Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants

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24 October 2011
Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants
PDF version: http://www.gpo.gov/fdsys/pkg/FR-2011-10-24/pdf/2011-26889.pdf (15MB)

[Federal Register Volume 76, Number 205 (Monday, October 24, 2011)]
[Proposed Rules]
[Pages 65784-65884]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26889]

[[Page 65783]]

Vol. 76

Monday,

No. 205

October 24, 2011

Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Registration of Security-Based Swap Dealers and Major Security-Based
Swap Participants; Proposed Rule

Federal Register / Vol. 76 , No. 205 / Monday, October 24, 2011 /
Proposed Rules

[[Page 65784]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-65543; File No. S7-40-11]
RIN 3235-AL05

Registration of Security-Based Swap Dealers and Major Security-
Based Swap Participants

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: Section 764(a) of Title VII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act'') requires the
Securities and Exchange Commission (``Commission'') to issue rules to
provide for the registration of security-based swap dealers (``SBS
Dealers'') and major security-based swap participants (collectively,
``SBS Entities''). Pursuant to this requirement, the Commission is
proposing new Rules 15Fb1-1 through 15Fb6-1 under the Securities
Exchange Act of 1934, as amended (the ``Exchange Act''), to provide for
the registration of SBS Entities. The Commission is also proposing
forms to facilitate registration (and withdrawal from registration) of
these entities.

DATES: Comments should be received on or before December 19, 2011.

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/proposed.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-40-11 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number S7-40-11. This file number
should be included on the subject line if e-mail is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments will also be available for Web site 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. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly.

FOR FURTHER INFORMATION CONTACT: David W. Blass, Chief Counsel; Joseph
Furey, Assistant Chief Counsel; or Bonnie Gauch, Special Counsel,
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street, NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

Table of Contents:

I. Introduction
A. Background
B. General Approach to the SBS Entity Registration Process
1. Conditional Registration
i. Implementation Plan and the Last Compliance Date
ii. Major Security-Based Swap Participant Applicants Registering
After the Last Compliance Date
2. Ongoing Registration
3. Solicitation of Comments on the General Approach to the SBS
Entity Registration Process
II. Proposed Exchange Act Rules and Forms
A. Registration Application and Amendment
1. Proposed Rule 15Fb2-1
i. Form of Application
ii. Senior Officer Certification
iii. Electronic Filing
iv. Standards for Granting or Denying Applications
v. Request for Comment on Additional Registration Considerations
2. Amendments to Application Forms: Proposed Rule 15Fb2-3
B. Associated Persons
1. Certification
2. Alternative Process
C. Termination of Registration
1. Expiration: Proposed Rule 15Fb3-1
2. Withdrawal: Proposed Rule 15Fb3-2
3. Cancellation and Revocation: Proposed Rule 15Fb3-3
D. Special Requirements for Nonresident SBS Entities
1. United States Agent for Service of Process
2. Access to Books and Records of Nonresident SBS Entity
E. Special Situations
1. Succession: Proposed Rule 15Fb2-5
2. Insolvency: Proposed Rule 15Fb2-6
F. Technical Rules
1. Electronic Signatures
2. Temporary Rule To Facilitate Paper Filing of Forms
G. Forms
1. Form SBSE
2. Form SBSE-A
3. Form SBSE-BD
4. Form SBSE-C
5. Form SBSE-W
6. Tagged Data Formats
H. Alternative Approaches Considered
III. Request for Comment
IV. Paperwork Reduction Act
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
D. Total Initial and Annual Reporting and Recordkeeping Burdens
1. Burden Associated With Filing Application Forms
2. Burden Associated With Amending Application Forms
3. Burden Associated With Certification
4. Burdens Relating to Associated Persons
5. Burdens on Nonresident SBS Entities
6. Burden Related to Retention of Manually Signed Signature
Pages
7. Burden Associated With Filing Withdrawal Form
8. Burden Associated With Proposed Temporary Rule 15Fb2-2T
9. Request for Comment on Burden Estimates
E. Retention Period of Recordkeeping Requirements
F. Collection of Information Is Mandatory
G. Confidentiality
H. Request for Comment
V. Economic Analysis
A. Benefits
B. Costs
1. Costs Attributable to Filing the Forms
2. Costs of Certification
3. Costs Relating to Associated Persons
4. Costs to Nonresident SBS Entities
5. Cost of Retaining Manually Signed Signature Pages
6. Costs Associated With Proposed Temporary Rule 15Fb2-2T
C. Request for Comment
VI. Consideration of Impact on the Economy
VII. Regulatory Flexibility Act Certification
VIII. Statutory Basis and Text of Proposed Rules

I. Introduction

A. Background

On July 21, 2010, the President signed the Dodd-Frank Act into
law.\1\ The Dodd-Frank Act was designed to promote, among other things,
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ Among other
measures, the Dodd-Frank Act provides the Commission and the Commodity
Futures Trading Commission (``CFTC'') with authority to regulate
certain aspects of the over-the-counter (``OTC'') derivatives market,
where the recent financial crisis demonstrated a need for enhanced
regulation. The Dodd-Frank Act is intended to provide the Commission

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and the CFTC with effective new regulatory tools to oversee that
market, which has grown exponentially in recent years and is capable of
affecting significant sectors of the U.S. economy.
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\1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\2\ See id., at Preamble.
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Title VII of the Dodd-Frank Act broadly categorizes covered
products as ``swaps,'' \3\ regulated primarily by the CFTC, ``security-
based swaps,'' \4\ regulated primarily by the Commission, or ``mixed
swaps,'' jointly regulated by the Commission and the CFTC.\5\ Among
other things, the Dodd-Frank Act prohibits any person from acting as a
``security-based swap dealer'' \6\ or ``major security-based swap
participant'' \7\ without being registered with the Commission, and
requires that the Commission issue rules to provide for registration of
these SBS Entities.\8\
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\3\ Defined in Section 1a of the Commodity Exchange Act
(``CEA'').
\4\ Defined in Section 3(a)(68) of the Exchange Act. All
references to the Exchange Act contained in this release refer to
the Securities Exchange Act of 1934, as modified by the Dodd-Frank
Act.
\5\ In addition, Section 712(d)(1) of the Dodd-Frank Act directs
the Commission and the CFTC, in consultation with the Board of
Governors of the Federal Reserve System, to propose rules and
interpretative guidance to further define, among other things, the
terms ``security-based swap,'' ``swap dealer,'' ``security-based
swap dealer,'' ``major swap participant,'' and ``major security-
based swap participant.'' The Commission and CFTC jointly proposed
further rules and guidance with respect to the dealer and
participant definitions on December 7, 2010. Further Definition of
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant,'' Exchange Act Release No. 63452
(Dec. 7, 2010), 75 FR 80174 (Dec. 10, 2010) (the ``Intermediary
Definitions Release''). The Commission and CFTC jointly proposed
further rules and guidance with respect to the definitions of
``swap'', ``security-based swap'', and other terms on April 29,
2011. Further Definition of ``Swap, '' ``Security-Based Swap, '' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping, Exchange Act Release No. 64372 (Apr. 29,
2011), 76 FR 29818 (May 23, 2011)).
\6\ Subject to certain exceptions, Exchange Act Section
3(a)(71)(A) defines ``security-based swap dealer'' to mean any
person who: (i) Holds themself out as a dealer in security-based
swaps; (ii) makes a market in security-based swaps; (iii) regularly
enters into security-based swaps with counterparties as an ordinary
course of business for its own account; or (iv) engages in any
activity causing it to be commonly known in the trade as a dealer or
market maker in security-based swaps. See also supra note 5.
\7\ Exchange Act Section 3(a)(67)(A) defines ``major security-
based swap participant'' to mean ``any person: (i) who is not a
security-based swap dealer; and (ii)(I) who maintains a substantial
position in security-based swaps for any of the major security-based
swap categories, as such categories are determined by the
Commission, excluding both positions held for hedging or mitigating
commercial risk and positions maintained by any employee benefit
plan (or any contract held by such a plan) as defined in paragraphs
(3) and (32) of Section 3 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or
mitigating any risk directly associated with the operation of the
plan; (II) whose outstanding security-based swaps create substantial
counterparty exposure that could have serious adverse effects on the
financial stability of the United States banking system or financial
markets; or (III) that is a financial entity that (aa) is highly
leveraged relative to the amount of capital such entity holds and
that is not subject to capital requirements established by an
appropriate Federal banking regulator; and (bb) maintains a
substantial position in outstanding security-based swaps in any
major security-based swap category, as such categories are
determined by the Commission.'' See also supra note 5.
\8\ The Commission has concluded that SBS Entities that were not
registered with the Commission as of the July 16, 2011, effective
date of Section 15F of the Exchange Act are permitted to lawfully
continue their business absent Commission action with respect to the
SBS Entity registration regime. See Temporary Exemptions and Other
Temporary Relief, Together With Information on Compliance Dates for
New Provisions of the Securities Exchange Act of 1934 Applicable to
Security-Based Swaps, Exchange Act Release No. 64678 (Jun. 15,
2011), 76 FR 36287, 36299-300 (Jun. 22, 2011) (the ``Effective Date
Release'').
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The Commission is proposing Rules 15Fb1-1 to 15Fb6-1 under the
Exchange Act to establish procedures for an SBS Entity to register with
the Commission and additional provisions related to such registration,
including: (1) A requirement to amend an inaccurate application for
registration; (2) procedures for succession to, or withdrawal from,
registration; and (3) procedures for the Commission to cancel or revoke
registration.\9\ The proposed rules would also establish a requirement
for an SBS Entity to certify that none of its associated persons that
effect, or are involved in effecting, security-based swaps on the SBS
Entity's behalf is subject to statutory disqualification. The
Commission is proposing forms to facilitate SBS Entities' registration
and withdrawal from registration.
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\9\ The Exchange Act gives the Commission broad authority to
craft a registration regime for SBS Entities that helps the
Commission accomplish its missions of protecting investors,
maintaining fair, orderly, and efficient markets, and facilitating
capital formation. For example, Section 15F(b)(2) of the Exchange
Act states that an application for registration ``shall be made in
such form and manner as prescribed by the Commission, and shall
contain such information as the Commission considers necessary
concerning the business in which the applicant is or will be
engaged.'' In addition, Section 15F(d)(1) of the Exchange Act
directs the Commission to ``adopt rules for persons that are
registered as [SBS Entities] under [Section 15F].''
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The proposed rules and forms would address additional registration
requirements applicable to nonresident SBS Entities, including
requirements to appoint a U.S. agent for service of process, and to
provide an opinion of counsel regarding the entity's ability to (1)
Provide the Commission with prompt access to books and records, and (2)
be subject to onsite examinations and inspections by the Commission.
In proposing these rules and forms, the Commission is mindful that
there are similarities and differences among SBS Entities that hold
substantial positions in security-based swaps and dealers and
participants that hold substantial positions in other financial
products. The Commission also understands that there are similarities
and differences between the security-based swap market and the markets
for other financial products. The Commission believes that, both over
time and as a result of Commission proposals to implement the Dodd-
Frank Act, further information concerning the application of existing
registration and regulatory regimes to SBS Entities and the development
of the security-based swap market may alter certain considerations
relating to the registration of SBS Entities. During the process of
implementing the Dodd-Frank Act and beyond, the Commission intends to
closely monitor developments relating to SBS Entities and the security-
based swap markets. In particular, the Commission intends to evaluate
further information concerning the range of market participants that
may register as SBS Entities, the activities of and services provided
by such market participants, whether these activities and services are
identical or similar to activities and services already regulated by
the federal securities laws or other laws, and how applicable existing
registration and regulatory regimes interact with one another and apply
to SBS Entities.

B. General Approach to the SBS Entity Registration Process

The Commission's proposed registration requirements for SBS
Entities largely are modeled after the registration regime applicable
to broker-dealers,\10\ while also taking into account the CFTC's
registration requirements for intermediaries.\11\ We preliminarily
believe that because the proposed requirements would closely align with
current requirements for our other registrants, and would be similar to
the registration regime for CFTC registrants, this approach would
provide the Commission and the staff with key information about
registrants while leveraging Commission staff experience and standing
procedures to facilitate a

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substantive review of applications for registration and inspections of
registrants. In addition, the broker-dealer registration regime should
be familiar to, and understood by, many SBS Entities. In particular,
SBS Dealers may already be registered and regulated as broker-dealers
or may be affiliated with a broker-dealer. Moreover, if an SBS Dealer
enters into security-based swap transactions with persons that are not
eligible contract participants, it must register as a broker-dealer
unless an exemption or exception applies.\12\ The proposed approach
would seek to ensure that a market participant registered as both an
SBS Entity and a broker-dealer is subject to a similar and
complementary registration regime. It could therefore both ease the
regulatory burden on such entities and help to establish a consistent
regime for regulating SBS Dealers and dealers of other securities.
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\10\ This includes rules promulgated under Sections 15(b) and
17(a) of the Exchange Act.
\11\ 17 CFR 3.1 et seq. Futures commission merchants (``FCMs'')
and introducing brokers presently register with the CFTC by filing
Form 7-R with the National Futures Association. The CFTC has
proposed to register swap dealers and major swap participants
through this same process. See 75 FR 71379, at 71382 (Nov. 23,
2010).
\12\ See 15 U.S.C. 78c(a)(5) and 78o(a).
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As explained below, our proposed approach to the application
process would build on our existing broker-dealer registration forms--
most notably, Form BD--but also is designed to avoid unnecessary
duplication by permitting SBS Entities that are otherwise registered or
registering as intermediaries with either the Commission or the CFTC to
complete simplified application forms. Under this process, SBS Entities
registered or registering with the Commission as broker-dealers or with
the CFTC as swap dealers or major swap participants would submit a
shorter SBS Entity registration form along with a copy of their
existing registration form.
An SBS Entity would be permitted to file an application for
registration as soon as final registration rules and forms are adopted.
Further, each SBS Entity would need to be registered (at least
conditionally) by the compliance date set forth in the final
registration rules. In certain circumstances, SBS Entities would be
required to apply for conditional registration, which they could
convert to ongoing registration by fulfilling the applicable
requirements set forth in the proposed rules. As discussed in more
detail below, those requirements would differ depending on whether: (1)
The application was filed with the Commission before or after the
compliance dates for certain new rules to be adopted pursuant to
Section 15F of the Exchange Act; and (2) the applicant is an SBS Dealer
or instead is a major security-based swap participant. Conditional
registration would expire after a specified time, and a conditionally
registered SBS Entity would be required to cease its security-based
swap business if it had not satisfied the applicable conditions to
convert its registration to an ongoing registration. The Commission
could, however, extend any conditional registration for good cause.
Although the Commission may be familiar with SBS Entities that are
already registered with the Commission (e.g., broker-dealers or
investment advisers), the Commission is mindful that SBS Entities will
nonetheless constitute a new class of registrants that may present
business models and practices with which the Commission will need to
gain experience. Accordingly, the Commission expects that its careful
review of each application for registration and each certification on
Form SBSE-C (the ``Senior Officer Certification'' described further
below) will not only facilitate the Commission's decision to grant or
deny registration to an SBS Entity, but also help to develop this
experience and aid in the identification of areas for further inquiry,
including, as may be appropriate, examinations of particular firms or
business units by the Commission's Office of Compliance Inspections and
Examinations (``OCIE''), in order to establish an effective ongoing
examination program for such entities.\13\
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\13\ In addition to SBS Entities, the Dodd-Frank Act requires
the Commission to register for the first time security-based swap
execution facilities, security-based swap data repositories,
municipal advisors, and certain private fund advisers. In light of
these new categories of registrants, the Commission is presently
reviewing the various standards and processes it uses to facilitate
registration of the many types of entities required to register with
it--including broker-dealers, investment advisers, nationally
recognized statistical rating organizations, transfer agents,
clearing agencies, exchanges, national securities associations, and
others. In this regard, the Commission plans to issue a concept
release designed to collect information and evaluate different
aspects of these registration standards and processes. In
particular, the Commission intends to consider the policy objectives
of registration, how best to achieve those policy objectives through
registration and other means, and the relative benefits and costs of
the various means available. Through such a concept release, the
Commission would hope to gain insight into how evolving market
practices, technology, and other considerations could affect or be
affected by the Commission's approach to the registration processes
for various types of entities. Recognizing that the Commission has
finite resources to allocate to registration, examination, and
enforcement functions, the Commission intends to use the concept
release to seek comment as to how it can most effectively and
efficiently utilize these registration and other functions to help
ensure that entities registered by the Commission to perform
important financial intermediary and other functions in the
securities markets have the capability to carry out those functions
and to fully comply with all applicable regulatory requirements.
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OCIE currently uses risk-based methodologies to focus Commission
examination resources on firms and activities that could pose the
greatest risk to investors and the integrity of the markets. Consistent
with that general approach, OCIE and the Division of Trading and
Markets intend jointly to perform a substantive review of applications
and Senior Officer Certifications received for registration of SBS
Entities to determine whether additional Commission action is
appropriate and to evaluate potential registrants' risk for purposes of
prioritizing examinations.
1. Conditional Registration
Under the proposed rules, an SBS Entity seeking Commission
registration generally would be required to apply for conditional
registration by submitting a complete application to the Commission.
The Commission would then grant conditional registration if it finds
that the SBS Entity's application is complete, except that the
Commission may institute proceedings to determine whether the
Commission should deny conditional registration if the applicant is
subject to a statutory disqualification or the Commission is aware of
inaccurate statements in the application.\14\ The Commission would
notify the entity electronically when conditional registration is
granted, and would make information regarding registration status
publicly available.
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\14\ Such proceedings would include notice of the grounds for
denial under consideration and opportunity for hearing, and that at
the conclusion of such proceedings, the Commission would grant or
deny such registration. See proposed Rule 15Fb2-1(d)(1).
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For an SBS Entity to convert its conditional registration to
ongoing registration, it would be required to submit a Senior Officer
Certification signed by one of its knowledgeable senior officers. The
contents of the Senior Officer Certification and the time frame within
which it must be submitted to the Commission are described more fully
below and specified in the rule. Generally, however, the Senior Officer
Certification would state that, after due inquiry, the senior officer
has reasonably determined that the SBS Entity has the operational,
financial, and compliance capabilities to act as an SBS Dealer or a
major security-based swap participant, as applicable, and has
documented the process by which he or she reached such determination.
We preliminarily believe that this certification requirement would help
to protect both investors and markets from potential problems arising
from SBS Entities that may lack the capabilities necessary to operate
their businesses in compliance with their regulatory obligations.

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i. Implementation Plan and the Last Compliance Date
After proposing all of the key rules under Title VII, the
Commission intends to seek public comment on a detailed implementation
plan that will permit a roll-out of the new securities-based swap
requirements in a logical, progressive, and efficient manner, while
minimizing unnecessary disruption and costs to the markets. Among other
things, the implementation plan would inform the timing of the
requirement for SBS Entities to register with the Commission, including
whether such registration requirement would exist prior to the latest
date, designated by the Commission, by which SBS Dealers and major
security-based swap participants must begin complying with all of the
initial rules promulgated under Section 15F of the Exchange Act (``Last
Compliance Date'').\15\
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\15\ The term ``Last Compliance Date'' is defined in proposed
Rule 15Fb2-1(e). The Commission anticipates that the Last Compliance
Date would be clearly stated in the relevant adopting release and
prominently announced on the Commission's Web site.
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The Commission believes it is possible that SBS Entities may be
required to register before the Last Compliance Date.\16\ For these
``transitional'' applicants, whether SBS Dealer or major security-based
swap participant, there would be a period of time before the Last
Compliance Date when the Senior Officer Certification would be either
unduly burdensome for registrants (e.g., a rule has been promulgated by
the Commission under Section 15F of the Exchange Act, but compliance
with that rule is not yet required) or inappropriate for meeting the
goals of the certification (e.g., the Commission has not yet adopted a
significant rule under Section 15F of the Exchange Act, so the
certification would not cover compliance in an important regulatory
area).
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\16\ The Commission notes that, regardless of the timing of the
Last Compliance Date, a registered SBS Entity would be required to
comply with certain self-operative provisions in Exchange Act
Section 15F upon registration (conditional or otherwise), absent
further Commission action. See Effective Date Release, supra note 8.
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To address this potential transition issue, we preliminarily
believe it is appropriate to propose a conditional registration process
that would permit registration without a Senior Officer Certification
prior to the Last Compliance Date. This process would be available to
all applicants (whether SBS Dealer or major security-based swap
participant) and would, among other things, facilitate the
identification of existing SBS Entities in advance of the compliance
date of certain substantive requirements. Conditional registration
would be effective once the Commission grants such conditional
registration and would expire on the Last Compliance Date (unless
conditional registration was extended pursuant to paragraphs (b) or (c)
of proposed Rule 15Fb3-1). Ongoing registration of these conditionally
registered SBS Entities would be conditioned on, among other things,
the registrant providing the Senior Officer Certification to the
Commission on or before the Last Compliance Date. As described above,
fulfillment of this requirement by an SBS Entity would provide the
Commission with some assurance that the SBS Entity understands and has
the ability to undertake its business in compliance with the applicable
requirements. Once a registrant submits its Senior Officer
Certification, the Commission would consider converting its conditional
registration to an ongoing registration.\17\ However, whether or not a
conditional registrant provides the Senior Officer Certification on or
before the Last Compliance Date, the Commission would retain the
flexibility to extend conditional registration for good cause.
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\17\ Submission of a Senior Officer Certification also would
toll expiration of the SBS Entity's conditional registration for
thirty days, if necessary to facilitate the Commission's review, or
such longer period as the Commission finds for good cause (see
proposed Rule 15Fb3-1).
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Once the Last Compliance Date has occurred, the conditional
registration process for SBS Dealers would effectively collapse into
the ongoing registration process and any SBS Dealer would need to
submit its Senior Officer Certification with its application (i.e.,
after the Last Compliance Date, SBS Dealers could only apply for
ongoing registration). Major securities-based swap participants could
still conditionally register (as described below) because of challenges
separate and apart from implementation of Section 15F of the Exchange
Act.
ii. Major Security-Based Swap Participant Applicants Registering After
the Last Compliance Date
As noted in the proposed definition of major security-based swap
participant,\18\ an entity whose security-based swap portfolio crosses
established thresholds in a fiscal quarter would have a two-month grace
period following the end of that quarter to submit a complete
application for registration as a major security-based swap
participant. The Commission preliminarily believes that, while there is
likely to be some advance notice of an impending status change due to
ongoing monitoring of portfolios in the ordinary course of business, an
entity that would likely fall within the definition of a ``major
security-based swap participant'' because of activities in a given
fiscal quarter may not have adequate compliance systems in place within
two months after the end of the triggering quarter to allow the entity
to provide the Commission with a Senior Officer Certification.
Therefore, the Commission proposes to conditionally register such new
participants based on their filing of a complete application before the
expiration of the two-month grace period, subject to a requirement that
they provide a Senior Officer Certification to the Commission within
four months of the submission of their complete application (i.e.,
within six months after the end of the triggering quarter). This
proposal is intended to balance the additional time a new major
security-based swap participant may require to build out its compliance
structure with the Commission's strong interest in having new
registrants promptly comply with applicable federal securities laws.
Such conditional registration would be effective once the Commission
grants conditional registration and would expire four months after
receipt of that application unless the firm files a Senior Officer
Certification with the Commission within that time frame.
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\18\ See Intermediary Definitions Release, supra note 5, at 103.
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As with conditional registrations granted prior to the Last
Compliance Date, once a major security-based swap participant that
applies for registration after the Last Compliance Date submits its
Senior Officer Certification, the Commission could consider converting
its conditional registration to an ongoing registration, as described
below. In addition, whether or not a conditionally registered major
security-based swap participant provides the Senior Officer
Certification within four months after submitting its application, the
Commission retains the flexibility to extend the conditional
registration for good cause.
The Commission notes that the conditional registration mechanism
for major security-based swap participants would remain in place even
after the Last Compliance Date (i.e., major security-based swap
participants could always avail themselves of a conditional
registration period).
2. Ongoing Registration
The proposed rules would provide for the ongoing registration of
all conditionally registered SBS Entities following their fulfillment
of the applicable requirements, as well as SBS

[[Page 65788]]

Dealers registering with the Commission after the Last Compliance Date
(and, therefore would not be required to conditionally register). As
described above, an SBS Entity would need to submit both a completed
application and a Senior Officer Certification to obtain ongoing
registration. An SBS Entity that was conditionally registered would not
be required to submit a new application. At the time it applies for
ongoing registration, however, the SBS Entity would be required to
amend its application to correct any information that has become
inaccurate for any reason.
The Commission would grant ongoing registration if it finds that
the requirements of Section 15F(b) of the Exchange Act are satisfied,
but the Commission would institute proceedings to determine whether the
Commission should deny ongoing registration if the Commission does not
make such a finding, if it finds that the applicant is subject to a
statutory disqualification, or if it is aware of inaccurate statements
in the application or certification.\19\ The Commission would notify
the entity electronically when ongoing registration is granted, and
would make information regarding registration status publicly
available. Pursuant to proposed Rule 15Fb3-1(a), ongoing registration
would be effective until any cancellation, revocation or withdrawal of
the registration or on any other event the Commission determines should
trigger expiration.
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\19\ Such proceedings would include notice of the grounds for
denial under consideration and opportunity for hearing, and that at
the conclusion of such proceedings, the Commission would grant or
deny such registration. See proposed Rule 15Fb2-1(d)(2).
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3. Solicitation of Comments on the General Approach to the SBS Entity
Registration Process
We request comment on this approach to the SBS Entity registration
process.
Q-1. Should the Commission model the registration regime applicable
to SBS Entities more closely after one or more other registration
regimes regulated by the Commission (e.g., securities exchanges or
associations,\20\ clearing agencies,\21\ or investment advisers \22\),
self regulatory organizations (``SROs''),\23\ or other regulators? \24\
If so, please describe which model should be followed and why.
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\20\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78o-3(b)(1)-(2).
\21\ 15 U.S.C. 78q-1(b)(3)(A).
\22\ 15 U.S.C. 80b-3(c).
\23\ See, e.g., National Association of Securities Dealers Rules
1013 and 1014; Chicago Board Options Exchange Rules 3.5(c)(ii),
8.83(b), and 44.12(b); and NYSE Arca Rule 7.22(a).
\24\ See, e.g., National Futures Association Registration Rules
(which can be found at http://www.nfa.futures.org/nfamanual/NFAManualTOC.aspx?Section=8).
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Q-2. Does the conditional process for SBS Entity registration
outlined above provide a practicable solution to the potential timing
issues raised by the implementation of Section 15F of the Exchange Act?
Are there additional or alternative conditions or mechanisms that would
be appropriate for addressing those issues?
Q-3. Does the conditional process for major security-based swap
participant registration outlined above provide a practicable solution
to the potential timing issues raised by the look-back features in the
proposed definition of ``major security-based swap participant''
definition? Are there additional or alternative conditions or
mechanisms that would be appropriate for addressing those issues?
Q-4. Should the Commission delay all registrations until the Last
Compliance Date instead of adopting a conditional registration process?
Why or why not?
Q-5. Should the Commission consider granting conditional
registration automatically based on the receipt of a completed
application or some other or additional documents? If so, why?
Q-6. Should the Commission notify the SBS Entity that it has
granted conditional or ongoing registration prior to making the SBS
Entity's registration status publicly available? If so, why and what
should be the timing difference?
Q-7. Should the Commission provide additional guidance regarding
the process for institution of proceedings? For instance, should the
Commission include timeframes within which proceedings would be
instituted and/or a decision to grant or deny registration based on
those proceedings should be provided (e.g., Exchange Act Section
15(b)(1))? If so, what timeframes or other guidance would be
appropriate and why?
Q-8. Is it appropriate to seek to minimize duplication by
permitting registered intermediaries to follow a registration process
that uses simplified forms? Why or why not?
Q-9. Should these intermediaries be required to file their existing
registration forms with the Commission as part of this process, or
should they be required to authorize the Commission to obtain access to
those forms at the relevant repository (e.g., the Financial Industry
Regulatory Authority (``FINRA'') or the National Futures Association
(``NFA''))?
Q-10. Should SBS Entities be afforded more time (beyond the Last
Compliance Date) to prepare and provide their Senior Officer
Certification? Why or why not? If so, how much additional time would be
appropriate?
Q-11. Should major security-based swap participants that file
applications after the Last Compliance Date be afforded more or less
than four months to prepare and provide their Senior Officer
Certification? Why or why not?
Q-12. What would be the advantages and disadvantages and costs and
benefits of the Commission adopting an approach to SBS Entity
registration that encompasses a more substantive inquiry concerning the
business of an applicant? What would be the impact on market
participants, including investors?
Q-13. Are there additional or alternative mechanisms that the
Commission could employ to better protect markets and market
participants and minimize the burden on registrants while meeting the
regulatory objectives of a registration scheme for SBS Entities?

Commenters are encouraged to identify other possible solutions that
would allow the Commission to promptly review and consider SBS Entity
registration applications so they would not experience undue
interruptions in business while also providing the Commission
reasonable assurance that they have the ability to carry out their
business and are able to comply with applicable federal securities
laws.

II. Proposed Exchange Act Rules and Forms

A. Registration Application and Amendment

1. Proposed Rule 15Fb2-1
Proposed Rule 15Fb2-1 would set forth the method through which SBS
Entities could apply for registration with the Commission. Essentially,
the forms and process for filing applications and other documents
electronically with the Commission would be identical for SBS Dealers
and major security-based swap participants. This proposed rule also
would describe the timing of such filings and the standard of review
applied by the Commission in determining whether to grant or deny
registration, which may differ slightly for SBS Dealers and major
security-based swap participants, depending on the type of registration
the firm is seeking. While it may be appropriate for certain rules
applicable to SBS Dealers to differ from those applicable to major
security-based swap participants, the Commission preliminarily believes
that

[[Page 65789]]

the registration rules and forms need not differ significantly because
the information the Commission would need to determine whether
registration is appropriate is similar for both types of entities.
i. Form of Application
Paragraph (a) of proposed Rule 15Fb2-1 would provide that an SBS
Entity would apply for registration electronically on Form SBSE, Form
SBSE-A, or Form SBSE-BD, as appropriate, in accordance with the
instructions to the form. In general:
SBS Entities registered or registering with the Commission
as broker-dealers would apply for registration using Form SBSE-BD;
SBS Entities registered or registering with the CFTC as
swap dealers or major swap participants (and not also registered or
registering with the Commission as broker-dealers) would apply for
registration using Form SBSE-A; and
SBS Entities that do not fit either of the above
categories would apply for registration using Form SBSE.

