement in Rule 17a–5.373 Further, the requirements in Rule 18a– 7 relating to the filing of annual audited reports and other reports do not apply to bank SBSDs and MSBSPs (as discussed above, bank SBSDs and MSBSPs are subject to requirements to file FOCUS Report Part IIC on a quarterly basis). a. Amendments to Rule 17a–5 and Adoption of Rule 18a–7 Liquidity Stress Test Reports The Commission proposed that broker-dealers (including broker-dealer SBSDs) and stand-alone SBSDs authorized to use internal models to compute net capital be subject to liquidity stress test requirements.374 Consequently, the Commission proposed to amend Rule 17a–5 and include in proposed Rule 18a–7 a parallel provision to require these entities to file a monthly report with the Commission containing the results of the liquidity stress test.375 As consideration of the proposed liquidity stress test requirements is being deferred,376 the Commission is deferring consideration of these related reporting requirements.377 Customer Statements Paragraph (c) of Rule 17a–5 requires, among other things, that certain broker￾dealers annually send their customers audited statements that must include (along with other information) a statement of financial condition (with appropriate notes), a footnote with information about the firm’s net capital, and, if applicable, information about any material weaknesses in the firm’s internal control over compliance with certain broker-dealer financial responsibility rules identified in the most recent reports of the firm’s auditor. In addition, this paragraph requires these broker-dealers to send their customers unaudited statements dated six months after the date of the audited statements that must include (along with other information) a statement of financial condition and a footnote containing information about the firm’s net capital. Under paragraph (c)(5) of Rule 17a–5, a broker-dealer is exempt from sending the statements to customers if the broker-dealer, among other things,
semi-annually sends its customers a financial disclosure statement that includes, among other things, information regarding the firm’s net capital and a statement that the audited and unaudited statements are available at no charge on the broker￾dealer’s website and by calling a toll￾free number to request a paper copy of the statements. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker￾dealer MSBSPs will be subject to these requirements and therefore will need to send the audited and unaudited statements to their customers, including security-based swap customers. However, these firms will be permitted to take advantage of the exemption described above.378 The Commission proposed in Rule 18a–7 that stand-alone SBSDs and MSBSPs be required to disclose on their websites (rather than send paper copies) information that is similar to the information broker-dealers are required to send to customers.379 The proposal required stand-alone SBSDs and MSBSPs to disclose on their websites an audited statement of financial condition with appropriate notes within ten business days after the date the firm is required to file its audited annual reports with the Commission. In addition, it required a stand-alone SBSD (but not an MSBSP) to disclose on its website at the same time: (1) A statement of the amount of the firm’s net capital and required net capital and other information, if applicable, related to the firm’s net capital; and (2) if, in connection with the firm’s most recent annual reports, the report of the independent public accountant identified one or more material weaknesses, a copy of the report. Further, the proposal required stand￾alone SBSDs and MSBSPs to disclose on their websites unaudited statements containing the same information as the audited statement discussed above within 30 calendar days of the date of the unaudited statements. Finally, it required stand-alone SBSDs and MSBSPs to make a paper copy of the information required to be disclosed on their websites available at no charge upon request of the customer and to maintain a toll-free number to receive such requests. The Commission received no comments on these customer disclosure proposals and is adopting them with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).380 Annual Reports Paragraph (d) of Rule 17a–5 requires broker-dealers, among other things, to file with the Commission annual reports consisting of a financial report and either a compliance report or an

381As noted above, the Commission proposed that Rule 18a–4, the SBSD segregation rule, apply to all SBSDs, but, in response to comment, adopted security-based swap segregation requirements for broker-dealers, including broker-dealer SBSDs, in paragraph (p) of the broker-dealer segregation rule, Rule 15c3–3. As a result, the Commission is modifying the cross references in paragraph (d) of Rule 17a–5 to reflect the placement of the customer protection requirements for broker-dealer SBSDs in paragraph (p) of Rule 15c3–3 rather than in paragraph (b) of Rule 18a–4 as proposed. 382See Recordkeeping and Reporting Proposing Release, 79 FR at 25238–40. 383See Capital, Margin, and Segregation Adopting Release, 84 FR at 43933–35 (adopting paragraph (f) of Rule 18a–4). The final segregation requirements for broker-dealer SBSDs, other than OTCDD/SBSDs, do not contain a similar exemption. 384See paragraphs (c)(1)(i)(B)(2) and (c)(4) of Rule 18a–7, as adopted. 385See Email from Mary Kay Scucci, Managing Director, Securities Industry and Financial Markets Association (Feb. 7, 2019) (‘‘SIFMA 2/7/2019 Email’’). 386See Section 17(e)(1)(A) of the Exchange Act (as amended by Pub. L. 107–204, section 205(c)(2) (2002)). 387See PCAOB, Attestation Standard No. 1, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, and Attestation Standard No. 2, Review Engagements Regarding Exemption Reports of Brokers and Dealers. exemption report, as well as reports that are prepared by an independent public accountant registered with the PCAOB covering the financial report and the compliance report or the exemption report in accordance with standards of the PCAOB. The financial report must contain financial statements, including, among others, a statement of financial condition, a statement of income, and a statement of cash flows and also must contain, as applicable, supporting schedules consisting of a computation of net capital under Rule 15c3–1, a computation of the reserve requirements under Rule 15c3–3, and information relating to the possession or control requirements under Rule 15c3–3. Generally, broker-dealers that maintain custody of customer securities and/or cash (and, therefore, do not claim an exemption from Rule 15c3–3) must file the compliance report. The report must contain statements about the broker￾dealer’s internal control over compliance with Rules 15c3–1, 15c3–3, 17a–13, and SRO customer account statement rules as well as statements as to whether the firm was in compliance with Rule 15c3–1 and paragraph (e) of Rule 15c3–3 (the customer reserve account requirement) as of the end of the firm’s fiscal year. The exemption report must contain statements about the broker-dealer’s claimed exemption from Rule 15c3–3. The Commission proposed amending paragraph (d) of Rule 17a–5 to require a broker-dealer that was subject to proposed Rule 18a–4 (i.e., a broker￾dealer SBSD) 381 to: (1) File the compliance report and related report of the
independent public accountant covering the compliance report (i.e., the firm could not file the exemption report even if it claimed an exemption from Rule 15c3–3); and (2) incorporate the possession or control and customer reserve requirements of the proposed SBSD segregation rule into the financial report supporting schedules and the compliance report.382 The Commission also proposed parallel annual reporting requirements in proposed new Rule 18a–7 for stand￾alone SBSDs and MSBSPs. The proposals required stand-alone SBSDs and MSBSPs to annually file with the Commission a financial report. In addition, they required stand-alone SBSDs to file a compliance report that contained statements about the firm’s compliance with the proposed SBSD capital and segregation rules and statements about the firm’s internal control over compliance with those rules and the proposed SBSD securities count rule. Further, the proposals required stand-alone SBSDs and MSBSPs to file reports of an independent public accountant covering the financial report and the compliance report. The final segregation rule for stand￾alone SBSDs, bank SBSDs, and OTCDD/ SBSDs (Rule 18a–4) establishes an exemption from its requirements if the firm meets certain conditions.383 Consequently, the Commission is modifying the proposed annual reports provisions in Rule 18a–7 to require a stand-alone SBSD or OTCDD/SBSD that is operating under the exemption from Rule 18a–4 to file an exemption report instead of the compliance report.384 The exemption report for stand-alone SBSDs and OTCDD/SBSDs is modeled on the existing exemption report for broker￾dealers. In the report, the SBSD must state that it met the exemptive provisions in Rule 18a–4 throughout the most recent fiscal year without exception or with one or more exceptions. If applicable, the firm will need to briefly describe the nature of each exception and the approximate dates the exception existed. In addition, the stand-alone SBSD or OTCDD/SBSD will need to file a report of its independent public accountant covering the exemption report. Permitting these firms to file the exemption report in lieu of the compliance report should reduce the costs of the audit and will result in a report that aligns more closely with their activities (i.e., operating under the exemption). Finally, a commenter requested that the Commission permit the independent public accountant to adhere to generally accepted auditing standards (‘‘GAAS’’) rather than PCAOB standards. The commenter stated that: (1) This would promote consistency with other U.S. regulators; (2) the PCAOB standards are ‘‘almost identical’’ to GAAS; and (3) using GAAS would be the lowest cost alternative.385 The commenter also stated that the Commission should eliminate the PCAOB standards’ applicability to audited compliance and exemption reports, because the requirement provides a ‘‘non-existent benefit’’ in light of existing Commission regulations and Commission and FINRA staff
examinations. In response, the Commission first notes that the requirement that broker￾dealer annual financial statements be certified by a PCAOB-registered independent public accountant is consistent with the requirements imposed by the Exchange Act.386 Moreover, as noted above, this requirement applies to all broker-dealers that must file certified annual reports. Further, the PCAOB has issued attestation standards specific to the examination of compliance reports and the review of exemption reports.387 Consequently, the Commission does not believe it would be appropriate to amend Rule 17a–5 to permit broker￾dealers subject to that rule to file annual reports that are not certified by a PCAOB-registered accountant because the firm is dually registered as an SBSD. Additionally, the Commission does not believe it would be appropriate to have the financial reports audited under PCAOB standards and the compliance or exemption report (as applicable) examined or reviewed, respectively, under GAAS. However, the Commission believes it would be appropriate to permit SBSDs and MSBSPs subject to Rule 18a–7 to file annual reports that are certified by independent public accountants that are not registered with the PCAOB. Stand￾alone SBSDs and MSBSPs are not subject to a statutory requirement that their financial statements filed with the Commission be certified by a PCAOB￾registered accountant, and the audits of these entities will not be subject to the PCAOB’s examination and enforcement authority. While an OTC derivatives dealer (as a broker-dealer) is subject to the statutory requirement, an OTCDD/ SBSD will be subject to the same net capital rule (Rule 18a–1) and the same reporting rule (Rule 18a–7) as a stand￾alone SBSD. The Commission believes an OTCDD/SBSD should be treated

388Paragraph (b) of Rule 17a–12 provides that the statements must be audited by ‘‘a certified public accountant,’’ paragraph (f) provides that the accountant must be independent, and paragraph (h)(1) provides that the audit must be ‘‘made in accordance with U.S. Generally Accepted Auditing Standards.’’ 389See Section 17(e)(1)(A) of the Exchange Act. See also Section 17(e)(1)(C) of the Exchange Act (providing the Commission with exemptive authority with respect to Section 17(e)(1)(A) of the Exchange Act). 390See paragraph (d) of Rule 17a–5, amended; paragraphs (c), (e), and (f) of Rule 18a–7, as adopted. 391Proposed references to Rule 18a–4 in paragraph (d) of Rule 17a–5 are changed to Rule 15c3–3 because—as discussed above—the segregation requirements for broker-dealer SBSDs are codified in Rule 15c3–3. Proposed references to Form SBS are changed to the FOCUS Report because—as discussed above—that will be the financial reporting form for SBSDs and MSBSPs. Paragraph (d)(2)(iii) of Rule 17a–5, as amended, also contains the following non-substantive differences from the paragraph as proposed to be amended: (1) Replacing the word ‘‘either’’ with ‘‘any of’’ in paragraph (d)(2)(iii) because the paragraph references more than two computations; and (2) replacing the word ‘‘the’’ with ‘‘Customer’’ in the phrase ‘‘Computation for Determination of the Reserve Requirements Under Exhibit A of § 240.15c3–3’’ for consistency with FOCUS Report Parts II and III. 392Proposed references to Form SBS are changed to the FOCUS Report. In addition, the final rule refers to ‘‘the Computation of Tangible Net Worth under § 240.18a–2’’ instead of the ‘‘the Computation for Determination of Tangible Net Worth under § 240.18a–2.’’ Further, the final rule refers to ‘‘a Computation for Determination of Security-Based Swap Customer Reserve Requirements under Exhibit A of § 240.18a–4)’’ instead of ‘‘a Computation for Determination of the Reserve Requirements under Exhibit A of § 240.18a–4.’’ Finally, the final rule refers to ‘‘Possession or Control for Security-Based Swap Customers under § 240.18a–4’’ instead of ‘‘Information Relating to the Possession or Control Requirements under § 240.18a–4.’’ 393See Recordkeeping and Reporting Proposing Release, 79 FR at 25240. Stand-alone SBSDs and MSBSPs would not be members of SIPC and would not have a DEA. 394See https://www.sec.gov/divisions/marketreg/ electronic-filing-broker-dealer-annual-reports.htm. 395See paragraphs (c)(5) and (6) of Rule 18a–7, as adopted. 396See Recordkeeping and Reporting Proposing Release, 79 FR at 25240–41. 397See Securities Investor Protection Corporation, Release No. SIPA–175 (Mar. 14, 2016), 81 FR 14372 (Mar. 17, 2016). similarly to a stand-alone SBSD because they are both subject to the same capital rule. Further, Rule 17a–12, the OTC derivatives dealer reporting rule, does not require that the auditor of an OTC derivatives dealer’s annual audited financial statements be registered with the PCAOB or that the
audit be conducted in accordance with standards of the PCAOB.388 Accordingly, the Commission believes that stand-alone SBSDs and MSBSPs and OTCDD/SBSDs should have the option to engage an independent public accountant that is not registered with the PCAOB, and that the independent public accountant engaged by the firm should have the option to use either GAAS in the United States or PCAOB standards.389 For these reasons, the Commission is adopting the proposed annual reports requirements with the modifications that stand-alone SBSDs and OTCDD/ SBSDs operating under the exemption from Rule 18a–4 will be required to file the exemption report instead of the compliance report, that stand-alone SBSDs and MSBSPs and OTCDD/SBSDs may engage an independent public accountant that is not registered with the PCAOB, and that the accountant must undertake, as part of the engagement, to prepare its reports based on an examination or review, as applicable, of the reports prepared by the broker-dealer in accordance with GAAS in the United States or PCAOB standards.390 In addition, the Commission made a number of non￾substantive modifications to paragraph (d) of Rule 17a–5,391 as proposed to be amended, and paragraph (c) of Rule 18a–7, as proposed to be adopted.392 Timing and Location of Filing Paragraph (d)(5) of Rule 17a–5 provides that a broker-dealer, broker￾dealer SBSD, other than an OTCDD/ SBSD, and broker-dealer MSBSP must file the annual reports with the Commission not more than sixty calendar days after the end of the firm’s fiscal year. Paragraph (d)(6) of Rule 17a– 5 requires that the broker-dealer file the annual reports: (1) At the office of the Commission for the region where the broker-dealer has its principal place of business; (2) at the Commission’s principal office in Washington, DC; (3) at the principal office of the broker￾dealer’s DEA; and (4) with SIPC. The Commission proposed parallel filing requirements in Rule 18a–7 for stand￾alone SBSDs and MSBSPs, except that these entities would need to file the annual reports solely with the Commission.393 Broker-dealers, including OTC derivatives dealers, currently may file their annual reports electronically.394 The Commission is amending paragraph (d)(6) of Rule 17a– 5 to provide broker-dealers, including broker-dealer SBSDs and MSBSPs the option to file the annual reports with the Commission electronically. In addition, the Commission is modifying paragraph (c)(6) of Rule 18a–7 to provide this option to stand-alone SBSDs, OTCDD/SBSDs, and stand-alone MSBSPs. For these reasons, the Commission is adopting the proposed requirements regarding the timing and location of the filings with these modifications.395 Nature and Form of the Reports Paragraph (e) of Rule 17a–5, among other things: (1) Requires the broker￾dealer to attach a notarized oath or affirmation to the financial reports; (2) provides that the annual reports are not confidential, except that the broker￾dealer can request confidentiality
for all parts of the annual reports other than the statement of financial condition and related accountant’s report; and (3) requires a broker-dealer to file certain additional reports with SIPC. FOCUS Report Part III serves as the cover sheet for the annual reports and provides a template for the broker-dealer to execute the oath or affirmation. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker-dealer MSBSPs will be subject to these requirements, as amended. The Commission proposed amendments to paragraph (e) of Rule 17a–5 and parallel nature and form of the reports requirements in Rule 18a–7 for stand￾alone SBSDs and MSBSPs.396 More specifically, the Commission proposed amending paragraph (e) of Rule 17a–5 to remove the text of the oath or affirmation because the text is set forth in FOCUS Report Part III as well. The Commission received no comment on this aspect of the proposal. However, to avoid confusion as to whether this change would result in a new substantive requirement, the Commission has determined to retain the text of the oath or affirmation in paragraph (e)(2) of Rule 17a–5 and to include it in paragraph (d)(1) of Rule 18a–7. Paragraph (e)(4)(i) of Rule 17a–5 requires a broker-dealer to file with SIPC ‘‘a report on the SIPC annual general assessment reconciliation or exclusion from membership forms that contains such information and is in such format as determined by SIPC by rule and approved by the Commission.’’ SIPC’s rule (SIPC Rule 600, ‘‘Rules Relating to Supplemental Report of SIPC Membership’’) was approved by the Commission on March 14, 2016.397 Under paragraph (e)(4)(ii) of Rule 17a–5, broker-dealers are required to file the report with the Commission pursuant to the requirements in that paragraph (which prescribes the information that must be included in, and the format of, the report). However, under paragraph (e)(4)(ii) of Rule 17a– 5, broker-dealers were no longer required to do so after SIPC adopted its rule under paragraph (e)(4)(i) of Rule 17a–5 and the rule was approved by the Commission. Therefore, for fiscal years that ended on or after April 30, 2016,

398Paragraph (p) of Rule 17a–5 provides that an OTC derivatives dealer may comply with Rule 17a– 5 by complying with Rule 17a–12. 399See Recordkeeping and Reporting Proposing Release, 79 FR at 25241, n. 689. The Commission’s EDGAR system will be updated to reflect the amendments to FOCUS Report Part III. 400See Recordkeeping and Reporting Proposing Release, 79 FR at 2524, n. 690. See also Broker￾Dealer Reports, 78 FR 51910. 401See Recordkeeping and Reporting Proposing Release, 79 FR at 25241, n. 691. 402See paragraph (e) of Rule 17a–5, as amended; paragraph (d) of Rule 18a–7, as adopted; FOCUS Report Part III, as amended. References in the paragraphs to ‘‘Form SBS’’ are changed to the ‘‘FOCUS Report’’ and references to ‘‘Rule 18a–4’’ in paragraph (e) of Rule 17a–5 are changed to ‘‘Rule 15c3–3.’’ 403The following non-substantive changes to the rule were made. The title of the facing page was changed from ‘‘Audited Annual Report’’ to ‘‘Annual Reports’’ to more accurately reflect that multiple reports are filed with the facing page, and not all of these reports are audited. For the same reason, ‘‘report’’ is replaced with ‘‘filing’’ or ‘‘reports’’, as applicable, in the phrases ‘‘Report for the period beginning _____and ending _____,’’ ‘‘PCAOB￾registered independent public accountant whose opinion is contained in this report’’, and ‘‘This report contains.’’ Similarly, because not all the accountant-prepared documents filed with the facing page are opinions, the word ‘‘opinion’’ is replaced with ‘‘reports’’ in the phrases ‘‘PCAOB￾registered independent public accountant whose opinion is contained in this report’’ and ‘‘Claims for exemption from the requirement that the annual report be covered by the opinion of a PCAOB￾registered independent public accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption.’’ For further confirmation of the PCAOB-registered accountant’s identity, a field was added to identify the accountant’s PCAOB registration number (if applicable). This information is publicly available on the PCAOB’s website. In the ‘‘Type of Registrant’’ section, the ‘‘OTC derivatives dealer’’ checkbox is replaced with a ‘‘Check here if respondent is an OTC derivatives dealer’’ for consistency with FOCUS Report Part II, and to clarify that an OTC derivatives dealer is a type of broker-dealer. To simplify text and improve accuracy, ‘‘Name and Telephone Number of’’ is removed from the phrase ‘‘Name and Telephone Number of Person to Contact with Regard to this Filing.’’ The language in the oath or affirmation is updated for consistency with the language in the oath or affirmation in paragraph (e)(2) of Rule 17a– 5 and paragraph (d)(1) of Rule 18a–7. 404The following amendments were made to the checklist. The line item for the facing page is deleted because the checklist is part of the facing
page, so a firm filling out the checklist is also
necessarily filling out the facing page. In new line item (e), ‘‘Statement of changes in stockholders’ equity or partners’ or sole proprietor’s capital’’ is replaced with ‘‘Statement of changes in stockholders’ or partners’ or sole proprietor’s equity’’ to match the language used in paragraph (d)(2)(i) of Rule 17a–5, paragraph (b)(2) of Rule 17a– 12, and paragraph (c)(2)(i) of Rule 18a–7. ‘‘Notes to consolidated statement of financial condition’’ and ‘‘Notes to consolidated financial statements’’ are added to the checklist as new line items (b) and (g), respectively, because they are required by paragraph (d)(2)(i) of Rule 17a–5, paragraph (b)(2) of Rule 17a–12, and paragraph (c)(2)(i) of Rule 18a–
7. The line items titled ‘‘Computation of net capital
under 17 CFR 240.15c3–1’’ and ‘‘Computation of net capital under 17 CFR 240.18a–1’’ are consolidated into a single new line item (h). Because the security-based swap reserve requirements are now included in both Rule 15c3– 3 (governing broker-dealers) and Rule 18a–4 (governing SBSDs), cross-references to Rule 15c3– 3 are added to new line items (k) and (n). To clarify that proposed line item (o) includes both the customer and PAB reserve requirements, new line item (l) is added requiring a computation for determination of PAB requirements under Exhibit A of § 240.15c3–3. In addition, for added clarity about which line items apply to securities instead of security-based swaps, the phrase ‘‘reserve requirements’’ is replaced with ‘‘customer reserve requirements’’ in new line item (j) and ‘‘possession or control requirements’’ is replaced with ‘‘possession or control requirements for customers’’ in new line item (m). Proposed line items (n) through (r) are consolidated into new line item (o) which better matches the language used in paragraph (d)(2)(iii) of Rule 17a–5, paragraph (b)(4) of Rule 17a–12, and paragraph (c)(2)(iii) of Rule 18a–7. In new line item (p), ‘‘A reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of consolidation’’ is replaced with ‘‘Summary of financial data for subsidiaries not consolidated in the statement of financial condition’’ to better match the language used in paragraph (d)(2)(i) of Rule 17a–5 and paragraph (b)(2) of Rule 17a–12. In line item (s), a reference to Rule 18a–7 is added to reflect that an exemption report can be filed pursuant this rule in addition to pursuant to Rule 17a–5. In line item (q), the phrase ‘‘in accordance with 17 CFR 240.17a–5, 17 CFR 240.17a–12, or 17 CFR 240.18a–7, as applicable’’ is added after ‘‘Oath or affirmation.’’ Proposed line item (u), ‘‘A copy of the SIPC Supplemental Report’’ is removed from the checklist, because for fiscal years that end on or after April 30, 2016, the supplemental report is filed only with SIPC (and not with the Commission). See 17 CFR 240.17a–5(e)(4); Securities Investor Protection Corporation, File No. SIPC–2015–01 (Mar. 14, 2016), 81 FR 14372 (Mar. 17, 2016); Letter from SIPC to All Broker-Dealers including those that pay SIPC assessments and those that claim exclusion from SIPC membership regarding SIPC Series 600 Rules (Apr. 29, 2016). In line item (w), a reference to Rule 18a–7 is added to reflect that an exemption report can be filed pursuant this rule in addition to pursuant to Rule 17a–5. Proposed line items (z), (aa), and (dd) are consolidated into new line item (u), which better matches the language used in paragraph (f)(1) of Rule 17a–5, paragraph (b) of Rule 17a–12, and paragraph (f)(1) of Rule 18a–7. The checklist also includes new line item (t), titled ‘‘Independent public accountant’s report based on an examination of the statement of financial condition’’ to account for a firm’s ability to
request confidential treatment for the financial statements but not the statement of financial condition. Proposed line items (bb) and (ee) are consolidated into new line item (v), which now reads ‘‘Independent public accountant’s report based on an examination of certain statements in the compliance report under 17 CFR 240.17a–5 or 17 CFR 240.18a–7, as applicable’’ to better reflect the language used in paragraph (g)(2)(i) of Rule 17a– 5 and paragraph (f)(2)(i) of Rule 18a–7. Line item (x) is added for supplemental reports on applying agreed-upon procedures, in accordance with Rule 17a–5 (with respect to ANC broker-dealers) and Rule 17a–12 (with respect to OTC derivatives dealers). Throughout the checklist, the articles ‘‘A’’ and ‘‘An’’ are deleted as unnecessary and for internal consistency. In addition, line items are renumbered as needed due to insertions or deletions, and proposed line item (v) is moved to the end of the checklist as line item (y). 405See Recordkeeping and Reporting Proposing Release, 79 FR at 25241–43. when SIPC’s rule became effective, paragraph (e)(4)(ii) of Rule 17a–5 became moot. As a consequence, the Commission is making the technical amendment to paragraph (e)(4) of Rule 17a–5 to eliminate paragraph (e)(4)(ii). As amended, paragraph (e)(4) of Rule 17a–5 provides that: ‘‘The broker or dealer must file with SIPC a report on the SIPC annual general assessment reconciliation or exclusion from membership forms that contains such information and is in such format as determined by SIPC by rule and approved by the Commission.’’ A broker-dealer is not required to also file the report with the Commission. There is no parallel provision in Rule 17a–12, the reporting rule for OTC derivatives dealers,398 or in Rule 18a–7, because these entities are not (or will not) be members of SIPC. In addition, the Commission proposed a number of changes to FOCUS Report
Part III, which before these amendments
was the cover page to be attached to a broker-dealer’s annual reports, to accommodate its use by OTC derivatives dealers and stand-alone SBSDs and MSBSPs.399 The Commission also proposed amending FOCUS Report Part III to address amendments made to Rule 17a–5 in 2013.400 Further, the Commission proposed a number of non￾substantive changes to FOCUS Report
Part III.401 The Commission received no
comments on these proposed requirements and is adopting them.402 However, the Commission is making several non-substantive changes to the original proposal to improve the clarity of FOCUS Report Part III.403 The Commission is also making several non￾substantive changes to the checklist on the second page of FOCUS Report Part III.404 Qualification of the Independent Public Accountant As noted above, a broker-dealer is required to file with the Commission a report of a PCAOB-registered independent public accountant covering the annual reports. Paragraph (f) of Rule 17a–5: (1) Prescribes certain minimum qualifications for the independent public accountant; (2) requires the broker-dealer to file with the Commission a statement concerning the accountant; and (3) requires the broker￾dealer to file a notice when replacing the accountant. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker￾dealer MSBSPs will be subject to these requirements. The Commission proposed to include in Rule 18a–7 parallel independent public accountant qualifications, statement, and notice requirements for stand-alone SBSDs and MSBSPs.405 The Commission is modifying these requirements to conform them to the modifications discussed above pursuant to which a

406See paragraph (e) of Rule 18a–7, as adopted. The modification deletes the phrase ‘‘and the independent public accountant must be registered with the Public Company Accounting Oversight Board’’ from the text of the final rule. 407See Recordkeeping and Reporting Proposing Release, 79 FR at 25243. 408See paragraph (f) of Rule 18a–7, as adopted. 409See Capital, Margin, and Segregation Adopting Release, 84 FR at 43933–35 (adopting paragraph (f) of Rule 18a–4). 410See paragraph (f)(2)(ii) of Rule 18a–7, as adopted. 411The Commission proposed to amend paragraph (h) of Rule 17a–5 to add references to the proposed SBSD segregation rule (Rule 18a–4) so that the notification requirements would be triggered if the accountant discovered a broker￾dealer SBSD was not in compliance with that rule. As discussed above, the broker-dealer SBSD segregation requirements are being codified in Rule 15c3–3 (which is already referenced in paragraph (h) of Rule 17a–5). Therefore, these proposed amendments are not being adopted. However, the note to paragraph (h) of Rule 17a–5 refers to the ‘‘special reserve account’’ instead of ‘‘special account’’ as proposed, for internal consistency with Rules 15c3–3 and 18a–4, as adopted. 412See Recordkeeping and Reporting Proposing Release, 79 FR at 25243–44. 413See paragraph (g) of Rule 18a–7, as adopted. 414See also Recordkeeping and Reporting Proposing Release, 79 FR at 25245. 415See paragraph (h) of Rule 18a–7, as adopted. stand-alone SBSD or MSBSP as well as an OTCDD/SBSD may engage an independent public accountant that is not registered with the PCAOB. The Commission received no other comments related to these proposed accountant qualification requirements and is adopting them with the modification discussed above.406 Engagement of the Independent Public Accountant Paragraph (g) of Rule 17a–5 provides that the independent public accountant engaged by the broker-dealer to provide the reports covering the annual reports must, as part of the engagement, undertake to prepare the following reports, as applicable, in accordance with PCAOB standards: (1) A report based on an examination of the financial report; and (2) either a report based on an examination of certain statements in the compliance report or a report based on a review of the statements in the exemption report. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker￾dealer MSBSPs will be subject to these requirements. The Commission proposed parallel engagement of accountant requirements in Rule 18a–7 for stand-alone SBSDs and MSBSPs.407 The Commission is modifying these requirements to conform them to the modifications discussed above pursuant to which a stand-alone SBSD or MSBSP as well as an OTCDD/SBSD may engage an independent public accountant that is not registered with the PCAOB and the accountant may use GAAS in the United States or PCAOB standards. The Commission received no other comments related to these proposed requirements and is adopting them with the
modification discussed above and with one additional modification.408 As discussed above, the final segregation rule for stand-alone SBSDs, OTCDD/ SBSDs, and bank SBSDs includes an exemption from the rule’s requirements if firm meets certain conditions.409 Consequently, the Commission is requiring a stand-alone SBSD or OTCDD/SBSD that is exempt from the segregation rule to file the exemption report instead of the compliance report. Accordingly, a stand-alone SBSD or OTCDD/SBSD that is exempt from the segregation rule must engage the independent public accountant to perform a review of the firm’s exemption report instead of an examination of the compliance report.410 Notification of Non-Compliance or Material Weakness Paragraph (h) of Rule 17a–5 requires the independent public accountant engaged to prepare reports covering a broker-dealer’s annual reports to provide the broker-dealer with a notification if, during the course of preparing its reports, the accountant discovers the firm is not in compliance with Rule 15c3–1, 15c3–3, 17a–13, or SRO customer account statement rules, or if the accountant determines that any material weaknesses exist. If the notification from the accountant concerns an occurrence that requires the broker-dealer to provide notification to the Commission (e.g., under Rule 17a– 11), the broker-dealer must provide the accountant with a copy of the notification sent to the Commission. If the accountant does not receive the copy of the notification within one business day, or if the accountant disagrees with the statements in the notification, the accountant must notify the Commission and the broker-dealer’s DEA within one business day.411 Broker-dealer SBSDs, OTCDD/SBSDs, and broker-dealer MSBSPs will be subject to these requirements. The Commission proposed parallel notification requirements in Rule 18a–7 for stand-alone SBSDs and MSBSPs and their independent public accountants.412 The proposed notification requirements for stand￾alone SBSDs would be triggered if the independent public accountant discovers the firm is not in compliance with the proposed SBSD capital, segregation, or security-count rules or that a material weakness exists. The proposed notification requirements for stand-alone MSBSPs would be triggered if the independent public accountant discovers the firm is not in compliance with the proposed MSBSP capital rule. The Commission received no comment on these proposed notification requirements and is adopting them with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).413 Reports of the Independent Public Accountant Paragraph (i) of Rule 17a–5 prescribes requirements for the reports of the independent public accountant covering the broker-dealer’s annual reports, including: (1) Technical requirements; (2) required representations; (3) the opinions or conclusions to be expressed in the accountant’s reports; and (4) requirements related to
matters to which the accountant takes exception. Broker￾dealer SBSDs, other than OTCDD/ SBSDs, and broker-dealer MSBSPs will be subject to these requirements. The Commission proposed parallel requirements in Rule 18a–7 for stand￾alone SBSDs and MSBSPs.414 The Commission is modifying these requirements to conform them to the modifications discussed above pursuant to which a stand-alone SBSD or MSBSP as well as an OTCDD/SBSD also registered as an OTC derivatives dealer may engage an independent public accountant that is not registered with the PCAOB and the accountant may use GAAS in the United States or PCAOB standards. The Commission received no other comments related to these proposed requirements regarding reports of the independent accountant and is adopting them as proposed.415 Notification of Change of Fiscal Year Paragraph (n)(1) of Rule 17a–5 requires a broker-dealer to notify the Commission and its DEA of a change of its fiscal year. Paragraph (n)(2) requires that the notice contain a detailed explanation for the reasons for the change and requires that changes in the filing period for the annual reports must be approved in writing by the broker￾dealer’s DEA. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker￾dealer MSBSPs will be subject to these requirements. The Commission proposed a parallel notification of a change of fiscal year requirement in Rule 18a–7 for stand-alone SBSDs and MSBSPs, except that under the proposal, the Commission (rather than the DEA) must approve a change in the

