Swap Data Repositories: Registration Standards, Duties and Core Principles

Federal RegisterSep 1, 2011

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 49

RIN 3038-AD20

Swap Data Repositories: Registration Standards, Duties and Core Principles

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Final rule.

SUMMARY:

The Commodity Futures Trading Commission (“CFTC” or “Commission”) is adopting its regulations to implement section 21 of the Commodity Exchange Act (“CEA” or “Act”), which establishes registration requirements, statutory duties, core principles and certain compliance obligations for registered swap data repositories (“SDRs”). Section 21 of the CEA was added by section 728 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

DATES:

Effective date is October 31, 2011. Applicants at that time may apply for registration as SDRs but are not required to do so. Mandatory registration and compliance with the registration rules will occur upon the effective date of the swap definition rulemaking, which the Commission will publish at a later date.

FOR FURTHER INFORMATION CONTACT:

For questions relating to this rulemaking: Jeffrey P. Burns, Assistant General Counsel, Office of the General Counsel (“OGC”), at (202) 418.5101,

jburns@cftc.gov;

Susan Nathan, Senior Special Counsel, Division of Market Oversight (“DMO”), at (202) 418.5133,

snathan@cftc.gov;

or Adedayo Banwo, Counsel, OGC, at (202) 418.6249,

abanwo@cftc.gov,

Commodity Futures Trading Commission, Washington, DC 20581. With respect to questions relating to registration processing and compliance matters: Riva Spear Adriance, Associate Director, DMO, at (202) 418.5494,

radriance@cftc.gov

and Sebastian Pujol Schott, Associate Deputy Director, Market Compliance, DMO, at (202) 418.5641,

sschott@cftc.gov,

respectively.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Overview

B. International Considerations

C. Summary of the Proposed Part 49 Regulations

1. Proposed Regulations Related to Registration

2. Proposed Regulations Related to Statutory Duties of SDRs

3. Proposed Regulations Related to Data Acceptance, Accuracy and Recordkeeping

4. Proposed Regulations Relating to Data Privacy, Confidentiality and Access

5. Proposed Regulations Related to Emergency Procedures

6. Regulations Related to Designation of a Chief Compliance Officer

7. Core Principles Applicable to SDRs

8. Proposed Regulations Relating to Additional Duties

9. Proposed Regulations Related to Real-Time Public Reporting

10. Proposed Regulations Relating to Implementation of SDR rules

D. Overview of Comments Received

II. Part 49 of the Commission's Regulations

A. Requirements of Registration

1. Procedures for Registration

2. Withdrawal From Registration

3. Equity Interest Transfer Notification

4. Swap Data Repositories Located in Foreign Jurisdictions

B. Duties of Registered SDRs

1. Acceptance of Data

2. Confirmation of Data Accuracy

3. Recordkeeping Requirements

4. Monitoring, Screening and Analyzing Swap Data

5. Real-Time Public Reporting

6. Maintenance of Data Privacy

7. Access to SDR Data

8. Emergency Authority Procedures and System Safeguards

C. Designation of Chief Compliance Officer

D. Core Principles Applicable to SDRs

1. Antitrust Considerations (Core Principle 1)

2. Introduction—Governance Arrangements (Core Principle 2) and Conflicts of Interest (Core Principle 3)

3. Governance Arrangements (Core Principle 2)

4. Conflicts of Interest (Core Principle 3)

E. Additional Duties

1. Financial Resources

2. Disclosure Requirements of Swap Data Repositories

3. Non-Discriminatory Access and Fees

F. Procedures for Implementing Swap Data Repository Regulations

III. Effectiveness and Transition Period

IV. Related Matters

A. Paperwork Reduction Act

B. Cost-Benefit Analysis

C. Regulatory Flexibility Act

V. List of Subjects

I. Background

Overview

On July 21, 2010, President Obama signed into law the Dodd-Frank Act.

Title VII

amended the CEA

to establish a comprehensive new regulatory framework for swaps and security-based swaps. The legislation was enacted to reduce risk, increase transparency and promote market integrity within the financial system by, among other things (1) providing for the registration and comprehensive regulation of swap dealers (“SDs”) and major swap participants (“MSPs”); (2) imposing clearing and trade execution requirements on standardized derivative products; (3) creating robust recordkeeping and real-time reporting regimes; and (4) enhancing the Commission's rulemaking and enforcement authorities with respect to, among others, all registered entities and intermediaries subject to the Commission's oversight.

See

Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), available at

http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.

Pursuant to section 701 of the Dodd-Frank Act, Title VII may be cited as the “Wall Street Transparency and Accountability Act of 2010.”

7 U.S.C. 1,

et seq.

To enhance transparency, promote standardization and reduce systemic risk, section 727 of the Dodd-Frank Act added to the CEA new section 2(a)(13)(G), which requires all swaps—whether cleared or uncleared—to be reported to SDRs,

which are new registered entities created by section 728 of the Dodd-Frank Act.

SDRs are required to perform specified functions related to the collection and

maintenance

of swap transaction data and information and to make such data and information directly and electronically available to regulators. Section 728 of the Dodd-Frank Act added to the CEA new section 21 governing registration and regulation of SDRs and directed the Commission to promulgate rules governing those duties and responsibilities. Section 21 requires that SDRs register with the Commission regardless of whether they are also licensed as a bank or registered as a security-based swap data repository with the Securities and Exchange Commission (“SEC”), and to submit to inspection and examination by the Commission.

Section 721 of the Dodd-Frank Act amends section 1a of the CEA to add the definition of SDR. Pursuant to section 1a(48), the term “swap data repository means any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps.” 7 U.S.C. 1a(48).

The Commission notes that currently there are global trade repositories for credit, interest rate and equity swaps. Since 2009, all G-14 dealers have submitted credit swap data to the Depository Trust and Clearing Corporation's (“DTCC”) Trade Information Warehouse. In January 2010 TriOptima launched the Global OTC Derivatives Interest Rate Trade Reporting Repository after selection by the Rates Steering Committee of the International Swaps and Derivatives Association (“ISDA”) to provide a trade repository to collect information on trades in interest rate swaps. In August 2010, DTCC also launched the Equity Derivatives Reporting Repository for equity swaps and other equity derivatives. Other entities may also perform trade repository functions on a more limited basis based on various business models and/or regional or localized considerations. In addition, a variety of firms also provide ancillary services and functions essential to the efficient operation of trade reporting of swaps. Recently, ISDA in anticipation of the implementation of swap data reporting and SDR requirements related to the Dodd-Frank Act selected DTCC and a joint venture between DTCC's Deriv/SERV and EFETnet as “global” repositories for interest rates available at

http://www2.isda.org/attachment/MzExMQ==/InterestRatesRepositorySelection.pdf

and commodities available at

http://www2.isda.org/attachment/MzIwNw==/CommodityRepositorySelection.pdf

. In addition, the Global FX Divisions of the Association of Financial Markets Europe (AFME), Securities industry and Financial Markets (SIFMA) and the Asian Securities industry and Financial Markets (ASIFMA) have recommended a partnership with DTCC and SWIFT for the purpose of developing a foreign exchange trade repository available at

http://www.sifma.org/news/news.aspx?id=8589934651.

See

Commission, Notice of Proposed Rulemaking: Swap Data Recordkeeping and Reporting Requirements, 75 FR 76574 (Dec. 8, 2010) (“Data NPRM”). The Data NPRM, among other things, proposed regulations governing SDR data collection and reporting responsibilities under part 45 of the Commission's regulations.

Section 21(a)(1)(B) permits derivatives clearing organizations (“DCOs”) to register as SDRs.

To register and maintain registration with the Commission, SDRs are required to comply with specific duties and core principles enumerated in section 21 as well as other requirements that the Commission may prescribe by rule. As described more fully in the Commission's Notice of Proposed Rulemaking (“SDR NPRM”),

new section 21(c) mandates that SDRs (1) accept data; (2) confirm with both counterparties the accuracy of submitted data; (3) maintain data according to standards prescribed by the Commission; (4) provide direct electronic access to the Commission or any designee of the Commission (including another registered entity); (5) provide public reporting of swap data in the form and frequency required by the Commission; (6) establish automated systems for monitoring and analyzing data (including the use of end user clearing exemptions) at the direction of the Commission; (7) maintain user privacy; (8) on a confidential basis, pursuant to section 8 of the CEA,

upon request and after notifying the Commission, make data available to other specified regulators; and (9) establish and maintain emergency and business continuity-disaster recovery procedures (“BC-DR”). In connection with the sharing of confidential information with other regulators, the SDR must, pursuant to new section 21(d), receive a written agreement from such regulator, prior to sharing the information, stating that it will abide by the confidentiality provisions of section 8 and agree to indemnify both the SDR and the Commission against any litigation expenses relating to information provided under section 8.

Commission, Notice of Proposed Rulemaking: Swap Data Repositories, 75 FR 80898 (Dec. 23, 2010).

Section 8(e) of the CEA, 7 U.S.C. 12(e), establishes among other things the conditions under which the Commission may furnish information obtained in connection with the administration of the CEA to any department or agency of the United States. Such information shall not be disclosed by such department or agency except in any action or proceeding under the laws of the United States to which it, the Commission or the United States is a party.

New section 21(e) also added a provision that each SDR designate a chief compliance officer (“CCO”) with specified duties. New section 21(f) established three focused core principles. First, unless necessary or appropriate to achieve the purposes of the CEA, an SDR may not adopt any rule or take any action that results in any unreasonable restraint or trade, or impose any material anticompetitive burden on the trading, clearing or reporting of transactions. Second, each SDR must establish transparent governance arrangements to fulfill the public interest requirements of the CEA and support the objectives of the Federal government, owners and participants. Third, each SDR must establish and enforce rules to minimize conflicts of interest in the SDR's decision-making processes and establish a process for resolving conflicts of interest. Section 21(f) further directs the Commission to establish additional duties for SDRs to minimize conflicts of interest, protect data, ensure compliance and guarantee the safety and security of the SDR.

Pursuant to this provision, the Commission also may develop additional duties taking into account evolving standards of the United States and the international community. Section 21(f)(4) of the CEA, 7 U.S.C. 24a(f)(4). This provision is sometimes referred to as “Core Principle 4.”

International Considerations

Section 752(a) of the Dodd-Frank Act directs the Commission to consult and coordinate with foreign regulatory authorities regarding the establishment of consistent international standards for the regulation of swaps and various “swap entities.” The Commission is committed to a cooperative international approach to the registration and regulation of SDRs and has consulted extensively with various foreign regulatory authorities in promulgating both its proposed and final regulations. In this regard, both the proposed and final part 49 regulations reflect the Commission's intent to harmonize our approach to the extent possible with the European Commission's regulatory proposal related to OTC derivatives, central counterparties and trade repositories.

The Commission's part 49 regulations also largely adopt the recommendations of the May 2010 “CPSS-IOSCO Consultative Report, Considerations for Trade Repositories in the OTC Derivatives Market” (“Working Group Report”).

The Commission believes that the Dodd-Frank Act and the part 49 regulations are consistent with the goals of the Working Group Report. As noted in the SDR NPRM, section 21 of the CEA does not authorize the Commission to exempt any entity performing the functions of an SDR from the registration requirements or any other duties established by the Dodd-Frank Act.

Certain non-U.S. swap activity is excluded, however, from the reach of the Dodd-Frank Act and Commission regulations pursuant to section 2(i) of the CEA.

See

Proposal for a Regulation of the European Parliament and of the Council on OTC Derivatives, Central Counterparties, and Trade Repositories (the “European Commission Proposal”), COM (2010).

See also

SDR NPRM

supra

note 8 at 80899-80900 and note 16. The proposal, if implemented, would become a part of the European Union's framework for financial supervision. The European Union is composed of 27 member states and the European Securities and Markets Authority will supervise the European securities markets along with the national regulators of the member states.

This working group was jointly established by the Committee on Payment and Settlement Systems (“CPSS”) of the Bank of International Settlements (“BIS”) and the Technical Committee of the International Organization of Securities Commissions (“IOSCO”). The Working Group Report presented a set of factors to consider in connection with the design, operation and regulation of SDRs. A significant focus of the Working Group Report is access to SDR data by appropriate regulators: the report urges that a trade repository “should support market transparency by making data available to relevant authorities and the public in line with their respective information needs.” The Working Group Report is available at

http://www.bis.org/publ/cpss90.pdf

See also

CPSS-IOSCO Consultative Report, Principles of Financial Market Infrastructures (March 2011) available at

http://www.bis.org/publ/cpss94.pdf.

See also Financial Stability Board, Implementing OTC Derivatives Market Reforms, October 25, 2010 (“FSB Report”); FSB, Derivative Market Reforms, Progress Report on Implementation, April 15, 2010 (“FSB Progress Report”).

Section 721(d) of the Dodd-Frank Act, which as relevant here amended the Commission's exemptive authority under section 4c(1) of the CEA, does not permit the Commission to grant exemptions with respect to new section 21 of the CEA unless expressly authorized.

Section 2(i) of the CEA, as amended by section 722 of the Dodd-Frank Act, excludes from U.S. jurisdiction all swap activity that does not have a “direct and significant connection with activities in, or effect on, commerce of the United States” unless such activity contravenes regulations necessary to prevent evasion. 7 U.S.C. 2(i)(1)-(2).

Summary of the Proposed Part 49 Regulations

Against this background, the Commission developed and published for comment part 49 of the

Commission's regulations establishing provisions applicable to the registration and regulation of SDRs.

Proposed part 49 of the Commission's regulations included procedures and substantive requirements to achieve and maintain registration as an SDR—including proposed standards for compliance with each of the statutory duties enumerated in section 21(c), the three core principles outlined in section 21(f), and proposed additional duties consistent with the authority conferred by section 21(f)(4).

A full description and discussion of each proposed rule can be found in the SDR NPRM,

supra

note 8.

1. Proposed Regulations Related to Registration

Section 21(a)(1)(A) makes it unlawful for any person, unless registered with the Commission, directly or indirectly to make use of the mails or any means or instrumentality of interstate commerce to perform the functions of an SDR. Consistent with this statutory directive, the Commission proposed regulations establishing procedural and substantive requirements governing registration as an SDR.

The proposed regulations required that SDRs specify the asset class or classes for which they will accept swap data and undertake to accept all swaps in asset classes for which they have specified.

If the applicant is a foreign entity, the proposed regulations specified that it be required to certify, and provide an opinion of counsel, that as a matter of law it is able to provide the Commission with prompt access to its books and records and to submit to onsite inspection and examination by the Commission.

The proposal established the standard of review as well as the standards for denial, suspension and revocation of registration. In addition, the proposed rules provided a “provisional registration” for SDR applicants that are in substantial compliance with the registration standards set forth in the regulations.

With respect to Commission review of SDR rules and rule amendments, the proposed rules provided procedures by which an applicant for SDR registration may either request that the Commission approve any or all of its rules or self-certify that its rules comply with the CEA or Commission regulations thereunder (“self certification”).

Proposed §§ 49.3-49.4 and 49.6-49.7; Proposed Form SDR.

Proposed § 49.10. Proposed § 49.2(a)(2) defines the term “asset class” as those swaps in a particular broad category of goods, services or commodities underlying a swap. The asset classes include credit, equity, interest rates, currency, other commodities, and such other asset classes as may be determined by the Commission.

Proposed § 49.7.

Proposed § 49.3(b).

Proposed § 49.8.

The proposed regulations separately required SDRs to file with the Commission a notice of an equity interest transfer of ten percent or more, as defined in the Commission's revised part 40 rules

and specified the necessary information and related notifications. Similarly, the proposed rules described the procedures and requirements for registering successor entities of an SDR.

See

Commission, Notice of Proposed Rulemaking: Revisions to part 40 (Provisions Common to Registered Entities), 75 FR 67282 (Nov. 2, 2010)(“Part 40 NPRM”) and Final rule: Revisions to part 40 (Provisions Common to Registered Entities), 76 FR 44776 (July 27, 2011)(“Part 40 Adopting Release”) (collectively, “part 40”).

