Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities

SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 201, 232, 240, 242, and 249 [Release No. 34–94615; File No. S7–14–22] RIN 3235–AK93 Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities AGENCY: Securities and Exchange Commission. ACTION: Proposed rule; withdrawal of proposed rules. SUMMARY: The Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) is proposing a set of rules (‘‘Regulation SE’’) and forms under the Securities Exchange Act of 1934 (‘‘SEA’’) that would create a regime for the registration and regulation of security￾based swap execution facilities (‘‘SBSEFs’’) and address other issues relating to security-based swap (‘‘SBS’’) execution generally. One of the rules being proposed as part of Regulation SE would implement part of the Dodd￾Frank Act, which is intended to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade SBS (‘‘SBS exchanges’’). Other rules being proposed as part of Regulation SE would address the cross-border application of the SEA’s trading venue registration requirements and the trade execution requirement for SBS. In addition, the Commission is proposing to amend an existing rule to exempt, from the SEA definition of ‘‘exchange,’’ certain registered clearing agencies as well as registered SBSEFs that provide a market place only for SBS. The Commission also is proposing a new rule that, while affirming that an SBSEF would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements. Finally, the Commission is proposing certain new rules and amendments to its Rules of Practice to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission. The Commission also is withdrawing all previously proposed rules regarding these subjects. DATES: Comments should be received on or before June 10, 2022. As of May 11, 2022, the SEC is withdrawing or partially withdrawing the following previously proposed rules (see SUPPLEMENTARY INFORMATION for details):
SEA Release No. 63825 (76 FR 10948, published on February 28, 2011); SEA Release No. 63107 (75 FR 65581, published on October 26, 2010); and SEA Release No. 69490 (78 FR 30968, published on May 23, 2013). ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

• Use the Commission’s internet
  comment form (http://www.sec.gov/ rules/submitcomments.htm); or
• Send an email to rule-comments@
  sec.gov. Please include File No. S7–14– 22 on the subject line. Paper Comments
• Send paper comments to Secretary,
  Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number S7–14–22. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission’s internet website (http://www.sec.gov/rules/ proposed.shtml). Comments are also available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s public reference room. All comments received will be posted without change. Persons submitting comments are cautioned that the Commission does not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission’s website. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
  Michael Gaw, Assistant Director, at (202) 551–5602; David Liu, Special Counsel, at (312) 353–6265; Leah Mesfin, Special Counsel, at (202) 551– 5655; Michou Nguyen, Special Counsel, at (202) 551–7768; Geoffrey Pemble, Special Counsel, at (202) 551–5628; or Mark Sater, Counsel, at (202) 551–4729; all of whom are in the Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is proposing new 17 CFR
  242.800 through 242.835 to create a
  regime for the registration and regulation of SBSEFs and address other issues relating to SBS execution generally. Regulation SE would consist of 17 CFR 242.800 through 242.835 (proposed Rules 800 through 835). Key rules within Regulation SE would include Rule 803, which would establish a process for SBSEF registration; Rules 804 to 810, which would establish procedures for rule and product filings by SBSEFs; Rule 815, which would establish permissible execution methods for SBS that are subject to the SEA’s trade execution requirement; Rule 816, which would set out a procedure for SBSEFs to make an SBS available to trade and establish certain exemptions from the trade execution requirement; Rules 818 to 831, which would implement the 14 Core Principles for SBSEFs set forth in
  section 3D(d) of the SEA; Rules 832 to
  833, which would address cross-border matters; and Rule 834, which would impose requirements addressing conflicts of interest involving SBSEFs and SBS exchanges, as required by
  section 765 of the Dodd-Frank Act.
  In addition to the rules described above, the Commission is also proposing 17 CFR 249.2001 (Form SBSEF), which is the form that an entity would use to register with the Commission as an SBSEF; 17 CFR
  249.2002 (a submission cover sheet),
  which would be required to accompany filings with the Commission made by SBSEFs for rule and rule amendments and for product listings; amendments to 17 CFR 232.405 (Rule 405 of Regulation S–T) to require various SBSEF filings to be provided in Inline eXtensible Business Reporting Language (‘‘Inline XBRL’’), a structured data language; amendments to 17 CFR 240.3a1–1 (Rule 3a1–1 under the SEA) to exempt from the SEA definition of ‘‘exchange’’ certain registered clearing agencies as well as registered SBSEFs that provide a market place only for SBS; 17 CFR 240.15a–12 (Rule 15a–12 under the SEA) that, while affirming that an SBSEF also would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements; to sunset an existing exemption from the requirement to register as a clearing agency for an entity performing the functions of an SBSEF but that is not yet registered as such; and certain new rules and amendments to 17 CFR part 201

(the Commission’s Rules of Practice) to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission. The Commission also is withdrawing all previously proposed rules, rule amendments, and interpretations regarding these subjects in view of the length of time that has passed since they were issued and significant changes to the swap and SBS markets that have taken place during that time.
Table of Contents
I. Background
II. Relation to the SEF Market
III. Approach to the Commission’s Proposed
Requirements Relating to Security-Based Swap Execution
IV. Introductory Provisions of Regulation SE
A. Rule 800—Scope
B. Rule 801—Applicable Provisions
C. Rule 802—Definitions
V. Registration of SBSEFs
A. Rule 803—Requirements and Procedures for Registration B. Form SBSEF
C. Abbreviated Registration Procedures for
CFTC-Registered SEFs
VI. Rule and Product Filings by SBSEFs
A. Rule 804—Listing Products for Trading by Certification B. Rule 805—Voluntary Submission of New Products for Commission Review and Approval
C. Rule 806—Voluntary Submission of
Rules for Commission Review and Approval D. Rule 807—Self-Certification of Rules E. Submission Cover Sheet and Instructions F. Rule 808—Availability of Public Information G. Rule 809—Staying of Certification and Tolling of Review Period Pending Jurisdictional Determination H. Rule 810—Product Filings by SBSEFs That Are Not Yet Registered and by Dormant SBSEFs
VII. Miscellaneous Requirements
A. Rule 811—Information Relating to SBSEF Compliance

1. Harmonization With § 37.5
2. Harmonization With § 1.60
   B. Rule 812—Enforceability
   C. Rule 813—Prohibited Use of Data
   Collected for Regulatory Purposes D. Rule 814—Entity Operating Both a National Securities Exchange and SBSEF E. Rule 815—Methods of Execution for Required and Permitted Transactions F. Rule 816—Trade Execution Requirement and Exemptions Therefrom
3. Process for an SBSEF To Make an SBS
   Product Available To Trade
4. Exemptions From Trade Execution
   Requirement
   G. Rule 817—Trade Execution Compliance
   Schedule
   VIII. Implementation of Core Principles
   A. Rule 818—Core Principle 1— Compliance With Core Principles B. Rule 819—Core Principle 2— Compliance With Rules
5. Rules Modelled on Subpart C of Part 37
6. Provisions of Rule 819 Adapted From
   Other SEF Requirements a. Rule 819(h)—Activities of SBSEF’s Employees, Governing Board Members, Committee Members, and Consultants b. Rule 819(i)—Service on SBSEF Governing Boards or Committees by Persons With Disciplinary Histories
   c. Rule 819(j)—Notification of Final
   Disciplinary Action Involving Financial Harm to a Customer d. Rule 819(k)—Designation of Agent for Non-U.S. Member
   C. Rule 820—Core Principle 3—SBS Not
   Readily Susceptible to Manipulation D. Rule 821—Core Principle 4—Monitoring of Trading and Trade Processing E. Rule 822—Core Principle 5—Ability To Obtain Information F. Rule 823—Core Principle 6—Financial Integrity of Transactions G. Rule 824—Core Principle 7—Emergency Authority H. Rule 825—Core Principle 8—Timely Publication of Trading Information
   I. Rule 826—Core Principle 9—
   Recordkeeping and Reporting J. Rule 827—Core Principle 10—Antitrust Considerations K. Rule 828—Core Principle 11—Conflicts of Interest
   L. Rule 829—Core Principle 12—Financial
   Resources
   M. Rule 830—Core Principle 13—System Safeguards N. Rule 831—Core Principle 14— Designation of Chief Compliance Officer
   IX. Cross-Border Rules
   A. Rule 832—Cross-Border Mandatory Trade Execution B. Rule 833—Cross-Border Exemptions
7. Exemptions for Foreign SBS Trading
   Venues
8. Exemptions Relating to the Trade
   Execution Requirement
   X. Rule 834—Implementation of Section 765
   of the Dodd-Frank Act and Governance of SBSEFs and SBS Exchanges
   XI. Rule 835—Notice to Commission by
   SBSEF of Final Disciplinary Action, Denial or Conditioning of Membership, or Denial or Limitation of Access
   XII. Amendments to Existing Rule 3a1–1
   Under the SEA—Exemptions From the Definition of ‘‘Exchange’’
   XIII. Rule 15a–12—SBSEFs as Registered
   Brokers; Relief From Certain Broker Requirements
   XIV. Proposed Sunsetting of Temporary
   Exemption From SEA Definition of ‘‘Clearing Agency’’ for Unregistered SBSEFs
   XV. Electronic Filings Under Regulation SE
   XVI. Amendments to Commission’s Rules of
   Practice for Appeals of SBSEF Actions A. Amendment to Rule 101 B. Amendment to Rule 202
   C. Amendment to Rule 210
   D. Amendment to Rule 401 E. Rule 442—Right to Appeal F. Rule 443—Sua Sponte Review by Commission G. Amendment to Rule 450 H. Amendment to Rule 460
   I. Request for Comment
   XVII. Conclusion
   XVIII. Compliance Schedule
   XIX. Economic Analysis
   A. Introduction
   B. Economic Baseline
9. Available Data From the SBS Market
10. SBS Market Activity and Participants
    a. SBS Entities b. Other SBS Market Participants
    c. SBS Market Participant Domiciles
11. Distribution of Rransaction Size
12. Other Markets and Regulatory
    Frameworks
13. Number of Entities That Likely Will
    Register as SBSEFs
14. SBS Trading on Platforms
15. Global Regulatory Efforts
16. Trading Models
    C. Benefits, Costs, and Reasonable
    Alternatives
17. Overarching Benefits of the Proposal
18. Benefits Associated With Specific
    Proposed Rules
19. Costs
    a. Registration Requirements for SBSEFs and Form SBSEF b. Ongoing Compliance With Other Requirements That Are Similar to the Remainder of Part 37
    c. Rule and Product Filing Processes for
    SBSEFs d. Proposed Rules 809, 811, 819, 826, 833, 834, and 835 e. Assessment Costs f. Structured Data Costs
20. Reasonable Alternatives
    D. Effects on Efficiency, Competition, and Capital Formation
21. Competition
22. Capital Formation
23. Efficiency
    E. Request for Comment
    XX. Paperwork Reduction Act
    A. Summary of Collection of Information B. Proposed Use of Information
24. Registration Requirements and Form
    SBSEF
25. Requirements for SBSEFs To Establish
    Rules
26. Reporting Requirements for SBSEFs
27. Recordkeeping Required Under
    Regulation SE
28. Timely Publication of Trading
    Information Requirement for SBSEFs
29. Rule Filing and Product Filing Processes
    for SBSEFs
30. Requirements Relating to the CCO
31. Surveillance Systems Requirements for
    SBSEFs
    C. Respondents
    D. Total Annual Reporting and Recordkeeping Burden
32. Overview
33. Aggregate Burdens for Rules Modelled
    After CFTC Part 37 Rules a. Registration requirements for SBSEFs and Form SBSEF b. Ongoing Compliance With Other Requirements That Are Similar to the Remainder of Part 37
34. Aggregate Burdens for Rules Modelled
    on CFTC Part 40 Rules a. Rule and Product Filing Processes for SBSEFs b. Burdens Related to Rules Modelled After Other Part 40 Rules
    i. Rule 802

1 15 U.S.C. 78c–4. In this release, the Commission is defining the Securities Exchange Act as the ‘‘SEA’’ to distinguish it from the Commodity Exchange Act (‘‘CEA’’). 2Public Law 111–203, H.R. 4173, section 763(c). 3See infra section VIII (listing the Core Principles). 4Ownership Limitations and Governance Requirements for Security-Based Swap Clearing Agencies, Security-Based Swap Execution Facilities, and National Securities Exchanges With Respect to Security-Based Swaps Under Regulation MC, SEA Release No. 63107 (October 14, 2010), 75 FR 65882 (October 26, 2010) (‘‘Regulation MC Proposal’’). 5Registration and Regulation of Security-Based Swap Execution Facilities, SEA Release No. 63825 (February 2, 2011), 76 FR 10948 (February 28, 2011) (‘‘2011 SBSEF Proposal’’). 6Cross-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, SEA Release No. 69490 (May 1, 2013), 78 FR 30968 (May 23, 2013) (‘‘Cross-Border Proposing Release’’). 7The ‘‘trade execution requirement’’ as used with respect to SBS refers to a provision mandated by Title VII and set forth in section 3C(h) of the SEA that requires a transaction involving an SBS that is subject to the clearing requirement of section 3C to be executed on a national securities exchange, a registered SBSEF, or an SBSEF that is exempt from registration under section 3D(e) of the SEA. See infra note 106 and accompanying text. A similar provision regarding swaps is set forth in section 2(h)(8) of the CEA. 8See id., 78 FR at 31053–58 (discussing potential exemptions for foreign SBS trading venues) and 31081–85 (discussing a proposed rule to address the application of the trade execution requirement to cross-border SBS transactions). 9Reopening of Comment Periods for Certain Proposed Rulemaking Releases and Policy Statements applicable to Security-Based Swaps, SEA Release No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013) (‘‘Reopening of Comment Periods Release’’). 10The Commission notes, however, that Rule 834 of proposed Regulation SE would implement
section 765 only with respect to SBSEFs and SBS
exchanges.
11See CFTC, Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33476 (June 4, 2013) (‘‘2013 CFTC Final SEF Rules Release’’); CFTC, Process for a Designated Contract Market or Swap Execution Facility To Make a Swap Available to Trade, Swap Transaction Compliance and Implementation Schedule, and Trade Execution Requirement Under the Commodity Exchange Act, 78 FR 33606 (June 4, 2013) (‘‘2013 CFTC Final MAT Rules’’ and, together with the 2013 CFTC Final SEF Rules Release, the ‘‘2013 CFTC SEF Rules’’). 12See CFTC, Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (November 30,
2018) (‘‘2018 SEF Proposal’’).
13CFTC, Swap Execution Facilities and Trade Execution Requirement—Proposed rule; partial withdrawal, 86 FR 9304, 9304 (February 12, 2021). 14 Id. 15See id., 86 FR at 9304–05. 16The Commission bases its preliminary analysis on trading of credit derivatives. Other swap asset classes that trade on SEFs, such as interest rate swaps (‘‘IRS’’) and foreign exchange swaps, have no analogs in the SBS market. While there are parallels
ii. Rule 809
4. Aggregate Burdens for Rules Modelled
After CFTC Rules Other Than Parts 37 and 40 a. Rule 811(d) b. Rule 819(h)
c. Rule 819(i)
d. Rule 819(j) e. Rule 819(k) f. Rule 826(f) g. Rule 834
5. Miscellaneous Burdens
a. Rule 833 b. Rule 835
6. Total Paperwork Burden Under
Proposed Regulation SE
E. Collection of Information Is Mandatory F. Responses to Collection of Information Will Not Be Confidential G. Retention Period of Recordkeeping Requirements H. Request for Comment
XXI. Regulatory Flexibility Certification
A. SBSEFs
B. Persons Requesting an Exemption Order Pursuant to Rule 833
C. SBS Exchanges
D. Certification
XXII. Consideration of Impact on Economy
Statutory Authority
I. Background
Section 3D of the SEA,1 enacted as
part of Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’),2 provides for the registration and regulation of SBSEFs. Section 3D(a)(1) provides that no person may operate a facility for the trading or processing of SBS, unless the facility is registered as an SBSEF or as a national securities exchange. Section 3D(d) enumerates 14 Core Principles with which SBSEFs must comply.3
Section 3D(f) requires the Commission
to prescribe rules governing the regulation of SBSEFs.
Section 765 of the Dodd-Frank Act
directs the Commission to adopt rules to mitigate conflicts of interest with respect to clearing agencies that clear SBS (‘‘SBS clearing agencies’’), SBSEFs, and national securities exchanges that post or make available for trading SBS (‘‘SBS exchanges’’). In October 2010, the Commission published for comment proposed Regulation MC to implement
section 765.4
In February 2011, the Commission published for comment: (1) Proposed Regulation SBSEF that would govern the registration and regulation of SBSEFs, including rules to implement the 14 Core Principles and rules requiring SBSEFs to submit filings with the Commission to list SBS and to establish or amend rules; (2) proposed Form SBSEF for an entity to register with the Commission as an SBSEF; (3) a proposed interpretation of the definition of ‘‘security-based swap execution facility’’; and (4) proposed exemptions for registered SBSEFs relating to their status also as ‘‘exchanges’’ and ‘‘brokers.’’ 5 On May 23, 2013, the Commission issued a proposing release to address various cross-border aspects of its proposed Title VII rules 6—which included a proposed rule on the application of Title VII’s ‘‘trade execution requirement’’ 7 to cross-border SBS transactions and a proposed interpretation of when the SBSEF registration requirements would apply to a foreign venue that trades SBS (a ‘‘foreign SBS trading venue’’) 8—and reopened the comment period for various proposed rulemaking releases and policy statements under Title VII, including the 2011 SBSEF Proposal.9 In view of the passage of time since these earlier proposals were issued and the significant market and regulatory developments affecting swaps and SBS over those years, the Commission is issuing this new proposal relating to the registration and regulation of SBSEFs and to SBS execution generally. Accordingly, the Regulation MC Proposal, the 2011 SBSEF Proposal, and the elements of the Cross-Border Proposing Release relating to the trade execution requirement and the registration status of foreign SBS trading venues are withdrawn. The proposed rules discussed below supersede all previous Commission proposals on these subjects.10
II. Relation to the SEF Market
The economic baseline for establishing a registration and regulatory regime for SBSEFs and SBS execution generally has changed considerably since the Commission issued the 2011 SBSEF Proposal. In June 2013, the Commodity Futures Trading Commission (‘‘CFTC’’) adopted rules (in 17 CFR chapter I) under Title VII of the Dodd-Frank Act for swap execution facilities (‘‘SEFs’’).11 The swap market has grown and matured within the framework established by the CFTC’s rules. In 2018, the CFTC proposed to make fundamental changes to the SEF regulatory structure.12 However, according to the CFTC, ‘‘[s]everal commenters expressed concern over the magnitude of changes’’ in the proposal.13 In 2021, the CFTC ultimately declined to finalize the 2018 SEF Proposal and elected instead ‘‘to improve the SEF framework through targeted rulemakings that address distinct issues.’’14 Accordingly, the CFTC withdrew the unadopted portions of its 2018 proposal.15 Currently, the CFTC has no proposals outstanding to further amend its SEF rules. Because of the close relationship between the swap and SBS markets, an analysis of swap trading on CFTC￾registered SEFs offers insights into the potential development of SBS trading on SEC-registered SBSEFs.16 Currently,

between the equity swap and equity SBS markets, equity swap trading on SEFs appears to be minimal. 17See CFTC, Trading Organizations—Swap Execution Facilities (SEF), https://sirt.cftc.gov/ SIRT/SIRT.aspx?Topic=SwapExecutionFacilities (accessed on January 25, 2022). 18See infra note 376 and accompanying text. 19See infra note 371 and accompanying text. 20See id. 21See infra section XIX(B)(5). 22Consider the following example: § 37.1306(a) of the CFTC’s rules (17 CFR 37.1306(a)), which is among the rules that implements CEA Core Principle 13 (Financial resources), requires a SEF to submit a financial report to the CFTC every quarter (i.e., every three months). To implement the corresponding Core Principle under the SEA, the Commission could require an SBSEF to file only three financial reports per year, rather than four. All things being equal, filing three reports per year is less burdensome than filing four. But all things are not equal, because of the CFTC’s rules. In this case, requiring new ‘‘off cycle’’ reporting by a dually registered SEF/SBSEF would likely be more burdensome than allowing the dually registered entity to make the same four filings, on the same cycle, with both the SEC and CFTC. As discussed later in this release, the Commission is proposing a rule closely modelled on § 37.1306(a) that would require the same type of financial report as the CFTC rule, and for that report to be filed quarterly. See proposed Rule 829(g). there are 20 non-dormant entities registered with the CFTC as SEFs.17 In 2021, volume in index credit default swaps (‘‘CDS’’) traded on CFTC￾registered SEFs was distributed as follows: One SEF had the largest share of index CDS volume (in notional amount) at $8 trillion (69%); one SEF had the second largest share at $2.1 trillion (18%); and the remaining 13% of volume was shared among five other SEFs.18 As discussed in section XIX below, only a small fraction of SBS trading occurs on platforms currently. Further, some trading occurs on platforms that do not include CFTC￾registered SEFs. Based on research from publicly available sources as well as discussions with CFTC-registered SEFs, the Commission understands that the SBS market—both on organized platforms that are potential SBSEF registrants and on a purely over-the-counter (‘‘OTC’’) basis—is a small fraction of the overall swap market.19 Furthermore, the single￾name CDS market, which falls under SEC jurisdiction, is smaller than the index CDS market, which falls under CFTC jurisdiction.20 Because the swap markets are larger than the SBS markets, the opportunities for revenue capture from swap execution are much larger than from SBS execution. In view of the SBS market’s size relative to the swap market, the Commission is sensitive to the economic impact that its final rules for SBSEFs could have. The entities that are most likely to register with the Commission as SBSEFs are those already registered with the CFTC as SEFs.21 These entities have made
substantial investments in systems, policies, and procedures to comply with and adapt to the regulatory system developed by the CFTC. To the extent that the Commission harmonizes its SBSEF rules with the CFTC’s SEF rules, dually registered entities could utilize their existing systems, policies, and procedures to comply with the Commission’s SBSEF rules, and SEF market participants would face no or only incremental changes to trade SBS as well as swaps on those facilities, and to comply with the Commission’s rules regarding SBS trading. To the extent that the Commission establishes different or additive requirements, dually registered entities and their market participants might need to incur costs and burdens to modify their systems, policies, and procedures to comply with the SEC-specific rules. As indicated below, the Commission seeks comment on such costs and burdens in light of the CFTC’s SEF rules.22 Accordingly, as discussed below, the Commission is proposing to take the general approach of harmonizing closely with analogous CFTC SEF rules, except where differences in the SEC’s statutory authority relative to the CFTC’s statutory authority or differences in the SBS market relative to the swap market necessitate differences between the Commission’s rules and the CFTC’s, or where the Commission preliminarily believes that the benefits of deviating from the CFTC’s rules would otherwise justify the burdens and costs associated with imposing different or additional requirements than the corresponding CFTC rule. Throughout this release, the Commission will seek comment on the accuracy of these assumptions. In particular, the Commission seeks comment on the following:

1. How many CFTC-registered SEFs
   do you believe will seek to register with the Commission as SBSEFs? Please explain.
2. Are there any entities that will seek
   to register with the Commission as SBSEFs but not register with the CFTC as SEFs? If so, please explain and estimate how many.
3. For SEFs that will likely seek
   registration with the Commission as SBSEFs, please estimate the size of their swaps business versus the anticipated size of their SBS business, using any metric(s) that you believe would be illustrative (e.g., number of products listed, trade count, aggregate notional size traded, number of counterparties trading swaps versus SBS, etc.).
4. Please provide any information or
   market data that you believe would be illustrative regarding current SBS trading activity on entities that are not likely to register with the Commission as SBSEFs, and thus would have to cease SBS trading upon the compliance date of the Commission’s SBSEF rules. Do you believe that this activity would migrate to registered SBSEFs or would it migrate instead to the bilateral OTC market?
5. What types of products do you
   anticipate could be listed by registered SBSEFs (e.g., CDS on individual corporate bonds, CDS on individual sovereign bonds, CDS on individual securitized bonds, swaps on securities options, swaps on narrow-based securities indexes, total return swaps on individual cash equities or crypto/ digital asset securities, etc.)? In the remainder of this release, the Commission describes its proposed registration and regulation regime for SBSEFs and SBS execution generally, and seeks comment on all aspects of its proposal. You are invited in particular to provide data and analysis regarding the economic and Paperwork Reduction Act (‘‘PRA’’) implications of this proposal. For example, the Commission seeks comment on the following:
6. If, in a particular area, the
   Commission were to harmonize closely with a CFTC rule, to what extent would this reduce, or perhaps eliminate entirely, any incremental costs or burdens on dually registered SEF/ SBSEFs and their members?
7. Should the Commission impose
   any different or additive requirements? For example, are there any statutory or market differences that would create benefits from different or additive requirements? If the Commission imposes different or additive requirements, what would be the impact on dually registered SEF/SBSEFs and their members?
8. Are there provisions of the CFTC’s
   rules the Commission should not incorporate, even if the Commission were to opt for harmonization with the CFTC’s rules in other areas? In other words, are there areas where not harmonizing with a CFTC rule would reduce burdens on SBSEFs and/or their members? If so, please explain, with particular regard to the economic impacts and/or PRA burdens.
9. Do you believe that the
   Commission should adopt different or additive requirements for SBSEFs, even if there is no analog to such provisions in the CFTC’s SEF rules? If so, please explain, with particular regards to the economic impacts and/or PRA burdens. For example, do you believe that the SEC-specific provision would impose additional costs or burdens on SBSEFs

23 15 U.S.C 78c–4.
24 7 U.S.C. 7b–3.
25Other rules, however, are designed to address certain issues relating to SBSEFs that are specific to the SEA. These include proposed amendments to existing Rule 3a1–1 under the SEA, proposed new Rule 15a–12, and various proposed amendments to the Commission’s Rules of Practice. 26Part 249 is entitled ‘‘Forms, Securities Exchange Act of 1934.’’ 27 ‘‘Registered entity’’ is defined under the CEA to include a SEF. See 7 U.S.C 1a(40). and/or their members that are nevertheless appropriate in view of new and additional benefits? Or do you believe that an SEC-specific provision would be appropriate because it would relieve costs or burdens that are imposed on the swap business by a CFTC rule that is unnecessary or inappropriate in the SBS market?
10. If the Commission ultimately
adopts SBSEF rules that are closely harmonized with the CFTC’s SEF rules, do you believe this could result in ambiguities or potential conflicts between the SEC’s SBSEF rules and the other SEC rules (pertaining, for example, to exchanges or alternative trading systems)? If so, please indicate where this might occur and suggest ways that the Commission could reduce these ambiguities or potential conflicts.
III. Approach to the Commission’s
Proposed Requirements Relating to Security-Based Swap Execution Most of the rules proposed in this release are designed to implement provisions of section 3D of the SEA,23 which is nearly identical to section 5h of the CEA.24 As described in detail throughout this release, when the Commission is proposing a rule to implement a provision of section 3D of the SEA, that rule generally will harmonize as closely as practicable with the analogous CFTC rule, unless a reason exists to do otherwise.25 Indeed, many of the rules proposed herein are adapted from the CFTC rules, with only minor changes to reflect differences in the Commission’s statutory authority (e.g., using the term ‘‘security-based swap’’ instead of ‘‘swap,’’ cross￾referencing provisions of the SEA rather than the CEA, etc.). The Commission seeks to minimize occasions where differences in the wording between an SEC and a CFTC rule leads affected persons to believe that there is a difference in policy outcome, where no difference in outcome is intended. In cases where the Commission preliminarily believes that a reason exists for a proposed SEC rule to differ from an analogous CFTC rule, that reason is described and alternate rule language is proposed and explained. Here too, the Commission might be in general agreement with the policy behind the CFTC’s rule, but it might not be practicable to closely track the CFTC rule language, for reasons that are specific to each instance and which will be discussed herein. In proposing these rules, the Commission acknowledges that, in the abstract, there are a variety of ways of implementing a Core Principle or other policy goal where the benefits could justify the costs. Indeed, the Commission’s 2011 SBSEF Proposal includes many such alternate ways that differ from the CFTC’s current rules. But the CFTC’s rules for SEF—and swap execution more generally—have significantly reshaped the swap market, and indirectly the SBS market. The fundamental principles of the CFTC’s regulatory regime for SEFs and swap execution generally have established the existing environment, and any rules proposed by the SEC to implement the regulatory regime for SBSEFs and SBS execution more generally must be considered against the CFTC’s regulatory regime. SEFs and swap market participants have invested significant resources in systems, policies, and procedures to comply with the CFTC’s SEF rules. The Commission believes that the CFTC’s rules are reasonably designed to implement
section 5h of the CEA, which is nearly
identical to section 3D of the SEA, and have been effective in practice in facilitating fair, transparent, and competitive trading on SEFs. By proposing similar rules for SEC￾registered SBSEFs, the Commission seeks to obtain comparable regulatory benefits as the CFTC while minimizing costs imposed on SEF/SBSEFs and their members to the greatest extent practicable. The Commission recognizes that an entity might elect to register as an SBSEF with the SEC but not as a SEF with the CFTC. In such case, an SEC￾only registrant would not have any familiarity with the CFTC’s rules and would not have made any investments in systems, policies, and procedures to comply with them. Nevertheless, because the Commission preliminarily believes that most if not all entities that will seek SBSEF registration with the SEC are or will also be registered as SEFs with the CFTC, such dual registrants would benefit from harmonized rules. Furthermore, if the Commission adopts these rules substantially as proposed, it likely would be unnecessary to establish and apply one set of rules for dual registrants and a different set for SEC￾only SBSEFs. Proposed Regulation SE follows the basic structure of part 37 of the CFTC’s rules (17 CFR part 37). In the CFTC’s rules, subpart A of part 37 (General Provisions) consists of §§ 37.1 to 37.12. Subparts B to P of part 37 implement the 15 Core Principles for SEFs set forth in the CEA and consist of §§ 37.100 et seq. to 37.1500 et seq. Proposed Rules 800 to 817 of Regulation SE are modelled on the ‘‘General Provisions’’ in subpart A, while proposed Rules 818 to 831 would implement the 14 Core Principles for SBSEFs set forth in the SEA. Proposed Rules 832 to 833 address cross-border matters that have no direct counterpart in the CFTC’s rules applicable to SEFs. Proposed Rule 834 is designed to implement section 765 of the Dodd-Frank Act, which requires the Commission to adopt rules addressing conflicts of interest involving SBSEFs and SBS exchanges, as well as to harmonize with certain of the CFTC’s governance rules. Proposed Rule 835 is designed to facilitate reviews of final disciplinary actions, denials or conditioning of membership, and denials or limitations of access by SBSEFs. In addition, the Commission is proposing a new subpart V to part 249 of the Commission’s rules,26 entitled ‘‘Forms for use by security-based swap execution facilities,’’ that would include proposed § 249.2001, setting forth Form SBSEF and its instructions, which would be used to register with the Commission as an SBSEF; and proposed § 249.2002, setting forth the submission cover sheet (with instructions) that would be required to accompany filings with the Commission made by SBSEFs for rule and rule amendments, product listings, and determinations to make an SBS available to trade. Many parts of proposed Rules 800 to 817 are very similar in substance to §§ 37.1 to 37.12. Other parts of proposed Rules 800 to 817 are derived from CFTC rules that are
referenced in subpart A of
part 37 but located outside of part 37.
For example, § 37.4 is a short rule entitled ‘‘Procedures for listing products and implementing rules.’’ Section 37.4 does not itself lay out the specific filing procedures for new products and new rules, but directs a SEF, after it has registered with the CFTC, to make such filings pursuant to part 40 (Provisions common to registered entities 27). Key rules in part 40 include §§ 40.2 (Listing products for trading by certification),
40.3 (Voluntary submission of new
products for Commission review and approval), 40.5 (Voluntary submission of rules for Commission review and

28 Various provisions of part 40 apply to entities other than SEFs or relate to trading of products other than swaps. See, e.g., § 40.4 (Amendments to terms or conditions of enumerated agricultural products); § 40.11 (Review of event contracts based upon certain excluded commodities). 29For example, certain CFTC rules that the Commission is proposing to adapt into Regulation SE utilize the term ‘‘board of directors,’’ while other CFTC rules use the term ‘‘governing board.’’ The Commission is proposing to use the term ‘‘governing board’’ throughout Regulation SE and to define that term in proposed Rule 802 as the board of directors of an SBSEF, or for an SBSEF whose organizational structure does not include a board of directors, a body performing a function similar to a board of directors. This definition is closely modelled on the definition of ‘‘board of directors’’ found in § 37.1501(a) of the CFTC’s rules. 30See appendix B to part 37, introductory paragraph (1) (‘‘The guidance for the core principle is illustrative only of the types of matters a swap execution facility may address, as applicable, and is not intended to be used as a mandatory checklist’’). 31The term ‘‘prudential regulator’’ is defined in
section 1a(39) of the CEA, 7 U.S.C. 1a(39), and that
definition is incorporated by reference in section 3(a)(74) of the SEA, 15 U.S.C. 78c(a)(74). 32Section 712(a)(2) of the Dodd-Frank Act provides in relevant part that the Commission shall ‘‘consult and coordinate to the extent possible with the Commodity Futures Trading Commission and the prudential regulators for the purposes of assuring regulatory consistency and comparability, to the extent possible.’’ In addition, section 752(a) of the Dodd-Frank Act provides in relevant part that ‘‘[i]n order to promote effective and consistent global regulation of swaps and security-based swaps, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the prudential regulators . . . as appropriate, shall consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation (including fees) of swaps.’’ 33The Commission participates in a number of international bodies working on OTC derivatives reforms. For example, the Commission is a member of the International Organization of Securities Commissions (‘‘IOSCO’’) and the Commission staff participates on IOSCO’s Committee on Derivatives. In addition, the Commission is a member of the Regulatory Oversight Committee, which serves as the international standard-setter for data elements and identifiers used in the reporting of OTC derivatives transactions. approval), and 40.6 (Self-certification of rules). To promote oversight of the SBS market and to assess that SBSEFs continue to operate in a manner consistent with the SEA, the Commission preliminarily believes that it would be appropriate to establish procedures whereby SBSEFs would submit filings to the Commission to list SBS products and to establish new rules, and that it would be appropriate to harmonize with the procedures that the CFTC applies to SEFs. These procedures are well articulated and well understood by SEFs, and appear to provide an effective process for establishing new rules and listing products. Therefore, the Commission is proposing Rules 804, 805, 806, and 807 that are closely modelled on relevant provisions of §§ 40.2, 40.3, 40.5, and 40.6, respectively. To implement such rules for SBSEFs and the SBS market, the Commission identifies only those parts of the CFTC rules that are most germane to the SBS market and adapts the wording accordingly.28 In the detailed discussions of each of these proposed rules, the Commission seeks comment on whether its proposed rule is appropriately tailored for the SBS market, particularly for dually registered SEF/SBSEFs that would be complying with substantially similar filing procedures under CFTC rules, or whether the proposed rule incorporates a part of the CFTC rule that is not relevant to the SBS market or should have incorporated additional or different language that is more relevant. Regulation SE includes proposed rules modelled on CFTC rules found in Parts 16, 36, 37, 40, 45, and elsewhere. In
some cases, these disparate CFTC rules from outside part 37 that the Commission is proposing to adapt into Regulation SE use different terms than in part 37 for what appears to be the same concept. To promote uniformity within Regulation SE, the Commission is proposing certain definitions for use throughout the regulation—in a dedicated definitions rule, proposed Rule 802—that will sometimes require the replacement of a term used in the CFTC version of a rule with a different, newly defined term in the proposed SEC version.29 Any such changes in defined terms are noted below. Proposed Rule 802 also includes terms derived from the SEA and certain SEC rules thereunder.
Part 37 of the CFTC’s rules includes
an appendix B, which sets out guidance and acceptable practices for demonstrating compliance with several of the rules that implement the Core Principles for SEFs. These provisions are, by their terms, non-binding.30 The Commission preliminarily believes that all of the provisions of Regulation SE should be enforceable. Therefore, the Commission is proposing to adapt some of the guidance and acceptable practices found in appendix B as proposed rule text in Regulation SE. As a result, some of the rules proposed in Regulation SE are a blend of the CFTC rule text with language adapted from the guidance and/or acceptable practices. Instances where this occurs in a particular rule will be noted below. The Commission requests comment on its overall approach to incorporating relevant portions of the part 37 guidance and acceptable practices into Regulation SE, as well as comment on how they are adapted in specific rules. In various places in the CFTC’s SEF rules, the CFTC has delegated to its staff authority to perform various functions relating to SEFs on the CFTC’s behalf. The Commission has not adapted any of these provisions into proposed Regulation SE and is not proposing any delegation-of-authority rules. The Commission may address delegations of its authority in the adopting release for Regulation SE. Finally, in developing this proposal, the Commission has consulted and coordinated with the CFTC and the prudential regulators,31 in accordance with the consultation mandate of the Dodd-Frank Act.32 The Commission also has consulted and coordinated with foreign regulatory authorities through Commission staff participation in numerous bilateral and multilateral discussions with foreign regulatory authorities addressing the regulation of OTC derivatives markets.33 Through these multilateral and bilateral discussions and the Commission staff’s participation in various international task forces and working groups, the Commission has gathered information about foreign regulatory reform efforts and their effect on and relationship with the U.S. regulatory regime. The Commission has taken and will continue to take these discussions into consideration in developing rules, forms, and interpretations for implementing Title VII of the Dodd￾Frank Act.
IV. Introductory Provisions of
Regulation SE
A. Rule 800—Scope
Proposed Rule 800 is based on § 37.1 of the CFTC’s rules, which provides that
part 37 applies to every SEF that is
registered or applying to become registered as a SEF under section 5h of the CEA. Section 37.1 further provides that the rule does not affect the eligibility of SEFs to operate under the provisions of part 38 or 49 of the CFTC’s rules. Proposed Rule 800 would provide that the provisions of Regulation SE would apply to every SBSEF that is registered or is applying to become registered as an SBSEF under section 3D of the SEA. B. Rule 801—Applicable Provisions Proposed Rule 801 is based on § 37.2 of the CFTC’s rules, which provides that a SEF shall comply with the requirements of part 37 and all other applicable CFTC regulations, including § 1.60 and part 9, and including any related definitions and cross-referenced

34 15 U.S.C. 78c. 35 15 U.S.C. 78c(a)(77). 36 15 U.S.C. 78q–1. 37See, e.g., Order Granting Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With Request on Behalf of ICE U.S. Trust LLC Related to Central Clearing of Credit Default Swaps, and Request for Comments, SEA Release No. 59527 (March 6, 2009), 74 FR 10791, 10796 (March 12, 2009) (providing, inter alia, an exemption from sections 5 and 6 of the SEA because ‘‘ICE Trust will periodically require ICE Trust Participants to execute certain CDS trades at the applicable end-of-day settlement price. Requiring ICE Trust Participants to trade CDS periodically in this manner is designed to help ensure that such submitted prices reflect each ICE Trust Participant’s best assessment of the value of each of its open positions in Cleared CDS on a daily basis, thereby reducing risk by allowing ICE Trust to impose appropriate margin requirements’’); Order Extending and Modifying Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With Request of Chicago Mercantile Exchange Inc. Related to Central Clearing of Credit Default Swaps, and Request for Comments, SEA Release No. 61164 (December 14, 2009), 74 FR 67258, 67262 (December 18, 2009) (providing, inter alia, an exemption from sections 5 and 6 of the SEA because, ‘‘[a]s part of the CDS clearing process, CME will periodically require CDS clearing members to trade at prices generated by their indicative settlement prices where those indicative settlement prices generate crossed bids and offers, pursuant to CME’s price quality auction methodology’’). 38See id. 39 15 U.S.C. 78c–4(a)(1). 40The term ‘‘security-based swap’’ is defined in
section 3(a)(68) of the SEA, 15 U.S.C. 78c(a)(68), to
include, among other things, a swap that is based on a single security or loan, including any interest therein or on the value thereof. A single security could include, for example, a cash equity, a crypto/ digital asset security, or a security option. 41 15 U.S.C. 78mm(a)(1). 42See SEA Release No. 64678 (June 15, 2011), 76 FR 36287 (June 22, 2011) (temporarily exempting entities that meet the definition of ‘‘security-based swap execution facility’’ from the requirement to register with the Commission as an SBSEF) (‘‘June 2011 Exemptive Order’’); SEA Release No. 64795 (July 1, 2011), 76 FR 39927 (July 7, 2011) (temporarily exempting entities that meet the definition of ‘‘security-based swap execution facility’’ from exchange registration and other requirements of sections 5 and 6 of the SEA) (‘‘July 2011 Exemptive Order’’). An entity that meets the definition of ‘‘security-based swap execution facility’’ is required to register as an SBSEF under
section 3D of the SEA or as an exchange under
sections 5 and 6 of the SEA. But because the Commission has not yet adopted final rules relating to SBSEFs, such entities cannot yet register with the Commission as SBSEFs. The Temporary SBSEF Exemptions allow such entities to continue trading SBS without needing to register either as SBSEFs or national securities exchanges before the compliance date of the SBSEF registration rules. sections. Proposed Rule 801 would require an SBSEF to comply with the requirements of Regulation SE and all other applicable Commission rules, including any related definitions and cross-referenced sections.
C. Rule 802—Definitions
Proposed Rule 802 would set forth definitions of terms that are used in multiple rules in proposed Regulation SE. The majority of such terms are adapted from a CFTC rule. Other terms are taken from section 3 of the SEA 34 or from a Commission rule under the SEA. Where appropriate, the definition is discussed below in the context of the proposed rule where it is used. In particular, paragraph (w) of proposed Rule 802 which would define the term ‘‘security-based swap execution facility’’ by cross-referencing the definition of that term provided in
section 3(a)(77) of the SEA,35 but with
one carve-out. An entity that is registered with the Commission as a clearing agency pursuant to section 17A of the SEA 36 and limits its SBSEF functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations would be exempt from the definition of ‘‘security-based swap execution facility.’’ This provision would codify a series of exemptions granted by the Commission to SBS clearing agencies that operate ‘‘forced trading’’ sessions.37 As part of the clearing and risk management process, an SBS clearing agency must establish an end-of-day valuation for any SBS in which any of its members has a cleared position and will calculate margin based on that variation. Certain SBS clearing agencies utilize a valuation mechanism whereby they require clearing members to submit indicative quotes for those SBS products, and can require them to trade as a way to promote accurate quote submissions. The precise means by which the clearing agency matches quotes from different clearing members could cause the clearing agency to fall within the SEA definition of ‘‘exchange.’’ The Commission previously has found that it was necessary or appropriate in the public interest and consistent with the protection of investors to exempt clearing agencies that engage in this activity from the definition of ‘‘exchange.’’ 38 The Commission is now proposing to codify this exemption with respect to the both exchange and SBSEF registration. The Commission preliminarily believes that it is necessary or appropriate in the public interest, and is consistent with the protection of investors, to exempt a registered clearing agency from the definition of ‘‘security-based swap execution facility’’ that utilizes a forced trading functionality for SBS. Such an entity would continue to be registered as a clearing agency and subject to the requirements of section 17A of the SEA. Furthermore, a registered clearing agency is a self-regulatory organization (‘‘SRO’’); therefore, all of its rules— including those governing the forced trading session—would have to be submitted to the Commission pursuant to section 19 of the SEA. The Commission preliminarily believes, therefore, that codification of the exemption from the definitions of ‘‘exchange’’ and ‘‘security-based swap execution facility’’ would preserve the status quo and eliminate a largely duplicative and unnecessary set of regulatory requirements. This exemption would cover only the forced￾trading functionality of an SBS clearing agency; any other exchange or SBSEF activity in which a clearing agency might engage could subject the clearing agency to the SEA provisions and the Commission’s rules thereunder applying to exchanges or SBSEFs. The Commission seeks comment on the following:
11. Do you believe that any
definitions in proposed Rule 802 should be revised or clarified? If so, please indicate which one(s) and provide any suggested revisions or clarifications.
12. Are there any terms used in
proposed Regulation SE that are not defined in proposed Rule 802 but which you believe should be defined? If so, which term(s) and how would you define them?
13. Do you agree with the proposed
definition of ‘‘security-based swap execution facility’’? In particular, do you believe that registered clearing agencies that operate forced trading sessions for SBS should be exempted from the definition of ‘‘security-based swap execution facility’’ entirely? Or do you believe instead that such entities should fall within the definition of ‘‘security-based swap execution facility’’ but be exempted from some or all registration and regulatory requirements that otherwise would apply to SBSEFs? Why?
V. Registration of SBSEFs
Section 3D(a)(1) of the SEA 39
provides that no person may operate a facility for the trading or processing of SBS 40 unless the facility is registered as an SBSEF or as a national securities exchange. After issuing the 2011 SBSEF Proposal, the Commission granted temporary exemptions pursuant to
section 36(a)(1) of the SEA 41 to entities
that meet the definition of ‘‘security￾based swap execution facility’’ from having to register with the Commission as an SBSEF or national securities exchange (‘‘Temporary SBSEF Exemptions’’).42 The Temporary SBSEF Exemptions will expire on the

43See June 2011 Exemptive Order, 76 FR at 36293, 36306; July 2011 Exemptive Order, 76 FR at 39934, 39939. The July 2011 Exemptive Order also provided an exemption from the broker registration requirements of section 15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), and other requirements of the SEA and the Commission’s rules thereunder that apply to a broker, solely in connection with broker activities involving SBS (the ‘‘Broker Exemptions’’). The Broker Exemptions generally expired on October 6, 2021; however, because an entity that meets the definition of ‘‘security-based swap execution facility’’ also would also meet the definition of ‘‘broker’’ in section 3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4), the Commission extended the Broker Exemptions solely for persons acting as an SBSEF until the expiration of the Temporary SBSEF Exemptions (i.e., the compliance date for the Commission’s final SBSEF rules). See SEA Release No. 87005 (September 19, 2019), 84 FR 68550, 68602 (December 16, 2019). 44See section 3(a)(77) of the SEA, 15 U.S.C. 78c(a)(77) (defining ‘‘security-based swap execution facility’’ as ‘‘a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility that . . . is not a national securities exchange’’ (emphasis added). 45See infra section XII (discussing proposed paragraph (a)(4) of SEA Rule 3a1–1). 46 15 U.S.C. 78c(a)(1) (defining ‘‘exchange’’ as ‘‘any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange’’). 47However, a national securities exchange could elect to operate an SBSEF and separately register that SBSEF with the Commission. See section 3D(c) of the SEA, 15 U.S.C. 78c–4(c); proposed Rule 814. 48See proposed Rule 802. 49As discussed below in section VII(E), the Commission is proposing to incorporate into Regulation SE the concepts of ‘‘Required Transaction’’ and ‘‘Permitted Transaction’’ in a manner closely modelled on the CFTC’s use of those terms. A Required Transaction would be a transaction involving an SBS that is subject to the trade execution requirement. compliance date for the Commission’s final SBSEF rules.43 A. Rule 803—Requirements and Procedures for Registration Rule 803 of Regulation SE is closely modelled on § 37.3 of the CFTC’s rules and would set forth a process for registration with the Commission as an SBSEF.
Section 37.3(a)(1) provides that any
person operating a facility that offers a trading system or platform in which more than one market participant has the ability to execute or trade swaps with more than one other market participant on the system or platform shall register the facility as a swap execution facility under this part or as a designated contract market (‘‘DCM’’) under part 38 of this chapter. Paragraph (a)(1) of proposed Rule 803 would track the language of § 37.3(a)(1) closely, except that a person meeting these criteria would be directed to register the facility under relevant provisions of the SEA rather than the CEA (i.e., to register as an SBSEF under proposed Rule 803 or as a national securities exchange pursuant to section 6 of the SEA). A person that registers with the Commission as a national securities exchange pursuant to section 6 of the SEA does not fall within the statutory definition of ‘‘security-based swap execution facility’’ 44 and thus would not need to register as an SBSEF under proposed Rule 803. Furthermore, as discussed below,45 a person that registers as an SBSEF under proposed Rule 803 and provides a market place for no securities other than SBS would be exempt from the definition of ‘‘exchange’’ 46 and would not need to register as such pursuant to section 6 of the SEA. The SEA definitions of ‘‘exchange’’ and ‘‘security-based swap execution facility’’ overlap substantially. The Commission preliminarily believes that it is appropriate to subject a trading venue for SBS to only one regulatory regime. Thus, under proposed Regulation SE, if a trading venue for SBS elects to register as a national securities exchange, it would not fall within the statutory definition of ‘‘security-based swap execution facility’’ and would not have to register as an SBSEF.47 If a trading venue for SBS elects to register as an SBSEF under proposed Rule 803 and provides a market place for no securities other than SBS, it would not—pursuant to a proposed amendment to Rule 3a1– 1—fall within the statutory definition of ‘‘exchange’’ and would not have to register as an exchange.
Section 37.3(a)(2) of the CFTC’s rules
sets out the minimum trading functionality that must be offered by a SEF. A SEF must, at a minimum, offer an ‘‘order book.’’ Section 37.3(a)(3) defines ‘‘order book’’ to mean an electronic trading facility, as that term is defined in section 1a(16) of the CEA; a trading facility, as that term is defined in section 1a(51) of the CEA; or a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers. Paragraph (a)(2) of proposed Rule 803, like § 37.3(a)(2), would require an SBSEF, at a minimum, to offer an order book. The Commission is proposing, like § 37.3(a)(3), to define ‘‘order book’’ in Rule 802 to mean an electronic trading facility, a trading facility, or a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers. Section 37.3(a)(3) defines ‘‘trading facility’’ and ‘‘electronic trading facility’’ by cross￾referencing definitions of those terms in the CEA. Rather than cross-referencing the CEA, the Commission is proposing instead to adapt the CEA definitions of those terms directly into Rule 802.48 The Commission preliminarily believes that it should harmonize as closely as possible with the CFTC on foundational terms such as ‘‘trading facility,’’ ‘‘electronic trading facility,’’ and ‘‘order book’’ because the CFTC’s reliance on these terms over several years has created understanding of what type of functionality a SEF must offer. The Commission seeks to avoid a scenario where differences with the CFTC regarding these key definitions results in an entity’s functionality being allowed under one agency’s regime but disallowed under the other’s. Under § 37.3(a)(4), a SEF is not required to provide an order book for certain package transactions, although the SEF must provide an order book for a Required Transaction 49 when such Required Transaction is not executed as
part of a package transaction. Paragraph
(a)(3) of proposed Rule 803 is closely modelled on § 37.3(a)(4) and would provide a narrow exception to allow an SBSEF not to offer an order book for the SBS component(s) of a package transaction that contains a mix of products that both are and are not subject to the trade execution requirement. Paragraph (b) of proposed Rule 803 is closely modelled on § 37.3(b) and would set out procedures for full registration of an SBSEF. Paragraph (b)(1), like § 37.3(b)(1), would provide that an applicant requesting registration must:
(i) File electronically a complete Form SBSEF or any successor forms, and all information and documentation described in such forms with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T; and (ii) Provide to the Commission, upon the Commission’s request, any additional information and documentation necessary to review an application. Paragraph (b)(2) of proposed Rule 803, like § 37.3(b)(2), would provide that an

50Section 37.3(b)(2), like many other provisions in the CFTC’s SEF rules, states that a request for confidential treatment for parts of a required filing shall be made pursuant to § 145.9 of the CFTC’s rules, which contains the CFTC’s substantive requirements for requests for confidential treatment. Rather than adapting § 145.9 into proposed Regulation SE, the Commission instead is proposing that confidential treatment requests arising from SBSEF matters would be made and adjudicated pursuant to SEA Rule 24b–2, 17 CFR 240.24b–2. The Commission preliminarily believes that it is not necessary or appropriate to establish and utilize one set of procedures to handle confidential treatment requests made by SBSEFs while utilizing a different set of procedures for all other persons who request confidential treatment from the Commission under the SEA. 51See § 37.3(c)(5). Notwithstanding the general sunset provision, SEFs that applied for temporary registration before the termination date were permitted to continue operating if they had not yet been either granted or denied full registration by that date. See id. 52See proposed Rule 802 (defining ‘‘dormant security-based swap execution facility’’ to mean ‘‘a security-based swap execution facility on which no trading has occurred for the previous 12 consecutive calendar months; provided, however, that no security-based swap execution facility shall be considered to be a dormant security-based swap execution facility if its initial and original Commission order of registration was issued within the preceding 36 consecutive calendar months’’). This proposed definition is modelled on the definition of ‘‘dormant swap execution facility’’ found in § 40.1(f). 53Here, and at several other places in § 37.3(e)(3), the CFTC uses the term ‘‘market participants’’ rather than ‘‘members.’’ However, there are other places in the CFTC’s rules that are being adapted by the Commission into proposed Regulation SE that use the term ‘‘member’’ synonymously with ‘‘market participant.’’ When the context suggests that a rule is addressing participants of a particular SBSEF market, rather than market participants in the abstract, the Commission is proposing to use the term ‘‘member’’ throughout Regulation SE. applicant requesting registration as an SBSEF must identify with particularity any information in the application that will be subject to a request for confidential treatment pursuant to Rule 24b–2 under the SEA.50 Paragraph (b)(2) also would provide that, as set forth in proposed Rule 808, certain information provided in an application shall be made publicly available. Paragraph (b)(3) of proposed Rule 803 would address amendments to the SBSEF registration application. Like § 37.3(b)(3), proposed Rule 803(b)(3) would provide that an applicant amending a pending application or requesting an amendment to an order of registration shall file an amended application electronically with the Commission using the EDGAR system as an
Interactive Data File in accordance with Rule 405 of Regulation S–T. Subsequent to being registered, an SBSEF would be required to submit rule and product filings under Rule 806 or 807, as well as provide other updates as may be required pursuant to other rules for SBSEFs. Paragraph (b)(4) of proposed Rule 803 would address the effect of an incomplete application. Like § 37.3(b)(4), proposed Rule 803(b)(4) would provide that, if an application is incomplete, the Commission shall notify the applicant that its application will not be deemed to have been submitted for purposes of the Commission’s review. Paragraph (b)(5) of proposed Rule 803 would establish the Commission review period for an application to register as an SBSEF. Proposed Rule 803(b)(5) is closely modelled on § 37.3(b)(5) and would require the Commission to approve or deny an application for registration as an SBSEF within 180 days of the filing of the application. Proposed Rule 803(b)(5) would further provide that, if the Commission notifies the person that its application is materially incomplete and specifies the deficiencies in the application, the running of the 180-day period would be stayed from the time of such notification until the application is resubmitted in completed form. In such case, the Commission would have not less than 60 days to approve or deny the application from the time the application is resubmitted in completed form. Paragraph (b)(6)(i) of proposed Rule 803, like § 37.3(b)(6)(i), would provide that the Commission shall issue an order granting registration upon a Commission determination, in its own discretion, that the applicant has demonstrated compliance with the SEA and the Commission’s rules applicable to SBSEFs. Paragraph (b)(6)(i) would allow the Commission to issue an order granting registration, subject to conditions. Paragraph (b)(6)(ii) of proposed Rule 803, modelled on § 37.3(b)(6)(ii), would provide that the Commission may issue an order denying registration upon a Commission determination, in its own discretion, that the applicant has not demonstrated compliance with the SEA and the Commission’s rules applicable to SBSEFs. If the Commission denies an application under proposed Rule 803(b)(6)(ii), it would be required to specify the grounds for the denial. Paragraph (c) of § 37.3, which allows the CFTC to grant SEFs temporary registration under certain conditions, was adopted with a sunset provision that generally terminated the applicability of the paragraph two years after it became effective in August
2013.51 Because this provision is now
obsolete, the Commission is not proposing an equivalent provision in Regulation SE. Paragraph (c) of proposed Rule 803, like § 37.3(d), would address reinstatement of a dormant registration. Proposed Rule 803(c) would provide that a dormant SBSEF 52 may reinstate its registration under the procedures of proposed Rule 803(b). Proposed Rule 803(c) would further provide that the applicant may rely upon previously submitted materials if such materials accurately describe the dormant SBSEF’s conditions at the time that it applies for reinstatement of its registration. Paragraph (d) of proposed Rule 803, like § 37.3(e), would set out procedures for an SBSEF to request a transfer of registration. Paragraph (d)(1), which is closely modelled on § 37.3(e)(1), would provide that an SBSEF seeking to transfer its registration from its current legal entity to a new legal entity as a result of a corporate change shall file a request for approval to transfer such registration with the Commission in the form and manner specified by the Commission. Paragraph (d)(2), modelled on § 37.3(e)(2), would provide that a request for transfer of registration shall be filed no later than three months prior to the anticipated corporate change; or in the event that the SBSEF could not have known of the anticipated change three months prior to the anticipated change, as soon as it knows of such change. Paragraph (d)(3) of proposed Rule 803, like § 37.3(e)(3), would require an SBSEF’s request for transfer of registration to include the following:

• The underlying agreement that
  governs the corporate change;
• A description of the corporate
  change, including the reason for the change and its impact on the SBSEF, including its governance and operations, and its impact on the rights and obligations of members; 53
• A discussion of the transferee’s
  ability to comply with the SEA, including the core principles applicable to SBSEFs and the Commission’s rules thereunder;
• The governing documents of the
  transferee, including, but not limited to, articles of incorporation and bylaws;
• The transferee’s rules marked to
  show changes from the current rules of the SBSEF;
• A representation by the transferee
  that it:
  Æ Will be the surviving entity and successor-in-interest to the transferor SBSEF and will retain and assume, without limitation, all of the assets and liabilities of the transferor; Æ Will assume responsibility for complying with all applicable

54The equivalent provision in § 37.3(e)(3)(vi)(D) requires a representation from the transferee that it ‘‘[w]ill comply with all self-regulatory responsibilities except if otherwise indicated in the request, and will maintain and enforce all self￾regulatory programs’’ (emphasis added). SBSEFs are not SROs under the SEA and therefore do not have self-regulatory responsibilities or self-regulatory programs. 55 17 CFR 232.405. The proposed electronic filing requirement discussed above does not appear in the CFTC version of this provision. The Commission is adding this specification to implement the Inline XBRL and EDGAR electronic filing requirements for certain documents required by proposed Regulation SE. See infra section XV. provisions of the SEA and the Commission’s rules thereunder; Æ Will assume, maintain, and enforce all rules implementing and complying with the core principles applicable to SBSEFs, including the adoption of the transferor’s rulebook, as amended in the request, and that any such amendments will be submitted to the Commission pursuant to proposed Rules 806 or 807; Æ Will comply with all regulatory responsibilities 54 except if otherwise indicated in the request, and will maintain and enforce all regulatory programs; and Æ Will notify members of all changes to the transferor’s rulebook prior to the transfer and will further notify members of the concurrent transfer of the registration to the transferee upon Commission approval and issuance of an order permitting this transfer.