Specifics regarding each of these forms and their differences and uses
are discussed in more detail below. These forms would be used to
register with the Commission regardless of whether an SBS Entity was
applying for conditional or ongoing registration.
The Commission solicits comment on the use of forms to register
with the Commission.
Q-14. Would an alternative mechanism be more appropriate for
registering SBS Entities? If so, which one and why?
Q-15. Should the registration forms differ based on whether the
entity is registering as an SBS Dealer or major security-based swap
participant? If so, how?
ii. Senior Officer Certification
Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS
Entity provide the Commission with a certification on Form SBSE-C to
facilitate the Commission's review of each firm's application for
ongoing registration. A knowledgeable senior officer of the SBS Entity
would be required to sign the certification,\25\ which is designed to
provide the Commission with the applicant's assurance that the
applicant has the capabilities necessary to operate as an SBS Entity
and, therefore, that the applicant should qualify for registration
under Exchange Act Section 15F(b). Accordingly, the certification would
assist the Commission in determining whether to grant the SBS Entity
ongoing registration. Such an informed determination, based in part on
the certification, will help the Commission maintain orderly and
efficient markets and protect investors by helping to ensure that the
Commission only grants registration to SBS Entities that can attest
that they possess the operational, financial, and compliance
capabilities to conduct business as an SBS Entity. Specifically, under
the proposal, each SBS Entity must have a senior officer certify that,
after due inquiry, he or she has reasonably determined that the SBS
Entity has the operational,\26\ financial,\27\ and compliance \28\
capabilities to act as an SBS Entity. In addition, the proposal would
require that the senior officer certify that he or she has documented
the process by which he or she reached that determination. While the
Commission has required regulated entities to provide a certification
in other contexts,\29\ a requirement that an applicant or regulated
entity certify as to its ability to engage in the business it would be
registered to do is relatively new.\30\
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\25\ In accordance with Proposed Rule 15Fb1-1(b), the SBS Entity
will need to maintain a manually signed copy of this certification
as part of its books and records until at least three years after
the certification was filed with the Commission.
\26\ The concept of ``operational capability'' can be an
important regulatory consideration because an SBS Entity with
insufficient infrastructure, technology, and human resources
presents operational risks that may adversely impact its
counterparties and the broader market--e.g., if transactions are
inaccurately documented, not documented at all, or if insufficient
margin is collected. See Trade Acknowledgment and Verification of
Security-Based Swap Transactions, Exchange Act Release No. 63727
(Jan. 14, 2011), 76 FR 3859, at 3860 (Jan. 21, 2011) (proposing
release) (discussing the recognition by various parties of the
importance of operational infrastructure in the over-the-counter
derivatives market) (the ``Trade Acknowledgement Proposing
Release''). The Commission expects that a key foundation for the
Senior Officer Certification would be the capability of an SBS
Entity to comply with the obligations that would be imposed by the
Trade Acknowledgment Proposing Release, if adopted, other legal
obligations applicable to the operations of an SBS Entity, and the
capability of the SBS Entity to conduct its business as represented
in the SBS Entity's application for ongoing registration.
\27\ The concept of ``financial capability'' can be an important
regulatory consideration because of, among other things, the role
adequate financing plays in protecting an SBS Entity's
counterparties and the broader market by ensuring that the SBS
Entity has sufficient working capital and liquidity for its
security-based swap business consistent with regulatory requirements
and as needed to respond to market conditions. The Commission will
separately propose capital rules for SBS Entities, as required by
the Dodd Frank Act. 15 U.S.C. 78o-10(e). The Commission expects that
the capability of an SBS Entity to comply with these obligations, if
adopted, would form a key foundation for the Senior Officer
Certification.
\28\ The concept of ``compliance capability'' can be an
important regulatory consideration because of, among other things,
the wholesale creation of a new regulatory regime for security-based
swaps under the Dodd-Frank Act. For example, in proposing business
conduct rules for SBS Entities, the Commission proposed to require
that each SBS Entity ``[establish, maintain, and enforce] written
policies and procedures addressing the supervision of the types of
security-based swap business in which the [SBS Entity] is engaged
that are reasonably designed to achieve compliance with applicable
securities laws and the rules and regulations thereunder.'' Business
Conduct Standards for Security-Based Swap Dealers and Major
Security-Based Swap Participants, Exchange Act Release No. 64766
(Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as corrected by
Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3, 2011)
(proposing release). The Commission expects that development and
implementation of such a compliance regime, if adopted, would serve
as a key foundation for the Senior Officer Certification.
\29\ See, e.g., 17 CFR 240.15c3-5, 17 CFR 240.13a-14, and 17 CFR
270.30a-2.
\30\ See, e.g., Registration of Municipal Advisors, Exchange Act
Release No. 63576 (Dec. 20, 2010), 76 FR 824, (Jan. 6, 2011)
(proposing release) (the ``Registration of Municipal Advisors
Proposing Release'').
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The Commission preliminarily believes that receipt of a Senior
Officer Certification would provide assurances to the Commission that
each SBS Entity has the requisite capabilities to operate in the
capacity for which it seeks registration. The Senior Officer
Certification is designed to require a deliberate and thoughtful self-
assessment by each SBS Entity of its capabilities and thus should
provide assurances to potential investors, customers of, and
counterparties to an SBS Entity that the SBS Entity has the requisite
capabilities to act in that capacity. Further, this Senior Officer
Certification requirement could help prevent disorderly and unstable
markets that could result from the failure of a registered SBS Entity
that lacks the requisite capabilities to operate its business in a
registered capacity. The Senior Officer Certification also may enhance
market participants' ability to assess the counterparty credit risk
associated with a particular SBS Entity counterparty. In this way, the
Senior Officer Certification should help to protect investors and other
market participants from SBS Entities that are not competent to engage
in that business, lack the financial resources to do so, or are unable
or unwilling to comply with applicable law. The Commission thus
preliminarily believes that the Senior Officer Certification could help
the efficient functioning of the market and enhance the confidence of
investors and other market participants.
The Senior Officer Certification requirement, in other words, is
meant to address many of the same considerations that arise during the
in-depth review by the Commission and its staff, or, in some cases,
SROs, prior to

[[Page 65790]]

granting registration to certain applicants.\31\ For example, under
Sections 6(b) and 19(a) of the Exchange Act, an exchange may not be
registered unless the Commission finds that the exchange ``is so
organized and has the capacity to be able to carry out the purposes of
the Exchange Act and to comply, and [* * *] to enforce compliance by
its members and persons associated with its members, with the
provisions of [the Exchange Act], the rules and regulations thereunder,
and the rules of the exchange.'' \32\ Similarly, under Section 17A of
the Exchange Act, a clearing agency may not be registered unless the
Commission finds that the agency ``has the capacity to be able to
facilitate the prompt and accurate clearance and settlement of
securities transactions and derivative agreements, contracts and
transactions for which it is responsible, to safeguard securities and
funds in its custody or control or for which it is responsible, to
comply with the provisions of [the Exchange Act] and the rules and
regulations thereunder, [and] to enforce [* * *] compliance by its
participants with the rules of the clearing agency, and to carry out
the purposes of this section.'' \33\ To this end, the Commission has
published a series of standards ``that the [staff] will use in
reviewing the organizations, capacities and rules of clearing agencies
that currently are registered temporarily with the Commission and of
clearing agencies that may apply for registration * * *.'' \34\ Broker-
dealers that register with the Commission under Section 15(b) also must
become a member of an SRO, and SRO rules generally incorporate
membership application procedures that include, among other things,
assessments by the SRO of the broker-dealer's operational, financial,
and compliance capabilities.\35\
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\31\ See, e.g., 15 U.S.C. 78f(b)(1) (regarding registration of
national securities exchanges), and 15 U.S.C. 78q-1(b)(3)(A)
(regarding registration of clearing agencies). See also 15 U.S.C.
78o-3(b)(1) and (2) (regarding registration of national securities
associations). In addition, the Commission recently proposed rules
governing the registration of security-based swap data repositories
(``SDRs''), security-based swap execution facilities (``SB SEFs''),
security-based swap clearing agencies (``SBS CAs''), and municipal
advisors that relate to potential registrants' operational,
financial, and compliance capabilities. For example, the proposed
registration rules for security-based swap data repositories are
intended to, among other things, assure the Commission that ``an SDR
is so organized, and has the capacity, to be able to assure the
prompt, accurate, and reliable performance of its functions as an
SDR, comply with any applicable provision of the Federal securities
laws and the rules and regulations thereunder, and carry out its
functions in a manner consistent with the purposes of Exchange
Act.'' These proposed rules may also require an SDR to file with the
Commission, as a condition of registration or continued
registration, a review relating to the SDR's operational capacity
and ability to meet its regulatory obligations. Such review could be
in the form of a report conducted by the SDR, an independent third
party, or both. Security-Based Swap Data Repository Registration,
Duties, and Core Principles, Exchange Act Release No. 63347 (Nov.
19, 2010), 75 FR 77306 (Dec. 10, 2010) (proposing release).
Similarly, the proposed registration rules for security-based swap
execution facilities are designed to assure the Commission that a
registrant ``has adequate financial, operational, and managerial
resources to discharge each responsibility of the SB SEF, as
determined by the Commission.'' Registration and Regulation of
Security-Based Swap Execution Facilities, Exchange Act Release No.
63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011) (proposing
release). Among other things, these rules state in part that ``the
financial resources of a SB SEF shall be considered to be adequate
if the value of the financial resources exceeds the total amount
that would enable the SB SEF to cover its operating costs for a one
year period.'' The Commission also proposed registration rules for
security-based swap clearing agencies that require, among other
things, registrants to establish, maintain, and enforce written
policies and procedures reasonably designed to ensure that their
systems provide adequate levels of capacity, resiliency, and
security. Such policies and procedures shall, at a minimum: (i)
Establish reasonable current and future capacity estimates; (ii)
conduct periodic capacity stress tests of critical systems to
determine such systems' ability to process transactions in an
accurate, timely, and efficient manner; (iii) develop and implement
reasonable procedures to review and keep current its system
development and testing methodology; (iv) review the vulnerability
of its systems and data center computer operations to internal and
external threats, physical hazards, and natural disasters; and (v)
establish adequate contingency and disaster recovery plans. These
rules further require that clearing agencies that provide central
counterparty (``CCP'') services need to have a qualified person
conduct a review of models that are used to set margin levels, along
with related parameters and assumptions, in order to assure that the
models perform in a manner that facilitates prompt and accurate
clearance and settlement of transactions. In determining whether a
person is qualified to conduct the model validation, clearing
agencies providing CCP services could consider several factors,
including the person's experience in validating margin models,
expertise in risk management generally, and understanding of the
clearing agency's operations and procedures. Clearing Agency
Standards for Operation and Governance, Exchange Act Release No.
64017 (Mar. 3, 2011), 76 FR 14472 (Mar. 16, 2011) (proposing
release) (the ``Clearing Agency Standards Proposing Release'').
Finally, the proposed registration rules for municipal advisors
would require municipal advisors to certify that they have: ``1)
sufficient qualifications, training, experience, and competence to
effectively carry out their designated functions; 2) met, or within
any applicable timeframe will meet, such standards of training
experience, and competence, and such other qualifications, including
testing, for a municipal advisor, required by the Commission, the
MSRB or any other relevant self-regulatory organization; and 3) the
necessary understanding of, and ability to comply with, all
applicable regulatory obligations.'' Registration of Municipal
Advisors Proposing Release, supra note 30.
\32\ 15 U.S.C. 78f(b)(1).
\33\ 15 U.S.C. 78q-1(b)(3)(A).
\34\ The Commission has established a series of standards ``that
the [staff] will use in reviewing the organizations, capacities and
rules of clearing agencies that currently are registered temporarily
with the Commission and of clearing agencies that may apply for
registration * * *.'' Regulation of Clearing Agencies, Exchange Act
Release No. 16900 (Jun. 17. 1980), 45 FR 41920 (June 23, 1980)
(emphasis added). See also the Clearing Agency Standards Proposing
Release, supra note 30.
\35\ See, e.g., NASD Rules 1013 and 1014 (membership application
review requires a new broker-dealer to, among other things, file a
detailed business plan, explain its sources of funding, describe the
educational background and experience of its personnel, and undergo
a membership interview). Existing FINRA members that wish to enter
into a materially new business, such as dealing in security-based
swaps, must also file an application to do so, and those
applications are similarly reviewed to determine whether the broker-
dealer has the requisite capabilities to conduct the new business.
NASD Rule 1017. Exchange Act Rule 15b2-2 requires that a new broker-
dealer be examined within six months to evaluate whether the broker-
dealer is operating in conformity with applicable financial
responsibility rules and again within twelve months to evaluate
whether it is also operating in conformity with all other applicable
provisions of the Exchange Act and rules thereunder. 17 CFR
240.15b2-2(b) & (c).
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At this time, although we provide guidance above regarding the
factors a senior officer would use to serve as a foundation for the
Senior Officer Certification,\36\ we are not proposing a specific
definition of the term ``operational, financial and compliance
capabilities.'' Instead, we request comment regarding whether and how
that phrase should be further defined or interpreted. The Commission
recognizes that whether an SBS Entity has the operational, financial
and compliance capabilities to act as an SBS Entity likely will depend
on its particular facts and circumstances, including, among other
things: the scope and nature of its security-based swap business; its
other related financial and business activities; the extent to which it
is subject to other registration and regulatory requirements or other
supervisory oversight with respect to its activities; its relationships
with, and reliance on, affiliates, service providers, and other
parties; and the extent and nature of its historical involvement in
security-based swap transactions. Moreover, it may be appropriate to
consider the capabilities required for this certification by reference
to regulatory standards. For example, attesting to capabilities might
include a self-assessment of whether the SBS Entity is capable of
communicating in a manner that is based on principles of fair dealing
and good faith; \37\ whether the SBS Entity has established all
contractual or other arrangements and business relationships necessary
to conduct its security-based swap business; \38\ whether the SBS
Entity has or has adequate plans to obtain facilities

[[Page 65791]]

that are sufficient for its operations; \39\ and whether the SBS Entity
is capable of maintaining a level of capital that is adequate to
support the SBS Entity's intended business operations on a continuing
basis.\40\
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\36\ See supra notes 26-28.
\37\ See Section 15F(h)(3)(C) (providing that business conduct
requirements adopted by the Commission shall establish a duty to
communicate in a manner ``based on principles of fair dealing and
good faith'').
\38\ See NASD Rule 1014(a)(4).
\39\ See NASD Rule 1014(a)(5).
\40\ See NASD Rule 1014(a)(7).
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The proposed rules would require that a senior officer of an SBS
Entity certify that he or she has reasonably determined that, after
``due inquiry,'' the security-based swap dealer or major security-based
swap participant has the operational, financial, and compliance
capabilities to act as an SBS Entity.\41\ We believe it is important to
make explicit that the senior officer is obligated under the rule to
conduct some inquiry to form his or her reasonable determination.
However, the Commission does not propose to prescribe any single method
a senior officer must use to gain an appropriate level of comfort and
information before signing the Senior Officer Certification. In other
words, different SBS Entities may utilize different processes to
provide a basis for a senior officer's reasonable determination that
the SBS Entity has the requisite capabilities.\42\
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\41\ This certification must be accurate as of the date the
certification is filed with the Commission. An SBS Entity would not
be required to have a senior officer update the certification after
the SBS Entity has been approved for ongoing registration.
\42\ For example, in satisfying other certification requirements
some SBS Entities may use a sub-certification process whereby the
senior officer will not certify a firm-wide statement unless and
until other persons responsible for certain activities in turn
certify to the senior officer that the standard has been met, while
other SBS Entities may use an internal or external audit-type
process whereby a senior officer may choose to employ a third party
to review an area subject to a firm-wide certification before
submitting the certification.
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As described in Part I above, the proposed registration process
would include conditional and ongoing registration. Pursuant to
subparagraph (b)(1)(i) and (ii), respectively, of proposed Rule 15Fb2-
1, SBS Entities that register conditionally during the transitional
period would need to submit the Senior Officer Certification on or
before the Last Compliance Date and major security-based swap
participants that file an application after the Last Compliance Date
would need to submit the certification within four months after filing
an application. The Commission preliminarily believes that these
timeframes would provide senior officers of conditionally registered
SBS Entities sufficient time to determine that they are able to provide
the relevant certification. Pursuant to subparagraph (b)(2), an SBS
Dealer that files an application after the Last Compliance Date would
need to submit the Senior Officer Certification with its application.
The Commission requests comment on all aspects of the proposed
requirement for SBS Entities to provide the Commission with a Senior
Officer Certification on Form SBSE-C as specified in proposed Rule
15Fb2-1(b), and on the registration process generally. With respect to
this certification, the Commission is interested in commenters
responses to the following questions, and also to questions Q-54.
through Q-61. relating to Additional Registration Considerations.
Q-16. Would the Senior Officer Certification requirement provide
sufficient assurance that each SBS Entity has the necessary
capabilities to act as a registered SBS Entity? Why or why not? Would
it provide sufficient assurance that SBS Entities have established
controls to ensure compliance with all applicable securities law
requirements? Why or why not?
Q-17. Would the Senior Officer Certification provide sufficient
assurance to customers of and counterparties to SBS Entities,
investors, eligible contract participants and other market participants
that new SBS Entities have the requisite capabilities to act as SBS
Entities? Why or why not?
Q-18. Should the Commission only require SBS Dealers, and not major
security-based swap participants, to provide a Senior Officer
Certification? Why or why not? What would be the comparative
advantages, disadvantages, costs and/or benefits of such an approach?
Q-19. Alternatively, should the form of Senior Officer
Certification an SBS Entity must file be driven by whether the entity
is an SBS Dealer or major security-based swap participant? For
instance, should an SBS Dealer be required to certify to its
capabilities and a major security-based swap participant be required to
certify to its policies and procedures? If so, what form of Senior
Officer Certification should SBS Dealers be required to file and which
form of Senior Officer Certification should major security-based swap
participants be required to file? What would be the comparative
advantages, disadvantages, costs and/or benefits of requiring dealers
and participants to certify using different certification language?
Q-20. What alternative forms of Senior Officer Certification should
be considered, if any? For example, should the proposed Senior Officer
Certification use the language that the Commission proposed with
respect to the certification to be made by municipal advisors? \43\ Why
or why not? What would be the comparative advantages, disadvantages,
costs and/or benefits of using the same certification language the
Commission has proposed for use by municipal advisors as opposed to the
language proposed?
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\43\ See supra note 31, regarding the certification the
Commission proposed for use by municipal advisors in the
Registration of Municipal Advisors Proposing Release.
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Q-21. The concept of developing and implementing written policies
and procedures has often been used by the Commission to further its
regulatory objectives. Should the Senior Officer Certification instead
require that a senior officer certify that ``to the best of his or her
knowledge, after due inquiry, the security-based swap dealer or major
security-based swap participant has developed and implemented written
policies and procedures reasonably designed to prevent violation of
federal securities laws, the rules thereunder, and applicable self-
regulatory organization rules?'' \44\ Why or why not? What would be the
impact of the Senior Officer Certification if it did not specifically
address operational capability? What would be the comparative
advantages, disadvantages, costs and/or benefits of using this language
as opposed to the language proposed?
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\44\ See, e.g., Section 15(g) of the Exchange Act (requiring
that broker-dealers establish, maintain and enforce written policies
and procedures reasonably designed to prevent the misuse of
material, non-public information). 15 U.S.C. 78o(g). See also Rule
206(4)-7 of the Investment Advisers Act of 1940 (the ``Advisers
Act'') (requiring that investment advisers must adopt and implement
written policies and procedures reasonably designed to prevent
violations of the Advisers Act and the rules thereunder). 17 CFR
275.206(4)-7.
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Q-22. Should the Commission more specifically define the term
``operational, financial, and compliance capabilities''? If so, how
should this term be defined to, among other things, provide greater
certainty to market participants about the basis for providing the
Senior Officer Certification?
Q-23. Should the Commission specifically define the term
``capability?'' Should the Commission, for example, define the term
``capability,'' as it relates to the financial, operational, and
compliance functions of an SBS Entity, as ``having the necessary
ability or qualities''? Why or why not? Should the Commission define
the term capability in some other way? If so, how and why?
Q-24. Alternatively, should the Commission simply adopt the
Webster's New World Dictionary definition which

[[Page 65792]]

defines the term ``capability'' to mean ``the quality of being capable;
practical ability,'' and defines the term ``capable'' to mean, among
other things, ``having ability; able; skilled; competent --capable of;
having the ability or qualities necessary for; able or ready to?'' \45\
Why or why not? Should the Commission instead adopt some other
dictionary definition? If so, what other dictionary definition should
be used and why? Alternatively, should the Commission define the term
capability in some other way? If so, how and why?
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\45\ Websters New World Dictionary 110 (2nd concise ed. 1975).
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Q-25. Should the Commission determine that a firm may rely on the
establishment, maintenance and enforcement of written policies and
procedures by an SBS Entity that are reasonably designed to prevent
violation of federal securities laws, the rules thereunder, and
applicable self-regulatory organization rules as a basis for a senior
officer to certify that an SBS Entity has the appropriate ``compliance
capability?'' Why or why not?
Q-26. Should the Commission determine that a firm may rely on the
establishment, maintenance and enforcement of written policies and
procedures by an SBS Entity that are reasonably designed to assure that
the SBS Entity complies with applicable capital and margin requirements
as a basis for a senior officer to certify that an SBS Entity has the
appropriate ``financial capability?'' Why or why not?
Q-27. If the Commission does not specifically define what would
constitute operational, financial, and compliance capabilities, will
there still be a sufficient basis for SBS Entities and/or their senior
officers to provide the Commission with a Senior Officer Certification?
Why or why not? Would any potential uncertainty arising from the
decision not to define at this time the terms ``operational, financial,
and compliance capabilities'' and ``capabilities'' cause difficulties
for SBS Entities seeking to register on an ongoing basis? If so, please
describe.
Q-28. Should SBS Entities be required to provide a Senior Officer
Certification as to any capabilities in addition to the three
specified? If so, what other capabilities and why? Alternatively,
should any of the capabilities be eliminated from the Senior Officer
Certification? If so, which one(s) and why? For example, should the
certification relating to an SBS Entity's capabilities be confined to
operational capability given the regulatory imperative to comply with
applicable regulations (including capital rules)? What would be the
comparative advantages, disadvantages, costs and/or benefits of adding
or eliminating such capabilities?
Q-29. In addition to, or in lieu of the Senior Officer
Certification requirement, should the Commission utilize an approach to
demonstration of capabilities similar to the one we use to register
national securities exchanges under Exchange Act Section 6(b)(1) \46\
(which requires that an exchange have the ``capacity to be able to
carry out the purposes of [the Exchange Act * * *], the rules and
regulations thereunder'')? Would such a standard provide additional
clarity as to the capabilities to be required of registrants? What
would be the advantages and disadvantages and the costs and benefits of
such an alternative process?
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\46\ See supra note 32.
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Q-30. Should the Commission instead utilize an approach to
demonstration of capabilities similar to the one we use to register
clearing agencies under Exchange Act Section 17A(b)(3)(A) \47\ (which
requires that an exchange have the ``capacity to be able to facilitate
the prompt and accurate clearance and settlement of securities
transactions and derivative agreements, contracts and transactions for
which it is responsible, to safeguard securities and funds in its
custody or control or for which it is responsible, to comply with the
provisions of [the Exchange Act] and the rules and regulations
thereunder, [and] to enforce [* * *] compliance by its participants
with the rules of the clearing agency, and to carry out the purposes of
this section'')? Would such a standard provide additional clarity as to
the capabilities to be required of registrants? What would be the
advantages and disadvantages and the costs and benefits of such an
alternative process?
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\47\ See supra note 33.
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Q-31. Should the form of Senior Officer Certification an SBS Entity
must file be driven by whether the entity is, or is not, already
registered with the Commission as a broker-dealer or with the CFTC as a
swap dealer or major swap participant? Why or why not? If so, what
forms of certification would be appropriate for use by SBS Entities
that are already registered with one of the Commission or the CFTC?
What would be the comparative advantages, disadvantages, costs and/or
benefits of this approach?
Q-32. Should SBS Entities already registered with the Commission as
a broker-dealer or with the CFTC as a swap dealer or major swap
participant be excepted from the requirement to file a Senior Officer
Certification? Why or why not? What would be the comparative
advantages, disadvantages, costs and/or benefits of this approach?
Q-33. If an SBS Entity were also registered with the Commission as
a broker-dealer and an SRO were to conduct a ``material change in
business review'' of the SBS Entity's security-based swap business,
should the SBS Entity be permitted to rely on the SRO's review and
approval of that new business as a basis for its Senior Officer
Certification? Would the form of Senior Officer Certification affect
the SBS Entity's ability to rely on such a review and approval? If so,
how and why? Given that SBS Entities that are also registered as
broker-dealers would be required by existing SRO rules to undergo a
material change in business review, are there any advantages and
disadvantages or costs and benefits associated with reliance on an SRO
``material change in business review'' and approval as a basis for its
Senior Officer Certification?
Q-34. Similarly, if an SBS Entity were also involved in swap
activity, could that entity use any CFTC, NFA or prudential regulatory
agency's review of its swap business to inform its Senior Officer
Certification to the Commission? Would the form of Senior Officer
Certification affect the SBS Entity's ability to rely on such a review
and approval? If so, how and why? Are there any advantages and
disadvantages or costs and benefits associated with reliance on a CFTC,
NFA or prudential regulatory agency's review of its swap business as a
basis for its Senior Officer Certification?
Q-35. Would the Senior Officer Certification requirement
effectively require an SBS Entity to employ a third party's services to
examine or confirm conclusions required for the certification? Why or
why not? If third party services were effectively required, what would
be the advantages and disadvantages and costs and benefits of such
third party services?
Q-36. Should we include the due inquiry requirement in the rule?
Should we instead specify particular steps a senior officer must take
to determine whether the SBS Entity has the requisite capabilities?
Q-37. Should the senior officer of an SBS Entity be required to
disclose on Form SBSE-C or elsewhere, the nature of the ``due inquiry''
he or she performed before signing Form SBSE-C and his or her resulting
findings and conclusions? Why or why not?
Q-38. Should the Commission define its expectations with respect to
the ``due inquiry'' a senior officer should perform

[[Page 65793]]

before signing Form SBSE-C? If so, what should be included as part of a
senior officer's ``due inquiry?'' Should ``due inquiry'' differ
depending on whether the SBS Entity is an SBS Dealer or a major
security-based swap participant? Please explain.
Q-39. Is the timeframe within which the proposed Senior Officer
Certification would need to be filed appropriate? If not, should the
timeframe be shorter or longer and why?
Q-40. Should the Commission eliminate the requirement that a senior
officer certify that he or she has documented the process by which he
or she reached his or her determination regarding the SBS Entity's
capacity? Why or why not? Should the Commission instead simply require
that a senior officer document this process and require that the SBS
Entity maintain those documents as part of its books and records? Would
a senior officer believe that he or she may be second-guessed if, among
other circumstances, the senior officer certifies as to an SBS Entity's
capabilities but does not retain documentation demonstrating how he or
she reached this determination?
iii. Electronic Filing
Paragraph (c) of proposed Rule 15Fb2-1 would address the manner in
which the application, certification, and any additional registration
documents would be filed with the Commission. Proposed paragraph (c)(1)
would require applications, certifications, and any additional
documents to be filed electronically. The Commission anticipates that
the EDGAR system will be expanded to facilitate registration of SBS
Entities because it likely would provide the most cost-effective
solution.\48\
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\48\ To the extent the Commission utilizes the EDGAR system to
facilitate registration of SBS Entities, applicants would need to
utilize the EDGAR Filer Manual (as defined in 17 CFR 232.11) to
facilitate their filing of applications electronically. The EDGAR
Filer Manual contains all the technical specifications for filers to
submit filings using the EDGAR system. Generally, entities filing
documents in electronic format through the EDGAR system must comply
with the applicable provisions of the EDGAR Filer Manual in order to
assure the timely acceptance and processing of those filings.
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Proposed paragraph (c)(2) of proposed Rule 15Fb2-1 would specify
the effective date of filing of applications and certifications
submitted pursuant to the paragraphs (a) and (b). Subparagraph
(c)(2)(i) would provide that an SBS Entity's application submitted
pursuant to paragraph (a) would be considered filed only when a
complete Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, and
all required additional documents are filed with the Commission or its
designee. Subparagraph (c)(2)(ii) would provide that an SBS Entity's
certification submitted pursuant to paragraph (b) would be considered
filed when a complete Form SBSE-C is filed electronically with the
Commission or its designee.
If a technological means to facilitate receipt and retention of
applications is not functional by the time final rules are adopted,
proposed temporary Rule 15Fb2-2T, described more fully below, would
require SBS Entities to file applications and additional documents in
paper form.
The Commission requests comment on the proposed method for
receiving applications.
Q-41. Should the Commission not require electronic submission of
applications? If not, why?
Q-41. Instead of expanding the EDGAR system to receive SBS Entity
applications for registration, should the Commission utilize some other
system? Please explain. What would be the comparative advantages and
disadvantages and costs and benefits of utilizing a system other than
EDGAR?
Q-43. What would be the advantages and disadvantages and costs and
benefits to prospective applicants of expansion of the EDGAR system to
receive SBS Entity applications for registration, especially with
respect to the varying levels of familiarity that they may have with
this system?
Q-44. Should the Commission designate another entity to facilitate
the electronic receipt of applications? Why or why not? If so, what
types of entities should we consider?
Q-45. What other issues, if any, should the Commission consider in
connection with electronic filing?
iv. Standards for Granting or Denying Applications
Paragraph (d) of proposed Rule 15Fb2-1 would provide that the
Commission may grant or deny an application for registration, and would
set forth the standards the Commission would use to make that
determination. The grant or denial of a conditional registration would
depend principally on the completeness of an application, whether the
applicant is subject to a statutory disqualification, and whether the
Commission is aware of inaccurate statements in the application. The
grant or denial of an ongoing registration would also require that the
Commission find that the requirements of Exchange Act Section 15F(b)
are satisfied. As noted in Part I above, conditionally registered SBS
Entities would need to obtain ongoing registration to continue doing a
security-based swap business once their conditional registration
expires.\49\
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\49\ Proposed Rule 15Fb3-1(b)(1) would provide that conditional
registrations granted pursuant to paragraph (d)(1) of Proposed Rule
15Fb2-1 would expire on the Last Compliance Date for SBS Entities
that filed a complete application before the Last Compliance Date,
unless the SBS Entity files with the Commission a certification on
Form SBSE-C or the Commission extends conditional registration for
good cause. Proposed Rule 15Fb3-1(b)(2) would provide that
conditional registrations granted pursuant to paragraph (d)(1) of
Proposed Rule 15Fb2-1 would expire four months after a major
security-based swap participant files a complete application, if it
filed such application after the Last Compliance Date, unless the
major security-based swap participant files with the Commission a
certification on Form SBSE-C. In both cases, if the Senior Officer
Certification is filed within the given timeframe, conditional
registration is extended by 30 days to allow the Commission time to
determine whether to grant or deny ongoing registration.
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When considering an application for conditional registration,
proposed paragraph 15Fb2-1(d)(1) provides that the Commission would
grant such registration if it finds that the firm's application is
complete, except that the Commission may institute proceedings to
determine whether to deny conditional registration if it finds that the
applicant is subject to a statutory disqualification or the Commission
is aware of inaccurate statements in the application. Such proceedings
would include notice of the grounds for denial under consideration and
opportunity for hearing. At the conclusion of such proceedings, the
Commission would grant or deny such registration.
Paragraph (d)(2) would allow the Commission to grant ongoing
registration to an SBS Entity. It is contemplated that ongoing
registration would be sought by firms that have been conditionally
registered with the Commission, as well as by new firms entering the
marketplace that have not been conditionally registered (e.g., an SBS
Dealer seeking registration after the Last Compliance Date). Paragraph
(d)(2) would specify that the Commission would grant ongoing
registration based on a firm's application and certification. Proposed
paragraph (d)(2) would provide that if the Commission granted
conditional registration to an SBS Entity, the Commission could grant
or deny ongoing registration based on the original application
submitted by the SBS Entity, as amended,\50\ and the certification
submitted to the Commission by the SBS Entity pursuant to paragraph
(b). When considering any

