Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities

SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 200, 201, 232, 240, 242, and 249 [Release No. 34–98845; File No. S7–14–22] RIN 3235–AK93 Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) is adopting a set of rules 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 securitybased swap (‘‘SBS’’) execution generally. One of the rules being adopted implements an element of the Dodd-Frank Act that is intended to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade SBS (‘‘SBS exchanges’’). Other rules being adopted address the crossborder application of the SEA’s trading venue registration requirements and the trade execution requirement for SBS. In addition, the Commission is amending 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 is also adopting a new rule that, while affirming that an SBSEF would be a broker under the SEA, exempts a registered SBSEF from certain broker requirements. Further, the Commission is adopting 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. Finally, the Commission is delegating new authority to the Director of the Division of Trading and Markets and to the General Counsel to take actions necessary to carry out the rules being adopted. DATES:
Effective date: February 13, 2024.
Compliance dates: See section XVI (Compliance Schedule). FOR FURTHER INFORMATION CONTACT:
Michael E. Coe, Assistant Director; David Liu, Special Counsel; Leah Mesfin, Special Counsel; Michou Nguyen, Special Counsel; or Geoffrey Pemble, Special Counsel, at (202) 551– 5000, Office of Market Supervision, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is adopting new 17 CFR
242.800 through 242.835 (‘‘Regulation
SE’’) to create a regime for the registration and regulation of SBSEFs and to address other issues relating to SBS execution generally. Regulation SE consists of 17 CFR 242.800 through
242.835 (Rules 800 through 835). Key
rules within Regulation SE include Rule 803, which establishes a process for SBSEF registration; Rules 804 to 810, which establish procedures for rule and product filings by SBSEFs; Rule 815, which establishes permissible execution methods for SBS that are subject to the SEA’s trade execution requirement; Rule 816, which sets 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 implement the 14 Core Principles for SBSEFs set forth in section 3D(d) of the SEA; Rules 832 to 833, which address cross-border matters; and Rule 834, which imposes 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 adopting 17 CFR 249.1701 (Form SBSEF), which is the form that an entity will use to register with the Commission as an SBSEF; 17 CFR 249.1702 (a submission cover sheet), which will be required to accompany filings with the Commission made by SBSEFs for rule and rule amendments and for product listings; adopting 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; adopting amendments to 17 CFR 240.3a1–1 (Rule 3a1–1) 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; adopting 17 CFR 240.15a–12 (Rule 15a–12), which, while affirming that an SBSEF would also be a broker under the SEA, exempts a registered SBSEF from certain broker requirements; providing for the sunset of existing temporary exemptions from the requirement to register as a clearing agency that, among other things, applies to an entity performing the functions of an SBSEF but that is not yet registered as such, and from the requirement to register as an SBSEF or a national securities exchange for entities that meet the statutory definition of SBSEF; adopting certain new rules and amendments to 17 CFR part 201 (Rules of Practice) to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission; and adopting amendments to 17 CFR 200.30–3 and 17 CFR 200.30– 14 regarding delegations of authority to the Director of the Division of Trading and Markets and to the General Counsel.
Table of Contents
I. Background
II. Introductory Provisions of Regulation SE
A. Rule 800—Scope
B. Rule 801—Applicable Provisions
C. Rule 802—Definitions
III. Registration of SBSEFs
A. Rule 803—Requirements and Procedures for Registration B. Form SBSEF
IV. 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
V. Miscellaneous Requirements
A. Rule 811—Information Relating to SBSEF Compliance 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 an SBSEF E. Rule 815—Methods of Execution for Required and Permitted Transactions F. Rule 816—Trade Execution Requirement and Exemptions Therefrom G. Rule 817—Trade Execution Compliance
Schedule
VI. Implementation of Core Principles
A. Rule 818—Core Principle 1— Compliance With Core Principles B. Rule 819—Core Principle 2— Compliance With Rules
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

1The Commission proposed Regulation SE on Apr. 6, 2022. See Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities (Proposed Rule), SEA Release No. 94615 (Apr. 6, 2022), 87 FR 28872 (May 11, 2022) (‘‘Proposing Release’’). 2 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’’). 3Public Law 111–203, H.R. 4173, sec. 763(c). 4See Public Law 111–203 Preamble. 5See infra section VI (listing the Core Principles). 6See Proposing Release, supra note 1. In 2011, the Commission published for comment proposed Regulation SBSEF relating to, among other things, the registration and regulation of SBSEFs. Registration and Regulation of Security-Based Swap Execution Facilities, SEA Release No. 63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011) (‘‘2011 SBSEF Proposal’’). The Proposing Release, which contains a more detailed discussion of that and related proposals, withdrew the 2011 SBSEF Proposal. See Proposing Release, 87 FR at 28874. 7See Proposing Release, supra note 1, 87 FR at
28874. However, Rule 834 of proposed Regulation
SE would implement section 765 only with respect to SBSEFs and SBS exchanges. See infra section VIII. 8 In adopting Regulation SE, the Commission has consulted and coordinated with the CFTC and the prudential regulators, in accordance with the consultation mandate of the Dodd-Frank Act.
Section 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.’’ The 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). 9See 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 Release’’). 10 In 2018, the CFTC proposed to make fundamental changes to the SEF regulatory structure. See CFTC, Swap Execution Facilities and Trade Execution Requirement, 83 FR 61946 (Nov. Continued
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
VII. Cross-Border Rules
A. Rule 832—Cross-Border Mandatory Trade Execution B. Rule 833—Cross-Border Exemptions for Foreign Trading Venues and Relating to the Trade Execution Requirement
VIII. Rule 834—Implementation of Section
765 of the Dodd-Frank Act and Governance of SBSEFs and SBS Exchanges A. Rule 834(a) B. Rule 834(b)
C. Rule 834(c)
D. Rule 834(d)
E. Rule 834(e)
F. Rule 834(f)
G. Rule 834(g)
H. Rule 834(h)
IX. Rule 835—Notice to Commission by
SBSEF of Final Disciplinary Action, Denial or Conditioning of Membership, or Denial or Limitation of Access
X. Amendments to Existing Rule 3a1–1
Under the SEA-Exemptions From the Definition of ‘‘Exchange’’
XI. Rule 15a–12—SBSEFs as Registered
Brokers; Relief From Certain Broker Requirements
XII. Termination of Temporary Exemptions
XIII. Electronic Filings Under Regulation SE
A. Use of Electronic Filing Systems and Structured Data B. Use of Identifiers
XIV. 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
XV. Amendments to Delegations of Authority
in Rule 30–3 and Rule 30–14 A. Delegated Authority Related to SBSEF Registration and Form SBSEF B. Delegated Authority Related to New Products Proposed by an SBSEF
C. Delegated Authority Related to New
Rules or Rule Amendments Proposed by an SBSEF D. Delegated Authority Related To Request for Joint Interpretation E. Delegated Authority Related to SBSEF Submissions Contemplated by Rule 811 F. Delegated Authority Related to Information Sharing G. Delegated Authority Related to Commission Review Proceedings
XVI. Compliance Schedule
XVII. Economic Analysis
A. Introduction
B. Economic Baseline
C. Benefits and Costs
D. Effects on Efficiency, Competition, and Capital Formation E. Reasonable Alternatives
XVIII. Paperwork Reduction Act
A. Summary of Collection of Information B. Proposed Use of Information
C. Respondents
D. Total Annual Reporting and Recordkeeping Burden E. Collection of Information is Mandatory F. Responses To Collection of Information Will Not Be Confidential G. Retention Period of Recordkeeping Requirements
XIX. Regulatory Flexibility Certification
A. SBSEFs
B. Persons Requesting an Exemption Order Pursuant to Rule 833
C. SBS Exchanges
D. Certification
XX. Other Matters
I. Background
The Commission is adopting Regulation SE,1 which governs the registration and regulation of SBSEFs, as required by section 3D of the SEA.2
Section 3D was enacted as part of Title
VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’).3 The Dodd-Frank Act was enacted, among other reasons, to promote the financial stability of the United States by improving accountability and transparency in the financial system.4 The 2008 financial crisis highlighted significant issues in the over-the-counter (‘‘OTC’’) derivatives markets, which experienced dramatic growth in the years leading up to the financial crisis and are capable of affecting significant sectors of the U.S. economy.
Section 3D(a)(1) of the SEA 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.5 And section 3D(f) requires the Commission to prescribe rules governing the regulation of SBSEFs. In addition, 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’’). On April 6, 2022, the Commission proposed Regulation SE, relating to the registration and regulation of SBSEFs and to SBS execution generally.6 As discussed in the Proposing Release, the proposed rules superseded previous Commission proposals on these subjects.7 The SBS market is closely related to the swaps market, which is regulated by the Commodity Futures Trading Commission (‘‘CFTC’’).8 In June 2013, the CFTC adopted rules (in 17 CFR
chapter I) under Title VII of the DoddFrank Act for swap execution facilities
(‘‘SEFs’’).9 The swaps market has grown and matured within the framework established by the CFTC’s rules.10 As

30, 2018) (‘‘2018 SEF Proposal’’). 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.’’ Accordingly, the CFTC withdrew the unadopted portions of its 2018 proposal. See CFTC, Swap Execution Facilities and Trade Execution Requirement—Proposed rule; partial withdrawal, 86 FR 9304, 9304 (Feb. 12, 2021). 11See Proposing Release, supra note 1, 87 FR at 28874–76. 12See Report on Security-Based Swaps (Mar. 20, 2023), available at https://www.sec.gov/files/reportsecurity-based-swaps-032023.pdf. See also infra note 815 and accompanying text (discussing security-based swap transactions data in the credit, equity, and interest rate derivatives asset classes reported by registered SBSDRs). 13See CFTC Swaps Report, available at https:// www.cftc.gov/MarketReports/SwapsReports/ L3Grossexp.html (accessed on Sept. 27, 2023). 14See Proposing Release, supra note 1, 87 FR at 28875. 15See Proposing Release, supra note 1, 87 FR at 28875. 16The comment letters are available at https:// www.sec.gov/comments/s7-14-22/s71422.htm. The Commission also received comments on topics outside the scope of the proposal that are not addressed in this release. See, e.g., Letter from Anonymous (Apr. 27, 2022) (discussing CFTC oversight and transparency); Letter from Anonymous (Apr. 20, 2022) (discussing securities financial transactions). 17See Letter from Robert McLaughlin (Apr. 7, 2022). 18See, e.g., Letter from Robert Laorno, General Counsel, ICE Swap Trade, LLC, to Vanessa A. Countryman, Secretary, Commission, at 1–2 (June 20, 2022) (‘‘ICE Letter’’); Letter from Stephen W. Hall, Legal Director and Securities Specialist, and Jason Grimes, Senior Counsel, Better Markets, Inc., to Vanessa A. Countryman, Secretary, Commission, at 9–11 (June 10, 2022) (‘‘Better Markets Letter’’); Letter from Derek J. Kleinbauer, Vice-President, Bloomberg SEF LLC, and Benjamin MacDonald, Global Head Enterprise Products, Bloomberg L.P., to Vanessa A. Countryman, Secretary, Commission, at 1–2 (June 10, 2022) (‘‘Bloomberg Letter’’); Letter from Bella Rosenberg, Senior Counsel and Head of Legal and Regulatory Practice Group, International Swaps and Derivatives Association, Inc., and Kyla Brandon, Managing Director, Head of Derivatives Policy, Securities Industry and Financial Markets Association, to Vanessa Countryman, Secretary, Commission, at 1–2 (June 10, 2022) (‘‘ISDA–SIFMA Letter’’); Letter from Sarah A. Bessin Associate General Counsel, and Nicholas Valderrama, Counsel, Investment Company Institute, at 1–2 (June 10, 2022) (‘‘ICI Letter’’); Letter from Elizabeth Kirby, Head of U.S. Market Structure, Tradeweb Markets Inc., to Vanessa A. Countryman, Secretary, Commission, at 1–2 (June 10, 2022) (‘‘Tradeweb Letter’’); Letter from Williams Shields, Chairman, Wholesale Markets Brokers’ Association, Americas, to Vanessa A. Countryman, Secretary, Commission, at 1–2 (June 10,
2022) (‘‘WMBAA Letter’’); Letter from Lindsey Weber Keljo, Head of SIFMA Asset Management Group, and William Thun, Associate General Counsel, SIFMA Asset Management Group, to Vanessa A. Countryman, Secretary, Commission, at 1–2 (June 10, 2022) (‘‘SIFMA AMG Letter’’); Letter from Jennifer W. Han, Chief Counsel & Head of Regulatory Affairs, Managed Funds Association, at 1–2 (June 10, 2022) (‘‘MFA Letter’’); Letter from Stephen John Berger, Global Head of Government & Regulatory Policy, Citadel and Citadel Securities (June 10, 2022) (‘‘Citadel Letter’’). While these commenters support the Commission’s general harmonization approach, they also provide specific recommendations on changes to the Commission’s Regulation SE proposal that they believe would improve the rules, as described in detail below in the sections discussing these individual rules. See infra sections II through XVII. 19See, e.g., ICE Letter, supra note 18, at 1–2; ISDA–SIFMA Letter, supra note 18, at 1–2; ICI Letter, supra note 18, at 1–2; Tradeweb Letter, supra note 18, at 1–2; WMBAA Letter, supra note 18, at 1–2; MFA Letter, supra note 18, at 1. 20See, e.g., ISDA–SIFMA Letter, supra note 18, at 1–2; SIFMA AMG Letter, supra note 18, at 1–2. 21Ownership 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 (Oct. 14, 2010), 75 FR 65882 (Oct. 26, 2010) (‘‘Regulation MC Proposal’’). 22See Bloomberg Letter, supra note 18, at 2. discussed in the Proposing Release, the SBS market is a small fraction of the overall swaps market, and the swaps market provides greater opportunities for revenue capture from swap execution as compared to SBS execution.11 For example, as of November 25, 2022, the gross notional amount outstanding in the SBS market was approximately $8.5 trillion across the credit, equity, and interest rate asset classes,12 while the gross notional amount outstanding in the swaps market was approximately $352 trillion across the interest rate, credit, and foreign-exchange asset classes.13 The Commission was sensitive in the Proposing Release to the economic impact its proposed SBSEF rules could have.14 In addition, the Commission recognized that the entities that are most likely to register with the Commission as SBSEFs are existing, CFTC-registered SEFs, which have already made substantial investments in systems, policies, and procedures to comply with and adapt to the regulatory system developed by the CFTC. Harmonization between the Commission’s SBSEF rules and the CFTC’s SEF rules could facilitate the ability of entities to dually register and minimize costs by allowing incumbent SEFs to use their existing systems, policies, and procedures to comply with the Commission’s SBSEF rules.15 Thus, in proposing Regulation SE, the Commission took 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 swaps market, necessitated differences between the Commission’s rules and the CFTC’s, or where 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. And the Commission sought public comment on this approach.16 One commenter opposes this harmonization approach, and argues that it does not make sense to harmonize with the ‘‘looser’’ rules of SEFs, which he believes would allow ‘‘more fraud and false narratives to creep into the market,’’ and instead advocates that the Commission start from scratch with new rules.17 Many other commenters, however, generally support this harmonization approach.18 Many of these commenters echo the Commission’s rationale for harmonizing with the CFTC’s SEF rules, and state that such harmonization would minimize the compliance burden for dually registered entities.19 Two of these commenters also state that the CFTC’s regulatory framework has been in place for almost a decade and has functioned well.20 One commenter also supports the Commission’s decision and rationale in withdrawing proposed Regulation MC 21 and the Commission’s 2011 SBSEF Proposal.22 The Commission disagrees with the comment that harmonizing with the CFTC approach would allow for more fraud and false narratives in the SBS markets. Standing up a formal regulatory framework for SBSEFs where none yet exists will provide greater accountability and oversight for the SBS market and should, contrary to this commenter’s views, serve to detect and deter abusive and manipulative trading practices by providing for a set of Commission rules that SBSEFs must adhere to in operating their platforms and by requiring SBSEFs to make filings with the Commission regarding the operation of their platforms and to make their rules publicly available, as described in detail in sections II through XVII below. Given the relative size of the SBS market as compared to the swaps market, the fact that the CFTC’s SEF regulation has been in place for many years now, and the cost efficiencies and reduced burdens that would result from harmonized rules for dually registered SEFs/SBSEFs, it is appropriate to generally harmonize the Commission’s SBSEF regulatory framework with the CFTC’s SEF regulatory framework. At the same time, where appropriate, adopted Regulation SE differs in certain targeted respects from the CFTC’s regulatory framework for SEFs. This includes areas where differences in the Commission’s statutory authority relative to the CFTC’s statutory authority or differences in the SBS market relative to the swaps market necessitate differences between the

23See infra section V.E.1(c).
24See infra section V.E.4.
25See infra section V.E.7.
26See infra section VI.B.5.
27See infra section VI.H.
28See infra section VIII.B.
29See infra section XIV.E.
30See infra section XIII.
31See infra note 32.
32 In several instances, here and as noted below, the Commission has made technical modifications to the proposed regulatory text to conform crossreferences in the regulatory text to the CFR to the required style, as well as to correct simple typographical errors. Here, the Commission has modified Rule 800 to change a reference from ‘‘[t]he provisions of this section’’ to ‘‘[t]he provisions of §§ 242.800 through 242.835.’’ In other instances, the Commission has added the words ‘‘of this section’’ to a CFR cross-reference to conform to the required form of citation. Other types of technical modifications, and any substantive modifications, are described below with respect to specific instances. 33See id. 34 15 U.S.C. 78c. 35 15 U.S.C. 78c(a)(77). 36 15 U.S.C. 78q–1. 37See Proposing Release, supra note 1, 87 FR at
28878. This provision codifies a series of
exemptions granted by the Commission to SBS clearing agencies that operate ‘‘forced trading’’ sessions. See, 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 (Mar. 6, 2009), 74 FR 10791, 10796 (Mar. 12, 2009) (providing, among other things, 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 (Dec. 14, 2009), 74 FR 67258, 67262 (Dec. 18, 2009) (providing, among other things, 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’’). 38 15 U.S.C. 78c(a)(77). 39Because this exception for certain clearing agencies specifies ‘‘an entity that is registered with the Commission as a clearing agency pursuant to
section 17A of the [SEA]’’ and meets other specified
conditions, the exception would not be available to any exempt clearing agency. Commission’s rules and the CFTC’s, or where 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. The specific approach to harmonization that the Commission has pursued, along with differences from CFTC’s regime for SEFs, are described in detail in sections II through XVII below. As discussed below, the Commission is modifying the proposed provisions of Regulation SE regarding the definition of ‘‘block trade,’’ 23 the treatment of package transactions,24 the treatment of SBS transactions that are intended to be cleared but are not accepted for clearing by a registered clearing agency,25 permitting SBSEFs to contract with designated contract markets (‘‘DCMs’’) to provide services to assist in complying with the SEA and Commission rules thereunder,26 the content and timing of the Daily Market Data Report,27 an exception to ownership and voting restrictions for SBSEFs,28 the application of deadlines and standard of review for Commission review of SBSEF actions,29 and the applicability of electronic filing and structured-data requirements with respect to specific SBSEF filings.30 Otherwise, the rules of Regulation SE are generally being adopted as proposed, in some instances with minor or technical modifications, which are described in more detail below.31
II. Introductory Provisions of
Regulation SE
A. Rule 800—Scope
Proposed Rule 800 is based on 17 CFR 37.1, which provides that part 37 of the CFTC’s regulations applies to every SEF that is registered or applying to become registered as a SEF under section 5h of the CEA. Proposed Rule 800 would provide that the provisions of Regulation SE apply to every SBSEF that is registered or is applying to become registered as an SBSEF under
section 3D of the SEA.
The Commission received no comments on Proposed Rule 800 and is adopting Rule 800 as proposed, with minor technical modifications,32 for the reasons stated in the Proposing Release. 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 17 CFR 1.60 and part 9, and including any related definitions and crossreferenced 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. The Commission did not receive any comments on Proposed Rule 801 and is adopting Rule 801 as proposed, with minor technical modifications.33
C. Rule 802—Definitions
Proposed Rule 802 would set forth the definitions of terms that are used in multiple rules in proposed Regulation SE. The majority of these terms were adapted from the CFTC’s swaps rules. Other terms were taken from section 3 of the SEA 34 or from a Commission rule under the SEA. In particular, Proposed Rule 802 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 endof-day valuations—i.e., a ‘‘forced trading session’’—would be exempt from the definition of ‘‘security-based swap execution facility.’’ 37 Although the Commission received comments regarding the proper application of the proposed definitions with respect to registration requirements, discussed below in
section III.A.2, and the proposed
amendments to Rule 3a1–1, discussed below in section X, the Commission did not receive comments suggesting a modification of the definitions themselves. The term ‘‘security-based swap execution facility’’ is defined directly in section 3(a)(77) of the SEA 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. . . ,’’ 38 and it is appropriate to adopt the same definition in Rule 802, with a narrow exception to address certain activities of registered clearing agencies in furthering the accuracy of end-of-day valuations.39 Specifically, it is necessary or appropriate in the public interest, and is consistent with the protection of investors, to exempt a registered clearing agency that utilizes a forced trading functionality for SBS from the definition of ‘‘security-based swap execution facility.’’ Such an entity will 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 selfregulatory organization (‘‘SRO’’); therefore, all of its rules—including

40See Proposing Release, supra note 1, 87 FR at 28896, 28975. 41Additionally, as discussed below, the Commission is removing the term ‘‘block trade’’ from the text of certain rules other than Rule 815(a), see infra sections VI.B.1 (Rule 819(a)(3)), V.B (Rule 812(b)), VI.B.4 (Rule 819(d)(1)), VI.H (Rule 825(c)(1)(i) and (ii)), and is adding language regarding future definition of ‘‘block trade’’ in Rule 825(c)(1)(iii). See infra section VI.H. 42See supra note 32. The Commission has also replaced the term ‘‘SBSEF’’ with ‘‘security-based swap execution facility,’’ defined ‘‘SBS exchange’’ when the term is first used, added the words ‘‘of this definition of trading facility’’ to paragraph (2)(C)(ii) of the definition of ‘‘trading facility,’’ and moved the definition of ‘‘dormant security-based swap execution facility’’ so that it appears in alphabetical order. 43 15 U.S.C. 78c–4(a)(1). 44The 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. 45 15 U.S.C. 78mm(a)(1). 46See 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 the restrictions and 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 section 6 of the SEA. But because the Commission has not previously adopted final rules relating to SBSEFs, such entities have been unable to register with the Commission as SBSEFs. The Temporary SBSEF Exemptions have allowed 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. 47See June 2011 Exemptive Order, supra note 46, 76 FR at 36293, 36306; July 2011 Exemptive Order, supra note 46, 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 (‘‘Broker Exemptions’’). The Broker Exemptions generally expired on Oct. 6, 2021; however, because an entity that meets the definition of ‘‘securitybased 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 earliest compliance date set forth in any of the Commission’s final rules regarding registration of SBSEFs). See SEA Release No. 87005 (Sept. 19, 2019), 84 FR 68550, 68602 (Dec. 16, 2019). 48A 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,’’ see sec. 3(a)(77) of the SEA, 15 U.S.C. 78c(a)(77), and thus does not need to register as an SBSEF under Rule 803. Furthermore, as discussed below, see infra section X (discussing proposed paragraph (a)(4) of SEA Rule 3a1–1), a person that registers as an SBSEF under Rule 803 and provides a market place for no securities other than
SBS is exempt from the definition of ‘‘exchange’’ and does not need to register as such pursuant to section 6 of the SEA. 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’’). 49Section 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 adapted the CEA definitions of those terms directly into Rule 802. See Proposed Rule 802 (defining ‘‘trading facility’’ and ‘‘electronic trading facility’’). 50As discussed below in section V.E.1(a), the Commission is incorporating into Regulation SE the concepts of ‘‘Required Transaction’’ and ‘‘Permitted Transaction’’ in a manner closely modeled 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. Section
37.3 of the CFTC’s rules requires an order book as
a minimum trading functionality for all SEFs and is not limited to provision of an order book only for Required Transactions. those governing the forced trading session—have to be submitted to the Commission pursuant to section 19 of the SEA. Therefore, codification of the exemption from the definitions of ‘‘exchange’’ and ‘‘security-based swap execution facility’’ preserves the status quo and eliminates a largely duplicative and unnecessary set of regulatory requirements. This exemption covers 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. Proposed Rule 802 would have defined the term ‘‘block trade’’ to be an SBS transaction that, among other requirements, is an 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) having a notional size of $5 million or greater.40 The Commission received a number of comments on the proposed definition of ‘‘block trade.’’ These comments are discussed below in section V.E.1(c) relating to Rule 815(a), which specifies mandatory methods of execution for a Required Transaction that is not a block trade. As discussed in detail below in
section V.E.1(c), the Commission is not
adopting the proposed definition of ‘‘block trade.41 Therefore, the Commission is adopting Rule 802 as proposed, except for the definition of ‘‘block trade,’’ which it is reserving, and minor technical modifications.42
III. Registration of SBSEFS
Section 3D(a)(1) of the SEA 43
provides that no person may operate a facility for the trading or processing of SBS 44 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 45 to entities
that meet the definition of ‘‘securitybased swap execution facility’’ from having to register with the Commission as an SBSEF or national securities exchange (‘‘Temporary SBSEF Exemptions’’).46 According to their terms, the Temporary SBSEF Exemptions expire upon the earliest compliance date for the Commission’s final rules regarding SBSEF registration.47 A. Rule 803—Requirements and Procedures for Registration

Summary of Proposed Rule 803
Proposed Rule 803 of Regulation SE is closely modeled on § 37.3 of the CFTC’s rules and would set forth a process for registration with the Commission as an SBSEF. Paragraph (a)(1) of Proposed Rule 803 would track the language of § 37.3(a)(1) closely, and would provide 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 securitybased swaps with more than one other market participant on the system or platform shall register the facility as a security-based swap execution facility under this section or as a national securities exchange pursuant to section 6 of the SEA.48 Paragraph (a)(2) of Rule 803, like § 37.3(a)(2), would require an SBSEF, at a minimum, to offer an order book, which would be defined 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.49 Paragraph (a)(3) of Rule 803 is closely modeled on § 37.3(a)(4) and would provide a narrow exception to the requirement to provide an order book for a Required Transaction 50 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, with some parts of the

51See 17 CFR 240.24b–2 (setting forth the procedures for identifying and redacting the portion of a submission under the SEA for which confidential treatment is requested). As the Commission stated in the Proposing Release, 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 other persons who request confidential treatment from the Commission under the SEA. See Proposing Release, supra note 1, 87 FR at 28880 n.50. 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 definition is modeled on the definition of ‘‘dormant swap execution facility’’ found in § 40.1(f). 53See Proposing Release, supra note 1, 87 FR at 28880–81. 54 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 Regulation SE. See infra section XIII.A. package being subject to a trade execution requirement and some not. Paragraph (b) of Proposed Rule 803 is closely modeled 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 file electronically a complete Form SBSEF or any successor forms, and all information and documentation described in such forms with the Commission using the Electronic Data Gathering, Analysis, and Retrieval (‘‘EDGAR’’) system as an Interactive Data File in accordance with Rule 405 of Regulation S–T, and must 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 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.51 Paragraph (b)(2) would also provide that, as set forth in 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), 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 Rule 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 modeled 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 that notification until the application is resubmitted in completed form. In such a 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 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, modeled 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 Rule 803(b)(6)(ii), it would be required to specify the grounds for the denial. 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 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 modeled 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), modeled 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 that change. Paragraph (d)(3) of Proposed Rule 803, like § 37.3(e)(3), would require an SBSEF’s request for a transfer of registration to include the underlying agreement governing the corporate change, a description of the corporate change, a discussion of the transferee’s ability to comply with the SEA, the governing documents of the transferee, the transferee’s rules marked to show changes from the rules of the SBSEF, and specified representations by the transferee.53 Paragraph (d)(4) of Proposed Rule 803, modeled 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.54 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

55See SIFMA AMG Letter, supra note 18, at 5; see also Bloomberg Letter, supra note 18, at 11. 56See Citadel Letter, supra note 18, at 9 (‘‘[A] security-based swap transaction executed via a fully electronic multilateral RFQ protocol should be subject to the same regulations as one executed by voice with the assistance of a voice broker (who may or may not be employed by the SBSEF)’’). 57As discussed above, see supra note 38 and accompanying text, the statutory definition of SBSEF provides in relevant part that an SBSEF is ‘‘a trading system platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants. . . .’’ SEA section 3(a)(77), 15 U.S.C. 78c(a)(77) (emphasis added). This is sometimes referred to as ‘‘multiple-tomultiple trading.’’ 58See Better Markets Letter, supra note 18, at 11– 13. 59See MFA Letter, supra note 18, at 3. 60See CFTC Staff Advisory on Swap Execution Facility Registration Requirement, Letter No. 21–19 (Sept. 29, 2021), available at https://www.cftc.gov/ node/238336. 61See MFA Letter, supra note 18, at 3 (quoting CFTC Staff Letter No. 21–19, supra note 60 (emphasis in original)). 62MFA Letter, supra note 18, at 3–4 (internal quotations omitted). 63SEA section 3(a)(77), 15 U.S.C. 78c(a)(77) (emphasis added). 64SEA section 3D(a)(1), 15 U.S.C. 78c–4(a)(1). 65See SEA section 3(a)(77), 15 U.S.C. 78c(a)(77) (defining SBSEF in relevant part 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 . . .’’); SEA section 3(a)(1), 15 U.S.C. 78c(a)(1) (defining an exchange in relevant part 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’’) (emphasis added). 66See supra notes 59–62 and accompanying text. 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.
2. Comments and Analysis
(a) Registration Requirements, Generally Two commenters support the proposed SBSEF registration requirements under Rule 803 being modeled on the CFTC’s rules and state that, as market participants are familiar with CFTC’s requirements, they appreciate the Commission’s attempts to minimize registration burdens and expedite the establishment of the SBSEF regime.55 One commenter states that the Commission should ensure that all multilateral trading venues for SBS are required to register as an SBSEF, regardless of the specific trading protocol used.56 Another commenter argues that section 3D(a)(1) of the SEA requires the registration of any ‘‘facility for the trading or processing of SBS,’’ not just those that meet the statutory definition of SBSEF, which includes multiple-to-multiple trading.57 Accordingly, this commenter states that single-dealer platforms should be required to register as SBSEFs and to change their operations to offer multiple-to-multiple trading, consistent with the definition of SBSEF.58 One commenter asks the Commission to ‘‘make clear that the SBSEF registration requirement applies only to these types of platforms that are within the statutory and proposed regulatory definition and does not include any broader CFTC staff interpretations purporting to expand the SEF definition.’’ 59 This commenter states that CFTC Staff Letter 21–19 60 maintains that platforms can be required to register as SEFs ‘‘(i) even where multiple participants cannot simultaneously request, make, or accept bids and offers from market participants; or (ii) where multiple participants can initiate a one-to-many communication.’’ 61 The commenter states that extending the definition of SBSEF to include ‘‘facilities offering one-to-many or bilateral communications if more than one participant is able to submit an RFQ on the platform’’ would ‘‘contradict Congress’ express intent’’ to limit the scope of SBSEF registration requirements to multiple-to-multiple platforms; that the Commission should make clear that the CFTC staff guidance is inapplicable to SBSEFs; and that the Commission should confirm that it is not adopting or incorporating, explicitly or implicitly, similar guidance.62 The Commission agrees with the comment that the definition of SBSEF applies to multilateral trading facilities regardless of the specific trading protocol used. As the statutory definition of SBSEF makes clear, a trading facility would fall under the definition of SBSEF if it offers ‘‘multiple participants 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. . . .’’ 63 Whether a specific instance or practice of brokering in fact offers multiple participants the ability to accept the bids or offers made by multiple participants, though, will depend on the attendant facts and circumstances of that instance or practice. The Commission does not, however,
agree with the comment that the language of SEA section 3D(a)(1) means that single-dealer platforms for trading SBS must register as SBSEFs and, consistent with the statutory definition of SBSEF, change their operations to provide multiple-tomultiple trading. SEA section 3D is titled ‘‘Security-based swap execution facilities,’’ and section 3D(a)(1) states, in full, ‘‘No person may operate a facility for the trading or processing of securitybased swaps, unless the facility is registered as a security-based swap execution facility or as a national securities exchange under this
section.’’ 64 The Commission is not
persuaded that the phrase ‘‘facility for the trading or processing of securitybased swaps’’ in this context can reasonably be read to apply more broadly to encompass anything other than an SBSEF or an SBS exchange. Since the definitions of both SBSEF and exchange include the concept of multiple-to-multiple trading,65 singledealer ‘‘one-to-many’’ trading platforms that do not offer multiple-to-multiple trading are outside the scope of the provisions of section 3D(a)(1). It is not necessary to incorporate the guidance in CFTC Staff Letter 21–19 into this release, because the CFTC staff letter in large part refers to fact-specific circumstances that the Commission has yet to encounter since Reg SE is not yet effective and the application of the SBSEF definition depends on the particular facts and circumstances of a platform’s structure and operations. For the same reason, it would be premature to reject the possibility of taking a position similar to that of the CFTC guidance with regard to SBSEFs, as one commenter suggested.66 Moreover, because the statutory definition of SBSEF does not include the word ‘‘simultaneous,’’ the Commission declines to issue its own guidance to reflect a requirement for simultaneity here. Where operators of SBS trading platforms have questions about the facts and circumstances particular to their situations, they can discuss their particular circumstances with Commission staff. (b) Abbreviated Registration Procedures for CFTC-Registered SEFs Several commenters state that the Commission should use its exemptive authority to provide a streamlined registration process for SBSEFs that are already registered with the CFTC as

67See SIFMA AMG Letter, supra note 18, at 5; Bloomberg Letter, supra note 18, at 11; WMBAA Letter, supra note 18, at 3; ICE Letter, supra note 18, at 5. 68See SIFMA AMG Letter, supra note 18, at 5. 69See Bloomberg Letter, supra note 18, at 11. 70See WMBAA Letter, supra note 18, at 3. 71See WMBAA Letter, supra note 18, at 3–4. 72See ICE Letter, supra note 18, at 5. 73Letter from J. T. at 1 (May 26, 2022). 74 Id. 75 Id. 76 15 U.S.C. 78mm(a)(1). 77See Proposing Release, supra note 1, 87 FR at 28882. 78See supra note 75 and accompanying text. 79 In the Proposing Release, the Commission stated that it was ‘‘preliminarily considering’’ that it would exercise exemptive authority under section 36(a)(1) of the Act, 15 U.S.C. 78mm(a)(1), ‘‘to relax or eliminate entirely certain of the registration requirements for entities that are already registered as SEFs with the CFTC.’’ Proposing Release, supra note 1, 87 FR at 28882. 80See supra note 32. The Commission is also deleting the header text ‘‘Minimum trading functionality’’ from paragraph (a)(3), and is adding the header text ‘‘Request to register’’ to paragraph (b)(1), in order to maintain consistency of style in the regulatory text. Additionally, the Commission is removing the requirement to use an Interactive Data File for filing requests to withdraw or vacate an application for registration pursuant to Rules 803(e) and 803(f). See infra section XIII.A. SEFs.67 One commenter states that, because many entities will likely be registering with both the Commission and the CFTC, a streamlined SBSEF registration process will ease the burden of new requirements imposed on potential dual-registrants.68 This commenter further states that allowing currently registered CFTC SEFs to become SEC-registered SBSEFs would be more efficient and would more quickly kick-start the Commission’s SBS regime. This commenter thus supports the use of exemptive authority for SEFs that are currently registered, provided that the Commission’s approach to exemptive authority does not disrupt the existing market structure and the relationships between venues and participants. Another commenter states that a streamlined registration process for SEFs currently registered and in good standing with the CFTC would have the potential to lower the costs of registration and encourage the entry of market participants.69 One commenter that supports a streamlined SBSEF registration process for SEFs states that a prolonged registration process, particularly for venues already registered with the CFTC, only further delays the introduction of regulated price discovery, liquidity formation, and trade execution for SBS.70 This commenter also states that SBSEF registration also further expedites SBS data reporting to the extent SBSEFs will report trades to an SBS swap data repository under the Commission’s Regulation SBSR, as this service cannot be provided until SBSEFs are registered and operational. If the Commission were not to retain the exemptive
authority within Rule 803, this commenter supports a process that gives deference to existing CFTC SEFs and provides a more streamlined process for such registrants. The commenter states that, as the Commission observed in the proposing release, most of the SBS liquidity will likely be centralized around a few facilities, with most (if not all) of them already operating CFTC-regulated SEFs.71 Another commenter states that SEFs that are currently registered and in good standing with the CFTC should be permitted to register with the Commission utilizing their current documentation filed pursuant to the requirements of Form SEF.72 This commenter states that CFTC registered SEFs are required to keep their Form SEF and its exhibits current through post-registration amendments and that, as the Commission is modeling proposed Form SBSEF on the CFTC’s Form SEF, substituting the forms should not be problematic for the Commission to review. The commenter states that the Commission should permit registered SEFs seeking to register as an SBSEF to submit their Form SEF and exhibits, with an accompanying addendum reflecting only those changes necessary to fulfill the specific requirements of proposed Regulation SE, in lieu of filing a new Form SBSEF. One commenter, however, stated that ‘‘relaxing or eliminating any registration requirements would be highly inappropriate,’’ and argued that the Commission must be ‘‘rigorous in reviewing and approving SBSEFs applicants while upholding complete impartiality.’’ 73 This commenter further states that both active SEFs and nonSEFs seeking to register SBSEFs ‘‘must be held under the same standard to avoid any conflict of interests.’’ 74 Therefore, this commenter states that the Commission should not use exemptive authority under SEA section 36(a)(1) to adopt an abbreviated procedure for SEFs seeking to register as SBSEFs, because doing so would rely on the ‘‘CFTC’s biased judgment’’ and would not permit an ‘‘unprejudiced determination’’ by the Commission.75 In the Proposing Release, the Commission stated that it was 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 76 to relax or eliminate entirely certain of the registration requirements for entities that are already registered as SEFs with the CFTC.77 The Commission recognizes that 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 has sought 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 minimizing costs so as to impose only marginal costs on dually registered
SEF/SBSEFs and their members. As a result of these harmonized regimes, 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. While one commenter states that it would be inappropriate to relax or eliminate any SBSEF registration requirements for CFTC-registered SEFs,78 an entity’s status as a registered SEF in good standing with the CFTC is relevant when considering its application to register as an SBSEF and that reducing the registration burden for CFTC-registered SEFs, where possible, is appropriate. However, granting exemptive relief under section 36(a)(1), which this commenter opposes, or providing for a formally abbreviated SBSEF registration regime for CFTCregistered SEFs is not necessary to accomplish expedited registration and reduced registration burdens.79 Requiring all applicants to submit Form SBSEF will support consistency in the review by the Commission and its staff of applications for registration of SBSEFs, which will include a review of the proposed rules for the SBSEFs. The Commission expects that prospective SBSEFs will be able to use the information in their SEF applications to complete their SBSEF applications, as discussed below. For the reasons discussed above, the Commission is adopting Rule 803 as proposed, with minor technical modifications.80 B. Form SBSEF The Commission proposed new § 249.2001 to require that entities use Form SBSEF to register with the Commission as an SBSEF. Form SBSEF would also be used for submitting any

81See Bloomberg Letter, supra note 18, at 11. 82See 2013 CFTC Final SEF Rules Release, supra note 9. 83See infra section VI.K. 84The Commission is correcting the text in Instruction 20 to Form SBSEF to read ‘‘a list with the name(s) of the clearing agency(ies)’’ instead of ‘‘a list of the name of the clearing organization(s).’’ 85 15 U.S.C. 78s(b). 86 15 U.S.C. 78c–4. 87See 15 U.S.C. 78c–4(d)(1)(A)(ii) (requiring an SBSEF, in order 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). updates, corrections, or supplemental information to a pending application for registration. Form SBSEF is closely modeled on the CFTC’s Form SEF for entities that seek to register with the CFTC as SEFs, with only minor changes to remove from the form the concept of post-registration amendments, as the proposed rule would not require any amendments to Form SBSEF postregistration. The exhibits that were proposed along with Form SBSEF are very similar to the exhibits in Form SEF. As 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, 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 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 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 Rule 806 or Rule 807 or as may be required by other rules in Regulation SE. One commenter states that the Commission should closely harmonize the rules for SBSEF registration with the CFTC’s rules, with the exception of Exhibits D and H of Form SBSEF, which require: (a) a list of all affiliates and a description of any material pending legal proceedings of such affiliates, and (b) the financial statements of the affiliates. This commenter states that the information required by these exhibits is ‘‘burdensome and not fit for purpose’’ and should not be required unless the affiliate provides support services to the SBSEF or the legal proceedings are expected to have a material effect on the applicant or the operation of its proposed SBSEF.81 As discussed above, several commenters expressed support for the Commission providing an expedited process for CFTC-registered SEFs that wish to register as SBSEFs. The CFTC adopted rules for the registration and regulation of SEFs in 2013,82 and the CFTC’s process for registering SEFs appears to be well understood by the industry and well designed for being adapted to the SBS market. Therefore, the Commission has used the CFTC’s process as a basis for its own process for registering SBSEFs, and information about SBSEF affiliates is relevant to the Commission’s oversight of SBSEFs and, in particular, oversight of SBSEF compliance with Rule 828 (conflicts of interest).83 In addition, we assume that most if not all SBSEFs will be dually registered as SEFs. However, while the content and exhibits of Form SBSEF closely match the form and content of Form SEF, exhibits to Form SEF are provided to the CFTC as unstructured documents, whereas most exhibits to Form SBSEF will be provided to the Commission as structured, machine-readable documents. Permitting SBSEFs to provide copies of Form SEF exhibits in lieu of Form SBSEF exhibits, while likely resulting in an expedited registration process for most SBSEFs, would also potentially result in a much higher volume of unstructured data, making the Form SBSEF disclosures more difficult for market participants and the Commission to analyze in an efficient manner. Thus, notwithstanding some commenters’ support for an expedited registration process, the final rules do not permit SBSEFs to provide copies of Form SEF exhibits in lieu of Form SBSEF exhibits. The Commission is therefore adopting 17 CFR 249.2001 as proposed, but is renumbering it as 17 CFR 249.1701 under new subpart R (‘‘Forms for Registration of, and Filings by, Security-Based Swap Execution Facilities’’) and is making a minor technical correction.84
IV. Rule and Product Filings by SBSEFs
Unlike section 19(b) of the SEA,85 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 86 does not set out
an equivalent process for SBSEFs, which are not SROs. 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 to make its market more attractive to participants, and adopting rules for filings related to these changes will promote public transparency regarding the changes, as well as consistent handling of those filings by the Commission. An appropriate review process is necessary to assess whether changes to an SBSEF’s rules and product offerings are consistent with section 3D of the SEA and the Commission’s rules thereunder, and the CFTC’s filing procedures are an appropriate model on which to base the Commission’s 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. 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,87 the Commission proposed to

88The CFTC has proposed to amend the rules that govern how CFTC-registered entities submit selfcertifications and requests for approval of their rules, rule amendments, and new products for trading and clearing, as well as the CFTC’s review and processing of such submissions. See CFTC, Provisions Common to Registered Entities (Notice of Proposed Rulemaking), 88 FR 61432 (Sept. 9, 2023). The CFTC’s proposing release states that the proposed amendments ‘‘are intended to clarify, simplify and enhance the utility of those regulations for market participants and the [CFTC].’’ Id. at 61432. The CFTC has not yet taken action on this proposal. 89By contrast, the parallel provision in § 40.2(a) provides that a DCM or SEF must file the selfcertification only one business day before listing the product. See § 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). 90The Commission proposed, in new § 249.2002, a submission cover sheet (with instructions) that is closely modeled on the CFTC’s submission cover sheet. 91Under Rule 804(a)(3)(vi), information that the SBSEF seeks to keep confidential can 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. 92Section 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 17 CFR 145.9. The Commission proposed instead to direct filers to make any request for confidential treatment pursuant to existing SEA Rule 24b–2. See supra note 51. 93Rule 807(c) is based on § 40.2(c), which 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 proposed, in Rule 804(c), a provision that would allow the Commission to stay the certification of a new product in the same manner that Rule 807(c) would allow the Commission to stay the selfcertification of a new rule or rule amendment. 94See Better Markets Letter, supra note 18, at 13. 95See Better Markets Letter, supra note 18, at 13– 14; see also Letter from Bryce Keeney (Apr. 27,