• A representation by the transferee
  that upon the transfer:
  Æ It will assume responsibility for and maintain compliance with core principles for all SBS previously made available for trading through the transferor, whether by certification or approval; and Æ None of the proposed rule changes will affect the rights and obligations of any member. Paragraph (d)(4) of proposed Rule 803, modelled on § 37.3(e)(4), would provide that, upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request. Paragraph (e) of proposed Rule 803, like § 37.3(f), would provide that an applicant for registration as an SBSEF may withdraw its application by filing a withdrawal request electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T.55 Proposed Rule 803(e) would further provide that withdrawal of an application for registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the application was pending with the Commission. Paragraph (f) of proposed Rule 803, like § 37.3(g), would provide that an SBSEF may request that its registration be vacated by filing a vacation request electronically with the Commission using the EDGAR system and must be provided as an Interactive Data File in accordance with Rule 405 of Regulation S–T at least 90 days prior to the date that the vacation is requested to take effect. Section 37.3(g) provides that a registration may be vacated under
  section 7 of the CEA. Since the
  Commission does not operate under the CEA, the Commission is proposing to adapt relevant language from section 7 of the CEA directly into proposed Rule 803(f). Thus, proposed Rule 803(f) would continue as follows, with language taken from section 7 italicized and language taken from § 37.3(g) in regular text: ‘‘Upon receipt of such request, the Commission shall promptly order the vacation to be effective upon the date named in the request and send a copy of the request and its order to all other security-based swap execution facilities, SBS exchanges, and registered clearing agencies that clear security￾based swaps. Vacation of registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the security-based swap execution facility was registered by the Commission. From and after the date upon which the vacation became effective the said security-based swap execution facility can thereafter be registered again by applying to the Commission in the manner provided in paragraph (b) of this section for an original application.’’ The Commission seeks comment on the following:

14. Do you believe in general that the
    Commission should closely harmonize the rules for SBSEF registration with the CFTC’s rules for SEF registration? Why or why not?
15. In particular, do you agree with
    the language that the Commission is proposing to adapt from § 37.3 (Requirements and procedures for registration) into Rule 803? If not, what language would you delete or revise, and why?
16. Do you believe that the
    Commission should harmonize the application procedures and timeframes in proposed Rule 803 with § 37.3 of the CFTC’s rules? Why or why not? Are there aspects of § 37.3 that you believe are not necessary or appropriate to incorporate into Rule 803? If so, please describe. Are there different or additional requirements that the Commission should include in Rule 803 that are not included in § 37.3? If so, please describe.
17. Do you believe that any provisions
    of § 37.3(c) relating to temporary registration are still relevant and should be adapted into Rule 803? If so, which provisions and why?
18. Do you believe in general that
    proposed Rule 803 should include provisions relating to vacation of an SBSEF registration? If so, do you agree with the specific language adapted by the Commission from section 7 of the CEA and § 37.3(g) into proposed Rule 803(f)? If not, how would you revise that language? B. Form SBSEF As new § 249.2001, the Commission is proposing Form SBSEF, the application form for an entity to register with the Commission as an SBSEF. The proposed form would also be used for submitting any updates, corrections, or supplemental information to a pending application for registration. Proposed Form SBSEF is closely modelled on the CFTC’s Form SEF for entities that seek to register with the CFTC as SEFs, with only minor changes to remove the concept of post-registration amendments, as the proposed rule would not require any amendments to Form SBSEF post-registration. The exhibits being proposed along with Form SBSEF are very similar to the exhibits in Form SEF. Like with Form SEF, each applicant submitting a Form SBSEF would be required to provide the Commission with documents and descriptions pertaining to its business organization, financial resources, and compliance program, including various documents describing the applicant’s legal and financial status. An applicant would be required to disclose any affiliates and provide a brief description of the nature of the affiliation, and submit copies of any agreements between the SBSEF and third parties that would assist the applicant in complying with its duties under the SEA. In addition, an applicant would be required to demonstrate operational capability through documentation, including technical manuals and third￾party service provider agreements. Under proposed Rule 803(b)(1), an applicant for SBSEF registration would be required to complete Form SBSEF and provide, upon the Commission’s request, any additional necessary information and documentation in order review the application. The determination as to when an application submission is complete would be at the sole discretion of the Commission. The Commission would review Form SBSEF

56 15 U.S.C. 78mm(a)(1).
57 15 U.S.C. 78s(b).
58 15 U.S.C. 78c–4.
59See 15 U.S.C. 78c–4(d)(1)(A)(ii) (requiring an SBSEF, to be registered and to maintain registration, to comply with any requirement that the Commission may impose by rule or regulation); 15 U.S.C. 78c–4(f) (directing the Commission to prescribe rules governing the regulation of SBSEFs). 60See § 40.2(a)(2) (one of the conditions for a valid self-certification of a product is that the CFTC has received the submission by the open of business on the business day preceding the product’s listing). and, at the conclusion of its review, by order either: (i) Grant registration; (ii) deny the application for registration; or (iii) grant registration subject to certain conditions. After an applicant is granted registration, any updates or amendments to the information contained in its Form SBSEF by an active SBSEF would be required to be submitted as rules or rule amendments under proposed Rule 806 or 807 or as may be required by other rules in Regulation SE. The CFTC’s process for registering SEFs appears well understood by the industry and well designed for being adapted to the SBS market. Therefore, the Commission is using the CFTC’s process as a basis for its own process for registering SBSEFs. Assuming that most if not all SBSEFs will be dually registered as SEFs, the Commission preliminarily believes that it is not necessary to require the same registrant to provide relevant information in one manner to the Commission if the CFTC requires it in a different manner. The Commission seeks comment on the following:
19. Are there parts of Form SEF that
you believe are not necessary or appropriate to incorporate into Form SBSEF? If so, please describe.
20. Are there different or additional
requirements that the Commission should include in Form SBSEF that are not included in Form SEF? If so, please describe. What would be the benefits and costs of requiring that information in Form SBSEF that is not required by the CFTC in Form SEF?
C. Abbreviated Registration Procedures
for CFTC-Registered SEFs Many of the entities that will seek registration with the Commission as SBSEFs are already registered with the CFTC as SEFs. Entities that seek dual registration presumably see efficiencies in utilizing the same systems, policies, and procedures to trade both swaps and SBS. As noted throughout this release, the Commission seeks to harmonize the SBSEF regulatory regime as closely as practicable with the CFTC’s SEF regulatory regime, achieving similar regulatory benefits as the CFTC regime while imposing only marginal costs on dually-registered SEF/SBSEFs and their members. If the Commission ultimately adopts SBSEF rules that are closely harmonized with those of the CFTC, SEFs that seek dual registration with the SEC would likely need to make only minor adjustments to their rules and trading procedures to support trading of SBS in addition to the trading of swaps. The Commission preliminarily believes that whether an entity is registered as a SEF and in good standing with the CFTC is relevant when considering its application to register as an SBSEF, and that an abbreviated registration for CFTC-registered SEFs is appropriate. Furthermore, the Commission is preliminarily considering that, after adopting final rules establishing a registration process for SBSEFs, it could exercise its exemptive authority under
section 36(a)(1) of the SEA 56 to relax or
eliminate entirely certain of the registration requirements for entities that are already registered as SEFs with the CFTC. The Commission seeks comment on the following:
21. Do you believe in general that the
Commission should utilize its authority under section 36(a)(1) of the SEA to establish an abbreviated procedure for entities wishing to register as SBSEFs that are already registered with the CFTC as SEFs? Why or why not?
22. If so, what registration
requirements should the Commission relax or eliminate entirely for entities seeking dual registration?
VI. Rule and Product Filings by SBSEFs
Unlike section 19(b) of the SEA,57 which sets out a process whereby national securities exchanges and other SROs submit filings to the Commission to add, delete, or amend rules (including rules to list products),
section 3D of the SEA 58 does not set out
an equivalent process for SBSEFs. It can be expected, however, that an SBSEF will seek to change its rules over time in order, for example, to implement new trading methodologies and to expand its product offerings, with the intent to make its market more attractive to participants. The Commission preliminarily believes, therefore, that some review process is necessary to assess whether such changes to an SBSEF’s rules and product offerings are consistent with section 3D of the SEA and the Commission’s rules thereunder. The Commission preliminarily believes that the CFTC’s filing procedures are an appropriate model on which to base its own filing procedures. Furthermore, because of the likelihood that most if not all SBSEFs will be dually registered with the CFTC as SEFs and that many rule changes for a dual registrant will affect both its SBS and swap trading businesses, close harmonization with the CFTC’s filing procedures would allow a dual registrant to make a similar filing to each agency, allowing each agency to carry out its oversight functions while minimizing the burdens on dual registrants. Parts 37 and 40 of the CFTC’s rules set out processes whereby SEFs may establish or amend rules and list products. In short, these processes allow a SEF to voluntarily submit a rule, rule amendment, or new product for CFTC review and approval, or to ‘‘self-certify’’ that a rule, rule amendment, or new product meets applicable standards under the CEA and the CFTC’s rules thereunder without obtaining CFTC approval, although the CFTC retains the ability, in certain circumstances, to stay the self-certification for further review before it may become effective. Using its general authority to impose any requirement on SBSEFs and to prescribe rules governing the regulation of SBSEFs,59 the Commission is proposing to establish similar filing processes for registered SBSEFs in proposed Rules 804 to 810 of Regulation SE. A. Rule 804—Listing Products for Trading by Certification Proposed Rule 804 is modelled on § 40.2 of the CFTC’s rules and would set forth procedures by which an SBSEF may list a product via certification. § 40.2(a) specifies the filing requirements for DCMs and SEFs to certify a product for listing. Paragraph (a) of proposed Rule 804 would adapt these requirements for SBSEFs, with one exception, as explained in the next paragraph. Paragraph (a)(1) of proposed Rule 804 would require an SBSEF to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T. Paragraph (a)(2) of proposed Rule 804 would provide that the Commission must receive the submission by the open of business on the business day that is ten business days preceding the product’s listing. By contrast, the parallel provision in § 40.2(a) provides that a DCM or SEF must file the self￾certification only one business day before listing the product.60 The Commission preliminarily believes that
a ten-business-day review period for self-certified SBS products before they can be listed strikes a reasonable balance between allowing SBSEFs to bring new products to market quickly while affording the Commission staff a

61See § 40.6(a)(3) (one of the conditions for a valid self-certification of a rule or rule amendment is that the CFTC has received the submission not later than the open of business on the business day that is ten business days prior to the registered entity’s implementation of the rule or rule amendment). 62See infra section VI(D). 63The Commission is proposing, in new § 249.2002, a submission cover sheet (with instructions) that is closely modelled on the CFTC’s submission cover sheet. 64Under proposed Rule 804(a)(3)(vi), information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF’s website but would have to be republished consistent with any determination made by the Commission pursuant to SEA Rule 24b–2. 65Section 40.2(a)(3) instructs filers to make any request for confidential treatment pursuant to § 40.8 of the CFTC’s rules, which in turn cross-references § 145.9. The Commission is proposing instead to direct filers to make any request for confidential treatment pursuant to existing SEA Rule 24b–2. See supra note 50. 66The Commission also is not proposing to adapt—either in Rule 807 or here in Rule 804— § 40.6(c)(4), which relates to rules already implemented and permits the CFTC to stay the effectiveness of such rules during the pendency of proceedings for filing a false certification or of a petition to alter or amend the rule pursuant to
section 8a(7) of the CEA.
67See section 1a(19) of the CEA, 7 U.S.C. 1a(19) (defining ‘‘excluded commodity’’). reasonable period in which to assess them prior to listing. The Commission is concerned that one business day would not provide the SEC staff sufficient time to review a new product, especially a novel or complex product that might be difficult to analyze. As discussed below, the Commission is proposing that it could stay a product for reasons similar to those in the CFTC’s stay provision. If a product does warrant a stay, the Commission also would need sufficient time to go through the administrative steps of formally issuing the stay. The proposed ten-business-day review period for self-certified products accords with the CFTC’s ten-business￾day review period for self-certified rules,61 which the Commission is proposing to replicate in Rule 807(a)(3).62 Paragraph (a)(3) of proposed Rule 804 would require a self-certification to include:
(1) A copy of the submission cover sheet; 63 (2) A copy of the product’s rules, including all rules related to its terms and conditions; (3) The intended listing date; (4) A certification by the SBSEF that the product to be listed complies with the SEA and the Commission’s rules thereunder; (5) A concise explanation and analysis of the product and its compliance with applicable provisions of the SEA, including core principles, and the Commission’s rules thereunder. This explanation and analysis shall either be accompanied by the documentation relied upon to establish the basis for compliance with applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources; (6) A certification that the SBSEF posted a notice of pending product certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF’s website; 64 and (7) A request for confidential treatment, if appropriate, as permitted pursuant to SEA Rule 24b–2.65 Paragraph (b) of proposed Rule 804, modelled on § 40.2(b), would provide that, if requested by Commission staff, an SBSEF shall provide any additional evidence, information, or data that demonstrates that the SBS meets, initially or on a continuing basis, the requirements of the SEA or the Commission’s rules or policies thereunder.
Section 40.2(c) provides that the
CFTC may stay the listing of a contract pursuant to paragraph (a) of this section during the pendency of CFTC proceedings for filing a false certification or during the pendency of a petition to alter or amend the contract terms and conditions pursuant to
section 8a(7) of the CEA. The SEA does
not include the CEA’s provisions regarding altering or amending the terms and conditions of an SBS listed by an SBSEF like the authority granted to the CFTC with respect to products listed by SEFs, such that the Commission would be able to stay the listing of an SBS that it believes may be inconsistent with the SEA, pending proceedings to exercise that authority. Nor are proceedings for false certification of an SBS contemplated by the SEA. For this reason, in lieu of harmonizing with § 40.2(c), the Commission is proposing, in Rule 804(c), a provision that would allow the Commission to stay the certification of a new product in the same manner that proposed Rule 807(c)—which, as described below, is itself based on § 40.6(c) of the CFTC rules—would allow the Commission to stay the self-certifications of a new rule or rule amendment.66 Thus, paragraph (c)(1) of proposed Rule 804 would provide that the Commission may stay the certification of a new product by issuing a notification informing the SBSEF that the Commission is staying the certification on the grounds that the product presents novel or complex issues that require additional time to analyze, is accompanied by an inadequate explanation, or is potentially inconsistent with the SEA or the Commission’s rules thereunder. Under paragraph (c)(1), the Commission would have an additional 90 days from the date of the notification to conduct the review. Paragraph (c)(2) would require the Commission to provide a 30-day comment period during that 90 days, and to publish a notice of the 30-day comment period on the Commission’s website. Comments from the public could be submitted as specified in that notice. Paragraph (c)(3) would provide that the product that had been stayed would become effective, pursuant to the certification, at the expiration of the 90- day review period, unless the Commission withdraws the stay prior to that time, or the Commission notifies the SBSEF during the 90-day time period that it objects to the proposed certification on the grounds that the proposed product is inconsistent with the SEA or the Commission’s rules. Paragraph (d) of § 40.2 provides that a DCM or SEF may submit a class certification of swaps based on an ‘‘excluded commodity,’’ 67 subject to certain conditions. The proposed rules do not provide for class certification of any SBS although, as noted below, the Commission seeks commenters’ views on whether the concept of class certification would be appropriate for SBSEFs. The Commission preliminarily believes that proposed Regulation SE should allow SBSEFs to introduce new SBS products to their market places as speedily as practicable while affording the Commission an effective mechanism to assess their consistency with section 3D of the SEA. The Commission preliminarily believes that the CFTC’s self-certification procedures are well articulated and well understood by SEFs, and that harmonizing with these procedures for new product filings by SBSEF would yield
comparable regulatory benefits while minimizing burdens on SBSEFs. At the same time, the Commission preliminarily believes that, for the reasons noted above, a ten￾business-day pre-listing review period is more appropriate than a one-business￾day review period for self-certified SBS products. The Commission seeks comment on the following:
23. Do you believe in general that
Regulation SE should include a rule that allows SBSEFs to list products for trading by certification? Why or why not?

68This explanation and analysis would have to either be accompanied by the documentation relied upon to establish the basis for compliance with the applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources. 69Section 40.3(a), like § 40.2(a)(3), instructs filers to make any request for confidential treatment pursuant to § 40.8 of the CFTC’s rules, which in turn cross-references § 145.9. As noted previously, the Commission proposes instead to direct filers to make any request for confidential treatment pursuant to SEA Rule 24b–2. See supra note 50. 70 Information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF’s website but would have to be republished consistent with any determination made by the Commission pursuant to SEA Rule 24b–2.
24. In particular, should the
Commission establish a procedure for listing SBS products for trading by certification by harmonizing closely with § 40.2 of the CFTC’s rules? Why or why not?
25. Do you agree with the ten￾business-day pre-listing review period
for self-certified products in proposed Rule 804(a)(2) instead of the CFTC’s one-business-day review period? Why or why not? What economic harm might an SBSEF and/or its members suffer if the Commission ultimately adopted a review period other than one business day? If you believe that the Commission should adopt a review period of greater than one day (but other than ten), please explain.
26. Do you believe that the
Commission should adapt the concept of class certification from § 40.2(d) into proposed Rule 804? Why or why not? If so, how do you believe a ‘‘class’’ should be defined for purposes of listing SBS products on an SBSEF? Should there be any conditions for class certification? If so, what conditions and why?
27. Are there any provisions of
proposed Rule 804 that the Commission has adapted from § 40.2 that you believe would be inappropriate, or would not create any benefit, in a Commission rule to establish procedures for SBSEFs to list SBS products for trading by certification? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
28. Do you believe that proposed Rule
804(c), relating to stays of product certifications, mirroring the Commission’s proposed provisions relating to stays of self-certifications of new rules, is appropriate and workable? Why or why not? If not, what alternatives, if any, should be considered to enable the Commission to stay product certifications that it believes pose issues with respect to consistency with the SEA? B. Rule 805—Voluntary Submission of New Products for Commission Review and Approval Proposed Rule 805 is closely modelled on § 40.3 of the CFTC’s rules and would set forth procedures by which an SBSEF may voluntarily submit new SBS products for Commission review and approval.
Section 40.3(a) provides that a SEF or
DCM may request the CFTC to approve a new or dormant product prior to listing it for trading, and sets out the filing requirements. Paragraph (a) of proposed Rule 805 would adapt these requirements for SBSEFs. First, an SBSEF would be required to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T. The filing also would have to include a copy of the submission cover sheet, a copy of the rules that set forth the terms and conditions of the SBS to be listed, and an explanation and analysis of the product and its compliance with applicable provisions of the SEA, including the Core Principles and the Commission’s rules thereunder.68 The submission also would have to describe any agreements or contracts entered into with other parties that enable the SBSEF to carry out its responsibilities. Furthermore, paragraph (a) of proposed Rule 805, modelled on § 40.3(a), would require the SBSEF to include, if requested by Commission staff, additional evidence, information, or data demonstrating that the SBS meets, initially or on a continuing basis, the requirements of the SEA, or other requirement for registration under the SEA, or the Commission’s rules or policies thereunder. The SBSEF would be required to submit the requested information by the open of business on the date that is two business days from the date of request by Commission staff, or at the conclusion of such extended period agreed to by Commission staff after timely receipt of a written request from the SBSEF. Paragraph (a) of proposed Rule 805, like § 40.3(a), would permit the submitting SBSEF to include a request for confidential treatment regarding portions of its application.69 Finally, paragraph (a) of proposed Rule 805, like § 40.3(a), would require the SBSEF to certify that it posted a notice of its request for Commission approval of the new product and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF’s website.70 Paragraph (a) of proposed Rule 805 would omit two provisions in § 40.3(a). First, § 40.3(a)(6) requires the submitting entity to include the certifications required in § 41.22 for product approval of a commodity that is a security future or a security futures product, as defined in sections 1a(44) or 1a(45) of the CEA, respectively. The Commission is not adapting this provision into proposed Regulation SE because it pertains to security futures and security futures products, not to swaps or SBS. Second, § 40.3(a)(8) requires the submitting entity to include a filing fee. The Commission is not proposing to charge SBSEFs filing fees for submitting new product proposals. Paragraph (b) of proposed Rule 805, like § 40.3(b), would provide that the Commission shall approve a new product unless the terms and conditions of the product violate the SEA or the Commission’s rules thereunder. Paragraph (c) of proposed Rule 805, modelled on
§ 40.3(c), would provide that a product submitted for Commission approval under Rule 805 shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of an extended period as provided under proposed Rule 805(d), unless notified otherwise within the applicable period, if the submission complies with the requirements of Rule 805(a) and the SBSEF does not amend the terms or conditions of the product or supplement the request for approval, except as requested by the Commission or for correction of typographical errors, renumbering, or other non-substantive revisions, during that period. Paragraph (c) also would provide that any voluntary, substantive amendment by the SBSEF would be treated as a new submission under Rule 805. Paragraph (d) of proposed Rule 805, modelled on § 40.3(d), would provide that the Commission may extend the 45- day review period in paragraph (c) for an additional 45 days, if the product raises novel or complex issues that require additional time to analyze, in which case the Commission shall notify the SBSEF within the initial 45-day review period and briefly describe the nature of the specific issue(s) for which additional time for review is required. Paragraph (d) also would provide that the Commission may extend the 45-day review period for any length of time to which the SBSEF agrees in writing. Paragraph (e) of proposed Rule 805 would provide that the Commission, at any time during its review, may notify the SBSEF that it will not, or is unable to, approve the product. This notification would have to briefly specify the nature of the issues raised and the specific provision of the SEA or

71The Commission does not discount the possibility that an entity might elect to register as an SBSEF with the SEC but not as a SEF with the CFTC. In such case, the SEC-only registrant would not have any familiarity with the CFTC’s rules and filing procedures. Nevertheless, because the Commission preliminarily believes that most if not all entities that will seek SBSEF registration with the SEC are or will also be registered as SEFs with the CFTC, such dual registrants would benefit from harmonized procedures. Furthermore, if the Commission ultimately adopts these procedures substantially as proposed, it likely would be unnecessary to establish and apply one set of procedures for dual registrants and a different set for SEC-only SBSEFs. 72 Information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF’s website, but would have to be republished consistent with any determination made pursuant to SEA Rule 24b–2. the Commission’s rules thereunder, including the form or content requirements of proposed Rule 805(a), that the product violates, appears to violate, or potentially violates but which cannot be ascertained from the submission. Paragraph (f) of proposed Rule 805, like § 40.3(f), would provide that such notification of the Commission’s determination not to approve a product does not prejudice the SBSEF from subsequently submitting a revised version of the product for Commission approval, or from submitting the product as initially proposed pursuant to a supplemented submission. Furthermore, such notification would be presumptive evidence that the entity may not truthfully certify under proposed Rule 804 that the same, or substantially the same, product does not violate the SEA or the Commission’s rules thereunder. The Commission preliminarily believes that it is reasonable and appropriate to supplement the product certification procedures in proposed Rule 804 by also including in Regulation SE, as proposed Rule 805, procedures for voluntary submission of new products for Commission review and approval. The Commission preliminarily believes that providing this approval process, as the CFTC does, can be valuable to an SBSEF seeking the Commission’s concurrence that a new product is in compliance with the SEA prior to listing it. The Commission preliminarily believes that the CFTC’s procedures in this regard are well articulated and well understood by SEFs, and that closely harmonizing with these procedures would yield comparable regulatory benefits while minimizing burdens on SBSEFs.71 The Commission requests comment on the following:
29. Do you believe in general that
Regulation SE should include a rule setting forth procedures for an SBSEF to voluntarily submit new SBS products for Commission review and approval? Why or why not?
30. In particular, should the
Commission adopt procedures for voluntary submission of new SBS products for Commission review and approval by harmonizing closely with § 40.3 of the CFTC’s rules? Why or why not?
31. Are there any provisions of § 40.3
that are adapted into proposed Rule 805 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
C. Rule 806—Voluntary Submission of
Rules for Commission Review and Approval Proposed Rule 806 is closely modelled on § 40.5 of the CFTC’s rules and would set forth procedures by which an SBSEF may voluntarily submit rules, rule amendments, or dormant rules for Commission review and approval.
Section 40.5(a) provides that a
registered entity, including a SEF, may request that the CFTC approve a new rule, rule amendment, or dormant rule and sets out the filing requirements. Paragraph (a) of proposed Rule 805 would adapt these requirements for SBSEFs. First, an SBSEF would be required to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T. The filing also would have to include a copy of the submission cover sheet and set forth the text of the rule or rule amendment (in the case of a rule amendment, deletions and additions must be indicated). Further, the SBSEF would be required to describe the proposed effective date of the rule or rule amendment and any action taken or anticipated to be taken to adopt the proposed rule by the SBSEF or by its governing board or by any committee thereof, and cite the rules of the SBSEF that authorize the adoption of the proposed rule. The SBSEF also would be required to provide an explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the SEA, including the core principles relating to SBSEFs and the Commission’s rules thereunder, and, as applicable, a description of the anticipated benefits to market participants or others, any potential anticompetitive effects on market participants or others, and how the rule fits into the SBSEF’s framework of regulation. Moreover, the SBSEF would be required to provide additional information which may be beneficial to the Commission in analyzing the new rule or rule amendment. If a proposed rule affects, directly or indirectly, the application of any other rule of the SBSEF, the pertinent text of any such rule would have to be set forth and the anticipated effect described. The SBSEF also would be required to provide a brief explanation of any substantive opposing views expressed to the SBSEF by governing board or committee members, members of the SBSEF, or market participants that were not incorporated into the rule, or a statement that no such opposing views were expressed. The SBSEF could request confidential treatment for portions of its submission, as permitted by SEA Rule 24b–2. Finally, the SBSEF would have to certify that it posted a notice of the pending rule with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF’s website.72 Paragraph (b) of proposed Rule 806, modelled on § 40.5(b), would provide that the Commission shall approve a new rule or rule amendment unless the rule or rule amendment is inconsistent with the SEA or the Commission’s rules thereunder. Paragraph (c) of proposed Rule 806, like § 40.5(c), would provide that a rule or rule amendment submitted for Commission approval under Rule 806 shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of such extended period
as provided under paragraph (d) of this section, unless the SBSEF is notified otherwise within the applicable period, if the submission complies with the requirements of proposed Rule 806(a) and the SBSEF does not amend the proposed rule or supplemented the submission, except as requested by the Commission, during the pendency of the review period, other than for correction of typographical errors, renumbering, or other non-substantive revisions. Paragraph (c) also would provide that any amendment or supplementation not requested by the Commission would be treated as the submission of a new filing under Rule 806. Paragraph (d) of proposed Rule 806, modelled on § 40.5(d), would provide that the Commission may further extend the review period in paragraph (c) for an additional 45 days, if the proposed rule

73Also like § 40.6(a), proposed Rule 807(a) would include an exception that would allow an SBSEF to implement a certain kind of rule without having to comply with the full set of conditions set forth in paragraphs (a)(1) through (8) of proposed Rule 807, the details of which are discussed below. Specifically, the exception would provide that, when submitting a rule delisting or withdrawing the certification of a product with no open interest, an SBSEF would be required only to meet the conditions of paragraphs (a)(1), (a)(2), and (a)(6) of proposed Rule 807. The introductory language being proposed by the Commission in paragraph (a) of proposed Rule 807 generally tracks the language of § 40.6(a), with slight changes for clarity. However, proposed Rule 807(a) would not include an equivalent of the reference in § 40.6(a) to submissions under § 40.10, which concerns only systemically important derivatives clearing organizations and thus are not relevant to SBSEFs. 74 Information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF’s website but must be republished consistent with any determination made pursuant to SEA Rule 24b–2. or rule amendment raises novel or complex issues that require additional time for review or is of major economic significance, the submission is incomplete, or the requestor does not respond completely to Commission questions in a timely manner, in which case the Commission shall notify the submitting SBSEF within the initial 45- day review period and shall briefly describe the nature of the specific issues for which additional time for review shall be required. Paragraph (d) also would allow an extension to which the SBSEF agrees in writing. Paragraph (e) of proposed Rule 806, like § 40.5(e), would provide that, at any time during its review, the Commission may notify the SBSEF that it will not, or is unable to, approve the new rule or rule amendment. This notification would have to briefly specify the nature of the issues raised and the specific provision of the SEA or the Commission’s rules thereunder, including the form or content requirements of proposed Rule 806, with which the new rule or rule amendment is inconsistent or appears to be inconsistent with the SEA or the Commission’s rules thereunder. Paragraph (f) of proposed Rule 806, like § 40.5(f), would provide that such notification to an SBSEF would not prevent the SBSEF from subsequently submitting a revised version of the proposed rule or rule amendment for Commission review and approval or from submitting the new rule or rule amendment as initially proposed in a supplemented submission. Paragraph (f) would further provide that the revised submission would be reviewed without prejudice. Finally, paragraph (f) would provide that such notification to an SBSEF of the Commission’s determination not to approve a proposed rule or rule amendment shall be presumptive evidence that the SBSEF may not truthfully certify the
same, or substantially the same, proposed rule or rule amendment under proposed Rule 807(a). Paragraph (g) of proposed Rule 806, like § 40.5(g), would provide that, notwithstanding Rule 806(c), changes to a proposed rule or a rule amendment, including changes to terms and conditions of a product that are consistent with the SEA and the Commission’s rules thereunder, may be approved by the Commission at such time and under such conditions as the Commission shall specify in the written notification; provided, however, that the Commission may, at any time, alter or revoke the applicability of such a notice to any particular product or rule amendment. The Commission preliminarily believes that Regulation SE should afford the Commission a means for assessing whether SBSEF rules and rule amendments are consistent with section 3D of the SEA, and that it is appropriate to achieve this aim by aligning closely with the CFTC’s process for voluntary rule-approval submission in § 40.5. The CFTC’s procedures are well articulated and well understood by SEFs, and closely harmonizing with these procedures should yield comparable regulatory benefits while minimizing burdens on SBSEFs. As with the process for seeking Commission approval of new products, the Commission preliminarily believes that providing a process for voluntarily seeking Commission approval of rules, rule amendments, and dormant rules—as the CFTC does—can be valuable to an SBSEF seeking the Commission’s concurrence that the rule change is consistent with the SEA prior to implementing it. Moreover, for dually registered SEF/SBSEFs, it is likely that certain rules will apply to member behavior generally—and not to one product market (e.g., swaps or SBS) exclusively—and so will have to be filed with both the SEC and CFTC. Closely harmonizing the SEC’s filing procedures with § 40.5 would allow dually registered entities to submit the same (or substantially the same) filing to both agencies for review and approval. The Commission preliminarily believes that it is not necessary to require SBSEFs to make a substantially different type of filing to the SEC than to the CFTC for the same underlying rule. The Commission seeks comment on the following:
32. Do you believe in general that
Regulation SE should include a rule establishing procedures for an SBSEF to voluntarily submit rules and rule amendments for Commission review and approval? Why or why not?
33. In particular, should the
Commission adopt procedures for voluntary submission of rules and rule amendments for Commission review and approval by harmonizing closely with § 40.5 of the CFTC’s rules? Why or why not?
34. Are there any provisions of § 40.5
that are adapted into proposed Rule 806 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule. D. Rule 807—Self-Certification of Rules Proposed Rule 807 is closely modelled on § 40.6 of the CFTC’s rules and would set forth procedures by which an SBSEF may self-certify changes to its rules. Paragraph (a) of proposed Rule 807, modelled on § 40.6(a), would set forth the conditions that an SBSEF must comply with before implementing a rule or rule amendment via self-certification. Like § 40.6(a), proposed Rule 807(a) would permit an SBSEF to implement a rule or rule amendment without obtaining the Commission’s prior approval under Rule 806, but only if it ‘‘self-certifies’’ the rule or rule amendment in compliance with the conditions set forth in Rule 807. Rule 807(a) also would permit an SBSEF to self-certify a rule or rule amendment that the Commission had previously approved under Rule 806, or that the SBSEF had previously self-certified under this Rule 807, but that in the interim had become a dormant rule (i.e., unimplemented for 12 consecutive calendar months).73 Paragraph (a)(1) of proposed Rule 807 would require the SBSEF to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T. Paragraph (a)(2) would require the SBSEF to provide a certification that the SBSEF posted a notice of the self￾certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF’s website.74 Paragraph (a)(3) would provide that the Commission must have received the submission not later than the open of business on the business day that is ten business days before the SBSEF’s implementation of the rule or rule amendment. Paragraph (a)(4) would

75See § 40.1(h) (defining ‘‘emergency’’ as ‘‘any occurrence or circumstance that, in the opinion of the governing board of a registered entity, or a person or persons duly authorized to issue such an opinion on behalf of the governing board of a registered entity under circumstances and pursuant to procedures that are specified by rule, requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of or delivery pursuant to, any agreements, contracts, swaps or transactions or the timely collection and payment of funds in connection with clearing and settlement by a derivatives clearing organization’’). The definition goes on to list a series of circumstances that are deemed emergencies under the definition. The Commission is proposing a definition of ‘‘emergency’’ in proposed Rule 802 that is adapted from § 40.1(h). 76Section 40.6(a)(7)(vii) directs the submitting entity to follow the procedures in § 40.8 when making a request for confidential treatment, which in turn cross-references § 145.9. As noted previously, the Commission proposes instead to direct filers to make any request for confidential treatment pursuant to SEA Rule 24b–2. See supra note 50. 77See supra note 66 and accompanying text. 78See id. provide that the SBSEF may not implement the rule or rule amendment if the Commission has stayed it pursuant to proposed Rule 807(c), discussed below.
Section 40.6(a)(5) sets forth an
additional condition that the rule or rule amendment is not a rule or rule amendment of a DCM that materially changes a term or condition of a contract for future delivery of an agricultural commodity enumerated in
section 1a(4) of the CEA or an option on
such a contract or commodity in a delivery month having open interest. Because this provision applies to DCMs that trade contracts for future delivery of agricultural commodities, it is not germane to the SBS markets; therefore, the Commission is not adapting this condition into proposed Rule 807.
Section 40.6(a)(6) sets out procedures
for emergency rule certifications, which the Commission is proposing to adapt into paragraph (a)(5) of Rule 807. Paragraph (a)(5)(i) would require a new rule or rule amendment that establishes standards for responding to an emergency 75 to be submitted pursuant to Rule 807(a). Paragraph (a)(5)(ii) would provide that a rule or rule amendment implemented under procedures of the governing board to respond to an emergency shall, if practicable, be filed with the Commission prior to implementation or, if not practicable, be filed with the Commission at the earliest possible time after implementation, but in no event more than 24 hours after implementation. In addition, paragraph (a)(5)(ii) would provide that any such submission be subject to the certification and stay provisions of proposed Rules 807(b) and (c), described below. Paragraph (a)(6) of proposed Rule 807, modelled on § 40.6(a)(7), would set out the required elements for a rule submission under Rule 807. These requirements would include a copy of the submission cover sheet (in the case of a rule or rule amendment that responds to an emergency, ‘‘Emergency Rule Certification’’ should be noted in the description section of the submission cover sheet); the text of the rule (in the case of a rule amendment, deletions and additions must be indicated); the date of intended implementation; a certification by the SBSEF that the rule complies with the SEA and the Commission’s rules thereunder; a concise explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the SEA, including Core Principles relating to SBSEFs and the Commission’s rules thereunder; and a brief explanation of any substantive opposing views expressed to the SBSEF by governing board or committee members, members of the SBSEF, or market participants, that were not incorporated into the rule, or a statement that no such opposing views were expressed. Paragraph (a)(6)(vii) also would permit the SBSEF to request confidential treatment for portions of its submission.76 Paragraph (a)(7) of proposed Rule 807, like § 40.6(a)(8), would require an SBSEF to provide, if requested by Commission staff, additional evidence, information, or data that may be beneficial to the Commission in conducting a due diligence assessment of the filing and the SBSEF’s compliance with any of the requirements of the SEA or the Commission’s rules or policies thereunder. Paragraph (b) of proposed Rule 807, modelled on § 40.6(b), would give the Commission ten business days to review the new rule or rule amendment before it is deemed certified and can be made effective, unless the Commission notifies the SBSEF during that ten￾business-day review period that it intends to issue a stay of the certification under proposed Rule 807(c). Paragraph (c)(1) of proposed Rule 807, modelled on § 40.6(c)(1), would provide that the Commission may stay the certification of a new rule or
rule amendment by issuing a notification informing the SBSEF that the Commission is staying the certification on the grounds that it presents novel or complex issues that require additional time to analyze, is accompanied by an inadequate explanation, or is potentially inconsistent with the SEA or the Commission’s rules thereunder. In addition, paragraph (c)(1) would afford the Commission an additional 90 days from the date of the notification to conduct the review. Paragraph (c)(2) of proposed Rule 807, modelled on § 40.6(c)(2), would require the Commission to provide a 30-day comment period within the 90-day period in which the stay is in effect. The Commission would be required to publish a notice of the 30-day comment period on the Commission’s internet website, and comments from the public could be submitted as specified in that notice. Paragraph (c)(3) of proposed Rule 807, modelled on § 40.6(c)(3), would provide that the new rule or rule amendment subject to the stay shall become effective, pursuant to the certification, at the expiration of the 90-day review period, unless the Commission withdraws the stay prior to that time, or the Commission notifies the SBSEF during the 90-day period that it objects to the proposed certification on the grounds that the proposed rule or rule amendment is inconsistent with the SEA or the Commission’s rules thereunder.
Section 40.6(c)(4), relating to rules or
rule amendments already implemented by a SEF (as opposed to rules or rule amendments that are the subject of a new submission) provides: ‘‘The Commission may stay the effectiveness of an implemented rule during the pendency of Commission proceedings for filing a false certification or during the pendency of a petition to alter or amend the rule pursuant to section 8a(7) of the Act. The decision to stay the effectiveness of a rule in such circumstances shall not be delegable to any employee of the Commission.’’ As previously noted,77 the SEA does not provide the Commission explicit authority to alter or amend the terms and conditions of an SBS like the authority granted to the CFTC with respect to swaps, and does not contemplate proceedings for a false certification. Hence the Commission is not proposing a provision corresponding to § 40.6(c)(4).78
Section 40.6(d) of the CFTC’s rules
allows a registered entity to place certain rules or rule amendments into effect even without a self-certification, if certain enumerated conditions are met. Certain types of these rules or rule amendments must be disclosed on a

79These rules pertain to products that are only distantly related, if at all, to the types of products that are likely to trade on SBSEFs. See § 40.6(d)(2)(ii) (delivery standards set by third parties); § 40.6(d)(2)(iii) (index products); § 40.6(d)(2)(iv) (option contract terms); § 40.6(d)(2)(viii) (delivery facilities and delivery service providers); § 40.6(d)(3)(ii)(F) (securities indexes); § 40.6(d)(3)(ii)(G) (option contract term). ‘‘Weekly Notification of Rule Amendments,’’ pursuant to § 40.6(d)(1) and (2), while others can be put into effect without any notification to the CFTC at all, pursuant to § 40.6(d)(3). Paragraph (d) of proposed Rule 807, modelled on § 40.6(d), would provide that certain kinds of rules or rule amendments may be put into effect by an SBSEF without certification to the Commission if similar enumerated conditions are met. Some would be subject to a Weekly Notification of Rule Amendments, which is closely modelled on the CFTC notification; others would not be subject to any notification requirement. Under paragraph (d)(2) of proposed Rule 807, the following types of rules could be put into effect by an SBSEF without self-certification, so long as they are disclosed on the Weekly Notice of Rule Amendments:

• Non-substantive revisions.
  Corrections of typographical errors, renumbering, periodic routine updates to identifying information about the SBSEF, and other such non-substantive revisions of a product’s terms and conditions that have no effect on the economic characteristics of the product;
• Fees. Fees or fee changes, other
  than fees or fee changes associated with market making or trading incentive programs, that total $1.00 or more per contract, and are established by an independent third party or are unrelated to delivery, trading, clearing, or dispute resolution.
• Survey lists. Changes to lists of
  banks, brokers, dealers, or other entities that provide price or cash market information to an independent third party and that are incorporated by reference as product terms;
• Approved brands. Changes in lists
  of approved brands or markings pursuant to previously certified or Commission approved standards or criteria;
• Trading months. The initial listing
  of trading months, which may qualify for implementation without notice, within the currently established cycle of trading months; or
• Minimum tick. Reductions in the
  minimum price fluctuation (or ‘tick’). Under paragraph (d)(3)(ii) of proposed Rule 807, the following types of rules could be put into effect by an SBSEF without self-certification and without having to be disclosed on the Weekly Notice of Rule Amendments:
• Transfer of membership or
  ownership. Procedures and forms for the purchase, sale, or transfer of membership or ownership, but not including qualifications for membership or ownership, any right or obligation of membership or ownership, or dues or assessments;
• Administrative procedures. The
  organization and administrative procedures of governing bodies such as a governing board, officers, and committees, but not voting requirements, governing board, or committee composition requirements or procedures, decision-making procedures, use or disclosure of material non-public information gained through the performance of official duties, or requirements relating to conflicts of interest;
• Administration. The routine daily
  administration, direction, and control of employees, requirements relating to gratuity and similar funds, but not guaranty, reserves, or similar funds; declaration of holidays; and changes to facilities housing the market, trading floor, or trading area;
• Standards of decorum. Standards of
  decorum or attire or similar provisions relating to admission to the floor, badges, or visitors, but not the establishment of penalties for violations of such rules;
• Fees. Fees or fee changes, other
  than fees or fee changes associated with market making or trading incentive programs that are less than $1.00 or relate to matters such as dues, badges, telecommunication services, booth space, real-time quotations, historical information, publications, software licenses, or other matters that are administrative in nature.
• Trading months. The initial listing
  of trading months which are within the currently established cycle of trading months. Paragraphs (d)(2) and (3) of proposed Rule 807, which enumerate the types of rule and rule amendments that an SBSEF could put into effect without a self-certification, are adapted from the types of rules enumerated in § 40.6(d)(2) and (3). However, the Commission is not adapting into proposed Rules 807(d)(2) and (d)(3) the other types of rules enumerated in § 40.6(d)(2) and (3).79 The Commission preliminarily believes that Regulation SE should afford the Commission a mechanism to assess new SBSEF rules and rule amendments for consistency with
  section 3D of the SEA, and to permit
  SBSEFs to submit new rules and rule amendments using a self-certification process closely aligned with the § 40.6. The CFTC’s procedures are well articulated and well understood by SEFs, and closely harmonizing with these procedures should yield comparable regulatory benefits while minimizing burdens on SBSEFs. It is likely that certain rules of dually registered SEF/SBSEFs will apply to member behavior generally—and not to one product market (e.g., swaps or SBS) exclusively—and so will have to be filed with both the SEC and CFTC. Closely harmonizing the SEC’s filing procedures with the CFTC’s would allow dually registered entities to submit the same (or substantially the same) filing to both agencies for review. The Commission preliminarily believes that it is not necessary to require SBSEFs to make a substantially different type of filing to the SEC than to the CFTC for the same underlying rule. The Commission requests comment on the following:

35. Do you believe in general that
    Regulation SE should include a rule establishing procedures for an SBSEF to establish rules via self-certification? Why or why not?
36. In particular, should the
    Commission adopt procedures for self￾certification of rules by harmonizing closely with § 40.6 of the CFTC’s rules? Why or why not?
37. Are there any provisions of § 40.6
    that are adapted into proposed Rule 807 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
38. Do you disagree with the specific
    language that the Commission is proposing? If so, what revisions to the language would you suggest?
39. Do you agree with the proposed
    list of the types of rules and rule amendments that the Commission would allow an SBSEF to make effective without a self-certification? Are there any types that you believe should be added to that list? If so, which types and why? Are there any types that you believe should be removed from that list? If so, which types and why? E. Submission Cover Sheet and Instructions As new § 249.2002, the Commission is proposing a submission cover sheet and instructions that an SBSEF would be required to use in conjunction with

80The CFTC cover sheet and instructions, found in appendix D to part 40 of the CFTC’s rules, are designed for rule and product filings from a wider range of registered entities than just SEFs, and thus include entries that are omitted from the Commission’s proposed adaptation. 81Proposed Rule 809 would provide that a product filing will be stayed or tolled, as applicable, if such a request for a joint interpretation is made by the SBSEF, the SEC, or the CFTC. See infra
section VI(G).
82See infra section VII(F).
83See supra note 73.
84 ‘‘Platform ID’’ is a term utilized in Regulation SBSR, 17 CFR 242.900 et seq., and means the unique identification code (‘‘UIC’’) assigned to a platform on which an SBS is executed. See 17 CFR 242.900(w). The term ‘‘platform’’ includes an SBSEF. See Rule 900(v), 17 CFR 242.900(v). A registered SBSEF is required by Rule 903(a) of Regulation SBSR, 17 CFR 242.903(a), to use as its platform ID an identifier issued by an internationally recognized standards-setting system (‘‘IRSS’’) if the IRSS meets enumerated criteria and has therefore been recognized by the Commission pursuant to Rule 903(a). This identification requirement stems from a registered SBSEF’s status as a ‘‘participant’’ of a registered SDR under Rule 900(u), 17 CFR 242.900(u), because the term ‘‘participant’’ includes a ‘‘platform,’’ as defined in Rule 900(v), 17 CFR 242.900(v), that incurs reporting duties under Rule 901(a), 17 CFR 242.901(a). Currently, the Global Legal Entity Identifier System (‘‘GLEIS’’) is the only IRSS that has been recognized by the Commission under Rule 903(a). See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEA Release No. 74244 (February 11, 2015), 80 FR 14564, 14631–32 (March 19, 2015) (‘‘Regulation SBSR Adopting Release I’’). Therefore, LEIs issued through the GLEIS are currently the only allowable platform IDs that may be used by registered SBSEFs. 85Section 40.8(b) has no text and is marked ‘‘reserved.’’ filings submitted pursuant to proposed Rules 804 through 807, 809, and 816. These are modelled on the cover sheet and instructions used by SEFs in conjunction with their analogous filings with the CFTC.80 The same cover sheet and instructions would be used for a new rule, rule amendment, or new product filing, with the SBSEF checking the appropriate box to indicate which of these types the filing represents. The SBSEF also would be required to check boxes to indicate whether the submission was seeking approval by the Commission or whether it was being filed as a certification by the SBSEF; and to identify the specific provision in the Commission’s rules pursuant to which the filing was being submitted. The submission cover sheet also would include a box that the SBSEF would check if it intends to submit a request for a joint interpretation from the Commission and the CFTC regarding whether the product is a swap, an SBS, or mixed swap pursuant to SEA Rule 3a68–2.81 Finally, the cover sheet would include a check box by which an SBSEF could indicate that it was requesting confidential treatment of materials in the submission. The cover sheet would divide the rules and rule amendment filings into two categories: One for general rules of the SBSEF and the other for rules relating to the terms and conditions of a product. Additional boxes would need to be checked if a filing under the terms￾and-conditions category concerned specifically a determination by the SBSEF that a particular SBS was now to be considered MAT
(‘‘made-available￾to-trade’’); 82 or if the filing concerned the delisting of an SBS with no open interest.83 The cover sheet would need to be used in conjunction with the weekly notifications that SBSEFs would be required to file pursuant to Rule 807(d) for certain changes that do not need to be approved or certified, as discussed above. Paragraph (a) of the submission cover sheet instructions would provide that a properly completed submission cover sheet must accompany all rule and product submissions submitted electronically to the Commission by an SBSEF, using the EDGAR system and must be provided as an Interactive Data File in accordance with Rule 405 of Regulation S–T. Per paragraph (a), a properly completed submission cover sheet would include all of the following:

1. The name and platform ID of the
   SBSEF.84
2. The date of the filing.
3. An indication as to whether the
   filing is a new rule, rule amendment, or new product.
4. For rule filings, the rule number(s)
   being adopted or, in the case of rule amendments, the number of the rule(s) being modified.
5. For rule or rule amendment filings,
   a description of the new rule or rule amendment, including a discussion of its expected impact on the SBSEF, its members, and the overall market. The instructions will state that the narrative should describe the substance of the submission with enough specificity to characterize all material aspects of the filing. Paragraph (b) of the proposed submission cover sheet instructions would state that a submission must comply with all applicable filing requirements for proposed rules, rule amendments, or products, and that the filing of the submission cover sheet would not obviate the SBSEF’s responsibility to comply with applicable filing requirements. Paragraph (c) of the proposed submission cover sheet would state that checking the box marked ‘‘confidential treatment requested’’ would not obviate the submitter’s responsibility to comply with all applicable requirements for requesting confidential treatment under SEA Rule 24b–2 and would not substitute for notice or full compliance with such requirements. The Commission contemplates establishing a system for electronic completion of the cover sheet and attachment of the submissions required by proposed Rules 804, 805, 806, 807, and 809, and will advise affected persons regarding its use by public announcement in advance of the effective date of these rules. The Commission seeks comment on the following:
6. Do you agree in general that the
   submission cover sheet and instructions for SBSEF filings should be harmonized with the CFTC’s? Why or why not?
7. Do you agree with the specific
   language proposed in the cover sheet and instructions? If not, how should the language be revised? Is there any information not included in the proposed cover sheet and instructions that you believe should be included?
8. Do you agree with the requirement
   for an SBSEF to report its platform ID on the cover sheet? Should the disclosure of standard identifiers such as the LEI, the Financial Instrument Global Identifier (‘‘FIGI’’), and the Unique Product Identifier (‘‘UPI’’) be included in an SBSEF’s other reporting obligations under the proposed rules?
9. Are any of the instructions in the
   submission cover sheet unclear? If so, what matters do you believe require clarification? F. Rule 808—Availability of Public Information
   Section 40.8 of the CFTC’s rules is
   entitled ‘‘Availability of public information.’’ § 40.8(a) provides that any
   part of an application to register as a
   SEF (among other CFTC-registered entities) that is not covered by a request for confidential treatment will be made publicly available. Section 40.8(a) also sets out the sections of an application to register as a SEF that shall be made publicly available. Section 40.8(c) 85 provides that rule and new product filings by a SEF, whether made under the self-certification procedures or pursuant to CFTC review and approval, will be treated as public information unless accompanied by a request for confidential treatment. Section 40.8(c) includes procedures for such requests for confidential treatment. Section 40.8(d) provides that CFTC staff will not consider confidential treatment requests for information that is required to be made public under the CEA, and that the terms and conditions of a product

86An application for confidential treatment shall contain, among other things, a statement of the grounds of objection referring to, and containing an analysis of, the applicable exemption(s) from disclosure under the Freedom of Information Act, and a justification of the period of time for which confidential treatment is sought. See 17 CFR 240.24b–2(b)(2)(ii). 87 17 CFR 240.3a68–2. submitted to the CFTC shall be made publicly available at the time of submission. Proposed Rule 808 is closely modelled on § 40.8. Section 40.8(a) does not provide a list of the exhibits required to be made public, but rather refers to a general description of items required to be made public. For purposes of clarity and ease of reference, however, the Commission is proposing to list the specific corresponding exhibits in proposed Rule 808 that would be made publicly available. Therefore, paragraph (a) of proposed Rule 808 would provide that the Commission shall make publicly available on its website the following parts of an application to register as an SBSEF, unless confidential treatment is obtained pursuant to SEA Rule 24b–2:
the transmittal letter and first page of the application cover sheet; Exhibit C; Exhibit G; Exhibit L; and Exhibit M. Paragraph (b) of proposed Rule 808, adapted from § 40.8(c), would provide that the Commission shall make publicly available on its website, unless confidential treatment is obtained pursuant to SEA Rule 24b–2,86 an SBSEF’s filing of new products pursuant to the self-certification procedures of proposed Rule 804, new products for Commission review and approval pursuant to proposed Rule 805, new rules and rule amendments for Commission review and approval pursuant to proposed Rule 806, and new rules and rule amendments pursuant to the self-certification procedures of proposed Rule 807. Paragraph (c), adapted from § 40.8(d), would provide that the terms and conditions of a product submitted to the Commission pursuant to any of proposed Rules 804 through 807 shall be made publicly available at the time of submission unless confidential treatment is obtained pursuant to SEA Rule 24b–2. The Commission preliminarily believes that it would be appropriate to include in proposed Regulation SE a rule similar to § 40.8 that would clarify how SBSEFs may request confidential treatment for their filings, and what information contained in those filings would be publicly available by the Commission. The Commission preliminarily believes that the items enumerated in proposed Rule 808 are not of the type that typically would constitute confidential information. The Commission requests comment on the following:
44. Do you believe in general that
Regulation SE should include a rule modelled on § 40.8? Why or why not?
45. In particular, do you agree with
the specific language proposed by the Commission to adapt § 40.8 into proposed Rule 808? If not, how would you revise that language?
46. Are there any provisions of § 40.8
that are adapted into proposed Rule 808 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
47. Do you prefer the Commission’s
proposed approach of listing specific exhibits or the CFTC’s approach of providing in the rule only a general description of items required to be made public? If the former, are there any additional exhibits that you believe should be enumerated in Rule 808 that should be made publicly available? If so, which exhibits and why? G. Rule 809—Staying of Certification and Tolling of Review Period Pending Jurisdictional Determination
Section 40.12 of the CFTC’s rules is
entitled ‘‘Staying of certification and tolling of review period pending jurisdictional determination’’ and reflects the process described in section 718 of the Dodd-Frank Act, which is entitled ‘‘Determining Status of Novel Derivative Products.’’ Section 718 of the Dodd-Frank Act sets forth a mechanism for addressing a situation where a person wishes to list or trade a novel derivative product that may have elements of both securities and contracts of sale of a commodity for future delivery (or options on such contracts or options on commodities)— i.e., it is unclear whether the product is a security under the jurisdiction of the SEC or a future under the jurisdiction of the CFTC. Section 718(a) provides that the SEC or the CFTC may request that the other agency issue a determination as to the classification of that product, and section 718(b) provides that the CFTC and SEC may petition for the judicial review of any such determination. Section 40.12 provides that if a SEF (among other registered entities) certifies, submits for approval, or otherwise files a proposal to list or trade such a novel derivative product, the product certification shall be stayed or the approval review period shall be tolled until a final determination order is issued under section 718. Proposed Rule 809 is loosely modelled on § 40.12, but modified to focus on the products and jurisdictional problems that are more likely to be relevant to SBSEFs. An SBSEF might seek to list a product where it is unclear whether the product is a swap or an SBS. While section 718 of the Dodd￾Frank Act addresses situations where it is unclear if a product is a security or a future, the SEC and the CFTC have adopted separate rules—SEA Rule 3a68–2 and § 1.8, respectively— governing requests for interpretation regarding a product that might be an SBS, a swap, or a mixed swap. Accordingly, the Commission believes that it would be appropriate for proposed Rule 809 to reflect the process set forth in SEA Rule 3a68–2. Nonetheless, the objective of proposed Rule 809 would be consistent with the objective of § 40.12—to provide for a stay or tolling of a product filing where it is unclear whether the product is under the jurisdiction of the SEC or the CFTC. Paragraph (a) of proposed Rule 809, modelled on § 40.12(b), would provide that a product certification made by an SBSEF pursuant to proposed Rule 804 shall be stayed, or the review period for a product that has been submitted for Commission approval by an SBSEF pursuant to proposed Rule 805 shall be tolled, upon request for a joint interpretation of whether the product is a swap, SBS, or mixed swap made pursuant to Rule 3a68–2 under the SEA 87 by the SBSEF, the SEC, or the CFTC. Paragraph (b) is modelled on § 40.12(b)(1) and would require the SEC to provide the SBSEF with a written notice of the stay or tolling pending issuance of a joint interpretation by the SEC and CFTC. Paragraph (c) is modelled on § 40.12(b)(2) and would provide that the
stay shall be withdrawn, or the approval review period shall resume, if a joint interpretation finding that the SEC has jurisdiction over the product is issued. The Commission preliminarily believes that it is appropriate for Regulation SE to include a mechanism for the staying or tolling of a filing by an SBSEF where it is unclear whether the product is a swap or an SBS— should an SBSEF ever seek to list such a product. Although proposed Rule 809 would deviate from § 40.12 in that it would apply where it is unclear whether a product is swap or an SBS, rather than where it is unclear whether

the product is a security or a future, the Commission preliminarily believes that modifying the scope of proposed Rule 809, in relation to § 40.12, would appropriately address the jurisdictional questions that are more likely to arise from a product listed by an SBSEF. The Commission seeks comment on the following:
48. Do you believe in general that
Regulation SE should include a rule setting out a procedure for staying a product certification or tolling a product review period if a request for a joint interpretation regarding the classification of the product is made pursuant to SEA Rule 3a68–2? Why or why not?
49. In particular, do you agree with
the specific language proposed by the Commission to adapt § 40.12 into proposed Rule 809? If not, how would you revise that language?
50. Do you agree that Rule 809 should
apply to a product that might be an SBS or a swap, rather than to a product that might be a security or a future? Why or why not?
51. Are there any provisions of § 40.12
that are adapted into proposed Rule 809 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule. H. Rule 810—Product Filings by SBSEFs That Are Not Yet Registered and by Dormant SBSEFs
Part 37 directs SEFs to submit product
filings via self-certification or for CFTC review and approval, using § 40.2 or § 40.3, respectively. However, these sections cannot be utilized by an entity that has submitted an application for SEF registration but has not yet been registered, or by a dormant SEF that has submitted an application to reinstate its registration. Under § 37.4, either entity may submit a swap’s terms and conditions before being registered or having its registration reinstated, and the CFTC will consider the swap listing request as part of the application for registration or reinstatement, respectively. Proposed Rule 810 is closely modelled on § 37.4. Paragraph (a) of proposed Rule 810 is closely modelled on § 37.4(a) and would provide that an applicant for registration as an SBSEF may submit an SBS’s terms and conditions prior to listing the product as
part of its application for registration.
Paragraph (b) is closely modelled on § 37.4(b) and would provide that any SBS terms and conditions or rules submitted as part of an application for registration shall be considered for approval by the Commission at the time the Commission issues the SBSEF’s order of registration. Paragraph (c) is closely modelled on § 37.4(c) and would provide that, after the Commission issues the order of registration, the SBSEF shall submit an SBS’s terms and conditions, including amendments to such terms and conditions, new rules, or rule amendments pursuant to the procedures in proposed Rules 804 to
807. Paragraph (d) is closely modelled
on § 37.4(d), would provide that any SBS terms and conditions or rules submitted as part of an application to reinstate the registration of a dormant SBSEF shall be considered for approval by the Commission at the time the Commission approves the reinstatement of registration of the dormant SBSEF. The Commission preliminarily believes that it is appropriate for Regulation SE to include provisions that address new products submitted as part of an SBSEF registration by an entity that has not yet been registered, or by a dormant SBSEF seeking reinstatement of its registration, and that these provisions should align with the CFTC’s provisions as closely as possible. The Commission seeks comment on the following:
52. Do you believe in general that
Regulation SE should include a rule setting out how dormant SBSEFs and applicants for SBSEF registration can submit new products? Why or why not?
53. In particular, do you agree with
the specific language proposed by the Commission to adapt § 37.4 into proposed Rule 810? If not, how would you revise that language?
54. Are there any provisions of § 37.4
that are adapted into proposed Rule 810 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
VII. Miscellaneous Requirements
Sections 37.5 to 37.12 of the CFTC’s rules impose miscellaneous requirements on SEFs. The Commission seeks to impose similar requirements on SBSEFs in proposed Rules 811 to 817 of Regulation SE. A. Rule 811—Information Relating to SBSEF Compliance

1. Harmonization With § 37.5
   Paragraphs (a) to (c) of proposed Rule 811 are modelled on § 37.5, which is entitled ‘‘Information regarding swap execution facility compliance.’’ Section
   37.5 provides that the CFTC may
   request various types of information from a SEF, and that the SEF must supply the information to the CFTC in a form and manner specified by the CFTC. Paragraph (a) of § 37.5 requires a SEF, at the CFTC’s request, to provide information related to its business as a SEF. Paragraph (b) states that a SEF may be required to provide a written demonstration, containing supporting data, information, and documents that it is in compliance with one or more core principles or with its other obligations under the CEA. Paragraph (c) sets out procedures for a SEF to notify the CFTC of any transfer of 50% or more of the equity interest in the SEF. Proposed Rules 811(a) to (c) are closely modelled on § 37.5. Paragraph (a) of proposed Rule 811 is closely modelled on § 37.5(a) and would provide that, upon the Commission’s request, an SBSEF shall file with the Commission information related to its business as an SBSEF in the form and manner, and within the timeframe, specified by the Commission. Paragraph (b) is closely modelled on § 37.5(b) and would provide that, upon the Commission’s request, an SBSEF shall file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with one or more Core Principles or with its other obligations under the SEA or the Commission’s rules thereunder, as the Commission specifies in its request. Also, under proposed Rule 811(b), the SBSEF would be required to file such written demonstration in the form and manner, and within the timeframe, specified by the Commission. Paragraph (c)(1) of proposed Rule 811 is closely modelled on § 37.5(c)(1) and would provide that an SBSEF shall file with the Commission a notification of any transaction involving the direct or indirect transfer of 50% or more of the equity interest in the SBSEF. Also, under proposed Rule 811(c)(1), the Commission could, upon receiving such notification, request supporting documentation of the transaction. Paragraph (c)(2) is closely modelled on § 37.5(c)(2) and would provide that the equity interest transfer notice shall be filed with the Commission in a form and manner specified by the Commission at the earliest possible time, but in no

88Paragraphs (b) and (d) of § 1.60 apply to futures commission merchants and do not appear germane to SEFs or SBSEFs. Therefore, the Commission is not adapting these paragraphs into proposed Rule 811(d). 89Section 1.60(e) requires relevant documents to be ‘‘mailed via first-class or submitted by other more expeditious means.’’ event later than the open of business ten business days following the date upon which the SBSEF enters into a firm obligation to transfer the equity interest. Paragraph (c)(3) is closely modelled on § 37.5(c)(3), would provide that, notwithstanding the foregoing, if any aspect of an equity interest transfer requires an SBSEF to file a rule, the SBSEF shall comply with the applicable rule filing requirements of proposed Rule 806 or 807. Paragraph (c)(4) of proposed Rule 811 is closely modelled on § 37.5(c)(4) and would provide that, upon a transfer of an equity interest of 50% or more in an SBSEF, the SBSEF shall file with the Commission, in a form and manner specified by the Commission, a certification that the SBSEF meets all of the requirements of section 3D of the SEA and the Commission rules thereunder, no later than two business days following the date on which the equity interest of 50% or more was acquired. The Commission preliminarily believes that it is appropriate for Regulation SE to include provisions requiring an SBSEF to provide the Commission with the information described above. Information about its business as an SBSEF and transfers of 50% of its equity would promote understanding of its operations and ownership, which should facilitate oversight of the SBSEF; therefore, the Commission preliminarily believes that it should, similar to the CFTC, clarify that it may request such information from an SBSEF. In addition, should questions about compliance arise, the Commission should be able to obtain from an SBSEF supporting data, information, and documents that the SBSEF is in compliance with relevant obligations under the SEA. By modelling its proposed requirements on existing CFTC rules, the Commission seeks to obtain comparable regulatory benefits while imposing only marginal additional burdens on dually registered entities that are already subject to similar obligations. The Commission requests comment on the following:
55. Do you believe in general that
Regulation SE should include a rule that would require an SBSEF to provide the Commission with information about its business or its compliance with the SEA, as well as information regarding transfers of 50% or more of its equity interest? Why or why not?
56. In particular, do you agree with
the specific language proposed by the Commission to adapt § 37.5 into proposed Rule 811? If not, how would you revise that language?
57. Are there any provisions of § 37.5
that are adapted into proposed Rule 811 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
2. Harmonization With § 1.60
Paragraph (d) of proposed Rule 811 is not modelled on § 37.5 but rather on § 1.60 of the CFTC’s rules, which is entitled ‘‘Pending legal proceedings.’’ Because it is conceptually similar to § 37.5 in that it requires another type of information relevant to the regulatory oversight of a SEF, the Commission is proposing to adapt this provision into Rule 811.
Section 1.60 requires a SEF (among
other entities) to provide the CFTC with copies of any legal proceeding to which it is a party, or to which its property or assets is subject. Paragraph (d) of proposed Rule 811 would adapt paragraphs (a), (c), and (e) of § 1.60 to apply to SBSEFs.88 Paragraph (d)(1) of proposed Rule 811 is closely modelled on § 1.60(a) and would provide that an SBSEF shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the SBSEF is a party or its property or assets is subject. Paragraph (d)(2) is closely modelled on § 1.60(c) and would provide that an SBSEF shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any officer, director, or other official of the SBSEF from conduct in such person’s capacity as an official of the SBSEF and alleging violations of the SEA or any rule, regulation, or order thereunder; the constitution, bylaws, or rules of the SBSEF; or the applicable provisions of State law relating to the duties of officers, directors, or other officials of business organizations. Paragraph (d)(3) of proposed Rule 811 is loosely modelled on § 1.60(e) and would provide that documents required by Rule 811(d) to be submitted to the Commission shall be submitted electronically in a form and manner specified by the Commission within ten days after the initiation of the legal proceedings to which they relate, after the date of issuance, or after receipt by the SBSEF of the notice of appeal, as the case may be.89 Paragraph (d)(4) of proposed Rule 811 is closely modelled on the final two sentences of § 1.60(e) and would provide that, for purposes of Rule 811(d), a ‘‘material legal proceeding’’ includes but is not limited to actions involving alleged violations of the SEA or the Commission rules thereunder, and that a legal proceeding is not ‘‘material’’ for the purposes of Rule 811 if the proceeding is not in a Federal or State court or if the Commission is a party. The Commission preliminarily believes that, to properly oversee an SBSEF, the Commission needs to be aware of any pending legal proceedings involving the SBSEF or any officer, director, or other official of the SBSEF from conduct in such person’s capacity as an official of the SBSEF. The Commission preliminarily believes, furthermore, that § 1.60 provides an established and well understood mechanism for obtaining this information, and therefore is using § 1.60 as the model for proposed Rule 811(d). The Commission seeks comment on the following:
58. Do you believe in general that
Regulation SE should include a rule that would require an SBSEF to provide the Commission with information about its pending legal proceedings? Why or why not?
59. In particular, do you agree with
the specific language proposed by the Commission to adapt § 1.60 into proposed Rule 811? If not, how would you revise that language?
60. Are there any provisions of § 1.60
that are adapted into proposed Rule 811 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.

