Notice2022-10286
Proposed Collection; Comment Request
Primary source
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Published
May 13, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 93 (Friday, May 13, 2022)</title>
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[Federal Register Volume 87, Number 93 (Friday, May 13, 2022)]
[Notices]
[Pages 29411-29413]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10286]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-779, OMB Control No. 3235-0732]
Proposed Collection; Comment Request
Upon Written Request, Copies Available From: U.S. Securities and
Exchange Commission, Office of FOIA Services, 100 F Street NE,
Washington, DC 20549-2736
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\1\ Business Conduct Standards for Security-Based Swap Dealers
and Major Security-Based Swap Participants, Exchange Act Release
77617 (Apr. 14, 2016), 81 FR 29959 (May 13, 2016). See also Business
Conduct Standards for Security-Based Swap Dealers and Major
Security-Based Swap Participants; Correction, Exchange Act Release
77617A (May 19, 2016), 81 FR 32643 (May 24, 2016). (together, `the
Business Conduct Rules for SBSDs and MSBSPs'' or ``BCS Rules'')
Extension:
Business Conduct Standards for Security-Based Swap Dealers and
Major Security-Based Swap Participants
Notice is hereby given that pursuant to the Paperwork Reduction Act
of 1995 (``PRA'') (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (``Commission'') is soliciting comments on the collection of
information provided for in Business Conduct Standards for Security-
Based Swap Dealers and Major Security-Based Swap Participants \1\ (17
CFR 240.3a67-10, 240.3a71-3,240.3a71-6, 240.15Fh-1 through 15Fh-6 and
240.15Fk-1), under the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) (``Exchange Act''). The Commission plans to submit this
existing collection of information to the Office of Management and
Budget (``OMB'') for extension and approval.
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\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. 111-203, 124 Stat. 1376 (2010) (``Dodd-Frank Act'').
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In 2010, Congress passed the Dodd-Frank Act, establishing a
comprehensive framework for regulating the over-the-counter swaps
markets.\2\ As required by Title VII of the Dodd-Frank Act, new section
15F(h) of the Exchange Act established business conduct standards for
security-based swap (``SBS'') Dealers and Major SBS Participants
[[Page 29412]]
(``collectively ``SBS Entities'') in their dealings with
counterparties, including special entities. In 2016, in order to
implement the Dodd-Frank Act, the Commission adopted the BCS Rules for
SBS Dealers and Major SBS Participants,\3\ a comprehensive set of
business conduct standards and chief compliance officer requirements
applicable to SBS Entities, that are designed to enhance transparency,
facilitate informed customer decision-making, and heighten standards of
professional conduct to better protect investors.\4\
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\3\ Id.
\4\ Commission staff has prepared separate supporting statements
pursuant to the Paperwork Reduction Act (``PRA'') regarding Rules
3a71-3(c) and 3a71-6, which address the cross-border application of
the business conduct standards and the availability of substituted
compliance. The Office of Management and Budget (``OMB'') has
assigned control number 3235-0717 to Rule 3a71-3(c) and 3235-0715 to
Rule 3a71-6. Rule 3a67-10(d) is a definitional rule and does not
have a PRA burden associated with it. Rules 3a71-3(a), 15Fh-1 and
15Fh-2(b) and (c) address scope of the rules and definitions and so
do not have PRA burdens associated with them.
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Rules 15Fh-1 through 15Fh-6 and 15Fk-1 require SBS Entities to:
<bullet> Verify whether a counterparty is an eligible contract
participant and whether it is a special entity;
<bullet> Disclose to the counterparty material information about
the SBS, including material risks, characteristics, incentives and
conflicts of interest;
<bullet> Provide the counterparty with information concerning the
daily mark of the SBS;
<bullet> Provide the counterparty with information regarding the
ability to require clearing of the SBS;
<bullet> Communicate with counterparties in a fair and balanced
manner based on principles of fair dealing and good faith;
<bullet> Establish a supervisory and compliance infrastructure; and
<bullet> Designate a chief compliance officer that is required to
fulfill the described duties and provide an annual compliance report.
The rules also require SBS Dealers to:
<bullet> Determine that recommendations they make regarding SBS are
suitable for their counterparties.
<bullet> Establish, maintain and enforce written policies and
procedures reasonably designed to obtain and retain a record of the
essential facts concerning each known counterparty that are necessary
to conduct business with such counterparty; and
<bullet> Comply with rules designed to prevent ``pay-to-play.''
The rules also define what it means to ``act as an advisor'' to a
special entity, and require an SBS Dealer who acts as an advisor to a
special entity to:
<bullet> Make a reasonable determination that any security-based
swap or trading strategy involving a security-based swap recommended by
the SBS Dealer is in the best interests of the special entity whose
identity is known at a reasonably sufficient time prior to the
execution of the transaction to permit the SBS Dealer to comply with
this obligation; and
<bullet> Make reasonable efforts to obtain such information that
the SBS Dealer considers necessary to make a reasonable determination
that a security-based swap or trading strategy involving a security-
based swap is in the best interests of the known special entity.