Proposed § 49.6.

2. Proposed Regulations Related to Statutory Duties of SDRs

Section 21(c) of the CEA prescribes the minimum duties required of SDRs. To register and maintain registration, an SDR must (i) accept swap data as prescribed by the Commission; (ii) confirm with both counterparties to a swap the accuracy of the data; (iii) maintain the data submitted; (iv) provide the Commission or its designee (including another registered entity) with direct electronic access to the swap data; (v) provide the information prescribed by the Commission to comply with the public reporting requirements set forth in section 2(a)(13) of the CEA; (vi) establish automated systems for monitoring, screening, and analyzing swap data; (vii) maintain the privacy and confidentiality of any and all swap data received by the SDR; (viii) provide access to the swap data to specified appropriate domestic and foreign regulators; and (ix) adopt and implement emergency and BC-DR procedures.

Pursuant to the authority granted by sections 21(f)(4)

and 8a(5)

of the CEA, the Commission proposed to include in part 49 four additional duties requiring SDRs to (i) adopt and implement system safeguards, including BC-DR plans; (ii) maintain sufficient financial resources; (iii) furnish market participants with a disclosure document setting forth the risks and costs associated with using the services of an SDR; and (iv) provide fair and open access and fees and charges that are equitable and non-discriminatory. Proposed §§ 49.9-49.18 and 49.23-49.27 described the standards for compliance with each of these duties.

Section 21(f)(4) of the CEA;

see supra

note 10.

Section 8a(5) of the CEA, 7 U.S.C. 12a(5), authorizes the Commission to promulgate such rules and regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or accomplish any of the purposes of the CEA. In connection with SDRs, section 21(a)(3)(A)(ii), 7 U.S.C. 24a(3)(A)(ii), specifically requires that an SDR, to be registered and maintain registration, must comply with any requirement that the Commission may impose by rule or regulation pursuant to section 8a(5) of the CEA.

3. Proposed Regulations Related to Data Acceptance, Accuracy and Recordkeeping

Sections 21(c)(1)-(5) of the CEA, as adopted by section 728 of the Dodd-Frank Act, address the duties of SDRs in connection with accepting and maintaining swap data, ensuring accuracy and reliability, and providing direct electronic data access to the Commission or its designee.

To implement section 21(c)(1), the Commission proposed that SDRs adopt policies and procedures that will enable them to electronically accept data and other regulatory information, and to accept all swaps in an asset class, or classes, for which they have registered.

The Commission also proposed that SDRs establish policies and procedures to prevent a valid swap from being invalidated, altered or modified through the SDR's confirmation or recording process, and provide facilities for effectively resolving disputes concerning the accuracy of swap data and positions recorded by the SDR.

In a companion rulemaking under new part 45 of its regulations, the Commission has proposed data elements that must be reported to SDRs and has in addition provided specific requirements for SDRs relating to (i) determining which counterparty must report the swap data to the SDR; (ii) third-party facilitation of swap data reporting; (iii) reporting to a single SDR in connection with the reporting of swap data; and (iv) reporting errors and omissions.

See

Data NPRM

supra

note 6.

Proposed § 49.10.

Id.

Proposed § 49.11 implemented section 21(c)(2) of the CEA and specified that an SDR adopt policies and procedures to ensure the accuracy of swap data reported to it, and must confirm with both counterparties to the swap

the accuracy of data and information submitted by them.

These proposed confirmation requirements would not apply to real-time public reporting.

See

proposed § 43.3(f) set forth in Commission, Notice of Proposed Rulemaking: Real-Time Public Reporting of Swap Transaction Data, 74 FR 76140 (Dec. 7, 2010) (the “Real-Time NPRM”).

As noted, the form and content of the swap data ultimately will be established in the Commission's part 45 regulations related to data elements and standards. The Data NPRM detailed and defined the terms “confirmation” and “confirmation data.”

See

Data NPRM

supra

note 6.

Proposed § 49.12 implemented section 21(c)(3) of the CEA and required

SDRs to maintain the books and records of all activity and data relating to swaps reported to the SDR, consistent with recordkeeping and reporting rules to be established in new parts 43 and 45 of the Commission's regulations.

As proposed, § 49.12 required that SDR books and records be open to inspection on request by any representative of the Commission, the United States Department of Justice, the SEC or any representative of a prudential regulator authorized by the Commission. The proposal would further require each SDR that publicly disseminates swap data in real time to comply with the real-time reporting requirements prescribed in part 43.

See

§ 45.2 set forth in the Data NPRM

supra

note 6 and § 43.3 set forth in Real-Time NPRM

supra

note 28.

Id.

The Commission proposed two requirements in connection with the provision of direct electronic access mandated by section 21(c)(4) of the CEA. First, SDRs would be required to provide the Commission or its designee with connectivity and access to the SDR's database; second, SDRs would be required to electronically deliver to the Commission or its designee certain data in the form and manner prescribed by the Commission.

The Commission also proposed that SDRs be required to provide it with monitoring tools identical to those provided to the SDR's compliance staff and CCO.

In connection with section 21(c)(5)'s mandate that SDRs establish automated systems for monitoring, screening and analyzing swap data, the Commission proposed that at this time SDRs establish the infrastructure necessary to fulfill the statutory requirement.

Proposed § 49.17.

Id.

Proposed §§ 49.13 and 49.14. The latter proposal was designed to implement the Commission's program to monitor and prevent abuse of end-user clearing exemption claims.

See

section 2(h)(7) of the CEA, as amended, which creates a framework by which certain swaps may be exempt from clearing if one of its counterparties is (i) not a financial entity; (ii) is using swaps to hedge or mitigate commercial risk; and (iii) notifies the Commission as to how it generally meets the financial obligations associated with entering into non-cleared swaps (the “end-user clearing exemption”).

See

Commission, Notice of Proposed Rulemaking: End-User Exemption to Mandatory Clearing of Swaps, 75 FR 80747 (Dec. 23, 2010) (“End-User NPRM”).

4. Proposed Regulations Relating to Data Privacy, Confidentiality and Access

Section 21(c)(6) of the CEA requires that an SDR maintain the privacy of all swap transaction information that it receives from an SD, counterparty or any other registered entity. The Commission recognized that data related to real-time public reporting is, by its nature, publicly available, while detailed core data intended for use by the Commission and other regulators is subject to statutory confidential treatment. Accordingly, the Commission proposed to implement section 21(c)(6)'s mandate—and also in part the conflicts of interest core principle applicable to SDRs (“Core Principle 3”)—by requiring that “SDR Information” that is not subject to real-time reporting be treated as non-public and confidential and may not be accessed, disclosed, or used for purposes unrelated to SDR responsibilities under the CEA unless the submitters of the data explicitly agree to such use.

The proposed regulation also directed SDRs to establish and maintain safeguards, policies and procedures addressing the misappropriation or misuse of swap data that the Commission is prohibited from disclosing pursuant to section 8 of the CEA (“Section 8 Material”)

or similar material, such as intellectual property.

Proposed § 49.16. However, aggregated data that cannot be attributed to individual transactions or market participants may be made publicly available by SDRs.

Id.

Section 8(a) of the CEA prohibits the Commission from disclosing information or material if it “would separately disclose the business transactions or market positions of any person and trade secrets or names of customers.”

See also

the definition of “Section 8 Material” in § 49.2(a)(14).

The Commission proposed to prohibit the use of SDR data for commercial or business purposes by the SDR or any of its affiliated entities with a limited exception where the SDR has received the express written consent of the market participants who submitted the swap data.

The proposal required that SDRs develop and maintain firewalls to protect data they are required to maintain, and permitted access to third-party service providers so long as they have implemented stringent confidentiality procedures to protect data and information from improper disclosure.

Proposed § 49.17(g)(2).

Id.

This proposal was intended to partially implement section 21(c)(6)'s privacy provisions as well as the provisions of section 21(f)(3), which requires an SDR to establish and enforce rules to mitigate conflicts of interest.

See

SDR NPRM

supra

note 8 at 80911.

Section 21(c)(7) requires that an SDR make data available to certain domestic and foreign regulators (“Appropriate Domestic Regulator” or “Appropriate Foreign Regulator”) under specified circumstances. To implement this provision, the Commission proposed definitions and standards for determining appropriateness—such as an existing memorandum of understanding (“MOU”) or similar agreement executed with the Commission—as well as procedures for gaining access to data maintained by SDRs.

Separately, section 21(d) mandates that prior to receipt of any requested data or information from an SDR, the Appropriate Foreign or Appropriate Domestic Regulator must execute a “Confidentiality and Indemnification Agreement” with the SDR. The Commission proposed to implement this provision by requiring that such an agreement be executed between SDRs and each appropriate regulator.

The Commission acknowledged in the SDR NPRM that this requirement could have the unintended effect of inhibiting access to data maintained by SDRs. Consistent with the international harmonization envisioned by section 752 of the Dodd-Frank Act, the Commission stated that it will endeavor to provide sufficient access to SDR data to Appropriate Foreign and Domestic Regulators. In that regard, the Commission noted that pursuant to section 8(e) of the CEA it may share confidential information in its possession with any foreign futures authority, department or agency of any foreign government or political subdivision thereof.

Id.

Proposed § 49.18.

SDR NPRM

supra

note 8 at 80910.

5. Proposed Regulations Related to Emergency Procedures

To implement section 21(c)(8), the Commission proposed § 49.23 to require SDRs to adopt specific policies and procedures for the exercise of emergency authority. The Commission based its proposals on existing emergency authority concepts—in particular, the application guidance for former designated contract market (“DCM”) Core Principle 6.

As proposed, § 49.23 required SDRs to enumerate the circumstances in which it is authorized to invoke its emergency authority, applicable procedures, and the range of measures it is authorized to take in response to an emergency. Further, the emergency policies and procedures adopted by an SDR must specifically address conflicts of interest and include a requirement that the SDR's CCO be consulted in any emergency that may raise conflicts of interest. The proposal further required an SDR to identify to the Commission the persons authorized to exercise emergency authority and the chain of command, and to promptly notify the

Commission of any emergency action taken.

Id.

at 80911.

6. Regulations Related to Designation of a Chief Compliance Officer

Section 21(e) establishes the CCO as a focal point for compliance. The Commission implemented section 21(e) in proposed § 49.22, which further developed and detailed CCO statutory requirements and responsibilities. Specifically, proposed § 49.22 established the supervisory regime applicable to CCOs; specified removal provisions; specified the duties and authorities of CCOs; and detailed the information that must be included in the required annual compliance report and the procedure for submission of the report to the Commission.

7. Core Principles Applicable to SDRs

Unlike prescriptive rules, core principles generally provide the registered entity with reasonable discretion in establishing the manner of compliance with each specified principle. Section 21(f) enumerates three focused core principles applicable to SDRs: (1) Antitrust considerations (“Core Principle 1”); (2) governance arrangements (“Core Principle 2”); and (3) conflicts of interest, Core Principle 3.

With respect to Core Principle 1, antitrust considerations, the Commission proposed in § 49.19 that, unless necessary or appropriate to achieve the purposes of the CEA, SDRs should avoid adopting any rule, regulation or policy or taking any action that results in an unreasonable restraint of trade or imposes any material anticompetitive burden on the trading, clearing, reporting, and/or processing of swaps.

Section 21(f)(4), the “fourth core principle,” grants broad rulemaking authority to the Commission to establish additional duties for SDRs. The Commission proposed to add several additional duties pursuant to this authority; they are discussed in section II. E, below.

Core Principle 2 requires that each SDR establish governance arrangements that are transparent to fulfill public interest requirements and to support the objectives of the Federal government, owners and participants. Core Principle 3 provides that each SDR establish and enforce rules to minimize conflicts of interest in its decision-making processes and establish a process for resolving such conflicts. In order to ensure proper implementation of Core Principles 2 and 3, the Commission proposed § 49.20 (focusing on the transparency of SDR governance arrangements) and § 49.21 (addressing SDR identification and mitigation of existing and potential conflicts of interest).

Proposed § 49.20 prescribed minimum standards for the transparency of SDR governance arrangements and required that the SDR make available certain information to the Commission and the public that is current, accurate, clear and readily accessible; and that it disclose summaries of significant decisions. In addition, proposed § 49.20 required each SDR to ensure that an independent perspective be reflected in the nominations process for its board of directors as well as the process for assigning members of the board or others to SDR committees. Finally, the proposal included a number of substantive requirements for SDR boards of directors and committees. In implementing Core Principle 3, the Commission proposed in § 49.21 that each SDR maintain and enforce rules that would identify and mitigate existing and potential conflicts of interest in its decision-making processes.

8. Proposed Regulations Relating to Additional Duties

As noted above, section 21(f)(4) provides authority under which the Commission may prescribe additional duties for SDRs. Pursuant to section 21(f)(4) and section 8a(5) of the CEA, the Commission proposed to include in part 49 four additional duties that would require SDRs to (i) adopt and implement system safeguards, including BC-DR plans;

(ii) maintain sufficient financial resources;

(iii) furnish to market participants a disclosure document setting forth the risks and costs associated with using the services of an SDR;

and (iv) provide fair and open access to the SDR and fees that are equitable and non-discriminatory.

Proposed § 49.24.

Proposed § 49.25.

Proposed § 49.26.

Proposed § 49.27.

9. Proposed Regulations Related to Real-Time Public Reporting

As discussed above, section 727 of the Dodd-Frank Act established certain public reporting requirements for all swap transactions and participants, creating new section 2(a)(13)(B) which establishes the reporting requirements pursuant to which the Commission is authorized to promulgate rules mandating the public availability of swap transaction and pricing data in “real time.”

To implement these provisions, the Commission proposed a real-time public reporting framework for swap transaction and pricing data in new part 43 of its Regulations.

Proposed § 49.15 details SDRs' ability to accept and publicly disseminate swap transaction and pricing data on a swap market as well as those executed off-exchange; its provisions apply to off-facility swap transactions and to all swap transactions executed on a SEF or DCM that fulfill the public dissemination requirement of proposed part 43 by reporting to a registered SDR. As proposed, § 49.15 required SDRs to establish electronic reporting systems necessary to receive and publicly disseminate all required data fields and further requires SDRs who disseminate swap transaction and pricing data in real time to promptly notify the Commission when such data is not timely reported.

Section 2(a)(13)(A) of the CEA defines real-time public reporting to mean “as soon as technologically practicable after the time at which the swap transaction has been executed.”

See

Real-Time NPRM

supra

note 28.

10. Proposed Regulations Relating to Implementation of SDR Rules

Proposed § 40.8 was intended to conform SDR implementation procedures to the proposed amendments to the Commission's part 40 regulations addressing provisions common to all registered entities.

The proposal provided that an applicant for registration as an SDR may request Commission approval of some or all of its rules or, alternatively, may self-certify its rules. Proposed § 40.8 specified procedures applicable to both alternatives.

See

Part 40

supra

note 21.

D. Overview of Comments Received

The Commission received

a total of 29 comments from a broad range of

interested persons, including existing trade repositories and potential SDRs, foreign regulatory authorities, trade organizations, banks, commercial end-users, and DCMs. While commenters generally expressed support for the proposed part 49 rules, they also offered recommendations for clarification or modification of specific provisions. Comments generally focused on one or more of a dozen broad themes, including (i) SDRs as a public utility; (ii) commercialization of data; (iii) indemnification requirements; (iv) monitoring, screening and analyzing swap data; (v) ability of SDRs to invalidate or modify the terms of an executed swap; (vi) real-time public reporting; (vii) pricing; (viii) bundling of services; (ix) registration; (x) governance and conflicts of interest; (xi) access to data; and (xii) implementation and phase-in.

Individual comments will be described and discussed as appropriate throughout this section.