[[Page 65794]]

application for ongoing registration, Rule 15Fb2-1(d)(2) would provide
that the Commission would grant registration if it finds that the
requirements of Exchange Act Section 15F(b) are satisfied, except that
the Commission may institute proceedings to determine whether ongoing
registration should be denied if it does not make such finding or if it
finds that the applicant is subject to a statutory disqualification or
the Commission is aware of inaccurate statements in the application or
certification. Such proceedings would include notice of the grounds for
denial under consideration and opportunity for hearing, and that at the
conclusion of such proceedings, the Commission would grant or deny such
registration.
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\50\ The SBS Entity may have amended its application to address
changes that may have occurred in the intervening period between the
date the application was originally filed and the date the
Commission evaluates whether ongoing registration should be granted.
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As discussed above, the Commission would notify the entity
electronically when conditional or ongoing registration is granted, and
would make information regarding registration status publicly
available.
The Commission requests comment on these proposed standards of
review for granting or denying registration in proposed Rule 15Fb2-
1(d).
Q-46. Should the Commission consider using different standards of
review to grant conditional registration to SBS Entities who apply
before the Last Compliance Date than it uses for major security-based
swap participants that apply for conditional registration after the
Last Compliance Date?
Q-47. Would the standard requiring denial of an application if the
applicant is subject to statutory disqualification cause undue hardship
for any possible applicants? If so, how many applicants are likely to
be affected? Should this standard be refined or eliminated? If
applicants subject to statutory disqualification should be allowed to
register, should they be subject to any additional requirements? Please
explain.
Q-48. Should the Commission consider broader or more limited
standards for granting or denying conditional registration? If so,
please describe the standard that should be used and the reasons why it
would be more appropriate than the standard proposed.
Q-49. Should the Commission consider using a different standard of
review to grant ongoing registration?
Q-50. Should the Commission consider broader or more limited
standards for granting or denying ongoing registration? If so, please
describe the standard that should be used for granting or denying
ongoing registration and the reasons why it would be more appropriate
than the standard proposed.
Q-51. Should the Commission staff base its decision only on a
review of a firm's application (including any additional documents) and
certification or should an on-site examination or some other type of
review be considered? If so, what would be the appropriate scope and
timing of such a review?
Q-52. Is there a need to lengthen or shorten the proposed
timeframes provided for the effectiveness of conditional registration
in paragraph (d)(1)? If so, how long should they be?
Q-53. Should the Commission provide additional guidance regarding
the process for institution of proceedings? For instance, should the
Commission include timeframes within which proceedings would be
instituted and/or a decision to grant or deny registration based on
those proceedings should be provided (e.g., Exchange Act Section
15(b)(1))? If so, what timeframes or other guidance and why?
v. Request for Comment on Additional Registration Considerations
The Commission requests comment on what, if any, alternative
approaches should be considered to meet the Commission's regulatory
objectives in the registration process for SBS Entities and how any
such alternative approaches would compare to the current proposal.\51\
Any such comparison should describe the relative advantages and
disadvantages of each alternative, as well as their relative costs and
benefits.
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\51\ As described in footnote 12 above, the Commission is
presently reviewing the various standards and processes it uses to
facilitate registration, and we would expect that any alternative
processes suggested by commenters here would inform that review.
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Q-54. Should the Commission not adopt a Senior Officer
Certification requirement, and instead seek to satisfy itself during
the registration process, based on documents the SBS Entity may be able
to provide to the Commission, that the SBS Entity has the operational,
financial, and/or compliance capabilities to act as an SBS Dealer or
major security-based swap participant, as applicable? What would be the
advantages and disadvantages and the costs and benefits of such an
alternative process?
Q-55. If the Commission determines to satisfy itself during the
registration process, based on documents the SBS Entity may be able to
provide to the Commission, that the SBS Entity has the operational,
financial, and/or compliance capabilities to act as an SBS Dealer or
major security-based swap participant, as applicable, should the
Commission identify which documents or categories of documents should
be submitted in order to facilitate its review and/or decision? If so,
what types of documents (e.g., business plan, written procedures, or
annual audit statements) should the Commission identify to facilitate
this review and what would be the costs of obtaining or providing such
documents?
Q-56. Should the Commission not adopt a Senior Officer
Certification requirement, and instead require that an SBS Entity
obtain and submit to the Commission an independent third-party review
of its operational, financial, and compliance capabilities or its
written policies and procedures before granting ongoing registration?
What practical considerations--e.g., identifying an appropriate
independent third party, measuring the time, cost, and reliability of
any such review, addressing the types of information to be shared with
a third party and the factors to be considered in its review--would
inform whether such a review would be appropriate? What would be the
advantages and disadvantages and costs and benefits of requiring a
third-party review instead of the Senior Officer Certification?
Q-57. Should the Commission adopt a Senior Officer Certification
requirement, and also require that an SBS Entity employ a third party
to independently review its capabilities to provide a basis for that
Senior Officer Certification? What would be the advantages and
disadvantages and costs and benefits of having an SBS Entity's
capabilities independently reviewed? If such a review were required,
who could perform such a review, what would such review entail, and
should the review be submitted to the Commission along with the
certification? What would be the comparative advantages, disadvantages,
costs and/or benefits of requiring dealers and participants to have
their capabilities independently reviewed?
Q-58. If the Commission required that SBS Entities obtain and
submit an independent third-party review, what types of entities could
perform such a review (e.g., accountants, law firms, consulting firms)
and what independence standards should apply for purposes of conducting
the review? Could a review or examination by another governmental
agency (e.g., the Federal Reserve Board, the CFTC, the Office of the
Comptroller of the Currency) or an SRO constitute an independent third
party review for these purposes? If not, why? Are there any practical
or legal impediments to obtaining or providing to the Commission a
review from a third party

[[Page 65795]]

or a governmental agency or an SRO? If so, could these be addressed by
contract or otherwise?
Q-59. Are there any other forms of oversight that could or should
reinforce or replace the proposed Senior Officer Certification? What
would be the comparative advantages, disadvantages, costs and/or
benefits of such an approach?
Q-60. Are there other approaches to registration the Commission
should consider that, in a cost-effective manner, would both fulfill
the statutory mandate to protect investors, maintain fair, orderly, and
efficient markets, facilitate capital formation, and ensure that the
security-based swap market smoothly transitions from a generally
unregulated marketplace to one that is regulated and subject to
appropriate oversight? If so, please explain which ones and why.
Q-61. If the Commission were to consider an approach to
registration that required something other than a Senior Officer
Certification, would SBS Entities need more time to gather, obtain, or
submit any documents, third party review, or other items than we have
proposed for submission of the Senior Officer Certification (i.e., on
or before the Last Compliance Date or, for participants that apply
after the Last Compliance Date, within four months after it files its
completed application)? If so why or why not?
In the Intermediary Definitions Release,\52\ the Commission
acknowledged that the statutory definitions include a provision stating
that a person may be designated as a dealer for one or more types,
classes or categories of security-based swaps, or activities. Further,
that release indicated that one commenter stated that the Commissions
should allow a person to register as a swap dealer or SBS Dealer for
only a limited set of types, classes or categories of swaps or
security-based swaps.
---------------------------------------------------------------------------

\52\ Intermediary Definitions Release, supra note 5, at 80182.
---------------------------------------------------------------------------

Q-62. Should the registration process be expanded in any way to
allow firms to choose whether they register in a ``full'' or
``limited'' capacity? If so, how?
Q-63. What additional information should be elicited by the
proposed forms to provide the Commission with sufficient information to
determine whether limited (as opposed to full) registration is
appropriate? Should there be separate forms for firms to apply for
limited, as opposed to full, registration? Should there instead be a
separate schedule to the forms as proposed? Should the timing differ
and, if so, how and why?
Q-64. Should an applicant for limited registration be required to
provide the Commission with a different senior officer or other
certification? If so, how should the certification differ?
Q-65. Should the Commission apply a different standard of review
when considering whether to grant or deny limited registration to an
applicant? If so, which one and why?
Q-66. If the Commission were to grant an SBS Entity's application
for limited registration and the SBS Entity later determined that it
would prefer to be fully registered, how should this transition be
effected?

Please provide as much detail as possible in commenting on which of the
above referenced courses of action should be pursued. Please also
provide information regarding possible costs or benefits of each of
these alternatives.

2. Amendments to Application Forms: Proposed Rule 15Fb2-3
Proposed Rule 15Fb2-3 would require an SBS Entity to promptly \53\
amend its Form SBSE, Form SBSE-A, Form SBSE-BD, as applicable, to
correct any information it determines is, or has become, inaccurate for
any reason.\54\ The Commission preliminarily believes this proposed
Rule is necessary in order for it to have access to accurate
information as part of its ongoing oversight of SBS Entities.
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\53\ For purposes of Rule 15b3-1, the Commission has interpreted
the term ``promptly'' to mean within 30 days. (In the Matter of
First Guarantor Securities, Inc., Exchange Act Release No. 32725, 51
S.E.C. 612 (Aug. 6, 1993), which states, ``Absent extraordinary
circumstances, an amendment to Form BD filed beyond thirty days from
the change in information cannot be considered `promptly' filed in
accordance with Rule 15b3-1.'') We preliminarily believe this
standard is also appropriate with respect to the use of this term in
proposed Rule 15Fb2-3.
\54\ This proposed rule is based on Exchange Act Rule 15b3-1,
which is applicable to registered brokers and dealers and has worked
well to assure that broker-dealers promptly amend their
applications.
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The Commission requests comment on all aspects of proposed Rule
15Fb2-3.
Q-67. Should the Commission only require SBS Entities to promptly
update their Forms SBSE, SBSE-A, and SBSE-BD when they become
``materially'' inaccurate?
Q-68. Should SBS Entities instead be required to periodically
update these forms and, if so, what would be an appropriate timeframe
for updating (e.g., monthly, quarterly, annually)? What may be the
comparative costs and benefits of periodic updating vs. ``prompt''
updating?
Q-69. If the Commission requires SBS Entities to promptly update
their Forms SBSE, SBSE-A, and SBSE-BD when they become materially
inaccurate, should it also require that all information on the forms be
updated periodically?
Q-70. Would it be appropriate for the Commission to require that
certain information be updated more frequently than other information?
If so, please describe what information should be subject to more
frequent updates and why, and the frequency with which each such item
should be updated.

B. Associated Persons

1. Certification
Paragraph (b)(6) of Exchange Act Section 15F generally prohibits
SBS Entities from permitting any of their associated persons \55\ who
are subject to a ``statutory disqualification'' (as defined in Exchange
Act Section 3(a)(39)) to effect or be involved in effecting \56\
security-based swaps on behalf of the SBS Entity if the SBS Entity
knew, or in the exercise of reasonable care should have known, of the
statutory disqualification. To provide SBS Entities with a mechanism to
assess their compliance with this provision, paragraph (a) of proposed
Rule 15Fb6-1 would require that an SBS Entity certify, on Schedule G of
Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, that no person
associated with it who effects or is involved in effecting security-
based swaps on its behalf is subject to statutory disqualification, as
defined in Section 3(a)(39) of the Exchange Act.\57\ If an associated
person later becomes

[[Page 65796]]

statutorily disqualified, the SBS Entity would need to ensure that the
associated person does not continue to effect or be involved in
effecting security-based swaps on the SBS Entity's behalf and/or
promptly amend its Schedule G in accordance with proposed Rule 15Fb2-3.
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\55\ 15 U.S.C. 78c(a)(70) generally defines the term ``person
associated with'' an SBS Entity to include: (i) Any partner,
officer, director, or branch manager of an SBS Entity (or any person
occupying a similar status or performing similar functions); (ii)
any person directly or indirectly controlling, controlled by, or
under common control with an SBS Entity; or (iii) any employee of an
SBS Entity. However, it generally excludes persons whose functions
are solely clerical or ministerial.
\56\ The Commission believes that associated persons ``involved
in effecting'' security-based swaps would include, but not be
limited to, persons involved in drafting and negotiating master
agreements and confirmations, persons recommending security-based
swap transactions to counterparties, persons on a trading desk
actively involved in effecting security-based swap transactions,
persons pricing security-based swap positions and managing
collateral for the SBS Entity, and persons assuring that the SBS
Entity's security-based swap business operates in compliance with
applicable regulations. In short, the term would encompass persons
engaged in functions necessary to facilitate the SBS Entity's
security-based swap business.
\57\ Proposed Rule 15Fb1-1(b), described below, would require
each SBS Entity to maintain a manually signed copy of this
certification as part of its books and records until at least three
years after the certification has been replaced or is no longer
effective.
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To support this certification requirement, paragraph (b) of
proposed Rule 15Fb6-1 would require SBS Entities to obtain a
questionnaire or application for employment executed by each of its
associated persons that effect or are involved in effecting security-
based swaps on its behalf; such questionnaire or application would
serve as a basis for a background check of the associated person to
determine whether the associated person is statutorily disqualified.
The questionnaires or applications would be required to contain, at a
minimum, the following information: (1) The associated person's name,
address, social security number, Central Registration Depository
(``CRD'') number (if any), Investment Adviser Registration Depository
(``IARD'') number (if any), and the starting date of the associated
person's employment or other association with the SBS Entity; (2) the
associated person's date of birth; (3) a complete, consecutive
statement of all the associated person's business connections for at
least the preceding ten years, including whether the employment was
part-time or full-time; (4) a record of any denial of membership or
registration, and of any disciplinary action taken, or sanction
imposed, upon the associated person by any federal or state agency, by
any national securities exchange or national securities association, or
by a foreign financial regulatory authority including any finding that
the associated person was a cause of any disciplinary action or had
violated any law; (5) a record of any denial, suspension, expulsion or
revocation of membership or registration of any broker, dealer, SBS
Dealer, or major security-based swap participant with which the
associated person was associated in any capacity when such action was
taken; (6) a record of any permanent or temporary injunction entered
against the associated person or any broker, dealer, SBS Dealer, or
major security-based swap participant with which the associated person
was associated in any capacity at the time such injunction was entered;
(7) a record of any arrest or indictment for any felony, or any
misdemeanor pertaining to securities (including security-based swaps),
futures or commodities (including swaps), banking, insurance or real
estate (including, but not limited to, acting or being associated with
a broker-dealer, investment company, investment adviser, futures
sponsor, bank, or savings and loan association), fraud, false
statements or omissions, wrongful taking of property or bribery,
forgery, counterfeiting or extortion, and the disposition of the
foregoing; and (8) a record of any other name or names by which the
associated person has been known or which the associated person has
used.
The Commission believes that it is standard in the financial
services industry for firms to request this information on employment
questionnaires. This information is similar to the information
identified in Exchange Act Rule 17a-3(a)(12)(i) and required to be
collected by broker-dealers with respect to their associated persons.
Additionally, Form U-4 contains all the information needed pursuant to
Exchange Act Rule 17a-3(a)(12)(i) and would fulfill the requirement to
obtain a questionnaire or application specified in Rule 15Fb6-1(b).
Rule 17a-3(a)(12)(i) and Form U-4 provide broker-dealers with
information through which they can perform background checks on
associated persons necessary to assure that those associated persons
are not subject to statutory disqualification. Moreover, the NFA
collects similar data on associated persons of its members through the
Form 8-R. Consequently, we preliminarily believe it would be
appropriate for SBS Entities to collect this information on associated
persons to allow them to conduct background checks so that they can
comply with the prohibition in Section 15F(b)(6) of the Exchange Act
from allowing statutorily disqualified individuals to effect or be
involved in effecting SBS transactions on their behalf.
In addition, paragraph (b) of proposed Rule 15Fb6-1 would require
that the SBS Entity's chief compliance officer (``CCO'') (appointed in
accordance with Exchange Act Section 15F(k)), or his or her designee,
review and sign each questionnaire or application.\58\ This provision
is designed to help ensure that due regard is being paid to this
requirement to collect information on employees and to help ensure that
none of the SBS Entity's employees who effect or are involved in
effecting security-based swaps on the SBS Entity's behalf is subject to
statutory disqualification. Moreover, to the extent the SBS Entity's
CCO, or his or her designee, must sign the certification, this
requirement helps ensure that the CCO is aware of this statutory
prohibition and is familiar with the SBS Entity's procedures to comply
with it.
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\58\ Applicants may already have this information on their
employees, but may not have a CCO, as required pursuant to new
Section 15F(k) of the Act, until the effective date of rules the
Commission may promulgate under Section 15F(k). Security-based swap
dealers and major security-based swap participants could be
conditionally registered even if a CCO has not signed each
associated person's questionnaire or application.
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Finally, paragraph (c) of proposed paragraph 15Fb6-1 would require
that each SBS Entity maintain the questionnaires and applications for
employment obtained pursuant to paragraph (b) as part of its books and
records for at least three years after the associated person has
terminated his or her association with the SBS Entity. It is likely
that SBS Entities would retain these records for business purposes;
however, this requirement will assure that the questionnaires and
applications are available to the Commission during inspections and
examinations.
The Commission requests comment on proposed Rule 15Fb6-1.
Q-71. Would the information regarding associated persons in
paragraph (b) of the proposed rule be sufficient for a CCO to make the
required certification? Why or why not?
Q-72. Should the information requirements in paragraph (b) be
modified in any way?
Q-73. Should applicants be required to obtain any additional
information not specified in proposed paragraph (b)?
Q-74. Should the Commission require that SBS Entities perform
background checks on their employees (e.g., to confirm that their
associated persons do not have a criminal history) in addition to
obtaining questionnaires or applications? Why or why not?
Q-75. If not, what other process could the Commission use to help
ensure that an applicant is not violating Exchange Act Section
15F(b)(6)?
Q-76. Should the Commission require applicants to require credit
checks on associated persons? Why or why not?
Q-77. What, if any, practical or legal limitations or barriers
exist that would hinder an applicant from obtaining background or
credit checks?
Q-78. Should the Commission require applicants to obtain and
process fingerprints of their associated persons that will be effecting
or involved in effecting security-based swaps on the applicant's
behalf? Why or why not?
Q-79. What, if any, practical or legal limitations or barriers
exist that would hinder an applicant from obtaining or running
fingerprints of associated persons?

[[Page 65797]]

Q-80. Should the Commission instead treat the provisions of Section
15F(b)(6) as essentially self-executing and permit SBS Entities to
determine how best to screen associated persons to ensure they are not
subject to a statutory disqualification (provided that they exercise
reasonable care in so doing) and require that an SBS Entity create and
maintain reasonable policies and procedures for determining whether an
associated person is subject to a statutory disqualification? Why or
why not?
Q-81. What would be the benefits and risks of this approach?
Q-82. Would this approach be more or less burdensome for SBS
Entities to administer?
Q-83. Would SBS Entities nevertheless implement an approach similar
to that required under the proposed rule?
Q-84. How might an SBS Entity comply with Section 15F(b)(6) in ways
that differ from what is set forth in the proposed rule?
Q-85. Would this alternative policies and procedures approach
provide SBS Entities sufficient legal certainty about whether they have
properly complied with Section 15F(b)(6)?
Q-86. Should the Commission require that associated persons of SBS
Entities that effect or are involved in effecting security-based swaps
on behalf of the SBS Entity register directly with it? What would be
the costs or benefits involved with registration of such SBS Entity
associated persons? What, if any, practical or legal limitations or
barriers exist to this approach?
Q-87. Are there other approaches to implementing Section 15F(b)(6)
that the Commission should consider? Please explain.
Q-88. Should the Commission take a different view regarding which
associated persons should be considered to be ``involved in effecting''
security-based swaps on behalf of the SBS Entity (see footnote 34)? If
so, should additional categories of associated persons be included or
should certain identified categories of associated persons be excluded?
For what reason(s)?
2. Alternative Process
Section 15F(b)(6) expressly authorizes the Commission to establish
exceptions to this prohibition by rule, regulation, or order.\59\ This
authority is similar to authority provided to the Commission with
respect to the ``traditional'' securities industry, i.e., the industry
regulated under the Exchange Act prior to the Dodd-Frank Act
amendments. This existing Exchange Act authority permits SROs, subject
to Commission review, to allow, among other things, a person subject to
a statutory disqualification to associate with a broker-dealer.\60\
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\59\ 15 U.S.C. 78o-10(b)(6).
\60\ When such a person seeks admission to or continuance in
membership or association, the Commission and the SRO have the
opportunity to give special review to such person and to restrict or
prevent entry into, or continuance in, the business where
appropriate in the public interest and for the protection of
investors. See Senate Comm. on Banking, Housing, and Urban Affairs,
The Securities Act Amendments of 1989, S. Rep. No. 101-105, at 39
(1989); Provision for Notices by Self-Regulatory Organizations of
Stays of Such Actions; Appeals; and Admissions to Membership or
Association of Disqualified Persons, 42 FR 36409 (Jul. 14, 1977)
(adopting rule 19h-1 under the Exchange Act, 17 CFR 240.19h-1, and
providing rules for process of filing notices, content of notices,
and Commission determination).
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Similarly, Commission Rule 193 (Applications by Barred Individuals
for Consent to Associate) provides a process by which persons that are
not regulated by a SRO (e.g., employees of an investment adviser, an
investment company, or a transfer agent) can seek to reenter the
traditional securities industry despite previously being barred by the
Commission.\61\
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\61\ 17 CFR 201.193.
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The Commission requests comment on whether it should develop an
alternative process to allow associated persons of SBS Entities who are
subject to a statutory disqualification to effect or be involved in
effecting security-based swaps on their behalf.
Q-89. How many SBS Entities and associated persons thereof are
likely to be affected if the Commission does not provide an exemptive
process?
Q-90. Is it possible that an associated person that is an entity
(i.e., not a natural person) that effects or is involved in effecting
security-based swaps on behalf of an SBS Entity would be subject to a
statutory disqualification? If so, should the Commission consider
excepting any such persons from the prohibition in Section 15F(b)(6)?
Under what circumstances and why?
Q-91. Should the Commission except such persons globally (e.g., by
a blanket rule) or on an individual basis (e.g., via a Rule 193-type
process)? What would be the possible costs or benefits of each?
Q-92. Are there certain statutorily disqualified persons who should
not be permitted to remain associated with an SBS Dealer or major
security-based swap participant based upon the nature of the
disqualification?
Q-93. Should there be any differentiation in relief based upon the
nature of the person, e.g. a natural person or an entity? If so, what
type of differentiation and why?

C. Termination of Registration

1. Expiration: Proposed Rule 15Fb3-1
Exchange Act Section 15F(b)(3) provides that ``each registration
under this section shall expire at such time as the Commission may
prescribe by rule or regulation.'' Although there is no Exchange Act
parallel, this provision is similar to Commodity Exchange Act Section
6f(a)(1), which provides that ``each registration shall expire on
December 31 of the year for which issued or at such other time, not
less than one year from the date of issuance, as the Commission may by
rule, regulation, or order prescribe. * * *'' CFTC Rule 3.10(b)
provides, among other things, that persons registered with the CFTC
pursuant to CFTC Rule 3.10 ``will continue to be so registered until
the effective date of any revocation or withdrawal of such
registration.'' Paragraph (a) of proposed Rule 15Fb3-1 would establish
the same continuous registration as is set forth in CFTC Rule 3.10(b),
and would provide that registered SBS Entities would ``continue to be
so registered until the effective date of any cancellation, revocation
or withdrawal of such registration or any other event the Commission
determines should trigger expiration.''
Q-94. Does CFTC Rule 3.10(b) provide an appropriate model to
implement Exchange Act Section 15F(b)(3)? Why or why not?
Q-95. Should the Commission instead allow initial SBS Entity
registrations to expire and require SBS Entities to re-register to
become an ongoing registrant (while providing a grace period for this
re-registration to occur)? If so, what would be an appropriate amount
of time before expiration (e.g., one year, two years, five years, or
some other time period)?
Q-96. Alternatively, should the Commission allow SBS Entity
registrations to expire periodically and require SBS Entities to re-
register periodically (i.e., requiring registrants to ``re-up''
indefinitely on a regular basis)? If so, what would be an appropriate
amount of time before expiration (e.g., annually, every two years,
every five years, or some other time period)? What would be the
advantages, disadvantages, costs and benefits of such an approach?
Q-97. Via what mechanism should any such re-registration be
facilitated? For instance, should an SBS Entity be required to re-apply
by filing a new application? Alternatively, should an SBS Entity be
required to re-certify by filing a new Senior Officer Certification?

[[Page 65798]]

Would some other mechanism be more appropriate? How should any such
mechanism take into account the initial application and registration of
an SBS Entity? How should any such mechanism take into account the SBS
Entity's compliance with applicable rules during the period prior to
the re-registration? Would any type of non-compliance during such
period justify denial of re-registration, or should the nature of the
non-compliance and any remedial actions be taken into account?
Q-98. If re-registration is facilitated by re-certification, would
the proposed form of Senior Officer Certification on Form SBSE-C be the
appropriate or would some other form or language be more appropriate?
For instance, should any re-certification for SBS Entities be drafted
to more closely follow the certification requirement proposed for
municipal advisors (wherein each municipal advisor certifies annually
that it has met its regulatory obligations over the prior period)?
Q-99. If periodic re-registration were required, should re-
registration be based on an SBS Entity's original registration date or
should it be triggered by a calendar date (e.g., on December 31)?
Q-100. Should the same standard of review that applies to ongoing
registration apply in the context of re-registration (see proposed rule
15Fb2-1(d)(2))? If not, what alternative standard of review would be
more appropriate and why?
Q-101. Would any such expiration and re-registration requirement
provide the Commission with a greater ability to enforce compliance
with applicable regulations? Why or why not?
As discussed in Part I above, under paragraph (b)(1) of proposed
Rule 15Fb3-1, conditional registrations granted by the Commission to an
SBS Entity that applies for registration during the transitional period
in accordance with Rule 15Fb2-1(b) would expire on the Last Compliance
Date, unless the SBS Entity files a Senior Officer Certification with
the Commission or its designee on or before the Last Compliance Date;
in which case its conditional registration would be extended for an
additional thirty days (which should allow the Commission staff
sufficient time to review the SBS Entity's application and
certification and determine whether to grant or deny ongoing
registration). Paragraph (b)(2) of proposed Rule 15Fb3-1 would provide
that conditional registrations granted by the Commission to major
security-based swap participants that file applications for
registration after the Last Compliance Date would expire four months
after the major security-based swap participant files its completed
application with the Commission unless the major security-based swap
participant files a Senior Officer Certification with the Commission or
its designee within that four month period; in which case its
conditional registration would be extended for an additional thirty
days. Pursuant to paragraph (c) of proposed Rule 15Fb3-1, the
Commission could extend conditional registration for good cause.
Q-102. Would these timeframes be sufficient to allow conditional
registrants to complete--and the Commission to grant or deny--ongoing
registration? Why or why not?
Q-103. What circumstances should the Commission consider in
determining whether good cause exists to extend an SBS Entity's
conditional registration? Why? Should these circumstances include
situations in which the Commission may need additional time to review
an SBS Entity's application and certification? Why or why not?
Q-104. Should the Commission require that an SBS Entity follow a
particular process to request an extension of the SBS Entity's
conditional registration? For instance, should an SBS Entity be
required to submit a letter requesting an extension and setting forth
the reasons why an extension is necessary? If so, what process would be
appropriate and why?
2. Withdrawal: Proposed Rule 15Fb3-2
Proposed Rule 15Fb3-2 would provide a process by which an SBS
Entity could withdraw from registration with the Commission.\62\ The
proposed rule would require an SBS Entity to file a notice of
withdrawal from registration electronically on Form SBSE-W (described
in more detail below) in accordance with the instructions to the Form.
It also would require that an SBS Entity amend its Form SBSE, Form
SBSE-A, or Form SBSE-BD, as appropriate, in accordance with proposed
Rule 15Fb2-3 to update any inaccurate information prior to filing its
notice of withdrawal from registration.
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\62\ This provision is similar to Exchange Act Rule 15b6-1,
which has historically worked well to facilitate broker-dealer
withdrawals.
---------------------------------------------------------------------------

Paragraph (b) of proposed Rule 15Fb3-2 would provide that a notice
of withdrawal from registration filed by an SBS Entity would generally
become effective on the 60th day after the SBS Entity files Form SBSE-
W. However, based on its experience with registered broker-dealers, the
Commission recognizes that there may be circumstances in which it would
be advisable to provide flexibility in scheduling the termination of
business operations to registered entities seeking to withdraw from
registration. Further, the Commission may determine that it would be
appropriate for a registered entity that is under investigation by the
Commission to maintain its registered status in order to allow the
Commission to conclude a pending investigation without prematurely
instituting a proceeding to impose conditions on the registered
entity's withdrawal. In such instances, it may better serve the
interests of all parties to have the registered entity consent to an
extension of the effective date of the registered entity's withdrawal
from registration beyond the general 60-day period provided for in the
proposed rule. It also may be appropriate to permit the Commission to
extend the effective date for a period if it determines, by order, that
it is necessary or appropriate in the public interest or for the
protection of investors.
Thus, paragraph (b) of proposed Rule 15Fb3-2 would identify
specific situations in which notices of withdrawal from registration
will not become effective on the 60th day. These would include
situations where (1) The Commission determines that a shorter period is
appropriate, (2) the SBS Entity consents to a longer period, (3) the
Commission, by order, determines that a longer period is necessary or
appropriate in the public interest or for the protection of investors,
and (4) the Form SBSE-W is filed subsequent to the date of the issuance
of a Commission order instituting proceedings to censure, place
limitations on the activities, functions or operations of, or suspend
or revoke the registration of the SBS Entity. Finally, paragraph (b) of
proposed Rule 15Fb3-2 would provide that if the Commission institutes
proceedings prior to the effective date of Form SBSE-W (1) To censure,
place limitations on the activities, functions or operations of, or
suspend or revoke the registration of the SBS Entity, or (2) to impose
terms or conditions upon the SBS Entity's withdrawal, the notice of
withdrawal shall not become effective except at such time and upon such
terms and conditions as the Commission deems necessary or appropriate
in the public interest or for the protection of investors.
The Commission requests comment on all aspects of proposed Rule
15Fb3-2.
Q-105. Would the proposed withdrawal process be workable for SBS
Entities? Are the proposed timeframes reasonable for these entities?
Why or why not?

[[Page 65799]]

Q-106. Under what other circumstances, if any, should the
Commission shorten or lengthen the timeframe for withdrawal?
3. Cancellation and Revocation: Proposed Rule 15Fb3-3
Proposed Rule 15Fb3-3 would provide the Commission with the ability
to either cancel or revoke a registered SBS Entity's registration. More
specifically, paragraph (a) of proposed Rule 15Fb3-3 would allow the
Commission to cancel an SBS Entity's registration if the Commission
finds that it is no longer in existence or has ceased to do business as
an SBS Entity.\63\ The cancellation process outlined in paragraph (a)
is intended to be ministerial in nature, and not a means to revoke
without due process the registration of an SBS Entity that may have
violated federal securities laws. This provision is designed to help
the Commission allocate its examination and other resources to entities
that are actively engaged in business regulated by the Commission.
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\63\ This provision is similar to Exchange Act Section 15(b)(5).
---------------------------------------------------------------------------

Paragraph (b) of proposed Rule 15Fb3-3 cross-references the
Exchange Act to clarify that the Commission shall censure, place
limitations on the activities, functions, or operations of, or revoke
(on a permanent or temporary basis) the registration of any SBS Dealer
or major security-based swap participant that has registered with the
Commission if it makes a finding as specified in Section 15F(l)(2) of
the Exchange Act.\64\
---------------------------------------------------------------------------

\64\ 15 U.S.C. 78o-10(l).
---------------------------------------------------------------------------

Q-107. Is the proposed provision for cancellation of registration
appropriate in the context of SBS Entities? Why or why not?
Q-108. Would there be occasion for SBS Entities to have an extended
pause in their businesses such that they might appear to have ceased to
do business? If so, should the Commission provide that such entities
could notify the Commission of their intent to stay in business,
notwithstanding their lack of current activities? Should such entities
later inform the Commission when they become active?
Q-109. Should there be a time limit on how long such an SBS Entity
could retain its registration with the Commission while it is in a
``dormant'' state?
Q-110. Does the proposed provision for revocation in paragraph (b)
provide sufficient procedural safeguards for registered SBS Entities?
If not, what procedures could be added to provide additional
safeguards?