416See Recordkeeping and Reporting Proposing Release, 79 FR at 25245. 417See paragraph (i) of Rule 18a–7, as adopted. As proposed, these requirements were in paragraph (j) of Rule 18a–7. Paragraph (i) of the rule contained a provision under which the Commission could grant extensions and exemptions from the filing requirements in the rule. On further consideration, the Commission believes this provision is unnecessary and is not adopting it. No commenters addressed it. 418See Recordkeeping and Reporting Proposing Release, 79 FR at 25245. 419See paragraph (j) of Rule 18a–7, as adopted. As proposed, this requirement was in paragraph (k) of Rule 18a–7, but for the reasons discussed above it is being adopted in paragraph (j). 420See also Recordkeeping and Reporting Proposing Release, 79 FR at 25246. 421 In addition to the differences discussed above between Rule 17a–5, as proposed to be amended, and Rule 17a–5, as amended, the Commission is adopting the following non-substantive changes to Rule 17a–5: (1) Replacing ‘‘Each broker or dealer that computes certain of its capital charges in accordance with’’ with ‘‘Broker-dealers that have been authorized by the Commission to compute net capital pursuant to’’ to clarify in paragraph (a)(5) that ANC broker-dealers must file additional reports ‘‘with the Commission’’; (2) replacing ‘‘VaR’’ with ‘‘value at risk’’ in paragraph (a)(5)(ii) for consistency with paragraph (a)(3)(ii) of Rule 18a–6, as adopted; (3) replacing ‘‘broker or dealer’s’’ with ‘‘broker’s or dealer’s’’ in paragraphs (a)(5)(v)(D)–(G); (4) adding ‘‘within 17 business days after the end of the month’’ in paragraph (a)(5)(vi) for clarity regarding the timing of the risk reports and consistency with paragraph (a)(3)(vi) of Rule 18a– 6, as adopted; (5) replacing ‘‘from’’ with ‘‘after’’ in paragraph (c)(3) for consistency with paragraph (b)(2) of Rule 18a–7, as adopted; (6) adding ‘‘to’’ after the phrase ‘‘the broker or dealer is not subject’’ in paragraph (d)(1)(i)(B)(2) for internal consistency; (7) removing ‘‘as applicable, including’’ and adding ‘‘Information Relating to the’’ after the phrases ‘‘Possession or Control’’ in paragraph (d)(2)(ii) for clarity and consistency with 17 CFR 240.17a– 5(d)(2)(ii); (8) replacing references to § 240.18a–4(c) with § 240.15c3–3(p)(3) in paragraphs (d)(3)(i)(A)(4) and (5), (d)(3)(i)(C), and (d)(3)(iii); (9) adding ‘‘identified’’ to paragraph (d)(3)(i)(B) for consistency with paragraph (c)(3)(i)(B) Rule 18a–7, as adopted; (10) removing references to ‘‘members’’ as a distinct class of registrant in addition to a ‘‘broker’’ or ‘‘dealer’’ in paragraph (e)(3) of Rule 17a–5; and (11) for internal consistency, the phrase ‘‘shall fail’’ is replaced with ‘‘fails’’ in the note to paragraph (h). 422See also Recordkeeping and Reporting Proposing Release, 79 FR at 25246. 423See paragraph (a)(5) of Rule 17a–5, as proposed to be amended. See also Recordkeeping and Reporting Proposing Release, 79 FR at 25246– 47. 424 In
particular, the Commission is adopting the following non-substantive modifications to proposed Rule 18a–7: (1) Replacing ‘‘must file an executed Part II of Form X–17A–5 (§ 249.617 of this
chapter) with the Commission or its designee’’ with
‘‘must file with the Commission or its designee Part II of Form X–17A–5 (§ 249.617 of this chapter)’’ in paragraph (a)(1) for consistency with paragraph (a)(1)(ii) of Rule 17a–5, as amended; (2) replacing ‘‘must file an executed Part IIC of Form X–17A–5 (§ 249.617 of this chapter) with the Commission or its designee’’ with ‘‘must file with the Commission or its designee Part IIC of Form X–17A–5 (§ 249.617 of this chapter)’’ in paragraph (a)(2) for consistency with paragraph (a)(1)(ii) of Rule 17a–5, as amended; (3) adding ‘‘additional reports with the Commission’’ at the end of paragraph (a)(3) for clarity; (4) adding ‘‘in the format described in the application’’ before the phrase ‘‘within 17 business days after the end of the month’’ in paragraph (a)(3)(vi) for consistency with paragraph (a)(5)(vi) of Rule 17a–5, as amended; (5) removing ‘‘,’’ after ‘‘VaR’’ in paragraph (a)(3)(ix) for consistency with paragraph (a)(5)(ix) of Rule 17a–5, as amended; (6) removing the phrase ‘‘required by § 240.18a–7(d)’’ from paragraph (b)(2)(v) to eliminate an incorrect cross-reference to this paragraph; (6) removing ‘‘a model approved pursuant to’’ after the phrase ‘‘in accordance with’’ in paragraph (a)(3)(i) for consistency with paragraph (a)(5)(i) of Rule 17a–5; (7) removing ‘‘otherwise’’ from paragraph (c)(1)(i) for consistency with paragraph (d)(1)(i)(B)(1) of Rule 17a–5, as amended; (8) replacing ‘‘request for a change should’’ with ‘‘request for a change must’’ in paragraph (c)(1)(ii) for clarity; (9) replacing ‘‘is not required to’’ with ‘‘need not’’ in paragraph (c)(1)(iii) for consistency with paragraph (d)(1)(iii) of Rule 17a–5, as amended; (10) removing ‘‘including’’ before the phrase ‘‘a Computation of Net Capital’’ in paragraph (c)(2)(ii) for clarity; (11) adding ‘‘Information Relating to the’’ before the phrase ‘‘Possession or Control’’ in paragraph (c)(2)(ii) for consistency with of 17 CFR 240.17a– 5(d)(2)(ii); (12) replacing ‘‘filed pursuant to paragraph (a) of this section, a reconciliation, including appropriate explanations, between the computation in the financial report and the computation in the most recently filed report, or if no material differences exist, a statement so indicating must be included in the financial report.’’ with ‘‘filed by the registrant pursuant to paragraph (a) of this section, a reconciliation, including appropriate explanations, between the computation in the financial report and the computation in the most recent Part II of Form X– 17A–5 filed by the registrant. If no material differences exist, a statement so indicating must be included in the financial report.’’ in paragraph (c)(2)(iii) for consistency with paragraph (d)(2)(iii) of Rule 17a–5, as amended; (13) adding ‘‘as of the end of the most recent fiscal year; and’’ to the end of paragraph (c)(3)(i)(A)(4) for consistency with paragraph (d)(3)(i)(A)(4) of Rule 17a–5, as amended; (14) replacing ‘‘The information used to assert compliance with §§ 240.18a–1 and
240.18a–4(c) was derived from the books and records of the security-based swap dealer; and’’ with ‘‘The information the security-based swap dealer used to state whether it was in compliance with §§ 240.18a–1, 240.18a–4(c), and, if 240.18a–4(c) was derived from the books and records of the security￾based swap dealer.’’ in paragraph (c)(3)(i)(A)(5) for consistency with paragraph (d)(3)(i)(A)(5) of Rule 17a–5, as amended; (15) replacing ‘‘60’’ with ‘‘sixty (60)’’ in paragraph (c)(5) for consistency with paragraph (d)(5) of Rule 17a–5, as amended; (16) removing ‘‘(d)(2)’’ from the third sentence of paragraph (d)(2) for consistency with paragraph (e)(3) of Rule 17a–5, as amended; (17) replacing ‘‘of this chapter. In addition, the accountant’’ with ‘‘of this chapter, and the independent public accountant’’ in paragraph (e)(1) for consistency with paragraph (f)(1) of Rule 17a–5, as amended; (18) replacing ‘‘Such statement must’’ with ‘‘The statement must’’ in paragraph (e)(2) for consistency with paragraph (f)(2) of Rule 17a–5, as amended; (19) replacing ‘‘a notice which must’’ with ‘‘a notice that must’’ in paragraph (e)(3) for consistency with paragraph (f)(3) of Rule 17a–5, as amended; (20) adding ‘‘,’’ after ‘‘§ 240.18a–8’’ in the second sentence of paragraph (g)(1) for consistency with paragraph (h) of Rule 17a–5, as amended; and (21) removing ‘‘and’’ at the end of paragraph (h)(3)(i) for consistency with paragraph (i)(3)(i) of Rule 17a–5, as amended. filing period for the annual reports.416 The Commission received no comments on these proposed requirements regarding notification of a change of fiscal year and is adopting them with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5). 417 Filing Requirements Paragraph (o) of Rule 17a–5 provides that a filing pursuant to the rule is deemed to be accomplished when it is received by the Commission’s principal office with duplicates filed simultaneously at the locations prescribed in particular paragraphs of Rule 17a–5. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker-dealer MSBSPs will be subject to this requirement. The Commission proposed a parallel filing requirement in proposed Rule 18a–7 for stand-alone and bank SBSDs and MSBSPs.418 The Commission received no comment on these proposed filing requirements and is adopting them with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).419 b. Additional Amendments to Rule 17a– 5 and Modifications to Rule 18a–7 The Commission proposed several amendments to Rule 17a–5 to eliminate obsolete text, improve readability, and to modernize terminology.420 The Commission also proposed to redesignate certain paragraphs in Rule 17a–5 as a consequence of the proposal to delete other paragraphs in Rule 17a–
5. The Commission received no
comment on these amendments or redesignations and is adopting them as substantially as proposed.421 The Commission proposed amending paragraph (a)(4) of Rule 17a–5 to specify that a DEA ‘‘must promptly transmit that information’’ obtained through the filing of Form Custody, instead of merely requiring that the DEA ‘‘transmit the information’’ obtained through the Form Custody filing.422 The Commission received no comment on this amendment and is adopting it as proposed. The Commission also proposed changes to the structuring of paragraph (a)(5) of Rule 17a–5, which requires certain ANC reports to be filed.423 The Commission received no comment on this reorganization and is adopting it as proposed. The Commission also made additional modifications to the text of Rule 18a–7 as proposed.424
C. Notification

1. Introduction
   After considering the anticipated business activities of SBSDs and MSBSPs, the Commission proposed a notification program for these registrants under Sections 15F and 17(a) of the Exchange Act modeled on the

425The Commission did not propose to include certain Rule 17a–11 notification requirements in Rule 18a–8 because they are not relevant to stand￾alone and bank SBSDs and MSBSPs. See Recordkeeping and Reporting Proposing Release, 79 FR at 25247, n. 773. 426The undesignated introductory paragraphs to Rules 17a–11 and 18a–8 have been modified to clarify this application of the rules. 427An OTCDD/SBSD is subject to Rules 17a–3, 17a–4, 17a–13, 18a–1, 18a–4, 18a–7, and 18a–8 rather than Rules 18a–5, 18a–6, 18a–9, 15c3–1, 15c3–3, 17a–5, and 17a–11, respectively. As a result, the Commission has made a conforming modification to Rule 18a–8. In particular, where Rule 18a–8 refers to Rule 18a–5, the Commission has added the following reference to Rule 17a–3:
‘‘or § 240.17a–3, as applicable.’’ 428The notification requirements for bank SBSDs and MSBSPs are substantially narrower in scope than the notification requirements for broker-dealer and stand-alone SBSDs and MSBSPs. 429See Recordkeeping and Reporting Proposing Release, 79 FR at 25247–48. 430See Recordkeeping and Reporting Proposing Release, 79 FR at 25247–48. 431See paragraph (a) of Rule 17a–11, as amended. 432See Recordkeeping and Reporting Proposing Release, 79 FR at 25248. 433See Capital, Margin, and Segregation Adopting Release, 84 FR at 43879–908. 434See paragraphs (a)(1)(i) and (ii) and (a)(2) of Rule 18a–8, as adopted. 435See paragraph (b) of Rule 17a–11, as amended. 436The Commission proposed a new notification requirement applicable to broker-dealer MSBSPs that would require a broker-dealer MSBSP to notify the Commission when its level of tangible net worth falls below $20 million. Rule 18a–2, as adopted, does not apply to broker-dealer MSBSPs. Accordingly, the Commission is not adopting this requirement. 437See Recordkeeping and Reporting Proposing Release, 79 FR at 25248–49. 438See paragraphs (b)(1) through (4) of Rule 18a– 8, as adopted. In addition, the Commission is making the following non-substantive change to paragraph (b) of Rule 17a–11, as adopted: Replacing ‘‘paragraph (b)(1), (b)(2), (b)(3) or (b)(4)’’ with ‘‘paragraph (b)(1), (2), (3), (4), or (5)’’ to correct an inadvertent omission. 439See 12 CFR 325.103; 12 CFR 6.4; 12 CFR 208.43. 440See id. notification program for broker-dealers codified in Rule 17a–11. Rule 17a–11 specifies the circumstances under which a broker-dealer must notify the Commission and other regulators about its financial or operational condition, as well as the form of the notice. Rule 17a– 11 is being amended to account for the security-based swap activities of entities subject to its requirements and new Rule 18a–8—which is modeled on Rule 17a–11—is being adopted to establish reporting requirements for SBSDs and MSBSPs that will not be subject to Rule 17a–11. Rule 18a–8 does not include a parallel requirement for every requirement in Rule 17a–11.425 As is the case with Rules 17a–5 and 18a–7, the applicability of Rule 17a–11 or 18a–8 will depend on whether the firm is subject to the capital requirements of Rule 15c3–1 (in which case Rule 17a–5 will apply), is subject to the capital requirements of Rules 18a–1 or 18a–2 (in which case Rule 18a–7 will apply), or has a prudential regulator (in which case Rule 18a–7 will apply).426 Therefore, a stand-alone broker-dealer, including a stand-alone OTC derivatives dealer, (which is subject to Rule 15c3–1) will continue to be subject to Rule 17a–11. Similarly, a broker-dealer SBSD, other than an OTCDD/SBSD, (which is subject to Rule 15c3–1) will be subject to Rule 17a–11. A broker-dealer, including an OTC derivatives dealer, that is also an MSBSP (which is subject to Rule 15c3– 1), will be subject to Rule 17a–11. A stand-alone SBSD (which is subject to Rule
18a–1) will be subject to Rule 18a–
8. Similarly, an OTCDD/SBSD (which is
subject to Rule 18a–1) will be subject to Rule 18a–8.427 A stand-alone MSBSP (which is subject to Rule 18a–2) will be subject to Rule 18a–8. Finally, a bank SBSD or MSBSP (which has a prudential regulator) will be subject to Rule 18a–8.428
2. Amendments to Rule 17a–11 and
New Rule 18a–8
Undesignated Introductory Paragraph The Commission proposed that an undesignated introductory paragraph be added to Rule 17a–11, explaining that the rule applies to a broker-dealer, including a broker-dealer SBSD or MSBSP.429 Further, the Commission proposed to delete paragraph (a) of Rule 17a–11, which provides that the rule shall apply to every broker-dealer registered pursuant to Section 15 of the Exchange Act. This text would be redundant given the proposed undesignated introductory paragraph. Similarly, the Commission proposed that Rule 18a–8 have an undesignated introductory paragraph explaining that the rule applies to an SBSD or MSBSP that is not registered as a broker￾dealer.430 The note further explained that a broker-dealer that is dually registered as an SBSD or MSBSP is subject to the notification requirements under Rule 17a–11. The Commission received no comments on the introductory paragraphs but, as discussed above, is modifying them to clarify which rule (17a–11 or 18a–8) applies to a given type of entity. Failure To Meet Minimum Capital Requirements Rule 17a–11 requires a broker-dealer to notify the Commission if the firm discovers or is informed by the Commission or its DEA that its net capital has declined below the minimum amount required under Rule 15c3–1.431 Further, a broker-dealer registered as an OTC derivatives dealer also must provide notice if its tentative net capital falls below the minimum amount required under Rule 15c3–1. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker-dealer MSBSPs will be subject to these existing notification requirements, as applicable. The Commission proposed parallel capital notification requirements in Rule 18a–8 for stand-alone SBSDs and MSBSPs.432 The Commission received no comment on these notification provisions and has adopted the capital rules for nonbank SBSDs and MSBSPs.433 The Commission is adopting the failure to meet minimum capital requirements notification provisions as proposed with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).434 Early Warning of Potential Capital or Model Problem Rule 17a–11 specifies five events that trigger a requirement that a broker￾dealer send notice promptly (within twenty-four hours) to the Commission.435 These notices are designed to provide the Commission with ‘‘early warning’’ that the broker￾dealer may experience financial difficulty.436 Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker-dealer MSBSPs will be required to comply with these existing notification requirements. The Commission proposed parallel early warning notification requirements in Rule 18a–8 for stand-alone SBSDs and MSBSPs.437 The Commission received no comment on these early warning provisions and is adopting them with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).438 Notice of Adjustment of Reported Capital
Category Prudential regulators have established five capital categories that are used to describe a bank’s capital strength: Well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.439 The definition of each capital category is based on capital measures under the bank capital standard and other factors.440 A bank is required to notify its appropriate prudential regulator of adjustments to the bank’s capital category that would put the bank into a lower capital category from the category previously assigned to it. Following the notice, the

441See 12 CFR 6.3(c); 12 CFR 208.42(c); 12 CFR 325.102(c). 442See Recordkeeping and Reporting Proposing Release, 79 FR at 25249. 443See paragraph (c) of Rule 18a–8, as adopted. 444See paragraph (c) of Rule 17a–11, as amended. 445See Recordkeeping and Reporting Proposing Release, 79 FR at 25249–50. 446See paragraph (d) of Rule 18a–8, as adopted. 447See paragraph (d) of Rule 17a–11, as amended (defining ‘‘material weakness’’). 448See Recordkeeping and Reporting Proposing Release, 79 FR at 25250. 449See paragraph (e) of Rule 18a–8, as adopted. 450Capital, Margin, and Segregation Proposing Release, 77 FR at 70252–54. 451See Recordkeeping and Reporting Proposing Release, 79 FR at 25250–51. 452See Capital, Margin, and Segregation Adopting Release, 84 FR at 43874. 453See paragraph (e) of Rule 17a–11, as amended; paragraph (f) of Rule 18a–8, as adopted. The proposed notification requirements would have been set forth in these paragraphs, which instead are being designated ‘‘[Reserved].’’ 454See Recordkeeping and Reporting Proposing Release, 79 FR at 25251. 455See Capital, Margin, and Segregation Adopting Release, 84 FR at 43930–43. 456See paragraph (f) of Rule 17a–11, as amended; paragraph (g) of Rule 18a–8, as adopted. 457Because the reserve requirements for broker￾dealers, other than OTCDD/SBSDs, are codified in paragraph (p) of Rule 15c3–3, paragraph (f) of Rule 17a–11, as amended, refers to Rule 15c3–3 instead of Rule 18a–4. Finally, paragraph (f) of Rule 17a– 11, as amended, and paragraph (g) of Rule 18a–8, as adopted, refer to the ‘‘special reserve account’’ instead of ‘‘special account’’ as proposed, for internal consistency with Rules 15c3–3 and 18a–4. 458As discussed above, current paragraph (g) of Rule 17a–11 (containing the existing manner of notification requirements for broker-dealers) was redesignated as paragraph (h). 459See Recordkeeping and Reporting Proposing Release, 79 FR at 25251. 460See Tom Standage, No Morse, L.A. Times, Feb. 8, 2006, at B15 (noting that Western Union discontinued its telegram services effective January 27, 2006). 461The Commission’s website provides instructions on how to send the Rule 17a–11 notifications by facsimile transmission. The instructions are available at https://www.sec.gov/ prudential regulator determines whether the bank needs to adjust its capital category.441 The Commission proposed to include a notification requirement in Rule 18a–8 that requires a bank SBSD to give notice to the Commission when it files an adjustment of reported capital category with its prudential regulator by transmitting a copy of the notice to the Commission.442 The Commission received no comment on this provision and for the reasons discussed in the proposing release is adopting it as proposed.443 Failure To Make and Keep Current Books and Records Rule 17a–11 requires a broker-dealer that fails to make and keep current the books and records required under Rule 17a–3 to notify the Commission of this fact on the same day that
the failure arises.444 In addition, a broker-dealer is required to report to the Commission within forty-eight hours of the original notice a report stating what the broker or dealer has done or is doing to correct the situation. Broker-dealer SBSDs, other than OTCDD/SBSDs, and broker￾dealer MSBSPs will be required to comply with these existing notification requirements. The Commission proposed a parallel books and records notification requirement in Rule 18a–8 for stand-alone and bank SBSDs and MSBSPs.445 The Commission received no comment on this provision and is adopting it with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).446 Material Weakness Rule 17a–11 requires a broker-dealer to provide notification about a material weakness as that term is defined in Rule 17a–5.447 Specifically, the rule provides that, whenever a broker-dealer discovers or is notified by an independent public accountant of a material weakness as defined in Rule 17a–5, the broker-dealer must: (1) Give notice to the Commission within twenty-four hours of the discovery or notification of the material weakness; and (2) transmit a report within forty-eight hours of the notice stating what the broker-dealer has done or is doing to correct the situation. Broker-dealer SBSDs, other than OTCDD/MSPSPs, and broker-dealer MSBSPs will be required to comply with these existing notification requirements. The Commission proposed a parallel material weakness notification requirement in Rule 18a–8 applicable to stand-alone SBSDs.448 The Commission received no comment on this provision and is adopting it with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).449 Insufficient Liquidity Reserve The Commission proposed that broker-dealers (including broker-dealer SBSDs) and stand-alone SBSDs authorized to use internal models to compute net capital be subject to liquidity stress test requirements.450 Consequently, the Commission proposed that these types of broker￾dealers and stand-alone SBSDs give immediate notice in writing if the liquidity stress test indicates that the amount of the firm’s liquidity reserve is insufficient.451 As consideration of the proposed liquidity stress test requirements is being deferred,452 the Commission is deferring consideration of these related notification requirements.453 Failure To Make a Required Reserve Deposit Paragraph (i) of Rule 15c3–3 requires a broker-dealer to notify the Commission and its DEA if it fails to make a required deposit into its customer reserve account under Rule 15c3–3. Since a broker-dealer SBSD was required to maintain a separate reserve account for its security-based swap customers under Rule 18a–4, as proposed, the Commission proposed a new notification requirement in Rule 17a–11 that would be triggered if a broker-dealer SBSD fails to make a required deposit into its special account
for the exclusive benefit of security￾based swap customers.454 The Commission also proposed a parallel reserve account notification requirement in Rule 18a–8 applicable to stand-alone SBSDs and bank SBSDs. The Commission received no comment on these notification provisions and has adopted security-based swap customer segregation requirements.455 The Commission is adopting the proposed notification requirements for the reasons discussed in the proposing release with certain modifications.456 In particular, the security-based swap reserve requirement applicable to broker￾dealers, including broker-dealer SBSDs (other than OTCDD/SBSDs), is codified in Rule 15c3–3 and is expanded to apply to stand-alone broker-dealers engaged in security-based swap activities. Accordingly, the Commission is adopting requirements that stand￾alone broker-dealers and SBSDs must provide notice if they fail to make a required security-based swap customer reserve deposit.457 Manner of Notification Rule 17a–11 specifies how and to whom the notices and reports required by the rule must be transmitted. Broker￾dealers, broker-dealer SBSDs, other than OTCDD/SBSDs, and broker-dealer MSBSPs will be required to give notice or transmit the notices and reports, including the proposed new notices, pursuant to these existing requirements.458 The Commission proposed to amend this paragraph to no longer permit notice by telegraphic transmission, and instead to only allow notice by facsimile transmission.459 The change was proposed in light of the fact that telegrams are no longer widely used in the United States,460 and that Commission staff no longer receive Rule 17a–11 notices by telegram.461 The

divisions/marketreg/bdnotices.htm. Notifications sent to the Commission’s headquarters pursuant to the instructions are converted to PDFs and sent to an email box that is monitored by Commission staff. 462See paragraph (h) of Rule 17a–11, as amended. 463See Capital, Margin, and Segregation Adopting Release, 84 FR at 43943–46 (adopting Rule 18a–10). 464See Recordkeeping and Reporting Proposing Release, 79 FR at 25251. 465See paragraph (h) of Rule 18a–8, as amended. As discussed below, the Commission is amending the email notification provision in paragraph (e) of Rule 18a-10 to align it with this modification to paragraph (h) of Rule 18a–8. 466The amendments would replace the word ‘‘shall’’ with the word ‘‘must’’ or ‘‘will’’ in the following paragraphs of Rule 17a–11, as proposed to be amended: (a)(1) and (2), (b), (c), (g), (h), and (j). See Rule 17a–11, as proposed to be amended. 467The Commission proposed the following stylistic and corrective changes to Rule 17a–11: (1) Replacing the phrase ‘‘this § 240.17a–11’’ with the phrase ‘‘this section’’ in paragraph (a)(1); (2) replacing the phrase ‘‘Every broker or dealer who’’ with the phrase ‘‘Every broker or dealer that’’ in paragraph (c); (3) replacing the phrase ‘‘such discovery or notification of the material inadequacy or the material weakness’’ with the phrase ‘‘the discovery or notification of the material inadequacy or material weakness’’ in paragraph (d)(1); and (4) removing the U.S.C. citations from paragraph (j) since the rule already cites to the applicable section of the Exchange Act. 468The amendments replace the phrase ‘‘paragraph (g)’’ with the phrase ‘‘paragraph (h)’’ in the following paragraphs of Rule 17a–11, as amended: (a)(1), (b), (c), (d)(1) and (2), and (g). See Rule 17a–11, as amended. 469See paragraph (g) of Rule 17a–11, as proposed to be amended. 470See paragraph (g) of Rule 17a–11, as proposed to be amended. 471See paragraph (g) of Rule 17a–11, as amended. 472See paragraph (i) of Rule 17a–11, as proposed to be amended. 473See Broker-Dealer Reports, 78 FR 51910; Financial Responsibility Rules for Broker-Dealers, 78 FR 51824. 474See paragraph (i) of Rule 17a–11, as amended. 475The non-substantive modifications to Rule 18a–8, as adopted, are: (1) Adding ‘‘of such deficiency’’ after the phrase ‘‘must give notice’’ in paragraph (a)(1)(i) and (ii) and (a)(2) for consistency with paragraph (a)(1) of Rule 17a–11, as amended; (2) removing ‘‘as appropriate’’ after the phrase ‘‘its current amount of tentative net capital’’ in paragraph (a)(1)(ii) for clarity; (3) adding a ‘‘,’’ after the phrase ‘‘with paragraph (h) of this section’’ in paragraph (e)(2) for consistency with paragraph Continued Commission received no comment on this revision but believes it would be appropriate to further modernize the rule by amending it to permit the notices to be sent by email. Accordingly, the rule, as amended, provides in pertinent part that the notice section must be given or transmitted to the
principal office of the Commission in Washington, DC and the regional office of the Commission for the region in which the broker or dealer has its principal place of business, or to an email address provided on the Commission’s website.462 This modification to provide for notification by email is based on the notification provision in recently adopted Rule 18a– 10 and is designed to provide a simpler and more efficient process for sending the notifications (i.e., via email).463 Consequently, a broker-dealer will be able to transmit a notification required pursuant to Rule 17a–11 using an email address provided on the Commission’s website and designated for the purpose of receiving such notifications. The Commission proposed a parallel manner of notification requirement in Rule 18a–8.464 The Commission received no comment on this provision but is modifying Rule 18a–8 to provide that the notice must be given or transmitted to the principal office of the Commission in Washington, DC and the regional office of the Commission for the region in which the SBSD or MSBSP has its principal place of business, or to an email address provided on the Commission’s website.465 Consequently, SBSDs and MSBSPs also will be permitted to transmit a notification required pursuant to Rule 18a–8 using an email address provided on the Commission’s website and designated for the purpose of receiving such notifications. For these reasons, the Commission is adopting the manner of notification requirements with the modification discussed above and with the modification that an OTCDD/SBSD will be subject to these requirements pursuant to Rule 18a–7 (rather than Rule 17a–5).
3. Additional Amendments to Rule 17a–
11 and Modifications to Rule 18a–8.
The Commission proposed several amendments to Rule 17a–11 to eliminate obsolete text, improve readability, and modernize terminology. The Commission proposed a global change to Rule 17a–11 that replaced the use of the word ‘‘shall’’ in the rule with the word ‘‘must’’ or ‘‘will’’ where appropriate.466 The Commission also proposed certain stylistic, corrective, and punctuation amendments to improve the readability of Rule 17a–
11.467 The Commission received no
comment on these amendments and is adopting them as proposed. As a consequence of the deletion of paragraph (a), paragraphs (b) through (e) of Rule 17a–11 were redesignated paragraphs (a) through (d), respectively. Further, the Commission is adding two new notification provisions to Rule 17a– 11 that are codified in paragraphs (e) and (f) of the rule, as amended. As a consequence of the deletion of paragraph (a) and the addition of the two new provisions, paragraphs (f) through (i) were redesignated paragraphs (g) through (j), respectively. Similarly, due to the addition and deletion of various paragraphs, the Commission made a global change that replaced the cross-references to ‘‘paragraph (g)’’ of Rule 17a–11 with ‘‘paragraph (h)’’ of Rule 17a–11.468 The Commission received no comment on these revisions and is adopting them as proposed. Prior to these amendments, paragraph (f) of Rule 17a–11 made reference to a ‘‘member’’ of a national securities exchange as a distinct class of registrant in addition to a ‘‘broker’’ and ‘‘dealer.’’ The Commission proposed to remove this reference to a ‘‘member’’ given that the rule applies to broker-dealers, which would include a member of a national securities exchange that is a broker￾dealer (and as discussed above, proposed to redesignate paragraph (f) as paragraph (g)).469 The Commission received no comment on this revision and is adopting it as proposed. Prior to these amendments, paragraph (f) of Rule 17a–11 contained a reference to the notices required under ‘‘paragraphs (b), (c), (d), or (e)’’ of Rule 17a–11. The Commission proposed to replace the quoted language with a reference to ‘‘this section’’ (and as discussed above, proposed to redesignate paragraph (f) as paragraph (g)).470 The proposed change incorporated all the notices required under Rule 17a–11, including notices that are required under the new security-based swap customer reserve account notification requirement. The Commission received no comment on this revision and is adopting it as proposed.471 Finally, prior to these amendments, paragraph (h) contained references to ‘‘§ 240.15c3 1(a)(6)(iv)(B), § 240.15c3 1(a)(6)(v), § 240.15c3 1(a)(7)(ii), § 240.15c3 1(c)(2)(x)(B)(1), § 240.15c3 1(e), § 240.15c3 1d(c)(2), § 240.15c3 3(i), § 240.17a 5(h)(2), and § 240.17a 12(f)(2).’’ The Commission proposed amending the references to state, ‘‘§ 240.15c3–1, § 240.15c3–1d, § 240.15c3–3, § 240.17a–5, and § 240.17a–12.’’ 472 This amendment corrected certain cross-references that are outdated due to the recently adopted amendments to some of these rules.473 It also eliminated cross-references to specific paragraphs in the event of future amendments to these cross￾referenced rules. The Commission received no comment on this amendment and is adopting it as proposed.474 The Commission also made certain non-substantive modifications to Rule 18a–8.475

(d)(2) of Rule 17a–11, as amended; and (4) adding ‘‘for which there is no prudential regulator’’ after the phrase ‘‘If a security-based swap dealer’’ in paragraph (g) for clarity. 476See Recordkeeping and Reporting Proposing Release, 79 FR at 25252–54. 477The undesignated introductory paragraph to Rule 18a-9 has been modified to clarify this application of the rules. The Dodd-Frank Act amended the definition of ‘‘security’’ in Section 3(a)(10) of the Exchange Act to include a security￾based swap. Therefore, each reference in Rule 17a– 13 to a security in the Exchange Act includes a security-based swap. The Commission, however, has issued temporary exemptive relief excluding security-based swaps from the definition of security to the extent Commission rules did not otherwise apply specifically to security-based swaps prior to the amendment. See section III.C. of this release. 478The Commission is not including in Rule 18a– 9, as adopted, provisions that would parallel the provisions in paragraphs (a)(1), (2), and (3) and (e) of Rule 17a–13. These paragraphs of Rule 17a–13 provide exemptions from complying with Rule 17a– 13 for certain types of broker-dealers. The Commission believes that SBSDs will not limit their activities to the types of activities in which the exempt broker-dealers engage. 479See Recordkeeping and Reporting Proposing Release, 79 FR at 25253. 480See id. 481See undesignated introductory paragraph of Rule 18a–9, as adopted. 482See section III.C. of this release. 483See Recordkeeping and Reporting Proposing Release, 79 FR at 25253–54. 484See paragraph (a) of Rule 18a–9, as proposed to be adopted. 485See id. 486See paragraph (a) of Rule 18a–9, as adopted. 487For example, on day one the broker-dealer could perform the count with respect to securities of ABC Corporation, on day two the broker-dealer could perform the count with respect to securities of DEF Corporation, and on day three the broker￾dealer could perform the count with respect to securities of GHI Corporation. 488See Recordkeeping and Reporting Proposing Release, 79 FR at 25254. D. Quarterly Securities Count and Capital Charge for Unresolved Securities Differences