In addition, the rules require SBS Entities acting as
counterparties to special entities to reasonably believe that the
counterparty has an independent representative who meets the following
requirements:
<bullet> Has sufficient knowledge to evaluate the transaction and
risks;
<bullet> Is not subject to a statutory disqualification;
<bullet> Undertakes a duty to act in the best interests of the
special entity;
<bullet> Makes appropriate and timely disclosures to the special
entity of material information concerning the security-based swap;
<bullet> Evaluates, consistent with any guidelines provided by the
special entity, the fair pricing and the appropriateness of the
security-based swap;
<bullet> Is independent of the security-based swap dealer or major
security-based swap participant that is the counterparty to a proposed
security-based swap.
Under the rules, the special entity's independent representative
must also be subject to pay-to-play regulations, and if the special
entity is an ERISA plan, the independent representative must be an
ERISA fiduciary.
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\5\ Unless otherwise noted, estimates were derived from the
DTCC-TIW data set (November 2006 through December 2020).
\6\ See, Exchange Act Rule 15Fh-5.
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The information that must be collected pursuant to the BCS Rules is
intended to increase accountability and transparency in the market. The
information will therefore help establish a framework that protects
investors and promotes efficiency, competition and capital formation.
Based on a review of recent data, as of 2020, the Commission
estimates the number of respondents to be as follows: 44 SBS Dealers, 0
Major SBS Participants, for a total of 44 ``SBS Entities''.\5\ Further,
we estimate that approximately 41 of these 44 SBS Entities will be
dually registered with the CFTC as Swap Entities. We also estimate that
there are currently 15,187 security-based swap market participants of
which 11,531 are also swap market participants. In 2020, there were
approximately 354,814 security-based swap transactions between an SBS
Dealer and counterparty that is not an SBS Dealer of which 225,924 were
new and 6,841amended trades (totaling 232,765). The Commission
estimates there are 329 independent, third-party representatives and 23
in-house independent representatives.\6\ We estimate that there are
approximately 11,219 unique SBS Dealer and non-SBS-Dealer pairs. We
have used these estimates in calculating the hour and cost burdens for
the rule provisions that we anticipate have a ``collection of
information'' burden within the meaning of the PRA.
The Commission estimates that the aggregate burden of the ongoing
reporting and disclosures required by the BCS Rules, as described
above, is approximately 486,535 hours and $1,812,800 calculated as
follows:
[[Page 29413]]
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Section Type of burden......... Respondents Ongoing annual Ongoing annual Industry-wide Industry-wide
burden (hours) burden (cost) annual burden annual burden
(hours) (cost)
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15Fh-3(b), (c), (d)...... Disclosures--SBS Reporting.............. 44 4,120 $0 181,280 $0
Entities.
15Fh-3(b), (c), (d)...... Disclosures--SBS Reporting.............. 232,765 1 0 232,765 0
Transactions
Between SBS Dealer
and Non-SBSD
Counterparty.
15Fh-3(e), (f)........... Know Your Reporting.............. 44 127.5 0 5,610 0
Counterparty and
Recommendations
(SBS Dealers).
15Fh-3(g)................ Fair and Balanced Reporting.............. 44 2 3,600 88 158,400
Communications.
15Fh-3(h)................ Supervision......... Reporting.............. 44 540 4,800 23,760 211,200
15Fh-5................... SBS Entities Acting Reporting.............. 44 352 0 15,488 0
as Counterparties
to Special Entities.
15Fh-5................... SBS Entities Acting Third-Party Disclosure. 44 352 0 15,488 0
as Counterparties
to Special Entities.
15Fh-6................... Political Reporting.............. 44 1 25,600 44 1,126,400
Contributions.
15Fk-1................... Chief Compliance Reporting.............. 44 273 7,200 12,012 316,800
Officer.
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Total................ .................... ....................... .............. .............. .............. 486,535 1,812,800
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Written comments are invited on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information shall
have practical utility; (b) the accuracy of the Commission's estimate
of the burden of the proposed collection of information; (c) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (d) ways to minimize the burden of the collection of
information on respondents, including through the use of automated
collection techniques or other forms of information technology.
Consideration will be given to comments and suggestions submitted by
July 12, 2022.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information under the PRA unless it
displays a currently valid OMB control number.
Please direct your written comments to: David Bottom, Director/
Chief Information Officer, Securities and Exchange Commission, c/o John
Pezzullo, 100 F Street NE, Washington, DC 20549, or send an email to:
<a href="/cdn-cgi/l/email-protection#db8b899a8496bab2b7b9b4a39ba8beb8f5bcb4ad"><span class="__cf_email__" data-cfemail="e5b5b7a4baa8848c89878a9da5968086cb828a93">[email protected]</span></a>.
Dated: May 9, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10286 Filed 5-12-22; 8:45 am]
BILLING CODE 8011-01-P
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