90The Commission is not adapting into proposed Rule 812 paragraphs (a)(2) and (a)(3) of § 37.6, which provide that a transaction on a SEF may not be invalidated by CFTC proceedings that alter or supplement SEF rules, terms, and conditions, because the Commission has no authority in the SEA analogous to the CFTC’s authority under
section 8a(7) of the CEA to conduct such
proceedings. See supra note 66 and accompanying text. 91Section 37.6(b) requires a SEF to provide a written record of ‘‘all of the terms of the transaction which shall legally supersede any previous agreement and serve as a confirmation of the transaction.’’ In the adopting release for the final
part 37 rules, the CFTC explained that, with respect
to uncleared swaps, a SEF could satisfy this requirement by incorporating by reference terms set forth in agreements previously negotiated by the counterparties, provided that such agreements had been submitted to the SEF ahead of execution. See 2013 CFTC Final SEF Rules Release, 78 FR at 33491, n. 195. The CFTC staff has provided no￾action relief with respect to the confirmation requirements for uncleared swaps in response to assertions by industry participants that it is impracticable for a SEF to satisfy the written confirmation requirements by incorporating by reference terms from previously negotiated agreements between the counterparties if the SEF must receive copies of such agreements prior to execution. See CFTC No Action Letter 17–17 (March 24, 2017) (issued by the CFTC’s Division of Market Oversight). In so doing, the CFTC staff indicated that it was continuing to assess confirmation requirements, including establishing a permanent solution to the issues raised. Given these circumstances, the Commission preliminarily believes that it is appropriate to require an SBSEF to provide counterparties with a written record of only those terms that are agreed to on the SBSEF. 92 17 CFR 240.15Fi–2(f)(1). B. Rule 812—Enforceability
Section 37.6(a) of the CFTC’s rules
provides that a transaction entered into on or pursuant to the rules of a SEF shall not be void, voidable, subject to rescission, otherwise invalidated, or rendered unenforceable as a result of a violation by the SEF of the Core Principles or the part 37 rules thereunder. Section 37.6(a) also provides generally that such a transaction would not be void or voidable as a result of a CFTC or other proceeding to alter or supplement a rule, term, or trading rule or procedure.
Section 37.6(b) requires a SEF to
provide each counterparty to a transaction that is entered into on or pursuant to the rules of the SEF with a written record of all of the terms of the transaction which shall legally supersede any previous agreement and serve as a confirmation of the transaction. Furthermore, under § 37.6(b), the confirmation of all terms of the transaction must take place at the same time as execution, provided that specific customer identifiers for accounts included in bunched orders need not be included in confirmations if certain conditions are met. Proposed Rule 812 generally is modelled on § 37.6, but omits certain of its detailed provisions. Paragraph (a) of proposed Rule 812, which is based on § 37.6(a)(1), would provide that a transaction on or pursuant to the rules of an SBSEF cannot be invalidated as a result of a violation by the SBSEF of
section 3D of the SEA or the
Commission’s rules thereunder.90 An SBS executed on an SBSEF should not be invalidated by the SBSEF’s violation of any of the securities laws, given that swaps executed on SEFs are afforded the same legal certainty under § 37.6(a). Paragraph (b) of proposed Rule 812 is modelled on the first sentence of § 37.6(b) and would provide that an SBSEF shall, as soon as technologically practicable after the time of execution of a transaction entered into on or pursuant to the rules of the facility, provide a written record to each counterparty of all of the terms of the transaction that were agreed to on the facility, which shall legally supersede any previous agreement regarding such terms. The Commission preliminarily believes that it would be appropriate to require an SBSEF to inform counterparties as soon as technologically practicable after they have effected a trade on or pursuant the rules of the SBSEF, and to provide them with a written record of the terms to which they have agreed. The Commission also preliminarily believes that it would be appropriate to require that this written record legally supersede any previous agreement regarding the terms that were agreed to on the SBSEF. The Commission recognizes, however, that there may be other terms of an uncleared SBS transaction that are specified in one or more agreements previously negotiated between the counterparty pair (relating, e.g., to credit support). Because agreements between counterparty pairs likely are not known or easily obtained by an SBSEF, the Commission is not including a requirement that the SBSEF provide a written record of any such terms.91 The Commission seeks comment on the following:
61. Do you believe in general that
Regulation SE should include a rule regarding enforceability of contracts entered into on an SBSEF that is modelled on § 37.6? Why or why not?
62. In particular, do you agree with
the specific language proposed by the Commission to adapt § 37.6 into proposed Rule 812? If not, how would you revise that language?
63. Are there any provisions of § 37.6
that the Commission is proposing to adapt into Rule 812 that you believe would be inappropriate, or fail to create any benefit, in a Commission rule applicable to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
64. Do you believe that any of the
provisions of § 37.6 for which the Commission has not proposed an analog warrant inclusion? If so, which one(s) and why?
65. Rule 15Fi–2(f)(1) under the SEA 92
provides SBS dealers and major SBS participants with an exception from the trade acknowledgment and verification requirements for SBS transactions ‘‘executed on [an SBSEF] or national securities exchange, provided that the rules, procedures or processes of the [SBSEF] or national securities exchange provide for the acknowledgment and verification of all terms of the security￾based swap transaction no later than the time required by [Rule 15Fi–2(b) and (d)(2)]’’ (emphasis added). Proposed Rule 812(b) would require an SBSEF to provide a written record only of the terms of the transaction that are agreed to on the SBSEF. As a result, if the Commission were to adopt Rule 812(b) substantially as proposed, the exception in Rule 15Fi–2(f)(1) would not be available where the counterparty pair has agreed to other terms of the SBS transaction away from the SBSEF. Do you agree with this result? If not, how would an SBSEF be able to provide a record of all terms of an SBS transaction effected on or pursuant to the rules of the SBSEF when there are one or more pre-existing agreements between the counterparty pair where the counterparties agree to additional terms?
C. Rule 813—Prohibited Use of Data
Collected for Regulatory Purposes
Section 37.7 of the CFTC’s rules
provides that a SEF shall not use for business or marketing purposes any proprietary data or personal information that it collects or receives from or on behalf of any person for the purpose of fulfilling its regulatory obligations. The SEF may use data or information for business or marketing purposes if the person consents, but the SEF may not condition access to the SEF on the person’s providing such consent. Finally, § 37.7 provides that a SEF, where necessary for regulatory purposes, may share such data or information with another SEF or a DCM. Proposed Rule 813 is modelled on § 37.7. Persons who trade on an SBSEF may have to provide proprietary data or

93 15 U.S.C. 78c–4(c).
94See 7 U.S.C. 2(h)(1)(A) (mandatory clearing for swaps) and 2(h)(8) (mandatory trade execution for swaps); 15 U.S.C. 78c–3(a)(1) (mandatory clearing for SBS) and 78c–3(h) (mandatory trade execution for SBS). The heads of the Group of Twenty countries (‘‘G20’’) have also emphasized the importance of exchange-trading of OTC derivatives, noting in 2009 that ‘‘[a]ll standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end￾2012 at the latest.’’ See G20, Leaders’ Statement:
The Pittsburgh Summit (September 24–25, 2009) at p. 9. 95S. Rep. No. 111–176, at 34 (2010). See also Mark Jickling & Kathleen Ann Ruane, ‘‘The Dodd￾Frank Wall Street Reform and Consumer Protection Act: Title VII, Derivatives,’’ Cong. Research Serv., R41398, at 7 (August 30, 2010) (explaining that the goal of the trade execution requirement is to promote pre-trade price transparency). 96See id. at 34 (quoting Stanford University Professor Darrel Duffie: ‘‘The relative opaqueness of the OTC market implies that bid/ask spreads are in many cases not being set as competitively as they would be on exchanges. This entails a loss in market efficiency’’). See also id. (quoting International Risk Analytics co-founder Christopher Whalen: ‘‘The absence of an exchange trading mandate provides ‘supra normal returns paid to the dealers in the closed OTC derivatives market [and] are effectively a tax on other market participants, especially investors who trade on open, public exchanges’’). personal information to the SBSEF from time to time to allow the SBSEF to carry out its regulatory obligations. The Commission preliminarily believes, in general, that an SBSEF using that information for business or marketing purposes would be a misappropriation, because the SBSEF’s powers to compel production of that information by its members is for regulatory purposes, not for the benefit of the SBSEF’s business interests. While a member of the SBSEF could consent to the SBSEF using this information for business or marketing purposes, the Commission preliminarily believes that access to the SBSEF should not be conditioned on such consent being given. The Commission preliminarily believes that § 37.7 is well understood by market participants and well designed for adaptation to the SBS market to deter such misappropriation. Therefore, the Commission preliminarily believes that close harmonization with § 37.7 is appropriate. The Commission seeks comment on the following:
66. Do you believe in general that
Regulation SE should include a rule that prohibits an SBSEF from using for business or marketing purposes any proprietary data or personal information that it collects or receives from or on behalf of any person for the purpose of fulfilling its regulatory obligations? Why or why not?
67. In particular, do you agree with
the specific language proposed by the Commission to adapt § 37.7 into proposed Rule 813? If not, how would you revise that language?
68. Are there any provisions of § 37.7
that are adapted into proposed Rule 813 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule. D. Rule 814—Entity Operating Both a National Securities Exchange and SBSEF
Section 37.8 of the CFTC’s rules
applies to a board of trade that operates both a DCM and a SEF. Paragraph (a) of § 37.8 requires the board of trade to separately register the DCM and the SEF with the CFTC under the respective rules for each type of market. Paragraph (b) requires a board of trade that operates both types of market and that uses the same electronic trade execution system for executing and trading swaps on both markets to clearly identify to market participants whether an execution of a swap took place on the DCM or on the SEF. Proposed Rule 814 is modelled on § 37.8. Paragraph (a) of proposed Rule 814 would provide that an entity intending to operate both a national securities exchange and an SBSEF shall separately register the two facilities pursuant to section 6 of the SEA and Rule 803 thereunder. Paragraph (b), although adapted generally from § 37.8(b), draws its specific language from section 3D(c) of the SEA.93 Section 3D(c) contemplates that a single entity may operate both a national securities exchange and an SBSEF, and would provide that a national securities exchange shall, to the extent that the exchange also operates an SBSEF and uses the same electronic trade execution system for listing and executing trades of SBS on or through the exchange and the facility, identify whether electronic trading of SBS is taking place on or through the national securities exchange or the SBSEF. Proposed Rule 814(b) copies section 3D(c) of the SEA verbatim. The Commission preliminarily believes that it is appropriate for proposed Regulation SE to include a rule that clarifies the registration status of an entity that operates both an exchange and an SBSEF, and that broadly parallels § 37.8. The Commission seeks comment on the following:
69. Do you believe in general that
Regulation SE should include a rule that clarifies the registration status of an entity that operates both an exchange and an SBSEF? Why or why not?
70. In particular, do you agree with
the specific language proposed by the Commission in Rule 814? If not, how would you revise that language?
71. Do you believe that more detailed
rules are necessary to address the extent to which an entity should keep separate its exchange and its SBSEF or, conversely, areas where overlapping functionality or personnel should expressly be allowed? If so, please discuss. E. Rule 815—Methods of Execution for Required and Permitted Transactions A key goal of the Dodd-Frank Act is to bring trading of swaps and SBS onto regulated markets, as reflected in the statutory requirements for mandatory clearing and mandatory trade execution of certain swap and SBS products.94 If the relevant agency makes a mandatory clearing determination regarding a product, the product becomes subject to mandatory trade execution if at least one DCM/exchange or SEF/SBSEF makes the product ‘‘available to trade.’’ The legislative history of the Dodd￾Frank Act indicates that exchange trading is a mechanism to ‘‘provide pre￾and post-trade transparency for end users, market participants, and regulators.’’ 95 Exchange trading also enhances market efficiency by allowing multiple market participants the opportunity to compete for individual transactions on price, in contrast to the bilateral, dealer-driven market that prevailed before the Dodd-Frank Act.96 The Dodd-Frank Act does not require, however, that all products be subject to mandatory clearing and/or mandatory trade execution, and does not impose any execution requirements for transactions in such products. Section
37.9 of the CFTC’s rules addresses these
issues using the concepts of ‘‘Required Transaction’’ and ‘‘Permitted Transaction.’’ The Commission is proposing Rule 815 of Regulation SE to adapt § 37.9 for SBSEFs.
Section 37.9(a) defines a ‘‘Required
Transaction’’ as any transaction involving a swap that is subject to the trade execution requirement in section 2(h)(8) of the CEA, subject to certain exceptions. Section 37.9(c) defines a ‘‘Permitted Transaction’’ as the obverse of a Required Transaction: Any transaction involving a swap that is not subject to the CEA’s trade execution requirement. Section 37.9(c) provides that a SEF may offer any method of execution for a Permitted Transaction.

97Section 37.9(a)(2)(i)(A) defines ‘‘order book’’ by cross-referencing to § 37.3(a)(3) for a definition of ‘‘order book,’’ which in turn relies on cross￾references to other provisions of the CEA for the embedded terms ‘‘trading facility’’ and ‘‘electronic trading facility.’’ 98Section 37.9(a)(3) defines ‘‘request for quote system’’ as a trading system or platform in which a market participant transmits a request for a quote to buy or sell a specific instrument to no less than three market participants in the trading system or platform, to which all such market participants may respond. § 37.9(a)(3) further provides that, to meet the definition, the three market participants shall not be affiliates or controlled by the requester, and shall not be affiliates of or controlled by each other. 99Section 37.9(b) permits a SEF to adjust the time-delay requirement to something other than 15 seconds, based on a swap’s liquidity or other product-specific considerations. However, any such adjustment must still be for a sufficient length so that an order is exposed to the market and other market participants have a meaningful opportunity to execute against it. 100 15 U.S.C. 78c–4(d)(2)(C); 7 U.S.C. 7b– 3(f)(2)(C). In addition, § 37.9(a) provides that a Required Transaction that is not a block trade must generally be executed by a SEF using an order book 97 or a request￾for-quote (‘‘RFQ’’) system.98 Under § 37.9(a)(3), a SEF that offers an RFQ system in connection with a Required Transaction must, at the same time that the requester receives the first responsive bid or offer, communicate to the requester any firm bid or offer pertaining to the same instrument resting on any of the SEF’s order books. In addition, the SEF must provide the requester with the ability to execute against such firm resting bids or offers along with any responsive orders. Finally, the SEF must ensure that its trading protocols provide each of its market participants with equal priority in receiving requests for quotes and in transmitting and displaying for execution responsive orders.
Section 37.9(b) establishes a time￾delay requirement for a Required
Transaction on an order book. Under the rule, a SEF must require that a broker or dealer who seeks to either execute against its customer’s order or to execute two of its customers’ orders against each other through the SEF’s order book (following some form of pre￾arrangement or pre-negotiation of such orders) be subject to at least a 15-second time delay between the entry of those two orders into the order book, such that one side of the potential transaction is disclosed and made available to other market participants before the second side of the potential transaction, whether for the broker’s or dealer’s own account or for the second customer, is submitted for execution.99 Paragraphs (a) through (c) of proposed Rule 815 are modelled on paragraphs (a) through (c) of § 37.9. Proposed Rule 815(a)(1), based on § 37.9(a)(1), would define ‘‘Required Transaction’’ as ‘‘any transaction involving a security-based swap that is subject to the trade execution requirement in section 3C(h) of the Act.’’ Proposed Rule 815(a)(2), based on § 37.9(a)(2), would specify execution methods for Required Transactions. Proposed Rule 815(a)(3), based on § 37.9(a)(3), would define an RFQ system as ‘‘a trading system or platform in which a market participant transmits a request for a quote to buy or sell a specific instrument to no less than three market participants in the trading system or platform, to which all such market participants may respond’’ and specify other requirements for an RFQ system to be recognized as such under the rule. The three market participants could not be affiliates of or controlled by the requester and shall not be affiliates of or controlled by each other. Also, an SBSEF that offers an RFQ system in connection with a Required Transaction would be required, at the same time that the requester receives the first responsive bid or offer, to communicate to the requester any firm bid or offer pertaining to the same SBS resting on any of the SBSEF’s order books. In addition, the SBSEF would be required to provide the requester with the ability to execute against such firm resting bids or offers along with any responsive orders. Finally, the SBSEF would be required to ensure that its trading protocols provide each of its members with equal priority in receiving requests for quotes and in transmitting and displaying for execution responsive orders. Paragraph (b) of proposed Rule 815 is modelled on § 37.9(b) and would provide for a time delay requirement for Required Transactions on an order book.
Section 37.9(b) recognizes that there are
situations where a broker or dealer might seek to trade against a customer order (a ‘‘facilitation cross’’) or cross two customer orders (a ‘‘customer cross’’) where the product being traded is subject to mandatory trade execution. Under § 37.9(b), the broker or dealer must expose customer orders on the SEF order book for a required minimum period so that other market participants have the opportunity to offer a better price than the broker or dealer had intended for the cross. Proposed Rule 815(b) closely follows the order￾handling requirements of § 37.9(b) for facilitation and customer crosses that are Required Transactions. The Commission preliminarily believes that the CFTC’s rules relating to Required Transactions are reasonably designed to promote price competition in products that are subject to the trade execution requirement. The Commission recognizes that, when considering rules for SBS that are subject to mandatory clearing and mandatory trade execution, additional or different criteria could plausibly achieve the goal of promoting price competition. It is debatable, for example, whether slightly different standards—such as RFQ-to-4 or RFQ-to￾2 in lieu of RFQ-to-3, or a 30-second book-exposure requirement instead of 15 seconds—might promote these ends more effectively. However, the Commission’s determination to propose rules that are closely modelled on those in § 37.9 reflects the baseline established by the CFTC rules. Most if not all SBSEFs will be dually registered with the CFTC as SEFs, and most if not all market participants in the SBS market will likely be participants in the swap market. The Commission appreciates that different or additive requirements—particularly for the key concept of a ‘‘Required Transaction’’— could introduce complexity and confusion if one set of trading protocols applied to Required Transactions for SBS but different protocols—ones that have been understood and utilized for many years—applied to Required Transactions for swap transactions. Under both the CEA and SEA, Core Principle 2 requires a SEF/SBSEF to specify trading procedures to be used in entering and executing orders on the facility, including block trades.100 The CFTC implements this provision by excepting block trades from the required execution methods in § 37.9(a)(2). That rule cross-references § 43.2, which defines the term ‘‘block trade’’ for purposes of public dissemination of swap transactions. The Commission preliminarily believes that it should adopt an approach to block trades in Regulation SE that closely aligns with the approach taken by the CFTC. The purpose of having a block exception to the required methods of execution is to balance the promotion of price competition and all￾to-all trading against the potential costs to market participants who wish to trade large orders. Forcing a market participant who seeks liquidity to expose a large order to a SEF/SBSEF order book or to utilize RFQ-to-3 could cause the market to move
against the liquidity requester before it can obtain an execution. Under the CFTC’s rules, a block trade in a product that is subject to mandatory trade execution may be traded on-SEF using flexible means of execution on the SEF’s non-order-book trading system or platform, or away from a SEF’s trading system or platform,

101See SEA Release No. 87780 (December 18, 2019), 85 FR 6270, 6347 (February 4, 2020) (‘‘ANE Adopting Release and No-Action Statement’’) (stating, in relevant part, that there would not be a basis for a Commission enforcement action if ‘‘a registered SDR does not disseminate an SBS transaction in a manner consistent with Rule 902 [of Regulation SBSR] but instead disseminates (or does not disseminate), the SBS transaction in a manner consistent with part 43 of the CFTC’s swap reporting rules in force at the time of the transaction, provided that for an SBS based on a single credit instrument or a narrow-based index of credit instruments having a notional size of $5 million or greater, the registered SDR that receives the report of the SBS transaction does not utilize any capping or bucketing convention under part 43 of the CFTC’s swap reporting rules but instead disseminates a capped size of $5 million (e.g., ‘$5MM+’ or similar) in lieu of the true notional size’’). 102See id. at n. 768 (citing FINRA Regulatory Notice 12–39, available at https://www.finra.org/ rules-guidance/notices/12-39). 103To the extent that counterparties may be facilitating a package transaction that involves a ‘‘swap,’’ as defined in section 1(a)(47) of the CEA, 7 U.S.C. 1a(47), or any contract for the purchase or sale of a commodity for future delivery (or option on such a contract), or any component agreement, contract, or transaction over which the Commission does not have exclusive jurisdiction, the Commission does not opine on whether such activity complies with other applicable law and regulations. provided that it is executed pursuant to the SEF’s rules and procedures. Proposed Rule 815(a)(2) would exclude block trades from the required execution methods using language closely modelled on § 37.9(a)(2). The Commission also preliminary believes that it should align the definition of ‘‘block trade’’ in proposed Regulation SE as closely as possible to the CFTC’s definition. Therefore, the proposed definition—located in proposed Rule 802 of Regulation SE—is based on the four-pronged definition found in § 43.2(a), but with one modification. The third prong of the CFTC definition characterizes a block trade in a particular swap as having ‘‘a notional or principal amount at or above the appropriate minimum block size applicable to such swap.’’ Appendix F to the CFTC’s part 43 divides swap asset classes into a number of categories, and sets forth a minimum block size threshold to each category. SBS are not within the CFTC’s jurisdiction, so the CFTC has never considered what an appropriate minimum block size threshold would be for any SBS asset class. In this respect, there is no threshold for the SEC to harmonize with, so the Commission is proposing to establish a threshold tailored specifically for the SBS market. For the third prong of the ‘‘block trade’’ definition, the Commission is proposing that the SBS is based on a single credit instrument (or issuer of credit
instruments) or a narrow-based index of credit instruments (or issuers of credit instruments) having a notional size of $5 million or greater. The Commission previously employed a $5 million block threshold for credit SBS as a condition to one prong of its no￾action statement regarding Regulation SBSR.101 In imposing that condition, the Commission noted that the Financial Industry Regulatory Authority (‘‘FINRA’’) applies a $5 million cap when disseminating transaction reports of economically similar cash debt securities.102 The proposed definition of ‘‘block trade’’ in Rule 802 does not include any equity SBS. In this regard, the Commission’s approach follows the CFTC’s; appendix F to the CFTC’s part 43 does not include a block threshold for any type of equity swap. Accordingly, no equity swap may qualify for the exception to required means of execution for block trades provided in § 37.9(a)(2), and no equity SBS could qualify for the exception to required means of execution for block trades in proposed Rule 815(a)(2). Paragraphs (d) and (e) of § 37.9 provide additional exceptions that allow for flexible methods of execution for what would otherwise be Required Transactions. The Commission would include similar exceptions in proposed Rules 815(d) and (e). Paragraph (d) of § 37.9 allows for flexible methods of execution for package transactions that meet certain enumerated criteria. § 37.9(d)(1) defines ‘‘package transaction’’ as two or more component transactions executed between two or more counterparties where at least one component is a Required Transaction, execution of each component is contingent upon the execution of all other components, and the component transactions are priced or quoted together as one economic transaction with simultaneous (or near￾simultaneous) execution of all components. Section 37.9(d)(2) provides that a Required Transaction that is executed as a component of a package transaction that includes a component swap that is subject exclusively to the CFTC’s jurisdiction, but is not subject to mandatory clearing, may be executed on a SEF using any method of execution as if it were a Permitted Transaction.
Section 37.9(d)(3) provides that a
Required Transaction that is executed as a component of a package transaction that includes a component that is not a swap may be executed on a SEF using any method of execution as if it were a Permitted Transaction. Section 37.9(d)(3) further states that this general exception, which allows flexible means of execution for certain package transactions, shall not apply to a Required Transaction that is executed as a component of a package transaction in which all other non-swap components are U.S. Treasury securities; a Required Transaction that is executed as a component of a package transaction in which all other non-swap components are contracts for the purchase or sale of a commodity for future delivery; a Required Transaction that is executed as a component of a package transaction in which all other non-swap components are agency mortgage-backed securities; or a Required Transaction that is executed as a component of a package transaction that includes a component transaction that is the issuance of a bond in a primary market. Proposed Rule 815(d) is closely modelled on § 37.9(d) and is designed to balance the goal of promoting transparency in the SBS market through required methods of execution against the market efficiency of allowing multiple instruments to trade as a package using flexible methods of execution.103 A rule that was too lenient could subvert the goal of promoting transparency and competition through all-to-all trading, while a rule that was too strict could cause market participants to break the package into its individual components, thereby increasing transaction costs and reducing the economic purpose and efficiency of the package transaction. The Commission preliminarily believes that the CFTC has struck an appropriate balance between these competing policy goals in § 37.9(d), and is therefore proposing to align its own rule closely with the CFTC’s. The Commission recognizes, however, that the kinds of packages described in § 37.9(d)(3) might be used only in the swap market and might not be utilized in the SBS market. The Commission seeks comment on that matter below.
Section 37.9(e) sets out procedures for
resolution of operational and clerical error trades, which could be for swaps that otherwise would be subject to required means of execution. Section 37.9(e)(1) defines the terms ‘‘correcting trade,’’ ‘‘error trade,’’ and ‘‘offsetting trade’’ that are used in the rule. Section 37.9(e)(2) requires a SEF to maintain rules and procedures that facilitate the resolution of error trades and sets forth certain requirements designed to promote resolution in a fair, transparent, and consistent manner. As their names suggest, these types of trades are necessary to reverse errors. They are not conducted for the purpose of competitive price discovery and thus

104See proposed Rule 802 (defining ‘‘correcting trade’’ as a trade executed and submitted for clearing to a registered clearing agency with the same terms and conditions as an error trade other than any corrections to any operational or clerical error and the time of execution; defining ‘‘error trade’’ as any trade executed on or subject to the rules of an SBSEF that contains an operational or clerical error; and defining ‘‘offsetting trade’’ as a trade executed and submitted for clearing to a registered clearing agency with terms and conditions that economically reverse an error trade that was accepted for clearing). These proposed definitions are modelled on the definitions of the same terms in § 37.9(e)(1). 105CFTC, Post Trade Name Give-Up on Swap Execution Facilities, 85 FR 44693, 44695 (July 24, 2020). the pre-trade transparency goals for SEF/SBSEF trading are not implicated. Proposed Rule 815(e) is modelled on § 37.9(e), although definitions of the terms ‘‘correcting trade,’’ ‘‘error trade,’’ and ‘‘offsetting trade’’ would be included in proposed Rule 802 rather than in proposed Rule 815(e).104 A fair and orderly market needs rules to address error trades when they occur, and such rules should be fair, transparent, and consistent. The market might need to make correcting trades or offsetting trades to reverse the effect of the original error trade. The CFTC’s rules for addressing error trades are well articulated and well understood by the market, so the Commission preliminarily believes that they serve as an appropriate model for the Commission’s rules. Furthermore, because most if not all SBSEFs also will be registered with the CFTC as SEFs, close harmonization in this regard would allow dually registered entities to employ the same procedures for addressing error trades, whether they arise in the context of swap trading or SBS trading.
Section 37.9(f) addresses counterparty
anonymity and is widely referred to as the prohibition on ‘‘post-trade name give-up.’’ Section 37.9(f) generally prohibits any person, directly or indirectly (including through a third￾party service provider), from disclosing the identity of a counterparty to a swap that is executed anonymously on a SEF and intended to be cleared, and requires the SEF to establish and maintain rules to that effect. Section 37.9(f) provides that ‘‘executed anonymously’’ as used in the rule includes a swap that is pre￾arranged or pre-negotiated anonymously, including by a SEF participant. Finally, § 37.9(f) provides that, where a package transaction includes a component swap that is not intended to be cleared, disclosing the identity of a counterparty would not violate § 37.9. Proposed Rule 815(f) is modelled on § 37.9(f). The Commission preliminarily agrees with the CFTC that prohibiting post-trade name give-up is reasonably necessary to facilitate and promote trading on SEFs.105 The practice of requiring disclosure of one counterparty’s name to the other counterparty (i.e., ‘‘name give-up’’) increases the risk of information leakage and can deter participation by liquidity seekers on SEFs and SBSEFs. The Commission preliminarily believes, like the CFTC, that prohibiting post-trade name give-up will promote pre-trade price transparency by encouraging a greater number, and a more diverse set, of market participants to anonymously post bids and offers on regulated markets. Therefore, the Commission preliminarily that it should incorporate the same prohibition into Regulation SE. The Commission seeks comment on the following:
72. Do you believe in general that the
CFTC’s concepts of ‘‘Required Transactions’’ and ‘‘Permitted Transactions’’ should be incorporated into proposed Regulation SE? Why or why not?
73. In particular, do you believe that
the execution methods set forth in § 37.9 for Required Transactions are appropriate for SBSEFs and the SBS market? Why or why not? Do you observe differences between swap and SBS products that warrant different or additional criteria for Required Transactions on SBSEFs? If so, please describe those differences, and suggest and justify any different execution methods for Required Transactions in SBS that you believe appropriate.
74. Do you believe that proposed Rule
815 should harmonize with the CFTC rule for handling facilitation and customer crosses in products subject to the trade execution requirement? Why or why not? If not, please suggest and justify any different order-handling requirements that you believe appropriate.
75. Do you agree in general with
excepting block trades from the required methods of execution? Why or why not?
76. Do you agree in general with the
Commission’s proposed approach of adapting the CFTC definition of ‘‘block trade’’ from § 43.2 for SBSEFs? Why or why not?
77. Do you agree in particular with
the $5 million prong of the SEC’s proposed definition of ‘‘block trade’’? Why or why not? Do you believe that a threshold other than $5 million would be appropriate? If so, what numerical threshold and why? Do you believe that there should be different thresholds for different asset classes (or sub-asset classes)? If so, please discuss.
78. Do you believe in general that the
Commission, like the CFTC in § 37.9(d), should allow for flexible means of execution for an SBS subject to the trade execution requirement when it is part of a package trade? Why or why not?
79. If so, do you believe that the
exceptions to required methods of execution for package transactions set forth in proposed Rule 815(d) are appropriate? Why or why not? Are there aspects of the CFTC’s criteria that are not relevant for the SBS market and should be omitted? If so, which provision(s) and why? Are there different types of packages that involve SBS that are not prevalent in the swap market that should be incorporated into the SEC’s exceptions? If so, please describe these packages and suggest an appropriate way to characterize them in Rule 815(d).
80. Do you agree with how the
Commission is proposing to harmonize with the § 37.9(d)(3)’s ‘‘exceptions to the exception’’ for package trades in proposed Rule 815(d)(3)? Why or why not? Are the kinds of packages described in § 37.9(d)(3) unique to the swap market? If there are other types of package transactions involving SBS that you believe should be subject to required means of execution despite allowing other types of packages to use flexible means of execution, please describe these types of packages and explain why you believe they should nevertheless be subject to required means of execution.
81. Do you believe in general that the
Commission, like the CFTC in § 37.9(e), should allow for flexible means of execution for products that otherwise would be subject to the trade execution requirement when an SBSEF is performing a correcting, error, or offsetting trade? Why or why not?
82. If so, do you believe that the SEC’s
proposed definitions for these terms, which are closely modelled on the CFTC’s definitions, are appropriate? Why or why not? If not, what alternative definition(s) would you suggest, and why?
83. Do you agree in general that the
SEC rules for SBSEFs, like the CFTC rules for SEFs, should prohibit post￾trade name give-up? Why or why not? If so, do you agree with the manner in which the Commission is proposing to implement it (i.e., close harmonization with § 37.9(f))? Why or why not?

106 15 U.S.C. 78c–3.
107An SBS exchange, like all national securities exchanges, must submit any rule change—including a rule change to list a new derivative securities product and/or to MAT an SBS product—pursuant to SEA Rule 19b–4, 17 CFR 240.19b–4. The Commission is not proposing to establish a new procedure for SBS exchanges to list or MAT SBS products. 108See CFTC, Swap Execution Facility Requirements, 85 FR 82313, 82320 (December 18, 2020). 109 15 U.S.C. 78mm(a)(1). F. Rule 816—Trade Execution Requirement and Exemptions Therefrom
Section 3C of the SEA 106 sets out a
procedure whereby an SBS becomes subject to mandatory clearing. Section 3C(h) of the SEA provides that, if a transaction involving an SBS is subject to the mandatory clearing requirement, the counterparties shall execute the transaction on an exchange, on an SBSEF registered under section 3D of the SEA, or on an SBSEF that is exempt from registration under section 3D(e) of the SEA, unless no exchange or SBSEF makes the SBS available to trade or if the SBS transaction is subject to an exception from the clearing requirement under section 3C(g) of the SEA. This obligation under section 3C(h) is commonly referred to as the ‘‘trade execution requirement.’’ Proposed Rule 816 of Regulation SE would establish procedures for an SBSEF to make an SBS available to trade (assuming it is also subject to the clearing requirement), thereby activating the trade execution requirement with respect to that SBS. Proposed Rule 816 also would include three proposed exemptions from the trade execution requirement.

1. Process for an SBSEF To Make an
   SBS Product Available To Trade Paragraphs (a) through (d) of proposed Rule 816 are modelled on § 37.10 of the CFTC’s rules and would establish a process whereby an SBS product is ‘‘made available to trade’’ (‘‘MAT’’) by an SBSEF. An SBSEF may list an SBS that is subject to mandatory clearing, but listing the product does not by itself subject the product to the trade execution requirement in section 3C(h) of the SEA. Only if a product that is subject to mandatory clearing is listed and MAT would the SBS then become subject to the trade execution requirement. A MAT determination would have to be made and filed by an SBSEF pursuant to proposed Rule 816 to trigger the trade execution requirement, similar to the MAT process of § 37.10. Paragraph (a)(1) of proposed Rule 816, like § 37.10(a)(1), would provide that an SBSEF that makes an SBS available to trade in accordance with paragraph (b) of this section, must submit to the Commission its determination with respect to such SBS as a rule, pursuant to the procedures under proposed Rule 806 or 807. Paragraph (a)(2), modelled on § 37.10(a)(2), would provide that an SBSEF that makes an SBS available to trade must demonstrate that it lists or offers that SBS for trading on its trading system or platform. Paragraph (b) of proposed Rule 816 would set out the factors that an SBSEF must consider when making a MAT determination for an SBS product. Proposed Rule 816(b) would incorporate the same six factors enumerated in § 37.10(b): (1) Whether there are ready and willing buyers and sellers; (2) The frequency or size of transactions; (3) The trading volume; (4) The number and types of market participants; (5) The bid/ask spread; and (6) The usual number of resting firm or indicative bids and offers. Paragraph (c) of proposed Rule 816, modelled on § 37.10(c), would provide that, upon a determination that an SBS is MAT on an SBSEF or SBS exchange,107 all other SBSEFs and SBS exchanges shall comply with the requirements of section 3C(h) of the SEA in listing or offering such SBS for trading. Paragraph (d) of proposed Rule 816, like § 37.10(d), would provide that the Commission may issue a determination that an SBS is no longer MAT upon determining that no SBSEF or SBS exchange lists such SBS for trading. The Commission preliminarily believes that it is appropriate for Regulation SE to establish a mechanism whereby an SBSEF can MAT an SBS product, and that this mechanism should align with the CFTC’s as closely as possible. The CFTC’s procedures are well articulated and well understood by SEFs, so the Commission preliminarily believes that closely harmonizing with these procedures would yield comparable regulatory benefits while minimizing burdens on SBSEFs. In particular, the Commission preliminarily believes that the criteria for MAT consideration are equally applicable to the SEF and SBSEF markets, and thus the Commission is not proposing any different or additional criteria that would have to be considered by an
   SBSEF when it wishes to MAT an SBS product. The Commission seeks comment on the following:
2. Do you believe in general that
   Regulation SE should establish a process whereby an SBSEF can MAT an SBS product that harmonizes closely with § 37.10? Why or why not?
3. In particular, do you object to any
   of the specific language choices made to adapt § 37.10 into proposed Rules 816(a) to (d)? If so, what alternative language would you suggest?
4. Are there any provisions of § 37.10
   that are adapted into proposed Rules 816(a) to (d) that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
5. Exemptions From Trade Execution
   Requirement
   Paragraph (e) of proposed Rule 816 has no analog in § 37.10, but instead is adapted from § 36.1, which sets out certain exemptions from the trade execution requirement. The exemptions incorporated into § 36.1 result from the CFTC’s many years of experience in administering the CEA’s trade execution requirement. The Commission preliminarily believes that it should borrow from the CFTC’s experience and incorporate the same exemptions into Regulation SE. Paragraph (e)(1) of proposed Rule 816, modelled on § 36.1(a), would provide that an SBS transaction that is executed as a component of a package transaction that also includes a component transaction that is the issuance of a bond in a primary market is exempt from the trade execution requirement in
   section 3C(h) of the SEA. In addition,
   paragraph (e)(1), like § 36.1(a), would provide that, for purposes of paragraph (e), a package transaction would consist of two or more component transactions executed between two or more counterparties where at least one component transaction is subject to the trade execution requirement in section 3C(h) of the SEA; execution of each component transaction is contingent upon the execution of all other component transactions; and the component transactions are priced or quoted together as one economic transaction with simultaneous or near￾simultaneous execution of all components. For the same reasons identified by the CFTC,108 the Commission, pursuant to
   section 36(a)(1) of the SEA,109
   preliminarily believes that it is necessary or appropriate in the public interest, and is consistent with the

110By its terms, section 2(h)(8) of the CEA provides that the trade execution requirement does not apply to swaps that are excepted from the clearing requirement pursuant to section 2(h)(7) of the CEA. However, when adopting § 36.1(b), the CFTC noted that it also has adopted exemptions from the clearing requirement pursuant to other statutory authority (i.e., its exemptive authority under CEA section 4(c)). See CFTC, Exemptions From Swap Trade Execution Requirement, 86 FR 8993, 8995 (February 11, 2021) (‘‘CFTC Swap Trade Execution Exemptions Release’’) (discussing exemptions relating to cooperatives and inter￾affiliate swaps). 111The Commission notes that section 3C(g) of the SEA is entitled ‘‘Exceptions,’’ not ‘‘Exemptions.’’ 112As with section 2(h)(8) of the CEA, section 3C(h) of the SEA provides that the trade execution requirement does not apply to SBS that are excepted from the clearing requirement pursuant to
section 3C(g) of the SEA. However, the Commission
could, like the CFTC, grant exemptions from the clearing requirement pursuant to other statutory authority, such as section 36 of the SEA. 113See CFTC, Swap Trade Execution Exemptions Release, 86 FR at 8996. 114See id. 115See id. at 8997. 116See id. 117See id. 118See id. at 8998. protection of investors, to exempt SBS from the trade execution requirement in
section 3C(h) of the SEA if the criteria
in proposed Rule 816(e)(1) are met.
Section 36.1(b) provides that section
2(h)(8) of the CEA does not apply to a swap transaction that qualifies for the exception under section 2(h)(7) of the CEA or an exception or exemption under part 50 of the CFTC’s rules, and for which the associated requirements are met.110 The Commission is proposing to adapt § 36.1(b) as paragraph (e)(2) of proposed Rule 816, to provide that section 3C(h) of the SEA does not apply to an SBS transaction that qualifies for an exception 111 under
section 3C(g) of the SEA, or any
exemption from the clearing requirement that is granted by the Commission, for which the associated requirements are met.112 Unlike the CFTC, the Commission does not have a specific rule to cite to regarding exemptions from the clearing requirement, so proposed Rule 816(e)(2) would refer only generally to such exemptions. When adopting § 36.1(b), the CFTC found that exempting swaps that qualified for an exemption from or exception to the clearing requirement was consistent with its authority under
section 4(c) of the CEA.113 The CFTC
also noted Congress’s intent to link the clearing requirement with the trade execution requirement, so that a swap that was exempted or excepted from the former also should be exempted from the latter.114 For the same reasons identified by the CFTC, the Commission, pursuant to section 36(a)(1) of the SEA, preliminarily believes that it is necessary or appropriate in the public interest, and is consistent with the protection of investors, to exempt an SBS from the trade execution requirement in section 3C(h) of the SEA if the SBS qualifies for an exception under section 3C(g) of the SEA, or benefits from any exemption from the clearing requirement that is granted by the Commission, for which the associated requirements are met.
Section 36.1(c) provides that section
2(h)(8) of the CEA does not apply to a swap transaction that is executed between counterparties that have eligible affiliate counterparty status pursuant to paragraph (a) of § 50.52 of the CFTC’s rules, which provides an exception from the clearing requirement for inter-affiliate swaps, subject to conditions. Counterparties to a swap that have eligible affiliate counterparty status may rely on the § 36.1(c) even if they clear the swap transaction. The Commission is proposing to adapt § 36.1(c) as paragraph (e)(3) of proposed Rule 816 to provide that section 3C(h) of the SEA does not apply to an SBS transaction that is executed between counterparties that qualify as ‘‘eligible affiliate counterparties.’’ Since the Commission does not have an equivalent to § 50.52 to reference, the Commission is proposing instead to define the term ‘‘eligible affiliate counterparties’’ directly in proposed Rule 816(e)(3). Counterparties would be ‘‘eligible affiliate counterparties’’ for purposes of proposed Rule 816(e)(3) if: (i) One counterparty, directly or indirectly, holds a majority ownership interest in the other counterparty, and the counterparty that holds the majority interest in the other counterparty reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of the majority-owned counterparty; or (ii) a third party, directly or indirectly, holds a majority ownership interest in both counterparties, and the third party reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of both of the counterparties. In addition, for purposes of proposed Rule 816(e)(3), a counterparty or third party directly or indirectly would hold a majority ownership interest if it directly or indirectly holds a majority of the equity securities of an entity, or the right to receive upon dissolution, or the contribution of, a majority of the capital of a partnership. These definitions closely are modelled on the equivalent definitions used in § 50.52, which are incorporated into § 36.1(c). When adopting § 36.1(c), the CFTC noted that it was codifying previously issued no-action relief.115 The CFTC also stated that these transactions are not intended to be arm’s-length, market￾facing, or competitively executed under any circumstance, irrespective of the type of swap involved. Therefore, these transactions would not contribute to the price discovery process if executed on a SEF or DCM.116 The CFTC recognized the efficiency benefits associated with entering into inter-affiliate swaps via internal processes and acknowledged that applying the trade execution requirement to such transactions could inhibit affiliated counterparties from efficiently executing
these types of transactions for risk management, operational, and accounting purposes.117 The CFTC concluded, therefore, that—as with the exemptions set forth in § 36.1(a) and (b)—granting an exemption from the trade execution requirement for swap transactions that are executed between counterparties that have eligible affiliate counterparty status was consistent with its exemptive authority under the CEA, regardless of whether the swap is submitted to clearing.118 For the same reasons identified by the CFTC, the Commission, pursuant to section 36(a)(1) of the SEA, preliminarily believes that it is appropriate to exempt from the trade execution requirement an SBS that is executed between counterparties that qualify as eligible affiliate counterparties, even if the counterparties clear the SBS transaction. The Commission also preliminarily believes that it is appropriate in the public interest to adapt into proposed Rule 816 the definition of ‘‘eligible affiliate counterparties’’ used in the CFTC’s rules because this term is generally well understood by market participants. Furthermore, the Commission preliminarily believes that market participants should be permitted to apply the same standard for determining whether an inter-affiliate swap or SBS will be exempt from the trade execution requirement. The Commission seeks comment on the following:
87. Do you believe in general that
Regulation SE should incorporate similar exemptions from the trade

119 17 CFR 240.3Ca–1.
120 15 U.S.C. 78c–4(d).
121Compare 7 U.S.C. 7b–3(f) (enumerating 15 Core Principles for SEFs) with 15 U.S.C. 78c–4(d) (enumerating 14 Core Principles for SBSEFs). CEA Core Principle 6 for SEFs (Position Limits or Accountability) has no analog in the SEA, so the numbering of the subsequent Core Principles between the two statutes differs by one. execution requirement that the CFTC provides in § 36.1? Why or why not?
88. In particular, do you object to any
of the specific language choices made to adapt § 36.1 into proposed Rule 816(e)? If so, what alternative language would you suggest?
89. Do you believe that the exemption
in proposed Rule 816(e)(1) is even necessary? In other words, do market participants engage in package transactions involving SBS and new issuance bonds of the type described in § 36.1(a), or do these types of packages involve only IRS and thus would not be applicable to the SBS market?
90. Are there any other provisions of
§ 36.1 that are adapted into proposed Rule 816(e) that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission’s final rule.
91. Are there any types of SBS that
you believe should be exempt from the trade execution requirement that have no analog in the swap market and thus are not reflected in the CFTC’s list of exemptions to the CEA trade execution requirement in § 36.1? If so, please describe and justify any potential exemptions that you believe should be added to proposed Rule 816(e). G. Rule 817—Trade Execution Compliance Schedule Proposed Rule 817 is modelled on § 37.12 of the CFTC’s rules, which is designed to inform market participants of the precise date on which the trade execution requirement for a particular product commences. Section 37.12(a) provides that a swap becomes subject to the trade execution requirement upon the later of the applicable deadline established under the compliance
schedule provided under § 50.25(b) or
30 days after the available-to-trade determination submission or certification for that swap is, respectively, deemed approved under § 40.5 or deemed certified under § 40.6. The Commission does not have a close equivalent to § 50.25(b). However, Rule 3Ca–1 under the SEA 119 provides that the Commission may determine, following a submission from a clearing agency, that an SBS (or a group, category, type, or class of SBS) must be cleared. This determination could follow a stay of the clearing requirement for additional review. Accordingly, paragraph (a) of proposed Rule 817 would provide that an SBS transaction shall be subject to the requirements of
section 3C(h) of the SEA upon the later
of (1) a determination by the Commission that the SBS is required to be cleared as set forth in section 3C(a) or any later compliance date that the Commission may establish as a term or condition of such determination or following a stay and review of such determination pursuant to section 3C(c) of the SEA and Rule 3Ca–1 thereunder; and (2) 30 days after the available-to￾trade determination submission or certification for that SBS is, respectively, deemed approved under Rule 806 or deemed certified under Rule 807. Paragraph (b) of proposed Rule 817, modelled on § 37.12(b), would provide that a counterparty may voluntarily comply with the trade execution requirement sooner than required by paragraph (a). The Commission seeks comment on the following:
92. Do you believe in general that
Regulation SE should include a trade execution compliance schedule similar to that in § 37.12? Why or why not?
93. In particular, do you agree with
the language that the Commission is proposing to adapt from § 37.12 into Rule 817? If not, what alternative language would you suggest, and why?
VIII. Implementation of Core Principles
Section 3D(d) of the SEA 120 sets forth
14 Core Principles with which SBSEFs must comply. These provisions, with one exception, correspond to the 15 Core Principles for SEFs set forth in
section 5h(f) of the CEA.121
Core principle title CEA No. SEA No. Compliance with Core Principles ............................................................................................................................. 1 1 Compliance with Rules ............................................................................................................................................ 2 2 (Security-Based) Swaps Not Readily Susceptible to Manipulation ......................................................................... 3 3 Monitoring of Trading and Trade Processing .......................................................................................................... 4 4 Ability to Obtain Information .................................................................................................................................... 5 5 Position Limits or Accountability .............................................................................................................................. 6 n/a Financial Integrity of Transactions ........................................................................................................................... 7 6 Emergency Authority ............................................................................................................................................... 8 7 Timely Publication of Trading Information ............................................................................................................... 9 8 Recordkeeping and Reporting ................................................................................................................................. 10 9 Antitrust Considerations ........................................................................................................................................... 11 10 Conflicts of Interest .................................................................................................................................................. 12 11 Financial Resources ................................................................................................................................................ 13 12 System Safeguards ................................................................................................................................................. 14 13 Designation of Chief Compliance Officer ................................................................................................................ 15 14 The Commission preliminarily believes generally that it would be appropriate to closely harmonize with the CFTC rules that implement the SEF Core Principles, although there are some instances where close harmonization is not practicable. Where there are substantive differences between an existing CFTC rule and an SEC￾proposed rule, the Commission will note and discuss the proposed difference and seek comment. The Commission also will note when there is not, or at least not intended to be, a difference
between the SEC rule and the analogous CFTC rule.
Part 37 of the CFTC’s rules includes
an appendix B, setting forth ‘‘Guidance on, and Acceptable Practices in, Compliance with Core Principles.’’ The introduction to appendix B provides that the guidance for the Core Principle is illustrative only and ‘‘is not intended to be used as a mandatory checklist.’’

122Section 3D(d)(1) of the SEA, 15 U.S.C. 78c– 4(d)(1). 123 7 U.S.C. 7b–3(f)(1). 124Section 3D(d)(2) of the SEA, 15 U.S.C. 78c– 4(d)(2). 125 7 U.S.C. 7b–3(f)(2). 126See 7 U.S.C. 7b–3(f)(2)(D). Where the CFTC includes guidance and/ or accepted practices pertaining to a Core Principle for SEFs, the Commission will explain how (if at all) the Commission proposes to incorporate the substance of these statements into Regulation SE. A. Rule 818—Core Principle 1— Compliance With Core Principles Core Principle 1 122 requires an SBSEF, to be registered and maintain registration as an SBSEF, to comply with the Core Principles and any requirement that the Commission may impose by rule or regulation. Core Principle 1 also provides that an SBSEF shall have reasonable discretion in establishing the manner in which it complies with the Core Principles. CEA Core Principle 1 123 is substantively identical. The CFTC implemented Core Principle 1 for SEFs in subpart B of part
37. Section 37.100 repeats the statutory
text of SEF Core Principle 1. There are no other rules in subpart B. Proposed Rule 818 also would repeat the statutory text of the Core Principle. The Commission seeks comment on the following:
94. Do you agree with how the
Commission is proposing to implement SEA Core Principle 1? Why or why not? B. Rule 819—Core Principle 2— Compliance With Rules Core Principle 2 124 requires an SBSEF to establish and enforce compliance with any rule that is established by the SBSEF, including the terms and conditions of the SBS that it trades or processes, and any limitation on access to the SBSEF. It further requires the SBSEF to establish and enforce trading, trade processing, and participation rules that will deter abuses, and to have the capacity to detect, investigate, and enforce those rules, including the means to provide market participants with impartial access to the market and to capture information that may be used in establishing whether rule violations have occurred. Finally, Core Principle 2 requires an SBSEF to establish rules governing the operation of the facility, including rules specifying trading procedures to be used in entering and executing orders traded or posted on the facility, including block trades. Core Principle 2 for SEFs 125 is substantively identical, except that it includes an additional paragraph requiring a SEF to provide in its rules that, when a swap dealer or major swap participant enters into or facilitates a swap that is subject to the mandatory clearing requirement, the swap dealer or major swap participant shall be responsible for compliance with the trade execution requirement.126

1. Rules Modelled on Subpart C of Part
   37
   The CFTC implemented Core Principle 2 for SEFs in subpart C of part
2. Section 37.200 of subpart C repeats
   the statutory text of CEA Core Principle 2, including the paragraph not present in SEA Core Principle 2 pertaining to swaps subject to the mandatory clearing requirement. Section 37.201 requires a SEF to establish rules governing the operation of the facility, including, but not limited to, rules specifying trading procedures to be followed by members and market participants when entering and executing orders traded or posted on the SEF. Section 37.201 also requires a SEF to establish and impartially enforce compliance with the SEF’s rules, including, but not limited to the terms and conditions of any swaps traded or processed on or through the SEF, access to the SEF, trade practice rules, audit trail requirements, disciplinary rules, and mandatory trading requirements.
   Section 37.202 imposes access
   requirements on SEFs. Section 37.202(a) requires a SEF to provide any eligible contract participant (‘‘ECP’’) and any independent software vendor with impartial access to its market(s) and market services, including any indicative quote screens or any similar pricing data displays. Furthermore, the SEF must have criteria governing access that are impartial, transparent, and applied in a fair and nondiscriminatory manner; procedures whereby ECPs provide the SEF with written or electronic confirmation of their status as ECPs before obtaining access; and comparable fee structures for ECPs and independent software vendors receiving comparable access to, or services from, the SEF. Section 37.202(b) requires a SEF, before granting any ECP access to its facilities, to require that the ECP consent to its jurisdiction. Section 37.202(c) requires the SEF to establish and impartially enforce rules governing any decision to allow, deny, suspend, or permanently bar access to the SEF, including when such decisions are made as part of a disciplinary or emergency action taken by the SEF.
   Section 37.203 requires a SEF to
   establish and enforce trading, trade processing, and participation rules that will deter abuses and to have the capacity to detect, investigate, and enforce those rules. Section 37.203 includes lengthy and detailed provisions relating to that goal. Section 37.203(a) requires a SEF to prohibit, among other things, front-running, wash trading, pre-arranged trading (except for block trades), fraudulent trading, money passes, and any other trading practices that the SEF deems to be abusive.
   Section 37.203(b) requires the SEF to
   have arrangements and resources to collect information and documents on both a routine and non-routine basis, including the authority to examine books and records kept by the SEF’s members. Section 37.203(c) requires the SEF to have sufficient compliance staff and resources to ensure that it can conduct effective audit trail reviews, trade practice surveillance, market surveillance, and real-time market monitoring. Section 37.203(d) requires the SEF to maintain an automated trade surveillance system capable of detecting potential trade practice violations, and imposes certain performance requirements on that system. Section 37.203(e) requires the SEF to conduct real-time market monitoring of all trading activity to identify any market or system anomalies, and to have the authority to adjust trade prices or cancel trades when necessary to mitigate market disrupting events caused by system malfunctions. Section 37.203(f) requires the SEF to establish and maintain procedures that require its compliance staff to conduct investigations of possible rule violations and imposes various requirements relating to those investigations.
   Section 37.204 allows a SEF to
   contract with a regulatory services provider to assist in complying with the supervisory functions noted above.
   Section 37.204 also imposes
   requirements on the SEF’s relationship with the regulatory services provider and provides that the SEF must retain exclusive authority in all substantive decisions made by its regulatory service provider, including decisions involving the cancellation of trades, the issuance of disciplinary charges against members or market participants, and denials of access.
   Section 37.205 requires a SEF to
   capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses. Such data shall be sufficient to reconstruct all indications of interest, requests for quotes, orders, and trades within a reasonable period of time and to provide evidence of any violations of the rules of the swap execution facility.