(‘‘Keeney Letter’’) (stating that ‘‘[d]erivatives
are not the purpose of the market’’ and that the Commission should ‘‘align rules to focus on the primary purpose, not to support tertiary aspects that result in systemic risk and systemic abuse’’); Letter from Kevin (Apr. 20, 2023) (‘‘Kevin Letter’’) (stating that the proposed rules do not protect retail investors and that ‘‘[c]reating a self governing regime, allowing easier swaps trading across borders, exemption exchanges and registered brokers . . . sound like a terrible recipe for disaster in a multi-trillion marketplace’’). establish similar filing processes for registered SBSEFs in Rules 804 to 810 of Regulation SE.88 A. Rule 804—Listing Products for Trading by Certification

Summary of the Proposed Rule
Proposed Rule 804 is modeled on 17 CFR 40.2 of the CFTC’s rules and would set forth procedures by which an SBSEF may list a product via certification. 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 10 business days preceding the product’s listing.89 Paragraph (a)(3) of Proposed Rule 804 would require a self-certification to include a copy of the submission cover sheet; 90 a copy of the product’s rules, including all rules related to its terms and conditions; the intended listing date; a certification by the SBSEF that the product to be listed complies with the SEA and the Commission’s rules thereunder; a concise 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; 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; 91 and a request for confidential treatment, if appropriate, as permitted pursuant to SEA Rule 24b–2.92 Paragraph (b) of Proposed Rule 804, modeled 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. 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.93 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-day period, 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.
Comments and Analysis
One commenter states that, while the proposed self-certification process does include improvements to the CFTC’s self-certification process, including extending the initial review period from one business day to 10 business days and expanding the scope of reasons for staying the self-certification, it is still fundamentally flawed. This commenter states that the CFTC’s self-certification process is mandated by statute and that, in the absence of any statutory mandate analogous to that applicable to the CFTC, the Commission must, at the very least, provide a coherent policy justification for its proposed selfcertification process.94 This commenter states that it is not clear why it is necessary or desirable for SBSEFs to be able to bring new products to the market ‘‘speedily’’ and that selfcertification turns the regulatory process on its head, creating in effect a presumption of regulatory compliance and putting the onus on the agency, under a predetermined timeline, to fully evaluate a proposed product that may threaten significant harm to investors and market stability.95 This is especially the case, the commenter states, considering the context in which the SEC was given comprehensive authority to regulate and oversee the SBS market, i.e., a financial crisis caused in large
part by SBS and other novel financial
products whose risks regulators and market participants thought were well understood, but in fact were not. Given this context, the commenter states, it ‘‘makes little policy sense to establish a regime whereby an SBSEF could introduce a new potentially dangerous product to the financial system without an affirmative, independent SEC

96Better Markets Letter, supra note 18, at 13–14. 97See supra note 96 and accompanying text. 98Section IV.D, infra, discusses the process for self-certification of rule changes, including the Commission’s ability to stay the effectiveness of such a filing, which would lead to a public comment period and the opportunity for the Commission to object to the certification. 99See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, SEA Release No. 75611 (Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015) (‘‘SBSD and MSBSP Registration Release’’). 100See 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 (Aug. 22, 2019) (‘‘Capital, Margin, and Segregation Release’’). 101See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based Swap Participants, SEA Release No. 77617 (Apr. 14, 2016), 81 FR 29959 (May 13, 2016) (‘‘Business Conduct Standards Release’’). 102See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEA Release No, 78321 (July 14, 2016), 81 FR 53546 (Aug. 12, 2016) (‘‘Regulation SBSR Release’’). 103The Commission’s rules for SBSEFs do not directly affect retail investors. Only eligible contract participants (‘‘ECPs’’) are eligible to trade on an SBSEF, see section 6(l) of the SEA, 15 U.S.C. 78f(l), and retail investors would have access to an SBS only after an SBS exchange has filed a proposed rule change with the Commission under Rule 19b– 4, 17 CFR 240.19b–4, to amend its rules to permit the listing of a registered SBS, with that proposed rule change being published for public comment. 104See WMBAA Letter, supra note 18, at 4; ICE Letter, supra note 18, at 2. 105See WMBAA Letter, supra note 18, at 4; ICE Letter, supra note 18, at 2. 106See WMBAA Letter, supra note 18, at 4. 107See id. 108See id. 109See ICE Letter, supra note 18, at 3. 110See id. 111See infra sections XV.D and XV.E (delegating authority to the Director of the Division of Trading and Markets to stay the effectiveness of a selfdetermination that such product not only complies with the SBSEF Core Principles and other requirements, but also that it does not pose an unwarranted danger to investors, the financial system, and the broader economy.’’ 96 For several reasons the Commission does not agree with the objections raised by this commenter. First, the Commission does not agree that the selfcertification process of Rule 804 either ‘‘turns the regulatory process on its head’’ or would deny the Commission the opportunity to ‘‘fully evaluate a proposed product that may threaten significant harm to investors and market stability.’’ 97 The ability of the Commission to stay the effectiveness of any product self-certification, to seek public comment on that selfcertification, and to object to (i.e., effectively
disapprove) the proposed certification on the grounds that the product is inconsistent with the SEA or the Commission’s rules will provide the Commission with sufficient opportunity (including the opportunity to seek public comment) to consider the selfcertified rules and take steps to protect investors and maintain fair, orderly, and efficient markets. Further, the selfcertification process does not create a ‘‘presumption of compliance,’’ because:
(a) Rule 804(b) requires an SBSEF to provide, at Commission request, 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’’; (b) Rule 804(c)(1) permits the Commission to suspend a new product certification because ‘‘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’’ (emphasis added); and (c) Rule 804(c)(3) does not create a presumption of compliance but instead provides the Commission a mechanism by which to object to a proposed certification ‘‘on the grounds that the proposed product is inconsistent with the SEA or the Commission’s rules.’’ 98 Second, given the relationship between the swaps market and the SBS market, as well as the likelihood that most or all entities seeking to register as SBSEFs will be CFTC-registered SEFs, harmonization with the CFTC filing procedures for new products should facilitate the ability of entities to dually register and minimize costs by allowing incumbent SEFs to use their existing systems, policies, and procedures to comply with the Commission’s SBSEF rules. The aim of the rule is, however, not merely to allow SBSEFs to bring products to market ‘‘speedily,’’ or at minimal cost, and, as discussed below in this section, it is appropriate for its rules to provide for a longer review period than the CFTC’s rules. And third, the Commission disagrees with this commenter’s view that the self-certification process ‘‘would pose an unwarranted danger to investors, the financial system, and the broader economy.’’ The new-product provisions of Regulation SE must be read in the context of the other relevant provisions of Title VII of the Dodd-Frank Act and the Commission’s rules thereunder, which include, among other things, rules governing the registration and regulation of Security-Based Swap Dealers (‘‘SBSDs’’) and Major SecurityBased Swap Participants (‘‘MSBSPs’’); 99 capital, margin, and segregation requirements for SBSDs and MSBSPs; 100 business conduct standards and chief compliance officer requirements for SBSDs and MSBSPs; 101 and post-trade reporting and public dissemination of SBS transactions.102 Because of the significant role these other rules play in addressing potential risks posed by SBS, the Commission’s ability to require SBSEFs to provide any evidence, information, or data demonstrating that the SBS meets, initially or on a continuing basis, the requirements of the SEA or the Commission’s rules or policies thereunder, and the Commission’s ability to suspend and ultimately object to SBSEF selfcertifications, are appropriate to protect investors, the financial system, and the broader economy with respect to new SBSEF products and rules.103 Thus, the self-certification process in this context is
appropriate for the underlying aims of the Dodd-Frank Act. Two commenters state that the relatively low volume of SBS products expected to be self-certified supports a shorter review period than the proposed ten-business-day Commission review period.104 Both commenters recommend a shorter review period of one day to harmonize with the CFTC’s approach.105 Alternatively, one of the commenters suggests a two-day review period.106 This commenter suggests that a shorter review period would be beneficial to allow market operators to meet participants’ demands to transact on regulated platforms in a reasonable period of time.107 The commenter also states that a shorter review period would accommodate participants’ needs to hedge risk in a timely manner.108 The other commenter states that a longer review period would reduce the competitive benefit to SBSEFs that develop new products because a 10-day review period would enable competitors to list similar products.109 This commenter also suggests varying from the one-day review period in certain limited circumstances, such as when an SBSEF submits an SBS for a madeavailable-to-trade determination.110 While a ten-day review period differs from the CFTC’s one-day review period, one business day would not provide the SEC staff sufficient time to review a new product filing for error or incompleteness, let alone review a new product for compliance with the SEA or Regulation SE. Further, if a product does warrant a stay, the Commission would also need sufficient time to go through the administrative steps of formally issuing the stay.111 The

certification and to extend the period for consideration of a new product). 112See § 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 10 business days prior to the registered entity’s implementation of the rule or rule amendment). 113See infra section IV.D. 114Cf. ICI Letter, supra note 18, at 9 n.29 (discussing ‘‘first mover’’ advantage in the context of an SBSEF that has made an SBS available to trade). 115See WMBAA Letter, supra note 18, at 4. 116By contrast, paragraph (d) of § 40.2 provides that a DCM or SEF may submit a class certification of swaps based on an ‘‘excluded commodity,’’ subject to certain conditions. See section 1a(19) of the CEA, 7 U.S.C. 1a(19) (defining ‘‘excluded commodity’’). 117Rule 804(a)(3)(v). 118For example, a submission might cover a single-name total return SBS on any of the components of a given index, provided that the submission explains why the minimum criteria for inclusion in that index are sufficient to ensure that the proposed SBS are consistent with the requirements of the SEA and the rules thereunder, including Regulation SE. 119See supra note 32. As described in further detail in the discussion of electronic filing systems and structured data, the Commission will require all rule and product filings required by Rules 804 through 807 and 816 to be filed in unstructured format through EFFS, rather than in Inline XBRL through EDGAR. See infra section XIII.A. 120Paragraph (a) of Rule 805 omits two provisions in § 40.3(a). First, § 40.3(a)(6) requires the submitting entity to include the certifications required in 17 CFR 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 did not propose to adapt 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. 121This 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. proposed ten-business-day review period for self-certified products also accords with the CFTC’s ten-businessday review period for self-certified rules,112 which the Commission is replicating in Rule 807(a)(3).113 Further, while a shorter review period may allow SBS to trade on an SBSEF more quickly, failing to provide the Commission with a meaningful period for review of a new product would hamper the Commission’s ability to protect market participants and maintain fair,
orderly, and efficient SBS markets. A ten-day review period would still permit market participants to trade SBS on regulated platforms within a ‘‘reasonable period’’ and would provide the Commission the time it needs to review submissions. The Commission also disagrees with the comment that a shorter review period is necessary to accommodate market participants’ need to hedge risk in a timely manner. During the relatively brief and time-limited period for Commission review of an SBSEF new-product filings, market participants would remain able to hedge that risk in other ways, such as in the OTC SBS market or other related securities markets, depending on the risk to be managed. Finally, while the 10-day review period might reduce the first-to-market competitive advantage of an SBSEF that first lists a given SBS,114 the extent of such an advantage may vary considerably based on other factors in the SBSEF market, and that, in any event, the need for the Commission to have sufficient time to review a new product before it is listed justifies the potential competitive effect. Thus, a ten-business-day review period strikes an appropriate balance between allowing SBSEFs to list new products quickly and affording Commission staff a sufficient time period in which to assess those products prior to listing. One commenter asks the Commission to confirm that it does not expect SBSEFs to self-certify for every security for which there may exist a related SBS.115 This commenter states that, for example, while an SBSEF may publish ‘‘terms and conditions’’ relevant for an instrument (like a single-name total return SBS) under Rule 804, the Commission might receive thousands of underlying national market system equity stocks from each SBSEF, exponentially increasing the number of products the Commission would need to review. The commenter also states that, given the potential 10-day review period (compared to the CFTC’s shorter timeframe), SBSEFs will be forced to proactively self-certify every potential SBS in an attempt to meet all potential participant demand without a two-week delay, only increasing the volume of self-certifications the Commission may receive. This commenter states that listing the instrument, and not each equity that may be linked to the instrument, is an appropriate approach to balance the SBSEFs and the Commission’s resources with respect to product self-certification. The Commission is conscious of the large number of individual SBS that may constitute a ‘‘class’’ of SBS, such as single-name, total return SBS given as an example by the commenter. While an SBSEF should not necessarily be required to make an individual filing for each of the securities underlying a single such class of SBS, a filing for a simple class certification that merely described the parameters of the SBS covered by the certification would not necessarily provide sufficient information for the Commission to determine whether all the potential products covered by the
class are consistent with the SEA and the rules thereunder, including Regulation SE. Therefore, while the Commission is not providing for ‘‘class certifications’’ of SBS, the Commission will not necessarily require separate submissions for each underlying security.116 The Commission will consider submissions for an SBS that might overlie one or more of a list of securities, provided that those potential underlying securities are specifically identified and that the submission addresses, as part of the requirement in Rule 804 to submit ‘‘a concise explanation and analysis of the product and its compliance with applicable provisions of the Act, including core principles, and the Commission’s rules thereunder,’’ 117 why all included underlying securities meet the applicable provisions of the SEA and the Commission’s rules thereunder.118 Accordingly, for the reasons discussed above, the Commission is adopting Rule 804 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications.119 B. Rule 805—Voluntary Submission of New Products for Commission Review and Approval Proposed Rule 805 is closely modeled 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. Paragraph (a) of Proposed Rule 805 would adapt these requirements for SBSEFs.120 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 would also 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.121 The submission would also have to describe any agreements or contracts entered into

122Section 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 51. 123 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. 124As stated in the Proposing Release, the 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 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, because the Commission is adopting these procedures substantially as proposed, is unnecessary to establish and apply one set of procedures for dual registrants and a different set for SEC-only SBSEFs. See Proposing Release, supra note 1, 87 FR at 28956 (stating that if the Commission ‘‘establishe[d] 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 SECspecific rules’’). See also Bloomberg Letter, supra note 18, at 10 (‘‘[A] harmonized framework has the potential to lower compliance costs by allowing SBSEFs and market participants to integrate with existing operational and compliance frameworks. Any potential differences would require SBSEF registrants to devote resources toward assessing the potential gaps and consequences of regulatory divergence.’’). 125See supra note 32. As described in further detail in the discussion of electronic filing systems and structured data, the Commission will require all rule and product filings required by Rules 804 through 807 and 816 to be filed in unstructured format through EFFS, rather than in Inline XBRL through EDGAR. See infra section XIII.A. with other parties that enable the SBSEF to carry out its responsibilities. Furthermore, paragraph (a) of Proposed Rule 805, modeled 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.122 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.123 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, modeled 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 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) would also 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, modeled 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) would also 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 may, at any time during its review, 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 the Commission’s rules thereunder, including the form or content requirements of 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 a 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, the notification would be presumptive evidence that the entity may not truthfully certify under Rule 804 that the same, or substantially the same, product does not violate the SEA or the Commission’s rules thereunder. The Commission did not receive any comments on this proposed rule. It is reasonable and appropriate to supplement the product certification procedures in Rule 804 by also including in Regulation SE, as Rule 805, procedures for voluntary submission of new products for Commission review and approval. Providing this approval process, as the CFTC does, can be valuable to an SBSEF seeking the Commission’s concurrence that a new product does not violate the SEA or the Commission’s rules thereunder prior to listing it. 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.124 Therefore, the Commission is adopting Rule 805 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications.125
C. Rule 806—Voluntary Submission of
Rules for Commission Review and Approval Proposed Rule 806 is closely modeled 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. Paragraph (a) of Proposed Rule 806 would provide that an SBSEF may request that the Commission approve a new rule, rule amendment, or dormant rule prior to implementation of the rule. First, an SBSEF must 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 would be required to include a copy of the submission cover sheet and to 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

126 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. 127See supra note 32. As described in further detail in the discussion of electronic filing systems and structured data, the Commission will require all rule and product filings required by Rules 804 through 807 and 816 to be filed in unstructured format through EFFS, rather than in Inline XBRL through EDGAR. See infra section XIII.A. 128Also, 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 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 only be required to meet the conditions of paragraphs (a)(1), (a)(2), and (a)(6) of Rule 807. The introductory language in paragraph (a) of Proposed Rule 807 would generally track the language of § 40.6(a), with slight changes for clarity. However, Proposed Rule 807(a) would not include Continued thereof, and to cite the rules of the SBSEF that authorize the adoption of the proposed rule. The SBSEF 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. Additionally, 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 be required to be set forth and the anticipated effect described. The SBSEF would also 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, as appropriate, include a request for confidential treatment as permitted under SEA Rule 24b–2. Finally, the SBSEF would be required 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.126 Paragraph (b) of Proposed Rule 806, modeled 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 Rule 806(a) and the SBSEF does not amend the proposed rule or supplement 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) would also 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, modeled 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 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) would also 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 a 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 a 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 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 received no comments on Proposed Rule 806 and the Commission is adopting Rule 806 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications, for the reasons stated in the Proposing Release.127 D. Rule 807—Self-Certification of Rules Proposed Rule 807 is closely modeled 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, modeled 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. Proposed Rule 807(a) would also 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 selfcertified under Rule 807, but that in the interim had become a dormant rule (i.e., unimplemented for 12 consecutive calendar months).128

an equivalent of the reference in § 40.6(a) to submissions under § 40.10, which concerns only systemically important derivatives clearing organizations and thus is not relevant to SBSEFs. 129 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. 130See § 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 adopting a definition of ‘‘emergency’’ in Rule 802 that is adapted from § 40.1(h). 131Section 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 51. 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 selfcertification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF’s website.129 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 10 business days before the SBSEF’s implementation of the rule or rule amendment. Paragraph (a)(4) would provide that the SBSEF may not implement the rule or rule amendment if the Commission has stayed it pursuant to Rule 807(c). Paragraph (a)(5) of Proposed Rule 807 would set out procedures for emergency rule certifications. Paragraph (a)(5)(i) would require a new rule or rule amendment that establishes standards for responding to an emergency 130 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 Rules 807(b) and (c), described below. Paragraph (a)(6) of Proposed Rule 807, modeled 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 the 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) would also permit the SBSEF to include, as appropriate, a request for confidential treatment pursuant to the procedures provided in Rule 240.24b– 2.131 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, modeled on § 40.6(b), would provide the Commission 10 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 tenbusiness-day review period that it intends to issue a stay of the certification under Rule 807(c). Paragraph (c)(1) of Proposed Rule 807, modeled 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) affords the Commission an additional 90 days from the date of the notification to conduct the review.
Paragraph (c)(2) of Proposed Rule 807, modeled 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, modeled 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. Paragraph (d) of Proposed Rule 807, modeled 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 modeled 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 Notification 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;

132See SIFMA AMG Letter, supra note 18, at 5–
6. Another commenter raised questions specifically
about self-certification in the context of a determination by an SBSEF that an SBS has been ‘‘made available to trade.’’ See MFA Letter, supra note 18, at 6. This comment is discussed below in the context of made-available-to-trade determinations under Rule 816(a). See infra section V.F.2. 133See SIFMA AMG Letter, supra note 18, at 5– 6. 134See supra note 32. The Commission has also moved the word ‘‘and’’ from the end of paragraph (d)(3)(D) to the end of paragraph (d)(3)(E)(2). As described in further detail in the discussion of electronic filing systems and structured data, the Continued

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 Rule 807, the following types of rules can be put into effect by an SBSEF without selfcertification and without having to be disclosed on the Weekly Notification 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. One commenter states that the CFTC’s self-certification process has been relied upon by CFTC registrants for most submissions, leaving little that is reviewed or capable of challenge by market participants or the CFTC unless it is inconsistent with the statute or CFTC regulation.132 This commenter states that rulebook or contractual changes can alter protections within Commission-regulated markets and that the Commission should be able to object to any such change it deems inconsistent with Commission policy, including considerations of compliance costs and the impact on consumer protections, all of which would be best informed by a requirement for public comment prior to certification. Under the CFTC regime, the commenter states, there is no formal process to allow market participants to object to a submission for changes that are submitted for certification. Decisions to adopt or modify rules by selfcertification are typically made by the registrant’s board of directors or a board committee, this commenter states, with market participants only learning of the rule after the registrant has self-certified the rule or amendment. This commenter supports an alternative approach in which the Commission can review all material rule and contractual changes by SBSEFs, clearing agencies, SBS data depositories, and exchanges. This commenter also recommends that the Commission adopt a requirement for public comment for such changes. Regulation SE will afford the Commission a sufficient mechanism to assess new SBSEF rules and rule amendments for consistency with
section 3D of the SEA, while also
permitting SBSEFs to submit new rules and rule amendments using a selfcertification process closely aligned with § 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 that these rules will thus have to be filed with both the SEC and CFTC. Adding a default comment period or otherwise altering the standard so that the Commission reviews all material rule or contractual changes by SBSEFs, as requested by one commenter,133 would significantly alter the timing of self-certified SBSEF rules compared to their SEF equivalents. By contrast, closely harmonizing the SEC’s filing procedures and standards of review with the CFTC’s would allow dually registered entities to submit the same (or substantially the same) filing to both agencies for review. Moreover, if the Commission exercises its authority to stay the effectiveness of a selfcertified rule and seek public comment—i.e., with respect to a rule that is novel, complex, inadequately explained, or potentially inconsistent with the SEA or the regulations thereunder, including Regulation SE— market participants would be able to convey their concerns regarding that rule to the Commission. The specified types of SBSEF rules or rule amendments that may be put into effect under Rule 807(d) without certification to the Commission are appropriate because they are limited to the types of rule changes described earlier in this section (e.g., administration), which do not implicate significant protections to market participants, including compliance costs and customer protection. Therefore, the Commission has harmonized Rule 807(d) with § 40.6(d) to allow such filings to be made without selfcertification or Commission review. Thus, 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. For the reasons discussed above, the Commission is adopting Rule 807 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications.134

Commission will require all rule and product filings required by Rules 804 through 807 and 816 to be filed in unstructured format through EFFS, rather than in Inline XBRL through EDGAR. See infra
section XIII.A.
135The 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. 136Rule 809 provides 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 IV.G. 137Rule 809 provides 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 IV.G. 138See supra note 128. 139The Electronic Form Filing System (EFFS) is a secure, web-based system used for filing Forms 19b–4, 19b–7, and SCI. The system also supports pre-filings of certain types of Form 19b–4 filings. EFFS is used for form filing by SROs, including national securities exchanges, national securities associations, clearing agencies, and Systems Compliance Integrity (SCI) entities, including SCI SROs, SCI alternative trading systems, plan processors, and exempt clearing agencies subject to Automation Review Policy. See https:// www.sec.gov/tm/electronic-form-filing-systemresources. 140 ‘‘Platform ID’’ is a term utilized in Regulation SBSR, 17 CFR 242.900 et seq., and means the unique identification code 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 standardssetting 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 SBSDR 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 (Feb. 11, 2015), 80 FR 14563, 14631–32 (Mar. 19, 2015) (‘‘Regulation SBSR Adopting Release I’’). Therefore, Legal Entity Identifiers (‘‘LEIs’’) issued through the GLEIS are currently the only allowable platform IDs that may be used by registered SBSEFs. 141See Letter from J.T. (May 26, 2022). In section XIII.B, infra, the Commission discusses the use of identifiers, such as the LEI. 142Below in section XIII.A, the Commission addresses the requirements to use the EDGAR system and Inline XBRL for submissions. E. Submission Cover Sheet and Instructions
In proposed new § 249.2002, the Commission proposed to require that an SBSEF use a submission cover sheet in conjunction with filings submitted pursuant to Rules 804 through 807, 809, and 816. The cover sheet and the instructions therein are modeled on the cover sheet and instructions used by SEFs in conjunction with their analogous filings with the CFTC.135 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 would also 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 includes 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 3a68–2.136 Finally, the cover sheet includes a check box by which an SBSEF can indicate that it is requesting confidential treatment of materials in the submission. The cover sheet divides the rule 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 termsand-conditions category concerned specifically a determination by the SBSEF that a particular SBS was now to be considered ‘‘made available to trade’’ (or ‘‘MAT’’); 137 or if the filing concerned the delisting of an SBS with no open interest.138 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 provides that a properly completed submission cover sheet must accompany all rule and product submissions filed electronically with the Commission by an SBSEF using the Electronic Form Filing System (EFFS).139 Per paragraph (a), a properly completed submission cover sheet would include: (1) the name and platform ID of the SBSEF; 140 (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; and (4) 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 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 submission cover sheet instructions states 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 does not obviate the SBSEF’s responsibility to comply with applicable filing requirements. Paragraph (c) of the submission cover sheet states that checking the box marked ‘‘confidential treatment requested’’ does not obviate the submitter’s responsibility to comply with all applicable requirements for requesting confidential treatment under SEA Rule 24b–2 and does not substitute for notice or full compliance with such requirements. One commenter states that the submission cover sheet and instructions for SBSEF filings should harmonize with those of the CFTC.141 This commenter states that entities currently registered with the CFTC as SEFs will be able to seamlessly enact the necessary steps for required SEC filings because of their familiarity with the CFTC’s filing process. This commenter also states that any identifiers regarded as necessary should be included on the cover sheet. The Commission agrees that the use of a submission cover sheet that is harmonized with that required for CFTC filings by SEFs is likely to facilitate the filing process for SBSEFs that are also registered as SEFs. For this reason, the proposed submission coversheet is harmonized with the CFTC’s, with differences only in the details specific to the rules and processes of the SEC. The Commission contemplates providing for electronic completion (as well as submission) of the cover sheet and attachment of the submissions required by Rules 804, 805, 806, 807, and 809, and intends to advise affected persons regarding its use by public announcement in advance of the effective date of these rules.142 For the reasons discussed above, the Commission is adopting 17 CFR
249.2002 as proposed, but is
renumbering it as 17 CFR 249.1702 under new subpart R (‘‘Forms for Registration of, and Filings by, SecurityBased Swap Execution Facilities’’), and is also adopting the submission cover sheet and instructions as proposed with the exception of the proposed Inline

143See id.
144Section 40.8 of the CFTC’s rules is entitled ‘‘Availability of public information.’’ 145Section 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 proposed to list the specific corresponding exhibits in Rule 808 that would be made publicly available. Exhibit C would require a narrative that sets forth the fitness standards for the governing board and its composition; Exhibit G would require a copy of the corporate governance documents for the applicant; Exhibit L would require a narrative and any other form of documentation that describes the manner in which the applicant is able to comply with each core principle; and Exhibit M would require a copy of the applicant’s proposed rules and any technical manuals, guides, or other instructions for members. 146An 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). 147See Keeney Letter, supra note 95. 148Proposing Release, supra note 1, 87 FR at 28880 n.50. 149Section 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. 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. 150As noted in the Proposing Release, an SBSEF might seek to list a product where it is unclear whether the product is a swap or an SBS. See Proposing Release, supra note 1, 87 FR at 28890. 151 17 CFR 240.3a68–2. 152The objective of Rule 809 is 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. XBRL and EDGAR filing requirements.143 F. Rule 808—Availability of Public Information Proposed Rule 808 is closely modeled on § 40.8 of the CFTC’s rules.144 Proposed Rule 808(a) would provide that certain parts of an application to register as an SBSEF would be made publicly available on the Commission’s website, unless confidential treatment is obtained pursuant to SEA Rule 24b–2. Specifically, Proposed Rule 808(a) would make the following parts of a Form SBSEF publicly available: the (i) transmittal letter and first part of the application cover sheet; (ii) Exhibit C; (iii) Exhibit G; (iv) Exhibit L; and (v)
Exhibit M.145 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–2,146 an SBSEF’s filing of new products pursuant to the self-certification procedures of Rule 804, new products for Commission review and approval pursuant to Rule 805, new rules and rule amendments for Commission review and approval pursuant to Rule 806, and new rules and rule amendments pursuant to the selfcertification procedures of 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 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 received one comment on Proposed Rule 808. This commenter states that the Commission should not allow requests for confidential treatment and that these requests are currently abused and result in little information being made available to the public.147 A blanket prohibition on requesting confidential treatment would not be appropriate, however, because each request for confidential treatment should be addressed on its particular facts and circumstances. Moreover, as the Commission stated in the Proposing Release, ‘‘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 other persons who request confidential treatment from the Commission under the SEA.’’ 148 The Commission anticipates that while SBSEFs may request confidential treatment for their filings pursuant to existing SEA Rule 24–2, the items enumerated in Rule 808 are not of the type that typically would constitute confidential information. Finally, it is appropriate to adopt a rule that is adapted from § 40.8, because Rule 808 will apply to submissions made under Rules 804–807, which are, as discussed above, also based on provisions of the CFTC’s rules for SEFs. Therefore, the Commission is adopting Rule 808 as proposed. G. Rule 809—Staying of Certification and Tolling of Review Period Pending Jurisdictional Determination
Section 718 of the Dodd-Frank Act,
entitled ‘‘Determining Status of Novel Derivative Products,’’ sets forth a mechanism for addressing a situation in which 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., a situation in which it is unclear whether the product in question 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 judicial review of any such determination.149 As described in the Proposing Release, Proposed Rule 809 is loosely modeled on § 40.12, but modified to focus on the products and jurisdictional issues that are more likely to be relevant to SBSEFs.150 Paragraph (a) of Proposed Rule 809, modeled on § 40.12(b), would provide that a product certification made by an SBSEF pursuant to Rule 804 shall be stayed, or the review period for a product that has been submitted for Commission approval by an SBSEF pursuant to 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 151 by the SBSEF, the SEC, or the CFTC. Paragraph (b) is modeled 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 modeled 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 did not receive any comments on Proposed Rule 809. While
section 718 of the Dodd-Frank Act
addresses situations where it is unclear whether a product is a security or a future, the SEC and the CFTC have adopted separate rules—SEA Rule 3a68–2 and 17 CFR 1.8, respectively— governing requests for interpretation regarding a product that might be an SBS, a swap, or a mixed swap. It is appropriate for Regulation SE to include a mechanism for the staying or tolling of a filing by an SBSEF when it is unclear whether the product is a swap or an SBS, and it would be appropriate for Rule 809 to reflect the process set forth in SEA Rule 3a68–2. Tailoring, as proposed, the scope of Rule 809, in relation to § 40.12, appropriately addresses the jurisdictional questions that are likely to arise from a product listed by an SBSEF.152 Therefore, the Commission is adopting Rule 809 as proposed.

153Section 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 Rule 811 would adapt paragraphs (a), (c), and (e) of § 1.60 to apply to SBSEFs. Paragraphs (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 Rule 811(d). H. Rule 810—Product Filings by SBSEFs That Are Not Yet Registered and by Dormant SBSEFs Proposed Rule 810 is closely modeled on § 37.4 of the CFTC’s rules and would provide a process whereby a not-yetregistered SBSEF or a dormant SBSEF could submit product filings. Specifically, Proposed Rule 810 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 and that any such terms and conditions or rules submitted as part of an SBSEF’s application for registration shall be considered for approval by the Commission at the time the Commission issues the SBSEF’s order of registration. Similarly, any SBS terms and conditions or rules submitted as part of an application to reinstate the registration of a dormant SBSEF would be considered for approval by the Commission at the time the Commission approves the reinstatement of registration of the dormant SBSEF. The Commission did not receive any comments on Proposed Rule 810 and is adopting Rule 810 as proposed, for the reasons stated in the Proposing Release.
V. Miscellaneous Requirements
Sections 37.5 to 37.12 of the CFTC’s rules impose miscellaneous requirements on SEFs, and the Commission proposed to impose similar requirements on SBSEFs in Rules 811 to 817 of Regulation SE. A. Rule 811—Information Relating to SBSEF Compliance

Harmonization With § 37.5
Paragraphs (a) to (c) of Proposed Rule 811 are modeled on § 37.5, which is entitled ‘‘Information regarding swap execution facility compliance.’’ Paragraph (a) of Proposed Rule 811 is closely modeled 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 modeled 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 modeled 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 a notification, request supporting documentation of the transaction. Paragraph (c)(2) is closely modeled 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 event later than the open of business 10 business days following the date upon which the SBSEF enters into a firm obligation to transfer the equity Interest. Paragraph (c)(3) is closely modeled on § 37.5(c)(3) and 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 Rule 806 or Rule 807. Paragraph (c)(4) of Proposed Rule 811 is closely modeled 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 did not receive any comments on Rule 811(a) to (c). It is appropriate for Regulation SE to include provisions requiring an SBSEF to provide the Commission with the information described above. Information about an SBSEF’s business as an SBSEF and transfers of 50% or more of its equity would promote understanding of its operations and ownership, which should facilitate oversight of the SBSEF.
Therefore, the Commission is clarifying, as proposed, that, similar to the CFTC, it may request such information from an SBSEF. In addition, as anticipated in the Proposing Release, 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, and the rule provides for this. By modeling 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 is changing the phrase ‘‘a transfer of an equity interest of 50 percent or more in a securitybased swap execution facility’’ in paragraph (c)(4) to ‘‘an equity transfer described in paragraph (c)(1) of this
section’’ because the text of paragraph
(c)(4) should be modified to parallel the text of paragraphs (c)(2) and (c)(3). For these reasons, the Commission is adopting Rule 811(a) to (c) as proposed, with the change described to paragraph (c)(4).
Harmonization With § 1.60
Paragraph (d) of Proposed Rule 811 is not modeled 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 would require another type of information relevant to the regulatory oversight of a SEF, the Commission proposed to adapt this provision into Rule 811.153 Paragraph (d)(1) of Proposed Rule 811 is closely modeled 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 to which its property or assets are subject. Paragraph (d)(2) is closely modeled 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

154The Commission is not adapting into 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 93 and accompanying text. See also Proposing Release, supra note 1, 87 FR at 28893 n.90. 155Furthermore, 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. 156See Bloomberg Letter, supra note 18, at 4, 12– 13. 157See infra section VI.F (discussing, among other things, straight-through processing). 158See CFTC Division of Clearing and Risk, Division of Market Oversight, and Division of Swap Dealer and Intermediary Oversight, Guidance on Application of Certain Commission Regulations to Swap Execution Facilities (Nov. 14, 2013), available at https://www.cftc.gov/sites/default/files/idc/ groups/public/@newsroom/documents/file/ dmostaffguidance111413.pdf. 159See Bloomberg Letter, supra note 18, at 4, 12– 13. 160See ICE Letter, supra note 18, at 5. 161See id. (citing CFTC Division of Market Oversight, Staff No-Action Position Regarding SEF Confirmations and Recordkeeping Requirements under Certain Provisions Included in Regulations 37.6(b) and 45.2, Letter No. 14–108 (Aug. 18, 2014), available at https://www.cftc.gov/csl/14-108/ download). 162Section 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, supra note 9, 78 FR at 33491 n.195. The CFTC staff has taken a no-action position 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 (Mar. 24, 2017) (issued by the CFTC’s Division of Market Oversight). In the no-action letter, the CFTC staff stated that it was continuing to assess confirmation requirements, including establishing a permanent solution to the issues raised. Given these circumstances, it is appropriate to require an SBSEF Continued 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 modeled 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 10 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. Paragraph (d)(4) of Proposed Rule 811 is closely modeled 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 did not receive any comments on Proposed Rule 811(d) and is adopting Rule 811(d) as proposed, for the reasons stated in the Proposing Release. B. Rule 812—Enforceability Proposed Rule 812 generally is modeled on § 37.6. Paragraph (a) of Rule 812, which is based on § 37.6(a)(1), and 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.154 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 modeled on the first sentence of § 37.6(b), which 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.155 Proposed Rule 812(b) differs, however, in that it 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. One commenter agrees that Rule 812 should be modeled on § 37.6 and states that, like § 37.6, Rule 812 should require the SBSEF to confirm ‘‘all the terms of the transaction,’’ rather than being limited, as proposed, to ‘‘all of the terms that were agreed to on the facility.’’ 156 This commenter states that Rule 812 as proposed may cause issues with clearing SBS because SBS clearing agencies will likely require SBSEFs to represent that any transaction executed on the SBSEF is final and irrevocable (as CFTC-registered clearing agencies require for SEFs). Since Rule 812 only requires an SBSEF confirmation to be limited in scope to ‘‘all of the terms that were agreed to on the facility,’’ this commenter states the SBSEF would not necessarily know any terms agreed upon by counterparties outside the SBSEF, and therefore could not represent to the clearing agency that the transaction is ‘‘final and irrevocable,’’ which would be a roadblock for straight-through processing and full adoption of clearing for SBS.157 This commenter states that, to address this issue, SBSEFs should have the ability to prohibit trading relationship documentation or enablements for cleared SBS transactions executed on an SBSEF, which are prohibited for CFTCregistered SEFs in accordance with the CFTC’s 2013 Staff Impartial Access Guidance,158 and that Rule 812 should require that the SBSEF confirm ‘‘all of the terms of the transaction.’’ 159 Another commenter, however, states that it is not practical or cost effective for an SBSEF to collect, review, and store each free-standing agreement underlying an SBS transaction entered into between numerous counterparties.160 This commenter states that the CFTC has not required SEFs to comply with the requirements of 37.6(b) since 2014, when staff noaction relief was issued due to the impracticability of compliance.161 Thus, this commenter supports the proposal in Rule 812 to require an SBSEF to provide a written record of all the terms of the transaction that were agreed to on an SBSEF, which shall legally supersede any previous agreement regarding such terms. It is appropriate to require an SBSEF to inform counterparties as soon as technologically practicable after they have effected a trade on or pursuant to the rules of the SBSEF, and to provide them with a written record of the terms to which they have agreed to on the SBSEF. With respect to
uncleared SBS, it would be impractical for an SBSEF to be aware of, or responsible for, confirming terms of an SBS that were agreed to off the SBSEF’s trading platform, such as terms contained in a credit support agreement between the two counterparties to an uncleared SBS. Thus, the Commission is not including in Rule 812 a requirement that the SBSEF provide a written record of any such terms.162

to provide counterparties with a written record of only those terms that are agreed to on the SBSEF. Additionally, the CFTC recently issued a notice of proposed rulemaking to adopt a rule codifying the no-action position, which would enable SEFs to incorporate such terms by reference in an uncleared swap confirmation without being required to obtain the underlying, previously negotiated agreements. See CFTC, Swap Confirmation Requirements for Swap Execution Facilities (Notice of Proposed Rulemaking), 88 FR 58145, 58147 (Aug. 25, 2023). The CFTC has not yet taken action on this proposal. 163See infra section VI.B.3 (discussing the impartial access requirements of Rule 819(c)). 164 15 U.S.C. 78c–4(c). 165See Citadel Letter, supra note 18, at 17; MFA Letter, supra note 18, at 14. 166See Citadel Letter, supra note 18, at 17. 167See Keeney Letter, supra note 95. 168See 15 U.S.C. 78c–3(a)(1) (mandatory clearing for SBS) and 78c–3(h) (trade execution for SBS). See also infra section V.F.3 (discussing the six factors that an SBSEF shall consider, as appropriate, before making an SBS ‘‘available to trade’’). In response to the comment that Proposed Rule 812 may cause issues with clearing because the rule requires SBSEFs to confirm only the terms of an SBS transaction ‘‘that were agreed to on the facility,’’ additional terms in trading relationship documents or enablements are unlikely to hinder the acceptance by a clearing agency of SBS that are intended to be cleared or might inhibit impartial access to trading of cleared SBS on an SBSEF. First, a cleared SBS would be a standardized product, the complete terms of which would be known to the SBSEF, agreed to by the counterparties trading that SBS on the SBSEF, and capable of being confirmed to the parties in writing by the SBSEF, as well as represented to the clearing agency by the SBSEF as ‘‘final and irrevocable.’’ Thus, all the terms of the cleared transaction are confirmed when executed on the SBSEF. And second, Proposed Rule 819(c) would require that an SBSEF provide impartial access to its market and market services,163 and it would not be consistent with an SBSEF’s impartial access obligations to permit members to incorporate additional terms for a cleared SBS in trading relationship documentation, enablement documentation, or elsewhere, or to otherwise permit improper discrimination with respect to trading in cleared SBS against SBSEF members who have a direct or indirect clearing relationship with the clearing agency for a given SBS. Therefore, for the foregoing reasons, the Commission is adopting Rule 812 as proposed.
C. Rule 813—Prohibited Use of Data
Collected for Regulatory Purposes Proposed Rule 813 is modeled on § 37.7, and would provide that an SBSEF 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. An SBSEF would be able to use such data or information for business or marketing purposes if the person consents, but the SBSEF would not be able to condition access to the SBSEF on the person’s providing such consent. Finally, Proposed Rule 813 would provide that an SBSEF, where necessary for regulatory purposes, may share such data or information with another SBSEF or a national securities exchange. The Commission did not receive any comments on Proposed Rule 813 and is adopting Rule 813 as proposed, for the reasons stated in the Proposing Release. D. Rule 814—Entity Operating Both a National Securities Exchange and an SBSEF Proposed Rule 814 is modeled 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 under the SEA. Paragraph (b), although consistent with § 37.8(b), draws its specific language from section 3D(c) of the SEA,164 which contemplates that a single entity may operate both a national securities exchange and an SBSEF. Paragraph (b) of Proposed Rule 814 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. Two commenters state that the key requirements applicable to SBSEFs should also apply to SBS exchanges to create a level regulatory environment and avoid encouraging regulatory arbitrage.165 One of the commenters specifically identifies trading protocols, impartial access, limits on pre-execution communication, and straight-through processing as important aspects of SBSEF regulation that should also apply to SBS exchanges.166 Another commenter states that more detailed rules are needed to address the separation of SBSEFs from SBS exchanges in order to avoid the aggregation of power in the financial markets and to clearly separate the roles of an entity operating both an SBSEF and an SBS exchange.167 The comment suggesting that requirements for SBSEFs should be applied to SBS exchanges is outside the scope of this rulemaking, which is designed to set forth requirements for SBSEFs, not exchanges. Additionally, more detailed rules are not necessary to separate the roles of an entity operating both an SBSEF and an SBS exchange. Each entity would be required to make rule or new product submissions to the Commission under a separate
set of rules—Rules 804 to 807 for SBSEFs, and Rule 19b–4 for national securities exchanges—making it clear which rules will apply on which platform. Also, Rule 814(b)—which requires that a national securities exchange that also operates an SBSEF identify the platform on which an SBS transaction occurs—will provide further clarity to the market about the roles of an entity operating both an SBSEF and an SBS exchange. Further, the ability of an entity to operate both an SBSEF and an SBS exchange is unlikely to lead to the aggregation of power in the financial markets, because allowing for a variety of SBS trading platforms and ownership models should promote competition in the market for SBS trading. 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. Therefore, for the reasons discussed above, the Commission is adopting Rule 814 as proposed. E. Rule 815—Methods of Execution for Required and Permitted Transactions

Rule 815(a)
(a) Background
The Dodd-Frank Act provides that if the Commission makes a mandatory clearing determination regarding an SBS, such SBS becomes subject to mandatory trade execution if at least one exchange or SBSEF makes the product ‘‘available to trade.’’ 168 The Dodd-Frank Act does not require, however, that all SBS be subject to mandatory clearing or mandatory trade execution, and it does not impose any execution requirements for transactions in an SBS unless the SBS is subject to mandatory clearing and it has been made available to trade. Section 37.9 of the CFTC’s rules addresses these issues for SEFs using the concepts of ‘‘Required Transactions’’ and ‘‘Permitted Transactions,’’ and the Commission proposed Rule 815 of Regulation SE to adapt § 37.9 for

