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

Federal RegisterMay 11, 2022

Ask Donna

What actually matters in this document.

Text

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 201, 232, 240, 242, and 249

[Release No. 34-94615; File No. S7-14-22]

RIN 3235-AK93

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

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rule; withdrawal of proposed rules.

SUMMARY:

The Securities and Exchange Commission (“SEC” or “Commission”) is proposing a set of rules (“Regulation SE”) and forms under the Securities Exchange Act of 1934 (“SEA”) that would create a regime for the registration and regulation of security-based swap execution facilities (“SBSEFs”) and address other issues relating to security-based swap (“SBS”) execution generally. One of the rules being proposed as part of Regulation SE would implement part of the Dodd-Frank Act, which is intended to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade SBS (“SBS exchanges”). Other rules being proposed as part of Regulation SE would address the cross-border application of the SEA's trading venue registration requirements and the trade execution requirement for SBS. In addition, the Commission is proposing to amend an existing rule to exempt, from the SEA definition of “exchange,” certain registered clearing agencies as well as registered SBSEFs that provide a market place only for SBS. The Commission also is proposing a new rule that, while affirming that an SBSEF would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements. Finally, the Commission is proposing certain new rules and amendments to its Rules of Practice to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission. The Commission also is withdrawing all previously proposed rules regarding these subjects.

DATES:

Comments should be received on or before June 10, 2022. As of May 11, 2022, the SEC is withdrawing or partially withdrawing the following previously proposed rules (see

SUPPLEMENTARY INFORMATION

for details): SEA Release No. 63825 (76 FR 10948, published on February 28, 2011); SEA Release No. 63107 (75 FR 65581, published on October 26, 2010); and SEA Release No. 69490 (78 FR 30968, published on May 23, 2013).

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (

http://www.sec.gov/rules/submitcomments.htm

); or

• Send an email to

rule-comments@sec.gov.

Please include File No. S7-14-22 on the subject line.

Paper Comments

• Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-14-22. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission's internet website (

http://www.sec.gov/rules/proposed.shtml

). Comments are also available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission's public reference room. All comments received will be posted without change. Persons submitting comments are cautioned that the Commission does not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available.

Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at

www.sec.gov

to receive notifications by email.

FOR FURTHER INFORMATION CONTACT:

Michael Gaw, Assistant Director, at (202) 551-5602; David Liu, Special Counsel, at (312) 353-6265; Leah Mesfin, Special Counsel, at (202) 551-5655; Michou Nguyen, Special Counsel, at (202) 551-7768; Geoffrey Pemble, Special Counsel, at (202) 551-5628; or Mark Sater, Counsel, at (202) 551-4729; all of whom are in the Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

The Commission is proposing new 17 CFR 242.800 through 242.835 to create a regime for the registration and regulation of SBSEFs and address other issues relating to SBS execution generally. Regulation SE would consist of 17 CFR 242.800 through 242.835 (proposed Rules 800 through 835). Key rules within Regulation SE would include Rule 803, which would establish a process for SBSEF registration; Rules 804 to 810, which would establish procedures for rule and product filings by SBSEFs; Rule 815, which would establish permissible execution methods for SBS that are subject to the SEA's trade execution requirement; Rule 816, which would set out a procedure for SBSEFs to make an SBS available to trade and establish certain exemptions from the trade execution requirement; Rules 818 to 831, which would implement the 14 Core Principles for SBSEFs set forth in section 3D(d) of the SEA; Rules 832 to 833, which would address cross-border matters; and Rule 834, which would impose requirements addressing conflicts of interest involving SBSEFs and SBS exchanges, as required by section 765 of the Dodd-Frank Act.

In addition to the rules described above, the Commission is also proposing 17 CFR 249.2001 (Form SBSEF), which is the form that an entity would use to register with the Commission as an SBSEF; 17 CFR 249.2002 (a submission cover sheet), which would be required to accompany filings with the Commission made by SBSEFs for rule and rule amendments and for product listings; amendments to 17 CFR 232.405 (Rule 405 of Regulation S-T) to require various SBSEF filings to be provided in Inline eXtensible Business Reporting Language (“Inline XBRL”), a structured data language; amendments to 17 CFR 240.3a1-1 (Rule 3a1-1 under the SEA) to exempt from the SEA definition of “exchange” certain registered clearing agencies as well as registered SBSEFs that provide a market place only for SBS; 17 CFR 240.15a-12 (Rule 15a-12 under the SEA) that, while affirming that an SBSEF also would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements; to sunset an existing exemption from the requirement to register as a clearing agency for an entity performing the functions of an SBSEF but that is not yet registered as such; and certain new rules and amendments to 17 CFR part 201

(the Commission's Rules of Practice) to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission.

The Commission also is withdrawing all previously proposed rules, rule amendments, and interpretations regarding these subjects in view of the length of time that has passed since they were issued and significant changes to the swap and SBS markets that have taken place during that time.

Table of Contents

I. Background

II. Relation to the SEF Market

III. Approach to the Commission's Proposed Requirements Relating to Security-Based Swap Execution

IV. Introductory Provisions of Regulation SE

A. Rule 800—Scope

B. Rule 801—Applicable Provisions

C. Rule 802—Definitions

V. Registration of SBSEFs

A. Rule 803—Requirements and Procedures for Registration

B. Form SBSEF

C. Abbreviated Registration Procedures for CFTC-Registered SEFs

VI. Rule and Product Filings by SBSEFs

A. Rule 804—Listing Products for Trading by Certification

B. Rule 805—Voluntary Submission of New Products for Commission Review and Approval

C. Rule 806—Voluntary Submission of Rules for Commission Review and Approval

D. Rule 807—Self-Certification of Rules

E. Submission Cover Sheet and Instructions

F. Rule 808—Availability of Public Information

G. Rule 809—Staying of Certification and Tolling of Review Period Pending Jurisdictional Determination

H. Rule 810—Product Filings by SBSEFs That Are Not Yet Registered and by Dormant SBSEFs

VII. Miscellaneous Requirements

A. Rule 811—Information Relating to SBSEF Compliance

1. Harmonization With § 37.5

2. Harmonization With § 1.60

B. Rule 812—Enforceability

C. Rule 813—Prohibited Use of Data Collected for Regulatory Purposes

D. Rule 814—Entity Operating Both a National Securities Exchange and SBSEF

E. Rule 815—Methods of Execution for Required and Permitted Transactions

F. Rule 816—Trade Execution Requirement and Exemptions Therefrom

1. Process for an SBSEF To Make an SBS Product Available To Trade

2. Exemptions From Trade Execution Requirement

G. Rule 817—Trade Execution Compliance Schedule

VIII. Implementation of Core Principles

A. Rule 818—Core Principle 1—Compliance With Core Principles

B. Rule 819—Core Principle 2—Compliance With Rules

1. Rules Modelled on Subpart C of Part 37

2. Provisions of Rule 819 Adapted From Other SEF Requirements

a. Rule 819(h)—Activities of SBSEF's Employees, Governing Board Members, Committee Members, and Consultants

b. Rule 819(i)—Service on SBSEF Governing Boards or Committees by Persons With Disciplinary Histories

c. Rule 819(j)—Notification of Final Disciplinary Action Involving Financial Harm to a Customer

d. Rule 819(k)—Designation of Agent for Non-U.S. Member

C. Rule 820—Core Principle 3—SBS Not Readily Susceptible to Manipulation

D. Rule 821—Core Principle 4—Monitoring of Trading and Trade Processing

E. Rule 822—Core Principle 5—Ability To Obtain Information

F. Rule 823—Core Principle 6—Financial Integrity of Transactions

G. Rule 824—Core Principle 7—Emergency Authority

H. Rule 825—Core Principle 8—Timely Publication of Trading Information

I. Rule 826—Core Principle 9—Recordkeeping and Reporting

J. Rule 827—Core Principle 10—Antitrust Considerations

K. Rule 828—Core Principle 11—Conflicts of Interest

L. Rule 829—Core Principle 12—Financial Resources

M. Rule 830—Core Principle 13—System Safeguards

N. Rule 831—Core Principle 14—Designation of Chief Compliance Officer

IX. Cross-Border Rules

A. Rule 832—Cross-Border Mandatory Trade Execution

B. Rule 833—Cross-Border Exemptions

1. Exemptions for Foreign SBS Trading Venues

2. Exemptions Relating to the Trade Execution Requirement

X. Rule 834—Implementation of Section 765 of the Dodd-Frank Act and Governance of SBSEFs and SBS Exchanges

XI. Rule 835—Notice to Commission by SBSEF of Final Disciplinary Action, Denial or Conditioning of Membership, or Denial or Limitation of Access

XII. Amendments to Existing Rule 3a1-1 Under the SEA—Exemptions From the Definition of “Exchange”

XIII. Rule 15a-12—SBSEFs as Registered Brokers; Relief From Certain Broker Requirements

XIV. Proposed Sunsetting of Temporary Exemption From SEA Definition of “Clearing Agency” for Unregistered SBSEFs

XV. Electronic Filings Under Regulation SE

XVI. Amendments to Commission's Rules of Practice for Appeals of SBSEF Actions

A. Amendment to Rule 101

B. Amendment to Rule 202

C. Amendment to Rule 210

D. Amendment to Rule 401

E. Rule 442—Right to Appeal

F. Rule 443—

Sua Sponte

Review by Commission

G. Amendment to Rule 450

H. Amendment to Rule 460

I. Request for Comment

XVII. Conclusion

XVIII. Compliance Schedule

XIX. Economic Analysis

A. Introduction

B. Economic Baseline

1. Available Data From the SBS Market

2. SBS Market Activity and Participants

a. SBS Entities

b. Other SBS Market Participants

c. SBS Market Participant Domiciles

3. Distribution of Rransaction Size

4. Other Markets and Regulatory Frameworks

5. Number of Entities That Likely Will Register as SBSEFs

6. SBS Trading on Platforms

7. Global Regulatory Efforts

8. Trading Models

C. Benefits, Costs, and Reasonable Alternatives

1. Overarching Benefits of the Proposal

2. Benefits Associated With Specific Proposed Rules

3. Costs

a. Registration Requirements for SBSEFs and Form SBSEF

b. Ongoing Compliance With Other Requirements That Are Similar to the Remainder of Part 37

c. Rule and Product Filing Processes for SBSEFs

d. Proposed Rules 809, 811, 819, 826, 833, 834, and 835

e. Assessment Costs

f. Structured Data Costs

4. Reasonable Alternatives

D. Effects on Efficiency, Competition, and Capital Formation

1. Competition

2. Capital Formation

3. Efficiency

E. Request for Comment

XX. Paperwork Reduction Act

A. Summary of Collection of Information

B. Proposed Use of Information

1. Registration Requirements and Form SBSEF

2. Requirements for SBSEFs To Establish Rules

3. Reporting Requirements for SBSEFs

4. Recordkeeping Required Under Regulation SE

5. Timely Publication of Trading Information Requirement for SBSEFs

6. Rule Filing and Product Filing Processes for SBSEFs

7. Requirements Relating to the CCO

8. Surveillance Systems Requirements for SBSEFs

C. Respondents

D. Total Annual Reporting and Recordkeeping Burden

1. Overview

2. Aggregate Burdens for Rules Modelled After CFTC Part 37 Rules

a. Registration requirements for SBSEFs and Form SBSEF

b. Ongoing Compliance With Other Requirements That Are Similar to the Remainder of Part 37

3. Aggregate Burdens for Rules Modelled on CFTC Part 40 Rules

a. Rule and Product Filing Processes for SBSEFs

b. Burdens Related to Rules Modelled After Other Part 40 Rules

i. Rule 802

ii. Rule 809

4. Aggregate Burdens for Rules Modelled After CFTC Rules Other Than Parts 37 and 40

a. Rule 811(d)

b. Rule 819(h)

c. Rule 819(i)

d. Rule 819(j)

e. Rule 819(k)

f. Rule 826(f)

g. Rule 834

5. Miscellaneous Burdens

a. Rule 833

b. Rule 835

6. Total Paperwork Burden Under Proposed Regulation SE

E. Collection of Information Is Mandatory

F. Responses to Collection of Information Will Not Be Confidential

G. Retention Period of Recordkeeping Requirements

H. Request for Comment

XXI. Regulatory Flexibility Certification

A. SBSEFs

B. Persons Requesting an Exemption Order Pursuant to Rule 833

C. SBS Exchanges

D. Certification

XXII. Consideration of Impact on Economy

Statutory Authority

I. Background

Section 3D of the SEA,

enacted as part of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”),

provides for the registration and regulation of SBSEFs. Section 3D(a)(1) provides that no person may operate a facility for the trading or processing of SBS, unless the facility is registered as an SBSEF or as a national securities exchange. Section 3D(d) enumerates 14 Core Principles with which SBSEFs must comply.

Section 3D(f) requires the Commission to prescribe rules governing the regulation of SBSEFs.

15 U.S.C. 78c-4. In this release, the Commission is defining the Securities Exchange Act as the “SEA” to distinguish it from the Commodity Exchange Act (“CEA”).

Public Law 111-203, H.R. 4173, section 763(c).

See infra

section VIII (listing the Core Principles).

Section 765 of the Dodd-Frank Act directs the Commission to adopt rules to mitigate conflicts of interest with respect to clearing agencies that clear SBS (“SBS clearing agencies”), SBSEFs, and national securities exchanges that post or make available for trading SBS (“SBS exchanges”). In October 2010, the Commission published for comment proposed Regulation MC to implement section 765.

Ownership Limitations and Governance Requirements for Security-Based Swap Clearing Agencies, Security-Based Swap Execution Facilities, and National Securities Exchanges With Respect to Security-Based Swaps Under Regulation MC,

SEA Release No. 63107 (October 14, 2010), 75 FR 65882 (October 26, 2010) (“Regulation MC Proposal”).

In February 2011, the Commission published for comment: (1) Proposed Regulation SBSEF that would govern the registration and regulation of SBSEFs, including rules to implement the 14 Core Principles and rules requiring SBSEFs to submit filings with the Commission to list SBS and to establish or amend rules; (2) proposed Form SBSEF for an entity to register with the Commission as an SBSEF; (3) a proposed interpretation of the definition of “security-based swap execution facility”; and (4) proposed exemptions for registered SBSEFs relating to their status also as “exchanges” and “brokers.”

On May 23, 2013, the Commission issued a proposing release to address various cross-border aspects of its proposed Title VII rules

—which included a proposed rule on the application of Title VII's “trade execution requirement”

to cross-border SBS transactions and a proposed interpretation of when the SBSEF registration requirements would apply to a foreign venue that trades SBS (a “foreign SBS trading venue”)

—and reopened the comment period for various proposed rulemaking releases and policy statements under Title VII, including the 2011 SBSEF Proposal.

Registration and Regulation of Security-Based Swap Execution Facilities,

SEA Release No. 63825 (February 2, 2011), 76 FR 10948 (February 28, 2011) (“2011 SBSEF Proposal”).

Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants,

SEA Release No. 69490 (May 1, 2013), 78 FR 30968 (May 23, 2013) (“Cross-Border Proposing Release”).

The “trade execution requirement” as used with respect to SBS refers to a provision mandated by Title VII and set forth in section 3C(h) of the SEA that requires a transaction involving an SBS that is subject to the clearing requirement of section 3C to be executed on a national securities exchange, a registered SBSEF, or an SBSEF that is exempt from registration under section 3D(e) of the SEA.