The initial comment period with respect to proposed part 49 closed on February 22, 2011. The comment periods for most proposed rulemakings implementing the Dodd-Frank Act were reopened for 30 days from April 27 through June 2, 2011. Throughout this release, comment letters (“CL”) are identified by “CL” and the submitter. Each letter will be addressed as appropriate in connection with the discussion,

infra,

of the final regulatory provision or provisions to which they relate. All comment letters are available through the Commission Web site at

http://comments.cftc.gov/PublicComments/CommentList.aspx?id=939.

Comments addressing the proposed part 49 regulations were received from: (1) American Benefits Council (“ABC”) and the Committee on the Investment of Employee Benefits Assets (“CIEBA”) on February 22, 2011 (“CL-ABC/CIEBA”); (2) Americans for Financial Reform (“AFR”) on February 22, 2011 (“CL-AFR”); (3) Argus Media Inc. (“Argus”) on February 22, 2011 (“CL-Argus”); (4) Association of Institutional Investors (“AII”) on June 2, 2011 (“CL-AII”); (5) Chris Barnard (“Barnard”) on May 25, 2011 (“CL-Barnard”); (6) Better Markets on February 22, 2011 (“CL-Better Markets”); (7) CIEBA on June 3, 2011 (“CL-CIEBA”); (8) CME Group (“CME”) on February 22, 2011 (“CL-CME”); (9) Council of Institutional Investors (“Council”) on February 18, 2011 (“CL-Council”); (10) Depository Trust & Clearing

Corporation (“DTCC”) on February 22, 2011 (“CL-DTCC I”); (11) DTCC on June 3, 2011 (“CL-DTCC II”); (12) DTCC on June 10, 2011 (“CL-DTCC III”); (13) European Securities and Markets Authority (“ESMA”) on January 17, 2011 (“CL-ESMA”); (14) Foreign Banking Organizations—Barclays, BNP Paribas, Deutsche Bank, Royal Bank of Canada, The Royal Bank of Scotland Group, Societe Generale and UBS (“Foreign Banks”) on January 11, 2011 (“CL-Foreign Banks”); (15) Global Foreign Exchange Division (“Global FX Division') formed in cooperation with the Association for Financial Markets in Europe (“AFME”), the Securities Industry and Financial Markets Association (“SIFMA”) and the Asia Securities Industry and Financial Markets Association (“ASIFMA”) on February 22, 2011 (“CL-Global FX Division”); (16) Managed Funds Association (“MFA”) on February 21, 2011 (“CL-MFA”); (17) Markit on February 7, 2011 (“CL-Markit”); (18) MarkitSERV on February 7, 2011 (“CL-MarkitSERV I”); (19) MarkitSERV on June 3, 2011 (“CL-MarkitSERV II”); (20) MarkitSERV on June 3, 2011 (“CL-MarkitSERV III”); (21) Not-For-Profit Electric End-User Coalition consisting of the National Rural Electric Cooperative Association, the American Public Power Association and the Large Public Power Council (“NFPE Coalition”) on February 22, 2011 (CL-NFPE Coalition”); (22) The Office of the Comptroller of the Currency (“OCC”) on June 30, 2011 (“CL-OCC”); (23) Regis—TR on February 22, 2011 (“CL-Regis-TR”); (24) Reval.com, Inc. (“Reval”) on January 24, 2011 (“CL-Reval I”); (25) Reval on February 18, 2011 (“CL-Reval II”); (26) Reval on February 20, 2011 (“CL-Reval III”); (27) Securities Industry and Financial Markets Association (“SIFMA”) Asset Management Group (“AMG”) on February 7, 2011 (“CL-AMG”); (28) SunGard Energy & Commodities (“Sungard”) on February 22, 2011 (“CL-Sungard”); and (29) TriOptima on February 22, 2011 (“CL-TriOptima”).

In addition, five comment letters submitted in response to the Data NPRM also referenced the proposed part 49 regulations. Those commenters are: (1) DTCC on February 7, 2011 (“CL-Data-DTCC”); (2) Encana Marketing (USA) Inc. (“Encana”) on February 7, 2011 (“CL-Data-Encana”); (3) Foreign Banks on February 17, 2011 (“CL-Data-Foreign Banks”); (4) Global FX Division on February 7, 2011 (“CL-Data-Global FX Division”); and (5) InterContinentalExchange, Inc. (“ICE”) on February 7, 2011 (“CL-Data-ICE”). The comments have been considered in connection with the promulgation of these final rules, and will be addressed in connection with the discussion of the provisions to which they relate.

The Commission notes that both DTCC and CME submitted additional late comment letters related to the SDR Rulemaking on July 21, 2011 and July 29, 2011, respectively. These late-filed comment letters were received very close to the Commission's decision on the final part 49 rules; the letters raised no new issues, and therefore, the Commission is not providing a specific response to any issues raised by the letters.

The Commission in its SDR NPRM requested comment on the nature and length of any implementation or phase-in period for proposed part 49. Six commenters responded, recommending variously that there be separate phase-in periods for different asset classes and/or that the Commission sequence the implementation of reporting rules by first implementing parts 45 and 49. Subsequently, when sufficient information is collected to fully study the markets, rules related to real-time and block trading should be implemented. The Commission has determined to separately address implementation and sequencing issues and will consider and address comments related to those concerns in connection with that action. In addition, 14 additional comments were received by the Commission in connection with its request for comment on the order in which it should consider final rulemakings made under the Dodd-Frank Act.

See infra

note 315 for cites to the additional letters.

II. Part 49 of the Commission's Regulations: The Final Rules

As proposed in the SDR NPRM, part 49 contains provisions governing the registration and regulation of SDRs. The scope of part 49 is established in § 49.1; definitions are contained in § 49.2. Proposed §§ 49.3-49.4 and 49.6-49.7, along with Form SDR, establish the procedures and substantive requirements for registration as an SDR. Proposed § 49.5 governs equity interest transfers and § 49.8 establishes procedures under which an SDR must implement its rules. Compliance with the statutory duties described in section 21(c) of the CEA is established in § 49.9 and detailed in §§ 49.10 through 49.18 and §§ 49.23 and 49.24. Core principles applicable to SDRs as outlined in section 21(f) are set forth in §§ 49.19 through 49.22. Additional duties promulgated pursuant to section 21(f)(4) of the CEA (“Core Principle 4”) are set forth in §§ 49.25 through 49.27. Unless otherwise discussed in this section, the regulations are adopted as proposed.

A. Requirements of Registration

1. Procedures for Registration—§ 49.3

To implement the requirements of section 21(a), the Commission proposed § 49.3 to establish application and approval procedures. Proposed § 49.3 required each SDR applicant to file for registration electronically on proposed Form SDR.

Form SDR would require each applicant to provide the Commission with documentation relating to its business organization, financial resources, technological capabilities, and accessibility of services.

The Commission is adopting §§ 49.3-49.7 substantially as proposed subject to the minor modifications discussed below.

This form would be used for initial or provisional registration as an SDR as well as for any amendments to the applicant's registration status.

SDR NPRM

supra

8 at 80900-80901.

The Commission received one comment relating to registration generally. CIEBA requested that the Commission clarify that it will register any qualified applicant as an SDR.

The Commission confirms that it expects to register any applicant that satisfies the requirements for registration established in section 21 of the CEA and this part 49.

See

CL-CIEBA

supra

note 51.

In particular, the Commission notes that section 21(B) of the CEA, as amended by section 728 of the Dodd-Frank Act, expressly provides that a DCO may register as an SDR.

As discussed below, although it received no comments regarding proposed Form SDR, the Commission has determined to make minor technical and conforming changes to Form SDR and also to amend certain provisions of §§ 49.3-49.7.

The Commission in approving applicants for registration as SDRs expects to provide an identifying code that is unique for each “approved” SDR in order to provide proper identification for each SDR and the transactions that are reported to it.

(a) Form SDR

The Commission is making certain technical amendments to Form SDR to harmonize, to the extent possible, the SDR registration procedures with the application procedures for DCMs, DCOs, and SEFs. For example, the word “material” has been added to the registration instructions to make clear that “intentional misstatements or omissions of material fact may constitute federal criminal violations.” Because the registration application must be filed electronically, Form SDR as adopted no longer requires the applicant to provide two copies of Form SDR and attached exhibits. Additionally, the Commission revised Item 8 to account for various organizational structures. Moreover, instead of requesting “State/Country” of the entity's incorporation or filing, the final Form SDR requests that the applicant note the “Jurisdiction” of the organization and list the jurisdictions in which the applicant is qualified to do business. This information will assist the Commission in determining whether other domestic and foreign regulators should be contacted during the application process.

Both § 49.3(a)(5) and Form SDR, as adopted, require that an annual amendment on Form SDR be filed within 60 days of the end of each fiscal year rather than on a calendar year basis. The Commission believes that this is consistent with the CCO filing provisions set forth in § 49.22 and will provide the Commission with more timely financial statements.

The Commission is also making technical amendments to the form to eliminate redundant and ambiguous undefined language. For example, the term “Applicant” is capitalized and is referred to as a proper person to create consistency and references to “facing page” were removed as this concept was not defined in Form SDR or the regulations.

Form SDR as adopted clarifies that in order to assist the Commission in its review of an application, applicants for registration are encouraged to supplement Form SDR with any additional information that may be significant to their operation as an SDR. In addition, the Commission in adopting final Form SDR clarifies that SDR applicants must be mindful that certain information submitted for application purposes may be made available to the public and therefore advises applicant to request confidential treatment, where appropriate, when submitting application materials.

(b) Provisional Registration

As proposed, § 49.3(b) permitted the Commission, upon the request of an applicant, to grant provisional registration as an SDR if the applicant is in substantial compliance with the standards set forth in proposed § 49.3(a)(4).

Because the Commission believed that provisional registration should not be a permanent part of part 49, proposed regulation 49.3(b) provided for a “sunset” provision so that the provisional registration provision would terminate 365 days from the effective date of the proposed regulations. The Commission has determined to amend proposed § 49.3(b) to remove this sunset provision and provide that the Commission may terminate granting new provisional registrations at a later date.

The Commission believes that removal of the sunset provision will allow the Commission to fully evaluate applications for registration and provide greater flexibility in establishing compliance deadlines with registration requirements under § 49.3. The Commission expects to work with applicants to ensure that the transition from provisional registration to full registration is as prompt and seamless as possible.

Proposed § 49.3(a)(4) delineated the standards for approval of an SDR application: The SDR (i) is appropriately organized, and has the capacity, to ensure the prompt, accurate and reliable performance of its functions as an SDR; (ii) can comply with any applicable provisions of the CEA and regulations thereunder; (iii) can carry out its functions in a manner consistent with the purposes of section 21 of the CEA; and (iv) can operate in a fair, equitable and consistent manner.

No comments were received in response to the proposed provisional registration provisions.

In its comment letter, DTCC urged that applicants for provisional registration be required to demonstrate operational capability, real-time processing, multiple redundancy and robust information security controls.

The Commission agrees that SDRs should have sufficient operational capabilities to operate on a 24-hour basis based on a 6-day working week and accordingly has clarified in § 49.3(b) that in considering a grant of provisional registration it will require both (i) a demonstrated ability to substantially comply with the standards established in § 49.3(a)(4) and statutory duties and core principles; and (ii) demonstrated operational capability, real-time processing, multiple redundancy and robust information security controls.

CL-DTCC I

supra

note 51 at 4.

Although comments addressing the proposed application and registration procedures generally indicated satisfaction with the Commission's proposal, CME recommended that DCOs wishing to register as SDRs be given relief from “duplicative” registration and requested that the Commission adopt an abbreviated notice registration procedure for registered DCOs in good standing with the Commission.

See

CL-CME

supra

note 51.

The Commission acknowledges the merits of CME's suggestion that there be a process to streamline the application procedures for existing DCO registrants, and therefore, is adopting a modification to § 49.3. The Commission is making a minor revision to § 49.3(a)(3) so that applicants are not subject to unnecessary duplicative review by the staff of the Commission. Specifically, staff in considering an application for registration as an SDR shall include in its review an applicant's past relevant submissions to the Commission and its compliance history. In addition, the Commission believes that once it gains experience with the SDR registration process it may re-evaluate whether a shortened or “notice” registration process should be available to existing non-SDR registrants (such as a DCO) seeking registration as an SDR.

The Commission notes that the additional cost of providing documents that may already be available to the Commission is expected to be limited to the expense of providing electronic copies of the exhibits set forth in Form SDR.

2. Withdrawal From Registration—§ 49.4

As proposed, § 49.4(a) outlined the process for withdrawal from registration and specified that written notice of a request to withdraw be served at least 90 days prior to the desired effective date of the withdrawal. The Commission has corrected § 49.4(a) to clarify that notice must be served at least 60 days prior to the desired effective date of the withdrawal; this correction achieves consistency with § 49.4(b), which provides that a notice of withdrawal from registration shall be effective on the 60th day after its filing with the Commission.

3. Notification of Equity Interest Transfers—§ 49.5

As proposed, § 49.5 required SDRs to file with the Commission a notice of the equity interest transfer of ten percent or more, no later than the business day following the date on which the SDR enters into a firm obligation to transfer the equity interest. The Commission proposed a ten percent threshold because it believes that a change in ownership of such magnitude, even without a corresponding change in control, may have an impact on the operations of the SDR.

SDR NPRM

supra

note 8 at 80902, n.25.

The Commission received a single comment relating to this provision which recommended that the Commission lower the notification threshold from ten percent to five percent. The same commenter also urged that the Commission obtain notification at or prior to the firm commitment to transfer the equity interest.

The Commission has considered these comments and believes that the notification threshold as proposed is adequate, based on its belief that a ten percent threshold appropriately covers those transfers that may result in significant control or lead to control of the SDR's management.

See

CL-Better Markets

supra

note 51.

As proposed, § 49.5(a) and (c) required filings with the Commission relating to equity transfer notifications and certifications electronically through dedicated e-mail addresses. The Commission believes that future procedures may change, and therefore,

is revising these provisions so that SDRs file certain equity transfer notifications and certifications in a format and manner to be specified by the Secretary of the Commission. Accordingly, the Commission is adopting this provision largely as proposed subject to the modification described above.

4. Swap Data Repositories Located in Foreign Jurisdictions—§ 49.7

The Commission proposed § 49.7 to enable it to obtain necessary swap data and related books and records maintained by an SDR located outside the United States. As proposed, § 49.7 required each SDR located outside the United States to provide an opinion of counsel that the SDR can, as a matter of law, provide the Commission with prompt access to its books and records and submit to onsite inspection and examination by the Commission. The Commission believes this provision is necessary because different jurisdictions may have different legal frameworks, which in turn may limit or restrict the Commission's ability to receive information from an SDR. An opinion of counsel in this regard will allow the Commission to better evaluate an SDR's capability to meet the requirements of registration and ongoing supervision.

The Commission requested comment on a series of questions relating to registration of a foreign-based SDR.

In response, the Commission received several comments regarding the potential for “duplicative” registration requirements.

With one exception, commenters supported a system of cross-registration or “recognition” in order to reduce potential burdens.

Specifically, the Commission requested comment with respect to whether (i) the registration process for the foreign SDR be any different than the Commission's proposed registration process; (ii) there are any factors that the Commission should consider to ensure that an SDR located outside the United States seeking to register as an SDR can, in compliance with applicable foreign laws, provide the Commission with access to the SDR's books and records that are required pursuant to proposed § 49.7 and can submit to onsite inspection and examination by the Commission; and (iii) there are any other factors the Commission should consider relating to an SDR located outside of the United States

See

SDR NPRM

supra

8 at 80903.

See

CL-DTCC II; CL-Foreign Banks; CL-ESMA; CL-TriOptima; CL-Regis-TR; CL-Reval

supra

note 51.

ESMA in particular requested that the Commission consider a recognition regime in which an SDR located in a foreign jurisdiction could register with the Commission if (i) the laws and regulations of the foreign jurisdiction are equivalent to those in the U.S.; and (ii) a MOU has been signed by the Commission and the foreign regulator.