1. Introduction
   The Commission proposed a securities count program for stand-alone SBSDs under Section 15F of the Exchange Act that is modeled on the securities count program for broker￾dealers codified in Rule 17a–13.476 Rule 17a–13 requires certain broker-dealers (generally, broker-dealers that hold customer funds and securities) to examine and count the securities they physically hold, account for the securities that are subject to their control or direction but are not in their physical possession, verify the locations of securities under certain circumstances, and compare the results of the count and verification with their records. Broker-dealer SBSDs, including OTCDD/SBSDs, and broker-dealer MSBSPs will be subject to Rule 17a–
   13.477 Consequently, they must comply
   with the existing securities count requirements in the rule with respect to security-based swaps. Stand-alone SBSDs will be subject to Rule 18a–9, which is modeled on Rule 17a–13. Rule 18a–9 does not include a parallel requirement for every requirement in Rule 17a–13.478 In addition, Rule 18a–9 does not apply to stand-alone MSBSPs because the customer protection rationale for Rule 17a–13 and Rule 18a–9 is not as pertinent to stand-alone MSBSPs. For example, the Commission does not anticipate that stand-alone MSBSPs will engage in securities operations involving the movement of funds and securities from buyer to seller that are as complex as the operations of dealers in securities such as broker-dealers and SBSDs.
2. Rule 18a–9
   Undesignated Introductory Paragraph The Commission proposed that Rule 18a–9 have an undesignated introductory paragraph explaining that the rule applies only to a stand-alone SBSD.479 The note further explained that a broker-dealer, including a broker￾dealer SBSD, is subject to the securities count requirements under Rule 17a–
   13.480 The Commission received no
   comments on this proposed introductory paragraph and is adopting it with modifications to clarify which rule (17a–13 or 18a–9) applies to a given type of entity.481 Requirement To Perform a Securities Count Paragraph (b) of Rule 17a–13 requires a quarterly securities count and specifies the steps a broker-dealer must take in performing the count. In general terms, the rule requires a broker-dealer to physically examine, count, and verify all securities positions (e.g., equities, corporate bonds, and government securities, and, after the Commission’s exemptive relief expires,482 security￾based swaps), and to compare the results of the count and verification with the firm’s records at least once each calendar quarter. A securities count difference results when the count reflects positions different than those reflected in the firm’s books and records. The Commission proposed parallel securities count requirements in Rule 18a–9 that mirrored the requirements in paragraph (b) of Rule 17a–13.483 Consequently, a stand-alone SBSD would be required to perform a securities count each quarter following steps that are identical to the steps specified in paragraph (b) of Rule 17a–
   13.484 Moreover, a securities count
   needed to be performed no sooner than two months after the last count and no later than four months after the last count.485 Stand-alone SBSDs may have limited activities. The Commission believes, however, that stand-alone SBSDs will likely hold securities in a proprietary capacity and as hedges or collateral related to their swaps activity, and therefore are susceptible to the same risks as broker-dealers if securities are not counted and verified. This is the same reason that OTC derivatives dealers are not exempt from performing quarterly securities counts even though they also conduct a more limited business than traditional broker-dealers. The Commission acknowledges that security-based swaps are not held in depositories or at other types of custodians. Instead, they are documented in contractual agreements. In order to meet the requirements of Rules 17a–13 and 18a–9, as applicable, a broker-dealer and SBSD generally will need to account for or verify its open security-based swap transactions. The method of doing so could involve steps to confirm open transactions reflected in the firm’s books and records with securities clearing agencies or counterparties. The Commission is adopting this requirement as proposed.486 Date of the Count Paragraph (c) of Rule 17a–13 provides that: (1) The examination, count, verification, and comparison may be made either as of a date certain or on a cyclical basis covering the entire list of securities; (2) in either case the recordation of unresolved differences shall be effected within seven business days subsequent to the examination, count, verification, and comparison of a particular security; (3) in the event that an examination, count, verification, and comparison is made on a cyclical basis, it shall not extend over more than one calendar quarter-year; and (4) no security shall be examined, counted, verified, or compared for the purpose of the rule less than two months or more than four months after a prior examination, count, verification, and comparison. This permits a broker￾dealer to perform the securities count on a rolling basis throughout the quarter as opposed to performing it all at once.487 The Commission proposed a parallel securities count requirement in Rule 18a–8.488 Consequently, a stand-alone SBSD could perform the securities count as of a date certain or on a cyclical basis subject to conditions that

489See paragraph (b) of Rule 18a–9, as adopted. 490See Recordkeeping and Reporting Proposing Release, 79 FR at 25254. 491See paragraph (c) of Rule 18a–9, as proposed to be adopted. 492See paragraph (c) of Rule 18a–9, as adopted. Paragraph (d) of Rule 18a–9, as proposed to be adopted, would have mirrored paragraph (f) of Rule 17a–13, but the Commission is not adopting that provision. 493See SIFMA 9/5/2014 Letter. See also Recordkeeping and Reporting Proposing Release, 79 FR at 25198, 25209 (seeking comment on whether there are provisions in the CFTC’s recordkeeping and reporting rules for swap dealers and major swap participants that the Commission should consider with respect to the rules for SBSDs and MSBSPs). 494See Capital, Margin, and Segregation Adopting Release, 84 FR at 43943–46 (adopting Rule 18a–10, which provides an alternative compliance mechanism for certain SBSDs with respect to capital, margin, and segregation requirements). 495See paragraph (b) of Rule 17a–3, as amended, and paragraph (c) of Rule 18a–5, as adopted. 496See SIFMA 9/5/2014 Letter. are identical to the conditions in paragraph (c) of Rule 17a–13. The Commission received no comment on this provision and is adopting it as proposed.489 Separation of Duties Paragraph (d) of Rule 17a–13 provides that the examination, count, verification, and comparison shall be made or supervised by persons whose regular duties do not require them to have direct responsibility for the proper care and protection of the securities or the making or preservation of the subject records. Thus, the rule requires a separation of duties as a control to promote the integrity of the securities count process. The Commission proposed a parallel separation of duties requirement in Rule 18a–9 that mirrored the requirement in paragraph (d) of Rule 17a–13.490 Consequently, a stand-alone SBSD was required to assign responsibility for making or supervising the count to individuals whose regular duties do not require them to have direct responsibility for the proper care and protection of the securities or the making or preservation of the subject records.491 The Commission received no comment on this provision and is adopting it as proposed.492 E. Alternative Compliance Mechanisms A commenter urged the Commission to harmonize its recordkeeping requirements for SBSDs and MSBSPs with the CFTC’s final recordkeeping requirements for swap dealers and major swap participants to the maximum extent possible with the goal of permitting firms to utilize a single recordkeeping system for security-based swaps and swaps.493 In response to the comment and to promote harmonization with CFTC requirements, the Commission—as discussed below—is adopting a limited alternative compliance mechanism in Rules 17a–3 and 18a–5 and amending Rule 18a-10 to add recordkeeping and reporting requirements to the full alternative compliance mechanism provided by that rule.494

1. Limited Alternative Compliance
   Mechanism—Rules 17a–3 and 18a–5 Under the limited alternative compliance mechanism, an SBSD or MSBSP may comply with the recordkeeping requirements of the CEA and the rules thereunder applicable to swap dealers and major swap participants in lieu of complying with the requirements in Rules 17a–3 and 18a–5 to make and keep current trade blotters, customer account ledgers, and stock records solely with respect to information required to be included in these records regarding security-based swap transactions and positions if the SBSD or MSBSP:

• is registered as an SBSD or MSBSP
  pursuant to Section 15F of the Exchange Act;
• is registered as a swap dealer or
  major swap participant pursuant to
  section 4s of the Commodity Exchange
  Act and the rules thereunder;
• is subject to 17 CFR 23.201–202, 17
  CFR 23.402, and 17 CFR 23.501 (the ‘‘CFTC’s Books and Records Rules’’) with respect to its swap-related books and records;
• preserves all of the data elements
  necessary to create the records required by paragraphs (a)(1), (3), and (5) of Rule 17a–3; paragraphs (a)(1), (3), and (4) of Rule 18a–5; or paragraphs (b)(1) through (3) of Rule 18a–5, as applicable, as they pertain to security-based swap and swap transactions and positions;
• upon request furnishes promptly to
  representatives of the Commission the records required by paragraphs (a)(1), (3), and (5) of Rule 17a–3; paragraphs (a)(1), (3), and (4) of Rule 18a–5; or paragraphs (b)(1) through (3) of Rule 18a–5, as applicable, as they pertain to security-based swap and swap transactions and positions, as well as the records required by the CFTC’s Books and Records Rules, as they pertain to security-based swap and swap transactions and positions, in the format applicable to that category of record as set forth in Rule 17a–3 or Rule 18a–5, as applicable; and
• provides notice of its intent to
  utilize the limited alternative compliance mechanism by notifying the Commission in writing, both at the principal office of the Commission in Washington, DC and at the regional office of the Commission for the region in which the registrant has its principal place of business, and, if the registrant is a broker-dealer, by notifying in writing the registrant’s DEA.495 These records must be maintained for the retention period and in the manner specified for that category of record in Rule 17a–4 or 18a–6, as applicable. The first three prongs of the limited alternative compliance mechanism identify the entities that may use it; that is, entities that are registered with the Commission as an SBSD or MSBSP and with the CFTC as a swap dealer or major swap participant and are subject to the recordkeeping requirements of the CFTC with respect to its swap-related books and records. The fourth and fifth prongs set forth the substantive requirements of the limited alternative compliance mechanism: (1) That the registrant preserve the data elements necessary to create the relevant required records as they pertain to security-based swap and swap transactions and positions, regardless of format; and (2) that the registrant provide those data elements as they pertain to security-based swap and swap transactions and positions in the format required by Commission rules upon request by a representative of the Commission. In effect, these two requirements taken together mean that a firm will not be required to create a trade blotter, customer account ledger, or stock record reflecting security-based swap transactions and positions formatted pursuant to the Commission’s rules each day, but instead only when requested to do so by Commission staff. This should promote harmonization with CFTC requirements because firms will be able to create the daily records for both security-based swap and swap transactions and positions in the format required by the CFTC. For example, firms will not have to create on a daily basis two sets of trade blotters for security-based swap and swap transactions and positions: one in the Commission’s required format and the other in the CFTC’s required format. The limited alternative compliance mechanism applies only to the provisions of Rules 17a–3 and 18a–5 that were specifically referenced by the commenter as appropriate for ‘‘harmonization,’’ 496 with the exception of the general ledger requirements in paragraph (a)(2) of Rules 17a–3 and 18a–5. Consequently, the limited alternative compliance mechanism may be applied to: (1) The trade blotter requirements in paragraph (a)(1) of Rule 17a–3, as amended, and paragraphs

497See SIFMA 9/5/2014 Letter.
498See Capital, Margin, and Segregation Adopting Release, 84 FR at 43943–46. 499The full alternative compliance mechanism of Rule 18a–10 is not available to a nonbank SBSD that is also registered as a broker-dealer, including a broker-dealer that is an OTC derivatives dealer. In theory, a bank SBSD could use the full alternative compliance mechanism of Rule 18a–10 if it met the required conditions. However, the Commission does not expect that these entities would choose to do so. See Capital, Margin, and Segregation Adopting Release, 84 FR at 43944 n. 707. 500As amended, the preface to paragraph (a) of Rule 18a–10 provides that a security-based swap dealer may comply with capital, margin, segregation, recordkeeping, and reporting requirements of the Commodity Exchange Act and
chapter I of title 17 of the Code of Federal
Regulations applicable to swap dealers in lieu of complying with §§ 240.18a–1 and 240.18a–3 through 240.18a–9. 501The gross notional amount is based on the notional amounts of the firm’s security-based swaps and swaps that are outstanding as of the quarter end. It is not based on transaction volume during the quarter. 502See paragraphs (f)(1)(i) and (ii) of Rule 18a– 10, as adopted. (a)(1) and (b)(1) of Rule 18a–5, as adopted; (2) the customer account ledger requirements of paragraph (a)(3) of Rule 17a–3, as amended, and paragraphs (a)(3) and (b)(2) of Rule 18a– 5, as adopted; and (3) the stock record requirements of paragraph (a)(5)(ii) of Rule 17a–3, as amended, and paragraphs (a)(4) and (b)(3) of Rule 18a– 5, as adopted. The Commission does not believe it would be appropriate to apply the limited alternative compliance mechanism to the general ledger requirements in paragraph (a)(2) of Rules 17a–3 and 18a–5 because the information that must be recorded in a general ledger is not limited to security￾based swap and swap information. In particular, the general ledger must include information reflecting all assets and liabilities, income and expense, and capital accounts in order to facilitate examinations of the firm’s overall financial condition and solvency. The Commission believes that the substantive requirements of the remaining provisions identified by the commenter as applied to security-based swap and swap transactions and positions are sufficiently similar to their counterparts in the CFTC’s Books and Records Rules to make use of the limited alternative compliance mechanism appropriate. The Commission emphasizes that the limited alternative compliance mechanism applies solely to the books and records requirements with respect to security-based swap and swap transactions and positions, and does not extend to any books and records requirements for other types of transactions and positions. For other types of transactions and positions, the SBSD or MSBSP must make and keep current a trade blotter, customer account ledger, and stock record in the format required by Rule 17a–3 or 18a–5 as applicable. The commenter seeking harmonization with the CFTC’s requirements also stated that the Commission should permit bank SBSDs and MSBSPs to satisfy the Commission’s recordkeeping requirements by complying with recordkeeping rules established by their prudential regulator, stating that ‘‘[s]uch rules should be supplemented with additional requirements only to the extent that such additional obligations are necessary for the Commission to fulfill its regulatory oversight of bank SBSDs and MSBSPs.’’ 497 Based largely on its consultations with the prudential regulators regarding their recordkeeping and reporting requirements, the Commission believes that the final amendments and rules being adopted in this document achieve this objective by specifically addressing a bank’s activities as an SBSD or an MSBSP and only those activities. In particular, the
rules being adopted in this document for bank SBSDs and MSBSPs are focused solely on documenting or requiring the reporting of information relating to engaging in security-based swap activities as opposed to the more traditional banking activities addressed by prudential regulators’ existing recordkeeping and reporting requirements. In addition, as discussed above in section II.B.2. of this release, the Commission is adopting a reporting form for bank SBSDs and MSBSPs (the FOCUS Report Part IIC) that elicits information that largely is drawn from the call reports banks must file with the prudential regulators. In this way, the Commission has harmonized its reporting requirements for bank SBSDs and MSBSPs with the reporting requirements of the prudential regulators.
2. Full Alternative Compliance
Mechanism—Rule 18a–10
The Commission adopted the full alternative compliance mechanism in Rule 18a–10.498 Rule 18a–10 permits certain SBSDs that are registered as swap dealers and that predominantly engage in a swaps business to elect to comply with the capital, margin, and segregation requirements of the CEA and the CFTC’s rules in lieu of complying with the capital, margin, and segregation requirements of Rules 18a– 1, 18a–3, and 18a–4.499 The Commission is amending Rule 18a–10 in this document to permit firms that will operate under Rule 18a–10 to elect to comply with the recordkeeping and reporting requirements of the CEA and the CFTC’s rules in lieu of complying with Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9. Paragraph (a) of Rule 18a–10 sets forth the conditions that an SBSD must meet to operate under the full alternative compliance mechanism. The Commission is amending the preface of paragraph (a) to reference recordkeeping and reporting requirements of the CEA and the CFTC’s rules as well as Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 in order to add these requirements to the full alternative compliance mechanism.500 The conditions for operating under the full alternative compliance mechanism are set forth in paragraphs (a)(1) through (5) of Rule 18a–10. Paragraphs (a)(1) through (3) of Rule 18a–10 provide that the firm must be registered with the Commission as an SBSD, must not be registered with the Commission as a broker-dealer (including an OTC derivatives dealer), and must be registered with the CFTC as a swap dealer. Paragraph (a)(4) of Rule 18a–10 provides that the SBSD must be exempt from the segregation requirements of Rule 18a–4. Paragraph (a)(5) of Rule 18a–10 provides that the aggregate gross notional amount of the firm’s outstanding security-based swap positions must not exceed the lesser of two thresholds as of the most recently ended quarter of the firm’s fiscal year.501 The thresholds are: (1) The maximum fixed-dollar gross notional amount of open security-based swaps specified in paragraph (f) of the rule (‘‘maximum fixed-dollar threshold’’); and (2) 10% of the combined aggregate gross notional amount of the firm’s open security-based swap and swap positions. The amount of the maximum fixed-dollar threshold is $250 billion for a transitional period of three years and will then drop to $50 billion unless the Commission, by order: (1) Maintains the maximum fixed-dollar amount at $250 billion for an additional period of time or indefinitely after the 3-year transition period ends; or (2) lowers it to an amount that is less than $250 billion but greater than $50 billion.502 Other than the amendment to the preface of paragraph (a) discussed above, the Commission is not amending the conditions set forth in paragraphs (a)(1) through (5) of Rule 18a–10. In addition, the Commission is not amending paragraph (f) of Rule 18a–10 (specifying the maximum fixed-dollar threshold). Paragraph (b) of Rule 18a–10 sets forth requirements for a firm that is

503As amended, paragraph (b)(1) of Rule 18a–10 provides that compliance with capital, margin, segregation, recordkeeping, and reporting requirements of the Commodity Exchange Act and
chapter I of title 17 of the Code of Federal
Regulations applicable to swap dealers and treat security-based swaps or collateral related to security-based swaps as swaps or collateral related to swaps, as applicable, pursuant to those requirements to the extent the requirements do not specifically address security-based swaps or collateral related to security-based swaps. 504See, e.g., Letter from Eileen T. Flaherty, Director, Division of Swap Dealer and Intermediary Oversight, and Jeffrey M. Bandman, Acting Director, Division of Clearing and Risk, CFTC, to Mary P. Johannes, Senior Director, ISDA (Aug. 23, 2016) (providing no-action relief to swap dealers and major swap participants with respect to the CFTC’s margin rules for non-cleared swaps pursuant to which these entities can portfolio margin non￾cleared swaps with non-cleared security-based swaps, provided, among other conditions, the security-based swaps shall be treated as if they were swaps for all applicable provisions of the CFTC’s margin rules). 505The amendments adding the recordkeeping and reporting requirements to paragraph (b)(1) and making the clarification discussed above result in the paragraph providing that compliance with capital, margin, segregation, recordkeeping, and reporting requirements of the Commodity Exchange Act and chapter I of title 17 of the Code of Federal Regulations applicable to swap dealers and treat security-based swaps or collateral related to security-based swaps as swaps or collateral related to swaps, as applicable, pursuant to those requirements to the extent the requirements do not specifically address security-based swaps or collateral related to security-based swaps. 506As amended, paragraph (b)(2) of Rule 18a–10 provides that an SBSD must disclose in writing to each counterparty to a security-based swap before entering into the first transaction with the counterparty after the date the SBSD begins operating under this section that the SBSD is operating under this section and is therefore complying with the applicable capital, margin, segregation, recordkeeping, and reporting requirements of the Commodity Exchange Act and the rules promulgated by the Commodity Futures Trading Commission thereunder in lieu of complying with the capital, margin, segregation, recordkeeping, and reporting requirements promulgated by the Commission in §§ 240.18a–1, 240.18a–3, 240.18a–4; 240.18a–5, 240.18a–6, 240.18a–7, 240.18a–8, and 240.18a–9. 507The non-substantive amendment removes the period at the end of the paragraph and in its place adds the text: ‘‘; and.’’ 508See Recordkeeping and Reporting Proposing Release, 79 FR at 25247. 509See paragraph (b)(4) of Rule 18a–10, as amended. See, e.g., 17 CFR 1.12 (CFTC) (maintenance of minimum financial requirements by futures commission merchants and introducing brokers). operating pursuant to the rule. Paragraph (b)(1) provides, in pertinent
part, that the firm must comply with the
capital, margin, and segregation requirements of the CEA and the CFTC’s rules applicable to swap dealers. The Commission is amending paragraph (b)(1) to reference recordkeeping and reporting requirements of the CEA and the CFTC’s rules to add these requirements to this provision.503 Consequently, a firm that is subject to Rule 18a–10 must comply with applicable capital, margin, segregation, recordkeeping, and reporting requirements of the CEA and the CFTC’s rules and a failure to comply with one or more of those rules will constitute a failure to comply with Rule 18a–10. Paragraph (b)(1) also provides, in pertinent part, that the firm must treat security-based swaps and related collateral pursuant of the CEA and the CFTC’s rules to the extent the requirements do not specifically address security-based swaps and related collateral. This provision is designed to ensure that security-based swaps and related collateral do not fall into a ‘‘regulatory gap’’ with respect to an SBSD operating under the full alternative compliance mechanism. Under a CFTC no-action letter, if a capital, margin, segregation, recordkeeping, or reporting requirement applicable to a swap or collateral related to a swap is silent as to a security-based swap or collateral related to a security￾based swap, the nonbank SBSD must treat the security-based swap or collateral related to the security-based swap pursuant to the requirement applicable to the swap or collateral related to the swap.504 The Commission is making clarifying amendments to paragraph (b)(1) of Rule 18a–10 to provide that the firm must treat a security-based swap or collateral related to a security-based swap as a swap or collateral related to a swap, as applicable, if the CEA or the CFTC’s rules do not specifically address a security-based swap or collateral related to a security-based swap.505 The amendments to Rule 18a–10 being adopted in this document will require a firm operating under the rule to treat security-based swaps and related collateral pursuant to the recordkeeping and reporting requirements of the CEA and the CFTC’s rules as if they were swaps or related collateral to the extent those requirements do not specifically address security-based swaps and related collateral. For example, if the recordkeeping and reporting requirements of the CEA and CFTC’s rules do not address a security-based swap transaction, the firm will need to treat it as a swap transaction for the purposes of the recordkeeping and reporting requirements that apply to swap transactions. Paragraph (b)(2) of Rule 18a–10 requires the firm to provide a written disclosure to its counterparties after it begins operating pursuant to the rule. The disclosure must be provided before the first transaction with the counterparty after the firm begins operating pursuant to the rule. The disclosure must notify the counterparty that the firm is complying with the applicable capital, margin, and segregation requirements of the CEA and the
CFTC’s rules in lieu of complying with Rules 18a–1, 18a–3, and 18a–4. The Commission is amending paragraph (b)(2) to reference the recordkeeping and reporting requirements of the CEA and the CFTC’s rules as well as Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 in order to add these requirements to the disclosure requirement.506 Paragraph (b)(3) of Rule 18a–10 requires the SBSD to immediately notify the Commission and the CFTC in writing if it fails to meet a condition in paragraph (a) of the rule. The Commission is making a non￾substantive amendment to paragraph (b)(3) because—as discussed next—new paragraph (b)(4) is being added to the rule.507 As discussed above in section II.C. of this release, Rule 17a–11 specifies the circumstances under which a broker-dealer must notify the Commission and other regulators about its financial or operational condition, as well as the form of the notice. Stand￾alone and bank SBSDs and MSBSPs are subject to Rule 18a–8, which is modeled on Rule 17a–11. Rule 18a–8 is designed to provide the Commission with the ability to take effective proactive steps to respond when a stand-alone or bank SBSD is experiencing or likely to experience financial difficulty.508 However, an SBSD operating under Rule 18a–10 may comply with the notification requirements of the CFTC’s rules in lieu of complying with Rule 18a–8. Therefore, in order to retain a requirement that the SBSD provide notice to the Commission if it is experiencing or likely to experience financial difficulty, the Commission is adding paragraph (b)(4) to Rule 18a–10. This paragraph provides that an SBSD operating pursuant to Rule 18a–10 must simultaneously notify the Commission if the firm is required to send a notice concerning its capital, books and records, liquidity, margin operations, or segregation operations to the CFTC by transmitting to the Commission a copy of the notice being sent to the CFTC.509 In addition, as discussed in section II.A.3.a. of this release, paragraph (j) of Rule 17a–4 requires a broker-dealer to furnish promptly to a representative of the Commission legible, true, complete, and current copies of those records of the broker-dealer that are required to be preserved under Rule 17a–4, or any other records of the broker-dealer subject to examination under Section 17(b) of the Exchange Act that are

510As amended, the preface to paragraph (c) of Rule 18a–10 reads: ‘‘A security-based swap dealer that fails to meet one or more of the conditions specified in paragraph (a) of this section must begin complying with §§ 240.18a–1 and 240.18a–3 through 240.18a–9 no later than:.’’ 511As amended, paragraph (d)(2)(ii) of Rule 18a– 10 provides: ‘‘Continue to comply with §§ 240.18a– 1 and 240.18a–3 through 240.18a–9 for at least:.’’ 512See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at 39825, n.191 (citing Cross-Border Proposing Release, 78 FR at 30986). 513See Cross-Border Proposing Release, 78 FR at 30986. 514See Cross-Border Proposing Release, 78 FR at
31011. The Commission similarly expressed the
preliminary view that MSBSPs should be required to adhere to the entity-level requirements. See id. at 31035. 515See SIFMA 9/5/2014 Letter. 516The Commission also believes that treating these requirements as entity-level requirements is requested by the representative of the Commission. Paragraph (g) of Rule 18a– 6 prescribes a parallel prompt production requirement for stand-alone and bank SBSDs and MSBSPs. However, an SBSD operating under Rule 18a–10 may comply with the record preservation requirements of the CFTC’s rules in lieu of complying with Rule 18a–6. Therefore, in order to retain a requirement that the SBSD furnish records promptly to the Commission, paragraph (b)(5) is being added to Rule 18a–10. This paragraph provides that the SBSD must furnish promptly to a representative of the Commission legible, true, complete, and current copies of those records of the SBSD that are required to be preserved under the CEA and CFTC’s rules applicable to swap dealers, or any other records of the SBSD subject to examination pursuant to Section 15F of the Exchange Act that are requested by a representative of the Commission. Paragraph (c) of Rule 18a–10 addresses the situation in which a firm fails to comply with a condition in paragraph (a) of the rule and, therefore, no longer qualifies to operate pursuant to the rule. The paragraph provides that a firm in that circumstance must begin complying with Rules 18a–1, 18a–3, and 18a–4 no later than either: (1) Two months after the end of the month in which the firm failed to meet the condition in paragraph (a); or (2) after a longer period of time as granted by the Commission by order subject to any conditions imposed by the Commission. The Commission is amending the preface to paragraph (c) to reference Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 in order to add these rules to the compliance requirement.510 Paragraph (d) of Rule 18a–10 addresses how a firm would elect to operate pursuant to the rule. Under paragraph (d)(1), a firm can make the election as part of the process of applying to register as an SBSD. In this case, the firm must provide written notice to the Commission and the CFTC during the registration process of its intent to operate pursuant to the rule. Upon being registered as an SBSD, the firm can begin complying with Rule 18a–10, provided it meets the conditions in paragraph (a) of the rule. Under paragraph (d)(2) of Rule 18a–10, an SBSD can make the election after the firm has been registered as an SBSD. In this case, paragraph (d)(2)(i) provides that the firm must provide written notice to the Commission and the CFTC of its intent to operate pursuant to the rule. In addition, paragraph (d)(2)(ii) provides that the firm must continue to comply with Rules 18a–1, 18a–3, and 18a–4 for two months after the end of the month in which the firm provides the notice or for a shorter period of time as granted by the Commission by order subject to any conditions imposed by the Commission. The
Commission is amending the preface to paragraph (d)(2)(ii) to reference Rules 18a–5, 18a– 6, 18a–7, 18a–8, and 18a–9 in order to add these rules to the compliance requirement.511 As discussed above, paragraph (b)(3) requires a firm operating pursuant to the rule to immediately notify the Commission and the CFTC in writing if the SBSD fails to meet a condition in paragraph (a). Further, paragraphs (d)(1) and (2) require a firm to provide written notice to the Commission and the CFTC of its intent to operate pursuant to the rule. Paragraph (e) of Rule 18a–10 provides that the notices required by the rule must be sent by facsimile transmission to the principal office of the Commission and the regional office of the Commission for the region in which the security-based swap dealer has its principal place of business or to an email address to be specified separately, and to the principal office of the CFTC in a manner consistent with the notification requirements of the CFTC. The paragraph also requires that notices include a brief summary of the reason for the notice and contact information for an individual who can provide further information about the matter that is the subject of the notice (emphasis added). The Commission is amending paragraph (e) of Rule 18a–10 to provide that the notice must be sent by facsimile transmission to the principal office of the Commission and the regional office of the Commission for the region in which the security￾based swap dealer has its principal place of business or to an email address provided on the Commission’s website, and to the principal office of the CFTC in a manner consistent with the notification requirements of the CFTC. This amendment is intended to clarify the location of the email address for firms that choose to send the notice via email. F. Cross-Border Application and Availability of Substituted Compliance

1. Cross-Border Application of
   Recordkeeping and Reporting Requirements In the 2013 cross-border proposing release, the Commission preliminarily interpreted the Title VII requirements associated with registration to apply generally to the activities of registered entities.512 In reaching that preliminary conclusion, the Commission did not concur with the views of certain commenters that the Title VII requirements should not apply to the foreign security-based swap activities of registered entities, stating that such a view could be difficult to reconcile with, among other things, the statutory language describing the requirements applicable to SBSDs.513 The Commission further preliminarily identified the recordkeeping and reporting requirements as entity-level requirements, rather than requirements specifically applicable to particular transactions. Entity-level requirements primarily address concerns relating to the entity as a whole, with a particular focus on safety and soundness of the entity to reduce systemic risk in the U.S. financial system. The Commission accordingly proposed to apply the entity-level requirements on a firm-wide basis to address risks to the SBSD as a whole. The Commission did not propose any exception from the application of the entity-level requirements to SBSDs.514 A commenter expressed the view that requirements with respect to daily trading records and confirmations should be deemed transaction-level, on the grounds that the application and enforcement of these requirements will be addressed at the transaction level, and for consistency with the CFTC’s approach.515 After considering the commenter’s concerns, the Commission continues to believe that the entirety of the recordkeeping and reporting requirements—including requirements addressing daily trading records and confirmations—appropriately are considered entity-level requirements.516

necessary or appropriate to help prevent the evasion of the particular provisions of the Exchange Act that were added by the Dodd-Frank Act and prophylactically will help ensure that the purposes of those provisions of the Dodd-Frank Act are not undermined. 517See Cross-Border Proposing Release, 78 FR at 30968, 31085. 518See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR 29960. See also Cross￾Border Proposing Release, 78 FR at 31207. 519See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at 30143–44. 520See Capital, Margin, and Segregation Adopting Release, 84 FR at 43946–50. 521See SIFMA 9/5/2014 Letter. See also Letter from Kyle Brandon, Managing Director and Director of Research, Securities Industry and Financial Markets Association (Jan. 13, 2015) (‘‘SIFMA 1/13/ 2015 Letter’’). 522See IIB 3/25/2019 Meeting. 523See paragraph (d)(6) of Rule 3a71–6, as amended. Rule 3a71–6 provides that substituted compliance is potentially available in connection with the business conduct requirements for foreign MSBSPs and SBSDs. This decision reflects the fact that the business conduct standards apply to MSBSPs and SBSDs, and recognizes that the market efficiency goals that underpin substituted compliance also can apply when substituted compliance is granted to MSBSPs. See Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 30076. This same reasoning applies with respect to the Commission’s recordkeeping and reporting requirements and Rule 3a71–6, as amended, provides that substituted compliance is also potentially available to foreign MSBSPs (in addition to foreign SBSDs) with respect to Section 15F of the Exchange Act and Rules 18a– 5, 18a–6, 18a–7, 18a–8, and 18a–9, as applicable. 524See SIFMA 9/5/2014 Letter. 525See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 30077. 526See generally Business Conduct Standards for Security-Based Swap Dealers and Major Security￾Based Swap Participants, 81 FR at 30073–74 (addressing the basis for making substituted compliance available in the context of the business conduct requirements). If the Commission treated its recordkeeping requirements as transaction-based requirements, and then excluded certain transactions from its recordkeeping requirements, it would not be able to effectively regulate and examine registrants. Not only would the Commission have an incomplete picture of registrants’ transactions if other jurisdictions did not require records regarding the excluded transactions, but this approach would create logistical complexities when comparing records kept in different formats. These concerns about an incomplete picture of a registrant’s business are exacerbated by the possibility that a registrant would not keep records of excluded transactions because its jurisdiction does not regulate
either the transaction (e.g., exclusions for certain security-based swap products or for certain transactions) or the entity. For these reasons, the Commission is treating recordkeeping and reporting requirements as entity-level requirements.
2. Availability of Substituted
Compliance in Connection With Recordkeeping and Reporting Requirements a. Existing Substituted Compliance Rule In 2013, the Commission proposed to make substituted compliance potentially available in connection with the requirements applicable to foreign SBSDs pursuant to Section 15F of the Exchange Act, other than the registration requirements applicable to dealers. Because the recordkeeping and reporting requirements being adopted are grounded in Section 15F, substituted compliance generally would have been available for those requirements under the proposal.517 Upon a Commission substituted compliance determination, a person would be able to satisfy relevant recordkeeping or reporting requirements by substituting compliance with corresponding requirements under a foreign regulatory system. The Commission subsequently adopted Rule 3a71–6, which provides that substituted compliance is available with respect to the Commission’s business conduct requirements, and (rather than addressing all requirements under Section 15F of the Exchange Act) reserved the issue as to whether substituted compliance also would be available in connection with other requirements under that statute.518 Rule 3a71–6 was amended to make substituted compliance available with respect to the Commission’s trade acknowledgment and verification requirements,519 and to make it available with respect to capital and margin requirements.520 b. Amendments to Final Rule A commenter requested that the Commission permit a foreign SBSD or MSBSP to satisfy its recordkeeping requirements by complying with recordkeeping rules established by its foreign regulator, provided the Commission determines such rules impose requirements comparable to Commission rules.521 Another commenter stated that ‘‘[t]he Commission should allow non-U.S. SBSDs to satisfy any public disclosure requirements through substituted compliance.’’ 522 The Commission agrees with the commenters and is amending Rule 3a71–6 to provide foreign SBSDs and MSBSPs with the potential to utilize substituted compliance with comparable foreign requirements to satisfy Section 15F of the Exchange Act and Exchange Act Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 thereunder.523 A commenter requested that foreign branches of U.S. banks (i.e., registered bank SBSDs that engage in dealing activity through foreign branches) be eligible for substituted compliance with respect to recordkeeping and reporting requirements classified as transaction￾level requirements.524 As discussed above, the Commission does not believe it would be appropriate to the treat the recordkeeping and reporting requirements as transaction-level requirements. In addition, the Commission has previously stated its belief that substituted compliance should not be available to registered entities that are U.S. persons.525 In amending Rule 3a71–6, the Commission concludes that the principles associated with substituted compliance for the business conduct, trade acknowledgment
and verification, and capital and margin requirements in large part similarly apply to these recordkeeping and reporting requirements. Accordingly, except as discussed below, the revised substituted compliance rule applies to Section 15F of the Exchange Act and Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 thereunder in the same manner as it applies to the business conduct, trade acknowledgment and verification, and capital and margin requirements.
i. Basis for Substituted Compliance in
Connection With the Recordkeeping and Reporting Requirements In light of the global nature of the security-based swap market and the prevalence of cross-border transactions within that market, there is the potential that the application of the Title VII recordkeeping and reporting requirements may lead to requirements that are duplicative of or in conflict with applicable foreign requirements, even when the two sets of requirements implement similar goals and lead to similar results. Those results have the potential to disrupt existing business relationships, and, more generally, to reduce competition and market efficiency.526 To address those effects, the Commission concludes that under certain circumstances it may be appropriate to allow for the possibility of substituted compliance whereby foreign SBSDs and MSBSPs may satisfy
Section 15F of the Exchange Act and
Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 thereunder by complying with