169See infra section V.E.3.
170Proposed Rule 815(a)(2)(ii) would provide that any means of interstate commerce includes, but is not limited to, the mail, internet, email, and telephone, provided that the chosen execution method satisfies the requirements for order books in 17 CFR 242.800(x) or in paragraph (a)(3) of Rule 815. 171See ISDA–SIFMA Letter, supra note 18, at 5– 6; SIFMA AMG Letter, supra note 18, at 8–9. 172See SIFMA AMG Letter, supra note 18, at 8. 173See id. at 9. 174See ISDA–SIFMA Letter, supra note 18, at 5– 6. 175 Id. at 6. 176 ‘‘DTCC’’ refers to the Depository Trust and Clearing Corporation. 177See ISDA–SIFMA Letter, supra note 18, at 6. 178The commenter also stipulates that at the onset of the relationship, clients will negotiate a grid with dealers where certain short/long benchmarks and spreads are agreed for equity issuers on a jurisdictional or other basis. See ISDA– SIFMA Letter, supra note 18, at 6. 179 Id. 180 Id. SBSEFs. Rule 815(a)(1) defines ‘‘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.’’ (b) Methods of Execution for Required Transactions (i) Background Proposed Rule 815(a)(2) would require that, except for block trades or the exceptions described in paragraph (d) or (e) of the rule and discussed below,169 the mandatory execution methods for a Required Transaction would be either: (a) an order book or (b) an RFQ system in conjunction with an order book, and the rule permits the SBSEF to use any means of interstate commerce for providing these execution methods.170 Proposed Rule 815(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 would specify other requirements for an RFQ system to be recognized as such under the rule. The three market participants to which the RFQ is addressed could not be affiliates of or controlled by the requester and cannot be affiliates of or controlled by each other. The proposed rule would also provide that an SBSEF that offers an RFQ system in connection with a Required Transaction must have the following functionalities: (i) at the same time that the requester receives the first responsive bid or offer, the SBSEF must communicate to the requester any firm bid or offer pertaining to the same SBS resting on any of the SBSEF’s order books; (ii) the SBSEF must provide the requester with the ability to execute against those firm resting bids or offers along with any responsive orders; and (iii) the SBSEF must 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. The requirements of Proposed Rule 815(a)(3) are referred to as the ‘‘RFQ-to-3
requirement.’’ (ii) Comments on the RFQ-to-3 Requirement The Commission received comments on the proposed RFQ-to-3 requirement in Proposed Rule 815(a)(3).171 One commenter suggests that the Commission expand the permitted modes of SBS execution for swaps mandated for trading on SBSEFs in order to provide for a less prescriptive, more principles-based approach that balances transparency, competition, and liquidity through a flexible set of rules and states that any means of execution that provides sufficient pre-trade price transparency and preserves competition should be available.172 This commenter, while supporting general harmonization between the Commission’s and the CFTC’s rules on trading protocols and methods of execution, argues that the Commission’s rule also needs to balance harmonization with the need to reflect the unique and sensitive liquidity conditions that exist in SBS markets. Stating that an RFQ-to-3 requirement for Required Transactions that are SBSs means something completely different than for swaps, this commenter urges the Commission to consider a lower RFQ threshold given the nature of the SBS market. This commenter states that, in some cases, for an asset manager to seek three quotes would effectively require the asset manager to contact many of the primary price makers in the SBS market, as there simply are not the same number of liquidity providers, particularly for less liquid, more thinly traded SBSs, as the number of participants, the trading volume, and the depth of market liquidity are very different in the SBS market. The commenter suggests that requesting quotes from two participants, for example, would allow the asset manager to retain some control over the information disseminated about its interest to the market while preserving the statute’s ‘‘multiple to multiple’’ definition requirement.173 Another commenter also urges the Commission to consider an alternative approach to the proposed RFQ-to-3 requirement, and to provide a ‘‘phasedin compliance’’ with the required methods of execution, whereby a MAT SBS product may be executed on an SBSEF via any method of execution until such time as it is determined through notice and comment that an appropriate level of liquidity exists to enable an order book or RFQ-to-3 system.174 This commenter states that, considering the lack of liquidity in SBS products, pre-trade transparency via the proposed RFQ-to-3 requirement could negatively impact liquidity provision for end-users. The commenter states that, if clients are required to ‘‘show their hand to three liquidity providers,’’ it may lead to information leakage and an inability to hedge the clients’ risks through the SBS markets.175 The commenter asserts that this is particularly so given that there are a relatively small number of active dealers for many SBS products, stating that, based on DTCC 176 data on credit SBS for the top 700 issuers, there are on average 2.7 dealers, and 400 of the top 700 issuers have
fewer than three active dealers per month.177 This commenter further argues that an RFQ-to-3 requirement would be problematic for SBS equities, where the current execution processes are very different from their swaps counterpart. The commenter states that clients in SBSs typically ask their preferred dealer to execute shares in SBS at market price (or some other pricing structure), the dealer then purchases the shares directly for hedging purposes, and the dealer then executes the swap at the end of the day with the client at an average market price.178 The commenter states that, in this case, the dealer’s interaction is more akin to a broker than a dealer counterparty, and that these trading practices would not be possible on an RFQ-to-3 or order book system. In addition, the commenter states that it has ‘‘compared the credit swaps activity that occurred on-venue back in 2012 before the CFTC trade execution requirement kicked in, with the credit SBS activity that occurs on-venue today’’ and asserts that the results suggest ‘‘that the swaps market was much more ready for the implementation of the trade execution requirement than the SBS market is today.’’ 179 This commenter states that, ‘‘[a]bsent a phased-in implementation approach, the SBS market could suffer from significant disruptions.’’ 180 While the Commission acknowledges that there are differences between the liquidity in the SBS market and the

181See SEA section 3C(b)(4)(i), 15 U.S.C. 78c– 3(b)(4)(i). See also SEA section 3C(b)(4)(ii) through (v), 15 U.S.C. 78c–3(b)(4)(ii) through (v) (discussing other factors that the Commission would be required to take into account when making a mandatory clearing determination). 182See infra section V.F.2. 183See supra sections IV.A and B. 184 17 CFR 240.19b–4. 185See Section 6(b)(5) and (8) of the SEA, 15 U.S.C. 78f(b)(5) and (8). 186See Citadel Letter, supra note 18, at 13–14; MFA Letter, supra note 18, at 8. 187See Citadel Letter, supra note 18, at 13; MFA Letter, supra note 18, at 8. Rule 813(a)(3)(i) requires an SBSEF to communicate to the requester any firm bid or offer pertaining to the same instrument resting on any of the SBSEF’s order books. 188See Citadel Letter, supra note 18, at 13; see also MFA Letter, supra note 18, at 8 (also referencing the request-for-stream protocol). 189See Citadel Letter, supra note 18, at 13–14. 190See id. at 14. 191See MFA Letter, supra note 18, at 8. 192See supra section I. swaps market, the process required before the execution requirement would apply to an SBS will reduce the risk of ‘‘substantial disruptions.’’ The required methods of execution would be applied to an SBS only to the extent that it is subject to the clearing mandate and has been ‘‘made available to trade.’’ Before making an SBS subject to the clearing mandate, the Commission would be able to take into account a number of factors, including the existence of significant outstanding notional exposures, trading liquidity, and the adequacy of pricing data.181 Further, to make an SBS ‘‘available to trade,’’ an SBSEF would, under Proposed Rule 816(a)(1),182 have to make a filing with the Commission under Rule 806 or Rule 807—both of which would allow the Commission to find that a filing was not consistent with the requirements of the SEA or Regulation SE.183 Moreover, the SBSEF’s filing would, under Proposed Rule 816(b), have to address, as appropriate, a number of relevant factors, including whether there are ready and willing buyers and sellers; the frequency or size of transactions; the trading volume; the number and types of market participants; the bid/ask spread; and the usual number of resting firm or indicative bids and offers. Similarly, a national securities exchange that wished to make an SBS ‘‘available to trade’’ would have to file a rule change under Rule 19b–4,184 and that proposed rule change would be subject to Commission review for compliance with the requirements of the SEA, which requires that the rules of a national securities exchange, among other things, promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and not impose a burden on competition not necessary or appropriate in furtherance of the purposes of the SEA.185 Thus, before an SBS becomes subject to the trade execution
requirement, the Commission would have had multiple opportunities to consider the trading characteristics of that SBS. Additionally, most, if not all, SBSEFs are likely to be dually registered with the CFTC as SEFs, and that most, if not all, market participants in the SBS market will be participants in the swaps market. The Commission remains concerned 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 swaps but different protocols—different from ones that have been understood and utilized for many years—applied to Required Transactions for SBS transactions. Thus, it is not appropriate to modify the requirement that a qualifying RFQ system under Proposed Rule 815(c) transmit a request for a quote to no fewer than three market participants in the trading system or platform. The question whether sufficient liquidity exists in the market for a given SBS to trade RFQ-to-3 can be addressed when the SBS is subject to the clearing mandate and when a national securities exchange or SBSEF seeks to make that SBS available to trade. Until that time, SBSs would be Permitted Transactions on SBSEFs and thus could be traded using other methods of execution, thus avoiding any potential disruptions to liquidity in the SBS markets. (iii) RFQ Functionalities The Commission also received two comment letters on the functionalities required for RFQ systems under Proposed Rule 815(a)(3).186 Both commenters suggest that the proposed rule be amended to require an SBSEF to communicate any firm bid or offer pertaining to the same instrument resting on any of the SBSEF’s trading systems or protocols, not just firm bids or offers on the SBSEF’s order book.187 One of the commenters argues that, in practice, order books continue to be infrequently used on SEFs that offer RFQ systems and that, therefore, the same interaction requirement on SEFs has had little impact.188 The commenter cites, for example, that ‘‘request for stream’’ trading protocols, which allow liquidity providers to stream firm prices, are not required to be communicated to clients sending an RFQ. This commenter also suggests that the proposed rule should be modified to ensure that the RFQ requester has the ability to execute against all of the prices provided in connection with an RFQ on the same screen. The commenter argues that this will prevent an SBSEF from requiring the RFQ requester to click through multiple screens in order to execute against firm prices, which, the commenter argues, serves to disadvantage those prices versus other prices provided in response to an RFQ.189 Finally, the commenter recommends that the requirements of Rule 815(a)(3) be modified to apply to all SBS transactions on an SBSEF, not solely Required Transactions, as they argued that this will help ensure that market participants transacting on SBSEFs are always
provided with the necessary transparency to achieve the most favorable execution possible.190 The other commenter also urges the Commission to modify the requirement to ensure that the SBSEF communicates to the requester any firm prices available on the SBSEF, in addition to resting firm bids or quotes on the SBSEFs order book(s), and that they make this functionality available for Permitted Transactions as well.191 In the commenter’s view, this approach is necessary in order to ensure the availability of quotes for SBS transactions that will be essential to maintaining liquidity and promoting open and equitable participation in the markets. As previously noted, given that most if not all SBSEFs will be dually registered as SEFs, there is a public interest in harmonizing its requirements for trading protocols with those of the CFTC.192 The commenters’ suggestions to apply the proposed interaction requirement to all trading systems and protocols on the SBSEF would be a deviation from the CFTC’s requirements for SEFs that would likely introduce operational and compliance challenges created by having different standards. This would undercut the Commission’s goal of minimizing operational and compliance burdens by seeking to harmonize requirements between SEFs and SBSEFs. For instance, the commenters’ suggestions to apply the order interaction requirement to all transactions on the SBSEF, not only Required Transactions, or to require that firm interest outside the SBSEF’s order

193See supra note 175 and accompanying text. 194See infra section VI.B.3. 195 15 U.S.C. 78c–4(d)(2)(C); 7 U.S.C. 7b– 3(f)(2)(C). 196That rule cross-references § 43.2, which defines the term ‘‘block trade’’ for purposes of public dissemination of swap transactions. 197See Proposed Rule 815(a)(2)(i) (emphasis added). 198See Bloomberg Letter, supra note 18, at 14; Citadel Letter, supra note 18, at 9–10, ICI Letter, supra note 18, at 10–13; SIFMA AMG Letter, supra note 18, at 9–10; ISDA–SIFMA Letter, supra note 18, at 7–9; MFA Letter, supra note 18, at 5–6. Many of these commenters raised questions about the proposed size of the block-trade threshold. See infra
section V.E.1(c).
199See SIFMA AMG Letter, supra note 18, at 10. 200See MFA Letter, supra note 18, at 5–6. 201See ICI Letter, supra note 18, at 10. 202See Bloomberg Letter, supra note 18, at 14. book be communicated in response to RFQs, would be a significant deviation from the CFTC’s method-of-execution requirements and would have wide ramifications for the SBS markets, particularly in view of the liquidity and information leakage concerns that other commenters expressed elsewhere regarding the less liquid and thinly traded SBS products that may trade on an SBSEF.193 As a result, applying such requirements to Permitted Transactions, which the CFTC does not do, would be likely to have the undesirable effect of discouraging market participants from voluntarily executing Permitted Transactions on SBSEFs, which would lessen market transparency and would not provide greater opportunities for market participants to interact with trading interest not subject to the trade execution requirement. Further, it is not necessary for the Commission to mandate the technical details of how the SBSEF displays responses to RFQs to its members. Rule 819(c), discussed below,194 requires SBSEFs to provide all ECPs and independent software vendors with impartial access market and market services, and this requirement is sufficient to address a situation in which an SBSEF designed its RFQ responses to systematically disadvantage certain market participants or types of market participants. (c) Block-Trade Exception (i) General Treatment of Block Trades 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.195 The CFTC implemented this provision by excepting block trades from the required execution methods in § 37.9(a)(2).196 Proposed Rule 815(a)(2) would also exclude block trades from the required execution methods using language closely modeled on § 37.9(a)(2). Specifically, Proposed Rule 815(a)(2)(i) would apply required methods of execution to ‘‘[e]ach Required Transaction that is not a block trade.’’ 197 Thus, the Commission’s proposal to include an exception from the required methods of execution for block trades in Regulation SE is consistent with the approach taken by the CFTC. The purpose of having a block-trade 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 an order book or to utilize RFQto-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, provided that it is executed pursuant to the SEF’s rules and procedures. As noted above, the Commission proposed a similar approach for block trades on SBSEFs, excepting block trades from the required execution methods of Proposed Rule 815(a)(2). The Commission received a number of comments on its proposal for a block trade exception. Commenters generally support the inclusion of a block trade exception from the Required Transaction requirement in Rule 815(a)(2).198 One commenter, supporting the Commission’s harmonization with the CFTC’s approach to block trades by providing an exception for those trades, states that a flexible block execution regime permits trading of larger-sized transactions in a manner that incentivizes dealers to provide liquidity and capital without creating market distortions.199 Another commenter asserts that exempting block trades from order book and RFQ execution requirements is critical to the functioning of the SBS markets, particularly to execute large trades without affecting price.200 This commenter expresses concerns that, absent such an exception, market participants would have difficulty executing, or would be unable to execute, large bona fide trades, since they would be required to do so only through the order book. This would increase the cost of trading and hedging, the commenter says, which could reduce participation in certain markets, resulting in less liquidity and increased volatility. Another commenter states that the proposed exception for block trades would provide important flexibility for market participants executing SBS transactions of a significantly large size, and that rules that facilitate swap block trades allow market participants, such as regulated funds, to engage in large transactions while mitigating the risks of information leakage and impairment of market liquidity.201 Another commenter also supports the Commission’s proposal to align closely its approach to block trades with the approach taken by the CFTC.202 This commenter agrees with the Proposing Release’s assessment that the block exception to the required methods of execution balances the promotion of price competition and all-to-all trading against the potential costs to the market participants who wish to trade large orders, the importance of which they note is more acute in the SBS market, which is a smaller and less liquid market than the swaps market. The Commission agrees with these commenters that a block-trade exception is appropriate, not only to maintain harmonization with the CFTC regime for swaps but also to facilitate trading of SBS. This approach, which is consistent with the approach of the CFTC for swaps, will be especially important in the smaller, less liquid SBS markets if and when a clearing determination has been made for one or more SBS. A block-trade exception for SBSs subject to the trade-execution requirement, provided that ‘‘block trade’’ is appropriately defined for those SBSs, can help
ensure that large trades are not significantly more difficult and costly to execute because of the risks posed by information leakage and the potential for adverse price movement, which could significantly impair liquidity in the markets for those SBSs. Therefore, the Commission is adopting Rule 815(a) as proposed, but is, as discussed immediately below, modifying the proposal with respect to the definition of ‘‘block trade’’ in Rule 802. (ii) Block-Trade Definition for Credit SBS The Commission also proposed to align the regulatory text defining ‘‘block trade’’ in proposed Regulation SE with the CFTC’s definition. The proposed definition in Rule 802 of Regulation SE was based on the four-pronged definition found in § 43.2(a), but with one modification. The third prong of the

203Appendix 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. SBSs are not within the CFTC’s jurisdiction, so the CFTC had not considered what an appropriate minimum block size threshold would be for any SBS asset class. In this respect, there was no CFTC-defined threshold for the Commission to harmonize with, so the Commission proposed to establish a threshold tailored specifically for the SBS market, see Proposing Release, supra note 1, 87 FR at 28956, as discussed below. 204See Proposing Release, supra note 1, 87 FR at 28896. 205See id. at 28944. 206See id. at 28944 n.369. 207See Citadel Letter, supra note 18, at 9; ICI Letter, supra note 18, at 10–12; MFA Letter, supra note 18, at 5–8; SIFMA AMG Letter, supra note 18, at 10; ISDA–SIFMA Letter, supra note 18, at 7–9. 208See ISDA–SIFMA Letter, supra note 18, at 7–
9. 209See id.
210 Id. at 9 n.23.
211See MFA Letter, supra note 18, at 7; ICI Letter, supra note 18, at 11; SIFMA AMG Letter, supra note 18, at 10. 212See ICI Letter, supra note 18, at 11–12. 213 Id. at 11. 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.’’ 203 For the third prong of the ‘‘block trade’’ definition, the Commission proposed that the SBS be 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,204 considered the distribution of transactions in the single-name CDS market 205 and took into consideration that FINRA applies a $5 million cap when disseminating transaction reports of economically similar cash debt securities.206 A number of commenters question the basis for the proposed $5 million block threshold size and advocate a variety of different approaches to establishing the block size threshold for SBS products, as alternatives to the proposed $5 million notional size block trade threshold.207 One commenter presents data that it argues supports its assertion that the block threshold for credit SBS should be recalibrated.208 The commenter recommends that the Commission first establish an appropriate methodology to determine block thresholds based on current market-wide data. This commenter states that, otherwise, the already illiquid SBS market will be required to comply with an arbitrary, ‘‘one-size-fits-all’’ threshold amount that fails to consider the unique levels of market liquidity and risk sensitivity of various instruments. The commenter suggests that average daily volume (‘‘ADV’’) is an appropriate indicator of liquidity levels because it represents a measure of how much trading occurs in a given issuer across the market as a whole, and that the lower the ADV, the lower the liquidity of the product. Based on its analysis of ADV data for credit default swaps (‘‘CDS’’), which it retrieved from the DTCC Trade Information Warehouse, the commenter posits that liquidity in single-name CDS is significantly lower than in broadbased CDS. Thus, the commenter argues, it is not appropriate to mirror the block threshold for credit SBS to the threshold for debt securities, when there are clear differences in liquidity levels within the CDS market itself. This commenter also asserts that the data reveal that liquidity in single-name CDS is disproportionately concentrated in the most actively traded issuers, which, the commenter contends, corroborates its assertion that block thresholds should be calibrated at a more granular level in order to reflect the different liquidity levels of credit SBS products. The commenter cautions that, absent a data-based approach to setting block thresholds for credit SBS instruments, the proposal runs the risk that $5 million may be an inappropriately high
threshold for those products, which may widen bid/offer spreads, further reduce liquidity, and force large-sized transactions to be publicly reported with their full size, leaving the dealer that ‘‘wins’’ in the position of risking the market moving against the dealer before the dealer is able to adequately lay-off its exposure. This risk to the dealer, the commenter asserts, could increase the costs of transacting with immediacy substantially, leading to overall increased costs and time delays in executing hedges, and adding to or taking down positions, which would have a direct impact on clients and endusers, who will ultimately bear the increased costs and inefficiencies when forced to split large trades into smaller sizes for liquidity purposes. The commenter states that these clients, endusers, and liquidity providers may decide that it is more economical to exit the market entirely, given that most of them do not trade in large volumes of SBS.209 The same commenter also states that, because ‘‘the appropriate block threshold depends on factors such as liquidity and risk sensitivity[,] which can change over time, . . . the rules should provide a formal adjustment mechanism that would allow market participants to petition the Commission to temporarily change block thresholds based on observed market conditions, or enable the Commission’s staff to do so, subject to a public comment process.’’ 210 Several commenters argue for establishing a range of block trade threshold sizes, based on the product.211 One commenter recommends that the Commission delay implementation of the required execution methods until it considers its approach to block trades more comprehensively.212 This commenter argues that calibrating appropriate block threshold sizes for SBSs has significant implications for market participants from both a pre- and a post-trade transparency perspective. With respect to pre-trade transparency, the commenter states that requiring a fund to disclose its trading interest in an SBS of a large notional size to multiple participants—via an order book or an RFQ system—would ‘‘enable opportunistic market participants to piece together information about the fund’s holdings or investment strategy and lead to frontrunning of those potential trades.’’ 213 With respect to post-trade transparency, the commenter states that setting a block trade threshold that is too high would unnecessarily limit the ability to report large-sized SBS transactions on a delay, which would make it difficult for liquidity providers to hedge such positions, leading to higher trading costs and less efficient trading for funds and other market participants. The commenter also states that the magnitude of these risks depends on, among other factors, an SBS’s liquidity profile. The commenter also states that having a single threshold—across all applicable SBSs with respect to SBSEF trading and for any additional future rulemaking related to post-trade public reporting—does
not adequately account for varying levels of liquidity across different categories or types of SBSs. The commenter recommends that, given the differences in liquidity across different SBSs, the Commission should base its thresholds on more comprehensive transaction data obtained pursuant to Regulation SBSR. The commenter asserts that taking such a data-driven approach would allow the Commission to assess the liquidity of different SBSs based on, for example, swap term, underlying security, and other characteristics. The commenter also argues that this would enable the Commission, similar to the CFTC, to formulate different types or categories of

214See MFA Letter, supra note 18, at 7. 215See Citadel Letter, supra note 18, at 9. 216See id. at 10. 217See SIFMA AMG Letter, supra note 18, at 10. 218See 2019 Cross-Border Application of Certain Security-Based Swap Requirements, SEA Release No. 87780 (Dec. 18, 2019), 85 FR 6270, 6347 (Feb. 4, 2020) (‘‘2019 Cross-Border Adopting Release’’). 219 In adopting Regulation SBSR, the Commission directed its staff to make reports in connection with the determination of block thresholds and reporting delays for security-based swap transaction data. See 17 CFR 242.901 (Appendix) (discussing the studies for the determination of block thresholds and reporting delays); see also Regulation SBSR Adopting Release I, supra note 140, 80 FR at 14625. The Commission stated that it intends to use these reports to inform its specification of the criteria for determining what constitutes a large notional SBS transaction (i.e., block trade) for particular markets and contracts; and the appropriate time delay for reporting large notional SBS transactions to the public. See 17 CFR 242.901 (Appendix). The reports for each asset class are to be completed no later than two years following the initiation of public dissemination of security-based swap transaction data by the first registered SDR in that asset class— in other words, the reports are anticipated to be complete by Feb. 14, 2024—and then published for comment in the Federal Register. See id. 220Because the Commission is not adopting a definition of ‘‘block trade’’ at this time, it is also modifying other rules within Regulation SE that reference block trades. See supra note 41. 221The Commission has corrected a crossreference from 242.800(x) to 242.802. 222As discussed in the Proposing Release,
appendix F to part 43 of the CFTC’s rules does not
define a block trade for equity swaps, and accordingly, no equity swap transaction could qualify for the exception to the required means of execution for block trades under § 37.9(a)(2). See Proposing Release, supra note 1, 87 FR at 28896. SBSs and propose differing block trade sizes that are more appropriately tailored to the liquidity characteristics of each type or group. Another commenter states that the CFTC sets different minimum block sizes for different categories of swaps and argues that the Commission should similarly develop a more structured and tailored approach.214 The commenter expresses concerns that setting a miscalibrated block size will likely limit the utility of the block trade exception, thereby preventing many market participants from executing transactions on SBSEFs. Another commenter recommends that the Commission adopt the CFTC’s approach for block trades based on a ‘‘67 percent notional amount calculation.’’ 215 That commenter also recommends that the Commission reserve the ability to update block thresholds on a regular basis to ensure they remain representative of current market conditions.216 Another commenter states that the proposed block threshold is not a result of any empirical analysis on the market conditions for credit SBSs and suggested that, as the SBS market develops and grows, it may become more appropriate for amendments to the credit SBS threshold.217 The Commission has considered the comments received and has determined, for the reasons discussed below, not to adopt a definition of ‘‘block trade.’’ While the Commission had proposed the single block threshold for credit SBS based on its preliminary view that the block-trade threshold applicable to an SBS trade should be consistent with any reporting cap for that SBS trade, and any reporting cap applicable to the cash markets for the securities,218 the Commission acknowledges commenters’ concerns that the proposed $5 million block-trade threshold for all credit SBSs would not be sufficiently tailored to the unique and varying trading and risk characteristics of the full range of credit SBS, creating the potential for the adverse market risks that commenters point out may arise from having a onesize-fits-all block threshold. Further, unless and until the Commission has made a clearing determination for a given SBS and an SBSEF or a national securities exchange has made that SBS ‘‘available to trade,’’ all transactions in that SBS will be Permitted Transactions. On the effective date of Regulation SE, and until the Commission has made a clearing determination for an SBS, no SBSEF or national securities exchange will be able to make that SBS ‘‘available to trade.’’ Consequently, there could be no mandatory trading requirement and thus there are no transactions to be excepted. Without a mandatory trading requirement, a block-trade threshold, therefore, has no effect on the ability of market participants to choose their preferred means of execution for
trades in that SBS. Unless and until the Commission has made a mandatory clearing determination regarding an SBS, it is not necessary to define a block-trade threshold for SBS, and it would be appropriate for the Commission to identify a block-trade threshold in the future after considering credit SBS transaction data and credit SBS markets at that time. In addition, the Commission agrees with commenters that additional consideration of credit SBS transaction data, including data reported under Regulation SBSR, would help the Commission determine the appropriate block threshold for credit SBS products, including whether different thresholds should apply to different types or groups of SBS. The Commission also agrees with commenters that the credit SBS markets are likely to evolve over time and that analysis of market data continues to be an important aspect of setting appropriate thresholds for both block trades and credit SBS public trade reporting.219 Therefore, the Commission is not adopting the proposed definition of ‘‘block trade’’ under Proposed Rule 802, or any other block-trade threshold.220 In conjunction with any mandatory clearing determination by the Commission for SBS, or with any Commission proposal to specify the criteria for determining what constitutes a large notional SBS transaction for particular markets and contracts with respect to trade reporting, the Commission will have the opportunity to engage in rulemaking to propose a definition of ‘‘block trade’’ for purposes of Regulation SE—and to solicit public comment on Commission’s proposal and its economic analysis of the proposed definition—before it considers adopting a definition. In response to the comment that the Commission should delay implementation of the trade execution requirement until it has considered block trades more comprehensively, unless and until the Commission has made a clearing determination for a given SBS and an SBSEF or a national securities exchange has made that SBS ‘‘available to trade,’’ all transactions in that SBS will be Permitted Transactions. Thus, it is not necessary to formally delay the implementation of the trade execution requirement, because the Commission will have the opportunity if and when it makes a clearing determination for SBS—i.e., before any SBS transaction becomes a Required Transaction—to address whether a block-trade threshold should be set; what methodology should be used to determine that threshold; and what that threshold would be. At that time, because amending Rule 802 to define ‘‘block trade’’ would entail notice-andcomment rulemaking, market participants would have the opportunity to comment on the Commission’s proposed action. For the reasons discussed above, the Commission is not adopting the definition of ‘‘block trade’’ in Rule 802 as proposed but is instead adding a note to Rule 802 informing stakeholders the Commission has not yet adopted a definition of ‘‘block trade.’’ 221 (iii) Block-Trade Definition for
Equity SBS In the Proposing Release, the Commission did not propose a definition of ‘‘block trade’’ applicable to equity SBS. Accordingly, no equity SBS would qualify for the exception to required means of execution for block trades in Proposed Rule 815(a)(2).222

223See MFA Letter, supra note 18, at 6–7; ICI Letter, supra note 18, at 12–13; ISDA–SIFMA Letter, supra note 18, at 9; SIFMA AMG Letter, supra note 18, at 10. 224See MFA Letter, supra note 18, at 6–7. 225 Id. at 6. 226See MFA Letter, supra note 18, at 6–7. 227See ICI Letter, supra note 18, at 12–13. 228See SIFMA AMG Letter, supra note 18, at 10. 229See ISDA–SIFMA Letter, supra note 18, at 9. 230See Proposing Release, supra note, 87 FR at 28894 (‘‘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.’ ’’ S. Rep. No. 111–176, at 34 (2010)). 231See supra section V.E.1(c)(ii). Several commenters submitted comment letters on the proposal to exclude equity swaps from the proposed block-trade exception.223 One commenter states that, in its view, the use of block trades for equity SBS is at least as necessary as for credit SBS, due to the need to customize the size of transactions and to obtain timely and efficient executions.224 This commenter asserts that requiring equity SBS trades to be executed only through the order book or RFQ system could result in these trades having ‘‘significant price impact’’ on SBSEF products, which would ultimately inhibit the ability of market participants to efficiently arrange and execute large, customized trades that are essential for market participants’ risk management activities.225 The commenter also asserts that this would disincentivize market participants from using equity SBS for their legitimate business purposes, including hedging, which could increase volatility and reduce liquidity in equity SBS markets (as well as underlying equity markets). The commenter also argues that excluding equity SBS block trades would ultimately inhibit capital formation as an inability to execute blocks in equity SBS would make it riskier, more expensive, and more difficult to hedge, which would in turn inhibit market participants from participating in offerings. This commenter further states that equity SBS are quite distinct from CFTC equity swaps in ways that make it more critical to allow block trades in equity SBS. Specifically, the commenter states that since CFTC-regulated equity swaps are based on broad-based equity indices, which reflect markets and not individual issuers, they are used to assume or hedge exposure to the relevant market or sector generally. By contrast, the commenter posits that equity SBS may reference a single name and are therefore a preferred tool for hedging exposure to specific equities, which makes them essential to capital formation. The commenter also argues that markets for SBS on individual equities will, in many cases, be less liquid than the markets for broad-based equity index swaps, further necessitating the opportunity for block trades.226 Another commenter also recommends that the Commission conduct further analysis before determining block treatment for
equity SBSs.227 That commenter states that it previously disagreed with CFTC’s similar approach with respect to equity swaps. The commenter argues that the Commission should undertake additional analysis to demonstrate that the CFTC’s justifications for its approach apply equally to the categories or types of equity-based swaps specifically under its jurisdiction, which include, for example, total return swaps based on a single security or loan, or a narrowbased security index. The commenter also recommends that the Commission determine whether block treatment would be appropriate for equity-based SBSs in the pre-trade transparency context. The commenter argues that similar to other categories or types of large-sized SBSs that would qualify for block treatment, flexible execution with respect to large-sized, equity-based SBSs is important to avoid information leakage regarding a market participant’s investment strategies. One commenter suggests that, if there is the ability to have fungible, singlename total return swaps in equity products, and they become subject to mandatory clearing in the future, that the commenter would expect there to be appropriately calibrated block size thresholds that are applied to those equity-based swaps.228 Another commenter suggests that if an equity SBS product becomes subject to mandatory trade execution, there should be an appropriate methodology for establishing equity block thresholds.229 While the Commission acknowledges commenters’ concerns, the general concerns expressed about the need for equity blocks lack specificity or analysis regarding a particular definition of ‘‘block trade’’ for equity SBS—whether a specific threshold or a methodology— that the Commission could adopt. Commenters’ concerns focus on the need to customize the size of equity SBS transactions, to obtain timely and efficient executions, and to avoid information leakage. And commenters state that the lack of a block-trade exception could result in significant price impact and inhibit the large, customized trades essential for risk management and hedging, which would discourage hedging, increase volatility and reduce liquidity in equity SBS markets (as well as underlying equity markets), and ultimately inhibit capital formation and participation in offerings. With respect to the stated need for certain parties to use an equity SBS block-trade exception, a relevant consideration for the Commission in determining whether to establish a block-size threshold for equity SBSs, if and when it makes a clearing determination for those SBSs, is whether establishing that block-trade threshold would have the potential to create a situation where SBSEFs provide less transparency than exists in the underlying cash equity markets or the listed options markets. An inappropriate block-trade threshold for equity SBSs could create incentives for market participants to favor equity SBS markets over cash equities or listed options markets, either of which
may be used, in many cases, to achieve economically equivalent trading objectives as strategies using equity SBS, and neither of which provides for block-trade reporting delays. If transactions were to migrate from cash equities or listed options markets to the SBS market, this could lead to decreased market transparency and could potentially undercut the goal of the Dodd-Frank Act to bring transparency to the trading of SBS.230 Additionally, as a general matter, it is important to harmonize the treatment of equity SBS with the treatment of equity swaps. There is no block-trade exception for equity swaps in the CFTC’s rules, and the Commission does not wish to create incentives for market participants to trade equity SBS over swaps. And while a commenter states that equity SBS are quite distinct from equity swaps, the treatment of equity SBS transactions should be broadly consistent with the treatment of transactions in the cash equities underlying them to avoid, as discussed above, creating incentives for market participants to trade equity SBS instead of the underlying cash instruments. For these reasons and those discussed above regarding credit SBS,231 the Commission has determined not to adopt a definition of ‘‘block trade’’ in Rule 802. Thus, with respect to commenters’ concerns, until the Commission has made a clearing determination with respect to equity SBS, equity SBS will be able to trade OTC, just as their underlying cash equities can trade OTC. Moreover, before making a clearing determination for an equity SBS—which would create

232The Commission has modified the text of Rule 815(b)(1) to specify that the requirements in this provision only apply with regards to Required Transactions. 233See Citadel Letter, supra note 18, at 14–15; ICI Letter, supra note 18, at 13–14. 234See ICI Letter, supra note 18, at 13–14. 235See Citadel Letter, supra note 18, at 15. 236See ICI Letter, supra note 18, at 13–14. 237See 2013 CFTC Final SEF Rules Release, supra note 9, 78 FR at 33503. 238See id. 239See infra section VI.B.3. 240See 2013 CFTC Final SEF Rules Release, supra note 9, 78 FR at 33504. 241See id. the circumstances in which equity SBS might be MAT and therefore subject to the trade-execution requirement—the Commission would have the opportunity to solicit and consider additional public comment on the effect of such a determination, including comment with respect to the concerns commenters have raised to date regarding, among other things, timely and efficient executions, hedging, and capital formation.
2. Rule 815(b)
Paragraph (b) of Proposed Rule 815 would require a time delay for certain orders being entered by a broker or dealer on an SBSEF’s order book. This provision would only apply to situations in which the broker or dealer is seeking to trade against a customer order (a ‘‘facilitation cross’’) or to cross two customer orders (a ‘‘customer cross’’), following some form of prearrangement or pre-negotiation of such orders, and where the transaction is a Required Transaction.232 Under Proposed Rule 815(b)(1), an SBSEF would require that the broker or dealer must expose one of the two orders in this transaction on the SBSEF order book for a minimum time period of 15 seconds 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)(2) would permit the SBSEF to adjust the time period of the required delay based on the SBS’s liquidity or other product-specific considerations, provided that the time delay is a sufficient period of time so that an order is exposed to the market and other market participants have a meaningful opportunity to execute against the order. The Commission received comments on the provisions regarding the prearrangement or pre-negotiation of trades in Proposed Rule 815(b).233 One commenter requests that the Commission address the extent to which market participants may utilize ‘‘preexecution communications’’ when trading on an SBSEF, noting that the CFTC has specified that such communications may occur pursuant to a SEF’s rules that have been certified or approved by the CFTC.234 This commenter urges the Commission to align its rules to those of the CFTC in this respect, given that pre-execution communication is a standard market practice that investment advisers use to guard against information leakage and obtain fair pricing for large-sized trades and packaged transactions, among other types of transactions, on behalf of funds and other clients. Another commenter, arguing that the Proposing Release and the CFTC rules are silent with respect to the permissibility of pre-arrangement on RFQ systems, urges the Commission to require SBSEF rulebooks to prohibit the pre-arrangement of Required Transactions, arguing that it is important that pre-trade transparency and the RFQ-to-3 requirement not be undermined through bilateral prearrangement of a Required Transaction followed by a directed RFQ that merely formalizes the transaction.235 The Commission agrees with the comment that it should view preexecution communications in a way that is consistent with CFTC guidance on this matter.236 The CFTC has viewed pre-execution communications as communications between market participants to discern interest in the execution of a transaction prior to the exposure of the market participants’ orders (e.g., price, size, and other terms) to the market and has stated that such communications include discussion of the size, side of market, or price of an SBS
order or a potentially forthcoming order.237 Consistent with the CFTC’s approach, the Commission is generally of the view that the terms ‘‘prenegotiation’’ and ‘‘pre-arrangement’’ within the meaning of Rule 802(b) should ordinarily be understood to include all communications between market participants to discern interest in the execution of a transaction prior to the exposure of the market participants’ orders (e.g., price, size, and other terms) to the market, including discussion of the size, side of market, or price of an SBS order, or a potentially forthcoming order. Additionally, while the CFTC has acknowledged that pre-execution communications may be permitted by a SEF, it has stated that any SEF that allows pre-execution communications must adopt rules regarding such communications that have been certified to or approved by the CFTC.238 Consistent with this view, the rulebook of an SBSEF generally should address, with clarity, the application of the terms ‘‘pre-arrangement’’ and ‘‘prenegotiation’’ in Rule 802(b) so that market participants will know what types of pre-execution communications are covered by the rule. An SBSEF’s rules in this regard must, of course, also comply with the other provisions of the SEA and the rules thereunder, including the impartial access requirement of Rule 819(c).239 With respect to the comment that the Commission should ban prearrangement or pre-negotiation of RFQ trades on an SBSEF, while the CFTC regulation is silent regarding the permissibility of pre-arrangement on RFQ systems, the CFTC’s adopting release with respect to its SEF rules expressly contemplates the permissible pre-arrangement of trades executed via RFQ.240 Moreover, the CFTC explained in its adopting release that it refrained from requiring a time delay for Required Transactions entered into RFQ systems because the requirement to send an RFQ to three other market participants already provides pre-trade price transparency.241 Thus, the CFTC has acknowledged that pre-arranged Required Transactions may be submitted into a SEF’s RFQ system, and without a time delay. The Commission recognizes that, as one of the commenters also states, preexecution communications are a standard practice for many participants in the SBS market, and that to prohibit them entirely would be a major departure from the CFTC’s approach and could have significant negative ramifications on the ability of market participants to effect their SBS transactions. Accordingly, and to maintain harmonization with the CFTC’s treatment of pre-arrangement and pre-negotiation of swaps transactions, the Commission is not modifying Rule 815(b) to prohibit the use of pre-arrangement or prenegotiation with respect to SBS transactions via RFQ or to impose a time delay before any such SBS can be executed via RFQ. One of the commenters also requests that the Commission require SBSEFs to provide periodic regulatory reporting around pre-arranged trading on their platforms, including
reporting the percentage of pre-arranged orders for which other SBSEF participants step in to join the trade, and that it also require an SBSEF to demonstrate that it offers a bona fide order book in order for the SBSEF to permit the execution of prearranged orders (such as a minimum

242See Citadel Letter, supra note 18, at 14–15. 243The heading of the proposed rule text already indicated that it was a ‘‘Time delay requirement for Required Transactions on an order book.’’ The rule text has been modified only to add ‘‘With regard to Required Transactions,’’ at the beginning of the rule text, to reiterate the parameters indicated in the title and to clarify its application. 244As discussed above, one commenter recommends that the requirements of Rule 815(a)(3) be modified to apply to all SBS transactions on an SBSEF, which would include Permitted Transactions. See supra note 190 and accompanying text (describing and discussing that comment). 245See Bloomberg Letter, supra note 18, at 14, Citadel Letter, supra note 18, at 12–13, and ISDA– SIFMA Letter, supra note 18, at 9–10. 246See Bloomberg Letter, supra note 18, at 14 and ISDA–SIFMA Letter, supra note 18, at 9–10. 247See Citadel Letter, supra note 18, at 12–13. 248See id. 249See ISDA–SIFMA Letter, supra note 18, at 9– 10. level of trading activity on the order book or a minimum percentage of prearranged orders where pricing is improved as a result of other SBSEF participants stepping in).242 The suggested reporting requirements or ‘‘bona fide order book’’ standard, however, would exceed what SEFs are required to do under the CFTC rules. The Commission is concerned that different or additive requirements to the key concept of an order book, such as whether that order book is ‘‘bona fide,’’ could introduce complexity and confusion if one set of trading protocols applied to Required Transactions for swaps but different protocols—different from ones that have been understood and utilized for many years—applied to Required Transactions for SBS transactions. Moreover, the commenter’s proposed reporting requirements—such as a minimum percentage of prearranged orders where pricing is improved as a result of other SBSEF participants stepping in—appear to be primarily relevant to an evaluation of a particular SBSEF has met the standard for having a ‘‘bona fide’’ order book. Accordingly, because the added complexity and costs associated with imposing the ‘‘bona fide’’ order book standard have not been justified, it is not appropriate to adopt the proposed regulatory reporting requirement suggested by the commenter with respect to cross-trading. For the reasons discussed above, the Commission is adopting Rule 815(b) as proposed, with a clarifying change to the rule text to reiterate that the requirement applies only to Required Transactions.243
3. Rule 815(c)
Proposed Rule 815(c) is modeled on § 37.9(c) of the CFTC’s rules and would define a ‘‘Permitted Transaction’’ as a transaction not involving an SBS that is subject to the mandatory trade execution requirement. This rule provides that an SBSEF may offer any method of execution for Permitted Transactions. The Commission did not receive any comments on the definition of Permitted Transactions 244 and is adopting Rule 815(c) as proposed, for the reasons discussed in the Proposing Release.
4. Rule 815(d)
Paragraph (d) of § 37.9 provides an exception for package transactions that allows for flexible methods of execution for what would otherwise be Required Transactions. The Commission proposed to include similar exceptions in Proposed Rule 815(d). Proposed Rule 815(d)(1) would define ‘‘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 nearsimultaneous) execution of all components. Proposed Rule 815(d)(2) would provide that a Required Transaction that is executed as a component of a package transaction that includes a component SBS that is subject exclusively to the Commission’s jurisdiction, but is not subject to mandatory clearing, may be executed on an SBSEF using any method of execution as if it were a Permitted Transaction. Proposed Rule 815(d)(3) would provide that a Required Transaction that is executed as a component of a package transaction that includes a component that is not an SBS may be executed on an SBSEF using any method of execution as if it were a Permitted Transaction. Proposed Rule 815(d)(3) would further state 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-SBS components are U.S. Treasury securities; a Required Transaction that is executed as a component of a package transaction in which all other non-SBS 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-SBS 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. The Commission received comments on the proposed exception for packaged transactions.245 Several commenters support the Commission’s proposal.246 One commenter supports the proposal to harmonize with the CFTC rules, but suggested modifications to the proposed rule text.247 First, the commenter suggests that Rule 815(d)(2) be modified so that the package-transaction exception is not available if the other SBS in the package is either subject to the clearing requirement or intended to be cleared. This commenter states that, because the scope of any future clearing requirement for SBSs is unclear, there may be significant trading activity in packages containing SBSs that are intended to be cleared, but not subject to the clearing requirement, and the commenter states that, for purposes of the package transaction exception, SBS that are
cleared, whether by mandate or intention, should be treated the same. This commenter also recommends that Rule 815(d)(3) be modified to clarify that the exception would not apply to package transactions where all of the other components are swaps subject to the CFTC’s trade execution requirement. The commenter states that this modification would prevent evasion for packages containing only SBSs and swaps that are subject to trade execution requirements on the Commission and the CFTC side, respectively.248 Another commenter, while agreeing that it is appropriate to treat package transactions differently from outright, single-legged transactions, suggests that the Commission take a different approach from that of the CFTC, stating that the current state of the CFTC’s rules reflect the culmination of a phased implementation approach developed over time via no-action letters.249 That commenter argues that it would be better for the Commission to tailor its rules for packaged transactions to address the particular market dynamics relevant to the SBS market instead of the swaps market. The commenter recommends that the Commission build into the MAT determination process a framework for identifying what types of package transactions exist for prospectively MAT SBS and then develop tailored rules around the execution of such transactions. Rule 815(d) is closely modeled on § 37.9(d) and is designed to balance the goal of promoting transparency in the