127To promote uniformity throughout proposed Regulation SE, the Commission believes that it is appropriate to denote all persons who have a right to participate in an SBSEF’s market as ‘‘members.’’
Section 37.203(a) provides that a SEF shall prohibit
abusive trading practices on its markets by members and market participants. The equivalent provision in proposed Rule 819(d) would provide that an SBSEF shall prohibit abusive trading practices on its markets by members (without reference to ‘‘market participants’’). 128Proposed Rule 819(d)(6)(v) would provide that the rules of an SBSEF may authorize its compliance staff to issue a warning letter to a person or entity under investigation or to recommend that a disciplinary panel take such an action, and that no more than one warning letter could be issued to the same person or entity found to have committed the same rule violation within a rolling 12-month period. The first provision is derived from the CFTC’s guidance pertaining to CEA Core Principle 2 for SEFs; the second provision is from the text of § 37.203(f)(5). 129Under § 37.204(a), a regulatory services provider for a SEF can be a registered futures association, FINRA, or ‘‘another registered entity.’’ ‘‘Registered entity’’ is a term of art in the CEA that does not exist in the SEA. Therefore, the Commission is proposing instead that a regulatory services provider for an SBSEF can be a registered futures association (under section 17 of the CEA), a national securities exchange, a national securities association (which would include FINRA), or another SBSEF.
Section 37.205 includes lengthy and
detailed provisions relating to the elements of an acceptable audit trail program, requirements for the transaction history database, electronic analysis capability, and safe storage capability. Furthermore, § 37.205 requires a SEF to enforce its audit trail and recordkeeping requirements through at least annual reviews of all members to verify their compliance, and to establish a program for effective enforcement of its audit trail and recordkeeping requirements. An effective program must identify members subject to the SEF’s recordkeeping rules that have failed to maintain high levels of compliance with such requirements, and impose meaningful sanctions when deficiencies are found.
Section 37.206 requires a SEF to
establish trading, trade processing, and participation rules that will deter abuses and have the capacity to enforce such rules through prompt and effective disciplinary action, including suspension or expulsion of members or market participants that violate the SEF’s rules. Accordingly, § 37.206 requires the SEF to establish disciplinary panels and procedures for disciplinary hearings that meet certain enumerated requirements, and provides that disciplinary sanctions imposed by the SEF shall be commensurate with the violations committed and shall be clearly sufficient to deter recidivism or similar violations by other market participants.
Appendix B to part 37 includes
detailed guidance to facilitate compliance with the rules that implement CEA Core Principle 2. The guidance addresses, for example, the use of warning letters by SEF compliance staff, potential conflicts of interest of the SEF’s enforcement staff, the serving of notices of charges, a respondent’s right to representation, providing sufficient time to answer a charge, consequences of a respondent admitting to or failing to deny a charge, right to a hearing, settlement offers, right of appeal and appeal procedures, final decisions, summary fines for violations of rules relating to the failure to timely submit accurate records required for clearing or verifying each day’s transactions, and emergency disciplinary actions. Proposed Rule 819 would implement Core Principle 2 and is adapted from subpart C of part 37. Paragraph (a) of proposed Rule 819, like § 37.200, would repeat the statutory text of Core Principle 2. Paragraph (b) is closely modelled on § 37.201 and would require an SBSEF to specify trading procedures (including for block trades, if offered) and to establish and impartially enforce compliance with the rules of the SBSEF. Paragraph (c) of proposed Rule 819 is closely modelled on § 37.202 and would require an SBSEF to provide any ECP and any independent software vendor with impartial access to its market(s) and market services, including any indicative quote screens or any similar pricing data displays. An SBSEF also would be required, among other things, to establish comparable fee structures for ECPs and independent software vendors receiving comparable access to, or services from the SBSEF, and to establish and impartially enforce rules governing any decision to allow, deny, suspend, or permanently bar an ECP’s access to the SBSEF, including when a decision is made as part of a disciplinary or emergency action taken by the SBSEF. Paragraph (d) of proposed Rule 819 is closely modelled on § 37.203. Paragraph (d)(1) of proposed Rule 819 would require an SBSEF to prohibit abusive trading practices generally, enumerating certain practices in particular.127 Paragraph (d)(2) would require an SBSEF to have arrangements and resources for effective enforcement of its rules, including the authority to collect information and documents on both a routine and non-routine basis and to supervise its market to determine whether a rule violation has occurred. Paragraph (d)(3) would require an SBSEF to establish and maintain sufficient compliance staff and resources to ensure that it can conduct effective audit trail reviews, trade practice surveillance, market surveillance, and real-time market monitoring. Paragraph (d)(4) would require an SBSEF to maintain an automated trade surveillance system that meets certain criteria. Paragraph (d)(5) would require real-time market monitoring of all trading activity on the SBSEF. The SBSEF also would be required to adjust trade prices or cancel trades when necessary to mitigate market disrupting events caused by
malfunctions in its system(s) or platform(s) or errors in orders submitted by members. Paragraph (d)(6) is modelled on § 37.203(f), again using the same structure and rule text. Like § 37.203(f), proposed Rule 819(d)(6) would address investigations and investigation reports and includes provisions relating to procedures, timeliness, when a reasonable basis does or does not exist for finding a violation, and warning letters.128 Paragraph (e) of proposed Rule 819 is modelled on § 37.204 and would allow an SBSEF to contract with a regulatory services provider. If it does so, the SBSEF would have to ensure that such provider has the capacity and resources necessary to provide timely and effective regulatory services, retain sufficient compliance staff to supervise the quality and effectiveness of the regulatory services provided on its behalf, hold regular meetings with the regulatory service provider, and conduct periodic reviews of the adequacy and effectiveness of services provided on its behalf. The SBSEF would at all times remain responsible for the performance of any regulatory services received and retain exclusive authority in all substantive decisions made by its regulatory service provider. Proposed Rule 819(e)(1) makes a slight modification to § 37.204(a)’s list of entities that can serve as a regulatory service provider.129 Paragraph (f) of proposed Rule 819 is modelled on § 37.205, using the same paragraph structure and rule text. Paragraph (f) would require an SBSEF to capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses and impose other requirements on the SBSEF’s audit trail pertaining to the records that must be kept, electronic analysis capability, safe-storage capability, and enforcement of the audit trail requirements. Paragraph (g) of proposed Rule 819 is based on § 37.206 and would generally track all of its rule text, but includes additional language derived from the

130 In this bullet and the next bullet, the word used in the corresponding CFTC guidance was ‘‘should’’ but the Commission is proposing the word ‘‘shall’’ in both places to convert the guidance into an enforceable rule. 131Proposed Rule 834(d) would require each SBSEF and SBS exchange to ensure that its disciplinary processes preclude any member, or group or class of its members, from dominating or exercising disproportionate influence on the disciplinary process, and that each major disciplinary committee or hearing panel include sufficient different groups or classes of its members so as to ensure fairness and to prevent special treatment or preference for any person or member in the conduct of the responsibilities of the committee or panel. See infra section X. 132The CFTC’s guidance in appendix B that is adapted into paragraphs (g)(9)(ii) through (vi) of proposed Rule 819 uses the word ‘‘should’’ here and in other similar instances. The Commission is proposing to use the word ‘‘shall’’ in such instances instead. 133See infra section XVI(E) (discussing proposed Rule 442, which would establish the right to appeal to the Commission certain actions taken by an SBSEF, and setting out certain procedural matters relating to any such appeal).
appendix B guidance that is interwoven
throughout. In converting the guidance to proposed rule text, the Commission preliminarily believes that grouping conceptually related items together would yield the most coherent and readable ruleset, instead of incorporating the guidance into a stand￾alone section of the rules. Accordingly, paragraph (g)(1)(i) of proposed Rule 819 is taken from § 37.206(a) and would require an SBSEF to establish and maintain sufficient enforcement staff and resources to effectively and promptly prosecute possible rule violations within the disciplinary jurisdiction of the SBSEF. Paragraphs (g)(1)(ii) through (iv) are taken from the
appendix B guidance and would
provide, respectively, that:

• The enforcement staff of an SBSEF
  shall 130 not include members or other persons whose interests conflict with their enforcement duties.
• A member of the enforcement staff
  shall not operate under the direction or control of any person or persons with trading privileges at the SBSEF.
• The enforcement staff of an SBSEF
  may operate as part of the SBSEF’s compliance department. Paragraph (g)(2) of proposed Rule 819 is modelled on § 37.206(b) and would require an SBSEF to establish one or more disciplinary panels that are authorized to fulfill their obligations under Rule 819. Section 37.206(b) provides that disciplinary panels must meet the composition requirements of
  part 40. To help ensure fairness and
  prevent special treatment or preference of any person or member and to provide for consistency of the makeup of members of SBSEF major disciplinary committees and hearing panels, the Commission is proposing instead to require the disciplinary panels established under proposed Rule 819(g)(2) to meet the composition requirements of proposed Rule 834(d), which would apply to each major disciplinary committee and hearing panel of an SBSEF.131 Paragraphs (g)(3) through (8) of proposed Rule 819 have no parallel in § 37.206 itself, but derive from the guidance in appendix B pertaining to § 37.206, following the paragraph structure and wording of the guidance closely. Paragraph (g)(3) would impose procedural requirements relating to the notice of charges made to a respondent. Paragraph (g)(4) would provide that a respondent has a right to representation. Paragraph (g)(5) would provide that a respondent must be given adequate time to respond to any charges. Paragraph (g)(6) would state that the rules of an SBSEF may provide that, if a respondent admits or fails to deny any of the charges, a disciplinary panel may find that the violations alleged in the notice of charges have been committed. Paragraph (g)(6) would further state that, if the SBSEF’s rules so provide, then: (i) The disciplinary panel may impose a sanction for each violation found to have been committed; (ii) The disciplinary panel shall promptly notify the respondent in writing of any sanction to be imposed and shall advise the respondent that the respondent may request a hearing on such sanction within the period of time, which shall be stated in the notice; and (iii) The rules of the SBSEF may provide that, if a respondent fails to request a hearing within the period of time stated in the notice, the respondent will be deemed to have accepted the sanction. Paragraph (g)(7) of proposed Rule 819 would provide that, where a respondent has requested a hearing on a charge that is denied, or on a sanction set by the disciplinary panel, the respondent shall be given an opportunity for a hearing in accordance with the rules of the security-based swap execution facility. Paragraph (g)(8) would address settlement offers. Paragraph (g)(9) of proposed Rule 819 returns to the text of § 37.206(c) for provisions regarding hearings. Paragraph (g)(9)(i) is modelled on § 37.206(c)(1) and would require an SBSEF to have rules requiring a hearing to be fair, conducted before members of the disciplinary panel, and promptly convened after reasonable notice to the respondent. The Commission is proposing an additional provision, which derives from the guidance, that an SBSEF need not apply the formal rules of evidence for a hearing; nevertheless, the procedures for the hearing may not be so informal as to deny a fair hearing. Paragraphs (g)(9)(ii) through (vi) of proposed Rule 819 are also adapted from the guidance. Paragraph (g)(9)(ii) would bar a member of the disciplinary panel for the hearing from having a
  financial, personal, or other direct interest in the matter under consideration. Paragraph (g)(9)(iii) would address the respondent’s access to evidence in the SBSEF’s possession. Paragraph (g)(9)(iv) would provide that the SBSEF’s enforcement and compliance staffs shall 132 be parties to the hearing, and the enforcement staff shall present their case on those charges and sanctions that are the subject of the hearing. Paragraph (g)(9)(v) would provide that the respondent shall be entitled to appear personally at the hearing, to cross-examine any persons appearing as witnesses at the hearing, to call witnesses, and to present such evidence as may be relevant to the charges. Paragraph (g)(9)(vi) would provide that the SBSEF shall require persons within its jurisdiction who are called as witnesses to participate in the hearing and produce evidence. Paragraph (g)(9)(vii) of proposed Rule 819 is modelled on the text of § 37.206(c)(2) and would require that, if the respondent has requested a hearing, a copy of the hearing shall be made and shall become a part of the record of the proceeding. Paragraph (g)(9)(vii) would not require the record to be transcribed unless the transcript is requested by Commission staff or the respondent, the decision is appealed pursuant to the rules of the SBSEF, or the decision is reviewed by the Commission pursuant to § 201.442.133 In all other instances, a summary record of a hearing is permitted. Paragraph (g)(10) of proposed Rule 819 is modelled on § 37.206(d) and would provide that, promptly following a hearing conducted in accordance with the rules of the SBSEF, the disciplinary panel shall render a written decision based upon the weight of the evidence contained in the record of the proceeding and shall provide a copy to the respondent. The written decision would have to include six enumerated elements, all of which are closely modelled on those in § 37.206(d). Paragraph (g)(11) of proposed Rule 819 would address emergency disciplinary actions and is drawn from the appendix B guidance. It would provide that an SBSEF may impose a sanction, including suspension, or take other summary action against a person

134Compare proposed Rule 819(g)(11)(i) (allowing an SBSEF to impose a sanction, including suspension, or take other summary action against a person or entity subject to its jurisdiction upon a reasonable belief that such immediate action is necessary to protect the best interest of the market place) with proposed Rule 819(g)(11)(ii)(A) (providing that, if practicable, a respondent should be served with a notice before the action is taken, or otherwise at the earliest possible opportunity). 135Neither § 37.206 or the associated guidance from appendix B requires a SEF to allow appeals. The guidance states, rather, that a SEF’s rules ‘‘may permit’’ appeals and includes certain procedural requirements only if the rules of a swap execution facility permit appeals. The Commission is adhering to this permissive approach in this proposal but seeks comment on whether the final rules should require an SBSEF to create an appeals procedure. 136See supra note 131. or entity subject to its jurisdiction upon a reasonable belief that such immediate action is necessary to protect the best interest of the market place. Furthermore, any emergency disciplinary action would have to be taken in accordance with an SBSEF’s procedures that provide for notice (if practicable), rights for representation in all proceedings, an opportunity for a hearing as soon as reasonably practicable, and the rendering of a written decision promptly following the hearing based upon the weight of the evidence contained in the record. Proposed Rule 819(g)(11) seeks to balance the need to allow an SBSEF to take summary action against the need to afford due process to respondents.134 Paragraph (g)(12) of proposed Rule 819 also is drawn from the appendix B guidance and provides that, if the rules of the SBSEF permit appeals,135 the SBSEF shall establish an appellate panel that is authorized to hear appeals. The composition of the panel would have to be consistent with proposed Rule 834(d) 136 and could not include any members of the SBSEF’s compliance staff or any person involved in adjudicating any other stage of the same proceeding. Promptly following the appeal or review proceeding, the appellate panel would be required to issue a written decision and to provide a copy to the respondent. Paragraph (g)(13) of proposed Rule 819 is adapted partly from § 37.206(e) and partly from the appendix B guidance. Paragraph (g)(13)(i) is drawn from § 37.206(e) and would provide that all disciplinary sanctions imposed by an SBSEF or its disciplinary panels shall be commensurate with the violations committed and shall be clearly sufficient to deter recidivism or similar violations by other members. All disciplinary sanctions, including sanctions imposed pursuant to an accepted settlement offer, would be required to take into account the respondent’s disciplinary history. In the event of demonstrated customer harm, any disciplinary sanction would also be required to include full customer restitution, except
where the amount of restitution or to whom it should be provided cannot be reasonably determined. Paragraph (g)(13)(i) is adapted from the guidance and would allow an SBSEF to adopt a summary fine schedule for violations of rules relating to the failure to timely submit accurate records required for clearing or verifying each day’s transactions. The Commission preliminarily believes that combining text from § 37.206 with the associated guidance from appendix B provides a logical set of procedures for addressing Core Principle 2 (Compliance with Rules), from requirements relating to enforcement staff generally (proposed Rule 819(g)(1)); to the composition of disciplinary panels and notices of charges (proposed Rules 819(g)(1) and (g)(2)); to rights to representation (proposed Rule 819(g)(4)), answer to charges and admission or failure to deny charges (proposed Rules 819(g)(5) and (g)(6)), denial of charges and right to a hearing (proposed Rule 819(g)(7)), settlement offers (proposed Rule 819(g)(8)); and, finally, hearings (proposed Rule 819(g)(9)), decisions (proposed Rule 819(g)(10)), emergency disciplinary actions (proposed Rule 819(g)(11)), right to appeal (proposed Rule 819(g)(12)), and disciplinary sanctions (proposed Rule 819(g)(13)). The Commission recognizes that a set of rules that govern compliance and enforcement matters for SBSEFs could, in the abstract, differ in a number of details from the rules adopted by the CFTC in subpart C of part 37 and still plausibly satisfy the requirements of Core Principle 2. However, in light of the baseline set by the CFTC’s rules, the Commission is concerned that implementing rules for SBSEFs having major or even minor differences with the rules applicable to SEFs could increase compliance costs and cause confusion for dually registered SEF/ SBSEFs and market participants. This would particularly be the case if a potential violation involved a rule that was not specific to the swap or SBS market, but rather involved member conduct generally. No regulatory purpose would be served if the SEF/ SBSEF had to pursue one cause of action against a member pursuant to a CFTC rule and a slightly different cause of action pursuant to an SEC rule, for the same underlying facts. The Commission seeks comment on the following:
95. Do you agree generally with the
manner in which the Commission is proposing to implement Core Principle 2? Why or why not?
96. In particular, do you agree with
the proposed access requirements in Rule 819(c)? Why or why not? Do you see differences between the swap and SBS markets that warrant different requirements for access to a SEF than to an SBSEF? If so, please describe.
97. Do you see differences between
the swap and SBS markets that warrant different audit trail requirements or trade surveillance capability for SBSEFs than for SEFs? If so, please describe.
98. Do you believe that SBSEFs, like
SEFs, should be able to utilize regulatory service providers? What entities currently serve as regulatory service providers for SEFs? Do you believe that the types of regulatory service providers that could be utilized by SBSEFs under proposed Rule 819(e)(1) are appropriate? If not, what other regulatory service providers should be permitted?
99. Do you agree with how the
Commission is proposing to implement requirements for disciplinary procedures and sanctions in proposed Rule 819(g)? Why or why not?
100. In particular, do you agree with
the manner in which the Commission is proposing to incorporate significant portions of the appendix B guidance into proposed Rule 819(g)? Why or why not? Are there provisions from the guidance that the Commission is proposing to incorporate that you believe should be revised or omitted entirely? If so, please describe. Are there provisions from the guidance that the Commission has not proposed to incorporate but that you believe should be incorporated? If so, please describe.
101. Do existing SEFs treat the
appendix B guidance as if it were
mandatory? By converting the non￾binding guidance applicable to SEFs into formal rules that would apply to SBSEFs, would dually registered entities be compelled to deviate from their present practices? If so, please describe.
102. Do you believe that proposed
Rule 819(g)(12) should be revised to require an SBSEF to permit appeals of enforcement decisions to an appellate panel established by the SBSEF, despite the fact that neither subpart C of part 37 nor the CFTC’s associated guidance requires appeals? Why or why not?
2. Provisions of Rule 819 Adapted From
Other SEF Requirements
Proposed Rule 819 includes four paragraphs—(h), (i), (j), and (k)—that are not derived from subpart C of part 37,

137See § 1.59(a)(8) (defining ‘‘commodity interest’’ to mean ‘‘any commodity futures, commodity option or swap contract traded on or subject to the rules of a contract market, a swap execution facility or linked exchange, or cleared by a derivatives clearing organization, or cash commodities traded on or subject to the rules of a board of trade which has been designated as a contract market’’). 138See § 1.59(a)(9) (defining ‘‘related commodity interest’’ to mean ‘‘any commodity interest which is traded on or subject to the rules of a contract market, swap execution facility, linked exchange, or other board of trade, exchange, or market, or cleared by a derivatives clearing organization, other than the self-regulatory organization by which a person is employed, and with respect to which: (i) such employing self-regulatory organization has recognized or established intermarket spread margins or other special margin treatment between that other commodity interest and a commodity interest which is traded on or subject to the rules of the employing self-regulatory organization; or (ii) such other self-regulatory organization has recognized or established intermarket spread margins or other special margin treatment with another commodity interest as to which the person has access to material, nonpublic information’’). 139See § 1.59(a)(10) (defining ‘‘pooled investment vehicle’’ to mean ‘‘a trading vehicle organized and operated as a commodity pool within the meaning of § 4.10(d) of this chapter, and whose units of participation have been registered under the Securities Act of 1933, or a trading vehicle for which § 4.5 of this chapter makes available relief from regulation as a commodity pool operator, i.e., registered investment companies, insurance company separate accounts, bank trust funds, and certain pension plans’’). which directly implements CEA Core Principle 2, or from the associated guidance in appendix B to part 37. Instead, these four paragraphs are modelled on requirements for SEFs located in other parts of the CFTC’s rules. Because these requirements fall under the general heading of ‘‘Compliance with Rules,’’ the Commission is proposing them as part of Rule 819, which implements SEA Core Principle 2. a. Rule 819(h)—Activities of SBSEF’s Employees, Governing Board Members, Committee Members, and Consultants Paragraph (h) of proposed Rule 819 generally would prohibit persons who are employees of an SBSEF, or who otherwise might have access to confidential information because of their role with the SBSEF, from improperly utilizing that information. Proposed Rule 819(h) is modelled on § 1.59 of the CFTC’s rules, which requires an SRO (which term, under § 1.3 of the CFTC regulations, includes a SEF) to place restrictions on trading by its governing board members, committee members, consultants, and employees and to prohibit any such person from disclosing any material, non-public information obtained as a result of their official duties with
the SRO. In particular, § 1.59(b)(1)(i) requires an SRO to maintain in effect rules that, at a minimum, prohibit employees of the SRO from trading, directly or indirectly, in:

• Any ‘‘commodity interest’’ 137
  traded on or cleared by the employing contract market, SEF, or clearing organization;
• Any ‘‘related commodity
  interest’’; 138
• A commodity interest traded on a
  contract market or SEF or cleared by a DCO other than the employing SRO if the employee has access to material, non-public information concerning such commodity interest;
• A commodity interest traded on or
  cleared by a ‘‘linked exchange’’ if the employee has access to material, non￾public information concerning such commodity interest. The Commission is proposing to adapt § 1.59(b)(1) into Regulation SE in a simplified way. The Commission preliminarily believes that, in the SBS market, the policy goals of the rule can be achieved without the complexities of the CFTC definitions of ‘‘commodity interest’’ and ‘‘related commodity interest.’’ Paragraph (h)(2)(i) of proposed Rule 819 would require an SBSEF to maintain in effect rules that, at a minimum, prohibit an employee of the SBSEF from trading, directly or indirectly, any ‘‘covered interest.’’ Proposed Rule (h)(1)(i) would define ‘‘covered interest’’ to mean, with respect to an SBSEF: An SBS that trades on the SBSEF; a security of an issuer that has issued a security that underlies an SBS that is listed on the SBSEF; or a derivative based on a security that falls within the immediately preceding prong. The Commission preliminarily believes that the opportunity to observe order submission and trading in an SBS on an SBSEF could yield material non￾public information about the future performance not just of that SBS, but of all securities issued by that entity. The single-name CDS market, in particular, is a market for assessing the creditworthiness of particular issuers. Non-public information derived from activity on the SBSEF pertaining to the market’s assessment of an issuer’s creditworthiness is likely to be material to the markets for that issuer’s cash securities as well as to markets for derivatives based on the issuer’s cash securities (e.g., single-stock options). Paragraph (h)(2)(ii), modelled on § 1.59(b)(1)(ii), would prohibit an SBSEF employee from disclosing to any other person any material non-public information which such employee obtains as a result of their employment at the SBSEF, and where such employee has or should have a reasonable expectation that the information disclosed may assist another person in trading any covered interest. In addition, paragraph (h)(2)(ii), like § 1.59(b)(1)(ii), would provide an exception for disclosures made in the course of an employee’s duties, or disclosures made to another SBSEF, court of competent jurisdiction, or representative of any agency or department of the Federal or State government acting in their official capacity. Paragraph (h)(3) of Rule 819, modelled on § 1.59(b)(2), would allow an SBSEF to adopt rules setting forth circumstances under which exemptions from the employee trading prohibition may be granted. In particular, paragraph (h)(3) would include the following possible carve-outs from the employee trading prohibition: (1) Participation by an employee in a ‘‘pooled investment vehicle’’ where the employee has no direct or indirect control with respect to transactions executed for or on behalf of such vehicle; (2) trading by an employee in a derivative based on such a pooled investment vehicle; (3) trading by an employee in a
  derivative based on an index in which no covered interest constitutes more than 10% of the index; and (4) trading by an employee under circumstances enumerated in rules which the SBSEF determines are not contrary to applicable law, the public interest, or just and equitable principles of trade. The first and the fourth carve￾outs listed above are comparable to those listed in § 1.59(b)(2). The Commission is proposing to include the second and third carve-outs to permit an SBSEF employee to trade derivatives that provide indirect exposure to a covered interest where the exposure to the covered interest is sufficiently diluted. In such cases, it would be unlikely that the employee would be using material non-public information about the covered interest to gain an unfair advantage when trading the derivative. The Commission is proposing to depart from the CFTC definition of ‘‘pooled investment vehicle’’ 139 to adapt it for the SBS and securities markets. Proposed Rule (h)(1)(ii) would define ‘‘pooled investment vehicle’’ to mean an investment company registered under the Investment Company Act of 1940 in which no covered interest constitutes more than 10% of the investment company’s assets. Thus, under this definition, if an SBSEF were to list a single-name CDS on company XYZ, a ‘‘pooled investment vehicle’’ would include a broad-based mutual fund or ETF that contains a security issued by company XYZ, assuming that

140Section 1.59(c) applies only to national futures associations and is not considered here. 141Section 1.63 uses the term ‘‘governing board’’ throughout. Certain other CFTC rules that the Commission is proposing to adapt into Regulation SE use ‘‘board of directors’’ to denote the same concept. As noted above, the Commission is proposing to utilize the term ‘‘governing board’’ throughout Regulation SE, even when the parallel CFTC rule on which an SEC rule is based uses ‘‘board of directors.’’ See supra note 29. the XYZ security does not exceed 10% of the fund’s holdings. The proposed 10% limit on a covered interest’s composition of the fund is designed to permit SBSEF employees to trade most index-based mutual funds and ETFs that contain covered interests, except those where a component of the fund becomes sufficiently large that material non￾public information about an issuer derived from activity on the SBSEF could provide an unfair advantage to an SBSEF employee when trading that fund. Finally, the Commission notes that, under proposed Rule 819(h)(3)—as with § 1.59(b)(2)—the exemptions from the trading restrictions would not be automatically available to SBSEF employees. Proposed Rule 819(h)(3) still would require the SBSEF to adopt rules that set forth circumstances under which exemptions from the trading prohibition may be granted. Furthermore, proposed Rule 819(h)(3), which is modelled on § 1.59(b)(2), would state that any exemption must be administered by the SBSEF ‘‘on a case￾by-case basis.’’ Paragraph (h)(4) of proposed Rule 819, like § 1.59(d),140 would address prohibited conduct not just of employees of an SBSEF, but also of governing board members, committee members, and consultants of the SBSEF. Paragraph (h)(4)(i)(A) is modelled on § 1.59(d)(1)(i) and would prohibit any employee, governing board member, committee member, or consultant of the SBSEF from trading for such person’s own account, or for or on behalf of any other account, in any covered interest on the basis of any material, non-public information obtained through special access related to the performance of such person’s official duties as an employee, governing board member, committee member, or consultant. Paragraph (h)(4)(i)(B), modelled on § 1.59(d)(1)(ii), would prohibit any employee, governing board member, committee member, or consultant of the SBSEF from disclosing for any purpose inconsistent with the performance of such person’s official duties as an employee, governing board member, committee member, or consultant any material, non-public information obtained through special access related to the performance of such duties. Paragraph (h)(4)(ii), modelled on § 1.59(d)(2), would provide that no person shall trade for such person’s own account, or for or on behalf of any other account, in any covered interest on the basis of any material, non-public information that such person knows was obtained in violation of paragraph (h)(4) of this section from an employee,
governing board member, committee member, or consultant. The Commission preliminarily believes that persons who have professional duties with an SBSEF should not trade on material non-public information derived from the SBSEF or improperly disclose that information to third parties, and therefore that harmonizing with the comparable CFTC rule as closely as practicable, taking into account the difference in products subject to the respective jurisdictions of the SEC and CFTC, is an appropriate means of furthering that policy goal. If the Commission adopts Rule 819(h) in substantially the same form as proposed herein, dually registered SEF/SBSEFs would be able to utilize the same rules and procedures for complying with Rule 819(h) as they do for § 1.59. The Commission recognizes that the scope of assets under restriction would differ in Rule 819(h) than in § 1.59, as reflected in the SEC’s use of the term ‘‘covered interest’’ rather than ‘‘commodity interest’’ in the analogous CFTC provisions, as well as the significant differences in the potential exemptions from the trading restriction (including in the ‘‘pooled investment vehicle’’ definition). Nevertheless, SBS are different from swaps, so the material non-public information that can be obtained from observing order submission and SBS trading on an SBSEF is different from the material non-public information that can be obtained from observing order submission and swap trading on a SEF. The Commission preliminarily believes, therefore, that it is appropriate for Rule 819(h) to utilize a definition of ‘‘covered interest’’ to denote the scope of the trading restrictions in the proposed rule—and a definition of ‘‘pooled investment vehicle’’ to denote the scope of one of the potential exemptions from those restrictions—that is customized for the SBS and securities markets. The Commission seeks comment on the following:
103. Do you believe in general that the
Commission should incorporate into Regulation SE a rule that restricts how persons with official duties at an SBSEF may utilize information that they obtain in the course of their official duties? Why or why not?
104. Do you agree with the specific
language proposed by the Commission to adapt § 1.59 into proposed Rule 819(h)? If not, how would you revise the proposed rule?
105. In particular, do you agree with
the Commission’s proposed definition of ‘‘covered interest’’? Why or why not? Do you believe that the term ‘‘covered interest’’ should be expanded to include securities underlying an index swap and other securities issued by an issuer whose securities underlie an index swap that trade on a dually registered SEF/SBSEF? Why or why not?
106. Do you agree with the proposed
potential exemptions from the trading restrictions in proposed Rule 819(h)(3)? For example, do you believe in general that an SBSEF should be permitted to allow its employees, governing board members, committee members, and consultants to hold covered interests through pooled investment vehicles? Why or why not?
107. Do you agree with the
Commission’s proposed definition of ‘‘pooled investment vehicle’’? Why or why not? Do you agree with the Commission’s proposed requirement that no covered interest may constitute more than 10% of the pooled investment vehicle? Why or why not? If you believe another threshold would be more appropriate, please justify that threshold.
108. Are there additional provisions
of § 1.59 that the Commission has omitted but which you believe should be incorporated into Regulation SE? If so, which provisions and why? b. Rule 819(i)—Service on SBSEF Governing Boards or Committees by Persons With Disciplinary Histories Paragraph (i) of proposed Rule 819 would bar persons with specified disciplinary histories from serving on the governing board or committees of an SBSEF and impose certain other duties on the SBSEF associated with that fundamental requirement. Proposed Rule 819(i) is modelled on § 1.63 of the CFTC’s rules, which imposes similar requirements in connection with SROs (which term, under the CEA, includes SEFs).
Section 1.63(b) requires each SRO to
maintain in effect rules that render a person ineligible to serve on its disciplinary committees, arbitration panels, oversight panels, or governing board 141 who meets any of six enumerated criteria. These criteria generally relate to a disciplinary offense having been committed by that person within the past three years. While

142Section 1.63(b), in relevant part, requires a SEF to maintain rules that have been submitted to the Commission pursuant to section 5c(c) of the CEA and part 40 of the CFTC’s rules. As noted above, the Commission is proposing to adapt §§ 40.5 (Voluntary submission of rules for Commission review and approval) and 40.6 (Self￾certification of rules) into proposed Rules 806 and 807, respectively. Therefore, proposed Rule 819(i)(1) would require an SBSEF to maintain in effect rules which have been submitted to the Commission pursuant to Rules 806 or 807. 143Proposed Rule 802 would define ‘‘disciplinary committee’’ as any person or committee of persons, or any subcommittee thereof, that is authorized by an SBSEF or SBS exchange to issue disciplinary charges, to conduct disciplinary proceedings, to settle disciplinary charges, to impose disciplinary sanctions, or to hear appeals thereof in cases involving any violation of the rules of the SBSEF or SBS exchange, except those cases where the person or committee is authorized summarily to impose minor penalties for violating rules regarding decorum, attire, the timely submission of accurate records for clearing or verifying each day’s transactions, or other similar activities. The CFTC rules contain two slightly different definitions of ‘‘disciplinary committee’’ that appear in § 1.63(a)(2) and § 1.69(a)(1), respectively. Because the definition in § 1.69(a)(1) is more comprehensive, the Commission is modelling its proposed definition of ‘‘disciplinary committee’’ on § 1.69(a)(1) rather than on § 1.63(a)(2). The Commission is locating the definition in proposed Rule 802, since the term is used by multiple rules in Regulation SE. 144Proposed Rule 802 would define ‘‘oversight panel’’ as any panel, or any subcommittee thereof, authorized by an SBSEF or SBS exchange to recommend or establish policies or procedures with respect to the surveillance, compliance, rule enforcement, or disciplinary responsibilities of the SBSEF or SBS exchange. The CFTC’s definitions of ‘‘oversight panel’’ are contained in § 1.63(a)(4) and § 1.69(a)(4), respectively. Because the definition in § 1.69(a)(4) is more comprehensive, the Commission is modelling its proposed definition of ‘‘oversight panel’’ on § 1.69(a)(4) rather than on § 1.63(a)(4). As with the definition of ‘‘disciplinary committee,’’ the Commission is locating the definition of ‘‘oversight panel’’ in proposed Rule 802, since the term is used by multiple rules in Regulation SE. 145Section 1.63(b)(5) provides that one criterion for the bar would be that the person in question is subject to or has had imposed on him within the prior three years a CFTC registration revocation or suspension in any capacity for any reason, or has been convicted within the prior three years of any of the felonies listed in section 8a(2)(D)(ii) through (iv) of the CEA. Since the SEC is not subject to the CEA and cannot cross-reference those provisions, the Commission is proposing for the
equivalent criterion in Rule 819(i)(1)(v) that a person would be barred for having been convicted within the prior three years of any felony, without limitation on the type of felony. 146Proposed Rule 819(i)(6)(i) would define ‘‘arbitration panel’’ as any person or panel empowered by an SBSEF to arbitrate disputes involving the SBSEF’s members or their customers. Proposed Rule 819(i)(6)(ii) would define ‘‘disciplinary offense’’ as: Any violation of the rules of an SBSEF, except a violation resulting in fines aggregating to less than $5,000 within a calendar year involving decorum or attire, financial requirements, or reporting or recordkeeping; any rule violation which involves fraud, deceit, or conversion or results in a suspension or expulsion; any violation of the SEA or the Commission’s rules thereunder; or any failure to exercise supervisory responsibility when such failure is itself a violation of either the rules of the SBSEF, the SEA, or the Commission’s rules thereunder. Proposed Rule 819(i)(6)(iii) would define ‘‘final decision’’ as a decision of an SBSEF which cannot be further appealed within the SBSEF, is not subject to the stay of the Commission or a court of competent jurisdiction, and has not been reversed by the Commission or any court of competent jurisdiction; or any decision by an administrative law judge, a court of competent jurisdiction, or the Commission which has not been stayed or reversed. 147Since these terms are used only in proposed Rule 819(i) and not elsewhere in Regulation SE, the Commission is defining them in proposed Rule 819(i) and not the omnibus definitions rule in Regulation SE (Rule 802). § 1.63(b) requires the SRO to implement rules imposing a bar, § 1.63(c) in addition imposes a bar on such persons directly, stating that no person may serve on a disciplinary committee, arbitration panel, oversight panel or governing board of an SRO if such person is subject to any of the conditions listed in § 1.63(b). Section 1.63(d) requires an SRO to maintain, keep current, and provide to the CFTC and the public a list of the rule violations which constitute disciplinary offenses that would trigger the bar in § 1.63. Section 1.63(e) requires an SRO to submit to the CFTC, within 30 days of the end of each calendar year, a certified list of any persons who have been removed from its disciplinary committees, arbitration panels, oversight panels, or governing board pursuant to § 1.63 during the prior year. Paragraph (i) of proposed Rule 819 is closely modelled on § 1.63. Paragraph (i)(1), like § 1.63(b), would require an SBSEF to maintain rules 142 that render a person ineligible to serve on its disciplinary committees,143 arbitration panels, oversight panels,144 or governing boards who falls into any of six enumerated criteria, all of which are modelled closely on the criteria in § 1.63(b).145 Paragraph (i)(2), modelled on § 1.63(c), would impose a direct bar on any person from serving on a disciplinary committee,
arbitration panel, oversight panel, or governing board of an SBSEF who meets any of the six criteria enumerated in proposed Rule 819(i)(1). Paragraph (i)(3), modelled on § 1.63(d), would require an SBSEF to submit to the Commission a
schedule listing the rule violations
which constitute disciplinary offenses that would trigger the bar and, to the extent necessary to reflect revisions, would have to submit an amended
schedule within 30 days of the end of
each calendar year. The SBSEF would be required to maintain and keep current this schedule and post it on its website so that it is in a public place designed to provide notice to members and otherwise ensure its availability to the general public. Paragraph (i)(4), like § 1.63(e), would require an SBSEF to submit to the Commission within 30 days of the end of each calendar year a certified list of any persons who have been removed from its disciplinary committees, arbitration panels, oversight panels, or governing board pursuant to Rule 819(i) during the prior year. Paragraph (i)(5), modelled on § 1.63(f), would provide that, whenever an SBSEF finds by final decision that a person has committed a disciplinary offense and such finding makes such person ineligible to serve on that SBSEF’s disciplinary committees, arbitration panels, oversight panels, or governing board, the SBSEF shall inform the Commission of that finding and the length of the ineligibility, in a form and manner specified by the Commission. Paragraph (i)(6) of proposed Rule 819(i) would define the terms ‘‘arbitration panel,’’ ‘‘disciplinary offense,’’ and ‘‘final decision’’ which are used in proposed Rule 819(i).146 These definitions are closely modelled on those provided in § 1.63(a).147 The Commission preliminarily believes that it is appropriate to bar persons with inappropriate disciplinary histories from serving on the disciplinary committees, arbitration panels, oversight panels, or governing board of an SBSEF, and that closely modelling a rule in Regulation SE on § 1.63 would be an appropriate means of furthering that policy goal. The requirements of § 1.63 should be well understood by SEFs, who have been complying with them for several years, and incorporating similar requirements into Regulation SE should impose few if any additional costs on dually registered SEF/SBSEFs. The Commission preliminarily believes, in particular, that establishing criteria for the bar that are as similar as possible to the CFTC’s criteria would avoid a situation where a person is ineligible under one agency’s rules to serve on a disciplinary committee, arbitration panel, oversight panel, or the governing board, but would be eligible under the other agency’s rules. The Commission seeks comment on the following:
109. Do you believe in general that
Regulation SE should include a rule that prohibits persons having an inappropriate disciplinary history from serving on the disciplinary committees, arbitration panels, oversight panels, or governing board of an SBSEF? Why or why not?
110. In particular, do you agree with
the specific language proposed by the Commission to adapt § 1.63 into proposed Rule 819(i)? If not, how would you revise the rule?

148See § 1.67(a) (defining ‘‘final disciplinary action’’ as any decision by or settlement with a contract market or swap execution facility in a disciplinary matter which cannot be further appealed at the contract market or swap execution facility, is not subject to the stay of the Commission or a court of competent jurisdiction, and has not been reversed by the Commission or any court of competent jurisdiction). 149See § 1.3 (defining ‘‘customer’’ as any person who uses a futures commission merchant, introducing broker, commodity trading advisor, or commodity pool operator as an agent in connection with trading in any commodity interest; Provided, however, an owner or holder of a proprietary account as defined in this section shall not be deemed to be a customer within the meaning of
section 4d of the CEA, the regulations that
implement sections 4d and 4f of the CEA and § 1.35, and such an owner or holder of such a proprietary account shall otherwise be deemed to be a customer within the meaning of the CEA and §§ 1.37 and 1.46 and all other sections of these rules, regulations, and orders which do not implement sections 4d and 4f of the CEA). 150The provision on which proposed Rule 819(j)(1)(i)(B) is based, § 1.67(b)(1)(ii), requires a futures commission merchant or other registrant that receives such a notice to forward it to the injured customer. Because of differences in the respective agencies’ statutory authority, the Commission is proposing to require the SBSEF to establish a rule that requires the relevant member to forward the notice, not to propose a Commission rule that would impose such a duty on the member directly. 151See proposed Rule 819(j)(3)(ii) (defining ‘‘final disciplinary action’’ as any decision by or settlement with an SBSEF in a disciplinary matter which cannot be further appealed at the SBSEF, is not subject to the stay of the Commission or a court of competent jurisdiction, and has not been reversed by the Commission or any court of competent jurisdiction). 152The Commission notes, finally, that the definitions of ‘‘customer’’ and ‘‘final disciplinary action’’ would apply only within proposed Rule 819(j), so they are not included in the omnibus definitions rule for proposed Regulation SE (Rule 802). 153A ‘‘reporting market’’ is defined in § 15.00(q) to mean a DCM or registered entity under section 1a(40) of the CEA. The term ‘‘registered entity’’ as defined in section 1a(40) of the CEA includes SEFs, among other entities.
111. Are there additional provisions
of § 1.63 that the Commission has not adapted into proposed Rule 819(i) but which you believe should be incorporated? If so, which provisions and why?
112. Proposed Rule 819(i)(1)(iv)
would require an SBSEF to have rules that render a person ineligible to serve on its disciplinary committees, arbitration panels, oversight panels, or governing board if that person is subject to an agreement with the Commission, an SBSEF, or an SRO not to apply for registration with the Commission or membership in any SRO. Should similar agreements with any other types of entities be included in the ineligibility provision of proposed Rule 819(i)(1)(iv)? For example, should registered futures associations such as the NFA be included in this list? Why or why not?
c. Rule 819(j)—Notification of Final
Disciplinary Action Involving Financial Harm to a Customer Paragraph (j) of proposed Rule 819 is a modified version of § 1.67 of the CFTC’s rules. Section 1.67(b) provides, in relevant part, that upon any final disciplinary action 148 in which a contract market or SEF finds that a member has committed a rule violation that involved a transaction for a customer,149 whether executed or not, and that resulted in harm to the customer, the contract market or SEF must promptly provide notice of the disciplinary action to the futures commission merchant or other registrant. The futures commission merchant or other registrant that receives the notice must promptly provide written notice of the disciplinary action to the customer as disclosed on its books and records. Such written notice must include the principal facts of the disciplinary action and a statement that the contract market or SEF has found that the member has committed a rule violation that involved a transaction for the customer, whether executed or not, and that resulted in financial harm to the customer. Paragraph (j)(1) of proposed Rule 819 is designed to replicate for SBSEFs the fundamental duty of § 1.67 and would provide that, upon any final disciplinary action in which an SBSEF finds that a member has committed a rule violation that involved a transaction for a customer, whether executed or not, and that resulted in financial harm to the customer, the SBSEF must promptly provide written notice of the disciplinary action to the member. In addition, the SBSEF would be required to have established a rule pursuant to Rule 806 or 807 that requires a member that receives such a notice to promptly provide that notice to the customer, as disclosed on the member’s books and records.150 Paragraph (j)(2) would provide that the written notice must include the principal facts of the disciplinary action and a statement that the SBSEF has found that the member has committed a rule violation that involved a transaction for the customer, whether executed or not, and that resulted in financial harm to the customer. Paragraph (j)(3) of proposed Rule 819 would provide definitions for two terms used in Rule 819(j). The proposed definition for ‘‘final disciplinary action’’ is closely modelled on the CFTC’s definition in § 1.67(a).151 The proposed definition of ‘‘customer’’ is only loosely modelled on the definition of ‘‘customer’’ provided in § 1.3, which includes complexities deriving from the CEA that the Commission does not believe are necessary or appropriate to adapt into a rule that applies to SBSEFs.152 The Commission is proposing to define ‘‘customer’’ in proposed Rule 819(j)(3)(i) as a person that utilizes an agent in connection with trading on an SBSEF. The Commission preliminarily believes that, if an SBSEF member commits a rule violation that involved a transaction for the customer and financial harm to the customer results, the customer should be apprised of that fact. The Commission
preliminarily believes, therefore, that closely modelling a rule in Regulation SE on § 1.67 would be an appropriate means of furthering that policy goal. The requirements of § 1.67 should be well understood by SEFs, who have been complying with them for several years, and incorporating similar requirements into Regulation SE should impose lower compliance costs on dually registered SEF/SBSEFs. The Commission seeks comment on the following:
113. Do you believe in general that
Regulation SE should include a rule designed to provide a customer of an SBSEF member notice if the member commits a violation of an SBSEF rule that results in harm to the customer? Why or why not?
114. In particular, do you agree with
the specific language proposed by the Commission to adapt § 1.67 into proposed Rule 819(j)? If not, how would you revise that language?
115. Do you agree with the proposed
definition of ‘‘customer’’ in proposed Rule 819(j)? If not, how would you revise it? d. Rule 819(k)—Designation of Agent for Non-U.S. Member Paragraph (k) of proposed Rule 819 would require non-U.S. persons who trade on an SBSEF to have an agent for service process, which could be an agent of its own choosing or, by default, the SBSEF. Proposed Rule 819(k) is modelled on § 15.05(i) of the CFTC’s rules, which concerns the designation of agents for foreign persons participating on ‘‘reporting markets,’’ a category in the CFTC’s rules that includes SEFs.153 With respect to SEFs, § 15.05(i) provides that a SEF that permits a foreign trader to effect contracts, agreements, or transactions on the SEF shall be deemed to be the agent of the foreign trader with respect to any such contracts, agreements, or transactions executed by the foreign trader. § 15.05(i) further provides that service or delivery of any communication issued by or on behalf

154 ‘‘Non-U.S. member’’ would be a defined term in proposed Rule 819(k) that does not appear in § 15.05 of the CFTC’s rules but which, the Commission preliminarily believes, appropriately conveys the meaning of the CFTC rule for purposes of SBSEFs in proposed Rule 819(k). A foreign trader that executes contracts on a trading platform such as an SBSEF must be a member of that platform. Therefore, to promote uniformity throughout Regulation SE, the Commission is using the term ‘‘member’’ for this concept. Furthermore, the Commission has defined the term ‘‘U.S. person’’ for purposes of the cross-border application of its Title VII rules—see Rule 3a71–3(a)(4), § 240.3a71–3(a)(4) —and thus is proposing to define ‘‘non-U.S. member’’ in Rule 802 as ‘‘a member of a security￾based swap execution facility that is not a U.S. person.’’ 155Section 3D(d)(3) of the SEA, 15 U.S.C. 78c– 4(d)(3). 156See section 5h(f)(3) of the CEA, 7 U.S.C. 7b– 3(f)(3). 157Appendix C to part 38 provides, inter alia, that careful consideration should be given to the potential for manipulation or distortion of the cash settlement price of a swap, as well as the reliability of that price as an indicator of cash market values. Appropriate consideration also should be given to the commercial acceptability, public availability, and timeliness of the price series that is used to calculate the cash settlement price. Documentation demonstrating that the settlement price index is a reliable indicator of market values and conditions and is highly regarded by industry/market agents should be provided. Such documentation may take on various forms, including carefully documented interviews with principal market trading agents, pricing experts, marketing agents, etc. Appropriate consideration also should be given to the commercial acceptability, public availability, and timeliness of the price series that is used to calculate the cash flows of the swap. of the CFTC to the SEF shall constitute valid and effective service upon the foreign trader, and that a SEF that has been served with, or to which there has been delivered, a communication issued by or on behalf of the CFTC to a foreign trader shall transmit the communication promptly and in a manner which is reasonable under the circumstances, or in a manner specified by the CFTC in the communication, to the foreign trader. Paragraph (i)(1) of § 15.05 provides, with respect to SEFs, that it shall be unlawful for a SEF to permit a foreign trader to effect contracts on the SEF unless the SEF has informed the foreign trader of the requirements of § 15.05. Paragraph (i)(2) of § 15.05 permits a foreign trader to appoint its own agent for service of process if it provides a copy of the agency agreement to the SEF, and the SEF files the agreement with the CFTC. Paragraph (i)(3) of § 15.05 provides that the foreign trader would have to notify the CFTC immediately if that agreement is no longer in effect. Paragraph (k)(1) of proposed Rule 819 is modelled
on § 15.05(i) and would provide that an SBSEF that admits a non-U.S. person as a member shall be deemed to be the agent of the ‘‘non-U.S. member’’ 154 with respect to any SBS executed by the non-U.S. member. Under proposed Rule 819(k)(1), service or delivery of any communication issued by or on behalf of the Commission to the SBSEF shall constitute valid and effective service upon the non-U.S. member. If an SBSEF is served with a communication issued by or on behalf of the Commission to a non-U.S. member, the SBSEF would be required to transmit the communication to the non-U.S. member. Paragraph (k)(2) of proposed Rule 819 is modelled on § 15.05(i)(1) and would provide that it shall be unlawful for an SBSEF to permit a non-U.S. member to execute SBS transactions on the facility unless the SBSEF informs the non-U.S. member in writing of the requirements of proposed Rule 819(k). Paragraph (k)(3) of proposed Rule 819 is modelled on § 15.05(i)(2) and would permit a non-U.S. member of an SBSEF to utilize an agent for service of process other than the SBSEF. The non-U.S. member would have to provide a copy of its agreement with the alternate agent to the SBSEF, and the SBSEF would then have to file the agreement with the Commission, before executing any transaction on the SBSEF. Paragraph (k)(4) of proposed Rule 819, modelled on § 15.05(i)(3), would require the non￾U.S. member to notify the Commission if the agency agreement is no longer in effect. The Commission preliminarily believes that, for an SBSEF to have an effective regulatory program and thereby comply with Core Principle 2 (Compliance with Rules), the SBSEF must have jurisdiction over all of its members, including members who are not U.S. persons. Proposed Rule 819(k) would further an SBSEF’s ability to ensure compliance by its non-U.S. members with its rules by requiring each non-U.S. member of the SBSEF to have an agent for service of process, whether an agent of its own choosing that has been disclosed to the SBSEF and the Commission or, as a default, the SBSEF itself. This would eliminate any question of how to provide valid notice to a non-U.S. member of any proceedings involving potential rule violations. The Commission preliminarily believes that the CFTC has adequately addressed these concerns with § 15.05(i), and therefore that proposed Rule 819 should include provisions adapted from § 15.05(i) for application to SBSEFs. If the Commission ultimately adopts Rule 819(k) in the same or similar form as it is proposed, non-U.S. members of dually registered SEF/ SBSEFs that trade both swaps and SBS should already be in compliance with these requirements. The Commission seeks comment on the following:
116. Do you believe in general that
Regulation SE should include a provision making an SBSEF the default agent for service of process for its non￾U.S. members? Why or why not?
117. Do you agree with the specific
language proposed by the Commission to adapt § 15.05(i) into proposed Rule 819(k)? If not, how would you revise the rule?
118. Are there additional provisions
of § 15.05 that the Commission has omitted but which you believe should be incorporated into proposed Rule 819(k)? If so, which provisions and why?
119. Do you anticipate that SBSEFs
will have any non-U.S. members? Do you believe that proposed Rule 819(k) will even be necessary?
120. Do you agree with the proposed
definition of ‘‘non-U.S. member’’ in Rule 802? If not, how would you revise it?
C. Rule 820—Core Principle 3—SBS Not
Readily Susceptible to Manipulation Core Principle 3 155 provides that an SBSEF may permit trading only in SBS that are not readily susceptible to manipulation. CEA Core Principle 3 for SEFs is substantively identical.156 The CFTC implemented Core Principle 3 in subpart D of part 37.
Section 37.300 of subpart D repeats the
statutory text of CEA Core Principle 3. § 37.301 provides that, for a SEF to demonstrate its compliance with the core principle, it must, at the time it submits a new swap contract pursuant to part 40, provide the applicable information as set forth in appendix C to part 38 (Demonstration of Compliance That a Contract is not Readily Susceptible to Manipulation).157 Section 37.301 also states that a SEF may refer to the guidance provided in appendix B of part 37, which provides in relevant part that, when identifying a reference price, a SEF should either calculate its own reference price using suitable and well￾established acceptable methods or carefully select a reliable third-party index. Proposed Rule 820 would implement Core Principle 3. Although, like § 37.300, proposed Rule 820 repeats the statutory text of the Core Principle, the Commission preliminarily believes that it is not necessary or appropriate to harmonize with the CFTC guidance

158Section 3D(d)(4) of the SEA, 15 U.S.C. 78c– 4(d)(4). 159Section 5h(f)(4) of the CEA, 7 U.S.C. 7b– 3(f)(4). 160The guidance pertaining to Core Principle 4 has subsections entitled ‘‘general requirements,’’ ‘‘physical-delivery swaps,’’ ‘‘cash-settled swaps,’’ ‘‘ability to obtain information,’’ and ‘‘risk controls for trading.’’ referenced in § 37.301, as this guidance was developed for products other than SBS. The Commission seeks comment on the following:
121. Do you agree with how the
Commission is proposing to implement Core Principle 3? Why or why not? If not, what other rules would you suggest? D. Rule 821—Core Principle 4— Monitoring of Trading and Trade Processing Core Principle 4 158 requires an SBSEF to establish and enforce rules or terms and conditions defining or specifications detailing: (1) Trading procedures to be used in entering and executing orders traded on or through the facilities of the SBSEF; and (2) procedures for trade processing of SBS on or through the facilities of the SBSEF. Core Principle 4 also requires an SBSEF to monitor trading in SBS to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. CEA Core Principle 4 for SEFs 159 is substantively identical. The CFTC implemented Core Principle 4 in subpart E of part 37.
Section 37.401 of subpart E provides
that a SEF must collect and evaluate data on its market participants’ market activity; demonstrate an effective program for conducting real-time monitoring to detect and resolve abnormalities; demonstrate the ability to comprehensively and accurately reconstruct daily trading; and demonstrate that it has access to sufficient information to assess whether trading in the swaps on its market, in the index or instruments used as a reference price, or other underlying instruments is being used to affect prices on its market. Sections 37.402 and 37.403 impose additional requirements for physical-delivery swaps and cash-settled swaps, respectively. Section 37.404(a) requires a SEF to demonstrate that it has access to sufficient information to assess whether trading in swaps listed on its market, in the index or instrument used as a reference price, or in the underlying commodity for its listed swaps is being used to affect prices on its market.
Section 37.404(b) requires a SEF to have
rules that require its market participants to keep records of their trading, including records of their activity in the index or instrument used as a reference price, the underlying commodity, and related derivatives markets, and make such records available, upon request, to the SEF or, if applicable, to its regulatory service provider, and the CFTC. Section 37.405 requires a SEF to establish and maintain risk control mechanisms to prevent and reduce the potential risk of market disruptions, including, but not limited to, market restrictions that pause or halt trading under market conditions prescribed by the SEF. Section 37.406 requires a SEF to have the ability to reconstruct all trading on its facility, and requires that all audit-trail data and reconstructions shall be made available to the CFTC in a form, manner, and time that is acceptable to the CFTC. Section 37.407 requires a SEF to comply with subpart E of part 37 through a dedicated regulatory department or by contracting with a regulatory services provider.
Section 37.408 provides that SEFs may
refer to the guidance in appendix B to
part 37 to demonstrate compliance with
subpart E of part 37.160 Proposed Rule 821 would implement Core Principle 4 and is closely modelled on the rules in subpart E of part 37. The Commission preliminarily believes that the CFTC has implemented Core Principle 4 for SEFs in an appropriate way, and that closely harmonizing with the CFTC rule would yield comparable regulatory benefits while imposing only marginal additional costs. The Commission does not observe any differences between the swap and SBS markets sufficient to warrant a different approach to how a SEF/SBSEF should monitor trading and trade processing. As noted above, the Commission preliminarily believes, in attempting to harmonize with the CFTC’s regulatory regime for SEFs, that it would be preferable to adapt the CFTC’s guidance and acceptable practices from appendix B to part 37 into formal rules, where appropriate. Although the Commission considered proposing a stand-alone rule that adapts the guidance pertaining to Core Principle 4, the Commission is proposing instead to weave concepts— and, in some cases, specific language— from the guidance together with the CFTC’s original rule text, as the guidance itself follows the structure of the rule. The Commission illustrates its approach in the following proposed rules, where the analogous CFTC rule language is in plain text and language adapted from the guidance is italicized:

• Proposed Rule 821(b)(3): An SBSEF
  shall: ‘‘Demonstrate an effective program for conducting real-time monitoring of trading for the purpose of detecting and resolving abnormalities. A security-based swap execution facility shall employ automated alerts to detect abnormal price movements and unusual trading volumes in real time and instances or threats of manipulation, price distortion, and disruptions on at least a T+1 basis. The T+1 detection and analysis should incorporate any additional data that becomes available on a T+1 basis, including the trade reconstruction data.’’
• Proposed Rule 821(d)(2): ‘‘For cash￾settled security-based swaps listed on
  the security-based swap execution facility where the reference price is formulated and computed by the security-based swap execution facility, the security-based swap execution facility shall demonstrate that it monitors the continued appropriateness of its methodology for deriving that price and shall promptly amend any methodologies that result, or are likely to result, in manipulation, price distortions, or market disruptions, or impose new methodologies to resolve the threat of disruptions or distortions.’’
• Proposed Rule 821(d)(3): ‘‘For cash￾settled security-based swaps listed on
  the security-based swap execution facility where the reference price relies on a third-party index or instrument, including an index or instrument traded on another venue, the security-based swap execution facility shall demonstrate that it monitors for pricing abnormalities in the index or instrument used to calculate the reference price and shall conduct due diligence to ensure that the reference price is not susceptible to manipulation.’’
• Proposed Rule 821(e)(1): ‘‘A
  security-based swap execution facility shall demonstrate that it has access to sufficient information to assess whether trading in security-based swaps listed on its market, in the index or instrument used as a reference price, or in the underlying asset for its listed security￾based swaps is being used to affect prices on its market. The security-based swap execution facility shall demonstrate that it can obtain position and trading information directly from members that conduct substantial trading on its facility or through an information-sharing agreement with other venues or a third-party regulatory service provider. If the position and trading information is not available

161Section 3D(d)(5) of the SEA, 15 U.S.C. 78c– 4(d)(5). 162Section 5h(f)(5) of the CEA, 7 U.S.C. 7b– 3(f)(5). 163While § 37.502 of subpart F uses the term ‘‘market participant,’’ proposed Rule 822 substitutes the term ‘‘member’’ in these places, since the rule pertains to market participants who are acting as members of the SEF/SBSEF. See supra note 53. directly from its members but is available through information-sharing agreements with other trading venues or a third-party regulatory service provider, the security-based swap execution facility should cooperate in such information-sharing agreements.’’