See infra

note 106 and accompanying text. A similar provision regarding swaps is set forth in section 2(h)(8) of the CEA.

See id.,

78 FR at 31053-58 (discussing potential exemptions for foreign SBS trading venues) and 31081-85 (discussing a proposed rule to address the application of the trade execution requirement to cross-border SBS transactions).

Reopening of Comment Periods for Certain Proposed Rulemaking Releases and Policy Statements applicable to Security-Based Swaps,

SEA Release No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013) (“Reopening of Comment Periods Release”).

In view of the passage of time since these earlier proposals were issued and the significant market and regulatory developments affecting swaps and SBS over those years, the Commission is issuing this new proposal relating to the registration and regulation of SBSEFs and to SBS execution generally. Accordingly, the Regulation MC Proposal, the 2011 SBSEF Proposal, and the elements of the Cross-Border Proposing Release relating to the trade execution requirement and the registration status of foreign SBS trading venues are withdrawn. The proposed rules discussed below supersede all previous Commission proposals on these subjects.

The Commission notes, however, that Rule 834 of proposed Regulation SE would implement section 765 only with respect to SBSEFs and SBS exchanges.

II. Relation to the SEF Market

The economic baseline for establishing a registration and regulatory regime for SBSEFs and SBS execution generally has changed considerably since the Commission issued the 2011 SBSEF Proposal. In June 2013, the Commodity Futures Trading Commission (“CFTC”) adopted rules (in 17 CFR chapter I) under Title VII of the Dodd-Frank Act for swap execution facilities (“SEFs”).

The swap market has grown and matured within the framework established by the CFTC's rules. In 2018, the CFTC proposed to make fundamental changes to the SEF regulatory structure.

However, according to the CFTC, “[s]everal commenters expressed concern over the magnitude of changes” in the proposal.

In 2021, the CFTC ultimately declined to finalize the 2018 SEF Proposal and elected instead “to improve the SEF framework through targeted rulemakings that address distinct issues.”

Accordingly, the CFTC withdrew the unadopted portions of its 2018 proposal.

Currently, the CFTC has no proposals outstanding to further amend its SEF rules.

See

CFTC,

Core Principles and Other Requirements for Swap Execution Facilities,

78 FR 33476 (June 4, 2013) (“2013 CFTC Final SEF Rules Release”); CFTC,

Process for a Designated Contract Market or Swap Execution Facility To Make a Swap Available to Trade, Swap Transaction Compliance and Implementation Schedule, and Trade Execution Requirement Under the Commodity Exchange Act,

78 FR 33606 (June 4, 2013) (“2013 CFTC Final MAT Rules” and, together with the 2013 CFTC Final SEF Rules Release, the “2013 CFTC SEF Rules”).

See

CFTC,

Swap Execution Facilities and Trade Execution Requirement,

83 FR 61946 (November 30, 2018) (“2018 SEF Proposal”).

CFTC,

Swap Execution Facilities and Trade Execution Requirement—Proposed rule; partial withdrawal,

86 FR 9304, 9304 (February 12, 2021).

Id.

See id.,

86 FR at 9304-05.

Because of the close relationship between the swap and SBS markets, an analysis of swap trading on CFTC-registered SEFs offers insights into the potential development of SBS trading on SEC-registered SBSEFs.

Currently,

there are 20 non-dormant entities registered with the CFTC as SEFs.

In 2021, volume in index credit default swaps (“CDS”) traded on CFTC-registered SEFs was distributed as follows: One SEF had the largest share of index CDS volume (in notional amount) at $8 trillion (69%); one SEF had the second largest share at $2.1 trillion (18%); and the remaining 13% of volume was shared among five other SEFs.

As discussed in section XIX below, only a small fraction of SBS trading occurs on platforms currently. Further, some trading occurs on platforms that do not include CFTC-registered SEFs.

The Commission bases its preliminary analysis on trading of credit derivatives. Other swap asset classes that trade on SEFs, such as interest rate swaps (“IRS”) and foreign exchange swaps, have no analogs in the SBS market. While there are parallels

between the equity swap and equity SBS markets, equity swap trading on SEFs appears to be minimal.

See

CFTC, Trading Organizations—Swap Execution Facilities (SEF),

https://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=SwapExecutionFacilities

(accessed on January 25, 2022).

See infra

note 376 and accompanying text.

Based on research from publicly available sources as well as discussions with CFTC-registered SEFs, the Commission understands that the SBS market—both on organized platforms that are potential SBSEF registrants and on a purely over-the-counter (“OTC”) basis—is a small fraction of the overall swap market.

Furthermore, the single-name CDS market, which falls under SEC jurisdiction, is smaller than the index CDS market, which falls under CFTC jurisdiction.

Because the swap markets are larger than the SBS markets, the opportunities for revenue capture from swap execution are much larger than from SBS execution. In view of the SBS market's size relative to the swap market, the Commission is sensitive to the economic impact that its final rules for SBSEFs could have.

See infra

note 371 and accompanying text.

See id.

The entities that are most likely to register with the Commission as SBSEFs are those already registered with the CFTC as SEFs.

These entities have made substantial investments in systems, policies, and procedures to comply with and adapt to the regulatory system developed by the CFTC. To the extent that the Commission harmonizes its SBSEF rules with the CFTC's SEF rules, dually registered entities could utilize their existing systems, policies, and procedures to comply with the Commission's SBSEF rules, and SEF market participants would face no or only incremental changes to trade SBS as well as swaps on those facilities, and to comply with the Commission's rules regarding SBS trading. To the extent that the Commission establishes different or additive requirements, dually registered entities and their market participants might need to incur costs and burdens to modify their systems, policies, and procedures to comply with the SEC-specific rules. As indicated below, the Commission seeks comment on such costs and burdens in light of the CFTC's SEF rules.

Accordingly, as discussed below, the Commission is proposing to take the general approach of harmonizing closely with analogous CFTC SEF rules, except where differences in the SEC's statutory authority relative to the CFTC's statutory authority or differences in the SBS market relative to the swap market necessitate differences between the Commission's rules and the CFTC's, or where the Commission preliminarily believes that the benefits of deviating from the CFTC's rules would otherwise justify the burdens and costs associated with imposing different or additional requirements than the corresponding CFTC rule. Throughout this release, the Commission will seek comment on the accuracy of these assumptions. In particular, the Commission seeks comment on the following:

See infra

section XIX(B)(5).

Consider the following example: § 37.1306(a) of the CFTC's rules (17 CFR 37.1306(a)), which is among the rules that implements CEA Core Principle 13 (Financial resources), requires a SEF to submit a financial report to the CFTC every quarter (

i.e.,

every three months). To implement the corresponding Core Principle under the SEA, the Commission could require an SBSEF to file only three financial reports per year, rather than four. All things being equal, filing three reports per year is less burdensome than filing four. But all things are not equal, because of the CFTC's rules. In this case, requiring new “off cycle” reporting by a dually registered SEF/SBSEF would likely be more burdensome than allowing the dually registered entity to make the same four filings, on the same cycle, with both the SEC and CFTC. As discussed later in this release, the Commission is proposing a rule closely modelled on § 37.1306(a) that would require the same type of financial report as the CFTC rule, and for that report to be filed quarterly.

See

proposed Rule 829(g).

1. How many CFTC-registered SEFs do you believe will seek to register with the Commission as SBSEFs? Please explain.

2. Are there any entities that will seek to register with the Commission as SBSEFs but

not

3. For SEFs that will likely seek registration with the Commission as SBSEFs, please estimate the size of their swaps business versus the anticipated size of their SBS business, using any metric(s) that you believe would be illustrative (

e.g.,

number of products listed, trade count, aggregate notional size traded, number of counterparties trading swaps versus SBS,

etc.

4. Please provide any information or market data that you believe would be illustrative regarding current SBS trading activity on entities that are not likely to register with the Commission as SBSEFs, and thus would have to cease SBS trading upon the compliance date of the Commission's SBSEF rules. Do you believe that this activity would migrate to registered SBSEFs or would it migrate instead to the bilateral OTC market?

5. What types of products do you anticipate could be listed by registered SBSEFs (

e.g.,

CDS on individual corporate bonds, CDS on individual sovereign bonds, CDS on individual securitized bonds, swaps on securities options, swaps on narrow-based securities indexes, total return swaps on individual cash equities or crypto/digital asset securities,

etc.

In the remainder of this release, the Commission describes its proposed registration and regulation regime for SBSEFs and SBS execution generally, and seeks comment on all aspects of its proposal. You are invited in particular to provide data and analysis regarding the economic and Paperwork Reduction Act (“PRA”) implications of this proposal. For example, the Commission seeks comment on the following:

6. If, in a particular area, the Commission were to harmonize closely with a CFTC rule, to what extent would this reduce, or perhaps eliminate entirely, any incremental costs or burdens on dually registered SEF/SBSEFs and their members?

7. Should the Commission impose any different or additive requirements? For example, are there any statutory or market differences that would create benefits from different or additive requirements? If the Commission imposes different or additive requirements, what would be the impact on dually registered SEF/SBSEFs and their members?

8. Are there provisions of the CFTC's rules the Commission should

not

incorporate, even if the Commission were to opt for harmonization with the CFTC's rules in other areas? In other words, are there areas where

not

harmonizing with a CFTC rule would reduce burdens on SBSEFs and/or their members? If so, please explain, with particular regard to the economic impacts and/or PRA burdens.

9. Do you believe that the Commission should adopt different or additive requirements for SBSEFs, even if there is no analog to such provisions in the CFTC's SEF rules? If so, please explain, with particular regards to the economic impacts and/or PRA burdens. For example, do you believe that the SEC-specific provision

would impose

additional costs or burdens on SBSEFs

and/or their members that are

nevertheless appropriate

in view of new and additional benefits? Or do you believe that an SEC-specific provision would be appropriate

because it would relieve costs or burdens

that are imposed on the swap business by a CFTC rule that is unnecessary or inappropriate in the SBS market?

10. If the Commission ultimately adopts SBSEF rules that are closely harmonized with the CFTC's SEF rules, do you believe this could result in ambiguities or potential conflicts between the SEC's SBSEF rules and the other SEC rules (pertaining, for example, to exchanges or alternative trading systems)? If so, please indicate where this might occur and suggest ways that the Commission could reduce these ambiguities or potential conflicts.

III. Approach to the Commission's Proposed Requirements Relating to Security-Based Swap Execution

Most of the rules proposed in this release are designed to implement provisions of section 3D of the SEA,

which is nearly identical to section 5h of the CEA.

As described in detail throughout this release, when the Commission is proposing a rule to implement a provision of section 3D of the SEA, that rule generally will harmonize as closely as practicable with the analogous CFTC rule, unless a reason exists to do otherwise.

Indeed, many of the rules proposed herein are adapted from the CFTC rules, with only minor changes to reflect differences in the Commission's statutory authority (

e.g.,

using the term “security-based swap” instead of “swap,” cross-referencing provisions of the SEA rather than the CEA,

etc.

). The Commission seeks to minimize occasions where differences in the wording between an SEC and a CFTC rule leads affected persons to believe that there is a difference in policy outcome, where no difference in outcome is intended.

15 U.S.C 78c-4.

7 U.S.C. 7b-3.

Other rules, however, are designed to address certain issues relating to SBSEFs that are specific to the SEA. These include proposed amendments to existing Rule 3a1-1 under the SEA, proposed new Rule 15a-12, and various proposed amendments to the Commission's Rules of Practice.

In cases where the Commission preliminarily believes that a reason exists for a proposed SEC rule to differ from an analogous CFTC rule, that reason is described and alternate rule language is proposed and explained. Here too, the Commission might be in general agreement with the policy behind the CFTC's rule, but it might not be practicable to closely track the CFTC rule language, for reasons that are specific to each instance and which will be discussed herein.

In proposing these rules, the Commission acknowledges that, in the abstract, there are a variety of ways of implementing a Core Principle or other policy goal where the benefits could justify the costs. Indeed, the Commission's 2011 SBSEF Proposal includes many such alternate ways that differ from the CFTC's current rules. But the CFTC's rules for SEF—and swap execution more generally—have significantly reshaped the swap market, and indirectly the SBS market. The fundamental principles of the CFTC's regulatory regime for SEFs and swap execution generally have established the existing environment, and any rules proposed by the SEC to implement the regulatory regime for SBSEFs and SBS execution more generally must be considered against the CFTC's regulatory regime. SEFs and swap market participants have invested significant resources in systems, policies, and procedures to comply with the CFTC's SEF rules. The Commission believes that the CFTC's rules are reasonably designed to implement section 5h of the CEA, which is nearly identical to section 3D of the SEA, and have been effective in practice in facilitating fair, transparent, and competitive trading on SEFs. By proposing similar rules for SEC-registered SBSEFs, the Commission seeks to obtain comparable regulatory benefits as the CFTC while minimizing costs imposed on SEF/SBSEFs and their members to the greatest extent practicable.

The Commission recognizes that an entity might elect to register as an SBSEF with the SEC but not as a SEF with the CFTC. In such case, an SEC-only registrant would not have any familiarity with the CFTC's rules and would not have made any investments in systems, policies, and procedures to comply with them. Nevertheless, because the Commission preliminarily believes that most if not all entities that will seek SBSEF registration with the SEC are or will also be registered as SEFs with the CFTC, such dual registrants would benefit from harmonized rules. Furthermore, if the Commission adopts these rules substantially as proposed, it likely would be unnecessary to establish and apply one set of rules for dual registrants and a different set for SEC-only SBSEFs.

Proposed Regulation SE follows the basic structure of part 37 of the CFTC's rules (17 CFR part 37). In the CFTC's rules, subpart A of part 37 (General Provisions) consists of §§ 37.1 to 37.12. Subparts B to P of part 37 implement the 15 Core Principles for SEFs set forth in the CEA and consist of §§ 37.100

et seq.

to 37.1500

et seq.

Proposed Rules 800 to 817 of Regulation SE are modelled on the “General Provisions” in subpart A, while proposed Rules 818 to 831 would implement the 14 Core Principles for SBSEFs set forth in the SEA. Proposed Rules 832 to 833 address cross-border matters that have no direct counterpart in the CFTC's rules applicable to SEFs. Proposed Rule 834 is designed to implement section 765 of the Dodd-Frank Act, which requires the Commission to adopt rules addressing conflicts of interest involving SBSEFs and SBS exchanges, as well as to harmonize with certain of the CFTC's governance rules. Proposed Rule 835 is designed to facilitate reviews of final disciplinary actions, denials or conditioning of membership, and denials or limitations of access by SBSEFs. In addition, the Commission is proposing a new subpart V to part 249 of the Commission's rules,

entitled “Forms for use by security-based swap execution facilities,” that would include proposed § 249.2001, setting forth Form SBSEF and its instructions, which would be used to register with the Commission as an SBSEF; and proposed § 249.2002, setting forth the submission cover sheet (with instructions) that would be required to accompany filings with the Commission made by SBSEFs for rule and rule amendments, product listings, and determinations to make an SBS available to trade.

Part 249 is entitled “Forms, Securities Exchange Act of 1934.”