527See paragraph (d) of Rule 3a71–6, as adopted. Paragraph (a)(1) of Rule 3a71–6 provides that the Commission may, conditionally or unconditionally, by order, make a determination with respect to a foreign financial regulatory system that compliance with specified requirements under that foreign financial system by a registered SBSD and/or registered MSBSP, or class thereof, may satisfy the corresponding requirements identified in paragraph (d) of the rule that would otherwise apply. 528See, e.g., Business Conduct Standards for Security-Based Swap Dealers and Major Security￾Based Swap Participants, 81 FR at 30078–79. 529See, e.g., Letter from Catherine T. Dixon, Chair, Federal Regulation of Securities Committee, American Bar Association (Oct. 2, 2013); Letter from Americans for Financial Reform (Aug. 22, 2013); Letter from Futures and Options Association (Aug. 21, 2013). 530See Commission Guidance to Broker-Dealers on the Use of Electronic Storage Media Under the Electronic Signatures in Global and National Commerce Act of 2000 with Respect to Rule 17a– 4(f), 66 FR at 22917, 22921 (The Commission’s recordkeeping rules ‘‘impose minimum recordkeeping requirements that are based on standards a prudent broker-dealer should follow in the normal course of business. The requirements are an integral part of the investor protection function of the Commission, and other securities regulators, in that the preserved records are the primary means of monitoring compliance with applicable securities laws’’. ‘‘Investor protection depends on the examination process, which, in turn, relies on the records that broker-dealers are required to make and maintain.’’); FOCUS Reporting System; Requirements for Financial Reporting, Exchange Act Release No. 17534 (Feb. 11, 1981), 46 FR 13205, 13205 (Feb. 20, 1981) (‘‘The FOCUS Report is one of the primary means of monitoring the financial and operational condition of brokers and dealers and enforcing the financial responsibility rules’’). 531See Commission Guidance to Broker-Dealers on the Use of Electronic Storage Media Under the Electronic Signatures in Global and National Commerce Act of 2000 with Respect to Rule 17a– 4(f), 66 FR at 22917. 532See FOCUS Reporting System; Requirements for Financial Reporting, 46 FR at 13205. 533See Study of Unsafe and Unsound Practices of Brokers and Dealers at 6 (the Commission’s reporting requirements, ‘‘together with the Commission’s inspection powers, [are] an integral element in the arsenal for protection of customers against the risks involved in leaving securities with their broker-dealer’’). 534See Commission Guidance to Broker-Dealers on the Use of Electronic Storage Media Under the Electronic Signatures in Global and National Commerce Act of 2000 with Respect to Rule 17a– 4(f), 66 FR at 22919 (‘‘A failure to maintain accurate, accessible, and true records may lead to situations where a firm cannot account for customer property or its own assets. For these reasons, the
Commission’s broker-dealer recordkeeping requirements are an important part of managing systemic risk in the industry.’’). 535See section II.B.1. of this release. comparable foreign requirements. Allowing for the possibility of substituted compliance in this manner may help achieve the benefits of these recordkeeping and reporting requirements in a way that helps avoid regulatory duplication or conflict and hence promotes market efficiency, enhances competition, and facilitates a well-functioning global security-based swap market. Accordingly, Rule 3a71–6 is amended to identify the recordkeeping and reporting requirements of Section 15F of the Exchange Act and Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 thereunder as being eligible for substituted compliance.527
ii. Comparability Criteria, and
Consideration of Related Requirements The Commission will endeavor to take a holistic approach in determining the comparability of foreign requirements for substituted compliance purposes, focusing on regulatory outcomes as a whole rather than on requirement-by-requirement similarity.528 The Commission’s comparability assessments associated with Section 15F of the Exchange Act and Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 thereunder accordingly will consider whether, in the Commission’s view, the foreign regulatory system achieves regulatory outcomes that are comparable to the regulatory outcomes associated with these recordkeeping and reporting requirements. However, paragraph (a)(2)(i) of Rule 3a71–6 provides that the Commission’s substituted compliance determination will take into account factors that the Commission determines appropriate, such as, for example the scope and objectives of the relevant foreign regulatory requirements, as well as the effectiveness of the supervisory compliance program administered, and the enforcement authority exercised, by a foreign financial regulatory authority or authorities in such system to support its oversight of such foreign security￾based swap entity (or class thereof) or of the activities of such security-based swap entity (or class thereof). In reviewing applications, the Commission may determine to conduct its comparability analyses regarding the recordkeeping and reporting requirements in conjunction with comparability analyses regarding other Exchange Act requirements in connection with SBSDs and MSBSPs. Accordingly, depending on the applicable facts and circumstances, the comparability assessment associated with the recordkeeping and reporting requirements may constitute part of a broader assessment of the foreign regulatory system’s risk mitigation requirements, and the applicable comparability assessments may be conducted at the level of those risk mitigation requirements as a whole. Commenters generally requested additional guidance regarding the criteria the Commission would consider when making a substituted compliance determination.529 Such criteria have been set forth in the final rule as discussed below. The Commission’s recordkeeping, reporting, notification, and security count requirements reflect and support prudent business practices and accountability of registrants and have facilitated the ability of securities regulators to review and monitor compliance with securities laws. The Commission’s recordkeeping and reporting requirements are integral to the ability of the Commission and other securities regulators to effectively examine and inspect regulated firms’ compliance with the applicable securities laws.530 More specifically, the records that firms are required to preserve can be reviewed by Commission staff and other securities regulators to monitor compliance with applicable securities laws.531 Similarly, FOCUS Reports are used to determine which firms are engaged in various
securities-related activities, and how economic events and government policies might affect segments of the securities industry.532 The Commission’s recordkeeping and reporting requirements are also important for protecting customers against the risks involved in having their securities held by a third party.533 A failure to maintain accurate, accessible, and true records may lead to situations where a firm cannot account for customer property or its own assets.534 Similarly, the Commission’s reporting requirements promote transparency of the financial and operational condition of broker-dealers to the Commission, the firm’s DEA, and, in the case of a portion of the annual reports, to the public.535 In light of these considerations, paragraph (d)(6) of Rule 3a71–6 states that prior to making a substituted compliance determination regarding SBSD and MSBSP recordkeeping and reporting requirements, the Commission intends to consider (in addition to any conditions imposed), whether the foreign financial regulatory system’s required records and reports, the timeframes for recording or reporting information, the accounting standards governing the records and reports, and the required format of the records and reports are comparable to applicable provisions arising under the Act and its rules and regulations and would permit the Commission to examine and inspect regulated firms’ compliance with the applicable securities laws. A commenter stated that a Commission substituted compliance determination should not be a

536See IIB 3/25/2019 Meeting.
537See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at 39825, n.191 (citing Cross-Border Proposing Release, 78 FR at 30986). 538See Cross-Border Proposing Release, 78 FR at 30986. 539See IIB 3/25/2019 Meeting. 540See IIB 3/25/2019 Meeting. 541See IIB 3/25/2019 Meeting. 542See Capital, Margin, and Segregation Proposing Release, 77 FR at 70240, 70338. 543See Capital, Margin, and Segregation Adopting Release, 84 FR at 44058–59. 544See paragraphs (d)(9)(iii)(A) and (B) of Rule 18a–1, as amended. prerequisite for a foreign bank SBSD to comply with ‘‘home-country’’ financial recordkeeping and reporting requirements in lieu of the Commission’s requirements.536 The commenter referred to this approach as ‘‘Automatic Substituted Compliance’’ for foreign bank SBSDs. Rule 3a71–6 does not provide ‘‘automatic’’ substituted compliance for any type of registrant. Moreover, as discussed above, the Commission preliminarily interpreted the Title VII requirements associated with registration to apply generally to the activities of registered entities.537 Further, in reaching that preliminary conclusion, the Commission did not concur with the views of certain commenters that the Title VII requirements should not apply to the foreign security-based swap activities of registered entities, stating that such a view could be difficult to reconcile with, among other things, the statutory language describing the requirements applicable to SBSDs.538 The Commission believes that it is appropriate to evaluate the substance of a foreign regulatory system to which substituted compliance would apply before granting substituted compliance to an entity. An ‘‘automatic’’ substituted compliance regime would be contrary to this view, as it would permit a foreign bank SBSD to comply with local requirements without any analyses by the Commission as to whether those requirements were comparable to the Commission’s requirements. Therefore, the Commission does not believe the approach suggested by the commenter would be appropriate. The same commenter stated that the Commission should allow a foreign stand-alone SBSD to satisfy financial recordkeeping and reporting requirements through substituted compliance if the SBSD qualifies for substituted compliance with respect to the Commission’s capital and margin requirements for SBSDs.539 The commenter referred to this approach as ‘‘One-Step Substituted Compliance.’’ The Commission does not believe that a positive substituted compliance determination with respect to nonbank SBSD capital and margin requirements should automatically result in a positive substituted compliance determination with respect to SBSD recordkeeping and reporting requirements. Once again, the Commission believes that it is appropriate to evaluate the substance of each foreign regulatory system to which substituted compliance would apply before granting substituted compliance to an entity. As discussed above, the recordkeeping and
reporting requirements are integral to the ability of the Commission and other securities regulators to effectively examine and inspect regulated firms’ compliance with the applicable securities laws, including capital and margin requirements. Therefore, the Commission will need to analyze a jurisdiction’s recordkeeping and reporting requirements to determine whether they would permit the Commission to examine and inspect regulated firms’ compliance with the applicable securities laws in a manner comparable to its examinations and inspections for firms subject to the recordkeeping and reporting requirements specified in Section 15F of the Exchange Act and Rules 18a–5, 18a– 6, 18a–7, 18a–8, and 18a–9. However, as discussed above, in reviewing substituted compliance applications, the Commission may conduct its comparability analyses regarding the recordkeeping and reporting requirements in conjunction with comparability analyses regarding other Exchange Act requirements that promote risk management in connection with SBSDs and MSBSPs. Thus, the Commission’s comparability analyses regarding the recordkeeping and reporting requirements could be made in conjunction with comparability analyses regarding capital and margin requirements. Finally, this commenter also stated that, if substituted compliance is not available with respect to a disclosure requirement, ‘‘the Commission should limit the application of such public disclosure requirements to SBSDs that are not otherwise subject to a public disclosure regime.’’ 540 For example, the commenter argues that paragraph (b)(7) of Rule 18a–7, as proposed, ‘‘could require a standalone SBSD that is a public reporting company to publish material, non-public information every six months, rather than on an annual basis on Form 20–F.’’ 541 Form 20–F, however, requires the public disclosure of substantially more information than will be required by Rule 18a–7, which requires relatively little information to be publicly disclosed. Moreover, Rule 18a–7 will require the disclosure of information such as a firm’s net capital computation that may not be required under other disclosure regimes. For these reasons, the Commission is not adopting the commenter’s proposed approach. G. Amendments to Rule 18a–1 Paragraph (e) of appendix E to Rule 15c3–1 establishes a non-exclusive list of circumstances under which the Commission may restrict the business of an ANC broker-dealer, including when the firm fails to meet the reporting requirements set forth in Rule 17a–5 or an event specified in Rule 17a–11 occurs. The Commission proposed a parallel provision in Rule 18a–1 to apply to a stand-alone SBSD authorized to use models.542 The circumstances in proposed Rule 18a–1 under which the Commission could have restricted the stand-alone SBSD’s business included that the firm failed to meet a proposed reporting requirement or an event in the proposed notification rule for SBSDs occurs. The Commission adopted the provision in Rule
18a–1 under which the Commission may restrict the business of a stand-alone SBSD or OTCDD/SBSD authorized to use models.543 However, in the final rule, the circumstances under which the Commission can restrict a firm’s business did not include that the firm fails to meet a reporting requirement or an event in the notification rule for SBSDs occurs. As the SBSD reporting and notification rules are being adopted in this document, the Commission is amending Rule 18a–1 to add the these circumstances to those listed in the rule under which the Commission may restrict the business of a stand-alone SBSD or OTCDD/SBSD authorized to use models: (1) The SBSD fails to meet the reporting requirements set forth in Rule 18a–7; or (2) any event specified in Rule 18a–8 occurs.544 H. Delegation of Authority In recognition of the adoption in this document of recordkeeping, reporting, and notification requirements for SBSDs and MSBSPs, securities count requirements applicable to certain SBSDs, and additional recordkeeping requirements applicable to broker￾dealers to account for their security￾based swap and swap activities in accordance with the Dodd-Frank Act, the Commission is amending its rule governing delegations of authority to the Director of the Division of Trading and Markets (‘‘Division’’).

545See paragraph (a)(65)(i) of Rule 30–3 under the Exchange Act, as amended. 546See 5 U.S.C. 553(b)(3)(A). 547See 5 U.S.C. 804(3)(C). 548See 5 U.S.C. 603. 549See 15 U.S.C. 78w(a)(2). 550The Commission proposed rules on May 10, 2019 which include rules and/or guidance regarding security-based swap transactions ‘‘arranged, negotiated, or executed’’ by personnel located in the United States, the cross-border scope of the SBSD de minimis exception, the certification and opinion of counsel requirement of Rule 15Fb2– 1, the questionnaire and application requirement of Rule 18a–5, and the cross-border application of the statutory disqualification prohibition within
Section 15F(b)(6) of the Exchange Act. See Cross￾Border Application Proposing Release, 84 FR at
24206.
551See Capital, Margin, and Segregation Adopting Release, 84 FR at 43954–57. Moreover, as explained in that release, the Registration Compliance Date will also be the compliance date for (1) nonbank SBSD and MSBSP capital and margin requirements; (2) SBSD and MSBSP segregation requirements; (3) SBSD and MSBSP business conduct and chief compliance officer requirements; and (4) SBSD and MSBSP trade acknowledgement and verification requirements. See also Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 30081; see also Trade Acknowledgment and Verification of Security￾Based Swap Transactions, 81 FR 39807. 552See SIFMA 9/5/2014 Letter. 553See Recordkeeping and Reporting Proposing Release, 79 FR at 25197 (‘‘The recordkeeping, reporting, notification, and securities count requirements applicable to broker-dealers are an integral part of the financial responsibility rules as they are designed to provide transparency into the business activities of broker-dealers and to assist the Commission and other securities regulators in reviewing and monitoring compliance with the capital, margin, and segregation requirements.’’). 554See Letter from Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy and Advocacy, Securities Industry and Financial Markets Association (Aug. 13, 2012) (‘‘SIFMA 8/13/ 2012 Letter’’). See also Memorandum from Richard E. Grant, Office of Commissioner Michael S. Piwowar, regarding an email from Sarah A. Miller, Chief Executive Officer, Institute of International Bankers (Nov. 16, 2016) (‘‘IIB 11/16/2016 Letter’’). 555See Statement of General Policy on the Sequencing of the Compliance Dates for Final Rules Applicable to Security-Based Swaps Adopted Pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange Act Release No. 67177 (June 11, 2012), 77 FR 35625 (June 14, 2012). Comments on the sequencing policy statement which are relevant to the Commission’s recordkeeping and reporting requirements are available at http://www.sec.gov/comments/s7–05– 12/s70512.shtml. 556See Letter from Chris Barnard (Aug. 13, 2012). Because OTC derivatives dealers will be required to file FOCUS Report Part II instead of FOCUS Report Part IIB, the reference to FOCUS Report Part IIB is being changed to FOCUS Report Part II. Specifically, paragraph (a)(65) of 17 CFR 200.30–3 (‘‘Rule 30–3’’) is being amended to delegate authority to the Division to authorize the issuance of orders requiring OTC derivatives dealers to file FOCUS Report Part II instead of FOCUS Report Part IIB. In addition, due to re-numbering of paragraphs as a result of these amendments, paragraph (a)(30) of Rule 30–3 is amended to cross￾reference paragraph (a)(3) instead of paragraph (a)(4) of Rule 17a–5. Finally, paragraph (a)(65)’s cross-reference to Rule 17a–12 is corrected to read ‘‘§ 240.17a–12(a)(1)(ii)’’ instead of ‘‘§ 240.17a–12(a)(ii),’’ 545 and
paragraph (a)(5)’s cross-reference to Rule 17a–5 is corrected to read ‘‘§ 240.17a–5(m)(3) of this chapter (Rule 17a–5(m)(3))’’ instead of ‘‘Rule 17a–5(1)(3) (§ 240.17a–5(1)(3) of this chapter).’’ These delegations of authority are intended to preserve Commission resources and increase the effectiveness and efficiency of the Commission’s oversight of compliance with the financial responsibility rules. Nevertheless, the Division may submit matters to the Commission for its consideration, as it deems appropriate. Administrative Law Matters The Commission finds, in accordance with the Administrative Procedure Act (‘‘APA’’),546 that these amendments relate solely to agency organization, procedure, or practice, and do not relate to a substantive rule. Accordingly, the provisions of the APA regarding notice of rulemaking, opportunity for public comment, and publication of the amendment prior to its effective date are not applicable. For the same reason, and because this amendment does not substantively affect the rights or obligations of non-agency parties, the provisions of the Small Business Regulatory Enforcement Fairness Act,547 are not applicable. Additionally, the provisions of the Regulatory Flexibility Act, which apply only when notice and comment are required by the APA or other law,548 are not applicable. Further, because this amendment imposes no new burdens on private persons, the Commission does not believe that the amendment will have any anti￾competitive effects for purposes of
Section 23(a)(2) of the Exchange Act.549
Finally, this amendment does not contain any collection of information requirements as defined by the Paperwork Reduction Act of 1980, as amended.
III. Explanation of Dates
A. Effective Date
These final rules will be effective 60 days following publication of this release in the Federal Register. B. Compliance Date The compliance date for the rules being adopted in this document, other than the amendments to Rule 3a71–6 discussed below, will be 18 months after the effective date of any final rules originally proposed in May 2019 addressing the cross-border application of certain security-based swap requirements.550 As set forth recently in the release adopting capital, margin, and segregation requirements, this compliance date will also be the compliance date for SBSD and MSBSP registration requirements (the ‘‘Registration Compliance Date’’).551 The Commission believes the compliance date provided in this release, which will be in excess of 18 months, will allow sufficient time to prepare for and come into compliance with the new recordkeeping and reporting requirements. A commenter asked to delay cross￾border application of the Commission’s recordkeeping and reporting rules with respect to home jurisdiction regulations that have not yet been finalized, as a preferable solution to requiring foreign firms to build the technological, operational, and compliance systems required to comply with U.S. law for a short, interim period if the home jurisdiction is ultimately deemed comparable for substituted compliance purposes.552 The commenter’s concerns should be mitigated by the extended compliance date applicable to the rules being adopted in this document. The Commission believes that such a delay would not be appropriate because a comprehensive set of records will be integral to the Commission’s ability to exercise its regulatory responsibilities once these firms are registered.553 In addition, as discussed below in section III.D. of this release, to address concerns that the compliance date could be before substituted compliance determinations are made, the Commission would consider substituted compliance requests that are submitted prior to the compliance date. Finally, one commenter stated that SBSDs and MSBSPs will require adequate time following registration to begin complying with substantive Title VII requirements, since considerable resources will be needed to amend recordkeeping systems and documentation processes between finalization of recordkeeping and documentation rules and the initial compliance dates for those rules.554 Regarding the Commission’s policy statement on the sequencing of final rules governing security-based swaps,555 another commenter suggested grouping rulemakings into two categories in terms of the applicable compliance date.556 In response, the Commission notes that it has coordinated the compliance dates

557See Order Granting Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Pending Revisions of the Definition of ‘‘Security’’ to Encompass Security￾Based Swaps, Exchange Act Release No. 64795 (July 1, 2011), 76 FR 39927 (July 7, 2011) (‘‘Exchange Act Exemptive Order’’). 558See Exchange Act Exemptive Order at 39938– 39. 559See Exchange Act Exemptive Order at 39940. 560The Recordkeeping Provision Exemptions originally were set to expire on the compliance date for any final rules further defining the terms ‘‘security-based swap’’ and ‘‘eligible contract participant.’’ See Exchange Act Exemptive Order at 39938–39. In the final rules further defining the term ‘‘security-based swap,’’ the Commission extended this expiration date to February 13, 2013. See Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR at 48304. On February 7, 2013, the Commission extended the expiration date until February 11, 2014. See Order Extending Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps, and Request for Comment, Exchange Act Release No. 68864 (Feb. 7, 2013), 78 FR 10218, 10220 (Feb. 13, 2013). On February 5, 2014, the Commission further extended the expiration date until the compliance date set forth in any recordkeeping and reporting rules for SBSDs and MSBSPs. See Order Extending Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps, and Request for Comment, Exchange Act Release No. 71485 (Feb. 5, 2014), 79 FR 7731, 7734 (Feb. 10, 2014) (‘‘Exchange Act Exemption Extension Order’’). 561See Exchange Act Exemptive Order at 39939. 562The Dealer Exemptions originally were set to expire on the compliance date for any final rules further defining the terms ‘‘security-based swap’’ and ‘‘eligible contract participant.’’ See Exchange Act Exemptive Order at 39938, 39940. In the final rules further defining the term ‘‘security-based swap,’’ the Commission extended this expiration date to February 13, 2013. See Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security￾Based Swap Agreement’’; Mixed Swaps; Security￾Based Swap Agreement Recordkeeping, 77 FR at
48304. On February 7, 2013, the Commission again
extended the expiration date until February 11,
2014. See Order Extending Temporary Exemptions
under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps, and Request for Comment, 78 FR at 10220. On February 5, 2014, the Commission further extended the expiration date until the later of the compliance dates set forth in any final rules regarding capital, margin, and segregation requirements for SBSDs and MSBSPs and any final rules regarding recordkeeping and reporting requirements for SBSDs and MSBSPs. See Exchange Act Exemption Extension Order at 7734–35. 563See Exchange Act Exemptive Order at 39939. 564The Broker Exemptions originally were set to expire on the compliance date for any final rules further defining the terms ‘‘security-based swap’’ and ‘‘eligible contract participant.’’ See Exchange Act Exemptive Order at 39938, 39940. In the final rules further defining the term ‘‘security-based swap,’’ the Commission extended this expiration Continued for the Commission’s: (1) SBSD and MSBSP registration requirements; (2) nonbank SBSD and MSBSP capital and margin requirements; (3) SBSD and MSBSP segregation requirements; (4) SBSD and MSBSP recordkeeping and reporting requirements; (5) SBSD and MSBSP business conduct and chief compliance officer requirements; (6) SBSD and MSBSP trade acknowledgement and verification requirements; and (7) statutory disqualification process. The Commission also does not believe it would be appropriate to delay the compliance date for the Commission’s recordkeeping rules beyond the compliance date for the rules establishing the registration process for SBSDs and MSBSPs, because this would undermine the Commission’s ability to effectively regulate and supervise registrants.
C. Effect on Existing Commission
Exemptive Relief
On July 1, 2011, the Commission issued an order granting, among other things, temporary exemptive relief from compliance with certain recordkeeping and reporting provisions of the Exchange Act that would have applied to the security-based swap activities of registered broker-dealers due to the expansion of the Exchange Act definition of ‘‘security’’ to include security-based swaps.557 The compliance dates of this release implicate the expiration of this temporary exemptive relief related to registered broker-dealer recordkeeping and reporting requirements. With regard to the recordkeeping and reporting obligations of registered broker-dealers, the Exchange Act Exemptive Order provided limited exemptions for registered broker￾dealers, subject to certain conditions and limitations, from compliance with Sections 17(a) and 17(b) of the Exchange Act and Rules 17a–3, 17a–4, 17a–5, 17a–11, and 17a–13 (collectively, ‘‘the Recordkeeping Provision Exemptions’’) in connection with security-based swaps solely to the extent the provisions or rules did not apply to the broker￾dealer’s security-based swap positions or activities as of July 15, 2011.558 The Exchange Act Exemptive Order also provided that, until such time as the underlying exemptive relief expires, no contract entered into on or after July 16, 2011 shall be void or considered voidable by reason of Section 29(b) of the Exchange Act because any person that is a party to the contract violated a provision of the Exchange Act for which the Commission provided exemptive relief in the Exchange Act Exemptive Order (‘‘Section 29(b) Exemption).559 The Recordkeeping Provision Exemptions are scheduled to expire on the compliance date for any final rules regarding recordkeeping and reporting requirements for SBSDs and MSBSPs.560 Accordingly, all the Recordkeeping Provision Exemptions, together with the portion of the Section 29(b) Exemption that relates to the Exchange Act provisions for which the Commission provided exemptive relief in the Recordkeeping Provision Exemptions, will expire upon the compliance date set forth in section III.B. of this release. In addition, the Commission also has provided an exemption from the ‘‘dealer’’ registration requirements of
Section 15(a)(1) of the Exchange Act,
and the other requirements of the Exchange Act and the rules and regulations thereunder that apply to a dealer that is not registered with the Commission, solely in connection with dealing activities involving security￾based swaps with counterparties that meet the definition of eligible contract participant as set forth in Section 1a(12) of the CEA as in effect on July 20, 2010 (‘‘Dealer Exemptions’’).561 The Dealer Exemptions are scheduled to expire on the later of the compliance dates set forth in any final rules regarding capital, margin, and segregation requirements for SBSDs and MSBSPs and any final rules regarding recordkeeping and reporting requirements for SBSDs and MSBSPs 562 As noted in section III.B. of this release, both relevant compliance dates will be 18 months after the effective date of any final rules addressing the cross-border application of certain security-based swap requirements or the Registration Compliance Date. Accordingly, all of the Dealer Exemptions, together with the portion of the Section 29(b) Exemption that relates to the Exchange Act provisions for which the Commission provided exemptive relief in the Dealer Exemptions, will expire upon the Registration Compliance Date. Finally, the Commission has provided an exemption from the ‘‘broker’’ registration requirements of Section 15(a)(1) of the Exchange Act, and the other requirements of the Exchange Act and the rules and regulations thereunder that apply to a broker that is not registered with the Commission, solely in connection with broker activities involving security-based swaps (‘‘Broker Exemptions’’).563 The Broker Exemptions are scheduled to expire on the later of the compliance dates set forth in any final rules regarding capital, margin, and segregation requirements for SBSDs and MSBSPs and any final rules regarding recordkeeping and reporting requirements for SBSDs and MSBSPs.564

date to February 13, 2013. See Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security￾Based Swap Agreement’’; Mixed Swaps; Security￾Based Swap Agreement Recordkeeping, 77 FR at
48304. On February 7, 2013, the Commission again
extended the expiration date until February 11,
2014. See Order Extending Temporary Exemptions
under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps, and Request for Comment, 78 FR at 10220. On February 5, 2014, the Commission further extended the expiration date until the later of the compliance dates set forth in any final rules regarding capital, margin, and segregation requirements for SBSDs and MSBSPs and any final rules regarding recordkeeping and reporting requirements for SBSDs and MSBSPs. See Exchange Act Exemption Extension Order at 7734–35. 565Registration and Regulation of Security-Based Swap Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011), 76 FR 10948, 10959 (Feb. 28, 2011). 566See Temporary Exemptions and Other Temporary Relief, Together with Information on Compliance Dates for New Provisions of the Securities Exchange Act of 1934 Applicable to Security-Based Swaps, Exchange Act Release No. 64678 (June 15, 2011), 76 FR 36287, 36292–93, 36306 (June 22, 2011). 567See id. 568See 15 U.S.C. 78mm. 569See 44 U.S.C. 3501 et seq. 570See 44 U.S.C. 3507(d); 5 CFR 1320.11. 571The hourly rates use for internal professionals used throughout this section IV. of the release are taken from SIFMA’s Management & Professional Earnings in the Securities Industry 2013, modified to account for an 1800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead, in addition to SIFMA’s Office Salaries in the Securities Industry 2013, modified by Commission staff to account for an 1800-hour work￾year and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee benefits, and overhead. However, the Commission has stated that an entity that meets the definition of ‘‘security-based swap execution facility’’ in Section 3(a)(77) of the Exchange Act also would meet the definition of ‘‘broker’’ in Section 3(a)(4) of the Act.565 The Commission also has granted temporary exemptions from the registration requirements for security￾based swap execution facilities in
Section 3D(a)(1) of the Exchange Act
and from certain disclosure requirements in Section 3D(c) of the Exchange Act (‘‘SB SEF Exemptions’’).566 The SB SEF Exemptions will expire on the earliest compliance date set forth in any of the final rules regarding registration of security-based swap execution facilities.567 The Commission recognizes that market participants who currently rely on the SB SEF Exemptions pending the Commission’s finalization of registration rules for security-based swap execution facilities may also currently rely on the Broker Exemptions. The Commission therefore finds that it is necessary and appropriate in the public interest and consistent with the protection of investors to extend the Broker Exemptions, insofar as they apply to persons and activities subject to the SB SEF Exemptions, until the expiration date for the SB SEF Exemptions.568 Accordingly, solely for purposes of the Exchange Act Exemption Extension Order as it relates to exemption from the ‘‘broker’’ registration requirements of
Section 15(a)(1) of the Exchange Act and
the other requirements of the Exchange Act and the rules and regulations thereunder that apply to a broker that is not registered with the Commission, and solely in connection with the operation of a facility for the trading or processing of security-based swaps that is not currently registered as a national securities exchange or as a security￾based swap execution facility (‘‘SB SEF Broker Exemptions’’), the compliance date is the expiration date of the SB SEF Exemptions. Similarly, solely for purposes of the Exchange Act Exemption Extension Order as it relates to the portion of the Section 29(b) Exemption that relates to the Exchange Act provisions for which the Commission provided exemptive relief in the SB SEF Broker Exemptions, the compliance date set forth in this release is the expiration date of the SB SEF Exemptions. All other portions of the Broker Exemptions, together with the portion of the Section 29(b) Exemption that relates to the Exchange Act provisions for which the Commission provided exemptive relief in these other portions of the Broker Exemptions, will expire upon the Registration Compliance Date. D. Application to Substituted Compliance For the amendments to Rule 3a71–6 being adopted in this release to provide foreign SBSDs and MSBSPs with the potential to utilize substituted compliance with comparable foreign requirements to satisfy Section 15F of the Exchange Act and new Exchange Act Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9, consistent with the other rules adopted in this document, the Commission is adopting an effective date of 60 days following publication in the Federal Register. There will be no separate compliance date in connection with that rule amendment, as the rule does not impose obligations upon entities. As discussed above, SBSDs and MSBSPs will not be required to comply with the recordkeeping and reporting requirements until they are registered, and the registration requirement for those entities will not be triggered until a number of regulatory benchmarks have been met. In practice, the Commission recognizes that if the requirements of a foreign regime are comparable to Title VII requirements, and the other prerequisites to substituted compliance also have been satisfied, then it may be appropriate to permit an SBSD or MSBSP to rely on substituted compliance commencing at the time that entity is registered with the Commission. Accordingly, to address commenters’ concerns that the compliance date could be before substituted compliance determinations are made, the Commission would consider substituted compliance requests that are submitted prior to the compliance date for its recordkeeping and reporting requirements.
IV. Paperwork Reduction Act
Certain provisions of the rule amendments and new rules being adopted in this release contain a new ‘‘collection of information’’ within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).569 The Commission submitted the rule amendments and new rules to the Office of Management and Budget (‘‘OMB’’) for review and approval in accordance with the PRA.570 The Commission’s earlier PRA assessments have been revised to reflect the modifications to the rules and amendments from those that were proposed, as well as additional information and data now available to the Commission.571 An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The titles and OMB control numbers for the collections of information are:
Rule Rule title OMB control No.
Rule 17a–3 .... Records to be made by certain exchange members, brokers and dealers ........................................................... 3235–0033 Rule 17a–4 .... Records to be preserved by certain exchange members, brokers and dealers .................................................... 3235–0279 Rule 17a–5 .... Reports to be made by certain brokers and dealers .............................................................................................. 3235–0123