• Proposed Rule 821(e)(2): ‘‘A
  security-based swap execution facility shall have rules that require its members to keep records of their trading, including records of their activity in the underlying asset, and related derivatives markets, and make such records available, upon request, to the security￾based swap execution facility or, if applicable, to its regulatory service provider and the Commission. The security-based swap execution facility may limit the application of this requirement to only those members that conduct substantial trading on its facility.’’
• Proposed Rule 821(f): ‘‘A security￾based swap execution facility shall
  establish and maintain risk control mechanisms to prevent and reduce the potential risk of market disruptions, including, but not limited to, market restrictions that pause or halt trading under market conditions prescribed by the security-based swap execution facility. Such risk control mechanisms shall be designed to avoid market disruptions without unduly interfering with that market’s price discovery function. The security-based swap execution facility may choose from among controls that include: pre-trade limits on order size, price collars or bands around the current price, message throttles, daily price limits, and intraday position limits related to financial risk to the clearing member, or design other types of controls, as well as clear error-trade and order-cancellation policies. Within the specific array of controls that are selected, the security￾based swap execution facility shall set the parameters for those controls, so that the specific parameters are reasonably likely to serve the purpose of preventing market disruptions and price distortions.’’ The Commission also is proposing a stand-alone provision derived from the
  appendix B guidance as Rule 821(b)(5),
  which would provide than an SBSEF must have rules in place that allow it to intervene to prevent or reduce market disruptions. Once a threatened or actual disruption is detected, the security￾based swap execution facility shall take steps to prevent the market disruption or reduce its severity. Finally, in several instances in subpart E of part 37, the CFTC uses the term ‘‘commodity’’ with respect to the swap underlier. In proposed Rule 821, the Commission is proposing instead to use the more generic term ‘‘asset’’ to refer to the underlier. The Commission seeks comment on the following:

122. Do you agree in general with the
     Commission’s approach to implementing Core Principle 4? Why or why not? In particular, do agree with how the Commission is proposing to adapt the CFTC guidance on Core Principle 4 by converting appropriate parts of it into a formal rule? Why or why not?
123. In particular, is there any
     language that the Commission is proposing to adapt from subpart E of
     part 37 into proposed Rule 821 that you
     believe is not appropriate? If so, how would you revise it?
124. Are there any aspects of
     proposed Rule 821 that derive from the guidance that you believe are inappropriate for the Commission to incorporate into its own rules, or that you believe the Commission is proposing to incorporate inappropriately? If so, please discuss.
125. Are there any aspects of the
     CFTC’s guidance that you believe should also be incorporated into the SEC rule but are not present in proposed Rule 821? If so, please describe. E. Rule 822—Core Principle 5—Ability To Obtain Information Core Principle 5 161 requires an SBSEF to establish and enforce rules that will allow the SBSEF to obtain any necessary information to perform any of the functions described in the Core Principles, provide the information to the Commission on request, and have the capacity to carry out such international information-sharing agreements as the Commission may require. CEA Core Principle 5 for SEFs 162 is substantively identical. The CFTC implemented Core Principle 5 in subpart F of part 37.
     Section 37.500 of subpart F repeats the
     statutory text of Core Principle 5.
     Section 37.501 requires a SEF to
     establish and enforce rules that will allow the SEF to have the ability and authority to obtain sufficient information to allow it to fully perform its operational, risk management, governance, and regulatory functions and any requirements under the rule, including the capacity to carry out international information-sharing agreements as the Commission may require. Section 37.502 requires a SEF to have rules that allow it to collect information on a routine basis, allow for the collection of non-routine data from its market participants, and allow for its examination of books and records kept by the market participants on its facility.
     Section 37.503 requires a SEF to provide
     information in its possession to the CFTC upon request, in a form and manner that the CFTC approves. Section
     37.504 requires a SEF to share
     information with other regulatory organizations, data repositories, and third-party data reporting services as required by the CFTC or as otherwise necessary and appropriate to fulfill its self-regulatory and reporting responsibilities. Section 37.504 further provides that appropriate information￾sharing agreements can be established with such entities or the CFTC can act in conjunction with the SEF to carry out such information sharing. Proposed Rule 822 would implement Core Principle 5 and is substantively identical to subpart F of part 37. Paragraph (a) of proposed Rule 822 repeats the statutory text of Core Principle 5. Paragraph (b), modelled on § 37.501, would require that an SBSEF establish and enforce rules that will allow the SBSEF to have the ability and authority to obtain sufficient information to allow it to fully perform its operational, risk management, governance, and regulatory functions and any requirements under Regulation SE. Paragraph (c), like § 37.502, would require an SBSEF to have rules that allow it to collect information on a routine basis, allow for the collection of non-routine data from its members, and allow for its examination of books and records kept by members on its facility.163 Paragraph (d), like § 37.503, would require that an SBSEF provide information in its possession to the Commission upon request, in a form and manner specified by the Commission. Finally, paragraph (e), like § 37.504, would require an SBSEF to share information with other regulatory organizations, data repositories, and third-party data reporting services as required by the Commission or as otherwise necessary and appropriate to fulfill its regulatory and reporting responsibilities, and that appropriate information-sharing agreements can be established with such entities, or the Commission can act in conjunction with the SBSEF to carry out such information sharing.

164Section 3D(d)(6) of the SEA, 15 U.S.C. 78c– 4(d)(6). 165 15 U.S.C. 78c–3(a)(1). See supra note 94 and accompanying text (discussing mandatory clearing provisions). 166Section 5h(f)(7) of the CEA, 7 U.S.C. 7b– 3(f)(7). 167While subpart H of part 37 uses the term ‘‘derivatives clearing organization,’’ proposed Rule 823 substitutes the term ‘‘registered clearing agency’’ in these places, the analogous term under the SEA. 168Section 3D(d)(7) of the SEA, 15 U.S.C. 78c– 4(d)(7). 169Section 5h(f)(8) of the CEA, 7 U.S.C. 7b– 3(f)(8). The Commission preliminarily believes that closely harmonizing with the CFTC’s rules associated with CEA Core Principle 5 would appropriately implement SEA Core Principle 5. By harmonizing with the CFTC’s approach, a SEF/SBSEF could have the same information-collection rules and information-sharing agreements. The Commission could thus obtain comparable regulatory benefits while imposing few if any additional costs on SEF/SBSEFs. The Commission seeks comment on the following:
126. Do you agree generally with how
the Commission is proposing to implement Core Principle 5? Why or why not?
127. In particular, do you believe that
closely harmonizing with subpart F of the CFTC’s rules is appropriate? Why or why not? If not, please identify any provision(s) in the CFTC rules that you believe should not be adapted for SBSEFs and explain your reasoning. F. Rule 823—Core Principle 6— Financial Integrity of Transactions SEA Core Principle 6 164 requires an SBSEF to establish and enforce rules and procedures for ensuring the financial integrity of SBS entered on or through the facilities of the SBSEF, including the clearance and settlement of SBS pursuant to section 3C(a)(1) of the SEA.165 CEA Core Principle 7 for SEFs 166 is substantively identical to SEA Core Principle 6. The CFTC implemented CEA Core Principle 7 in subpart H of part 37.
Section 37.700 of subpart H repeats the
statutory text of Core Principle 7.
Section 37.701 provides that
transactions executed on or through the SEF that are required to be cleared or are voluntarily cleared by the counterparties shall be cleared through a registered or exempt DCO. Section
37.702 requires a SEF to provide for the
financial integrity of its transactions by establishing minimum financial standards for its members, which shall at a minimum require members to be ECPs. Section 37.702 further requires a SEF to provide for the financial integrity of its transactions by ensuring that the SEF, for transactions cleared by a DCO, has the capacity to route transactions to the DCO in a manner acceptable to the DCO; and by coordinating with each DCO to which it submits transactions for clearing in the development of rules and procedures to facilitate prompt and efficient transaction processing. Section
37.703 requires a SEF to monitor its
members to ensure that they continue to qualify as ECPs. Proposed Rule 823 would implement SEA Core Principle 6 and is substantively identical to subpart H of
part 37. Paragraph (a) of proposed Rule
823 repeats the statutory text of the Core Principle. Paragraph (b), like § 37.701, would require that transactions executed on or through the SBSEF that are required to be cleared under section 3C(a)(1) of the SEA or are voluntarily cleared by the counterparties shall be cleared through a registered clearing agency 167 or a clearing agency that has obtained an exemption from clearing agency registration to provide central counterparty services for SBS. Paragraph (c), like § 37.702, would require an SBSEF to provide for the financial integrity of its transactions by establishing minimum financial standards for its members, which shall, at a minimum, require that each member qualify as an ECP. In addition, for transactions cleared by a registered clearing agency, an SBSEF must provide for the financial integrity of its transactions by ensuring that it has the capacity to route transactions to the registered clearing agency in a manner acceptable to the clearing agency for purposes of clearing, and by coordinating with each registered clearing agency to which it submits transactions for clearing, in the development of rules and procedures to facilitate prompt and efficient transaction processing. Finally, paragraph (d), like § 37.703, would require that an SBSEF monitor its members to ensure that they continue to qualify as ECPs. The Commission preliminarily believes that closely harmonizing with the CFTC’s rules associated with CEA Core Principle 7 would appropriately implement SEA Core Principle 6. By harmonizing with the CFTC’s approach, a SEF/SBSEF could have the same financial standards and requirements for its members, and develop the same processes for submitting swaps and SBS for clearing, thus promoting efficiency among its respective SEF and SBSEF operations. The Commission could thus obtain comparable regulatory benefits while imposing few if any additional costs on SEF/SBSEFs. The Commission seeks comment on the following:
128. Do you agree generally with how
the Commission is proposing to implement Core Principle 6? Why or why not?
129. In particular, do you believe that
closely harmonizing with subpart H of the CFTC’s rules is appropriate? Why or why not? If not, please identify any provision(s) in the CFTC rules that you believe should not be adapted for SBSEFs and explain your reasoning.
130. Are there any differences in the
SBS market relative to the swap market that warrant imposing different or additive requirements with respect to the rules for implementing SEA Core Principle 6? If so, please explain. G. Rule 824—Core Principle 7— Emergency Authority SEA Core Principle 7 168 requires an SBSEF to adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission, as is necessary and appropriate, including the authority to liquidate or transfer open positions in any SBS or to suspend or curtail trading in an SBS. CEA Core Principle 8 for SEFs 169 is substantively identical. The CFTC implemented Core Principle 8 for SEFs in subpart I of part
37. Section 37.800 of subpart I repeats
the statutory text of the Core Principle.
Section 37.801 provides that a SEF
‘‘may refer’’ to the guidance in appendix B to part 37 ‘‘to demonstrate to the Commission compliance with [Core Principle 8].’’ Paragraph (a)(1) of that guidance states that a SEF should have rules that authorize it to take certain actions in the event of an emergency. Furthermore, a SEF should have the authority to intervene as necessary to maintain markets with fair and orderly trading and to prevent or address manipulation or disruptive trading practices, whether the need for intervention arises exclusively from the SEF’s market or as part of a coordinated, cross-market intervention. A SEF should have the flexibility and independence to address market emergencies in an effective and timely manner consistent with the nature of the emergency, as long as all such actions taken by the SEF are made in good faith to protect the integrity of the markets. However, the SEF should also have rules that allow it to take market actions as may be directed by the CFTC. Additionally, in situations where a swap is traded on

170Section 3D(d)(8) of the SEA, 15 U.S.C. 78c– 4(d)(8). 171Section 5h(f)(9) of the CEA, 7 U.S.C. 7b– 3(f)(9). more than one platform, emergency action to liquidate or transfer open interest shall be as directed, or agreed to, by the CFTC or its staff. The SEF’s rules should include procedures and guidelines for decision-making and implementation of emergency intervention that avoid conflicts of interest, and include alternate lines of communication and approval procedures to address emergencies associated with real time events. To address perceived market threats, the SEF should have rules that allow it to take emergency actions, including imposing or modifying position limits, imposing or modifying price limits, imposing or modifying intraday market restrictions, imposing special margin requirements, ordering the liquidation or transfer of open positions in any contract, ordering the fixing of a settlement price, extending or shortening the expiration date or the trading hours, suspending or curtailing trading in any contract, transferring customer contracts and the margin, or altering any contract’s settlement terms or conditions, or, if applicable, providing for the carrying out of such actions through its agreements with its third-party provider of clearing or regulatory services. Paragraph (a)(2) of the guidance provides that a SEF should promptly notify the CFTC of its exercise of emergency action, explaining its decision-making process, the reasons for using its emergency authority, and how conflicts of interest were minimized, including the extent to which the SEF considered the effect of its emergency action on the underlying markets and on markets that are linked or referenced to the contracts traded on its facility, including similar markets on other trading venues. Furthermore, information on all regulatory actions carried out pursuant to a SEF’s emergency authority should be included in a timely submission of a certified rule pursuant to part 40. Proposed Rule 824 would implement SEA Core Principle 7 and is closely modelled on subpart I of part 37 and the guidance for CEA Core Principle 8 in
appendix B to part 37. Paragraph (a) of
proposed Rule 824 would repeat the statutory text of the Core Principle. Paragraph (b) of proposed Rule 824 would incorporate much of the language in paragraph (a)(1) of the CFTC’s guidance on CEA Core Principle 8. Under paragraph (b), an SBSEF would be required to adopt rules that are reasonably designed to:
(1) Allow the SBSEF to intervene as necessary to maintain markets with fair and orderly trading and to prevent or address manipulation or disruptive trading practices, whether the need for intervention arises exclusively from the SBSEF’s market or as part of a coordinated, cross-market intervention; (2) Have the flexibility and independence to address market emergencies in an effective and timely manner consistent with the nature of the emergency, as long as all such actions taken by the SBSEF are made in good faith to protect the integrity of the markets; (3) Take market actions as may be directed by the Commission, including, in situations where an SBS is traded on more than one platform, emergency action to liquidate or transfer open interest as directed, or agreed to, by the Commission or the Commission’s staff; (4) Include procedures and guidelines for decision-making and implementation of emergency intervention that avoid conflicts of interest; (5) Include alternate lines of communication and approval procedures to address emergencies associated with real-time events; (6) Allow the SBSEF, to address perceived market threats, to impose or modify position limits, impose or modify price limits, impose or modify intraday market restrictions, impose special margin requirements, order the liquidation or transfer of open positions in any contract, order the fixing of a settlement price, extend or shorten the expiration date or the trading hours, suspend or curtail trading in any contract, transfer customer contracts and the margin, or alter any contract’s settlement terms or conditions, or, if applicable, provide for the carrying out of such actions through its agreements with its third-party provider of clearing or regulatory services. Paragraph (c) of proposed Rule 824 is based on paragraph (a)(2) of the CFTC’s guidance on CEA Core Principle 8 and would require an SBSEF to promptly notify the Commission of its exercise of emergency action, explaining its decision-making process, the reasons for using its emergency authority, and how conflicts of interest were minimized, including the extent to which the SBSEF considered the effect of its emergency action on the underlying markets and on markets that are linked or referenced to the contracts traded on its facility, including similar markets on other trading venues. In addition, proposed Rule 824(c) would require information on all regulatory actions carried out pursuant to an SBSEF’s emergency authority to be included in a timely submission of a certified rule pursuant to Rule 807. The Commission preliminarily believes that adapting the CFTC’s guidance associated with CEA Core Principle 8 into proposed Rule 824 would appropriately implement SEA Core Principle 7. In particular, the Commission preliminarily agrees with the CFTC’s principles-based approach to emergency situations, requiring SEF/ SBSEFs to establish rules ex ante that generally would facilitate emergency actions but providing
flexibility and independence with regard to specific actions that might be necessary. The Commission also preliminarily believes, as reflected in proposed Rule 824(c), that an SBSEF that exercises its emergency authority should be required to promptly notify the Commission of such exercise and to explain the basis for its actions. By harmonizing with the CFTC’s approach, the Commission’s intent is that, in many or even all instances, the SEF/SBSEF could file the same information regarding the situation to both agencies, rather than having to prepare one submission for the SEC and a different submission for the CFTC. The Commission seeks comment on the following:
131. Do you agree generally with the
Commission’s approach to implementing SEA Core Principle 7? Why or why not?
132. In particular, do you agree with
how the Commission is proposing to adapt the guidance from appendix B to
part 37 regarding CEA Core Principle 8?
Is there language adapted from the guidance into proposed Rule 824 that you believe should be omitted or revised? If so, please describe. H. Rule 825—Core Principle 8—Timely Publication of Trading Information SEA Core Principle 8 170 requires an SBSEF to make public timely information on price, trading volume, and other trading data on SBS to the extent prescribed by the Commission, and to have the capacity to electronically capture and transmit and disseminate trade information with respect to transactions executed on or through the facility. CEA Core Principle 9 171 is substantively identical to SEA Core Principle 8. The CFTC implemented CEA Core Principle 9 in subpart J of part 37.
Section 37.900 of subpart J repeats the
statutory language of the Core Principle. § 37.901 provides that, with respect to swaps traded on or through a SEF, the

172Section 13(m)(1) of the SEA, 15 U.S.C. 78m(m)(1), authorizes the Commission to make SBS transaction, volume, and pricing data available to the public in such form and at such times as the Commission determines appropriate to enhance price discovery. The Commission has adopted rules relating to the reporting and public dissemination of SBS transaction and pricing data as Regulation SBSR. Rule 901(a)(1) of Regulation SBSR, 17 CFR 242.901(a)(1), imposes certain reporting duties on SBSEFs. 173Contra § 16.00(a) (requiring a reporting market to submit clearing member reports to the CFTC for each business day). 174Each of these terms is defined in proposed Rule 802 and also used in proposed Rule 815. 175See 17 CFR 242.606. 176 XML (eXtensible Markup Language) is an open standard that defines, or ‘‘tags,’’ data using standard definitions. The tags establish a consistent structure of identity and context, which allows for automatic recognition and processing by software applications. 177The presence of any such waiver requirements on a click-through screen could chill use of the Daily Market Data Report, because the user would be compelled to agree to the waiver even to view the report. The Commission recognizes that individual users may not have the time or the incentive to contest the appropriateness of any such waiver provisions in order to secure access. Proposed Rule 825(c)(3)(iv) is designed to assure such users that, even if an SBSEF were to insist on the waiver click-through as a condition of access, users would not in fact be sacrificing their ability to use the data free of charges and usage restrictions because the waiver would be null and void. SEF shall report specified swap data as provided in parts 43 and 45 of the CFTC’s rules. Section 37.901 also requires the SEF to comply with part 16 of the CFTC’s rules, which requires a ‘‘reporting market’’ (which term includes a SEF) to provide certain reports to the CFTC regarding trading activity on the SEF and to make certain of that information publicly available without charge. Proposed Rule 825 would implement SEA Core Principle 8 and is closely modelled on subpart J of part 37. Paragraph (a) of proposed Rule 825, like § 37.900, repeats the statutory language of the Core Principle. While § 37.901 provides that a SEF shall report swap transaction data pursuant to Parts 43 and 45 of the CFTC’s rules, paragraph (b) of proposed Rule 825 would direct SBSEFs to report SBS transaction data in a manner specified in the SEC’s Regulation SBSR.172 In addition, the Commission preliminarily believes that it would be appropriate to incorporate requirements for SBSEFs that are modelled on the requirements for SEFs in the CFTC’s
part 16. Unlike part 16, however, the
Commission is not proposing to require SBSEFs to submit any information directly to the Commission.173 Rather, the Commission is proposing in paragraph (c) of Rule 825 to require only the publication, on an SBSEF’s website, of a ‘‘Daily Market Data Report.’’ The data fields that the Commission is proposing to require for the Daily Market Data Report approximate, although they are not the same as, those required by part 16. The Commission preliminarily believes that the differences in the product markets (i.e., SBS vs. swaps and futures products) necessitate certain adaptations in the data fields so as to render the reports published by SBSEFs meaningful to SBS market participants and market observers. Under proposed Rule 825(c)(1), the Daily Market Data Report for a business day would be required to contain the following information for each tenor of each SBS traded on that SBSEF during that business day:
(i) The trade count (including block trades but excluding error trades, correcting trades, and offsetting trades); (ii) The total notional amount traded (including block trades but excluding error trades, correcting trades, and offsetting trades 174); (iii) The number of block trades; (iv) The total notional amount of block trades; (v) The opening and closing price; (vi) The price that is used for settlement purposes, if different from the closing price; and (vii) The lowest price of a sale or offer, whichever is lower, and the highest price of a sale or bid, whichever is higher, that the SBSEF reasonably determines accurately reflects market conditions. Bids and offers vacated or withdrawn shall not be used in making this determination. A bid is vacated if followed by a higher bid or price and an offer is vacated if followed by a lower offer or price. Paragraph (c)(2) of proposed Rule 825 would require an SBSEF to provide certain explanatory information regarding data presented on the Daily Market Data Report:
(i) The method used by the SBSEF in determining nominal prices and settlement prices; and (ii) If discretion is used by the SBSEF in determining the opening and/or closing ranges or the settlement prices, an explanation that certain discretion may be employed by the SBSEF and a description of the manner in which that discretion may be employed. Discretionary authority would have to be noted explicitly in each case in which it is applied (for example, by use of an asterisk or footnote). Paragraph (c)(3) of proposed Rule 825 would set out various requirements regarding the form and manner by which an SBSEF makes available its Daily Market Data Report. Paragraph (c)(3)(i) would require the SBSEF to post on its website its Daily Market Data Report in a downloadable and machine￾readable format using the most recent versions of the associated XML schema and PDF renderer as published on the Commission’s website. This proposed requirement is similar to existing Commission requirements for broker￾dealer reports on order routing and execution 175 and is designed to allow the Daily Market Data Report to be automatically recognized and processed by a variety of software applications, thus making it immediately available for users to search, aggregate, compare, and analyze.176 This should enable SBS market participants and other market observers to obtain timely and consistent information on price, trading volume, and other SBSEF trading data in a manner that would facilitate search capabilities, and statistical and comparative analyses across SBSEFs and date ranges. In addition, requiring SBSEFs to use a PDF renderer as specified by the Commission would provide a corresponding human￾readable version of the machine￾readable data, allowing end users without access to analytical software to read the disclosed information. Paragraph (c)(3)(ii) of proposed Rule 825 would require the SBSEF to make available its Daily Market Data Report without fees or other charges. Paragraph (c)(3)(iii) would prohibit the SBSEF from imposing any encumbrances on access or usage restrictions with respect to the Daily Market Data Report. Paragraph (c)(3)(iv) would prohibit the SBSEF from requiring a user to agree to any terms before being allowed to view or download the Daily Market Data Report, such as by waiving any requirements of proposed Rule 825(c)(3). Paragraph (c)(3)(iv) would further provide that any such waiver agreed to by a user would be null and void.177 The Commission preliminarily believes that proposed Rule 825(c)(3) could be subverted if an SBSEF could, for example, require that users—as a condition to viewing or downloading the Daily Market Data Report—waive any of the protections afforded under proposed Rule 825(c)(3). Proposed Rule 825(c)(3) is designed to promote wide use of the SBS trading information contained in the Daily Market Data Report by prohibiting an SBSEF from imposing any financial, legal, or operational burdens on that use. The approach taken in
proposed Rule 825(c)(3) is similar to the approach taken by the Commission in Regulation SBSR, which uses the term ‘‘widely

178See Rule 900(tt) of Regulation SBSR, 17 CFR 242.900(tt) (defining ‘‘widely accessible’’). 179See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEA Release No. 78321 (July 14, 2016), 81 FR 53546, 53586–89 (August 12, 2016) (‘‘Regulation SBSR Adopting Release II’’). 180 Id. at 53587. 181 Id. (stating that: ‘‘The Commission continues to believe that allowing unencumbered redistribution best serves the policy goals of wide availability of the data and minimization of information asymmetries in the [SBS] market. Because the Commission is prohibiting registered SDRs from imposing a restriction on bulk redistribution, third parties . . . will be able to take in the full data set and scrub, reconfigure, aggregate, analyze, repurpose, or otherwise add value to those data, and potentially sell that value-added product to others’’). 182Section 3D(d)(9) of the SEA, 15 U.S.C. 78c– 4(d)(9). 183As discussed below in this section, the Commission is proposing Rule 826 to require an SBSEF to maintain records of all activities relating to the business of the SBSEF for a period of not less than five years. Similarly, Rule 17a–1 under the SEA, 17 CFR 240.17a–1, requires a clearing agency to keep and preserve one copy of all documents made or received in the course of its business and conduct of its self-regulatory activities for a period of not less than five years. In addition, Rule 13n– 7(b) under the SEA, 17 CFT 240.13n–7(b), requires an SBS data repository to keep and preserve a copy of all documents made or received by it in the course of its business for at least five years. 184CEA Core Principle 10 includes a clause stating that a SEF shall keep any records relating to certain swaps open to inspection and examination by the SEC. See 7 U.S.C. 7b– 3(f)(10)(A)(iii). accessible’’ 178 to prohibit registered SDRs from charging fees for or imposing usage restrictions on the SBS transaction data that they are required to publicly disseminate under Regulation SBSR.179 When adopting the definition of ‘‘widely accessible,’’ the Commission noted that a registered SDR has a monopoly position over the SBS transaction information that it publicly disseminates and stated that ‘‘there would be no other source from which the user could freely obtain this transaction information.’’ 180 The Commission preliminarily believes that a registered SBSEF is similarly situated, because it is the sole source of information about SBS trading activity on its market. The Commission also stated that the prohibition on usage restrictions encompasses an SDR￾imposed restriction on bulk redistribution by third parties of the regulatorily mandated transaction data that the registered SDR publicly disseminates.181 For the same reasons, the proposed prohibition against an SBSEF imposing any usage restrictions on its Daily Market Data Report necessarily would encompass a prohibition on bulk redistribution of the Daily Market Data Report or any information
contained therein. The Commission seeks to encourage market observers to access the Daily Market Data Report and scrub, reconfigure, aggregate, analyze, repurpose, or otherwise add value to the information contained in the report as they see fit. Paragraph (c)(4) of proposed Rule 825 would require the SBSEF to publish the Daily Market Data Report on its website no later than the SBSEF’s commencement of trading on the next business day after the day to which the information pertains. Proposed Rule 825(c)(4) is designed to require an SBSEF to provide its market data in a timely fashion so that it can be assessed and utilized by the next business day. Finally, paragraph (c)(5) would require the SBSEF to keep each Daily Market Data Report available on its website in the same location as all other Daily Market Data Reports for no less than one year after the date of first publication. Proposed Rule 825(c)(5) is designed to allow market observers to consult a reasonable number of previous reports on the SBSEF’s website; the reports would be of less utility if an SBSEF could take down reports shortly after they are posted. The Commission seeks comment on the following:
133. Do you agree in general with the
Commission’s approach for implementing SEA Core Principle 8? Why or why not?
134. Do you agree with the adaptions
that the Commission is proposing to the CFTC’s part 16 for inclusion in proposed Rule 825(c)? In particular, do you concur with the Commission’s proposal to require only the Daily Market Data Report (to be published on the SBSEF’s website) and not to require any daily reports to the Commission? Why or why not? If not, what market data do you believe should be reported directly to the Commission, and why?
135. Do you agree with the fields
proposed by the Commission for the Daily Market Data Report in paragraphs (c)(1) and (2) of proposed Rule 825? If not, which fields do you believe are not appropriate, and why?
136. Do you believe that any of the
fields should be defined differently or more precisely? If so, please explain.
137. Do you believe that the
Commission should require additional fields? If so, what fields and why?
138. Do you agree with the proposed
requirement in Rule 825(c)(3) that the Daily Market Data Report should be available free of charge and without usage restrictions or encumbrances? Why or why not? Are there any clarifications that you would recommend to help promote free and unencumbered access to and use of the Daily Market Data Report and any information contained therein? If so, please discuss.
139. Do you agree with the proposed
requirement that the Daily Market Data Report should be made available in a downloadable and machine-readable format using the most recent version of the associated XML schema and PDF renderer as published on the Commission’s website? Why or why not? Is there some other format that the Commission should require? If so, what format and why?
140. Do you agree with the proposed
requirement in Rule 825(c)(4) that an SBSEF must publish the Daily Market Data Report on its website no later than the SBSEF’s commencement of trading on the next business day after the day to which the information pertains? Why or why not? What is the current practice for the approximate time of day at which CFTC reporting markets make available their daily market data?
141. Do you agree with the proposed
requirement in Rule 825(c)(5) that an SBSEF keep each Daily Market Data Report available on its website in the same location as all other Daily Market Data Reports for no less than one year after the date of first publication? Why or why not? Do you believe that a longer or shorter period would be appropriate? If so, please explain.
I. Rule 826—Core Principle 9—
Recordkeeping and Reporting SEA Core Principle 9 182 sets forth recordkeeping and reporting obligations for SBSEFs. Core Principle 9 requires an SBSEF to maintain records of all activities relating to the business of the facility, including a complete audit trail, in a form and manner acceptable to the Commission for a period of five years. The Core Principle further requires an SBSEF to report to the Commission, in a form and manner acceptable to the Commission, such information as the Commission determines to be necessary or appropriate for the Commission to perform its duties. Finally, under Core Principle 9, the Commission must adopt data collection and reporting requirements for SBSEFs that are comparable to requirements for clearing agencies and SBS data repositories.183 CEA Core Principle 10 for SEFs, although it includes an additional clause not present in the equivalent SEA Core Principle 9,184 is substantively identical. The CFTC implemented Core Principle 10 for SEFs in subpart K of
part 37. Section 37.1000 of subpart K
repeats the statutory language of the Core Principle. Section 37.1001 requires a SEF to maintain records of all

185See 7 CFR 45.2(c) (‘‘All records required to be kept pursuant to this section shall be retained with respect to each swap throughout the life of the swap and for a period of at least five years following the final termination of the swap’’). Section 45.2(b) imposes duties on certain swap counterparties and is not germane to SEFs; therefore, the Commission is not considering adapting it into proposed Rule 826. 186Section 45.2(f) and (g) are marked as ‘‘reserved.’’ 187See infra section XIII (discussing in the context of proposed new Rule 15a–12 that an SBSEF registered with the Commission is also a registered broker and, as such, is subject to the SEA’s recordkeeping and reporting requirements applicable to brokers). 188While § 1.31(a) defines the terms ‘‘regulatory records’’ and ‘‘electronic regulatory records’’ and utilizes them throughout § 1.31, the Commission is utilizing instead the term ‘‘records,’’ which is defined in section 3(a)(37) of the SEA, 15 U.S.C. 78c(a)(37). In doing so, the Commission seeks to avoid any ambiguities or inconsistencies that could arise by using variants of a term that is defined in the Commission’s governing statute. The Commission is including a definition of ‘‘records’’ in proposed Rule 802 that cross-references section 3(a)(37) of the SEA. 189See 15 U.S.C. 78c–4(d)(9)(A)(i) (requiring an SBSEF to ‘‘maintain records of all activities relating to the business of the facility, including a complete audit trail, in a form and manner acceptable to the Commission, for a period of five years’’) (emphasis added). 190See Rule 17a–4(b) under the SEA, 17 CFR 240.17a–4(b). 191 In this context, ‘‘prompt’’ or ‘‘promptly’’ means making reasonable efforts to produce records that are requested by the staff during an examination without delay. The Commission believes that, in many cases, an SBSEF could, and therefore would be required to, furnish records immediately or within a few hours of a request. An SBSEF should produce records within 24 hours unless there are unusual circumstances. activities relating to the business of the facility, in a form and manner acceptable to the CFTC, for a period of at least five years, and that a SEF shall maintain such records, including a complete audit trail for all swaps executed on or subject to the rules of the SEF, investigatory files, and disciplinary files. Section 37.1001 does not itself set forth detailed record retention requirements. Instead, § 37.1001 directs SEFs to maintain the required records in accordance with § 1.31 and part 45 of the CFTC’s rules.
Section 1.31 imposes on ‘‘records
entities’’ (which term includes SEFs) various requirements relating to record retention and production. Section 1.31(a) sets out definitions of terms used throughout § 1.31. Section 1.31(b) sets out the duration of retention for different types of records. In particular, a records entity must keep regulatory records of any swap from the date that the regulatory record was created until at least five years after the termination, maturity, expiration, transfer, assignment, or novation of such swap.
Section 1.31(c) sets out the required
form and manner of retention. Section 1.31(d) provides that a records entity must, at its own expense, produce or make regulatory records accessible for inspection to CFTC staff or to the U.S. Department of Justice, and includes other details regarding production requests.
Section 45.2 imposes various
recordkeeping, retention, and retrieval requirements applicable to SEFs (among others) to support trade reporting.
Section 45.2(a), among other things,
requires a SEF to keep all records required by part 37. Section 45.2(c) sets out a record retention requirement.185
Section 45.2(d) imposes requirements
on the form of retention. § 45.2(e) imposes requirements on record retrievability. Section 45.2(h) 186 imposes requirements for record inspection; in particular, all records required to be kept by § 45.2 shall be open to inspection upon request by any representative of the CFTC, the U.S. Department of Justice, the SEC, or by any representative of a prudential regulatory as authorized by the CFTC. To implement SEA Core Principle 9, the Commission is proposing Rule 826, which would roughly approximate §§ 1.31 and 45.2 while also drawing on concepts from the books and records requirements applicable to brokers, SEC-registered SROs, and other SEC￾registered entities.187 Paragraph (a) of proposed Rule 826 repeats the statutory text of the Core Principle. Paragraph (b) would require an SBSEF to keep full, complete, and systematic records,188 together with all pertinent data and memoranda, of all activities relating to its business with respect to SBS. Under paragraph (b), such records would be required to include, without limitation, the audit trail information required under proposed Rule 819(f) and all other records that an SBSEF is required to create or obtain under Regulation SE. Paragraph (c) of proposed Rule 826 would require an SBSEF to keep records of any SBS from the date of execution until the termination, maturity, expiration, transfer, assignment, or novation date of the transaction, and for a period of not less than five years, the first two years in an easily accessible place, after such date. Paragraph (c) also would require an SBSEF to keep each record (other than a record of an SBS noted in the previous sentence) for a period of not less than five years, the first two years in an easily accessible place, from the date on which the record was created. The proposed five-year retention requirements are consistent with section 3D(d) of the SEA 189 and are modelled on the requirements for SEFs in §§ 1.31 and 45.2. The proposed requirement that the records be kept ‘‘in an easily accessible place’’ for the first two years derives from an analogous requirement in the Commission’s principal books and records rule for exchange members, brokers, and dealers.190 Paragraph (d)(1) of proposed Rule 826 would require an SBSEF to retain all records in a form and manner that ensures the authenticity and reliability of such records in accordance with the Act and the Commission’s rules thereunder. Paragraph (d)(2) would require an SBSEF, upon request of any representative of the Commission, to promptly 191 furnish to the representative legible, true, complete, and current copies of any records required to be kept and preserved under Rule 826. Paragraph (d)(3) would provide that an electronic record shall be retained in a form and manner that allows for prompt production at the request of any representative of the Commission. Paragraph (d)(3) also would include provisions modelled on § 1.31(c)(2) requiring an SBSEF that maintains electronic records to
establish appropriate systems and controls that ensure the authenticity and reliability of electronic records, including, without limitation:
(A) Systems that maintain the security, signature, and data as necessary to ensure the authenticity of the information contained in electronic records and to monitor compliance with the SEA and the Commission’s rules thereunder; (B) Systems that ensure that the SBSEF is able to produce electronic records in accordance with Rule 826, and ensure the availability of such electronic records in the event of an emergency or other disruption of the SBSEF’s electronic record retention systems; and (C) The creation and maintenance of an up-to-date inventory that identifies and describes each system that maintains information necessary for accessing or producing electronic records. Sections 1.31 and 43.2 include provisions that govern inspection and production of records. While the Commission believes that its rules for SBSEFs also should address those topics, the Commission does not believe that adapting a CFTC rule would be the most appropriate way to do so. Paragraph (e) of proposed Rule 826 would provide instead that, because a registered SBSEF is also a registered broker, all records required to be kept by an SBSEF pursuant to Rule 826 would

192Since a ‘‘foreign trader’’ in § 1.37(c) is executing transactions on the SEF, it must be a member of the SEF. Because the term ‘‘member’’ is used elsewhere in the CFTC rules pertaining to SEFs, the Commission is proposing to use the term ‘‘member’’ throughout Regulation SE and would define ‘‘member’’ in Rule 802. The term ‘‘non-U.S. member,’’ also found in proposed Rule 802, would be defined as ‘‘a member of a security-based swap execution facility that is not a U.S. person.’’ 193Section 3D(d)(10) of the SEA, 15 U.S.C. 78c– 4(d)(10). 194Section 5h(f)(11) of the CEA, 7 U.S.C. 7b– 3(f)(11). 195 7 U.S.C. 19(b) (providing that the CFTC shall take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of this chapter of the CEA, as well as the policies and purposes of this chapter of the CEA, in issuing any order or adopting any CFTC rule or regulation (including any exemption), or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association). 196The guidance in appendix B of part 37 pertaining to CEA Core Principle 10 for SEFs states:
‘‘An entity seeking registration as a [SEF] may request that the [CFTC] consider under the provisions of section 15(b) of the [CEA], any of the entity’s rules, including trading protocols or policies, and including both operational rules and the terms or conditions of products listed for trading, at the time of registration or thereafter. The [CFTC] intends to apply section 15(b) of the [CEA] to its consideration of issues under this core principle in a manner consistent with that previously applied to contract markets.’’ Section 15(b) of the CEA, 7 U.S.C. 19(b) states: ‘‘The [CFTC] shall take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of this chapter, as well as the policies and purposes of this chapter, in issuing any order or adopting any [CFTC] rule or regulation (including any exemption under section 6(c) or 6c(b) of this title), or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association established pursuant to section 21 of this title.’’ The Commission does not believe that it is appropriate to adapt this guidance into a rule that applies to SBSEFs because the SEA (which applies to SBSEFs) does not have a provision that is closely comparable to section 15(b) of the CEA (which applies to SEFs). Furthermore, the guidance pertaining to CEA Core Principle 10 for SEFs sets out only a general approach to how the CFTC addresses antitrust issues applying to SEFs and does not include provisions that can readily be adapted into rule text. be subject to examination by any representative of the Commission pursuant to section 17(b) of the SEA. As noted above, section 17(b) is the source of the Commission’s examination authority for registered brokers (among other types of registered entities). Proposed Rule 826(e) is designed only to remind SBSEFs of this statutory authority and does not seek to limit or expand that authority using the Commission’s powers over SBSEFs in
section 3D of the SEA.
Proposed Rule 826 includes a paragraph (f) that is not modelled on any provision of § 1.31 or 43.2, but rather on § 1.37(c) of the CFTC’s rules, which provides: ‘‘Each designated contract market and swap execution facility shall keep a record in permanent form, which shall show the true name, address, and principal occupation or business of any foreign trader executing transactions on the facility or exchange. In addition, upon request, a designated contract market or swap execution facility shall provide to the Commission information regarding the name of any person guaranteeing such transactions or exercising any control over the trading of such foreign trader.’’ Proposed Rule 826(f) is modelled closely on § 1.37(c), except that it uses the term ‘‘non-U.S. member’’ rather than ‘‘foreign trader.’’ 192 The recordkeeping and reporting requirements proposed in Rule 826 are designed to be generally consistent with the requirements applicable to SEFs and with the Commission’s requirements under section 17(a) of the SEA. The Commission preliminarily believes that proposed Rule 826 would therefore achieve similar regulatory benefits as the CFTC rules applicable to SEFs while imposing only marginal costs, since dually registered SEF/SBSEFs are familiar with the CFTC requirements and have invested in systems, policies, and procedures to comply with them. The Commission intends that the same systems, policies, and procedures could be used to comply with parallel SEC requirements. The Commission seeks comment on the following:
142. Do you agree in general with the
Commission’s approach to implementing SEA Core Principle 9? Why or why not?
143. Do you believe that the
Commission should subject registered SBSEFs to section 17(a) of the SEA and the Commission’s rules thereunder? Why or why not? If not, are there nevertheless specific provisions of the Commission’s rules under section 17(a) that you believe should nevertheless be incorporated into Rule 826 using the Commission’s statutory authority over SBSEFs in section 3D of the SEA? If so, which provision(s) and why?
144. Are there any provisions of
proposed Rule 826 that are significantly different from, or even in conflict with, any recordkeeping requirements imposed on SEFs by any CFTC rule? If so, please discuss and suggest how you would resolve any such conflict.
145. Are there any provisions of § 1.31
or § 45.2 that the Commission has not proposed to incorporate into proposed Rule 826 that you believe should be applied to SBSEFs? If so, which provision(s) and why?
146. Are there any recordkeeping
provisions elsewhere in the CFTC rules that the Commission has not proposed to incorporate into proposed Rule 826 that you believe should be applied to SBSEFs? If so, which provision(s) and why?
147. Do you believe that the
Commission should adapt § 1.37 into proposed Rule 826(f)? Why or why not? Do you believe that the Commission’s proposed term ‘‘non-U.S. member’’ used in Rule 826(f) is an appropriate substitute for ‘‘foreign trader’’ used in § 1.37? Why or why not? J. Rule 827—Core Principle 10— Antitrust Considerations SEA Core Principle 10 193 provides that, unless necessary or appropriate to achieve the purposes of the SEA, an SBSEF shall not: (1) Adopt any rules or take any actions that result in any unreasonable restraint of trade, or (2) impose any material anticompetitive burden on trading or clearing. CEA Core Principle 11 194 is substantively identical. The CFTC implemented CEA Core Principle 11 in subpart L of part 37.
Section 37.1100 of subpart L repeats the
statutory text of Core Principle 11.
Section 37.1101 provides that a SEF
‘‘may refer’’ to the guidance in appendix B to part 37 to demonstrate compliance with Core Principle 11. The guidance states that an entity seeking registration as a SEF may request that the CFTC consider, under the provisions of
section 15(b) of the CEA,195 any of the
entity’s rules—including trading protocols or policies, and including both operational rules and the terms or conditions of products listed for trading—at the time of registration or thereafter. The guidance further states that the CFTC intends to apply CEA
section 15(b) to its consideration of
issues under CEA Core Principle 11 in a manner consistent with that previously applied to contract markets. Proposed Rule 827 would implement SEA Core Principle 10 and, like § 37.1100, reiterates the statutory text of the Core Principle. The Commission is not adapting the guidance from
appendix B pertaining to CEA Core
Principle 11 into a proposed rule.196 The Commission seeks comment on the following:
148. Do you agree with how the
Commission is proposing to implement SEA Core Principle 10? Why or why not?

197Section 3D(d)(11) of the SEA, 15 U.S.C. 78c– 4(d)(11). 198 7 U.S.C. 7b–3(f)(12). 199The CFTC has proposed additional rules regarding the mitigation of conflicts of interest but has not adopted any such rules. See CFTC, Requirements for Derivatives Clearing Organizations, Designated Contract Markets, and Swap Execution Facilities Regarding the Mitigation of Conflicts of Interest, 75 FR 63732 (October 18, 2010); CFTC, Governance Requirements for Derivatives Clearing Organizations, Designated Contract Markets, and Swap Execution Facilities; Additional Requirements Regarding the Mitigation of Conflicts of Interest, 76 FR 722 (January 6, 2011). 200See infra section X. 201Section 3D(d)(12) of the SEA, 15 U.S.C. 78c– 4(d)(12). 202Section 5h(f)(13) of the CEA, 7 U.S.C. 7b– 3(f)(13). K. Rule 828—Core Principle 11— Conflicts of Interest SEA Core Principle 11 197 requires an SBSEF to establish and enforce rules to minimize conflicts of interest in its decision-making process and to establish a process for resolving the conflicts of interest. CEA Core Principle 12 198 is substantively identical. The CFTC implemented CEA Core Principle 12 in subpart M of part 37.
Section 37.1200 of subpart M repeats
the statutory text of Core Principle 12. There are no other provisions in subpart M, nor is there any guidance or acceptable practices associated with Core Principle 12 in appendix B to part 37.199 Proposed Rule 828 would implement SEA Core Principle 11. Paragraph (a) of proposed Rule 828, like § 37.1200, repeats the statutory text of the Core Principle. Paragraph (b) would direct an SBSEF to comply with the requirements of proposed Rule 834, which, as discussed below, would implement
section 765 of the Dodd-Frank Act for
both SBSEFs and SBS exchanges.200 The Commission seeks comment on the following:
149. Do you agree with how the
Commission is proposing to implement SEA Core Principle 11 in Rule 828? Why or why not?
150. The Commission is proposing to
subject SBS exchanges and SBSEFs to the same conflicts-of-interest requirements, in Rule 834. Therefore, proposed Rule 828 cross-references proposed Rule 834 rather than enumerating conflicts-of-interest requirements for SBSEFs separate from those for SBS exchanges. Do you believe that this is an appropriate way to structure the proposed rules? Why or why not? Are there any conflicts-of￾interest requirements that you believe should be applied to SBSEFs but not to SBS exchanges? If so, what requirement(s) and why?
L. Rule 829—Core Principle 12—
Financial Resources
SEA Core Principle 12 201 has a paragraph (A) that requires an SBSEF to have adequate financial, operational, and managerial resources to discharge each responsibility of the SBSEF, as determined by the Commission. Paragraph (B) of SEA Core Principle 12 provides that the financial resources of an SBSEF shall be considered to be adequate if the value of the financial resources: (i) Enables the organization to meet its financial obligations to its members and participants notwithstanding a default by the member or participant creating the largest financial exposure for that organization in extreme but plausible market conditions; and (ii) exceeds the amount that would enable the SBSEF to cover operating costs of the SBSEF for a one-year period, as calculated on a rolling basis. CEA Core Principle 13 for SEFs 202 is substantively identical with respect to paragraphs (A) and (B)(ii) of SEA Core Principle 12, but lacks an equivalent to paragraph (B)(i) of SEA Core Principle 12. The CFTC implemented CEA Core Principle 13 for SEFs in subpart N of
part 37. Section 37.1300 of subpart N
repeats the statutory text of CEA Core Principle 13. Section 37.1301 provides that financial resources shall be considered adequate if their value exceeds the total amount that would enable a SEF to cover its projected operating costs necessary for the SEF to comply with section 5h of the CEA and applicable CFTC regulations for a one￾year period, calculated on a rolling basis. Section 37.1302 describes the types of financial resources that may satisfy the requirements of § 37.1301.
Section 37.1303 provides that the
financial resources allocated by the SEF to meet the financial resources requirements shall include unencumbered, liquid financial assets equal to at least the greater of three months of projected operating costs or the projected costs needed to wind down the SEF’s operations. If a SEF lacks sufficient unencumbered, liquid financial assets, it may satisfy this obligation by obtaining a committed line of credit in an amount at least equal to the deficiency. Section 37.1304 requires a SEF, each fiscal quarter, to make a reasonable calculation of its projected operating costs and wind-down costs in order to determine its applicable obligations under this section. It further provides that the SEF shall have reasonable discretion in determining the methodology used to compute such amounts, provided that the CFTC may review the methodology and require changes as appropriate. Section 37.1305 provides that, no less than each fiscal quarter, a SEF must compute the current market value of each financial resource used to meet its obligations under §§ 37.1301 and 37.1303 and that reductions in value to reflect market and credit risk (‘‘haircuts’’) shall be applied as appropriate.
Section 37.1306 addresses reporting
to the CFTC. Paragraph (a) of § 37.1306 provides that, each fiscal quarter, or at any time upon CFTC request, a SEF shall report the amount of financial resources necessary to meet the requirements of §§ 37.1301 and 37.1303 and the market value of each financial resource available, and provide the CFTC with financial statements, including the balance sheet, income statement, and statement of cash flows of the SEF, prepared in accordance with U.S. generally acceptable accounting principles (‘‘GAAP’’). Paragraph (a) further provides that the financial statements of a SEF that is not domiciled in the United States and is not otherwise required to prepare financial statements in accordance with U.S. GAAP may instead prepare its financial statements in accordance with either International Financial Reporting Standards issued by the International Accounting Standards Board or a comparable international standard as the CFTC may otherwise accept in its discretion. Paragraph (b) provides that the calculations required under paragraph (a) shall be made as of the last business day of the SEF’s fiscal quarter. Paragraph (c) requires the SEF to provide the CFTC with sufficient documentation to explain its methodology for computing its financial requirements under §§ 37.1301 and
37.1303. Further, paragraph (c) of
§ 37.1306 requires that the documentation must allow the CFTC to reliably determine, without additional requests for information, that the SEF has made reasonable calculations pursuant to § 37.1304. Paragraph (d) of § 37.1306 provides that these reports and supporting documentation shall be filed within 40 calendar days of the end of the SEF’s first three fiscal quarters, and within 90 calendar days of the end of the SEF’s fourth fiscal quarter, or at such later time as the CFTC may permit. Paragraph (e) requires a SEF to provide notice to the CFTC no later than 48 hours after it knows or reasonably should know that it no longer meets its

203However, paragraph (a)(2)(i) of proposed Rule 829 would include the additional language in SEA Core Principle 12 that is not present in CEA Core Principle 13. As noted above, this language relates to an SBSEF meeting financial obligations to members and participants notwithstanding a default by the member or participant creating the largest financial exposure for the SBSEF in extreme but plausible market conditions. 204Section 3D(d)(13)(A) of the SEA, 15 U.S.C. 78c–4(d)(13). 205Section 5h(f)(14) of the CEA, 7 U.S.C. 7b– 3(f)(14). obligations under §§ 37.1301 and 37.1303. Proposed Rule 829 would implement SEA Core Principle 12 and is based closely on subpart N of part 37.203 Because this Core Principle relates to the business operations of the trading venue, very few modifications are necessary to adapt the CFTC rule to apply to SBSEFs. Therefore, proposed Rule 829 is closely modelled on the rules in subpart N. However, one slight difference in the rule text stems from the Commission’s global approach to adapting the CFTC’s guidance and acceptable practices from
appendix B to part 37 into formal rules,
where appropriate. Although the Commission considered proposing a separate rule that adapts the guidance in
appendix B pertaining to CEA Core
Principle 13, the Commission is proposing instead to weave the concepts and some of the specific language from the CFTC guidance relating to financial resources into paragraph (e) of proposed Rule 829, as the guidance relates only to that portion of the proposed rule. Proposed Rule 829(e) begins by incorporating the provisions of § 37.1304 regarding computation of costs to meet the financial resources requirement. Proposed Rule 829(e) then appends language based on the CFTC guidance concerning the following topics, all of which relate to computation of costs: (i) Reasonableness of calculating projected operating costs and what may be excluded from such calculation; (ii) proration of expenses; and (iii) allocation of expenses among affiliates. Another non-substantive difference between proposed Rule 829 and subpart N of part 37 is the requirement in proposed Rule 829(g)(6) for an SBSEF to submit reports and documentation to the Commission using the EDGAR system as an Interactive Data File, in accordance with Rule 405 of Regulation S–T. The Commission is proposing this requirement here and in other locations to implement the Inline XBRL and EDGAR electronic filing requirements for various documents that would have to be provided to the Commission under proposed Regulation SE. The Commission preliminarily believes that the CFTC has implemented its equivalent Core Principle in an appropriate way, and that closely harmonizing with the CFTC rule would provide comparable regulatory benefits while imposing only marginal additional costs. Given that most if not all entities that will seek to register with the SEC as SBSEFs are already registered with the CFTC as SEFs, these entities already have in place the processes and controls to designed to comply with subpart N. Furthermore, the Commission recognizes that the swap business of a dually registered SEF/SBSEF is likely to be much larger than its SBS business. Therefore, the greatest risk to a dually registered entity is likely to arise from the swap business rather than the SBS business, so it would be logical for the SEC to defer to the CFTC’s approach for ensuring that SEFs have adequate financial resources. Different or additive requirements imposed by the SEC could increase costs for SEF/SBSEFs while generating benefits that are marginal at best. The Commission does not observe any differences in the SBS market relative to the swap market that warrant imposing different or additive financial resource requirements on SBSEFs. The Commission seeks comment on the following:
151. Do you agree in general with the
Commission’s approach to implementing SEA Core Principle 12? Why or why not?
152. In particular, do you agree with
how the Commission is proposing to adapt the language of subpart N of part 37 into proposed Rule 829? If not, how would you revise that language?
153. How does the anticipated size of
the SBS trading business on dually registered SEF/SBSEFs relative to the size of swap trading business affect your view of the financial resource requirements that the SEC should impose on dually registered entities? Do you agree that there would be only marginal additional costs imposed on dually registered entities to provide the same financial information at the same times to both the SEC and CFTC (pursuant to proposed Rule 829 and subpart N, respectively)? Why or why not?
154. Are there provisions of subpart N
that the SEC should not incorporate, even if you believe that the SEC should harmonize with the majority of subpart N? In other words, are there areas where omitting a subpart N provision would reduce burdens on SBSEFs and/or their members without lessening any regulatory benefits? If so, please explain, with particular regard to the economic impacts and/or PRA burdens.
155. Should the Commission adopt
different or additive financial resource requirements for SBSEFs, even if there are no analogous provisions in subpart N? If so, please explain, with particular regards to the economic impacts and/or PRA burdens. For example, do you believe that the SEC-specific provision would impose additional costs or burdens on SBSEFs and/or their members that are nevertheless appropriate in view of new and additional benefits? Or do you believe that the SEC-specific provision would be appropriate because it would relieve costs or burdens that are imposed on SEFs by subpart N that, in your view, are unnecessary or inappropriate for SBSEFs?
156. Do you agree with how the
Commission is proposing to adapt the CFTC guidance pertaining to its equivalent Core Principle by converting it into formal rule text? Why or why not? Would adapting the CFTC guidance into the Commission’s rules necessitate any changes in how financial resources are calculated? M. Rule 830—Core Principle 13— System Safeguards Paragraph (A) of SEA Core Principle 13 204 provides that an SBSEF must establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk, through the development of appropriate controls and procedures, and automated systems, that are reliable and secure and that have adequate scalable capacity. Paragraph (B) requires that an SBSEF also must establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allow for the timely recovery and resumption of operations; and the fulfillment of the responsibilities and obligations of the SBSEF. Finally, paragraph (C) of SEA Core Principle 13 requires an SBSEF to periodically conduct tests to verify that the backup resources of the SBSEF are sufficient to ensure continued order processing and trade matching; price reporting; market surveillance; and maintenance of a comprehensive and accurate audit trail. CEA Core Principle 14 205 is substantively identical to SEA Core Principle 13. Subpart O of part 37 is entitled ‘‘System Safeguards’’ and implements CEA Core Principle 14. Section 37.1400 of subpart O repeats the statutory text of the Core Principle. § 37.1401 sets forth detailed requirements for a SEF to comply with the Core Principle.