Many parts of proposed Rules 800 to 817 are very similar in substance to §§ 37.1 to 37.12. Other parts of proposed Rules 800 to 817 are derived from CFTC rules that are referenced in subpart A of part 37 but located outside of part 37. For example, § 37.4 is a short rule entitled “Procedures for listing products and implementing rules.” Section 37.4 does not itself lay out the specific filing procedures for new products and new rules, but directs a SEF, after it has registered with the CFTC, to make such filings pursuant to part 40 (Provisions common to registered entities

). Key rules in part 40 include §§ 40.2 (Listing products for trading by certification), 40.3 (Voluntary submission of new products for Commission review and approval), 40.5 (Voluntary submission of rules for Commission review and

approval), and 40.6 (Self-certification of rules).

“Registered entity” is defined under the CEA to include a SEF.

See

7 U.S.C 1a(40).

To promote oversight of the SBS market and to assess that SBSEFs continue to operate in a manner consistent with the SEA, the Commission preliminarily believes that it would be appropriate to establish procedures whereby SBSEFs would submit filings to the Commission to list SBS products and to establish new rules, and that it would be appropriate to harmonize with the procedures that the CFTC applies to SEFs. These procedures are well articulated and well understood by SEFs, and appear to provide an effective process for establishing new rules and listing products. Therefore, the Commission is proposing Rules 804, 805, 806, and 807 that are closely modelled on relevant provisions of §§ 40.2, 40.3, 40.5, and 40.6, respectively. To implement such rules for SBSEFs and the SBS market, the Commission identifies only those parts of the CFTC rules that are most germane to the SBS market and adapts the wording accordingly.

In the detailed discussions of each of these proposed rules, the Commission seeks comment on whether its proposed rule is appropriately tailored for the SBS market, particularly for dually registered SEF/SBSEFs that would be complying with substantially similar filing procedures under CFTC rules, or whether the proposed rule incorporates a part of the CFTC rule that

is not

relevant to the SBS market or should have incorporated additional or different language that

more relevant.

Various provisions of part 40 apply to entities other than SEFs or relate to trading of products other than swaps.

See, e.g.,

§ 40.4 (Amendments to terms or conditions of enumerated agricultural products); § 40.11 (Review of event contracts based upon certain excluded commodities).

Regulation SE includes proposed rules modelled on CFTC rules found in Parts 16, 36, 37, 40, 45, and elsewhere. In some cases, these disparate CFTC rules from outside part 37 that the Commission is proposing to adapt into Regulation SE use different terms than in part 37 for what appears to be the same concept. To promote uniformity within Regulation SE, the Commission is proposing certain definitions for use throughout the regulation—in a dedicated definitions rule, proposed Rule 802—that will sometimes require the replacement of a term used in the CFTC version of a rule with a different, newly defined term in the proposed SEC version.

Any such changes in defined terms are noted below. Proposed Rule 802 also includes terms derived from the SEA and certain SEC rules thereunder.

For example, certain CFTC rules that the Commission is proposing to adapt into Regulation SE utilize the term “board of directors,” while other CFTC rules use the term “governing board.” The Commission is proposing to use the term “governing board” throughout Regulation SE and to define that term in proposed Rule 802 as the board of directors of an SBSEF, or for an SBSEF whose organizational structure does not include a board of directors, a body performing a function similar to a board of directors. This definition is closely modelled on the definition of “board of directors” found in § 37.1501(a) of the CFTC's rules.

Part 37 of the CFTC's rules includes an appendix B, which sets out guidance and acceptable practices for demonstrating compliance with several of the rules that implement the Core Principles for SEFs. These provisions are, by their terms, non-binding.

The Commission preliminarily believes that all of the provisions of Regulation SE should be enforceable. Therefore, the Commission is proposing to adapt some of the guidance and acceptable practices found in appendix B as proposed rule text in Regulation SE. As a result, some of the rules proposed in Regulation SE are a blend of the CFTC rule text with language adapted from the guidance and/or acceptable practices. Instances where this occurs in a particular rule will be noted below. The Commission requests comment on its overall approach to incorporating relevant portions of the part 37 guidance and acceptable practices into Regulation SE, as well as comment on how they are adapted in specific rules.

See

appendix B to part 37, introductory paragraph (1) (“The guidance for the core principle is illustrative only of the types of matters a swap execution facility may address, as applicable, and is not intended to be used as a mandatory checklist”).

In various places in the CFTC's SEF rules, the CFTC has delegated to its staff authority to perform various functions relating to SEFs on the CFTC's behalf. The Commission has not adapted any of these provisions into proposed Regulation SE and is not proposing any delegation-of-authority rules. The Commission may address delegations of its authority in the adopting release for Regulation SE.

Finally, in developing this proposal, the Commission has consulted and coordinated with the CFTC and the prudential regulators,

in accordance with the consultation mandate of the Dodd-Frank Act.

The Commission also has consulted and coordinated with foreign regulatory authorities through Commission staff participation in numerous bilateral and multilateral discussions with foreign regulatory authorities addressing the regulation of OTC derivatives markets.

Through these multilateral and bilateral discussions and the Commission staff's participation in various international task forces and working groups, the Commission has gathered information about foreign regulatory reform efforts and their effect on and relationship with the U.S. regulatory regime. The Commission has taken and will continue to take these discussions into consideration in developing rules, forms, and interpretations for implementing Title VII of the Dodd-Frank Act.

The term “prudential regulator” is defined in section 1a(39) of the CEA, 7 U.S.C. 1a(39), and that definition is incorporated by reference in section 3(a)(74) of the SEA, 15 U.S.C. 78c(a)(74).

Section 712(a)(2) of the Dodd-Frank Act provides in relevant part that the Commission shall “consult and coordinate to the extent possible with the Commodity Futures Trading Commission and the prudential regulators for the purposes of assuring regulatory consistency and comparability, to the extent possible.” In addition, section 752(a) of the Dodd-Frank Act provides in relevant part that “[i]n order to promote effective and consistent global regulation of swaps and security-based swaps, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the prudential regulators . . . as appropriate, shall consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation (including fees) of swaps.”

The Commission participates in a number of international bodies working on OTC derivatives reforms. For example, the Commission is a member of the International Organization of Securities Commissions (“IOSCO”) and the Commission staff participates on IOSCO's Committee on Derivatives. In addition, the Commission is a member of the Regulatory Oversight Committee, which serves as the international standard-setter for data elements and identifiers used in the reporting of OTC derivatives transactions.

IV. Introductory Provisions of Regulation SE

A. Rule 800—Scope

Proposed Rule 800 is based on § 37.1 of the CFTC's rules, which provides that part 37 applies to every SEF that is registered or applying to become registered as a SEF under section 5h of the CEA. Section 37.1 further provides that the rule does not affect the eligibility of SEFs to operate under the provisions of part 38 or 49 of the CFTC's rules.

Proposed Rule 800 would provide that the provisions of Regulation SE would apply to every SBSEF that is registered or is applying to become registered as an SBSEF under section 3D of the SEA.

B. Rule 801—Applicable Provisions

Proposed Rule 801 is based on § 37.2 of the CFTC's rules, which provides that a SEF shall comply with the requirements of part 37 and all other applicable CFTC regulations, including § 1.60 and part 9, and including any related definitions and cross-referenced

sections. Proposed Rule 801 would require an SBSEF to comply with the requirements of Regulation SE and all other applicable Commission rules, including any related definitions and cross-referenced sections.

C. Rule 802—Definitions

Proposed Rule 802 would set forth definitions of terms that are used in multiple rules in proposed Regulation SE. The majority of such terms are adapted from a CFTC rule. Other terms are taken from section 3 of the SEA

or from a Commission rule under the SEA. Where appropriate, the definition is discussed below in the context of the proposed rule where it is used.

15 U.S.C. 78c.

In particular, paragraph (w) of proposed Rule 802 which would define the term “security-based swap execution facility” by cross-referencing the definition of that term provided in section 3(a)(77) of the SEA,

but with one carve-out. An entity that is registered with the Commission as a clearing agency pursuant to section 17A of the SEA

and limits its SBSEF functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations would be exempt from the definition of “security-based swap execution facility.” This provision would codify a series of exemptions granted by the Commission to SBS clearing agencies that operate “forced trading” sessions.

As part of the clearing and risk management process, an SBS clearing agency must establish an end-of-day valuation for any SBS in which any of its members has a cleared position and will calculate margin based on that variation. Certain SBS clearing agencies utilize a valuation mechanism whereby they require clearing members to submit indicative quotes for those SBS products, and can require them to trade as a way to promote accurate quote submissions. The precise means by which the clearing agency matches quotes from different clearing members could cause the clearing agency to fall within the SEA definition of “exchange.” The Commission previously has found that it was necessary or appropriate in the public interest and consistent with the protection of investors to exempt clearing agencies that engage in this activity from the definition of “exchange.”

The Commission is now proposing to codify this exemption with respect to the both exchange and SBSEF registration.

15 U.S.C. 78c(a)(77).

15 U.S.C. 78q-1.

See, e.g., Order Granting Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With Request on Behalf of ICE U.S. Trust LLC Related to Central Clearing of Credit Default Swaps, and Request for Comments,

SEA Release No. 59527 (March 6, 2009), 74 FR 10791, 10796 (March 12, 2009) (providing,

inter alia,

an exemption from sections 5 and 6 of the SEA because “ICE Trust will periodically require ICE Trust Participants to execute certain CDS trades at the applicable end-of-day settlement price. Requiring ICE Trust Participants to trade CDS periodically in this manner is designed to help ensure that such submitted prices reflect each ICE Trust Participant's best assessment of the value of each of its open positions in Cleared CDS on a daily basis, thereby reducing risk by allowing ICE Trust to impose appropriate margin requirements”);

Order Extending and Modifying Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With Request of Chicago Mercantile Exchange Inc. Related to Central Clearing of Credit Default Swaps, and Request for Comments,

SEA Release No. 61164 (December 14, 2009), 74 FR 67258, 67262 (December 18, 2009) (providing,

inter alia,

an exemption from sections 5 and 6 of the SEA because, “[a]s part of the CDS clearing process, CME will periodically require CDS clearing members to trade at prices generated by their indicative settlement prices where those indicative settlement prices generate crossed bids and offers, pursuant to CME's price quality auction methodology”).

See id.

The Commission preliminarily believes that it is necessary or appropriate in the public interest, and is consistent with the protection of investors, to exempt a registered clearing agency from the definition of “security-based swap execution facility” that utilizes a forced trading functionality for SBS. Such an entity would continue to be registered as a clearing agency and subject to the requirements of section 17A of the SEA. Furthermore, a registered clearing agency is a self-regulatory organization (“SRO”); therefore, all of its rules—including those governing the forced trading session—would have to be submitted to the Commission pursuant to section 19 of the SEA. The Commission preliminarily believes, therefore, that codification of the exemption from the definitions of “exchange” and “security-based swap execution facility” would preserve the

status quo

and eliminate a largely duplicative and unnecessary set of regulatory requirements. This exemption would cover only the forced-trading functionality of an SBS clearing agency; any other exchange or SBSEF activity in which a clearing agency might engage could subject the clearing agency to the SEA provisions and the Commission's rules thereunder applying to exchanges or SBSEFs.

The Commission seeks comment on the following:

11. Do you believe that any definitions in proposed Rule 802 should be revised or clarified? If so, please indicate which one(s) and provide any suggested revisions or clarifications.

12. Are there any terms used in proposed Regulation SE that are not defined in proposed Rule 802 but which you believe should be defined? If so, which term(s) and how would you define them?

13. Do you agree with the proposed definition of “security-based swap execution facility”? In particular, do you believe that registered clearing agencies that operate forced trading sessions for SBS should be exempted from the definition of “security-based swap execution facility” entirely? Or do you believe instead that such entities should fall within the definition of “security-based swap execution facility” but be exempted from some or all registration and regulatory requirements that otherwise would apply to SBSEFs? Why?

V. Registration of SBSEFs

Section 3D(a)(1) of the SEA

provides that no person may operate a facility for the trading or processing of SBS

unless the facility is registered as an SBSEF or as a national securities exchange. After issuing the 2011 SBSEF Proposal, the Commission granted temporary exemptions pursuant to section 36(a)(1) of the SEA

to entities that meet the definition of “security-based swap execution facility” from having to register with the Commission as an SBSEF or national securities exchange (“Temporary SBSEF Exemptions”).

The Temporary SBSEF Exemptions will expire on the

compliance date for the Commission's final SBSEF rules.

15 U.S.C. 78c-4(a)(1).

The term “security-based swap” is defined in section 3(a)(68) of the SEA, 15 U.S.C. 78c(a)(68), to include, among other things, a swap that is based on a single security or loan, including any interest therein or on the value thereof. A single security could include, for example, a cash equity, a crypto/digital asset security, or a security option.

15 U.S.C. 78mm(a)(1).

See

SEA Release No. 64678 (June 15, 2011), 76 FR 36287 (June 22, 2011) (temporarily exempting entities that meet the definition of “security-based swap execution facility” from the requirement to register with the Commission as an SBSEF) (“June 2011 Exemptive Order”); SEA Release No. 64795 (July 1, 2011), 76 FR 39927 (July 7, 2011) (temporarily exempting entities that meet the definition of “security-based swap execution facility” from exchange registration and other requirements of sections 5 and 6 of the SEA) (“July 2011 Exemptive Order”). An entity that meets the definition of “security-based swap execution facility” is required to register as an SBSEF under section 3D of the SEA or as an exchange under sections 5 and 6 of the SEA. But because the Commission has not yet adopted final rules relating to SBSEFs, such entities cannot yet register with the Commission as SBSEFs. The Temporary SBSEF Exemptions allow such entities to continue trading SBS without needing to register either as SBSEFs or national securities exchanges before the compliance date of the SBSEF registration rules.

See

June 2011 Exemptive Order, 76 FR at 36293, 36306; July 2011 Exemptive Order, 76 FR at 39934, 39939. The July 2011 Exemptive Order also provided an exemption from the broker registration requirements of section 15(a)(1) of the SEA, 15 U.S.C. 78o(a)(1), and other requirements of the SEA and the Commission's rules thereunder that apply to a broker, solely in connection with broker activities involving SBS (the “Broker Exemptions”). The Broker Exemptions generally expired on October 6, 2021; however, because an entity that meets the definition of “security-based swap execution facility” also would also meet the definition of “broker” in section 3(a)(4) of the SEA, 15 U.S.C. 78c(a)(4), the Commission extended the Broker Exemptions solely for persons acting as an SBSEF until the expiration of the Temporary SBSEF Exemptions (

i.e.,

the compliance date for the Commission's final SBSEF rules).

See

SEA Release No. 87005 (September 19, 2019), 84 FR 68550, 68602 (December 16, 2019).

A. Rule 803—Requirements and Procedures for Registration

Rule 803 of Regulation SE is closely modelled on § 37.3 of the CFTC's rules and would set forth a process for registration with the Commission as an SBSEF.

Section 37.3(a)(1) provides that any person operating a facility that offers a trading system or platform in which more than one market participant has the ability to execute or trade swaps with more than one other market participant on the system or platform shall register the facility as a swap execution facility under this part or as a designated contract market (“DCM”) under part 38 of this chapter. Paragraph (a)(1) of proposed Rule 803 would track the language of § 37.3(a)(1) closely, except that a person meeting these criteria would be directed to register the facility under relevant provisions of the SEA rather than the CEA (

i.e.,

to register as an SBSEF under proposed Rule 803 or as a national securities exchange pursuant to section 6 of the SEA).