ESMA suggested that the MOU would ensure access to all information the Commission will need in order to fulfill its statutory duties.

CL-ESMA

supra

note 51.

Reval, however, urged that that all foreign-based SDRs be required to comply with U.S. regulations and procedures, and to physically host the data in the U.S. or create a daily backup of the data with an entity in the U.S.

DTCC also maintained that foreign-based SDRs should not be approved by the Commission under reduced registration requirements

and asserted that an abbreviated or notice registration procedure for foreign SDRs should be based on a comparable regulatory structure for repositories in the home country of the foreign SDR.

CL-Reval II

supra

note 51.

CL-DTCC I

supra

note 51.

The Commission notes that the Dodd-Frank Act and the CEA do not authorize the Commission to exempt SDRs located in foreign jurisdictions from the registration requirements set forth in section 21. At the same time, the Commission is cognizant of the global nature of the swaps market and of concerns regarding regulatory responsibilities and costs associated with requiring foreign-based SDRs to comply with multiple, separate regulatory regimes. To that end, the Commission expects to consult, cooperate, and exchange information with foreign regulators in connection with the oversight of foreign-based SDRs that are separately registered in jurisdictions outside of the U.S.

The Commission is mindful of the commenters' concerns and emphasizes that the extent of the Commission's ability to coordinate with foreign regulators will depend largely on the comparability and comprehensiveness of supervision and regulation by the foreign jurisdiction in which the SDR is located. In considering the feasibility of a particular recognition regime, the Commission intends to review regulatory requirements and the supervision or oversight programs of a “home” or foreign regulator of an SDR to determine the extent to which the Commission potentially could rely on such foreign regulators. The level of cooperation and the extent of any coordination would be evaluated on an individual basis and would be governed by an MOU. For example, the Commission and the foreign regulator should be capable of exchanging regulatory reports (including examination reports) and filings, as well as other information applicable to the operation of such entity as an SDR. This exchange of information would assist the Commission in determining whether the SDR located in a foreign jurisdiction is in compliance with duties mandated under part 49. Such cooperation or coordination with foreign regulators would not limit or in any way condition the discretion of the Commission in the discharge of its regulatory responsibilities.

B. Duties of Registered SDRs

Section 21(c) sets forth the minimum duties that an SDR is required to perform to become registered and to maintain registration. These statutory duties require that SDRs (i) accept swap data as prescribed by the Commission; (ii) confirm with both counterparties to a swap the accuracy of the data; (iii) maintain the data submitted; (iv) provide the Commission or its designee (including another registered entity) with direct electronic access to the swap data; (v) provide the necessary information as prescribed by the Commission to comply with the public reporting requirements set forth in section 2(a)(13) of the CEA; (vi) establish automated systems for monitoring, screening, and analyzing swap data; (vii) maintain the privacy or confidentiality of any and all swap data that the SDR receives; (viii) provide access to the swap data to certain “appropriate” domestic and foreign regulators; and (ix) adopt and implement emergency procedures. In addition, the Commission pursuant to its authority under sections 21(f)(4) and 8a(5)

of the CEA proposed that registered SDRs (i) adopt and implement system safeguards, including BC-DR plans; (ii) maintain sufficient financial resources; (iii) furnish market participant with a disclosure document setting forth the risks and costs associated with using the services of the SDR; and (iv) provide fair and open access and fees and charges that are equitable and non-discriminatory.

Section 8a(5) of the CEA, 7 U.S.C. 12a(5), authorizes the Commission to promulgate such rules and regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or accomplish any of the purposes of the CEA. In connection with SDRs, section 21(a)(3)(A)(ii), 7 U.S.C. 24a(a)(3)(A)(ii) specifically requires that an SDR to be registered and maintain its registration must comply with any requirement that the Commission may impose by rule or regulation pursuant to section 8a(5) of the CEA.

1. Acceptance of Data—§ 49.10

As proposed, § 49.10 required that SDRs adopt policies and procedures that would enable the SDR to electronically accept data and other regulatory

information;

accept all swaps in the asset class(es)

for which they have registered;

establish sufficient policies and procedures to prevent a valid swap from being invalidated, altered or modified through the confirmation or recording process of the SDR; and establish procedures and provide facilities for effectively resolving disputes over the accuracy of the swap data and positions that are recorded in the SDR.

See

section 21(c)(1) of the CEA, 7 U.S.C. 24a(c)(1). The Commission proposed in new part 45 to the Commission's Regulations the specific data elements that must be reported and applicable to DCMs, DCOs, swap execution facilities (“SEFs”), foreign boards of trade (“FBOTs”),1 SDs, MSPs, non-end-user SDs/MSPs and end-users in connection with the reporting of such swap data to SDRs. These data elements and standards would include the reporting of continuation data throughout the life of the swap. In addition, the Data NPRM also provides specific requirements for SDRs relating to (i) determining which counterparty must report to the SDR; (ii) third-party facilitation of swap data reporting; (iii) reporting to a single SDR in connection with the reporting of swap data; (iv) required data standards; and (v) the reporting of errors and omissions.

See

Data NPRM

supra

note 6.

Proposed § 49.2(a)(2) defined “asset class” as those swaps in a particular broad category of goods, services or commodities underlying a swap. The asset classes include credit, equity, interest rates, currency, other commodities and such other assets as may be determined by the Commission.

See also

Department of the Treasury, Notice of Proposed Determination of Foreign Exchange Swaps and Foreign Exchange Forwards Under the Commodity Exchange Act, 76 FR 25774 (May 5, 2011) and Request for Comments: Determination of Foreign Exchange Swaps and Forwards, 75 FR 66829 (Oct. 29, 2010) and 75 FR 66426 (Oct. 28, 2010).

As detailed in proposed § 49.27, SDRs would be required to provide fair and open access to their services. The Commission submits that SDRs would not be permitted to discriminate in connection with the access to their services. As a result, market participants with sufficient technology resources for connectivity and the payment of fees would be granted access to the services of the SDR.

The Commission received one comment relating to the definition of asset class that indicated cross-currency (also known as currency) swaps are not properly characterized under the “currency” asset class but instead are interest rate products.

Therefore, the Commission believes a modification is necessary to better reflect the fact that the industry typically characterizes ”currency” swaps as “interest rate swaps.” This characterization is based on the attributes of currency swaps that resemble the structure and operation exhibited by interest rate swaps while in “foreign exchange” swaps, the underlying foreign currency is exchanged by the parties. Accordingly, the Commission is replacing the term “currency” in the definition of asset class with “foreign exchange” as set forth in § 49.2(a)(2) to accurately reflect the asset classes employed in the swaps market.

See

CL-Global FX Division

supra

note 51 at 2.

The Commission received a single comment relating to data formats and protocols for data submission to SDRs.

DTCC commented that a registered SDR should have the flexibility to specify the acceptable data formats, connectivity requirements, and other protocols for submitting information.

While the Commission generally agrees with DTCC that SDRs should have flexibility to specify acceptable data formats and other technical requirements, the Commission does not believe that DTCC's recommendations are necessary to operational flexibility. Several commenters supported

the proposed requirement in § 49.10(b) that an SDR accept all swaps from any asset class or classes for which it registers. CME, however, recommended that DCO-SDRs should only be required to accept data for swaps that they clear and not for uncleared/bilateral transactions.

The Commission believes that CME's approach would lead to greater data fragmentation. Additionally, the Commission believes that pursuant to section 2(a)(13)(G), SDRs are required to accept cleared and uncleared swaps. Accordingly, the Commission is adopting § 49.10(b) substantially as proposed, with the addition of the phrase “unless otherwise prescribed by the Commission” so that the Commission may, in its discretion, provide flexibility to the general rule that an SDR must accept all swaps in an asset class for which it has registered. This flexibility will be especially relevant in connection with the implementation or phasing of reporting obligations of market participants.

See

CL-DTCC I

supra

note 51.

Id.

See

CL-Better Markets, CL-DTCC I and CL-Global FX Division

supra

note 51.

See

CL-CME

supra

note 51.

The Commission received four comments relating to proposed § 49.10(c).

The comments were supportive of the Commission's efforts to prevent improper invalidation of swap transactions; as discussed below, however, some commenters felt that further refinement of the text is necessary.

See

CL-ABC/CIEBA, CL-AMG and CL-CIEBA

supra

note 51.

ABC/CIEBA and AMG requested that the Commission clarify that § 49.10(c) would prevent an SDR from adopting user agreements that indirectly serve to modify or invalidate terms that have been agreed upon by the counterparties.

The Commission has adopted the recommended clarification. ABC/CIEBA and AMG also requested that the Commission seek to prevent confirmation and reporting platforms from adopting provisions in their user agreements that would permit the modification or invalidation without the consent of the counterparties.

CIEBA also separately suggested that the Commission prohibit SDRs from using third-party service providers which invalidate a swap without the consent of a counterparty.

The Commission believes that § 49.10(c), as proposed, would clearly prohibit SDRs as well as any agent or third-party service provider of the SDR to modify or invalidate a swap transaction without the consent of the counterparties.

CL-ABC/CIEBA and CL-AMG

supra

note 51 at 3-4 and 9, respectively.

Id.

CL-CIEBA

supra

note 51 at 5.

2. Confirmation of Data Accuracy—§ 49.11

As proposed, § 49.11 required SDRs to establish and adopt policies and procedures to ensure the accuracy of swap data that is reported to an SDR.

In particular, proposed § 49.11 required that the SDR confirm with both counterparties to the swap the accuracy of the data and information submitted

and receive acknowledgement of all data submitted as well as corrections of any errors.

The SDR NPRM specified that confirmation is unnecessary when the reporting party is a SEF, DCM, DCO or a confirmation or matching service provider to whom the swap counterparty has delegated its reporting obligation. However, the SDR would still be required to ensure that the data and information it receives from such entity is accurate.

See

Data NPRM

supra

note 6.

The Data NPRM details and defines “confirmation” and “confirmation data.” The term confirmation is proposed in § 45.1(b) to mean “the full, signed legal confirmation by the counterparties of all of the terms of a swap.” The term “confirmation data” is proposed in § 45.1(c) to mean “all of the terms of a swap matched and agreed upon by the counterparties in confirming the swap.”

See

Data NPRM,

supra

note 6.

This requirement does not apply to real-time public reporting.

See

proposed § 43.3(f)

supra

note 28.

As detailed in proposed part 45, the reporting of swap creation data (primary economic terms data and confirmation data) and swap continuation data will take place through different channels, depending on the nature of the transaction and counterparties. Primary economic terms data is required to be reported by a SEF or DCM if the swap is executed on a platform, and by the reporting counterparty (SD, MSP, or other counterparty) if the swap is not platform executed. Confirmation data

will be reported by a DCO if the swap is cleared, and by the reporting counterparty if the swap is uncleared. Swap continuation data will be reported throughout the life of a swap by the DCO and/or the reporting counterparty. Consistent with proposed part 45 and § 49.12, SDRs are required to accept swap data from these entities, as well as from third-party service providers who may be acting on their behalf.

The Commission received five comments relating to an SDR's obligation to confirm the accuracy of the reported swap data.

Several commenters recommended that an SDR should not be required to affirmatively communicate with both counterparties in order to confirm the accuracy of data submitted. Reval commented that the SDR should only be required to confirm the accuracy of the trade with the reporting entity.

DTCC

and MarkitSERV

both supported the use of confirmation records in fulfilling the obligation of the SDR to confirm data submissions.

See

CL-Reval II, CL-DTCC I, CL-MarkitSERV I, CL-ABC/CIEBA and CL-Data-Encana

supra

note 51.

CL-Reval II

supra

note 51 at 6.

CL-DTCC I

supra

note 51 at 20.

CL-MarkitSERV I

supra

note 51 at 6.

The Commission notes that section 21(c)(2) of the CEA states that an SDR must confirm the accuracy of the data that was submitted with both counterparties to the swap and does not draw any distinction between submitted swap data that has or has not been legally confirmed. However, the Commission agrees with the commenters that it may not be necessary to affirmatively communicate with both counterparties in all circumstances. Therefore, the Commission has modified the manner in which an SDR may fulfill the requirement to confirm the accuracy of the data. As adopted, § 49.11 will not require an SDR to affirmatively communicate with both counterparties when data is received from a SEF, DCM, DCO, or third-party service provider under certain conditions. Communication need not be direct and affirmative where the SDR has formed a reasonable belief that the data is accurate, the data or accompanying information reflects that both counterparties agreed to the data, and the counterparties were provided with a 48-hour correction period. The SDR must affirmatively communicate with both counterparties to the swap when data is submitted directly by a swap counterparty such as an SD, MSP or non-SD/MSP counterparty such as an end-user.

Encana requested that the Commission provide additional guidance on how proposed § 45.10 and § 49.11 work together. Both regulations impose obligations on reporting parties and SDRs relating to errors and omissions in the reporting of swap transaction data.

The Commission submits that the regulations are complementary and are both expected to protect the integrity and the accuracy of reported data. While § 45.10 provides an ongoing obligation for counterparties to provide error corrections, § 49.11 imposes a duty on the SDR to provide a correction period to receive from counterparties, within a short time period after the data has been submitted, acknowledgment of the accuracy of the data.

See

CL-Encana

supra

note 51.

3. Recordkeeping Requirements—§ 49.12

Proposed § 49.12 implements section 21(c)(3) consistent with existing Commission regulations and the Commission's proposed part 45 regulations

and required that SDRs maintain swap data throughout the existence of the swap and for five years following termination during which time the records must be readily accessible by the SDR and available to the Commission via real-time electronic access and in archival storage capable of being retrieved within three business days.

See

Data NPRM

supra

note 6.

The Commission received one comment

recommending that swap data be kept indefinitely.

As proposed, § 49.12(a) required SDRs to maintain books and records as prescribed by proposed § 45.2. Rather than specifically referencing and incorporating the provisions of proposed § 45.2, the Commission believes § 49.12(a) should require SDRs to comply with any and all recordkeeping provisions adopted under part 45.

Accordingly, § 49.12(a) as adopted requires registered SDRs to “maintain books and records in accordance with the requirements of part 45 of this chapter regarding the data required to be reported to the swap data repository.” Under § 49.12(a), registered SDRs will be required to maintain swap data for the time periods and under the standards to be set forth in part 45.

See

CL-Barnard

supra

note 51 at 2.

The Commission has also received several comments in connection with the proposed part 45 recordkeeping provisions. Comments received in connection with proposed part 45 will be reviewed in connection with that rulemaking; the Commission is adopting § 49.12(a) largely as proposed subject to the modifications discussed below.

Like other rules that are tied to related rulemakings, § 49.12(c) will become effective 60 days after publication in the

Federal Register

but compliance will not be required until such time as the part 45 rules become effective.

The time period and standards in part 45 are currently proposed as throughout the existence of the swap and for five years following termination during which time the records must be readily accessible by the SDR and available to the Commission via real-time electronic access and in archival storage capable of being retrievable within three business days.

The Commission is revising proposed § 49.12 to require SDRs to comply with the time periods set forth in part 45 for maintaining books and records. The Commission does not believe that SDRs should be required to keep records indefinitely following the expiration of the underlying transactions.

Proposed § 49.12(c) required all books and records to be open to inspection upon request by any representative of the Commission, the United States Department of Justice, the SEC or prudential regulators as authorized by the Commission. The Commission is revising § 49.12(c) to remove the SEC and prudential regulators so that only the Commission and the Department of Justice will have books and records inspection rights.

This change will maintain consistency with existing Commission regulations on recordkeeping.

See

proposed rule 13n-7 under the Securities Exchange Act of 1934, 17 CFR 240.13n-7 set forth in the SEC's proposal relating to security-based swap data repositories. The SEC in that proposal did not provide inspection rights of the books and records of a security-based swap data repository to the Commission or prudential regulators.