D. Special Requirements for Nonresident SBS Entities

Proposed Rule 15Fb2-4 would require, among other things, that
nonresident SBS Entities that are required to register with the
Commission \65\ (1) Appoint an agent for service of process in the
United States (other than the Commission or a Commission member,
official or employee) upon whom may be served any process, pleadings,
or other papers in any action brought against the nonresident SBS
Entity, (2) furnish the Commission with the identity and address of its
agent for services of process, (3) certify that the firm can, as a
matter of law, provide the Commission with prompt access to its books
and records and can, as a matter of law, submit to onsite inspection
and examination by the Commission, and (4) provide the Commission with
an opinion of counsel concurring that the firm can, as a matter of law,
provide the Commission with prompt access to its books and records and
can, as a matter of law, submit to onsite inspection and examination by
the Commission.
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\65\ The Commission has received questions as to how the
registration requirements for SBS Entities would apply to non-U.S.
persons. The Commission is continuing to consider the application of
Title VII of the Dodd-Frank Act to non-U.S. persons and intends to
address these issues in a separate release, and notes that the
proposals described herein with respect to nonresident SBS Entities
will be informed by the considerations and comments raised in
connection with that release. See, e.g., Letter from Barclays Bank
PLC, BNP Paribas S.A., Deutsche Bank AG, Royal Bank of Canada, The
Royal Bank of Scotland Group PLC, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, and UBS AG to David A. Stawick, Secretary,
CFTC, Elizabeth M. Murphy, Secretary, SEC, and Jennifer J. Johnson,
Secretary, Board of Governors of the Federal Reserve System (Jan.
11, 2011); Letter from Sarah A. Miller, Chief Executive Officer,
Institute of International Bankers, to Elizabeth M. Murphy,
Secretary, SEC, and David A. Stawick, Secretary, CFTC (Jan. 10,
2011); Letter from Barclays Bank PLC, BNP Paribas S.A., Credit
Suisse AG, Deutsche Bank AG, HSBC, Nomura Securities International,
Inc., Rabobank Nederland, Royal Bank of Canada, The Royal Bank of
Scotland Group PLC, Soci[eacute]t[eacute] G[eacute]n[eacute]rale,
The Toronto-Dominion Bank, and UBS AG to David A. Stawick,
Secretary, CFTC, Elizabeth M. Murphy, Secretary, SEC, and Jennifer
J. Johnson, Secretary, Board of Governors of the Federal Reserve
System (Feb. 17, 2011); and Letter from Laura J. Schisgall, Managing
Director and Senior Counsel, Soci[eacute]t[eacute]
G[eacute]n[eacute]rale, to Elizabeth M. Murphy, Secretary, SEC, and
David A. Stawick, Secretary, CFTC (Feb. 18, 2011). The Commission is
also considering the approach outlined in the letter from Katsunori
Mikuniya, Commissioner & Chief Executive, Financial Services Agency,
Government of Japan, to Gary Gensler, Chairman, U.S. Commodity
Futures Trading Commission (Apr. 1, 2011).
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Paragraph (a) of proposed Rule 15Fb2-4 would define the term
``nonresident security-based swap dealer'' and ``nonresident major
security-based swap participant,'' for purposes of Rule 15Fb2-4. Under
this definition, an SBS Entity that is incorporated any place that is
not in the United States would be considered to be a nonresident. In
addition, an SBS Entity that has its principal place of business in any
place not in the United States would be considered to be a nonresident.
Q-111. Should the terms ``nonresident security-based swap dealer''
and ``nonresident major security-based swap participant'' be defined
differently and, if so, how should the definitions be amended and why?
1. United States Agent for Service of Process
Paragraphs (b)(1) and (2) of proposed Rule 15Fb2-4 would require
that each nonresident SBS Entity registered or registering with the
Commission obtain a written irrevocable consent and power of attorney
appointing an agent for service of process in the United States (other
than the Commission or a Commission member, official or employee) upon
whom may be served any process, pleadings, or other papers in any
action brought against the nonresident SBS Entity and furnish the
Commission with the identity and address of its agent for services of
process on Schedule F \66\ to Form SBSE, Form SBSE-A, or Form SBSE-BD,
as applicable.\67\ These requirements are important to facilitate the
Commission and others (for example, the U.S. Department of Justice and
any other agency with the power to enforce the Exchange Act) to serve
process on a nonresident SBS Entity to enforce the Exchange Act.
Paragraph (b)(4) of the proposed rule also would require that
registered nonresident SBS Entities must promptly appoint a successor
agent if it discharges its identified agent for service of process or
if its agent for service of process is unwilling or unable to accept
service on its behalf.\68\ Further, proposed paragraph (b)(3) would
require that registered SBS Entities promptly inform the Commission,
through an amendment of the Schedule F of Form SBSE, Form SBSE-A, or
Form SBSE-BD, as appropriate, of any change to either its agent for
service of process or the name or address of its existing agent for
service of process. Finally, paragraph (b)(5) of proposed Rule 15Fb2-4
would require that the registered nonresident

[[Page 65800]]

SBS Entity maintain, as part of its books and records, the agreement
identified in paragraph (b)(1) for at least three years after the
agreement is terminated.
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\66\ The Schedule F is discussed more fully below as part of the
discussion of the Forms.
\67\ Paragraphs (b)(1) and (b)(2) of proposed Rule 15Fb2-4,
respectively.
\68\ Paragraph (b)(3) of proposed Rule 15Fb2-4.
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The Commission requests comment on all aspects of the requirement
for nonresident SBS Entities to appoint an agent in the United States
to receive service of process, pleadings or papers in any action
brought against the nonresident SBS Entity.
Q-112. Should only certain types of entities (such as law firms) be
allowed to act as U.S. agent for service of process?
Q-113. Should these requirements be expanded to require nonresident
SBS Entities to appoint a U.S. agent for purposes of all potential
legal proceedings, including those from non-governmental entities, or
is this already adequately addressed by contract?
Q-114. Should the Commission require nonresident SBS Entities to
provide the Commission with additional information not required of U.S.
SBS Entities, such as verification of any non-U.S. registrations?
Q-115. Is the three year time frame for which an SBS Entity would
be required to maintain, as part of its books and records, the
agreement appointing its agent for service of process appropriate?
Would a longer or shorter time period be more appropriate?
2. Access to Books and Records of Nonresident SBS Entity
Proposed Rule 15Fb2-4(c)(1), regarding access to books and records,
would require that each nonresident SBS Entity registering with the
Commission \69\ provide an opinion of counsel and certify on Schedule F
of Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, that it
can, as a matter of law, provide the Commission with prompt access to
its books and records and can, as a matter of law, submit to onsite
inspection and examination by the Commission.\70\ The Commission
preliminarily believes that the nonresident SBS Entity certification
and supporting opinion of counsel is important to confirm that each
nonresident SBS Entity located overseas has taken the necessary steps
to be in the position to provide the Commission with prompt access to
its books and records and to be subject to inspection and examination
by the Commission. To effectively fulfill its regulatory oversight
responsibilities with respect to nonresident SBS Entities registered
with it, the Commission must have access to those entities' records and
the ability to examine them; however, certain foreign jurisdictions may
have laws that complicate the ability of financial institutions such as
nonresident SBS Entities located in their jurisdictions from sharing
and/or transferring certain information including personal financial
data of individuals that the financial institutions come to possess
from third persons (e.g., personal data relating to the identity of
market participants or their customers). The required certification and
opinion of counsel regarding the nonresident SBS Entity's ability to
provide prompt access to books and records and to be subject to
inspection and examination will allow the Commission to better evaluate
a nonresident SBS Entity's ability to meet the requirements of
registration and ongoing supervision. Failure to make this
certification or provide an opinion of counsel may be a basis for the
Commission to deny an application for registration.
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\69\ See supra note 65.
\70\ In accordance with Proposed Rule 15Fb1-1(b), the SBS Entity
will need to maintain a manually signed copy of this certification
as part of its books and records until at least three years after
the certification has been replaced or is no longer effective.
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Paragraph (c)(2) of proposed Rule 15Fb2-4 would require that
registered nonresident SBS Entities re-certify, on Schedule F to Form
SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, within 90 days after
any changes in the legal or regulatory framework that would impact the
nonresident SBS Entity's ability to provide, or the manner in which it
provides, the Commission prompt access to its books and records or
impacts the Commission's ability to inspect and examine the nonresident
SBS Entity. The re-certification would be required to include a revised
opinion of counsel describing how, as a matter of law, the entity will
continue to meet its obligations to provide the Commission with prompt
access to its books and records and to be subject to Commission
inspection and examination under the new regulatory regime. If a
registered nonresident SBS Entity becomes unable to comply with this
certification because of such changes, or otherwise, then this may be a
basis for the Commission to revoke the nonresident SBS Entity's
registration.
The Commission requests comment on all aspects of the certification
and opinion of counsel requirements contained in paragraph (c) of
proposed Rule 15Fb2-4.
Q-116. Will this certification requirement provide the Commission
with adequate assurance that nonresident SBS Entities will be able to
provide the Commission with access to records?
Q-117. Should the Commission specify that the opinion of counsel
contain any additional information? For instance, should the
requirement clarify that the opinion of counsel reference the
applicable local law or, in the case of an amendment, the manner in
which the local law was amended?
Q-118. As described above, certain foreign jurisdictions may have
laws that complicate the ability of financial institutions such as
nonresident SBS Entities located in their jurisdictions from sharing
and/or transferring certain information. What impact may the
requirement that a nonresident SBS Entity obtain and submit the
described opinion of counsel have on a nonresident SBS Entity's ability
to register in the United States in such circumstances or otherwise?
Are there circumstances where it would be impossible or impractical for
the nonresident SBS Entity to obtain the opinion of counsel? Would a
nonresident SBS Entity need to cease doing business in the United
States or with U.S. persons solely because of this requirement? Why or
why not?
Q-119. If the described opinion of counsel were not required, what
alternatives would the Commission have to assure that it is able to
access a registered nonresident SBS Entity's books and records and
examine the registered nonresident SBS Entity in order to effectively
fulfill its oversight responsibilities? What are the relative
advantages or disadvantages of any such alternatives?
Q-120. Should the requirement that an SBS Entity obtain an amended
opinion of counsel and re-certify its ability to provide the Commission
with access to records be limited in any way?
Q-121. The Commission has received three comment letters containing
alternative suggestions as to how the Commission should accommodate a
foreign bank with a U.S. affiliate that organizes its business so that
it could engage in security-based swap transactions with U.S. investors
while being subject to a more limited regulatory regime under the
Exchange Act in recognition that it is subject to regulation in its
home country.\71\ The

[[Page 65801]]

Commission requests comment regarding whether the requirement that an
applicant provide an opinion of counsel should be amended to recognize
or facilitate such arrangements. If so, why and in what way should the
requirement be modified? If not, why? Would an amended requirement
provide the Commission with adequate assurance that nonresident SBS
Entities will be able to provide the Commission with sufficient access
to records?
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\71\ See letter to Mr. David A. Stawick, Secretary, CFTC, Ms.
Elizabeth M. Murphy, Secretary, Commission, and Ms. Jennifer J.
Johnson, Secretary, Board of Governors of the Federal Reserve System
from Davis Polk & Wardwell LLP, on behalf of Barclays Bank PLC, BNP
Paribas S.A., Deutsche Bank AG, Royal Bank of Canada, The Royal Bank
of Scotland Group plc, Soci[eacute]t[eacute] G[eacute]n[eacute]rale
and UBS AG, dated January 11, 2011 (http://www.sec.gov/comments/s7-39-10/s73910-9.pdf); letter to Elizabeth M. Murphy, Secretary,
Commission, and David A. Stawick, Secretary, CFTC, dated January 10,
2011 (http://www.sec.gov/comments/s7-39-10/s73910-8.pdf); and letter
to Ananda Radhakrishnan, Director, Division of Clearing and
Intermediary Oversight, CFTC, John M. Ramsay, Deputy Director,
Division of Trading and Markets, Commission, and Mark E. Van Der
Weide, Senior Associate Director, Division of Supervision and
Regulation, Board of Governors of the Federal Reserve System, dated
November 23, 2010 (http://www.sec.gov/comments/s7-34-10/s73410-3.pdf).
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E. Special Situations

1. Succession: Proposed Rule 15Fb2-5
Proposed Rule 15Fb2-5 would provide a process through which an SBS
Entity could succeed to the business of another SBS Entity.\72\
Consistent with the use of the term in connection with broker-dealer
registration, we propose to consider a ``succession'' to mean that a
successor firm acquires or assumes substantially all of the assets and
liabilities of the predecessor firm.\73\
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\72\ This proposed rule is based on Exchange Act Rule 15b1-3,
which is applicable to registered brokers and dealers and has worked
well to facilitate succession of registrants.
\73\ Registration of Successors to Broker-Dealers and Investment
Advisers, Exchange Act Release No. 31661 (Dec. 28, 1992) (58 FR 7
(Jan. 4, 1993)).
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Proposed Rule 15Fb2-5 would provide that, if an SBS Entity succeeds
to and continues the business of another SBS Entity, the registration
of the predecessor SBS Entity will remain effective as the registration
of the successor if the successor files an application for registration
in accordance with Rule 15Fb2-1 within 30 days after such succession,
and the predecessor files a notice of withdrawal from registration on
Form SBSE-W.
Paragraph (b) of Proposed Rule 15Fb2-5 would allow a successor firm
that succeeds to the business of another for minor reasons, where the
ownership or control of the SBS Entity does not change (e.g., solely
because it is changing its date or state of incorporation, form of
organization, or the composition of a partnership), to simply amend the
registration of the predecessor SBS Entity on Form SBSE, Form SBSE-A,
or Form SBSE-BD, as appropriate, within 30 days after the change.
Q-122. Are these proposed successor rules appropriate for SBS
Entities?
Q-123. Should the concept of succession be the same as used in the
context of broker-dealer registration? Commenters should explain why
any differences would be appropriate.
Q-124. Are the timeframes provided, which seem to work well in the
broker-dealer context, appropriate with respect to SBS Entity
succession?
2. Insolvency: Proposed Rule 15Fb2-6
Proposed Rule 15Fb2-6 would provide a process through which an
executor, administrator, guardian, conservator, assignee for the
benefit of creditors, receiver, trustee in insolvency or bankruptcy or
other fiduciary appointed or qualified by order, judgment or decree of
a court of competent jurisdiction could continue the business of an SBS
Entity.\74\ This is important to allow a fiduciary time to close-out
positions and/or wind down an SBS Entity's business. Under the proposed
rule, the fiduciary would be required to file with the Commission,
within 30 days after entering upon the performance of his or her
duties, an amended Form SBSE, Form SBSE-A, or Form SBSE-BD, as
appropriate, indicating the fiduciary's position with respect to
management of the SBS Entity, along with a copy of the order, judgment,
decree, or other document appointing the fiduciary.
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\74\ The proposed rule is based on Exchange Act Rule 15b1-4,
which applies to broker-dealer registrations. We believe this rule
has worked well to allow fiduciaries to wind-up broker-dealer
businesses without the need to separately register as a broker-
dealer.
---------------------------------------------------------------------------

Q-125. Is proposed Rule 15Fb2-6 appropriate for SBS Entities? If
another process would be more appropriate, please describe it.
Q-126. Should fiduciaries be able to continue the business of an
SBS Entity to facilitate an orderly liquidation? If not, why?
Q-127. Is the proposed 30-day timeframe, which is consistent with
the Rule 15b1-4 requirement for broker-dealer fiduciaries, sufficient
for an SBS Entity fiduciary to make the required filing with the
Commission?
Q-128. Do the close-out provisions in the agreements between the
parties provide sufficient ability for counterparties to close-out open
positions in the event of an SBS Entity default so that a fiduciary
would not be needed? Please explain.

F. Technical Rules

1. Electronic Signatures
Proposed Rule 15Fb1-1 would specify the format required for
signatures to, or within, electronic submissions (including signatories
within the forms and certifications required by Sec. Sec. 240.15Fb2-1,
240.15Fb2-4 and 240.15Fb6-1, discussed below). In addition, paragraph
(b) of proposed Rule 15Fb1-1 would require that each signatory to such
an electronic filing manually sign a signature page or other document
authenticating, acknowledging or otherwise adopting his or her
signature that appears in typed form within the electronic filing
either before or at the time the electronic filing is made. Paragraph
(b) would also require that the SBS Entity create the manually signed
document when the electronic form is submitted, and furnish a copy of
such document to the Commission upon request. Paragraph (c) of proposed
Rule 15Fb1-1 would prohibit a person required to provide a signature on
an electronic submission from having another person sign the form or
certification on his or her behalf pursuant to a power of attorney or
other form of confirming authority. Finally, paragraph (d) would
require that the SBS Entity retain the manually signed document
associated with Schedules F and G of Forms SBSE, SBSE-A, or SBSE-BD, as
appropriate, until at least three years after the form or certification
has been replaced or is no longer effective, and the manually signed
document associated with Form SBSE-C until at least three years after
the Form was submitted to the Commission.
This proposed rule is based on Section 302 of Regulation S-T,\75\
and is designed to require standard formatting of electronic signatures
and provide the Commission with the ability to obtain additional
documents to verify those signatures. In addition, paragraph (c) of
proposed Rule 15Fb1-1 is based on paragraph (d) of Exchange Act Rule
15d-14. The Commission believes that this paragraph is necessary to
assure that persons signing certifications can be held responsible for
their statements.
---------------------------------------------------------------------------

\75\ 17 CFR 232.302.
---------------------------------------------------------------------------

The Commission requests comment on all aspects of Rule 15b1-1.
Q-129. Is it adequate to require an SBS Entity to maintain a signed
copy of each certification as part of its books and records so that it
is available for examiners to review?
Q-130. Should the Commission require SBS Entities to file the
original certifications with the Commission?
Q-131. Are the timeframes for retention of manually signed
documents appropriate? Why or why not? If not, what timeframe or
timeframes may be more appropriate and why?

[[Page 65802]]

2. Temporary Rule To Facilitate Paper Filing of Forms
If a technological means to facilitate receipt and retention of
applications required to be filed in accordance with Rule 15Fb2-1 is
not functional by the time final rules are adopted, proposed temporary
Rule 15Fb2-2T would require an SBS Entity to file its application on
Form SBSE, Form SBSE-A, or Form SBSE-BD, as applicable, and all
additional documents in paper form by sending it to the Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090,
notwithstanding paragraph (c)(1) of Rule 15Fb2-1. In addition, if
proposed temporary Rule 15Fb2-2T is adopted, paragraph (b) would
require that each applicant must resubmit its Form SBSE, Form SBSE-A,
and Form SBSE-BD, as applicable and all additional documents to the
Commission electronically within three months of the date such
technological means to facilitate receipt and retention of applications
becomes functional. Depending on the timing, SBS Entities may also need
to file their Forms SBSE-C in paper format and later resubmit those
Forms electronically.
Proposed temporary Rule 15Fb2-2T would provide a process for the
Commission to receive applications in paper format if a technological
means to facilitate receipt and retention of applications cannot be
completed before final SBS Entity registration rules are adopted.
Further, Proposed temporary Rule 15Fb2-2T would facilitate the
transition of data to an electronic format once such a system becomes
functional. The benefits of an electronic system outweigh additional
costs relating to the need for SBS Entities to file their applications
in both paper and electronic form. In addition, requiring that each SBS
Entity file its application electronically would assure that each firm
can confirm that the data entered into the electronic system is
accurate and complete.
The Commission requests comment on proposed temporary rule 15Fb2-
2T.
Q-132. Is this paper process practicable?
Q-133. Should the Commission instead allow applicants to submit
their applications in PDF form via e-mail?
Q-134. Instead of the process contemplated by paragraph (b) of
proposed Rule 15Fb2-2T, should the Commission reduce the paper filings
to electronic form instead of the applicants?

G. Forms

1. Form SBSE
Proposed Form SBSE is generally based on Form BD--the consolidated
Form used by broker-dealers to register with the Commission, states and
SROs. Form BD has been used to gather and organize certain information
concerning applicants' business operations to facilitate Commission,
state and SRO initial registration decisions, as well as ongoing
examination and monitoring of registrations. Because SBS Entities will
be subject to many requirements similar to those that affect broker-
dealers (e.g., minimum capital, leverage, and business conduct rules
and statutory disqualification prohibitions), the Commission believes
using Form BD as a template for the registration of SBS Entities is
logical and efficient. Key differences from Form BD are outlined below:
The phrase ``broker or dealer'' was changed to ``security-
based swap dealer or major security-based swap participant'' because
Form SBSE will be used by firms to register as SBS Entities and not as
broker-dealers;
References to SROs and jurisdictions were removed except
where they arose in the context of a contractual relationship or
disciplinary proceeding because SBS Entities will generally not be
required to register with SROs or states;
References to branch offices were removed because the SBS
business is generally conducted on a more centralized basis and is not
effected through branch offices;
The General Instructions eliminate the instructions for
filing the form in paper format because we intend to require that the
forms be filed electronically; \76\
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\76\ If a technological means to facilitate the receipt and
retention of applications is not finalized by the time final rules
are adopted and the Commission must adopt proposed Rule 15Fb2-2T,
instructions regarding paper filing would be re-inserted.
---------------------------------------------------------------------------

The Explanation of Terms section is substantially the
same; \77\ however the term ``jurisdiction'' was replaced with the term
``state'' to eliminate potential confusion regarding questions in Item
11 that relate to actions brought in either domestic or foreign
jurisdictions and the term ``foreign financial regulatory authority''
was removed because it is now defined in Exchange Act Section 3(a)(52);
---------------------------------------------------------------------------

\77\ The Explanation of Terms section includes definitions of
the terms applicant, control, state, person, self-regulatory
organization, successor, charged, control affiliate, enjoined,
felony, found, investment or investment-related, involved, minor
rule violation, misdemeanor, order, and proceeding.
---------------------------------------------------------------------------

Item 1-J of Form SBSE would elicit the name and contact
information for the Chief Compliance Officer designated by the
applicant in accordance with Exchange Act Section 15F(k) (broker-
dealers are not now required to provide this information on Form BD);
Item 2b of Form SBSE would elicit information, if a firm
is registering as a major security-based swap participant, regarding
whether the firm is registering because it maintains a substantial
position, has substantial counterparty exposure, or is highly leveraged
relative to its capital position, which will assist the staff in
evaluating its application;
Item 3 of Form SBSE would elicit whether the SBS Entity
intends to use mathematical models to calculate any applicable capital
or margin or to price customer or proprietary positions (whether or not
for regulatory purposes), which will assist the staff in considering
what types of examinations may be required;
Item 4 of Form SBSE would elicit whether the applicant is
subject to regulation by a prudential regulator \78\ because the extent
of the Commission's regulatory responsibilities for entities subject to
regulation by a prudential regulator differ;
---------------------------------------------------------------------------

\78\ The term ``prudential regulator'' is now defined at 15
U.S.C. 78c(a)(74).
---------------------------------------------------------------------------

In addition to eliciting information regarding
recordkeeping arrangements, Item 8 would also query whether the
applicant has any arrangement under which any other person, firm or
organization executes, trades, custodies, clears or settles on behalf
of the applicant (including any SRO or swap execution facility in which
the applicant is a member). This information is designed to provide the
Commission with an understanding of the SBS Entity's business
relationships.
References to the Securities Investor Protection
Corporation in the ``Execution'' section have been eliminated because
SBS Entities are not required to become members of SIPC \79\ and
references to surety bonding and service of process in each state has
also been eliminated because Form SBSE does not facilitate registration
with states (as the Form BD does);
---------------------------------------------------------------------------

\79\ Only SBS Entities that are also registered as a broker-
dealer would be SIPC members. SBS Entities that are also registered
as a broker-dealer will be required to file Form SBSE-BD and not
Form SBSE.
---------------------------------------------------------------------------

Form SBSE would require disclosure of whether the
applicant is registering as an SBS dealer or major security-based swap
participant, the applicant's legal status, whether the applicant is
succeeding to the business

[[Page 65803]]

of another SBS Entity, and the applicant's control relationships; \80\
and
---------------------------------------------------------------------------

\80\ These questions are similar to questions that appear on
pages 2 and 3 of the Form BD.
---------------------------------------------------------------------------

Form SBSE would elicit a description of the applicant's
business in a text box rather than through the use of a list of
possible types of business.
Proposed Form SBSE, like Form BD, would elicit information
regarding criminal disclosures, regulatory action disclosures, civil
judicial disclosures, and financial disclosures. As with Form BD,
``yes'' answers to these questions would require that the applicant
file additional information on disclosure reporting pages (or ``DRPs'')
as a supplement to the Form. As with Form BD, Form SBSE would also
elicit information on whether the applicant is registered with the
Commission as an investment adviser, registered with the CFTC as an
FCM, or whether it is engaged in any other investment-related, non-
securities business.
Schedules A and B, which elicit information regarding direct and
indirect owners and executive officers, would be largely unchanged
(with the exception of the header, the elimination of a request for
social security numbers in the tables): however, the table in Schedule
A has been expanded to elicit information regarding prior investment-
related experience of individual owners who are not otherwise
registered through CRD or IARD to provide the Commission an
understanding of each owner's background and qualifications in light of
the fact that they will not be individually registered as is the case
with owners of broker-dealers. Schedule C would be eliminated because
electronic filing of the forms would make it unnecessary. Schedule D
would be amended slightly to address differences between the security-
based swap business and the broker-dealer business (e.g., there are no
``introducing and clearing arrangements''). In addition, Section IV in
Item D has been expanded to elicit additional information regarding the
nature of the execution, trading, custody, clearing or settlement
arrangement, as well as information regarding any prior investment-
related experience of individual control persons who are not otherwise
registered through CRD or IARD. This information is designed to provide
the Commission with an understanding of the SBS Entity's business
relationships and each control person's respective background and
qualifications in light of the fact that they will not be individually
registered as is the case with owners of broker-dealers. The staff
understands that SBS Entities may conduct security-based swap business
from multiple locations; however, those that would register with the
Commission using Form SBSE likely would not refer to those locations as
``branches.'' Consequently, Schedule E of Form SBSE \81\ would solicit
information regarding locations rather than branches.
---------------------------------------------------------------------------

\81\ Schedule E of Form BD has been replaced by Form BR, which
is designed to enable broker-dealers to register their branch office
locations electronically with SROs and states. See, Self-Regulatory
Organizations; New York Stock Exchange, Inc.; Order Approving
Proposed Rule Change Relating to the Proposed Uniform Branch Office
Registration Form (``Form BR''), Exchange Act Release No. 52543
(Sep. 30, 2005), 70 FR 58771 (Oct. 7, 2005); and Self-Regulatory
Organizations; National Association of Securities Dealers, Inc.;
Order Approving Proposed Rule Change and Amendment No. 1 Thereto and
Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 2 to the Proposed Rule Change Relating to the Proposed
Uniform Branch Office Registration Form (``Form BR'') and Amendments
to the Uniform Application for Securities Industry Registration or
Transfer (``Form U4'') and the Uniform Termination Notice for
Securities Industry Registration (``Form U5''), Exchange Act Release
No. 52544 (Sep. 30, 2005), 70 FR 58764 (Oct. 7, 2005).
---------------------------------------------------------------------------

The proposed form would also include two additional schedules to be
used by SBS Entities--Schedules F and G. Schedule F must be submitted
by nonresident SBS Entities pursuant to proposed Rule 15Fb2-4 to
provide the Commission with information regarding its appointed U.S.
agent for service of process and to certify that it is able to provide
the Commission with prompt access to its books and records.\82\
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\82\ Nonresident broker-dealers must presently file one of four
similar forms (Form 7-M, Form 8-M, Form 9-M or Form 10-M, depending
on the broker-dealer's form or organization) to appoint an agent for
service of process.
---------------------------------------------------------------------------

Schedule G would be required to be submitted by all SBS Entities
pursuant to proposed Rule 15Fb6-1(a). Schedule G would provide each SBS
Entity with a method to certify that none of its associated persons
that are effecting or involved in effecting security-based swaps on its
behalf is subject to statutory disqualification. This Schedule is
designed to provide the Commission with assurance that the SBS Entity
is compliant with Section 15F(b)(6) of the Exchange Act. The Form would
require that the firm's Chief Compliance Officer sign Schedule G.
The Commission intends to use the information disclosed by
applicants in Form SBSE (including the Schedules and DRPs) to determine
whether the applicant meets the standards for registration, and to
fulfill its oversight responsibilities.
The Commission requests comment on all aspects of Form SBSE.
Q-135. Should the registration form for SBS Entities be based on
Form BD, CFTC Form 7-R, or some other form? Please describe the reasons
for choosing a particular form over another.
Q-136. How many firms may apply for registration as SBS Entities?
Q-137. Should any of the instructions or questions on Form SBSE be
amended to recognize particular characteristics of the business of SBS
Entities?
Q-138. Are any of the proposed questions on Form SBSE inapplicable
to the SBS business?
Q-139. Should any questions be added to Form SBSE to elicit
information that is unique to the SBS business or to the SBS Entities
that engage in that business?
Q-140. Is proposed new Schedule F the best method to collect
information regarding a nonresident SBS Entity's agent for service of
process? If not, what other method could the Commission utilize?
Q-141. Is the requirement that an SBS Entity certify on new
Schedule F that it can, as a matter of law, provide the Commission with
access to its books and records and allow the Commission to conduct
onsite inspections the best method to assure the Commission is able to
have such access? If not, what other method could the Commission
utilize?
Q-142. Is it appropriate to require a nonresident SBS Entities to
also submit an opinion of counsel opining on this issue?
Q-143. Is proposed new Schedule G the best method to assure that an
SBS Entity is complying with Section 15F(b)(6) of the Exchange Act? If
not, what other method could the Commission utilize?
Q-144. Would the Form SBSE disclosure requirements present any
unique issues for financial institutions not previously subject to
similar disclosure requirements? If so, please describe.
Q-145. Should Form SBSE include additional Schedules in which the
applicant could provide more detailed information regarding its
business (e.g., a business plan, descriptions of the types of products
the applicant will offer, the types of counterparties it will have,
information regarding the applicant's operational, supervisory and
compliance infrastructure, its major vendors, its clearing
arrangements), similar to what the Commission typically requires of
other types of applicants (e.g., clearing agencies and national
securities exchanges)? If so, what specific types of information should
be required?