A person that registers with the Commission as a national securities exchange pursuant to section 6 of the SEA does not fall within the statutory definition of “security-based swap execution facility”

and thus would not need to register as an SBSEF under proposed Rule 803. Furthermore, as discussed below,

a person that registers as an SBSEF under proposed Rule 803 and provides a market place for no securities other than SBS would be exempt from the definition of “exchange”

and would not need to register as such pursuant to section 6 of the SEA. The SEA definitions of “exchange” and “security-based swap execution facility” overlap substantially. The Commission preliminarily believes that it is appropriate to subject a trading venue for SBS to only one regulatory regime. Thus, under proposed Regulation SE, if a trading venue for SBS elects to register as a national securities exchange, it would not fall within the statutory definition of “security-based swap execution facility” and would not have to register as an SBSEF.

If a trading venue for SBS elects to register as an SBSEF under proposed Rule 803 and provides a market place for no securities other than SBS, it would not—pursuant to a proposed amendment to Rule 3a1-1—fall within the statutory definition of “exchange” and would not have to register as an exchange.

See

section 3(a)(77) of the SEA, 15 U.S.C. 78c(a)(77) (defining “security-based swap execution facility” as “a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility that . . .

is not a national securities exchange”

(emphasis added).

See infra

section XII (discussing proposed paragraph (a)(4) of SEA Rule 3a1-1).

15 U.S.C. 78c(a)(1) (defining “exchange” as “any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange”).

However, a national securities exchange could elect to operate an SBSEF and separately register that SBSEF with the Commission.

See

section 3D(c) of the SEA, 15 U.S.C. 78c-4(c); proposed Rule 814.

Section 37.3(a)(2) of the CFTC's rules sets out the minimum trading functionality that must be offered by a SEF. A SEF must, at a minimum, offer an “order book.” Section 37.3(a)(3) defines “order book” to mean an electronic trading facility, as that term is defined in section 1a(16) of the CEA; a trading facility, as that term is defined in section 1a(51) of the CEA; or a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers.

Paragraph (a)(2) of proposed Rule 803, like § 37.3(a)(2), would require an SBSEF, at a minimum, to offer an order book. The Commission is proposing, like § 37.3(a)(3), to define “order book” in Rule 802 to mean an electronic trading facility, a trading facility, or a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers. Section 37.3(a)(3) defines “trading facility” and “electronic trading facility” by cross-referencing definitions of those terms in the CEA. Rather than cross-referencing the CEA, the Commission is proposing instead to adapt the CEA definitions of those terms directly into Rule 802.

The Commission preliminarily believes that it should harmonize as closely as possible with the CFTC on foundational terms such as “trading facility,” “electronic trading facility,” and “order book” because the CFTC's reliance on these terms over several years has created understanding of what type of functionality a SEF must offer. The Commission seeks to avoid a scenario where differences with the CFTC regarding these key definitions results in an entity's functionality being allowed under one agency's regime but disallowed under the other's.

See

proposed Rule 802.

Under § 37.3(a)(4), a SEF is not required to provide an order book for certain package transactions, although the SEF must provide an order book for a Required Transaction

when such Required Transaction is not executed as part of a package transaction. Paragraph (a)(3) of proposed Rule 803 is closely modelled on § 37.3(a)(4) and would provide a narrow exception to allow an SBSEF not to offer an order book for the SBS component(s) of a package transaction that contains a mix of products that both are and are not subject to the trade execution requirement.

As discussed below in section VII(E), the Commission is proposing to incorporate into Regulation SE the concepts of “Required Transaction” and “Permitted Transaction” in a manner closely modelled on the CFTC's use of those terms. A Required Transaction would be a transaction involving an SBS that is subject to the trade execution requirement.

Paragraph (b) of proposed Rule 803 is closely modelled on § 37.3(b) and would set out procedures for full registration of an SBSEF. Paragraph (b)(1), like § 37.3(b)(1), would provide that an applicant requesting registration must:

(i) File electronically a complete Form SBSEF or any successor forms, and all information and documentation described in such forms with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T; and

(ii) Provide to the Commission, upon the Commission's request, any additional information and documentation necessary to review an application.

Paragraph (b)(2) of proposed Rule 803, like § 37.3(b)(2), would provide that an

applicant requesting registration as an SBSEF must identify with particularity any information in the application that will be subject to a request for confidential treatment pursuant to Rule 24b-2 under the SEA.

Paragraph (b)(2) also would provide that, as set forth in proposed Rule 808, certain information provided in an application shall be made publicly available.

Section 37.3(b)(2), like many other provisions in the CFTC's SEF rules, states that a request for confidential treatment for parts of a required filing shall be made pursuant to § 145.9 of the CFTC's rules, which contains the CFTC's substantive requirements for requests for confidential treatment. Rather than adapting § 145.9 into proposed Regulation SE, the Commission instead is proposing that confidential treatment requests arising from SBSEF matters would be made and adjudicated pursuant to SEA Rule 24b-2, 17 CFR 240.24b-2. The Commission preliminarily believes that it is not necessary or appropriate to establish and utilize one set of procedures to handle confidential treatment requests made by SBSEFs while utilizing a different set of procedures for all other persons who request confidential treatment from the Commission under the SEA.

Paragraph (b)(3) of proposed Rule 803 would address amendments to the SBSEF registration application. Like § 37.3(b)(3), proposed Rule 803(b)(3) would provide that an applicant amending a pending application or requesting an amendment to an order of registration shall file an amended application electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. Subsequent to being registered, an SBSEF would be required to submit rule and product filings under Rule 806 or 807, as well as provide other updates as may be required pursuant to other rules for SBSEFs.

Paragraph (b)(4) of proposed Rule 803 would address the effect of an incomplete application. Like § 37.3(b)(4), proposed Rule 803(b)(4) would provide that, if an application is incomplete, the Commission shall notify the applicant that its application will not be deemed to have been submitted for purposes of the Commission's review.

Paragraph (b)(5) of proposed Rule 803 would establish the Commission review period for an application to register as an SBSEF. Proposed Rule 803(b)(5) is closely modelled on § 37.3(b)(5) and would require the Commission to approve or deny an application for registration as an SBSEF within 180 days of the filing of the application. Proposed Rule 803(b)(5) would further provide that, if the Commission notifies the person that its application is materially incomplete and specifies the deficiencies in the application, the running of the 180-day period would be stayed from the time of such notification until the application is resubmitted in completed form. In such case, the Commission would have not less than 60 days to approve or deny the application from the time the application is resubmitted in completed form.

Paragraph (b)(6)(i) of proposed Rule 803, like § 37.3(b)(6)(i), would provide that the Commission shall issue an order granting registration upon a Commission determination, in its own discretion, that the applicant has demonstrated compliance with the SEA and the Commission's rules applicable to SBSEFs. Paragraph (b)(6)(i) would allow the Commission to issue an order granting registration, subject to conditions. Paragraph (b)(6)(ii) of proposed Rule 803, modelled on § 37.3(b)(6)(ii), would provide that the Commission may issue an order denying registration upon a Commission determination, in its own discretion, that the applicant has not demonstrated compliance with the SEA and the Commission's rules applicable to SBSEFs. If the Commission denies an application under proposed Rule 803(b)(6)(ii), it would be required to specify the grounds for the denial.

Paragraph (c) of § 37.3, which allows the CFTC to grant SEFs temporary registration under certain conditions, was adopted with a sunset provision that generally terminated the applicability of the paragraph two years after it became effective in August 2013.

Because this provision is now obsolete, the Commission is not proposing an equivalent provision in Regulation SE.

See

§ 37.3(c)(5). Notwithstanding the general sunset provision, SEFs that applied for temporary registration before the termination date were permitted to continue operating if they had not yet been either granted or denied full registration by that date.

See id.

Paragraph (c) of proposed Rule 803, like § 37.3(d), would address reinstatement of a dormant registration. Proposed Rule 803(c) would provide that a dormant SBSEF

may reinstate its registration under the procedures of proposed Rule 803(b). Proposed Rule 803(c) would further provide that the applicant may rely upon previously submitted materials if such materials accurately describe the dormant SBSEF's conditions at the time that it applies for reinstatement of its registration.

See

proposed Rule 802 (defining “dormant security-based swap execution facility” to mean “a security-based swap execution facility on which no trading has occurred for the previous 12 consecutive calendar months; provided, however, that no security-based swap execution facility shall be considered to be a dormant security-based swap execution facility if its initial and original Commission order of registration was issued within the preceding 36 consecutive calendar months”). This proposed definition is modelled on the definition of “dormant swap execution facility” found in § 40.1(f).

Paragraph (d) of proposed Rule 803, like § 37.3(e), would set out procedures for an SBSEF to request a transfer of registration. Paragraph (d)(1), which is closely modelled on § 37.3(e)(1), would provide that an SBSEF seeking to transfer its registration from its current legal entity to a new legal entity as a result of a corporate change shall file a request for approval to transfer such registration with the Commission in the form and manner specified by the Commission. Paragraph (d)(2), modelled on § 37.3(e)(2), would provide that a request for transfer of registration shall be filed no later than three months prior to the anticipated corporate change; or in the event that the SBSEF could not have known of the anticipated change three months prior to the anticipated change, as soon as it knows of such change.

Paragraph (d)(3) of proposed Rule 803, like § 37.3(e)(3), would require an SBSEF's request for transfer of registration to include the following:

• The underlying agreement that governs the corporate change;

• A description of the corporate change, including the reason for the change and its impact on the SBSEF, including its governance and operations, and its impact on the rights and obligations of members;

Here, and at several other places in § 37.3(e)(3), the CFTC uses the term “market participants” rather than “members.” However, there are other places in the CFTC's rules that are being adapted by the Commission into proposed Regulation SE that use the term “member” synonymously with “market participant.” When the context suggests that a rule is addressing participants of a particular SBSEF market, rather than market participants in the abstract, the Commission is proposing to use the term “member” throughout Regulation SE.

• A discussion of the transferee's ability to comply with the SEA, including the core principles applicable to SBSEFs and the Commission's rules thereunder;

• The governing documents of the transferee, including, but not limited to, articles of incorporation and bylaws;

• The transferee's rules marked to show changes from the current rules of the SBSEF;

• A representation by the transferee that it:

○ Will be the surviving entity and successor-in-interest to the transferor SBSEF and will retain and assume, without limitation, all of the assets and liabilities of the transferor;

○ Will assume responsibility for complying with all applicable

provisions of the SEA and the Commission's rules thereunder;

○ Will assume, maintain, and enforce all rules implementing and complying with the core principles applicable to SBSEFs, including the adoption of the transferor's rulebook, as amended in the request, and that any such amendments will be submitted to the Commission pursuant to proposed Rules 806 or 807;

○ Will comply with all regulatory responsibilities

except if otherwise indicated in the request, and will maintain and enforce all regulatory programs; and

The equivalent provision in § 37.3(e)(3)(vi)(D) requires a representation from the transferee that it “[w]ill comply with all

self

-regulatory responsibilities except if otherwise indicated in the request, and will maintain and enforce all

self

-regulatory programs” (emphasis added). SBSEFs are not SROs under the SEA and therefore do not have self-regulatory responsibilities or self-regulatory programs.

○ Will notify members of all changes to the transferor's rulebook prior to the transfer and will further notify members of the concurrent transfer of the registration to the transferee upon Commission approval and issuance of an order permitting this transfer.

• A representation by the transferee that upon the transfer:

○ It will assume responsibility for and maintain compliance with core principles for all SBS previously made available for trading through the transferor, whether by certification or approval; and

○ None of the proposed rule changes will affect the rights and obligations of any member.

Paragraph (d)(4) of proposed Rule 803, modelled on § 37.3(e)(4), would provide that, upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request.

Paragraph (e) of proposed Rule 803, like § 37.3(f), would provide that an applicant for registration as an SBSEF may withdraw its application by filing a withdrawal request electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T.

Proposed Rule 803(e) would further provide that withdrawal of an application for registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the application was pending with the Commission.

17 CFR 232.405. The proposed electronic filing requirement discussed above does not appear in the CFTC version of this provision. The Commission is adding this specification to implement the Inline XBRL and EDGAR electronic filing requirements for certain documents required by proposed Regulation SE.

See infra

section XV.

Paragraph (f) of proposed Rule 803, like § 37.3(g), would provide that an SBSEF may request that its registration be vacated by filing a vacation request electronically with the Commission using the EDGAR system and must be provided as an Interactive Data File in accordance with Rule 405 of Regulation S-T at least 90 days prior to the date that the vacation is requested to take effect. Section 37.3(g) provides that a registration may be vacated under section 7 of the CEA. Since the Commission does not operate under the CEA, the Commission is proposing to adapt relevant language from section 7 of the CEA directly into proposed Rule 803(f). Thus, proposed Rule 803(f) would continue as follows, with language taken from section 7 italicized and language taken from § 37.3(g) in regular text: “

Upon receipt of such request, the Commission shall promptly order the vacation to be effective upon the date named in the request and send a copy of the request and its order to all other security-based swap execution facilities, SBS exchanges, and registered clearing agencies that clear security-based swaps.

Vacation of registration shall not affect any action taken or to be taken by the Commission based upon actions, activities, or events occurring during the time that the security-based swap execution facility was registered by the Commission.

From and after the date upon which the vacation became effective the said security-based swap execution facility can thereafter be registered again by applying to the Commission in the manner provided in paragraph (b) of this section for an original application.”

The Commission seeks comment on the following:

14. Do you believe in general that the Commission should closely harmonize the rules for SBSEF registration with the CFTC's rules for SEF registration? Why or why not?

15. In particular, do you agree with the language that the Commission is proposing to adapt from § 37.3 (Requirements and procedures for registration) into Rule 803? If not, what language would you delete or revise, and why?

16. Do you believe that the Commission should harmonize the application procedures and timeframes in proposed Rule 803 with § 37.3 of the CFTC's rules? Why or why not? Are there aspects of § 37.3 that you believe are not necessary or appropriate to incorporate into Rule 803? If so, please describe. Are there different or additional requirements that the Commission should include in Rule 803 that are not included in § 37.3? If so, please describe.

17. Do you believe that any provisions of § 37.3(c) relating to temporary registration are still relevant and should be adapted into Rule 803? If so, which provisions and why?

18. Do you believe in general that proposed Rule 803 should include provisions relating to vacation of an SBSEF registration? If so, do you agree with the specific language adapted by the Commission from section 7 of the CEA and § 37.3(g) into proposed Rule 803(f)? If not, how would you revise that language?

B. Form SBSEF

As new § 249.2001, the Commission is proposing Form SBSEF, the application form for an entity to register with the Commission as an SBSEF. The proposed form would also be used for submitting any updates, corrections, or supplemental information to a pending application for registration. Proposed Form SBSEF is closely modelled on the CFTC's Form SEF for entities that seek to register with the CFTC as SEFs, with only minor changes to remove the concept of post-registration amendments, as the proposed rule would not require any amendments to Form SBSEF post-registration. The exhibits being proposed along with Form SBSEF are very similar to the exhibits in Form SEF. Like with Form SEF, each applicant submitting a Form SBSEF would be required to provide the Commission with documents and descriptions pertaining to its business organization, financial resources, and compliance program, including various documents describing the applicant's legal and financial status. An applicant would be required to disclose any affiliates and provide a brief description of the nature of the affiliation, and submit copies of any agreements between the SBSEF and third parties that would assist the applicant in complying with its duties under the SEA. In addition, an applicant would be required to demonstrate operational capability through documentation, including technical manuals and third-party service provider agreements.