250To 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. 251See Proposing Release, supra note 1, 87 FR at 28896. 252See 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); Proposed Rule 802 (defining ‘‘error trade’’ as any trade executed on or subject to the rules of an SBSEF that contains an operational or clerical error); Proposed Rule 802 (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 definitions are modeled on the definitions of the same terms in § 37.9(e)(1). 253See Bloomberg Letter, supra note 18, at 3, 14. 254See id. 255See Bloomberg Letter, supra note 18, at 14–15, Citadel Letter, supra note 18, at 10–12, SIFMA AMG Letter, supra note 18, at 10–12, WMBAA Letter, supra note 18, at 5. 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.250 As noted in the Proposing Release, 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.251 The Commission agrees with a commenter’s suggestions that Proposed Rule 815(d)(2) and (3) should be modified to narrow the scope of the package-transaction exception. Accordingly, the Commission is modifying these rules so that neither an SBS that is intended to be cleared (even if it is not required to be cleared) nor a swap subject to a CFTC trade execution requirement would create an exception from required methods of execution for a Required Transaction that is part of the same package. For purposes of exempting a Required Transaction in a package transaction from the required means of execution, there is no reason to distinguish mandatorily cleared SBS from voluntarily cleared SBS, or cleared swaps from cleared SBS. Therefore, the Commission is adding the words ‘‘and is not intended to be cleared’’ to Rule 815(d)(2) so that it covers only a Required Transaction that is executed as a
component of a package transaction that includes a component securitybased swap that is subject exclusively to the Commission’s jurisdiction but is not subject to the clearing requirement under section 3C of the SEA and is not intended to be cleared. And the Commission is adding new subsection (iv) to Rule 815(d)(3) to provide that a Required Transaction in a package transaction is ineligible to be treated as a Permitted Transaction if it is ‘‘[a] Required Transaction that is executed as a component of a package transaction in which all other non-SBS components are swaps that are subject to a trade execution requirement under the CFTC’s rules.’’ With respect to the suggestion that the Commission take a different approach from that of the CFTC and develop tailored rules for SBS, the packagetransaction rule is not the appropriate place to recognize the differences between the swaps and the SBS market. Rather, the clearing determinations and MAT determinations will necessarily consider the trading characteristics of a given SBS, and both these determinations will have to be made before the package transaction exception would ever potentially be relevant to a transaction in that SBS. For the foregoing reasons, the Commission is adopting Rule 815(d) with the modifications to paragraph (d)(2) and (d)(3), as described above.
5. Rule 815(e)
Proposed Rule 815(e) is modeled on § 37.9(e), which requires SEFs to maintain rules and procedures for resolution of operational and clerical error trades, which could be for swaps that otherwise would be subject to required methods of execution. Proposed Rule 815(e) would also require an SBSEF 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. Definitions of the terms ‘‘correcting trade,’’ ‘‘error trade,’’ and ‘‘offsetting trade’’ would be included in Rule 802 rather than in Rule 815(e).252 The Commission received one comment letter on this provision.253 The commenter states that, with respect to a cleared SBS, correcting an error trade that was rejected by a clearing agency is not feasible unless the rejected error trade is declared by the SBSEF void ab initio. Otherwise, the commenter states, the parties might be encumbered by unresolved obligations related to the rejected SBS trade, and this might further prevent a timely and efficient resolution of the error. For this reason, the commenter recommends that the SBSEF should be able to declare void ab initio any trade rejected by a clearing agency.254 The CFTC’s rules for addressing error trades are well articulated and well understood by the market, and they continue to 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. Therefore, the rules for addressing error trades should not differ between the SBS regime and the swaps regime. While the Commission appreciates the difficulties that might arise in trying to correct an error trade that has been rejected by a clearing agency, under Proposed Rule 815(e), an SBSEF would be required to adopt rules and procedures for addressing such situations, which it could do by, among other things, declaring trades rejected by a clearing agency as void ab initio, as it would be required to do for non-error trades that are rejected for clearing under Rule 815(g). For the foregoing reasons, the Commission is adopting Rule 815(e) as proposed.
6. Rule 815(f)
Rule 815(f) is modeled on § 37.9(f), which addresses counterparty anonymity and is widely referred to as the prohibition on ‘‘post-trade name give-up’’ (‘‘PTNGU’’). Proposed Rule 815(f) would generally prohibit any person, directly or indirectly (including through a third-party service provider), from disclosing the identity of a counterparty to an SBS that is executed anonymously on an SBSEF and intended to be cleared and requires the SBSEF to establish and maintain rules to that effect. Furthermore, it provides that ‘‘executed anonymously’’ as used in the rule includes an SBS that is prearranged or pre-negotiated anonymously, including by an SBSEF participant. Finally, Rule 815(f) provides that, for a package transaction that includes a component SBS that is not intended to be cleared, disclosing the identity of a counterparty would not violate the rule. The Commission received several comments on Proposed Rule 815(f).255 Most of the commenters support the

256See Bloomberg Letter, supra note 18, at 14–15, Citadel Letter, supra note 18, at 10–12, SIFMA AMG Letter, supra note 18, at 10–12. 257See Citadel Letter, supra note 18, at 10; SIFMA AMG Letter, supra note 18, at 10. 258See Citadel Letter, supra note 18, at 10. 259See Citadel Letter, supra note 18, at 11. This commenter also cites news articles relating the accounts of buy-side firms of dealers contacting them to get them not to join SEF platforms. See id. at 11 n.20. 260Rule 815(f)(3) provides that SBSs that are ‘‘executed anonymously’’ include SBSs that are prearranged or pre-negotiated anonymously, which would include voice broker trades. 261See SIFMA AMG Letter, supra note 18, at 10 (stating that PTNGU for anonymously traded cleared SBSs is unnecessary and does not provide any advantages to clients, but rather leads to uncontrolled information leakage); Bloomberg Letter, supra note 18, at 15 (stating that prohibiting PTNGU facilitates and promotes trading on SBSEFs and promotes pre-trade price transparency by encouraging more participants to bid anonymously, whereas the practice of requiring disclosure of one counterparty’s name to the other counterparty increases the risk of information leakage and can deter participation by liquidity seekers on SBSEFs). 262See SIFMA AMG Letter, supra note 18, at 10. 263See id. at 11. 264See Bloomberg Letter, supra note 18, at 15. 265See Bloomberg Letter, supra note 18, at 15, Citadel Letter, supra note 18, at 11, WMBAA Letter, supra note 18, at 5. 266Rule 815(f)(4) provides that, for a package transaction that includes a component transaction that is not an SBS intended to be cleared, disclosing the identity of a counterparty shall not violate the other provisions in the rule that prohibit the disclosure of the identity of a counterparty for SBSs executed anonymously. 267See Citadel Letter, supra note 18, at 11. 268See WMBAA Letter, supra note 18, at 5. 269See Bloomberg Letter, supra note 18, at 15. rule.256 Several commenters state that they strongly support the proposal harmonizing with the CFTC rules to prohibit PTNGU for SBSs executed anonymously on SBSEFs and that are intended to be cleared.257 One commenter asserts that PTNGU has no legitimate purpose for centrally cleared financial instruments, since trading counterparties face the central clearinghouse and do not have any credit, operational, or legal exposure to each other post-trade.258 This commenter states that PTNGU functions as a source of uncontrolled information leakage since a market participant has no control over who it will be matched with when executing through a pretrade anonymous trading protocol, such as an order book. Accordingly, a buyside firm must be comfortable potentially sharing its trading activity with every other participant on the trading venue, including other buy-side firms before using an anonymous order book with PTNGU. The commenter considers this an unattractive proposition for buy-side firms that completely
undermines the anonymous nature of the trading protocol and deters access and participation. The commenter also argues that PTNGU is a discriminatory practice that impedes market participant access to trading venues by allowing dealers to monitor whether buy-side firms have started to transact in anonymous order books and use this information as a policing mechanism to deter buy-side access and participation.259 The commenter also states that Rule 815(f)(3) 260 is drafted to prevent evasion by voice brokers. Other commenters express similar views.261 Another commenter states that if the Commission prohibits PTNGU, its policy would mirror the CFTC’s approach and that certain traders would be more likely to participate on venues that offer anonymous execution, including order book functionality.262 This, in turn, the commenter argues, could result in deeper liquidity pools on SBSEFs and promote the development, innovation, and growth of the SBS market.263 The commenter asserts that the Commission’s rules should be designed to better promote the development, innovation, and growth of the swaps market, with the intent of attracting liquidity formation onto SBSEFs, in a manner that adds to efficiency for the market and market participants. One commenter also states that PTNGU was a more important feature of the market when few swaps were centrally cleared and market participants needed to know their counterparty’s identity to manage the associated credit risk; however, with the prevalence of central clearing, the need for PTNGU is diminished for cleared swaps.264 A few commenters, while generally supportive of the rule, suggest some modifications to it.265 One commenter argues that Rule 815(f)(4) 266 is overbroad and may significantly limit the scope of the prohibition.267 Specifically, this commenter states that many security-based swaps are transacted as part of a package transaction with other instruments (e.g., single-name CDS and index CDS). The commenter argues that, at a minimum, any exception for package transactions should only apply to packages that include a component that is not an SBS intended to be cleared or a swap that is intended to be cleared. The commenter expresses concern that the current language would appear to exempt packages containing CFTC-regulated swaps, even if those instruments should be subject to an equivalent prohibition (notwithstanding the working of the corresponding CFTC exception for packages). The commenter encourages the Commission to work with the CFTC to avoid creating a loophole for common packages containing swaps and securitybased swaps that are all intended to be cleared. Furthermore, the commenter questions the need for Rule 815(f)(4) at all. The commenter states that, as proposed, the prohibition on PTNGU applies only to security-based swaps that are executed anonymously and intended to be cleared. The commenter argues that PTNGU could still be used for the uncleared security-based swap leg of a package
transaction containing both a cleared security-based swap and an uncleared security-based swap, even without Rule 815(f)(4). One commenter argues that the Commission should take an evolutionary approach to the prohibition on name give-up, which initially should apply only to Required Transactions, and not Permitted Transactions on an SBSEF where clearing may not be certain leading up to or at the time of trade execution.268 This commenter believes that this approach would encourage liquidity formation and further development of less liquid SBSs where an SBSEF trading mandate is not required. One commenter suggests that the Commission augment the rule with a prohibition on trade-relationship documentation for SBS that are intended to be cleared and grant the SBSEF the ability to void ab initio trades rejected from clearing to avoid the necessity of post-trade name disclosure in case of an error trade.269 The Commission agrees with commenters that prohibiting post-trade name give-up for cleared trades is reasonably necessary to facilitate and promote trading on SBSEFs, and Proposed Rule 815(f) would accomplish these goals. The Commission disagrees with the comment that Rule 815(f)(4) is overbroad and unnecessary. The Commission finds that Rule 815(f)(4) is necessary and important to provide clarity about the application of the PTNGU prohibition to package transactions and also to provide consistency with the CFTC’s approach. Narrowing the exception in Rule 815(f)(4) as suggested by one commenter so that it would not apply if a component of a package transaction were a cleared swap would cause the Commission’s approach to PTNGU to differ from that of the CFTC and create the potential for different PTNGU rules to apply to different components of the same package transaction. That is, if the Commission modified Rule 815(f)(4) as the commenter suggests, in the case of a package transaction comprising an

270Section 37.9(f)(4) provides, in relevant part, that ‘‘[f]or a package transaction that includes a component transaction that is not a swap intended to be cleared, disclosing the identity of a counterparty shall not violate’’ the prohibition against PTNGU. 17 CFR 37.9(f)(4). 271The Commission has corrected a reference in paragraph (f)(2) to a ‘‘security-based swap execution facility’’ to refer instead to a ‘‘security-based swap.’’ The Commission has also changed first instance of the word ‘‘paragraph’’ in paragraph (f)(4) to ‘‘paragraphs.’’ 272See Bloomberg Letter, supra note 18, at 14–15. See also Citadel Letter, supra note 18, at 5 (stating that the CFTC guidance regarding trades that are void ab initio has eased trading of cleared swaps on SEFs and ‘‘facilitated the entry of new liquidity providers that do not have legacy bilateral trading documentation in place with clients’’). 273See CFTC, Division of Clearing and Risk and Division of Market Oversight Staff Guidance on Swaps Straight-Through Processing (Sept. 26, 2013), available at https://www.cftc.gov/sites/ default/files/idc/groups/public/@newsroom/ documents/file/stpguidance.pdf (‘‘CFTC 2013 STP Guidance’’). 274See also infra section VI.B.3. 275See supra note 271. 276 15 U.S.C. 78c–3. 277See Bloomberg Letter, supra note 18, at 15–16; ISDA–SIFMA Letter, supra note 18, at 5. 278See Bloomberg Letter, supra note 18, at 15–16. SBS that is intended to be cleared and a swap that is intended to be cleared, Rule 815(f)(4) would prohibit PTNGU, but § 37.9(f)(4) would permit PTNGU.270 To avoid this situation, the Commission declines to modify Rule 815(f)(4) as suggested. Further, the Commission disagrees with the comment that the prohibition on PTNGU should initially apply only to Required Transactions. The prohibition on PTNGU is designed to 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, and it does so by preventing the sharing of the names of counterparties where such sharing is unnecessary—namely, when a transaction is cleared. Whether clearing the transaction is required or voluntary is not relevant to the purposes of prohibiting PTNGU. With regards to trades rejected from clearing, the prohibition on PTNGU would apply to all trades that are intended to be cleared, not just those that are successfully cleared, so that prohibition would also apply to a trade that is submitted but then rejected for clearing. For the foregoing reasons, the Commission is adopting Rule 815(f), as proposed, with minor technical modifications.271
7. Rule 815(g)
One commenter states that in order to protect counterparty anonymity in the event of an SBS that is executed anonymously and intended to be cleared, but is nonetheless rejected for clearing, the SBSEF should declare the trade void ab initio.272 The commenter suggests that the Commission augment the rule to prohibit trade relationship documentation for SBS that are intended to be cleared and to grant SBSEFs the ability to declare trades rejected from clearing void ab initio in order to avoid post-trade name disclosure in the case of a rejected trade. The Commission agrees that declaring such trades void ab initio, which helps prevent trades rejected from clearing from effectively becoming bilateral transactions where the identity of counterparties might be disclosed. This approach is also consistent with practices in the swaps market with respect to such trades.273 Therefore, the Commission is amending Rule 815 to add a new paragraph (g), which specifies that SBSEFs shall establish and enforce rules that provide that a security-based swap that is intended to be cleared at the time of the transaction, but is not accepted for clearing at a registered clearing agency, shall be void ab initio. In light of new paragraph (g), the Commission is generally of the view that it would not be consistent with the impartial-access requirements of Rule 819(c) for an SBSEF to permit its members to require bilateral relationship documentation from their counterparties with respect to SBS that are intended to be cleared.274 Consequently, the Commission finds that it is not necessary to include a prohibition on trade relationship documentation in Rule 815 for SBS that are intended to be cleared. For the foregoing reasons, the Commission adopting Rule 815(f)(1) through (4), with minor technical modifications,275 and is also adding a new paragraph (g), as discussed above. F. Rule 816—Trade Execution Requirement and Exemptions Therefrom
Section 3C of the SEA 276 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 national securities exchange or SBSEF makes the SBS available to trade or 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 establishes 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. Rule 816 also includes three proposed exemptions from the trade execution requirement. Paragraphs (a) through (d) of Rule 816 are modeled on § 37.10 of the CFTC’s rules and establish a process whereby an SBS product is 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 a MAT determination has been made 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 Rule 816 to trigger the trade execution requirement, similar to the MAT process of § 37.10.

General Comments on Harmonization
With CFTC MAT Process
Several commenters cite efforts by the CFTC to review its MAT process as an indication that the Commission should take a different approach for making MAT determinations rather than align with the CFTC’s current rule.277 One commenter cites to the findings of the Market Risk Advisory Committee (‘‘MRAC’’), an advisory committee that provided recommendations to the CFTC, and states that the MRAC and the CFTC raised concerns regarding the current MAT process for swaps.278 This commenter states that reforming the MAT process was included as an agenda item in the CFTC 2021 fall rulemaking agenda and that, for this reason, the Commission should align the MAT process for SBS with the recommendations made by the MRAC or, in the alternative, coordinate with the CFTC to ensure that the MAT process is aligned and conducted in a manner that allows input from a variety of stakeholders and the Commission. Another commenter also urges the Commission to review the CFTC MRAC’s recommendations with an eye towards adopting a more flexible regime given the unique characteristics of the

279See ISDA–SIFMA Letter, supra note 18, at 5. 280See ICI Letter, supra note 18, at 5. 281See supra sections IV.C (discussing Rule 806) and IV.D (discussing Rule 807). 282See Bloomberg Letter, supra note 18, at 15–16; Citadel Letter, supra note 18, at 15–16; ICI Letter, supra note 18, at 4–10; ISDA–SIFMA Letter, supra note 18, at 4–5; MFA Letter, supra note 18, at 9; SIFMA AMG Letter, supra note 18, at 6–8; WMBAA Letter, supra note 18, at 5; Tradeweb Letter, supra note 18, at 3–4. 283See Citadel Letter, supra note 18, at 15–16; see Bloomberg Letter, supra note 18, at 15–16; ICI Letter, supra note 18, at 5–8; ISDA–SIFMA Letter, supra note 18, at 4–5. 284See Citadel Letter, supra note 18, at 15–16. 285See WMBAA Letter, supra note 18, at 5. 286See Tradeweb Letter, supra note 18, at 3–4. 287See SIFMA AMG Letter, supra note 18, at 7; MFA Letter, supra note 18, at 9; ICI Letter, supra note 18, at 5, 7–8.WMBAA Letter, supra note 18, at 5. 288See SIFMA AMG Letter, supra note 18, at 7. 289See id. 290See WMBAA Letter, supra note 18, at 5. SBS market.279 One commenter strongly recommends that the Commission refrain from adopting a MAT determination process that is based on the existing CFTC process, but rather coordinate with the CFTC as it considers potential reforms to improve its MAT process.280 It is appropriate for Regulation SE to establish a MAT SBS process that aligns with the CFTC’s process as closely as possible. While commenters state that the CFTC may be considering changes to its MAT process, the CFTC has not yet proposed any such changes, so it is not certain that the CFTC would adopt the recommendations of the MRAC, either in whole or in part, or with modification, or when the CFTC might act if it does make changes to its MAT process. Additionally, because no MAT determination can be made with respect to an SBS unless and until the Commission has made a mandatory clearing determination as to that SBS, the Commission would have the opportunity, if and when it makes a mandatory clearing determination with respect to an SBS, or category of SBS, to consider whether changes to the process for a MAT determination with respect to that SBS would be appropriate. Further, in the event that the CFTC does move forward with changes to its MAT process, the Commission will have the opportunity to reassess its own MAT process and to consider further harmonization with the CFTC regime, as appropriate. For the present, the CFTC’s procedures are well articulated and well understood by SBS markets, so closely harmonizing with these procedures would yield comparable regulatory benefits while minimizing burdens on SBSEFs. In particular, even though the SEF and SBSEF markets differ in ways that are relevant to the application of the criteria for MAT determinations, the criteria themselves are equally applicable to the SEF and SBSEF markets. Thus, the Commission is adopting the rule as proposed, without any different or additional criteria that would have to be
considered by an SBSEF in order to MAT an SBS product.
2. Rule 816(a)
Paragraph (a)(1) of Rule 816 provides that an SBSEF that makes an SBS available to trade in accordance with paragraph (b) of the rule must submit to the Commission its determination with respect to that SBS, pursuant to the procedures under Rule 806 (voluntary submission for Commission review and approval) or Rule 807 (selfcertification).281 Paragraph (a)(2) provides 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. The Commission received a number of comments on Rule 816(a).282 Many commenters raise concerns about an SBSEF having the sole ability to make a MAT determination and generally advocate that the Commission and other market participants have a greater role in making MAT determinations.283 One commenter states that experience with the existing CFTC regime suggests that the scope of the trade execution requirement should not be determined solely by the SBSEFs.284 This commenter states that the trade execution requirement is a key pillar of the G20 post-crisis reforms and recommends that the Commission also be able to propose MAT determinations for public comment, based on its independent assessment of the criteria set forth in Rule 816(b). One commenter asserts that it has long believed that a MAT determination should not rest solely with a single SBSEF.285 This commenter states that such an approach risks introducing commercial and other motives beyond an objective assessment of the factors set forth in the rule. Another commenter states that it does not believe that a trading venue should be solely responsible for identifying the types of products that should be subject to a trade execution requirement.286 Instead, the commenter states that a Commission-led process is more appropriate. The commenter argues that a Commission-led process would ensure that the views of all relevant market participants (including SBSEFs) are considered in making a MAT determination. In addition, the commenter asserts that the Commission is likely to have better access to data regarding the overall SBS market than any individual trading venue will have. The commenter requests that the Commission provide in Regulation SE that MAT determinations are to be made by the Commission following a notice and comment rulemaking process that takes into account the views of SBSEFs and other market participants. Because no MAT determination can be made for an SBS until the Commission has made a mandatory clearing determination for that SBS, the MAT-determination process is, in that sense, inherently a Commission-led process. Moreover, because the SBSEFs will have direct experience with the trading of SBSs on SBSEFs, they will be best positioned make the initial decision as to whether it is appropriate to submit a MAT determination for an SBS. However, the Commission would still play a primary role in the MAT process, as it will have the opportunity to review all SBSEF MAT
determinations, whether they are self-certified or voluntarily filed for Commission approval, to determine whether those determinations are adequately supported by evidence and consistent with the SEA and the rules thereunder, including the six factors to be considered for MAT determinations under Rule 816(b), which are discussed below. In the absence of such evidence, the Commission can decline to approve or can stay and then object to a MAT petition, which will ultimately allow the Commission to prevent an inappropriate MAT determination from taking effect. Some commenters also recommend that the MAT process provide other market participants the ability to provide comment on any MAT proposal.287 One commenter proposes that market participants have a meaningful opportunity to review and opine on a petitioning SBSEF’s proposed MAT determination.288 This commenter argues that the MAT factors are intended to measure trading liquidity that is available and that this assessment should include the perspectives of market participants.289 Another commenter also states that it has long believed that market participants should have the ability or a forum to comment on proposed MAT determinations.290 One commenter recommends that, in order to support the MAT process and to guard against inappropriate MAT determinations, the Commission permit market participants and other interested parties to participate in the MAT analysis by introducing a public notice and

291See MFA Letter, supra note 18, at 9. 292See ISDA–SIFMA Letter, supra note 18, at 4– 5. 293See ICI Letter, supra note 18, at 5, 7–8. 294See id. at 9–10. 295See id. 296See Bloomberg Letter, supra note 18, at 15–16. 297See SIFMA AMG Letter, supra note 18, at 6; ICI Letter, supra note 18, at 6–7. 298See SIFMA AMG Letter, supra note 18, at 6. 299See ICI Letter, supra note 18, at 5–8. comment period into the MAT assessment timeline.291 This commenter states that this would provide market participants, who would be those most affected by a MAT determination, with the opportunity to identify specific aspects of individual SBS products that may limit their liquidity, which would help ensure each MAT determination is appropriate for the relevant SBS product. Another commenter states that one of the shortcomings of the MAT process is that it puts too much responsibility in the hands of the trading platform and does not require, or even consider, input from market participants.292 This commenter states that the implications of this outcome are even more evident in the context of an SBS MAT determination, as such a determination would only be relevant to a small segment of the global SBS market, which the commenter states is much smaller and less liquid than its swaps counterpart. One commenter also states that the proposed approach will give SBSEFs the sole ability to dictate the scope of SBSEF trading for market participants based on the commercial interests of SBSEFs.293 This commenter recommends that the Commission require a 30-day public comment period for all MAT determinations. The commenter expresses concern that, under the proposal, it would be possible for a MAT determination to become effective without an opportunity for public comment and that the MAT process would be controlled almost entirely by one segment of the SBS markets, the SBSEFs. The commenter states that market participants can provide the Commission with invaluable commentary, insights, and data on the potential effects of proposed rules, as well as help to ensure that rules are implemented in a fair and orderly manner. The commenter asserts that, because MAT determinations are data intensive, 30 days would give market participants sufficient time to analyze the data presented by the SBSEF, prepare their own data and analyses, and comment effectively on operational and technological implications. This commenter also recommends that the Commission consider creating an advisory board to provide recommendations both to the Commission and to SBSEFs on SBSs that should be added to or removed from the list of SBSs that are subject to the trade execution requirements.294 The commenter states that the advisory board should have appropriate expertise and balanced representation, including from the buy side, sell side, and other stakeholders. The commenter asserts that this would help further address some of their concerns about the MAT process and ensure that the SBSs made subject to the
trade execution requirement are only the most liquid. Furthermore, the commenter argues that the advisory board could also help the Commission assess the functioning of the MAT determination process and of the overall SBS regulatory framework and provide recommendations for improvement.295 Another commenter states that the process for MAT determinations should include input from both market participants and the Commission.296 The commenter states that market participants may trade on multiple venues and in multiple jurisdictions and have a greater or different perspective from the SBSEF making the MAT determination. Additionally, the commenter states that the Commission’s input should be considered as well. The Commission will have sufficient opportunity to assess self-certified MAT determinations for consistency with the criteria of Rule 816(b), as well as with the SEA and the other regulations thereunder, while also permitting SBSEFs to use a self-certification process closely aligned with § 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. Certain MAT determinations of dually registered SEF/ SBSEFs may apply to SBSs and swaps that are related and that related MAT determinations will thus have to be filed with both the SEC and CFTC. Adding a default comment period or otherwise altering the standard so that the Commission reviews all MAT determinations by SBSEFs, as commenters requested, would significantly alter the timing of selfcertified SBSEF MAT determinations compared to their SEF equivalents. By contrast, closely harmonizing the SEC’s filing procedures and standards of review with the CFTC’s would allow dually registered entities to submit related MAT determinations to both agencies for review. Moreover, if the Commission exercises its authority to stay the effectiveness of a self-certified MAT determination and seek public comment—i.e., with respect to a rule that is novel, complex, inadequately explained, or potentially inconsistent with the SEA or the regulations thereunder, including Regulation SE— market participants would be able to convey their concerns regarding that rule to the Commission. For SBS MAT determinations submitted under the Rule 806 process that present novel or complex issues or meet other criteria under Rule 806(d), the initial 45-day review period for rule approval submissions may be extended for an additional 45 days. The Commission recognizes the importance of public input regarding any MAT determination, and not only does Rule 808(b) provide that the Commission make publicly available on its website Rule 806 filings, such as an SBSEF’s MAT filing, but the Commission is also, as discussed below, delegating to its staff the authority to make filings under Rule 806 available on the Commission’s website, which will expedite the process of providing interested
persons with the ability to review a MATdetermination filing so that they can communicate their views to the Commission. Thus, in either process, if MAT petitions present novel or complex issues, the Commission will have sufficient time to receive and consider public comment for those submissions. Further, accepting public comment from all interested market participants in the context of a specific MAT determination would more efficiently aid the Commission’s review of SBSEF MATdetermination filings than forming a formal advisory board to offer opinions on adding or removing SBS from the list of products that have been MAT. Several commenters question the extent of the Commission’s role in the MAT determination process.297 One commenter cites the lack of Commission authority to delay or decline an SBSEF submission for a MAT determination, particularly without comment from market participants, as the basis for its concerns about the proposed MAT process.298 Another commenter recommends that the Commission enhance its oversight by ensuring that it has a more meaningful ability to review and reject MAT determinations, as well as the ability to initiate determinations itself as appropriate.299 This commenter also expresses concern that the Commission would not have adequate time to consider, or authority to

300See SIFMA AMG Letter, supra note 18, at 6– 8; ICI Letter, supra note 18, at 5; MFA Letter, supra note 18, at 9; WMBAA Letter, supra note 18, at 5. 301See SIFMA AMG Letter, supra note 18, at 7– 8; ICI Letter, supra note 18, at 5; WMBAA Letter, supra note 18, at 5. 302See SIFMA AMG Letter, supra note 18, at 6– 8. 303See ICI Letter, supra note 18, at 5–6. 304See 2013 CFTC Final MAT Rules Release, supra note 9, 78 FR at 33613. challenge, the basis for a MAT determination. The Commission, however, does have the authority to prevent an SBSEF MAT determination under either Rule 806 or Rule 807 from taking effect. As noted above, under Rule 806, the Commission has a 45-day period to consider a submission under Rule 806, which could be extended for another 45 days. The Commission can, if it finds the determination to be inconsistent with the SEA or the rules thereunder, notify the SBSEF that it will not, or is unable to, approve the new rule or rule amendment. Under Rule 807, MAT determinations cannot go into effect for at least 10 business days, during which the Commission has the opportunity to determine whether the determination presents novel or complex issues, if it is inadequately explained, or if it is potentially inconsistent with the SEA or the rules thereunder. If the Commission determines that any of these concerns is present, the Commission can stay the MAT determination for a 90-day period for further review. Within those 90 days, the Commission will have the opportunity to object 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, thereby preventing the self-certified MAT determination from going into effect. Therefore, the processes for submitting MAT determinations do afford the Commission sufficient time and authority to review and, where appropriate, decline to approve, or object to, MAT determinations. For the reasons discussed above, the Commission is adopting Rule 816(a) as proposed.
3. Rule 816(b)
Paragraph (b) of Rule 816 sets forth six factors that an SBSEF shall consider, as appropriate, when making a MAT determination for an SBS product, which are the same six factors enumerated in the CFTC rule. Those factors are: (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. The Commission received several comments on the factors for making a MAT determination described in Rule 816(b).300 Several commenters express concern that the factors for consideration enumerated in Rule 816(b) are not mandatory.301 One commenter states that the rule requires that an SBSEF’s submission consider the factors in the rule, as appropriate, when making a MAT determination.302 This commenter proposes that all of the MAT factors must be considered for mandatory SBSEF trading. This commenter also urges the Commission to assess the MAT factors on the basis of the current trading activity of the relevant SBSs on the SBSEF against stringent standards, and in the aggregate, in order to determine whether there is proven liquidity on SBSEFs to support mandatory SBSEF trading. The commenter also proposes that the Commission expand the MAT factors to require evidence demonstrating that the SBSEF has the requisite infrastructure to support mandatory SBSEF trading by:
(a) adding an assessment of technological readiness, and (b) requiring threshold numbers of SBSEFs as well as liquidity providers on the SBSEF transacting in the relevant SBS. The commenter argues that, while the expansion of MAT factors may be viewed as requiring more intervention and resources by the Commission, the revised approach will ultimately lead to a streamlined process, while at the same time avoiding a potential sacrifice of liquidity if a particular SBS is mandated for SBSEF trading prematurely. One commenter also expresses concern that the factors in Rule 816(b) are neither mandatory nor based on calculated thresholds, and that they would permit SBSEFs to assert that an SBS should be MAT even absent objective evidence of a sufficiently liquid trading market.303 This commenter states that this could have negative consequences for buy-side participants such as funds—requiring SBSs with insufficient liquidity to be traded via order book or an RFQ system, which would raise a significant risk of revealing advisers’ sensitive portfolio management strategies. This commenter also states that, without requiring SBSEFs to consider any objective factors (e.g., threshold levels), it is not clear how the Commission could ever find that a MAT determination is inconsistent with the SEA or the Commission’s rules. This commenter recommends that the Commission enhance the MAT determination factors by: clarifying that all factors must be evaluated, rather than just one or a subset; adding as a factor the number of SBSEFs that list the SBS; requiring that at least two SBSEFs list the SBS; and requiring a minimum amount of trading history (e.g., that an SBS has been listed for at least 90 days). The commenter also recommends that the Commission make the MAT determination factors more robust by establishing at least some objective mandatory criteria. The commenter argues that adopting these recommendations would provide the Commission with greater authority to reject a MAT determination and would address the conflict raised by an SBSEF’s commercial incentive to make an SBS MAT, as well as ensure that there is enough liquidity in an SBS before it is subject to a MAT determination. The commenter urges that a more robust MAT determination process is critical to bring consistency to the SBS market over time, as having objective standards would avoid MAT determinations based on subjective assessments of liquidity that may change over time. The Commission’s approach of requiring the MAT factors to be considered as appropriate, rather than mandating the consideration of all the factors, is consistent with the approach the CFTC has taken. The CFTC adopted its approach to provide more flexibility so that its markets could accommodate swaps with different trading characteristics that can be supported in a centralized trading environment.304 And a similarly flexible approach is appropriate for the different SBSs that would be traded on its SBSEFs, as the
appropriate thresholds on any of the factors may vary depending on the SBS and over time. Adopting specific thresholds would create excessive rigidity at the outset. MAT submissions, under Rules 806(a)(5) and 807(a)(6), would be required to contain an explanation and analysis of the SBSEF’s determination, including a discussion of the factors enumerated in the rule, and how it complies with the SEA and the Commission’s regulations thereunder. Rule 816(b) requires SBSEFs to consider all the factors enumerated in the rule, as appropriate. However, such consideration, to be meaningful, generally should discuss the factors in the context of the general market, relative to some outside benchmark. And the SBSEF would have the burden of providing support for any assertions it makes regarding the adequacy of any of the factors it considers, with

305See SIFMA AMG Letter, supra note 18, at 6–
7. 306See MFA Letter, supra note 18, at 9.
307An 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 proposed rule text did not establish a new procedure for SBS exchanges to list or MAT SBS products. See Proposing Release, 87 FR at 28898 n.107. reference to some external, objective standard. The explanations and analyses provided by the SBSEF generally should provide adequate justification as to how all the factors considered apply to the SBS MAT determination, as well as to why any factors enumerated in Rule 816(b) that are not addressed are not relevant. A failure, on the part of the SBSEF, to address any factors that are relevant or to adequately support its assertions would be a basis for the Commission to find that a MAT determination is inconsistent with the SEA and its rules. One commenter, while supporting harmonization with the CFTC’s MAT standards, expresses concern with the current framework for determining whether mandatorily cleared SBS should also be mandated for SBSEF trading through the MAT process. This commenter urges that there be a substantive analysis of whether an SBS has sufficient liquidity available to market participants on the SBSEF. The commenter states that, absent a robust MAT process requiring the SBSEF to demonstrate that voluntary exchange trading has met minimum liquidity and other standards, an absence of liquidity for the newly MAT-ed product on the SBSEF could shut out asset managers from accessing liquidity for their clients once OTC trading is prohibited. To this end, the commenter recommends that the Commission specify that the MAT standards are not synonymous with the clearing requirement standards. The commenter asserts that its assessment reflects the fact that necessary market conditions that make central clearing appropriate are different from the necessary market conditions that make mandatory SBSEF execution appropriate.305 Another commenter, while generally supporting the Commission’s approach to MAT determinations and the six factors enumerated in the rule, urges the Commission to take a cautious approach in its assessment of whether a MAT determination is appropriate. Specifically, the commenter recommends that the Commission carefully consider each factor, individually and collectively, in assessing whether a particular SBS has sufficient liquidity to support mandatory SBSEF trading. The commenter also cautions that the Commission should avoid broad MAT categorizations for specific types of SBS when individual SBS products within each category may be more or less suitable for a MAT designation.306 From the factors enumerated in Rule 816(b), it is clear that additional factors, beyond the fact that a product is subject to mandatory clearing, will need to be considered in determining whether an SBS is suitable to be MAT, and these factors are directly relevant to
the liquidity of trading in a given SBS:
whether there are willing buyers and sellers, the frequency and size of transactions, the trading volume, the number and types of market participants, the bid/ask spread, and the usual number of resting firm or indicative bids and offers. Adopting specific thresholds, however, would be too rigid an approach to accommodate the different kinds of SBSs that may be traded on an SBSEF, particularly at this early stage. As stated above, the Commission or its staff will review SBS products on a case-by-case basis, and for SBS products presenting novel or complex issues there will be an extended period for the Commission to review the submission and consider public comments on the appropriateness of a MAT determination on a case-by-case basis, taking into account the facts and circumstances of the SBS subject to the determination, including when a filing seeks to include a broad category of SBS within a MAT determination. The Commission has carefully considered the concerns raised by commenters regarding the determination of when an SBS is appropriate for a MAT determination by an SBSEF, and the Commission is adopting Rule 816(b) as proposed. The Commission appreciates that a MAT determination for an SBS will be consequential for market participants, and that the enumerated factors in Rule 816(b) are important components of an analysis of whether an SBS is appropriate for a MAT determination. Rule 816(b) will require SBSEFs to consider each of the factors enumerated in Rule 816(b), as appropriate. As noted above, a flexible approach to the enumerated factors will accommodate the different kinds of SBSs that will be traded on SBSEFs. While the rule does not require that every factor be considered in every case, to the extent that a factor is relevant and an SBSEF’s MAT determination submission fails to sufficiently address that factor, the Commission would be in a position to either disapprove the submission, if made under Rule 806, or stay and ultimately object to the submission, if self-certified under Rule 807. Furthermore, the rules for filing MAT determinations require SBSEFs to provide, among other things, an explanation and analysis of the proposed MAT determination, including a discussion of its compliance with the SEA, the Core Principles for SBSEFs, and the Commission’s rules thereunder. In the case of a MAT determination, the SBSEF generally should do more than simply state that it is consistent with the SEA and the Commission’s rules thereunder, but should also provide supporting analysis, and supporting documentation as appropriate, for its conclusion. If an SBSEF fails to provide adequate explanation or analyses of the MAT determination, it would be difficult for the Commission to find that the determination is consistent with the SEA and the Commission’s rules thereunder. Thus, MAT determination filings generally should be accompanied with adequate discussion and support for a MAT determination based on all relevant factors in Rule 816(b),
including discussion supporting a conclusion that the SBS product subject to the MAT determination achieves the appropriate thresholds for that category of products. Furthermore, for MAT determinations presenting novel or complex issues, there will be an extended period for the Commission to solicit and consider public comments on, among other things, the appropriateness of the factors considered. For the reasons discussed above, the Commission is adopting Rule 816(b) as proposed.
4. Rule 816(c)
Paragraph (c) of Rule 816 provides that, upon a determination that an SBS has been MAT on an SBSEF or SBS exchange,307 all other SBSEFs and SBS exchanges shall comply with the requirements of section 3C(h) of the SEA in listing or offering that SBS for trading. The Commission received no comments on Rule 816(c) and the Commission is adopting Rule 816(c) as proposed for the reasons stated in the Proposing Release.
5. Rule 816(d)
Paragraph (d) of Rule 816 provides that the Commission may issue a

308See ICI Letter, supra note 18, at 9. 309See id. 310See 15 U.S.C. 78mm. 311Section 3C(g) of the SEA is entitled ‘‘Exceptions,’’ not ‘‘Exemptions.’’ 312As 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. 313Section 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. Since the Commission does not have an equivalent to § 50.52 to reference, the Commission is instead defining the term ‘‘eligible affiliate counterparties’’ directly in Rule 816(e)(3). These definitions are closely modeled on the equivalent definitions used in § 50.52, which are incorporated into § 36.1(c). 314See ISDA–SIFMA Letter, supra note 18, at 9– 10; SIFMA AMG Letter, supra note 18, at 6. 315See SIFMA AMG Letter, supra note 18, at 6. determination that an SBS is no longer MAT upon determining that no SBSEF or SBS exchange lists that SBS for trading. The Commission received one comment on Rule 816(d).308 This commenter recommends that the Commission modify its proposed approach to removing an SBS from the trade execution requirement. The commenter states that the proposed approach raises a significant risk that an SBS may be required to be traded on an SBSEF merely because it is listed on one SBSEF, even if there is no liquidity to sustain trading in that SBS, which could be detrimental for both buy-side and sell-side market participants. To ensure that there is adequate liquidity in MAT SBSs, the commenter recommends that the Commission adopt a process for removing an SBS from the MAT scope that is similar to the process for making a MAT determination. The commenter also urges the Commission, given the industry’s recent experience with the COVID–19 crisis, and consistent with the MRAC Report, to consider the implications that a temporary outage at one or more SBSEFs or a major market disruption would have for SBSs subject to the trade execution requirement. For this reason, the commenter recommends that the Commission consider the circumstances under which it would allow for a temporary suspension of the trade execution requirement and any possible terms for such a suspension, as well as any other relief measures the Commission may be able to provide.309 The commenter’s concern that an SBS may be required to be traded on an SBSEF merely because a single SBSEF has listed that SBS, even if there is no liquidity to sustain trading in that SBS, is addressed by the requirements in Rule 816(b) that must be met by an SBSEF before it submits a MAT determination under Rule 806 or Rule 807, as well as by the Commission’s ability to disapprove, or stay and then object to, any MAT determination by an SBSEF. In considering an SBSEF’s
MAT submission, the Commission will generally consider how many SBSEFs list and trade a given SBS, as well as the liquidity and trading characteristics of that SBS. Further, to the extent market circumstances change to make a previous MAT determination unsuitable for then-prevailing market conditions, and if the SBSEF that has made a MAT determination is unwilling to withdraw that determination, the Commission would be able to grant exemptive relief (including on an emergency basis) pursuant to its authority in section 36 of the SEA in order to address that situation.310 For these reasons, the Commission would have the ability to address market circumstances that disrupt the ability of market participants to trade SBS in compliance with the trade execution requirement. Therefore, the Commission is adopting Rule 816(d) as proposed.
6. Rule 816(e)
Paragraph (e) of Proposed Rule 816 has no analog in § 37.10, but instead is adapted from 17 CFR 36.1 of the CFTC’s rules, 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. Paragraph (e)(1) of Rule 816 provides that an SBS transaction that is executed as a component of a package transaction and 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) provides that, for purposes of paragraph (e), a package transaction consists 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 nearsimultaneous execution of all components. Paragraph (e)(2) of Rule 816, which is adapted from § 36.1(b), provides that
section 3C(h) of the SEA does not apply
to an SBS transaction that qualifies for an exception 311 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.312 Unlike the CFTC, the Commission does not have a specific rule to cite to regarding exemptions from the clearing requirement, so Rule 816(e)(2) would refer only generally to such exemptions. Paragraph (e)(3) of Rule 816, which is adapted from § 36.1(c), provides 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.’’ 313 Counterparties would be ‘‘eligible affiliate counterparties’’ for purposes of 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 (‘‘GAAP’’) or International Financial Reporting Standards (‘‘IFRS’’), 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 GAAP or IFRS, and such consolidated financial statements include the financial results of both of the counterparties. In addition, for purposes of 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. The Commission received comments on Rule 816(e).314 One commenter supports the proposed carve-out for package transactions.315 Another commenter, however, states that the CFTC’s rules for package transactions were ‘‘developed by the CFTC, initially via staff no-action relief, after SEFs had adopted various MAT determinations and market participants had provided input to the CFTC regarding the particular types of package transactions