[[Page 65804]]

Q-146. If there are changes in this type of information over time,
how frequently should the registrant be required to update the relevant
schedules?
2. Form SBSE-A
CEA Section 4s(c) and Exchange Act Section 15F(c) require that
persons that engage in both swap business and security-based swap
business must separately register with each agency. However, the staff
is proposing that applicants that are not registered with the
Commission as broker-dealers, but that are registered or registering
with the CFTC as either a swap dealer or major swap participant, file
their application for registration on an alternative to Form SBSE, or
Form SBSE-A. Form SBSE-A is a shorter form and is intended to make it
easier for dual applicants to file with both agencies. As part of its
application, a firm filing with the Commission on Form SBSE-A would
need to provide the Commission with a copy of the form it files with
the CFTC to register as a swap dealer or major swap participant. Form
SBSE-A is designed to provide the Commission with data, not included on
the form the applicant must file with the CFTC, that the Commission
believes it will need to adequately review an application for
registration.\83\ While some information elicited via Form SBSE-A also
may be elicited by the CFTC's form, it will be helpful for the
Commission to receive this information directly to allow the Commission
to match the Form SBSE-A with the CFTC Form and to coordinate the
information elicited through Form SBSE-A with other information the
Commission may have on the applicant. The Commission believes that
requiring that these applicants use Form SBSE-A would reduce the costs
and burdens associated with filing distinctly different forms to
register with both the Commission and CFTC.
---------------------------------------------------------------------------

\83\ The CFTC has proposed that swap dealers and major swap
participants file their applications on Form 7-R and accompanying
Form 8-R. Also, see supra note 10. Consequently, the Commission's
assessment of what information applicants should be required to
provide on Form SBSE-A was based on Form 7-R. If the CFTC's
application form for swap dealers or major swap participants
deviates substantially from Form 7-R, the Commission will need to
re-assess the information it would need to collect through Form
SBSE-A. Form 8-R is the Form used for registration of individuals.
---------------------------------------------------------------------------

Proposed Form SBSE-A is loosely based on Form SBSE, which, as
described above is based on Form BD (the Form used by broker-dealers to
register with the Commission). As discussed more fully above, the
Commission has used Form BD to gather information necessary for it and
the SROs to determine whether to grant broker-dealer registration to an
applicant. Key differences from Form SBSE are outlined below:
The General Instructions have been modified to identify
the Form and Schedules to be used to register as an SBS Entity and to
eliminate the instructions for filing in paper format because we intend
to require that the forms be filed electronically; \84\ and
---------------------------------------------------------------------------

\84\ See paragraph (c) of proposed Rule 15Fb2-1.
---------------------------------------------------------------------------

To reduce potential confusion regarding the use of two
forms,\85\ the initial instruction in the Explanation of Terms section
states that terms used in Form SBSE-A that are defined in CFTC Form 7-R
shall have the same meaning as set forth in that form, and terms not
otherwise defined in CFTC Form 7-R have the same meaning as in Form
SBSE.
---------------------------------------------------------------------------

\85\ One to register with the CFTC as a swap dealer or major
swap participant and one to register with the Commission as an SBS
Entity.
---------------------------------------------------------------------------

Item 1.C. on Form SBSE-A would elicit the firm's NFA number. Items
2 through 13 of proposed Form SBSE-A would require that the applicant
identify the capacity in which it is seeking to register with the
Commission, the capacity in which it is registered with or seeking to
register with the CFTC, certain control and business relationships,
succession and other basic information regarding the firm's business.
These questions are similar to information elicited via Form SBSE,
which elicit information not otherwise elicited through Form 7-R but
which the Commission believes is useful to facilitate its oversight of
regulated entities.
Item 2b of Form SBSE-A would elicit information, if a firm is
requesting registration as a major security-based swap participant,
regarding whether the firm is registering because it maintains a
substantial position, has substantial counterparty exposure, or is
highly leveraged relative to its capital position, which will assist
the staff in evaluating its application. Item 3 of Form SBSE-A would
elicit whether the SBS Entity intended to use mathematical models to
calculate capital or margin or to price customer or proprietary
positions because this would highlight for staff the need for a more
extensive review. Item 5 of Form SBSE would elicit whether the
applicant is subject to regulation by a prudential regulator because
the extent of the Commission's regulatory responsibilities for entities
subject to regulation by a prudential regulator differ.\86\
---------------------------------------------------------------------------

\86\ See, e.g., 15 U.S.C. 78o-10(e).
---------------------------------------------------------------------------

Items fourteen and fifteen on Form SBSE-A would elicit information
regarding ``principals.'' The definition of ``principal'' in CFTC Form
7-R is similar to the definition of control affiliate in Form BD. Form
BD requires that an applicant file substantial information on its
control affiliates. We understand that the CFTC presently requires that
individual principals of entities registered with the CFTC file
separate registrations with the CFTC. Consequently, the CFTC would have
information on those individuals regarding any situations that would
cause those individuals to be statutorily disqualified without
requiring that the applicant include that information in its
application. In recognition of this method and to decrease duplication,
item thirteen would require that an applicant identify how many
individual principals it has. Further, the applicant would need to list
those principals on proposed new Schedule A to Form SBSE-A and provide
information regarding those individual principals similar to the
information provided on Schedule A of Form SBSE. Item fifteen asks
whether any principals of the applicant that are entities effect or are
involved in effecting security-based swaps on behalf of the applicant.
If the question is answered in the affirmative, the applicant would
need to provide additional information on Schedule B with respect to
those entities. This information is designed help the Commission better
understand the relationship between the applicant and its principals in
order to assure compliance with Section 15F(b)(6) of the Exchange Act
and to police for manipulation and fraud.
As discussed above, Schedule A of Form SBSE-A would require that an
applicant list all principals that are individuals and provide some
basic information regarding each (e.g., the person's title, NFA number,
and prior investment-related experience). Much of this information is
provided to the Commission via Form BD for broker-dealers, and the CFTC
would already have this information on control persons but, without new
Schedule A to Form SBSE-A, the Commission would not otherwise have this
information. This information is designed to help the Commission better
understand the relationship between the applicant and its principals
and a basic background of those principals in order to assure
compliance with Section 15F(b)(6) of the Exchange Act and to police for
manipulation and fraud.
Schedule B would elicit information regarding other business in
which the applicant is engaged, business

[[Page 65805]]

arrangements, successions, and principals that are not identified in
Schedule A, and is based loosely on Schedule D to Form BD. Schedule C
would elicit information regarding principals that are identified in
Schedule B that would cause those persons to be statutorily
disqualified, and is based on Item 11 in Form BD.\87\ The applicant
would need to file a DRP for every ``yes'' answer in Schedule C. The
Schedules F and G to Form SBSE-A are the same Schedules as described
above in the section regarding Form SBSE.
---------------------------------------------------------------------------

\87\ Any differences between Schedule B to Form SBSE-A and
Schedule D to Form SBSE and between Schedule C of Form SBSE-A and
Item 11 in Form SBSE recognize the fact that Form SBSE-A has been
tailored to collect information not otherwise elicited via Form 7-R
which the Commission has found to be helpful to facilitate its
oversight of the entities it regulates.
---------------------------------------------------------------------------

The Commission intends to use the information disclosed in Form
SBSE-A to determine whether applicants meet the standards for
registration and to fulfill its oversight responsibilities.
Q-147. Is Form SBSE-A properly tailored to decrease costs for dual
registration while still providing the Commission with information
necessary on which to base its decision to grant or deny registration?
Q-148. What are the comparative costs or benefits with respect to
filing Form SBSE versus filing Form SBSE-A for entities filing as both
swap entities with the CFTC and SBS Entities with the Commission?
Q-149. How many firms expect to apply for registration as SBS
Entities and what is the likelihood that those entities will also
register with the CFTC as swap dealers or major swap participants?
Q-150. Will the benefit of being able to file the same form with
the Commission as filed with the CFTC be outweighed by the requirement
to file those forms, as well as additional schedules and documents,
with more than one agency or entity or through more than one electronic
system?
Q-151. Should FCMs registered with the CFTC that are not registered
or registering with the CFTC as either a swap dealer or a major swap
participant be allowed to register with the Commission using Form SBSE-
A?
Q-152. Are any such FCMs likely to register with the Commission as
an SBS Entity?
Q-153. Would it be more cost effective for the Commission to obtain
the data applicants file with the CFTC electronically from the CFTC or
its designee rather than having the applicant file a copy of that form
with the Commission?
Q-154. Should any of the instructions or questions on Form SBSE-A
be amended to recognize particular characteristics of the business of
SBS Entities?
Q-155. Are any of the proposed questions inapplicable to the SBS
business?
Q-156. Should any questions be added to elicit information that is
unique to the SBS business or to the SBS Entities that engage in that
business?
3. Form SBSE-BD
Similar to the Form SBSE-A, the staff is proposing that applicants
that are also registered or registering with the Commission as broker-
dealers file their application for registration on an alternative to
Form SBSE, or Form SBSE-BD.\88\ In addition, any entity that is
registered or registering with the Commission as a broker-dealer and
that is also registered or registering with the CFTC as a swap dealer
or major swap participant would be required to use the Form SBSE-BD.
Form SBSE-BD is based on Form BD, but is designed to provide the
Commission with data not included on the Form BD (to which the
Commission has access). The Commission believes that requiring that
these applicants use Form SBSE-BD would reduce the costs and burdens on
applicants that are already registered or registering with the
Commission as broker-dealers.
---------------------------------------------------------------------------

\88\ Over-the-counter derivatives dealers, a limited form of
broker-dealer established by the Commission in 1998, could also file
on Form SBSE-BD.
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The proposed Form SBSE-BD would consist of a single page that would
elicit information not included on Form BD, such as the capacity in
which the applicant is registering, whether the entity also is
registering with the CFTC and, if so, in what capacity the firm is
registering with the CFTC, if a firm is requesting registration as a
major security-based swap participant--whether the firm is registering
because it maintains a substantial position, has substantial
counterparty exposure, or is highly leveraged relative to its capital
position, whether the SBS Entity intends to use mathematical models to
calculate capital or margin or to price customer or proprietary
positions, whether the firm is subject to oversight by a prudential
regulator and information regarding the applicant's chief compliance
officer. Form SBSE-BD would also require that applicants submit
Schedules F and G, described more fully above.
The Commission intends to use the information disclosed in Form
SBSE-BD to determine whether applicants meet the standards for
registration, and to fulfill its oversight responsibilities.
Q-157. What will the comparative costs or benefits be with respect
to filing Form SBSE versus filing Form SBSE-BD for registered broker-
dealers filing as SBS Entities with the Commission?
Q-158. How many firms expect to apply for registration as SBS
Entities and whether those entities are already registered with the
Commission as broker-dealers?
Q-159. Should any of the instructions or questions be amended to
recognize particular characteristics of the business of SBS Entities?
Q-160. Are any of the proposed questions inapplicable to the SBS
business?
Q-161. Should any questions be added to elicit information that is
unique to the SBS business or to the SBS Entities that engage in that
business?
4. Form SBSE-C
Proposed Form SBSE-C is designed to provide SBS Entities with a
standard format and process through which to file the Senior Officer
Certification required pursuant to proposed Rule 15Fb2-1(b). Form SBSE-
C would need to be filed by all SBS Entities. As described above, SBS
Entities that submitted their applications during the transitional
period would need to file this certification either before the Last
Compliance Date or their conditional registration would expire. Major
securities-based swap participants that submitted their applications
after the Last Compliance Date would need to file this certification
within four months after filing a completed application or their
conditional registration would expire. SBS Dealers that file
applications after the Last Compliance Date would need to file both an
application and a certification simultaneously to be considered for
ongoing registration.
Form SBSE-C includes instructions both requiring electronic
submission and explaining how the form should be filed electronically.
Form SBSE-C would elicit the applicant's name, date, and SEC
number, along with the signature, name and title of the senior officer
signing the certification. The Commission intends to use the
certification provided by Form SBSE-C in determining whether applicants
meet the standards for ongoing registration.
The Commission requests comment on the Form SBSE-C.
Q-162. Should Form SBSE-C require that SBS Entities provide any
additional

[[Page 65806]]

information? If so, how should the form be amended?
Q-163. Should the instructions to Form SBSE-C be amended?
5. Form SBSE-W
Proposed Form SBSE-W is loosely based on Form BDW (the Form used by
broker-dealers to withdraw from registration with the Commission). The
Commission has found Form BDW to be an effective vehicle for gathering
information necessary for it and the SROs to determine whether it is
appropriate to allow a registered broker-dealer to withdraw from
registration. Because SBS Entities will be subject to many requirements
similar to those that affect broker-dealers (e.g., minimum capital,
leverage, and business conduct rules and statutory disqualification
prohibitions), the Commission believes using Form BDW as a template for
the request for withdrawal from registration of SBS Entities is logical
and efficient. Key differences from Form BDW are outlined below:
The distinction regarding full and partial withdrawal was
eliminated from the Form SBSE-W as it is not relevant to the SBS
business; and
Item 4 was added to elicit information regarding the
entity's reason for withdrawal from registration because we believe
this information would be useful when considering a registered SBS
Entity's request to withdraw from registration.
The purpose of proposed Form SBSE-W is to allow the Commission to
determine whether it is in the public interest to permit a registered
SBS Entity to withdraw from registration.
The Commission requests comment on the Form SBSE-W.
Q-164. Given that the Commission has proposed to use different
forms for registration of certain types of applicants, should different
types of forms also be provided for withdrawals from registration? If
so, how should the form or forms be amended?
Q-165. Should the instructions to Form SBSE-W be amended? If so,
how?
6. Tagged Data Formats
As part of the Commission's longstanding efforts to (1) Improve the
accuracy of financial and other filed information, (2) increase the
transparency and usefulness of information, and (3) facilitate analysis
of information provided to the Commission via reports, we have begun
requiring that entities data-tag information contained in electronic
filings.\89\ Data becomes machine readable when it is labeled, or
``tagged,'' using a computer markup language that can be processed by
software programs for analysis. Such computer markup languages (such as
eXtensible Markup Language (XML) and eXtensible Business Reporting
Language (XBRL)) use standard sets of definitions, or ``taxonomies,''
that translate text-based information in Commission filings into
structured data that can be retrieved, searched, and analyzed through
automated means.
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\89\ See Regulation S-T, 17 CFR 232. See also Electronic Filing
and Revision of Form D, Securities Act Release No. 8891 (Feb. 6,
2008) (73 FR 10592 (Feb. 27, 2008)); Interactive Data To Improve
Financial Reporting, Securities Act Release No. 9002 (Jan. 30, 2009)
(74 FR 6776 (Feb 10, 2009)); and Interactive Data for Mutual Fund
Risk/Return Summary, Securities Act Release No. 9006 (Feb. 11, 2009)
(74 FR 7748 (Feb 19, 2009)); Amendments to Rules for Nationally
Recognized Statistical Rating Organizations, Exchange Act Release
No. 61050 (Nov. 23, 2009) (74 FR 63832 (Dec. 4, 2009)); and Money
Market Fund Reform, Investment Company Release No. 29132 (Feb. 23,
2010 (75 FR 10060 (Mar. 4, 2010)).
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In addition to using the data provided via proposed Forms SBSE,
SBSE-A, and SBSE-BD to determine whether to grant or deny registration,
the Commission will make this data public. The fact that counterparties
of SBS Entities would have access to additional, standardized
information could improve competition amongst SBS Entities and would
enable counterparties and the marketplace to expend less time and money
to independently obtain and compile information on SBS Entities to use
in making such choices. Thus, the Commission intends to tag the
information in a machine readable format using a data standard that is
freely available, and that is consistent and compatible with the tagged
data formats already in use for SEC filings, to enable users of that
data to retrieve, search, and analyze the data through automated means.
Q-166. What tagged data language (e.g., XML, XBRL) would be most
appropriate to be used for the required data to be provided via
proposed Forms SBSE, SBSE-A, SBSE-BD, SBSE-C, and SBSE-W?

H. Alternative Approaches Considered

The Commission considered alternative approaches to registration of
SBS Entities. One possibility would be to adopt joint registration
forms with the CFTC, so that SBS Entities could register with both
agencies using the same forms. While there could be benefits to this
approach, we believe that the Commission's streamlined approach will
achieve many of the same benefits.
Another possibility would be for the CFTC to require swap dealers
and major swap participants to register using the Commission's forms,
or for the Commission to require SBS Entities to register using the
CFTC's forms. While this approach might streamline the registration
process for regulated entities, particularly those that intend to
engage in both swaps and SBS business, it would be more difficult for
the agencies to implement given the Commissions' finite resources.
Further, differences between the Commodity Exchange Act and the
Exchange Act and the means to facilitate registration may justify
differences in the forms.

III. Request for Comment

In addition to the questions described above, we are requesting
comments on all aspects of proposed rules 15Fb1-1 through 15Fb6-1 and
Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W, including with respect
to the following questions:
Q-167. Should the Commissions continue to consider whether to
develop a joint registration form?
In addition, Title VII of the Dodd-Frank Act requires that the SEC
consult and coordinate to the extent possible with the CFTC for the
purposes of assuring regulatory consistency and comparability, to the
extent possible, and states that in adopting rules, the CFTC and SEC
shall treat functionally or economically similar products or entities
in a similar manner.
The CFTC is adopting rules related to registration of swap dealers
and major swap participants as required under Section 731 of the Dodd-
Frank Act. Understanding that the Commission and the CFTC regulate
different products and markets, and as such, appropriately may be
proposing alternative regulatory requirements, we request comments on
the impact of any differences between the Commission's approach to the
registration process for SBS Entities and CFTC's approach to the
registration of swap dealers and major swap participants. Specifically:
Q-168. Do the regulatory approaches under the Commission's proposed
rulemaking pursuant to Section 764 of the Dodd-Frank Act and the CFTC's
proposed rulemaking pursuant to Section 731 of the Dodd-Frank Act
result in duplicative or inconsistent efforts on the part of market
participants subject to both regulatory regimes or result in gaps
between those regimes?
Q-169. If so, in what ways do commenters believe that such
duplication, inconsistencies, or gaps should be minimized?
Q-170. Do commenters believe the approaches proposed by the
Commission and the CFTC to register

[[Page 65807]]

SBS Entities and swap dealers and major swap participants are
comparable? If not, why?
Q-171. Do commenters believe there are approaches that would make
the registration of SBS Entities and swap dealers and major swap
participants more comparable? If so, what?
Q-172. Do commenters believe that it would be appropriate for the
Commission to adopt an approach proposed by the CFTC that differs from
our proposal? Is so, which one and why?
We request commenters to provide data, to the extent possible,
supporting any such suggested approaches.
The Commission is cognizant that the proposed rules discussed
herein, as well as other proposals that the Commission may consider in
the coming months to implement the Dodd-Frank Act, if adopted, could
significantly affect--and be significantly affected by--the nature and
scope of the security-based swaps market in a number of ways. For
example, the Commission recognizes that if the measures proposed in
this release are adopted and are too onerous for new entrants, they
could hinder the further development of a market for security-based
swaps by unduly discouraging competition and the formation of new SBS
Dealers and major security-based swap participants. On the other hand,
if the Commission adopts rules that are too permissive, the Commission
may grant registration to firms that may have insufficient capacity,
policies, procedures, or risk management systems. The Commission is
also mindful that the further development of the security-based swaps
market may alter the calculus for future regulation of SBS Dealers and
major security-based swap participants. As commenters review this
release, they are urged to consider generally the role that regulation
may play in fostering or limiting the development of the market for
security-based swaps (or, vice versa, the role that market developments
may play in changing the nature and implications of regulation) and
specifically to focus on this issue with respect to the proposals to
register SBS Dealers and major security-based swap participants.

IV. Paperwork Reduction Act

Certain provisions of proposed Rules 15Fb1-1 through 15Fb6-1 and
Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W contain ``collection of
information requirements'' within the meaning of the Paperwork
Reduction Act of 1995 (``PRA''). The Commission has submitted the
information to the Office of Management and Budget (``OMB'') for review
in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number. The title of this collection is ``Registration Rules for
Security-Based Swap Entities.'' We are applying for a new OMB Control
Number for this collection in accordance with 44 U.S.C. 3507(j) and 5
CFR 1320.13.

A. Summary of Collection of Information

As required by Exchange Act Section 15F, the Commission is
proposing Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-
BD, SBSE-C and SBSE-W to facilitate registration of, certification by,
and withdrawal of SBS Entities.
Pursuant to paragraph (a) of proposed Rule 15Fb2-1, each SBS Entity
would be required to file an application to register with the
Commission. The Commission has sought to reduce burdens and costs
associated with the application process by providing alternate
registration forms for SBS Entities that are registered or registering
either with the CFTC as swap dealers or major swap participants or with
the Commission as broker-dealers. The alternative forms (Form SBSE-A,
and Form SBSE-BD) are both shorter and should require that an SBS
Entity expend less effort to research, complete, and file. It is
anticipated that each SBS Entity would only need to research, complete,
and file one of the proposed Forms.
Proposed Rule 15Fb2-3 would require that SBS Entities promptly
amend their applications if they find that the information contained
therein has become inaccurate. While SBS Entities may need to update
their Forms periodically, each firm will only need to amend that aspect
of the Form that has become inaccurate.
Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS
Entity have a knowledgeable senior officer, after due inquiry, make an
attestation on Form SBSE-C. As discussed more fully above, the
Commission is proposing to require that a senior officer certify that,
after due inquiry, he or she has reasonably determined that the SBS
Entity has the operational, financial, and compliance capabilities to
act as an SBS Dealer or major security-based swap participant, as
applicable, and has documented the process by which he or she reached
such determination. This certification process is designed to allow SBS
Entities to register with the Commission quickly so that they are not
required to suspend their security-based swap business, while providing
the Commission with a basis to take final action on SBS Entity
registration.
Proposed Rule 15Fb6-1 would require that SBS Entities obtain a
questionnaire or application for employment executed by each of its
associated persons who is involved in effecting security-based swaps on
behalf of the SBS Entity that contains certain, specified
information.\90\ The proposed rule further would provide that the
questionnaire or application shall serve as a basis for a background
check of the associated person and be signed by the SBS Dealer's or
major security-based swap participant's Chief Compliance Officer (or
his or her designee). Proposed Rule 15Fb6-1 would require that each SBS
Entity retain these employment questionnaires or applications until at
least three years after the associated person has terminated his or her
association with the SBS Entity. Finally, the CCO would need to certify
(on Schedule G to Form SBSE, Form SBSE-A, or Form SBSE-BD, as
applicable) that no associated person that effects or is involved in
effecting security-based swaps on behalf of the SBS Entity is subject
to a statutory disqualification. SBS Entities would only need to
fulfill these obligations for associated persons that effect or are
involved in effecting security-based swaps on behalf of the SBS Entity.
---------------------------------------------------------------------------

\90\ See supra notes 55 and 56.
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Proposed Rule 15Fb2-4 would require that each nonresident SBS
Entity must have in place at all times an agreement with a United
States person appointing that person as the firm's U.S. agent for
service of process. In addition, Proposed Rule 15Fb2-4 would require
that each nonresident SBS Entity obtain an opinion of counsel stating
that it can, as a matter of law, provide the Commission with access to
records and the ability to conduct onsite examinations. These entities
also must file an additional schedule (Schedule F) with their Form
SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, to identify the
firm's U.S. agent for service of process and to certify that the firm
can, as a matter of law, provide the Commission with access to its
books and records. In addition, each nonresident SBS Entity would be
required to maintain its written agreement appointing a U.S. agent for
service of process until at least three years after the agreement is
terminated.
Pursuant to proposed Rule 15Fb1-1, each signatory to an electronic
filing would be required to, when the

[[Page 65808]]

electronic filing is made, manually sign a signature page or other
document adopting his or her signature that appears in typed form
within the electronic filing. The SBS Entity would need to retain the
manually-signed page until at least three years after the form or
certification has been replaced or is no longer effective.
Proposed Rule 15Fb3-2 would require that an SBS Entity seeking to
withdraw from Commission registration must file Form SBSE-W. Given that
the cost and effort to register as an SBS Entity likely will be
significant, the Commission believes that entities will not enter and
exit this business regularly. Further, the Commission believes it is
unlikely that any SBS Entity will seek to withdraw from registration
within the first year.
Proposed temporary Rule 15Fb2-2T would only be adopted if a
technological means to facilitate receipt and retention of applications
is not functional by the time final rules are adopted. Pursuant to
proposed temporary Rule 15Fb2-2T, each SBS Entity would need to file
its application and certification in paper form. Proposed temporary
Rule 15Fb2-2T also would require that each SBS Entity resubmit its
application and certification in electronic form once a technological
means to receive such documents becomes functional.

B. Proposed Use of Information

Information collected pursuant to proposed Rules 15Fb1-1 through
15Fb6-1 and through Forms SBSE, SBSE-A, SBSE-BD, and SBSE-C would allow
the Commission to determine whether applicants meet the standards for
registration, and to fulfill its oversight responsibilities. Further,
Rule 15Fb3-2 and Form SBSE-W would allow the Commission to determine
whether it is appropriate to allow an SBS Entity to withdraw from
registration and to facilitate that withdrawal.
In addition, information collected pursuant to proposed Forms SBSE,
SBSE-A, SBSE-BD, and SBSE-C would be made publicly available.

C. Respondents

Proposed Rule 15Fb1-1 through 15Fb6-1 would set forth rules to
facilitate registration with the Commission of entities that fit the
definition of SBS Dealer or major security-based swap participant.\91\
Forms SBSE, SBSE-A, and SBSE-BD, as applicable, are applications
through which SBS Entities would register with the Commission.
---------------------------------------------------------------------------

\91\ See supra notes 5-7.
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The Commission preliminarily believes, based on data obtained from
DTCC and conversations with market participants, that approximately
fifty entities may fit within the definition of SBS Dealer and up to
five entities may fit within the definition of major security-based
swap participant.\92\ Further, the staff estimates, based on its
experience and understanding of the unregulated swaps and security-
based swaps markets, that the majority of firms that may register as
SBS Entities (thirty-five) also will be engaged in the swaps business
and will register with the CFTC as swap dealers or major swap
participants.\93\ In addition, persons holding securities positions may
find it beneficial to hedge those positions with security-based swaps,
so it may be beneficial for a broker-dealer to become an SBS Entity so
that it can provide this option to its customers. Thus, Commission
staff estimates that approximately sixteen broker-dealers will seek to
register as SBS Entities.\94\ Finally, given the costs of being a
registered entity it may be less likely for an entity that is not
otherwise registered with the CFTC or the Commission to register as an
SBS Entity. Consequently, the Commission staff estimates that only four
firms not otherwise registered with the CFTC or the Commission will
seek to become an SBS Entity.
---------------------------------------------------------------------------

\92\ In the Intermediary Definitions Release, the Commission and
the CFTC proposed rules to define a number of terms used in Title
VII, including, among others, ``security-based swap dealer'' and
``major security-based swap participant.'' See supra note 5. As part
of that proposal, the Commission preliminarily estimated that
approximately 50 entities may be required to register as security-
based swap dealers under the proposed rules. See Intermediary
Definitions Release, n. 188 (75 FR 80174, at 80209 (Dec. 10, 2010)).
We further estimated that no more than ten entities would have
security-based swap positions large enough that they would have to
monitor whether they meet the thresholds defining a major security-
based swap participant. See Intermediary Definitions Release, (75 FR
80174, at 80207-8 (Dec. 10, 2010)). For purposes of these proposed
rules, we conservatively estimate that, of the ten entities that
would need to monitor their positions to determine whether they
cross any of the definitional thresholds, five may actually meet the
definition of ``major security-based swap participant.'' Depending
on capital and other requirements for SBS Dealers and how businesses
choose to respond to such requirements, the actual number of SBS
Dealers may be significantly fewer. See also Trade Acknowledgment
and Verification of Security-Based Swap Transactions, Exchange Act
Release No. 63727 (Jan. 14, 2011), 76 FR 3859, at 3868 (Jan. 21,
2011); and Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, Exchange Act
Release No. 64766 (Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as
corrected by Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3,
2011).
\93\ See Business Conduct Standards for Security-Based Swap
Dealers and Major Security-Based Swap Participants, Exchange Act
Release No. 64766 (Jun. 29, 2011), 76 FR 42396, (Jul. 18, 2011), as
corrected by Exchange Act Release No. 64766, 76 FR 46668 (Aug. 3,
2011).
\94\ Id.
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The Commission seeks comment on the reasonableness and accuracy of
its estimates as to the number of participants in the security-based
swap market that will be required to register with the Commission
pursuant to proposed Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE,
SBSE-A, and SBSE-BD, as applicable.

D. Total Initial and Annual Reporting and Recordkeeping Burdens

1. Burden Associated With Filing Application Forms
Proposed Rule 15Fb2-1 would require that each SBS Entity register
with the Commission by filing an application. The Commission has
attempted to reduce the burden associated with the application process
by providing multiple forms for SBS Entities to use to register (Form
SBSE, Form SBSE-A, or Form SBSE-BD). It is anticipated that each SBS
Entity will only need to research, complete, and file one form.
While it is likely that the time necessary to complete these forms
would vary depending on the nature and complexity of the entity's
business, the Commission staff estimates (based on its experience
relative to Form BD) that the average time necessary for an SBS Entity
to research the questions, and complete and file a Form SBSE (including
the Schedules \95\ and DRPs) would be approximately one work week or
forty hours.\96\ As discussed above, the Commission estimates that
approximately four firms would need to register using Form SBSE.
Consequently, the total burden associated with filing Forms SBSE would
be approximately 160 hours.\97\
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\95\ Except Schedules F and G, which are dealt with separately
below.
\96\ The staff has previously estimated that the average time
necessary for a broker-dealer to complete and file Form BD, the Form
upon which Form SBSE was based, would be approximately three hours
(and that estimate has been subject to notice and comment. Broker-
Dealer Registration and Reporting, Exchange Act Release No. 41594
(July 2, 1999), 64 FR 37586.) However, some SBS Entities may not
previously have been subject to regulation and thus may need more
time to research the answers to complete Form SBSE and its schedules
and DRPs.
\97\ (40 hours x 4 SBS Entities) = 160 hours total.
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The Commission staff believes that, as Form SBSE-A is shorter than
the Form SBSE, it should take an SBS Entity approximately 80% of the
time that it would take to research, complete, and file a Form SBSE
(including the Schedules \98\ and DRPs), or thirty two

[[Page 65809]]

hours. As discussed above, the Commission estimates that approximately
thirty-five firms would also be registered with the CFTC and therefore
would need to register using Form SBSE-A. Consequently, the total
burden associated with filing Forms SBSE would be approximately 1,120
hours.
---------------------------------------------------------------------------

\98\ See supra note 95.
---------------------------------------------------------------------------

The Commission staff believes that, as Form SBSE-BD is shorter than
either Form SBSE or Form SBSE-A and broker-dealers who would be filing
Form SBSE-BD are familiar with Commission terminology and forms,
researching, completing, and filing a Form SBSE-BD should take an SBS
Entity approximately 25% of the time that it would take to research,
complete, and file a Form SBSE (including the Schedules \99\), or ten
hours. As discussed above, the Commission estimates that approximately
sixteen SBS Entities would need to register using Form SBSE-BD.
Consequently, the total burden associated with filing Forms SBSE-BD
would be approximately 160 hours.\100\
---------------------------------------------------------------------------

\99\ Id.
\100\ (10 hours x 16 SBS Entities) = 160 hours total.
---------------------------------------------------------------------------

2. Burden Associated With Amending Application Forms
Proposed Rule 15Fb2-3 would require that SBS Entities amend their
applications if they find that the information contained therein has
become inaccurate. While SBS Entities may need to update their Forms
periodically, each firm will only need to amend that aspect of the Form
that has become inaccurate. Further, it likely will not cost a
significant amount to make such changes because each firm will have
already completed Form SBSE, Form SBSE-A, or Form SBSE-BD, as
applicable, and will only need to amend that aspect of the Form that
has become inaccurate. Based on the number of amendments the Commission
receives annually on Form BD,\101\ the Commission estimates that each
SBS Entity will file approximately three amendments annually. While it
is likely that the time necessary to file an amendment to Form SBSE,
Form SBSE-A, or Form SBSE-BD, as applicable, may vary depending on the
nature and complexity of the information to be amended, the staff
estimates, based on experience relative to Form BD, that it likely
would take an SBS Entity, on average, approximately one hour to amend
its application each time it files an amendment. Consequently, the
total burden associated with amending Forms SBSE, SBSE-A, and SBSE-BD,
as applicable, would be approximately 165 hours.\102\
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\101\ On March 1, 2010 there were 5,163 broker-dealers
registered with the Commission (based on Form BD data). The
Commission received 20,666, 17,839, 16,702, 16,365, and 17,247
amended Forms BD during the fiscal years ending 9/30/2005, 9/30/
2006, 9/30/2007, 9/30/2008 and 9/30/2009, respectively. ((20,666 +
17,839 + 16,702 + 16,365 + 17,247)/5 years)/5,163 broker-dealers =
3.44 amendments per broker-dealer per year.
\102\ 1 hour x three per year x 55 SBS Entities = 165 hours.
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3. Burden Associated With Certification
Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS
Entity have a knowledgeable senior officer certify that, after due
inquiry, he or she has reasonably determined that the SBS Entity has
the operational, financial, and compliance capabilities to act as an
SBS Dealer or major security-based swap participant, as applicable, and
has documented the process by which he or she has reached such
determination. Each SBS Entity would need to provide this certification
on Form SBSE-C only once. The Commission believes that the majority of
the cost associated with this certification would arise from the review
the senior officer conducts, or has others conduct, prior to certifying
that the SBS Entity has the requisite operational, financial, and
compliance capabilities. The senior officer would also need to certify
that he or she has documented this process.
The Commission understands (based on the staff's experience with
broker-dealers and other regulated entities) that, in satisfying other
certification requirements, SBS Entities may use different processes,
depending on the facts and circumstances of their business. Some SBS
Entities may develop more or less robust process than others and, as a
result, may incur higher or lower than average costs. Some SBS Entities
may use a sub-certification process whereby the senior officer will not
certify a firm-wide statement unless and until other persons
responsible for certain activities in turn certify to the senior
officer that the standard has been met, while other firms may use an
internal or external audit-type process whereby a senior officer may
choose to employ a third party to review an area subject to a firm-wide
certification before submitting the certification. There may be other
processes an SBS Entity could use to provide a basis for a senior
officer's reasonable determination that the SBS Entity has the
requisite capabilities that we have not specifically identified here.
Many factors outside of the Commission's control \103\ may determine
whether an SBS Entity might choose to utilize an internal process, as
opposed to an external process, to serve as a basis for the Senior
Officer Certification. For purposes of this PRA, we will estimate that
approximately half, or twenty-eight of the SBS Entities, may use an
internal process and the other half, or twenty-seven of the SBS
Entities, will use an external process.
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\103\ For instance, such factors could include: costs; how
comfortable the senior officer may be with his or her subordinates
within the SBS Entity's control structure; and how knowledgeable a
senior officer may be regarding the SBS Entity's capabilities.
---------------------------------------------------------------------------