206See § 37.1401(c) (providing that SEFs determined by the CFTC to be critical financial markets are subject to more stringent requirements); § 37.1401(d); § 37.1401(j) (providing that part 40 governs the obligations of registered entities that the CFTC has determined to be critical financial markets, with respect to maintenance and geographic dispersal of disaster recovery resources sufficient to meet a same-day recovery time objective in the event of a wide-scale disruption). 207The provisions in subpart O relating to ‘‘critical financial markets’’ reference § 40.9 of the CFTC’s rules, which is marked as ‘‘Reserved.’’ 208See Rule 1000 of Regulation SCI (defining ‘‘SCI entity’’). In November 2014, the Commission adopted Regulation Systems Compliance and Integrity (‘‘SCI’’) to strengthen the technology infrastructure of the U.S. securities markets, reduce the occurrence of systems issues in those markets, improve their resiliency when technological issues arise, and establish an updated and formalized regulatory framework, thereby helping to ensure more effective Commission oversight of such systems. See Regulation Systems Compliance and Integrity, SEA Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 2014). 209See id., 79 FR at 72363–64 (reviewing comments received regarding the potential application of Regulation SCI to SBSEFs, among others). 210The Commission also notes that, while subpart O frequently uses the term ‘‘market participant,’’ proposed Rule 830 substitutes the term ‘‘member’’ in these places, since the rule pertains to market participants who are engaging as members of the SEF/SBSEF. See supra note 53. Paragraph (a) of § 37.1401 requires a SEF’s program of risk analysis and oversight to address enterprise risk management and governance, information security, business continuity-disaster recovery planning and resources, capacity and performance planning, systems operations, systems development and quality assurance, and physical security and operational controls. Paragraph (b) provides that, in addressing the categories of risk analysis and oversight required under paragraph (a), a SEF shall follow generally accepted standards and best practices with respect to the development, operation, reliability, security, and capacity of automated systems. Paragraph (c) requires a SEF to maintain a business continuity-disaster recovery plan and business continuity-disaster recovery resources, emergency procedures, and backup facilities that satisfy several enumerated criteria. Paragraph (d) explains how a SEF that is not determined by the CFTC to be a critical financial market may satisfy its requirement to be able to resume its operations and resume its ongoing fulfillment of its responsibilities and obligations during the next business day following any disruption of its operations. Paragraph (e) of § 37.1401 requires a SEF to notify the CFTC promptly of all electronic trading halts and material system malfunctions; cyber
security incidents or targeted threats that actually or potentially jeopardize automated system operation, reliability, security, or capacity; and activations of SEF’s business continuity-disaster recovery plan. Paragraph (f) requires the SEF to provide CFTC staff timely advance notice of all material planned changes to automated systems that may impact the reliability, security, or adequate scalable capacity of such systems; and planned changes to the SEF’s program of risk analysis and oversight. Paragraph (g) sets forth recordkeeping requirements related to the SEF’s system safeguards. Paragraph (h) requires the SEF to conduct testing and review of its automated systems and business continuity-disaster recovery capabilities and provides several definitions for terms used in paragraph (h). Paragraph (h) also requires the SEF to conduct ‘‘vulnerability testing,’’ ‘‘external penetration testing,’’ ‘‘internal penetration testing,’’ ‘‘controls testing,’’ ‘‘security incident response plan testing,’’ and ‘‘enterprise technology risk assessment’’ subject to various enumerated criteria. Paragraph (i) of § 37.1401 provides that the SEF, to the extent practicable, shall coordinate its business continuity￾disaster recovery plan with those of the market participants that it depends upon to provide liquidity, in a manner adequate to enable effective resumption of activity in its markets following a disruption causing activation of the SEF’s business continuity-disaster recovery plan. Paragraph (i) also requires the SEF to initiate and coordinate periodic, synchronized testing of its business continuity￾disaster recovery plan with those of the market participants it depends upon to provide liquidity; and to ensure that its business continuity-disaster recovery plan takes into account the business continuity-disaster recovery plans of its telecommunications, power, water, and other essential service providers. Paragraph (j) of § 37.1401 provides that part 40 of the CFTC’s rules shall govern the obligations of those registered entities that the CFTC has determined to be critical financial markets, with respect to maintenance and geographic dispersal of disaster recovery resources sufficient to meet a same-day recovery time objective in the event of a wide-scale disruption. Paragraph (k) sets forth criteria for the scope for all system safeguard testing and assessment required under the rule. Paragraph (l) requires that both the senior management and the board of directors of the SEF shall receive and review reports setting forth the results of the testing and assessment required by the rule. Paragraph (m) requires the SEF to identify and document the vulnerabilities and deficiencies in its systems revealed by testing and assessment, conduct and document an appropriate analysis of the risks presented by such vulnerabilities and deficiencies, and remediate in a timely manner given the nature and magnitude of the associated risk. Proposed Rule 830 is closely
modelled on subpart O of part 37 of the CFTC’s rules, except in one aspect. Subpart O includes language relating to ‘‘critical financial markets,’’ 206 which is a designation applied by the CFTC to certain of its registrants that would subject them to more stringent requirements, although the CFTC has not yet adopted any such requirements.207 A similar concept in the SEC’s rules is ‘‘SCI entity.’’ 208 When adopting Regulation SCI, the Commission considered whether it should apply Regulation SCI to SBSEFs, among other entities, and determined not to do so.209 Because SBSEFs are not SCI entities and the corresponding CFTC rule has not imposed additional requirements on critical financial markets, the Commission preliminarily believes that it is not necessary or appropriate to adapt into Rule 830 the language of subpart O applicable to critical financial markets.210 The Commission preliminarily believes that subpart O is reasonably designed to promote SEF operational capability, and that the most appropriate way to implement SEA Core Principle 13 would be to closely harmonize with the CFTC’s rules that implement the corresponding Core Principle. As with SEA Core Principle 12 (Financial resources), the Commission recognizes that the swap business of a dually registered SEF/ SBSEF is likely to be much larger than its SBS business. Therefore, the greatest operational risk to a dually registered entity is likely to arise from the swap business rather than the SBS business, so it would be logical for the SEC to defer to the CFTC’s approach for ensuring that SEFs have adequate system safeguards and business continuity protocols. Different or additive requirements imposed by the SEC could increase costs for SEF/ SBSEFs while generating benefits that are marginal at best. The Commission does not observe any differences in the SBS market relative to the swap market that warrant imposing different or additive operational capability requirements on SBSEFs.

211See supra note 209 and accompanying text. 212Section 3D(d)(14) of the SEA, 15 U.S.C. 78c– 4(d)(14). 213Section 5h(f)(15) of the CEA, 7 U.S.C. 7b– 3(f)(15). 214 In addition, the requirement in proposed Rule 831 that the CCO’s annual compliance report be submitted electronically to the Commission, based on § 37.1501(e)(2), includes an added clause to provide that the submission must be made using the Continued The Commission seeks comment on the following:
157. Do you agree in general with how
the Commission is proposing to implement SEA Core Principle 13 in proposed Rule 830? Why or why not?
158. In particular, do you believe that
close harmonization with subpart O of the CFTC’s rules is appropriate? If not, is there another framework for system safeguards that would be more appropriate for SBSEFs? What would be the economic impact of the SEC adopting different or additive system safeguard requirements in the case of dually registered SEF/SBSEFs?
159. As noted above,211 the
Commission previously determined not to subject SBSEFs to Regulation SCI. Do you see any changes in the SBS market that should cause the Commission to revisit that decision?
160. Do you believe it is appropriate
to omit from Rule 830 the provisions of subpart O relating to critical financial markets? Why or why not?
161. Are there provisions of subpart O
that the SEC should not incorporate, even if the SEC opts to harmonize with most of subpart O? In other words, are there areas where omitting a subpart O provision would reduce burdens on SBSEFs and/or their members without lessening any regulatory benefits? If so, please explain, with particular regard to the economic impacts and/or PRA burdens.
162. Should the Commission adopt
different or additive system safeguard requirements for SBSEFs, even if there is no analog to such provisions in subpart O? If so, please explain, with particular regards to the economic impacts and/or PRA burdens. For example, do you believe that the SEC￾specific provision would impose additional costs or burdens on SBSEFs and/or their market participants that are nevertheless appropriate in view of new and additional benefits? Or do you believe that the SEC-specific provision would be appropriate because it would relieve costs or burdens that are imposed on SEFs by subpart O that, in your view, are unnecessary or inappropriate for SBSEFs? N. Rule 831—Core Principle 14— Designation of Chief Compliance Officer SEA Core Principle 14 212 requires each registered SBSEF to designate a chief compliance officer (‘‘CCO’’), and requires the CCO to review the SBSEF’s compliance with the Core Principles, resolve conflicts of interest, be responsible for establishing and administering policies and procedures required under the Core Principles, establish procedures for the remediation of noncompliance, prepare and sign an annual report that describes the SBSEF’s compliance, certify that the report is accurate and complete, and submit the report to the Commission. CEA Core Principle 15 for SEFs 213 is substantively identical. The CFTC implemented CEA Core Principle 15 in subpart P of part 37.
Section 37.1500 of subpart P repeats the
statutory text of CEA Core Principle 15.
Section 37.1501(a) sets forth definitions
for the terms ‘‘board of directors’’ and ‘‘senior officer.’’ Section 37.1501(b)(1) provides that the position of CCO shall carry with it the authority and resources to develop, in consultation with the board of directors or senior officer, and enforce the SEF’s policies and procedures, and that the CCO shall have supervisory authority over all staff acting at the direction of the CCO.
Section 37.1501(b)(2) through (4)
include provisions relating to the qualifications of the CCO, appointment and removal of the CCO, and compensation of the CCO. Section 37.1501(b)(5) through (6) state that the CCO must meet with the SEF’s board of directors or senior officer at least annually, and the CCO must provide any information regarding the SEF’s self-regulatory program as requested by the board of directors or the senior officer.
Section 37.1501(c) sets out the duties
of the CCO, including overseeing and reviewing the SEF’s compliance with the Core Principles; taking reasonable steps, in consultation with the board of directors or senior officer, to resolve any material conflicts of interest; establishing and administering written policies and procedures reasonably designed to prevent violations of the CEA and the rules of the CFTC; taking reasonable steps to ensure compliance with the CEA and CFTC rules; establishing procedures reasonably designed to handle, respond, remediate, retest, and resolve noncompliance issues identified by the CCO; establishing and administering a compliance manual and a written code of ethics for the SEF; supervising the self-regulatory program of the SEF with respect to trade practice surveillance, market surveillance, real-time market monitoring, compliance with audit trail requirements, enforcement and disciplinary proceedings, audits, examinations, and other regulatory responsibilities; and supervising the effectiveness and sufficiency of any regulatory services provided to the SEF by a regulatory service provider.
Section 37.1501(d) requires the CCO
to prepare and sign an annual compliance report that covers the prior fiscal year. The report must contain, at a minimum: A description and self￾assessment of the effectiveness of the SEF’s written policies and procedures, code of ethics, and conflict of interest policies; any material changes made to compliance policies and procedures during the coverage period for the report and any areas of improvement or recommended changes to the compliance program; a description of the financial, managerial, and operational resources set aside for compliance with the CEA and applicable CFTC regulations; any material non-compliance matters identified and an explanation of the corresponding action taken to resolve them; and CCO certification that the annual compliance report is accurate and complete.
Section 37.1501(e) requires the CCO
to provide the annual compliance report to the SEF’s board of directors or a senior officer for review before submitting it to the CFTC, and the board or the senior office may not require the CCO to make any changes to the report.
Section 37.1501(e) further provides that
the annual compliance report shall be submitted electronically to the CFTC not later than 90 calendar days after the end of the SEF’s fiscal year and concurrently with the fourth-quarter financial report pursuant to § 37.1306.
Section 37.1501(e) also addresses
amendments to and requests for extensions for the annual compliance report.
Section 37.1501(f) requires the SEF to
maintain all records demonstrating compliance with the duties of the CCO and the preparation and submission of annual compliance report, consistent with §§ 37.1000 and 37.1001. Finally,
appendix B to part 37 includes
‘‘acceptable practices’’ regarding the qualifications of a CCO and the SEF’s discretion in choosing one, as well as the need to be vigilant regarding conflicts of interest when appointing a CCO. Proposed Rule 831 would implement SEA Core Principle 14 and is closely modelled on subpart P of part 37, with two minor substantive exceptions.214

EDGAR system and must be provided as an Interactive Data File in accordance with Rule 405 of Regulation S–T, in conformance with other rules in Regulation SE requiring electronic submissions. See proposed Rule 831(j)(2); supra note 55. 215 7 U.S.C. 12a(2) and 12a(3). 216The Commission notes that subpart P uses the term ‘‘board of directors,’’ while the Commission is proposing to use the term ‘‘governing board’’ instead throughout proposed Regulation SE. See supra note 29. 217See supra section VIII(B)(2)(b). 218Proposed Rule 831(c) provides that, in determining whether the background and skills of a potential CCO are appropriate for fulfilling the responsibilities of the role of the CCO, an SBSEF has the discretion to base its determination on the totality of the qualifications of the potential CCO, including, but not limited to, compliance experience, related career experience, training, potential conflicts of interest, and any other relevant factors. 219See supra note 106 and accompanying text. 220Even if an SBS is subject to mandatory clearing, it will not be subject to the trade execution requirement if no exchange or SBSEF makes the SBS available to trade or the SBS is subject to an exception from the clearing requirement under
section 3C(g) of the SEA. In addition, as discussed
above in section VII(F)(2), proposed Rule 816(e) would provide certain additional exemptions from the trade execution requirement. 221The proposed term ‘‘covered person’’ is designed to apply on a transaction-by-transaction basis. In other words, if a non-U.S. person were guaranteed by a U.S. person on a specific SBS or utilized U.S. personnel in connection with its dealing activities to arrange, negotiate, or execute a specific SBS, that person would be a covered person with respect to that SBS, but not necessarily with respect to other SBS. Because domicile is generally static, a person who is a U.S. person would be a covered person with respect to all of its SBS transactions. The first relates to disqualification of the CCO. Section 37.1501(b)(2)(ii) states:
‘‘No individual disqualified from registration pursuant to sections 8a(2) or 8a(3) of the [CEA] may serve as a chief compliance officer.’’ The Commission preliminarily believes that SBSEFs, like SEFs, should be subject to a rule setting out criteria for disqualification of the CCO. However, the SEC cannot cross￾reference provisions of the CEA, since the CEA does not apply to SBSEFs. The Commission consulted Sections 8a(2) and 8a(3) of the CEA,215 but believes they are not easily adaptable into a rule applicable to SBSEFs and their CCOs. The Commission is proposing instead, in Rule 831(c)(2), that no individual that would be disqualified from serving on an SBSEF’s governing board 216 or committees pursuant to the criteria set forth in § 242.819(i) may serve as the CCO. As noted above,217 the disqualification criteria in proposed Rule 819(i) are adapted from § 1.63 of the CFTC’s rules. Second, the Commission has adapted the acceptable practices pertaining to CEA Core Principle 15 into paragraph (c) of proposed Rule 831.218 The Commission preliminarily believes that the CFTC has implemented CEA Core Principle 14 for SEFs in an appropriate way, and that closely harmonizing with subpart P of part 37 would yield comparable regulatory benefits while imposing only marginal additional costs. The Commission recognizes that the swap business of a dually registered SEF/SBSEF is likely to be much larger than its SBS business. Therefore, the greatest compliance risks to a dually registered entity are likely to arise from the swap business rather than the SBS business, so it would be logical for the SEC to harmonize with the CFTC’s rules regarding the CCO. There are strong economic incentives for a dually registered entity to appoint the same individual to serve as the CCO for both the swap and SBS businesses, and for the CCO to carry out their functions under a similar set of rules. Different or additive requirements imposed by the SEC could increase costs for SEF/ SBSEFs while generating benefits that are marginal at best. The Commission does not observe any differences in the SBS market relative to the swap market that warrant imposing different or additive CCO requirements on SBSEFs relating to the CCO. The Commission seeks comment on the following:
163. Do you agree in general with how
the Commission is proposing to implement SEA Core Principle 14? Why or why not?
164. In particular, do you agree that
close harmonization with subpart P is appropriate? Are there provisions of subpart P that the SEC should not incorporate, even if the SEC opts to harmonize with most of subpart P? In other words, are there areas where omitting a subpart P provision would reduce burdens on SBSEFs and/or their members without lessening any regulatory benefits? If so, please explain, with particular regard to the economic impacts and/or PRA burdens.
165. Should the Commission adopt
different or additive CCO requirements for SBSEFs, even if there is no analog to such provisions in subpart P? If so, please explain, with particular regards to the economic impacts and/or PRA burdens. For example, do you believe that the SEC-specific provision would impose additional costs or burdens on SBSEFs and/or their members that are nevertheless appropriate in view of new and additional benefits? Or do you believe that the SEC-specific provision would be appropriate because it would relieve costs or burdens that are imposed on SEFs by subpart P that, in your view, are unnecessary or inappropriate for SBSEFs?
166. Do you agree with how the
Commission is proposing to adapt the acceptable practices from appendix B relating to CEA Core Principle 15 into proposed Rule 831(c)? Why or why not?
167. Do you agree with proposed Rule
831(c)(2) using a cross-reference to proposed Rule 819(i) to incorporate disqualification criteria for the CCO? Why or why not? If not, what alternate standard would you suggest for the disqualification criteria, and why?
IX. Cross-Border Rules
A. Rule 832—Cross-Border Mandatory Trade Execution As noted above,219 section 3C(h) of the SEA provides that an SBS that is subject to mandatory clearing can become subject to the trade execution requirement.220 The trade execution requirement, like other provisions of the SEA, is subject to jurisdictional constraints which are particularly germane in light of the global nature of the SBS market, where there is frequent interaction among counterparties domiciled in different jurisdictions. Proposed Rule 832 of Regulation SE is designed to address when the SEA’s trade execution requirement applies to a cross-border SBS transaction. Paragraph (a) of proposed Rule 832 would provide that the trade execution requirement set forth in section 3C(h) of the SEA shall not apply to an SBS unless at least one counterparty to the SBS is a ‘‘covered person’’ as defined in paragraph (b). Paragraph (b) of proposed Rule 832 would define the term ‘‘covered person,’’ with respect to a particular security-based swap, as any person that is a U.S. person; a non-U.S. person whose performance under an SBS is guaranteed by a U.S. person; or a non-U.S. person who, in connection with its SBS dealing activity, uses U.S. personnel located in a U.S. branch or office, or personnel of an agent of such non-U.S. person located in a U.S. branch or office, to arrange, negotiate, or execute a transaction.221 Thus, a particular SBS would fall within the jurisdictional reach of
section 3C(h) of the SEA if at least one
side had a connection to the United States of a type specified in paragraph (b)(1), (2), or (3) of proposed Rule 832. The trade execution requirement would not apply to an SBS transaction—even if the SBS were subject to mandatory clearing and MAT—if neither side had a connection to the United States of a type specified in proposed Rule 832. Proposed Rule 832 is consistent with the Commission’s territorial approach to applying Title VII requirements in other contexts. The Commission previously has stated that Title VII requirements

222Regulation SBSR Adopting Release I, 80 FR at 14652 (discussing cross-border application of Title VII requirements for regulatory reporting and public dissemination of SBS transactions). 223See SEA Release No. 72472 (June 25, 2014), 79 FR 47278, 47286 (‘‘Cross-Border Adopting Release’’) (stating that applying Title VII only to persons incorporated, organized, or established within the United States or only to SBS activity occurring entirely within the United States would inappropriately exclude from regulation a majority of SBS activity that involves U.S. persons or otherwise involves conduct within the United States, even though such activity raises the types of concerns that the Commission believed Congress intended to address through Title VII). 224 17 CFR 242.908(a)(1). 225Regulation SBSR Adopting Release I, 80 FR at 14652. 226 Id. See also Cross-Border Adopting Release, 79 FR at 47289 (discussing the Commission’s rationale for viewing a foreign branch of an SBS dealer as an integral part of the SBS dealer). 227See, e.g., Regulation SBSR Adopting Release I, 80 FR at 14653. See also Cross-Border Adopting Release, 79 FR at 47290 (‘‘the guarantee provided by a U.S. person poses risk to U.S. persons and potentially to the U.S. financial system, and both the non-U.S. person whose dealing activity is guaranteed and its counterparty rely on the creditworthiness of the U.S. guarantor when entering into a security-based swap transaction and for the duration of the security-based swap. The economic reality of this transaction, even though entered into by a non-U.S. person, is substantially identical, in relevant respects, to a transaction entered into directly by a U.S. person. Accordingly, in our view, it is consistent with both the statutory text and with the purposes of the statute to identify such transactions as occurring within the United States for purposes of Title VII’’). 228Regulation SBSR Adopting Release I, 80 FR at
14653. In addition, section 30(c) of the SEA, 15
U.S.C. 78dd(c), authorizes the Commission to apply Title VII requirements to persons transacting a business ‘‘without the jurisdiction of the United States’’ if they contravene rules that the Commission has prescribed as ‘‘necessary or appropriate to prevent the evasion of any provision’’ of Title VII. For the reasons described above, the Commission does not believe that applying the trade execution requirement to non￾U.S. persons whose performance under an SBS is guaranteed by a U.S. person would cause the trade execution requirement to apply to persons that are ‘‘transact[ing] a business in security-based swaps without the jurisdiction of the United States.’’ The Commission nonetheless preliminarily believes that applying the trade execution requirement to such persons is also necessary or appropriate as a prophylactic measure to help prevent the evasion of the provisions of the SEA that were added by the Dodd-Frank Act, and thus help prevent the relevant purposes of the Dodd-Frank Act from being undermined. See Cross-Border Adopting Release, 79 FR at 47291–92 (interpreting the anti-evasion provisions of SEA section 30(c)). Without this rule, U.S. persons could have an incentive to evade the trade execution requirement by engaging in SBS via a guaranteed affiliate, while the economic reality of transactions arising from that activity—including the risks these transactions introduce to the U.S. market—would be no different in most respects than transactions entered into directly by U.S. persons. 229Regulation SBSR Adopting Release II, 81 FR at 53591. See also SEA Release No. 87780 (December 18, 2019), 85 FR 6270, 6271–76 (February 4, 2020) (discussing other Title VII rules that incorporate ANE criteria and providing guidance on the meaning of the terms ‘‘arranged’’ and ‘‘negotiated’’ for purposes of these rules). 230Regulation SBSR Adopting Release II, 81 FR at 53591. The Commission does not believe that applying the trade execution requirement to persons that satisfy the ANE criterion would cause the trade execution requirement to apply to persons that are ‘‘transact[ing] a business in security-based swaps without the jurisdiction of the United States,’’ within the meaning of section 30(c) of the SEA. See supra note 228. The Commission also believes that applying the trade execution requirement to such persons is necessary or appropriate as a prophylactic measure to help prevent the evasion of the provisions of the SEA that were added by the Dodd-Frank Act, and thus help prevent the relevant purposes of the Dodd￾Frank Act from being undermined. Without this rule, non-U.S. persons could retain the benefits of operating in the United States while avoiding compliance with the trade execution requirement. ‘‘apply to all SBS transactions that exist in whole or in part within the United States, unless an exception applies.’’ 222 Relevant activity need not occur wholly within the United States or solely between U.S. persons in order for Title VII
requirements to apply.223 For example, under Rule 908(a)(1) of Regulation SBSR,224 the Title VII requirements for regulatory reporting and public dissemination apply to an SBS transaction even if only one counterparty to the transaction is a U.S. person. As the Commission previously stated, ‘‘any security-based swap executed by a U.S. person exists at least in part within the United States.’’ 225 This is true even if a transaction is effected through the foreign branch of a U.S. person, because ‘‘a foreign branch has no separate existence from the U.S. person itself.’’ 226 The Commission also has found it consistent with the territorial approach to apply Title VII requirements where one counterparty of an SBS transaction is a non-U.S. person whose performance under an SBS is guaranteed by a U.S. person.227 As the Commission stated when applying this criterion to Title VII reporting: ‘‘A security-based swap with a U.S.-person indirect counterparty [i.e., guarantor] is economically equivalent to a security-based swap with a U.S.- person direct counterparty, and both kinds of security-based swaps exist, at least in part, within the United States . . . [T]he presence of a U.S. guarantor facilitates the activity of the non-U.S. person who is guaranteed and, as a result, the security-based swap activity of the non-U.S. person cannot reasonably be isolated from the U.S. person’s activity in providing the guarantee.’’ 228 Finally, the Commission also has found it consistent with the territorial approach to apply Title VII requirements where one counterparty is a non-U.S.-person who, in connection with its SBS dealing activity, uses U.S. personnel located in a U.S. branch or office, or personnel of an agent of such non-U.S. person located in a U.S. branch or office, to arrange, negotiate, or execute (‘‘ANE’’) the transaction. As the Commission previously stated when applying the ANE criterion to Title VII requirements for regulatory reporting and public dissemination: ‘‘when a foreign dealing entity uses U.S. personnel to arrange, negotiate, or execute a transaction in a dealing capacity, that transaction occurs at least in part within the United States and is relevant to the U.S. security-based swap market.’’ 229 Declining to apply Title VII requirements to SBS transactions of foreign dealing entities that use U.S. personnel to engage in ANE transactions would allow such entities ‘‘to exit the Title VII regulatory regime without exiting the U.S. market.’’ 230 The Commission recognizes the difficulties that can arise when a binary requirement, such as the trade execution requirement, applies in two separate jurisdictions. In other words, if the counterparties to a cross-border SBS are subject to a trade execution requirement under the rules of each of their jurisdictions, the counterparties could violate the rules of one jurisdiction by executing the SBS in one jurisdiction but not the other, or in a manner that is consistent with the rules of one
jurisdiction but potentially not of the other jurisdiction. The following
section, regarding proposed Rule 833,
will discuss conditions for allowing an SBS to trade on foreign venues not registered with the Commission, notwithstanding the SBS being subject to the SEA’s trade execution requirement and proposed Rule 832. The Commission seeks comment on the following:
168. Of the SBS products that, in your
view, are plausible candidates for mandatory clearing and mandatory trade execution under the SEA, how frequently do these products trade on foreign SBS trading venues? Do you believe that the SBS market is sufficiently regionalized such that cross￾border application of the trade execution requirement might not be a significant issue?
169. Do you believe that the proposed
text of Rule 832 is sufficiently clear? If not, what aspects do you believe require clarification? B. Rule 833—Cross-Border Exemptions

1. Exemptions for Foreign SBS Trading
   Venues
   As noted above in discussing proposed Rule 832, the swap and SBS markets are global in nature, and counterparties domiciled in different jurisdictions frequently trade with each

231See supra section IX(A).
232See 15 U.S.C. 78c–4(a)(1) (stating that no person may operate a facility for the trading or processing of SBS, unless the facility is registered as an SBSEF or national securities exchange). 233A ‘‘broker’’ is generally defined as a person engaged in the business of effecting transactions in securities for the account of others. See section 3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4). Section 15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), generally provides that it shall be unlawful for any broker to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security unless such broker is registered in accordance with SEA section 15(b). See also infra section XIII (discussing proposed new Rule 15a–12). 234 15 U.S.C. 78mm(a)(1). 235 17 CFR 240.0–12 (setting forth procedures for filing applications for orders for exemptive relief under section 36 of the SEA). 236An application for an exemption under proposed Rule 833(a) could be submitted by a foreign SBS trading venue itself or another interested party. For example, a financial regulatory authority in a foreign jurisdiction could submit an application under proposed Rule 833(a) on behalf of one or more SBS trading venues licensed and regulated in that jurisdiction. 237 15 U.S.C. 78c(a)(1). 238 15 U.S.C. 78c(a)(77). 239 15 U.S.C. 78c(a)(4). 240 15 U.S.C. 78c–4(a)(1) (stating that no person may operate a facility for the trading or processing of SBS, unless the facility is registered as an SBSEF or national securities exchange). 241For the remainder of this discussion, an exemption under SEA section 36 and Rule 833(a) will be referred to simply as a ‘‘Rule 833(a) exemption.’’ In addition, the Commission will use the term ‘‘trading venue covered by an exemption order under Rule 833’’ (or a similar formulation) rather than ‘‘exempt exchange,’’ ‘‘exempt SBSEF’’ or ‘‘exempt broker’’ because, pursuant to an exemption granted under proposed Rule 833(a), the covered trading venue would no longer be an exchange, SBSEF, or broker (as defined by the SEA). 242However, as discussed further below, the Rule 833(a) exemption is designed to address only activities related to providing a market place for SBS. An entity that engages in other SBS-related activity or any activity involving non-SBS securities would need other authority under the SEA. 243 7 U.S.C. 7b–3(g). 244See https://www.cftc.gov/International/ ForeignMarketsandProducts/ExemptSEFs (listing all exemption orders issued by the CFTC under
section 5h(g) of the CEA and subsequent
amendments to those orders).
245Furthermore, section 5 of the SEA generally prohibits any broker, dealer, or exchange from using U.S. jurisdictional means to effect or report a transaction in a security on an exchange, unless the exchange is registered as a national securities exchange or has received a low-volume exemption from registration as a national securities exchange. See 15 U.S.C. 78e. Absent an exemption from the definition of ‘‘exchange,’’ this provision would apply to a foreign SBS trading venue (and brokers and dealers who are members of that trading venue) to the extent that it uses U.S. jurisdictional means. 246See 15 U.S.C. 78mm(a)(1). Unlike the CFTC which has exemptive authority under section 5h(g) of the CEA, the Commission would not be required to find that the foreign trading venue is subject to comparable, comprehensive supervision and regulation by a U.S. or foreign regulator. 247For example, although a foreign trading venue covered by a Rule 833(a) exemption would be exempt from the definition of ‘‘broker,’’ that exemption would extend only to the operation of a market place for SBS and would not permit the foreign trading venue to otherwise act as a securities broker using U.S. jurisdictional means. 248The Commission considered the alternative of requiring that a Rule 833(a) exemption could apply to a foreign SBS trading venue only if it traded SBS and no other type of security. The Commission other.231 Proposed Rule 832 is designed to answer the question of when the trade execution requirement would apply to an individual cross-border SBS transaction. There might be instances where covered persons (as defined in proposed Rule 832) wish to be members of a foreign trading venue for SBS (a ‘‘foreign SBS trading venue’’). Having members who are covered persons, as defined in Rule 832, with respect to SBS transacted on that venue, whether or not the SBS that they trade are subject to the SEA’s trade execution requirement, could require the foreign SBS trading venue to register with the Commission as a national securities exchange or SBSEF.232 In addition, because a foreign SBS trading venue would be facilitating the execution of SBS between persons, the foreign SBS trading venue also might be required to register with the Commission as a broker.233 A foreign SBS trading venue with members who are covered persons, as defined in Rule 832, with respect to SBS transacted on that venue and that wishes to avoid having to register in one or more of these capacities could request that the Commission grant it an exemption under section 36(a)(1) of the SEA 234 by submitting an application pursuant to SEA Rule 0–12.235 Proposed Rule 833(a) would provide that such an application, relating to the status of the foreign SBS trading venue under the SEA, may state that the application also is submitted pursuant to Rule 833(a).236 In such case, the Commission would consider the submission as an application to exempt the foreign SBS trading venue, with respect to its
providing a market place for SBS, from the definition of ‘‘exchange’’ in section 3(a)(1) of the SEA; 237 the definition of ‘‘security-based swap execution facility’’ in section 3(a)(77) of the SEA; 238 the definition of ‘‘broker’’ in section 3(a)(4) of the SEA; 239 and section 3D(a)(1) of the SEA.240 Because a foreign SBS trading venue that obtains an order under SEA section 36 and proposed Rule 833(a) 241 would be exempt from these definitions and from section 3D(a)(1) of the SEA, the foreign SBS trading venue would not be required to register with the Commission as a national securities exchange, SBSEF, or broker, or comply with other requirements applicable to such entities under the SEA or Commission rules thereunder.242 Under section 5h(g) of the CEA,243 the CFTC may exempt, conditionally or unconditionally, a SEF from registration if the CFTC finds that the SEF is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the SEC, a prudential regulator, or the appropriate governmental authorities in the home country of the facility. The CFTC has exercised this authority to grant exemptions from SEF registration to swap trading venues in the European Union, Japan, and Singapore.244 Proposed Rule 833(a) would set forth how interested parties could make similar requests for exemptive relief with respect to foreign SBS trading venues. For example, Rule 833(a) lists four separate provisions of the SEA that the Commission believes generally would have to be addressed in an exemption request relating to a foreign SBS trading venue’s status under the SEA. A foreign SBS trading venue that was exempted solely from section 3D(a)(1) of the SEA, for example, might still be subject to various requirements under the SEA by virtue of falling within one or more of the above-noted definitions.245 The exemptive framework set out in proposed Rule 833(a) is designed to avoid this result. As with applications for other exemptive relief under section 36 of the SEA, an applicant requesting a Rule 833(a) exemption would be required to submit a complete application pursuant to SEA Rule 0–12. To issue a Rule 833(a) exemption, like any other exemption issued pursuant to section 36, the Commission would be required to find that the exemption is necessary or appropriate in the public interest, and consistent with the protection of investors.246 As contemplated by
section 36(a)(1), the Commission may
subject a Rule 833(a) exemption to any conditions that it deems appropriate. Proposed Rule 833(a) is designed to address only activities relating to providing a market place for SBS and would not extend to trading in any other type of security or to other activities with respect to SBS.247 A foreign SBS trading venue covered by an exemption order under Rule 833(a) might offer trading in other types of securities; however, the exemption order would permit covered persons to trade only SBS on that trading venue without causing the trading venue to have to register with the Commission as an exchange or SBSEF. The exemption order would not address any registration obligations that might arise from any other type of exchange activity by the foreign trading venue.248

preliminarily believes, however, that this alternative is unnecessary. Other jurisdictions might have market structures where it is common to trade SBS and other types of securities on the same trading venue. The Commission preliminarily believes that it would be inequitable to disqualify such jurisdictions ex ante from qualifying for a Rule 833(a) exemption. Nevertheless, a foreign SBS trading venue that benefits from a Rule 833(a) exemption and that offers trading in both SBS and non-SBS securities would have to take appropriate steps to prevent covered persons from trading non￾SBS securities on that trading venue, because the Rule 833(a) exemption would not cover the trading activity in non-SBS securities. 249 15 U.S.C. 78f(l). 250Section 3D(e) of the SEA gives the Commission authority to exempt an SBSEF from registration if it is subject to comparable, comprehensive supervision and regulation by the CFTC. See 15 U.S.C. 78c–4(e). 251For the remainder of this discussion, an exemption under SEA section 36 and Rule 833(b) will be referred to simply as a ‘‘Rule 833(b) exemption.’’ 252An SBS can be subject to the SEA’s trade execution requirement only if it first becomes subject to the clearing requirement in section 3C(h) of the SEA, 15 U.S.C. 78c–3(h). A Rule 833(b) exemption would not have any impact on this clearing requirement, unless otherwise explicitly addressed in the exemption order. 253See supra notes 94–96 and accompanying text. 254A request for an exemption under proposed Rule 833(a) could be submitted at the same time— and by the same person(s)—as a request for an exemption under proposed Rule 833(b). For example, a financial regulatory authority in a foreign jurisdiction could combine a request for an exemption under proposed Rule 833(a) on behalf of one or more SBS trading venues licensed and regulated in that jurisdiction with a request for an exemption under proposed Rule 833(b) that would allow covered persons to trade on those venues SBS that would, absent an exemption, be subject to the SEA’s trade execution requirement. The Commission also emphasizes that a Rule 833(a) exemption would not have any impact on section 6(l) of the SEA,249 which makes it unlawful for any person to effect a transaction in an SBS with or for a person that is not an ECP, unless such transaction is effected on a national securities exchange registered pursuant to section 6(b) of the SEA. Because a foreign SBS trading venue covered by a Rule 833(a) exemption would not be registered as a national securities exchange, the foreign SBS trading venue would not be permitted to effect SBS transactions with or for a covered person that is not an ECP.
2. Exemptions Relating to the Trade
Execution Requirement
Proposed Rule 833(b) would address requests for exemptive relief relating to the application of the trade execution requirement under section 3C(h) of the SEA to transactions executed on a foreign SBS trading venue. Pursuant to
section 3C(h) of the SEA, an SBS that is
subject to the trade execution requirement must be executed on an exchange, on an SBSEF registered under
section 3D of the SEA, or on an SBSEF
that is exempt from registration under
section 3D(e) of the SEA.250 As a result,
a covered person (as defined in proposed Rule 832) would not be permitted to execute an SBS that is subject to the trade execution requirement on a foreign SBS trading venue unless that venue has registered with the Commission as a national securities exchange or an SBSEF, or has received an exemption under section 3D(e) of the SEA. A covered person seeking to execute such an SBS on a foreign SBS trading venue that does not fall within one of these categories could request that the Commission grant an exemption from this requirement under section 36(a)(1) of the SEA by submitting an application, as with Rule 833(a), pursuant to SEA Rule 0–12. Proposed Rule 833(b)(1) would provide that such an application, relating to the application of the trade execution requirement to SBS executed on a foreign SBS trading venue, may state that the application also is submitted pursuant to proposed Rule 833(b).251 Proposed Rule 833(b) is intended to clarify how interested parties could make requests for exemptive relief from the trade execution requirement for SBS traded on one or more foreign SBS trading venues.252 To issue a Rule 833(b) exemption, like with any other section 36 exemption, the Commission would be required to find that the exemption is necessary or appropriate in the public interest, and consistent with the protection of investors. Furthermore, as contemplated by section 36(a)(1), the Commission may subject a Rule 833(b) exemption to any conditions that it deems appropriate. Proposed Rule 833(b)(2) would provide that, in considering whether to issue a Rule 833(b) exemption, the Commission may consider: (i) The extent to which the SBS traded in the foreign jurisdiction covered by the request are subject to a trade execution requirement comparable to that in
section 3C(h) of the SEA and the
Commission’s rules thereunder; (ii) the extent to which trading venues in the foreign jurisdiction covered by the request are subject to regulation and supervision comparable to that under the SEA, including section 3D of the SEA, and the Commission’s rules thereunder; (iii) whether the foreign trading venue or venues where covered persons intend to trade SBS have received an exemption order contemplated by proposed Rule 833(a); and (iv) any other factor that the Commission believes is relevant for assessing whether the exemption is in the public interest and consistent with the protection of investors. The first factor listed above is intended to highlight the Commission’s preliminary belief that, to grant an exemption from the SEA’s trade execution requirement to allow SBS subject to that requirement to trade in a foreign jurisdiction on one or more venues not registered with the Commission, there should be a comparable trade execution requirement in that jurisdiction. As part of any analysis regarding the comparability of the trade execution requirement, the Commission could consider not only whether the relevant SBS must be executed on a trading venue in the foreign jurisdiction, but also the permissible execution means for mandatory trade execution in the foreign jurisdiction. In general, the Commission preliminarily believes that a trade execution requirement in a foreign jurisdiction would not be comparable to the trade execution requirement under the SEA if the foreign jurisdiction’s rules did not require SBS products subject to that requirement to be executed through means comparable to Required Transactions as described in proposed Rule 815 (e.g., if the foreign jurisdiction allowed the use of single-dealer platforms to discharge any mandatory trading execution requirement in that jurisdiction). Under the second factor listed above, the Commission could consider whether the trading venues in the foreign jurisdiction are subject to regulation and supervision comparable to that under the SEA, including section 3D of the SEA and the Commission’s rules thereunder. The Commission preliminarily believes that the goals of Title VII regarding trade execution 253 could be subverted if it were to allow covered persons to trade SBS subject to the SEA’s trade execution requirement on foreign trading venues that are not subject to rules designed to foster comparable levels of pre- and post-trade transparency, access, and liquidity. The Commission also believes that it would be important to consider whether the foreign trading venue or venues where covered persons intend to trade SBS have received an exemption order contemplated by proposed Rule 833(a). The fact that covered persons are executing SBS on a foreign trading venue typically would require the venue to register with the Commission as a national securities exchange or SBSEF.254 Finally, the fourth factor listed above would emphasize that these

255 15 U.S.C. 8343.
256See Ownership Limitations and Governance Requirements for Security-Based Swap Clearing Agencies, Security-Based Swap Execution Facilities, and National Securities Exchanges With Respect to Security-Based Swaps Under Regulation MC, SEA Release No. 63107 (October 14, 2010), 75 FR 65882 (October 26, 2010). considerations are not exhaustive. The Commission may consider any other factor that it believes is relevant for assessing whether the Rule 833(b) exemption is in the public interest and consistent with the protection of investors. The Commission seeks comment on the following:
170. Do you believe in general that the
Commission should establish a rule for granting exemptions regarding a foreign SBS trading venue’s status under the SEA and mandatory trade execution of cross-border SBS transactions? Why or why not?
171. Do you disagree with any of the
specific language proposed in Rule 833? If so, how would you revise it?
172. Do you expect that there are
foreign SBS trading venues that would seek an exemption under proposed Rule 833(a)? If so, how many?
173. Do you agree with the factors that
the Commission is proposing to consider for a Rule 833(b) exemption? Are there are any that you would eliminate or revise? If so, which ones and why? Are there any criteria that you believe should be added? If so, what and why?
174. Are there any conditions or
limitations that should be included in the rule? If so, what conditions or limitations would you suggest, and why?
X. Rule 834—Implementation of
Section 765 of the Dodd-Frank Act and
Governance of SBSEFs and SBS Exchanges
Section 765(a) of the Dodd-Frank
Act 255 provides in relevant part that, to mitigate conflicts of interest, the Commission ‘‘shall adopt rules which may include numerical limits on the control of, or the voting rights with respect to’’ any clearing agency that clears SBS, or on the control of any SBSEF or SBS exchange by certain bank holding companies, certain nonbank financial companies, an affiliate of such a bank holding company or nonbank financial company, an SBS dealer, major SBS participant, or person associated with an SBS dealer or major SBS participant. Section 765(b) states that the purpose of the statutory provision is ‘‘to improve the governance of, or to mitigate systemic risk, promote competition, or mitigate conflicts of interest in connection with’’ an SBS dealer or major SBS participant’s conduct of business with, a clearing agency, SBSEF, or SBS exchange and in which such SBS dealer or major SBS participant ‘‘has a material debt or equity investment.’’ Finally, section 765(c) provides in relevant part that, in adopting rules pursuant to section 765, the Commission shall consider any conflicts of interest arising from the amount of equity owned by a single investor, the ability to vote, cause the vote of, or withhold votes entitled to be cast on any matters by the holders of the ownership interest. In 2010, the Commission proposed Regulation MC to implement section
765.256 In view of the significant
amount of time that has elapsed and the significant evolution in the swap and SBS markets since the proposal of Regulation MC, the Commission hereby withdraws that proposal. The Commission is now proposing Rule 834 of Regulation SE to implement section 765 of the Dodd-Frank Act with respect to SBSEFs and SBS exchanges. The Commission, in accordance with
section 765 of the Dodd-Frank Act, has
reviewed the potential for conflicts of interest arising from an SBS dealer or major SBS participant having voting rights in an SBSEF or SBS exchange in which it is a member. The Commission preliminarily believes that, to satisfy the requirements of section 765, it is appropriate to impose a cap on the size of the voting rights that an individual member of an SBSEF or SBS exchange may own or direct. Accordingly, paragraph (b) of proposed Rule 834 would bar an SBSEF or SBS exchange from permitting any of its members, either alone or together with any officer, principal, or employee of the member, to:
(1) Own, directly or indirectly, 20% or more of any class of voting securities or of other voting interest in the SBSEF or SBS exchange; or (2) Directly or indirectly vote, cause the voting of, or give any consent or proxy with respect to the voting of, any interest that exceeds 20% of the voting power of any class of securities or of other ownership interest in the SBSEF or SBS exchange. The 20% cap in proposed Rule 834(b) attempts to balance competing policy interests. On the one hand, execution venues need capital, expertise, and liquidity to establish and grow. Historically, market participants who become members of an execution venue are a source of all three components, and any person contributing capital to a new venture might reasonably expect to have a voting interest commensurate with the amount of capital contributed. The Commission considered proposing a cap in voting interest below 20%, but preliminarily believes that too low of a cap, even if imposed in the name of eliminating conflicts of interest, could have the unintended effect of retarding the development of execution venues for SBS altogether, if market participants who become members have no (or substantially limited) ability to vote their equity interest. On the other hand, allowing a member of an SBSEF or SBS exchange too large of a voting interest could undermine the public policy benefits of having transparent, fair, and regulated markets for the trading of SBS. A member of an SBSEF or SBS exchange with a sufficiently large voting interest could exercise undue influence over the rules and policies applicable to members, the venue’s access criteria, decisions regarding access, and disciplinary matters, among other things. In particular, members who are SBS dealers and conduct a significant amount of business in the bilateral OTC market have incentives to restrict the scope of SBS that an SBSEF or SBS exchange makes eligible for trading. Trading in a market with robust order competition and pre-trade transparency reduces search costs for end users and liquidity seekers, and reduces the information and bargaining asymmetry of end users and liquidity seekers relative to SBS dealers. An SBS dealer with a large voting interest in an SBSEF or SBS exchange, if it perceived that trading on the regulated venue was diminishing the rents obtained from its bilateral OTC business, might seek to utilize its voting influence in a number of ways to degrade the capability of the regulated venue, thus making the OTC market by comparison a more attractive option. The Commission preliminarily believes that capping a member’s voting interest at 20% strikes a reasonable balance between these competing interests. It would allow a single member to make an investment in an SBSEF or SBS exchange significant enough to give it a 20% voting interest, while reserving at least 80% to unrelated parties. The Commission preliminarily believes that the 20% cap would still afford an SBS dealer or major SBS
participant that has made an investment in an SBSEF or SBS exchange a reasonable commercial means of monitoring and protecting that investment. But requiring 80% of the voting power to reside with unrelated parties would reduce the likelihood that the large member could tilt the playing

257See SEA Release No. 49718 (May 17, 2004), 69 FR 29611, 29624 (May 24, 2004) (approving PCX limitation of trading permit holder ownership to 20% and stating that ‘‘a member who trades securities through the facilities of an exchange can have an ownership interest in the exchange. However, a member’s interest could become so large as to cast doubt on whether the exchange can fairly and objectively exercise its self-regulatory responsibilities with respect to that member. A member that also directly or indirectly controls an exchange might be tempted to exercise that controlling influence by directing the exchange to refrain from diligently surveilling the member’s conduct or from punishing any conduct that violates the rules of the exchange or the Federal securities laws. An exchange also might be reluctant to surveil and enforce its rules zealously against a member that the exchange relies on as its largest source of capital’’). See also, e.g., SEA Release No. 85828 (May 10, 2019), 84 FR 21841 (May 15, 2019) (approving Long Term Stock Exchange’s registration as a national securities exchange with a 20% limit on LTSE ownership by members); SEA Release No. 62716 (August 13, 2010), 75 FR 51295 (August 19, 2010) (approving BATS–Y Exchange’s registration as a national securities exchange with a 20% limit on exchange ownership by members); SEA Release No. 49067 (January 13, 2004), 69 FR 2761 (January 20, 2004) (approving a voting collar on members that hold interests in BOX in excess of 20%); SEA Release No. 54399 (September 1, 2006), 71 FR 53728 (September 12, 2006) (approving ISE’s limitation of a member’s ownership interest to 20%). 258Proposed Rule 834(a) would define ‘‘major disciplinary committee’’ as a committee of persons who are authorized by an SBSEF to conduct disciplinary hearings, to settle disciplinary charges, to impose disciplinary sanctions, or to hear appeals thereof in cases involving any violation of the rules of the SBSEF except those which are related to decorum or attire, financial requirements, or reporting or recordkeeping and do not involved fraud, deceit, or conversion. field in its favor. In proposing this 20% threshold in Rule 834, the Commission is informed by long experience with handling questions of member influence over national securities exchanges raised in applications to register with the Commission on Form 1 and in governance rule filings made on SEA Form 19b–4.257 Proposed Rule 834(b) would cover both direct and indirect voting interests. The 20% cap could be circumvented if, for example, a member placed its voting interest in an SBSEF or SBS exchange of 20% or more in a shell company or other affiliate and directed how the shell company or affiliate casts those votes. Accordingly, proposed Rule 834(b) would look through the non￾member entities holding interests in SBSEFs and SBS exchanges to consider whether any member could indirectly control 20% or more of the voting interest through the non-member entity
having the direct interest. Furthermore, proposed Rule 834(b) would look through the corporate structure of the SBSEF or SBS exchange to consider whether any member could indirectly have 20% or more of the voting interest in the underlying trading venue. For example, an SBSEF or SBS exchange could be wholly owned by a holding company. In such a case, the voting restriction in proposed Rule 834(b) would apply to the voting interest in the parent holding company held by a member of the child SBSEF or SBS exchange, since a direct voting interest of 20% or more in the parent would equate to an indirect voting interest of 20% or more in child trading venue. Similar to its approach to indirect voting interest, proposed Rule 834(b) would aggregate the voting interest of the member itself with the voting interest held by any officer, principal, or employee of the member for purposes of determining compliance with the 20% cap. Without this provision, the member—or an officer, principal, or employee of the member—could split the voting interest held in the SBSEF or SBS exchange across multiple persons who would likely be voting that interest in concert. Paragraph (c) of proposed Rule 834 would include requirements designed to reinforce the 20% cap in paragraph (b). Paragraph (c) would require the rules of each SBSEF and SBS exchange to be reasonably designed, and have an effective mechanism, to:
(1) Deny effect to the portion of any voting interest held by a member in excess of the 20% limitation; (2) Compel a member who possesses a voting interest in excess of the 20% limitation to divest enough of that voting interest to come within that limit; and (3) Obtain information relating to its ownership and voting interests owned or controlled, directly or indirectly, by its members. Under paragraph (c)(1) of proposed Rule 834, if a member of an SBSEF or SBS exchange managed to evade the 20% voting restriction (e.g., by disguising its voting interest through one or more shell companies), the SBSEF or SBS exchange would be required to deny the effect of any part of the vote in excess of the 20% restriction when the evasion is discovered. This could, in close cases, cause the SBSEF or SBS exchange to have to reverse the outcome of a vote because of the invalidation of the part of the vote in excess of the 20% threshold. In addition, the Commission preliminarily believes—as reflected in paragraph (c)(2) of proposed Rule 834— that an SBSEF or SBS exchange should, if it discovers that a member has managed to evade the 20% voting restriction, compel the member to divest enough of that voting interest to come within the 20% limit. Finally, the Commission preliminarily believes—as reflected in paragraph (c)(3) of proposed Rule 834—that an SBSEF or SBS exchange must have an effective means of obtaining information about the ownership and voting interests owned or controlled, directly or indirectly, by its members. Proposed Rule 834(c)(3) is designed to promote compliance with proposed Rule 834(b) by requiring an SBSEF or SBS exchange to actively obtain information about the ownership and voting interests owned or controlled, directly or indirectly, by its members. The Commission preliminarily believes that ignorance of a member holding a voting interest in excess of the proposed 20% limitation should not excuse a violation of Rule 834(b). Furthermore, the information obtained by an SBSEF or SBS exchange under proposed Rule 834(c)(3) should assist with any remedial actions necessary under proposed Rules 834(c)(1) and (c)(2). Paragraph (d) of proposed Rule 834 is designed to mitigate conflicts of interest in the disciplinary process of an SBSEF or SBS exchange and would provide as follows: ‘‘Each security-based swap execution facility and SBS exchange shall ensure that its disciplinary processes preclude any member, or group or class of its members, from dominating or exercising disproportionate influence on the disciplinary process. Each major disciplinary committee or hearing panel thereof shall include sufficient different groups or classes of its members so as to ensure fairness and to prevent special treatment or preference for any person or member in the conduct of the responsibilities of the committee or panel.’’ Proposed Rule 834(d) recognizes that one way that a conflict of interest could manifest itself is in the disciplinary process.
Therefore, the Commission is proposing, as the first sentence of proposed Rule 834(d), that each SBSEF and SBS exchange should ‘‘preclude any member, or group or class of its members, from dominating or exercising disproportionate influence on the disciplinary process.’’ The second sentence of proposed Rule 834(d) is adapted from § 1.64 of the CFTC’s rules, which addresses the composition of various SRO governing boards and major disciplinary committees.258 Section 1.64(c)(4) requires an SRO (which term, under the CEA, includes a SEF) to maintain in effect rules that ‘‘each major disciplinary committee or hearing panel [of the SRO] include sufficient different membership interests so as to ensure fairness and to prevent special treatment or preference for any person in the conduct of a committee’s or the panel’s

259Proposed Rule 834(e)(1)(ii), read together with proposed Rule 834(b), would have the effect of allowing four members of an SBSEF or SBS exchange to control up to 80% of the voting interest (assuming that each of the four holds 20%). Under proposed Rule 834(e)(1)(ii), at least 20% of the voting interest would have to be held by non￾members. 260Section 1.64(b)(3) provides in relevant part that the governing board of an SRO must include ‘‘a diversity of membership interests.’’ Section 1.64(a)(4) provides a definition of ‘‘membership interest’’ that lists six classes of members, each of which is considered a different membership interest. Many of these specifically enumerated classes—e.g., ‘‘floor traders,’’ ‘‘floor brokers,’’ ‘‘futures commission merchants,’’ ‘‘producers, consumers, processors, distributors, and merchandisers of commodities traded on the particular contract market’’—might not be relevant to SBSEFs and SBS exchanges. Rather than crafting its own definition of ‘‘membership interest,’’ the Commission is opting for a principles-based approach to incorporating § 1.64(b)(3) into Rule 834, by proposing that an SBSEF or SBS exchange must be able to demonstrate that the board membership fairly represents the diversity of interests at such SBSEF or SBS exchange. See proposed Rule 834(e)(2). 261See proposed Rule 834(a) (defining ‘‘family relationship’’ of a person to be person’s spouse, former spouse, parent, step-parent, child, step￾child, sibling, step-brother, step-sister, grandparent, grandchild, uncle, aunt, nephew, niece, or in-law). The Commission’s proposed definition is adapted from the CFTC’s definition of ‘‘family relationship’’ in § 1.69(a)(2). 262Proposed Rule 834(a) would define ‘‘named party in interest’’ as a person or entity that is identified by name as a subject of any matter being considered by a governing board, disciplinary committee, or oversight panel. responsibilities.’’ Proposed Rule 834(d) reflects the Commission’s preliminary belief that an SBSEF or SBS exchange should be mindful of its different membership interests, and how they are represented on disciplinary committees and hearing panels in particular matters, to avoid potential conflicts of interest. To further implement section 765 and promote good governance generally for SBSEFs and SBS exchanges, the Commission is proposing additional requirements in Rule 834 that are closely modelled on §§ 1.64 and 1.69 of the CFTC’s rules.
Section 1.64(b) requires an SRO to
maintain in effect standards and procedures that ensure that 20% or more of the regular voting members of the SRO’s governing board are persons who are knowledgeable of futures trading or financial regulation or are otherwise capable of contributing to governing board deliberations. Section 1.64(b) also requires an SRO to maintain in effect standards and procedures that ensure that 20% or more of the regular voting members of the governing board are not: Members of the SRO; currently salaried employees of the SRO; primarily performing services for the SRO in a capacity other than as a member of the SRO’s governing board; or officers, principals, or employees of a firm which holds a membership at the SRO either in its own name or through an employee on behalf of the firm. Paragraph (e) of proposed Rule 834 is closely modelled on § 1.64(b). Paragraph (e)(1)(i) would require each SBSEF and SBS exchange to ensure that 20% or more of the persons who are eligible to vote routinely on matters being considered by the governing board (excluding those members who are eligible to vote only in the case of a tie vote by the governing board) are persons who are knowledgeable of SBS trading or financial regulation, or otherwise capable of contributing to governing board deliberations. Paragraphs (e)(1)(ii) through (v) of proposed Rule 834 are based on four of the prongs in § 1.64(b)(1)(ii) which provide that 20% or more of the persons who are eligible to vote routinely on matters being considered by the governing board (excluding those members who are eligible to vote only in the case of a tie vote by the governing board) must not be: Members of the SBSEF or SBS exchange; 259 salaried employees of the SBSEF or SBS exchange; primarily performing services for the SBSEF or SBS exchange in a capacity other than as a member of the governing board; or officers, principals, or employees of a firm which holds a membership at the SBSEF or SBS exchange, either in its own name or through an employee on behalf of the firm. Paragraph (e)(2) of proposed Rule 834, modelled on § 1.64(b)(3), would require each SBSEF and SBS exchange to ensure that membership of its governing board includes a diversity of groups or classes of its members.260 The Commission is not adapting the detailed provisions of § 1.64(c) into proposed Rule 834. However, the key principle of § 1.64(c)—that each major disciplinary committee or hearing panel should include sufficient different membership interests so as to ensure fairness and to prevent special treatment or preference in the conduct of the committee’s or panel’s responsibilities, which is located in paragraph § 1.64(c)—is being adapted into proposed Rule 834(d), as discussed above. Paragraph (f) of proposed Rule 834 is based closely on § 1.64(d) and would require each SBSEF and SBS exchange to submit to the Commission, within 30 days after each governing board election, a list of the governing board’s members, the groups or classes of members
that they represent, and how the composition of the governing board otherwise meets the requirements of Rule 834. This provision would provide the Commission information to help it assess an SBSEF’s compliance with Rule 834. Paragraph (g) of proposed Rule 834 is modelled on § 1.69, which requires an SRO to further address the avoidance of conflicts of interest in the execution of its self-regulatory functions. Section 1.69(b)(1)(i) requires an SRO to maintain in effect rules that require a member of its governing board, disciplinary committee, or oversight panel to abstain from such body’s deliberations and voting on any matter involving a named party in interest, where such member: Is a named party in interest; is an employer, employee, or fellow employee of a named party in interest; is associated with a named party in interest through a ‘‘broker association’’; has any other significant, ongoing business relationship with a named party in interest; or has a family relationship 261 with a named party in interest.
Section 1.69(b)(1)(ii) requires an SRO
to maintain in effect rules that require each member of its governing board, disciplinary committee, or oversight panel to disclose to the appropriate SRO staff, before consideration of any matter involving a named party in interest, whether the member has one of the relationships listed in § 1.69(b)(1)(i) with a named party in interest. Section 1.69(b)(1)(iii) requires the SRO to establish procedures for determining whether a member of its governing board, disciplinary committees, or oversight committees is subject to a conflicts restriction in any matter involving a named party in interest.262
Section 1.69(b)(2)(i) requires a
member of the SRO’s governing board, disciplinary committee, or oversight committee to abstain from such body’s deliberations and voting on any significant action, if the member knowingly has a direct and substantial financial interest in the result of the vote based upon either exchange or non￾exchange positions that could reasonably be expected to be affected by the action. Section 1.69(b)(2)(ii) requires a member of the SRO’s governing board, disciplinary committee, or oversight committee, before consideration of any significant action, to disclose to the appropriate SRO staff that position information, although this requirement does not apply to members who choose to abstain from deliberations and voting on the subject significant action. Section 1.69(b)(2)(iii) requires an SRO to establish procedures for determining whether any member of its governing