316 ISDA–SIFMA Letter, supra note 18, at 9. 317See ISDA–SIFMA Letter, supra note 18, at 9– 10. 318Rule 3Ca–1 under the SEA 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. 17 CFR 240.3Ca–1. 319See Bloomberg Letter, supra note 18, at 16; ICI Letter, supra note 18, at 8–9; ISDA–SIFMA Letter, supra note 18, at 5, SIFMA AMG Letter, supra note 18, at 7; WMBAA Letter, supra note 18, at 5. 320See SIFMA AMG Letter, supra note 18, at 7. 321See WMBAA Letter, supra note 18, at 5. 322See Bloomberg Letter, supra note 18, at 16; ICI Letter, supra note 18, at 8; ISDA–SIFMA Letter, supra note 18, at 5. 323See Bloomberg Letter, supra note 18, at 16. 324See ISDA–SIFMA Letter, supra note 18, at 5. 325See ICI Letter, supra note 18, at 3, 8. common in the market for the relevant types of MAT swaps.’’ 316 The commenter states that it is for this reason that particular types of package transactions addressed by the CFTC generally focus on transactions common in the interest-rate swaps market, which make up the majority of MAT swaps. In addition, the commenter asserts that the current state of the CFTC’s rules in this area reflect the culmination of a phased implementation approach developed over time via no-action letters. The commenter argues that, in light of this, it would be better for the Commission to tailor its rules for package transactions to address the particular market dynamics relevant to the SBS market instead of those in the swaps market. The commenter recommends that the Commission build into the MAT determination process a framework for identifying what types of package transactions exist for prospective MAT SBS and then develop tailored rules around the execution of such transactions.317 The Commission does not agree that it is necessary to tailor the Commission’s rules for package transactions to address the particular market dynamics relevant to the SBS market, because no MAT determinations for SBS have been made, and no MAT determinations can yet be made because no SBS are required to be cleared. Moreover, the Commission does not yet have a sufficient basis on which to tailor the rules for package transactions to address SBS market dynamics, because the market dynamics relevant to trading of SBS on SBSEFs have yet to develop. It would be preferable to address those dynamics with respect to package transactions if and when it becomes necessary or appropriate to do so, because, at that point, the Commission and commenters would be better informed about the nature of trading various SBS on SBSEFs. In the meantime, it is desirable for Rule 816(e) to be harmonized with § 36.1 of the CFTC’s rules to promote similar treatment of package trades, whether they involve SBS or swaps, as this will facilitate the participation of current SEF participants on
SBSEFs. If, after SBSEFs have become operational and MAT determinations have been made, the Commission observes that the rules for package transactions are no longer suitable for the SBS market, the Commission could consider amending Rule 816(e) at that time. For the reasons discussed above, the Commission is adopting Rule 816(e) as proposed. G. Rule 817—Trade Execution Compliance Schedule Proposed Rule 817 is modeled 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.318 Accordingly, paragraph (a) of Rule 817 provides 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 Rule 817 also
provides that a counterparty may voluntarily comply with the trade execution requirement sooner than required by paragraph (a). The Commission received several comment letters about the sufficiency of the time period allotted for compliance with a MAT determination.319 One commenter encourages the Commission to provide an extended duration of time until any MAT determination becomes effective so that asset managers and other market participants have adequate time to make the necessary operational and market structure arrangements to accommodate the trade execution requirement.320 Another commenter urges the Commission to ensure that all SBSEFs and market participants have adequate time to prepare for the operational and market conditions that come along with a MAT determination.321 Some commenters recommend that a MAT determination not be effective for at least 90 days.322 One commenter emphasizes that, after a MAT determination, market participants should be provided with sufficient time to comply with any new trade execution requirement, and that commenter believes that market participants would benefit from 90 days to comply.323 Another commenter, citing its experience with the MAT requirement, states that it has observed that 30 days provides insufficient time to adjust trading protocols and ensure a smooth transition to trading on SEFs.324 In this regard, the commenter asks the Commission to extend the time between when a MAT determination is made and when it becomes effective from the proposed 30 days to 90 days. The commenter also asserts that this is consistent with the recommendations of the CFTC MRAC report that examined the appropriateness, efficacy, and sustainability of the MAT process. Another commenter also cites the CFTC MRAC’s report in recommending that the Commission provide 90 days after a MAT determination is final before it becomes effective. This commenter emphasizes that market participants will need an adequate compliance period after a mandatory clearing determination is made and after the SBS is first made available to trade on an SBSEF to prepare. The commenter expresses concern that, under the proposed approach, if an SBS is made available to trade fewer than 30 days before a mandatory clearing determination, then the SBS would be subject to mandatory trading on an SBEF with a less than 30-day compliance period. This commenter urges the Commission to clarify that the scope of eligible SBS for MAT determination is limited to only those that have already been determined to be subject to mandatory clearing. This commenter also asserts that, even when an SBS is already subject to mandatory clearing, the proposed 30-day compliance period would still be inadequate given the complex operational and technological steps that must be taken to trade a new SBS on an SBSEF. The commenter states that market participants such as regulated funds will need time to onboard to an SBSEF if necessary, and to further update their systems,
processes, and procedures to transact via an SBSEF’s order book or RFQ system.325

326See supra section V.F.3. 327See supra section V.F.2. 328 15 U.S.C. 78c–4(d). 329Compare 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. 330 17 CFR appendix-B-to-part-37 1. 331Section 3D(d)(1) of the SEA, 15 U.S.C. 78c– 4(d)(1). 332CEA Core Principle 1 is substantively identical. See 7 U.S.C. 7b–3(f)(1). 333Section 3D(d)(2) of the SEA, 15 U.S.C. 78c– 4(d)(2). The Commission has considered commenters’ requests for an extended compliance period for the mandatory trading requirement once a MAT determination has been made with respect to an SBS. The presence of ready and willing buyers and sellers and the number and types of market participants, among other things, are relevant factors in a MAT determination under Rule 816(b).326 As noted above, the extent to which a MAT determination is likely to be disruptive to the market for a given SBS is best addressed in the context of making the MAT determination, which, as discussed above, allows for the Commission oversight of the determination through its review and approval or disapproval of a filing under Rule 806, or through staying and seeking public comment on a selfcertification under Rule 807.327 Further, with respect to the suggestion that the Commission clarify that the scope of eligible SBS for MAT determination is limited to only those that have already been determined to be subject to mandatory clearing, a MAT determination filing would not have any relevance until there are any SBSs subject to the clearing requirement. It is not necessary to revise the 30-day period for compliance with a MAT determination, because the readiness of the market to comply with a MAT determination for a particular SBS would be relevant to the MAT determination itself, including the analysis of the six factors enumerated in Rule 816(b), and because an analysis of that readiness would best be undertaken based on the facts and circumstances attending a specific MAT determination. For the reasons discussed above, the Commission is adopting Rule 817 as proposed.
VI. Implementation of Core Principles
Section 3D(d) of the SEA 328 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.329
Core principle title CEA # SEA # 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 It continues to 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 the SEC rule being adopted, the discussion below addresses those differences. The discussion below will also address where there is not, or at least there is not intended to be, a difference between the SEC rule and the analogous existing 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.’’ 330 Where the CFTC has included guidance and/or accepted practices pertaining to a Core Principle for SEFs, the discussion below addresses how (if at all) the Commission has incorporated the substance of these statements into Regulation SE. A. Rule 818—Core Principle 1— Compliance With Core Principles Core Principle 1 331 requires an SBSEF, to be registered and maintain registration as an SBSEF, and 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.332 Proposed Rule 818, like § 37.100 of the CFTC’s rules, repeats the relevant statutory text of the Core Principle. The Commission received no comments on Proposed Rule 818 and is adopting Rule 818 as proposed for the reasons stated in the Proposing Release. B. Rule 819—Core Principle 2— Compliance With Rules Core Principle 2 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.333 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

334 7 U.S.C. 7b–3(f)(2).
335See 7 U.S.C. 7b–3(f)(2)(D).
336See Proposing Release, supra note 1, 87 FR at 28901–05. 337See id. at 28905–09. 338 17 CFR 37.200; see also Proposing Release, supra note 1, 87 FR at 28901. 339See Proposing Release, supra note 1, 87 FR at 28902. 340See supra section V.E.1(c). 341 17 CFR 37.201; see also Proposing Release, supra note 1, 87 FR at 28901. 342See Proposing Release, supra note 1, 87 FR at 28902. 343See supra section V.E.1(c). 344 17 CFR 37.202; see also Proposing Release, supra note 1, 87 FR at 28901. 345 15 U.S.C. 78c–4(d)(2)(B)(i) (‘‘a security-based swap execution facility shall . . . establish and enforce trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforcement those rules, including means . . . to provide market participants with impartial access to the market’’). 346See Citadel Letter, supra note 18, at 6–7; SIFMA AMG Letter, supra note 18, at 4; MFA Letter, supra note 18, at 10. 347See MFA Letter, supra note 18, at 10. 348See Citadel Letter, supra note 18, at 6–7. 349See Citadel Letter, supra note 18, at 6–7. 350See id. 351See MFA Letter, supra note 18, at 10. facility, including block trades. Core Principle 2 for SEFs 334 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.335 As described in the Proposing Release, the Commission modeled Rules 819 (a) through (g) on subpart C of part 37 of the CFTC’s rules,336 and Rules 819 (h) through (k) on other parts of the CFTC’s rules.337

Rule 819(a)—General
Paragraph (a) of Proposed Rule 819, like § 37.200 of the CFTC’s rules,338 would repeat the statutory text of Core Principle 2.339 The Commission did not receive any comments on Proposed Rule 819(a). It is appropriate to repeat the statutory text of Core Principle 2 in Rule 819(a) and is adopting Rule 819(a) as proposed, except that it is deleting the words ‘‘including block trades,’’ in light of its decision not to adopt a definition of ‘‘block trade.’’ 340
Rule 819(b)—Operation of SecurityBased Swap Execution Facility and
Compliance With Rules
Paragraph (b) of Proposed Rule 819 is closely modeled on § 37.201 of the CFTC’s rules,341 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.342 The Commission did not receive any comments on Proposed Rule 819(b). It is appropriate for an SBSEF to specify trading procedures and to establish and impartially enforce compliance with its rules, and the Commission is adopting Rule 819(b) as proposed, except that it is deleting the words ‘‘including block trades, if offered,’’ in light of its decision not to adopt a definition of ‘‘block trade,’’ 343 which will have no effect on the requirement as compared to the proposed rule.
Rule 819(c)—Access Requirements
Paragraph (c) of Proposed Rule 819 is closely modeled on § 37.202 of the CFTC’s rules,344 and would require an SBSEF, consistent with section 3D(d)(2)(B)(i) of the SEA,345 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 will also be required to establish nondiscriminatory fee structures for ECPs and independent software vendors based on the level of access to or services provided by the SBSEF. Rule 819 further requires an SBSEF 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. Several commenters express general support for the adoption of impartial access standards for SBSEFs.346 One commenter specifically supports the Commission’s close harmonization with CFTC rules.347 One commenter expresses support for Proposed Rule 819(c), but states that the Commission’s proposal does not provide market participants with sufficient clarity regarding how Proposed Rule 819(c) will be interpreted and applied in practice, and the commenter encourages the Commission to provide in the final rule that access to SBSEFs should be based on ‘‘objective, pre-established’’ criteria, and that any ECP should be able to demonstrate financial soundness by showing that it is a clearing member or that it has clearing arrangements in place with a clearing member.348 This commenter states that the CFTC has provided market participants with extensive guidance regarding impartial access and encourages the Commission to provide similar clarity when finalizing the SBSEF rules, including guidance with respect to membership criteria, trading protocols and functionality, and fee arrangements. Specifically, this commenter urges the Commission to provide in the final rule that an SBSEF may not limit membership to (i) self-clearing members; (ii) registered security-based swap dealers; (iii) banks or liquidity providers with a minimum amount of Tier 1 capital; (iv) liquidity providers that have been ‘‘enabled’’ by, or have bilateral documentation with, a minimum number of other liquidity providers; or (v) liquidity providers with a minimum amount of transaction volume.349 This commenter also states that SBSEFs should not be permitted to apply trading protocols in a manner that results in impermissible discrimination among market participants. Specifically, the commenter states that SBSEFs should not allow participants to selectively restrict their trading with other SBSEF participants through ‘‘enablement mechanisms’’; that market participants should be permitted to act as both liquidity providers and liquidity takers on an SBSEF; that all SBSEF participants should be permitted to both send and receive RFQs (instead of only designated liquidity
providers being eligible to receive RFQs); and that SBSEFs should not be permitted to require participants to have bilateral documentation in place to trade cleared security-based swaps, as this could provide a pretext for some participants to restrict trading with other participants. This commenter further states that SBSEFs should not be permitted to use fee arrangements to effect otherwise impermissible discrimination with respect to access.350 Another commenter also urges the Commission to incorporate the CFTC’s impartial access requirement guidance with respect to SBSEFs, which would assist market participants in interpreting how the impartial access rules should work. Coordination of impartial access ‘‘not only affects an entity operating both an SEF and SBSEF but also their clients, many of whom use the same individual traders to trade both instrument types.351 One commenter specifically encourages the Commission to address the potential use of restrictive requirements to obtain access to SBSEFs and to make clear that an SBSEF’s reasonable discretion in establishing access criteria must be impartial,

352See SIFMA AMG Letter, supra note 18, at 4. 353See Bloomberg Letter, supra note 18, at 3–4. 354See Proposing Release, supra note 1, 87 FR at 28876. 355See Rule 819(c)(4). The Commission is adopting Rule 819(c) with the addition of paragraph (c)(4). The Commission notes that the CFTC has a standard of review applicable to its process. See 17 CFR 9.2(c); 17 CFR 9.33(c). 356See Division of Clearing and Risk, Division of Market Oversight and Division of Swap Dealer and Intermediary Oversight Guidance on Application of Certain Commission Regulations to Swap Execution Facilities, CFTC (Nov. 14, 2013), available at https://www.cftc.gov/sites/default/files/idc/groups/ public/@newsroom/documents/file/ dmostaffguidance111413.pdf. 357See Citadel Letter, supra note 18, at 6. Membership requirements based on any combination of these factors would similarly be inconsistent with providing impartial access. 358See 2013 CFTC Final SEF Rules Release, supra note 9, at 78 FR at 33598 (discussing ‘‘impartial access’’ to swap execution facilities). 359See id. Similarly, it is not consistent with impartial access for an SBSEF to require that an ECP have clearing arrangements in order to trade security-based swaps that are not intended to be cleared. In such a case, the SBSEF’s standards of financial soundness should be objective and impartial and should have a relevant relationship to trading on the SBSEF. 360See supra note 357 and accompanying text. transparent, and applied in a fair and nondiscriminatory manner.352 One commenter states that the trading documentation requirement of Rule 15Fi-5 may at times conflict with the impartial access requirement of Proposed Rule 819(c) because it is unlikely that all SBSEF members trading cleared swaps will have trading relationship documentation with all other members trading cleared SBS.353 This commenter encourages the Commission to adopt the CFTC guidance regarding enablement mechanisms and states that such mechanisms were historically used to eliminate credit risk, but that no such risk exists if an SBSEF intended to be cleared is void ab initio if rejected for clearing. The Commission agrees with commenters that impartial access to an SBSEF encompasses both impartial access to membership in an SBSEF and the ability to fully interact on the SBSEF’s order book or RFQ system, and that an SBSEF’s rules must incorporate impartial criteria for this access. The Commission expects 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 and that ensuring consistency of access to SBSEFs and SEFs will provide market participants with greater certainty about permissible practices regarding access to these platforms.354 Efforts to undermine the principle of impartial access may take myriad forms over time. The text of Rule 819(c) is consistent with the text of § 37.202 of the CFTC’s regulations and emphasizes the general principal that access to an SBSEF and
its services must be impartial. The Commission does not find it necessary to describe within 819(c) specific practices that would violate its requirements. For the purposes of the Commission’s review process for a denial or limitation of access or membership that is inconsistent with Rule 918(c), the Commission will apply a standard of review consistent with standards of review that the Commission uses in similar contexts.355 The Commission is aware of the CFTC staff guidance on impartial access related to § 37.202 of the CFTC’s regulations.356 The Commission finds it is appropriate to similarly provide guidance as to certain criteria or practices that are inconsistent with Rule 819(c)’s requirement to provide impartial access. The Commission agrees that it is inconsistent with providing impartial access for an SBSEF to limit membership based on an ECP’s status, such as by limiting membership to (1) self-clearing members; (2) registered security-based swap dealers; (3) banks or liquidity providers with a minimum amount of Tier 1 capital; (4) liquidity providers that have been ‘‘enabled’’ by, or have bilateral documentation with, a minimum number of other liquidity providers; or (5) liquidity providers with a minimum amount of transaction volume.357 Access to an SBSEF generally should be determined, for example, on an SBSEF’s ‘‘impartial evaluation of an applicant’s disciplinary history and financial and operational soundness against objective, pre-established criteria.’’ 358 As one example of such criteria, any ECP should be able to demonstrate financial soundness either by showing that it is a clearing member of a clearing agency that clears products traded on that SBSEF or by showing that it has clearing arrangements in place with such a clearing member.359 Further, providing impartial access as required by Proposed Rule 819(c) means providing all of an SBSEF’s market participants—dealers and non-dealers alike—with the ability to fully interact on the order book or RFQ system as liquidity providers, liquidity takers, or both, including viewing, placing, or responding to all indicative or firm bids and offers and to place, receive, and respond to RFQs. Therefore, it would be incompatible with impartial access for an SBSEF’s rules to permit mechanisms, schemes, functionalities, counterparty filters, or other arrangements that prevent an SBSEF participant from interacting or trading with, or viewing the bids and offers (firm or indicative) displayed by, any other market participant on that SBSEF, whether by means of any condition or restriction on its ability or authority to display a quote to any other market participant or to respond to any quote issued by any other market participant on that SBSEF with respect to security-based swap transactions that are intended to be cleared. It is also inconsistent with impartial access for an SBSEF’s rules to require bilateral documentation or to permit bilateral enablements in order to trade security-based
swaps that are intended to be cleared, because providing for such documentation or enablements solely to address occasional trade rejections by a clearing agency would undercut the ability of all ECPs to post or interact with interest on securitybased swaps that are intended to be cleared, and because such documentation or enablements are unnecessary in light of the provisions of Rule 815(g), which, as discussed supra
section V.E.7, would require an SBSEF’s
rules to provide that a trade that is intended to be cleared at the time of the transaction, but is not accepted for clearing by a registered clearing agency, is void ab initio. Providing that such trades are void ab initio also reflects the economic reality that an uncleared transaction is significantly different from a cleared transaction in terms of the credit risk faced by the counterparties. Lastly, it is inconsistent with impartial access for an SBSEF to employ fee structures that would have a disproportionate or adverse effect on certain market participants based on their status, as described above,360 with respect to the ability to fully interact on the order book or RFQ system as liquidity providers, liquidity takers, or both, including viewing, placing, or responding to all indicative or firm bids and offers and to place, receive, and respond to RFQs. With respect to the comment that the documentation requirements of Rule 15Fi–5 may, at times, conflict with the impartial access requirement of Proposed Rule 819(c), no such conflict exists, because Rule 15Fi–5(a)(1)(ii) provides that the rule does not apply to cleared swaps, and Rule 15Fi(a)(1)(iii) further provides that the rule does not apply to security-based swap transactions executed anonymously on an SBSEF or a national securities

361See 17 CFR 240.15Fi–5(a)(1)(ii) and (iii). Rule 15Fi–5(a)(1)(iii) provides in part that SBSs executed anonymously on an SEF or a national securities exchange are exempt from the provisions of Rule 15Fi–5, provided that: (1) the SBSs are intended to be cleared and are actually submitted for clearing to a clearing agency; (2) all terms of the SBSs conform to the rules of the clearing agency; and (3) upon acceptance of such an SBS by the clearing agency the original SBS is extinguished; the original SBS is replaced by equal and opposite SBS with the clearing agency; and all terms of the SBS conform to the product specifications of the cleared SBS established under the clearing agency’s rules. See 17 CFR 240.15Fi–5(a)(1)(iii). 362To promote uniformity throughout proposed Regulation SE, it is appropriate to denote all persons who have a right to participate in an SBSEF’s market as ‘‘members.’’ 363Rule 819(d)(6)(v) provides 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. 364See supra section V.E.1(c). 365See Bloomberg Letter, supra note 18, at 16. 366See ICE Letter, supra note 18, at 3. 367See id. at 3–4 (also stating that, for example, ICE Futures U.S., Inc. is a DCM that provides regulatory services to SEFs). 368Specifically, the Commission is adding to Rule 819(e) the language ‘‘a board of trade designated as a contract market (under section 5 of the Commodity Exchange Act)’’—in other words, a DCM—to the list of entities with which an SBSEF may enter into a contract for the provision of regulatory services. exchange, provided that certain conditions are met.361
4. Rule 819(d)—Rule Enforcement
Program
Paragraph (d) of Proposed Rule 819 is closely modeled 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.362 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 would also be required to have the authority 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 modeled on § 37.203(f), again using the same structure and rule text. Like § 37.203(f), Rule 819(d)(6) addresses investigations and investigation reports and includes provisions relating to procedures, timeliness, the reporting requirements when a reasonable basis does or does not exist for finding a violation, and warning letters.363 The Commission did not receive any comments on Rule 819(d) and is adopting Rule 819(d) as proposed, except that, in light of its decision not to adopt a definition of ‘‘block trade,’’ 364 the Commission is deleting the words ‘‘block trades or other types of’’ from the phrase ‘‘pre-arranged trading (except for block trades or other types of transactions approved by or certified to the Commission pursuant to § 242.806 or § 242.807, respectively).’’ While the deletion of this text would remove an automatic exemption for block trades from the prohibition against pre-arranged trading that an SBSEF’s rules would be required to include, it is appropriate given that a definition of block trade has not been adopted. At such time as the Commission adopts a definition of block trade, an SBSEF could submit a rule change under Rule 806 or Rule 807 to address trades that meet the definition of block trade.
5. Rule 819(e)—Regulatory Services
Provided by a Third Party Paragraph (e) of Proposed Rule 819 is modeled 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. One commenter states that SBSEFs should be able to use regulatory service providers and that the types of regulatory service providers permitted under Proposed Rule 819(e)(1) are appropriate.365 Another commenter also supports the use of regulatory service providers but believes that the Commission should include DCMs among the types of entities permitted to act as regulatory service providers, as they are ‘‘uniquely qualified’’ and are permitted to act as regulatory service provider under the CFTC SEF regime.366 This commenter states that DCMs have well-established regulatory protocols and are subject to CFTC oversight, conduct regulatory activities similar to registered futures associations, have developed expertise in securities markets, and are permitted to list futures on individual stocks and to list swap contracts for trading.367 The Commission agrees that SBSEFs should be able to contract with DCMS for the provision of regulatory services. As the commenter states, DCMs have well-established regulatory protocols and are subject to CFTC oversight, and they are permitted to act as regulatory service providers for SEFs. Additionally, permitting an SBSEF to use the same regulatory service provider as an affiliated SEF may create efficiencies for both the SBSEF and SEF, while maintaining regulatory oversight of the entity that is providing the regulatory services. While the CFTC’s regulation for SEFs does not contain a reciprocal provision permitting national securities exchanges to perform regulatory services for SEFs, harmonization in practical terms with this aspect of the CFTC regime—i.e., so that DCMs can perform regulatory services for both SBSEFs and SEFs—is appropriate in light of the relative size of the SBSEF market compared to the swaps market and because most if not all entities that will seek to register as SBSEFs are already registered as SEFs. Significantly, regardless of the type of entity acting as regulatory service provider for an SBSEF, the SBSEF will 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. Accordingly, the Commission is adopting Rule 819(e) as amended to permit SBSEFs to contract with DCMs for the provision of services to assist in complying with the SEA and Commission rules thereunder, as approved by the Commission.368
6. Rule 819(f)—Audit Trail
Paragraph (f) of Proposed Rule 819 is modeled on § 37.205, using the same paragraph structure and rule text. Paragraph (f) would require an SBSEF to

369The Commission has corrected a reference to Core Principle 9 and corrected the phrase ‘‘account(s) owner(s)’’ to read ‘‘account’s owner(s).’’ 370 In this bullet and the next bullet, the word used in the corresponding CFTC guidance was ‘‘should,’’ but the Commission proposed to replace ‘‘should’’ with ‘‘shall’’ in both places to convert the guidance into an enforceable rule. 371Proposed 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 VIII. 372The 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 uses the word ‘‘shall’’ in such instances instead. capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses, and imposes 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. The Commission did not receive any comments on Proposed Rule 819(f). An audit trail is a crucial component of a trading venue’s ability to ensure compliance with its rules. These requirements should be modeled on the parallel CFTC regulations regarding SEFs, as most, if not all, entities that will register as SBSEFs will be SEFs registered with the CFTC, and that consistent requirements will promote a consistent approach to compliance. Accordingly, the Commission is adopting Rule 819(f) as proposed, with minor technical modifications.369
7. Rule 819(g)—Disciplinary Procedures
and Sanctions
Paragraph (g) of Proposed Rule 819 is based on § 37.206 of the CFTC’s rules and generally tracks all of its rule text but would include additional language derived from guidance in appendix B of
part 37 of the CFTC’s rules. Converting
the guidance to rule text, and thus grouping conceptually related items together, yields the most coherent and readable ruleset, instead of incorporating the guidance into a standalone 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 370 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 Rule 819 is modeled on § 37.206(b) and would require an SBSEF to establish one or more disciplinary panels that are authorized to fulfill their obligations under Proposed 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 in the makeup of members of SBSEF major disciplinary committees and hearing panels, the Commission proposed instead to require the disciplinary panels established under Proposed Rule 819(g)(2) to meet the composition requirements of Rule 834(d), which apply to each major disciplinary committee and hearing panel of an SBSEF.371 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 SBSEF. 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 modeled 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 proposed 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 in appendix B of part

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 372 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 crossexamine 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 modeled 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

373See infra section XIV.E (discussing Rule 442, which establishes the right to appeal to the Commission certain actions taken by an SBSEF and sets out certain procedural matters relating to any such appeal). 374Compare 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). 375Neither § 37.206 nor 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 adhered to this permissive approach in the proposal but sought comment on whether the final rules should require an SBSEF to create an appeals procedure. 376See infra section VIII.D. 377See Rule 819(g)(14); see also supra note 355. 378See supra note 377 and accompanying text. 379The 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). 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 § 201.442.373 In all other instances, a summary record of a hearing is permitted. Paragraph (g)(10) of Proposed Rule 819 is modeled 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 must include six enumerated elements, all of which are closely modeled on those in § 37.206(d). Paragraph (g)(11) of Proposed Rule 819 would address emergency disciplinary actions and is drawn from the guidance in appendix B of part 37. It would provide that an SBSEF may 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. 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) would seek to balance the need to allow an SBSEF to take summary action against the need to afford due process to respondents.374 Paragraph (g)(12) of Proposed Rule 819 also is drawn from the appendix B guidance and would provide that, if the rules of the SBSEF permit appeals,375 the SBSEF shall establish an appellate panel that is authorized to hear appeals. The composition of the panel would have to be consistent with Rule 834(d) 376 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. As to the Commission’s process of reviewing disciplinary actions, the Commission will apply a standard of review consistent with standards of review that the Commission uses in similar contexts.377 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 have to take into account the respondent’s disciplinary history. In the event of demonstrated customer harm, any disciplinary sanction would have 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 appendix B 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 received no comments on Proposed Rule 819(g) and, apart from the addition of paragraph (g)(14) regarding Commission review,378 is adopting Rule 819(g) as proposed for the reasons stated in the Proposing Release.
8. Rule 819(h)—Activities of SecurityBased Swap Execution Facility’s
Employees, Governing Board Members, Committee Members, and Consultants Paragraph (h) of Proposed Rule 819 would generally 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 modeled on § 1.59 of the CFTC’s rules, which requires a SEF (among other CFTCregulated entities) 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. 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 819(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 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.379 Paragraph (h)(2)(ii), modeled on § 1.59(b)(1)(ii), would prohibit an SBSEF employee from disclosing to any other person any material non-public information that the employee obtains as a result of their employment at the SBSEF, and where the 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

380The first and the fourth carve-outs listed above are comparable to those listed in § 1.59(b)(2). The Commission proposed 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. 381See Proposing Release, supra note 1, 87 FR at 28905. 382See § 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’’). 383See supra note 32. 384Section 1.63(b), in relevant part, requires a SEF to maintain rules that have been submitted to the CFTC pursuant to section 5c(c) of the CEA and
part 40 of the CFTC’s rules. As noted above, the
Commission proposed 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 that have been submitted to the Commission pursuant to Rule 806 or Rule 807. 385Proposed 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 has modeled its definition of ‘‘disciplinary committee’’ on § 1.69(a)(1) rather than on § 1.63(a)(2). The Commission is locating the government acting in their official capacity. Paragraph (h)(3) of Proposed Rule 819, modeled 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 carveouts 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.380 The first and the fourth carve-outs listed above are comparable to those listed in § 1.59(b)(2). The Commission proposed 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.381 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 proposed to depart from the CFTC definition of ‘‘pooled investment vehicle’’ 382 to adapt
it for the SBS and securities markets. Rule (h)(1)(ii) defines ‘‘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 the XYZ security does not exceed 10% of the fund’s holdings. The 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 nonpublic information about an issuer derived from activity on the SBSEF could provide an unfair advantage to an SBSEF employee when trading that fund. Finally, 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) would still 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 modeled 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), would address prohibited conduct not just by employees of an SBSEF, but also of governing board members, committee members, and consultants of the SBSEF. Paragraph (h)(4)(i)(A) is modeled on § 1.59(d)(1)(i) and would prohibit any employee, governing board member, committee member, or consultant of the SBSEF from trading for their 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 their official duties as an employee, governing board member, committee member, or consultant. Paragraph (h)(4)(i)(B), modeled 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 their 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 those duties. Paragraph (h)(4)(ii), modeled on § 1.59(d)(2), would provide that no person shall trade for their 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 the 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 received no comments on Proposed Rule 819(h) and is adopting Rule 819(h) as proposed, with minor technical modifications,383 for the reasons stated in the Proposing Release.
9. Rule 819(i)—Service on SecurityBased Swap Execution Facility 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 would impose certain other duties on the SBSEF associated with that fundamental requirement. Rule 819(i) is modeled on § 1.63 of the CFTC’s rules, which imposes similar requirements in connection with SEFs and certain other entities. Paragraph (i) of Proposed Rule 819 is closely modeled on § 1.63. Paragraph (i)(1), like § 1.63(b), would require an SBSEF to maintain rules 384 that render a person ineligible to serve on its disciplinary committees,385 arbitration

definition in Rule 802, since the term is used by multiple rules in Regulation SE. 386Proposed 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 has modeled its 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 Rule 802, since the term is used by multiple rules in Regulation SE. 387Section 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 proposed 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. See Proposing Release, supra note 1, 87 FR at 28907 n.145. 388Proposed 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. Rule 819(i)(6)(ii) defines ‘‘disciplinary offense’’ as:
any violation of the rules of an SBSEF, except a violation resulting in fines aggregating to less than $5000 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. 389Since these terms are used only in Proposed Rule 819(i) and not elsewhere in Regulation SE, the Commission has defined them in Proposed Rule 819(i) and not the omnibus definitions rule in Regulation SE (Proposed Rule 802). 390See supra note 32. 391The 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 proposed 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. 392See Proposed Rule 819(j)(3)(ii) (defining ‘‘final disciplinary action’’ as any decision by or settlement with an SBSEF in a disciplinary matter that 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). 393The definitions of ‘‘customer’’ and ‘‘final disciplinary action’’ would apply only within Proposed Rule 819(j), so the Commission has not included them in the omnibus definitions rule for proposed Regulation SE (Proposed Rule 802). 394See supra note 32. panels, oversight panels,386 or governing boards if that person falls into any of six enumerated criteria, all of which are modeled closely on the criteria in § 1.63(b).387 Paragraph (i)(2), modeled 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 if that person meets any of the six criteria enumerated in Rule 819(i)(1). Paragraph (i)(3), modeled on § 1.63(d), would require an SBSEF to submit to the Commission a schedule listing the rule violations that 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), modeled on § 1.63(f), would provide that, whenever an SBSEF finds by final decision that a person has committed a disciplinary offense and that finding makes the 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 would define the terms ‘‘arbitration panel,’’ ‘‘disciplinary offense,’’ and ‘‘final decision’’ that are used in Rule 819(i).388 These definitions are closely modeled on those provided in § 1.63(a).389 The Commission received no comments on Proposed Rule 819(i) and is adopting Rule 819(i) as proposed, with minor technical modifications,390 for the reasons stated in the Proposing Release.
10. 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. Paragraph (j)(1) of Proposed Rule 819 would be designed to replicate for SBSEFs the fundamental duty of § 1.67 and provides 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 Rule 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.391 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 definition of ‘‘final disciplinary action’’ is closely modeled on the CFTC’s definition in § 1.67(a).392 The definition of ‘‘customer’’ is only loosely modeled on the definition of ‘‘customer’’ provided in § 1.3, which includes complexities deriving from the CEA that are not necessary or appropriate to adapt into a rule that applies to SBSEFs.393 The Commission proposed to define ‘‘customer’’ in Rule 819(j)(3)(i) as a person that utilizes an agent in connection with trading on an SBSEF. The Commission received no comments on Proposed Rule 819(j) and is adopting Rule 819(j) as proposed, with minor technical modifications,394 for the reasons stated in the Proposing Release.
11. 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 of process, which could be an agent of its own choosing or, by default, the SBSEF. Proposed Rule 819(k) is modeled on § 15.05(i) of the CFTC’s rules, which concerns the designation of agents for foreign persons participating

395A ‘‘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. 396 ‘‘Non-U.S. member’’ is a defined term in Rule 819(k) that does not appear in § 15.05 of the CFTC’s rules but which 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 crossborder application of its Title VII rules, see Rule 3a71–3(a)(4), § 240.3a71–3(a)(4), and has thus defined ‘‘non-U.S. member’’ in Rule 802 as ‘‘a member of a security-based swap execution facility that is not a U.S. person.’’ 397Section 3D(d)(3) of the SEA, 15 U.S.C. 78c– 4(d)(3). 398See Section 5h(f)(3) of the CEA, 7 U.S.C. 7b– 3(f)(3). 399Section 3D(d)(4) of the SEA, 15 U.S.C. 78c– 4(d)(4). 400Section 5h(f)(4) of the CEA, 7 U.S.C. 7b– 3(f)(4). 401See Proposing Release, supra note 1, 87 FR at 28910–11. 402Section 3D(d)(5) of the SEA, 15 U.S.C. 78c– 4(d)(5). 403Section 5h(f)(5) of the CEA, 7 U.S.C. 7b– 3(f)(5). on ‘‘reporting markets,’’ a category in the CFTC’s rules that includes SEFs.395 Paragraph (k)(1) of Proposed Rule 819 is modeled 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’’ 396 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 would 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 modeled 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 Rule 819(k). Paragraph (k)(3) of Proposed Rule 819 is modeled 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, modeled 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. 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 received no comments on Proposed Rule 819(k) and is adopting Rule 819(k) as proposed for the reasons stated in the Proposing Release.
C. Rule 820—Core Principle 3—SBS Not
Readily Susceptible to Manipulation Core Principle 3 397 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.398 Proposed Rule 820 is modeled after § 37.300 of the CFTC’s rules and would implement Core Principle 3. The Commission received no comments on Proposed Rule 820, and is adopting Rule 820 as proposed for the reasons stated in the Proposing Release. D. Rule 821—Core Principle 4— Monitoring of Trading and Trade Processing Core Principle 4 399 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 400 is substantively identical. Proposed Rule 821 would implement Core Principle 4 and is closely modeled on the rules in subpart E of part 37 and the CFTC’s guidance and acceptable practices in appendix B to part 37. As explained in the Proposing Release, paragraph (a) of Proposed Rule 821, like § 37.400 of the CFTC’s rules, incorporates the requirements of Core Principle 4 described above, and the remaining paragraphs of Proposed Rule 821 are modeled on §§ 37.401 to 37.408 of the CFTC’s rules and also incorporate guidance and acceptable practices from
appendix B to part 37.401
Paragraph (b) of Proposed Rule 821 would specify an SBSEF’s marketoversight obligations. Paragraph (c) of Proposed Rule 821 would specify requirements for an SBSEF’s monitoring of physical-delivery SBS. Paragraph (d) of Proposed Rule 821 would specify additional requirements for cash-settled SBS. Paragraph (e) of Proposed Rule 821 would specify requirements for an SBSEF’s ability to obtain information. Paragraph (f) of Proposed Rule 821 would require an SBSEF to establish and maintain risk control mechanisms to prevent and reduce the potential risk of market disruptions. Paragraph (g) of Proposed Rule 821 would require an SBSEF to have the ability to comprehensively and accurately reconstruct all trading on its facility and requires an SBSEF to make all audittrail data and reconstructions available to the Commission. And paragraph (h) of Proposed Rule 821 would provide that an SBSEF shall comply with the rules in this section through a dedicated regulatory department or by contracting with a regulatory service provider pursuant to Rule 819(e). The Commission received no comments on Proposed Rule 821 and is adopting Rule 821 as proposed for the reasons stated in the Proposing Release. E. Rule 822—Core Principle 5—Ability To Obtain Information Core Principle 5 402 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 403 is substantively identical. Proposed Rule 822 implements Core Principle 5 and is substantively identical to subpart F of part 37. Paragraph (a) of Proposed Rule 822

404While § 37.502 of subpart F uses the term ‘‘market participant,’’ Proposed Rule 822 would substitute 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 362. 405Section 3D(d)(6)(A) of the SEA, 15 U.S.C. 78c– 4(d)(6). 406 15 U.S.C. 78c–3(a)(1). See supra note 168 and accompanying text (discussing mandatory clearing provisions). 407See Proposing Release, supra note 1, 87 FR at 28912. 408Section 5h(f)(7) of the CEA, 7 U.S.C. 7b– 3(f)(7). 409 17 CFR 37.700; see also Proposing Release, supra note 1, 87 FR at 28912. 410Section 5h(f)(7) of the CEA, 7 U.S.C. 7b– 3(f)(7). 411 15 U.S.C. 78c–3(a)(1). 412 17 CFR 37.701; see also Proposing Release, supra note 1, 87 FR at 28912. 413 17 CFR 37.702; see also Proposing Release, supra note 1, 87 FR at 28912. 414See Citadel Letter, supra note 18, at 4–6. 415See id. would repeat the statutory text of Core Principle 5. Paragraph (b), modeled 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.404 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. The Commission received no comments on Proposed Rule 822 and is adopting Rule 822 as proposed for the reasons stated in the Proposing Release. F. Rule 823—Core Principle 6— Financial Integrity of Transactions Core Principle 6 sets forth requirements related to the financial integrity of transactions that are entered on or through the facilities of an SBSEF.405 Specifically, paragraph (a) of Proposed Rule 823 would require 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.406 Paragraph (b) would provide that transactions required to be cleared or voluntarily cleared must be
cleared through a registered clearing agency (or an exempt clearing agency). Paragraph (c) addresses the manner in which an SBSEF shall provide for the financial integrity of transactions. Finally, paragraph (d) would require an SBSEF to monitor its members to ensure that they continue to qualify as eligible contract participants. As described in the Proposing Release, the Commission modeled Rule 823 on subpart H of part 37 of the CFTC’s rules,407 which implements CEA Core Principle 7 for SEFs.408

Rule 823(a)—General
Paragraph (a) of Proposed Rule 823 would repeat the statutory text of SEA Core Principle 6 in the same manner that § 37.700 of the CFTC’s rules 409 repeats the statutory language of CEA Core Principle 7 for SEFs.410 Proposed Rule 823(a) would require 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.411 The Commission did not receive any comments on Proposed Rule 823(a) and is adopting Rule 823(a) as proposed for the reasons stated in the Proposing Release.
Rule 823(b)—Required Clearing
Paragraph (b) of Proposed Rule 823 is closely modeled on § 37.701 of the CFTC’s rules,412 and it would provide that transactions executed on or through an 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 or a clearing agency that has obtained an exemption from clearing agency registration to provide central counterparty services for SBS. The Commission did not receive any comments on Proposed Rule 823(b) and is adopting Rule 823(b) as proposed for the reasons stated in the Proposing Release.
Rule 823(c)—General Financial
Integrity
Paragraph (c) of Proposed Rule 823 is closely modeled on § 37.702 of the CFTC’s rules,413 and would require an SBSEF to provide for the financial integrity of transactions by establishing minimum financial standards for its members, which shall at a minimum require members to be ECPs. Proposed Rule 823(c) would further require an SBSEF to provide for the financial integrity of transactions by ensuring that the SBSEF, for transactions cleared by a registered clearing agency, has the capacity to route transactions to the registered clearing agency in a manner acceptable to the clearing agency, 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. One commenter characterizes the CFTC regime as providing detailed straight-through-processing (‘‘STP’’) standards for swaps executed on SEFs that are intended to be cleared but believes that the Commission’s proposal lacks such standards.414 The commenter observes that there is a lack of market consistency regarding the execution-toclearing workflow for SBS that are intended to be cleared, which complicates the trading of cleared SBS. The commenter highlights ‘‘clearing submission timeframes’’ and ‘‘clearing certainty’’ as key issues and discusses the manner in which the CFTC has addressed these issues in its rules and guidance. The commenter states that the CFTC’s STP standards, including ‘‘preexecution credit checks’’ and ‘‘welldefined submission timeframes,’’ have been successfully implemented by the industry since 2013, enhancing the SEF trading environment. The commenter argues that the timeframes minimize delays between execution and clearing acceptance and increase pre-trade clearing certainty, decreasing market, credit, and operational risks for market participants and clearing agencies, and broadens the range of trading counterparties. For these reasons, the commenter recommends harmonizing with the CFTC by establishing STP standards, incorporating relevant CFTC guidance, and prohibiting breakage agreements for SBS that are intended to be cleared.415 Another commenter agrees that applying the CFTC’s approach to STP would further harmonize SBSEFs with SEFs and would provide greater certainty of execution and clearing, encourage more clearing, facilitate

416See MFA Letter, supra note 18, at 12. 417See SIFMA AMG Letter, supra note 18, at 9. 418See id. 419See Form SBSEF (Exhibits Instructions, Instruction No. 20, Exhibit T); see also supra note 84. 420See supra section VI.B.3 (discussing the impartial access requirements of Proposed Rule 819(c)). For example, if an SBSEF purposefully delayed clearing submission of only certain market participants that the SBSEF favors, that would be contrary to the requirement of Proposed Rule 819(c) of providing impartial access to market services. 421While one commenter suggests that the Commission incorporate guidance from appendix B to part 37 of the CFTC rules, the appendix does not contain any guidance or acceptable practices under Core Principle 7 of section 5h of the CEA— Financial Integrity of Transactions. 422 17 CFR 37.703; see also Proposing Release, supra note 1, 87 FR at 28912. 423Section 3D(d)(7) of the SEA, 15 U.S.C. 78c– 4(d)(7). 424Section 5h(f)(8) of the CEA, 7 U.S.C. 7b– 3(f)(8). electronic trading, and promote accessible, competitive markets and access to best execution.416 Lastly, a third commenter supports harmonization and encourages the Commission to both codify the guidance in appendix B to part 37 of the CFTC regulations and the CFTC’s staff guidance regarding STP.417 The commenter believes that the STP requirements have been successfully implemented by market participants for nearly a decade, and modifying them now would introduce significant market, operational, and credit risk, along with additional complexity and cost for market participants.418 As previously stated, harmonization with the CFTC regime for SEFs is an important consideration for the Commission, given that it expects most registered SBSEFs to also be registered SEFs. Consistent with this view, Proposed Rule 823 is largely based on subpart H of part 37, and the key language of Rule 823(c)(2) relevant to STP is substantively identical to § 37.702(b). Both provisions require an SBSEF or SEF to (i) ensure that it has the capacity to route transactions to the relevant clearing agency in a manner acceptable to the clearing agency for purposes of clearing; and (ii) coordinate with each relevant clearing agency to which it submits transactions for clearing, in the development of rules and procedures to facilitate prompt and efficient transaction processing. Rule 249.1701, Exhibit T further requires SBSEFs to provide ‘‘the name(s) of the clearing agency(ies) that will clear the Applicant’s trades, and a representation that clearing members of that organization will be guaranteeing such trades.’’ 419 The Commission generally expects an SBSEF’s rules and procedures to demonstrate compliance with these requirements with respect to SBS that are intended to be cleared or that would become subject to a mandatory clearing requirement in the future. Since SBSEFs are required to establish rules and procedures for clearing in coordination with each relevant clearing agency to which it
submits trades, SBSEFs should be able to route executed trades to relevant clearing agencies promptly, particularly if fully automated systems are used. Furthermore, if an SBSEF were to act to purposefully delay clearing submission in order to favor certain market participants over others, that type of action could be addressed under the impartial access requirements of Rule 819(c).420 Lastly, as noted previously, the Commission is adopting Rule 815(g), which specifies that SBSEFs shall establish and enforce rules that provide that a security-based swap that is intended to be cleared at the time of the transaction, but is not accepted for clearing at a registered clearing agency, shall be void ab initio. Together, these provisions should help ensure that SBSEFs will process trades promptly and efficiently. These provisions are also consistent with the CFTC’s staff guidance related to SEFs. The CFTC staff guidance also addressed regulatory requirements related to intermediaries and clearing organizations that are beyond the scope of this rulemaking. For the reasons stated above, the Commission is adopting Rule 823(c) as proposed.421
4. Rule 823(d)—Monitoring for
Financial Soundness
Paragraph (d) of Proposed Rule 823 is closely modeled on § 37.703 of the CFTC’s rules,422 and it would require an SBSEF to monitor its members to ensure that they continue to qualify as ECPs. The Commission did not receive any comments on Rule 823(d) and is adopting Rule 823(d) as proposed for the reasons stated in the Proposing Release. G. Rule 824—Core Principle 7— Emergency Authority SEA Core Principle 7 423 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 424 is substantively identical, and 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].’’ Proposed Rule 824 would implement SEA Core Principle 7 and is closely modeled 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