See

SEC, Notice of Proposed Rulemaking: Security-Based Swap Data Repository Registration, Duties and Core Principles, 75 FR 77306 (Dec. 10, 2010).

Commission regulation § 1.31 requires that all “books and records required to be kept by the act or by these regulations shall be kept for a period of five years from the date thereof and shall be readily accessible during the first 2 years of the 5-year period. All such books and records shall be open to inspection by any representative of the Commission or the United States Department of Justice.” The Commission notes that section 4r(c) of the CEA adopted by Section 729 of the Dodd-Frank Act provides inspection rights to, among others, the SEC, prudential regulators and the FSOC. However, these rights are limited to counterparties that do not clear or have their swap transactions reported to, or accepted by, an SDR. Accordingly, the Commission lacks the statutory authority to provide books and records inspection rights to those named other regulators.

The Commission believes that the proper procedure for Appropriate Domestic Regulators to obtain SDR Information is through the mechanism set forth in § 49.17 (Access to SDR Data) discussed below in section II.B.7.

The Commission is adopting § 49.12(d) largely as proposed, subject to a slight modification discussed below in connection with § 49.15 relating to real-time public reporting requirements.

4. Monitoring, Screening and Analyzing Swap Data—§ 49.13 and § 49.14

Proposed §§ 49.13 and 49.14 implement section 21 of the CEA and together reflect SDRs' significant responsibilities in the new swaps market regulatory structure established by the Dodd-Frank Act. Under this new regulatory structure, SDRs will function not only as repositories for swap transaction data, but also as potential sources of support for the Commission's oversight of swaps markets and swap market participants. Section 21(c)(5) of the CEA, as amended by section 728 of the Dodd-Frank Act, requires SDRs to establish “automated systems for monitoring, screening, and analyzing swap data, including compliance and frequency of end-user clearing exemption claims by individuals and affiliated entities.”

By its terms, section 21(c)(5) requires that such automated systems be established “at the direction of the Commission,” but does not provide for specific functions which SDRs should undertake with respect to the swap transaction data in their possession. The only specific requirement set forth in section 21(c)(5) is that SDRs have systems in place capable of fulfilling such requirements as the Commission may assign.

Section 21(c)(5) of the CEA.

Proposed §§ 49.13 and 49.14 required that SDRs: (1) Monitor, screen, and analyze all swap data in their possession as the Commission may require; (2) develop systems and resources as necessary to execute any monitoring, screening, or analyzing functions assigned by the Commission; and (3) monitor, screen, and analyze swap transactions which are reported to the SDR as exempt from clearing pursuant to section 2(h)(7) of the CEA (

i.e.,

end-user clearing exemption).

The Commission received eight comment letters relating to proposed §§ 49.13 and 49.14.

While the commenters were generally supportive of the proposed rules and their objectives, they articulated a number of concerns, including: (1) The level of detail concerning routine and ad hoc monitoring, screening and analysis requirements; (2) future compliance costs; and (3) the level of responsibilities imposed on SDRs and/or retained by the Commission. Four of the commenters

100

requested additional detail and clarity on the anticipated requirements in proposed § 49.13(a) and (b).

These letters represent comments from five potential SDRs, two non-profit organizations, and one individual .

See

CL-AFR, CL-Barnard, CL-Better Markets, CL-CME, CL-DTCC I, CL-Reval II, CL-Sungard, and CL-TriOptima

supra

note 51.

100

CL-Barnard, CL-CME, CL-Sungard and CL-TriOptima

supra

note 51.

Sungard, in particular, expressed concern that proposed § 49.13(a) provided only “limited guidance” on the requirements to be imposed on SDRs' automated systems for monitoring, screening, and analyzing swap data.

101

Sungard referenced the SDR NPRM which stated that the Commission “will consider specific tasks to be performed by SDRs at a later date” and requested that in the final rule 49.13(a), the Commission “provide an implementation period and effective date which are based on such later date.”

102

Sungard also commented that the potentially rising cost of compliance with proposed § 49.13(b), which requires that SDRs maintain sufficient resources to fulfill the requirements in § 49.13(a), monitor their resources annually, and make adjustment as needed to remain in regulatory compliance, might harm the commercial viability of SDRs.

103

101

See CL-Sungard

supra

note 51 at 2.

102

Id.

at 2.

See also

SDR NPRM

supra

note 8 at 80907.

103

Sungard made a number of recommendations to ensure the commercial viability of SDRs, including (1) a constraint on the growth in resources required under § 49.13(b), (2) a mechanism to recover at least a portion of resource costs in a manner other than user fees, or (3) “some other mechanism to allow for the business planning necessary for the SDR to function while being certain of compliance with applicable rules.”

Id.

Three commenters

104

suggested that the Commission should play a larger role in the monitoring, screening, and analyzing of swap market data; while two commenters

105

took the opposing view and suggested that data monitoring, screening, and analyzing should be performed centrally by an SDR. Both AFR and Better Markets believed that aggregated data monitoring and analysis should be performed by the Commission rather than relying on SDRs.

106

CME's comments raised concerns with providing SDRs with surveillance responsibilities.

107

DTCC, however, recommended that certain monitoring, screening, and analyzing functions be performed centrally by an SDR.

108

Reval recommended that SDRs be more than a data warehouse and provide data analysis to the Commission.

109

104

See

CL-AFR, CL-Better Markets and CL-CME

supra

note 51.

105

See

CL-DTCC I and CL-Reval II

supra

note 51.

106

AFR further suggested that the Commission develop “the capacity to perform key data analysis in-house, using raw data from SDRs, instead of becoming dependent on privately owned SDRs to measure aggregate exposures.”

Id.

at 4. Better Markets suggested that the Commission build its own “single, in-house system” for monitoring and analyzing swap data rather than rely on individual SDRs. CL-Better Markets

supra

note 51 at 8.

107

CME stated that it is “not convinced that SDRs should be given wide ranging surveillance responsibilities.” CL-CME

supra

note 51 at 5. And instead, opined that “[m]arket-wide surveillance duties are best placed with a regulator or self-regulatory organization empowered with disciplinary powers * * *.”

Id.

108

CL-DTCC I

supra

note 51 at 24.

109

CL-Reval II

supra

note 51 at 7. Reval suggested that SDRs should be required to provide an independent valuation of the swaps submitted to the SDR, provide the relevant market data that goes into the calculation of the swap value, verify the credit value adjustment for uncleared trades, and provide the Commission with historic, current, and future risk analysis to anticipate systemic risk.

Id.

at 8.

Commenters expressed concern that §§ 49.13(a) and 49.14 do not sufficiently describe the specific tasks SDRs are expected to perform. The Commission recognizes that §§ 49.13(a) and 49.14 do not contain specific requirements. Its intention in §§ 49.13(a) and 49.14 is to codify the statutory requirements in section 21(c)(5) and establish that specific monitoring, screening, and analyzing duties will be imposed when its knowledge of the markets is more fully developed.

110

At that time, the Commission will provide SDRs with adequate notice to permit them to meet specific requirements of §§ 49.13(a) and 49.14.

110

See

proposed § 49.13(a). SDR NPRM

supra

note 8 at 80907.

Regarding proposed § 49.13(b), the Commission believes that SDRs and other regulated entities should always maintain sufficient resources to comply with regulatory requirements under the CEA. The Commission also recognizes the necessity for adequate resource requirements for SDRs given the expectation that SDRs may play a significant role in assisting the Commission to fulfill its regulatory mandate. Therefore, the Commission has not implemented Sungard's suggestion to impose a cap on the growth of required information technology, staff, and other resources required under § 49.13(b). The Commission also notes that the requirement of § 43.13(b) to “establish and maintain sufficient information technology, staff, and other resources” is similar to provisions proposed and already existing for DCMs and proposed for SEFs.

111

Furthermore, any increased

regulatory functions covered by proposed § 49.13(b), which may result in increase costs, will apply to all SDRs equally. As discussed above, the Commission has also committed to giving sufficient notice before imposing specific obligations under §§ 49.13 and 49.14, giving SDRs time to also address any resulting financial needs.

111

See

Core Principle 2, Acceptable Practices, in appendix B to part 38 of the Commission's regulations. The Application Guidance for this Core Principle requires designated contract markets to “have arrangements and resources for effective trade practice surveillance programs” and “have arrangements, resources and authority for effective rule enforcement.” 17 CFR 38, appendix B.

See also

proposed § 38.155(a) which requires a designated contract market to “establish and maintain sufficient compliance department resources and staff to ensure that it can conduct effective audit trail reviews, trade practice surveillance, market

surveillance, and real-time market monitoring.” 75 FR 80572, 80613 (Dec. 22, 2010)(“DCM NPRM”).

See also

proposed § 37.203(c)(1) which requires a swap execution facility to “establish and maintain sufficient compliance department resources and staff to ensure that it can conduct effective audit trail reviews, trade practice surveillance, market surveillance and real-time market monitoring.” Commission, Notice of Proposed Rulemaking: Core Principles and Other Requirements for Swap Execution Facilities, 76 FR 1214, 1241 (Jan. 7, 2011)(“SEF NPRM”).

AFR, Better Markets and CME recommended that the Commission play a larger role than proposed in the monitoring, screening, and analyzing of swap market data. Both AFR and Better Markets, in particular, recommended that the Commission build its own systems for monitoring, screening and analyzing swap data. The Commission believes that the proper role of an SDR is to provide the Commission with a centralized recordkeeping facility to facilitate its surveillance and oversight responsibilities in the swaps markets. The Commission does not propose that SDRs displace the Commission's regulatory responsibilities, but neither does it propose to displace SDRs statutory obligations to monitor, screen and analyze swap market data. The Commission largely agrees with AFR and Better Markets in that the Commission should retain the responsibility for surveillance and oversight of the swaps market; however, the Commission believes it is unnecessary to duplicate systems that will already be available through the SDR infrastructure. Additionally, the Commission believes that SDRs, at the direction of the Commission, will provide sufficient capacity for monitoring, screening, and analyzing swap data. The Commission believes that the approach of proposed §§ 49.13 and 49.14 adequately balances the Commission's regulatory responsibilities with SDRs statutory duties and, as articulated by DTCC, “promotes efficiency in the system.”

112

CL-DTCC

supra

note 51 at 24.

Commenters also made recommendations relating to uniform recordkeeping and reporting requirements across different SDRs. The Commission notes that it addressed this issue in a separate, related, rulemaking.

113

Nonetheless, the Commission does not agree with Better Markets that it must also require SDR systems to be uniform and compatible. The Commission believes that its designation of uniform recordkeeping and reporting requirements will sustain a level of system compatibility. In addition, when established, the monitoring, screening, and analyzing tasks required of SDRs will likely impose a level of uniformity of system outputs within similarly situated SDRs.

113

See

Data NPRM

supra

note 6.

Lastly, the Commission agrees with Reval's assertion that in order to minimize systemic risk, SDRs need to engage in certain data analysis and reporting rather than function merely as warehouses of transaction data. However, as articulated above, at this time the Commission has not proposed, nor is it implementing, specific data analysis functions for SDRs. The Commission intends to consider additional specific tasks to be performed by SDRs when its knowledge and experience of the regulatory oversight needs with respect to the swap markets has developed more fully.

With the clarifications and modifications described above, the Commission is adopting §§ 49.13 and 49.14 substantially as proposed.

114

The Commission is making two non-substantive modifications to §§ 49.13(a) and 49.14. The word “perform” will be added to the last sentence in § 49.13(a) and the word “of” will be added to the last sentence in § 49.14. These modifications are being made to improve the sentence structure of both of these sections.

5. Real-Time Public Reporting—§ 49.15

Section 2(a)(13)(D) of the CEA permits the Commission to require registered entities to publicly disseminate swap transaction and pricing data. To implement section 2(a)(13), the Commission is establishing a real-time public reporting framework in a new part 43 of the Commission's regulations that is subject to a separate rulemaking.

115

See

Real-Time NPRM

supra

note 28. As noted above, §§ 49.12(d) and 49.15 will become effective 60 days from the date of publication in the

Federal Register,

but compliance will not be required until such time as the part 43 rules become effective.

See

note 93

supra.

As proposed, § 49.12(d) and § 49.15 together set forth the requirements for SDRs regarding the public dissemination of swap transaction and pricing data. Proposed § 49.12(d) required each SDR to comply generally with the requirements prescribed in part 43, while proposed § 49.15 described additional duties of an SDR relating to the acceptance and public dissemination of swap transaction and pricing data in real-time.

The Commission received a total of seven comments relating to proposed §§ 49.12(d) and 49.15.

116

Markit and Argus urged the Commission to adopt tighter restrictions on the commercial non-public dissemination of real-time data,

117

while Markit also recommended that the part 43 rules explicitly state that ownership of swap transaction data does not transfer from counterparties to other regulated entities such as DCMs, SEFs and DCOs.

118

AMG and AII both requested that the Commission phase-in block size determinations and time-limits for real-time dissemination.

119

NFPE Coalition also requested a clarification regarding aspects of the real-time reporting requirements and suggested that SDRs should not be used to determine the timeliness of real-time public reporting.

120

ICE and DTCC believed that SDRs should be designated as the sole vehicle for the dissemination of swap data

121

while DTCC also expressed the concern that public dissemination could disclose the identities of swap counterparties.

122

Better Markets also recommended that the Commission have real-time streaming or instantaneous access to swap transaction data in order to fulfill its regulatory obligations.

123

116

See

CL-Markit, CL-AMG, CL-Argus, CL-AII, CL-NFPE Coalition, CL-DTCC I and CL-DTCC II

supra

note 51.

117

CL-Markit and CL-Argus

supra

note 51.

118

CL-Markit

supra

note 51.

119

CL-AMG and CL-AII

supra

note 51.

120

CL-NFPE Coalition

supra

note 51.

121

CL-Data-ICE, CL-DTCC I and CL-DTCC II

supra

note 51.

122

CL-DTCC I

supra

note 51.

123

CL-Better Markets

supra

note 51.

The Commission is adopting § 49.15 substantially as proposed. As adopted, § 49.15(a) will no longer limit the real-time reporting of swap transactions for SDRs to “off facility swaps.” The Commission is currently considering comments received in connection with the proposed part 43 regulations,

124

including those relating to an SDR's role in the public dissemination of swap transaction and pricing data in real time. The Commission may include limitations on the type of public reporting and dissemination for SDRs. As adopted, § 49.15(c), relating to the untimely submission of swap data for real-time public reporting and dissemination purposes will not reference the specific time periods and notification procedures proposed in part 43. Instead, § 49.15(c) will require SDRs to “notify the Commission of any swap transaction for which the real-time swap data was not received by the swap data repository in accordance with part 43 of

this chapter.” The Commission believes this change provides appropriate flexibility to adjust SDR responsibilities with regard to the untimely reporting of swap transaction data in accordance with any future adoption of part 43. The Commission will consider the comment received in connection with proposed § 49.15(c) when addressing the relevant provisions in part 43, which is expected to be finalized subsequent to this rulemaking.

124

Real-Time NPRM

supra

note 28.

In response to comments received

125

concerning the commercial use of real-time public swap data and the commercialization of data generally, the Commission submits that persons responsible

126

for the public dissemination of swap data are prohibited from distributing such data prior to public dissemination. Such pre-publicly available dissemination would constitute a “commercial use” under § 49.17(g). Therefore, SDRs may not make commercial use of real-time swap data before dissemination to the public, including any analysis for commercial purposes. As set forth in 49.17(g)(1), the Commission also notes that SDRs must maintain appropriate firewalls to protect swap data from unlawful commercial uses.

125

See

CL-Markit and CL-Argus

supra

note 51.

126

Although SDRs are permitted to delegate the performance of various functions to 3rd party service providers, the SDR retains the responsibility for compliance with this and other regulatory restrictions.