Under proposed Rule 803(b)(1), an applicant for SBSEF registration would be required to complete Form SBSEF and provide, upon the Commission's request, any additional necessary information and documentation in order review the application. The determination as to when an application submission is complete would be at the sole discretion of the Commission. The Commission would review Form SBSEF

and, at the conclusion of its review, by order either: (i) Grant registration; (ii) deny the application for registration; or (iii) grant registration subject to certain conditions. After an applicant is granted registration, any updates or amendments to the information contained in its Form SBSEF by an active SBSEF would be required to be submitted as rules or rule amendments under proposed Rule 806 or 807 or as may be required by other rules in Regulation SE.

The CFTC's process for registering SEFs appears well understood by the industry and well designed for being adapted to the SBS market. Therefore, the Commission is using the CFTC's process as a basis for its own process for registering SBSEFs. Assuming that most if not all SBSEFs will be dually registered as SEFs, the Commission preliminarily believes that it is not necessary to require the same registrant to provide relevant information in one manner to the Commission if the CFTC requires it in a different manner.

The Commission seeks comment on the following:

19. Are there parts of Form SEF that you believe are not necessary or appropriate to incorporate into Form SBSEF? If so, please describe.

20. Are there different or additional requirements that the Commission should include in Form SBSEF that are not included in Form SEF? If so, please describe. What would be the benefits and costs of requiring that information in Form SBSEF that is not required by the CFTC in Form SEF?

C. Abbreviated Registration Procedures for CFTC-Registered SEFs

Many of the entities that will seek registration with the Commission as SBSEFs are already registered with the CFTC as SEFs. Entities that seek dual registration presumably see efficiencies in utilizing the same systems, policies, and procedures to trade both swaps and SBS. As noted throughout this release, the Commission seeks to harmonize the SBSEF regulatory regime as closely as practicable with the CFTC's SEF regulatory regime, achieving similar regulatory benefits as the CFTC regime while imposing only marginal costs on dually-registered SEF/SBSEFs and their members. If the Commission ultimately adopts SBSEF rules that are closely harmonized with those of the CFTC, SEFs that seek dual registration with the SEC would likely need to make only minor adjustments to their rules and trading procedures to support trading of SBS in addition to the trading of swaps. The Commission preliminarily believes that whether an entity is registered as a SEF and in good standing with the CFTC is relevant when considering its application to register as an SBSEF, and that an abbreviated registration for CFTC-registered SEFs is appropriate. Furthermore, the Commission is preliminarily considering that, after adopting final rules establishing a registration process for SBSEFs, it could exercise its exemptive authority under section 36(a)(1) of the SEA

to relax or eliminate entirely certain of the registration requirements for entities that are already registered as SEFs with the CFTC.

15 U.S.C. 78mm(a)(1).

The Commission seeks comment on the following:

21. Do you believe in general that the Commission should utilize its authority under section 36(a)(1) of the SEA to establish an abbreviated procedure for entities wishing to register as SBSEFs that are already registered with the CFTC as SEFs? Why or why not?

22. If so, what registration requirements should the Commission relax or eliminate entirely for entities seeking dual registration?

VI. Rule and Product Filings by SBSEFs

Unlike section 19(b) of the SEA,

which sets out a process whereby national securities exchanges and other SROs submit filings to the Commission to add, delete, or amend rules (including rules to list products), section 3D of the SEA

does not set out an equivalent process for SBSEFs. It can be expected, however, that an SBSEF will seek to change its rules over time in order, for example, to implement new trading methodologies and to expand its product offerings, with the intent to make its market more attractive to participants. The Commission preliminarily believes, therefore, that some review process is necessary to assess whether such changes to an SBSEF's rules and product offerings are consistent with section 3D of the SEA and the Commission's rules thereunder. The Commission preliminarily believes that the CFTC's filing procedures are an appropriate model on which to base its own filing procedures. Furthermore, because of the likelihood that most if not all SBSEFs will be dually registered with the CFTC as SEFs and that many rule changes for a dual registrant will affect both its SBS and swap trading businesses, close harmonization with the CFTC's filing procedures would allow a dual registrant to make a similar filing to each agency, allowing each agency to carry out its oversight functions while minimizing the burdens on dual registrants.

15 U.S.C. 78s(b).

15 U.S.C. 78c-4.

Parts 37 and 40 of the CFTC's rules set out processes whereby SEFs may establish or amend rules and list products. In short, these processes allow a SEF to voluntarily submit a rule, rule amendment, or new product for CFTC review and approval, or to “self-certify” that a rule, rule amendment, or new product meets applicable standards under the CEA and the CFTC's rules thereunder without obtaining CFTC approval, although the CFTC retains the ability, in certain circumstances, to stay the self-certification for further review before it may become effective. Using its general authority to impose any requirement on SBSEFs and to prescribe rules governing the regulation of SBSEFs,

the Commission is proposing to establish similar filing processes for registered SBSEFs in proposed Rules 804 to 810 of Regulation SE.

See

15 U.S.C. 78c-4(d)(1)(A)(ii) (requiring an SBSEF, to be registered and to maintain registration, to comply with any requirement that the Commission may impose by rule or regulation); 15 U.S.C. 78c-4(f) (directing the Commission to prescribe rules governing the regulation of SBSEFs).

A. Rule 804—Listing Products for Trading by Certification

Proposed Rule 804 is modelled on § 40.2 of the CFTC's rules and would set forth procedures by which an SBSEF may list a product via certification.

§ 40.2(a) specifies the filing requirements for DCMs and SEFs to certify a product for listing. Paragraph (a) of proposed Rule 804 would adapt these requirements for SBSEFs, with one exception, as explained in the next paragraph. Paragraph (a)(1) of proposed Rule 804 would require an SBSEF to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T.

Paragraph (a)(2) of proposed Rule 804 would provide that the Commission must receive the submission by the open of business on the business day that is ten business days preceding the product's listing. By contrast, the parallel provision in § 40.2(a) provides that a DCM or SEF must file the self-certification only one business day before listing the product.

The Commission preliminarily believes that a ten-business-day review period for self-certified SBS products before they can be listed strikes a reasonable balance between allowing SBSEFs to bring new products to market quickly while affording the Commission staff a

reasonable period in which to assess them prior to listing. The Commission is concerned that one business day would not provide the SEC staff sufficient time to review a new product, especially a novel or complex product that might be difficult to analyze. As discussed below, the Commission is proposing that it could stay a product for reasons similar to those in the CFTC's stay provision. If a product does warrant a stay, the Commission also would need sufficient time to go through the administrative steps of formally issuing the stay. The proposed ten-business-day review period for self-certified products accords with the CFTC's ten-business-day review period for self-certified rules,

which the Commission is proposing to replicate in Rule 807(a)(3).

See

§ 40.2(a)(2) (one of the conditions for a valid self-certification of a product is that the CFTC has received the submission by the open of business on the business day preceding the product's listing).

See

§ 40.6(a)(3) (one of the conditions for a valid self-certification of a rule or rule amendment is that the CFTC has received the submission not later than the open of business on the business day that is ten business days prior to the registered entity's implementation of the rule or rule amendment).

See infra

section VI(D).

Paragraph (a)(3) of proposed Rule 804 would require a self-certification to include:

(1) A copy of the submission cover sheet;

The Commission is proposing, in new § 249.2002, a submission cover sheet (with instructions) that is closely modelled on the CFTC's submission cover sheet.

(2) A copy of the product's rules, including all rules related to its terms and conditions;

(3) The intended listing date;

(4) A certification by the SBSEF that the product to be listed complies with the SEA and the Commission's rules thereunder;

(5) A concise explanation and analysis of the product and its compliance with applicable provisions of the SEA, including core principles, and the Commission's rules thereunder. This explanation and analysis shall either be accompanied by the documentation relied upon to establish the basis for compliance with applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources;

(6) A certification that the SBSEF posted a notice of pending product certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF's website;

and

Under proposed Rule 804(a)(3)(vi), information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF's website but would have to be republished consistent with any determination made by the Commission pursuant to SEA Rule 24b-2.

(7) A request for confidential treatment, if appropriate, as permitted pursuant to SEA Rule 24b-2.

Section 40.2(a)(3) instructs filers to make any request for confidential treatment pursuant to § 40.8 of the CFTC's rules, which in turn cross-references § 145.9. The Commission is proposing instead to direct filers to make any request for confidential treatment pursuant to existing SEA Rule 24b-2.

See supra

note 50.

Paragraph (b) of proposed Rule 804, modelled on § 40.2(b), would provide that, if requested by Commission staff, an SBSEF shall provide any additional evidence, information, or data that demonstrates that the SBS meets, initially or on a continuing basis, the requirements of the SEA or the Commission's rules or policies thereunder.

Section 40.2(c) provides that the CFTC may stay the listing of a contract pursuant to paragraph (a) of this section during the pendency of CFTC proceedings for filing a false certification or during the pendency of a petition to alter or amend the contract terms and conditions pursuant to section 8a(7) of the CEA. The SEA does not include the CEA's provisions regarding altering or amending the terms and conditions of an SBS listed by an SBSEF like the authority granted to the CFTC with respect to products listed by SEFs, such that the Commission would be able to stay the listing of an SBS that it believes may be inconsistent with the SEA, pending proceedings to exercise that authority. Nor are proceedings for false certification of an SBS contemplated by the SEA. For this reason, in lieu of harmonizing with § 40.2(c), the Commission is proposing, in Rule 804(c), a provision that would allow the Commission to stay the certification of a new product in the same manner that proposed Rule 807(c)—which, as described below, is itself based on § 40.6(c) of the CFTC rules—would allow the Commission to stay the self-certifications of a new rule or rule amendment.

The Commission also is not proposing to adapt—either in Rule 807 or here in Rule 804—§ 40.6(c)(4), which relates to rules already implemented and permits the CFTC to stay the effectiveness of such rules during the pendency of proceedings for filing a false certification or of a petition to alter or amend the rule pursuant to section 8a(7) of the CEA.

Thus, paragraph (c)(1) of proposed Rule 804 would provide that the Commission may stay the certification of a new product by issuing a notification informing the SBSEF that the Commission is staying the certification on the grounds that the product presents novel or complex issues that require additional time to analyze, is accompanied by an inadequate explanation, or is potentially inconsistent with the SEA or the Commission's rules thereunder. Under paragraph (c)(1), the Commission would have an additional 90 days from the date of the notification to conduct the review. Paragraph (c)(2) would require the Commission to provide a 30-day comment period during that 90 days, and to publish a notice of the 30-day comment period on the Commission's website. Comments from the public could be submitted as specified in that notice. Paragraph (c)(3) would provide that the product that had been stayed would become effective, pursuant to the certification, at the expiration of the 90-day review period, unless the Commission withdraws the stay prior to that time, or the Commission notifies the SBSEF during the 90-day time period that it objects to the proposed certification on the grounds that the proposed product is inconsistent with the SEA or the Commission's rules.

Paragraph (d) of § 40.2 provides that a DCM or SEF may submit a class certification of swaps based on an “excluded commodity,”

subject to certain conditions. The proposed rules do not provide for class certification of any SBS although, as noted below, the Commission seeks commenters' views on whether the concept of class certification would be appropriate for SBSEFs.

See

section 1a(19) of the CEA, 7 U.S.C. 1a(19) (defining “excluded commodity”).

The Commission preliminarily believes that proposed Regulation SE should allow SBSEFs to introduce new SBS products to their market places as speedily as practicable while affording the Commission an effective mechanism to assess their consistency with section 3D of the SEA. The Commission preliminarily believes that the CFTC's self-certification procedures are well articulated and well understood by SEFs, and that harmonizing with these procedures for new product filings by SBSEF would yield comparable regulatory benefits while minimizing burdens on SBSEFs. At the same time, the Commission preliminarily believes that, for the reasons noted above, a ten-business-day pre-listing review period is more appropriate than a one-business-day review period for self-certified SBS products.

The Commission seeks comment on the following:

23. Do you believe in general that Regulation SE should include a rule that allows SBSEFs to list products for trading by certification? Why or why not?

24. In particular, should the Commission establish a procedure for listing SBS products for trading by certification by harmonizing closely with § 40.2 of the CFTC's rules? Why or why not?

25. Do you agree with the ten-business-day pre-listing review period for self-certified products in proposed Rule 804(a)(2) instead of the CFTC's one-business-day review period? Why or why not? What economic harm might an SBSEF and/or its members suffer if the Commission ultimately adopted a review period other than one business day? If you believe that the Commission should adopt a review period of greater than one day (but other than ten), please explain.

26. Do you believe that the Commission should adapt the concept of class certification from § 40.2(d) into proposed Rule 804? Why or why not? If so, how do you believe a “class” should be defined for purposes of listing SBS products on an SBSEF? Should there be any conditions for class certification? If so, what conditions and why?

27. Are there any provisions of proposed Rule 804 that the Commission has adapted from § 40.2 that you believe would be inappropriate, or would not create any benefit, in a Commission rule to establish procedures for SBSEFs to list SBS products for trading by certification? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

28. Do you believe that proposed Rule 804(c), relating to stays of product certifications, mirroring the Commission's proposed provisions relating to stays of self-certifications of new rules, is appropriate and workable? Why or why not? If not, what alternatives, if any, should be considered to enable the Commission to stay product certifications that it believes pose issues with respect to consistency with the SEA?

B. Rule 805—Voluntary Submission of New Products for Commission Review and Approval

Proposed Rule 805 is closely modelled on § 40.3 of the CFTC's rules and would set forth procedures by which an SBSEF may voluntarily submit new SBS products for Commission review and approval.

Section 40.3(a) provides that a SEF or DCM may request the CFTC to approve a new or dormant product prior to listing it for trading, and sets out the filing requirements. Paragraph (a) of proposed Rule 805 would adapt these requirements for SBSEFs. First, an SBSEF would be required to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. The filing also would have to include a copy of the submission cover sheet, a copy of the rules that set forth the terms and conditions of the SBS to be listed, and an explanation and analysis of the product and its compliance with applicable provisions of the SEA, including the Core Principles and the Commission's rules thereunder.

The submission also would have to describe any agreements or contracts entered into with other parties that enable the SBSEF to carry out its responsibilities.

This explanation and analysis would have to either be accompanied by the documentation relied upon to establish the basis for compliance with the applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources.

Furthermore, paragraph (a) of proposed Rule 805, modelled on § 40.3(a), would require the SBSEF to include, if requested by Commission staff, additional evidence, information, or data demonstrating that the SBS meets, initially or on a continuing basis, the requirements of the SEA, or other requirement for registration under the SEA, or the Commission's rules or policies thereunder. The SBSEF would be required to submit the requested information by the open of business on the date that is two business days from the date of request by Commission staff, or at the conclusion of such extended period agreed to by Commission staff after timely receipt of a written request from the SBSEF. Paragraph (a) of proposed Rule 805, like § 40.3(a), would permit the submitting SBSEF to include a request for confidential treatment regarding portions of its application.