The Commission believes that, regardless of whether an SBS Entity
may choose to utilize an internal process, as opposed to an external
process, to serve as a basis for the Senior Officer Certification, the
burden associated with having a senior officer sign a certification
likely would be approximately five hours.\104\ The Commission has
previously estimated that it would take a senior officer approximately
twenty hours to review, document, and update compliance
procedures,\105\ which the staff believes would be analogous to
reviewing documents provided either by subordinates or a third party to
gain comfort necessary to sign the Senior Officer Certification.
---------------------------------------------------------------------------

\104\ See, e.g., Risk Management Controls for Brokers or Dealers
With Market Access, Exchange Act Release No. 63241 (Nov. 3, 2010),
75 FR 69792, at 69816 (Nov. 15, 2010).
\105\ Id.
---------------------------------------------------------------------------

Commission staff estimates, based on its experience relative to the
securities and over-the-counter derivatives industries, that if a
senior officer opted to conduct an internal review of the SBS Entity's
operational, financial, and compliance capabilities, it would take
approximately one hundred and seventy five additional hours for other
SBS Entity employees to assess the SBS Entity's operational, financial,
and compliance capabilities and provide the senior officer with sub-
certifications or other documents he or she may request to obtain the
necessary comfort before signing the Senior Officer Certification.
Consequently, the Commission estimates that the one-time burden for the
twenty-eight SBS Entities that utilize an internal review process would
be approximately 5,600 hours for other SBS Entity employees to assess
the SBS Entity's operational, financial, and compliance capabilities
and provide the senior officer with documents, and for the senior
officer to review those

[[Page 65810]]

documents and sign the Senior Officer Certification.\106\
---------------------------------------------------------------------------

\106\ (5 hours + 20 hours + 175 hours) x 28 SBS Entities = 5,600
hours.
---------------------------------------------------------------------------

The Commission has previously estimated that the burden associated
with obtaining an internal control report from a third party would
cost, on average, approximately $250,000.\107\ The staff believes that
an internal control report would be roughly analogous to a third party
review of each SBS Entity capability included in the Senior Officer
Certification; however, the staff believes the cost of a third party
review of an SBS Entity's capabilities likely would be less than the
cost of three separate internal control reviews because the third party
review of capabilities would not require an accountant's opinion and
because some economies of scale likely could be achieved when a third
party reviews three capabilities for a single SBS Entity. Consequently,
the staff estimates that the cost for an SBS Entity to obtain a third
party review to provide its senior officer with the necessary comfort
to sign the Senior Officer Certification would be approximately
$600,000. Thus, the Commission estimates that the one-time burden for
the twenty-seven SBS Entities that utilize an external review process
would be approximately 675 hours \108\ for the senior officer to review
documents provided by the third party to gain the necessary comfort and
to sign the Senior Officer Certification, and $16,200,000 to have a
third party review the SBS Entity's operational, financial, and
compliance capabilities and provide the SBS Entity with evidence
sufficient to make the senior officer sufficiently comfortable to sign
the Senior Officer Certification.
---------------------------------------------------------------------------

\107\ See, e.g., Custody of Funds or Securities of Clients by
Investment Advisers, Advisers Act Release No. 2968 (Dec. 30, 2009),
75 FR 1456, at 1473 (Jan. 11, 2010). Depending on the facts and
circumstances relating to an SBS Entity's business, third party
service providers may use different methods to assess each of an SBS
Entity's capabilities and report their findings to the SBS Entity,
which may affect the cost of the review and the amount a third party
charges an SBS Entity for this review.
\108\ (5 hours + 20 hours) x 27 SBS Entities = 675 hours.
---------------------------------------------------------------------------

Thus, the total burden for all SBS Entities associated with the
Senior Officer Certification would be approximately 6,275 hours and
$16,200,000.
4. Burdens Relating to Associated Persons
Proposed Rule 15Fb6-1 would require an SBS Entity to obtain a
questionnaire or application for employment executed by each of its
associated persons who is involved in effecting security-based swaps on
behalf of the SBS Entity that contains certain, specified information.
The proposed rule further would provide that the questionnaire or
application must be reviewed and signed by the SBS Dealer's or major
security-based swap participant's Chief Compliance Officer. Finally,
the CCO would need to certify (on Schedule G of its Form SBSE, Form
SBSE-A, or Form SBSE-BD, as applicable) that no associated person that
effects or is involved in effecting security-based swaps on behalf of
the SBS Entity is subject to a statutory disqualification. SBS Entities
would only need to fulfill these obligations for associated persons
that effect or are involved in effecting security-based swaps on behalf
of the SBS Entity.\109\ The Commission estimates (based on the staff's
experience relative to the securities and OTC derivatives industries)
that SBS Entities each have, on average, twenty-five associated persons
that effect or are involved in effecting security-based swaps on behalf
of the SBS Entity. The Commission believes that the information SBS
Entities would need to obtain through these questionnaires is standard
in the financial services industry, and is already collected by firms
registered with the CFTC and the SEC. In addition, SBS Entities that
are registered with the Commission or the CFTC must already perform
background checks on their employees because of the prohibitions from
employment of statutorily disqualified persons in the CEA and the
Exchange Act.
---------------------------------------------------------------------------

\109\ See supra notes 55 and 56.
---------------------------------------------------------------------------

The Commission staff estimates, based on its experience relative to
the securities industry, that the average time necessary for an SBS
Entity to review its employment questionnaire or application to verify
that it contains all of the required information and to update the
questionnaire would be approximately three hours. As SBS Entities that
are already registered with the Commission or the CFTC already collect
this information, the Commission estimates that the cost to all SBS
Entities to review employment questionnaires or applications, verify
that they contain all of the required information and update the
questionnaires or applications, as necessary, would be approximately 12
hours.\110\
---------------------------------------------------------------------------

\110\ 3 hours x 4 SBS Entities that are not registered with the
Commission or CFTC = 12 hours.
---------------------------------------------------------------------------

As discussed above, the Commission staff believes that most
financial services firms already collect all or most of the information
proposed Rule 15Fb6-1 would require that they collect. Consequently,
the Commission estimates that the burden to require an SBS Entity's
existing associated persons that effect or are involved in effecting
security-based swaps on behalf of the SBS Entity to provide those few
categories of information that they did not originally provide on their
employment questionnaires or applications would be approximately one
hour each.\111\ As SBS Entities that are already registered with the
Commission and the CFTC already collect this information from
employees, the Commission estimates that the burden to all SBS Entities
to obtain additional information from relevant associated persons,
would be approximately 100 hours.\112\
---------------------------------------------------------------------------

\111\ Commission staff believes that, as most firms already
collect all or most of the information already, it likely would not
take employees more than an hour each, on average, to provide any
additional information. The staff believes the pay scales for
broker-dealers and SBS Entities would likely be similar. As the
categories of employees that could be required to provide additional
information is diverse (see supra notes 55 and 56) the weighted-
average cost of 46 of the positions included in Securities Industry
and Financial Markets Association's (``SIFMA'') publication titled
Management & Professional Earnings in the Securities Industry 2009,
as modified by Commission staff to account for an 1,800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead, the hourly cost of an Attorney is
approximately $260/hour. 1 hour x 25 associated persons x $260 =
$6,500.
\112\ One hour x 4 SBS Entities that are not registered with the
Commission or CFTC x 25 associated persons effecting or involved in
effecting security-based swaps on behalf of the SBS Entity = 100
hours.
---------------------------------------------------------------------------

The Commission staff estimates, based on the staff's experience
relative to the securities industry, that it would take a CCO
approximately one hour to review and sign a relevant employee's
employment record. Consequently, the Commission estimates that the
total burden to all SBS Entities to have their CCOs review and sign
each associated person's employment record would be approximately 1,375
hours.\113\
---------------------------------------------------------------------------

\113\ One hour x 25 associated persons x 55 SBS Entities = 1,375
hours.
---------------------------------------------------------------------------

On an ongoing basis, if employee turnover at an SBS Entity averages
12%,\114\ each SBS Entity would need to perform background checks and
have their CCO review and approve in writing three new associated
persons' employment records per year. As stated

[[Page 65811]]

above, the Commission estimates that the burden to have an SBS Entity's
CCO review and sign each associated person's employment record would be
approximately one hour. Thus, the ongoing annual burden to each SBS
Entity would be approximately three hours \115\ and the total cost to
all SBS Entities to comply with Rule 15Fb6-1 on an ongoing basis would
be approximately 165 hours annually.\116\
---------------------------------------------------------------------------

\114\ The staff notes that the Bureau of Labor Statistics Labor
Turnover Survey indicates that turnover is presently in the range of
3.2%, however the staff believes that the present economic situation
has likely driven turnover to a historically low level and that this
broad statistic likely does not adequately represent actual turnover
in the financial services sector. Consequently, the staff believes,
based on its experience, that a higher number may be more
appropriate.
\115\ One hour x three associated persons = three hours.
\116\ Three hours x 55 SBS Entities = 165 hours.
---------------------------------------------------------------------------

The Commission believes that as the CCO would already have reviewed
and signed each employee's employment record, signing the required
certification will not take a significant amount of time. Thus,
Commission staff estimates, based on its experience relative to the
securities industry, that it would take a CCO approximately one hour to
certify on Schedule G that no associated person that effects or is
involved in effecting security-based swaps on behalf of the SBS Entity
is subject to a statutory disqualification. Consequently, the
Commission staff estimates that the total burden to all SBS Entities to
complete this certification on Schedule G would be approximately 55
hours.\117\
---------------------------------------------------------------------------

\117\ One hour x 55 SBS Entities = 55 hours.
---------------------------------------------------------------------------

5. Burdens on Nonresident SBS Entities
The Commission estimates, based on conversations with industry
participants, that approximately 40 percent or 22 SBS Entities will be
nonresident SBS Entities. Proposed Rule 15Fb2-4 would require that each
nonresident SBS Entity file an additional schedule (Schedule F) with
their Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, to
identify its U.S. agent for service of process and to certify that the
firm can, as a matter of law, provide the Commission with access to its
books and records and can, as a matter of law, submit to onsite
inspection and examination by the Commission.
Commission staff conservatively estimates, based on its experience
relative to the securities industry and Form BD, that the average time
necessary for a nonresident SBS Entity to complete and file Schedule F
would be approximately one hour. Thus, the Commission estimates that
the total burden for all nonresident SBS Entities approximately to
complete and file Schedule F would be approximately 22 hours.\118\
---------------------------------------------------------------------------

\118\ 1 hour x 22 nonresident SBS Entities = 22 hours.
---------------------------------------------------------------------------

In addition, nonresident SBS Entities would incur outside legal
costs associated with obtaining an opinion of counsel. In previous
releases, the Commission estimated that firms with a similar
requirement would incur, on average, approximately $900 in outside
legal costs to obtain an opinion of counsel.\119\ This estimate
originally related to the cost a foreign bank issuer would incur to
obtain a legal opinion to provide to the Commission when seeking an
exemption from the requirement to make certain additional
disclosures.\120\ Although the legal opinion for foreign bank issuers
also would address privacy laws in the issuer's home jurisdiction that
may preclude certain disclosures, upon further reflection, we believe
that the legal opinion required for nonresident SBS Entities pursuant
to the proposed rule would likely require additional research and
analysis to prepare. Based on staff experience, the Commission
estimates that each nonresident SBS Entity would incur, on average,
approximately $25,000 in outside legal costs to obtain the necessary
opinion of counsel, and that the total cost for all nonresident SBS
Entities to obtain this opinion of counsel would be approximately
$550,000.\121\
---------------------------------------------------------------------------

\119\ Registration and Regulation of Security-Based Swap
Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011),
76 FR 10948 (Feb. 28, 2011); Security-Based Swap Data Repository
Registration, Duties, and Core Principles, Exchange Act Release No.
63347 (Nov. 19, 2010), 75 FR 77306 (Dec. 10, 2010); Foreign Bank
Exemption from the Insider Lending Prohibition of Exchange Act
Section 13(k), Exchange Act Release No. 49616 (Apr. 26, 2004), 69 FR
24016 (Apr. 30, 2004). The $900 figure is based on an estimate of
$400 an hour for legal services.
\120\ Foreign Bank Exemption from the Insider Lending
Prohibition of Exchange Act Section 13(k), Exchange Act Release No.
49616 (Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004).
\121\ $25,000 x 22 SBS Entities = $550,000.
---------------------------------------------------------------------------

6. Burden Related to Retention of Manually Signed Signature Pages
Pursuant to proposed Rule 15Fb1-1, each signatory to an electronic
filing must, when the electronic filing is made, manually sign a
signature page or other document adopting his or her signature that
appears in typed form within the electronic filing. This manually
signed page must be retained by the SBS Entity until at least three
years after the form or certification has been replaced or is no longer
effective. It is likely that each SBS Entity would need to maintain at
least three pages with manually signed signatures (the execution page
of Form SBSE, SBSE-A, or SBSE-BD, as applicable, Schedule G, and the
Form SBSE-C certification). In addition, nonresident SBS Entities also
would need to retain a manually signed copy of Schedule F. As so few
pages would need to be retained, the staff believes the burden
associated with retaining them would not be significant. Thus, the
Commission estimates that it would take each SBS Entity approximately
10 minutes annually to assure that these pages are retained, or a total
of approximately 9 hours annually for all SBS Entities.\122\
---------------------------------------------------------------------------

\122\ (10 minutes x 55 SBS Entities)/60 minutes = 9.17 hours.
---------------------------------------------------------------------------

7. Burden Associated With Filing Withdrawal Form
Given that the cost and effort to register as an SBS Entity will be
significant, the Commission believes that entities will not enter and
exit this business regularly. As the Form SBSE-W is only one page and
consists of information readily available to SBS Entities, the staff
estimates (based on experience relative to Form BD-W) that it likely
would take an SBS Entity, on average, approximately one hour to
complete and file a Form SBSE-W. While the Commission believes it is
unlikely that any SBS Entity will withdraw from registration often or
within the first year, solely for purposes of this PRA the Commission
estimates that one SBS Entity may file Form SBSE-W to withdraw from
registration annually and the total burden associated with completing
and filing Form SBSE-W would be approximately one hour each year.
8. Burden Associated With Proposed Temporary Rule 15Fb2-2T
Proposed temporary Rule 15Fb2-2T would only be adopted if a
technological means to facilitate receipt and retention of applications
is not functional by the time final rules are adopted. Pursuant to
proposed temporary Rule 15Fb2-2T, each SBS Entity would need to file
its application and certification in paper form, and then resubmit its
application and certification in electronic form once a technological
means to receive such documents becomes functional.
The burden associated with completing and filing the forms once are
discussed above. Thus, the additional burden associated with proposed
temporary Rule 15Fb2-2T relate to electronic resubmission of the form.
The staff estimates that the costs associated with resubmitting
each of the forms would be minimal, but would be contingent on the
length of the form. Further, the additional time to file the
certification (which consists of a single page) would not vary relative
to the form required to be filed, and would not add significantly to
the times required to file the registration forms. The

[[Page 65812]]

Commission staff preliminarily estimates, based on the staff's
experience relative to the securities industry and Form BD, that the
average time necessary for an SBS Entity to resubmit a Form SBSE would
be approximately four hours. As Forms SBSE-A and SBSE-BD are shorter
than Form SBSE, the Commission staff preliminarily estimates that
resubmitting Form SBSE-A would take approximately two hours, and that
resubmitting Form SBSE-BD would take approximately one hour. Thus, the
Commission estimates that the total burden to all SBS Entities to
resubmit their Forms SBSE, SBSE-A, or SBSE-BD, as applicable, would be
approximately 102 hours.\123\
---------------------------------------------------------------------------

\123\ (2 hours x 35 SBS Entities already registered with the
CFTC) + (1 hour x 16 SBS Entities already registered with the
Commission) + (4 hours x 4 SBS Entities not otherwise registered
with either the Commission or the CFTC) = 102 hours.
---------------------------------------------------------------------------

9. Request for Comment on Burden Estimates
The Commission seeks comment on the recordkeeping and reporting
collection of information burdens associated with proposed Rule 15Fb1-1
through 15Fb6-1 and Forms SBSE, SBSE-A, and SBSE-BD, as applicable.
Q-173. What burdens, if any, would respondents incur with respect
to system design, programming, expanding systems capacity, and
establishing compliance programs to comply with proposed Rules 15Fb1-1
through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W, as
applicable?
Q-174. Is it likely that SBS Entities will complete Forms SBSE,
SBSE-A, SBSE-BD, SBSE-C and SBSE-W, as applicable, themselves or is it
more likely that they would obtain assistance in completing these forms
from some outside entity (e.g., outside counsel)? If an SBS Entity
obtains assistance in completing the forms from an outside entity, what
type of entity may be utilized and what may the relative costs to
employ such an entity for this purpose be?
Q-175. Would there be different or additional burdens associated
with the collection of information under Rules 15Fb1-1 through 15Fb6-1
and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C and SBSE-W, as applicable, that
a respondent does not currently undertake in the ordinary course of
business that the Commission has failed to identify? If so, please both
describe and quantify any additional burden(s).
Q-176. Are the burden and cost estimates regarding the review
necessary to support the Senior Officer Certification appropriate? Are
there other processes a senior officer may utilize to gain the
necessary comfort to sign the Senior Officer Certification? If so, what
other processes might be used and what are the advantages, burdens and/
or costs of those other processes? Also, is the Commission's estimate
accurate regarding how many SBS Entities may utilize an external, as
opposed to an internal, review process?
Q-177. Would nonresident SBS Entities incur greater or lesser costs
for the opinion of counsel? Would the cost more likely be closer to
$900, as previously estimated? Are the costs likely to exceed $25,000?

E. Retention Period of Recordkeeping Requirements

Proposed Rules 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A,
SBSE-BD, SBSE-C and SBSE-W would require that each respondent retain
certain records and information for three years.

F. Collection of Information Is Mandatory

Any collections of information required pursuant to proposed Rules
15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-BD, SBSE-C would
be mandatory to permit the Commission to determine whether applicants
meet the standards for registration, and to fulfill its oversight
responsibilities.
The collections of information required pursuant to proposed Rule
15Fb3-2 and Form SBSE-W would be mandatory to allow the Commission to
determine whether it is in the public interest to allow an SBS Entity
to withdraw from registration.
The collections of information required pursuant to proposed Rule
15Fb2-2T would be mandatory to provide a process for the Commission to
facilitate registration of SBS Entities if an electronic system to
facilitate registration is not functional by the time final
registration rules are adopted.

G. Confidentiality

The Commission intends to make the information collected pursuant
to proposed Rule 15Fb1-1 through 15Fb6-1 and Forms SBSE, SBSE-A, SBSE-
BD, SBSE-C and SBSE-W public.

H. Request for Comment

Pursuant to 44 U.S.C. 3505(c)(2)(B), the Commission solicits
comment to:
1. Evaluate whether the proposed collection of information is
necessary for the proper performance of our functions, including
whether the information shall have practical utility;
2. Evaluate the accuracy of our estimate of the burden of the
proposed collection of information;
3. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected; and
4. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should also send a copy of their comments to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090, with reference to File No. S7-40-11.
Requests for materials submitted to OMB by the Commission with regard
to this collection of information should be in writing, with reference
to File No. S7-40-11, and be submitted to the Securities and Exchange
Commission, Records Management, Office of Filings and Information
Services, 100 F Street, NE., Washington, DC 20549-1090. As OMB is
required to make a decision concerning the collections of information
between 30 and 60 days after publication, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication.

V. Economic Analysis

In response to the recent financial crisis, Congress passed the
Dodd-Frank Act in July of 2010. Among other things, the Dodd-Frank Act
is designed to strengthen oversight, improve consumer protections, and
reduce systemic risks throughout the financial system. Title VII of the
Dodd-Frank Act specifically addresses the OTC derivatives markets,
including the market for security-based swaps, and requires the
Commission to undertake a number of rulemakings to establish a
regulatory framework for SBS Entities.
In promulgating the provisions of Section 764 of the Dodd-Frank
Act, Congress established a mandatory registration regime for SBS
Entities but left the form and manner of such registration within the
discretion of the Commission. In determining the form and manner of
such registration, the Commission may require ``such information, as
the Commission

[[Page 65813]]

considers necessary concerning the business in which the applicant is
or will be engaged.'' \124\ The Dodd-Frank Act also requires that SBS
Entities ``continue to submit to the Commission reports that contain
such information pertaining to the business of the person as the
Commission may require.'' \125\ Section 764 also provides that
registrations ``shall expire at such time as the Commission may
prescribe by rule,'' \126\ and prohibits SBS Entities from allowing
persons associated with it that are ``subject to a statutory
disqualification to effect or be involved in effecting security-based
swaps on behalf of the [SBS Entity if the entity] knew, or in the
exercise of reasonable care should have known, of the statutory
disqualification.'' \127\ Finally, the Dodd-Frank Act provides the
Commission with additional broad authority to effect registration and
regulation of SBS Entities.\128\
---------------------------------------------------------------------------

\124\ 15 U.S.C. 78o-10(b)(2)(A).
\125\ 15 U.S.C. 78o-10(b)(2)(B).
\126\ 15 U.S.C. 78o-10(b)(3).
\127\ 15 U.S.C. 78o-10(b)(6).
\128\ 15 U.S.C. 78o-10(b)(4) and (d).
---------------------------------------------------------------------------

Today, the Commission is proposing new rules and forms that provide
a process for registration of SBS Entities. This process would require
that SBS Entities apply for registration by submitting a Form SBSE,
Form SBSE-A, or Form SBSE-BD, as applicable. Further, this process
would allow SBS Entities to register conditionally or on an ongoing
basis, as necessary. In addition, each SBS Entity seeking ongoing
registration would need to submit to the Commission a certification on
Form SBSE-C, signed by a knowledgeable senior officer.
In drafting these rules the Commission sought to design a
registration process that is similar to other registration processes
administered by the Commission. To the extent market participants are
familiar with these existing registration processes, we believe that
using similar processes to register SBS Entities would create
efficiencies for market participants. Many of the proposed rules were
drafted based on rules applicable to broker-dealers. Similarly, the
draft forms were based on Forms BD and BDW. However, the Commission
also has sought to assure that the staff has information sufficient to
make a determination as to whether registration should be granted or
denied. Thus, the Form SBSE differs from Form BD in that it requests
information specific to the SBS business and does not request
information specific to the broker-dealer business. The Commission also
sought to assure that the proposed rules, the forms, and the process
generally are as clear as possible so as to minimize confusion. The
Commission has sought to minimize, to the extent possible, duplication
and costs that the rules may impose on firms. Finally, burdens and
costs that have been estimated for PRA purposes are included in the
broader costs and benefits discussion that follows because we believe,
as the registration process would largely be forms-based, it is
appropriate to include them. The Commission is sensitive to the costs
and benefits imposed by its rules.

A. Benefits

The proposed rules and forms described in this section would be
issued pursuant to a specific grant of rulemaking authority in the
Dodd-Frank Act. As indicated above, the forms were based on Forms BD
and BDW, which broker-dealers are familiar with and which are similar
to the Form 7-R that futures and commodities firms use to register with
the CFTC. Significantly, the Commission is proposing the use of
multiple registration forms to limit the amount of duplication and
costs imposed on firms already registered with the Commission as a
broker-dealer or with the CFTC as a swap dealer or major swap
participant. The Commission considered using only one form to
facilitate registration, but we believe using multiple forms would
provide a benefit to firms because it would reduce the costs to
register.
In addition the proposed use of multiple forms is designed to allow
firms already registered with the SEC as broker-dealers or registered
or registering with the CFTC as swap dealers or swap participants to
submit or utilize forms they have already completed to facilitate
registration with the Commission. This use of existing forms would
allow the Commission to obtain the information it needs to determine
whether to grant registration without requiring the applicant to
duplicate substantially the same information that they have already
provided to regulators for another purpose.
The proposed rules and forms would require that SBS Entities
provide certain standardized data (including disciplinary information)
to the Commission. The Commission would then make this information
public. This would provide SBS counterparties and the marketplace with
additional, comparable information on all SBS Entities (for instance,
by highlighting previously unrecognized comparative strengths and
weaknesses) which would allow them to make more informed choices with
respect to counterparties and collateral. The Commission also believes
that this may promote competition by leveling the playing field for
market participants who may have disparate access to information
regarding each SBS Entity. In addition, making such standardized
information on SBS Entities public would enable counterparties and the
marketplace to expend less time and money to independently obtain and
compile information on SBS Entities to use in making such choices.
Requiring the reporting of standardized information through these
forms also will allow the Commission to identify the risk
characteristics of each SBS Entity, which should help the Commission
focus examinations and other oversight resources more efficiently and
effectively.
Once SBS Entities are registered, they will be subject to
standardized requirements that set a baseline level of, among other
things, internal controls, capital and margin levels for all SBS
Entities. The registration and regulation of SBS Entities also may
promote capital formation by providing market participants with
certain, uniform information regarding registered SBS Entities (as
described above) and assuring market participants that registered SBS
Entities meet established standards. By facilitating oversight of SBS
Entities, registration and regulation of these entities also could
increase counterparty trust, and may encourage more counterparties and
eligible contract participants to enter the SBS marketplace. It also
may be beneficial if SBS entities that are not capable of meeting, or
are unwilling to meet, their regulatory obligations exit the market.

B. Costs

Although the Commission believes that registration and regulation
of SBS Entities would result in significant benefits to customers of
and counterparties to SBS Entities, investors, eligible contract
participants and the market for SBS, the Commission recognizes that the
proposed registration rules and forms would also entail costs.
The Commission preliminarily estimates that SBS Entities would
incur costs associated with: (i) Researching, completing, and filing
the forms, (ii) reviewing, completing and submitting the required
certification, and documenting the review process, (iii) obtaining or
compiling the required questionnaires or employment applications,
having the CCO review the questionnaires and certify that no relevant
associated person is subject to

[[Page 65814]]

statutory disqualification, (iv) the requirements that nonresident SBS
Entities obtain an agreement for U.S. service of process and an opinion
of counsel stating that they can provide the Commission with access to
records, (v) the requirement to retain manually signed signature pages,
and (vi) the requirements associated with filing forms in paper format
and resubmitting those forms electronically if the Commission does not
have a technological means to receive applications electronically by
the time final registration rules are adopted.
The Commission preliminarily believes that the proposed amendments
may impose a burden on competition for smaller SBS Entities to the
extent that they impose relatively fixed costs, which could represent a
higher percentage of net income for smaller SBS Entities. Registration
costs may also impact those SBS Entities that are not already
registered under another area of their business model to a greater
degree than they would impact SBS Entities that have previously
registered under another regulatory regime. The SBS Entity registration
requirement may cause some market participants that are not capable of
meeting their operational, financial and/or regulatory obligations to
exit the market. However, the Commission believes that any reduction in
competition resulting from an exit from the market by SBS Entities that
are not capable of meeting, or that are unwilling to meet, their
regulatory obligations is a necessary and appropriate burden on
competition.
1. Costs Attributable to Filing the Forms
Proposed Rule 15Fb2-1 would require that each SBS Entity register
with the Commission by filing Form SBSE, Form SBSE-A, or Form SBSE-BD,
as applicable. Firms must file these forms electronically, which also
should reduce the associated costs because SBS Entities will not incur
costs associated with copying or postage. The Commission preliminarily
believes that it would cost each SBS Entity approximately $11,800 to
complete and file the Form SBSE (including the Schedules \129\ and
DRPs).\130\ As stated previously, the Commission has attempted to
reduce costs associated with the application process by providing
multiple forms for SBS Entities to use to register. The alternative
forms (Form SBSE-A, and Form SBSE-BD) are both shorter and should
require that an SBS Entity expend less effort to research, complete,
and file. Consequently, the Commission preliminarily believes that it
would cost each firm approximately $9,440 to complete Form SBSE-A \131\
(including the Schedules \132\ and DRPs) and approximately $2,950 to
complete Form SBSE-BD (including the Schedules).\133\ It is anticipated
that each SBS Entity will only need to research, complete, and file one
Form, and that it will update that Form, as necessary, as described
below.
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\129\ See supra note 95.
\130\ The staff has previously estimated that the average time
necessary for a broker-dealer to complete and file Form BD, the Form
upon which Form SBSE was based, would be approximately three hours
(and that estimate was been subject to notice and comment. Broker-
Dealer Registration and Reporting, Exchange Act Release No. 41594
(July 2, 1999), 64 FR 37586.) However, SBS Entities have not
previously been subject to regulation and may need significantly
more time to research the answers to complete Form SBSE and its
schedules and DRPs. Thus, while it is likely that the time necessary
to complete Form SBSE would vary depending on the nature and
complexity of the entity's business, Commission staff estimates that
the average time necessary for an SBS Entity to research the
questions, and complete and file a Form SBSE would be approximately
one work week or forty hours. The staff believes that an SBS Entity
would have a Compliance Manager complete and file the form's
application on Form SBSE, and that the pay scales for broker-dealers
and SBS Entities would likely be similar. According to the SIFMA
publication titled Management & Professional Earnings in the
Securities Industry 2009, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, the hourly cost
of a Compliance Manager is approximately $295/hour. 40 hours x $295
= $11,800.
\131\ The Commission staff believes that, as Form SBSE-A is
shorter than the Form SBSE, it should take an SBS Entity less time
to research the questions, and complete and file a Form SBSE-A.
Thus, while it is likely that the time necessary to complete Form
SBSE-A would vary depending on the nature and complexity of the
entity's business, the staff estimates that researching, completing,
and filing Form SBSE-A would take approximately 80% of the time that
it would take to research, complete, and file a Form SBSE, or thirty
two hours. The staff believes that an SBS Entity would have a
Compliance Manager complete and file the form's application on Form
SBSE-A, and that the pay scales for broker-dealers and SBS Entities
would likely be similar. See supra note 130. 32 hours x $295 =
$9,440.
\132\ See supra note 95.
\133\ See supra note 95. The Commission staff believes that, as
Form SBSE-BD is shorter than either Form SBSE or Form SBSE-A, it
should take an SBS Entity less time to research the questions, and
complete and file a Form SBSE-BD. In addition, broker-dealers who
would be filing Form SBSE-BD are familiar with Commission
terminology and Forms. Thus, while it is likely that the time
necessary to complete Form SBSE-BD would vary depending on the
nature and complexity of the entity's business, the staff estimates
that researching, completing, and filing Form SBSE-BD would take
approximately 25% of the time that it would take to research,
complete, and file a Form SBSE, or ten hours. The staff believes
that an SBS Entity would have a Compliance Manager complete and file
the form's application on Form SBSE-BD. See supra note 130. 10 hours
x $295 = $2,950.
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The Commission preliminarily believes, based on its understanding
of the security-based swap market and conversations with industry
participants, that approximately fifty firms will fit the definition of
SBS dealer and approximately five firms will fit the definition of
major security-based swap participant. Further, based on its
understanding of the securities-based swap market, the Commission
believes that the majority of firms that may register as SBS Entities
also will be engaged in the swaps business and will register with the
CFTC as swap dealers or major swap participants. In addition, persons
holding securities positions may find it beneficial to hedge those
positions with security-based swaps, so it may be beneficial for a
broker-dealer to become an SBS Entity so that it can provide this
option to its customers. However, given the costs of being a registered
entity, it may be less likely for an entity that is not otherwise
registered to register as an SBS Entity. Consequently, the Commission
believes that thirty-five SBS Entities will register with the
Commission using Form SBSE-A, twelve SBS Entities will register with
the Commission using Form SBSE-BD, and eight SBS Entities will register
with the Commission using Form SBSE. Thus, the total estimated cost to
all entities to research, complete, and file Forms to register as SBS
Entities would be approximately $424,800.\134\
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\134\ $424,800 = (35 x $9,440) + (16 x $2,950) + (4 x $11,800).
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Proposed Rule 15Fb2-3 would require that SBS Entities amend their
applications if they find that the information contained therein has
become inaccurate. While SBS Entities may need to update their Forms
periodically, it likely would not cost a significant amount to make
such changes because each firm will have already completed Form SBSE,
Form SBSE-A, or Form SBSE-BD, as applicable, and would only need to
amend that aspect of the Form that has become inaccurate. Based on the
number of amendments the Commission receives annually on Form BD,\135\
the Commission estimates that each SBS Entity would file approximately
three amendments annually. Consequently, the Commission estimates that
the cost for each SBS Entity to complete and file amendments to its
forms is