Additionally, as discussed above, in light of the comments received and as a result of its consideration of proposed § 49.15, the Commission will continue to consider the role SDRs will play in the public dissemination of real-time swap data and will address these issues in the context of the part 43 rules.

6. Maintenance of Data Privacy—§ 49.16

To implement the statutory requirements of sections 21(c)(6)

127

and 21(f)(3)

128

of the CEA, as added by section 728 of the Dodd-Frank Act,

129

the Commission proposed in § 49.16 that SDRs maintain the privacy and confidentiality of reported swap data.

127

7 U.S.C. 24a(c)(6). For a discussion of commercial data privacy,

see generally

Department of Commerce, Internet Policy Task Force, Commercial Data Privacy and Innovation in the Internet Economy: A Dynamic Policy Framework (Dec. 2010) and Federal Trade Commission (FTC), Preliminary Staff Report, Protecting Consumer Privacy in an Era of Rapid Change (Dec. 2010).

See also

FTC, Final Rule: Standards for Safeguarding Customer Information, 67 FR 36484 (May 23, 2002).

128

According to such “core principle,” each SDR shall “establish and enforce rules to minimize conflicts of interest in [its] decision-making process * * *” and “establish a process for resolving conflicts of interest.

See infra

section II D. 4.

129

See

section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3).

Section 21(c)(6) of the CEA provides that an SDR shall “maintain the privacy of any and all swap transaction information that the swap data repository receives from an SD, counterparty, or any other registered entity.” Section 21(f)(3) of the CEA also sets forth a conflict of interest “core principle” applicable to an SDR. As detailed further below, the Commission has identified certain conflicts that may implicate access, disclosure, or use of SDR Information.

130

SDR Information includes any information that an SDR receives from a reporting counterparty,

131

including market participants

132

such as DCMs, DCOs, SEFs, SDs, MSPs and non-SD/MSP counterparties.

130

The term “SDR Information” is defined in proposed § 49.2(a)(15) to mean “any information that the swap data repository maintains.” § 49.17(f) and (g) discussed below contain more specific prohibitions on access or use of SDR Information.

131

The term “reporting counterparty” is set forth in proposed § 45.5 of the Data Rulemaking NPRM. The proposed definition is based on section 4r(3) of the CEA.

132

The term “market participant” is defined in proposed § 49.2(a)(6) to mean any person participating in the swap market, including, but not limited to, DCMs, DCOs, SEFs, SDs, MSPs, and any other counterparties to a swap transaction.

The Commission emphasizes that SDRs are expected to receive two separate “streams” of data: (i) Data related to real-time public reporting which by its nature is publicly available and (ii) data that is intended for use by the Commission and other regulators which is subject to statutory confidential treatment (“Core Data”). Accordingly, pursuant to sections 21(c)(6) and 21(f)(3) (Core Principle 3—Conflicts of Interest) of the CEA, SDR information that is not subject to real-time public reporting should be treated as non-public and held strictly confidential such that it may not be accessed, disclosed, or used for purposes not related to SDR responsibilities under the CEA or the regulations thereunder, unless such use is explicitly agreed to by the reporting entities. However, aggregated data that cannot be attributed to individual transactions or market participants may be disclosed by an SDR on a voluntary basis or as required by the Commission.

As proposed, § 49.16 required SDRs to establish, maintain, and enforce specific policies and procedures to protect the privacy or confidentiality of any and all SDR Information, including privacy or confidentiality policies and procedures for the sharing of SDR Information with SDR affiliates

133

as well as certain non-affiliated third parties.

134

Proposed § 49.16 also required SDRs to establish and maintain safeguards, policies, and procedures that would, at a minimum, address the misappropriation or misuse of swap data that the Commission is prohibited (save for limited exceptions) from disclosing Section 8 Material.

135

As discussed, Section 8 Material is that information or material described in section 8(a) of the CEA that the Commission is prohibited from publishing if it “would separately disclose the business transactions or market positions of any person and trade secrets or names of customers.”

136

Such information would typically

include trade data, position data, business transactions, trade secrets and any other non-public personal information about a market participant or any of its customers. Moreover, proposed § 49.16 required an SDR to also protect information that is not Section 8 Material as well as intellectual property that may include trading strategies.

133

The term “affiliate” is defined in proposed § 49.2(a)(1) to mean a person that “directly, or indirectly, controls, is controlled by, or is under common control with, the swap data repository.”

134

The term “non-affiliated third party” is defined in proposed § 49.2(a)(7) to mean “any person except (i) swap data repository, (ii) the swap data repository's affiliate, or (iii) a person employed by a swap data repository and any entity that is not the swap data repository's affiliate (and “non-affiliated third party” includes such entity that jointly employs the person).”

135

The term “Section 8 Material” is defined in proposed § 49.2(a)(13) as “the business transactions, trade data, or market positions of any person and trade secrets or names of customers.” The legislative history of section 8 of the CEA reflects substantial Congressional concern with protecting the legitimate interests of certain market participants. In particular, Congressional members were concerned that “bona fide hedging transactions” and “legitimate” or “necessary” speculative transactions would be impracticable if disclosure of positions or transactions was permitted. Congress was also concerned that publication of the names and market positions of large traders would facilitate manipulation and place traders at a competitive disadvantage.

See generally

Cong. Rec.

1321 (1921); Regulation of Grain Exchanges, Hearing on H.R. 8829 Before the H. Comm. on Agriculture, 73rd Cong. (1934).

136

Section 8(a) of the CEA outlines the scope and authority of the Commission to publish or otherwise publicly disclose information that is gathered in the course of its investigative and market surveillance activities. While the section authorizes the Commission to publish or disclose the information obtained through the use of its powers, it expressly provides that, except in specifically prescribed circumstances, the Commission may not lawfully: publish data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers. * * *

7 U.S.C. 12(a).

The statutory bar to disclosure of “business transactions, market positions and trade secrets” is qualified by several narrowly-defined exceptions set forth in section 8(e) of the CEA. 7 U.S.C. 12(e). Section 8(e) generally provides that “upon request,” the CFTC may furnish “any information” in its possession “obtained in connection with its administration of the [CEA]” to another U.S. government department or agency, individual states, foreign futures authorities and foreign governments and any committee of the U.S. Congress that is “acting within the scope of its jurisdiction.” Section 8(b) of the CEA permits disclosure of Section 8 Material in connection with certain congressional, administrative or judicial proceedings. In addition, section 8(e) also provides an exception for information that was previously disclosed publicly pursuant to section 8.

The Commission submits that these SDR safeguards, policies, and procedures addressing privacy and confidentiality—as well as misuse and misappropriation—of data should provide (i) limitations on access related to Section 8 Material and other SDR Information; (ii) standards related to controlling persons associated with the SDR trading for their personal benefit or the benefit of others; and (iii) adequate oversight to ensure SDR compliance with § 49.17. As set forth in § 49.17 discussed below in the section entitled “Access to SDR Data,” an SDR may share swap data and information with certain “appropriate” domestic and foreign regulators. Commercial use of the data maintained by an SDR—exclusive of real-time reporting data—is strictly circumscribed as provided in § 49.17. As noted above, swap data that is publicly disseminated in real-time by SDRs pursuant to proposed part 43 of the Commission's Regulation would not be subject to the privacy and confidentiality requirements set forth in § 49.16.

The Commission received two comments relating to privacy and confidentiality concerns.

137

DTCC specifically supported the Commission's efforts to keep swap data reported to SDRs confidential but noted the possibility of unintentional disclosure of participant identities in connection with the public dissemination of swap data. The concern raised by DTCC focused on the perceived potential for market participants to extrapolate identities of counterparties to a transaction that is publicly reported pursuant to the real-time public reporting requirements. The Commission, however, believes that the manner in which real-time public reporting will occur pursuant to part 43 will mitigate this concern because counterparty identities will not be disclosed and the actual underlying notional amount will not be associated with any particular transaction. MFA similarly believes that the requirements of § 49.16 may not be sufficient to protect the confidentiality of trading positions.

137

See

CL-DTCC I and CL-MFA

supra

note 51.

The Commission agrees with MFA that the confidentiality of position level data held by an SDR is extremely important and notes that § 49.16, as proposed, would require that each SDR “[e]stablish and maintain safeguards, policies, and procedures reasonably designed to prevent the misappropriation or misuse, directly or indirectly, of: (i) Section 8 Material; (ii) other SDR Information; and/or Intellectual property * * *”

138

Accordingly, the Commission believes that this requirement covers the matters that MFA proposed for inclusion in § 49.16. “Section 8 Material” as defined in proposed § 49.2(a)(11) means the “business transactions, trade data or market positions of any person and trade secrets or names of customers.” The details of any master agreements governing a swap would clearly fall within a “business transaction” referenced in the definition of Section 8 Material.

138

Proposed § 49.16(a)(2) set forth in SDR NPRM

supra

note 51 at 80931.

In connection with MFA's desire to have the legal standard of care set forth in § 49.16, the Commission submits that SDRs, rather than the Commission, are in the better position to establish appropriate procedures to protect the confidentiality of SDR data consistent with § 49.16. In addition, the Commission believes that MFA's recommendation to hold current and former SDR employees, directors, officers, agents and representatives liable by regulation for any breach of the SDR's privacy policies and procedures is beyond the scope of section 21(c)(6). Consistent with MFA's comments, the Commission believes that SDRs must be prohibited, as a condition of accepting data from reporting entities, from requiring the waiver of any legal rights such entities may have with respect to breaches of confidentiality by the SDR. The Commission also received comments on confidentiality and aggregated data from DTCC, which was concerned that market participants may be able to identify the parties to a particular transaction through extrapolation even though the disclosed data is “aggregated.”

139

CL-DTCC I

supra

note 51.

In order to clarify its position with respect to the disclosure of “aggregated data,” the Commission believes that it is permissible under the Dodd-Frank Act and part 49 of the Commission's regulations for an SDR to disclose, for non-commercial purposes, data on an aggregated basis such that the disclosed data reasonably cannot be attributed to individual transactions or market participants. In addition, the Commission submits that if requested by the Commission, an SDR would be required to disclose aggregated data in such form and manner as the Commission prescribes.

Accordingly, the Commission is adopting § 49.16 largely as proposed with the addition of (i) paragraph (b) to clarify that an SDR is prohibited from requiring a waiver of a reporting entity's legal rights for breaches of confidentiality by the SDR or affiliated entities; and (ii) paragraph (c) to clarify that SDRs may disclose aggregated data voluntarily or as requested by the Commission.

7. Access to SDR Data—§ 49.17

(a) Definition of Appropriate Domestic Regulator

As detailed in the SDR NPRM, the Commission in proposed § 49.17 specifically included the Federal Reserve Bank of New York (“FRBNY”) as an “Appropriate Domestic Regulator” because section 21(c)(7) of the CEA does not specifically provide for the sharing of information between an SDR and the FRBNY. The Commission believes that only including the FRBNY as an Appropriate Domestic Regulator is overly restrictive, and therefore, is revising the definition of “Appropriate Domestic Regulator” to include any “Federal Reserve Bank.”

140

The Commission notes that the expansion of “Appropriate Domestic Regulator” to include any Federal Reserve Bank will serve to ensure that the Board of Governors of the Federal Reserve System (“FRB”) will be able to effectively and efficiently perform its statutory responsibilities as prescribed by the Federal Reserve Act (“FRA”).

(b) Commission Access

As detailed in the SDR NPRM, a critical function and responsibility of an SDR is to provide “direct electronic access” to the Commission or its designee, which could include another registered entity.

141

The Commission in § 49.17(b)(3) defined the term “direct electronic access” as “an electronic system, platform or framework that provides internet or web-based access to real-time swap transaction data.” The Commission believes that a clarification to the definition of “direct electronic access” is necessary to include

“scheduled data transfers to the Commission's electronic systems.”

141

See

section 21(c)(4)(A) of the CEA. The term “registered entity” is defined in section 1a(40) of the CEA to include (i) a board of trade designated as a contract market under section 5 of the CEA; (ii) a DCO registered under section 5b of the CEA; (iii) a SEF registered under section 5h of the CEA; (iv) an SDR registered under section 21 of the CEA; and (v) with respect to a contract that the Commission determines is a significant price discovery contract, any electronic trading facility on which the contract is executed or traded. 7 U.S.C. 1a(40).

The Commission received seven comments on direct electronic access.

142

Although most commenters were generally supportive of the Commission's approach, a few objected to certain provisions of § 49.17(c) as proposed. Each comment is discussed below.

142

See

CL-Better Markets, CL-AFR and CL-Reval I

supra

note 51.

Compare

CL-DTCC II, CL-Data-DTCC, CL-CME and CL-NFPE Coalition

supra

note 51.

In connection with the Commission's request for comment,

143

Better Markets and AFR both registered their preference for real-time direct streaming of swap data versus periodic electronic transfer of data.

144

The Commission agrees with both Better Markets and AFR that real-time access to swap data is necessary for adequate oversight and surveillance of the swaps market.

143

The Commission in the SDR NPRM requested comment on real-time access as follows: “What are the advantages and disadvantages of requiring SDRs to provide a direct streaming of the data to the Commission or its designee? Should the Commission require periodic electronic transfer of data as an alternative? If so, how often should such transfer occur (

e.g.,

hourly, a few times a day, every few days, once a week)?” SDR NPRM

supra

note 51 at 80906.

144

CL-AFR and CL-Better Markets

supra

note 51 at 3 and 7-8, respectively.

In response to a Commission request

145

for comment relating to the most cost-effective method or manner in providing direct electronic access, Reval stated that SDRs should be required to provide the Commission with internet browser-based access to a hosted SDR solution. Consistent with Reval's comments, the Commission believes that an internet or Web-based method to access reported swap data held and maintained by SDRs would be the least disruptive and most efficient process.

145

The Commission in the SDR NPRM requested the comment on the following: “What would be the most feasible and cost-effective method for an SDR to provide direct electronic access to the Commission or its designee?” SDR NPRM

supra

note 8 at 80906.

DTCC noted its experience with the Trade Information Warehouse for OTC credit derivatives

146

and recommended that the Commission permit SDRs to adopt in their discretion the manner and method of providing data sets to the Commission. The Commission believes that the manner and method of obtaining access to the swap data held by SDRs is the function and prerogative of the Commission and should not be left to the judgment or discretion of the SDR and its management. In connection with its separate comment letter responsive to the Data NPRM, DTCC also asserted that the Commission should allow sufficient reporting flexibility. As set forth above, the Commission does not believe that SDRs should have the discretion or ability to determine the appropriate data sets that should be provided to the Commission.

146

CL-DTCC II

supra

note 51.

CME stated that it is impractical to provide Commission staff with access identical to that provided to the SDR's CCO because of technical considerations.

147

CME also disagreed with the premise of “direct electronic access” set forth in § 49.17(c), maintaining that SDRs should not be required to provide “proprietary” systems to the Commission without compensation and without adequate assurances that the swap data would remain confidential. Moreover, CME asserted that “real-time” electronic access to the swap data maintained by an SDR is not necessary.

147

CL-CME

supra

note 51 at 5-6.

The Commission disagrees with CME's view regarding Commission direct electronic access. As stated previously, section 21(c)(4)(A) of the CEA mandates that SDRs provide the Commission (or any Commission designee) with direct electronic access.

148

Accordingly, the Commission submits that this requirement to provide the Commission with direct electronic access is not qualified or at the discretion of the SDR. With respect to CME's concern relating to improper disclosure of confidential swap data, the Commission notes that section 8 of the CEA prohibits the Commission from disclosing information “that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers.”

149

Accordingly, the Commission believes that CME's comments are unwarranted and should not serve to limit direct electronic access by the Commission and its staff.

148

Id.

149

See

7 U.S.C. 12(a). The statutory bar to disclosure of “business transactions, market positions and trade secrets” is qualified by several narrowly-defined exceptions set forth in section 8(e) of the CEA.

