Notice2022-17641
Order Determining That the Financial Industry Regulatory Authority Conditionally May Access Certain Security-Based Swap Data Obtained by Security-Based Swap Data Repositories
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 17, 2022
Effective
September 16, 2022
Issuing agencies
Securities and Exchange Commission
Abstract
Pursuant to section 13(n)(5)(G)(v) of the Securities Exchange Act of 1934 ("Exchange Act"), and rule 13n-4(b)(9)(x) thereunder, the Securities and Exchange Commission ("Commission") is issuing an order determining that it would be appropriate to require security-based swap data repositories to make security-based swap data available to Financial Industry Regulatory Authority ("FINRA").
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<title>Federal Register, Volume 87 Issue 158 (Wednesday, August 17, 2022)</title>
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[Federal Register Volume 87, Number 158 (Wednesday, August 17, 2022)]
[Notices]
[Pages 50655-50657]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17641]
[[Page 50655]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95470]
Order Determining That the Financial Industry Regulatory
Authority Conditionally May Access Certain Security-Based Swap Data
Obtained by Security-Based Swap Data Repositories
AGENCY: Securities and Exchange Commission.
ACTION: Data access determination order.
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SUMMARY: Pursuant to section 13(n)(5)(G)(v) of the Securities Exchange
Act of 1934 (``Exchange Act''), and rule 13n-4(b)(9)(x) thereunder, the
Securities and Exchange Commission (``Commission'') is issuing an order
determining that it would be appropriate to require security-based swap
data repositories to make security-based swap data available to
Financial Industry Regulatory Authority (``FINRA'').
DATES: This data access determination order is effective September 16,
2022.
FOR FURTHER INFORMATION CONTACT: Carol McGee, Associate Director,
Office of Derivatives Policy and Trading Practices, at (202) 551-5870,
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. Background
A. Exchange Act Data Access Framework
Two entities currently are registered with the Commission as
security-based swap data repositories (``SDRs'').\1\ Among other
responsibilities, SDRs are required to make security-based swap data
available to certain recipients upon request.\2\ Recipients may include
certain specified entities,\3\ as well as ``[a]ny other person that the
Commission determines to be appropriate, conditionally or
unconditionally, by order'' (including foreign authorities).\4\ Access
further is conditioned on there being in effect an arrangement between
the Commission and the entity seeking access to address the
confidentiality of the security-based swap data made available,\5\ and
on the Commission being notified of the request.\6\
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\1\ See Exchange Act Release No. 91798, (May 7, 2021), 86 FR
26115, 26116 n.14 (May 12, 2021) (approving registration application
of DTCC Data Repository (U.S.), LLC; Exchange Act Release No. 92189
(Jun. 16, 2021), 86 FR 32703 (Jun. 22, 2021) (approving registration
application of ICE Trade Vault, LLC).
\2\ Exchange Act section 13(n)(5)(G); 17 CFR 240.13n-4(b)(9).
Those provisions in part require that the SBSDR provide notice of
the data request to the Commission, and specifies that access be
``on a confidential basis pursuant to [Exchange Act] section 24.''
Exchange Act section 24, 15 U.S.C. 78x, generally addresses
disclosures of information by the Commission and its personnel. In
relevant part section 24 provides that the Commission may, ``in its
discretion and upon a showing that such information is needed,''
provide all records and other information ``to such persons, both
domestic and foreign, as the Commission by rule deems appropriate if
the person receiving such records or information provides such
assurances of confidentiality as the Commission deems appropriate.''
See Exchange Act section 24(c); see also 17 CFR 240.24c-1(b)
(providing that the Commission may, upon ``such assurances of
confidentiality as the Commission deems appropriate,'' provide non-
public information to persons such as domestic and foreign
governments or their political subdivisions, authorities, agencies
or instrumentalities, self-regulatory organizations and foreign
financial authorities).
\3\ The following entities may access security-based swap data
without the need for an additional Commission order: (i) the Board
of Governors of the Federal Reserve System (``Board'') and any
Federal Reserve Bank; (ii) the Office of the Comptroller of the
Currency; (iii) the Federal Deposit Insurance Corporation; (iv) the
Farm Credit Administration; (v) the Federal Housing Finance Agency;
(vi) the Financial Stability Oversight Council (``FSOC''); (vii) the
Commodity Futures Trading Commission (``CFTC''); (viii) the
Department of Justice (``DOJ''); and (ix) the Office of Financial
Research (``OFR''). See 17 CFR 240. 13n-4(b)(9); see also Exchange
Act section 13(n)(5)(G)(v) (in part identifying ``each appropriate
prudential regulator'' as well as FSOC, CFTC and DOJ). For those
entities, data access still is predicated on other conditions,
including the required confidentiality arrangement.
\4\ 17 CFR 240.13n-4(b)(9)(x); see also Exchange Act section
13(n)(5)(G)(v).