572See Rule 18a–5, as adopted. 573See SIFMA 9/5/2014 Letter. 574See paragraph (b) of Rule 17a–3, as amended; paragraph (c) of Rule 18a–5, as adopted. Rule Rule title OMB control No. Rule 17a–11 .. Notification provisions for brokers and dealers ....................................................................................................... 3235–0085 Rule 17a–12 .. Reports to be made by certain OTC derivatives dealers ....................................................................................... 3235–0498 Rule 18a–5 .... Records to be made by certain security-based swap dealers and major security-based swap participants ........ 3235–0745 Rule 18a–6 .... Records to be preserved by certain security-based swap dealers and major security-based swap participants 3235–0751 Rule 18a–7 .... Reports to be made by certain security-based swap dealers and major security-based swap participants ......... 3235–0749 Rule 18a–8 .... Notification provisions for security-based swap dealers and major security-based swap participants .................. 3235–0750 Rule 18a–9 .... Quarterly security counts to be made by certain security-based swap dealers ..................................................... 3235–0752 Rule 18a–10 .. Alternative compliance mechanism for security-based swap dealers that are registered as swap dealers and have limited security-based swap activities. 3235–0702 Rule 3a71–6 .. Substituted compliance for security-based swap dealers and major security-based swap participants ............... 3235–0715 A. Summary of Collections of Information Under the Rule Amendments and New Rules

1. Amendments to Rule 17a–3 and New
   Rule 18a–5
   Rule 17a–3 requires a broker-dealer to make and keep current certain records. The Commission is amending this rule to account for the security-based swap and swap activities of broker-dealers, including broker-dealer SBSDs and MSBSPs. With respect to stand-alone SBSDs and MSBSPs, and bank SBSDs and MSBSPs, the Commission is adopting new Rule 18a–5—which is modeled on Rule 17a–3, as amended— to require these registrants to make and keep current certain records.572 Rule 18a–5 does not include a parallel requirement for every requirement in Rule 17a–3. Paragraph (a) of Rule 18a– 5 contains recordkeeping requirements for stand-alone SBSDs and MSBSPs, and paragraph (b) contains recordkeeping requirements for bank SBSDs and MSBSPs that are more limited in scope. The amendments to Rule 17a–3 and new Rule 18a–5 establish a number of new collections of information, as summarized in the table below. Stand-alone broker-dealers Non-model broker-dealer SBSDs ANC broker￾dealer SBSDs Broker-dealer MSBSPs Non-model stand-alone SBSDs Model stand-alone SBSDs Bank SBSDs Stand-alone MSBSPs Trade blotters .................... * 17a–3(a)(1) * 17a–3(a)(1) * 17a–3(a)(1) * 17a–3(a)(1) 18a–5(a)(1) 18a–5(a)(1) 18a–5(b)(1) 18a–5(a)(1) General ledger .................. ........................ ........................ ........................ ........................ 18a–5(a)(2) 18a–5(a)(2) ........................ 18a–5(a)(2) Ledgers for customer and non-customer accounts * 17a–3(a)(3) * 17a–3(a)(3) * 17a–3(a)(3) * 17a–3(a)(3) 18a–5(a)(3) 18a–5(a)(3) 18a–5(b)(2) 18a–5(a)(3) Stock record ...................... * 17a–3(a)(5) * 17a–3(a)(5) * 17a–3(a)(5) * 17a–3(a)(5) 18a–5(a)(4) 18a–5(a)(4) 18a–5(b)(3) 18a–5(a)(4) Memoranda of brokerage
   orders ............................. * 17a–3(a)(6) * 17a–3(a)(6) * 17a–3(a)(6) * 17a–3(a)(6) ........................ ........................ 18a–5(b)(4) ........................
   Memoranda of proprietary orders ............................. * 17a–3(a)(7) * 17a–3(a)(7) * 17a–3(a)(7) * 17a–3(a)(7) 18a–5(a)(5) 18a–5(a)(5) 18a–5(b)(5) 18a–5(a)(5) Confirmations .................... * 17a–3(a)(8) * 17a–3(a)(8) * 17a–3(a)(8) * 17a–3(a)(8) 18a–5(a)(6) 18a–5(a)(6) 18a–5(b)(6) 18a–5(a)(6) Accountholder information * 17a–3(a)(9) * 17a–3(a)(9) * 17a–3(a)(9) * 17a–3(a)(9) 18a–5(a)(7) 18a–5(a)(7) 18a–5(b)(7) 18a–5(a)(7) Options positions ............... ........................ ........................ ........................ ........................ 18a–5(a)(8) 18a–5(a)(8) ........................ 18a–5(a)(8) Trial balances and com￾putation of net capital .... ........................ ........................ ........................ ........................ 18a–5(a)(9) 18a–5(a)(9) ........................ 18a–5(a)(9) Associated person’s em￾ployment application ...... ........................ ........................ ........................ ........................ 18a–5(a)(10) 18a–5(a)(10) 18a–5(b)(8) 18a–5(a)(10) Account equity and margin calculations under Rule 18a–3 ............................. ........................ 17a–3(a)(25) 17a–3(a)(25) 17a–3(a)(25) 18a–5(a)(12) 18a–5(a)(12) ........................ 18a–5(a)(12)
   Possession or control re￾quirements for security￾based swap customers .. 17a–3(a)(26) 17a–3(a)(26) 17a–3(a)(26) 17a–3(a)(26) 18a–5(a)(13) 18a–5(a)(13) 18a–5(b)(9) ........................
   Security-based swap cus￾tomer reserve require￾ments ............................. 17a–3(a)(27) 17a–3(a)(27) 17a–3(a)(27) 17a–3(a)(27) 18a–5(a)(14) 18a–5(a)(14) 18a–5(b)(10) ........................
   Unverified transactions ...... ........................ 17a–3(a)(28) 17a–3(a)(28) 17a–3(a)(28) 18a–5(a)(15) 18a–5(a)(15) 18a–5(b)(11) 18a–5(a)(15)
   Political contributions ........ ........................ 17a–3(a)(29) 17a–3(a)(29) ........................ 18a–5(a)(16) 18a–5(a)(16) 18a–5(b)(12) ........................
   Compliance with business conduct requirements .... ........................ 17a–3(a)(30) 17a–3(a)(30) 17a–3(a)(30) 18a–5(a)(17) 18a–5(a)(17) 18a–5(b)(13) 18a–5(a)(17)

• The Commission is amending these pre-existing paragraphs of Rule 17a–3 to account for the security-based swap and swap activities of broker-dealers, including
  broker-dealer SBSDs and MSBSPs.
  A commenter urged the Commission to harmonize its recordkeeping requirements for SBSDs and MSBSPs with the CFTC’s final recordkeeping requirements for swap dealers and major swap participants to the maximum extent possible, with the goal of permitting firms to utilize a single recordkeeping system for swaps and security-based swaps.573 As discussed in more detail above, in response to the comment and to promote harmonization with CFTC requirements, the Commission is adopting a limited alternative compliance mechanism in Rules 17a–3 and 18a–5.574 In particular, an SBSD or MSBSP that also is registered with the CFTC as a swap dealer or major swap participant may comply with the recordkeeping requirements of the CEA and the rules thereunder applicable to swap dealers and major swap participants in lieu of complying with the requirements in Rules 17a–3 and 18a–5 to make and keep current trade blotters, customer account ledgers, and stock records

575See Rule 18a–6, as adopted. solely with respect to information required to be included in these records regarding security-based swap transactions and positions if the SBSD or MSBSP meets certain conditions. The conditions include, among other things, that the SBSD or MSBSP preserves all of the data elements necessary to create these records as they pertain to security￾based swap and swap transactions and upon request promptly furnishes to representatives of the Commission such records that includes security-based swap and swap transactions and positions in the format required by Rule 17a–3 or 18a–5, as applicable. This provision will permit an SBSD or MSBSP that also is registered with the CFTC as a swap dealer or major swap participant to maintain a single recordkeeping system for security-based swap and swap transactions and positions in accordance with the CFTC’s rules with respect to these required records.
2. Amendments to Rule 17a–4 and New
Rule 18a–6
Rule 17a–4 requires a broker-dealer to preserve certain records if it makes or receives them and prescribes the time period and the manner in which records must be preserved. The Commission is amending this rule to account for the security-based swap and swap activities of broker-dealers, including broker￾dealer SBSDs and MSBSPs. With respect to stand-alone SBSDs, stand￾alone MSBSPs, bank SBSDs, and bank MSBSPs, the Commission is adopting new Rule 18a–6—which is modeled on Rule 17a–4, as amended. Rule 18a–6 does not include a parallel requirement for every requirement in Rule 17a–4, and the recordkeeping requirements in Rule 18a–6 applicable to bank SBSDs and MSBSPs are more limited in scope than the requirements in the rule applicable to stand-alone SBSDs and MSBSPs. As discussed above, the records a broker-dealer, including a broker-dealer SBSD or MSBSP, is required to maintain and preserve under Rules 17a–3 and 17a–4 may be maintained and preserved by means of electronic storage media. The use of electronic storage media is subject to certain conditions, including that the media must preserve the records exclusively in a non-rewriteable and non-erasable format. In response to comment, the Commission is modifying Rule 18a–6 to eliminate the requirement that the electronic storage system preserve the records exclusively in a non-rewriteable and non-erasable format.575 The amendments to Rule 17a–4 and new Rule 18a–6 establish a number of new collections of information, as summarized in the table below. Stand-alone broker-dealers Non-model broker-dealer SBSDs ANC broker￾dealer SBSDs Broker-dealer MSBSPs Non-model stand-alone SBSDs Model stand￾alone SBSDs Bank SBSDs Stand-alone MSBSPs Records to be preserved for a period of not less than 6 years Trade blotters .................... ........................ ........................ ........................ ........................ 18a–6(a)(1) citing 18a– 5(a)(1) 18a–6(a)(1) citing 18a– 5(a)(1) 18a–6(a)(2) citing 18a– 5(b)(1) 18a–6(a)(1) citing 18a– 5(a)(1) General ledger .................. ........................ ........................ ........................ ........................ 18a–6(a)(1) citing 18a– 5(a)(2) 18a–6(a)(1) citing 18a– 5(a)(2) ........................ 18a–6(a)(1) citing 18a– 5(a)(2) Ledgers for customer and non-customer accounts ........................ ........................ ........................ ........................ 18a–6(a)(1) citing 18a– 5(a)(3) 18a–6(a)(1) citing 18a– 5(a)(3) 18a–6(a)(2) citing 18a– 5(b)(2) 18a–6(a)(1) citing 18a– 5(a)(3) Stock record ...................... ........................ ........................ ........................ ........................ 18a–6(a)(1) citing 18a– 5(a)(4) 18a–6(a)(1) citing 18a– 5(a)(4) 18a–6(a)(2) citing 18a– 5(b)(3) 18a–6(a)(1) citing 18a– 5(a)(4) Records to be preserved for a period of not less than 3 years Memoranda of brokerage orders ............................. ........................
........................ ........................ ........................ ........................ ........................ 18a–6 (b)(2)(i) citing 18a–5(b)(4)
........................
Memoranda of proprietary orders ............................. ........................ ........................ ........................ ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(5) 18a–6 (b)(1)(i) citing 18a–5(a)(5) 18a–6 (b)(2)(i) citing 18a–5(b)(5) 18a–6 (b)(1)(i) citing 18a–5(a)(5) Confirmations .................... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(6) 18a–6 (b)(1)(i) citing 18a–5(a)(6) 18a–6 (b)(2)(i) citing 18a–5(b)(6) 18a–6 (b)(1)(i) citing 18a–5(a)(6) Accountholder information ........................ ........................ ........................ ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(7) 18a–6 (b)(1)(i) citing 18a–5(a)(7) 18a–6 (b)(2)(i) citing 18a–5(b)(7) 18a–6 (b)(1)(i) citing 18a–5(a)(7) Options positions ............... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(8) 18a–6 (b)(1)(i) citing 18a–5(a)(8) ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(8) Trial balances and com￾putation of net capital .... 17a–4(b)(1) citing 17a– 3(a)(11) 17a–4(b)(1) citing 17a– 3(a)(11) 17a–4(b)(1) citing 17a– 3(a)(11) 17a–4(b)(1) citing 17a– 3(a)(11) 18a–6 (b)(1)(i) citing 18a–5(a)(9) 18a–6 (b)(1)(i) citing 18a–5(a)(9) ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(9) Account equity and margin calculations under new Rule 18a–3 .................... ........................ 17a–4(b)(1) citing 17a– 3(a)(25) 17a–4(b)(1) citing 17a– 3(a)(25) 17a–4(b)(1) citing 17a– 3(a)(25) 18a–6 (b)(1)(i) citing 18a–5(a)(12) 18a–6 (b)(1)(i) citing 18a–5(a)(12) ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(12)

576See section II.B.3.a. of this release (discussing the requirement to file annual reports and the qualifications of independent public accountants). 577Paragraph (p) of Rule 17a–5 provides that an OTC derivatives dealer may comply with Rule 17a– 5 by complying with the provisions of Rule 17a– 12. Stand-alone broker-dealers Non-model broker-dealer SBSDs ANC broker￾dealer SBSDs Broker-dealer MSBSPs Non-model stand-alone SBSDs Model stand￾alone SBSDs Bank SBSDs Stand-alone MSBSPs Possession or control re￾quirements for security￾based swap customers .. 17a–4(b)(1) citing 17a– 3(a)(26) 17a–4(b)(1) citing 17a– 3(a)(26) 17a–4(b)(1) citing 17a– 3(a)(26) 17a–4(b)(1) citing 17a– 3(a)(26) 18a–6 (b)(1)(i) citing 18a–5(a)(13) 18a–6 (b)(1)(i) citing 18a–5(a)(13) 18a–6 (b)(2)(i) citing 18a–5(b)(9)
........................
Security-based swap cus￾tomer reserve require￾ments ............................. 17a–4(b)(1) citing 17a– 3(a)(27) 17a–4(b)(1) citing 17a– 3(a)(27) 17a–4(b)(1) citing 17a– 3(a)(27) 17a–4(b)(1) citing 17a– 3(a)(27) 18a–6 (b)(1)(i) citing 18a–5(a)(14) 18a–6 (b)(1)(i) citing 18a–5(a)(14) 18a–6 (b)(2)(i) citing 18a–5(b)(10)
........................
Unverified transactions ...... ........................ 17a–4(b)(1) citing 17a– 3(a)(28) 17a–4(b)(1) citing 17a– 3(a)(28) 17a–4(b)(1) citing 17a– 3(a)(28) 18a–6 (b)(1)(i) citing 18a–5(a)(15) 18a–6 (b)(1)(i) citing 18a–5(a)(15) 18a–6 (b)(2)(i) citing 18a–5(b)(11) 18a–6 (b)(1)(i) citing 18a–5(a)(15) Political contributions ........ ........................ 17a–4(b)(1) citing 17a– 3(a)(29) 17a–4(b)(1) citing 17a– 3(a)(29) ........................ 18a–6 (b)(1)(i) citing 18a–5(a)(16) 18a–6 (b)(1)(i) citing 18a–5(a)(16) 18a–6 (b)(2)(i) citing 18a–5(b)(12)
........................
Compliance with business conduct requirements .... ........................ 17a–4(b)(1) citing 17a-3(a)(30) 17a–4(b)(1) citing 17a-3(a)(30) 17a–4(b)(1) citing 17a-3(a)(30) 18a–6 (b)(1)(i) citing 18a–5(a)(17) 18a–6 (b)(1)(i) citing 18a–5(a)(17) 18a–6 (b)(2)(i) citing 18a–5(b)(13) 18a–6 (b)(1)(i) citing 18a–5(a)(17) Bank records ..................... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(ii) 18a–6 (b)(1)(ii) ........................ 18a–6 (b)(1)(ii) Bills .................................... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(iii) 18a–6 (b)(1)(iii) ........................ 18a–6 (b)(1)(iii) Communications ................ 17a–4(b)(4)* 17a–4(b)(4)* 17a–4(b)(4)* 17a–4(b)(4)* 18a–6 (b)(1)(iv) 18a–6 (b)(1)(iv) 18a–6 (b)(2)(ii) 18a–6 (b)(1)(iv) Trial balances .................... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(v) 18a–6 (b)(1)(v) ........................ 18a–6 (b)(1)(v) Account documents ........... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(vi) 18a–6 (b)(1)(vi) 18a–6 (b)(2)(iii) 18a–6 (b)(1)(vi) Written agreements ........... 17a–4(b)(7)* 17a–4(b)(7)* 17a–4(b)(7)* 17a–4(b)(7)* 18a–6 (b)(1)(vii) 18a–6 (b)(1)(vii) 18a–6 (b)(2)(iv) 18a–6 (b)(1)(vii) Information supporting fi￾nancial reports ............... 17a–4(b)(8)* 17a–4(b)(8)* 17a–4(b)(8)* 17a–4(b)(8)* 18a–6 (b)(1)(viii) 18a–6 (b)(1)(viii) 18a–6 (b)(2)(v) 18a–6 (b)(1)(viii) Rule 15c3–4 risk manage￾ment records (OTC de￾rivatives dealers only) .... ........................ ........................ ........................ ........................ 18a–6 (b)(1)(ix) 18a–6 (b)(1)(ix) ........................ 18a–6 (b)(1)(ix) Credit risk determinations ........................ ........................ ........................ ........................ ........................ 18a–6 (b)(1)(x)
........................ ........................
Regulation SBSR informa￾tion ................................. 17a–4(b)(14) 17a–4(b)(14) 17a–4(b)(14) 17a–4(b)(14) 18a–6 (b)(1)(xi) 18a–6 (b)(1)(xi) 18a–6 (b)(2)(vi) 18a–6 (b)(1)(xi) Records relating to busi￾ness conduct standards ........................ 17a–4(b)(15) 17a–4(b)(15) 17a–4(b)(15) 18a–6 (b)(1)(xii) 18a–6 (b)(1)(xii) 18a–6 (b)(2)(vii) 18a–6 (b)(1)(xii) Special entity documents .. ........................ 17a–4(b)(16) 17a–4(b)(16) 17a–4(b)(16) 18a–6 (b)(1)(xiii) 18a–6 (b)(1)(xiii) 18a–6 (b)(2)(viii) 18a–6 (b)(1)(xiii) Associated person’s em￾ployment application ...... ........................ ........................ ........................ ........................ 18a–6(d)(1) 18a–6(d)(1) 18a–6(d)(1) 18a–6(d)(1) Regulatory authority re￾ports ............................... ........................ ........................ ........................ ........................ 18a–6 (d)(2)(i) 18a–6 (d)(2)(i) 18a–6 (d)(2)(ii) 18a–6 (d)(2)(i) Compliance, supervisory, and procedures manuals ........................ ........................ ........................ ........................ 18a–6 (d)(3)(i) 18a–6 (d)(3)(i) 18a–6 (d)(3)(ii) 18a–6 (d)(3)(i) Life of the enterprise and of any successor enterprise Corporate documents ........ 17a–4(d)* 17a–4(d)* 17a–4(d)* 17a–4(d)* 18a–6(c) 18a–6(c) ........................ 18a–6(c)

• The Commission is amending these pre-existing paragraphs of Rule 17a–4 to account for the security-based swap and swap activities of broker-dealers, including
  broker-dealer SBSDs and MSBSPs.

3. Amendments to Rule 17a–5 and New
   Rule 18a–7
   Rule 17a–5, the broker-dealer reporting rule, requires, among other things, that broker-dealers file periodic unaudited reports about their financial and operational condition using the FOCUS Report form; and that broker￾dealers annually file financial statements and certain reports, as well as reports covering those statements and reports prepared by an independent public accountant registered with the PCAOB, in accordance with PCAOB standards. Rule 17a–5 is being amended to account for the security-based swap activities of entities subject to its requirements and new Rule 18a–7— which is modeled on Rule 17a–5; is being adopted to establish reporting requirements for SBSDs and MSBSPs that will not be subject to Rule 17a–5.576 A stand-alone broker-dealer, including a stand-alone OTC derivatives dealer, will continue to be subject to Rule 17a–5.577 Similarly, a broker-dealer, other than an

578See paragraph (f) of Rule 17a–11, as amended. 579See Rule 18a–8, as adopted. 580OTC derivatives dealers dually registered as SBSDs are subject to the reporting requirements of Rule 18a–7. 581OTC derivatives dealers dually registered as SBSDs or MSBSPs will also file FOCUS Report Part II. 582The Commission is not including in Rule 18a– 9, as adopted, provisions that would parallel the provisions in paragraphs (a)(1), (2), and (3) and (e) of Rule 17a–13. These paragraphs of Rule 17a–13 provide exemptions from complying with Rule 17a– 13 for certain types of broker-dealers. The Commission believes that SBSDs will not limit their activities to the types of activities in which the exempt broker-dealers engage. 583See Capital, Margin, and Segregation Adopting Release, 84 FR at 43943–46. 584See Rule 18a–10, as amended. 585See Recordkeeping and Reporting Proposing Release, 79 FR at 25247. OTC derivatives dealer, that is also an SBSD will be subject to Rule 17a–5. A broker-dealer, including an OTC derivatives dealer, that is also an MSBSP will be subject to Rule 17a–5. A stand-alone SBSD will be subject to Rule 18a–7. Similarly, an SBSD that is also an OTC derivatives dealer will be subject to Rule 18a–7. A stand-alone MSBSP will be subject to Rule 18a–7. Finally, a bank SBSD or MSBSP will be subject to Rule 18a–7.
4. Amendments to Rule 17a–11 and
New Rule 18a–8
Rule 17a–11 specifies the circumstances under which a broker￾dealer must notify the Commission and other securities regulators about its financial or operational condition, as well as the form that the notice must take. The Commission is amending Rule 17a–11 to account for the security-based swap activities of broker-dealers.578 The Commission is adopting new Rule 18a– 8—which is modeled on Rule 17a–11, as amended—to establish notification requirements for stand-alone SBSDs and MSBSPs, and bank SBSDs and MSBSPs.579 The amendments to Rule 17a–11 and new Rule 18a–8 establish a number of new collections of information, as summarized in the table below. Non-SBSD/ MSBSP broker-dealers Non-model broker-dealer SBSDs ANC broker￾dealer SBSDs Broker-dealer MSBSPs Model stand-alone SBSDs Non-model stand-alone SBSDs Bank SBSDs Stand-alone MSBSPs Net capital below minimum ........................ ........................ ........................ ........................ 18a–8 (a)(1)(i) 18a–8 (a)(1)(i)
........................ ........................
Tentative net capital below minimum ........................ ........................ ........................ ........................ ........................ 18a–8 (a)(1)(ii)
........................ ........................ ........................
Tangible net worth below minimum ........................ ........................ ........................ ........................ ........................ ........................ ........................ ........................ 18a–8 (a)(2)
Early warning of net capital ........................ ........................ ........................ ........................ 18a–8(b)(1) 18a–8(b)(1) ........................ ........................
Early warning of tentative net capital ...................... ........................ ........................ ........................ ........................ 18a–8 (b)(2)
........................ ........................ ........................
Early warning of tangible net worth ........................ ........................ ........................ ........................ ........................ ........................ ........................ ........................ 18a–8(b)(3)
Backtesting exception ....... ........................ ........................ ........................ ........................ 18a–8(b)(4) ........................ ........................ ........................
Notice of adjustment of re￾ported capital category .. ........................ ........................ ........................ ........................ ........................ ........................ 18a–8(c) ........................
Failure to make and keep current books and records ........................... ........................ ........................ ........................ ........................ 18a–8(d) 18a–8(d) 18a–8(d) 18a–8(d)
Material weakness ............ ........................ ........................ ........................ ........................ 18a–8(e) 18a–8(e) ........................ ........................
Failure to make a required
special reserve deposit .. 17a–11(f) 17a–11(f) 17a–11(f) ........................ 18a–8(g) 18a–8(g) 18a–8(g) ........................
5. Amendments to Rule 17a–12
The amendments to Rule 17a–12, the OTC derivatives dealer reporting rule,580 require OTC derivatives dealers to file FOCUS Report Part II, as amended, instead of FOCUS Report Part IIB by replacing the phrase ‘‘Part II’’ with the phrase ‘‘Part IIB’’ each time it appears in the rule.581
6. New Rule 18a–9
The Commission is adopting new Rule 18a–9, which is modeled on Rule 17a–13, to require stand-alone SBSDs to examine and count the securities they physically hold, account for the securities that are subject to their control or direction but are not in their physical possession, verify the locations of securities under certain circumstances, and compare the results of the count and verification with their records. Rule 18a–9 does not include a parallel requirement for every requirement in Rule 17a–13.582 In addition, Rule 18a–9 does not apply to stand-alone MSBSPs because the customer protection rationale for Rules 17a–13 and 18a–9 is not as pertinent to stand-alone MSBSPs.
7. Amendments to Rule 18a–10
Rule 18a–10 permits certain SBSDs that are registered as swap dealers and that predominantly engage in a swaps business to elect to comply with the capital, margin, and segregation requirements of the CEA and the CFTC’s rules in lieu of complying with the capital, margin, and segregation requirements of Rules 18a–1, 18a–3, and 18a–4.583 The Commission is amending Rule 18a–10 to permit firms that will operate under the rule to elect to comply with the recordkeeping and reporting requirements of the CEA and the CFTC’s rules in lieu of complying with Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9.584 As discussed above, Rule 17a–11 specifies the circumstances under which a broker-dealer must notify the Commission and other regulators about its financial or operational condition, as well as the form of the notice. Stand￾alone and bank SBSDs and MSBSPs are subject to Rule 18a–8, which is modeled on Rule 17a–11 and is designed to provide the Commission with the ability to take effective proactive steps to respond when a firm is experiencing or likely to experience financial difficulty.585 A stand-alone SBSD operating under Rule 18a-10, however, may comply with the notification requirements of the CFTC’s rules in lieu of complying with Rule 18a–8. In order to retain a requirement that the SBSD provide notice to the Commission if it is experiencing or likely to experience financial difficulty, the Commission is

586See paragraph (b)(4) of Rule 18a–10, as amended. 587See paragraph (d)(6) of Rule 3a71–6, as amended. 588See, e.g., Books and Records Requirements for Brokers and Dealers Under the Securities Exchange Act of 1934, 66 FR at 55818 (‘‘The Commission has required that broker-dealers create and maintain certain records so that, among other things, the Commission, [SROs], and State Securities Regulators . . . may conduct effective examinations of broker-dealers’’ (footnote omitted)). 589See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR at 48990. See also Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant’’, 77 FR at 30727. adding paragraph (b)(4) to Rule 18a–10. This paragraph provides that the SBSD must simultaneously notify the Commission if the firm is required to send a notice concerning its capital, books and records, liquidity, margin operations, or segregation operations to the CFTC by transmitting to the Commission a copy of the notice being sent to the CFTC.586
8. Amendments to Rule 3a71–6
In May 2016, the Commission adopted Rule 3a71–6 to provide that foreign SBSDs and MSBSPs could satisfy applicable business conduct requirements under Section 15F by complying with comparable regulatory requirements of a foreign jurisdiction, subject to certain conditions. The Commission is amending Rule 3a71–6 to provide foreign SBSDs and MSBSPs with the option to apply for substituted compliance to satisfy the recordkeeping and reporting requirements of Section 15F of the Exchange Act and Rules 18a– 5, 18a–6, 18a–7, 18a–8, and 18a–9 thereunder.587 B. Use of Information Rules 17a–3 and 17a–4, as amended, and new Rules 18a–5 and 18a–6 are designed, among other things, to promote the prudent operation of broker-dealers, SBSDs, and MSBSPs, and to assist the Commission, SROs, and state securities regulators in conducting effective examinations.588 Thus, the collections of information under the amendments to Rules 17a–3 and 17a–4, and new Rules 18a–5 and 18a–6, are expected to facilitate the examinations of broker-dealers, SBSDs, and MSBSPs. Rules 17a–5, 17a–11, 17a–12, and 18a–10, as amended, and new Rules 18a–7 and 18a-8 are designed to promote compliance with the financial responsibility requirements for broker￾dealers, SBSDs, and MSBSPs, facilitate regulators’ oversight and examinations of such firms, and promote transparency of their financial condition and operation. Rule 18a–9 is designed to promote an SBSD’s custody of securities and accurate accounting for securities. The Commission plans to use the information collected pursuant to Rule 3a71–6, as amended, to evaluate requests for substituted compliance determinations with respect to the recordkeeping and reporting requirements applicable to foreign SBSDs and MSBSPs.
C. Respondents
The Commission estimated the number of respondents in the proposing release. The Commission received no comment on these estimates and continues to believe they are appropriate. However, the Commission is updating its estimated number of broker-dealers to reflect the number of broker-dealers registered with the Commission as of December 31, 2018 (instead of April 1, 2013 as reflected in the proposing release), and is revising the number of respondents with respect to certain rules, as discussed below, to reflect the amendments to Rule 18a–10. The following chart summarizes the Commission’s estimated number of respondents:
Consistent with prior releases, based on available data regarding the single￾name CDS market—which the Commission believes will comprise the majority of security-based swaps—the Commission estimates that the number of MSBSPs likely will be five or fewer and, in actuality, may be zero.589 Therefore, to capture the likely number of MSBSPs that may be subject to the collections of information for purposes of this PRA, the Commission estimates for purposes of this PRA that five entities will register with the Commission as MSBSPs. The Commission estimates there will be one broker-dealer FCM MSBSP for the purposes of calculating PRA ER16DE19.000</GPH> 5 MSBSPs 1 broker￾dealer MSBSP I 4 stand MSB 50 SBSDs

• I I
  16 broker-dealer 25 bank SBSDs SBSDs
• ■ ■
  -alone 10 ANC broker- 6 non-model SPs dealer SBSDs broker-dealer SBSDs 3,764 non-SBSD/MSBSP broker-dealers ■ ■
• 9 stand-alone
  SBSDs
  I
  4 model stand- 2 non-model 3 stand-alone alone SBSDs stand-alone SBSDs SBSDs operating under Rule 18a-10
• 3,739 non-SBSD/MSBSP broker-dealers not 25 non-SBSD/MSBSP broker-dealers engaged
  engaged in security-based swap activities in security-based swap activities

590The Commission believes that the broker￾dealer MSBSP would register as an FCM, since the broker-dealer may find it beneficial to hedge security and security-based swap positions with futures contracts, options on futures, or swaps. See Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, 76 FR at 65814. 591See Section 3(a)(4) of the Exchange Act. 592See Section 3(a)(71) of the Exchange Act. 593See 7 U.S.C. 1a(28). 594See Section 3(a)(67) of the Exchange Act. 595See Capital, Margin, and Segregation Adopting Release, 84 FR at 43959; Recordkeeping and Reporting Proposing Release, 79 FR at 25260. 596See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR at 79002. 597The Commission does not anticipate that any firms will be dually registered as a broker-dealer and a bank. 598The Commission understands that affiliates of banks (rather than banks) register as FCMs. 599See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR at 79002. 600See Capital, Margin, and Segregation Adopting Release, 84 FR at 44025. 601See Capital, Margin, and Segregation Adopting Release, 84 FR at 43959. 602 VaR models, while more risk-sensitive than standardized haircuts, tend to substantially reduce the amount of the deductions to tentative net capital in comparison to the standardized haircuts because the models recognize more offsets between related positions than the standardized haircuts. Therefore, the Commission expects that stand-alone SBSDs that have the capability to use internal models to calculate net capital would choose to do so. 603See Recordkeeping and Reporting Proposing Release, 79 FR at 25260. 604See id. 605Currently, 5 broker-dealers are registered as ANC broker-dealers. The Commission has previously estimated that all current and future ANC broker-dealers will also register as SBSDs. See Recordkeeping and Reporting Proposing Release; Capital Rule for Certain Security-Based Swap Dealers, 79 FR at 25261. 606See Capital, Margin, and Segregation Adopting Release, 84 FR at 43960; Recordkeeping and Reporting Proposing Release, 79 FR at 25261. 607See Section 761 of the Dodd-Frank Act (amending definition of ‘‘security’’ in Section 3 of the Exchange Act). 608See International Swaps and Derivatives Association (‘‘ISDA’’), Margin Survey 2015 (Aug.
2015) (‘‘ISDA Margin Survey 2015’’), available at
http://www2.isda.org/attachment/Nzc4MQ==/ Margin%20survey%202015%20FINAL.pdf. The ISDA Margin Survey is conducted annually to examine the state of collateral use and management among derivatives dealers and end-users. The
appendix to the survey lists firms that responded
to the survey, including broker-dealers. See id. burdens, in recognition that broker￾dealer MSBSPs and stand-alone MSBSPs are subject to different burdens under the new and amended rules in certain instances.590 However, by definition, an MSBSP’s primary business is not engaging in security￾based swap activity, so it would be rare for an MSBSP to qualify as a broker￾dealer and/or FCM but not an SBSD. Such an MSBSP would be engaged in the business of effecting securities transactions,591 but not in the business of effecting security-based swap transactions 592 or commodities, securities futures products, or swaps 593 and yet involved in enough security￾based swap transactions to be required to register as an MSBSP.594 Consistent with prior releases, the Commission estimates that 50 or fewer entities ultimately may be required to register with the Commission as SBSDs, and 16 broker-dealers will likely seek to register as SBSDs.595 The Commission believes that all 16 broker-dealer SBSDs also will be registered as FCMs, since SBSDs may find it beneficial to hedge security-based swap positions with futures contracts, options on futures, or swaps.596 Because many of the dealers that currently engage in OTC derivatives activities are banks, the Commission estimates that approximately 75% of the 34 non-broker-dealer SBSDs will register as bank SBSDs (i.e., 25 firms), and the remaining 25% will register as stand-alone SBSDs (i.e., 9 firms).597 The Commission believes that none of the bank SBSDS will register as FCMs, because of the burden associated with complying with three different supervisors’ regulatory requirements.598 However, the Commission cannot precisely estimate how many of the nine stand-alone SBSDs will register as FCMs. The Commission anticipates that entities that want to clear security-based swaps for others may also want to clear swaps for others and, therefore, may need to register as FCMs.599 The Commission also anticipates that some stand-alone SBSDs that deal in non￾cleared security-based swaps will generally seek exemption from the omnibus segregation requirements in Rule 18a–4. In order to qualify for the exemption, these firms cannot clear security-based swap transactions for others. The Commission believes that stand-alone SBSDs that seek this exemption and thus will not clear security-based swaps for others likely also would not clear swaps for others, which obviates the need for these SBSDs to register as an FCM.600 For purposes of developing paperwork burden estimates in connection with the recently adopted capital, margin, and segregation requirements, the Commission estimated six of nine stand￾alone SBSDs would avail themselves of the exemption under paragraph (f) of Rule 18a–4.601 Consistent with that estimate, the Commission estimates that the remaining three of the nine stand￾alone SBSDs will also be registered as FCMs. Of the nine stand-alone SBSDs, the Commission estimates that, based on its experience with ANC
broker-dealers and OTC derivatives dealers, four of the nine stand-alone SBSDs will apply to operate as stand-alone SBSDs which will use internal models to compute net capital under Rule 18a-1.602 This estimate has been reduced from six in the proposing release 603 to account for the adoption of Rule 18a–10, which will enable stand-alone SBSDs to elect the full alternative compliance mechanism and comply with certain CFTC rules in lieu of Commission rules, including recordkeeping and reporting rules. Finally, in the proposing release, the Commission estimated that three stand￾alone SBSDs would not apply to use models.604 This estimate has been modified from three to two in the final release to account for the nonbank SBSDs that will elect the full alternative compliance mechanism under Rule 18a–10. Of the 16 broker-dealer FCM SBSDs, the Commission estimates that ten firms will operate as ANC broker-dealer SBSDs, which use internal models to compute net capital under Rule 15c3– 1.605 As of December 31, 2018, there were 3,764 broker-dealers registered with the Commission. The Commission estimates that 25 registered broker-dealers will be engaged in security-based swap activities but will not be required to register as an SBSD or MSBSP. Other than OTC derivatives dealers, which are subject to significant limitations on their activities, broker-dealers historically have not participated in a significant way in security-based swap trading for at least two reasons.606 First, because the Exchange Act has not previously defined security-based swaps as securities, security-based swaps have not been required to be traded through registered broker-dealers.607 Second, a broker-dealer engaging in security-based swap activities is currently subject to existing regulatory requirements with respect to those activities, including capital, margin, segregation, and recordkeeping requirements. The existing financial responsibility requirements make it more costly to conduct these activities in a broker￾dealer than in an unregulated entity. As a result, security-based swap activities are mostly concentrated in affiliates of broker-dealers, not broker-dealers themselves.608 Finally, for purposes of estimating the number of respondents with respect to the amendments to Rule 3a71–6, applications for substituted compliance may be filed by foreign financial authorities, or by non-U.S. SBSDs or