263The Commission is not proposing to include a prong about being associated with a named party of interest through a ‘‘broker association,’’ as defined in § 156.1 of the CFTC’s rules, as that concept does not exist under the SEA. 264Proposed Rule 834(a) would define a ‘‘member’s affiliated firm’’ as a firm in which the member is a principal or an employee. 265Proposed Rule 834(a) would define ‘‘significant action’’ to include several types of actions or rule changes by an SBSEF or SBS exchange that could be implemented without the Commission’s prior approval related to addressing an emergency and certain changes in margin levels. 266 17 CFR 240.19b–4. board, disciplinary committees, or oversight committees is subject to a conflicts restriction under § 1.69 in any significant action. Such determination is required to include a review of various types of positions enumerated in the rule, including: ‘‘Any other types of positions, whether maintained at that self-regulatory organization or elsewhere, held in the member’s personal accounts or the proprietary accounts of the member’s affiliated firm that the self-regulatory organization reasonably expects could be affected by the significant action.’’ Section 1.69(b)(2)(iv) sets out the sources that the SRO should review in determining a member’s positions, including a catch￾all provision in paragraph (b)(2)(iv)(C) for ‘‘[a]ny other source of information that is held by and reasonably available to the self-regulatory organization.’’
Section 1.69(b)(3)(i) provides that an
SRO governing board, disciplinary committee, or oversight panel may permit a member to participate in deliberations prior to a vote on a significant action for which that member otherwise would be required to abstain, if such participation would be consistent with the public interest and the member recuses from voting on such action. Section 1.69(b)(3)(ii) requires the deliberating body, when determining whether to permit the exception contemplated in paragraph (b)(3)(i), to consider whether the member’s participation in deliberations is necessary for the deliberating body to achieve a quorum in the matter; and whether the member has unique or special expertise, knowledge, or experience in the matter under consideration. Section 1.69(b)(3)(iii) requires the deliberating body also to consider, when determining whether to permit an exception to ‘‘fully consider the position information which is the basis for the member’s direct and substantial financial interest in the result of a vote on a significant action.’’
Section 1.69(b)(4) requires an SRO’s
governing board, disciplinary committees, and oversight panels to reflect in their minutes or otherwise document that the conflicts determination procedures required under § 1.69 have been followed. Such records also must include: The names of all members who attended the meeting in person or who otherwise were present by electronic means; the name of any member who voluntarily recused himself or herself or was required to abstain from deliberations and/or voting on a matter and the reason for the recusal or abstention, if stated; and information on the position information that was reviewed for each member. Proposed Rule 834(g) closely follows the paragraph structure and language of § 1.69, with a few minor exceptions (beyond modifying the rule’s application to SBSEFs and SBS exchanges, rather than, in the CFTC original, all SROs). First, paragraph (g)(1)(i)(A) of proposed Rule 834 is based closely on § 1.69(b)(1)(i) and would set out the types of relationships with the named party of interest that would create a conflict of interest for a member of the governing board, disciplinary committee, or oversight panel. Paragraph (g)(1)(i)(A), however, would incorporate only four of the five prongs in § 1.69(b)(1)(i).263 Second, § 1.69(b)(2)(iii) sets out five types of financial positions that could be held by a member of the governing board, disciplinary committee, or oversight panel that an SRO must review to ascertain if there is a conflicts restriction in a significant action. Proposed Rule 834(g)(1)(ii)(C) is a simplified version of § 1.69(b)(2)(iii); it would not include the five prongs set forth in § 1.69(b)(2)(iii), but rather would incorporate only the final, catch￾all prong (‘‘Such determination must include a review of any positions, whether maintained at that security￾based swap execution facility, SBS exchange, or elsewhere, held in the member’s personal accounts or the proprietary accounts of the member’s affiliated firm 264 that the security-based swap execution facility or SBS exchange reasonably expects could be affected by the significant action’’).265 Third, proposed Rule 834(g)(1)(ii)(C) would omit a requirement in § 1.69(b)(2)(iv) that an SRO, when making a determination of whether a conflict of interest exists, must take into consideration ‘‘[t]he most recent large trader reports and clearing records available to the self-regulatory organization.’’ These types of reports may not be as prevalent in the securities and SBS markets as the swaps markets. The Commission believes that the final, catch-all prong in § 1.69(b)(2)(iv)—‘‘Any other source of information that is held by and reasonably available to the self￾regulatory organization’’—would suffice, and is proposing it as Rule 834(g)(1)(ii)(C)(2). Proposed Rule 834(h) would require each SBSEF and SBS exchange to maintain in effect various rules that would be required under proposed Rule
834. An SBSEF would be required to file
such rules under proposed Rule 806 or 807 of Regulation SE; an SBS exchange would be required to file such rules under existing SEA Rule 19b–4.266 Proposed Rule 834(h) is loosely modelled on various provisions in §§ 1.64 and 1.69 providing that the SRO rules required under those CFTC rules must be filed with the CFTC pursuant to relevant provisions of the CEA and the CFTC’s rules thereunder. The Commission preliminarily believes that §§ 1.64 and 1.69 are reasonably designed to promote good governance of trading venues and is therefore proposing to adapt them into Rule 834. These CFTC rules identify various instances of potential conflicts of interest that might involve a member of the governing board or an important committee of a SEF, and require proactive measures to address those conflicts. The Commission preliminarily believes that SBSEFs and SBS exchanges should have the same types of rules because the same types of conflicts that arise with SEFs could arise with SBS trading venues. Furthermore, various provisions of §§ 1.64 and 1.69 would further the policy goals of section 765 of the Dodd￾Frank Act. For example, proposed Rule 834(e)(1)(ii), modelled on § 1.64(b)(1)(ii)(A), would require that at least 20% of the regular voting members of the governing board of an SBSEF or SBS exchange not be members, and proposed Rule 834(e)(1)(v), which is modelled on § 1.64(b)(1)(ii)(D), would require that at least 20% of the regular voting members of the governing board not be persons affiliated with members. These requirements, by reserving at least 20% of the governing board’s seats for persons not associated with any member of an SBSEF or SBS exchange, would reduce the possibility that a combination of members who are SBS dealers or major SBS participants could create a conflict of interest for the SBSEF or SBS exchange. In addition, proposed Rule 834(d), which incorporates language from § 1.64(c), would require each major disciplinary committee or hearing panel thereof to include sufficient different groups or classes of its members so as to ensure fairness and to prevent special treatment or preference for any person or member. The Commission

preliminarily believes that it is appropriate to impose such a requirement on SBSEFs and SBS exchanges to further lessen the potential for members of an SBSEF or SBS exchange who are SBS dealers or major SBS participants from benefitting from a conflict of interest. Furthermore, proposed Rule 834(e), which is modelled on § 1.64(d), would require an SBSEF or SBS exchange to submit to the Commission, within 30 days after each governing board election, a list of the governing board’s members, the groups or classes of members that they represent, and how the composition of the governing board otherwise meets the requirements of Rule 834. Proposed Rule 834(e) is designed to reinforce the other requirements of the rule by causing each SBSEF and SBS exchange to actively consider how the composition of its governing board comports with Rule 834, and to make an accurate representation to the Commission regarding such compliance. The Commission preliminarily believes that § 1.69 also includes provisions that would further the policy goals of section 765 and is, therefore, proposing to adapt them into Rule 834. Under proposed Rule 834(b), an SBSEF or SBS exchange generally may not permit any member to hold 20% or more of the voting interest in that trading venue. Nothing in proposed Rule 834, however, would prohibit a member—including an SBS dealer or major SBS participant (or a person associated with such a member, such as a firm principal)—from serving on a governing board, disciplinary committee, or oversight panel of an SBSEF or SBS exchange. Section 1.69 is designed to address various types of conflicts of interest that might involve members of a governing board, disciplinary committee, or oversight panel. For example, § 1.69 specifies when a member must abstain from the body’s deliberations and voting because the member has a relationship to the named party in interest or because the member has ‘‘a direct and substantial financial interest in the result of the vote.’’ Furthermore, § 1.69 requires a member to disclose its relationships to a named party in interest and provide position information to the SRO so that the SRO can assess whether the member has a conflict, and also requires the SRO to follow its own procedures for determining whether a conflict exists. Because these provisions further the goals of section 765—to mitigate conflicts of interest created by an SBS dealer or major SBS participant that holds an interest in an SBSEF or SBS exchange—and because they are reasonably designed to promote good governance more generally, the Commission is proposing to incorporate them into Rule 834. The Commission recognizes that promulgating rules under section 765 alone will not result in a highly competitive market for SBS. There could be other ways for anticompetitive forces to impede the growth of SBS trading on transparent, regulated platforms other than by misuse of a large voting interest in the trading venue. For example, a large SBS dealer or
coalition of SBS dealers, even absent any voting interest in any SBSEF or SBS exchange, could threaten to move their business elsewhere unless given an unfair advantage by the trading venue. A large SBS dealer or coalition of SBS dealers also could conspire to shut out end users who sought to trade more actively on these transparent, regulated venues rather than continuing to trade in the bilateral OTC markets. The Commission will be alert to any such anticompetitive practices and consider appropriate prophylactic measures. At present, the Commission believes that adopting rules under section 765 is a necessary and appropriate first step to guard against conflicts of interest arising on SBSEFs and SBS exchanges. The Commission seeks comment on the following:
175. In general, do you agree with
how the Commission is proposing to implement section 765 of the Dodd￾Frank Act? Why or why not?
176. In particular, do you believe that
the 20% ownership cap in proposed Rule 834(b) is appropriate? Why or why not? Do you believe that a different numerical threshold would be appropriate? If so, what numerical threshold and why?
177. Do you believe that there are
other means (such as ownership of non￾voting equity, holding a sizeable amount of the debt issuance, etc.) by which an SBS dealer or major SBS participant could exercise an undue influence over an SBSEF or SBS exchange of which it is a member? If so, please discuss whether and how these other means should be incorporated into Rule 834.
178. Do you believe that proposed
Rule 834(b) is sufficiently clear about when a member would be deemed to have an indirect 20% voting interest in an SBSEF or SBS exchange? If not, please provide other scenarios where you believe the Commission should offer clarification.
179. Do you agree in general with the
Commission’s proposal to adapt the major provisions of § 1.64 into Rule 834? Why or why not?
180. Are there provisions of § 1.64
that the Commission has incorporated into proposed Rule 834 that you think inappropriate? If so, what provisions and why?
181. Conversely, are there provisions
of § 1.64 that the Commission has not incorporated into proposed Rule 834 that you think should be incorporated? If so, what provisions and why? Specifically, do you believe that the Commission should incorporate a definition of ‘‘membership interest’’—as the CFTC does in § 1.64(a)(4)—to more precisely delineate the different interests that an SBSEF or SBS exchange should take into account?
182. Do you agree in general with the
Commission’s proposal to incorporate the major provisions of § 1.69 into Rule 834? Why or why not?
183. Are there provisions of § 1.69
that the Commission has incorporated into proposed Rule 834 that you think inappropriate? If so, what provisions and why?
184. Do you believe generally that the
same rules for mitigating conflicts of interest should apply to both SBSEFs and SBS exchanges, or should different restrictions apply to each type of trading venue? If you believe different restrictions should apply, please explain why and what different restrictions you believe should be incorporated into Rule 834?
185. Are there any proposed
requirements in Rule 834 that existing national securities exchanges, which could in the future elect to list SBS and thereby become SBS exchanges, would find difficult to comply with? Would any of the requirements proposed in Rule 834 conflict with their existing rules? If so, please describe.
186. Are there other types of conflict
of interest that SBS dealers and major SBS participants might enjoy as members of an SBSEF or SBS exchange? If so, discuss how any such conflict could be addressed via Commission rulemaking.
187. Do you believe that SBS dealers
and major SBS participants can exercise anticompetitive influence over one or more SBSEFs or SBS exchanges even if not members of those trading venues? If so, what additional measures would you recommend to combat that anticompetitive influence?
XI. Rule 835—Notice to Commission by
SBSEF of Final Disciplinary Action, Denial or Conditioning of Membership, or Denial or Limitation of Access The Commission is also proposing new Rule 835 to require an SBSEF to provide the Commission notice of a final disciplinary action, a final action

267 15 U.S.C. 78c–4(d)(2). 268As discussed above, see supra section VIII(B)(1), proposed Rule 819(g)(13)(ii) would permit an SBSEF to adopt a summary fine schedule for violations of rules relating to the failure to timely submit accurate records required for clearing or verifying each day’s transactions, which may be summarily imposed against persons within the SBSEF’s jurisdiction for violating such rules. Furthermore, an SBSEF’s summary fine schedule could allow for warning letters to be issued for first￾time violations or violators. If adopted, a summary fine schedule would be required by proposed Rule 819(g)(13)(ii) to provide for progressively larger fines for recurring violations. 269A summary fine schedule, if an SBSEF elects to adopt one, would have to be part of the SBSEF’s rules, and thus would need to be submitted to the Commission. See proposed Rule 819(g)(13)(ii). 270See 17 CFR 9.1(b)(2). 271 15 U.S.C. 78c(a)(1). 272 17 CFR 240.3b–16 (providing that an entity generally is considered to meet the definition of ‘‘exchange’’ if it brings together the orders for securities of multiple buyers and sellers and uses established, non-discretionary methods—whether by providing a trading facility or by setting rules— under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade). with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access. Such notice is designed to ensure that the Commission is kept aware of significant disciplinary actions, denials or conditionings of membership, or denials or limitations on access by SBSEFs that could be the subject of an aggrieved person’s request for review by the Commission. The requirement to provide notice to the Commission also would obligate an SBSEF to be cognizant of, and make records for, each such instance, and such records would become a necessary part of the record should the aggrieved person seek Commission review of the SBSEF’s action. Specifically, paragraph (a) of proposed Rule 835 would provide that, if an SBSEF issues a final disciplinary action against a member, or takes a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access of a person to any services offered by the SBSEF, the SBSEF shall file a notice of such action with the Commission within 30 days and serve a copy on the affected person. Proposed Rule 835(a) uses the phrase ‘‘final disciplinary action against a member’’ (emphasis added) because an SBSEF may utilize its disciplinary authority under Core Principle 2 (Compliance with Rules) in section 3D of the SEA 267 only with respect to its members; but uses the phrase ‘‘denies or limits access of a person’’ (emphasis added) because the person whose access is denied or limited might not be a member. For example, a person that is denied membership by an SBSEF would fall under
this category. Paragraph (b)(1) of proposed Rule 835 would provide that, for purposes of paragraph (a), a disciplinary action would not be considered final unless:
(1) The affected person has sought an adjudication or hearing with respect to the matter, or otherwise exhausted their administrative remedies at the SBSEF; and (2) the disciplinary action is not a summary action permitted under proposed Rule 819(g)(13)(ii).268 In addition, paragraph (b)(2) of proposed Rule 835 would provide that, for purposes of paragraph (a), a disposition of a matter with respect to a denial or conditioning of membership, or a denial or limitation of access, would not be considered final unless such person has sought an adjudication or hearing, or otherwise exhausted their administrative remedies at the SBSEF with respect to such matter. The Commission preliminarily believes that it is appropriate to exclude disciplinary actions that are summary actions under an SBSEF’s summary fine schedule 269 because the Commission expects such summary actions, if applicable, to comprise lesser disciplinary actions that do not warrant appeal. The CFTC has parallel procedures relating to review of SEF disciplinary actions also excludes summary actions under an SEF’s summary fine schedule.270 Paragraph (c) of proposed Rule 835 would provide that the notice required under Rule 835(a) must include the name of the member or the associated person and last known address, as reflected in the SBSEF’s records, of the member or associated person, as well as the name of the person, committee, or other organizational unit of the SBSEF that initiated the disciplinary action or access restriction. In the case of a final disciplinary action, the notice would be required to include a description of the acts or practices, or omissions to act, upon which the sanction is based, including, as appropriate, the specific rules that the SBSEF has found to have been violated; a statement describing the respondent’s answer to the charges; and a statement of the sanction imposed and the reasons for such sanction. In the case of a denial or conditioning of membership or a denial or limitation of access, the notice would be required to include: The financial or operating difficulty of the prospective member or member (as the case may be) upon which the SBSEF determined that the prospective member or member could not be permitted to do, or continue to do, business with safety to investors, creditors, other members, or the SBSEF; the pertinent failure to meet qualification requirements or other prerequisites for membership or access and the basis upon which the SBSEF determined that the person concerned could not be permitted to have membership or access with safety to investors, creditors, other members, or the SBSEF; or the default of any delivery of funds or securities to a clearing agency by the member. Finally, the notice must include the effective date of such final disciplinary action, denials or conditioning of membership, or denial or limitation of access, as well as any other information that the SBSEF may deem relevant. The Commission seeks comment on the
following:
188. Do you agree with the proposed
definition of ‘‘final disciplinary action’’ in proposed Rule 835? Why or why not? If not, how would you revise the definition? Do you think it would be appropriate to exclude disciplinary actions that are summary actions under an SBSEF’s summary fine schedule from such definition? Why or why not?
189. Do you agree with how the
proposed rules and rule amendments address when an aggrieved party may seek Commission review of a denial or conditioning of membership, or a denial or limitation of access? Why or why not? If not, how would you revise those provisions?
190. In particular, do the proposed
rules contain sufficient detail to address all types of denials or conditionings of membership or denials or limitations on access? Are there particular scenarios that commenters believe the Commission should address in Rule 835? If so, please describe in detail.
191. Are the contents of the required
notice to the Commission in proposed Rule 835 appropriate? Do you believe these would provide the Commission with enough detail regarding final disciplinary actions, denials or conditionings of membership, and denials or limitations on access? If not, what other information should be required in the notice?
XII. Amendments to Existing Rule
3a1–1 Under the SEA—Exemptions From the Definition of ‘‘Exchange’’ An entity that meets the definition of ‘‘security-based swap execution facility’’ also would likely meet the definition of ‘‘exchange’’ set forth in section 3(a)(1) of the SEA 271 and the interpretation of that definition set forth in Rule 3b–16 thereunder.272 Thus, absent an exemption, an entity needing to register with the Commission as an SBSEF also would likely need to register with the

273See section 3D(a)(1) of the SEA, 15 U.S.C. 78c– 4(a)(1) (‘‘No person may operate a facility for the trading or processing of security-based swaps, unless the facility is registered as a security-based swap execution facility or as a national securities exchange under this section’’). 274 2011 SBSEF Proposal, 76 FR at 10958. 275 15 U.S.C. 78mm(a)(1). 276 17 CFR 240.3a1–1. 277The amended rule would provide that an organization, association, or group of persons shall be exempt from the definition of the term ‘‘exchange’’ if such organization, association, or group of persons has registered with the Commission as an SBSEF pursuant to Rule 803 and provides a market place for no securities other than SBS. 278See supra note 37. 279See id. Commission as a national securities exchange.273 The Commission previously has stated that it ‘‘believes that Congress specifically provided a comprehensive regulatory framework for SBSEFs in the [SEA], as amended by the Dodd Frank Act, and therefore that such entities that are registered as SBSEFs should not also be required to register and be regulated as national securities exchanges.’’ 274 Therefore, the Commission is proposing to exercise its authority under
section 36(a)(1) of the SEA 275 to exempt
an SBSEF from the definition of ‘‘exchange’’—and thus the obligation to register as a national securities exchange—if it provides a market place solely for the trading of SBS (and no other securities) and has registered with the Commission as an SBSEF. To effect this exemption, the Commission is proposing to amend Rule 3a1–1 under the SEA 276 by adding new paragraph (a)(4).277 The proposed amendment provides that an entity that has registered with the Commission as an SBSEF pursuant to proposed Rule 803 and provides a market place for no securities other than SBS would not fall within the definition of ‘‘exchange,’’ and thus would not be subject to the requirement in section 5 of the SEA to register as a national securities exchange or obtain a low￾volume exemption. Section 5 also provides that a broker or dealer may not ‘‘us[e] any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction in a security, or to report any such transaction, unless such exchange (1) is registered as a national securities exchange . . . or (2) is exempted from such registration . . . by reason of the limited volume of transactions effected on such exchange.’’ Brokers and dealers who are members of a registered SBSEF would not be in violation of section 5 by effecting or reporting any SBS transactions on that SBSEF, because an SBSEF that qualifies for the exemption under proposed Rule 3a1–1(a)(4) would not be an exchange within the meaning of section 5. In addition, the Commission is proposing a new paragraph (a)(5) to existing Rule 3a1–1 under the SEA which would provide that an organization, association, or group of persons shall be exempt from the definition of the term ‘‘exchange’’ if such organization, association, or group of persons has registered with the Commission as a clearing agency pursuant to section 17A of the SEA and limits its exchange functions to operation of a trading session that is designed to further the accuracy of end￾of-day valuations. As noted above, this provision would codify a series of exemptions that the Commission has granted over several years to SBS clearing agencies that operate ‘‘forced trading’’ sessions.278 As part of the clearing and risk management processes, an SBS clearing agency must establish an end-of-day valuation for any SBS in which any of its members has a cleared position. Certain SBS clearing agencies utilize a valuation mechanism whereby they require clearing members to submit indicative quotes for those SBS products, and can require them to trade as a way to promote accurate submissions. The precise means by which the clearing agency matches quotes from different clearing members could cause the clearing agency to fall within the definition of ‘‘exchange’’ in section 3(a)(1) of the SEA. The Commission previously has found that it was necessary or appropriate in the public interest and consistent with the protection of investors to exempt clearing agencies that
engage in this activity from the definition of ‘‘exchange.’’ 279 The Commission is now proposing to codify this exemption. This exemption would cover only the forced-trading session of an SBS clearing agency; any other exchange activity that a clearing agency might engage in could remain subject to the SEA provisions and the Commission’s rules thereunder applying to exchanges. Finally, the Commission is proposing to amend the introductory language of existing paragraph (b) of Rule 3a1–1, which states: ‘‘Notwithstanding paragraph (a) of this rule, an organization, association, or group of persons shall not be exempt under this rule from the definition of ‘exchange’ if . . .’’ Paragraph (b) then sets out procedural and substantive criteria for the Commission to retract an exemption under paragraph (a) of Rule 3a1–1 if an exchange’s share of the market in any one of the specified classes of securities exceeds a defined threshold. The Commission is proposing to amend the introductory language of paragraph (b) of Rule 3a1–1 to cover only paragraphs (a)(1) through (3), not paragraph (a) as a whole. The changed language is designed to clarify that the retraction provisions would not apply to organizations, associations, or groups of persons who fall within proposed Rule 3a1–1(a)(4) or (a)(5). Thus, even if a registered SBSEF were to grow very large, Rule 3a1–1(b), as proposed to be amended, would not afford a basis for the Commission to retract an SBSEF’s exemption from the definition of ‘‘exchange’’ under proposed Rule 3a1–1(a)(4), which would force the SBSEF to register as a national securities exchange (to avoid being a registered exchange). The Commission preliminarily believes that, in adopting section 3D of the SEA, Congress gave the Commission a mechanism to regulate SBSEFs of any size. Nothing in section 3D suggests that, if an SBSEF were to grow above a certain size, the Commission should be able to withdraw that entity’s ability to operate as an SBSEF and instead compel it to register as a national securities exchange. Finally, the Commission preliminarily believes that it is not necessary to apply the retraction provisions in Rule 3a1– 1(b) to registered clearing agencies that engage in forced trading sessions and are covered by proposed Rule 3a1– 1(a)(5). SBS transactions effected using this functionality are designed to facilitate the clearance and settlement process by rendering more accurate the daily valuation that is used to calculate margin requirements. The entities that utilize this functionality are already registered with the Commission—as clearing agencies—and carry out these operations under rules that have been approved by the Commission. This trading functionality is not effected for the purpose of conducting open-market transactions between parties who are seeking to increase or decrease their positions for investment or hedging purposes. Therefore, the Commission preliminarily believes that it would not be appropriate to
apply the retraction provisions of Rule 3a1–1(b) to clearing agencies that would be covered by proposed Rule 3a1–1(a)(5), as this would force these clearing agencies also to register as national securities exchanges. The Commission seeks comment on the following:
192. Do you agree in general with the
Commission’s proposal to exempt from

280See section 3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4). 281 15 U.S.C. 78o(a) and 78o(b). Section 15(a)(1) generally provides that, absent an exception or exemption, a broker or dealer that uses the mails or any means of interstate commerce to effect transactions in, or to induce or attempt to induce the purchase or sale of, any security must register with the Commission. Section 15(b) generally provides the manner of registration of brokers and dealers and other requirements applicable to registered brokers and dealers. 282As discussed in note 43 supra, a person that is acting as a broker solely because it is acting as an SBSEF is currently exempt from the requirement to register with the Commission as a broker and the Commission’s rules under the SEA that apply to brokers. This exemption will expire upon the compliance date for the Commission’s final SBSEF rules. 283See 17 CFR 240.10b–10 and 240.10b–16. 284 15 U.S.C. 78q(a). 285 15 U.S.C. 78q(b) (providing that the records of registered brokers, among other types of registered entity, are subject to examination by representatives of the Commission). 286See 15 U.S.C. 78o(b)(8) and 240.15b9–1. 287See 17 CFR 240.15c3–1 and 240.15c3–3. 288See 17 CFR 240.17a–3, 240.17a–4, and 240.17a–5. 289See 2011 SBSEF Proposal, 76 FR at 10959 (noting that this framework indicates that Congress did not intend for entities that meet the definition of SBSEF also to be subject to all of the requirements set forth in the SEA and the rules and regulations thereunder applicable to brokers). 290A foreign SBS trading venue covered by an exemption under proposed Rule 833(a) would be exempt from the SEA’s definition of ‘‘broker’’ and, as a result, would not need rely on proposed Rule 15a–12. 291 15 U.S.C. 78o(b)(4). 292 15 U.S.C. 78o(b)(6). 293 15 U.S.C. 78q(b). the statutory definition of ‘‘exchange’’ any registered SBSEF that provides a market place for no securities other than SBS and any SBS clearing agency that engages in forced trading sessions? Why or why not?
193. Do you agree with the particular
language of proposed paragraphs (a)(4) and (a)(5) of Rule 3a1–1? If not, how would you amend the language?
194. Do you agree with the
Commission’s preliminary view, reflected in the proposed new introductory language to paragraph (b) of Rule 3a1–1, that entities qualifying for an exemption from the definition of ‘‘exchange’’ under proposed paragraphs (a)(4) and (a)(5) of Rule 3a1–1 should not be subject to the retraction provisions of Rule 3a1–1(b)? Why or why not?
XIII. Rule 15a–12—SBSEFs as
Registered Brokers; Relief From Certain Broker Requirements An SBSEF, by facilitating the execution of SBS between persons, also is engaged in the business of effecting transactions in securities for the account of others and therefore meets the SEA definition of ‘‘broker.’’ 280 Absent an exception or exemption, an SBSEF—in addition to being subject to the registration and regulatory requirements for SBSEFs—also would be required to register with the Commission as a broker pursuant to sections 15(a) and 15(b) of the SEA 281 and would be subject to all regulatory requirements applicable to brokers.282 For example, brokers and dealers must comply with a number of rules that govern their conduct, including those relating to customer confirmations and disclosure of credit terms in margin transactions.283 The Commission is proposing a new Rule 15a–12 under the SEA that would deem registration with the Commission as an SBSEF also to constitute registration as a broker, and would exempt a registered SBSEF from many broker requirements in light of the SBSEF regulatory regime to which it would also be subject. One statutory provision from which a registered SBSEF would be exempted is
section 17(a) of the SEA,284 which
requires a registered broker (among other types of registered entity) to make and keep records as prescribed by Commission rule. Because SBSEFs are required to make and keep records as prescribed by Commission rule under
section 3D(d)(9) of the SEA, imposing
section 17(a) on SBSEFs would be
redundant. By contrast, one statutory provision that would continue to apply to registered SBSEFs in their dual capacity as registered brokers would be
section 17(b) of the SEA.285
In addition, under section 15(b)(8) of the SEA, it is unlawful for any registered broker or dealer to effect transactions in securities unless it is a member of an SRO.286 Brokers and dealers also must comply with a number of financial responsibility regulations, such as the net capital and customer protection rules.287 A registered broker or dealer also must make and keep current books and records relating to its business and detailing, among other things, securities transactions, money balances, and securities positions; keep records for required periods and furnish copies of those records to the Commission on request; and file certain financial reports with the Commission.288 The Commission preliminarily believes that Congress did not intend to subject SBSEFs that act only as SBSEFs to a dual regulatory regime.289 Therefore, using its authority under
section 36(a)(1) of the SEA and its
authority to establish procedures regarding the registration of brokers, the Commission is proposing new Rule 15a–12 under the SEA that would allow an SBSEF that is a broker, solely due to its activity with respect to SBS executed on or through the SBSEF, to satisfy the requirement to register as a broker by registering as an SBSEF.290 Proposed Rule 15a–12(b) would provide that such an entity, if it registered as an SBSEF pursuant proposed Rule 803, would be deemed also to have registered with the Commission pursuant to sections 15(a) and (b) of the SEA. The Commission is not proposing to exempt SBSEFs from registration as brokers; rather, given the registration and regulatory requirements being proposed for SBSEFs through Regulation SE, it is proposing to eliminate a separate registration process for broker/SBSEFs and much of the additive layer of regulation for brokers that the Commission preliminarily believes is not necessary in light of the regulatory regime for SBSEFs. Proposed Rule 15a–12 could not be utilized by an SBSEF that engaged in other types of brokerage activity. Paragraph (a) of proposed Rule 15a–12 would define the term ‘‘SBSEF–B’’ to mean an SBSEF that does not engage in any securities activity other than facilitating the trading of SBS on or through the SBSEF. Thus, an SBSEF that acts as agent to SBS counterparties or that acts in a discretionary manner with respect to the execution of SBS transactions, could not avail itself of proposed Rule 15a–12. Also, if an inter￾dealer broker elects not to separate its inter-dealer broker functions from its SBSEF (by, for example, housing them in separate legal entities), and instead chooses to operate the SBSEF in the same legal entity as the inter-dealer broker, the entity could not avail itself of proposed Rule 15a–12 because it would not be an SBSEF–B under the rule. Paragraphs (c) to (e) of proposed Rule 15a–12 would set out the scope of broker requirements from which an SBSEF–B would be exempted and which broker requirements would continue to apply. Paragraph (c) would provide that an SBSEF–B would be exempt from any provision of the SEA or the Commission’s rules thereunder applicable to brokers that by its terms requires, prohibits, restricts, limits, conditions, or affects the activities of a broker, unless such provision specifies that it applies to an SBSEF. Paragraph (d) of proposed Rule 15a–12 would provide that, notwithstanding paragraph (c), an SBSEF–B would still be subject to sections 15(b)(4),291 15(b)(6),292 and 17(b) of the SEA.293 Sections 15(b)(4) and 15(b)(6) of the SEA serve as the basis for enforcing the

294 Id. 295See https://www.sipc.org/about-sipc/sipc￾mission (‘‘In a liquidation under the Securities Investor Protection Act, SIPC and the court￾appointed Trustee work to return customers’ securities and cash as quickly as possible. Within limits, SIPC expedites the return of missing customer property by protecting each customer up to $500,000 for securities and cash (including a $250,000 limit for cash only)’’). 296See 15 U.S.C. 78ddd(d). 297 15 U.S.C. 78bbb. 298 15 U.S.C. 78mm(a)(1) (giving the Commission broad exemptive authority, including the ability to exempt any person or classes of persons from any provision of the SEA or any rules thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors). 299 17 CFR 240.17Ad–24. 300 15 U.S.C. 78c(a)(23). 301See SEA Release No. 90667 (December 16, 2020), 86 FR 7637 (February 1, 2021). 302See id., 86 FR at 7650; SEA Release No. 64796 (July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) (‘‘2011 Temporary Exemption’’). Federal securities laws against registered brokers. Section 15(b)(4) provides that the Commission, upon the making of specified findings, shall censure; place limitations on the activities, functions, or operations of; suspend for a period not exceeding 12 months; or revoke the registration of any broker or dealer. Similarly, section 15(b)(6) of the SEA requires the Commission, upon the making of specified findings, to censure, place limitations on, suspend, or bar such person an associated person. Section 17(b) of the SEA is the legal basis under which the Commission may examine registered brokers for compliance with the Federal securities laws. Section 17(b) authorizes the Commission to conduct reasonable periodic, special, or other examinations of all records maintained by entities described in
section 17(a), including registered
brokers. These examinations may be conducted at any time, or from time to time, as the Commission deems necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the SEA.294 Proposed Rule 15a–12 would specify that these examination and statutory disqualification provisions pertaining to registered brokers continue to apply, despite Rule 15a–12 exempting an SBSEF–B from other broker requirements under the SEA. Finally, paragraph (e) of proposed Rule 15a–12 would exempt an SBSEF– B from the Securities Investor Protection Act (‘‘SIPA’’). SIPA established the Securities Investor Protection Corporation (‘‘SIPC’’), which oversees the liquidation of member firms that close when a member firm is bankrupt or in financial trouble, and customer assets are missing.295 SIPC protection is funded by assessments made on member firms.296
Section 2 of SIPA 297 states that,
unless otherwise provided, the SEA shall apply as if SIPA constituted an amendment to, and was included as a
section of, the SEA. An SBSEF–B, by
definition, would operate only as an SBSEF. The Commission preliminarily believes that it would not be equitable to require an SBSEF–B to become a member of SIPC and pay SIPC assessments, since the SBSEF–B would not have brokerage customers and would not hold any customer funds or securities. Accordingly, under section 36(a)(1) of the SEA,298 the Commission preliminarily believes that it is necessary or appropriate in the public interest, and is consistent with the protection of investors, to exempt SBSEF–Bs from any requirement under SIPA, including the requirement to pay assessments to the SIPC insurance fund. The Commission is proposing to codify this exemption as Rule 15a–12(e). The Commission seeks comment on the following:
195. Do you agree in principle with
proposed Rule 15a–12? Why or why not?
196. Do you agree with the specific
language of proposed Rule 15a–12? If not, how would you revise the rule language, and why?
197. Are there any provisions listed in
paragraph (d) of proposed Rule 15a–12 to which an SBSEF–B should not be subject? If so, what provisions and why? Are there any other provisions or broker requirements to which an SBSEF–B should be subject (and thus added to paragraph (d) of proposed Rule 15a–12)? If so, what provisions or requirements and why?
198. Do you believe that it is
appropriate to exempt SBSEF–Bs from SIPA, as reflected in proposed Rule 15a–12(e)? Why or why not?
XIV. Proposed Sunsetting of Temporary
Exemption From SEA Definition of ‘‘Clearing Agency’’ for Unregistered SBSEFs In 2020, the Commission adopted Rule 17Ad–24 under the SEA 299 to exempt from the definition of ‘‘clearing agency’’ in section 3(a)(23) of the SEA 300 certain entities, including a registered SBSEF, that would be deemed to be a clearing agency solely by reason of (a) functions performed by such institution as part of customary dealing activities or providing facilities for comparison of data respecting the terms of settlement of securities transactions effected on such registered SBSEF, respectively; or (b) acting on behalf of a clearing agency or participant therein in connection with the furnishing by the clearing agency of services to its participants or the use of services of the clearing agency by its participants.301 In adopting the rule, the Commission explained that an entity performing such functions that triggers the requirement to register as a clearing agency—but that is not yet registered with the Commission as an SBSEF— could rely on a temporary exemption from the requirement to register as a clearing agency that the Commission issued in 2011.302 The Commission preliminarily believes that, if it adopts a framework for the registration of SBSEFs, the 2011 Temporary Exemption would no longer be necessary because entities carrying out the functions of SBSEFs would be able to register with the Commission as such, thereby falling within the exemption from the definition of ‘‘clearing agency’’ in existing Rule 17Ad–24. The Commission seeks comment on the following:
199. Should the Commission sunset
the 2011 Temporary Exemption to coincide with the compliance date for Regulation SE, if adopted? If not, what timeline for sunsetting the 2011 Temporary Exemption would be appropriate?
XV. Electronic Filings Under
Regulation SE
Various provisions of proposed Regulation SE would require registered SBSEFs (or SBSEF applicants) to file specified information electronically with the Commission using the Electronic Data Gathering, Analysis, and Retrieval (‘‘EDGAR’’) system in Inline XBRL, a structured, machine-readable data language. Such provisions include:

• Proposed Rule 803(b)(1)(i) and
  (b)(3), regarding filings of, and amendments to, a Form SBSEF application.
• Proposed Rules 803(e) and 803(f),
  regarding requests to withdraw or vacate an application for registration.
• Proposed Rule 804(a)(1), regarding
  filings for listing products for trading by certification.
• Proposed Rule 805(a)(1), regarding
  filings for voluntary submission of new products for Commission review and approval.
• Proposed Rule 806(a)(1), regarding
  filings for voluntary submission of rules for Commission review and approval.
• Proposed Rule 807(a)(1), regarding
  filings for self-certification of rules.
• Proposed Rule 807(d), regarding
  filings of weekly notifications to the

303See Release No. 33–10514 (June 28, 2018), 83 FR 40846, 40847 (August 16, 2018). Inline XBRL allows filers to embed XBRL data directly into an HTML document, eliminating the need to tag a copy of the information in a separate XBRL exhibit. See id., 83 FR at 40851. 304The Commission’s EFFS/SRTS system was not designed to support filings using an open structured data language such as Inline XBRL. As a result, requiring registrants to submit filings via the EFFS/ SRTS system may not be compatible with a requirement to use Inline XBRL or any other open structured data language for the filings. 305See supra section VIII(B). 306See, e.g., 15 U.S.C. 78c–4(d)(2)(A) (directing an SBSEF to ‘‘establish and enforce compliance’’ with its rules) (emphasis added); 15 U.S.C. 78c– 4(d)(2)(C) (directing an SBSEF to ‘‘establish and enforce trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules’’) (emphasis added). 307See supra section VIII(B). See also proposed Rule 819(c)(3) (relating to limitations on access, including suspensions and permanent bars); proposed Rule 819(g) (relating to disciplinary procedures and sanctions). 308See 15 U.S.C. 78c–4(d)(2)(A)(ii) (directing an SBSEF to establish and enforce compliance with any rule that imposes any limitation on access to the facility); 15 U.S.C. 78c–4(d)(2)(B)(i) (requiring an SBSEF to provide market participants with impartial access to the market). 309See part 9 of the CFTC’s rules (Rules Relating to Review of Exchange Disciplinary, Access Denial or Other Adverse Actions). For purposes of part 9, the term ‘‘exchange’’ includes a SEF. 310 17 CFR 201.101. 311 17 CFR 201.202. 312See infra sections XVI(E) and (F). 313 17 CFR 201.210. Commission of rules and rule amendments that were not required to be certified.

• Proposed Rule 829(g)(6), regarding
  submission to the Commission of reports related to financial resources and related documentation.
• Proposed Rule 831(j)(2), regarding
  submission to the Commission of the annual compliance report of SBSEF’s CCO. Requiring SBSEFs to file this information in EDGAR would provide the Commission and the public with a centralized, publicly accessible electronic database for the information, thereby facilitating its use. EDGAR would also enable technical validation of the disclosures, thus potentially reducing the incidence of non￾discretionary errors (e.g., including text for a disclosure that should contain only numbers). Moreover, requiring Inline XBRL tagging of the reported disclosures, which would specifically comprise Inline XBRL block text tags for any narrative disclosures, as well as detail tags for individual data points, would make the disclosures more easily available and accessible to, and reusable by, market participants and the Commission for retrieval, aggregation, and comparison across different SBSEFs and time periods, as compared to an unstructured PDF, HTML, or ASCII format requirement for the reports.303 The Commission seeks comment on the following:

200. Would EDGAR be an appropriate
     system for these filings? Or should the Commission use its Electronic Form Filing System/SRO Rule Tracking System (‘‘EFFS/SRTS’’) or another file transfer system instead? 304 Would requiring these materials to be filed in EDGAR, EFFS/SRTS, or another file transfer system be more beneficial for SBSEFs and other market participants? If so, why? How would the use of these different systems impact the usability and accessibility of the materials for data users? Is there another method of electronic submission that is preferable? If so, please identify that method, why you believe it should be used, and the estimated costs of such system for filers.
201. Should all filings be made
     through the same electronic system, or would different filing systems be appropriate for different types of filings? If the latter, please discuss.
202. Would Inline XBRL be an
     appropriate data language for these filings? Or should the Commission use a different structured data language? If so, which data language should be required, and why? Would requiring a different structured data language be more beneficial for SBSEFs and other market participants? How would the use of a different data language impact the usability and accessibility of the materials for data users? What time or expense is associated with your recommended structured data language? Would a particular structured data language require any filers or users to license commercial software they otherwise would not, and, if so, at what expense?
     XVI. Amendments to Commission’s
     Rules of Practice for Appeals of SBSEF Actions As noted above,305 SEA Core Principle 2 directs an SBSEF to exercise regulatory powers over its market.306 Under proposed Rule 819 of Regulation SE, an SBSEF could take a variety of disciplinary actions against a member that is found to violate the SBSEF’s rules, including fining the member, limiting the member’s access, or barring the member entirely.307 SEA Core Principle 2 also requires an SBSEF to establish rules governing access to its market.308 An SBSEF could apply those rules in such a way as to limit a person’s access to the SBSEF or to deny access entirely. The Commission preliminarily believes that general principles of due process necessitate an appeals procedure for final disciplinary actions taken by an SBSEF, for denials or conditionings of membership, and for limitations or denials of access. Accordingly, the Commission is proposing a number of amendments to its Rules of Practice to allow for such appeals, and notes that the CFTC has similar procedures with respect to SEFs.309 A. Amendment to Rule 101 Existing Rule 101 of the Commission’s Rules of Practice 310 sets out definitions for several terms used in the Rules of Practice. In particular, existing Rule 101(a)(9) defines ‘‘proceeding’’ with respect to applications of review of actions by a variety of entities that are subject to the Commission’s jurisdiction. The Commission is proposing a new paragraph (a)(9)(ix) of Rule 101 that would provide that an application for a review of a determination (such as a final disciplinary action or a limitation or denial of access to any service) by an SBSEF would be a ‘‘proceeding’’ and thereby trigger applicability of the Rules of Practice. B. Amendment to Rule 202 Existing Rule 202 of the Commission’s Rules of Practice 311 permits a party in certain proceedings before the Commission to make a motion to specify certain procedures with respect to such proceeding. Rule 202(a) excludes certain types of proceedings, including enforcement or disciplinary proceedings, proceedings to review a determination by an SRO, and proceedings to review a determination of the PCAOB. Because the Commission is proposing new Rules 442 and 443, which set out specific procedures with respect to proceedings to review a determination of an SBSEF,312 the Commission is proposing to revise Rule 202(a) to add such SBSEF-related proceedings to the list of exclusions.
     C. Amendment to Rule 210
     Existing Rule 210 of the Commission’s Rules of Practice 313 sets out Commission rules with respect to parties, limited participants, and amici curiae in various proceedings before the Commission. Paragraph (a)(1) of Rule 210 states that persons shall not be granted leave to become a party or non￾party participant on a limited basis in an enforcement or disciplinary proceeding, a proceeding to review a determination by an SRO, or a proceeding to review a determination by

314See infra sections XVI(E) and (F). 315 17 CFR 201.442. 316Such application would be required to identify the SBSEF’s determination complained of, set forth in summary form a statement of alleged errors in the action and supporting reasons therefor, and state an address where the applicant can be served. The application would be expected not to exceed two pages in length, and the notice of appearance required by § 201.102(d) would have to accompany the application if the applicant is to be represented by a representative. Any exception to an action not supported in an opening brief that complies with § 201.450(b) could, at the discretion of the Commission, be deemed to have been waived by the applicant. 317 17 CFR 201.442(c). 318 17 CFR 201.442(d)–(e). 319 17 CFR 201.443. the PCAOB, except as authorized by paragraph (c) of Rule 210 (which permits limited instances in which persons may participate for Commission disciplinary and enforcement proceedings). Because the Commission is proposing new Rules 442 and 443, which set out specific procedures with respect to proceedings to review a determination of an SBSEF,314 the Commission is proposing to revise Rule 210 to exclude proceedings to review a determination by an SBSEF among those types of proceedings from which persons may be granted leave to become a party or a non-party participant on a limited basis. D. Amendment to Rule 401 The Commission is proposing to amend existing Rule 401 of its Rules of Practice by adding a new paragraph (f). New paragraph (f)(1) of existing Rule 401 would permit any person aggrieved by a stay of action by an SBSEF entered in accordance with proposed Rule 442(c) to make a motion to lift the stay. The Commission could also, at any time, on its own motion determine whether to lift the automatic stay. New paragraph (f)(2) would provide that the Commission may lift a stay summarily, without notice and opportunity for hearing. Finally, new paragraph (f)(3) would provide that the Commission may expedite consideration of a motion to lift a stay of action by an SBSEF, consistent with the Commission’s other responsibilities. Where consideration is expedited, persons opposing the lifting of the stay could file a statement in opposition within two days of service of the motion requesting lifting of the stay unless the Commission, by written order, specifies a different period. The Commission preliminarily believes that it is appropriate to allow persons affected by certain stays of action by an SBSEF the opportunity to make a motion to request the lifting of the stay. As discussed below, pursuant to proposed Rule 442, an aggrieved person could file an application for review with the Commission with respect to a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access. The filing of such application would operate as a stay of the SBSEF’s determination. The Commission
preliminarily believes that, because of this automatic stay procedure, an aggrieved person or the SBSEF itself should be afforded a mechanism by which it could request the Commission to lift the stay, in addition to the Commission’s ability under proposed Rule 401(f)(2) to lift a stay summarily, without notice and opportunity of hearing. E. Rule 442—Right To Appeal Proposed new Rule 442 315 would establish the right to an appeal to the Commission of certain determinations made by an SBSEF, and set out certain procedural matters relating to any such appeal. Paragraph (a) of proposed Rule 442 would provide that an application for review by the Commission may be filed by any person who is aggrieved by a determination of an SBSEF with respect to any: (1) Final disciplinary action, as defined in proposed Rule 835(b)(1); (2) final action with respect to a denial or conditioning of membership, as defined in proposed Rule 835(b)(2); or (3) final action with respect to a denial or limitation of access to any service offered by the SBSEF, as defined in proposed Rule 835(b)(2). Paragraph (b) of proposed Rule 442 would set forth the procedure in such cases. Specifically, an aggrieved person could file an application for review with the Commission (pursuant to existing Rule
151) within 30 days after the notice filed
by the SBSEF with the Commission pursuant to proposed Rule 835 is received by the aggrieved person, and must serve the application on the SBSEF at the same time.316 Paragraph (c) of proposed Rule 442 would provide that filing an application for review with the Commission pursuant to proposed Rule 835(b) would operate as a stay of the SBSEF’s determination, unless the Commission otherwise orders either pursuant to a motion filed in accordance with proposed Rule 401(f) or upon its own motion.317 The Commission preliminarily believes that it is appropriate for the filing of an application for review to operate as an automatic stay of the SBSEF’s determination, because such determination could have the effect of significantly or even permanently damaging an aggrieved person’s business while the Commission was conducting a review, which could take substantial time. In addition, the Commission is proposing in Rule 401(f) a procedure whereby a person aggrieved by such stay, including the SBSEF, could request that the Commission lift the stay. The proposed rules also contain certain requirements relating to certification of the record and service of the index.318 Specifically, within 14 days after receipt of an application for review, an SBSEF would be required to certify and file with the Commission one unredacted copy of the record upon which it took the complained-of action. The SBSEF would be required to file electronically with the Commission one copy of an index of such record, and serve one copy of the index on each party, subject to the requirements in proposed Rule 442(d)(2) relating to sensitive personal information; if applicable, such filings would have to be certified that they have complied with such requirements relating to sensitive personal information. The Commission believes these requirements are appropriate to ensure that sensitive personal information is not improperly or inadvertently disseminated by an SBSEF as part of its filing of the record relating to the appeal review. F. Rule 443—Sua Sponte Review by Commission New proposed Rule 443 319 would provide that the Commission, on its own initiative, could order review of any determination by an SBSEF (which would include a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access to any services) that could be subject to an application for review pursuant to proposed Rule 442(a) within 40 days after the SBSEF filed notice thereof. Proposed Rule 443 would further provide that the Commission could at any time before issuing its decision raise or consider any matter that it deems material, whether or not raised by the parties. If the Commission did so, under proposed Rule 443 the Commission would give notice to the parties and an opportunity for supplemental briefing with respect to issues not briefed by the parties, where the Commission believes that such briefing could
significantly aid the decisional process. The Commission preliminarily believes that it is appropriate that it have the ability to review any determination filed by an SBSEF that could be subject to an application for review under proposed

320 17 CFR 201.450.
321 17 CFR 201.460.
322See Public Law 111–203 Preamble. 323The regulation of SBSEFs includes, among other things, requiring SBSEFs to comply with the Core Principles set forth in section 3D(d) of the SEA. See supra section VIII. 324Among other things, the Commission is proposing Form SBSEF for persons seeking to register with the Commission as an SBSEF and a submission cover sheet and instructions to be used in rule and product filings made by SBSEFs. Rule 442(a), even without an appeal of such determination by an aggrieved party, should it believe that further consideration is warranted. Therefore, the proposed rule would provide the Commission authority to obtain additional information through supplemental briefings, as needed. G. Amendment to Rule 450 Existing Rule 450 of the Commission’s Rules of Practice 320 sets out requirements for briefs filed with the Commission. Rule 450(a) sets out a briefing schedule, and paragraph (a)(2) provides that the briefing schedule order shall be issued within 21 days, or such longer time as provided by the Commission, of receipt by the Commission of various types of appeals. The Commission is proposing to amend Rule 450(a)(2) by adding a new paragraph (iv) providing that the 21 days would be triggered by ‘‘[r]eceipt by the Commission of an index to the record of a determination by a security￾based swap execution facility filed pursuant to § 201.442(d).’’ H. Amendment to Rule 460 Existing Rule 460 of the Commission’s Rules of Practice 321 states that the Commission shall determine each matter on the basis of the record. Rule 460(a) defines the contents of the record with respect to various types of action. The Commission is proposing a new paragraph (a)(4) of Rule 460 that would state that, in a proceeding for a final decision before the Commission reviewing a determination of an SBSEF, the record shall consist of: (i) The record certified by the SBSEF pursuant to § 201.442(d); (ii) any application for review; and (iii) any submissions, moving papers, and briefs filed on appeal or review.
I. Request for Comment
The Commission requests comment on all aspects of its proposed rules and rule amendments to provide for applications for review by the Commission of an SBSEF’s final disciplinary action or denial or limitation of access. In particular:
203. Do you agree in general that final
disciplinary action and denials or limitations of access by an SBSEF be afforded a review process under the Commission’s Rules of Practice? Why or why not?
204. Should aggrieved parties be
permitted to submit a motion for a stay of an action by an SBSEF under proposed Rule 401(f)? Do you believe that there may be instances in which a motion for a stay may be necessary? Why or why not? Are there any particular provisions that should be added or should not be included in such a process? If so, please describe.
205. Are the provisions relating to
SBSEFs under proposed Rule 442 appropriate? Are there additional requirements that should be included or items that should be omitted? Are the provisions relating to sensitive personal information and exceptions under proposed paragraph (d)(2) appropriate? Why or why not?
206. Is it appropriate for the
Commission to be able to review determinations of an SBSEF sua sponte under proposed Rule 443? Why or why not?
XVII. Conclusion
The Commission requests comment on all aspects of proposed Regulation SE, including any provision of a proposed rule about which the Commission did not ask a specific question above. In addition, the Commission seeks commenters’ views on whether Regulation SE should address any other aspects of SBSEFs or SBS execution generally where the Commission has not proposed a specific rule. In particular:
207. Are there any other CFTC rules,
or provisions of the CEA itself, relating to SEFs that you believe should be adapted by the Commission to apply to SBSEFs? If so, which rules or provisions and why?
208. Are there any other requirements
that the Commission should apply to SBSEF members, or which the Commission should require SBSEFs to apply to their members? If so, what requirements and why? What would be the legal basis for those additional requirements?
XVIII. Compliance Schedule
To facilitate the efficient registration of SBSEFs and compliance with Regulation SE, the Commission intends to include a compliance schedule along with any final rules, if adopted. To assist it in developing an appropriate compliance schedule, the Commission seeks comment on the following matters:
209. If the Commission were to
substantially harmonize its SBSEF rules and registration procedures with those of the CFTC, as proposed, how long would respondents need to submit a Form SBSEF to the Commission after Regulation SE and Form SBSEF are adopted (assuming that the applicant is not registered as a SEF with the CFTC)?
210. Please provide your view of the
optimal compliance schedule(s) and explain your rationale.
211. Should the compliance date for
foreign SBS trading venues that seek an exemption order under Rule 833(a) coincide with the date by which SBSEF applicants would have to be registered by the Commission? If you believe that such foreign SBS trading venues should have a different compliance date, what date should that be and why?
XIX. Economic Analysis
A. Introduction
To increase the transparency and oversight of the OTC derivatives market,322 Title VII of the Dodd-Frank Act requires the Commission to undertake a number of rulemakings to implement the regulatory framework for SBS that is set forth in the legislation, including among other things, (1) the registration and regulation 323 of SBSEFs; and (2) mitigating conflicts of interest with respect to SBSEFs, SBS exchanges, and SBS clearing agencies. To satisfy these statutory mandates, the Commission is proposing Regulation SE and associated forms that would create a regime for the registration and regulation of SBSEFs and address other issues relating to SBS execution generally.324 One of the rules being proposed as part of Regulation SE, Rule 834, would implement section 765 of the Dodd-Frank Act, which is intended to mitigate conflicts of interest at SBSEFs and SBS exchanges. Other rules being proposed as part of Regulation SE would address the cross-border application of the SEA’s trading venue registration requirements and the trade execution requirement for SBS. In addition, the Commission is proposing to amend existing Rule 3a1– 1 under the SEA to exempt, from the SEA definition of ‘‘exchange,’’ registered SBSEFs that provide a market place for no securities other than SBS and certain registered clearing agencies. The Commission also is proposing new Rule 15a–12 under the SEA that, while affirming that an SBSEF also would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements. The Commission also is proposing certain new rules and amendments to its Rules of Practice to

325See also section IX(A) supra and XIX(B)(2)(c) infra (discussing the global nature of the SBS market). 326See Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant,’’ SEA Release No. 66868 (April 27, 2012), 77 FR 30596 (May 23, 2012) (‘‘Intermediary Definitions Adopting Release’’). 327See Application of ‘‘Security-Based Swap Dealer’’ and ‘‘Major Security-Based Swap Participant’’ Definitions to Cross-Border Security￾Based Swap Activities, SEA Release No. 72472 (June 25, 2014), 79 FR 47278 (August 12, 2014) (‘‘Cross-Border Adopting Release’’). 328See Security-Based Swap Data Repository Registration, Duties, and Core Principles, SEA Release No. 74246 (February 11, 2015), 80 FR 14438 (March 19, 2015) (‘‘SDR Rules and Core Principles Adopting Release’’). 329See supra note 84. 330See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, SEA Release No. 75611 (August 5, 2015), 80 FR 48964 (August 14, 2015) (‘‘Registration Adopting Release’’). 331See 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 or in a U.S. Branch or Office of an Agent; Security-Based Swap Dealer De Minimis Exception, SEA Release No. 77104 (February 10, 2016), 81 FR 8598 (February 19, 2016) (‘‘ANE Adopting Release’’). 332See Business Conduct Standards for Security￾Based Swap Dealers and Major Security-Based Swap Participants, SEA Release No. 77617 (April 14, 2016), 81 FR 29960 (May 13, 2016) (‘‘Business Conduct Adopting Release’’). 333See Trade Acknowledgment and Verification of Security-Based Swap Transactions, SEA Release No. 78011 (June 8, 2016), 81 FR 39808 (June 17,
2016) (‘‘Trade Acknowledgment and Verification
Adopting Release’’).
334See supra note 229.
335See Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons To Effect or Be Involved in Effecting Security-Based Swaps, SEA Release No. 84858 (December 19, 2018), 84 FR 4906–47 (February 19, 2019) (‘‘Rule of Practice 194 Adopting Release’’). 336See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital and Segregation Requirements for Broker￾Dealers, SEA Release No. 86175 (June 21, 2019), 84 FR 43872 (August 22, 2019) (‘‘Capital, Margin, and Segregation Adopting Release’’). 337See Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers; Capital Rule for Certain Security-Based Swap Dealers, SEA Release No. 87005 (September 19, 2019), 84 FR 68550 (December 16, 2019) (‘‘Recordkeeping and Reporting Adopting Release’’). 338See Risk Mitigation Techniques for Uncleared Security-Based Swaps, SEA Release No. 87782 (December 18, 2019), 85 FR 6359 (February 4, 2020) (‘‘Risk Mitigation Adopting Release’’). 339See Cross-Border Application of Certain Security-Based Swap Requirements, SEA Release No. 87780 (December 18, 2019), 85 FR 6270 (February 4, 2020) (‘‘Cross-Border Amendments Adopting Release’’). 340See Exemption from the Definition of ‘‘Clearing Agency’’ for Certain Activities of Security￾Based Swap Dealers and Security-Based Swap Execution Facilities, SEA Release No. 90667 (December 16, 2020), 86 FR 7637 (February 1, 2021) (‘‘Clearing Exemption Adopting Release’’). 341See supra section V and note 42. 342The Commission also relies on qualitative information regarding market structure and evolving market practices provided by commenters and knowledge and expertise of Commission staff. allow persons who are aggrieved by certain determinations by an SBSEF to apply for review by the Commission. The Commission also is withdrawing all previously proposed rules regarding these subjects. Currently, SBS trade in the OTC market, rather than on regulated markets. The existing market for SBS is opaque, with little, if any, pre-trade transparency. With limited transparency, the information asymmetry between liquidity providers (i.e., SBS dealers) and end users could be significant. Specifically, liquidity providers may observe information about the trading process (e.g., trading interest, quotes, order flows, and trades) that end users typically cannot observe. The SBS market also is decentralized such that market participants incur search costs to locate other market participants in order to trade. While the SBS market is decentralized, it also is interconnected and global in scope.325 SBS dealers can have hundreds of counterparties, consisting of end users and other SBS dealers. Trading venues may serve hundreds of participants, consisting of SBS dealers and end users. SBS transactions arranged, negotiated, or executed by personnel located in the U.S. may
involve wholly foreign counterparties. Furthermore, U.S. persons may choose to trade SBSs on foreign venues, which are subject to OTC derivatives regulations imposed by local regulatory authorities. The Commission is mindful of the economic effects, including the costs and benefits, of the proposal. Section 3(f) of the SEA, 15 U.S.C. 78c(f), directs the Commission, when engaging in rulemaking where it is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. In addition, section 23(a)(2) of the SEA 15 U.S.C. 78w(a)(2), requires the Commission, when making rules under the SEA, to consider the impact that the rules would have on competition, and prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the SEA. The analysis below addresses the likely economic effects of the proposal, including its anticipated and estimated benefits and costs and its likely effects on efficiency, competition, and capital formation. The Commission also discusses the potential economic effects of certain alternatives to the approaches taken in this release. B. Economic Baseline To assess the economic effects of the proposed rules and amendments, the Commission is using as the baseline the SBS market as it currently exists, including applicable rules the Commission has already adopted, but excluding rules the Commission has proposed but not yet finalized. The analysis includes provisions of the SEA, as amended by the Dodd-Frank Act, that currently govern the SBS market, and rules adopted by the Commission thereunder, including in the Intermediary Definitions Adopting Release,326 the Cross-Border Adopting Release,327 the SDR Rules and Core Principles Adopting Release,328 the Regulation SBSR Adopting Release I,329 the Registration Adopting Release,330 the ANE Adopting Release,331 the Business Conduct Adopting Release,332 the Trade Acknowledgement and Verification Adopting Release,333 the Regulation SBSR Adopting Release II,334 the Rule of Practice 194 Adopting Release,335 the Capital, Margin, and Segregation Adopting Release,336 the Recordkeeping and Reporting Adopting Release,337 the Risk Mitigation Adopting Release,338 the Cross-Border Amendments Adopting Release,339 and the Clearing Exemption Adopting Release.340 The baseline also includes the Temporary SBSEF Exemptions 341 and the CFTC rules that apply to CFTC￾registered SEFs. The following sections discuss available data from the SBS market; SBS activity and market participants; distribution of transaction size; other markets and existing regulatory frameworks; number of entities that likely will register as SBSEFs; SBS trading on platforms; global regulatory efforts; and trading models.