NFPE Coalition commented that the Commission should not have access to entity data submitted by non-financial entities, including the identity of such entities, unless they engage in swaps to the extent that their exposure could pose a systemic risk. The Commission notes that the Dodd-Frank Act generally provides regulators with the ability to monitor and oversee the swaps markets by reviewing and analyzing the data to be held by SDRs. The Commission submits that the ability to review and analyze all swap transactions (whether by a financial or non-financial entity) is essential in order for the entire market to be sufficiently monitored and analyzed. The Commission does not agree with the NFPE Coalition's view that non-financial entity transactions should remain confidential given the direct statutory requirements in section 21(c)(6) of the CEA that SDRs “maintain the privacy of any and all swap transaction information that the swap data repository receives from a swap dealer, counterparty, or any other registered entity.”

Based on the analysis set forth above relating to proposed § 49.17(c) and an SDR's statutory duty to provide the Commission or its designee with direct electronic access, the Commission is adopting § 49.17(c) as proposed. In addition, as discussed above, the Commission is also adopting a minor revision to the definition of “direct electronic access” set forth in § 49.17(b)(3) to clarify that “direct electronic access” would include “scheduled data transfers to Commission's electronic systems.”

Section 21(c)(7)

150

of the CEA requires a registered SDR, on a confidential basis pursuant to section 8 of the CEA, upon request and after notifying the Commission, to make available all data

151

obtained by the registered SDR, to “Appropriate Domestic Regulators” and “Appropriate Foreign Regulators.”

150

Section 21(c)(7) of the CEA reads:

A swap data repository shall—* * * on a confidential basis pursuant to Section 8, upon request, and after notifying the Commission of the request, make available all data obtained by the swap data repository, including individual counterparty trade and position data, to—(A) each appropriate prudential regulator; (B) the Financial Stability Oversight Council; (C) the Securities and Exchange Commission; (D) the Department of Justice; and (E) any other person that the Commission determines to be appropriate. * * *

7 U.S.C. 24a(c)(7). Included in the definition of Appropriate Domestic Regulators are all domestic entities listed in section 21(c)(7) and other persons that the Commission has determined to be appropriate.

151

The sharing of data with an Appropriate Domestic Regulator by a registered SDR is subject to the confidentiality and indemnification restrictions in section 21(d) of the CEA, 7 U.S.C. 24a(d).

The Commission also proposed that the term “Appropriate Foreign Regulator” be defined in § 49.17. As proposed, the definition of “Appropriate Foreign Regulator” has two parts or elements. First, § 49.17(b)(2) defines an Appropriate Foreign Regulator as those “foreign regulators”

152

with an existing MOU or

other similar type of information sharing arrangement executed with the Commission. Second, § 49.17(b)(2) provides that foreign regulators without an MOU with the Commission may be deemed “Appropriate Foreign Regulators” as determined on a case-by-case basis by the Commission. Accordingly, § 49.17 as proposed set forth detailed filing procedures for foreign regulators who do not currently have an MOU with the Commission to obtain the status of “Appropriate Foreign Regulator.” The Commission received no comments relating to the proposed definition of Appropriate Domestic Regulator and Appropriate Foreign Regulator. Accordingly, the Commission is adopting § 49.17(b) as proposed.

152

The term “foreign regulator” is defined in proposed § 49.2(a)(4) to mean “a foreign futures authority as defined in section 1a(26) of the

Commodity Exchange Act, foreign financial supervisors, foreign central banks and foreign ministries.”

The procedure for Appropriate Domestic Regulators or Appropriate Foreign Regulators to gain access to the data held and maintained by an SDR was detailed in proposed § 49.17(d). First, an Appropriate Domestic Regulator or Appropriate Foreign Regulator is required to request access with the registered SDR in sufficient detail so that the SDR is able to determine the basis of the request. As part of this request, the Appropriate Domestic Regulator or Appropriate Foreign Regulator must also certify (i) its statutory authority; and (ii) that it is acting within the scope of its jurisdiction. The registered SDR must then notify the Commission promptly by electronic means of any request received from an Appropriate Domestic Regulator or Appropriate Foreign Regulator. As proposed, the registered SDR will then provide access to the requested swap data if satisfied that the Appropriate Domestic Regulator or Appropriate Foreign Regulator is acting within the scope of its authority.

The Commission received one comment from the OCC expressing concern that SDRs would serve a “gate keeping” function relating to regulator access.

153

OCC maintained that SDRs should not be permitted to question the statutory authority of a regulator to receive swaps data maintained by the SDR. Although other commenters

154

did not specifically comment on the procedure set forth in § 49.17(d) relating to regulators' access, these commenters generally indicated that SDRs should operate in a manner that would freely provide information to regulators. These commenters viewed the purpose of SDRs as one of assisting regulators in fulfilling their regulatory obligations. The theme of these comments is that SDRs should serve as an impartial vehicle for assisting regulators.

153

CL-OCC

supra

note 51.

154

See

CL-DTCC I, CL-TriOptima, CL-Regis—TR and CL-ESMA

supra

note 51.

Upon review of the comments received and the access procedure generally, the Commission believes that other regulator access (Appropriate Domestic Regulator and Appropriate Foreign Regulators) should not be constrained or limited by SDRs. Therefore, the Commission is revising proposed § 49.17(d) so that Appropriate Domestic Regulator and Appropriate Foreign Regulators when filing a request for access are only required to certify that they are acting within the scope of their jurisdiction. As proposed, § 49.17(d)(i) required the Appropriate Domestic Regulator or Appropriate Foreign Regulator to set forth in sufficient detail the basis for its request. The Commission is eliminating this requirement in § 49.17(d) as adopted. In addition, proposed § 49.17(d)(3) required an SDR to provide access to the requested swap data “if satisfied that the Appropriate Domestic Regulator or Appropriate Foreign Regulator is acting within the scope of its authority.” The Commission is also revising proposed § 49.17(d)(3) so that Appropriate Domestic Regulators' and Appropriate Foreign Regulators' access to SDR swap data is provided once the SDR notifies the Commission of the request.

(d) Confidentiality and Indemnification Agreement

For the purpose of implementing section 21(c)(7) and (d) of the CEA, the Commission proposed § 49.18. Consistent with section 21(d),

155

§ 49.18, as proposed, provided that an Appropriate Domestic Regulator or Appropriate Foreign Regulator prior to receipt of any requested data or information from a registered SDR must execute a “Confidentiality and Indemnification Agreement” with the registered SDR. The Commission further provided in proposed § 49.18 that an Appropriate Domestic Regulator or Appropriate Foreign Regulator must notify and provide a copy of the Confidentiality and Indemnification Agreement to the Commission.

155

Section 21(d) of the CEA provides:

Before the swap data repository may share information with any entity described in subsection (c)(7)-(1) the swap data repository shall receive a written agreement from each entity stating that the entity shall abide by the confidentiality requirements described in Section 8 relating to the information on swap transactions that is provided; and (2) each entity shall agree to indemnify the swap data repository and the Commission for any expenses arising from litigation related to the information provided under section 8.

7 U.S.C. 24a(d).

Proposed § 49.18 required that the Confidentiality and Indemnification Agreement executed with each Appropriate Domestic Regulator and/or Appropriate Foreign Regulator provide that such entity abide by the confidentiality requirements set forth in section 8 of the CEA relating to the swap data that is to be provided by the registered SDR. Moreover, the Confidentiality and Indemnification Agreement must provide that each section 21(c)(7) entity agree to indemnify the registered SDR and the Commission for any expenses arising from litigation relating to the information provided under section 8 of the CEA. The Commission received four comments

156

relating to the confidentiality and indemnification agreement requirement and/or information sharing among regulators.

156

See

CL-DTCC I, CL-TriOptima, CL-ESMA and CL-Foreign Banks

supra

note 51.

DTCC stated that proposed § 49.18 is not consistent with the OTC Derivatives Regulators' Forum (“ODRF”)

157

guidelines which generally provide that “[a]uthorities, including central banks, prudential supervisors, resolution authorities and market regulators, with a material interest in [credit derivatives] information in furtherance of their regulatory and/or governmental responsibilities should have unfettered access to the relevant data, irrespective of the location of the trade repository.”

158

Accordingly, DTCC recommended that the indemnification provisions of section 21(d) as proposed in § 49.18 should not apply where regulators are carrying out regulatory responsibilities, acting in a manner consistent with international agreements and maintaining the confidentiality of the data.

159

With this recommendation, DTCC requested the

Commission together with other global regulators provide “model indemnity language” for use by all repositories or SDRs.

157

ODRF includes representatives from central banks, prudential supervisors and market regulators from over 20 countries globally. The ODRF is not a standard-setting body, but instead, supports the application of standards set by other bodies in the international regulatory community. The Forum provides an environment for regulators and authorities to exchange views and to share information related to OTC derivatives central counterparties and trade repositories on a regular basis. It also provides mutual assistance among the authorities in carrying out their respective responsibilities with respect to OTC derivatives. However, it is important to note that the ODRF does not supersede any regulator's statutory mission or national and otherwise applicable laws.

158

See

letter from OTC Derivatives Regulators' Forum to the Warehouse Trust Company, dated June 18, 2010.

Available at: http://www.dtcc.com/downloads/legal/imp_notices/2010/derivserv/tiw044.zip. See also

Working Group Report

supra

note 12.

159

Id.

TriOptima specifically encouraged the Commission to “adopt as flexible as interpretation as possible” of the indemnification provision proposed in § 49.18.

160

Similarly, ESMA questioned the necessity of an indemnification agreement between a foreign regulator and a U.S.-registered SDR.

161

ESMA stated that this proposal would undermine the trust necessary among various regulators in connection with data access from SDRs. Although not specific to the indemnification provision, the Foreign Banks also commented that regulators should support cross-border information sharing efforts so that a complete picture of the overall swaps market is available for supervision and surveillance purposes.

162

160

CL-TriOptima

supra

note 51 at 3-4.

161

CL-ESMA

supra

note 51.

162

CL-Foreign Banks

supra

note 51 at 7.

The Commission is mindful that the Confidentiality and Indemnification Agreement requirement set forth in section 21(d) and § 49.18 may be difficult for certain domestic and foreign regulators to execute with an SDR due to various home country laws and regulations. We note in this regard that section 752 of the Dodd-Frank Act seeks to “promote effective and consistent global regulation of swaps” and provides that the CFTC and foreign regulators “may agree to such information-sharing arrangements as may be deemed to be necessary or appropriate in the public interest * * *.” In light of this statutory directive, the Commission continues to work to provide sufficient access to SDR data to appropriate domestic and foreign regulatory authorities.

The Commission believes that, under the circumstances described below, certain Appropriate Domestic Regulators may be provided access to the swap data reported and maintained by SDRs without being subject to the notice and indemnification provisions of section 21(c)(7) and (d).

163

First, the SDR must be subject to the regulatory jurisdiction, and register with, the Appropriate Domestic Regulator. Second, consistent with section 21(c)(4)(A) of the CEA, the SDR would be permitted to provide direct electronic access to such Appropriate Domestic Regulator as a designee of the Commission.

164

Under these circumstances, the Appropriate Domestic Regulator would be provided direct electronic access to the SDR subject to the same terms and conditions as would apply to the Commission.

165

163

Pursuant to the directive set forth in section 712(a) of the Dodd-Frank Act, 15 U.S.C. 8302, the Commission has interpreted this provision as providing the basis to permit access to the swap data maintained by SDRs to Appropriate Domestic Regulators that have concurrent regulatory jurisdiction over such SDRs, without the application of the notice and indemnification provisions of sections 21(c)(7) and (d) of the CEA, respectively. As indicated above, the SDR, among other things, must be subject to the regulatory oversight, and be registered with, the Appropriate Domestic Regulator.

164

As part of such designation, the Commission would require an Appropriate Domestic Regulator to enter into a MOU or similar type of information sharing arrangement with the Commission.

See

section 8(e) of the CEA, 7 U.S.C. 12(a).

165

The Commission notes that certain SDRs are likely to register with both the Commission and the SEC because the same entity will offer its services for both swaps and security-based swaps. In addition, the Board of Governors of the Federal Reserve System currently supervises the Warehouse Trust, the global repository for credit derivatives. The Commission expects Warehouse Trust to register with the Commission as an SDR and continue to be a member of the Federal Reserve System, thereby, subject to the concurrent jurisdiction of the Commission and the Board of Governors of the Federal Reserve System.

In connection with foreign regulatory authorities, the Commission believes that confidential swap data reported to, and maintained, by an SDR may be appropriately accessed by an Appropriate Foreign Regulator without the execution of a Confidentiality and Indemnification Agreement when the Appropriate Foreign Regulator is acting in a regulatory capacity with respect to a SDR that is also registered with the Appropriate Foreign Regulator.

166

In such dual-registration cases, the Appropriate Foreign Regulator may receive information directly from the SDR without notice to the Commission and/or the execution of the Confidentiality and Indemnification Agreement, subject to applicable statutory confidentiality provisions set forth in section 8 of the CEA.

167

166

See

section 752 of the Dodd-Frank Act, 15 U.S.C. 8325. Consistent with the directive in section 752 to “promote effective and consistent global regulation of swaps,” the Commission does not interpret the notice and indemnification provisions set forth in sections 21(c)(7) and (d) of the CEA to apply in circumstances in which an Appropriate Foreign Regulator possesses independent sovereign legal authority to obtain access to the information and data held and maintained by an SDR.

167

See

Written Testimony of Gary Gensler, Chairman of the Commission, before the U.S House Committee on Financial Services on June 16, 2011 available at

http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-86.html

and letter from Gary Gensler, Chairman of the Commission, and Mary Schapiro, Chairman of the SEC, to Michael Barnier, European Commissioner for Internal Markets and Services, European Commission, dated June 8, 2011.

Lastly, The Commission notes that the notice and indemnification requirements set forth in section 21(c)(7) and (d) of the CEA would not apply when the Commission, pursuant to section 8(e) of the CEA, shares confidential information in its possession obtained in connection with the administration of the CEA to “any foreign futures authority, department or agency of any foreign government or any political subdivision thereof” acting within the scope of their jurisdiction. Thus, Appropriate Foreign Regulators may, pursuant to section 8(e), receive SDR Information from the Commission

without the execution of the Confidentiality and Indemnification Agreement.

Accordingly, the Commission is adopting § 49.18 as revised to provide that SDRs that are dually-registered with the Commission and an Appropriate Domestic or Foreign Regulator may provide access without the execution of a Confidentiality and Indemnification Agreement. The Commission is similarly revising § 49.17(d), as noted above, so that Appropriate Domestic and Foreign Regulators with regulatory responsibilities over SDRs are not required to file data access requests with their regulated repository or SDR.

(e) Third-Party Service Providers Employed by SDRs

The Commission in the SDR NPRM recognized that SDRs from time to time may contract with third parties in order to fulfill certain operational and data-related obligations. Data access to a third-party service provider may be especially important in connection with certain technology and infrastructure services.

The Commission received one comment letter relating to proposed § 49.17(e). MFA was concerned that § 49.17(e) may not be sufficient to protect data and information held and maintained by SDRs from improper disclosure.

168

MFA recommended that the Commission require the confidentiality procedures between an SDR and a third-party service provider to follow the same standard of care and protocol that applies to an SDR's obligation to protect confidential swap information.

168

CL-MFA

supra

note 51.

The Commission agrees with MFA's recommendation and accordingly has revised § 49.17(e) to require that any “Confidentiality Agreement” between an SDR and a third party include a provision that the third-party service provider have the same or equivalent confidentiality procedures as the SDR outlined in § 49.16.

(f) Counterparty Access to SDRs

The Commission proposed § 49.17(f) to generally prohibit access to the swaps data maintained by a registered SDR by market participants, such as SDs and MSPs, unless the specific data was originally submitted by such party. The underlying basis for this regulation was to maintain the privacy and confidentiality of the reported data while also limiting potential access to reported swap data to the rightful parties to a swap.