609See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at
39832. 610 It is possible that some subset of MSBSPs will
be non-U.S. MSBSPs and seek to rely on substituted compliance. See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at 39832. 611See id. at 38392. 612See paragraphs (a)(1) and (3), (a)(5)(ii), (a)(6)(ii), (a)(7)(ii), (a)(8)(ii), (a)(9)(iv), and (a)(25) through (30) of Rule 17a–3, as amended. 613See paragraphs (a)(1) through (10) and (12) through (17) and (b)(1) through (13) of Rule 18a– 5, as adopted. 614See Recordkeeping and Reporting Proposing Release, 79 FR at 25262–63. 615See paragraphs (a)(1) and (3), (a)(5)(ii), (a)(6)(ii), (a)(7)(ii), (a)(8)(ii), (a)(9)(iv), and (a)(26) and (27) of Rule 17a–3, as amended. 616 (10 minutes per business day ÷ 60 minutes per hour) × 251 business days per year = 42 hours per year. There were 251 business days in 2018. 617 16 broker-dealer SBSDs + 1 broker-dealer MSBSP + 25 stand-alone broker-dealers engaged in security-based swap activities = 42 broker-dealers engaged in security-based swap activities. 618 70 hours per year × 42 broker-dealers engaged in security-based swap activities = 2,940 hours per year. These internal hours likely will be performed by a compliance manager. 619 42 hours per year × 42 broker-dealers engaged in security-based swap activities = 1,764 hours per year. These internal hours likely will be performed by a compliance clerk. 620See paragraphs (a)(25), (28), and (30) of Rule 17a–3, as amended (adopting recordkeeping requirements for Rule 18a–3 calculations, unverified transactions, and compliance with business conduct requirements, respectively). MSBSPs. Consistent with prior estimates, the Commission staff expects that there may be approximately 22 non￾U.S. entities that may potentially register as SBSDs.609 Potentially, all such non-U.S. SBSDs, or some subset thereof, may seek to rely on substituted compliance in connection with the requirements adopted in this document.610 For purposes of this PRA, however, consistent with prior estimates, the Commission estimates that three of these security-based swap entities will submit such applications in connection with the Commission’s recordkeeping, reporting, and notification requirements.611 D. Total Initial and Annual Recordkeeping and Reporting Burden

1. Amendments to Rule 17a–3 and New
   Rule 18a–5
   The amendments to Rule 17a–3 and new Rule 18a–5 will impose collection of information requirements that result in initial and annual burdens for broker￾dealers, SBSDs, and MSBSPs. The Commission estimates that these amendments to Rule 17a–3 will impose the following initial and annual burdens: 612 Burden Initial burden Annual burden
   New security-based swap records .......................................................... Per firm: 70 hours ..........................
   Industry: 2,940 hours. ....................
   Per firm: 42 hours.
   Industry: 1,764 hours.
   New burdens applicable to broker-dealer SBSDs and MSBSPs. .......... Per firm: 60 hours ..........................
   Industry: 1,020 hours. ....................
   Per firm: 75 hours.
   Industry: 1,275 hours.
   New burdens applicable to broker-dealer SBSDs .................................. Per firm: 20 hours ..........................
   Industry: 320 hours. .......................
   Per firm: 25 hours.
   Industry: 400 hours.
   Total—Amendments to Rule 17a–3 ................................................. Industry: 4,280 hours. .................... Industry: 3,439 hours. The Commission estimates that new Rule 18a–5 will impose the following initial and annual burdens: 613 Burden Initial burden Annual burden
   Burdens applicable to stand-alone SBSDs and MSBSPs ...................... Per firm: 260 hours and $1,000 ....
   Industry: 2,600 hours and $10,000 Per firm: 325 hours and $4,650. Industry: 3,250 hours and $46,500.
   Burdens applicable to stand-alone SBSDs ............................................. Per firm: 60 hours ..........................
   Industry: 360 hours ........................
   Per firm: 75 hours.
   Industry: 450 hours.
   Burdens applicable to bank SBSDs and MSBSPs ................................. Per firm: 200 hours ........................
   Industry: 5,000 hours .....................
   Per firm: 250 hours.
   Industry: 6,250 hours.
   Burdens applicable to bank SBSDs ........................................................ Per firm: 60 hours ..........................
   Industry: 1,500 hours .....................
   Per firm: 75 hours.
   Industry: 1,875 hours.
   Total—New Rule 18a–5 ................................................................... Industry: 9,460 hours and $10,000 Industry: 11,825 hours and $46,500. Estimated Hours and Costs of Amendments to Rule 17a–3 In the proposing release, the Commission estimated that many of the amendments to Rule 17a–3 are not expected to impose an initial burden.614 The Commission received no comment on these estimates and continues to believe they are appropriate. The Commission is amending Rule 17a–3 to require broker-dealers to make and keep current various records for security-based swaps.615 The Commission estimates that these amendments will impose on each broker-dealer that engages in security￾based swap activities an initial burden of 70 hours and an ongoing burden of approximately ten minutes per business day, or 42 hours per year.616 The Commission estimates that there are 42 respondents.617 Thus, the Commission estimates that the amendments will add to the industry an estimated initial burden of 2,940 hours 618 and an ongoing burden of 1,764 hours per year.619 The amendments to Rule 17a–3 require three additional types of records to be made and kept current by broker￾dealer SBSDs and MSBSPs.620 Because the burden to run the applicable calculation or comply with the

621See Capital, Margin, and Segregation Adopting Release, 84 FR at 43963; Trade Acknowledgment and Verification of Security￾Based Swap Transactions, 81 FR at 39807; Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 76 FR at 42443–48. 622 60 hours × 17 broker-dealer SBSDs and MSBSPs = 1,020 hours. These internal hours likely will be performed by a compliance manager. 623 75 hours per year × 17 broker-dealer SBSDs and MSBSPs = 1,275 hours per year. These internal hours likely will be performed by a compliance clerk. 624See paragraph (a)(29) of Rule 17a–3, as amended (political contributions). 625See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 29959. 626 20 hours × 16 broker-dealer SBSDs = 320 hours. These internal hours likely will be performed by a compliance manager. 627 25 hours per year × 16 broker-dealer SBSDs = 400 hours per year. These internal hours likely will be performed by a compliance clerk. 628See Rule 17a–3, as amended (paragraph (a)(26) (compliance with Rule 15c3–3(p) possession or control requirements); paragraph (a)(27) (Rule 15c3–3(p) reserve account computations)). 629 $1,000 × 10 stand-alone SBSDs and MSBSPs = $10,000. 630 $4,650 per year × 10 stand-alone SBSDs and MSBSPs = $46,500 per year. 631See, e.g., 12 CFR 12.3 (Department of Treasury); 12 CFR 219.21 through 219.24 (Federal Reserve); 12 CFR 344.4 (FDIC). 632See Rule 18a–5, as adopted (paragraph (a)(1) (trade blotters); paragraph (a)(2) (general ledgers); paragraph (a)(3) (ledgers of customer and non￾customer accounts); paragraph (a)(4) (stock record); paragraph (a)(5) (memoranda of proprietary orders); paragraph (a)(6) (confirmations); paragraph (a)(7) (accountholder information); paragraph (a)(8) (options positions); paragraph (a)(9) (trial balances and computation of net capital); paragraph (a)(10) (associated person’s application); paragraph (a)(12) (Rule 18a–3 calculations); paragraph (a)(15) (unverified transactions); paragraph (a)(17) (compliance with business conduct standards)). 633 In estimating the burden associated with Rules 18a–5 and 18a–6, as adopted, the Commission recognizes that entities that will register stand-alone SBSDs and MSBSPs likely make and keep some records today as a matter of routine business practice, but the Commission does not have information about the records that such entities currently keep. Therefore, the Commission assumes that these entities currently keep no records when it estimates the PRA burden for these entities. 634 260 hours × 10 stand-alone SBSDs and MSBSPs = 2,600 hours. These internal hours likely will be performed by a compliance manager. 635 325 hours per year × 10 stand-alone SBSDs and MSBSPs = 3,250 hours per year. These internal hours likely will be performed by a compliance clerk. 636See Rule 18a–5, as adopted (paragraph (a)(13) (compliance with Rule 18a–4 possession or control requirements);
paragraph (a)(14) (Rule 18a–4 reserve account computations); and paragraph (a)(16) (political contributions)). 637See Capital, Margin, and Segregation Adopting Release, 84 FR at 43964–67; Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 29959. 638 60 hours × 6 stand-alone SBSDs = 360 hours. These internal hours likely will be performed by a compliance manager. 639 75 hours per year × 6 stand-alone SBSDs = 450 hours per year. These internal hours likely will be performed by a compliance clerk. 640See Rule 18a–5, as adopted (paragraph (b)(1) (trade blotters); paragraph (b)(2) (ledgers for customer and non-customer accounts); paragraph (b)(3) (stock record); paragraph (b)(4) (memoranda of brokerage orders); paragraph (b)(5) (memoranda applicable standard is accounted for in the PRA estimates for Rules 18a–3, 15Fi–2, 15Fh–1 through 15Fh–5, and 15Fk–1,621 the burden imposed by these new requirements is the requirement to make and keep current a written record of these tasks. The Commission estimates that paragraphs (a)(25), (a)(28), and (a)(30) of Rule 17a–3, as amended, will impose an initial burden of 60 hours per firm and an ongoing annual burden of 75 hours per firm. The Commission estimates that there are 17 respondents (16 broker-dealer SBSDs and 1 broker-dealer MSBSP), adding to the industry an initial burden of 1,020 hours 622 and an ongoing burden of 1,275 hours per year.623 The amendments to Rule 17a–3 require one additional type of record to be made and kept current by broker￾dealer SBSDs.624 Because the burden to run the applicable calculation or comply with the applicable standard is accounted for in the PRA estimate for Rule 15Fh–6,625 the burden imposed by this requirement is the requirement to make and keep current a written record of these tasks. The Commission estimates that new paragraph (a)(29) of Rule 17a–3 will impose an initial burden of 20 hours per firm and an ongoing annual burden of 25 hours per firm. The Commission estimates that there are 16 broker-dealer SBSDs, adding to the industry an initial burden of 320 hours 626 and an ongoing burden of 400 hours per year.627 The Commission received no comments regarding its hour and cost burden estimates for the amendments to Rule 17a–3. However, the estimated initial burden for Rule 17a–3 is increased to reflect that the requirements to make and keep possession or control and special reserve account computation records now apply to all broker-dealers engaged in security-based swap activities (instead of just broker-dealer SBSDs).628 Other than this change, the Commission continues to believe its hour and cost burden estimates for the amendments to Rule 17a–3 are appropriate. Estimated Hours and Costs of New Rule 18a–5 The Commission estimates that new Rule 18a–5 will cause a stand-alone SBSD or MSBSP to incur an initial dollar cost of approximately $1,000 to purchase recordkeeping system software and an ongoing dollar
cost of $4,650 per year for associated equipment and systems development. The Commission estimates that there are 10 respondents (6 stand-alone SBSDs and 4 stand-alone MSBSPs), resulting in an estimated industry-wide initial burden of $10,000 629 and an industry-wide ongoing burden of $46,500 per year.630 New Rule 18a–5 is not expected to increase the initial and ongoing dollar costs that bank SBSDs and MSBSPs incur to purchase recordkeeping system software and for equipment and systems development. Banks are already subject to recordkeeping requirements by their prudential regulators,631 so they should already own or have established the requisite recordkeeping system software. Although bank SBSDs and MSBSPs may need to program the software to begin collecting additional records, the Commission expects these services to be performed in-house, and these hour burdens are estimated below. New Rule 18a–5 requires 13 types of records to be made and kept current by stand-alone SBSDs and MSBSPs.632 New Rule 18a–5 imposes the burden to make and keep current these records, but does not require the firm to perform the underlying task.633 Therefore, after consideration of the estimated burdens under Rule 17a–3, as amended, the Commission estimates that these 13 paragraphs will impose on each firm an initial burden of 260 hours and an ongoing annual burden of 325 hours. The Commission estimates that there are 10 respondents (6 stand-alone SBSDs and 4 stand-alone MSBSPs), resulting in an estimated industry-wide initial burden of 2,600 hours 634 and an industry-wide ongoing annual burden of 3,250 hours.635 New Rule 18a–5 requires three types of records to be made and kept current by stand-alone SBSDs.636 Because the burden to run the applicable calculation or comply with the applicable standard is accounted for in the PRA estimates for Rules 18a–4 and 15Fh–6,637 the burden imposed by these new requirements is the requirement to make and keep current a written record of these tasks. The Commission estimates that these three paragraphs will impose an initial burden of 60 hours per firm and an ongoing annual burden of 75 hours per firm. The Commission estimates that there are 6 stand-alone SBSDs, resulting in an industry-wide initial burden of 360 hours 638 and an industry-wide ongoing burden of 450 hours per year.639 New Rule 18a–5 requires ten types of records to be made and kept current by bank SBSDs and MSBSPs, all of which are limited to the firm’s business as an SBSD or MSBSP.640 New Rule 18a-5

of proprietary orders); paragraph (b)(6) (confirmations); paragraph (b)(7) accountholder information); paragraph (b)(8) (associated person’s application); paragraph (b)(11) (unverified transactions); and paragraph (b)(13) (compliance with business conduct requirements)). 641 200 hours × 25 bank SBSDs = 5,000 hours. These internal hours likely will be performed by a compliance manager. 642 250 hours per year × 25 bank SBSDs = 6,250 hours per year. These internal hours likely will be performed by a compliance clerk. 643See Rule 18a–5, as adopted (paragraph (b)(9) (compliance with Rule 18a–4 possession or control requirements); paragraph (b)(10) (Rule 18a–4 reserve account computations); and paragraph (b)(12) (political contributions)). 644See Capital, Margin, and Segregation Adopting Release, 84 FR at 43964–67; Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 29959. 645 60 hours × 25 bank SBSDs = 1,500 hours. These internal hours likely will be performed by a compliance manager. 646 75 hours per year × 25 bank SBSDs = 1,875 hours per year. These internal hours likely will be performed by a compliance clerk. 647See paragraphs (b)(1) and (4), (b)(8)(v) through (viii) and (xvi), and (b)(14), (15), and (16) of Rule 17a–4, as amended 648See paragraphs (a)(1) and (2), (b)(1)(i) through (xiii), (b)(2)(i) through (viii), (c), (d)(1), (d)(2)(i) and (ii), (d)(3)(i) and (ii), and (f) of Rule 18a-6, as adopted. imposes the burden to make and keep current these records, but does not require the firm to perform the underlying task. Therefore, after consideration of the estimated burdens under Rule 17a–3, as amended, the Commission estimates that these ten paragraphs will impose on each firm an initial burden of 200 hours per firm and an ongoing burden of 250 hours per firm. The Commission estimates that there are 25 respondents (25 bank SBSDs and no bank MSBSPs), resulting in an estimated industry-wide initial burden of 5,000 hours 641 and an industry-wide ongoing burden of 6,250 hours per year.642 New Rule 18a–5 requires three types of records to be made and kept current by bank SBSDs, all of which are limited to the firm’s business as an SBSD.643 Because the burden to run the applicable calculation or comply with the applicable standard is accounted for in the PRA estimates for Rules 18a–4 and 15Fh–6,644 the burden imposed by these new requirements is the requirement to make and keep current a written record of these tasks. The Commission estimates that these three paragraphs will impose an initial burden of 60 hours per firm and an ongoing annual burden of 75 hours per firm. The Commission estimates that there are 25 bank SBSDs, resulting in an industry-wide initial burden of 1,500 hours 645 and an industry-wide ongoing burden of 1,875 hours per year.646 The Commission received no comments regarding its hour and cost burden estimates for new Rule 18a–5 and continues to believe they are
appropriate. Estimated Hours and Costs of the Limited Alternative Compliance Mechanism As discussed above, the Commission is adopting the limited alternative compliance mechanism. The registrant’s obligation to preserve these records will continue for the retention period specified for that category of record as set forth in Rule 17a–4 or Rule 18a–6, as applicable. The Commission believes that registrants who choose to use the limited alternative compliance mechanism will incur lower costs and hour burdens, especially with respect to initial compliance burdens, than they would pursuant to the standard compliance requirements. Indeed, were that not the case, registrants would be unlikely to use the limited alternative compliance mechanism. However, for purposes of this Paperwork Reduction Act analysis, the Commission is making the conservative estimate that no firms will utilize the limited alternative compliance mechanism.
2. Amendments to Rule 17a–4 and New
Rule 18a–6
The amendments to Rule 17a–4 and new Rule 18a-6 impose collection of information requirements that will result in initial and ongoing burdens for broker-dealers, SBSDs, MSBSPs, and certain third-party custodians. The Commission estimates that the amendments to Rule 17a–4 will impose the following initial and annual burdens: 647 Burden Initial burden Annual burden
Recorded telephone calls ........................................................................ Per firm: 13 hours ..........................
Industry: 221 hours ........................
Per firm: 6 hours and $2,000.
Industry: 102 hours and $34,000.
New burdens applicable to all broker-dealers ........................................ Per firm: 65 hours ..........................
Industry: 2,730 hours .....................
Per firm: 30 hours and $600.
Industry: 1,260 hours and
$25,200.
New burdens applicable to broker-dealer SBSDs and MSBSPs ........... Per firm: 65 hours ..........................
Industry: 1,105 hours .....................
Per firm: 30 hours and $600.
Industry: 510 hours and $10,200.
New burdens applicable to broker-dealer SBSDs .................................. Per firm: 13 hours ..........................
Industry: 208 hours ........................
Per firm: 6 hours and $120.
Industry: 96 hours and $1,920.
Total—Amendments to Rule 17a–4 ................................................. Industry: 4,264 hours ..................... Industry: 1,968 hours and $40,720. The Commission estimates that new Rule 18a–6 will impose the following initial and annual burdens: 648 Burden Initial burden Annual ′Burden
Burdens applicable to stand-alone SBSDs and MSBSPs ...................... Per firm: 364 hours ........................
Industry: 3,640 hours .....................
Per firm: 280 hours and $5,720.
Industry: 2,800 hours and
$57,200.
Burdens applicable to stand-alone SBSDs ............................................. Per firm: 44 hours ..........................
Industry: 264 hours ........................
Per firm: 30 hours and $360.
Industry: 180 hours and $2,160.
Burdens applicable to model stand-alone SBSDs .................................. Per firm: 18 hours ..........................
Industry: 72 hours ..........................
Per firm: 10 hours and $120.
Industry: 40 hours and $480.

649See Recordkeeping and Reporting Proposing Release, 79 FR at 25266. 650See paragraph (b)(4) of Rule 17a–4, as amended. 651 13 hours x 17 broker-dealer SBSDs and MSBSPs = 221 hours. These internal hours likely will be performed by a senior database administrator. 652 6 hours x 17 broker-dealer SBSDs and MSBSPs = 102 hours. These internal hours likely will be performed by a compliance clerk. 653 $2,000 × 17 broker-dealer SBSDs and MSBSPs = $34,000. 654See Rule 17a–4, as amended (paragraph (b)(1) (cross-referencing paragraph (a)(26) of Rule 17a–3, as amended (compliance with possession or control requirements for security-based swap customers); paragraph (a)(27) of Rule 17a–3, as amended (Rule 18a-4 reserve account computations)); paragraph (b)(8)(v) through (viii) (identifying information about swaps); paragraph (b)(8)(xvi) (risk margin calculation); and paragraph (b)(14) (Regulation SBSR information)). 655See Commission, Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–3 (Oct. 19, 2016), available at https://www.reginfo.gov/public/do/ DownloadDocument?objectID=68827501; Commission, Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 15c3–1 (May 26, 2017), available at https://www.reginfo.gov/public/do/ DownloadDocument?objectID=74206901; Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 81 FR 53545. 656Unless otherwise noted, the estimates for this rule consider the burden of providing adequate physical space and computer hardware and software for storage, preserving these records for the requisite time period, and producing them when requested. 657 16 broker-dealer SBSDs + 1 broker-dealer MSBSP + 25 stand-alone broker-dealers engaged in security-based swap activities = 42 broker-dealers engaged in security-based swap activities. 658 65 hours × 42 respondents = 2,730 hours. These internal hours likely will be performed by a senior database administrator. 659 30 hours per year × 42 respondents = 1,260 hours per year. These internal hours likely will be performed by a compliance clerk. 660 $600 × 42 respondents = $25,200. 661See Rule 17a–4, as amended (paragraph (b)(1), cross-referencing paragraph (a)(25) of Rule 17a–3, as amended (Rule 18a–3 calculations); paragraph (b)(1), cross-referencing paragraph (a)(28) of Rule 17a–3, as amended (unverified transactions); paragraph (b)(1), cross-referencing paragraph (a)(30) of Rule 17a–3, as amended (compliance with business conduct standards); paragraph (b)(15) (documents and notices related to the business conduct standards); and paragraph (b)(16) (special entity documents). 662See Commission, Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–3; section IV.D.1. of this release; Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 29959. 663 65 hours × 17 broker-dealer SBSDs
and MSBSPs = 1,105 hours. These internal hours likely will be performed by a senior database administrator. 664 30 hours per year × 17 broker-dealer SBSDs and MSBSPs = 510 hours per year. These internal hours likely will be performed by a compliance clerk. 665 $600 × 17 broker-dealer SBSDs and MSBSPs = $10,200. 666See paragraph (b)(1) of Rule 17a–4, as amended (cross-referencing paragraph (a)(29) of Rule 17a–3, as amended (political contributions)). Burden Initial burden Annual ′Burden
Burdens applicable to bank SBSDs and MSBSPs ................................. Per firm: 247 hours ........................
Industry: 6,175 hours .....................
Per firm: 190 hours and $4,520.
Industry: 4,750 hours and
$113,000.
Burdens applicable to bank SBSDs ........................................................ Per firm: 57 hours ..........................
Industry: 1,425 hours .....................
Per firm: 40 hours and $480.
Industry: 1,000 hours and
$12,000.
Burdens applicable to third-party custodians .......................................... Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: 2 hours.
Industry: 35 hours.
Total—New Rule 18a–6 ................................................................... Industry: 11,576 hours ................... Industry: 8,805 hours and $184,840. Estimated Hours and Costs of Amendments to Rule 17a–4 In the proposing release, the Commission estimated that many of the amendments to Rule 17a–4 are not expected to impose an initial burden.649 The Commission received no comment on these estimates and continues to believe they are appropriate. The Commission is amending Rule 17a–4 to require broker-dealer SBSDs and MSBSPs to retain telephone calls that are already recorded and are related to the broker-dealer SBSD’s and broker￾dealer MSBSP’s business as such.650 Because the retention of telephonic recordings is only required if the broker￾dealer SBSD or broker-dealer MSBSP voluntarily chooses to record, the Commission’s burden estimate does not include the cost of recording phone calls. Therefore, the burdens imposed by the amendment will be to provide adequate physical space and computer hardware and software for storage. The Commission estimates that the amendment will impose an initial burden of 13 hours per firm. The Commission estimates that there are 17 respondents (16 broker-dealer SBSDs and 1 broker-dealer MSBSP), resulting in an estimated industry-wide initial burden of 221 hours.651 The Commission estimates that each firm will incur an annual burden of approximately 6 hours to confirm that telephonic communications are being retained in accordance with Rule 17a– 4, and approximately $2,000 for server, equipment, and systems development costs. The Commission estimates that there are 17 respondents (16 broker￾dealer SBSDs and 1 broker-dealer MSBSP), resulting in an estimated industry-wide ongoing annual cost of 102 hours 652 and $34,000.653 The amendments to Rule 17a-4 add five types of records to be preserved by broker-dealers.654 Because the burden to create these records is already accounted for in the PRA estimates for Rule 17a–3, Rule 15c3–1, or Regulation SBSR,655 the Commission estimates that these amendments will impose an initial burden of 65 hours per firm and an ongoing annual burden of 30 hours and $600 per firm.656 The Commission estimates that there are 42 respondents—16 broker-dealer SBSDs, 1 broker-dealer MSBSP, and 25 stand￾alone broker-dealers engaged in security-based swap activities.657 Thus, these amendments will add to the industry an estimated initial burden of 2,730 hours 658 and an ongoing annual burden of 1,260 hours 659 and $25,200.660 The amendments to Rule 17a–4 add five types of records to be preserved by broker-dealer SBSDs and MSBSPs.661 Because the burden to create these records is accounted for in the PRA estimates for Rule 17a–3 or for Rules 15Fh–1 through 15Fh–5 and 15Fk–1,662 the Commission estimates that these amendments will impose an initial burden of 65 hours per firm and an ongoing annual burden of 30 hours and $600 per firm. The Commission estimates that there are 17 respondents
(16 broker-dealer SBSDs and 1 broker￾dealer MSBSP), adding to the industry an initial burden of 1,105 hours 663 and an ongoing annual burden of 510 hours 664 and $10,200.665 The amendments to Rule 17a–4 add one type of record to be preserved by broker-dealer SBSDs.666 Because the burden to create this record is accounted for in the PRA estimate for

667See section IV.D.1. of this release. 668 13 hours × 16 broker-dealer SBSDs = 208 hours. These internal hours likely will be performed by a senior database administrator. 669 6 hours per year × 16 broker-dealer SBSDs = 96 hours per year. These internal hours likely will be performed by a compliance clerk. 670 $120 × 16 broker-dealer SBSDs = $1,920. 671See paragraph (b)(1) of Rule 17a–3, as amended (cross-referencing paragraph (a)(26) (compliance with Rule 15c3–3(p) possession or control requirements); paragraph (a)(27) (Rule 15c3–3(p) reserve account computations)). 672See Rule 18a–6, as adopted (paragraph (a)(1), cross-referencing paragraph (a)(1) of Rule 18a–5, as adopted (trade blotters); paragraph (a)(1), cross￾referencing paragraph (a)(2) of Rule 18a–5, as adopted (general ledgers); paragraph (a)(1), cross￾referencing paragraph (a)(3) of Rule 18a–5, as adopted (ledgers of customer and non-customer accounts); paragraph (a)(1), cross-referencing paragraph (a)(4) of Rule 18a–5, as adopted (stock record); paragraph (b)(1)(i), cross-referencing paragraph (a)(5) of Rule 18a–5, as adopted (memoranda of proprietary orders); paragraph (b)(1)(i), cross-referencing paragraph (a)(6) of Rule 18a–5, as adopted (confirmations); paragraph (b)(1)(i), cross-referencing paragraph (a)(7) of Rule 18a–5, as adopted (accountholder information); paragraph (b)(1)(i), cross-referencing paragraph (a)(8) of Rule 18a–5, as adopted (options positions); paragraph (b)(1)(i), cross-referencing paragraph (a)(9) of Rule 18a–5, as adopted (trial balances and computation of net capital); paragraph (b)(1)(i), cross-referencing paragraph (a)(12) of Rule 18a–5, as adopted (Rule 18a–3 calculations); paragraph (b)(1)(i), cross-referencing paragraph (a)(15) of Rule 18a–5, as adopted (unverified transactions); paragraph (b)(1)(i), cross-referencing paragraph (a)(17) of Rule 18a–5, as adopted (compliance with business conduct standards); paragraph (b)(1)(ii) (bank records); paragraph (b)(1)(iii) (bills); paragraph (b)(1)(iv) (communications); paragraph (b)(1)(v) (trial balances); paragraph (b)(1)(vi) (account documents); paragraph (b)(1)(vii) (written agreements); paragraph (b)(1)(viii) (information supporting financial reports); paragraph (b)(1)(ix) (Rule 15c3–4 risk management records); paragraph (b)(1)(xi) (Regulation SBSR information); paragraph (b)(1)(xii) (records relating to business conduct standards); paragraph (b)(1)(xiii) (special entity documents); paragraph (c) (corporate documents); paragraph (d)(1) (associated person’s employment application); paragraph (d)(2)(i) (regulatory authority reports); and paragraph (d)(3)(i) (compliance, supervisory, and procedures manuals)). Unless otherwise noted, new Rule 18a– 6 does not require firms to create records or perform the underlying task, so the estimates for this rule consider the burden of providing adequate physical space and computer hardware and software for storage, preserving these records for the requisite time period,
and producing them when requested. 673The Commission believes that any initial dollar cost associated with Rule 18a–6, as adopted, is already accounted for in the PRA estimate for Rule 18a–5, as adopted, which includes the cost of recordkeeping system software. 674 364 hours × 10 stand-alone SBSDs and MSBSPs = 3,640 hours. These internal hours likely will be performed by a senior database administrator. 675 280 hours per year × 10 stand-alone SBSDs and MSBSPs = 2,800hours per year. These internal hours likely will be performed by a compliance clerk. 676 $5,720 per year × 10 stand-alone SBSDs and MSBSPs = $57,200 per year. 677See paragraph (b)(1)(i) of Rule 18a–6, as adopted (cross-referencing paragraph (a)(13) of Rule 18a–5, as adopted (compliance with Rule 18a–4 possession or control requirements); paragraph (a)(14) of Rule 18a–5, as adopted (Rule 18a–4 reserve account computations); and paragraph (a)(16) of Rule 18a–5, as adopted (political contributions)). The burden to create these records is accounted for in the PRA estimate for new Rule 18a–5. See section IV.D.1. of this release. 678The Commission believes that any initial dollar cost associated with Rule 18a–6, as adopted, is already accounted for in the PRA estimate for Rule 18a–5, as adopted, which includes the cost of recordkeeping system software. 679 44 hours × 6 stand-alone SBSDs = 264 hours. These internal hours likely will be performed by a senior database administrator. 680 30 hours per year × 6 stand-alone SBSDs = 180 hours per year. These internal hours likely will be performed by a compliance clerk. 681 $360 per year × 6 stand-alone SBSDs = $2,160 per year. 682See Rule 18a–6, as adopted (paragraph (b)(1)(x) (credit risk determinations)). The burden of actually performing the underlying task and creating the written record is already accounted for in the PRA estimate for Rule 18a–1. See Capital, Margin, and Segregation Adopting Release, 84 FR at 43961–63. 683The Commission believes that any initial dollar cost associated with new Rule 18a–6 is already accounted for in the PRA estimate for Rule 18a–5, as adopted, which includes the cost of recordkeeping system software. 684 18 hours × 4 model stand-alone SBSDs = 72 hours. These internal hours likely will be performed by a senior database administrator. 685 10 hours per year × 4 model stand-alone SBSDs = 40 hours per year. These internal hours likely will be performed by a compliance clerk. 686 $120 per year × 4 model stand-alone SBSDs = $480 per year. 687See Rule 18a–6, as adopted (paragraph (a)(2), cross-referencing paragraph (b)(1) of Rule 18a–5, as adopted (trade blotters); paragraph (a)(2), cross￾referencing paragraph (b)(2) of Rule 18a–5, as adopted (ledgers of security-based swap customers and non-customers); paragraph (a)(2), cross￾referencing paragraph (b)(3) of Rule 18a–5, as adopted (stock records); paragraph (b)(2)(i), cross￾referencing paragraph (b)(4) of Rule 18a–5, as adopted (memoranda of brokerage orders);
paragraph (b)(2)(i), cross-referencing paragraph (b)(5) of Rule 18a–5, as adopted (memoranda of proprietary orders); paragraph (b)(2)(i), cross￾referencing paragraph (b)(6) of Rule 18a–5, as adopted (confirmations); paragraph (b)(2)(i), cross￾referencing paragraph (b)(7) of Rule 18a–5, as adopted (accountholder information); paragraph (b)(2)(i), cross-referencing paragraph (b)(11) of Rule 18a–5, as adopted (unverified transactions); paragraph (b)(2)(i), cross-referencing paragraph (b)(13) of Rule 18a–5, as adopted (compliance with external business conduct requirements); paragraph (b)(2)(ii) (communications); paragraph (b)(2)(iii) (account documents); paragraph (b)(2)(iv) (written agreements); paragraph (b)(2)(vi) (Regulation SBSR information); paragraph (b)(2)(vii) (records relating to business conduct standards); paragraph (b)(2)(viii) (special entity documents); paragraph (d)(1) (associated person’s employment Continued Rule 17a–3, as amended,667 the Commission estimates that the amendment will impose an initial burden of 13 hours per firm and an ongoing annual burden of 6 hours and $120 per firm. The Commission estimates that there are 16 broker-dealer SBSDs, adding to the industry an initial burden of 208 hours,668 and an ongoing annual burden of 96 hours 669 and $1,920.670 The Commission received no comments regarding its hour and cost burden estimates for the amendments to Rule 17a–4. However, the estimated burden for Rule 17a–4 is increased to reflect that the requirements to make and keep possession or control and special reserve account computation records now apply to all broker-dealers engaged in security-based swap activities (instead of just broker-dealer SBSDs).671 Other than this change, the Commission continues to believe its hour and cost burden estimates for the amendments to Rule 17a–3 are appropriate. Estimated Hours and Costs of New Rule 18a–6 New Rule 18a–6 requires 27 types of records to be preserved by stand-alone SBSDs and MSBSPs.672 The Commission estimates that the record preservation requirements applicable to stand-alone SBSDs and MSBSPs will impose an initial burden of 364 hours 673 and an ongoing annual burden of 280 hours and $5,720 per firm. The Commission estimates that there are 10 respondents (6 stand-alone SBSDs and 4 stand-alone MSBSPs), resulting in an estimated industry-wide initial burden of 3,640 hours,674 and an industry-wide ongoing annual burden of 2,800 hours 675 and $57,200.676 New Rule 18a–6 requires three types of records to be preserved by stand￾alone SBSDs.677 The Commission estimates that the relevant portions of paragraph (b)(1)(i) of new Rule 18a–6 will impose an initial burden of 44 hours per firm,678 and an ongoing annual burden of 30 hours and $360 per firm. The Commission estimates that there are 6 stand-alone SBSDs, resulting in an industry-wide initial burden of 264 hours 679 and an industry-wide ongoing annual burden of 180 hours 680 and $2,160.681 New Rule 18a–6 requires one type of
record to be preserved by stand-alone SBSDs authorized to use models to compute capital.682 The Commission estimates that paragraph (b)(1)(x) will impose an initial burden of 18 hours 683 and an ongoing annual burden of ten hours and $120 per stand-alone SBSD authorized to use models. The Commission estimates that there are 4 stand-alone SBSDs authorized to use models to compute capital, resulting in an industry-wide initial burden of 72 hours 684 and an industry-wide ongoing annual burden of 40 hours 685 and $480.686 New Rule 18a–6 requires 18 types of records to be preserved by bank SBSDs and MSBSPs, all of which are limited to the firm’s business as an SBSD or MSBSP.687 After consideration of the