425The Commission has corrected a reference to ‘‘exercise of emergency action’’ to read ‘‘exercise of emergency authority.’’ The Commission has also made two non-substantive corrections to the text of Proposed Rule 824. The Commission has replaced a period with a semicolon at the end of paragraph (b)(3) and has added the word ‘‘and’’ to the end of paragraph (b)(5). 426Section 3D(d)(8) of the SEA, 15 U.S.C. 78c– 4(d)(8). 427Section 5h(f)(9) of the CEA, 7 U.S.C. 7b– 3(f)(9). 428Section 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. 429Each of these terms is defined in Proposed Rule 802 and also used in Proposed Rule 815. 430The 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. 431See MFA Letter, supra note 18, at 13; WMBAA Letter, supra note 18, at 5–6; ISDA–SIFMA Letter, supra note 18, at 10; Bloomberg Letter, supra note 18, at 5, 17. Eleven commenters supported general transparency in markets but did not address the Daily Market Data Report specifically. See, e.g., Letter from David Mounts (Oct. 29, 2022); Letter from Katie K. (Apr. 7, 2022). 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 received no comments on Proposed Rule 824 and is adopting Rule 824 as proposed, with minor technical modifications,425 for the reasons stated in the Proposing Release. H. Rule 825—Core Principle 8—Timely Publication of Trading Information SEA Core Principle 8 426 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 9 427 is substantively identical to SEA Core Principle 8, and the CFTC implemented CEA Core Principle 9 in subpart J of part 37. Proposed Rule 825 would implement SEA Core Principle 8 and is closely modeled on subpart J of part 37. Paragraph (a) of Proposed Rule 825, like § 37.900, would repeat 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.428 Paragraph (c) of Proposed Rule 825 would require the publication, on an SBSEF’s website, of a ‘‘Daily Market Data Report.’’ The data fields that the Commission proposed to require for the Daily Market Data Report approximated, although they were not the same as, those required by part 16. 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 429); (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 machinereadable format using the most recent versions of the associated XML schema and PDF renderer as published on the Commission’s website. Paragraph (c)(3)(ii) 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 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.430 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. 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. Several commenters criticized the Daily Market Data Report required by Proposed Rule 825.431 One commenter states that the Daily Market Report would require inappropriate and

432See MFA Letter, supra note 18, at 13. 433See id. Regulation SE does not address any exemption from clearing requirements. 434See WMBAA Letter, supra note 18, at 5–6. 435See ISDA–SIFMA Letter, supra note 18, at 10. 436See id. 437See Bloomberg Letter, supra note 18, at 5, 17. 438Compare Proposed Rule 825(c)(1)(i) (trade count, including block trades but excluding error trades, correcting trades, and offsetting trades), with 17 CFR 16.01(a)(1)(iii) (trading volume and open contracts by product type term life of the swap). 439Compare Proposed Rule 825(c)(1)(ii) (total notional amount traded, including block trades but excluding error trades, correcting trades, and offsetting trades), with 17 CFR 16.01(a)(2)(iv) (total trading volume in terms of the number of contracts traded for standard-sized contract or in terms of notional value for non-standard-sized contracts). 440Compare Proposed Rule 825(c)(1)(iv) (total notional amount of block trades), with 17 CFR 16.01(a)(2)(vi) (total volume of block trades included in the total volume of trading). 441See Proposed Rule 825(c)(1)(v); 17 CFR 16.01(b)(2)(i). detrimental disclosures that would undermine the Commission’s goal of fostering a competitive and efficient market for SBS trading.432 This commenter states that there are significant differences in the information required to be reported under the SEC and CFTC regimes. The commenter states that Proposed Rule 825(c)(1) increases the burden on SBSEFs compared to SEFs by requiring additional information regarding sale and offer prices, as well as qualitative descriptions of certain data that are reported. This commenter further states that the Commission’s proposal does not address why the CFTC’s approach would not be acceptable in the context of SBSEFs and does not justify the increased operational costs to SBSEFs (which will ultimately be passed on to members). The commenter also states that the Commission has not considered the costs and potential for duplicative requirements in the context of Regulation SBSR reporting requirements. The commenter concludes that, in sum, the Daily Market Data Report is overly granular and duplicative, is unnecessary for transparency purposes, and could negatively impact the market and market participants. The commenter states that the Commission should therefore remove the Daily Market Data Report in favor of harmonizing with the analogous CFTC rules and that, if the Commission does not eliminate the Daily Market Data Report requirement altogether, it should adopt additional masking protections for trades, specifically with respect to block trades. Failure to do so, the commenter states, would cause inappropriate and detrimental disclosures and would ‘‘negate the benefits that the rule purports to achieve by exempting block trades from clearing [sic] requirements.’’ 433 Another commenter states that the requirement for a Daily Market Data Report is a departure from the otherwise generally harmonized rule proposal and
risks overly complicating the SBSEF regime for limited benefit, particularly with SBS reporting and dissemination in place through Regulation SBSR.434 The commenter states that the Daily Market Data Report serves as a duplicative source of information that fails to improve price discovery or liquidity formation, and that the Daily Market Data Report could negatively impact conditions, particularly for block trades, especially given the relatively illiquid SBS market, which has a relatively small number participants. This commenter encourages the Commission to remove the proposed Daily Market Data Report and review this issue with the benefit of several years’ experience with these rules, particularly once Regulation SBSR is fully operational. One commenter states that the Daily Market Report is not necessary because the CFTC SEF regulatory framework, which does not impose such a requirement, provides sufficient price transparency.435 This commenter states that the Commission has not pointed to any observable issues with the SEF transparency framework to justify a need for these reports, and the commenter states that the daily publication of information related to block trade numbers and block notional amounts, coupled with aggregate pricing information, would magnify the problems associated with the ‘‘winner’s curse.’’ This is particularly concerning, the commenter states, where a dealer is unable to fully lay-off its risk from a block trade within the course of a single day—a scenario that is extremely likely considering the thin nature of SBS markets. Based on the information published in the report as proposed, the commenter states, SBSEF participants may be able to identify a particular block trade and the likely price point, and then use that information to upcharge the dealer who is seeking to lay off the rest of its risk, thus frustrating the key objective of block trading. This commenter further states that the issues it has identified are amplified even further if the Daily Market Report does not follow the cap requirements that apply in the public price dissemination of data under the Commission’s trade reporting rule and related Commission no-action relief. The commenter states that publication of uncapped trade sizes could, in certain cases, reveal the exact notional amount of a trade to the public, which is not permitted under the Commission’s SBS trade reporting rules. The commenter states that this is especially concerning given that the proposed Daily Market Report provides detailed information by SBS product and tenor. The commenter states that the Commission should abandon its proposed Daily Market Report or, if it does not, require publication of the proposed report on a monthly or quarterly basis and make it subject to the cap size requirements imposed on SBSDRs. This, the commenter states, would ensure that the report does not conflict with the protections afforded to market participants per the cap size requirements and
under the Commission’s SBS trade reporting rules and related relief for SBS.436 Another commenter states that, in its experience with the reports required under CFTC part 16, which requires the compilation of similar information as the proposed Daily Market Data Report, the timeline for publication proposed under Rule 825(c)(4) would be impractical, if not technologically impossible.437 This commenter states that it operates a SEF with trading hours that run from 00:01 hours to 24:00 hours, Sunday through Friday. The commenter envisions SBS trading to be permitted during the same trading hours and states that the break between the end of trading one day and the beginning of trading the next day—one minute—means that it would likely not be possible to compile the required report ‘‘no later than the SBSEF’s commencement of trading on the next business day.’’ This commenter proposes synchronizing Rule 825(c)(4) with CFTC Rule 16.01(d)(2) to allow additional time for the publication of the Daily Market Data Report. With regard to the content of the report, this commenter states that the settlement price required under Rule 825(c)(1) should be included in the report only to the extent it is calculated by an SBSEF. Many of the reporting requirements of the Daily Market Data Report under Proposed Rule 825 are closely aligned with the data required to be disclosed on a daily basis by SEFs under § 16.01 of the CFTC’s rules. Both rules require the daily disclosure of: (1) a measure of trading volume in terms of trades or contracts; 438 (2) the total notional volume traded; 439 (3) the notional amount of block trades; 440 (4) the opening and closing prices; 441 (5) the price used for settlement, if different

442See Proposed Rule 825(c)(1)(vi); 17 CFR 16.01(b)(2)(ii). 443See Proposed Rule 825(c)(1)(vii); 17 CFR 16.01(b)(2)(iii). 444See Proposed Rule 825(c)(2)(i); 17 CFR 16.01(b)(4)(i). 445See Proposed Rule 825(c)(2)(ii); 17 CFR 16.01(b)(4)(ii). 446See Proposed Rule 825(c)(1)(iii). 447See Proposed Rule 825(c)(4). 448See 17 CFR 16.01(e). The Commission views the requirement to keep each Daily Market Data Report on an SBSEF’s website for one year, see Proposed Rule 825(c)(5), as a small additional burden for an SBSEF and does not view it as a significant departure from harmonization with the CFTC’s SEF regime. 449See supra notes 433–436 and accompanying text. 450See supra section V.E.1(c)(ii). 451The Commission is also correcting the form of a cross-reference in paragraph (b) to ‘‘Regulation SBSR’’ to read ‘‘§§ 242.900 through 242.909 (Regulation SBSR).’’ 452See 17 CFR 16.01(e). The Commission views the requirement to keep each Daily Market Data Report on an SBSEF’s website for one year, see Proposed Rule 825(c)(5), as a small additional burden for an SBSEF and does not view it as a significant departure from harmonization with the CFTC’s SEF regime. 453See 17 CFR 242.900 et seq. 454See 2019 Cross-Border Adopting Release, supra note 218, 85 FR at 6347 (providing no-action relief with respect to Rule 902 of Regulation SBSR, 17 CFR 242.902, for reports of credit SBS transaction disseminated with a capped size of $5 million). 455See Proposed Rule 825(c)(1)(vi) (emphasis added). from the closing price; 442 (6) 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 facility reasonably determines accurately reflects market conditions; 443 (7) the method used by the facility in determining nominal prices and settlement prices, and if discretion is used in determining the opening or closing ranges or the settlement prices, an explanation that certain discretion may be employed and a description of the manner in which that discretion may be employed; 444 and (8) in each instance in which such discretion was applied, an explicit notation that discretion was applied.445 Further, the Commission is modifying Proposed Rule 825 to resolve the two differences between the proposed Daily Market Data Report and the existing CFTC reporting scheme under § 16.01:
(1) that the Daily Market Data Report would include the number of block trades executed; 446 and (2) that the Daily Market Data Report would be posted on the SBSEF’s website no later than the beginning of trading on the next business day,447 while the information required by § 16.01 must be made public no later than the next business day.448 A number of commenters raised specific concerns that the disclosures in the Daily Market Data Report would hamper the efficient trading of block trades.449 The Commission agrees that the additional disclosed data element for SBSEFs—the number of block trades—could lead to additional information leakage while a dealer that facilitated a block trade might still be laying off the risk it undertook in facilitating that trade. Therefore, consistent with the CFTC’s disclosure elements under § 16.01, the Commission is modifying Rule 825(c)(1) as proposed to delete paragraph (c)(1)(iii), which requires the disclosure of the number of block trades, and to renumber the following paragraphs accordingly. The Commission is also, pursuant to its determination not to adopt a definition of ‘‘block trade,’’ 450 deleting the words ‘‘including block trades but’’ from the text of paragraph (c)(i) and (ii) of Rule 825, and is adding the words ‘‘after such time as the Commission adopts a definition of ‘block trade’ ’’ to paragraph (c)(iii) of Rule 825 (formerly paragraph (c)(iv) of Proposed Rule 825 451), which will have no effect on the requirement as compared to the proposed rule. The Commission is also modifying Proposed Rule 825 to address the comment that an SBSEF that operates nearly 24 hours a day might not be able to comply with the requirement to publish the Daily Market Data Report before the beginning of trading on the next business day. Accordingly, the Commission is modifying Proposed Rule 825(c)(4) to require the publication of the Daily Market Data Report ‘‘as soon as reasonably practicable on the next business day after the day to which the information pertains, but in no event later than 7 a.m. on the next business day.’’ This modified requirement, while less stringent than the requirement as proposed, would differ slightly from the CFTC’s requirement that such information must be made public ‘‘no later than the next business day.’’ 452 Making each trading day’s information available to market participants before the beginning of the next trading is reasonably designed to foster transparency and efficiency in the market for SBS. With these modifications, the proposed Daily Market Data Report for SBSEFs is consistent with the required daily disclosures for SEFs. While one commenter states that Proposed Rule 825(c)(1) increases the burden on SBSEFs compared to SEFs, including by calling for qualitative descriptions of certain data, the data called for by Rule 825(c)(1), as modified, does not differ materially from that required to be published daily under § 16.01. Thus, the Commission does not agree with the
commenter that the data required under the Commission approach differs materially from that required under the CFTC approach or that the Daily Market Data Report will result in an unjustified increase in operational costs. Further, the Commission does not agree with commenters that the Daily Market Data Report would serve as a duplicative source of information to reporting under Regulation SBSR and therefore risks overly complicating the SBSEF regime for limited benefit, without benefit to price improvement or liquidity formation. Regulation SBSR requires the reporting and public dissemination of SBS transactions,453 but because the transaction reports for credit SBS are permitted to be capped at a notional volume of $5 million,454 market participants would be unable to glean the information provided by the Daily Market Data Report—which would publish daily total notional volumes based on uncapped transaction amounts—from the individual reports of SBS transactions under Regulation SBSR. Thus, the Daily Market Data Report would provide market participants with information about pricing and trading volume for SBS on SBSEFs that goes beyond the information that could be obtained from SBS transaction reports that are publicly disseminated pursuant to Regulation SBSR. And because individual trades would not be reported—and, with the modification the Commission is making, the number of block trades would also not be reported—a size cap on reporting volume used to provide summary data to the market is not necessary or appropriate. Additionally, with the respect to the comment that the settlement price required under Proposed Rule 825(c)(1) should be included in the report only to the extent it is calculated by an SBSEF, the language of the requirement—‘‘[t]he price that is used for settlement. . .’’ 455—means that if no settlement price is calculated for a given SBS, that data element does not need to be reported. With respect to the means of publication of the information, while the means of publishing the Daily Market Data Report varies from that specified under the CFTC regime, the difference is not material. The Commission proposed that this information be posted on an SBSEF’s website in the most recent XML schema and PDF renderer, without fees or charges, without any encumbrances on access or usage, and without requiring

456See Proposed Rule 825(c)(3).
457 17 CFR 16.01(e).
458See Proposing Release, supra note 1, 87 FR at 28915. 459See supra note 32. 460Section 3D(d)(9) of the SEA, 15 U.S.C. 78c– 4(d)(9). 461As discussed below in this section, the Commission is adopting 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 CFR 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. 462CEA 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. 7b3(f)(10)(A)(iii). 463Section 1.31 imposes on ‘‘records entities’’ (which term includes SEFs) various requirements relating to record retention and production. Section
45.2 imposes various recordkeeping, retention, and
retrieval requirements applicable to SEFs (among others) to support trade reporting. 464See infra section XI (discussing in the context of Proposed 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). 465While § 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 has included a definition of ‘‘records’’ in Rule 802 that cross-references section 3(a)(37) of the SEA. 466See 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). 467See Rule 17a–4(b) under the SEA, 17 CFR 240.17a–4(b). 468 In this context, ‘‘prompt’’ or ‘‘promptly’’ means making reasonable efforts to produce records that are requested by the staff during an examination without delay. In many cases, it is likely that an SBSEF could furnish records immediately or within a few hours of a request, and it would therefore be required to do so. An SBSEF generally should produce records within 24 hours unless there are unusual circumstances. a user to agree to any terms before viewing or downloading the report.456 And the CFTC, in addition to requiring that this information be provided to the CFTC, requires it be made available to news media and the general public ‘‘in a format that readily enables the consideration of such data.’’ 457 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, and, as the Commission stated in the Proposing Release, the prohibition against an SBSEF imposing any usage restrictions on its Daily Market Data Report would necessarily encompass a prohibition on bulk redistribution of the Daily Market Data Report or any information contained therein.458 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. For the reasons discussed above, the Commission is adopting Rule 825 as modified.459
I. Rule 826—Core Principle 9—
Recordkeeping and Reporting SEA Core Principle 9 460 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.461 CEA Core Principle 10 for SEFs, although it includes an additional clause not present in the equivalent SEA Core Principle 9,462 is substantively identical. To implement SEA Core Principle 9, the Commission proposed Rule 826, which roughly approximates §§ 1.31 and 45.2 of the CFTC’s rules,463 while also drawing on concepts from the books and records requirements applicable to brokers, SEC-registered SROs, and other SEC-registered entities.464 Paragraph (a) of Proposed Rule 826 would repeat the statutory text of the Core Principle. Paragraph (b) would require an SBSEF to keep full, complete, and systematic records,465 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 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 five-year retention requirements would be consistent with
section 3D(d) of the SEA 466 and are
modeled 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.467 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 SEA and the Commission’s rules thereunder. Paragraph (d)(2) would require an SBSEF, upon request of any representative of the Commission, to promptly 468 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) would also include provisions modeled 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. Paragraph (e) of Proposed Rule 826 would provide that all records required to be kept by an SBSEF pursuant to Rule 826 would be subject to examination by any representative of the Commission pursuant to section 17(b) of the SEA, which 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 would not seek to limit or expand that authority using the Commission’s powers over SBSEFs in section 3D of the SEA.

469Since 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 term ‘‘member’’ as used throughout Regulation SE is defined in Rule 802. The term ‘‘non-U.S. member,’’ also found in Rule 802, is defined as ‘‘a member of a security-based swap execution facility that is not a U.S. person.’’ 470See supra note 32. 471Section 3D(d)(10) of the SEA, 15 U.S.C. 78c– 4(d)(10). 472Section 5h(f)(11) of the CEA, 7 U.S.C. 7b– 3(f)(11). 473The Commission has not adapted the guidance from appendix B pertaining to CEA Core Principle 11 into its rule. As explained in the Proposing Release, it is not 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). See Proposing Release, supra note 1, 87 FR at 28917 n.196. 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. Id. 474Section 3D(d)(11) of the SEA, 15 U.S.C. 78c– 4(d)(11). 475 7 U.S.C. 7b–3(f)(12). 476Section 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. The 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 (Oct. 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 (Jan. 6, 2011). 477See infra section VIII. 478Section 3D(d)(12) of the SEA, 15 U.S.C. 78c– 4(d)(12). 479Section 5h(f)(13) of the CEA, 7 U.S.C. 7b– 3(f)(13). 480See Proposing Release, supra note 1, 87 FR at 28919. 481See Letter from Chris Barnard to Commission at 2 (May 21, 2022) (submitted under cover email dated June 6, 2022). 482See id. 483See Bloomberg Letter, supra note 18, at 8. Proposed Rule 826 would include a paragraph (f) that is not modeled on any provision of § 1.31 or § 45.2, but rather on § 1.37(c) of the CFTC’s rules, which would provide: ‘‘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 modeled closely on § 1.37(c), except that it would use the term ‘‘non-U.S. member’’ rather than ‘‘foreign trader.’’ 469 The Commission received no comments on Proposed Rule 826 and is adopting Rule 826 as proposed, with minor technical modifications,470 for the reasons stated in the Proposing Release. J. Rule 827—Core Principle 10— Antitrust Considerations SEA Core Principle 10 471 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 11 472 is substantively identical. Proposed Rule 827 would implement SEA Core Principle 10 and reiterate the statutory text of the Core Principle.473 The Commission did not receive any comments on Proposed Rule 827 and is adopting Rule 827 as proposed, for the reasons stated in the Proposing Release. K. Rule 828—Core Principle 11— Conflicts of Interest SEA Core Principle 11 474 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 12 475 is substantively identical, and the CFTC implemented CEA Core Principle 12 in subpart M of part 37.476 Proposed Rule 828 would implement SEA Core Principle 11. Paragraph (a) of Rule 828, like § 37.1200, would repeat the statutory text of the Core Principle. Paragraph (b) would direct an SBSEF to comply with the requirements of Rule 834, which, as discussed below, would implement section 765 of the DoddFrank Act for both SBSEFs and SBS exchanges.477 The Commission received no comments on Proposed Rule 828 and is adopting Rule 828 as proposed for the reasons stated in the Proposing Release.
L. Rule 829—Core Principle 12—
Financial Resources
Core Principle 12 478 sets forth certain requirements related to the financial resources of an SBSEF. Paragraph (a)(1) requires an SBSEF to have adequate financial, operational, and managerial resources to discharge each responsibility of the SBSEF, as determined by the Commission. Paragraph (a)(2) would provide 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. Finally, paragraphs (b) through (g) provide details and instruction on how to comply with the requirements of Core Principle 12. CEA Core Principle 13 for SEFs 479 is substantively identical to SEA Core Principle 12 but lacks the clause in
section 3D(d)(12)(B)(i) of the SEA
relating 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. As described in the Proposing Release, the Commission modeled Rule 829 on subpart N of part 37 of the CFTC’s rules,480 which implements CEA Core Principle 13 for SEFs.

Rule 829(a)—General
Paragraph (a) of Proposed Rule 829 would repeat the statutory text of SEA Core Principle 12. One commenter states that the language in paragraph (a)(2)(i) of Proposed Rule 829 that requires an SBSEF to have sufficient financial resources ‘‘to meet its financial obligations to its members notwithstanding a default by a member creating the largest financial exposure for that organization in extreme but plausible market conditions’’ is not adequate.481 The commenter believes that an SBSEF should be required to have resources significantly in excess of this requirement because, during financial uncertainties and stress, the SBSEF would need even greater resources.482 Another commenter states that the same provision, paragraph (a)(2)(i) of Proposed Rule 829, is overly burdensome and unnecessary.483 The commenter states that the provision would add significantly to the amount of capital required to operate an SBSEF with little corresponding benefit to the market. The commenter argues that trading platforms such as SEFs and SBSEFs will have credit exposure to a member in limited circumstances and

484See id.
485The technical modification removes a stray parenthesis. 486 17 CFR 37.1301; see also Proposing Release, supra note 1, 87 FR at 28918. 487 17 CFR 37.1302; see also Proposing Release, supra note 1, 87 FR at 28918. 488 17 CFR 37.1303; see also Proposing Release, supra note 1, 87 FR at 28919. 489 17 CFR 37.1304; see also Proposing Release, supra note 1, 87 FR at 28919. for very limited periods of time. Therefore, this commenter states, requiring a trading platform to maintain capital sufficient to cover the largest financial exposure of a member trading on the SBSEF, when the trading platform will not be called upon to cover the cost of a default, is unnecessary and overly burdensome. The commenter also states that the provision is not in the parallel CFTC rule. The commenter suggests eliminating the provision or, in the alternative, affirm that satisfying the financial requirements in Rule 829(b), relating to having adequate resources to enable an SBSEF to comply with the SEA and applicable Commission rules for one year, would be sufficient to satisfy the requirements of Rule 829(a) as well.484 The requirements of Proposed Rule 829(a)(2)(i), which repeats the statutory text of SEA Core Principle 12, do not need to be more stringent, as suggested by the first commenter. The provision requires an SBSEF to have adequate resources to ‘‘meet its financial obligations to its members’’ even in case of a default by a member creating the largest financial exposure. By the plain meaning of its terms, the provision requires that an SBSEF meet its financial obligations. The Commission does not see a benefit to requiring an SBSEF to have the financial resources that exceed its obligations. As long as an SBSEF’s obligations are met, its members can be made whole with respect to any obligations of the SBSEF and the SBSEF can continue to operate. Therefore, ensuring that an SBSEF can meet its financial obligations is sufficient. Furthermore, the provision itself already envisions ‘‘extreme but plausible market conditions,’’ analogous to the ‘‘conditions of financial uncertainty and stress’’ that the commenter discusses. At the same time, Proposed Rule 829(a)(2)(i) should not be eliminated, and the rules should not be interpreted in a manner that allows the requirements of Proposed Rule 829(a)(2)(i) to be satisfied by complying with Proposed Rule 829(b). First, the requirement that an SBSEF be able to cover its financial obligations even when its largest member defaults is in the statutory language of the SEA, and the Commission is not adopting a rule inconsistent with this requirement. The statutory language is an appropriate requirement to impose on SBSEFs because it seeks to address a plausible risk caused by the default of a member, a financial risk that, if an SBSEF has not accounted for it, could endanger the SBSEF’s ability to continue to operate. While, the commenter is correct that the CFTC’s rules do not have a similar provision, it is also the case
that the CEA does not have a similar provision. Therefore, while the Commission is, as explained above, generally striving for harmonization with the CFTC, the Commission is not modifying Proposed Rule 829(a) to remove the requirement that an SBSEF have adequate resources to meet its financial obligations to its members even in case of a default by a member creating the largest financial exposure. Second, the Commission will not affirm that it will, as requested by a commenter, interpret the rules in a manner that allows the requirement of Rule 829(a) to be satisfied by satisfying the requirements of Rule 829(b). The scope of Proposed Rule 829(a) and Proposed Rule 829(b) are different. Proposed Rule 829(a) would in general address having adequate financial (and operational and managerial) resources to discharge each responsibility of an SBSEF. Proposed Rule 829(b) would specifically address the financial (not operational or managerial) resources that are necessary to comply with one type (not each type) of responsibility of the SBSEF, i.e., compliance with section 3D of the SEA and the applicable Commission rules. Because Proposed Rule 829(a) would address topics beyond the scope of Proposed Rule 829(b), including the topic of a default by a member creating the largest financial exposure, the requirements of Proposed Rule 829(a) cannot be satisfied by merely satisfying the requirements of Proposed Rule 829(b). For the reasons discussed above, the Commission is adopting Rule 829(a) as proposed, with a minor technical modification.485
2. Rule 829(b)—General Requirements
Paragraph (b) of Proposed Rule 829 is closely modeled on § 37.1301 of the CFTC’s rules,486 and it requires an SBSEF to maintain financial resources that are adequate to enable it to comply with the SBSEF Core Principles set forth in the SEA and the Commission rules for a one-year period, calculated on a rolling basis. The Commission did not receive any comments and is adopting Rule 829(b) as proposed for the reasons stated in the Proposing Release.
3. Rule 829(c)—Types of Financial
Resources
Paragraph (c) of Proposed Rule 829 is closely modeled on § 37.1302 of the CFTC’s rules,487 and it describes the types of financial resources that may satisfy the requirements of Rule 829(b). The Commission did not receive any comments on Proposed Rule 829(c) and is adopting Rule 829(c) as proposed for the reasons stated in the Proposing Release.
4. Rule 829(d)—Liquidity of Financial
Resources
Paragraph (d) of Proposed Rule 829 is closely modeled on § 37.1303 of the CFTC’s rules,488 and would provide that the financial resources allocated by an SBSEF 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 SBSEF’s operations. If an SBSEF 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. The Commission did not receive any comments on Proposed Rule 829(d) and is adopting Rule 829(d) as proposed for the reasons stated in the Proposing Release.
5. Rule 829(e)—Computation of Costs
To Meet Financial Resources Requirement Paragraph (e) of Proposed Rule 829 is closely modeled on § 37.1304 of the CFTC’s rules,489 and would require an SBSEF, 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 Rule 829. Paragraph (e) would further provide that the SBSEF shall have reasonable discretion in determining the methodology used to compute such amounts, provided that the Commission may review the methodology and require changes as appropriate. Proposed Rule 829(e) would also append language based on the CFTC guidance from appendix B to
part 37 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)

490The technical modification corrects an incorrect internal cross-reference to a paragraph in the rule. 491 17 CFR 37.1305; see also Proposing Release, supra note 1, 87 FR at 28919. 492 17 CFR 37.1306; see also Proposing Release, supra note 1, 87 FR at 28919. 493See supra note 32. The Commission has also changed the word ‘‘paragraph’’ in Rule 829(g)(5) to the plural form. 494Section 3D(d)(13)(A) of the SEA, 15 U.S.C. 78c–4(d)(13). 495Section 5h(f)(14) of the CEA, 7 U.S.C. 7b– 3(f)(14). 496See § 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). 497The provisions in subpart O relating to ‘‘critical financial markets’’ reference § 40.9 of the CFTC’s rules, which is marked as ‘‘Reserved.’’ 498See Rule 1000 of Regulation SCI (defining ‘‘SCI entity’’). In Nov. 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 (Nov. 19, 2014), 79 FR 72252 (Dec. 5, 2014). 499See id., 79 FR at 72363–64 (reviewing comments received regarding the potential application of Regulation SCI to SBSEFs, among others). 500See Regulation Systems Compliance and Integrity, SEA Release No. 97143 (Mar. 15, 2023), 88 FR 23146 (Apr. 14, 2023) (Proposed Amendments) (File No. S7–07–23). 501See Bloomberg Letter, supra note 18, at 18. 502See supra section VI.L (discussing Core Principle 12). proration of expenses; and (iii) allocation of expenses among affiliates. The Commission did not receive any comments on Proposed Rule 829(e) and is adopting Rule 829(e) as proposed, with a minor technical modification for the reasons stated in the Proposing Release.490
6. Rule 829(f)—Valuation of Financial
Resources
Paragraph (f) of Proposed Rule 829 is closely modeled on § 37.1305 of the CFTC’s rules,491 and would provide that, no less than each fiscal quarter, an SBSEF must compute the current market value of each financial resource used to meet its obligations under Rule 829 and that reductions in value to reflect market and credit risk (‘‘haircuts’’) shall be applied as appropriate. The Commission did not receive any comments on Proposed Rule 829(f) and is adopting Rule 829(f) as proposed for the reasons stated in the Proposing Release.
7. Rule 829(g)—Reporting to the
Commission
Paragraph (g) of Proposed Rule 829 is closely modeled on § 37.1306 of the CFTC’s rules,492 and would address reporting to the Commission regarding an SBSEF’s financial resources. Paragraph (g)(1) would generally provide that, each fiscal quarter, or at any time upon Commission request, an SBSEF shall report the amount of financial resources necessary to meet the requirements of Rule 829 and the market value of each financial resource available, and shall provide the Commission with financial statements prepared in accordance with GAAP. Paragraph (g)(2) would provide that the calculations required under Rule 829(g) shall be made as of the last business day of the SBSEF’s fiscal quarter. Paragraph (g)(3) would generally require the SBSEF to provide the Commission with sufficient documentation to explain its methodology for computing its financial requirements. Paragraph (g)(4) would generally provide the timing for submission of reports and supporting documentation. Paragraph (g)(5) would require an SBSEF to provide notice to the Commission no later than 48 hours after it knows or reasonably should know that it no longer meets its obligations under Rule 829(b) and (d). Paragraph (g)(6) would require the use of EDGAR to submit reports and documentation required under Rule 829. The Commission did not receive any comments on Proposed Rule 829(g) and is adopting Rule 829(g) as proposed, with minor technical modifications, for the reasons stated in the Proposing Release.493 M. Rule 830—Core Principle 13— System Safeguards Paragraph (A) of SEA Core Principle 13 494 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 must also 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 14 495 is substantively identical to SEA Core Principle 13, and the CFTC implemented this Core Principle through subpart O of part 37, which is entitled ‘‘System Safeguards.’’ Proposed Rule 830 is closely modeled on subpart O of part 37 of the CFTC’s rules, except in one aspect. Subpart O includes language relating to ‘‘critical financial markets,’’ 496 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.497 A similar concept in the SEC’s rules is ‘‘SCI entity.’’ 498 When adopting Regulation SCI, the Commission considered whether it should apply Regulation SCI to SBSEFs, among other entities, and determined not to do so,499 and when proposing amendments to Regulation SCI in 2023 to, among other things, expand the definition of ‘‘SCI entity,’’ the Commission did not propose to include SBSEFs as SCI entities.500 One commenter states that it has seen no changes in the SBS market that should cause the Commission to revisit its decision not to apply Regulation SCI to SBSEFs. The commenter states that, as the Commission has noted, the greatest operations risk to a dually registered entity is likely to arise from the swap business rather than the SBS business. From this standpoint, according to the commenter, it is appropriate for the Commission to align with the CFTC approach to ensure that SEFs and SBSEFs alike have adequate system safeguards and business continuity protocols that are aligned with this risk.501 Subpart O is reasonably designed to promote SEF operational capability, and that the most appropriate way to implement SEA Core Principle 13 is to closely harmonize with the CFTC’s rules that implement the corresponding Core Principle. As with SEA Core Principle 12 (Financial resources),502 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

503While subpart O frequently uses the term ‘‘market participant,’’ Proposed Rule 830 would substitute 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 362. 504See supra note 32. 505Section 3D(d)(14) of the SEA, 15 U.S.C. 78c– 4(d)(14). 506Section 5h(f)(15) of the CEA, 7 U.S.C. 7b– 3(f)(15). 507 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 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). 508Subpart P uses the term ‘‘board of directors,’’ while the Commission proposed to use the term ‘‘governing board’’ instead throughout proposed Regulation SE. See Proposing Release, supra note 1, 87 FR at 28877 n.29. 509See supra section VI.B.9. 510Proposed Rule 831(c) would provide 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 would have 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. 511See Letter from Chris Barnard (May 20, 2022) (submitted under cover email dated June 6, 2022). 512See id. 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 swaps market that warrant imposing different or additive operational capability requirements on SBSEFs. Additionally, because SBSEFs are not SCI entities and the corresponding CFTC rule has not imposed additional requirements on critical financial markets, it is not necessary or appropriate to adapt into Rule 830 the language of subpart O applicable to critical financial markets.503 Therefore, the Commission is adopting Rule 830 as proposed, with minor technical modifications.504 N. Rule 831—Core Principle 14— Designation of Chief Compliance Officer SEA Core Principle 14 505 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 506 is substantively identical. Proposed Rule 831 would implement SEA Core Principle 14 and is closely modeled on subpart P of part 37, with two minor substantive exceptions.507 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 proposed instead, in Rule 831(c)(2), that no individual that would be disqualified from serving on an SBSEF’s governing board 508 or committees pursuant to the criteria set forth in § 242.819(i) may serve as the CCO. As noted above,509 the disqualification criteria in Rule 819(i) are adapted from § 1.63 of the CFTC’s rules. Second, the Commission adapted the acceptable practices pertaining to CEA Core Principle 15 into paragraph (c) of Proposed Rule 831.510 The Commission received one comment on Proposed Rule 831. The commenter states that he fully supports the intent of the proposed regulations and believes that the CCO role is the single most important compliance role in an SBSEF and that it is critical that its job description, and the entity’s rules, structures, and procedures, act to secure and maintain the CCO’s independence. For example, the commenter states, the CCO should have a single compliance role and no other competing role or responsibility that could create conflicts of interest or threaten its independence. Therefore, the commenter suggests that the rules restrict the CCO position from being held by an attorney who represents the SBSEF or its board of directors, such as an in-house or general counsel. The commenter also states that the remuneration of the CCO must be specifically designed in such a way that avoids potential conflicts of interest with its compliance role.511 The commenter further states that although the CCO would normally report to an executive officer, the CCO must also have a direct reporting line to the independent directors, and the CCO should report to the audit committee at least yearly. The commenter strongly recommends amending § 242.831 such that the authority and sole responsibility to designate or remove the CCO, or to materially change its duties and responsibilities, vests only with the independent directors and not with the full board. This would help, the commenter states, to ensure the independence of the CCO within the entity and would possibly mitigate the need to promulgate rules requiring the SBSEF to insulate the CCO from undue pressure and coercion or to address the potential conflict between and among compliance interests, commercial interests and ownership interests of an SBSEF.512 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. While the commenter’s suggestions would support the independence of the CCO, key provisions of paragraph (b) of Proposed Rule 831 would sufficiently protect the independence and authority of an SBSEF’s CCO in performing the required functions. Significantly, paragraph (b)(1) would require that the position of CCO carry with it sufficient
authority and resources to fulfill the position’s duties, and paragraph (b)(2) would provide that the CCO shall have supervisory authority over all staff acting at the CCO’s direction. The SBSEF remains responsible for establishing and administering required policies and procedures. The Commission also recognizes that most SBSEFs are likely to be dually registered SEF/SBSEFs and that the swaps 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, and it is thus 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 swaps market that warrant imposing different or additive CCO requirements on SBSEFs relating to the CCO. For the reasons discussed above, the Commission is adopting Rule 831 as

513See supra note 32. The Commission has also deleted an extraneous ‘‘and’’ at the end of the text of Rule 831(a)(1)(v). 514See supra section V.F (discussing the trade execution requirement of section 3C(h) of the SEA); see also Proposing Release, supra note 1, 87 FR at 28922–25 (discussing proposed Rule 832 in more detail). 515See Proposing Release, supra note 1, 87 FR at 28922–23. 516See SEA section 3C(a)(1), 15 U.S.C. 78c– 3(a)(1). 517Transactions effected through the foreign branch of a U.S. person would be subject to the trade execution requirement, as ‘‘a foreign branch has no separate existence from the U.S. person itself.’’ See Proposing Release, supra note 1, 87 FR at 28923. 518Better Markets Letter, supra note 18, at 14–15. 519 Id. at 15–16. This commenter cited Citigroup’s experience with certain structured investment vehicles during the 2008 financial crisis, which this commenter states Citigroup ‘‘chose’’ to bring onto its balance sheet even though it had no legal obligation to do so. See id. 520See Citadel Letter, supra note 18, at 16. 521 Id. (citing Benos, E., Payne, R., and Vasios, M., Centralized trading, transparency and interest rate swap market liquidity: evidence from the implementation of the Dodd-Frank Act, Bank of England Staff Working Paper, at 30 (May 2018), available at https://www.bankofengland.co.uk/-/ media/boe/files/working-paper/2018/centralizedtrading-transparency-and-interest-rate-swapmarket-liquidity-update). 522 Id. 523See ISDA–SIFMA Letter, supra note 18, at 12– 13. 524 Id. at 12. 525See id. at 13. 526 Id. proposed, with minor technical modifications.513
VII. Cross-Border Rules
A. Rule 832—Cross-Border Mandatory Trade Execution Given the global nature of the SBS market, where there is frequent interaction among counterparties domiciled in different jurisdictions, the Commission proposed Rule 832 to address when the trade execution requirement would apply to a crossborder SBS transaction.514 The proposed rule would be consistent with the Commission’s territorial approach to applying Title VII requirements in other contexts, where relevant activity need not occur wholly within the United States or solely between U.S. persons for Title VII requirements to apply.515 As discussed further below, the relevant activity here is ‘‘to engage in a securitybased swap’’ in whole or in part in the United States.516 Paragraph (a) of 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 Rule 832 would define the term ‘‘covered person’’ with respect to a particular securitybased swap, as any person that is: (1) a U.S. person; 517 (2) a non-U.S. person whose performance under an SBS is guaranteed by a U.S. person; or (3) 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. Taken together, the provisions of Rule 832 apply to persons who are—consistent with the relevant statutory provisions added by Title VII—engaging in SBS in the United States. Two commenters express support for Rule 832 or its subparts. Specifically, one commenter states that inclusion of paragraphs (b)(2) and (b)(3) in the proposed rule—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 (‘‘guaranteed person transactions’’), and where one counterparty of an SBS transaction 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 a transaction (‘‘ANE transactions’’), respectively—are ‘‘appropriately broad [and] will help prevent attempted evasion of the trade execution requirement by ensuring that it will apply where there is a significant connection to the U.S., even when neither counterparty is a U.S. person.’’ 518 While generally supportive of Rule 832, this commenter believes that, in addition to guaranteed person transactions, the rule should also cover transactions that include a ‘‘de facto guarantee’’ by a U.S. person, which this commenter states represents ‘‘an unspoken but nevertheless powerful arrangement whereby a parent or other U.S. person has a virtually irresistible incentive to cover the losses incurred by
another affiliated entity’’ given the reputational impact a failure of even a non-guaranteed affiliate could have.519 Another commenter expresses support for paragraph (b)(3) of Rule 832 relating to ANE transactions.520 This commenter agrees that such transactions fall within the Commission’s jurisdiction, even if they are booked to non-U.S. entities, and believes that, given the Commission’s supervisory interests and policy objectives, it is warranted for the Commission to exercise its jurisdiction over ANE transactions. This commenter states that, ‘‘following the CFTC granting noaction relief from the trade execution requirement for ANE transactions, interdealer trading activity in EUR interest rate swaps began to be booked almost exclusively to non-U.S. entities, a fact pattern that academic research found was ‘consistent with (although not direct proof of) swap dealers strategically choosing the location of the desk executing a particular trade in order to avoid trading in a more transparent and competitive setting.’ ’’ 521 The commenter states that this is ‘‘an outcome to avoid in the SBS market.’’ 522 Several commenters oppose certain aspects of Rule 832. One commenter disagrees with the Commission’s application of the trade execution requirement to transactions involving foreign branches of U.S. persons, as well as to guaranteed person transactions.523 This commenter believes that ‘‘mandatory trade execution is not designed to address or mitigate systemic risk’’ and, thus, it is unnecessary to extend SBSEF rules to transactions with non-U.S. counterparties ‘‘where the lack of such rules would have no ability of posing risk to the U.S. financial system.’’ 524 This commenter states that guaranteed entities (by definition nonU.S. persons) and foreign branches of U.S. persons are both subject to the laws and regulations of their home country or the foreign jurisdictions in which they and their counterparties operate, respectively, and the commenter states that imposing the rule’s mandatory trading obligations on them in transactions with non-U.S. counterparties would result in duplicative regulation, which would increase compliance costs and add complexity and inefficiencies to crossborder trading.525 This commenter also states that foreign trading venues are already subject to comprehensive regulatory oversight in their home jurisdictions and, based on its experience with the CFTC’s SEF trading rules prior to the grant of equivalency to major foreign trading platforms in Europe and Asia, ‘‘foreign platforms will deny access to any entity with any connection to the United States, no matter how remote, for fear of being captured by the SEC’s regime’’ and will further fragment SBS markets.526 Several commenters also oppose subjecting ANE transactions to the trade execution requirement in Rule 832(b)(3). One commenter believes that ANE transactions fall outside the jurisdictional reach of Title VII, and that