The statutory authority for proposed § 49.17(f) is two-fold. First, section 21(c)(6) of the CEA requires registered SDRs to maintain the privacy of any and all swap transaction information that the registered SDR receives from an SD, counterparty, or any other registered entity. Second, section 21(f)(3)

169

of the CEA requires an SDR to establish and enforce rules to mitigate conflicts of interest.

169

See infra

section II.D.4.

The Commission received two comment letters relating to § 49.17(f). ABC/CIBEA noted that § 49.17(f), as proposed, generally prohibits access to swap data maintained by an SDR subject to an exception permitting access “* * * if the specific data was originally submitted by such party.”

170

ABC/CIEBA asserts that this provision would only include the reporting party, and therefore, recommended the Commission revise § 49.17(f) so that the exception provides “[d]ata and information related to a particular swap that is maintained by the registered swap data repository may be accessed by either counterparty to that particular swap.”

171

The Global FX Division similarly indicated that § 49.17(f) should be modified to permit both counterparties to a swap to view the reported data that is held and maintained by such SDR.

172

170

CL-ABC/CIEBA

supra

note 51.

171

CL-ABC/CIEBA

supra

note 51 at 6.

172

CL-Global FX Division

supra

note 51.

Based on the comments noted above, the Commission is adopting § 49.17(f) largely as proposed with a revision to § 49.17(f)(2) to allow both counterparties to a swap to access information held and maintained at an SDR for that particular swap.

(g) Commercial Use of Data

The Commission in the SDR NPRM proposed § 49.17(g) to generally prohibit an SDR from using the data it accepts and maintains for commercial or business purposes. As part of this prohibition, § 49.17(g) required a registered SDR to adopt and implement adequate “firewalls” to protect the swaps data from any improper, commercial use. Proposed § 49.17(g)(2) provided for a limited exception to the commercial use prohibition if the submitters of the data provide express written consent to the SDR that its reported data can be used for commercial purposes. The statutory basis for § 49.17(g), as proposed, is established in sections 21(c)(6) and 21(f)(3) of the CEA.

173

See

section 728 of the Dodd-Frank Act.

Section 21(c)(6) provides that an SDR shall “maintain the privacy of any and all swap transaction information that the swap data repository receives from a swap dealer, counterparty, or any other registered entity.” As indicated in the SDR NPRM, SDRs are expected to receive two separate “streams” of data: (i) Data related to real-time public reporting which by its nature is publicly available; and (ii) “core” regulatory data that is intended for use by the Commission and other regulators which is subject to statutory confidential treatment (“Core Data”). Accordingly, SDR Information that is not subject to real-time public reporting should be treated as non-public and subject to the prohibitions on commercial use set for in proposed § 49.17(g). In this manner, the Core Data could not be accessed, disclosed, or used for purposes not related to SDR responsibilities under the CEA or the regulations thereunder, unless such use is explicitly agreed to by the submitters of the data.

Section 21(f)(3) of the CEA, Core Principle 3, also provides that each SDR must establish and enforce rules to minimize conflicts of interest in the decision-making process of the SDR and to establish a process for resolving such conflicts.

174

Because of the inherent conflicts in connection with maintaining swap data and SDR operations (

e.g.,

the incentive to develop ancillary services using swap data), the Commission proposed that “commercial use” of any data submitted and maintained by an SDR must be severely restricted. The Commission was also concerned that an SDR may attempt to use this limited “commercial use” exception as a precondition for accepting non-SD/non-MSP, SD and/or MSP swap transactions. Accordingly, proposed § 49.27 required registered SDRs to provide fair, open and equal access to its services and must not discriminate against submitters of data regardless of whether such a submitter has agreed to any “commercial use” of its data. The Commission received a total of six comment letters relating to the commercialization of data.

175

Each of these comments is discussed in turn below.

174

See

section 21(f)(3) of the CEA, 7 U.S.C. 24a(f)(3) as added by section 728 of the Dodd-Frank Act.

175

See

CL-Markit, CL-CME, CL-Argus, CL-DTCC I, CL-DTCC II and CL-Better Markets

supra

note 51.

Markit sought clarification regarding the application of proposed § 49.17(g) to the (i) preservation of data ownership rights and (ii) the permissible uses of data by an SDR.

176

Markit recommended that regulations relating to the real-time reporting of swap data make clear that swap data ownership does not transfer to the SEF, DCM or any other regulated entity, as appropriate.

176

CL-Markit I

supra

note 51 at 2.

The Commission believes that (i) counterparty “consent” to real-time reporting proposed in part 43 does not provide consent under proposed § 49.17(g) adequate to permit an SDR to use such Core Data for commercial purposes; and (ii) regulated entities responsible for the public dissemination of real-time swap data should be restricted from making commercial use of that data prior to public dissemination. The Commission does not agree with Markit's suggestion that the commercial use of real-time data by SDRs requires the consent of the data owners but, as discussed, has modified § 49.17(g)(3) to prohibit SDRs from making commercial use of real-time data before disseminating such data publicly.

CME commented that the Commission should adopt more stringent requirements to protect commercialization of data received from any entity. Accordingly, CME recommended the Commission revise proposed § 49.17(g) so that: (i) The SDR must receive express written consent before commercializing any data received, whether the entity is a swap counterparty or other registered entity (such as a DCO); (ii) the term “market participant” should apply more broadly than just to counterparties; and (iii) information submitted by a DCO to an SDR should not be considered to be aggregated data exempt from the commercialization prohibition.

177

CL-CME

supra

note 51 at 4-5.

The Commission shares the CME's view that information submitted to an SDR by a registered entity, such as a DCO, is not aggregated data exempt from the commercialization prohibition.

The Commission notes that the definition of “market participant” set forth in proposed § 49.2(a)(6) applies to various registered entities such as DCMs, DCOs and SEFs and, therefore, is not limited to swap counterparties.

However, in terms of proposed § 49.17(g) and the underlying privacy provision related to SDRs set forth in section 21(c)(6) of the CEA, the Commission agrees with the CME's recommendation for additional clarity regarding market participants that are able to consent to the commercial use of data. Therefore, consistent with CME's comment, the Commission is revising proposed § 49.17(g) by replacing the term “market participant” with the language of section 21(c)(6) of the CEA which states “swap dealer, counterparty, or any other registered entity.”

Argus commented that proposed § 49.17(g) may not be sufficient to prevent the indirect commercial use of confidential data held by an SDR. In its role of collecting and disseminating information for real-time reporting of swap transactions, Argus believes that SDRs may seek to “monetize” or commercially use “real-time” data.

The Commission believes that § 49.17(g) adequately protects swap data reported to an SDR from improper disclosure to affiliates of the SDR and other third parties. In particular, the Commission notes that § 49.17(g)(1) specifically requires that an SDR “adopt and implement adequate `firewalls' to protect the data required to be maintained under § 49.12 of this part and section 21(b) of the Act from any improper, commercial use.”

178

As a preliminary matter, the Commission believes that adequate controls or firewalls would require SDR staff that is involved with any commercial use of real-time data to be restricted from obtaining access to any Core Data. The Commission does not support Argus' recommendation that would prohibit the commercial use of real-time data by an SDR if such SDR has access to non real-time data.

178

17 CFR 49.17(g)(1).

DTCC commented that data reported and maintained by SDRs should not be “commercialized.”

179

As a result, DTCC believes that a prohibition against commercial uses or practices relating to commercial use of SDR data will lead to a more cost efficient and less risky swap market. DTCC also submitted that SDRs should provide open access to offered services while preserving trading parties' control over the reported data maintained by the SDR.

180

Accordingly, DTCC believes that the particular SDR for which a trade is reported should be based on the counterparty's selection and not by a SEF, DCO, confirmation facility or other service provider.

179

CL-DTCC I

supra

note 51 at 3.

180

CL-DTCC II

supra

note 51 at 3.

The Commission generally agrees with DTCC's views relating to commercialization of data. However, with respect to the selection of the SDR by the reporting counterparty,

181

the Commission notes that the reporting counterparty may contractually delegate its decision to an agent such as a SEF, DCO, confirmation facility or other service provider. Accordingly, the Commission does not believe § 49.17(g) requires a revision on this point.

181

See

proposed §§ 45.5-45.7 of the Commission's Regulations set forth in the Data NPRM

supra

note 6.

Better Markets asserted that if the SDR uses data for “commercial purposes” the SDR must be required to provide the data to the public on equal terms as to price, priority and speed of transmittal.

182

The Commission believes that generally the reporting counterparty may consent to the commercial use of its data without an additional requirement on an SDR to provide such data access to the public on equal terms.

182

Id.

at 13.

The Commission continues to believe that conflicts are inherent in the reporting and maintaining of swap data by SDRs, and submits that the “commercial use” of Core Data should be restricted. However, as noted above, an SDR could, consistent with section 8 of the CEA, commercially use swap data that was reported on a real-time basis pursuant to proposed part 43 of the Commission's Regulations. However, the Commission notes that an SDR would be in violation of § 49.17(g) and if it were to require the express consent of a market participant to use any reported data held and maintained by the SDR as a condition for the reporting of such swap transaction data. Accordingly, the Commission is adopting § 49.17(g) largely as proposed subject to the revisions noted above.

8. Emergency Authority Procedures and System Safeguards—§§ 49.23 and 49.24

Section 21(c)(8) of the CEA requires SDRs to “establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allows for the timely recovery and resumption of operations and the fulfillment of the responsibilities and obligations of the organization.” Proposed §§ 49.23 and 49.24 of the Commission's regulations implement section 21(c)(8).

Proposed § 49.23, consistent with former DCM Core Principle 6

183

and new application guidance for both DCMs and SEFs,

184

required SDRs to set forth emergency contingency plans, including the designation of officials to act in the event of an emergency, chains of command and emergency conflict of interest policies and procedures.

185

Consistent with new core principle 20 for DCMs and new core principle 14 for SEFs added by sections 735 and 733 of the Dodd Frank Act, respectively, proposed § 49.24 required system safeguards for SDRs including business continuity and resumption of services plans and coordinated system testing.

186

183

Former section 5(d)(6) of the CEA, 7 U.S.C. 7(d)(6); 17 CFR part 38, App. B, Application Guidance for former Core Principle 6.

184

The new DCM emergency procedures core principle is also enumerated as DCM Core Principle 6 and codified in section 5(d)(6) of the CEA, 7 U.S.C. 7(d)(6); it is substantively similar to its predecessor. The new SEF emergency procedures core principle is enumerated as SEF Core Principle 8 and codified in section 5h(f)(8) of the CEA, 7 U.S.C. 7b-3(f)(8).

185

See

SDR NPRM

supra

note 8 at 80911-80912.

186

Core principle 20 (DCMs) and core principle 14 (SEFs) are virtually identical and provide that each respective registered entity shall “(A) 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 the development of automated systems, that are reliable, secure, and have adequate scalable capacity; (B) 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 board of trade [or swap execution facility]; and (C) periodically conduct tests to verify that backup resources are sufficient to ensure continued order processing and trade matching, price reporting, market surveillance, and maintenance of a comprehensive and accurate audit trail.” The new DCM Core Principle 20 is codified in section 5(d)(20) of the CEA, 7 U.S.C. 7(d)(20). The new SEF Core Principle 14 is codified in section 5h(f)(14) of the CEA, 7 U.S.C. 7b-3(f)(14).

See

DCM NPRM and SEF NPRM,

supra

note 111.

Proposed § 49.24(d) specifically required that SDRs have sufficient BC-DR plans and resources to enable a resumption of the SDR's operations within one business day following a disruption in SDR operations. For SDRs determined by the Commission to be “critical,”

187

proposed § 49.24(e)

required that they (i) implement a disaster recovery plan and BC-DR resources sufficient to enable a same-day recovery time objective in the event that its normal capabilities become inoperable, including a wide-scale disruption; and (ii) maintain geographic dispersal of infrastructure and personnel sufficient to enable achievement of a same-day recovery time objective, in the event of a wide-scale disruption.

187

The Commission in § 49.24 has not defined a “critical” SDR, but instead, believes a determination of “critical” is a fact-intensive analysis. However, the Commission submits that a “critical” SDR would be an SDR that is integral to the swaps market generally or based on a particular asset class. Generally, the Commission will evaluate each SDR on a case-by-case basis, giving consideration to whether the SDR provides essential reporting and other services (such as swap confirmation and/or risk management) that is integral to the swaps market. Because of the nature of the swaps market and the essential reporting and maintenance of accurate data, the Commission is likely to view “critical” on a collective rather than individual basis. The Commission may also consider other relevant factors that it finds important such as whether a single or select number of SDRs maintain the vast majority of swap transaction data.

See

Commission, Notice of Proposed Rulemaking: Business Continuity and

Disaster Recovery, 75 FR 42,633 (July 22, 2010); Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System issued by the Board of Governors of the Federal Reserve System, the Department of the Treasury and the SEC, 68 FR 17,809 (Apr. 11, 2003); SEC, Policy Statement Relating to Business Continuity Planning for Trading Markets, Exchange Act Release No. 48,545 (Sept. 25, 2003), 68 FR 56,656 (Oct. 1, 2003).

The Commission received no comments regarding the provisions in proposed § 49.23. The Commission received one comment from Chris Barnard regarding proposed § 49.24(j).

188

Barnard, in connection with proposed recordkeeping requirements, indicated his view that proposed § 49.24(j) should be amended so that SDRs are required to keep system safeguard records indefinitely. The Commission notes that apart from the specific recordkeeping for reported swap transactions set forth in proposed § 49.12, the general recordkeeping requirements set forth in § 1.31 of the Commission Regulation's would apply to BC-DR testing records.

189

The Commission believes that § 1.31 subjects SDRs to adequate record retention requirements for BC-DR testing, and therefore, has not adopted Barnard's recommendation.

188

CL-Barnard

supra

note 51 at 2.

189

§ 1.31(a)(1) specifically provides that “[a]ll books and records required to be kept by the Act or by these regulations shall be kept for a period of five years from the date thereof and shall be readily accessible during the first 2 years of the 5-year period. All such books and records shall be open to inspection by any representative of the Commission or the United States Department of Justice.”

See

17 CFR 1.31(a)(1).

Upon review of the comment received and the proposed emergency procedures and system safeguard regulations, the Commission is adopting § 49.23 and § 49.24 as proposed.

Designation of Chief Compliance Officer—§ 49.22

Section 21(e) of the CEA, as amended by section 728 of the Dodd-Frank Act, establishes the position of CCO and enumerates specific responsibilities for CCOs at all SDRs. Section 21(e) contains three parts, which, taken together, establish CCOs as the focal points for SDRs' compliance with the CEA and applicable Commission regulations. Section 21(e) requires, first, that every SDR designate an individual to serve as CCO.

190

Second, it enumerates specific duties for CCOs and establishes their responsibilities within an SDR.

191

Third, it outlines the requirements of a mandatory annual report from SDRs to the Commission, which must be prepared and signed by an SDR's CCO.

192

190

See

section 21(e)(1) of the CEA, 7 U.S.C. 24a(e)(1).

191

See

section 21(e)(2) of the CEA, adopted as part of the Dodd-Frank Act, providing that a CCO shall:

(A) report directly to the board or to the senior officer of the swap data repository; (B) review the compliance of the swap data repository with respect to the requirements and core principles described in this section; (C) in consultation with the board of the swap data repository, a body performing a function similar to the board of the swap data repository, or the senior officer of the swap data repository, resolve any conflicts of interest that may arise; (D) be responsible for administering each policy and procedure that is required to be established pursuant to this section; (E) ensure compliance with this Act (including regulations) relating to agreements, contracts, or transactions, including each rule prescribed by the Commission under this section; (F) establish procedures for the remediation of noncompliance issues identified by the chief compliance officer through any—(i) compliance office review; (ii) look-back; (iii) internal or external audit finding; (iv) self-reported error; or (v) validated complaint; and (G) establish and follow appropriate procedures for the

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