application); paragraph (d)(2)(ii) (regulatory authority reports); paragraph (d)(3)(ii) (compliance, supervisory, and procedures manuals)). 688The Commission believes that any initial dollar cost associated with Rule 18a–6, as adopted, is already accounted for in the PRA estimate for Rule 18a–5, as adopted, which includes the cost of recordkeeping system software. 689 247 hours × 25 bank SBSDs = 6,175 hours. These internal hours likely will be performed by a senior database administrator. 690 190 hours per year × 25 bank SBSDs = 4,750 hours per year. These internal hours likely will be performed by a compliance clerk. 691 $4,520 per year × 25 bank SBSDs = $113,000 per year. 692See Rule 18a–6, as adopted (paragraph (b)(2)(i), cross-referencing paragraph (b)(9) (compliance with Rule 18a–4 possession or control requirements) of Rule 18a–5, as adopted; paragraph (b)(2)(i), cross-referencing paragraph (b)(10) (Rule 18a–4 reserve account computations) of Rule 18a– 5, as adopted; paragraph (b)(2)(i), cross-referencing paragraph (b)(12) (political contributions) of Rule 18a–5, as adopted; and paragraph (b)(2)(v) (Rule 18a–4 reserve account computations)). The burden to perform the underlying task or create these records is accounted for in the PRA estimates for new Rules 18a–4 and 18a–5. See Capital, Margin, and Segregation Adopting Release, 84FR at 43964– 67; section IV.D.1. of this release. 693The Commission believes that any initial dollar cost associated with new Rule 18a–6 is already accounted for in the PRA estimate for Rule 18a–5, as adopted, which includes the cost of recordkeeping system software. 694 57 hours × 25 bank SBSDs = 1,425 hours. These internal hours likely will be performed by a compliance manager and a senior database administrator. 695 40 hours per year × 25 bank SBSDs = 1,000 hours per year. These internal hours likely will be performed by a compliance clerk. 696 $480 per year × 25 bank SBSDs = $12,000 per year. 697See paragraph (f) of Rule 18a–6, as adopted. 698 2 hours per year × 17.5 written undertakings = 35 hours per year. These internal hours likely will be performed by an attorney. 699See paragraph (a)(1)(ii) of Rule 17a–5, as amended. 700See paragraphs (a)(1) through (3), (b), (c), (d), (e), (f), and (i) of Rule 18a–7, as adopted. similar burdens imposed by Rule 17a– 4, as amended, the Commission estimates that new Rule 18a–6 will impose on bank SBSDs and MSBSPs an initial burden of 247 hours per firm 688 and an ongoing burden of 190 hours and $4,520 per firm. The Commission estimates that there are 25 respondents (25 bank SBSDs and no bank MSBSPs), resulting in an estimated industry-wide initial burden of 6,175 hours 689 and an industry-wide ongoing annual burden of 4,750 hours 690 and $113,000.691 New Rule 18a–6 requires four types of records to be preserved by bank SBSDs, all of which are limited to the firm’s business as an SBSD.692 The Commission estimates that paragraphs (b)(2)(i) and (v) of new Rule 18a–6 will
impose an initial burden of 57 hours per firm 693 and an ongoing annual burden of 40 hours and $480 per firm. The Commission estimates that there are 25 bank SBSDs, resulting in an industry￾wide initial burden of 1,425 hours 694 and an industry-wide ongoing annual burden of 1,000 hours 695 and $12,000.696 Paragraph (f) of new Rule 18a–6 requires third-party custodians for non￾broker-dealer SBSDs and non-broker￾dealer MSBSPs to file with the Commission a written undertaking and surrender the SBSD or MSBSP’s records upon the Commission’s request.697 The obligation to provide documents upon the Commission’s request does not impose a new burden, since this requirement merely changes the respondent’s identity rather than adding to the quantity of burdens. Thus, the burden is the requirement to prepare and file a written undertaking. The Commission estimates that 50% of the 35 non-broker-dealer SBSDs and non￾broker-dealer MSBSPs will retain a third-party custodian, resulting in approximately 17.5 written undertakings. The Commission estimates that paragraph (f) of new Rule 18a–6 will impose an ongoing annual burden of 2 hours per written undertaking, resulting in an industry￾wide ongoing burden of 35 hours per year.698 The Commission received no comments regarding its hour and cost burden estimates for new Rule 18a–6 and continues to believe they are appropriate.
3. Amendments to Rule 17a–5 and New
Rule 18a–7
The amendments to Rule 17a–5 and new Rule 18a–7 will impose collection of information requirements that result in annual burdens for broker-dealers, SBSDs, and MSBSPs. The Commission estimates that the amendments to Rule 17a–5 will impose the following initial and annual burdens: 699 Burden Initial burden Annual burden
FOCUS Report Part II (ANC broker-dealer SBSDs) .............................. Per firm: 25 hours ..........................
Industry: 250 hours ........................
Per firm: 228 hours.
Industry: 2,280 hours.
FOCUS Report Part II (non-model broker-dealer SBSDs) ..................... Per firm: 50 hours ..........................
Industry: 300 hours ........................
Per firm: 240 hours.
Industry: 1,440 hours.
FOCUS Report Part II (broker-dealer MSBSPs) .................................... Per firm: 35 hours ..........................
Industry: 35 hours ..........................
Per firm: 204 hours.
Industry: 204 hours.
FOCUS Report Part II (stand-alone broker-dealers engaged in secu￾rity-based swap activities).
Per firm: 20 hours ..........................
Industry: 500 hours ........................
Per firm: 120 hours.
Industry: 3,000 hours.
Total—Amendments to Rule 17a–5 ................................................. Industry: 1,085 hours ..................... Industry: 6,924 hours. The Commission estimates that Rule 18a–7 will impose the following initial and annual burdens: 700 Burden Initial burden Annual burden
Additional ANC reports ............................................................................ Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: 120 hours.
Industry: 480 hours.
Customer statements .............................................................................. Per firm: 10 hours ..........................
Industry: 100 hours ........................
Per firm: 1 hours.
Industry: 10 hours.
Annual report (stand-alone SBSDs not exempt from Rule 18a–4) ........ Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: 70 hours and $6.70.
Industry: 0 hours and $0.
Annual report (stand-alone SBSDs exempt from Rule 18a–4) .............. Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: 17 hours and $6.70.
Industry: 102 hours and $40.2.

701See Recordkeeping and Reporting Proposing Release, 79 FR at 25270. The Commission does not estimate a change in the burden associated with the new lines added to the FOCUS Report, as compared with Form SBS in the proposing release, because the addition of new lines is offset by the deletion of other lines, such as the deletion of lines in the Statement of Income (Loss) or Statement of Comprehensive Income, as Applicable. In addition, many of the new lines are not so much new burdens as different burdens, since in the absence of these new lines, firms would still be required to report this same information, except that it would be reported on a different line. For example, in the Statement of Financial Condition, excess cash collateral pledged on derivative transactions (Line
6) is currently reported under other assets (Line 15).
702See paragraph (a)(1)(ii) of Rule 17a–5, as amended. 703ANC broker-dealer SBSDs will be required to complete the following new sections: (1) Computation for Determination of Security-Based Swap Customer Reserve Requirements; (2) Possession or Control for Security-Based Swap Customers; (3) Schedule 1—Aggregate Securities, Commodities, and Swaps Positions; and (4)
Schedule 4—Geographic Distribution of Derivatives
Exposures for Ten Largest Countries.
704 25 hours × 10 ANC broker-dealer SBSDs = 250 hours. These internal hours likely will be performed by a compliance manager. 705 228 hours per year × 10 ANC broker-dealer SBSDs = 2,280 hours per year. These internal hours likely will be performed by a compliance manager. 706Non-model broker-dealer SBSDs will be required to complete the following new sections: (1) Financial and Operational Data—Operational Deductions from Capital—Note A; (2) Financial and Operational Data—Potential Operational Charges Not Deducted from Capital—Note B; (3) Computation for Determination of PAB Requirements; (4) Computation for Determination of Security-Based Swap Customer Reserve Requirements; (5) Possession or Control for Security-Based Swap Customers; (6) Schedule 1— Aggregate Securities, Commodities, and Swaps Positions; (7) Schedule 2—Credit Concentration Report for Fifteen Largest Current Exposures in Derivatives; (8) Schedule 3—Portfolio Summary of Derivatives Exposures by Internal Credit Rating; and (9) Schedule 4—Geographic Distribution of Derivatives Exposures for Ten Largest Countries. In addition, non-model broker-dealer SBSDs also registered as FCMs will be required to file the following sections not included on Pre-Amendment FOCUS Report Part II, but which the CFTC already requires FCMs to file as part of Form 1–FR–FCM:
(1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The Commission does not estimate a burden
for these 5 sections from Form 1–FR–FCM, since the CFTC already requires FCMs to file these 5 sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. Burden Initial burden Annual burden
Annual report (stand-alone MSBSPs) ..................................................... Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: 10 hours and $6.70.
Industry: 40 hours and $26.80.
Statement regarding accountant ............................................................. Per firm: 10 hours ..........................
Industry: 100 hours ........................
Per firm: 2 hours and 50¢.
Industry: 20 hours and $5.00.
Engagement of accountant (stand-alone SBSDs not exempt from Rule 18a-4).
Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: $450,000.
Industry: $0.
Engagement of accountant (stand-alone SBSDs exempt from Rule 18a–4).
Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: $303,000.
Industry: $1,818,000.
Engagement of accountant (stand-alone MSBSPs) ............................... Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: $300,000.
Industry: $1,200,000.
Notice of change of fiscal year ............................................................... Per firm: 0 hours ............................
Industry: 0 hours ............................
Per firm: 1 hour and 50¢.
Industry: 1 hour and 50¢.
FOCUS Report Part II (stand-alone SBSDs) .......................................... Per firm: 160 hours ........................
Industry: 960 hours ........................
Per firm: 192 hours.
Industry: 1,152 hours.
FOCUS Report Part II (stand-alone MSBSPs) ....................................... Per firm: 40 hours ..........................
Industry: 160 hours ........................
Per firm: 48 hours.
Industry: 192 hours.
FOCUS Report Part IIC (bank SBSDs) .................................................. Per firm: 36 hours ..........................
Industry: 900 hours ........................
Per firm: 16 hours.
Industry: 400 hours.
Total—New Rule 18a–7 ................................................................... Industry: 2,220 hours ..................... Industry: 2,397 hours and $3,018,072.5. Estimated Hours and Costs of Amendments to Rule 17a–5 In the proposing release, the Commission estimated that many of the amendments to Rule 17a–5 are not expected to impose an initial burden.701 The Commission received no comment on these estimates and continues to believe they are appropriate. Paragraph (a)(1)(ii) of Rule 17a–5, as amended, will require broker-dealer SBSDs and MSBSPs to file FOCUS Report Part II, as amended, monthly instead of filing the applicable part of the FOCUS Report quarterly.702 Part II,
Part IIA, and Part II CSE of the FOCUS
Report each impose a different burden on respondents due to their varying lengths and calculations, so the burden of filing FOCUS Report Part II, as amended, depends on which part of the FOCUS Report the firm is currently required to file. ANC broker-dealer SBSDs will be required to file FOCUS Report Part II, as amended, instead of FOCUS Report Part II CSE. Although FOCUS Report Part II, as amended, is modeled on Part II CSE, the burden on ANC broker-dealer SBSDs will increase, because ANC broker￾dealer SBSDs will be required to complete additional sections and line items eliciting more detail about their security-based swap and swap activities.703 In consideration of these additional requirements, the Commission estimates that the requirement for ANC broker-dealer SBSDs to file FOCUS Report Part II, as amended, every month will add an initial burden of 25 hours per firm and an ongoing annual burden of 228 hours per firm. The Commission estimates that there are ten ANC broker-dealer SBSDs, adding to the industry an initial burden of 250 hours 704 and an ongoing burden of 2,280 hours per year.705 Non-model broker-dealer SBSDs will be required to file FOCUS Report Part II, as amended, instead of Part II or Part IIA of the FOCUS Report. Given that SBSDs are expected to be larger and relatively sophisticated firms, the Commission assumes that all non-model broker￾dealer SBSDs are carrying firms that file
Part II. Although sections of Part II are
also found in FOCUS Report Part II, as amended, the burden on non-model broker-dealer SBSDs will increase (but not as much as for ANC broker-dealer SBSDs), because non-model broker￾dealer SBSDs will be required to file monthly instead of quarterly and will complete additional sections and line items eliciting more detail about their security-based swap and swap activities.706 In consideration of these additional requirements, the Commission estimates that the

707 50 hours x 6 non-model broker-dealer SBSDs = 300 hours. These internal hours likely will be performed by a compliance manager. 708 240 hours per year × 6 non-model broker￾dealer SBSDs = 1,440 hours per year. These internal hours likely will be performed by a compliance manager. 709Broker-dealer MSBSPs will be required to complete the following new sections: (1) Financial and Operational Data—Operational Deductions from Capital—Note A; (2) Financial and Operational Data—Potential Operational Charges Not Deducted from Capital—Note B; (3) Computation for Determination of PAB Requirements; and (4) Schedule 1—Aggregate Securities, Commodities, and Swaps Positions. In addition, broker-dealer MSBSPs also registered as FCMs will be required to file the following sections not included on Pre-Amendment FOCUS Report
Part II, but which the CFTC already requires FCMs
to file as part of Form 1–FR–FCM: (1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under
Section 4d(f) of the Commodity Exchange Act; (4)
Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7. The Commission does not estimate a burden for these 5 sections from Form 1–FR–FCM, since the CFTC already requires FCMs to file these 5 sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. 710Stand-alone non-model broker-dealers that engage in security-based swap activities will be required to complete the following new sections: (1) Computation for Determination of PAB Requirements; (2) Computation for Determination of Security-Based Swap Customer Reserve Requirements; (3) Possession or Control for Security-Based Swap Customers; and (4) Schedule 1—Aggregate Securities, Commodities, and Swaps Positions. In addition, non-model broker-dealer SBSDs also registered as FCMs will be required to file the following sections not included on Pre￾Amendment FOCUS Report Part II, but which the CFTC already requires FCMs to file as part of Form 1–FR–FCM: (1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The Commission does not estimate a burden
for these 5 sections from Form 1–FR–FCM, since the CFTC already requires FCMs to file these 5 sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. 711 20 hours × 25 stand-alone non-model broker￾dealers engaged in security-based swap activities = 500 hours. These internal hours likely will be performed by a compliance manager. 712 120 hours per year × 25 stand-alone non￾model broker-dealers engaged in security-based swap activities = 3,000 hours per year. These internal hours likely will be performed by a compliance manager. 713See Rule 18a–7, as adopted. 714See paragraph (a)(3) of Rule 18a–7, as adopted. 715See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–5 (May 26, 2017), available at https:// www.reginfo.gov/public/do/DownloadDocument? objectID=74209001 (4 hours per monthly report × 12 months per year + 8 hours per quarterly report × 4 quarters per year + 40 hours per annual report = 120 hours per year). 716 120 hours per year × 4 model stand-alone SBSDs = 480 hours per year. These internal hours likely would be performed by a compliance manager. requirement for non-model broker￾dealer SBSDs to file FOCUS Report Part II, as amended, every month will add an initial burden of 50 hours per firm and an ongoing annual burden of 240 hours per firm. The Commission estimates that there are 6 non-model broker-dealer SBSDs, adding to the industry an initial burden of 300 hours 707 and an ongoing burden of 1,440 hours per year.708 Broker-dealer MSBSPs will be required to file FOCUS Report Part II, as amended, instead of Part II or Part IIA of the FOCUS Report. Given that MSBSPs are expected to be larger and relatively sophisticated firms, the Commission assumes that broker-dealer MSBSPs are carrying firms that file Part
II. Although sections of Part II are also
found in FOCUS Report Part II, as amended, the burden on broker-dealer MSBSPs will increase (but not as much as for broker-dealer SBSDs), because broker-dealer MSBSPs will be required to file monthly instead of quarterly and will complete additional sections and line items eliciting more detail about their security-based swap and swap activities.709 In consideration of these additional requirements, the Commission estimates that the requirement for broker-dealer MSBSPs to file FOCUS Report Part II, as amended, every month will add an initial burden of 35 hours per firm and an ongoing annual burden of 204 hours per firm. The Commission estimates that there will be one broker-dealer MSBSP, meaning that the estimated burden on the industry will be the same as for a single broker-dealer MSBSP. Stand-alone non-model broker-dealers that engage in security-based swap activities will be required to file FOCUS Report Part II, as amended, instead of the currently existing FOCUS Report
Part II. Although sections of Part II are
also found in FOCUS Report Part II, as amended, the burden on stand-alone non-model broker-dealers engaged in security-based swap activities will increase, because stand-alone non￾model broker-dealers will be required to complete additional line items eliciting more detail about their security-based swap and swap activities.710 In consideration of these additional requirements, the Commission estimates that the requirement for stand-alone non-model broker-dealers engaged in security-based swap activities to file FOCUS Report Part II, as amended, will add an initial burden of 20 hours per firm and an ongoing annual burden of 120 hours per firm. The Commission estimates that there are 25 stand-alone non-model broker-dealers engaged in security-based swap activities, adding to the industry an initial burden of 500 hours 711 and an ongoing burden of 3,000 hours per year.712 The Commission received no comments regarding its hour and cost burden estimates for new Rule 17a–5 and continues to believe they are appropriate. However, the estimated burden for Rule 17a–5 is decreased to reflect that stand-alone non-model broker-dealers are no longer required to complete Schedules 2 through 4 of the FOCUS Report. Other than this change, the Commission continues to believe its hour and cost burden estimates for the amendments to Rule 17a–5 are appropriate. Estimated Hours and Costs of New Rule 18a–7 New Rule 18a–7, which is modeled on Rule 17a–5, as amended, will require non-broker-dealer SBSDs and non￾broker-dealer MSBSPs to satisfy certain reporting requirements.713 New Rule 18a–7 will require stand￾alone SBSDs authorized to use models to compute capital to periodically file certain additional reports relating to their use of internal models to calculate net capital.714 After consideration of the Supporting Statement accompanying the most recent extension of Rule 17a– 5, which estimates that the requirement to file additional ANC reports imposes a burden of 120 hours per respondent,715 the Commission estimates that paragraph (a)(3) of new Rule 18a–7 will impose an annual burden of 120 hours per model stand￾alone SBSD. The Commission estimates that there are 4 model stand-alone SBSDs, resulting in an industry-wide ongoing burden of 480 hours per year.716 New Rule 18a–7 will require stand￾alone SBSDs and MSBSPs to disclose certain financial statements on their

717See paragraph (b) of Rule 18a–7, as adopted. The Commission does not anticipate a dollar cost to establish a website and a toll-free number under this paragraph, because the Commission believes firms that are large enough to register as an SBSD or MSBSP already maintain a toll-free number for their customers and already have an internet website. See Broker-Dealer Exemption from Sending Certain Financial Information to Customers, Exchange Act Release No. 48272 (Aug. 1, 2003), 68 FR 46446, 46450 (Aug. 6, 2003). 718See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–5. See section II.B.3.a. of this release for a discussion of the similarities between paragraph (c) of Rule 17a–5, as amended and paragraph (b) of Rule 18a–7, as adopted. 719 10 hours × 10 stand-alone SBSDs and MSBSPs = 100 hours. These internal hours likely would be performed by a compliance manager. 720 1 hour per year × 10 stand-alone SBSDs and MSBSPs = 10 hours per year. These internal hours likely would be performed by a compliance clerk. 721See paragraphs (c) and (d) of Rule 18a–7, as adopted. 722As of May 2018, a priority mail flat rate envelope costs $6.70, based on costs obtained on the U.S. Postal Service website, available at www.usps.gov. Firms that file electronically will not incur this cost. 723 10 hours per year × 4 stand-alone MSBSPs = 40 hours per year. These internal hours likely would be performed by a senior accountant. 724 $6.70 per year × 4 stand-alone MSBSPs = $26.80 per year. 725See Recordkeeping and Reporting Proposing Release, 79 FR at 25270. 726See paragraph (c)(1)(i)(B) of Rule 18a–7, as adopted. 727See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–5. 728 70 hours per year × 2 stand-alone SBSDs = 210 hours per year. These internal hours likely would be performed by a senior accountant. 729 $6.70 per year × 2 stand-alone SBSDs = $20.10 per year. Firms that file electronically will not incur this cost. As discussed above, the Commission estimates that of the 9 stand-alone SBSDs, 6 will avail themselves of the exemption from Rule 18a– 4, and the remaining 3 will be registered as FCMs. The Commission also believes that the three stand￾alone SBSDs that are registered as FCMs will also elect to avail themselves of the full alternative compliance mechanism. Consequently, the Commission estimates that there will be no stand￾alone SBSDs not exempt from Rule 18a–4. See
section IV.C of this release.
730See paragraph (c)(1)(i)(B) of Rule 18a–7, as adopted. 731See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–5. 732 17 hours per year × 6 stand-alone SBSDs = 102 hours per year. These internal hours likely would be performed by a senior accountant. 733 $6.70 per year × 6 stand-alone SBSDs = $40.20 per year. Firms that file electronically will not incur this cost. 734See paragraph (e) of Rule 18a–7, as adopted. 735See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–5. 736 It currently costs 50 cents to send a one ounce retail domestic first-class letter through the U.S. Postal Service. See U.S. Postal Service, First-Class Mail, available at http://pe.usps.com/text/dmm300/ Notice123.htm#_c011 (last visited May 10, 2018). 737 10 hours × 13 stand-alone SBSDs and MSBSPs = 130 hours. These internal hours likely would be performed by a senior accountant. 738 2 hours per year × 10 stand-alone SBSDs and MSBSPs = 20 hours per year. These internal hours likely would be performed by a compliance clerk. 739 $0.50 per year × 10 stand-alone SBSDs and MSBSPs = $5.00 per year. 740See paragraph (f) of Rule 18a–7, as adopted. internet websites.717 After consideration of the Supporting Statement accompanying the most recent extension of Rule 17a–5, which requires similar disclosures by mail instead of on the firm’s website,718 the Commission staff’s experience with burden estimates for similar collections of information, and the estimated initial web development costs, the Commission estimates that paragraph (b) of new Rule 18a–7 will impose an initial burden of ten hours per firm and an annual burden of one hour per firm. The Commission estimates that there are 10 respondents (6 stand-alone SBSDs and 4 stand-alone MSBSPs), resulting in an industry-wide initial burden of 100 hours 719 and an industry-wide ongoing burden of 10 hours per year.720 New Rule 18a–7 will require stand￾alone SBSDs and MSBSPs to file with the Commission an annual report consisting of certain financial reports, and attach to the financial report an oath or affirmation.721 Based on the Commission staff’s experience with the burden imposed by current Rule 17a–5’s annual reports requirement and related postage costs,722 the Commission estimates that paragraphs (c) and (d) of new Rule 18a–7 will impose on stand￾alone MSBSPs an annual burden of 10 hours and $6.70 per firm. The Commission estimates that there are 4 stand-alone MSBSPs, resulting in an industry-wide ongoing burden of 40 hours 723 and $26.80 per year.724 In the proposing release, the Commission estimated that many of the amendments to Rule 17a–5 are not expected to impose an initial burden.725 The Commission received no comment on these estimates and continues to believe they are appropriate. Stand-alone SBSDs not exempt from Rule 18a–4 will be required to include a compliance report with their annual reports.726 Thus, after
consideration of the Supporting Statement accompanying the most recent extension of Rule 17a–5, which estimates that each compliance report takes approximately 60 hours to prepare,727 the Commission estimates that paragraphs (c) and (d) of new Rule 18a–7 will impose an annual burden of 70 hours and $6.70 per stand-alone SBSD that files a compliance report. The Commission estimates that there are no stand-alone SBSDs that will file a compliance report, resulting in an industry-wide ongoing burden of 0 hours 728 and $0 per year.729 Stand-alone SBSDs exempt from Rule 18a–4 will be required to include an exemption report with their annual reports.730 Thus, after consideration of the Supporting Statement accompanying the most recent extension of Rule 17a–5, which estimates that each exemption report takes approximately 7 hours to prepare,731 the Commission estimates that paragraphs (c) and (d) of new Rule 18a–7 will impose an annual burden of 17 hours and $6.70 per stand-alone SBSD that files an exemption report. The Commission estimates that there are 6 stand-alone SBSDs that will file an exemption report, resulting in an industry-wide ongoing burden of 102 hours 732 and $40.20 per year.733 New Rule 18a–7 will require stand￾alone SBSDs and MSBSPs to file a statement regarding the independent public accountant engaged to audit the firm’s annual reports.734 In addition to postage costs, the Supporting Statement accompanying the most recent extension of Rule 17a–5 estimates that the parallel requirement in Rule 17a–5 will impose a two-hour burden on each introducing broker-dealer to file an updated statement, and a more significant ten-hour burden on each carrying broker-dealer, since the changes may require renegotiating the carrying broker-dealer’s agreement with its independent public accountant.735 Consistent with that Supporting Statement, the Commission estimates that paragraph (e) of new Rule 18a–7 will impose an initial burden of ten hours per firm and an annual burden of 2 hours and 50 cents per firm.736 The Commission estimates that there are 10 respondents (6 stand-alone SBSDs and 4 stand-alone MSBSPs), resulting in an industry-wide initial burden of 100 hours 737 and an industry-wide ongoing burden of 20 hours 738 and $5.00 per year.739 New Rule 18a–7 will require stand￾alone SBSDs and MSBSPs to engage an independent public accountant to provide reports covering the firm’s annual reports.740 As discussed above, the Commission is modifying the provisions of Rule 18a–7 to allow stand￾alone SBSDs and MSBSPs, as well as an SBSD also registered as an OTC derivatives dealer, to engage an independent public accountant that is not registered with the PCAOB, and to permit the accountant to use GAAS in the United States or PCAOB