527 Id. at 11.
528 Id. This commenter states that rules related to mandatory platform execution are intended to provide counterparties with a sufficient level of pretrade price transparency and that they should be addressed by the market regulators in the jurisdiction where the majority of trading activity is taking place. See id. 529 Id. at 12. 530See SIFMA AMG Letter, supra note 18, at 11; Tradeweb Letter, supra note 18, at 3–4; ISDA– SIFMA Letter, supra note 18, at 11–12. 531SIFMA AMG Letter, supra note 18, at 11. 532 ISDA–SIFMA Letter, supra note 18, at 12. 533Tradeweb Letter, supra note 18, at 4–5. 534See id. at 4; ISDA–SIFMA Letter, supra note 18, at 12. See also SIFMA AMG Letter, supra note 18, at 11. 535 ISDA–SIFMA Letter, supra note 18, at 12. See also Tradeweb Letter, supra note 18, at 4; SIFMA AMG Letter, supra note 18, at 11. Section VII.B, infra, discusses the exemptions under Rule 833. 536 ISDA–SIFMA Letter, supra note 18, at 12 n.28. See also CFTC, Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants, 85 FR 56924, 56961–63 (Sept. 14, 2020); CFTC Release No. 8212–20 (July 23, 2020) (CFTC Withdraws ‘‘ANE’’ Staff Advisory and Issues New Cross-Border No-Action Relief). 537SIFMA AMG Letter, supra note 18, at 11. 538See ISDA–SIFMA Letter, supra note 18, at 11 n.26. Specifically, this commenter appreciates the Commission’s clarification that the ‘‘covered person’’ definition is a transaction-based test but believes that the rule text could be more explicit in such regard by replacing: in prong (2) of the definition ‘‘a security-based swap’’ with ‘‘that security-based swap;’’ and in prong (3) of the definition ‘‘a transaction’’ with ‘‘that security-based swap transaction.’’ 539See SIFMA AMG Letter, supra note 18, at 11– 12. 540See supra note 32. 541Section 3C(h)(1) of the SEA (requiring trade execution ‘‘[w]ith respect to transactions involving security-based swaps subject to the clearing requirement of subsection (a)(1)’’ of the SEA). 542Section 3C(a)(1) of the SEA (‘‘It shall be unlawful for any person to engage in a securitybased swap unless that person submits such security-based swap for clearing to a clearing agency that is registered under this Act or a clearing agency that is exempt from registration . . . .’’). 543Proposing Release, supra note 1, 87 FR at 28923 (citing Application of ‘‘Security-Based Swap Dealer’’ and ‘‘Major Security-Based Swap Participant’’ Definitions to Cross-Border SecurityBased Swap Activities; Republication, SEA Release No. 72472 (June 25, 2014), 79 FR 47278, 47289 (Aug. 12, 2014) (‘‘2014 Cross-Border Adopting Release’’)). ‘‘the location of personnel or agents within the United States should not form the basis for extending the [Commission’s] trading mandate. . . .’’ 527 This commenter states that, when assessing the necessity of extending the extraterritorial reach of a particular ruleset, ‘‘it is important to consider the objectives of
individual rulesets’’ and further states that ‘‘platform trading rules are not intended to address or mitigate risk, and therefore, the Commission should exercise more flexibility’’ when deciding whether these rules should extend to ANE transactions.528 This commenter believes that including ANE transactions ‘‘would bring a random selection of additional transactions into scope merely due to some supporting role played by a U.S. based sales person, trader or other function caught up in ANE.’’ 529 Several commenters warn of negative implications for the SBS market from applying the trade execution requirements to ANE transactions.530 One commenter expresses concern generally about the rule’s ‘‘complexities and over-broad reach.’’ 531 Another commenter states that firms and platforms would be required to make representations ‘‘that no ANE touchpoint is present in the U.S. for any SBS subject to the trading mandate’’ so as not to run afoul of Rule 832’s requirements, which this commenter states would ‘‘require the development of a costly parallel infrastructure completely devoid of U.S. touchpoints. . . .’’ 532 Similarly, another commenter states that, without regulatory certainty and clear jurisdictional boundaries, market participants may be unsure of which rules apply to a particular SBS transaction because ‘‘non-U.S. counterparties and platform operators frequently do not know whether a transaction involves U.S. ANE activities,’’ which this commenter states will likely result in confusion among market participants and platform operators and may result in some market participants deciding not to transact in SBS at all.533 These commenters also state that foreign jurisdictions have adopted robust regulatory regimes that already subject non-U.S. persons and foreign trading venues to comparable and comprehensive regulations in their respective jurisdictions.534 These commenters contrast the Commission’s proposed approach with the CFTC’s efforts ‘‘to curtail the U.S.’ approach to extra-territoriality in light of the progress made by other jurisdictions in establishing robust derivatives regulatory regimes,’’ 535 with one noting that, in adopting its cross-border rules for certain swap-market participants in 2020, the CFTC announced that it would not consider ANE as a relevant factor in non-U.S. dealers’ swap transactions.536 Another commenter asks the Commission to be mindful of whether CFTC-registered SEFs would be forced to change their rules in order comply with the new proposed SBSEF rules.537 Finally, one commenter requests that the Commission make more explicit that the ‘‘covered person’’ definition in Rule 832 is a transaction-based test,538 while another commenter requests additional clarity about the application of the rule.539 The Commission has considered the comments received for Rule 832 and is adopting the rule as proposed, with minor technical modifications.540 As an initial matter, the Commission disagrees with those comments
suggesting that Rule 832 may exceed the Commission’s statutory authority. The trade execution requirement of section 3C(h)(1) provides that the Commission’s authority with respect to trade execution is coextensive with the Commission’s authority to require SBS clearing under
section 3C(a)(1) of SEA.541 And the
clearing requirement of section 3C(a)(1) provides for SBS clearing when a person is ‘‘engage[d] in a security-based swap’’ in the United States.542 Thus, consistent with the Commission’s territorial approach and Title VII, the relevant domestic activity that triggers the execution requirement is engaging in an SBS in the United States. Rule 832 fits comfortably within the bounds of that statutory authority. A U.S. person undertaking SBS transactions within the United States is, as no commenter disputes, engaging in an SBS in the United States (irrespective of whether the counterparty is overseas). And this is true even if the U.S. person is undertaking the SBS transaction from a foreign office. As the Commission has explained, ‘‘a foreign office has no separate existence from the U.S. person itself.’’ 543 It is the U.S. based entity that has legal and financial responsibility for the SBS transaction and for the ensuing obligations that will flow from the transaction over the life of the SBS. Thus, it is reasonable to understand the U.S. entity to have engaged in the United States in the SBS even if the initial undertaking (i.e., the SBS transaction) occurred in the entity’s foreign office. For similar reasons, a non-U.S. person who enters an SBS with another nonU.S. person has nonetheless engaged in an SBS in the United States (at least in
part) if that SBS arrangement is
guaranteed by a U.S. person. When a non-U.S. person operates with a guarantee from a U.S. person for the non-U.S. person’s performance under an SBS, the SBS arrangement is economically equivalent and substantially identical with a transaction entered into directly with the U.S. guarantor. With such an arrangement, an essential element of the transaction from the viewpoint of the

544 In the alternative, the Commission relies on the anti-evasion authority of section 30(c) of the SEA, 15 U.S.C. 78dd(c), as statutory authority for Rule 832. Section 30(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 example, without Rule 832(b)(2), 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. See Proposing Release, supra note 1, 87 FR at 28923 n.228. And, without Rule 832(b)(3), non-U.S. persons could retain the benefits of operating in the United States while avoiding compliance with the trade execution requirement. See id. at 28923 n.230. 545See supra note 523 and accompanying text. 546See supra note 519 and accompanying text. 547See supra note 524 and accompanying text. 548See Capital, Margin, and Segregation Release, supra note 100. 549See Regulation SBSR Release, supra note 102. 550See SBSD and MSBSP Registration Release, supra note 99. 551Core Principles of section 3D(d) of the SEA, 15 U.S.C. 78c–4(d). 552See, e.g., Rule 815 (methods of execution); Rule 816 (trade execution requirement); Rule 825 (Core Principle 8—timely publication of trading information). 553See, e.g., Rule 819(c) (Core Principle 2—access requirements). 554See, e.g., Rule 829 (Core Principle 12— financial resources). 555See, e.g., Rule 823(c) (Core Principle 6— financial integrity of transactions). 556See, e.g., Rule 820 (Core Principle 3—SBS not readily susceptible to manipulation); Rule 821(Core Principle 4—monitoring of trading and trade processing); Rule 823 (Core Principle 6—financial integrity of transactions). 557See supra notes 527–537 and accompanying text. guaranteed person’s counterparty is the legal and financial obligations such a guarantee imposes on the U.S. guarantor (without which there would be no need to include the U.S. guarantor) and brings the U.S. person legally and financially into the transaction as an interested party. This economic reality makes it appropriate to include guaranteed non-U.S. persons within the definition of ‘‘covered persons’’ in Rule 832. Further, the statutory language is, in the Commission’s view, reasonably understood to encompass 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 an SBS transaction. These activities rise to the level of engaging in an SBS in the United States.
Undertaking critical steps in an SBS transaction qualifies as engaging in an SBS in the United States, no less than placing ultimate legal or financial responsibility for an SBS with a person in the United States (as occurs in the cases discussed above of an SBS transaction involving either a foreign office of a U.S. person or a U.S. guarantor). The Commission’s assessment of the relevant domestic activities that constitute engaging in an SBS is consistent not only with the statutory text, but also the statutory objectives underlying the execution requirement. These objectives include, among other things, helping to ensure the financial stability of U.S. persons engaged in SBS transactions, the promotion of transparency in price formation for SBS transactions that have a nexus to the U.S. securities markets, and the prevention of manipulation, price distortion and disruptions of the delivery or cash settlement process within the U.S. market system. Each of the components of Rule 832 helps to advance one or more of these statutory goals and, thus, further supports the Commission’s reasonable understanding of what constitutes engaging in an SBS in the United States.544 With that general explanation of how Rule 832 fits comfortably within our statutory authority, the Commission will address the specific comments that were received on the rule. For the reasons discussed above, the Commission disagrees with the comment that Rule 832 should not extend the trade execution requirement to transactions involving foreign branches of U.S. persons or guaranteed person transactions.545 With respect to the commenter that believes Rule 832’s definition of ‘‘covered person’’ should also cover a transaction that includes a ‘‘de facto guarantee’’ by a U.S. person,546 the Commission appreciates that, even for an affiliate that is not a guaranteed person, a dealer or large trader might be unwilling to allow such an affiliate to fail because of the reputational and other consequences such a failure might have on its interactions with potential counterparties. At the same time, given the lack of a legal obligation by the ‘‘de facto guarantor,’’ it is not clear how the Commission could determine—before the fact—which ‘‘de facto guarantees’’ exist and which such ‘‘de facto guarantors’’ should be included, or how market participants, including counterparties, would be able to determine the applicability of Regulation SE to a transaction potentially subject to a ‘‘de facto guarantee.’’ Thus, the Commission is not including ‘‘de facto guarantee’’ transactions within Rule 832’s definition of ‘‘covered persons.’’ For the reasons discussed above, as well as the reasons discussed immediately below, the Commission also disagrees with the argument that the Commission should not extend SBSEF rules, which include mandatory trade execution, to transactions with non-U.S. counterparties (even if they involve guaranteed persons) where the lack of such rules would have no ability of
posing risk to the U.S. financial system.547 While Title VII’s trade execution requirements do not relate to systemic risk in precisely the same manner that certain other Title VII rules—such as capital, margin, and segregation requirements for SBSDs and MSBSPs,548 post-trade reporting and public dissemination of SBS transactions,549 registration and regulation of SBSDs and MSBSPs,550 among others—the Commission disagrees with the notion that the trade execution and other SBSEF requirements are not important in addressing and mitigating risk, including potentially systemic risk, to the U.S. financial system. The application of the trade execution requirement to a cross-border SBS transaction is not simply a matter of whether a particular form of execution (such as RFQ-to-3 or the use of an order book) is required. Instead, the application of this requirement to such a transaction would subject the transaction to the various requirements of Regulation SE, many of which relate to mitigating risks to the counterparties of the transaction and, ultimately, the U.S. financial system. The Core Principles for SBSEFs—which are set forth in the Dodd-Frank Act 551 and implemented in the rules of Regulation SE—seek to, among other things, provide for transparency in price formation for SBS,552 impartial access to SBS trading,553 the financial resources of SBS trading venues,554 the efficient submission of eligible SBS transactions to central clearing,555 and the prevention of manipulation, price distortion, and disruptions of the delivery or cash settlement process.556 With respect to commenters’ views opposing the inclusion of ANE transactions in Rule 832,557 the Commission understands that this differs from the CFTC’s policy towards ANE transactions and is cognizant of the potential complexities and costs that can arise if market participants are unsure of which jurisdictions’ rules apply to a particular SBS transaction.

558See supra note 534 and accompanying text. 559Proposing Release, supra note 1, 87 FR at 28924. 560See infra section VII.B (discussing crossborder exemptions under Rule 833, including exemptions relating to the trade execution requirement under Rule 833(b)). The Commission may consider, among other things, the extent to which the SBS traded in a foreign jurisdiction are subject to a comparable trade-execution requirement. 561See supra note 537 and accompanying text. 562See infra notes 624–627 and accompanying text. 563According to one commenter, these issues no longer apply in the SBS markets given that the CFTC resolved it ‘‘when it granted equivalency to major foreign trading platforms in Europe and Asia.’’ See supra note 526 and accompanying text. The CFTC has granted orders of exemptions to certain markets pursuant to CEA section 5h(g), which authorizes the CFTC to exempt, conditionally or unconditionally, a SEF from registration under CEA section 5h if the CFTC finds that the facility is ‘‘subject to comparable, comprehensive supervision and regulation on a consolidated basis by . . . the appropriate governmental authorities in the home country of the facility.’’ See ‘‘Exemption of Foreign Swap Trading Facilities from SEF Registration,’’ available at https://www.cftc.gov/International/ ForeignMarketsandProducts/ExemptSEFs. 564See supra notes 527 and 529 and accompanying text. 565See supra note 564 and accompanying text. 566See 2019 Cross-Border Adopting Release, supra note 218, 85 FR at 6274. 567 Id. at 6275–76. Background information includes information regarding (1) current or historic pricing, volatility or market depth, and (2) trends or predictions regarding pricing, volatility, or market depth, as well as information related to risk management. See id. at 6275. 568No client responsibility would mean that the U.S. personnel have not been assigned, and do not otherwise exercise, client responsibility in connection with the transaction. See id. at 6275–76. 569Not receiving any transaction-linked compensation means the U.S. personnel do not receive compensation based on, or otherwise linked to, the completion of individual transactions on which the U.S. personnel provide market color. See id. 570See id. at 6275. 571See supra notes 566–570 and accompanying text. 572See Proposing Release, supra note 1, 87 FR at 28923 (citing Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEA Release No. 78321 (July 14, 2016), 81 FR 53546, 53591 (Aug. 12, 2016) (‘‘Regulation SBSR Adopting Release II’’)). The Commission also recognizes commenters’ views that certain foreign jurisdictions have adopted ‘‘robust’’ regulatory regimes.558 However, the purpose of Rule 832 is to ‘‘address when the . . . trade execution requirement applies to a cross-border SBS transaction.’’ 559 Absent an exemption, the trade execution requirement applies in cross-border contexts wherever covered persons are involved in an SBS transaction,
regardless of whether the relevant foreign jurisdictions have robust regulatory regimes—such as those the Commission may consider in connection with a foreign trading venue’s application to the Commission for an exemption from the trade execution requirement under Rule 833(b).560 In adopting Rule 832, the Commission has been mindful of its impact on CFTCregistered SEFs and, as a commenter suggests,561 whether they might be forced to change their rules because of the Commission’s ANE approach for SBSEFs. As discussed below in section VII.B with respect to applications for exemptions relating to the trade execution requirement under Rule 833(b), foreign trading venues that have already received exemptive relief from the CFTC for swaps trading where robust regulatory regimes may exist with requirements comparable to those applicable to SBS transactions in the United States may apply for exemptive relief under Rule 833(b). If exempted under Rule 833(b), trading of SBS on such foreign trading venues would not require CFTC-registered SEFs to change their rules.562 Similarly, for SBS transactions that the Commission exempts from the trade execution requirement based on an application submitted under Rule 833(b), the concerns expressed by commenters regarding complexities and costs would no longer be applicable,563 and commenters’ concerns regarding the Commission’s treatment of ANE transactions should be allayed as well, because the effect of such exemptions would likely result in SBS transactions in foreign jurisdictions with what may be considered robust regulatory regimes being exempt from the Commission’s trade execution requirement and, in practice, have similar treatment of transactions on applicable foreign trading venues as the CFTC. On the other hand, if the Commission does not grant an exemption to such an SBS transaction, that would mean that the Commission would not have made a finding that granting such an exemption would be in the public interest and consistent with the protection of investors, in light of any information submitted with the application which the Commission may have considered regarding comparable requirements in that foreign jurisdiction. For such SBS transactions, it would be appropriate for the trade execution requirements to apply. The Commission also disagrees with the characterization of Rule 832 with respect to ANE transactions as bringing ‘‘a random selection of additional transactions into scope’’ and the belief that the location of personnel in the United States should not form the basis for applying the Commission’s trade execution requirement.564 The mere fact that an entity has personnel located in the U.S. does not subject an SBS transaction to the trade execution requirement; rather, it is the role such personnel play in arranging, negotiating, or executing the transaction that brings them within the definition of ‘‘covered person’’ for purposes of Rule 832. ANE transactions would not be a ‘‘random selection
of additional transactions;’’ 565 instead, it would be appropriate to apply its carefully considered and tailored guidance given in other Title VII requirements for the phrase ‘‘arranged, negotiated, or executed’’ for the purposes of the application of the trade execution requirement in the cross-border context. Specifically, the Commission has clarified that Title VII requirements using an ‘‘arranged, negotiated, or executed’’ test are not triggered in certain circumstances where the marketfacing activity of U.S. personnel is ‘‘so limited that it would not implicate the regulatory interests underlying the relevant Title VII requirements.’’ 566 Such instances arise when U.S. personnel provide ‘‘market color’’ in connection with SBS transactions, where such market color is ‘‘limited to background information regarding pricing or market conditions associated with particular instruments or with markets more generally’’ 567 and when the U.S. personnel have no client responsibility 568 and do not receive any transaction-linked compensation.569 However, market-facing activity by personnel located in the United States also would not be ‘‘market color’’ (i.e., would be considered to be ‘‘arranged, negotiated, or executed’’) if such activity involves: providing recommendations, such as recommending particular instruments; providing predictions regarding potential merits or risks of, or providing trading ideas or strategies relating to, a proposed security-based swap transaction; structuring a particular SBS transaction; or finalizing or reaching agreement with respect to any pricing or non-pricing element, such as underlier, notional amount or tenor, that must be resolved to complete an SBS transaction.570 With this existing guidance that applies to cross-border ANE transactions subject to Rule 832,571 declining to apply Title VII requirements to SBS transactions of foreign 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.572 This is problematic

573Proposing Release, supra note 1, 87 FR at 28923 n.230. See also supra note 521 and accompanying text (providing an example of swap dealers strategically choosing the location of the desk executing a particular trade in order to avoid trading in a more transparent and competitive setting after no-action relief from the trade execution requirement for ANE transaction). 574See supra note 538 and accompanying text. 575See Proposing Release, supra note 1, 87 FR at 28922 n.221 (‘‘The proposed term ‘covered person’ is designed to apply on a transaction-by-transaction basis.’’). 576With respect to the commenter that requested additional clarity with respect to Rule 832, see supra note 539 and accompanying text, the Commission’s discussion of the rule in this section including, for example, the applicability of existing guidance with respect to ANE transactions and the availability of exemptions under Rule 833(b) from the mandatory trade execution requirement as discussed in section VII.B below, should provide market participants with more clarity on when and to whom the rule’s requirements would apply. 577See supra notes 32 and 540. 578See 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). 579A ‘‘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 XI (discussing Rule 15a–12). 580 15 U.S.C. 78mm(a)(1). 581 17 CFR 240.0–12 (setting forth procedures for filing applications for orders for exemptive relief under section 36 of the SEA). 582An application for an exemption under Rule 833(a) could be submitted by a foreign SBS trading venue itself or by another interested party. For example, a financial regulatory authority in a foreign jurisdiction could submit an application under Rule 833(a) on behalf of one or more SBS trading venues licensed and regulated in that jurisdiction. 583 15 U.S.C. 78c(a)(1). 584 15 U.S.C. 78c(a)(77). 585 15 U.S.C. 78c(a)(4). 586 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). 587For 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 Rule 833(a), the covered trading venue would no longer be an exchange, SBSEF, or broker (as defined by the SEA). 588However, 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, with respect to such other SBS-related activity or any activity involving non-SBS securities, still be subject to any applicable requirements to register with the Commission as a national securities exchange, SBSEF, or broker, or to comply with other requirements applicable to such entities under the SEA or Commission rules thereunder. 589See 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. because, as the Commission stated in the Proposing Release, ‘‘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.’’ 573 Finally, with respect to the request by one commenter that the Commission revise the ‘‘covered person’’ definition in Rule 832 to make more explicit that it is a transaction-based test,574 the Commission affirms again that the definition is intended to apply on a transaction-by-transaction basis,575 and views the language in the rule (e.g., ‘‘with respect to a particular securitybased swap’’) as sufficiently clear in this regard.576 Accordingly, for the reasons discussed above, the Commission is adopting Rule 832 as proposed, with minor technical modifications.577 B. Rule 833—Cross-Border Exemptions for Foreign Trading Venues and Relating to the Trade Execution Requirement As discussed above, Rule 832 specifies when the trade execution requirement applies to an individual cross-border SBS transaction. When covered persons (as defined in Rule 832) are members of a foreign trading venue for SBS (a ‘‘foreign SBS trading venue’’) with respect to SBS transacted on that venue, whether or not such SBS are subject to the trade execution requirement, the foreign SBS trading venue could be required to register with the Commission as a national securities exchange or SBSEF 578 or, because the foreign SBS trading venue would be facilitating the execution of SBS between persons, a broker.579 To address the situation of a foreign SBS trading
venue that wishes to avoid registering with the Commission in one or more of these capacities, the Commission proposed Rule 833(a). Rule 833(a), which would specify that a foreign SBS trading venue can request that the Commission grant it an exemption under section 36(a)(1) of the SEA 580 by submitting, pursuant to SEA Rule 0–12,581 a complete application for exemptive relief. Rule 833(a) would also provide that such an application under
section 36(a)(1) and Rule 0–12, relating
to the status of the foreign SBS trading venue under the SEA, may state that the application is also submitted pursuant to Rule 833(a).582 When such an application is submitted pursuant to Rule 833(a), 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; 583 the definition of ‘‘security-based swap execution facility’’ in section 3(a)(77) of the SEA; 584 the definition of ‘‘broker’’ in section 3(a)(4) of the SEA; 585 and section 3D(a)(1) of the SEA.586 Because a foreign SBS trading venue for which the Commission grants an exemptive order under SEA section 36 and Rule 833(a) 587 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 to comply with other requirements applicable to such entities under the SEA or Commission rules thereunder.588 As with other exemptions issued pursuant to section 36, to issue a Rule 833(a) 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.589 As contemplated in section 36(a)(1), the Commission may issue a Rule 833(a) exemption with conditions. The Commission also proposed Rule 833(b), which would address requests for exemptive relief relating to the application of the trade execution requirement to transactions executed on a foreign SBS trading venue. 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

590For a more detailed discussion of the items in Rule 833(b)(2) that the Commission may consider, see Proposing Release, supra note 1, 87 FR at 28925–26. 591Bloomberg Letter, supra note 18, at 18. However, as discussed below in this section VII.B, this commenter criticizes various aspects of Rule 833. 592Better Markets Letter, supra note 18, at 16. 593 Id. 594Bloomberg Letter, supra note 18, at 7. 595 Id. 596See SIFMA AMG Letter, supra note 18, at 11– 12. 597See Bloomberg Letter, supra note 18, at 6; Tradeweb Letter, supra note 18, at 5–6; ISDA– SIFMA Letter, supra note 18, at 14. See also ICE Letter, supra note 18, at 4. 598Tradeweb Letter, supra note 18, at 6. 599Bloomberg Letter, supra note 18, at 6. See also ICE Letter, supra note 18, at 4 (stating that ‘‘EU and UK based multilateral trading facilities are not required under their home country regulation to ensure that a request-for-quote be sent to three different recipients or offer a central-limit-orderbook’’ and thus the proposed criteria cannot be satisfied from the outset); Bloomberg Letter, supra note 18, at 19 (stating that ‘‘at least three Bloomberg-affiliated [foreign venues] would seek an exemption’’ but may be ‘‘effectively barred at the door by the Proposal’s requirement that securitybased swaps are subject to a trade execution requirement in the foreign jurisdiction that is comparable to that in 15 U.S.C. 78c–3(h) and the Commission’s rules thereunder’’); ISDA–SIFMA Letter, supra note 18, at 14 (stating that hardly any (if any at all) foreign trading venues would be able to enjoy an Exempt SBSEF status and that, as far as the commenter is aware, none of the CFTC recognized multilateral trading facilities or organized trading facilities are required to offer a central limit order books on their platforms). 600Bloomberg Letter, supra note 18, at 7. 601 ISDA–SIFMA Letter, supra note 18, at 15. 602See Bloomberg Letter, supra note 18, at 6–7. See also Tradeweb Letter, supra note 18, at 6. 603 ISDA–SIFMA Letter, supra note 18, at 15. See also Tradeweb Letter, supra note 18, at 6. persons intend to trade SBS have received an exemptive order contemplated by 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.590 As with other exemptions issued pursuant to section 36, to issue a Rule 833(b) 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. As contemplated by section 36(a)(1), the Commission may issue a Rule 833(b) exemption with conditions. One commenter expresses general support for the establishment of a rule granting exemptions for foreign trading venues and for cross-border trade execution exemptions, noting that ‘‘difficulties that can arise when the trade execution requirement applies in two separate jurisdictions’’ and
that ‘‘it is important for market participants and trading venues to have regulatory certainty while maintaining flexibility in where transactions may be consummated.’’ 591 Another commenter believes the Commission’s proposed exemption rule should be made more robust to prevent evasion of the SBSEF registration and trade execution requirements. This commenter believes that Rule 833 does not provide meaningful standards for how the Commission will assess requests for such exemptions, which this commenter believes is insufficient, and provides the Commission with ‘‘unreasonably broad, nearly unlimited, discretion, in how it assess foreign swaps regulatory frameworks,’’ which this commenter believes may result in the Commission ‘‘facilitating evasion of Title VII.’’ 592 This commenter states that the Dodd-Frank Act ‘‘requires that the SEC must, at the very least . . . make an affirmative determination that such an application demonstrates that the exemption could not be used to evade those requirements[, which would] require the SEC [to] make a credible, comprehensive determination that the foreign regulatory requirements applicable to the applicant is actually written, applied and enforced, are the same as those that would otherwise apply to the applicant absent an exemption.’’ 593 One commenter argues that Rule 833(b)’s requirements are unnecessary if a foreign trading venue has received an exemption under Rule 833(a), given that the Commission would be required to find that the Rule 833(a) exemption is ‘‘necessary or appropriate in the public interest and consistent with the protection of investors,’’ which this commenter believes ‘‘should be sufficient for the purposes of trading SBS on foreign trading venues, even when the trade execution requirement applies.’’ 594 Thus, this commenter requests that the Commission ‘‘remove the 833(b) exemption and clarify that . . . if a foreign trading venue has been granted an 833(a) exemption . . ., a market participant should be permitted to trade SBS on that venue.’’ 595 Another commenter does not believe the exemptions in Rule 833 are sufficiently clear, and requests that the Commission consider setting forth charts or examples to better facilitate compliance.596 With respect to Rule 833(b) specifically, several comments appear to anticipate that, in order for a transaction on a foreign SBS trading venue to qualify for the trade execution exemption under Rule 833(b), the relevant foreign jurisdiction would have to require RFQ-to-3 or an order book for Required Transactions.597 One commenter states that ‘‘the CFTC, appropriately in our view, recognized that there are multiple ways that a regulator can ensure appropriate pretrade transparency and competition, such that restricting execution methods to [central limit order books] and RFQto-3 systems are not the only ways to achieve these objectives. Failing to recognize this fact in the course of making comparability determinations would incorrectly turn
the statutory comparability standard into a test for identical rules.’’ 598 Two commenters state that it would be difficult for many foreign SBS trading venues to demonstrate comparability if RFQ-to-3 and an order book were required, with one stating that ‘‘[f]ew jurisdictions require RFQ to 3, and some do not require SBS to be traded on an organized trading venue.’’ 599 Two commenters oppose requiring an exemption under Rule 833 to depend upon a ‘‘rule-by-rule’’ comparison or analysis. One commenter states that this would be ‘‘unduly burdensome and at odds with the overall goal of achieving comparable outcomes.’’ 600 The other commenter requests that the Commission adopt ‘‘a more flexible approach to the recognition of foreign trading venues—one that relies on holistic outcomes and governing principles, rather than a rule-by-rule analysis.’’ 601 Several commenters believe that Rule 833, as they understand it, would result in various negative consequences. One commenter states that covered persons would not be able to fulfill the trade execution requirement and that, as a result, market participants would then be forced to trade on a limited subset of venues, disrupting liquidity and requiring them to expend time and resources in onboarding to a compliant trading venue.602 Another commenter warns that ‘‘the limited liquidity in the SBS market is not going to withstand significant disruptions, increased costs, and market fragmentation, thus making it more likely for market participants to exit the SBS markets entirely.’’ 603 This commenter believes that the Commission’s approach ‘‘will force market participants to trade SBS within the jurisdictional borders of the United States, restricting access to global liquidity and thus further diminishing already thin SBS markets,’’ rather than ‘‘the decision where to trade the most standardized and liquid swaps [being] dictated by the available liquidity and

604 ISDA–SIFMA Letter, supra note 18, at 14. 605See ICE Letter, supra note 18, at 4. 606 Id. 607 Id. at 4–5. 608Bloomberg Letter, supra note 18, at 7. See also ISDA–SIFMA Letter, supra note 18, at 14–15; Tradeweb Letter, supra note 18, at 6. 609 ICI Letter, supra note 18, at 14. 610Bloomberg Letter, supra note 18, at 7. See also ICE Letter, supra note 18, at 4. See also ISDA– SIFMA Letter, supra note 18, at 14. 611Bloomberg Letter, supra note 18, at 7. 612 ICI Letter, supra note 18, at 14. See also Bloomberg Letter, supra note 18, at 7, 18; ISDA– SIFMA Letter, supra note 18, at 14–15; Tradeweb Letter, supra note 18, at 6. 613See Bloomberg Letter, supra note 18, at 7, 18; ISDA–SIFMA Letter, supra note 18, at 14–15; Tradeweb Letter, supra note 18, at 6. 614See Bloomberg Letter, supra note 18, at 18–19; ISDA–SIFMA Letter, supra note 18, at 14–15. 615See ICE Letter, supra note 18, at 5; ISDA– SIFMA Letter, supra note 18, at 15; Tradeweb Letter, supra note 18, at 6. 616 ISDA–SIFMA Letter, supra note 18, at 15. 617See Proposing Release, supra note 1, 87 FR at 28924. 618For 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. 619The Commission also emphasizes that a Rule 833(a) exemption would not have any impact on
section 6(l) of the SEA, 15 U.S.C. 78f(l), 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. 620Section 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). 621See supra notes 597–599 and accompanying text. prices in global markets.’’ 604 Similarly, another commenter contrasts the approach taken under Rule 833 with the approach the CFTC has taken to exempt certain foreign SEFs from SEF registration, and states that Rule 833 would prevent covered persons from trading SBS on such exempt SEFs and would impair their ability to manage risk effectively.605 If covered persons are no longer able to trade SBS on these venues, this commenter states, they also ‘‘may not find it feasible to trade other instruments, such as swaps and foreign corporate debt, due to the bifurcation of liquidity that will result.’’ 606 This commenter states that the ability to combine trading interest in related products on the same trading platform is critical to the effective transfer of risk within the financial system, and preventing ‘‘this single pool of liquidity jeopardizes that risk transfer and impairs price formation and ultimately increases systemic risk.’’ 607 These commenters argue that the Commission should instead align with the CFTC’s approach to exemptions, which does not require exempt foreign SEFs to have order books or to satisfy the RFQ-to-3 requirement, stating that the CFTC’s ‘‘flexible, outcomes-based approach serves market participants well.’’ 608 One commenter argues for the Commission to avoid the ‘‘unintended economic disadvantage if other global market participants avoid trading with the managers’ non-US fund clients solely to avoid being subject to the Commission’s SBSEF requirements’’ and the significant costs and burdens that would arise if the two regulatory approaches produce different outcomes for swaps and SBS.609 These commenters state that the CFTC has ‘‘already granted exemptions to a number of foreign trading venues across jurisdictions in Europe and Asia,’’ 610 with one commenter stating that the ‘‘CFTC process, while imperfect, provides a more streamlined and workable approach for the Commission.’’ 611 These commenters argue that the Commission should ‘‘ensure that its proposed approach to granting exemption will produce outcomes similar to those of the CFTC’’ so as to ‘‘further harmonize with the CFTC’s SEF framework, and promote consistency and simplicity. . . .’’ 612 Several of these commenters recommend that
the Commission grant automatic exemptions for trading venues that are currently exempt under the CFTC’s rules.613 Some commenters stated that this approach would be consistent with the Commission’s general approach of harmonizing closely with the CFTC’s SEF rules where appropriate and also stated that, as there are no distinctions outside of the United States between the regulation of swaps and the regulation of SBS, SBS are currently traded on foreign venues that have been recognized by the CFTC.614 Three commenters requested that the Commission recognize such exemptions (i.e., CFTC-exempt SEFs as ‘‘exempt’’ SBSEFs) at the adoption of Regulation SE.615 And one of these three commenters also requests that, in the alternative, and ‘‘in order to avoid duplicative or conflicting regulation . . . the Commission grant an exemption from the trade execution requirement if the SBS transaction at issue is subject to mandatory trading in another jurisdiction.’’ 616 The Commission has considered the comments received for Rule 833 and is adopting the rule as proposed. As the Commission stated in the Proposing Release,617 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.618 A foreign SBS trading venue covered by an exemptive order under Rule 833(a) might offer trading in other types of securities; however, the exemptive 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 a national securities exchange, SBSEF, or broker. The exemptive order would not address any registration obligations that might arise from any other SBS-related activity or any activity involving nonSBS securities by the foreign trading venue.619 The bulk of the comments received opposing Rule 833 appear to emanate from commenters’ interpretation—and misunderstanding—of what would be required in order to receive a Rule 833(b) exemption. The Commission proposed Rule 833(b) to 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.620 As a result,
a covered person (as defined in 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. Several commenters interpret the rule and the Commission’s discussion of the rule in the Proposing Release to mean that a foreign SBS trading venue must have RFQ-to-3 and an order book for Required Transactions in order for transactions on that venue to qualify for a Rule 833(b) exemption.621 These commenters, however, are incorrect in this understanding of the requirements for a Rule 833(b) exemption. First, Rule 833(b)(2) does not contain a list of items that ‘‘are required,’’ but rather lists items that the Commission ‘‘may consider’’ when it receives a

622Rule 833(b)(2).
623Proposing Release, supra note 1, 87 FR at 28925 (emphasis added). 624See supra section V.E (discussing methods of execution and Rule 815). 625 In the Proposing Release, the Commission stated its preliminary belief that ‘‘the use of singledealer platforms to discharge any mandatory trading execution requirement’’ would not meet the proposed rule’s requirements. See Proposing Release, supra note 1, 87 FR at 28925. 626See www.cftc.gov/International/ ForeignMarketsandProducts/ExemptSEFs (listing foreign swap trading facilities that the CFTC has exempted from its SEF registration requirements, including certain such facilities in the European Union, Japan, and Singapore). Market practices continued in this regard without change after the United Kingdom (‘‘UK’’) withdrew from the European Union, based upon a CFTC staff no-action letter addressing certain UK swap trading facilities. See CFTC Letter No. 22–16 (Dec. 1, 2022), available at https://www.cftc.gov/csl/22-16/download. 627Several commenters describe the negative consequences that would occur because, they believe, the Commission’s Rule 833(b) exemption would require foreign jurisdictions to require RFQto-3 and order book methods of execution, which these commenters believe forecloses many foreign trading venues from obtaining exemptive relief from the Commission for their SBS trading even though they have received similar exemptions from their CFTC. See supra notes 602–611 and accompanying text. Similarly, one commenter requests that, in the alternative, the Commission grant an exemption from the trade execution requirement if the SBS transaction at issue is subject to mandatory trading in another jurisdiction. See supra note 616 and accompanying text. As the Commission has explained, Rule 833(b) exemptions are not limited to those jurisdictions that require RFQ-to-3 and order books, but rather Rule 833(b)(2)(i) states that the Commission may consider the extent to which SBS transactions are subject to a trade execution requirement comparable to such methods of execution. Accordingly, SEFs would not be foreclosed from obtaining exemptive relief from the Commission for their SBS trading. For this reason, the Commission also does not agree with the commenter’s suggested alternative to grant an exemption from the trade execution requirement if the SBS transaction at issue is subject to mandatory trading in another jurisdiction, because exemptive relief under 833(b) may be applied for in such instances, which would give the Commission the opportunity to appropriately consider the applicable facts and circumstances. 628See supra notes 600–601 and accompanying text. 629See supra note 600 and accompanying text. 630See Proposed Rule 833(b)(2)(ii) and Proposing Release, supra note 1, 87 FR at 28925. 631See supra notes 612–615 and accompanying text. 632See supra note 615 and accompanying text. See also supra note 626. 633See infra section VIII. See also infra note 787 and accompanying text. 634See
supra note 593 and accompanying text. request for a Rule 833(b) exemption.622 And second, Rule 833(b)(2)(i) states, in relevant part, that the Commission may consider ‘‘the extent to which the security-based swaps 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 Act . . . and the
Commission’s rules thereunder.’’ (Emphasis added.) In the Proposing Release, the Commission described this requirement by stating 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 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).’’ 623 That is, the Commission’s proposed rule would not require foreign SBS trading venues to have RFQ-to-3 and an order book in order for the Commission to consider their SBS executions for an exemption under Rule 833(b). While, as commenters correctly state, for Required Transactions, Rule 815 requires SBS transactions to be executed through a limit order book or an RFQto-3 system,624 neither the text of Rule 833(b) nor the Commission’s description of Rule 833(b) states that a limit order book or an RFQ-to-3 system is required to receive a Rule 833(b) exemption.625 The phrase ‘‘comparable to’’ does not carry the same meaning as phrases such as ‘‘identical to’’ or ‘‘substantially similar to,’’ and the Commission uses this phrase with respect to Rule 833(b) exemptions because SBS transactions would not be disqualified from receiving a Rule 833(b) exemption simply because they were not executed through a limit order book or an RFQto-3 system. Rather, the Commission agrees with commenters that there may be foreign SBS trading venues—many of which have already received exemptive relief from the CFTC for swaps trading 626—that may be appropriate candidates for exemptive relief, that are subject to what may be considered robust regulatory regimes for SBS trading. With respect to such foreign SBS trading venues, the Commission encourages market participants to submit a request for exemptive relief under Rule 833(b) if they seek to be exempt from the Commission’s trade execution requirement for their SBS transactions.627 Certain commenters also object that, in their understanding, a Rule 833(b) exemption request would require a ‘‘rule-by-rule’’ comparison or analysis,628 which one commenter characterized as unduly burdensome.629 In addition to Rule 833(b)(2)(i) discussed above, another relevant factor (among others) that the Commission may consider is 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, which the Commission described in the Proposing Release to include being subject to rules designed to foster comparable levels of pre- and post-trade transparency, access, and liquidity.630 An 833(b) exemptive request generally should include an analysis that could assist the Commission’s determination as to
whether the regulation and supervision of a foreign SBS trading venue in an applicable foreign jurisdiction is subject to regulation and supervision comparable to that under the SEA. Given the central roles the jurisdiction’s applicable laws, rules and regulations, as well as a foreign SBS trading venue’s own rules, play in such a determination, an exemptive request generally should include an analysis of these requirements. A precise form of any such analysis—whether it is done as a ‘‘rule-by-rule’’ comparison or through some other methodology (e.g., in a more holistic manner)—is not specified by Rule 833(b), would be at the discretion of the entity submitting the exemptive request, and should be provided in order to help the Commission and its staff understand what requirements apply to the foreign SBS trading venue. With respect to the comments that the Commission should automatically provide exemptions for foreign trading venues that have received a parallel exemption from the CFTC for their SEF trading,631 and that the Commission should do so contemporaneously with adopting Regulation SE,632 while doing so would promote consistency, simplicity, and harmonization with the CFTC’s SEF rules, such a blanket exemption would not afford the Commission the opportunity to appropriately consider the relevant facts and circumstances in support of a finding that an exemption is necessary or appropriate in the public interest and consistent with the protection of investors. However, persons interested in submitting a request for exemptive relief should be mindful of the implementation period that will take place before Regulation SE’s requirements take effect, as described in more detail below.633 With respect to the comment that the provisions of Rule 833 are not robust enough,634 the Commission disagrees. Importantly, in order to issue any exemption under Rule 833, the Commission would be required to find that the exemption is necessary or

635See supra note 595 and accompanying text. 636With respect to the commenter that requested additional clarity with respect to Rule 833, see supra note 596 and accompanying text, the Commission’s discussion of the exemptions, including the standard of ‘‘comparable to’’ and the type of analysis that should be presented, should provide market participants with more clarity on how a person could seek exemptive relief. 637 15 U.S.C. 8343. 638The 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, adopting rules under section 765 is a necessary and appropriate first step to guard against conflicts of interest arising on SBSEFs and SBS exchanges. See Proposing Release, supra note 1, 87 FR at 28930. 639See Regulation MC Proposal, supra note 21. 640See Proposing Release, supra note 1, 87 FR at 28874. 641See id. at 29001–03. 642SIFMA AMG Letter, supra note 18, at 12. 643 Id. 644See id. appropriate in the public interest and consistent with the protection of investors, and the Commission may issue the exemptive relief with conditions. A blanket grant of exemptive relief would be inconsistent with carefully considering whether a specific exemptive request meets the applicable standard and might lead to a greater percentage of SBS transactions being executed beyond the scope of any U.S. regulatory oversight. Finally, the Commission disagrees with the commenter that suggested that Rule 833(b)’s requirements are unnecessary if a foreign trading venue has received an exemption under Rule 833(a).635 The two exemptions under Rule 833 provide exemptive relief from different requirements of the SEA and are also directed at different entities. Specifically, a Rule 833(a) exemption provides exemptive relief to a foreign trading venue that, absent the exemption, could be required to register with the Commission as an exchange, SBSEF, and/or broker if it traded SBS (regardless of whether such SBS are subject to the trade execution requirement). On the other hand, Rule 833(b)’s exemption provides exemptive relief to the counterparties of an SBS transaction with respect to the trading execution requirement in section 3C(h) of the SEA.636
Accordingly, for the reasons discussed above, the Commission is adopting Rule 833 as proposed.
VIII. 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 637 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.638 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
765.639 In view of the significant
amount of time that had elapsed and the significant evolution in the swap and SBS markets since the proposal of Regulation MC, the Commission withdrew that proposal,640 and proposed Rule 834 to implement section 765 of the Dodd-Frank Act with respect to SBSEFs and SBS exchanges.641 A. Rule 834(a) Paragraph (a) of Proposed Rule 834 would define terms used in Rule 834. The Commission received no comments on of Proposed Rule 834(a) and is adopting Rule 834(a) as proposed for the reasons stated in the Proposing Release. B. Rule 834(b) Paragraph (b) of Proposed Rule 834 would impose a cap on the size of the voting rights that an individual member of an SBSEF or SBS exchange may own or direct, barring 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. One commenter supports the Commission’s goal to adopt rules that aim to achieve better governance and mitigation of conflicts of interest that arise out of the operation of SBSEFs, but the commenter opposes Rule 834 because it believes that the rule would disrupt the closely harmonized rules with the CFTC, as the CFTC has not adopted corresponding provisions for its SEF registrants. This commenter recommends that the Commission, like the CFTC, should focus on board governance, conflicts of interest, and antitrust considerations rather than proscriptive, bright line rules. The commenter states that the Commission’s concerns regarding conflicts of interest ‘‘can best be addressed by ensuring compliance with the SBSEF Core Principles rather than an additional regulation,’’ 642 and specifically that the proposed 20 percent limitation on the voting interest that may be held by members of any SBSEF or SBS exchange ‘‘goes beyond what is necessary to effectively mitigate conflicts of interest.’’ 643 Rather, this commenter states, the ownership limit would limit access to necessary capital and act as barriers to entry for SBSEFs and SBS exchanges. The commenter also states that section 765 of Dodd-Frank does not require the Commission to restrict the ability to hold significant ownership interests in SBSEFs and that the statutory language instead provides that the Commission is authorized to adopt rules upon determining, after review, that such restrictions are necessary or appropriate to improve the governance of SBSEFs or to mitigate systemic risk, to promote competition, or mitigate conflicts of interest.644 Another commenter states that that the proposed 20% voting cap requirement could potentially thwart the Commission’s objective to ensure that only incremental changes would be