1. Available Data From the SBS Market
   The Commission’s understanding of the market is informed, in part, by available data on SBS transactions, though the Commission acknowledges that limitations in the data limit the extent to which it is possible to quantitatively characterize the market.342 Since these data do not cover the entire market, the Commission has analyzed market activity using a sample of transaction data that includes only certain segments of the market. The

343The Commission explains below that data related to single-name CDS provide reasonably comprehensive information for the purpose of this analysis. 344The global notional amount outstanding represents the total face amount used to calculate payments under outstanding contracts. The gross market value is the cost of replacing all open contracts at current market prices. 345See Global OTC Derivatives Market: Table D5.2 Commodity Contracts, Credit Default Swap, BIS (updated January 13, 2022), available at https:// stats.bis.org/statx/srs/table/d5.2. 346See id. 347These totals include swaps and SBS, as well as products that are excluded from the definition of ‘‘swap,’’ such as certain equity forwards. See Global OTC Derivatives Market: Table D5.1 Foreign Exchange, Interest Rate, Equity Linked Contracts, BIS (updated January 13, 2022), available at https:// stats.bis.org/statx/srs/table/d5.1. For the purposes of this analysis, the Commission assumes that multi-name index CDS are not narrow-based index CDS and therefore do not fall within the definition of ‘‘security-based swap.’’ See 15 U.S.C. 78c(a)(68)(A). See also Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security￾Based Swap Agreement’’; Mixed Swaps; Security￾Based Swap Agreement Recordkeeping, 77 FR
48208. The Commission also assumes that all
instruments reported as equity forwards and swaps are SBS, potentially resulting in underestimation of the proportion of the SBS market represented by single-name CDS. Therefore, when measured on the basis of gross notional outstanding, single-name CDS appear to constitute roughly 49% of the SBS market. Although the BIS data reflect the global OTC derivatives market and not just the U.S. market, the Commission has no reason to believe that this ratio differs significantly in the U.S. market. 348Following publication of the Warehouse Trust Guidance on CDS data access, TIW surveyed market participants, asking for the physical address associated with each of their accounts (i.e., where the account is organized as a legal entity). This physical address is designated the registered office location by TIW. When an account reports a registered office location, the Commission has assumed that the registered office location reflects the place of domicile for the fund or account. When an account does not report a registered office location, the Commission has assumed that the settlement country reported by the investment adviser or parent entity to the fund or account is the place of domicile. Thus, for purposes of this analysis, the Commission has classified accounts as ‘‘U.S. counterparties’’ when they have reported a registered office location in the United States. The Commission notes, however, that this classification is not necessarily identical in all cases to the definition of ‘‘U.S. person’’ under SEA Rule 3a71– 3(a)(4). 349The challenges the Commission faces in estimating measures of current market activity stem, in part, from the absence of comprehensive reporting requirements for SBS market participants. The Commission has adopted rules regarding regulatory reporting and public dissemination of SBS transactions that are designed, when fully implemented, to provide the Commission with additional measures of market activity that will allow the Commission to better understand and monitor activity in the SBS market. See Regulation SBSR Adopting Release II, 81 FR at 53545. 350See Key Dates for Registration of Security￾Based Swap Dealers and Major Security-Based Swap Participants, available at: https:// www.sec.gov/page/key-dates-registration-security￾based-swap-dealers-and-major-security-based￾swap-participants. 351See List of Registered Security-Based Swap Dealers and Major Security-Based Swap Participants, available at: https://www.sec.gov/files/ list_of_sbsds_msbsps-_01-03-2022locked-final.xlsx (providing the list of registered SBS dealers and major SBS participants that was updated as of January 3, 2022). 352The Commission staff analysis of TIW transaction records indicates that approximately 99% of single-name CDS price-forming transactions in 2020 involved an ISDA-recognized dealer. 353Many dealer entities and financial groups transact through numerous accounts. Given that individual accounts may transact with hundreds of counterparties, the
Commission may infer that entities and financial groups may transact with at least as many counterparties as the largest of their accounts. Commission believes, however, that the data underlying this analysis provides reasonably comprehensive information regarding single-name CDS transactions and the composition of the participants in the single-name CDS market. Specifically, the analysis of the current state of the SBS market is based on data obtained from the DTCC Derivatives Repository Limited Trade Information Warehouse (‘‘TIW’’), especially data regarding the activity of market participants in the single-name CDS market during the period from 2008 to 2020. Although SBS are not limited to single-name CDS,343 single￾name CDS contracts make up a majority of SBS, and we believe that the single￾name CDS data are sufficiently representative of the market to inform our analysis of the current SBS market. According to data published by the Bank for International Settlements (‘‘BIS’’), as of December 2020, the global notional amount outstanding in single￾name CDS was approximately $3.5 trillion,344 in multi-name index CDS was approximately $4.5 trillion, and in multi-name, non-index CDS was approximately $347 billion.345 The total gross market value outstanding in single-name CDS was approximately $77 billion, and in multi-name CDS instruments was approximately $125 billion.346 The global notional amount outstanding in equity forwards and swaps as of December 2020 was $3.6 trillion, with total gross market value of $321 billion.347 The data available from TIW does not encompass those CDS transactions that both: (i) Do not involve U.S. counterparties; 348 and (ii) are based on non-U.S. reference entities. Notwithstanding this limitation, the TIW single-name CDS data should provide sufficient information to permit the Commission to identify the types of market participants active in the SBS market and the general pattern of dealing within that market.349 In addition to the TIW single-name CDS data, the Commission uses data on SBS transactions reported to registered security-based swap data repositories (SDRs) to describe the baseline. Beginning on November 8, 2021, market participants are required to report SBS transactions to registered SDRs pursuant to Regulation SBSR. The Commission uses data on SBS transactions in the credit, equity, and interest rate asset classes that were executed between November 8, 2021 and February 28, 2022 to quantify the extent of SBS trading on platforms.
2. SBS Market Activity and Participants
a. SBS Entities
Final SBS Entity registration rules have been adopted and compliance was required as of November 1, 2021.350 As of January 3, 2022, 44 entities had registered with the Commission as SBS dealers and no entity had registered as a major SBS participant.351 Firms that act as SBS dealers play a central role in the SBS market. Based on an analysis of 2020 single-name CDS data in TIW, accounts of registered SBS dealer firms intermediated transactions with a gross notional amount of approximately $1.99 trillion, with approximately 55% of the gross notional intermediated by the top five SBS dealer accounts.352 These SBS dealers transact with hundreds or thousands of counterparties. Approximately 8% of accounts of SBS dealer firms observable in TIW have entered into SBS with over 1,000 unique counterparty accounts as of year-end 2020.353 Another 23% of these accounts transacted with 500 to 1,000 unique counterparty accounts; 38% transacted with 100 to 500 unique accounts; and 31% of these accounts intermediated SBS with fewer than 100 unique counterparties in 2020. The median SBS dealer account transacted with 276 unique accounts (with an average of approximately 416 unique accounts). Non-SBS dealer counterparties transacted almost exclusively with these SBS dealers. In 2020, the median non-SBS dealer counterparty transacted with 1.3 SBS dealer accounts (with an average of approximately 2.5 SBS dealer accounts). b. Other SBS Market Participants In addition to SBS dealers, thousands of other participants appear as counterparties to SBS transactions in our sample, including but not limited to: Investment companies, pension funds, private funds, sovereign entities, and industrial companies. The Commission observes that most non￾SBS dealer users of SBS do not engage in trading directly, but trade through banks, investment advisers, or other

354These 2,321 entities, which are presented in more detail in Table 1, include all DTCC-defined ‘‘firms’’ shown in TIW as transaction counterparties that report at least one transaction to TIW as of December 2020. The staff in the Division of Economic and Risk Analysis classified these firms, which are shown as transaction counterparties, by machine matching names to known third-party databases and by manual classification. See, e.g., ANE Adopting Release, 81 FR at 8602, at n. 43. Manual classification was based in part on searches of the EDGAR and Bloomberg databases, the SEC’s Investment Adviser Public Disclosure database, and a firm’s public website or the public website of the account represented by a firm. The staff also referred to ISDA protocol adherence letters available on the ISDA website. 355See 15 U.S.C. 80b1–80b21. Transacting agents participate directly in the SBS market, without relying on an intermediary, on behalf of principals. For example, a university endowment might hold a position in SBS that is established by an investment adviser that transacts on the endowment’s behalf. In this case, the university endowment is a principal that uses the investment adviser as its transacting agent. 356For the purpose of this analysis, the ISDA￾recognized SBS dealers are those identified by ISDA as belonging to the G14 or G16 dealer group during the period: J.P. Morgan Chase NA (and Bear Stearns), Morgan Stanley, Bank of America NA (and Merrill Lynch), Goldman Sachs, Deutsche Bank AG, Barclays Capital, Citigroup, UBS, Credit Suisse AG, RBS Group, BNP Paribas, HSBC Bank, Lehman Brothers, Socie´te´ Ge´ne´rale, Cre´dit Agricole, Wells Fargo, and Nomura. See, e.g., ISDA, 2010 ISDA Operations Benchmarking Survey (2010), available at https://www.isda.org/a/5eiDE/isda-operations￾survey-2010.pdf. 357This category excludes clearing counterparties (CCPs). Same-day cleared trades are recorded in the DTCC dataset as two clearing legs, each between a CCP (ICE Clear Credit, ICE Clear Europe, and LCH.Clearnet) and the original counterparty in the underlying trade. As these are not price-forming trades, the counts in the last column in Table 1 are adjusted to reflect the original counterparties, excluding a CCP. Though original counterparties cannot be paired up to same-day cleared trades, to adjust for same-day clearing each leg against the CCP is counted as one half of a transaction and the notional amount of the trade is halved as well. 358 ‘‘Accounts’’ as defined in the TIW context are not equivalent to ‘‘accounts’’ in the definition of ‘‘U.S. person’’ in SEA Rule 3a71–3(a)(4)(i)(C). They also do not necessarily represent separate legal persons. One entity or legal person might have multiple accounts. For example, a bank may have one DTCC account for its U.S. headquarters and one DTCC account for one of its foreign branches. 359Unregistered investment advisers include all investment advisers not registered under the Investment Advisers Act and might
include investment advisers registered with a State or a foreign authority, as well as investment advisers that are exempt reporting advisers under section 203(l) or 203(m) of the Investment Advisers Act. 360For the purposes of this discussion, ‘‘private fund’’ encompasses various unregistered investment vehicles, including hedge funds, private equity funds, and venture capital funds. There remain over 5,800 DTCC accounts unclassified by type. Although unclassified, each account was manually reviewed to verify that it was not likely to be a special entity within the meaning of the Dodd-Frank Act and instead was likely to be an entity such as a corporation, an insurance company, or a bank. types of firms acting as SBS dealers or agents. Based on an analysis of the counterparties to trades reported to the TIW, there are 2,321 entities that engaged directly in trading between November 2006 and December 2020.354 As shown in Table 1 below, close to three-quarters of these entities (DTCC￾defined ‘‘firms’’ shown in TIW, which we refer to here as ‘‘transacting agents’’) were identified as investment advisers, of which approximately 40% (about 32% of all transacting agents) were registered as investment advisers under the Investment Advisers Act.355 Although investment advisers are the vast majority of transacting agents, the transactions they executed account for only 14.2% of all single-name CDS trading activity reported to the TIW, measured by number of transaction￾sides (each transaction has two transaction sides, i.e., two transaction counterparties). The vast majority of transactions (82.1%) measured by number of transaction-sides were executed by ISDA-recognized SBS dealers.
TABLE 1—THE NUMBER OF TRANSACTING AGENTS BY COUNTERPARTY TYPE AND THE FRACTION OF TOTAL TRADING
ACTIVITY, FROM NOVEMBER 2006 THROUGH DECEMBER 2020, REPRESENTED BY EACH COUNTERPARTY TYPE Transacting agents Number Percent Transaction share % Investment Advisers .................................................................................................................... 1,823 78.5 14.2 —SEC registered ......................................................................................................................... 734 31.6 9.5 Banks ........................................................................................................................................... 274 11.8 3.3 Pension Funds ............................................................................................................................. 30 1.3 0.1 Insurance Companies .................................................................................................................. 48 2.1 0.2 ISDA-Recognized SBS Dealers 356 ............................................................................................. 17 0.7 82.1 Other 357 ....................................................................................................................................... 129 5.6 0.2 Total ...................................................................................................................................... 2,321 100.0 100 Principal holders of CDS risk exposure are represented by ‘‘accounts’’ in the TIW.358 The staff’s analysis of these accounts in TIW shows that the 2,321 transacting agents classified in
Table 1 represent 15,187 principal risk
holders. Table 2 below classifies these principal risk holders by their counterparty type and whether they are represented by a registered or unregistered investment adviser.359 For instance, banks in Table 1 allocated transactions across 370 accounts, of which 35 were represented by investment advisers. In the remaining instances, banks traded for their own accounts. Meanwhile, ISDA-recognized SBS dealers in Table 1 allocated transactions across 104 accounts. Private funds are the largest type of account holders that the Commission was able to classify, and although not verified through a recognized database, most of the funds we were not able to classify appear to be private funds.360

361This column reflects the number of participants who are also trading for their own accounts. 362These estimates were calculated by Commission staff using TIW data. 363See Charles Levinson, U.S. banks moved billions in trades beyond the CFTC’s reach, Reuters (August 21, 2015) (retrieved from Factiva database). The estimates of 21 and 25 were calculated by Commission staff using TIW data. 364The available data do not include all SBS transactions but only transactions in single-name CDS that involve either (1) at least one account domiciled in the United States (regardless of the reference entity); or (2) single-name CDS on a U.S. reference entity (regardless of the U.S.-person status of the counterparties).
TABLE 2—THE NUMBER AND PERCENTAGE OF ACCOUNT HOLDERS—BY TYPE—WHO PARTICIPATE IN THE SBS MARKET
THROUGH A REGISTERED INVESTMENT ADVISER, AN UNREGISTERED INVESTMENT ADVISER, OR DIRECTLY AS A TRANSACTING AGENT, FROM NOVEMBER 2006 THROUGH DECEMBER 2020 Account holders by type Number Represented by a registered investment adviser Represented by an unregistered investment adviser Participant is transacting agent 361 Private Funds ............... 4,447 2,283 51% 2,089 47% 75 2% DFA Special Entities .... 1,542 1,476 96% 43 3% 23 1% Registered Investment Companies ............... 1,382 1,295 94% 82 6% 5 0% Banks (non-ISDA-rec￾ognized SBS dealers) 370 26 7% 9 2% 335 91% Insurance Companies .. 341 210 62% 46 13% 85 25% ISDA-Recognized SBS Dealers ..................... 104 0 0% 0 0% 104 100% Foreign Sovereigns ...... 93 67 72% 6 6% 20 22% Non-Financial Corpora￾tions .......................... 125 93 74% 10 8% 22 18% Finance Companies ..... 59 43 73% 0 0% 16 27% Other/Unclassified ........ 6,724 4,081 61% 2,348 35% 295 4% All .......................... 15,187 9,574 63% 4,633 31% 980 6%
c. SBS Market Participant Domiciles
As depicted in Figure 1 below, domiciles of new accounts participating in the SBS market have shifted over time. It is unclear whether these shifts represent changes in the types of participants active in this market, changes in reporting, or changes in transaction volumes in particular underliers. For example, the percentage of new entrants that are foreign accounts increased from 24.4% in the first quarter of 2008 to approximately 50% in the last quarter of 2020, which might reflect an increase in participation by foreign account holders in the SBS market, though the total number of new entrants that are foreign accounts decreased from 112 in the first quarter of 2008 to 38 in the last quarter of 2020.362 Additionally, the percentage of the subset of new entrants that are foreign accounts managed by U.S. persons increased from 4.6% in the first quarter of 2008 to 11.8% in the last quarter of 2020, and the absolute number changed from 21 to 9, which also might reflect more specifically the flexibility with which market participants can restructure their market participation in response to regulatory intervention, competitive pressures, and other incentives.363 At the same time, apparent changes in the percentage of new accounts with foreign domiciles might also reflect improvements in reporting by market participants to TIW, an increase in the percentage of transactions between U.S. and non-U.S. counterparties, and/or increased transactions in single-name CDS on U.S. reference entities by foreign persons.364 BILLING CODE 8011–01–P

365The start of this decline predates the enactment of the Dodd-Frank Act and the proposal of rules thereunder, which is important to note for the purpose of understanding the economic baseline for this rulemaking. 366This estimate is lower than the gross notional amount of $3.5 trillion noted in section XIX(B)(1), supra, as it includes only the subset of single-name CDS referencing North American corporate documentation. BILLING CODE 8011–01–C
Figure 2 below describes the
percentage of global, notional transaction volume in North American corporate single-name CDS reported to TIW between January 2011 and December 2020, separated by whether transactions are between two ISDA￾recognized SBS dealers (‘‘interdealer transactions’’) or whether a transaction has at least one non-SBS dealer counterparty. Figure 2 also shows that the portion of the notional volume of North American corporate single-name CDS represented by interdealer transactions has remained fairly constant through 2015, before falling from approximately 68% in 2015 to under 40% in 2020. This fall corresponds to the availability of clearing to non-SBS dealers. Interdealer transactions continue to represent a significant fraction of trading activity, even as notional volume has declined over the past ten years,365 from just under $2 trillion in 2011 to less than $500 billion in 2020.366 EP11MY22.000</GPH>

367For purposes of this discussion, the Commission has assumed that the registered office location reflects the place of domicile for the fund or account, but the Commission notes that this domicile does not necessarily correspond to the location of an entity’s sales or trading desk. See ANE Adopting Release, 81 FR at 8607, n. 83. The high level of interdealer trading activity reflects the central position of a small number of SBS dealers, each of which intermediates trades with many hundreds of counterparties. While the Commission is unable to quantify the current level of trading costs for single￾name CDS, these SBS dealers appear to enjoy market power as a result of their small number and the large proportion of order flow that they privately observe. Against this backdrop of declining North American corporate single-name CDS activity, about half of the trading activity in North American corporate single-name CDS reflected in the set of data that the Commission analyzed was between counterparties domiciled in the United States and counterparties domiciled abroad, as shown in Figure 3 below. Using the self-reported registered office location of the TIW accounts as a proxy for domicile, the Commission estimates that only 13% of the global transaction volume by notional volume between 2008 and 2020 was between two U.S.-domiciled counterparties, compared to 49% entered into between one U.S.-domiciled counterparty and a foreign-domiciled counterparty, and 38% entered into between two foreign￾domiciled counterparties.367 If the Commission instead considers the number of cross-border transactions from the perspective of the domicile of the corporate group (e.g., by classifying a foreign bank branch or foreign subsidiary of a U.S. entity as domiciled in the United States), the percentages shift significantly. Under this approach, the fraction of transactions entered into between two U.S.-domiciled counterparties increases to 35%, and to 50% for transactions entered into between a U.S.-domiciled counterparty and a foreign-domiciled counterparty. By contrast, the proportion of activity between two foreign-domiciled counterparties drops from 38% to 15%. This change in respective shares based on different classifications suggests that the activity of foreign subsidiaries of U.S. firms and foreign branches of U.S. banks accounts for a higher percentage of SBS activity than U.S. subsidiaries of foreign firms and U.S. branches of foreign banks. It also demonstrates that financial groups based in the United States are involved in an overwhelming majority (approximately 85%) of all reported transactions in North American corporate single-name CDS. Financial groups based in the United States are also involved in a majority of interdealer transactions in North EP11MY22.001</GPH>

368Since the Commission is unable to pair up the same-day cleared trades, this 81% estimate is based on bilateral trades that were not same-day cleared. 369See proposed Rule 802. In considering a block trade definition, the Commission also took into consideration that FINRA applies a $5 million cap when disseminating transaction reports of economically similar cash debt securities. See supra
section VII(E).
American corporate single-name CDS. Of the 2020 transactions on North American corporate single-name CDS between two ISDA-recognized SBS dealers and their branches or affiliates, 81% of transaction notional volume involved at least one account of an entity with a U.S. parent.368 The Commission notes, in addition, that a majority of North American corporate single-name CDS transactions occur in the interdealer market or between SBS dealers and foreign non-SBS dealers, with the remaining portion of the market consisting of transactions between SBS dealers and U.S.-person non-SBS dealers. Specifically, 81% of North American corporate single-name CDS transactions involved either two ISDA-recognized SBS dealers or an ISDA-recognized SBS dealer and a foreign non-SBS dealer. Approximately 19% of such transactions involved an ISDA-recognized SBS dealer and a U.S.- person non-SBS dealer. BILLING CODE 8011–01–C
3. Distribution of Transaction Size
In proposing the definition of a block trade, the Commission has considered the distribution of transaction size in the single-name CDS market, which the Commission believes is representative of the market for SBS based on a single credit instrument (or issuer of credit instruments) or a narrow-based index of credit instruments (or issuers of credit instruments).369 Table 3 reports the total number of newly initiated price-forming CDS transactions referencing North American corporate single-name reference entities. The table also reports the number and percentage of such transactions with a size (notional amount) of at least $5 million. These statistics are reported for each year between 2011 and 2020 and for the entire ten-year period. Overall, the number of newly initiated price-forming transactions exhibited a declining trend between 2011 and 2020. The number of such transactions decreased from around 180,000 in 2011 to around 90,000 in 2019, with an uptick to around 127,000 transactions in
2020. The number of newly initiated
price-forming transactions with a notional size of at least $5 million also exhibits a declining trend between 2011 and 2020, but without an uptick in
2020. As a percentage of all newly
initiated price-forming transactions, those with a notional size of at least $5 million fell from 88% to 23% between 2011 and 2020. EP11MY22.002</GPH>

370See Rule 194 Proposing Release, 80 FR at 51711. 371According to data published by BIS, as of December 2020, the global swap market (comprising, for purposes of this discussion, IRS, foreign exchange swaps, multi-name index CDS, and commodity swaps) had a global notional amount outstanding of approximately $571 trillion, while the global SBS market (comprising, for purposes of this discussion, single-name equity swaps and forwards and single-name CDS) had a global notional amount outstanding of approximately $7.1 trillion. The global notional amount outstanding in single-name CDS was approximately $3.5 trillion and in multi-name index CDS was approximately $4.5 trillion. The Commission preliminarily believes that the relative magnitudes presented by these statistics for the global OTC derivatives market are also representative of the U.S. OTC derivatives markets. See Table D5.2, BIS, supra note 345; Table D5.1, BIS, supra note 347. See also supra section XIX(B)(1). 372 ‘‘Correlation’’ typically refers to linear relationships between variables; ‘‘dependence’’ captures a broader set of relationships that may be more appropriate for certain swaps and SBS. See, e.g., George Casella & Roger L. Berger, Statistical Inference 171 (2nd ed. 2002). 373See Business Conduct Adopting Release, 81 FR at 30108; Christopher L. Culp, Andria van der Merwe, & Bettina J. Starkle, Single-name Credit Default Swaps: A Review of the Empirical Academic Literature 71–85 (ISDA Study, September 2016), available at https://www.isda.org/a/KSiDE/ single-name-cdsliterature-review-culp-van-der￾merwe-staerkleisda.pdf; Patrick Augustin, Marti G. Subrahmanyam, Dragon Y. Tang, & Sarah Q. Wang, Credit Default Swaps: Past, Present, and Future, 8 Ann. Rev. Fin. Econ. 175 (2016). 374See supra note 17. 375For purposes of this discussion, options on index CDS and index CDS tranches are included as
part of index CDS. For SEFs that list index CDS for
trading, see BGC SEF Contract Specifications (January 21, 2022), available at http:// www.bgcsef.com/wp-content/uploads/2022/01/ BGC-SEF-Contract-Specifications_01-21-22.pdf; Bloomberg SEF LLC Rulebook (February 24, 2022), available at https://assets.bbhub.io/professional/ sites/10/BSEF-Rulebook.pdf; GFI Swaps Exchange:
Products & Contract Specifications, GFI Group, available at http://www.gfigroup.com/markets/gfi￾sef/products/; ICE Swap Trade, LLC, Swap Execution Facility Rulebook Version: 2.38 (effective December 15, 2021), available at https:// www.theice.com/publicdocs/swap_trade/ Rulebook.pdf; Letter from Ron Steinfeld, CCO, MarketAxess SEF Corp., to CFTC regarding Listing Products for Trading by Certification Pursuant to CFTC Rule 40.2 (January 13, 2015), available at https://content.marketaxess.com/sites/default/files/ marketaxess-sef-product-listing-filing-and￾appendices-january-13-2015.pdf; TW SEF LLC, Swap Execution Facility Rules (effective October 1, 2021), available at https://www.tradeweb.com/ 4a7851/globalassets/our-businesses/market￾regulation/sef-rulebook-oct-1-2021/tw-sef-rulebook_ 9.17.21.pdf; Category: Rulebook, Tradition SEF, available at https://www.traditionsef.com/ Continued
TABLE 3—THE DISTRIBUTION OF NORTH AMERICAN CORPORATE SINGLE-NAME CDS TRADE SIZES
Number of transactions
Number of transactions with size of at least $5 million Percentage of transactions with size of at least $5 million 2011 ............................................................................................................................................. 180,700 159,061 88 2012 ............................................................................................................................................. 165,479 121,151 73 2013 ............................................................................................................................................. 130,570 87,515 67 2014 ............................................................................................................................................. 127,410 80,122 63 2015 ............................................................................................................................................. 107,698 53,991 50 2016 ............................................................................................................................................. 97,459 37,273 38 2017 ............................................................................................................................................. 80,513 33,695 42 2018 ............................................................................................................................................. 88,787 34,840 39 2019 ............................................................................................................................................. 89,823 34,811 39 2020 ............................................................................................................................................. 127,379 29,354 23 2011–2020 ................................................................................................................................... 1,195,816 671,810 56
4. Other Markets and Regulatory
Frameworks
The numerous financial markets are integrated, often attracting the same market participants that trade across corporate bond, swap, and SBS markets, among others.370 This is notwithstanding the fact that the SBS market is a small fraction of the swap market and the single-name CDS market, which falls under SEC jurisdiction, is smaller than the index CDS market, which falls under CFTC jurisdiction.371 For example, persons who register as SBS dealers and major SBS participants are likely also to be engaged in swap activity. In part, this overlap reflects the relationship between single-name CDS contracts, which are SBS, and index CDS contracts, which may be swaps or SBS. A single-name CDS contract covers default events for a single reference entity or reference security. Index CDS contracts and related products make payouts contingent on the default of index components and allow participants in these instruments to gain exposure to the credit risk of the basket of reference entities that comprise the index, which is a function of the credit risk of the index components. A default event for a reference entity that is an index component will result in payoffs on both single-name CDS written on the reference entity and index CDS written on indices that contain the reference entity. Because of this relationship between the payoffs of single-name CDS and index CDS products, the prices of these products depend upon one another,372 creating hedging opportunities across these markets. These hedging opportunities mean that participants that are active in one market are likely to be active in the other. Commission staff analysis of approximately 4149 TIW accounts that participated in the market for single￾name CDS in 2020 revealed that approximately 3096 of those accounts, or 75%, also participated in the market for index CDS. Of the accounts that participated in both markets, data regarding transactions in 2020 suggest that, conditional on an account transacting in notional volume of index CDS in the top third of accounts, the probability of the same account landing in the top third of accounts in terms of single-name CDS notional volume is approximately 61%; by contrast, the probability of the same account landing in the bottom third of accounts in terms of single-name CDS notional volume is only 11%. As a result of cross-market participation, informational efficiency, pricing and liquidity may spill over across markets.373 Of the 44 registered SBS dealers, 41 are dually registered with the CFTC as swap dealers and are therefore subject to CFTC requirements for entities registered with the CFTC as swap dealers. Further, of the 44 registered SBS dealers, 27 have a prudential regulator.
5. Number of Entities That Likely Will
Register as SBSEFs
Entities that will seek to register with the Commission as SBSEFs are likely to be SEFs that are active in the index CDS market. Currently, 20 SEFs have permanent or temporary registration with the CFTC.374 Of these SEFs, eight list index CDS for trading.375 If these

regulatory/filter/rulebook/all/all; tpSEF Inc. rulebook, tpSEF Inc., tpSEF Inc. Rulebook
Appendix B: tpSEF Inc. Swap Specifications
(effective July 2, 2021), available at https:// www.tullettprebon.com/swap_execution_facility/ documents/tpSEF%20-%20Rulebook%20- %20Appendix%20B%20- %20Swap%20Specifications.pdf?20211031. 376 Index CDS volume traded on SEFs is from Futures Industry Association’s SEF Tracker. See SEF Tracker Historical Volume, FIA, available at https://www.fia.org/monthly-volume. 377Beginning on November 8, 2021, market participants were required to report SBS transactions to registered SDRs pursuant to Regulation SBSR. 378See G20, Leaders’ Statement: The Pittsburgh Summit (September 24–25, 2009) at paragraph 13. 379See, e.g., G20, Toronto Summit Declaration (June 27, 2010) at Annex II paragraph 25; Cannes Summit Final Declaration—Building Our Common Future: Renewed Collective Action for the Benefit of All (November 4, 2011) at paragraph 24. 380See supra note 94. 381Apart from the 12 foreign jurisdictions, the United States is considered to have platform trading requirements in place based on the CFTC’s implementation of platform trading requirements. See FSB, OTC Derivatives Market Reforms:
Implementation Progress in 2021 Tables 1 & K (December 3, 2021), available at https:// www.fsb.org/2021/12/otc-derivatives-market￾reforms-implementation-progress-in-2021/ (describing progress made towards implementing platform trading requirements in 2021); FSB, OTC Derivatives Market Reforms: 2019 Progress Report on Implementation Table A (October 15, 2019), available at https://www.fsb.org/2019/10/otc￾derivatives-market-reforms-2019-progress-report￾on-implementation/ (discussing the CFTC’s implementation of platform trading requirements). 382These jurisdictions are China (bond forwards; certain currency forwards, options, and swaps); the European Union (certain index CDS; certain IRS denominated in Euro, U.S. dollar, and British pound); India (certain overnight index swaps); Indonesia (equity and commodity derivative products); Japan (selected Yen-denominated IRS); Mexico (certain Peso-denominated IRS); and Singapore (certain IRS denominated in Euro, US dollar, and British pound). See FSB, 2019 Progress Report, supra note 381, Table R. In its 2021 report, see supra note 381, the FSB noted no change in status in the implementation of platform trading requirements, including platform trading determinations, since its 2019 report. SEFs were to list single-name CDS or other SBS for trading, they would be required to register as SBSEFs with the Commission. In 2021, index CDS volume on U.S. SEFs was distributed as follows: One SEF had the largest share of index CDS volume (in notional amount) at $8 trillion (69%); one SEF had the second largest share at $2.1 trillion (18%); and the remaining 13% of volume was shared among the other five SEFs.376 The Commission preliminarily believes that the number of SBSEF registrants most likely falls between two and eight, but acknowledges uncertainty around the upper end of this estimate. The Commission preliminarily believes that the likely number of SBSEF registrants would be five. The Commission invites commenters to provide feedback on the number of entities that will register as SBSEFs.
6. SBS Trading on Platforms
By analyzing SBS transactions reported to registered SDRs,377 the Commission has obtained a preliminarily estimate of the extent of SBS trading on platforms. Of the new transactions in credit SBS executed between November 8, 2021 and February 28, 2022, 6,131 were executed on platforms (2% of all new transactions in credit SBS transactions). During the same period, 44 new transactions in equity SBS were executed on platforms (less than 0.01% of all new transactions in equity SBS transactions), while no new transactions in interest rate SBS were executed on platforms. These observations suggest that the vast majority of SBS trading continues to be conducted bilaterally in the OTC market. The Commission invites commenters to provide feedback on the extent of SBS trading on platforms. The Commission preliminarily identifies 11 platforms on which new SBS transactions were executed between November 8, 2021 and February 28, 2022. Of these 11 platforms, ten are foreign SBS trading venues and one is a U.S. SBS trading venue that is affiliated with a CFTC￾registered SEF. Of the new transactions in credit SBS executed between November 8, 2021 and February 28, 2022, 2,126 were executed on non-U.S. platforms and involved at least one counterparty that is a U.S. person or a non-U.S. person whose performance under the SBS is guaranteed by a U.S. person (0.7% of all new transactions in credit SBS transactions). During the same period, 30 new transactions in equity SBS were executed on a non-U.S. platform and involved at least one counterparty that is a U.S. person or a non-U.S. person whose performance under the SBS is guaranteed by a U.S. person (less than 0.01% of all new transactions in equity SBS transactions).
7. Global Regulatory Efforts
In 2009, the G20 leaders—whose membership includes the United States, 18 other countries, and the European Union—addressed global improvements in the OTC derivatives market. They expressed their view on a variety of issues relating to OTC derivatives contracts.378 In subsequent summits, the G20 leaders have returned to OTC derivatives regulatory reform and encouraged international consultation in developing standards for these markets.379 Foreign legislative and regulatory efforts have generally focused on five areas: (1) Moving standardized OTC derivatives onto organized trading platforms; (2) requiring central clearing of OTC derivatives; 380 (3) requiring post-trade reporting of transaction data to trade repositories; (4) establishing or enhancing capital requirements for non￾centrally cleared OTC derivatives transactions; and (5) establishing or enhancing margin and other risk mitigation requirements for non￾centrally-cleared OTC derivatives transactions. The rules being proposed in this release concern the registration and regulation of SBSEFs, a type of organized trading platform. As of the end of 2021, platform trading requirements were in force in 12 foreign jurisdictions while seven jurisdictions were in the process of proposing legislation or rules to implement platform trading requirements.381 Seven foreign jurisdictions have made determinations with respect to the specific OTC derivatives that are required to be traded on platforms.382
8. Trading Models
Unlike the markets for cash equity securities and listed options, the market for SBS currently is characterized by bilateral negotiation in the OTC swap market; is largely decentralized; has many non-standardized instruments; and has many SBS that are not centrally cleared. The lack of uniform rules concerning the trading of SBS and the one-to-one nature of trade negotiation in SBS has resulted in different models for the trading of these securities, ranging from bilateral negotiations carried out over the telephone, to RFQ systems (e.g., single-dealer and multi-dealer RFQ platforms) and central limit order books outside the United States, as more fully described below. The use of electronic media to execute transactions in SBS varies greatly across trading models, with some models being highly electronic whereas others rely almost exclusively on non-electronic means such as the telephone. The reasons for use of, or lack of use of, electronic media vary from such factors as user preference to limitations in the existing infrastructure of certain trading platforms. The description below of the ways in which SBS may be traded is based in part on discussions with market participants. The Commission solicits comments on the accuracy of this description. The Commission uses the term ‘‘bilateral negotiation’’ to refer to the model whereby one party uses the telephone, email, or other communications to contact directly a

383See, e.g., Trade Acknowledgement and Verification Adopting Release, 81 FR at 39809. 384See Lynn Riggs, Esen Onur, David Reiffen, and Haoxiang Zhu, Swap Trading After Dodd-Frank:
Evidence from Index CDS, 137 J. Financial Economics 857 (2020) (finding that, in the index CDS market, an initiating participant is more likely to send RFQs to its relationship dealers, i.e., its clearing members or dealers with whom it has traded more actively in the recent past). 385See id. (finding that, in the index CDS market, a dealer’s response rate to an RFQ declines with the number of dealers included in the RFQ). 386See Amendments to Exchange Act Rule 3b–16 Regarding the Definition of ‘‘Exchange’’; Regulation ATS for ATSs That Trade U.S. Government Securities, NMS Stocks, and Other Securities; Regulation SCI for ATSs That Trade U.S. Treasury Securities and Agency Securities SEA Release No. 94062 (January 26, 2022), 87 FR 15496 (March 18,
2022) (‘‘ATS–G Proposal’’), section VIII(B)(1)(a)
therein.
387Under CFTC rules applicable to the swap market, § 37.9(f) prohibits the practice of post-trade name give-up for swaps that are executed, pre￾arranged, or pre-negotiated anonymously on or pursuant to the rules of a SEF and intended to be cleared, subject to an exception related to certain package transactions. See supra section VII(E) (discussing proposed Rule 815). 388See Public Law 111–203, section 763(a) (adding section 3C(a)(1) of the SEA). 389See Public Law 111–203, section 763(a) (adding section 3C(h) of the SEA). See also Public Law 111–203, section 761(a) (adding section 3(a)(77) of the SEA to define the term ‘‘security￾based swap execution facility’’). potential counterparty to negotiate an SBS transaction. Once the terms are agreed, the SBS transaction is executed and the terms are memorialized.383 In a bilateral negotiation, there might be no pre-trade or post-trade transparency available to the market place because only the two parties to the transaction are aware of the terms of the negotiation and the final terms of the agreement. Further, no terms of the proposed transaction are firm until the transaction is executed. However, reputational costs generally serve as a deterrent to either party’s failing to honor any quoted terms. Dealer-to-customer bilateral negotiation currently is used for all SBS asset classes, and particularly for trading in less liquid SBS, in situations where the parties prefer a privately negotiated transaction, such as for a large notional transaction, or in other circumstances in which it is not cost￾effective for a party to the trade to use one of the execution methods described below. Another model for the trading of SBS is the RFQ system. An RFQ system typically allows market participants to obtain quotes for a particular SBS by simultaneously sending messages to one or more potential respondents (SBS dealers).384 The initiating participant is typically required to provide information related to the request in a message, which may include the name of the initiating participant, SBS identifier, side, and size. SBS dealers that observe the initiating participant’s request have the option to respond to the request with a price quote.385 These respondents are often, though not always, pre-selected. The initiating participant can then select among the respondents by either accepting one of multiple responses or rejecting all responses, usually within a ‘‘good for’’ time period. After the initiating participant and a respondent agree on the terms of the trade, the trade will then proceed to post-trade processing. RFQ systems provide a certain degree of pre-trade transparency in that the initiating participant can observe the quotes it receives (if any) in response to its RFQ. The number of quotes received depends, in part, on the number of respondents that are invited to participate in the RFQ. As the Commission discussed elsewhere, several factors may influence the number of respondents that are invited to
participate in an RFQ.386 First, the RFQ system itself may limit the total number of respondents that can be selected for a single RFQ, typically to five counterparties. This limitation may encourage SBS dealers to respond to RFQs, since it reduces the number of other SBS dealers they would compete with in any give request session. Second, the initiating participant may have an incentive to limit the degree of information leakage. If the trade the initiating participant is seeking to complete with the help of the RFQ is not completely filled in that one session, and other participants know this, quotes the initiating participant receives elsewhere may be affected, including in subsequent RFQ sessions. Third, respondents and initiators both have an incentive to limit price impact because of the expense it will add to the offsetting trade that must follow. Specifically, an SBS dealer who takes a position to fill a customer order through an RFQ will often subsequently offset that position in the interdealer market. If a large number of SBS dealers are invited to participate in an RFQ, this would lead to widespread knowledge that the SBS dealer with the winning bid will now try to offset that position, which could impact the prices available to that dealer in the interdealer market. A third model for the trading of SBS is a limit order book system or similar system, which the Commission understands is not yet in operation for the trading of SBS in the United States but exists for the trading of SBS in Europe. Today, securities and futures exchanges in the United States display a limit order book in which firm bids and offers are posted for all participants to see, with the identity of the parties withheld until a transaction occurs.387 Bids and offers are then matched based on price-time priority or other established parameters and trades are executed accordingly. The quotes on a limit order book system are firm. In general, a limit order book system also provides greater pre- trade transparency than the two models described above, because participants can view bids and offers before placing their bids and offers. However, broadly communicating trading interest, particularly about a large trade, might increase hedging costs, and thus costs to investors, as reflected in the prices from the SBS dealers. The system can also provide post-trade transparency, to the extent that participants can see the terms of executed transactions. The three models described above represent broadly the types of trading of SBS in the OTC market today. These examples may not represent every method in existence today, but the discussion above is intended to give an overview of the models without providing the nuances of each particular type.
C. Benefits, Costs, and Reasonable
Alternatives
This section discusses the benefits and costs of the proposal. The section also discusses a number of alternatives that the Commission considered when formulating the proposed rules and amendments. The Commission’s consideration of the benefits and costs of the proposal takes into account the connection between the trade execution requirement and the mandatory clearing requirement mandated by Congress. The Dodd-Frank Act amends the SEA to require, among other things, the following with respect to SBS transactions: (1) Transactions in SBS must be cleared through a clearing agency if they are required to be cleared; 388 and (2) if the SBS is subject to the clearing requirement, the transaction must be executed on an exchange or on an SBSEF registered under section 3D of the SEA or an SBSEF exempt from registration under
section 3D(e) of the SEA, unless no
SBSEF or exchange makes such SBS available for trading or the SBS is subject to the clearing exception in
section 3C(g) of the SEA.389 The benefits
and costs associated with the trade execution requirement would not materialize unless and until the Commission makes mandatory clearing determinations, i.e., determining what

390 In section XX infra, for purposes of the PRA, the Commission preliminarily estimates burdens applicable to a stand-alone SBSEF. However, the Commission preliminarily believes that most if not all SBSEFs will be dually registered with the CFTC as SEFs, and thus will already be complying with relevant CFTC rules that have analogs to rules contained within proposed Regulation SE. Therefore, the Commission’s burden estimates may be larger for stand-alone SBSEF than may exist in practice, considering the effect of overlapping CFTC rules. 391 In certain prior Title VII releases, the Commission had referred to such costs and benefits as programmatic costs and benefits. See, e.g., Regulation SBSR Adopting Release I. 392For example, proposed Rule 826 would, among other things, require an SBSEF to maintain records of its business activities (including a complete audit trail) for a period of five years and report to the Commission such information as the Commission determines to be necessary or appropriate for performing the duties of the Commission under the SEA. See also the discussion below on how the proposal would provide the means for the Commission to gain better insight into and oversight of SBSEFs and the SBS market. 393Proposed Rules 803(a)(2) and (3) would require an SBSEF to offer, at a minimum, an order book for SBS trading, subject to certain exceptions related to package transactions. Proposed Rule 815 would require SBS transactions subject to the trade execution requirement to be executed using either an order book or via an RFQ-to-3 system. Proposed Rule 816 would set forth the process by which an SBSEF would subject an SBS to the trade execution requirement. Proposed Rule 832 would describe those cross-border SBS transactions that would be subject to the trade execution requirement. 394See, e.g., Ananth Madhavan, Market Microstructure: A Practitioner’s Guide, Fin. Analysts J., Vol. 58, at 38 (2002) (nondisclosure of pre-trade price information benefits dealers by reducing price competition). 395See, e.g., Ekkehart Boehmer, et al., Lifting the Veil: An Analysis of Pre-trade Transparency at the NYSE, J. Fin., Vol. LX (2005) (greater pre-trade price transparency leads to more efficient pricing). 396See Evangelos Benos, Richard Payne, and Michalis Vasios, Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd-Frank Act, 55 J. Fin. and Quantitative Analysis 159 (2020) (finding, among other things, that imposition of the CFTC’s trade execution requirement improved the liquidity of IRS that were subject to the requirement, and that the liquidity improvement was associated with more intense competition between swap dealers); Y.C. Loon and Zhaodong (Ken) Zhong, Does Dodd-Frank Affect OTC Transaction Costs and Liquidity? Evidence from Real-Time CDS Trade Reports, 119 J. Fin. Econ. 645 (2016) (finding that index CDS transactions executed on SEFs have lower transaction costs and
improved liquidity than index CDS transactions executed bilaterally). SBS transactions must be cleared by a clearing agency. The Commission preliminarily believes that the general approach to proposing requirements relating to SBS execution could mitigate costs associated with the proposal. As discussed in section III, the Commission’s approach is to harmonize as closely as practicable with analogous CFTC rules for SEFs, unless a reason exists to do otherwise in a particular area. Based on the Commission’s preliminarily belief that SBSEF registrants likely would be registered SEFs that have established systems and policies and procedures to comply with CFTC rules, the Commission’s general approach likely would result in compliance costs for registered SBSEFs that are lower than compliance costs that would have resulted had the Commission chosen not to follow the CFTC’s approach.390 In assessing the economic impact of the proposed rules, the Commission considers the broader costs and benefits associated with the application of the proposed rules, including the costs and benefits of applying the substantive Title VII requirements to the trading of SBS.391 The Commission’s analysis also considers ‘‘assessment’’ costs—i.e., those that arise from current and future market participants expending resources to assess how they will be affected by Regulation SE, and could incur expenses in making this assessment even if they ultimately are not subject to rules for which they made an assessment. Many of the benefits and costs discussed below are difficult to quantify. These benefits and costs would depend on how potential SBSEFs and their prospective members respond to the proposed rules, if adopted by the Commission. If potential SBSEFs perceive the costs associated with operating registered SBSEFs to be high, such that few or no entities come forward to register as SBSEFs, there could be no triggering of the trade execution requirement, which depends on MAT determinations made by registered SBSEFs (or exchanges). Under this scenario, the future state of the SBS market likely would not differ from the current baseline and the potential costs and benefits discussed below would not materialize. An alternative scenario is that prospective SBSEFs perceive the costs associated with operating registered SBSEFs to be high but nevertheless register as SBSEFs because they expect to be able to pass on such costs to their members to help maintain the commercial viability of operating a registered SBSEF. MAT determinations by registered SBSEFs would move trading of the products covered by the determinations onto SBSEFs, which could generate benefits and costs associated with increased pre-trade transparency, in addition to benefits and costs associated with the operation of regulated markets. A third possibility is that entities come forward to register as SBSEFs because they perceive the associated costs of operating SBSEFs to be low in light of the close
harmonization of the proposed rules with analogous CFTC SEF rules. If these registered SBSEFs do not make MAT determinations and thus do not trigger the trade execution requirement, the benefits and costs associated with increased pre-trade transparency likely would not arise. If SBSEF trading is limited because of an absence of MAT determinations, the benefits and costs associated with the operation of regulated markets potentially would be limited as well. A fourth possibility is that entities do come forward to register as SBSEFs because they perceive the associated costs of operating SBSEFs to be low and these registered SBSEFs make MAT determinations and trigger the trade execution requirement. Under this scenario, the benefits and costs associated with increased pre-trade transparency and regulated markets likely would arise. The Commission does not have the data to determine which of the above possibilities will prevail should the proposed rules be adopted. The Commission has attempted to quantify economic effects where possible, but much of the discussion of economic effects is necessarily qualitative. The Commission requests comment and, with regard to any comments, such comments are of greatest assistance if they are accompanied by supporting data and analysis of the issues addressed.

1. Overarching Benefits of the Proposal
   Broadly, the Commission anticipates that proposed Regulation SE may bring several overarching benefits to the SBS market. Improved Transparency. The proposal would enable the Commission to obtain information about SBSEFs, thereby facilitating the Commission’s oversight of these entities.392 In addition, the proposed requirements relating to pre-trade transparency would increase pre-trade transparency in the market for SBS.393 Increased pre-trade price transparency should allow an increased number of market participants to better see the trading interest of other market participants prior to trading, which should lead to increased price competition among market participants.394 The Commission preliminarily believes that the proposed requirements with respect to pre-trade price transparency should lead to more efficient pricing in the SBS market.395 Evidence from the swap market suggests that an increase in pre-trade transparency is associated with improved liquidity and reduced transaction costs.396 The Commission is not aware of any difference between the

397See, e.g., Ananth Madhavan, et al., Should Securities Markets Be Transparent?, J. of Fin. Markets, Vol. 8 (2005) (finding that an increase in pre-trade price transparency leads to lower liquidity and higher execution costs, because limit-order traders are reluctant to submit orders given that their orders essentially represent free options to other traders). 398See proposed Rules 819, 821, 822, and 826. 399See supra section XIX(B)(2). 400See proposed Rules 442 and 443; proposed amendments to Rules 101, 202, 210, 401, 450, and 460. 401See Public Law 111–203, Preamble. 402See proposed Rules 804, 805, 806, and 807. 403See proposed Rule 811. 404See proposed Rules 819(d)(4) and 826. swap market and the SBS market that would cause the empirical findings regarding the impact of pre-trade price transparency on liquidity and transaction costs not to carry over into the SBS market, when implemented. The Commission is mindful that, under certain circumstances, pre-trade price transparency could also discourage the provision of liquidity by some market participants.397 However, the Commission preliminarily believes that by proposing two execution methods for Required Transactions (limit order book and RFQ-to-3), market participants have flexibility in the degree of pre-trade transparency they wish to employ, which should attenuate potential concerns associated with the exposure of pre-trade trading interest. Improved oversight of trading. Regulation SE would require, among other things, that SBSEFs maintain an audit trail and automated trade surveillance system; conduct real-time market monitoring; establish and enforce rules for information collection; and comply with reporting and recordkeeping requirements.398 These requirements are designed to provide an SBSEF with sufficient information to oversee trading on its market, including detecting and deterring abusive trading practices. This framework could enhance investor protection and increase confidence in a well-regulated market among SBS market participants, which could in turn make them more willing to increase their participation or entice new participants. An increase in participation in the SBS market would, all else being equal, benefit the SBS market as a whole. Further, to the extent that market participants utilize SBS to better manage their risk with respect to a position in underlying securities or assets, their participation in the SBS market could impact their willingness to participate in the underlying asset markets. Thus, the Commission preliminarily believes that the proposal could benefit the securities markets overall by encouraging a more efficient, and potentially higher, level of capital investment. Improved access and competition. Currently, the SBS market is dominated by a small group of SBS dealers.399 A mandatory clearing determination by the Commission, followed by a MAT determination by one or more SBSEFs or exchanges, should help foster greater competition in the trading
of SBS by promoting greater order interaction and increasing access to and participation on SBSEFs. The proposed rules would provide a framework for allowing a number of trading venues to register as SBSEFs and thus more effectively compete for business in SBS. Furthermore, proposed Rule 827 is designed to promote competition generally by prohibiting an SBSEF from adopting any rules or taking any actions that unreasonably restrain trade, or imposing any material anticompetitive burden on trading or clearing. In addition, proposed Rule 819(c) would, among other things, require an SBSEF to provide any ECP with impartial access to its market(s) and market services. The proposed new rules and amendments to the Commission’s Rules of Practice would allow persons who are aggrieved by a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access by an SBSEF to seek an application for review by the Commission.400 These proposed rules and amendments are designed to improve access to SBSEFs by creating a procedure for making appeals to the Commission, thereby limiting the ability of an SBSEF to make a disciplinary action, denial or conditioning of membership, or denial or limitation of access without any recourse by the affected party. Taken together, these proposed rules and amendments should foster greater access to SBSEFs by SBS market participants, which in turn could promote greater participation by liquidity providers on SBSEFs. Increased participation could increase competition in liquidity provision and lower trading costs, which may lead to increased participation in the SBS market. Improved Commission oversight. One of the goals of the Dodd-Frank Act is to increase regulatory oversight of SBS trading relative to the existing OTC SBS market.401 The proposal would provide the means for the Commission to gain better insight into and oversight of SBSEFs and the SBS market by, among other things, allowing the Commission to review new rules, rule amendments, and product listings by SBSEFs 402 and to obtain other relevant information from SBSEFs.403 Additionally, proposed Rule 826(b) would require every SBSEF to keep full, complete, and systematic records of all activities relating to its business with respect to SBS. In addition, proposed Rule 819(f) would require an SBSEF to capture and retain a full audit trail of activity on its facility. The records required to be kept by an SBSEF would help the Commission to determine whether an SBSEF is operating in compliance with the SEA and the Commission’s rules thereunder. The audit trail data required to be captured and retained would facilitate the ability of the SBSEF and the Commission to carry out their respective obligations under the SEA, by facilitating the detection of abusive or manipulative trading activity, allowing reconstructions of activity on the SBSEF, and generally understanding the
causes of both specific trading events and general market activity. Furthermore, proposed Rule 835 would require an SBSEF to provide the Commission notice of a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access, which would allow the Commission to review the SBSEF’s disciplinary process and exercise of its regulatory powers, providing the Commission an additional tool to carry out its oversight responsibilities. The proposed registration requirements and related proposed Form SBSEF, and the CCO’s annual compliance report, which are further discussed below, would also help the Commission with its oversight responsibilities. Improved automation. To comply with the requirements of proposed Regulation SE relating to recordkeeping and surveillance, an SBSEF potentially would need to invest in and develop automated technology systems to store, monitor, and communicate a variety of trading data, including orders, RFQs, RFQ responses, and quotations.404 The proposed rules should promote increased automation in the SBS market, although CFTC-registered SEFs that plan to register as SBSEFs are already deploying automated systems that could be supplemented to support an SBS business. In addition, the automation and systems development associated with the regulation of SBSEFs could provide SBS market participants with new platforms and tools to execute and process

405See section 3D(a)(1) of the SEA, 15 U.S.C. 78c– 4(a)(1). 406See supra section V, note 43. 407Proposed paragraphs (e)(1), (2), and (3) of Rule 816 would exempt from the trade execution requirement, respectively: An SBS transaction that is executed as a component of a package transaction that also includes a component transaction that is the issuance of a bond in a primary market; an SBS that qualifies for an exception under section 3C(g) of the SEA or any exemption from the clearing requirement that is granted by the Commission, for which the associated requirements are met; and an SBS transaction that is executed between counterparties that qualify as ‘‘eligible affiliate counterparties.’’ 408The Commission previously estimated that an entity would incur costs of $301,400 to register as a broker-dealer and become a member of a national transactions in SBS at a lower expense per transaction. Such increased efficiency could enable members of the SBSEF to handle increased volumes of SBS with greater efficiency.
2. Benefits Associated With Specific
Proposed Rules
In addition to the broad benefits that the Commission anticipates as a result of proposed Regulation SE, individual rules could bring particular benefits to the SBS market. These include the following:
Registration requirements and Form SBSEF. SBSEF registration is required under the Dodd-Frank Act.405 Proposed Rule 818(a) incorporates the requirement under the Dodd-Frank Act that an SBSEF, in order to be registered and maintain registration, must comply with the Core Principles in section 3D(d) of the SEA and the Commission’s rules thereunder. The registration process described in proposed Rule 803 would implement this statutory requirement and assist the Commission in overseeing and regulating the SBS market. The information to be provided on proposed Form SBSEF is designed to enable the Commission to assess whether an applicant has the capacity and the means to perform the duties of an SBSEF and to comply with the Core Principles and other requirements imposed on SBSEFs. Proposed Rule 803 is closely modelled on analogous CFTC registration requirements for SEFs. The choice to align the Commission’s registration requirements for SBSEFs with the CFTC’s requirements for SEFs is designed to achieve the abovementioned benefits while imposing only marginal costs on SBSEF registrants, who likely are SEFs. Proposed exemptions (proposed Rule 833, proposed Rule 816(e), proposed amendments to Rule 3a1–1, and proposed Rule 15a–12). Proposed Rule 833 is designed to preserve access to foreign markets by ‘‘covered persons’’ (as defined in proposed Rule 832). As discussed in section XIX(B)(6), an analysis of SBS transaction data indicates that certain trades executed on foreign SBS trading venues involve at least one counterparty that is a covered person. Absent the proposed rule, these trading venues might elect to avoid having members that are covered persons if those venues do not wish to register with the Commission in some capacity (such as an exchange or SBSEF). In addition, covered persons would not be permitted to execute SBS that are subject to the trade execution requirement on these venues if the venues do not register with the Commission in some capacity (such as an exchange or SBSEF) or obtain an appropriate exemption. This would limit access to foreign SBS trading venues by covered persons, potentially making it harder for them to locate counterparties and obtain liquidity for SBS that trade on those venues. This in turn could increase their trading costs, because they might spend more time and effort to locate counterparties or because they have less bargaining power relative to the remaining pool of potential counterparties with which they could trade. To the extent that a foreign SBS trading venue can obtain a Rule 833(a) exemption, it could continue to provide members that are covered persons with access to and liquidity on its market. Furthermore, a Rule 833(b) exemption would allow covered persons to continue accessing foreign SBS trading venues to execute SBS that are subject to the SEA’s trade execution requirement. Currently, all trading venues that trade SBS—whether domestic or foreign—are exempt from having to register as a national
securities exchange or SBSEF on account of the SBS trading business. This exemption expires when the Commission’s rules for registering and regulating SBSEFs come into force.406 Thus, removal of the existing exemption would merely restore the status quo ante, where the SEA itself, as amended by the Dodd-Frank Act, requires entities meeting the definition of ‘‘security-based swap execution facility’’ or ‘‘exchange’’ and falling within the territorial jurisdiction of the SEA to register with the Commission. By offering foreign SBS trading venues the possibility of an exemption from the definitions of ‘‘security-based swap execution facility’’ and ‘‘exchange’’ as well as from section 3D(a)(1) of the SEA, proposed Rule 833(a) would allow foreign SBS trading venues to operate in conditions similar to the current baseline (if the Commission ultimately grants an exemption under Rule 833(a)). Currently, market participants that trade SBS that would be covered by proposed Rule 816(e) 407 do not trade these products on registered exchanges or registered SBSEFs. Proposed Rule 816(e), by providing exemptions from the trade execution requirement for these SBS, would preserve the status quo for these SBS. Proposed paragraph (a)(4) of Rule 3a1–1 would provide that an entity that has registered with the Commission as an SBSEF and provides a market place for no securities other than SBS would not fall within the definition of ‘‘exchange’’ and thus would not be subject to the requirement in section 5 of the SEA to register as a national securities exchange (or obtain a low￾volume exemption). The Commission preliminarily believes that the benefit of the proposed amendment would be to clarify to prospective SBSEF applicants that, if they register with the Commission as SBSEFs, they would not face duplicative registration and regulatory requirements as exchanges. In addition, proposed paragraph (a)(5) of Rule 3a1–1 would codify a series of exemptions that the Commission has granted over several years to SBS clearing agencies that operate ‘‘forced trading’’ sessions. Because the proposed amendment is intended to codify existing exemptions, the Commission preliminarily believes that any associated economic effects would be minimal. Proposed new Rule 15a–12 is designed to minimize overlapping compliance burdens for SBSEFs, which are also brokers under the SEA, that restrict their activity to engaging in the business of operating an SBSEF (and no other broker activities). Absent the proposed rule, such SBSEFs (defined as ‘‘SBSEF–Bs’’ for purposes of Rule 15a–
12) would need to register as SBSEFs
and be subject to the SBSEF regulatory regime, in addition to registering as brokers and being subject to the broker regulatory regime. Proposed Rule 15a– 12 would allow an SBSEF–B to satisfy the requirement to register as a broker by registering as an SBSEF under proposed Rule 803, and would exempt an SBSEF–B from SIPA and other broker requirements, except for sections 15(b)(4), 15(b)(6), and 17(b) of the SEA. As a result of the proposed rule, SBSEF– Bs could avoid incurring what the Commission preliminarily believes to be duplicative and unnecessary compliance burdens. Each SBSEF–B could save an estimated $324,849 in initial broker registration costs 408 and