Finally, paragraph (a) of proposed Rule 805, like § 40.3(a), would require the SBSEF to certify that it posted a notice of its request for Commission approval of the new product and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF's website.

Section 40.3(a), like § 40.2(a)(3), instructs filers to make any request for confidential treatment pursuant to § 40.8 of the CFTC's rules, which in turn cross-references § 145.9. As noted previously, the Commission proposes instead to direct filers to make any request for confidential treatment pursuant to SEA Rule 24b-2.

See supra

note 50.

Information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF's website but would have to be republished consistent with any determination made by the Commission pursuant to SEA Rule 24b-2.

Paragraph (a) of proposed Rule 805 would omit two provisions in § 40.3(a). First, § 40.3(a)(6) requires the submitting entity to include the certifications required in § 41.22 for product approval of a commodity that is a security future or a security futures product, as defined in sections 1a(44) or 1a(45) of the CEA, respectively. The Commission is not adapting this provision into proposed Regulation SE because it pertains to security futures and security futures products, not to swaps or SBS. Second, § 40.3(a)(8) requires the submitting entity to include a filing fee. The Commission is not proposing to charge SBSEFs filing fees for submitting new product proposals.

Paragraph (b) of proposed Rule 805, like § 40.3(b), would provide that the Commission shall approve a new product unless the terms and conditions of the product violate the SEA or the Commission's rules thereunder.

Paragraph (c) of proposed Rule 805, modelled on § 40.3(c), would provide that a product submitted for Commission approval under Rule 805 shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of an extended period as provided under proposed Rule 805(d), unless notified otherwise within the applicable period, if the submission complies with the requirements of Rule 805(a) and the SBSEF does not amend the terms or conditions of the product or supplement the request for approval, except as requested by the Commission or for correction of typographical errors, renumbering, or other non-substantive revisions, during that period. Paragraph (c) also would provide that any voluntary, substantive amendment by the SBSEF would be treated as a new submission under Rule 805.

Paragraph (d) of proposed Rule 805, modelled on § 40.3(d), would provide that the Commission may extend the 45-day review period in paragraph (c) for an additional 45 days, if the product raises novel or complex issues that require additional time to analyze, in which case the Commission shall notify the SBSEF within the initial 45-day review period and briefly describe the nature of the specific issue(s) for which additional time for review is required. Paragraph (d) also would provide that the Commission may extend the 45-day review period for any length of time to which the SBSEF agrees in writing.

Paragraph (e) of proposed Rule 805 would provide that the Commission, at any time during its review, may notify the SBSEF that it will not, or is unable to, approve the product. This notification would have to briefly specify the nature of the issues raised and the specific provision of the SEA or

the Commission's rules thereunder, including the form or content requirements of proposed Rule 805(a), that the product violates, appears to violate, or potentially violates but which cannot be ascertained from the submission. Paragraph (f) of proposed Rule 805, like § 40.3(f), would provide that such notification of the Commission's determination not to approve a product does not prejudice the SBSEF from subsequently submitting a revised version of the product for Commission approval, or from submitting the product as initially proposed pursuant to a supplemented submission. Furthermore, such notification would be presumptive evidence that the entity may not truthfully certify under proposed Rule 804 that the same, or substantially the same, product does not violate the SEA or the Commission's rules thereunder.

The Commission preliminarily believes that it is reasonable and appropriate to supplement the product certification procedures in proposed Rule 804 by also including in Regulation SE, as proposed Rule 805, procedures for voluntary submission of new products for Commission review and approval. The Commission preliminarily believes that providing this approval process, as the CFTC does, can be valuable to an SBSEF seeking the Commission's concurrence that a new product is in compliance with the SEA prior to listing it. The Commission preliminarily believes that the CFTC's procedures in this regard are well articulated and well understood by SEFs, and that closely harmonizing with these procedures would yield comparable regulatory benefits while minimizing burdens on SBSEFs.

The Commission does not discount the possibility that an entity might elect to register as an SBSEF with the SEC but not as a SEF with the CFTC. In such case, the SEC-only registrant would not have any familiarity with the CFTC's rules and filing procedures. Nevertheless, because the Commission preliminarily believes that most if not all entities that will seek SBSEF registration with the SEC are or will also be registered as SEFs with the CFTC, such dual registrants would benefit from harmonized procedures. Furthermore, if the Commission ultimately adopts these procedures substantially as proposed, it likely would be unnecessary to establish and apply one set of procedures for dual registrants and a different set for SEC-only SBSEFs.

The Commission requests comment on the following:

29. Do you believe in general that Regulation SE should include a rule setting forth procedures for an SBSEF to voluntarily submit new SBS products for Commission review and approval? Why or why not?

30. In particular, should the Commission adopt procedures for voluntary submission of new SBS products for Commission review and approval by harmonizing closely with § 40.3 of the CFTC's rules? Why or why not?

31. Are there any provisions of § 40.3 that are adapted into proposed Rule 805 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

C. Rule 806—Voluntary Submission of Rules for Commission Review and Approval

Proposed Rule 806 is closely modelled on § 40.5 of the CFTC's rules and would set forth procedures by which an SBSEF may voluntarily submit rules, rule amendments, or dormant rules for Commission review and approval.

Section 40.5(a) provides that a registered entity, including a SEF, may request that the CFTC approve a new rule, rule amendment, or dormant rule and sets out the filing requirements. Paragraph (a) of proposed Rule 805 would adapt these requirements for SBSEFs. First, an SBSEF would be required to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. The filing also would have to include a copy of the submission cover sheet and set forth the text of the rule or rule amendment (in the case of a rule amendment, deletions and additions must be indicated). Further, the SBSEF would be required to describe the proposed effective date of the rule or rule amendment and any action taken or anticipated to be taken to adopt the proposed rule by the SBSEF or by its governing board or by any committee thereof, and cite the rules of the SBSEF that authorize the adoption of the proposed rule. The SBSEF also would be required to provide an explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the SEA, including the core principles relating to SBSEFs and the Commission's rules thereunder, and, as applicable, a description of the anticipated benefits to market participants or others, any potential anticompetitive effects on market participants or others, and how the rule fits into the SBSEF's framework of regulation.

Moreover, the SBSEF would be required to provide additional information which may be beneficial to the Commission in analyzing the new rule or rule amendment. If a proposed rule affects, directly or indirectly, the application of any other rule of the SBSEF, the pertinent text of any such rule would have to be set forth and the anticipated effect described. The SBSEF also would be required to provide a brief explanation of any substantive opposing views expressed to the SBSEF by governing board or committee members, members of the SBSEF, or market participants that were not incorporated into the rule, or a statement that no such opposing views were expressed.

The SBSEF could request confidential treatment for portions of its submission, as permitted by SEA Rule 24b-2. Finally, the SBSEF would have to certify that it posted a notice of the pending rule with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF's website.

Information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF's website, but would have to be republished consistent with any determination made pursuant to SEA Rule 24b-2.

Paragraph (b) of proposed Rule 806, modelled on § 40.5(b), would provide that the Commission shall approve a new rule or rule amendment unless the rule or rule amendment is inconsistent with the SEA or the Commission's rules thereunder. Paragraph (c) of proposed Rule 806, like § 40.5(c), would provide that a rule or rule amendment submitted for Commission approval under Rule 806 shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of such extended period as provided under paragraph (d) of this section, unless the SBSEF is notified otherwise within the applicable period, if the submission complies with the requirements of proposed Rule 806(a) and the SBSEF does not amend the proposed rule or supplemented the submission, except as requested by the Commission, during the pendency of the review period, other than for correction of typographical errors, renumbering, or other non-substantive revisions. Paragraph (c) also would provide that any amendment or supplementation not requested by the Commission would be treated as the submission of a new filing under Rule 806.

Paragraph (d) of proposed Rule 806, modelled on § 40.5(d), would provide that the Commission may further extend the review period in paragraph (c) for an additional 45 days, if the proposed rule

or rule amendment raises novel or complex issues that require additional time for review or is of major economic significance, the submission is incomplete, or the requestor does not respond completely to Commission questions in a timely manner, in which case the Commission shall notify the submitting SBSEF within the initial 45-day review period and shall briefly describe the nature of the specific issues for which additional time for review shall be required. Paragraph (d) also would allow an extension to which the SBSEF agrees in writing.

Paragraph (e) of proposed Rule 806, like § 40.5(e), would provide that, at any time during its review, the Commission may notify the SBSEF that it will not, or is unable to, approve the new rule or rule amendment. This notification would have to briefly specify the nature of the issues raised and the specific provision of the SEA or the Commission's rules thereunder, including the form or content requirements of proposed Rule 806, with which the new rule or rule amendment is inconsistent or appears to be inconsistent with the SEA or the Commission's rules thereunder. Paragraph (f) of proposed Rule 806, like § 40.5(f), would provide that such notification to an SBSEF would not prevent the SBSEF from subsequently submitting a revised version of the proposed rule or rule amendment for Commission review and approval or from submitting the new rule or rule amendment as initially proposed in a supplemented submission. Paragraph (f) would further provide that the revised submission would be reviewed without prejudice. Finally, paragraph (f) would provide that such notification to an SBSEF of the Commission's determination not to approve a proposed rule or rule amendment shall be presumptive evidence that the SBSEF may not truthfully certify the same, or substantially the same, proposed rule or rule amendment under proposed Rule 807(a).

Paragraph (g) of proposed Rule 806, like § 40.5(g), would provide that, notwithstanding Rule 806(c), changes to a proposed rule or a rule amendment, including changes to terms and conditions of a product that are consistent with the SEA and the Commission's rules thereunder, may be approved by the Commission at such time and under such conditions as the Commission shall specify in the written notification; provided, however, that the Commission may, at any time, alter or revoke the applicability of such a notice to any particular product or rule amendment.

The Commission preliminarily believes that Regulation SE should afford the Commission a means for assessing whether SBSEF rules and rule amendments are consistent with section 3D of the SEA, and that it is appropriate to achieve this aim by aligning closely with the CFTC's process for voluntary rule-approval submission in § 40.5. The CFTC's procedures are well articulated and well understood by SEFs, and closely harmonizing with these procedures should yield comparable regulatory benefits while minimizing burdens on SBSEFs. As with the process for seeking Commission approval of new products, the Commission preliminarily believes that providing a process for voluntarily seeking Commission approval of rules, rule amendments, and dormant rules—as the CFTC does—can be valuable to an SBSEF seeking the Commission's concurrence that the rule change is consistent with the SEA prior to implementing it. Moreover, for dually registered SEF/SBSEFs, it is likely that certain rules will apply to member behavior generally—and not to one product market (

e.g.,

swaps or SBS) exclusively—and so will have to be filed with both the SEC and CFTC. Closely harmonizing the SEC's filing procedures with § 40.5 would allow dually registered entities to submit the same (or substantially the same) filing to both agencies for review and approval. The Commission preliminarily believes that it is not necessary to require SBSEFs to make a substantially different type of filing to the SEC than to the CFTC for the same underlying rule.

The Commission seeks comment on the following:

32. Do you believe in general that Regulation SE should include a rule establishing procedures for an SBSEF to voluntarily submit rules and rule amendments for Commission review and approval? Why or why not?

33. In particular, should the Commission adopt procedures for voluntary submission of rules and rule amendments for Commission review and approval by harmonizing closely with § 40.5 of the CFTC's rules? Why or why not?

34. Are there any provisions of § 40.5 that are adapted into proposed Rule 806 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

D. Rule 807—Self-Certification of Rules

Proposed Rule 807 is closely modelled on § 40.6 of the CFTC's rules and would set forth procedures by which an SBSEF may self-certify changes to its rules. Paragraph (a) of proposed Rule 807, modelled on § 40.6(a), would set forth the conditions that an SBSEF must comply with before implementing a rule or rule amendment via self-certification. Like § 40.6(a), proposed Rule 807(a) would permit an SBSEF to implement a rule or rule amendment without obtaining the Commission's prior approval under Rule 806, but only if it “self-certifies” the rule or rule amendment in compliance with the conditions set forth in Rule 807. Rule 807(a) also would permit an SBSEF to self-certify a rule or rule amendment that the Commission had previously approved under Rule 806, or that the SBSEF had previously self-certified under this Rule 807, but that in the interim had become a dormant rule (

i.e.,

unimplemented for 12 consecutive calendar months).

Also like § 40.6(a), proposed Rule 807(a) would include an exception that would allow an SBSEF to implement a certain kind of rule without having to comply with the full set of conditions set forth in paragraphs (a)(1) through (8) of proposed Rule 807, the details of which are discussed below. Specifically, the exception would provide that, when submitting a rule delisting or withdrawing the certification of a product with no open interest, an SBSEF would be required only to meet the conditions of paragraphs (a)(1), (a)(2), and (a)(6) of proposed Rule 807. The introductory language being proposed by the Commission in paragraph (a) of proposed Rule 807 generally tracks the language of § 40.6(a), with slight changes for clarity. However, proposed Rule 807(a) would not include an equivalent of the reference in § 40.6(a) to submissions under § 40.10, which concerns only systemically important derivatives clearing organizations and thus are not relevant to SBSEFs.

Paragraph (a)(1) of proposed Rule 807 would require the SBSEF to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. Paragraph (a)(2) would require the SBSEF to provide a certification that the SBSEF posted a notice of the self-certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF's website.

Paragraph (a)(3) would provide that the Commission must have received the submission not later than the open of business on the business day that is ten business days before the SBSEF's implementation of the rule or rule amendment. Paragraph (a)(4) would

provide that the SBSEF may not implement the rule or rule amendment if the Commission has stayed it pursuant to proposed Rule 807(c), discussed below.

Information that the SBSEF seeks to keep confidential could be redacted from the documents published on the SBSEF's website but must be republished consistent with any determination made pursuant to SEA Rule 24b-2.

Section 40.6(a)(5) sets forth an additional condition that the rule or rule amendment is not a rule or rule amendment of a DCM that materially changes a term or condition of a contract for future delivery of an agricultural commodity enumerated in section 1a(4) of the CEA or an option on such a contract or commodity in a delivery month having open interest. Because this provision applies to DCMs that trade contracts for future delivery of agricultural commodities, it is not germane to the SBS markets; therefore, the Commission is not adapting this condition into proposed Rule 807.

Section 40.6(a)(6) sets out procedures for emergency rule certifications, which the Commission is proposing to adapt into paragraph (a)(5) of Rule 807. Paragraph (a)(5)(i) would require a new rule or rule amendment that establishes standards for responding to an emergency

to be submitted pursuant to Rule 807(a). Paragraph (a)(5)(ii) would provide that a rule or rule amendment implemented under procedures of the governing board to respond to an emergency shall, if practicable, be filed with the Commission prior to implementation or, if not practicable, be filed with the Commission at the earliest possible time after implementation, but in no event more than 24 hours after implementation. In addition, paragraph (a)(5)(ii) would provide that any such submission be subject to the certification and stay provisions of proposed Rules 807(b) and (c), described below.

See

§ 40.1(h) (defining “emergency” as “any occurrence or circumstance that, in the opinion of the governing board of a registered entity, or a person or persons duly authorized to issue such an opinion on behalf of the governing board of a registered entity under circumstances and pursuant to procedures that are specified by rule, requires immediate action and threatens or may threaten such things as the fair and orderly trading in, or the liquidation of or delivery pursuant to, any agreements, contracts, swaps or transactions or the timely collection and payment of funds in connection with clearing and settlement by a derivatives clearing organization”). The definition goes on to list a series of circumstances that are deemed emergencies under the definition. The Commission is proposing a definition of “emergency” in proposed Rule 802 that is adapted from § 40.1(h).