645See ISDA–SIFMA Letter, supra note 18, at 16. 646See WMBAA Letter, supra note 18, at 2. 647 Id. 648See id. at 2–3. 649See supra note 642. 650See SEA sections 6(b)(2) and 6(c), 15 U.S.C. 78f(b)(2) and 78f(c). Alternative Trading Systems, by contrast, are subject to ‘‘fair access’’ requirements only if they meet certain volume trading thresholds. See Rule 301(b)(5)(i), 17 CFR 242.301(b)(5)(i). necessary to adopt the SBSEF framework. The proposed cap, this commenter states, may require SEFs to set up an entirely new legal entity with a different governance structure, making it more challenging to obtain dual registration. The commenter also states that the conflicts of interest rules implemented by the CFTC, which do not include a 20% voting cap, sufficiently address any conflicts of interest concerns, as SEFs have operated under those rules for almost 10 years, and there have been no observable issues that would warrant such a regulatory shift.645 One commenter states that it strongly opposes Rule 834 and that, as written, Rule 834 would have the effect of prohibiting certain SBSEF participants from having common ownership and control as the SBSEF. An SBSEF, the commenter states, would likely not be able to onboard an affiliated introducing broker, even if the introducing broker would be subject to the same rules and practices as an unaffiliated participant. The commenter states that some CFTCregistered SEFs, including the commenter’s member firms, have affiliated introducing-broker participants that execute their respective swaps business on their affiliated SEFs, and the affiliated transactions make up a majority of the SEF’s business. The commenter states that these firms may choose not to register as an SBSEF and take on the costs and burdens of being an SBSEF if they cannot accommodate their affiliate’s trade execution needs, which would thwart the goal of developing a competitive landscape of regulated SBS market places.646 This commenter further states that it and many others previously opposed these hard caps when they were proposed in 2010, and that—with a decade of experience operating SEFs and venues for other financial products, including Commission regulated alternative trading systems—the commenter still believes the rule’s approach is ‘‘too heavy-handed’’ a way to solve a problem that has been more than adequately addressed through less burdensome measures.647 The commenter states that the CFTC never adopted its proposed ownership/ governance prohibition for SEFs, that the CFTC’s existing conflicts of interest rules have proven satisfactory, and that, rather than mandating ownership limits, the Commission should instead permit SBSEFs to exercise reasonable discretion as to its mechanisms for mitigating conflicts of interest and should rely instead on the conflict of interest and antitrust provisions already embedded in the SBSEF regulatory regime.648 The Commission has considered the comments and, as discussed below, is modifying
Proposed Rule 834 to provide an exemption from the ownership and voting caps for an SBSEF that has mitigated the potential conflict of interest with respect to compliance with the rules of the SBSEF by entering into an agreement with a registered futures association or a national securities association for the provision of regulatory services that encompass, at a minimum, real-time market monitoring, investigations, and investigation reports. The 20% cap in Proposed Rule 834(b) is designed to balance competing policy interests. On 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. Too low a cap, even if imposed in the name of eliminating conflicts of interest, could have the unintended effect of impeding 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 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. Capping a member’s voting interest at 20% strikes a reasonable balance between these competing interests, absent additional measures to ensure that a member or members with large voting power could tilt the playing field in their favor. And the Commission does not agree with the comment that a more general focus on board governance, conflicts of interest, and antitrust considerations, or on simply ensuring compliance with the SBSEF Core Principles,649 is sufficient to address this concern
because, based on its long experience in regulating the markets on which the instruments underlying SBS trade, the ownership and voting structure of a regulated entity can give rise to conflicts of interest between the organization’s business interests and its regulatory obligations. Further, even if the CFTC has not to date adopted its own ownership and governance prohibitions for SEFs, the appropriate comparison with respect to ownership and governance for SBSEFs is national securities exchanges, because both types of entities operate markets to which fair or impartial access requirements comprehensively apply.650 Therefore, SBSEFs should be subject to ownership restrictions that are similar to those in the rules of national securities exchanges, as approved by the Commission, which limit ownership by any one member and do not permit an exchange to merely ‘‘exercise reasonable discretion’’ with respect to its mechanisms for mitigating conflicts of interest. The Commission, however, appreciates the concerns expressed by commenters that a cap of 20% on voting interest in all cases could prevent would-be SBSEFs from onboarding their affiliated introducing brokers, and that the burdens imposed in setting up an SBSEF that is legally remote from affiliated introducing brokers may dissuade current SEFs from registering as SBSEFs, which would lead to their ceasing to offer SBS trading on their

651See supra notes 645–648.
652See infra section VI.B.3.
653See Proposing Release, supra note 1, 87 FR at 28927 and n.257. platforms.651 Therefore, the Commission is modifying Rule 834 as proposed to add new paragraph (b)(3) to provide an exemption from the 20% cap for an SBSEF that has entered into an agreement with a registered futures association or a national securities association for the provision of regulatory services that encompass, at a minimum, real-time market monitoring and investigations and investigation reports. This exemption, which is conditioned upon an SBSEF conducting its market monitoring and investigative activities through a self-regulatory body that has broader membership than an individual SBSEF and that does not operate its own SBSEF, would mitigate concerns that members with large ownership shares might be given preferential treatment with respect to their compliance with the SBSEF’s rules. And the exemption should also, by permitting SBSEFs to exceed the 20% ownership and voting cap, serve to facilitate the formation and registration of SBSEFs, thereby also facilitating the movement of SBS trading to venues that are more transparent and that have affirmative regulatory obligations. The Commission acknowledges that this exemption, because it focuses on surveillance and compliance functions, does not directly address concerns about an SBSEF adopting rules that hamper impartial access to an SBSEF, restrict the scope of SBS that might trade on a given SBSEF, or degrade the capability of a given SBSEF in ways that would favor a member’s OTC SBS business. These concerns, however, can be addressed in other ways. With respect to impartial access, the requirements of Proposed Rule 819(c), together with the guidance the Commission has provided regarding the application of that rule,652 set clear limits on the ability of an SBSEF to favor the interest of any members, including its large members, by unfairly excluding other market participants. And competition among SBSEFs will discourage any individual SBSEF from declining to list particular SBS or from degrading the capability of the SBSEF to favor a member, as trading in the affected SBS may migrate not to the OTC market, but to a direct competitor. Because the Commission has modified Proposed Rule 834 to provide for an exemption from the 20% ownership and voting cap, it is not the case that, as one commenter states, existing SEFs would necessarily be required to set up a new legal entity to operate an SBSEF, making it more challenging to obtain dual registration and potentially thwarting the Commission’s objective to ensure that only incremental changes would be necessary to adopt the SBSEF framework. And although the Commission’s proposed ownership rule departs from the CFTC’s rules for SEFs, which do not include caps on ownership or voting, the Commission is also mindful of the trading relationship between SBS and their underlying securities—which trade on exchanges that have a similar 20% ownership and voting cap as a result of
their Commission-approved rules—and the Commission wishes to avoid creating a regulatory incentive for activity to migrate from trading securities on national securities exchanges to trading SBS on SBSEF. For similar reasons, it would not be appropriate to extend the exemption in new paragraph (b)(3) of Proposed Rule 834 to SBS exchanges. Providing an exemption from the 20% ownership and voting cap requirements for SBS exchanges in Proposed Rule 834(b)(1) would result in different treatment from other national securities exchanges simply because one set of exchanges trades SBS, and this is not a sufficient reason to permit different ownership structures only for those exchanges, as this could lead to regulatory arbitrage by creating incentives for new exchanges to register first as SBS exchanges, without the ownership and voting caps, and then seek to amend their rulebooks to commence trading in cash equities. As it stated in the Proposing Release, the Commission proposed to apply the 20% ownership and voting on SBS exchanges based on its ‘‘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,’’ 653 and SBSEF rules seeking to manage conflicts of interest would not by themselves be sufficient to mitigate conflict-of-interest concerns when those concerns arise from one or a few SBS dealers or a major SBS participants having majority voting rights in an SBSEF or SBS exchange in which they are a member. Finally, the Commission reiterates that Proposed Rule 834(b) would cover both direct and indirect voting interests. The purpose of including indirect voting interest is to prevent potential circumvention of the 20% cap 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 nonmember 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 the child trading venue. And, 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, thereby potentially acting as a conflict of interest. The Commission did not receive comments on the aggregation-ofinterest aspect of Proposed Rule 834(b). For these reasons, the Commission is adopting Rule 834(b) with the modifications discussed above.
C. Rule 834(c)
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

654The Commission has corrected an internal cross-reference within Proposed Rule 834. 655Proposed Rule 834(a)(2) 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 involve fraud, deceit, or conversion. 656Proposed Rule 834(e)(1)(ii), read together with Proposed Rule 834(b), would allow 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. 657Paragraph (g)(1)(i)(A) of Proposed Rule 834, however, would incorporate only four of the five prongs in § 1.69(b)(1)(i). The Commission did not propose 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. 658Thus, the relevant language in Rule 834(g)(1)(ii)(C) would read, ‘‘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 that the security-based swap execution facility or SBS exchange reasonably expects could be affected by the significant action.’’ Proposed Rule 834(a)(3) would define a ‘‘member’s affiliated firm’’ as a firm in which the member is a principal or an employee, and Proposed Rule 834(a)(5) 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. or controlled, directly or indirectly, by its members. The Commission received no comments on Proposed Rule 834(c) and is adopting Rule 834(c) as proposed, with minor technical modifications,654 for the reasons stated in the Proposing Release. D. Rule 834(d) 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.’’ Paragraph (d) of Proposed Rule 834 would recognize that one way that a conflict of interest could manifest itself is in the disciplinary process. Therefore, the Commission proposed, 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.655 Proposed Rule 834(d) would reflect the Commission’s 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. The Commission received no comments on Proposed Rule 834(d) and is adopting Rule 834(d) as proposed for the reasons stated in the Proposing Release. E. Rule 834(e) Paragraph (e) of Proposed Rule 834 is closely modeled 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) and would 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; 656 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, modeled 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. The Commission did not receive comments on Proposed Rule 834(e) and is adopting Rule 834(e) as proposed, for the reasons stated in the Proposing Release. F. Rule 834(f) 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. The Commission received no comments on Proposed Rule 834(f) and is adopting Rule 834(f) as proposed for the reasons stated in the Proposing Release. G. Rule 834(g) Paragraph (g) of Proposed Rule 834 is modeled on § 1.69, which requires an SRO to further address the avoidance of conflicts of interest in the execution of its self-regulatory functions. 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.657 Second, Proposed Rule 834(g)(1)(ii)(C) is a simplified version of § 1.69(b)(2)(iii). Rather than incorporating the first four prongs of § 1.69(b)(2)(iii), which cross-reference definitions elsewhere in the CFTC’s rules, Rule 834(g)(1)(ii)(C) would instead incorporate only the final, catchall prong, which would cover any positions held by any member of an SBSEF’s governing board, disciplinary committees, or oversight committees that would have been covered under the other four prongs.658 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

659 17 CFR 240.19b–4.
660 15 U.S.C. 78c–4(d)(2).
661As discussed above, see supra section VI.B.7, 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 firsttime 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. A 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). may not be as prevalent in the securities and SBS markets as the swaps market. 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 selfregulatory organization’’—would suffice, and proposed it as Rule 834(g)(1)(ii)(C)(2). The Commission did not receive comments on paragraph (g) of Proposed Rule 834 and is adopting Rule 834(g) as proposed, for the reasons stated in the Proposing Release. H. Rule 834(h) Proposed Rule 834(h) would require each SBSEF and SBS exchange to maintain in effect various rules that would be required under Rule 834. An SBSEF would be required to file these rules under Rule 806 or Rule 807 of Regulation SE; an SBS exchange would be required to file such rules under existing SEA Rule 19b–4.659 Proposed Rule 834(h) is loosely modeled 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 received no comments on Proposed Rule 834(h) and is adopting Rule 834(h) as proposed for the reasons stated in the Proposing Release.
IX. Rule 835—Notice to Commission by
SBSEF of Final Disciplinary Action, Denial or Conditioning of Membership, or Denial or Limitation of Access The Commission proposed Rule 835 to 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. 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 would also 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) would use 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 660 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 Rule 819(g)(13)(ii).661 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. 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 would be required to 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 received no comments on Proposed Rule 835. Because the language of paragraphs (b)(1)(i) and (b)(2) should more clearly state that certain actions by an SBSEF shall not be ‘‘final’’ unless the affected person has exhausted their administrative remedies at the SBSEF, the Commission is modifying the phrase ‘‘person has sought an adjudication or hearing, or otherwise exhausted their administrative remedies’’ in both paragraphs (b)(1)(i) and (b)(2) so that it now
reads simply, ‘‘person has exhausted their administrative remedies,’’ and is adopting Rule 835 as modified.
X. 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’’ would also likely meet the definition of ‘‘exchange’’ set forth in section 3(a)(1) of

662 15 U.S.C. 78c(a)(1).
663 17 CFR 240.3b–16. See also supra section III.A (discussing Rule 803 and the requirements and procedures for registration, including the overlap between the definitions of ‘‘exchange’’ and ‘‘security-based swap execution facility’’). See also infra note 678 and accompanying text (discussing the Commission’s proposed amendments to Rule 3b–16). 664See § 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’’). 665 2011 SBSEF Proposal, supra note 6, 76 FR at 10958. 666 15 U.S.C. 78mm(a)(1). 667 17 CFR 240.3a1–1. 668An SBSEF that fails to comply with the condition to the exemption provided under paragraph (a)(4) of Rule 3a1–1 would no longer qualify for the exemption and might thus be operating as an unregistered exchange under the
section 5 of the SEA. 15 U.S.C. 78e. Section 5 also
generally provides that a broker or dealer may not use any facility of an exchange to effect or report any transaction in a security unless that exchange is registered as a national securities exchange or is exempt from registration by reason of the limited volume of transactions effected on the 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 Rule 3a1–1(a)(4) would not be an exchange within the meaning of
section 5.
669As discussed above, see supra note 37 and accompanying text, such a trading session is also referred to as a ‘‘forced-trading session.’’ 670See supra note 37; Proposing Release, supra note 1, 87 FR at 28878. 671See id. 672See Proposing Release, supra note 1, 87 FR at
28878. 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 national securities exchanges or alternative trading systems. 673Specifically, the Commission proposed 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 revoke 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. 674See Keeney Letter, supra note 95; ISDA– SIFMA Letter, supra note 18, at 17. 675See Keeney Letter, supra note 95 (stating that the exemption would permit clearing agencies to ‘‘do the bidding of exchanges’’ while being exempt from reporting requirements). 676See Proposing Release, supra note 1, 87 FR at 28932 (‘‘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.’’). the SEA 662 and the interpretation of that definition set forth in Rule 3b–16 thereunder.663 Thus, absent an exemption, an entity needing to register with the Commission as an SBSEF would also likely need to register with the Commission as a national securities exchange.664 The Commission has previously 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.’’ 665 Therefore, the Commission proposed to exercise its authority under section 36(a)(1) of the SEA 666 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 securities other than SBS) and has registered with the Commission as an SBSEF. To effect this exemption, the Commission proposed to amend Rule 3a1–1 under the SEA 667 by adding new paragraph (a)(4). The proposed amendment would add new paragraph (a)(4) to existing Rule 3a1–1 to provide that an organization, association, or group of persons that has registered with the Commission as an SBSEF pursuant to Rule 803 and provides a market place for no securities other than SBS is exempt from the definition of ‘‘exchange’’ under section 3(a)(1) of the SEA, 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 lowvolume exemption.668 In addition, the Commission proposed 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 that 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.669 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.670 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 settlement prices for SBS products, and, to provide an incentive for accurate submissions, the clearing agency can require those members to trade at those quoted prices. 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 has previously 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,’’ 671 and the Commission proposed to codify this exemption.672 Finally, the Commission proposed to amend the introductory language of paragraph (b) of Rule 3a1–1 to cover only paragraphs (a)(1) through (a)(3), not paragraph (a) as a whole.673 The changed language is designed to clarify that the revocation provisions would not apply to organizations, associations, or groups of persons who fall within amended Rule 3a1–1(a)(4) or (a)(5). Thus, even if a registered SBSEF were to become a substantial market, Rule 3a1–1(b), as proposed to be amended, would not afford a basis for the Commission to revoke an SBSEF’s exemption from the definition of ‘‘exchange’’ under Rule 3a1–1(a)(4), which would force the SBSEF to register as a national securities exchange (to avoid being an unregistered exchange). The Commission received two comment letters regarding the proposed amendments to Rule 3a1–1.674 One commenter does not support an exemption for clearing agencies from the definition of exchange, stating that the exemption would create a loophole.675 However, the limited scope of the exemption—which applies solely to trades that a clearing agency requires its members to undertake in support of the accuracy of the clearing agency’s end-of-day valuation process—is sufficiently narrow to prevent use of the exemption as a loophole allowing clearing agencies to act as, or on behalf of exchanges, without sufficient public reporting. The language of new paragraph (a)(5) of Rule 3a1–1, however, should more precisely reflect that the Commission is codifying exemptive relief that was provided with respect to trading sessions to support end-of-day valuations of SBS,676 and the Commission is therefore modifying paragraph (a)(5) to add the words ‘‘of

677See ISDA–SIFMA Letter, supra note 18, at 17. 678See Amendments Regarding the Definition of ‘‘Exchange’’ and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities, SEA Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022) (File No. S7– 02–22) (‘‘Rule 3b–16 Proposal’’). See also Reopening of Comment Periods for ‘‘Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews’’ and ‘‘Amendments Regarding the Definition of ‘Exchange’ and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities,’’ SEA Release No. 94868 (May 9, 2022), 87 FR 29059 (May 12, 2022) (S7–02–22); Supplemental Information and Reopening of Comment Period for Amendments Regarding the Definition of ‘‘Exchange,’’ SEA Release No. 97309 (Apr. 14, 2023), 88 FR 29448 (May 5, 2023) (File No. S7–02–22). 679See ISDA–SIFMA Letter, supra note 18, at 17. 680 Id. 681See id. 682See 15 U.S.C. 78c(a)(1). 683See supra note 32. 684See SEA section 3(a)(4), 15 U.S.C. 78c(a)(4). 685 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. 686As discussed in note 47, 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 earliest compliance date for the Commission’s final rules regarding SBSEF registration. 687See 17 CFR 240.10b–10 and 240.10b–16. 688The Commission’s proposal would not have exempted SBSEFs from registration as brokers. Rather, given the registration and regulatory requirements that were being proposed for SBSEFs through Regulation SE, the Commission proposed for such SBSEFs to be deemed registered as brokers so as to prevent subjecting those entities to a second, separate registration process as well as duplicative additional regulatory requirements. As discussed in the Proposing Release, an additional layer of registration processes and duplicative requirements would not be appropriate or necessary. See Proposing Release, supra note 1, 87 FR 28933. security-based swaps’’ at the end of the paragraph. Another commenter supports the proposed amendments and also addresses another Commission rulemaking related to the definition of ‘‘exchange.’’ 677 The Commission has separately proposed certain amendments to Rule 3b–16, a rule which defines certain terms used in the
statutory definition of ‘‘exchange’’ under section 3(a)(1) of the SEA.678 The commenter states that the Commission should exempt from the definition of ‘‘exchange’’ any market place that solely trades SBS, whether or not that market place is registered as an SBSEF.679 This commenter states that the Commission has ‘‘proposed to expand Rule 3b–16 substantially’’ and that this proposal, if adopted, would ‘‘reverse the previous relationship between the ‘exchange’ definition (as interpreted in Rule 3b–16) and the SBSEF definition.’’ 680 This commenter states that an organization that makes available certain methods for parties to interact regarding SBS might fall within the expanded definition of exchange but outside the definition of SBSEF and therefore be required to register as an exchange because SBSEF registration would be unavailable.681 The Commission does not agree with the commenter’s request to extend the Rule 3a1–1 exemption from the ‘‘exchange’’ definition to any entity that provides a market place for no securities other than SBS, regardless of whether they are registered as an SBSEF. The purpose of the exemption under Rule 3a1–1(a)(4) is not to universally exempt from the definition of ‘‘exchange’’ all entities that provide a market place for no securities other than SBS. Rather, given that Congress has provided a regulatory framework for SBSEFs through the Dodd Frank Act, the exemption is narrowly designed to avoid burdening registered SBSEFs with a second regulatory framework— namely, registration as national securities exchanges. Further, creating that commenter’s suggested exemption in Rule 3a1–1(a) would create a regulatory gap in which some entities that meet the definition of exchange are registered neither as national securities exchanges nor as SBSEFs. The language of new paragraph (a)(4) of Rule 3a1–1, however, should more closely track the language and scope of section 3(a)(1) of the SEA, which uses the term ‘‘market place or facilities,’’ rather than the term ‘‘market place,’’ 682 and the Commission is therefore modifying proposed paragraph (a)(4) of Rule 3a1–1 to replace the term ‘‘market place’’ with the term ‘‘market place or facilities.’’ Accordingly, for the reasons discussed above, the Commission is adopting the amendments to Rule 3a1– 1 with the modifications to paragraphs (a)(4) and (a)(5) discussed above and with minor technical modifications.683
XI. 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.’’ 684 Absent an exception or exemption, an SBSEF—in addition to being subject to the registration and regulatory requirements for SBSEFs—would also be required to register with the Commission as a broker pursuant to sections 15(a) and 15(b) of the SEA 685 and would be subject to all regulatory requirements applicable to brokers.686 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.687 The Commission proposed new Rule 15a–12 under the SEA, which would deem registration with the Commission as an SBSEF to also constitute registration as a broker, and which would exempt a registered SBSEF from many broker requirements in light of the SBSEF regulatory regime to which it would also be subject. The accommodation provided in Rule 15a– 12, however, would not be available to an SBSEF that engages 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 Rule 15a–12. Also, if an inter-dealer broker elects not to separate its interdealer 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 avail itself of Rule 15a–12 because it would not be an SBSEF–B under the rule. Paragraph (b) of Proposed Rule 15a– 12 would provide that an SBSEF–B, if it registered as an SBSEF pursuant to Rule 803, would be deemed also to have registered with the Commission pursuant to sections 15(a) and (b) of the SEA.688 Paragraphs (c) and (d) of Proposed Rule 15a–12 would set out the scope of broker requirements from which an SBSEF–B is exempt 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

689 15 U.S.C. 78o(b)(4).
690 15 U.S.C. 78o(b)(6).
691 15 U.S.C. 78q(b).
692 15 U.S.C. 78aaa, et seq.
693See https://www.sipc.org/about-sipc/sipcmission (‘‘In a liquidation under the Securities Investor Protection Act, SIPC and the courtappointed 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).’’). 694See 15 U.S.C. 78ddd(d). 695 15 U.S.C. 78bbb. 696 15 U.S.C. 78mm(a)(1) (giving the Commission 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). 697See supra note 32. 698See supra note 6. 699See supra notes 45–47 and accompanying text. 700See June 2011 Exemptive Order, supra note 46, 76 FR at 36293 (granting temporary exemptive relief from SEA section 3D(a)(1), 15 U.S.C. 78c– 4(a)(1)). 701See id. at 36293 (granting temporary exemptive relief from SEA section 3D, 15 U.S.C. 78c–4). 702See July 2011 Exemptive Order, supra note 46, 76 FR at 39934. 703See id. 704See id.; see also Requirements for SecurityBased Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers; Capital Rule for Certain Security-Based Swap Dealers, SEA Release No. 87005 (Sept. 19, 2019), 84 FR 68550, 68602 (Dec. 16, 2019) (‘‘Recordkeeping and Reporting Adopting Release’’). 705 15 U.S.C. 78cc(b). 706See June 2011 Exemptive Order, supra note 46, 76 FR at 36305–06. 707See id. at 36293; July 2011 Exemptive Order, supra note 46, 76 FR at 39934. 708See June 2011 Exemptive Order, supra note 46, 76 FR at 36306. 709 17 CFR 240.17Ad–24. 710 15 U.S.C. 78c(a)(23). 711See SEA Release No. 90667 (Dec. 16, 2020), 86 FR 7637 (Feb. 1, 2021). 712See id., 86 FR at 7650; SEA Release No. 64796 (July 1, 2011), 76 FR 39963, 39964 (July 7, 2011) (‘‘2011 Clearing Agency Exemption’’). that it applies to an SBSEF. Paragraph (d) of Proposed Rule 15a–12 would provide that, notwithstanding paragraph (c), an SBSEF–B is still subject to
section 15(b)(4),689 section 15(b)(6),690
and section 17(b) of the SEA.691 Finally, paragraph (e) of Proposed Rule 15a–12 would exempt an SBSEF– B from the Securities Investor Protection Act (‘‘SIPA’’).692 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.693 SIPC protection is funded by assessments made on member firms.694
Section 2 of SIPA 695 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. It would not be equitable to require an SBSEF–B to become a member of SIPC and pay SIPC assessments, because 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,696 the Commission finds 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 codifying this exemption as Rule 15a– 12(e). The Commission received no comments on Proposed Rule 15a–12 and is adopting Rule 15a–12 as proposed, with minor technical modifications,697 for the reasons stated in the Proposing Release.
XII. Termination of Temporary
Exemptions
As discussed above and in the Proposing Release, after issuing the 2011 SBSEF Proposal,698 the Commission granted the Temporary SBSEF Exemptions.699 In relevant part, Temporary SBSEF Exemptions have:
(1) Allowed an entity that trades SBS and is not currently registered as a national securities exchange, or that cannot yet register as an SBSEF because final rules for such registration have not yet been adopted, to continue trading SBS during this temporary period without registering as a national securities exchange or SBSEF; 700 (2) Exempted national securities exchanges (to the extent that they also operate an SBSEF and use the same electronic trade execution system for listing and executing trades of SBS on or through the exchange and the facility) from the requirement to identify whether electronic trading of those SBS is taking place on or through the national securities exchange or the SBSEF; 701 (3) Exempted any person, other than a clearing agency acting as a central counterparty in security-based swaps, that, solely due to its activities relating to security-based swaps, would fall within the definition of exchange and thus be required to register as an exchange from the requirement to register as a national securities exchange in sections 5 and 6 of the Exchange Act; 702 (4) Permitted brokers and dealers to effect transactions in SBS on an exchange that is operating without registering as a national securities exchange in reliance on the exemption described above; 703 (5) Exempted SBSEFs from the broker registration requirements of section 15(a)(1) of the SEA; 704 and (6) Exempted any SBS contract entered into on or after July 16, 2011, from being void or considered voidable by reason of section 29 of the SEA 705 because any person that is a party to the SBS contract violated a provision of the Exchange Act that was amended or added by subtitle B of Title VII of the Dodd Frank Act and for which the Commission has taken the view that compliance will be triggered by registration of a person or by adoption of final rules by the Commission, or for which the Commission has provided an exception or exemptive relief herein, until such date as the Commission specifies.706 In the Temporary SBSEF Exemptions, the Commission specified that the exemptive relief would expire ‘‘on the earliest compliance date set forth in any of the final rules regarding registration of SBSEFs,’’ 707 or in the case of the relief regarding section 29 of the SEA, ‘‘until such date as the Commission specifies.’’ 708 Additionally, in 2020, the Commission adopted Rule 17Ad–24 under the SEA 709 to exempt from the definition of ‘‘clearing agency’’ in
section 3(a)(23) of the SEA 710 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.711 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 2011.712 In the Proposing Release, the Commission sought public comment on whether it should ‘‘sunset’’ the 2011 Clearing Agency Exemption and stated that it

713See Proposing Release, supra note 1, 87 FR at 28934. 714See infra section XVI (discussing compliance
schedule).
715 15 U.S.C. 78cc(b).
716The structured data requirements are generally consistent with objectives of the recently enacted Financial Data Transparency Act (‘‘FDTA’’), which directs the Commission and other financial regulators of data standards for collections of information. Such data standards would need to meet specified criteria relating to openness and machine-readability and promote interoperability of financial regulatory data across members of the Financial Stability Oversight Council. See James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, Public Law 117–263, tit. LVIII, 136 Stat. 2395, 3421–39 (Dec. 23, 2022). 717See Proposing Release, supra note 1, 87 FR at 28872, 28972–73. 718See Letter from Campbell Pryde, President and CEO, XBRL US, to Secretary, Commission, at 2 (June 10, 2022) (‘‘XBRL US Letter’’); Bloomberg Letter, supra note 18, at 20–21. 719See XBRL US Letter, supra note 718, at 2. preliminarily believed that, if it adopted a framework for the registration of SBSEFs, the 2011 Clearing Agency 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–24.713 The Commission received no comment regarding the sunsetting of past exemptive relief for entities operating as SBSEFs. Upon the effectiveness of Regulation SE, the exemptive relief described above would no longer be necessary, because SBSEFs will be able to register with the Commission and will be subject to regulatory obligations under Regulation SE. Therefore, the Commission is sunsetting the exemptive relief consistent with the compliance
schedule for Regulation SE.714 Thus, the
exemptive relief described above will terminate 180 days after the Effective Date of Regulation SE, which will be 60 days after the date of publication in the Federal Register, except that (1) with respect to an SBSEF that has filed an application to register with the Commission on Form SBSEF within 180 days of the Effective Date of Regulation SE, as well as trading of SBS on such an SBSEF, the relief will terminate 240 days after the Effective Date of Regulation SE; and (2) with respect to an SBSEF that filed an application to register on Form SBSEF within 180 days after the Effective Date of Regulation SE and whose application on Form SBSEF is complete for purposes of Rule 803(b)(5) (having responded to requests by the Commission’s staff for revisions or amendments) within 240 days after the effective date, as well as trading of SBS on such an SBSEF, the exemptive relief will terminate 30 days after the Commission acts to approve or deny the SBSEF’s application on Form SBSEF. Specifically with respect to the exemptive relief providing that any SBS contract entered into on or after July 16, 2011, will not be void or considered voidable by reason of section 29 of the SEA 715 because any person that is a party to the SBS contract violated a provision of the Exchange Act that was amended or added by subtitle B of Title VII of the Dodd Frank Act and for which the Commission has taken the view that compliance will be triggered by registration of a person or by adoption of final rules by the Commission, or for which the Commission has provided an exception or exemptive relief herein, this exemptive relief will continue to apply to SBS entered into between July 16, 2011, and the date 30 days after the Commission acts to approve the first SBSEF registration. For any entity currently relying on the 2011 Clearing Agency Exemption that becomes required to register as a clearing agency, the exemptive relief will terminate 180 days after the Effective Date of Regulation SE, which will be 60 days after the date of publication in the Federal Register, except that (1) with respect to an entity that has filed an application to register as a clearing agency with the Commission on Form CA–1 within 180 days of the Effective Date of Regulation SE, the relief will terminate 240 days after the Effective Date of Regulation SE; and (2) with respect to an entity that has filed an application on Form CA–1 within 180 days after the Effective Date of Regulation SE and whose application on Form CA–1 is complete (having responded to requests by the Commission’s staff for revisions or amendments) within 240 days after the effective date, the exemptive relief will terminate 30 days after the Commission acts to approve or disapprove the application on Form CA–1.
XIII. Electronic Filings Under
Regulation SE
A. Use of Electronic Filing Systems and Structured Data Various provisions of proposed Regulation SE would have required registered SBSEFs (or SBSEF applicants) to file specified information electronically with the Commission using the EDGAR system in Inline XBRL, a structured, machine-readable data language.716 These provisions include:

Rule 803(b)(1)(i) and (b)(3),
regarding filings of, and amendments to, a Form SBSEF application.
Rules 803(e) and 803(f), regarding
requests to withdraw or vacate an application for registration.
Rule 804(a)(1), regarding filings for
listing products for trading by certification.
Rule 805(a)(1), regarding filings for
voluntary submission of new products for Commission review and approval.
Rule 806(a)(1), regarding filings for
voluntary submission of rules for Commission review and approval.
Rule 807(a)(1), regarding filings for
self-certification of rules.
Rule 807(d), regarding filings of
weekly notifications to the Commission of rules and rule amendments that were not required to be certified.
Rule 829(g)(6), regarding
submission to the Commission of reports related to financial resources and related documentation.
Rule 831(j)(2), regarding submission
to the Commission of the annual compliance report of SBSEF’s CCO. In addition to including these requirements in each of the rules listed above, the Commission proposed to amend Rule 405 of Regulation S–T to reflect these requirements.717 The Commission received comments specifically regarding the proposed methods and formats of electronic filing in Regulation SE discussed above.718 One commenter states that if certain entities report a portion of needed data to one regulator (CFTC) and the rest of the data to a different regulator (SEC), data consumers will be required to extract data from two different datasets to provide a complete picture. The commenter states that if data reported to the CFTC is in PDF or HTML format, and data reported to the SEC is in machine-readable (XBRL) format, this will increase the complexity of data access.719 Another commenter does not believe that EDGAR is the appropriate system for these filings. The commenter believes that requiring the use of EDGAR will require most filers to retain a third-party vendor and incur substantial costs and may have the potential to deter market participants from entering this space, noting that a more appropriate alternative filing process, the Commission’s Electronic Form Filing System (EFFS), a secure, web-based electronic filing application used to process filings from SROs and SCI entities, is already available, and its use would harmonize the filing approach with SBS exchanges, and more broadly with the approach taken by the CFTC. Alternatively, the

720See Bloomberg Letter, supra note 18, at 20–21. 721The Commission is, in light of its renumbering of the provisions relating to Form SBSEF, see supra
section III.B, and because Form SBSEF will not
appear in the Code of Federal Regulations, replacing ‘‘17 CFR 249.2001 of this chapter’’ with ‘‘referenced in 17 CFR 249.1701 of this chapter.’’ 722 In addition to the custom XML exhibits to Form SBSEF that will be submitted via EDGAR, the Commission is also adopting as proposed the requirement in Rule 825 of Regulation SE that SBSEFs post Daily Market Data Reports on their websites using a custom XML schema and a PDF renderer, both of which the Commission will make available on its website. See supra section VI.H. 723 In addition to these copies of existing documents, the Commission is requiring Exhibit U to Form SBSEF, which includes any information in the application that is subject to a confidential treatment request, to be filed as an unstructured PDF attachment. The confidential information that an applicant includes on Exhibit U could be responsive to disclosure requirements set forth in multiple other Form SBSEF Exhibits (potentially spanning multiple different data languages or formats). As a result, implementing technical validations on the structuring of the information on Exhibit U would not be technically feasible. 724See Registration Instructions to Form SBSEF, referenced in 17 CFR 249.1701. Rule 405 of Regulation S–T sets forth the requirements for commenter encourages the Commission to adopt the process used by the CFTC, which permits filings (including initial registration filings, quarterly financial filings and rulebook filings) to be made via a dedicated portal in PDF form.720 As discussed in further detail below, taking into account comments received, the Commission is requiring SBSEFs to submit the information related to rule and product filings under Rules 804 to 807 of Regulation SE in unstructured format via EFFS in order to alleviate compliance burdens on SBSEFs. The Commission has considered the comments received on the provisions regarding electronic filing in Regulation SE discussed above and is adopting Inline XBRL and EDGAR requirements for some, but not all, of the disclosures that Regulation SE will require. Specifically, Regulation SE will require SBSEFs to file the information under the following rules electronically via EDGAR using Inline XBRL:

Rule 829, regarding submission to
the Commission of reports related to financial resources and related documentation.
Rule 831, regarding submission to
the Commission of the annual compliance report of the SBSEF’s CCO.
Exhibits C through F to Form
SBSEF, regarding governing board fitness standards and composition; organizational structure; personnel qualifications; and staffing requirements, respectively.
Exhibits H through L to Form
SBSEF, regarding material pending legal proceedings; financial information (except for any copies of agreements filed with the exhibit); affiliate financial information; dues, fees, and other charges for services; and compliance with Core Principles, respectively.
Exhibit P through S to Form SBSEF,
regarding disciplinary and enforcement protocols; operation of trading systems or platforms; rules prohibiting specific trade practices; and the maintenance of trading data, respectively. For these specific disclosures, the Commission is adopting as proposed the requirement that they be made through EDGAR using Inline XBRL and is adopting the amendments to Rule 405 as proposed, with minor technical modifications.721 For certain other disclosures required under Regulation SE, in a change from the proposal, the Commission is requiring the use of a custom XML data language rather than Inline XBRL. Specifically, Regulation SE will require SBSEFs to file the following information electronically via EDGAR using custom XML:
Rules 803(e) and 803(f), regarding
requests for withdrawal or vacation applications.
The Form SBSEF Cover Sheet.
Exhibit A to Form SBSEF, regarding
the SBSEF’s ownership information (except for any copies of agreements filed along with the Exhibit).
Exhibit B to Form SBSEF, regarding
the officers, directors, and other control persons of the SBSEF.
Exhibit G to Form SBSEF, regarding
organizational documents (except for copies of organizational documents filed with the Exhibit).
Exhibit M to Form SBSEF,
regarding rules and technical manuals (except for copies of rules and technical manuals filed with the Exhibit).
Exhibit N to Form SBSEF, regarding
agreements and contracts (except for copies of agreements and contracts).
Exhibit T to Form SBSEF, regarding
clearing agencies.722
The Commission is requiring some disclosures to be structured in Inline XBRL, and other disclosures to be structured in custom XML, because Inline XBRL is well-suited for certain types of content—such as financial statements and extended narrative discussions—whereas other types of content can be readily captured using custom XML data languages that yield smaller file sizes than Inline XBRL and thus facilitate more streamlined data processing. Such custom XML languages also enable EDGAR to generate fillable web forms that will permit SBSEFs to input disclosures into form fields rather than encode their disclosures in custom XML themselves, thus likely easing compliance burdens on SBSEFs. Certain Form SBSEF exhibits also include requirements to attach copies of existing documents, such as copies of by-laws, written agreements, and compliance manuals. The Commission is requiring SBSEFs to file these copies of documents as unstructured PDF attachments to the otherwise structured Form SBSEF filing.723 Requiring SBSEFs to retroactively structure such existing documents, which were prepared for purposes outside of fulfilling the Commission’s disclosure requirements, could impose compliance burdens on SBSEFs that may not be justified in light of the commensurate informational benefits associated with having such documents in structured form. The specific requirements to include these attached copies are included in the following provisions of Regulation SE:
Exhibit A to Form SBSEF
(specifically, copies of agreements through which persons may control or direct the management or policies of the SBSEF).
Exhibit G to Form SBSEF
(specifically, copies of the SBSEF’s organizational documents).
Exhibit I to Form SBSEF
(specifically, copies of agreements supporting the SBSEF’s conclusions regarding the liquidity of its financial assets).
Exhibit M to Form SBSEF
(specifically, copies of the SBSEF’s rules, technical manuals, guides, or other instructions).
Exhibit N to Form SBSEF
(specifically, copies of agreements or contracts that enable the SBSEF’s compliance with Core Principles).
Exhibit O to Form SBSEF
(specifically, copies of the SBSEF’s compliance manual). To implement the reduced scope of Inline XBRL requirements for Form SBSEF compared to the proposed rules, the Commission is making changes to the rule text for Form SBSEF, Rule 803 of Regulation SE, and Rule 405 of Regulation S–T. In the Registration Instructions to Form SBSEF, rather than requiring the disclosures on Form SBSEF to be provided as an Interactive Data File in accordance with Rule 405 of Regulation S–T as proposed, the final rule text lists a subset of Form SBSEF Exhibits that are to be provided as an Interactive Data File in accordance with Rule 405 of Regulation S–T, and clarifies that the Interactive Data File requirement does not extend to copies of existing documents.724 In Rule 803 of

Interactive Data File submissions. Rule 405(b) of Regulation SE sets forth the content to be included within the Interactive Data File, and Rule 405(a)(3) of Regulation S–T specifies Inline XBRL as the data language to be used for Interactive Data File submissions. In a technical change from the proposed rule text, the Commission is expanding the group of entities listed within Rule 405(a)(3) of Regulation S–T to add electronic filers subject to Regulation SE, reflecting the addition of electronic filers subject to Regulation SE to Rule 405(b) of Regulation S–T in the proposed and final rule text. 725See Rule 803(b)(1)(i) of Regulation SE. We have made conforming changes to Rules 803(b)(3), (e), and (f) to narrow the proposed Inline XBRL requirements for Form SBSEF amendments, withdrawal requests, and vacation requests. See Rules 803(b)(3), 803(e), and 803(f) of Regulation SE. 726See the introductory text, subparagraphs (a)(2), (a)(4), and (b)(5)(ii), and Note 1 to Rule 405 of Regulation S–T. 727See Securities Act Release No. 10514 (June 28, 2018), 83 FR 40846, 40847 (Aug. 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. 728See supra note 139. 729See infra section XVII.C.3(f). 730See Rules 804(a)(1), 805(a)(1), 806(a)(1), 807(a)(1), and 807(d)(1) of Regulation SE. 731See Rule 816(a)(1) of Regulation SE. 732See Instruction (a) to the Security-Based Swap Execution Facility Sheet adopted as § 249.1702. 733See the introductory text, subparagraphs (a)(2), (a)(4), and (b)(5)(ii), and Note 1 to Rule 405 of Regulation S–T. 734See supra section IV.E. 735See supra note 140. 736 Id. 737See Letter from Stephan Wolf, CEO, Global Legal Entity Identifier Foundation, at 1–2 (June 10,
2022) (‘‘GLEIF Letter’’) at 1–2; Bloomberg Letter,
supra note 18, at 11–12.
Regulation SE, rather than requiring SBSEF applicants to file Form SBSEF as an Interactive Data File in accordance with Rule 405 of Regulation S–T as proposed, the final rule text requires SBSEF applicants to file the information specified in the Registration Instructions to Form SBSEF (i.e., the listed Exhibits) as an Interactive Data File in accordance with Rule 405 of Regulation S–T.725 In Rule 405 of Regulation S–T, the final rule text omits references to subparagraphs of Rule 803 that were included within the scope of the proposed rule text, while retaining the references to information specified in the Registration Instructions to Form SBSEF.726 Requiring use of EDGAR and structured data languages for certain disclosures under Regulation SE has benefits. Requiring SBSEFs to make required certain filings via EDGAR will provide the Commission and the public with a centralized, publicly accessible electronic database for SBSEF-provided data in the form that is most accessible and useful to regulators, market participants, and the public alike. The use of EDGAR also enables technical validation of the disclosures, thus potentially reducing the incidence of non-discretionary errors (e.g., the inclusion of text for a disclosure that should contain only numbers) in those Regulation SE disclosures that are filed via EDGAR. Moreover, requiring structured data languages for many of the reported disclosures will make those 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 those disclosures.727 Permitting all Regulation SE disclosures to be filed entirely in PDF, HTML, or ASCII format, while perhaps simpler for the SBSEF making the filings, would reduce the accessibility of information in the filings to the Commission and to market participants who will access these filings through EDGAR. Further, harmonizing with the CFTC in this regard by permitting all Regulation SE filings to be made entirely in PDF format, as the CFTC does, would not carry comparable benefits to harmonization of other aspects of Regulation SE. The benefits of using EDGAR and structured data highlighted above justify the potential inconvenience to registrants, as well as to data users, of having to access two separate databases to extract information regarding SEC-regulated SBSEFs and CFTC-regulated SEFs. As discussed above, in a change from the proposal, the Commission is requiring SBSEFs to provide the rule and product filings required under Rules 804 through 807and 816 of Regulation SE through EFFS in an unstructured format, rather than providing them through EDGAR in Inline XBRL. While the information in SBSEF rule and product filings will not be machine-readable, the absence of structuring requirements for rule and product filings under Regulation SE (which
aligns with the current rule and product filing process for SROs) 728 will help contain compliance burdens for SBSEFs, because SBSEFs will not be subject to compliance costs associated with structuring those filings.729 In light of the significant volume of other machine-readable data regarding SBSEFs that will be available to the market and data users under Regulation SE, this requirement having a lower compliance burden justifies the lack of machine-readability for the information in rule and product filings required under Rules 804 through 807 and 816 of Regulation SE. To implement the change from the proposed Inline XBRL and EDGAR filing requirement to the final unstructured format and EFFS requirement for rule and product filings, the Commission is modifying the rule text for Rules 804 through 807 of Regulation SE, the Security-Based Swap Execution Facility Cover Sheet that the Commission is adopting as § 249.1702, and Rule 405 of Regulation S–T. For Rules 804 through 807, the final rule text specifies that SBSEFs must file the rule and product filings through the EFFS system, rather than through the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S–T as proposed.730 The Commission is not making analogous changes to Rule 816 of Regulation SE, because Rule 816 instructs SBSEFs to follow the procedures under Rule 806 or 807 of Regulation SE.731 For the Security-Based Swap Execution Facility Cover Sheet, the final rule text specifies that SBSEFs must file the cover sheet using the EFFS system, rather than using the EDGAR system in accordance with Rule 405 of Regulation S–T as proposed.732 In Rule 405 of Regulation S–T, the final rule text omits references to subparagraphs of Rules 804 through 807 and the Security-Based Swap Execution Facility Cover Sheet that were included within the scope of the proposed rule text.733 B. Use of Identifiers As discussed above, the Commission is adopting, as § 249.1702, a submission cover sheet and instructions that an SBSEF must use for filings submitted pursuant to Rules 804 through 807 and 816. Paragraph (a) of the submission cover sheet instructions provides that a properly completed submission cover sheet must accompany all rule and product submissions submitted electronically to the Commission by an SBSEF.734 Per paragraph (a), a properly completed submission cover sheet would include, among other things, the name and platform ID of the SBSEF.735 Currently, LEIs issued through the GLEIS are the only allowable platform IDs that may be used by registered SBSEFs.736 The Commission received comments on the use of LEIs, as well as the potential use of other identifiers in filings to the Commission under Regulation SE.737 One commenter supports the Commission’s effort to include the LEI for identifying SBSEFs, stating that the Commission’s decision to include the LEI creates consistency and transparency for the identification

Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities

Lineage: In force

Similar documents from other regulators