741See section II.B.3.a. of this release (discussing the requirement to file annual reports and the qualifications of independent public accountants). 742See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–5. 743 $300,000 per year × 4 stand-alone MSBSPs = $1,200,000 per year. 744 $300,000 per year (financial statements) + $3,000 per year (exemption report) = $303,000 per year. 745 $303,000 per year × 6 stand-alone SBSDs = $1,818,000 per year. 746 $300,000 per year (financial statements) + $150,000 per year (compliance report) = $450,000 per year. 747 $450,000 per year × 0 stand-alone SBSDs = $0 per year. As discussed above, the Commission estimates that of the 9 stand-alone SBSDs, 6 will avail themselves of the exemption from Rule 18a– 4, and the remaining 3 will be registered as FCMs. The Commission also believes that the three stand￾alone SBSDs that are registered as FCMs will also elect to avail themselves of the full alternative compliance mechanism. Consequently, the Commission estimates that there will be no stand￾alone SBSDs not exempt from Rule 18a–4. See
section IV.C of this release. 748See paragraph (i) of Rule 18a–7, as adopted. 749See Commission, Supporting Statement for the
Paperwork Reduction Act Information Collection Submission for Rule 17a–11 (July 24, 2017), available at https://www.reginfo.gov/public/do/ DownloadDocument?objectID=75553601. 750See paragraph (a)(1) of Rule 18a–7, as adopted. 751See paragraph (a)(2) of Rule 18a–7, as adopted. 752See paragraph (a)(1) of Rule 18a–7, as adopted. 753Stand-alone SBSDs will be required to complete the following sections and schedules: (1) Statement of Financial Condition; (2) either Computation of Net Capital (Filer Authorized to Use Models) or Computation of Net Capital (Filer Not Authorized to Use Models); (3) Computation of Minimum Regulatory Capital Requirements (Non￾Broker-Dealer); (4) Statement of Income (Loss); (5) Capital Withdrawals; (6) Capital Withdrawals— Recap; (7) Financial and Operational Data; (8) Financial and Operational Data—Operational Deductions from Capital—Note A; (9) Financial and Operational Data—Potential Operational Charges Not Deducted from Capital—Note B; (10) Computation for Determination of Security-Based Swap Customer Reserve Requirements; (11) Possession or Control for Security-Based Swap Customers; (12) Schedule 1—Aggregate Securities, Commodities, and Swaps Positions; (13) Schedule 2—Credit Concentration Report for Fifteen Largest Exposures in Derivatives; (14) Schedule 3— Portfolio Summary of Derivatives Exposures by Internal Credit Rating; and (15) Schedule 4— Geographic Distribution of Derivatives Exposures for Ten Largest Countries. 754Stand-alone SBSDs also registered as FCMs will be required to file the following sections: (1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The Commission does not estimate a burden
for these five sections, since the CFTC already requires FCMs to file these five sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. 755 160 hours × 6 stand-alone SBSDs = 960 hours. These internal hours likely would be performed by a senior compliance manager. 756 192 hours per year × 6 stand-alone SBSDs = 1,152 hours per year. These internal hours likely would be performed by a senior compliance manager. 757See paragraph (a)(1) of Rule 18a–7, as adopted. 758Stand-alone MSBSPs will be required to complete the following sections and schedules: (1) Statement of Financial Condition; (2) Computation of Tangible Net Worth; (3) Statement of Income (Loss); (4) Schedule 1—Aggregate Securities, Commodities, and Swaps Positions; (5) Schedule 2—Credit Concentration Report for Fifteen Largest Exposures in Derivatives; (6) Schedule 3—Portfolio Summary of Derivatives Exposures by Internal Credit Rating; and (7) Schedule 4 –Geographic Distribution of Derivatives Exposures for Ten Largest Countries. 759Stand-alone MSBSPs also registered as FCMs will be required to file the following sections: (1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation standards.741 The Supporting Statement accompanying the most recent extension of Rule 17a–5 estimates that it will cost each carrying firm $300,000 to retain an independent public accountant to audit its financial statements and $150,000 to examine its compliance report.742 Stand-alone MSBSPs are not required to file a compliance or exemption report, while stand-alone SBSDs will be required to retain an independent public accountant to review their compliance report (if they are not exempt from Rule 18a–4) or exemption report (if they are exempt from Rule 18a–4). Therefore, the Commission estimates that paragraph (f) of new Rule 18a–7 will impose an annual cost of $300,000 on each stand-alone MSBSP. The Commission estimates that there are 4 stand-alone MSBSPs, resulting in an industry-wide ongoing burden of $1,200,000 per year.743 The Commission estimates that paragraph (f) of new Rule 18a–7 will impose on stand-alone SBSDs exempt from Rule 18a–4 an annual cost of $303,000 per firm,744 since both their financial statements and exemption report will need to be audited. The Commission estimates that there are 6 stand-alone SBSDs exempt from Rule 18a–4, resulting in an industry-wide ongoing burden of
$1,818,000 per year.745 The Commission estimates that paragraph (f) of new Rule 18a–7 will impose on stand-alone SBSDs not exempt from Rule 18a–4 an annual cost of $450,000 per firm,746 since both their financial statements and compliance report will need to be audited. The Commission estimates that there are no stand-alone SBSDs not exempt from Rule 18a–4, resulting in an industry-wide ongoing burden of $0 per year.747 New Rule 18a–7 will require stand￾alone SBSDs and MSBSPs to notify the Commission of a change in fiscal year.748 Based on the Commission staff’s experience with the parallel requirement under Rule 17a–5, and the Supporting Statement accompanying the most recent extension of Rule 17a– 11, which estimates that each financial notice takes approximately 1 hour to prepare and file with the Commission,749 the Commission estimates that paragraph (i) of new Rule 18a–7 will impose a burden of 1 hour and 50 cents on a firm planning to change its fiscal year. The Commission estimates that each year, 1 firm will change its fiscal year, such that the estimated burden on the industry will be 1 hour and 50 cents per year. New Rule 18a–7 will require stand￾alone SBSDs and MSBSPs to file FOCUS Report Part II, as amended, monthly,750 and will require bank SBSDs and MSBSPs to file new FOCUS Report Part IIC quarterly.751 Stand-alone SBSDs will be required to file FOCUS Report Part II, as amended, on a monthly basis.752 FOCUS Report
Part II, as amended, includes eleven
sections and four schedules applicable to stand-alone SBSDs.753 Stand-alone SBSDs dually registered as FCMs will be required to complete five additional sections, all of which the CFTC already requires FCMs to file as part of Form 1– FR–FCM.754 In consideration of these additional requirements, the Commission estimates that the requirement for stand-alone SBSDs to file FOCUS Report Part II, as amended, every month will impose an initial burden of 160 hours per firm and an ongoing annual burden of 192 hours per firm. The Commission estimates that there are 6 stand-alone SBSDs, resulting in an industry-wide initial burden of 960 hours 755 and an industry-wide ongoing burden of 1,152 hours per year.756 Stand-alone MSBSPs will be required to file FOCUS Report Part II, as amended, on a monthly basis.757 FOCUS Report Part II, as amended, includes three sections and four schedules applicable to stand-alone MSBSPs.758 Stand-alone MSBSPs dually registered as FCMs will be required to complete five additional sections, all of which the CFTC already requires FCMs to file as part of Form 1–FR–FCM.759 In

for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The Commission does not estimate a burden
for these 5 sections, since the CFTC already requires FCMs to file these 5 sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. 760 40 hours × 4 stand-alone MSBSPs = 160 hours. These internal hours likely will be performed by a senior compliance manager. 761 48 hours per year × 4 stand-alone MSBSPs = 192 hours per year. These internal hours likely will be performed by a senior compliance manager. 762See paragraph (a)(2) of Rule 18a–7, as adopted. 763Bank SBSDs will be required to complete the following sections and schedules: (1) Balance Sheet (Information as Reported on FFIEC Form 031—
Schedule RC); (2) Regulatory Capital (Information
as Reported on FFIEC Form 031—Schedule RC–R); (3) Income Statement (Information as Reported on FFIEC Form 031—Schedule RI); (4) Computation for Determination of Security-Based Swap Customer Reserve Requirements; (5) Possession or Control for Security-Based Swap Customers; and (6) Schedule 1—Aggregate Security-Based Swap and Swap Positions. 764Bank SBSDs also registered as FCMs will be required to file the following sections: (1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The Commission does not estimate a burden
for these 5 sections, since the CFTC already requires FCMs to file these 5 sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. 765 36 hours × 25 bank SBSDs = 900 hours. These internal hours likely will be performed by a senior compliance manager. 766 16 hours per year × 25 bank SBSDs = 400 hours per year. These internal hours likely will be performed by a senior compliance manager. 767See paragraph (a)(2) of Rule 18a–7, as adopted. 768Bank MSBSPs will be required to complete the following sections and schedules: (1) Balance Sheet (Information as Reported on FFIEC Form 031—
Schedule RC); (2) Regulatory Capital (Information
as Reported on FFIEC Form 031—Schedule RC–R); (3) Income Statement (Information as Reported on FFIEC Form 031—Schedule RI); and (4) Schedule 1—Aggregate Security-Based Swap and Swap Positions. 769Bank MSBSPs also registered as FCMs will be required to file the following sections: (1) Computation of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation
30.7. The Commission does not estimate a burden
for these 5 sections, since the CFTC already requires FCMs to file these 5 sections on a monthly basis (17 CFR 1.10(b)(1)(i)), and therefore, the hourly burden is already accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s FOCUS Report Part II, as amended. 770The Commission estimates that the requirement for bank MSBSPs to file FOCUS Report
Part IIC quarterly will impose an initial burden of
16 hours per firm and an ongoing annual burden of 8 hours per firm. 771See paragraphs (f) and (g) of Rule 17a–11, as amended. consideration of these additional requirements, the Commission estimates that the requirement for stand-alone MSBSPs to file FOCUS Report Part II, as amended, every month will impose an initial burden of 40 hours per firm and an ongoing annual burden of 48 hours per firm. The Commission estimates that there are 4 stand-alone MSBSPs, resulting in an industry-wide initial burden of 160 hours 760 and an industry￾wide ongoing burden of 192 hours per year.761 Bank SBSDs will be required to file new FOCUS Report Part IIC on a quarterly basis.762 New FOCUS Report
Part IIC includes five sections and one
schedule applicable to bank SBSDs.763
The Commission does not expect new FOCUS Report Part IIC to impose a significant burden on bank SBSDs, because two of the five sections require the firm to file calculations already computed in accordance with Rule 18a– 3, and the other three sections either mirror or are scaled down versions of schedules to FFIEC Form 031, which banks are already required to file with their prudential regulator (although they will need to transpose this information from FFIEC Form 031 to FOCUS Report
Part IIC). Although bank SBSDs dually
registered as FCMs will be required to complete five additional sections, the CFTC already requires FCMs to file these schedules on Form 1–FR–FCM.764 In consideration of these additional requirements, the Commission estimates that the requirement for bank SBSDs to file FOCUS Report Part IIC quarterly will impose an initial burden of 36 hours per firm and an ongoing annual burden of 16 hours per firm. The Commission estimates that there are 25 bank SBSDs, resulting in an industry￾wide initial burden of 900 hours 765 and an industry-wide ongoing burden of 400 hours per year.766 Bank MSBSPs will be required to file new FOCUS Report Part IIC on a quarterly basis.767 New FOCUS Report
Part IIC includes three sections and one
schedule applicable to bank MSBSPs.768
Bank MSBSPs dually registered as FCMs will be required to complete five additional sections, all of which the CFTC already requires FCMs to file as
part of Form 1–FR–FCM.769 However,
the Commission does not expect any banks to register with the Commission as MSBSPs and therefore does not anticipate these requirements to impose an additional burden.770 The Commission received no comments regarding its hour and cost burden estimates for new Rule 18a–7 and continues to believe they are appropriate.
4. Amendments to Rule 17a–11 and
New Rule 18a–8
The amendments to Rule 17a–11 and new Rule 18a–8 will impose collection of information requirements that result in annual burdens for broker-dealers, SBSDs, MSBSPs, and national securities exchanges and national securities associations. The Commission estimates that Rule 17a–11, as amended, will impose the following initial and annual burdens: 771 Burden Annual burden New notice of failure to deposit in Rule 15c3–3(p) account ............................................................................. Per notice: 1 hour. Industry: 100 hours. New notices filed by exchanges and national securities associations .............................................................. Per notice: 1 hour. Industry: 5 hours. Total—Amendments to Rule 17a–11 ......................................................................................................... Industry: 105 hours.

772See paragraph (f) of Rule 17a–11, as amended. 773See Capital, Margin, and Segregation Adopting Release, 84FR at 43964–67. 774See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–11. 775See id. (noting that in 2016, the Commission received approximately 253 notices under Rule 17a–11). 776 100 notices per year × 1 hour per notice = 100 hours per year. These internal hours likely will be performed by a compliance manager. 777See paragraph (g) of Rule 17a–11, as amended. 778See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–11. 779 5 notices per year × 1 hour per notice = 5 hours per year. These internal hours likely will be performed by a compliance manager. 780See Rule 18a–8, as adopted. 781See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–11. 782Compare paragraph (h) of Rule 17a–11, as amended, with paragraph (h) of Rule 18a–8, as adopted. 783Rule 17a–11 does not apply to a broker-dealer registered pursuant to Section 15(b)(11)(A) of the Exchange Act that is not a member of either a national securities exchange or a national securities association. See paragraph (j) of Rule 17a–11, as amended. The Commission estimates that there are approximately 3,582 broker-dealers subject to Rule 17a–11 after consulting with SIPC (3,764 registered broker-dealers—approximately 182 broker-dealers registered pursuant to Section 15(b)(11)(A) of the Exchange Act = 3,711 Rule 17a–11 respondents). 784 5 notices per year × (55 minutes per notice ÷ 60 minutes per hour) = 4.6 hours per year. These internal hours likely will be performed by a compliance manager. 785Compare, e.g., FOCUS Report Part IIB,
Schedule VI—Aggregate Securities and
Commodities Positions, Line 2 (U.S. Government agency), with FOCUS Report Part II, as amended,
Schedule 1—Aggregate Securities, Commodities,
and Swaps Positions, Line 2 (U.S. government agency and U.S. government sponsored enterprises). 786Compare, e.g., FOCUS Report Part IIB,
Schedule VI—Aggregate Securities and
Commodities Positions, Line 2 (U.S. Government agency), with FOCUS Report Part II, as amended,
Schedule 1—Aggregate Securities, Commodities,
and Swaps Positions, Lines 2A–2B (requesting a break-out of the portion of U.S. government agency and U.S. government sponsored enterprises attributable to mortgage-backed securities and debt securities). 787See, e.g., FOCUS Report Part II, as amended, Computation of Minimum Regulatory Capital Requirements (Broker-Dealer), Line 9A (soliciting the filer’s net capital in excess of 120% of the firm’s minimum net capital requirement). 788See, e.g., FOCUS Report Part II, as amended, Computation of Minimum Regulatory Capital Requirements (Non-Broker-Dealer SBSD). The Commission estimates that new Rule 18a–8 will impose an annual burden of 4.6 hours per year. Estimated Hours and Costs of Amendments to Rule 17a–11 The Commission is adopting paragraph (f) to Rule 17a–11, which will require broker-dealers engaged in security-based swap activities to notify the Commission if they fail to make a deposit required under paragraph (p) of Rule 15c3–3.772 Because the burden to calculate the reserve amount is already accounted for in the PRA estimate for Rule 15c3–3,773 the burden imposed by paragraph (f) of Rule 17a–11, as amended, is the requirement to notify the Commission when the firm fails to act in accordance with paragraph (p) of Rule 15c3–3. Given the similarity of this new requirement to the current requirements of Rule 17a–11, the Commission estimates that each required notice will take one hour to prepare and file.774 Based on Commission experience with the number of notices filed under current Rule 17a–11,775 the Commission estimates that 100 notices will be filed each year under paragraph (f) of Rule 17a–11, as amended, resulting in an industry-wide ongoing burden of 100 hours per year.776 The Commission is redesignating current paragraph (f) of Rule 17a–11 as paragraph (g) and requiring a broker￾dealer’s national securities exchange or national securities association to notify the Commission if it learns that the broker-dealer failed to provide a notice required under any paragraph of Rule 17a–11 (instead of just paragraphs (b) through (e) of Rule 17a–11 as it currently requires).777 Thus, these entities will be subject to new burdens to file a delinquent broker-dealer’s notices under new paragraph (f) (failure to deposit in Rule 15c3–3(p) account). After considering the similar preexisting Rule 17a–11 requirement, the Commission estimates that each required notice will take one hour to prepare and file.778 Based on Commission experience with the number of notices currently filed by these entities, the Commission estimates that five notices will be filed pursuant to the amendment to paragraph (g) of Rule 17a–11, as amended, resulting in an estimated industry-wide ongoing burden of five hours per year.779 The Commission received no comments regarding its hour and cost burden estimates for the amendments to Rule 17a–11 and continues to believe they are appropriate. Estimated Hours and Costs of New Rule 18a–8 New Rule 18a–8 will require
non￾broker-dealer SBSDs and non-broker￾dealer MSBSPs to notify the Commission of certain indicia of their financial condition.780 The Commission estimates that each Rule 18a–8 notice will take approximately 55 minutes to prepare and file, in contrast to its estimate that a Rule 17a–11 notice will take one hour to prepare and file,781 because stand-alone SBSDs and MSBSPs do not have a DEA with which to file a copy of the Rule 17a–11 notice and bank SBSDs and MSBSPs are not required to file the Rule 17a–11 notice with their prudential regulator.782 The Commission estimates that it will receive approximately five Rule 18a–8 notices per year, based on the substantially smaller pool of possible respondents, as compared with current Rule 17a–11. Under current Rule 17a– 11, there are approximately 3,582 possible respondents—3,764 registered broker-dealers, minus approximately 182 broker-dealers registered pursuant to Section 15(b)(11)(A) of the Exchange Act.783 In contrast, the Commission estimates that there will be 35 non￾broker-dealer SBSDs and non-broker￾dealer MSBSPs (25 bank SBSDs, 6 stand-alone SBSDs, and 4 stand-alone MSBSPs). Assuming that each of the 5 Rule 18a–8 notices takes 55 minutes to prepare and file, the Commission estimates new Rule 18a–8 will result in an industry-wide ongoing burden of 4.6 hours per year.784 The Commission received no comments regarding its hour and cost burden estimates for new Rule 18a–8 and continues to believe they are appropriate.
5. Amendments to Rule 17a–12
Rule 17a–12, as amended, will require OTC derivatives dealers to file FOCUS Report Part II, as amended, instead of FOCUS Report Part IIB. This is not so much a new burden as a different burden, since in the absence of this amendment these firms would be required to file FOCUS Report Part IIB instead. The new lines on FOCUS Report Part II, as amended, will generally not be applicable to OTC derivatives dealers. Some new lines on FOCUS Report Part II, as amended, require similar types of information as FOCUS Report Part IIB, but may be phrased in a different way.785 Other new lines on FOCUS Report Part II, as amended, may require additional detail regarding information that was already required to be reported on FOCUS Report Part IIB.786 Still other new lines on FOCUS Report Part II, as amended, require information that the OTC derivative dealers are already required to calculate pursuant to another Exchange Act rule.787 Finally, some new line items on FOCUS Report Part II, as amended, are not applicable to OTC derivatives dealers and therefore will not be completed by these firms.788 Although FOCUS Report Part II, as amended, is partially modeled on Part

789 20 hours × 4 OTC derivatives dealers = 80 hours. These internal hours likely will be performed by a compliance manager. 790See Rule 18a–9, as adopted. 791See Commission, Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 17a–13 (Feb. 28, 2017), available at https://www.reginfo.gov/public/do/ DownloadDocument?objectID=7182940. 792 100 hours per year × 6 stand-alone SBSDs = 600 hours per year. These internal hours likely will be performed by an operations specialist. 793However, the Commission assumes that stand￾alone SBSDs and MSBSPs do not currently have a securities count program in place. 794 25 hours × 6 stand-alone SBSDs = 150 hours. These internal hours likely will be performed by a senior operations manager. 795See Rule 18a–10, as amended. 796See supra section IV.C. 797See supra section IV.D.4. 798 1 notice per year × (5 minutes per notice ÷ 60 minutes per hour) = 0.0833 hours per year. These internal hours likely will be performed by a compliance manager. 799See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 29959. See also Trade Acknowledgment and Verification of Security￾Based Swap Transactions, 81 FR at 39382; Capital, Margin, and Segregation Adopting Release, 84 FR at 43960. 800See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR at 30097 (‘‘The Commission estimates that the total one-time paperwork burden incurred by such entities associated with preparing and submitting a request for a substituted compliance determination in connection with the business conduct requirements will be approximately 240 hours, plus $240,000 for the services of outside professionals for all three requests’’). The Commission further stated that in practice those amounts may overestimate the costs of requests pursuant to Rule 3a71–6 as adopted, as such requests would solely address the business conduct requirements, rather than the broader proposed scope of substituted compliance set forth in the Cross-Border Proposing Release. See id. at 30097, n. 1583. To the extent that an SBSD submits substituted compliance requests in connection with the business conduct requirements, the trade acknowledgment and verification requirements, the capital and margin requirements, and the recordkeeping and reporting requirements, the Commission believes that the paperwork burden associated with the requests would be greater than that associated with a narrower request, given the need for more information regarding the Continued IIB, the initial burden on OTC derivatives dealers is expected to increase, so that firms can analyze revised FOCUS Report Part II. However, once firms have analyzed FOCUS Report Part II, as amended, the amendments to Rule 17a–12 are not expected to change the estimated ongoing burden imposed by Rule 17a–
12. The Commission estimates that Rule
17a–12, as amended, will impose on each OTC derivative dealers an initial burden of 20 hours. The Commission estimates that there are 4 respondents, resulting in an estimated industry-wide initial burden of 80 hours.789 The Commission estimates that Rule 17a–12, as amended, will not change the estimated ongoing burden imposed by Rule 17a–12.
6. New Rule 18a–9
New Rule 18a–9, which is modeled on Rule 17a–13, will require stand-alone SBSDs to establish a securities count program.790 As explained below, the Commission estimates that new Rule 18a–9 will impose an industry-wide initial burden of 225 hours and an industry-wide ongoing burden of 900 hours per year. The current approved PRA estimate for Rule 17a–13 estimates a securities count program imposes an average ongoing cost of 100 hours per year.791 The Commission is using this estimate, and therefore estimates that new Rule 18a–9 will impose an ongoing annual burden of 100 hours per stand-alone SBSD. The Commission estimates that there are 6 stand-alone SBSDs, resulting in an estimated industry-wide ongoing burden of 600 hours per year.792 The Commission also estimates that new Rule 18a–9 will impose an initial burden of 25 hours per firm. The records required by new Rule 18a–9 should already be recorded by the systems implemented under new Rules 18a–5 and 18a–6, and accordingly, the resulting initial burden is largely already accounted for under these rules.793 However, the Commission estimates that the initial cost to establish procedures for conducting the securities count program, including identifying the persons involved in the program, will create an initial burden of approximately 25 hours per stand-alone SBSD, or 150 hours for the estimated 6 stand-alone SBSDs.794 The Commission received no comments regarding its hour and cost burden estimates for new Rule 18a–9 and continues to believe they are appropriate.
7. Amendments to Rule 18a–10
Rule 18a–10, as amended, contains an alternative compliance mechanism pursuant to which a stand-alone SBSD that is registered as a swap dealer and predominantly engages in a swaps business may elect to comply with the recordkeeping and reporting requirements of the CEA and the CFTC’s rules in lieu of complying with Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–
9.795 The Commission estimates that 3
stand-alone SBSDs will elect to operate under Rule 18a–10. These respondents were included in the proposing release in other collections of information (Rule 18a–5, Rule 18a–6, Rule 18a–7, Rule 18a–8, and Rule 18a–9, as proposed), and have been moved to the information collection for new Rule 18a–10.796 The Commission estimates the paperwork burden associated with transmitting to the Commission a copy of the notice required by paragraph (b)(4) of Rule 18a–10, as amended, to be 5 minutes for a stand-alone SBSD operating under Rule 18a–10. The Commission further estimates that it will receive one notice from a single submitting SBSD per year. The Commission is basing this estimate on the smaller pool of possible respondents, as compared with new Rule 18a–8.797 Assuming that the single Rule 18a–10 notice takes 5 minutes to transmit to the Commission, the Commission estimates Rule 18a–10, as amended, will result in an industry-wide ongoing burden of
0.083 hours per year.798
8. Amendments to Rule 3a71–6
Rule 3a71–6, as amended, will require submission of certain information to the Commission to the extent foreign SBSDs or MSBSPs elect to request a substituted compliance determination with respect to the Title VII recordkeeping and reporting requirements. The Commission expects that foreign SBSDs and MSBSPs will seek to rely on substituted compliance upon registration, and that it is likely that the majority of such requests will be made during the first year following the effective date of this amendment. Requests will not be necessary with regard to applicable rules and regulations of a foreign jurisdiction that have previously been the subject of a substituted compliance determination in connection with the applicable rules. The Commission expects that the majority of substituted compliance applications will be submitted by foreign authorities, and that very few substituted compliance requests will come from SBSDs or MSBSPs. For purposes of this assessment, the Commission estimates that three SBSDs or MSBSPs will submit such applications in connection with the Commission’s recordkeeping and reporting requirements.799 After consideration of the release adopting Rule 3a71–6, the Commission estimates that the total paperwork burden incurred by such entities associated with preparing and submitting a request for a substituted compliance determination in connection with the recordkeeping and reporting requirements will be approximately 240 hours, plus $240,000 for the services of outside professionals for all 3 requests.800

comparability of the relevant rules and the adequacy of the associated supervision and enforcement practices. In the Commission’s view, however, the burden associated with such a combined request would not exceed the prior estimate. See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR at 39833, n. 258. 801See paragraph (e)(3) of Rule 17a–5, as amended; paragraph (d)(2) of Rule 18a–7, as adopted. 802See paragraph (c)(1)(i) through (iii) of Rule 17a–5, as amended. 803See paragraph (c)(2)(iv) of Rule 17a–5, as amended. 804See paragraph (c)(1)(i) through (iii) of Rule 17a–5, as amended. 805See paragraph (c)(3) of Rule 17a–5, as amended. 806See paragraph (c)(2)(i) of Rule 17a–5, as amended. 807See paragraph (b) of Rule 18a–7, as adopted. 808See paragraph (b)(1)(ii) of Rule 18a–7, as adopted. 809See paragraphs (b)(1)(iii) of Rule 18a–7, as adopted. 810See Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR at 49049. 811See Application of ‘‘Security-Based Swap Dealer’’ and ‘‘Major Security-Based Swap Participant’’ Definitions to Cross-Border Security￾Based Swap Activities, Exchange Act Release No. 72372 (June 25, 2014, 79 FR 47278, 47359 (Aug. 12, 2014). 812See 17 CFR 200.83. Information regarding requests for confidential treatment of information submitted to the Commission is available at http:// www.sec.gov/foia/howfo2.htm#privacy. 813See, e.g., 5 U.S.C. 552 et seq.; 15 U.S.C. 78x (governing the public availability of information obtained by the Commission). for Recordkeeping Requirements 814See Rule 17a–4, as amended. 815See Rule 18a–6, as adopted. 816See Rule 17a–4, as amended; Rule 18a–6, as adopted. The Commission received no comments regarding its hour and cost burden estimates for Rule 3a71–6, as amended, and continues to believe they are appropriate. E. Collection of Information Is Mandatory The collections of information pursuant to the rule amendments and new rules, being adopted, are mandatory, as applicable, for broker￾dealers, SBSDs, MSBSPs, certain third￾party custodians, and NSEs and NSAs. Compliance with the collection of information requirements associated with Rule 3a71–6, regarding the availability of substituted compliance, is mandatory for all foreign financial authorities, foreign SBSDs, or foreign MSBSPs that seek a substituted compliance determination. F. Confidentiality The broker-dealer and stand-alone SBSD and MSBSP annual reports filed with the Commission are not confidential, except that if the statement of financial condition is bound separately from the balance of the annual reports and each page of the balance of the annual reports is stamped ‘‘confidential,’’ then the balance of the annual reports shall be deemed confidential to the extent permitted by law.801 Subject to certain exceptions,802 if there are material weaknesses, the accountant’s report on the compliance report must be made available for customers’ inspection and, consequently, it
will not be deemed confidential.803 Subject to certain exceptions,804 a broker-dealer must furnish to its customers its unaudited financial statements,805 and must provide annually a balance sheet with appropriate notes prepared in accordance with generally accepted accounting principles and which must be audited if the broker-dealer is required to file audited financial statements with the Commission.806 Stand-alone SBSDs and MSBSPs must also make publicly available on their websites audited and unaudited financial statements, and also make these documents available in writing, upon request, to any person that has a security-based swap account.807 A stand-alone SBSD will also be required to disclose on its website at the same time: (1) A statement of the amount of the firm’s net capital and required net capital and other information, if applicable, related to the firm’s net capital; 808 and (2) if, in connection with the firm’s most recent annual reports, the report of the independent public accountant identifies one or more material weaknesses, a copy of the report.809 The forms that the Commission has adopted for use by applicants for registration as SBSDs or MSBSPs provides for applicants to notify the Commission regarding intended reliance on substituted compliance.810 The Commission generally will make requests for substituted compliance determinations public, subject to requests for confidential treatment being submitted pursuant to any applicable provisions governing confidentiality under the Exchange Act.811 With respect to the other information collected under the rule amendments and new rules being adopted, the firm can request the confidential treatment of the information.812 If such a confidential treatment request is made, the Commission anticipates that it will keep the information confidential subject to the provisions of applicable law.813 Rule 17a–4, as amended, specifies the required retention periods for a broker￾dealer.814 New Rule 18a–6 specifies the required retention periods for non￾broker-dealer SBSDs and non-broker￾dealer MSBSPs.815 Many of the required records must be retained for three years; certain other records must be retained for longer periods.816
V. Economic Analysis
A. Introduction
The Commission is sensitive to the costs and benefits of its rules. The following economic analysis presents the costs and benefits—including the effects on efficiency, competition, and capital formation—that will result from the new recordkeeping, reporting, notification, and securities count rules for stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs and from the amendments to Rules 17a–3, 17a–4, 17a–5, 17a–11 and 17a–12 with respect to firms that are registered as broker-dealers. The costs and benefits of adopting these new rules and rule amendments are discussed below and have informed the policy choices described throughout this release. As discussed more fully in section II. above, pursuant to Sections 15F and 17(a) of the Exchange Act, the Commission is amending Rules 17a–3, 17a–4, 17a–5, 17a–11, and 17a–12 to establish recordkeeping, reporting, and notification requirements for broker￾dealers, including broker-dealer SBSDs and MSBSPs to account for their security-based swap activities. Pursuant to Section 15F of the Exchange Act, the Commission is adopting new Rules 18a– 5 through 18a–9 to establish recordkeeping, reporting, and notification requirements for stand￾alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs, and securities count requirements for stand￾alone SBSDs. Further, pursuant to Sections 15F and 17(a) of the Exchange Act, the Commission is amending FOCUS Report Part II that consolidates proposed Form SBS and existing FOCUS Report Parts II, IIB, and II CSE that will be filed by nonbank SBSDs, nonbank MSBSPs, stand-alone broker￾dealers, and stand-alone OTC derivatives dealers to report financial information. The Commission is adopting FOCUS Report Part IIC for bank SBSDs and MSBSPs to report their financial information because these entities will be required to provide more limited information relative to other SBSDs and MSBSPs. The Commission believes these rules and rule amendments will help regulators

817See Capital, Margin, and Segregation Adopting Release, 84 FR 43872. 818See Rule 17a–3, as amended, and Rule 18a– 5, as adopted. See also discussion in section II.E.1. of this release. 819See Rule 18a–10, as amended. See also discussion in section II.E.2. of this release. 820See section II.F.2. of this release. 821See Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant’’, 77 FR 30597. 822See Application of ‘‘Security-Based Swap Dealer’’ and ‘‘Major Security-Based Swap Participant’’ Definitions to Cross-Border Security￾Based Swap Activities, 79 FR 47278. 823See Security-Based Swap Data Repository Registration, Duties, and Core Principles, Exchange Act Release No. 74246 (Feb. 11, 2015), 80 FR 14438 (Mar. 19, 2015). 824See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, 80 FR 48964. 825See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 80 FR 14563. See also Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, 81 FR 53546. 826See Security-Based Swap Transactions Connected With a Non-U.S. Person’s Dealing Activity That Are Arranged, Negotiated, or Executed by Personnel Located in a U.S. Branch or Office of an Agent; Security-Based Swap Dealer De Minimis Exception, Exchange Act Release No. 77104 (Feb. 10, 2016), 81 FR 8598 (Feb. 19, 2016). 827See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, 81 FR 29960. 828See Trade Acknowledgment and Verification of Security-Based Swap Transactions, 81 FR 39808. 829The Commission has temporarily excluded security-based swaps from the definition of ‘‘security.’’ See section III.C. of this release. Thus, for purposes of the Commission’s baseline analysis for broker-dealers, security-based swap activities will be excluded. 830The Commission also relies on qualitative information regarding market structure and evolving market practices provided by commenters, both in letters and in meetings with Commission staff, and knowledge and expertise of Commission staff. determine whether relevant market participants comply with the recently adopted capital, margin, and segregation requirements.817 As discussed above, the Commission is establishing limited and full alternative compliance mechanisms. The limited alternative compliance mechanism in Rules 17a–3 and 18a–5 will allow an SBSD or MSBSP that also is registered with the CFTC as a swap dealer or major swap participant to comply with the requirements to make and keep certain current trade blotters, customer account ledgers, and stock records solely with respect to required information regarding security-based swaps by complying with the requirements of the CEA and the rules thereunder applicable to swap dealers and major swap participants if the SBSD or MSBSP meets certain conditions.818
The Commission is amending the full alternative compliance mechanism in existing Rule 18a–10 that permits certain SBSDs that are registered as swap dealers and that predominantly engage in a swaps business to elect to comply with the capital, margin, and segregation requirements of the CEA and the CFTC’s rules in lieu of complying with the capital, margin, and segregation requirements in Rules 18a– 1, 18a–3, and 18a–4. The amendments to Rule 18a–10 will permit firms that will operate under Rule 18a–10 to elect to comply with the recordkeeping and reporting requirements of the CEA and the CFTC’s rules in lieu of complying with Rules 18a–5, 18a–6, 18a–7, 18a–8, and 18a–9.819 The Commission believes the availability of the alternative compliance mechanisms will promote harmonization with CFTC requirements and reduce compliance costs for eligible SBSDs and MSBSPs. Additionally, as discussed above, the Commission is amending Rule 3a71–6 to provide non-U.S. stand-alone SBSDs and non-U.S. stand-alone MSBSPs with the potential to utilize substituted compliance with comparable foreign requirements to satisfy the recordkeeping and reporting requirements of Section 15F of the Exchange Act and Rules 18a–5, 18a–6, 18a–7, 18a–8 and 18a–9 thereunder.820 The Commission believes that allowing for the possibility of substituted compliance will help achieve the benefits of the recordkeeping and reporting requirements being adopted in this document in a manner that avoids the costs that non-U.S. stand-alone SBSDs and non-U.S. stand-alone MSBSPs would have to bear due to regulatory duplication or conflict. The sections below present an overview of the security-based swap market, a discussion of the general costs and benefits of the adopted recordkeeping and reporting requirements, and a discussion of the costs and benefits of each amendment and new rule. The Economic Analysis also includes a discussion of the potential effects of the rule amendments and new rules on competition, efficiency, and capital formation. Where possible, the Commission has attempted to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from adopting these rules. At times, however, the Commission is unable to quantify the economic effects because, as explained in detail below, it lacks the information necessary to provide a reasonable estimate, and in those instances, the discussion of the economic effects of the rule or amendment is qualitative in nature. B. Baseline of Economic Analysis To assess the economic impact of the final rules described in this release, the Commission employs as a baseline the security-based swap market as it exists at the time of this release, including applicable rules that the Commission already has adopted but excluding rules that the Commission has proposed but not yet finalized. The baseline for analysis includes the statutory provisions that currently govern the security-based swap market pursuant to
the Dodd-Frank Act and rules adopted in the Commission’s intermediary definitions release,821 cross-border release,822 SDR registration release,823 security-based swap entity registration release,824 Regulation SBSR release and amendments,825 U.S. activity release,826 business conduct release,827 and trade acknowledgment release 828 as these statutes and final rules—even if compliance is not yet required—are part of the existing regulatory landscape that market participants expect to govern their security-based swap activity. Additionally, the baseline includes any recordkeeping and reporting rules currently applicable to participants in the security-based swap market including applicable rules previously adopted by the Commission,829 but excludes the rules and rule amendments addressed in this release. With respect to the minor amendments to Rules 17a– 3, 17a–4, 17a–5, 17a–11, and 17a–12, the baseline for purposes of this economic analysis is the current recordkeeping and reporting regime for broker-dealers under such rules. The following sections provide an overview of aspects of the security￾based swap market that are likely to be most affected by the amendments being adopted in this document, as well as elements of the current market structure, such as central clearing and platform trading, that are likely to determine the scope of transactions that will be covered by them.

1. Available Data From the Security￾Based Swap Market
   The Commission’s understanding of the market is informed, in part, by available data on security-based swap transactions, though the Commission acknowledges that limitations in the data limit the extent to which it is possible to quantitatively characterize the market.830 Since these data do not