Paragraph (a)(6) of proposed Rule 807, modelled on § 40.6(a)(7), would set out the required elements for a rule submission under Rule 807. These requirements would include a copy of the submission cover sheet (in the case of a rule or rule amendment that responds to an emergency, “Emergency Rule Certification” should be noted in the description section of the submission cover sheet); the text of the rule (in the case of a rule amendment, deletions and additions must be indicated); the date of intended implementation; a certification by the SBSEF that the rule complies with the SEA and the Commission's rules thereunder; a concise explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the SEA, including Core Principles relating to SBSEFs and the Commission's rules thereunder; and a brief explanation of any substantive opposing views expressed to the SBSEF by governing board or committee members, members of the SBSEF, or market participants, that were not incorporated into the rule, or a statement that no such opposing views were expressed. Paragraph (a)(6)(vii) also would permit the SBSEF to request confidential treatment for portions of its submission.

Section 40.6(a)(7)(vii) directs the submitting entity to follow the procedures in § 40.8 when making a request for confidential treatment, which in turn cross-references § 145.9. As noted previously, the Commission proposes instead to direct filers to make any request for confidential treatment pursuant to SEA Rule 24b-2.

See supra

note 50.

Paragraph (a)(7) of proposed Rule 807, like § 40.6(a)(8), would require an SBSEF to provide, if requested by Commission staff, additional evidence, information, or data that may be beneficial to the Commission in conducting a due diligence assessment of the filing and the SBSEF's compliance with any of the requirements of the SEA or the Commission's rules or policies thereunder.

Paragraph (b) of proposed Rule 807, modelled on § 40.6(b), would give the Commission ten business days to review the new rule or rule amendment before it is deemed certified and can be made effective, unless the Commission notifies the SBSEF during that ten-business-day review period that it intends to issue a stay of the certification under proposed Rule 807(c).

Paragraph (c)(1) of proposed Rule 807, modelled on § 40.6(c)(1), would provide that the Commission may stay the certification of a new rule or rule amendment by issuing a notification informing the SBSEF that the Commission is staying the certification on the grounds that it presents novel or complex issues that require additional time to analyze, is accompanied by an inadequate explanation, or is potentially inconsistent with the SEA or the Commission's rules thereunder. In addition, paragraph (c)(1) would afford the Commission an additional 90 days from the date of the notification to conduct the review.

Paragraph (c)(2) of proposed Rule 807, modelled on § 40.6(c)(2), would require the Commission to provide a 30-day comment period within the 90-day period in which the stay is in effect. The Commission would be required to publish a notice of the 30-day comment period on the Commission's internet website, and comments from the public could be submitted as specified in that notice.

Paragraph (c)(3) of proposed Rule 807, modelled on § 40.6(c)(3), would provide that the new rule or rule amendment subject to the stay shall become effective, pursuant to the certification, at the expiration of the 90-day review period, unless the Commission withdraws the stay prior to that time, or the Commission notifies the SBSEF during the 90-day period that it objects to the proposed certification on the grounds that the proposed rule or rule amendment is inconsistent with the SEA or the Commission's rules thereunder.

Section 40.6(c)(4), relating to rules or rule amendments already implemented by a SEF (as opposed to rules or rule amendments that are the subject of a new submission) provides: “The Commission may stay the effectiveness of an implemented rule during the pendency of Commission proceedings for filing a false certification or during the pendency of a petition to alter or amend the rule pursuant to section 8a(7) of the Act. The decision to stay the effectiveness of a rule in such circumstances shall not be delegable to any employee of the Commission.” As previously noted,

the SEA does not provide the Commission explicit authority to alter or amend the terms and conditions of an SBS like the authority granted to the CFTC with respect to swaps, and does not contemplate proceedings for a false certification. Hence the Commission is not proposing a provision corresponding to § 40.6(c)(4).

See supra

note 66 and accompanying text.

See id.

Section 40.6(d) of the CFTC's rules allows a registered entity to place certain rules or rule amendments into effect even without a self-certification, if certain enumerated conditions are met. Certain types of these rules or rule amendments must be disclosed on a

“Weekly Notification of Rule Amendments,” pursuant to § 40.6(d)(1) and (2), while others can be put into effect without any notification to the CFTC at all, pursuant to § 40.6(d)(3). Paragraph (d) of proposed Rule 807, modelled on § 40.6(d), would provide that certain kinds of rules or rule amendments may be put into effect by an SBSEF without certification to the Commission if similar enumerated conditions are met. Some would be subject to a Weekly Notification of Rule Amendments, which is closely modelled on the CFTC notification; others would not be subject to any notification requirement.

Under paragraph (d)(2) of proposed Rule 807, the following types of rules could be put into effect by an SBSEF without self-certification, so long as they are disclosed on the Weekly Notice of Rule Amendments:

•

Non-substantive revisions.

Corrections of typographical errors, renumbering, periodic routine updates to identifying information about the SBSEF, and other such non-substantive revisions of a product's terms and conditions that have no effect on the economic characteristics of the product;

•

Fees.

Fees or fee changes, other than fees or fee changes associated with market making or trading incentive programs, that total $1.00 or more per contract, and are established by an independent third party or are unrelated to delivery, trading, clearing, or dispute resolution.

•

Survey lists.

Changes to lists of banks, brokers, dealers, or other entities that provide price or cash market information to an independent third party and that are incorporated by reference as product terms;

•

Approved brands.

Changes in lists of approved brands or markings pursuant to previously certified or Commission approved standards or criteria;

•

Trading months.

The initial listing of trading months, which may qualify for implementation without notice, within the currently established cycle of trading months; or

•

Minimum tick.

Reductions in the minimum price fluctuation (or `tick').

Under paragraph (d)(3)(ii) of proposed Rule 807, the following types of rules could be put into effect by an SBSEF without self-certification and without having to be disclosed on the Weekly Notice of Rule Amendments:

•

Transfer of membership or ownership.

Procedures and forms for the purchase, sale, or transfer of membership or ownership, but not including qualifications for membership or ownership, any right or obligation of membership or ownership, or dues or assessments;

•

Administrative procedures.

The organization and administrative procedures of governing bodies such as a governing board, officers, and committees, but not voting requirements, governing board, or committee composition requirements or procedures, decision-making procedures, use or disclosure of material non-public information gained through the performance of official duties, or requirements relating to conflicts of interest;

•

Administration.

The routine daily administration, direction, and control of employees, requirements relating to gratuity and similar funds, but not guaranty, reserves, or similar funds; declaration of holidays; and changes to facilities housing the market, trading floor, or trading area;

•

Standards of decorum.

Standards of decorum or attire or similar provisions relating to admission to the floor, badges, or visitors, but not the establishment of penalties for violations of such rules;

•

Fees.

Fees or fee changes, other than fees or fee changes associated with market making or trading incentive programs that are less than $1.00 or relate to matters such as dues, badges, telecommunication services, booth space, real-time quotations, historical information, publications, software licenses, or other matters that are administrative in nature.

•

Trading months.

The initial listing of trading months which are within the currently established cycle of trading months.

Paragraphs (d)(2) and (3) of proposed Rule 807, which enumerate the types of rule and rule amendments that an SBSEF could put into effect without a self-certification, are adapted from the types of rules enumerated in § 40.6(d)(2) and (3). However, the Commission is not adapting into proposed Rules 807(d)(2) and (d)(3) the other types of rules enumerated in § 40.6(d)(2) and (3).

These rules pertain to products that are only distantly related, if at all, to the types of products that are likely to trade on SBSEFs.

See

§ 40.6(d)(2)(ii) (delivery standards set by third parties); § 40.6(d)(2)(iii) (index products); § 40.6(d)(2)(iv) (option contract terms); § 40.6(d)(2)(viii) (delivery facilities and delivery service providers); § 40.6(d)(3)(ii)(F) (securities indexes); § 40.6(d)(3)(ii)(G) (option contract term).

The Commission preliminarily believes that Regulation SE should afford the Commission a mechanism to assess new SBSEF rules and rule amendments for consistency with section 3D of the SEA, and to permit SBSEFs to submit new rules and rule amendments using a self-certification process closely aligned with the § 40.6. The CFTC's procedures are well articulated and well understood by SEFs, and closely harmonizing with these procedures should yield comparable regulatory benefits while minimizing burdens on SBSEFs. It is likely that certain rules of dually registered SEF/SBSEFs will apply to member behavior generally—and not to one product market (

e.g.,

swaps or SBS) exclusively—and so will have to be filed with both the SEC and CFTC. Closely harmonizing the SEC's filing procedures with the CFTC's would allow dually registered entities to submit the same (or substantially the same) filing to both agencies for review. The Commission preliminarily believes that it is not necessary to require SBSEFs to make a substantially different type of filing to the SEC than to the CFTC for the same underlying rule.

The Commission requests comment on the following:

35. Do you believe in general that Regulation SE should include a rule establishing procedures for an SBSEF to establish rules via self-certification? Why or why not?

36. In particular, should the Commission adopt procedures for self-certification of rules by harmonizing closely with § 40.6 of the CFTC's rules? Why or why not?

37. Are there any provisions of § 40.6 that are adapted into proposed Rule 807 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

38. Do you disagree with the specific language that the Commission is proposing? If so, what revisions to the language would you suggest?

39. Do you agree with the proposed list of the types of rules and rule amendments that the Commission would allow an SBSEF to make effective without a self-certification? Are there any types that you believe should be added to that list? If so, which types and why? Are there any types that you believe should be removed from that list? If so, which types and why?

E. Submission Cover Sheet and Instructions

As new § 249.2002, the Commission is proposing a submission cover sheet and instructions that an SBSEF would be required to use in conjunction with

filings submitted pursuant to proposed Rules 804 through 807, 809, and 816. These are modelled on the cover sheet and instructions used by SEFs in conjunction with their analogous filings with the CFTC.

The CFTC cover sheet and instructions, found in appendix D to part 40 of the CFTC's rules, are designed for rule and product filings from a wider range of registered entities than just SEFs, and thus include entries that are omitted from the Commission's proposed adaptation.

The same cover sheet and instructions would be used for a new rule, rule amendment, or new product filing, with the SBSEF checking the appropriate box to indicate which of these types the filing represents. The SBSEF also would be required to check boxes to indicate whether the submission was seeking approval by the Commission or whether it was being filed as a certification by the SBSEF; and to identify the specific provision in the Commission's rules pursuant to which the filing was being submitted. The submission cover sheet also would include a box that the SBSEF would check if it intends to submit a request for a joint interpretation from the Commission and the CFTC regarding whether the product is a swap, an SBS, or mixed swap pursuant to SEA Rule 3a68-2.

Finally, the cover sheet would include a check box by which an SBSEF could indicate that it was requesting confidential treatment of materials in the submission.

Proposed Rule 809 would provide that a product filing will be stayed or tolled, as applicable, if such a request for a joint interpretation is made by the SBSEF, the SEC, or the CFTC.

See infra

section VI(G).

The cover sheet would divide the rules and rule amendment filings into two categories: One for general rules of the SBSEF and the other for rules relating to the terms and conditions of a product. Additional boxes would need to be checked if a filing under the terms-and-conditions category concerned specifically a determination by the SBSEF that a particular SBS was now to be considered MAT (“made-available-to-trade”);

or if the filing concerned the delisting of an SBS with no open interest.

The cover sheet would need to be used in conjunction with the weekly notifications that SBSEFs would be required to file pursuant to Rule 807(d) for certain changes that do not need to be approved or certified, as discussed above.

See infra

section VII(F).

See supra

note 73.

Paragraph (a) of the submission cover sheet instructions would provide that a properly completed submission cover sheet must accompany all rule and product submissions submitted electronically to the Commission by an SBSEF, using the EDGAR system and must be provided as an Interactive Data File in accordance with Rule 405 of Regulation S-T. Per paragraph (a), a properly completed submission cover sheet would include all of the following:

1. The name and platform ID of the SBSEF.

“Platform ID” is a term utilized in Regulation SBSR, 17 CFR 242.900

et seq.,

and means the unique identification code (“UIC”) assigned to a platform on which an SBS is executed.

See

17 CFR 242.900(w). The term “platform” includes an SBSEF.

See

Rule 900(v), 17 CFR 242.900(v). A registered SBSEF is required by Rule 903(a) of Regulation SBSR, 17 CFR 242.903(a), to use as its platform ID an identifier issued by an internationally recognized standards-setting system (“IRSS”) if the IRSS meets enumerated criteria and has therefore been recognized by the Commission pursuant to Rule 903(a). This identification requirement stems from a registered SBSEF's status as a “participant” of a registered SDR under Rule 900(u), 17 CFR 242.900(u), because the term “participant” includes a “platform,” as defined in Rule 900(v), 17 CFR 242.900(v), that incurs reporting duties under Rule 901(a), 17 CFR 242.901(a). Currently, the Global Legal Entity Identifier System (“GLEIS”) is the only IRSS that has been recognized by the Commission under Rule 903(a).

See Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information,

SEA Release No. 74244 (February 11, 2015), 80 FR 14564, 14631-32 (March 19, 2015) (“Regulation SBSR Adopting Release I”). Therefore, LEIs issued through the GLEIS are currently the only allowable platform IDs that may be used by registered SBSEFs.

2. The date of the filing.

3. An indication as to whether the filing is a new rule, rule amendment, or new product.

4. For rule filings, the rule number(s) being adopted or, in the case of rule amendments, the number of the rule(s) being modified.

5. For rule or rule amendment filings, a description of the new rule or rule amendment, including a discussion of its expected impact on the SBSEF, its members, and the overall market. The instructions will state that the narrative should describe the substance of the submission with enough specificity to characterize all material aspects of the filing.

Paragraph (b) of the proposed submission cover sheet instructions would state that a submission must comply with all applicable filing requirements for proposed rules, rule amendments, or products, and that the filing of the submission cover sheet would not obviate the SBSEF's responsibility to comply with applicable filing requirements.

Paragraph (c) of the proposed submission cover sheet would state that checking the box marked “confidential treatment requested” would not obviate the submitter's responsibility to comply with all applicable requirements for requesting confidential treatment under SEA Rule 24b-2 and would not substitute for notice or full compliance with such requirements.

The Commission contemplates establishing a system for electronic completion of the cover sheet and attachment of the submissions required by proposed Rules 804, 805, 806, 807, and 809, and will advise affected persons regarding its use by public announcement in advance of the effective date of these rules.

The Commission seeks comment on the following:

40. Do you agree in general that the submission cover sheet and instructions for SBSEF filings should be harmonized with the CFTC's? Why or why not?

41. Do you agree with the specific language proposed in the cover sheet and instructions? If not, how should the language be revised? Is there any information not included in the proposed cover sheet and instructions that you believe should be included?

42. Do you agree with the requirement for an SBSEF to report its platform ID on the cover sheet? Should the disclosure of standard identifiers such as the LEI, the Financial Instrument Global Identifier (“FIGI”), and the Unique Product Identifier (“UPI”) be included in an SBSEF's other reporting obligations under the proposed rules?

43. Are any of the instructions in the submission cover sheet unclear? If so, what matters do you believe require clarification?