[[Page 65815]]

approximately $885.\136\ Thus, the Commission estimates that it would
cost all SBS Entities approximately $48,675 annually to complete and
file these amendments.\137\
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\135\ On March 1, 2010 there were 5,163 broker-dealers
registered with the Commission (based on Form BD data). The
Commission received 20,666, 17,839, 16,702, 16,365, and 17,247
amended Forms BD during the fiscal years ending 9/30/2005, 9/30/
2006, 9/30/2007, 9/30/2008 and 9/30/2009, respectively. ((20,666 +
17,839 + 16,702 + 16,365 + 17,247)/5 years)/5,163 broker-dealers =
3.44 amendments per broker-dealer per year.
\136\ While it is likely that the time necessary to file an
amendment to Form SBSE, Form SBSE-A, or Form SBSE-BD, as applicable
may vary depending on the nature and complexity of the information
to be amended, the staff estimates, based on experience, that it
likely would take an SBS Entity, on average, approximately one hour
to amend its application each time it files an amendment. The staff
believes that an SBS Entity would have a Compliance Manager complete
and file amendments to the SBS Entity's forms, and that the pay
scales for broker-dealers and SBS Entities would likely be similar.
According to the SIFMA publication titled Management & Professional
Earnings in the Securities Industry 2009, as modified by Commission
staff to account for an 1,800-hour work-year and multiplied by 5.35
to account for bonuses, firm size, employee benefits and overhead,
the hourly cost of a Compliance Manager is approximately $295/hour.
1 hours x $295 x three per year = $885.
\137\ $885 x 55 SBS Entities = $48,675.
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Proposed Rule 15Fb3-1 would require an SBS Entity seeking to
withdraw from Commission registration to file Form SBSE-W. Given that
the cost and effort to register as an SBS Entity will be significant,
the Commission believes that entities will not enter and exit this
business regularly. Further, the Commission believes it is unlikely
that any SBS Entity will withdraw from registration within the first
year. However, there will be a cost associated with withdrawing from
registration as an SBS Entity must file a Form SBSE-W to do so. As the
Form SBSE-W is only one page and consists of information readily
available to SBS Entities, the Commission estimates that the cost for
an SBS Entity to complete and file a Form SBSE-W would be approximately
$295.\138\
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\138\ The staff estimates, based on experience, that it likely
would take an SBS Entity, on average, approximately one hour to
complete and file a Form SBSE-W. The staff believes that an SBS
Entity would have a Compliance Manager complete and file Form SBSE-
W, and that the pay scales for broker-dealers and SBS Entities would
likely be similar. According to the SIFMA publication titled
Management & Professional Earnings in the Securities Industry 2009,
as modified by Commission staff to account for an 1,800-hour work-
year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead, the hourly cost of a Compliance
Manager is approximately $295/hour. 1 hour x $295 = $295.
---------------------------------------------------------------------------

The Dodd-Frank Act clearly requires registration of SBS Entities.
All other entities that register with the Commission do so by filing
some type of application, which may be a standardized form (e.g., Form
TA-1, Form ADV and Form BD). The Commission generally requires that
registered entities amend these forms to correct inaccurate information
either as necessary or periodically. Further, all other entities that
with to withdraw from Commission registration must file some type of
notice with the Commission, which may be a standardized form (see,
e.g., Form TA-W, Form ADVW, and Form BDW). Thus, it is likely that
Congress contemplated or intended that the Commission establish this
type of registration regime. The Commission believes the use of
conditional registration and the certification process using Form SBSE-
C is a reasonable and relatively low cost method to assure that firms
have operational, financial and compliance capabilities to act as SBS
Entities and implement adequate procedures to comply with federal
securities laws and provide the Commission with a basis to take final
action on SBS Entity registration.
2. Costs of Certification
Paragraph (b) of proposed Rule 15Fb2-1 would require that each SBS
Entity have a knowledgeable senior officer certify that, after due
inquiry, he or she has reasonably determined that the SBS Entity has
the operational, financial, and compliance capabilities to act as an
SBS Dealer or major security-based swap participant, as applicable, and
has documented the process by which he or she has reached such
determination. Each SBS Entity would need to provide this certification
on Form SBSE-C only once. The Commission believes that the majority of
the cost associated with this certification would arise from the review
the senior officer conducts, or has others conduct, prior to certifying
that the SBS Entity has the requisite operational, financial, and
compliance capabilities.\139\ The senior officer would also need to
certify that he or she has documented this process.
---------------------------------------------------------------------------

\139\ See supra note 42.
---------------------------------------------------------------------------

The Commission understands (based on the staff's experience with
broker-dealers and other regulated entities) that, in satisfying other
certification requirements, SBS Entities may use different processes,
depending on the facts and circumstances of their business. Some SBS
Entities may develop more or less robust process than others and, as a
result, may incur higher or lower than average costs. Some SBS Entities
may use a sub-certification process whereby the senior officer will not
certify a firm-wide statement unless and until other persons
responsible for certain activities in turn certify to the senior
officer that the standard has been met, while other firms may use an
internal or external audit-type process whereby a senior officer may
choose to employ a third party to review an area subject to a firm-wide
certification before submitting the certification. There may be other
processes an SBS Entity could use to provide a basis for a senior
officer's reasonable determination that the SBS Entity has the
requisite capabilities that we have not specifically identified here.
Many factors outside of the Commission's control \140\ may determine
whether an SBS Entity might choose to utilize an internal process, as
opposed to an external process, to serve as a basis for the Senior
Officer Certification. For purposes of this economic analysis, we will
estimate that approximately half, or twenty-eight of the SBS Entities,
may use an internal process and the other half, or twenty-seven of the
SBS Entities, will use an external process.
---------------------------------------------------------------------------

\140\ See supra note 103.
---------------------------------------------------------------------------

The Commission believes that, regardless of whether an SBS Entity
may choose to utilize an internal process, as opposed to an external
process, to serve as a basis for the Senior Officer Certification, it
will cost approximately $10,450 on average for a senior officer to
review documents provided either by subordinates or by a third party to
gain the comfort necessary to sign and to sign the Senior Officer
Certification.\141\ The Commission estimates that, if an SBS Entity
opted to conduct an internal review of the SBS Entity's operational,
financial and compliance capabilities, it will cost each SBS Entity
approximately an additional $73,150 \142\ for other SBS

[[Page 65816]]

Entity employees to assess the SBS Entity's operational, financial, and
compliance capabilities and provide the senior officer with whatever
sub-certifications or other documents he or she may request to obtain
the necessary comfort before signing the Senior Officer Certification.
Alternatively, if an SBS Entity opted to conduct an external review of
the SBS Entity's operational, financial and compliance capabilities,
the Commission estimates that it will cost each SBS Entity
approximately an additional $600,000.\143\ Thus, the Commission
estimates that this certification requirement will cost all SBS
Entities a total of approximately $18,822,950.\144\
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\141\ The Commission has previously estimated that the burden
associated with having a senior officer sign a certification likely
would be approximately five hours. See supra note 104. The
Commission has also estimated that it would take a senior officer
approximately twenty hours to review, document, and update
compliance procedures, (Id.) which the staff believes would be
analogous to reviewing documents provided either by subordinates or
a third party to gain comfort necessary to sign the Senior Officer
Certification, and to document this review. The staff believes the
pay scales for broker-dealers and SBS Entities would likely be
similar, and that the pay of a Chief Compliance Officer likely would
be similar to the amount paid to other senior officers. According to
the SIFMA's publication titled Management & Professional Earnings in
the Securities Industry 2009, as modified by Commission staff to
account for an 1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits and overhead, the
hourly cost of a Chief Compliance Officer is approximately $418/
hour. 25 hours x $418 = $10,450.
\142\ Commission staff estimates, based on its experience
relative to the securities and OTC derivatives industries, that if a
senior officer opted to conduct an internal review of the SBS
Entity's operational, financial, and compliance capabilities, it
would take approximately one hundred and seventy five additional
hours for other SBS Entity employees to assess the SBS Entity's
operational, financial, and compliance capabilities and provide the
senior officer with whatever sub-certifications or other documents
he or she may request to obtain the necessary comfort before signing
the Senior Officer Certification. The staff believes the pay scales
for broker-dealers and SBS Entities would likely be similar, and
that the pay of a Chief Compliance Officer likely would be similar
to the amount paid to other senior officers. According to the
SIFMA's publication titled Management & Professional Earnings in the
Securities Industry 2009, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, the hourly cost
of a Chief Compliance Officer is approximately $418/hour. For
purposes of this estimate, we will assume that those a senior
officer may consult with are paid at approximately the same level.
175 hours x $418 = $73,150.
\143\ The Commission has previously estimated that the burden
associated with obtaining an internal control report from a third
party would cost approximately $250,000. See supra note 107. The
staff believes that an internal control report would be roughly
analogous to a third party review of each SBS Entity capability
included in the Senior Officer Certification; however, the staff
believes the cost of a third party review of an SBS Entity's
capabilities likely would be less than the cost of three separate
internal control reviews because the third party review of
capabilities would not require an accountant's opinion and because
some economies of scale likely could be achieved when a third party
reviews three capabilities for a single SBS Entity. Depending on the
facts and circumstances of an SBS Entity's business, third party
service providers may use different methods to assess each of an SBS
Entity's capabilities and report their findings to the SBS Entity,
which may affect the cost of the review and the amount a third party
charges an SBS Entity for this review. Consequently, the staff
estimates that the cost for an SBS Entity to obtain a third party
review to provide its senior officer with the necessary comfort to
sign the Senior Officer Certification would be approximately
$600,000 to have a third party review the SBS Entity's operational,
financial, and compliance capabilities and provide the SBS Entity
with evidence sufficient to make the senior officer sufficiently
comfortable to sign the Senior Officer Certification.
\144\ ($10,450 x 55 SBS Entities) + ($73,150 x 28 SBS Entities)
+ ($600,000 x 27 SBS Entities) = $574,750 + $2,048,200 + $16,200,000
= $18,822,950.
---------------------------------------------------------------------------

In addition to these costs, there may be additional costs and
benefits relating to certification that are more difficult to quantify.
For instance, the requirement to certify as to capabilities may impose
costs on SBS Entities relating to the legal uncertainty and potential
liability that arises from the possibility that a regulator may find
that the certification was inaccurate or false. However, a potential
benefit would be to focus senior officers' attention to assuring that
an SBS Entity conducts its business in accordance with the
certification language. In addition, the more robust the process and
meaningful the review of an SBS Entity's capabilities, the more likely
that review will fulfill the Commission's goals in proposing the Senior
Officer Certification requirement, and the more likely the process will
help the SBS Entity to strengthen its capabilities, processes and
controls which could serve to decrease operational, financial, and
compliance risks.
In addition, the Senior Officer Certification is designed to help
assure the Commission, potential investors in, customers of, and
counterparties to an SBS Entity that the SBS Entity has the requisite
capabilities to act in that capacity. By providing this assurance after
a senior officer has performed due inquiry, the Senior Officer
Certification requirement also could prevent entities who may be more
likely to fail because they do not have the requisite capabilities from
registering with the Commission, which could help prevent disorderly
and unstable markets. Further, the Senior Officer Certification may
enhance market participants' ability to assess the counterparty credit
risk associated with a particular SBS Entity counterparty. In this way,
the Senior Officer Certification should help to protect market
participants from SBS Entities that are not competent to engage in that
business, lack the financial resources to do so, or are unable or
unwilling to comply with applicable law.
3. Costs Relating to Associated Persons
The Dodd-Frank Act makes it unlawful for SBS Entities to permit any
associated person subject to a statutory disqualification to effect or
be involved in effecting security-based swaps on its behalf if it knew
or, in the exercise of reasonable care should have known, of the
statutory disqualification. Proposed Rule 15Fb6-1 would require that
SBS Entities obtain a questionnaire or application for employment
executed by each of its associated persons who is involved in effecting
security based swaps on behalf of the SBS Entity that contains certain,
specified information. The proposed rule further would provide that the
questionnaire or application must be reviewed and signed by the SBS
Dealer's or major security-based swap participant's Chief Compliance
Officer. Finally, the CCO would need to certify that no associated
person that effects or is involved in effecting security-based swaps on
behalf of the SBS Entity is subject to a statutory disqualification.
SBS Entities would only need to fulfill these obligations for
associated persons that effect or are involved in effecting security
based swaps on behalf of the SBS Entity.\145\ The Commission estimates,
based on the staff's experience in dealing with entities that likely
will need to register as SBS Entities, that SBS Entities each have, on
average, 25 associated persons that effect or are involved in effecting
security-based swaps on behalf of the SBS Entity. The Commission
believes that the information SBS Entities would need to obtain through
these questionnaires is fairly standard in the financial services
industry, and is already collected by firms registered with the CFTC
and the SEC. In addition, SBS Entities that are registered with the
Commission or the CFTC must already perform background checks on their
employees because of the prohibitions from employment of statutorily
disqualified persons in the CEA and the Exchange Act.
---------------------------------------------------------------------------

\145\ See supra notes 55 and 56.
---------------------------------------------------------------------------

The Commission estimates that the cost for each SBS Entity to
review its employment questionnaire or application to verify that it
contains all of the required information and to update the
questionnaire, as necessary, to obtain any information not presently
included on that questionnaire would be approximately $950.\146\ As SBS
Entities that are already registered with the Commission and the CFTC
already collect this information, the Commission estimates that the
cost to all SBS Entities to review employment questionnaire or
application forms, verify that they contain all of the required
information and update the questionnaire or application forms, as
necessary, would be approximately $3,800.\147\
---------------------------------------------------------------------------

\146\ Commission staff estimates, based on its experience, that
the average time necessary for an SBS Entity to review its
employment questionnaire or application to verify that it contains
all of the required information and to update the questionnaire
would be approximately three hours. The staff believes that an SBS
Entity would have an Attorney perform this review and update, and
that the pay scales for broker-dealers and SBS Entities would likely
be similar. According to the SIFMA's publication titled Management &
Professional Earnings in the Securities Industry 2009, as modified
by Commission staff to account for an 1,800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead, the hourly cost of an Attorney is
approximately $316/hour. 3 hours x $316 = $948.
\147\ $950 x 4 SBS Entities that are not registered with the
Commission or CFTC = $3,800.
---------------------------------------------------------------------------

The Commission estimates that the cost to require an SBS Entity's
existing associated persons that effect or are

[[Page 65817]]

involved in effecting security-based swaps on behalf of the SBS Entity
to provide those few categories of information that they did not
originally provide on their employment questionnaires or applications
would be approximately $6,500.\148\ As SBS Entities that are already
registered with the Commission and the CFTC already collect this
information from employees, the Commission estimates that the cost to
all SBS Entities to obtain additional information from relevant
associated persons, would be approximately $52,000.\149\
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\148\ Commission staff believes that, as most firms already
collect all or most of the information already, it likely would not
take employees more than an hour each, on average, to provide any
additional information. The staff believes the pay scales for
broker-dealers and SBS Entities would likely be similar. As the
categories of employees that could be required to provide additional
information is diverse (see supra notes 55 and 56) the weighted-
average cost of 46 of the positions included in SIFMA's publication
titled Management & Professional Earnings in the Securities Industry
2009, as modified by Commission staff to account for an 1,800-hour
work-year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead, the hourly cost of an Attorney is
approximately $260/hour. 1 hour x 25 associated persons x $260 =
$6,500.
\149\ $6,500 x 4 SBS Entities that are not registered with the
Commission or CFTC = $26,000.
---------------------------------------------------------------------------

The Commission estimates that the cost to have an SBS Entity's CCO
review and sign each associated person's employment record would be
approximately $418.\150\ The Commission estimates that the cost to all
SBS Entities to have their CCOs review and sign each associated
person's employment record would be approximately $574,750.\151\
---------------------------------------------------------------------------

\150\ Commission staff estimates, based on staff experience,
that it would take a CCO approximately one hour to review and
approve a relevant employee's employment record. The staff believes
the pay scales for broker-dealers and SBS Entities would likely be
similar. According to the SIFMA's publication titled Management &
Professional Earnings in the Securities Industry 2009, as modified
by Commission staff to account for an 1,800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead, the hourly cost of a Chief Compliance Officer
is approximately $418/hour. 1 hour x $418 = $418.
\151\ $418 x 25 associated persons x 55 SBS Entities = $574,750.
---------------------------------------------------------------------------

On an ongoing basis, if employee turnover at an SBS Entity averages
12%, each SBS Entity would need to perform background checks and have
its CCO review and sign three new associated persons' employment
records per year. As stated above, the Commission estimates that the
cost to have an SBS Entity's CCO review and sign each associated
person's employment record would be approximately $418. Thus, the cost
of each new associated person would be approximately $418, the ongoing
annual cost to each SBS Entity would be approximately $1,254 \152\ and
the total cost to all SBS Entities to comply with Rule 15Fb6-1 on an
ongoing basis would be approximately $68,970.\153\
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\152\ $418 x 3 associated persons = $1,254.
\153\ $1,254 x 55 SBS Entities = $68,970.
---------------------------------------------------------------------------

The Commission believes that as the CCO would already have reviewed
and signed each employee's employment record, signing the certification
on Schedule G will not take a significant amount of time. Thus, the
Commission estimates that the cost for each SBS Entity to have its CCO
certify on Schedule G that no associated person that effects or is
involved in effecting security-based swaps on behalf of the SBS Entity
is subject to a statutory disqualification would be approximately
$418.\154\ Consequently, the total cost for all SBS Entities to have
their CCO sign this certification on Schedule G would be approximately
$22,990.\155\
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\154\ Commission staff conservatively estimates that it would
take a CCO approximately one hour to certify that no associated
person that effects or is involved in effecting security-based swaps
on behalf of the SBS Entity is subject to a statutory
disqualification. The staff believes the pay scales for broker-
dealers and SBS Entities would likely be similar. According to the
SIFMA's publication titled Management & Professional Earnings in the
Securities Industry 2009, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, the hourly cost
of a Chief Compliance Officer is approximately $418/hour. 1 hour x
$418 = $418.
\155\ $418 x 55 SBS Entities = $22,990.
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The Commission believes that, in order to comply with the
prohibition in the Dodd-Frank Act from having statutorily disqualified
associated persons that effect or are involved in effecting security-
based swaps, SBS Entities would need to at least obtain the information
required by proposed Rule 15Fb6-1 and perform a background check.
Having the CCO approve the employment applications and provide the
Commission with a certification would provide the Commission with a
degree of comfort that the SBS Entity is complying with the prohibition
in the Act and aid it in its oversight of SBS Entities.
4. Costs to Nonresident SBS Entities
The Commission estimates, based on conversations with industry
participants, that approximately 40 percent or twenty-two SBS Entities
will be nonresident SBS Entities. Proposed Rule 15Fb2-4 would require
that each nonresident SBS Entity must obtain an agreement with a United
States person appointing that person as the firm's U.S. agent for
service of process. In addition, Proposed Rule 15Fb2-4 would require
that each nonresident SBS Entity obtain an opinion of counsel stating
that it can provide the Commission with access to records. These
entities also must file an additional schedule (Schedule F) with their
Form SBSE, Form SBSE-A, or Form SBSE-BD, as appropriate, to identify
the firm's U.S. agent for service of process and to certify that the
firm can, as a matter of law, provide the Commission with access to its
books and records.
The Commission estimates, based on internet research,\156\ that it
would cost each nonresident SBS Entity approximately $125 annually to
appoint and maintain a relationship with a U.S. agent for service of
process. Consequently, the total cost for all nonresident SBS Entities
to appoint and maintain relationships with U.S. agents for service of
process is approximately $2,750 per year.\157\
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\156\ See, e.g., http://www.incnow.com/registered_agent.shtml,
and http://www.ailcorp.com/registeredagent.htm. The staff sought Web
sites that provided pricing information and a comprehensive
description of their registered agent services.
\157\ $125 per nonresident SBS Entity x 22 nonresident SBS
Entities = $2,750.
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In addition, nonresident SBS Entities would incur outside legal
costs associated with obtaining an opinion of counsel. In previous
releases, the Commission estimated that firms with a similar
requirement would incur, on average, approximately $900 in outside
legal costs to obtain an opinion of counsel.\158\ This estimate
originally related to the cost a foreign bank issuer would incur to
obtain a legal opinion to provide to the Commission when seeking an
exemption from the requirement to make certain additional
disclosures.\159\ Although the legal opinion for foreign bank issuers
also would address privacy laws in the issuer's home jurisdiction that
may preclude certain disclosures, upon further reflection, we believe
that the legal opinion required for nonresident SBS Entities pursuant
to the proposed rule would likely require additional research and
analysis to prepare. Based on staff experience, the Commission
estimates that each nonresident SBS Entity would incur, on average,

[[Page 65818]]

approximately $25,000 in outside legal costs to obtain the necessary
opinion of counsel, and that the total cost for all nonresident SBS
Entities to obtain this opinion of counsel would be approximately
$550,000.\160\
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\158\ Security-Based Swap Data Repository Registration, Duties,
and Core Principles, Exchange Act Release No. 63347 (Nov. 19, 2010);
75 FR 77306 (Dec. 10, 2010); Foreign Bank Exemption from the Insider
Lending Prohibition of Exchange Act Section 13(k), Exchange Act
Release No. 49616 (Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004). The
$900 figure is based on an estimate of $400 an hour for legal
services.
\159\ Foreign Bank Exemption from the Insider Lending
Prohibition of Exchange Act Section 13(k), Exchange Act Release No.
49616 (Apr. 26, 2004); 69 FR 24016 (Apr. 30, 2004).
\160\ $25,000 x 22 SBS Entities = $550,000.
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The Commission estimates that it would cost each nonresident SBS
Entity approximately $295 to complete Schedule F.\161\ Thus, the
Commission estimates that the total cost for all nonresident SBS
Entities approximately $6,490.\162\
---------------------------------------------------------------------------

\161\ Commission staff conservatively estimates, based on staff
experience, that the average time necessary for an SBS Entity to
complete and file Schedule F would be approximately one hour. The
staff believes that an SBS Entity would have a Compliance Manager
complete and file Schedule F with its Form SBSE, Form SBSE-A, or
form SBSE-BD, as appropriate, and that the pay scales for broker-
dealers and SBS Entities would likely be similar. According to the
SIFMA publication titled Management & Professional Earnings in the
Securities Industry 2009, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, the hourly cost
of a Compliance Manager is approximately $295/hour. 1 hour x $295 =
$295.
\162\ $295 per nonresident SBS Entity x 22 nonresident SBS
Entities = $6,490.
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While the Dodd-Frank Act does not distinguish between resident and
nonresident SBS Entities, it clearly contemplates Commission oversight
of registered SBS Entities. The Commission's experience with other
nonresident registrants has led the staff to believe that these
requirements are necessary and appropriate to allow the Commission to
adequately oversee nonresident SBS Entities.
5. Costs of Retaining Manually Signed Signature Pages
Pursuant to proposed Rule 15Fb1-1, each signatory to an electronic
filing would be required to, when the electronic filing is made,
manually sign a signature page or other document adopting his or her
signature that appears in typed form within the electronic filing. Each
SBS Entity must retain these manually signed pages until at least three
years after the form or certification has been replaced or is no longer
effective. It is likely that each SBS Entity would need to maintain at
least three pages with manually signed signatures (the execution page
of Form SBSE, SBSE-A, or SBSE-BD, as applicable, Schedule G, and the
Form SBSE-C certification). In addition, nonresident SBS Entities also
will need to retain a manually signed copy of Schedule F. As so few
pages would need to be maintained pursuant to proposed Rule 15Fb1-1,
Commission staff does not believe the costs associated with retaining
them would be significant. Thus, the Commission estimates that it would
cost each SBS Entity approximately $49.17 annually assure that it is
complying with the requirement to retain these manually signed
signature pages,\163\ or a total of approximately $2,704 annually for
all SBS Entities.\164\
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\163\ Commission staff conservatively estimates, based on staff
experience, that the average time necessary for an SBS Entity to
assure that it is complying with the requirement to retain these
pages would be approximately ten minutes. The staff believes that an
SBS Entity would have a Compliance Manager to assure that it is
complying with the requirement to retain these pages, and that the
pay scales for broker-dealers and SBS Entities would likely be
similar. According to the SIFMA publication titled Management &
Professional Earnings in the Securities Industry 2009, as modified
by Commission staff to account for an 1,800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead, the hourly cost of a Compliance Manager is
approximately $295/hour. 10 minutes x $295 = $49.17.
\164\ $49.17 per SBS Entity x 55 SBS Entities = $2,704.17.
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6. Costs Associated With Proposed Temporary Rule 15Fb2-2T
Proposed temporary Rule 15Fb2-2T would only be adopted if a
technological means to facilitate receipt and retention of applications
is not functional by the time final rules are adopted. Pursuant to
proposed temporary Rule 15Fb2-2T, each SBS Entity would need to file
its application and certification in paper form. Proposed temporary
Rule 15Fb2-2T also would require that each SBS Entity resubmit its
application and certification in electronic form once a technological
means to receive such documents becomes functional.
The costs associated with completing the forms are discussed above.
Thus, the additional costs associated with proposed temporary Rule
15Fb2-2T would include the postage cost to send a paper form and the
personnel costs associated with later resubmitting the form
electronically.
The postage costs likely would be driven by the number of pages
each SBS Entity would need to send, which could vary significantly
depending on the number of DRPs each firm must include with its Form.
The staff conservatively estimates that each SBS Entity may incur, on
average, approximately $5 to send its form to the Commission. As the
certification consists of a one page Form SBSE-C, the staff estimates
that it likely would cost an SBS Entity approximately $.50 to send its
certification to the Commission. The Commission hopes that it will have
a technological means to receive these forms functional relatively
quickly; however each SBS Entity may also need to file an amendment
before that occurs. As any amendment would likely include few pages
because the SBS Entity only would need to provide updates to those
items which become inaccurate, the staff estimates that it would cost
each SBS Entity approximately $.50 to send an amendment to the
Commission. Consequently, the total postage cost to each SBS Entity
associated with proposed temporary Rule 15Fb2-2T would be approximately
$6, and the total postage costs associated with proposed temporary Rule
15Fb2-2T would be approximately $330.
The staff estimates that the costs associated with filing each of
the forms would be minimal, but would be contingent on the length of
the form. The Commission preliminarily believes that it would cost each
SBS Entity approximately $1,180 to resubmit the Form SBSE.\165\ As
Forms SBSE-A and SBSE-BD are shorter than Form SBSE, the Commission
preliminarily believes that it would cost each SBS Entity approximately
$590 to resubmit the Form SBSE-A,\166\ and $295 to resubmit the Form
SBSE-BD.\167\ Thus, the Commission estimates that the total cost to all
SBS Entities to resubmit their Form SBSE, SBSE-A, or SBSE-BD, as
applicable, would be approximately $33,630.\168\
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\165\ Commission staff estimates, based on staff experience,
that the average time necessary for an SBS Entity to file a Form
SBSE would be approximately four hours. The staff believes that an
SBS Entity would have a Compliance Manager file the firm's
application on Form SBSE, and that the pay scales for broker-dealers
and SBS Entities would likely be similar. According to the SIFMA
publication titled Management & Professional Earnings in the
Securities Industry 2009, as modified by Commission staff to account
for a 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, the hourly cost
of a Compliance Manager is approximately $295/hour. 4 hours x $295 =
$1,180.
\166\ Commission staff estimates that filing Form SBSE-A would
take approximately two hours. The staff believes that an SBS Entity
would have a Compliance Manager file the form's application on Form
SBSE-A, and that the pay scales for broker-dealers and SBS Entities
would likely be similar. 2 hours x $295 = $590.
\167\ Commission staff estimates that filing Form SBSE-BD would
take approximately one hour. The staff believes that an SBS Entity
would have a Compliance Manager complete and file the form's
application on Form SBSE-BD. 1 hour x $295 = $295.
\168\ ($590 x 35) + ($295 x 16) + ($1,180 x 4) = $30,090.
---------------------------------------------------------------------------

C. Request for Comment

The Commission requests data to quantify and estimates of the costs
and the value of the benefits of the proposed rules described above.
The Commission specifically requests the following data or estimates
with respect to the number

[[Page 65819]]

of persons that act as SBS Dealers and major security-based swap
participants. The Commission specifically requests comment on the
following:
Q-178. Are the estimates of the number of registrants that would be
required to submit each form and the estimates of the costs associated
with completing the forms and amendments are reasonable? If not, why
not?
Q-179. Should the Commission require different and/or additional
information to be provided on the proposed forms?
Q-180. Would additional benefits accrue if the Commission required
different or additional information and, if so, what would these
requirements entail?
Q-181. What other processes might an SBS Entity use to provide a
basis for a senior officer's reasonable determination that the SBS
Entity has the requisite capabilities that we may not have considered,
and what would be the advantages, disadvantages, costs and benefits of
those other processes?
Q-182. Are there additional costs or benefits related to
registration information that the Commission should consider?
The Commission solicits comments on the costs and benefits related
to the limited recordkeeping requirements of these proposed
registration rules. The Commission specifically requests comment on the
following:
Q-183. Should the Commission require different and/or additional
information to be maintained by SBS Entities?
Q-184. Would additional benefits accrue if the Commission imposed
different or additional recordkeeping requirements and, if so, what
would these requirements entail?
Q-185. Are there additional costs or benefits related to
recordkeeping that the Commission should consider?
We request comment on all aspects of the costs and benefits of the
proposed rules and forms, particularly any effect our proposed rules
may have on efficiency, competition, and capital formation.
Commentators should provide analysis and empirical data to support
their views on the costs and benefits associated with the proposed
rule.
Q-186. What would be the competitive or anticompetitive effects of
the proposed rules and forms on any market participants if the
proposals are adopted as proposed?
Q-187. Would proposed Rules 15Fb1-1 through 15Fb6-1 and the
proposed forms place a burden on competition?
Q-188. What may be the effect of the proposal on efficiency,
competition, and capital formation?

VI. Consideration of Impact on the Economy

For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA'') \169\ the Commission must advise the Office of
Management and Budget as to whether the proposed regulation constitutes
a ``major'' rule. Under SBREFA, a rule is considered ``major'' where,
if adopted, it results or is likely to result in:
---------------------------------------------------------------------------

\169\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effect on competition, investment or
innovation.

If a rule is ``major,'' its effectiveness will generally be delayed for
60 days pending Congressional review.
Q-189. What may be the potential impact of these proposed
registration rules and forms for SBS Entities? Please include empirical
data on (a) The potential annual effect of the proposed registration
rules and forms on the economy; (b) any increase in costs or prices for
consumers or individual industries associated with the proposed
registration rules and forms; and (c) any potential effect the proposed
registration rules and forms may have on competition, investment or
innovation.

VII. Regulatory Flexibility Act Certification

The Regulatory Flexibility Act (``RFA'') \170\ requires Federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Section 603(a) \171\ of the Administrative Procedure
Act,\172\ as amended by the RFA, generally requires the Commission to
undertake a regulatory flexibility analysis of all proposed rules, or
proposed rule amendments, to determine the impact of such rulemaking on
``small entities.'' \173\ Section 605(b) of the RFA states that this
requirement shall not apply to any proposed rule or proposed rule
amendment, which if adopted, would not have a significant economic
impact on a substantial number of small entities.\174\
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\170\ 5 U.S.C. 601 et seq.
\171\ 5 U.S.C. 603(a).
\172\ 5 U.S.C. 551 et seq.
\173\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
small entity for the purposes of Commission rulemaking in accordance
with the RFA. Those definitions, as relevant to this proposed
rulemaking, are set forth in Rule 0-10, 17 CFR 240.0-10. See
Statement of Management on Internal Control, Exchange Act Release
No. 18451 (January 28, 1982), 47 FR 5215 (February 4, 1982).
\174\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

For purposes of Commission rulemaking in connection with the RFA, a
small entity includes: (i) When used with reference to an ``issuer'' or
a ``person,'' other than an investment company, an ``issuer'' or
``person'' that, on the last day of its most recent fiscal year, had
total assets of $5 million or less; \175\ or (ii) a broker-dealer with
total capital (net worth plus subordinated liabilities) of less than
$500,000 on the date in the prior fiscal year as of which its audited
financial statements were prepared pursuant to Rule 17a-5(d) under the
Exchange Act,\176\ or, if not required to file such statements, a
broker-dealer with total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last day of the preceding
fiscal year (or in the time that it has been in business, if shorter);
and is not affiliated with any person (other than a natural person)
that is not a small business or small organization.\177\ Under the
standards adopted by the Small Business Administration, small entities
in the finance and insurance industry include the following: (i) for
entities in credit intermediation and related activities,\178\ entities
with $175 million or less in assets or, (ii) for non-depository credit
intermediation and certain other activities,\179\ $7 million or less in
annual receipts; (iii) for entities in financial investments and
related activities,\180\ entities with $7 million or less in annual
receipts; (iv) for insurance carriers and entities in related

[[Page 65820]]

activities,\181\ entities with $7 million or less in annual receipts;
and (v) for funds, trusts, and other financial vehicles,\182\ entities
with $7 million or less in annual receipts.\183\
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\175\ See 17 CFR 240.0-10(a).
\176\ See 17 CFR 240.17a-5(d).
\177\ See 17 CFR 240.0-10(c).
\178\ Including commercial banks, savings institutions, credit
unions, firms involved in other depository credit intermediation,
credit card issuing, sales financing, consumer lending, real estate
credit, and international trade financing. Subsector 522.
\179\ Including firms involved in secondary market financing,
all other non-depository credit intermediation, mortgage and
nonmortgage loan brokers, financial transactions processing,
reserve, and clearinghouse activities, and other activities related
to credit intermediation. Subsector 522.
\180\ Including firms involved in investment banking and
securities dealing, securities brokerage, commodity contracts
dealing, commodity contracts brokerage, securities and commodity
exchanges, miscellaneous intermediation, portfolio management,
providing investment advice, trust, fiduciary and custody
activities, and miscellaneous financial investment activities.
Subsector 523.
\181\ Including direct life insurance carriers, direct health
and medical insurance carriers, direct property and casualty
insurance carriers, direct title insurance carriers, other direct
insurance (except life, health and medical) carriers, reinsurance
carriers, insurance agencies and brokerages, claims adjusting, third
party administration of insurance and pension funds, and all other
insurance related activities. Subsector 524.
\182\ Including pension funds, health and welfare funds, other
insurance funds, open-end investment funds, trusts, estates, and
agency accounts, real estate investment trusts and other financial
vehicles. Subsector 525.
\183\ See 13 CFR 121.201 (Jan. 1, 2010).
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Based on the Commission's existing information about the security-
based swap market, the Commission preliminarily believes that the
market, while broad in scope, is largely dominated by entities such as
those that would be covered by the ``security-based swap dealer'' and
``major security-based swap market participant'' definitions. Subject
to certain exceptions, Exchange Act Section 3(a)(71)(A) defines
``security-based swap dealer'' to mean any person who: (i) Holds itself
out as a dealer in security-based swaps; (ii) makes a market in
security-based swaps; (iii) regularly enters into security-based swaps
with counterparties as an ordinary course of business for its own
account; or (iv) engages in any activity causing it to be commonly
known in the trade as a dealer or market maker in security-based
swaps.\184\ Exchange Act Section 3(a)(67)(A) defines ``major security-
based swap participant'' to be as any person: (i) Who is not an SBS
Dealer; and (ii)(I) who maintains a substantial position in security-
based swaps for any of the major security-based swap categories, as
such categories are determined by the Commission, excluding both
positions held for hedging or mitigating commercial risk and positions
maintained by any employee benefit plan (or any contract held by such a
plan) as defined in paragraphs (3) and (32) of Section 3 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) for
the primary purpose of hedging or mitigating any risk directly
associated with the operation of the plan; (II) whose outstanding
security-based swaps create substantial counterparty exposure that
could have serious adverse effects on the financial stability of the
United States banking system or financial markets; or (III) that is a
financial entity that (aa) is highly leveraged relative to the amount
of capital such entity holds and that is not subject to capital
requirements established by an appropriate Federal banking regulator;
and (bb) maintains a substantial position in outstanding security-based
swaps in any major security-based swap category, as such categories are
determined by the Commission.\185\
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\184\ See supra note 6.
\185\ See supra note 7.
---------------------------------------------------------------------------

Based on feedback from industry participants about the security-
based swap markets, the Commission preliminarily believes that entities
that will qualify as SBS Dealers and major security-based swap market
participants, whether registered broker-dealers or not, exceed the
thresholds defining ``small entities'' set out above. Thus, the
Commission believes it is unlikely that the proposed SBS Entity
registration rules and forms would have a significant economic impact
any small entity.
For the foregoing reasons, the Commission certifies that the
proposed SBS Entity registration rules and forms would not have a
significant economic impact on any small entity for purposes of the
RFA.
The Commission encourages written comments regarding this
certification. The Commission requests that commenters describe the
nature of any impact on small entities and provide empirical data to
illustrate the extent of the impact.

VIII. Statutory Basis and Text of Proposed Rules

The Commission is proposing Rule 15Fb1-1 through 15Fb6-1 pursuant
to Sections 15F(a) through (d), 17(a), 23(a) and 30 of the Securities
Exchange Act of 1934, as amended.

List of Subjects in 17 CFR Parts 240 and 249

Registration, Reporting and recordkeeping requirements, Securities,
Security-based swaps, Security-based swap dealers, Security-based swap
participants, Forms.

In accordance with the foregoing, the Securities and Exchange
Commission is proposing to amend Title 17, Chapter II of the Code of
Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

1. The general authority citation for Part 240 is revised to read
as follows:

Authority: 12 U.S.C. 5221(e)(3); 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e,
78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o,
78o-4, 78o-10, 78p, 78q, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq.; 18 U.S.C. 1350; and Pub. L. 111-203, Sec. 939A, 124 Stat.
1376 (2010), unless otherwise noted.
* * * * *
2. Add an undesignated center heading and Sec. Sec. 240.15Fb1-1
through 240.15Fb6-1 to read as follows:

Registration of Security-Based Swap Dealers and Major Security-Based
Swap Participants

Sec.
240.15Fb1-1 Signatures.
240.15Fb2-1 Registration of security-based swap dealers and major
security-based swap participants.
240.15Fb2-2T Temporary filing requirement.
240.15Fb2-3 Amendments to application for registration.
240.15Fb2-4 Nonresident security-based swap dealers and major
security-based swap participants.
240.15Fb2-5 Registration of successor to registered security-based
swap dealer or major security-based swap participant.
240.15Fb2-6 Registration of fiduciaries.
240.15Fb3-1 Duration of registration.
240.15Fb3-2 Withdrawal from registration.
240.15Fb3-3 Cancellation and revocation of registration.
240.15Fb6-1 Reports regarding associated persons.
* * * * *

Sec. 240.15Fb1-1 Signatures.

(a) Required signatures to, or within, any electronic submission
(including, without limitation, signatories within the forms and
certifications required by Sec. Sec. 240.15Fb2-1, 240.15Fb2-4 and
240.15Fb6-1) must be in typed form rather than manual format.
Signatures in an HTML, XML or XBRL document that are not required may,
but are not required to, be presented in a graphic or image file within
the electronic filing. When used in connection with an electronic
filing, the term ``signature'' means an electronic entry in the form of
a magnetic impulse or other form of computer data compilation of any
letters or series of letters of characters comprising a name, executed,
adopted or authorized as a signature.
(b) Each signatory to an electronic filing (including, without
limitation, each signatory to the forms and certifications required by
Sec. Sec. 240.15Fb2-1, 240.15Fb2-4 and 240.15Fb6-1) shall manually
sign a signature page or other document authenticating, acknowledging
or otherwise adopting his or her signature that appears in typed form
within the electronic filing. Such document shall be executed before or
at the time the electronic filing is

[[Page 65821]]

made. Upon request, the security-based swap dealer or major security-
based swap participant shall furnish to the Commission or its staff a
copy of any or all documents retained pursuant to this paragraph (b).
(c) A person required to provide a signature on an electronic
submission (including, without limitation, each signatory to the forms
and certifications required by Sec. Sec. 240.15Fb2-1, 240.15Fb2-4 and
240.15Fb6-1) may not have the form or certification signed on his or
her behalf pursuant to a power of attorney or other form of confirming
authority.
(d) Each manually signed signature page or other document
authenticating, acknowledging or otherwise adopting his or her
signature that appears in typed form within the electronic filing--
(1) On Schedules F and G to Form SBSE (Sec. 249.1600 of this
chapter), SBSE-A (Sec. 249.1600a. of this chapter), or SBSE-BD (Sec.
249.1600b of this chapter), as appropriate, shall be retained by the
filer until at least three years after the form or certification has
been replaced or is no longer effective;
(2) On Form SBSE-C (Sec. 249.1600c of this chapter) shall be
retained by the filer until at least three years after the Form was
filed with the Commission.

Sec. 240.15Fb2-1 Registration of security-based swap dealers and
major security-based swap participants.

(a) Application. An application for registration of a security-
based swap dealer or a major security-based swap participant that is
filed pursuant to Section 15F(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78o-10(b)) shall be filed on Form SBSE (Sec. 249.1600 of
this chapter) or Form SBSE-A (Sec. 249.1600a of this chapter) or Form
SBSE-BD (Sec. 249.1600b of this chapter), as appropriate, in
accordance with this section and the instructions to the forms.
(b) Certification.
(1) Form of certification. A knowledgeable senior officer shall
certify on Form SBSE-C (Sec. 249.1600c of this chapter) that, after
due inquiry, he or she has reasonably determined that the security-
based swap dealer or major security-based swap participant has the
operational, financial, and compliance capabilities to act as a
security-based swap dealer or major security-based swap participant, as
applicable, and has documented the process by which he or she reached
such determination.
(2) Timing of filing of certification.
(i) Conditional registration.
(A) Prior to the last compliance date. Each security-based swap
dealer or major security-based swap participant that files a completed
application in accordance with paragraph (a) of this section before the
last compliance date (as defined in paragraph (e) of this section) must
file the certification described in paragraph (b)(1) of this section on
or before such last compliance date.
(B) Major security-based swap participants. Each major security-
based swap participant that files a completed application in accordance
with paragraph (a) of this section after the last compliance date must
file the certification described in paragraph (b)(1) of this section
within four months after it files its completed application.
(ii) Ongoing registration. Each security-based swap dealer that
files a completed application in accordance with paragraph (a) of this
section after the last compliance date must file the certification
described in paragraph (b)(1) of this section at the time it files its
application.
(c) Filing.
(1) Electronic filing. Every application for registration and
certification of a security-based swap dealer or major security-based
swap participant and any additional registration documents shall be
filed electronically with the Commission or its designee.
(2) Effective date of filing.
(i) Application. An application of a security-based swap dealer or
a major security-based swap participant submitted pursuant to paragraph
(a) of this section shall be considered filed when a complete Form SBSE
(Sec. 249.1600 of this chapter), Form SBSE-A (Sec. 249.1600a of this
chapter), or Form SBSE-BD (Sec. 249.1600b of this chapter), as
appropriate, and all required additional documents are submitted
electronically with the Commission or its designee;
(ii) Certification. A certification of a security-based swap dealer
or a major security-based swap participant submitted pursuant to
paragraph (b) of this section shall be considered filed when a complete
Form SBSE-C (Sec. 249.1600c of this chapter) is submitted
electronically with the Commission or its designee.
(d) Commission decision.
(1) Conditional registration. The Commission may deny or grant
registration to a security-based swap dealer or major security-based
swap participant on a conditional basis. The Commission will grant
conditional registration if it finds that the security-based swap
dealer's or major security-based swap participant's application is
complete; Except that, the Commission may institute proceedings to
determine whether conditional registration should be denied if the
applicant is subject to a statutory disqualification (as defined in 15
U.S.C. 78c(a)(39)) or if the Commission is aware of inaccurate
statements in the application. Such proceedings shall include notice of
the grounds for denial under consideration and opportunity for hearing.
At the conclusion of such proceedings, the Commission shall grant or
deny such registration.
(2) Ongoing registration. The Commission may grant or deny ongoing
registration based on a security-based swap dealer's or major security-
based swap participant's application (filed pursuant to paragraph (a)
of this section) and certification (filed pursuant to paragraph (b) of
this section). A conditionally registered security-based swap dealer or
major security-based swap participant need not submit a new application
to apply for ongoing registration, but must amend its application, as
required pursuant to Sec. 240.15Fb2-3. The Commission will grant
ongoing registration if it finds that the requirements of Section
15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) are
satisfied; Except that, the Commission may institute proceedings to
determine whether ongoing registration should be denied if it does not
make such finding or if the applicant is subject to a statutory
disqualification (as defined in 15 U.S.C. 78c(a)(39)) or the Commission
is aware of inaccurate statements in the application or certification.
Such proceedings shall include notice of the grounds for denial under
consideration and opportunity for hearing. At the conclusion of such
proceedings, the Commission shall grant or deny such registration.
(e) Definition. For purposes of this section, the term last
compliance date shall mean the latest date, designated by the
Commission, by which security-based swap dealers and major security-
based swap participant must comply with any of the initial rules
promulgated under Section 15F of the Securities Exchange Act of 1934
(15 U.S.C. 78o-10).

Sec. 240.15Fb2-2T Temporary filing requirement.

(a) Paper filing. If a technological means to facilitate receipt
and retention of applications required to be filed in accordance with
Sec. 240.15Fb2-1 is not functional on or before [date to be
determined], each applicant for registration as a security-based swap
dealer or major security-based swap participant must, notwithstanding
Sec. 240.15Fb2-1(c)(1), file its application on Form SBSE (Sec.
249.1600 of this chapter), Form SBSE-A (Sec. 249.1600a of

[[Page 65822]]

this chapter), or Form SBSE-BD (Sec. 249.1600b of this chapter), as
applicable, any additional documents, and Form SBSE-C (Sec. 249.1600c
of this chapter) in paper form by sending it to the Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
(b) Transitional resubmission requirement. Each applicant must
resubmit its Form SBSE (Sec. 249.1600 of this chapter), Form SBSE-A
(Sec. 249.1600a of this chapter), and Form SBSE-BD (Sec. 249.1600b of
this chapter), as applicable, any additional documents, and Form SBSE-C
(Sec. 249.1600c of this chapter) to the Commission electronically
within three months of the date such technological means to facilitate
receipt and retention of applications becomes functional.

Sec. 240.15Fb2-3 Amendments to application for registration.

If a security-based swap dealer or a major security-based swap
participant finds that the information contained in its application for
registration (as described in Sec. 240.15Fb2-1(a)), or in any
amendment thereto, is or has become inaccurate for any reason, the
security-based swap dealer or a major security-based swap participant
shall promptly file an amendment electronically with the Commission/its
designee on Form SBSE (Sec. 249.1600 of this chapter), Form SBSE-A
(Sec. 249.1600a of this chapter), or Form SBSE-BD (Sec. 249.1600b of
this chapter), as appropriate, to correct such information.

Sec. 240.15Fb2-4 Nonresident security-based swap dealers and major
security-based swap participants.

(a) Definition. For purposes of this section, the terms nonresident
security-based swap dealer and nonresident major security-based swap
participant shall mean:
(1) In the case of an individual, one who resides, or has his or
her principal place of business, in any place not in the United States;
(2) In the case of a corporation, one incorporated in or having its
principal place of business in any place not in the United States; or
(3) In the case of a partnership or other unincorporated
organization or association, one having its principal place of business
outside the United States.
(b) Power of attorney.
(1) Each nonresident security-based swap dealer and nonresident
major security-based swap participant registered or applying for
registration pursuant to Section 15F(b) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o-10(b)) shall obtain a written irrevocable
consent and power of attorney appointing an agent in the United States,
other than the Commission or a Commission member, official or employee,
upon whom may be served any process, pleadings, or other papers in any
action brought against the nonresident security-based swap dealer or
nonresident major security-based swap participant to enforce the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). This consent
and power of attorney must be signed by the nonresident security-based
swap dealer or nonresident major security-based swap participant and
the named agent(s) for service of process.
(2) Each nonresident security-based swap dealer and nonresident
major security-based swap participant registered or applying for
registration pursuant to section 15F(b) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o-10(b)) shall, at the time of filing its
application on Form SBSE (Sec. 249.1600 of this chapter), Form SBSE-A
(Sec. 249.1600a of this chapter), or Form SBSE-BD (Sec. 249.1600b of
this chapter), as appropriate, furnish to the Commission the name and
address of its United States agent for service of process on Schedule F
to the appropriate form.
(3) Any change of a nonresident security-based swap dealer's and
nonresident major security-based swap participant's agent for service
of process and any change of name or address of a nonresident security-
based swap dealer's and nonresident major security-based swap
participant's existing agent for service of process shall be
communicated promptly to the Commission through amendment of the
Schedule F of Form SBSE (Sec. 249.1600 of this chapter), Form SBSE-A
(Sec. 249.1600a of this chapter), or Form SBSE-BD (Sec. 249.1600b of
this chapter), as appropriate.
(4) Each nonresident security-based swap dealer and nonresident
major security-based swap participant must promptly appoint a successor
agent for service of process if the nonresident security-based swap
dealer and nonresident major security-based swap participant discharges
its identified agent for service of process or if its agent for service
of process is unwilling or unable to accept service on behalf of the
nonresident security-based swap dealer or nonresident major security-
based swap participant.
(5) Each nonresident security-based swap dealer and nonresident
major security-based swap participant must maintain, as part of its
books and records, the agreement identified in paragraph (b)(1) of this
section for at least three years after the agreement is terminated.
(c) Access to books and records.
(1) Certification and opinion of counsel. Any nonresident security-
based swap dealer and nonresident major security-based swap participant
applying for registration pursuant to Section 15F(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o-10(b) shall certify on Schedule F
of Form SBSE (Sec. 249.1600 of this chapter), Form SBSE-A (Sec.
249.1600a of this chapter), or Form SBSE-BD (Sec. 249.1600b of this
chapter), as appropriate, and provide an opinion of counsel that the
nonresident security-based swap dealer and nonresident major security-
based swap participant can, as a matter of law, provide the Commission
with prompt access to the books and records of such nonresident
security-based swap dealer and nonresident major security-based swap
participant, and can, as a matter of law, submit to onsite inspection
and examination by the Commission.
(2) Amendments. The nonresident security-based swap dealer and
nonresident major security-based swap participant shall re-certify, on
Schedule F to Form SBSE (Sec. 249.1600 of this chapter), Form SBSE-A
(Sec. 249.1600a of this chapter), or Form SBSE-BD (Sec. 249.1600b of
this chapter), as applicable, within 90 days after any changes in the
legal or regulatory framework that would impact the nonresident
security-based swap dealer's or nonresident major security-based swap
participant's ability to, or the manner in which it provides the
Commission with prompt access to its books and records, or impacts the
Commission's ability to inspect and examine the nonresident security-
based swap dealer or nonresident major security-based swap participant.
The re-certification shall be accompanied by a revised opinion of
counsel describing how, as a matter of law, the nonresident security-
based swap dealer or nonresident major security-based swap participant
will continue to meet its obligations to provide the Commission with
prompt access to its books and records and to be subject to Commission
inspection and examination under the new regulatory regime.

Sec. 240.15Fb2-5 Registration of successor to registered security-
based swap dealer or a major security-based swap participant.

(a) In the event that a security-based swap dealer or major
security-based swap participant succeeds to and continues the business
of a security-

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based swap dealer or major security-based swap participant registered
pursuant to Section 15F(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-10(b)), the registration of the predecessor shall be deemed
to remain effective as the registration of the successor if the
successor, within 30 days after such succession, files an application
for registration in accordance with Sec. 240.15Fb2-1, and the
predecessor files a notice of withdrawal from registration on Form
SBSE-W (Sec. 249.1601 of this chapter).
(b) Notwithstanding paragraph (a) of this section, if a security-
based swap dealer or major security-based swap participant succeeds to
and continues the business of a registered predecessor security-based
swap dealer or major security-based swap participant, and the
succession is based solely on a change in the predecessor's date or
state of incorporation, form of organization, or composition of a
partnership, the successor may, within 30 days after the succession,
amend the registration of the predecessor security-based swap dealer or
major security-based swap participant on Form SBSE (Sec. 249.1600 of
this chapter), Form SBSE-A (Sec. 249.1600a of this chapter), or Form
SBSE-BD (Sec. 249.1600b of this chapter), as appropriate, to reflect
these changes. This amendment shall be deemed an application for
registration filed by the predecessor and adopted by the successor.

Sec. 240.15Fb2-6 Registration of fiduciaries.

The registration of a security-based swap dealer or a major
security-based swap participant shall be deemed to be the registration
of any executor, administrator, guardian, conservator, assignee for the
benefit of creditors, receiver, trustee in insolvency or bankruptcy, or
other fiduciary, appointed or qualified by order, judgment, or decree
of a court of competent jurisdiction to continue the business of such
registered security-based swap dealer or a major security-based swap
participant; Provided, that such fiduciary files with the Commission,
within 30 days after entering upon the performance of his or her
duties, an amended Form SBSE (Sec. 249.1600 of this chapter), Form
SBSE-A (Sec. 249.1600a of this chapter), or Form SBSE-BD (Sec.
249.1600b of this chapter), as appropriate, indicating the fiduciary's
position with respect to management of the firm and, as an additional
document, a copy of the order, judgment, decree, or other document
appointing the fiduciary.

Sec. 240.15Fb3-1 Duration of registration.

(a) General. A person registered as a security-based swap dealer or
major security-based swap participant in accordance with Sec.
240.15Fb2-1 will continue to be so registered until the effective date
of any cancellation, revocation or withdrawal of such registration or
any other event the Commission determines should trigger expiration.
(b) Conditional registration. Notwithstanding paragraph (a) of this
section, conditional registration granted by the Commission in
accordance with Sec. 240.15Fb2-1(d)(1) shall expire:
(1) During the transitional period--on the last compliance date (as
that term is defined in Sec. 240.15Fb2-1(e)) for security-based swap
dealers and major security-based swap participants that filed a
completed application before the last compliance date, unless the
security-based swap dealer or major security-based swap participant
files with the Commission a certification in accordance with Sec.
240.15Fb2-1(b)(1)(i), in which case conditional registration shall
extend an additional thirty days;
(2) Major security-based swap participants--four months after the
major security-based swap participant files its completed application,
unless the major security-based swap participant files with the
Commission a certification in accordance with Sec. 240.15Fb2-
1(b)(1)(ii); in which case the conditional registration shall extend an
additional thirty days.
(c) Extensions. The Commission may extend conditional registration
for good cause.

Sec. 240.15Fb3-2 Withdrawal from registration.

(a) Notice of withdrawal from registration as a security-based swap
dealer or major security-based swap participant pursuant to Section
15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b))
shall be filed on Form SBSE-W (Sec. 249.1601 of this chapter) in
accordance with the instructions contained therein. Every notice of
withdrawal from registration as a security-based swap dealer or major
security-based swap participant shall be filed electronically with the
Commission or its designee in accordance with applicable filing
requirements. Prior to filing a notice of withdrawal from registration
on Form SBSE-W, a security-based swap dealer or major security-based
swap participant shall amend its Form SBSE (Sec. 249.1600 of this
chapter), Form SBSE-A (Sec. 249.1600a of this chapter) or Form SBSE-BD
(Sec. 249.1600b of this chapter), as appropriate, in accordance with
Sec. 240.15Fb2-3(a) to update any inaccurate information.
(b) A notice of withdrawal from registration filed by a security-
based swap dealer or major security-based swap participant pursuant to
Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(b)) shall become effective for all matters (except as provided in
this paragraph (b)) on the 60th day after the filing thereof with the
Commission or its designee, within such longer period of time as to
which such security-based swap dealer or major security-based swap
participant consents or which the Commission by order may determine as
necessary or appropriate in the public interest or for the protection
of investors, or within such shorter period of time as the Commission
may determine. If a notice of withdrawal from registration is filed
with the Commission at any time subsequent to the date of the issuance
of a Commission order instituting proceedings to censure, place
limitations on the activities, functions or operations of, or suspend
or revoke the registration of, such security-based swap dealer or major
security-based swap participant, or if prior to the effective date of
the notice of withdrawal pursuant to this paragraph (b), the Commission
institutes such a proceeding or a proceeding to impose terms or
conditions upon such withdrawal, the notice of withdrawal shall not
become effective pursuant to this paragraph (b) except at such time and
upon such terms and conditions as the Commission deems necessary or
appropriate in the public interest or for the protection of investors.

Sec. 240.15Fb3-3 Cancellation and revocation of registration.

(a) Cancellation. If the Commission finds that any person
registered pursuant to Sec. 240.15Fb2-1 is no longer in existence or
has ceased to do business as a security-based swap dealer or major
security-based swap participant, the Commission shall by order cancel
the registration of such person.
(b) Revocation. The Commission, by order, shall censure, place
limitations on the activities, functions, or operations of, or revoke
the registration of any security-based swap dealer or major security-
based swap participant that has registered with the Commission if it
makes a finding as specified in Section 15F(l)(2) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o-10(l)(2)).

[[Page 65824]]

Sec. 240.15Fb6-1 Reports regarding associated persons.

(a) Certification. No registered security-based swap dealer or
major security-based swap participant shall act as a security-based
swap dealer or major security-based swap participant unless it has
certified electronically on Schedule G of Form SBSE (Sec. 249.1600 of
this chapter), Form SBSE-A (Sec. 249.1600a of this chapter), or Form
SBSE-BD (Sec. 249.1600b of this chapter), as appropriate, that no
person associated with such security-based swap dealer or major
security-based swap participant who is effecting or involved in
effecting security-based swaps on behalf of the security-based swap
dealer or major security-based swap participant is subject to statutory
disqualification, as defined in Section 3(a)(39) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(39)).
(b) To support the certification required by paragraph (a) of this
section, each registered security-based swap dealer and registered
major security-based swap participant shall obtain a questionnaire or
application for employment executed by each of its associated persons
who effects or is involved in effecting security based swaps on behalf
of the security-based swap dealer or major security-based swap
participant which questionnaire or application shall serve as a basis
for a background check of the associated person and be reviewed and
signed by the security-based swap dealer's or major security-based swap
participant's Chief Compliance Officer (designated as required by
Section 15F(k) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10(k)) or his or her designee and shall contain at least the following
information with respect to the associated person:
(1) The associated person's name, address, social security number,
and the starting date of the associated person's employment or other
association with the security-based swap dealer and major security-
based swap participant;
(2) The associated person's date of birth;
(3) A complete, consecutive statement of all the associated
person's business connections for at least the preceding ten years,
including whether the employment was part-time or full-time;
(4) A record of any denial of membership or registration, and of
any disciplinary action taken, or sanction imposed, upon the associated
person by any federal or state agency, by any national securities
exchange or national securities association, or by any foreign
financial regulatory authority including any finding that the
associated person either aided or abetted or was a cause of any
disciplinary action or had violated any law;
(5) A record of any denial, suspension, expulsion or revocation of
membership or registration of any broker, dealer, security-based swap
dealer, or major security-based swap participant with which the
associated person was associated in any capacity when such action was
taken;
(6) A record of any permanent or temporary injunction entered
against the associated person or any broker, dealer, security-based
swap dealer, or major security-based swap participant with which the
associated person was associated in any capacity at the time such
injunction was entered;
(7) A record of any arrest or indictment for any felony, or any
misdemeanor pertaining to securities (including security-based swaps),
futures or commodities (including swaps), banking, insurance or real
estate (including, but not limited to, acting or being associated with
a broker-dealer, investment company, investment adviser, futures
sponsor, bank, or savings and loan association), fraud, false
statements or omissions, wrongful taking of property or bribery,
forgery, counterfeiting or extortion, and the disposition of the
foregoing; and
(8) A record of any other name or names by which the associated
person has been known or which the associated person has used.
(c) Each registered security-based swap dealer and registered major
security-based swap participant shall maintain all questionnaires and
applications for employment obtained pursuant to paragraph (b) of this
section as part of its books and records for at least three years after
the associated person has terminated his or her association with the
registered security-based swap dealer or registered major security-
based swap participant.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

3. The authority citation for Part 249 continues to read, in part,
as follows:

Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *
4. Add subpart Q to read as follows:

Subpart Q--Registration of Security-Based Swap Dealers and Major
Security-Based Swap Participants

Sec.
249.1600 Form SBSE, for application for registration as a security-
based swap dealer or major security-based swap participant or to
amend such an application for registration.
249.1600a Form SBSE-A, for application for registration as a
security-based swap dealer or major security-based swap participant
or to amend such an application for registration by firms registered
or registering with the Commodity Futures Trading Commission as a
swap dealer or major swap participant that are not also registered
or registering with the Commission as a broker or dealer.
249.1600b Form SBSE-BD, for application for registration as a
security-based swap dealer or major security-based swap participant
or to amend such an application for registration by firms registered
or registering with the Commission as a broker or dealer.
249.1600c Form SBSE-C, for certification by security-based swap
dealers and major security-based swap participants.
249.1601 Form SBSE-W, for withdrawal from registration as a
security-based swap dealer or major security-based swap participant
or to amend such an application for registration.

Sec. 249.1600 Form SBSE, for application for registration as a
security-based swap dealer or major security-based swap participant or
to amend such an application for registration.

This form shall be used for application for registration as a
security-based swap dealer or major security-based swap participant by
firms that are not registered with the Commission as a broker or dealer
and that are not registered or registering with the Commodity Futures
Trading Commission as a swap dealer or major swap participant, pursuant
to Section 15F(b) of the Securities Exchange Act of 1934 (15 U.S.C.
78o-10(b)) and to amend such an application for registration.

Sec. 249.1600a Form SBSE-A, for application for registration as a
security-based swap dealer or major security-based swap participant or
to amend such an application for registration by firms registered or
registering with the Commodity Futures Trading Commission as a swap
dealer or major swap participant that are not also registered or
registering with the Commission as a broker or dealer.

This form shall be used instead of Form SBSE (Sec. 249.1600) to
apply for registration as a security-based swap dealer or major
security-based swap participant by firms that are not registered or
registering with the Commission as a broker or dealer but that are
registered or registering with the Commodity Futures Trading Commission
as a swap dealer or major swap participant, pursuant to Section 15F(b)
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(b)) and to
amend such an application for

[[Page 65825]]

registration. An entity that is registered or registering with the
Commission as a broker or dealer and is also registered or registering
with the Commodity Futures Trading Commission as a swap dealer or major
swap participant shall apply for registration as a security-based swap
dealer or major security-based swap participant on Form SBSE-BD (Sec.
249.1600b) and not on this Form SBSE-A.

Sec. 249.1600b Form SBSE-BD, for application for registration as a
security-based swap dealer or major security-based swap participant or
to amend such an application for registration by firms registered or
registering with the Commission as a broker or dealer.

This form shall be used instead of either Form SBSE (Sec.
249.1600) or SBSE-A (Sec. 249.1600a) to apply for registration as a
security-based swap dealer or major security-based swap participant
solely by firms registered or registering with the Commission as a
broker or dealer, pursuant to Section 15F(b) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o-10(b)) and to amend such an application for
registration. An entity that is registered or registering with the
Commission as a broker or dealer and is also registered or registering
with the Commodity Futures Trading Commission as a swap dealer or major
swap participant, the entity shall apply for registration as a
security-based swap dealer or major security-based swap participant on
this Form SBSE-BD and not on Form SBSE-A.

Sec. 249.1600c Form SBSE-C, for certification by security-based swap
dealers and major security-based swap participants.

This form shall be used to file the certification required pursuant
to Sec. 240.15Fb2-1(b) of this chapter.

Sec. 249.1601 Form SBSE-W, for withdrawal from registration as a
security-based swap dealer or major security-based swap participant or
to amend such an application for registration.

This form shall be used to withdraw from registration as a
security-based swap dealer or major security-based swap participant,
pursuant to Section 15F(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-10(b)).

By the Commission.

Dated: October 12, 2011.
Elizabeth M. Murphy,
Secretary.

Note: The following Forms will not appear in the Code of Federal
Regulations.

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[FR Doc. 2011-26889 Filed 10-21-11; 8:45 am]
BILLING CODE 8011-01-C