F. Rule 808—Availability of Public Information

Section 40.8 of the CFTC's rules is entitled “Availability of public information.” § 40.8(a) provides that any part of an application to register as a SEF (among other CFTC-registered entities) that is not covered by a request for confidential treatment will be made publicly available. Section 40.8(a) also sets out the sections of an application to register as a SEF that shall be made publicly available. Section 40.8(c)

provides that rule and new product filings by a SEF, whether made under the self-certification procedures or pursuant to CFTC review and approval, will be treated as public information unless accompanied by a request for confidential treatment. Section 40.8(c) includes procedures for such requests for confidential treatment. Section 40.8(d) provides that CFTC staff will not consider confidential treatment requests for information that is required to be made public under the CEA, and that the terms and conditions of a product

submitted to the CFTC shall be made publicly available at the time of submission.

Section 40.8(b) has no text and is marked “reserved.”

Proposed Rule 808 is closely modelled on § 40.8. Section 40.8(a) does not provide a list of the exhibits required to be made public, but rather refers to a general description of items required to be made public. For purposes of clarity and ease of reference, however, the Commission is proposing to list the specific corresponding exhibits in proposed Rule 808 that would be made publicly available. Therefore, paragraph (a) of proposed Rule 808 would provide that the Commission shall make publicly available on its website the following parts of an application to register as an SBSEF, unless confidential treatment is obtained pursuant to SEA Rule 24b-2: the transmittal letter and first page of the application cover sheet; Exhibit C; Exhibit G; Exhibit L; and Exhibit M.

Paragraph (b) of proposed Rule 808, adapted from § 40.8(c), would provide that the Commission shall make publicly available on its website, unless confidential treatment is obtained pursuant to SEA Rule 24b-2,

an SBSEF's filing of new products pursuant to the self-certification procedures of proposed Rule 804, new products for Commission review and approval pursuant to proposed Rule 805, new rules and rule amendments for Commission review and approval pursuant to proposed Rule 806, and new rules and rule amendments pursuant to the self-certification procedures of proposed Rule 807. Paragraph (c), adapted from § 40.8(d), would provide that the terms and conditions of a product submitted to the Commission pursuant to any of proposed Rules 804 through 807 shall be made publicly available at the time of submission unless confidential treatment is obtained pursuant to SEA Rule 24b-2.

An application for confidential treatment shall contain, among other things, a statement of the grounds of objection referring to, and containing an analysis of, the applicable exemption(s) from disclosure under the Freedom of Information Act, and a justification of the period of time for which confidential treatment is sought.

See

17 CFR 240.24b-2(b)(2)(ii).

The Commission preliminarily believes that it would be appropriate to include in proposed Regulation SE a rule similar to § 40.8 that would clarify how SBSEFs may request confidential treatment for their filings, and what information contained in those filings would be publicly available by the Commission. The Commission preliminarily believes that the items enumerated in proposed Rule 808 are not of the type that typically would constitute confidential information.

The Commission requests comment on the following:

44. Do you believe in general that Regulation SE should include a rule modelled on § 40.8? Why or why not?

45. In particular, do you agree with the specific language proposed by the Commission to adapt § 40.8 into proposed Rule 808? If not, how would you revise that language?

46. Are there any provisions of § 40.8 that are adapted into proposed Rule 808 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

47. Do you prefer the Commission's proposed approach of listing specific exhibits or the CFTC's approach of providing in the rule only a general description of items required to be made public? If the former, are there any additional exhibits that you believe should be enumerated in Rule 808 that should be made publicly available? If so, which exhibits and why?

G. Rule 809—Staying of Certification and Tolling of Review Period Pending Jurisdictional Determination

Section 40.12 of the CFTC's rules is entitled “Staying of certification and tolling of review period pending jurisdictional determination” and reflects the process described in section 718 of the Dodd-Frank Act, which is entitled “Determining Status of Novel Derivative Products.” Section 718 of the Dodd-Frank Act sets forth a mechanism for addressing a situation where a person wishes to list or trade a novel derivative product that may have elements of both securities and contracts of sale of a commodity for future delivery (or options on such contracts or options on commodities)—

i.e.,

it is unclear whether the product is a security under the jurisdiction of the SEC or a future under the jurisdiction of the CFTC. Section 718(a) provides that the SEC or the CFTC may request that the other agency issue a determination as to the classification of that product, and section 718(b) provides that the CFTC and SEC may petition for the judicial review of any such determination. Section 40.12 provides that if a SEF (among other registered entities) certifies, submits for approval, or otherwise files a proposal to list or trade such a novel derivative product, the product certification shall be stayed or the approval review period shall be tolled until a final determination order is issued under section 718.

Proposed Rule 809 is loosely modelled on § 40.12, but modified to focus on the products and jurisdictional problems that are more likely to be relevant to SBSEFs. An SBSEF might seek to list a product where it is unclear whether the product is a swap or an SBS. While section 718 of the Dodd-Frank Act addresses situations where it is unclear if a product is a security or a future, the SEC and the CFTC have adopted separate rules—SEA Rule 3a68-2 and § 1.8, respectively—governing requests for interpretation regarding a product that might be an SBS, a swap, or a mixed swap. Accordingly, the Commission believes that it would be appropriate for proposed Rule 809 to reflect the process set forth in SEA Rule 3a68-2. Nonetheless, the objective of proposed Rule 809 would be consistent with the objective of § 40.12—to provide for a stay or tolling of a product filing where it is unclear whether the product is under the jurisdiction of the SEC or the CFTC.

Paragraph (a) of proposed Rule 809, modelled on § 40.12(b), would provide that a product certification made by an SBSEF pursuant to proposed Rule 804 shall be stayed, or the review period for a product that has been submitted for Commission approval by an SBSEF pursuant to proposed Rule 805 shall be tolled, upon request for a joint interpretation of whether the product is a swap, SBS, or mixed swap made pursuant to Rule 3a68-2 under the SEA

by the SBSEF, the SEC, or the CFTC. Paragraph (b) is modelled on § 40.12(b)(1) and would require the SEC to provide the SBSEF with a written notice of the stay or tolling pending issuance of a joint interpretation by the SEC and CFTC. Paragraph (c) is modelled on § 40.12(b)(2) and would provide that the stay shall be withdrawn, or the approval review period shall resume, if a joint interpretation finding that the SEC has jurisdiction over the product is issued.

17 CFR 240.3a68-2.

The Commission preliminarily believes that it is appropriate for Regulation SE to include a mechanism for the staying or tolling of a filing by an SBSEF where it is unclear whether the product is a swap or an SBS—should an SBSEF ever seek to list such a product. Although proposed Rule 809 would deviate from § 40.12 in that it would apply where it is unclear whether a product is swap or an SBS, rather than where it is unclear whether

the product is a security or a future, the Commission preliminarily believes that modifying the scope of proposed Rule 809, in relation to § 40.12, would appropriately address the jurisdictional questions that are more likely to arise from a product listed by an SBSEF.

The Commission seeks comment on the following:

48. Do you believe in general that Regulation SE should include a rule setting out a procedure for staying a product certification or tolling a product review period if a request for a joint interpretation regarding the classification of the product is made pursuant to SEA Rule 3a68-2? Why or why not?

49. In particular, do you agree with the specific language proposed by the Commission to adapt § 40.12 into proposed Rule 809? If not, how would you revise that language?

50. Do you agree that Rule 809 should apply to a product that might be an SBS or a swap, rather than to a product that might be a security or a future? Why or why not?

51. Are there any provisions of § 40.12 that are adapted into proposed Rule 809 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

H. Rule 810—Product Filings by SBSEFs That Are Not Yet Registered and by Dormant SBSEFs

Part 37 directs SEFs to submit product filings via self-certification or for CFTC review and approval, using § 40.2 or § 40.3, respectively. However, these sections cannot be utilized by an entity that has submitted an application for SEF registration but has not yet been registered, or by a dormant SEF that has submitted an application to reinstate its registration. Under § 37.4, either entity may submit a swap's terms and conditions before being registered or having its registration reinstated, and the CFTC will consider the swap listing request as part of the application for registration or reinstatement, respectively.

Proposed Rule 810 is closely modelled on § 37.4. Paragraph (a) of proposed Rule 810 is closely modelled on § 37.4(a) and would provide that an applicant for registration as an SBSEF may submit an SBS's terms and conditions prior to listing the product as part of its application for registration. Paragraph (b) is closely modelled on § 37.4(b) and would provide that any SBS terms and conditions or rules submitted as part of an application for registration shall be considered for approval by the Commission at the time the Commission issues the SBSEF's order of registration. Paragraph (c) is closely modelled on § 37.4(c) and would provide that, after the Commission issues the order of registration, the SBSEF shall submit an SBS's terms and conditions, including amendments to such terms and conditions, new rules, or rule amendments pursuant to the procedures in proposed Rules 804 to 807. Paragraph (d) is closely modelled on § 37.4(d), would provide that any SBS terms and conditions or rules submitted as part of an application to reinstate the registration of a dormant SBSEF shall be considered for approval by the Commission at the time the Commission approves the reinstatement of registration of the dormant SBSEF.

The Commission preliminarily believes that it is appropriate for Regulation SE to include provisions that address new products submitted as part of an SBSEF registration by an entity that has not yet been registered, or by a dormant SBSEF seeking reinstatement of its registration, and that these provisions should align with the CFTC's provisions as closely as possible.

The Commission seeks comment on the following:

52. Do you believe in general that Regulation SE should include a rule setting out how dormant SBSEFs and applicants for SBSEF registration can submit new products? Why or why not?

53. In particular, do you agree with the specific language proposed by the Commission to adapt § 37.4 into proposed Rule 810? If not, how would you revise that language?

54. Are there any provisions of § 37.4 that are adapted into proposed Rule 810 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

VII. Miscellaneous Requirements

Sections 37.5 to 37.12 of the CFTC's rules impose miscellaneous requirements on SEFs. The Commission seeks to impose similar requirements on SBSEFs in proposed Rules 811 to 817 of Regulation SE.

A. Rule 811—Information Relating to SBSEF Compliance

1. Harmonization With § 37.5

Paragraphs (a) to (c) of proposed Rule 811 are modelled on § 37.5, which is entitled “Information regarding swap execution facility compliance.” Section 37.5 provides that the CFTC may request various types of information from a SEF, and that the SEF must supply the information to the CFTC in a form and manner specified by the CFTC. Paragraph (a) of § 37.5 requires a SEF, at the CFTC's request, to provide information related to its business as a SEF. Paragraph (b) states that a SEF may be required to provide a written demonstration, containing supporting data, information, and documents that it is in compliance with one or more core principles or with its other obligations under the CEA. Paragraph (c) sets out procedures for a SEF to notify the CFTC of any transfer of 50% or more of the equity interest in the SEF.

Proposed Rules 811(a) to (c) are closely modelled on § 37.5. Paragraph (a) of proposed Rule 811 is closely modelled on § 37.5(a) and would provide that, upon the Commission's request, an SBSEF shall file with the Commission information related to its business as an SBSEF in the form and manner, and within the timeframe, specified by the Commission. Paragraph (b) is closely modelled on § 37.5(b) and would provide that, upon the Commission's request, an SBSEF shall file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with one or more Core Principles or with its other obligations under the SEA or the Commission's rules thereunder, as the Commission specifies in its request. Also, under proposed Rule 811(b), the SBSEF would be required to file such written demonstration in the form and manner, and within the timeframe, specified by the Commission.

Paragraph (c)(1) of proposed Rule 811 is closely modelled on § 37.5(c)(1) and would provide that an SBSEF shall file with the Commission a notification of any transaction involving the direct or indirect transfer of 50% or more of the equity interest in the SBSEF. Also, under proposed Rule 811(c)(1), the Commission could, upon receiving such notification, request supporting documentation of the transaction. Paragraph (c)(2) is closely modelled on § 37.5(c)(2) and would provide that the equity interest transfer notice shall be filed with the Commission in a form and manner specified by the Commission at the earliest possible time, but in no

event later than the open of business ten business days following the date upon which the SBSEF enters into a firm obligation to transfer the equity interest. Paragraph (c)(3) is closely modelled on § 37.5(c)(3), would provide that, notwithstanding the foregoing, if any aspect of an equity interest transfer requires an SBSEF to file a rule, the SBSEF shall comply with the applicable rule filing requirements of proposed Rule 806 or 807.

Paragraph (c)(4) of proposed Rule 811 is closely modelled on § 37.5(c)(4) and would provide that, upon a transfer of an equity interest of 50% or more in an SBSEF, the SBSEF shall file with the Commission, in a form and manner specified by the Commission, a certification that the SBSEF meets all of the requirements of section 3D of the SEA and the Commission rules thereunder, no later than two business days following the date on which the equity interest of 50% or more was acquired.

The Commission preliminarily believes that it is appropriate for Regulation SE to include provisions requiring an SBSEF to provide the Commission with the information described above. Information about its business as an SBSEF and transfers of 50% of its equity would promote understanding of its operations and ownership, which should facilitate oversight of the SBSEF; therefore, the Commission preliminarily believes that it should, similar to the CFTC, clarify that it may request such information from an SBSEF. In addition, should questions about compliance arise, the Commission should be able to obtain from an SBSEF supporting data, information, and documents that the SBSEF is in compliance with relevant obligations under the SEA. By modelling its proposed requirements on existing CFTC rules, the Commission seeks to obtain comparable regulatory benefits while imposing only marginal additional burdens on dually registered entities that are already subject to similar obligations.

The Commission requests comment on the following:

55. Do you believe in general that Regulation SE should include a rule that would require an SBSEF to provide the Commission with information about its business or its compliance with the SEA, as well as information regarding transfers of 50% or more of its equity interest? Why or why not?

56. In particular, do you agree with the specific language proposed by the Commission to adapt § 37.5 into proposed Rule 811? If not, how would you revise that language?

57. Are there any provisions of § 37.5 that are adapted into proposed Rule 811 that you believe would be inappropriate, or would not create any benefit, in a Commission rule applying to SBSEFs? If so, please identify any such provision, explain why it would be inappropriate or unnecessary for SBSEFs, and what economic benefit that you believe would result from omitting it from the Commission's final rule.

2. Harmonization With § 1.60

Paragraph (d) of proposed Rule 811 is not modelled on § 37.5 but rather on § 1.60 of the CFTC's rules, which is entitled “Pending legal proceedings.” Because it is conceptually similar to § 37.5 in that it requires another type of information relevant to the regulatory oversight of a SEF, the Commission is proposing to adapt this provision into Rule 811.

Section 1.60 requires a SEF (among other entities) to provide the CFTC with copies of any legal proceeding to which it is a party, or to which its property or assets is subject. Paragraph (d) of proposed Rule 811 would adapt paragraphs (a), (c), and (e) of § 1.60 to apply to SBSEFs.

Paragraphs (b) and (d) of § 1.60 apply to futures commission merchants and do not appear germane to SEFs or SBSEFs. Therefore, the Commission is not adapting these paragraphs into proposed Rule 811(d).

Paragraph (d)(1) of proposed Rule 811 is closely modelled on § 1.60(a) and would provide that an SBSEF shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the SBSEF is a party or its property or assets is subject. Paragraph (d)(2) is closely modelled on § 1.60(c) and would provide that an SBSEF shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any officer, director, or other official of the SBSEF from conduct in such person's capacit

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.