\5\ 17 CFR 240.13n-4(b)(10) (also stating that the arrangement
shall be deemed to satisfy the Exchange Act section 13(n)(5)(H)
requirement that the SBSDR receive a written agreement from the
entity stating that the entity shall abide with the section 24
confidentiality requirements relating to the security-based swap
information provided).
\6\ Exchange Act section 13(n)(5)(G); 17 CFR 240. 13-4(b)(9). 17
CFR 240.13nc-4(d) further provides that the SBSDR shall satisfy the
notification requirement by informing the Commission of its receipt
of the first request for security-based swap data from a particular
entity, and to maintain records of all information related to the
initial and subsequent requests for data access from that entity.
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Pursuant to this data access framework, FINRA has requested that
the Commission issue an order determining that it would be appropriate
to require SDRs to make security-based swap data available to FINRA.\7\
For the reasons discussed below, the Commission is issuing the order.
In connection with this order, the Commission and FINRA also are
entering into an arrangement addressing the parameters of FINRA's
access to security-based swap data held by SDRs, and the protections
afforded to the data.\8\
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\7\ Letter from Stephanie Dumont, FINRA, to Vanessa Countryman,
Secretary, Commission, dated August 11, 2022 (``FINRA request'').
\8\ See Confidentiality Arrangement Between the U.S. Securities
and Exchange Commission and the Financial Industry Regulatory
Authority Concerning Access to Security-Based Swap Data Obtained by
Registered Security-Based Swap Data Repositories, dated August 11,
2022 (available at [URL]) (``Confidentiality Arrangement'').
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B. Criteria for Making Access Determinations
The Commission has stated that it expects to consider a variety of
factors in making access determinations, and that it may impose
conditions in connection with those determinations. Relevant factors
include whether the data provided ``would be subject to robust
confidentiality safeguards, such as safeguards set forth in the
relevant jurisdiction's statutes, rules or regulations with regard to
disclosure of confidential information by an authority or its
personnel, and/or safeguards set forth in the authority's internal
policies and procedures.'' \9\
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\9\ Exchange Act Release No. 78716 (Aug. 29, 2016), 81 FR 60585
(Sep. 2, 2016) (adopting relevant amendments to 17 CFR 240.13n-4)
(``Adopting Release''). The Commission also noted that it expected
to consider whether there is a memorandum of understanding or other
arrangement between the Commission and the relevant authority
designed to protect the confidentiality of the security-based swap
data provided to the authority (further noting that such a
memorandum of understanding or other arrangement also would satisfy
the statutory requirement that a security-based swap data repository
obtain a confidentiality agreement from the authority). See id. at
60589 & n.60.
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The Commission also may consider ``the relevant authority's
interest in access to security-based swap data based on the relevant
authority's regulatory mandate or legal responsibility or authority.''
\10\ In addition, the Commission may take into account ``any other
factors that are appropriate to the determination, including whether
such a determination would be in the public interest, and whether the
relevant authority agrees to provide the Commission and other U.S.
authorities with reciprocal assistance in matters within their
jurisdiction.'' \11\
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\10\ Accordingly, determination orders ``typically would
incorporate conditions that specify the scope of a relevant
authority's access to data, and that limit this access in a manner
that reflects the relevant authority's regulatory mandate or legal
responsibility or authority,'' including conditions that address
factors such as the domiciles of the counterparties to the security-
based swap or of the underlying reference entities. Limiting access
to information in this manner ``should be expected to help minimize
the risk of unauthorized disclosure, misappropriation or misuse of
security-based swap data, as each relevant authority will only have
access to information within its regulatory mandate, or legal
responsibility or authority.'' Id. at 60589. The Commission
separately stated that the confidentiality arrangement between the
Commission and the authority also may ``incorporate conditions that
specify the scope of the relevant authority's access to data, and
that limit this access in a manner that reflects the relevant
authority's regulatory mandate or legal responsibility or
authority.'' Id. at 60592.
\11\ Id. at 60589.
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[[Page 50656]]
C. Additional Aspects to the Determinations
The Commission has explained that it may take various approaches in
deciding whether to impose additional conditions in connection with
determination orders, such as issuing orders of limited duration.\12\
The Commission also has stated that it may revoke a determination at
any time (such as if an authority fails to maintain the confidentiality
of the security-based swap data it has been provided), and that, even
absent a revocation, an authority's access to data would cease upon the
termination of the arrangements used to satisfy the confidentiality
condition.\13\
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\12\ Id.
\13\ Id.
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The Commission has expressed the expectation that SDRs would
provide relevant authorities with access to security-based swap data in
accordance with the determination orders, and that the Commission
generally does not expect to be involved in reviewing, signing-off on
or otherwise approving relevant authorities' requests for security-
based swap data from repositories that are made in accordance with a
determination order.\14\ The Commission also has stated that it has not
prescribed any specific processes to govern a repository's treatment of
requests for access.\15\
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\14\ Id.
\15\ Id.
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II. FINRA'S Data Access Request
FINRA is a self-regulatory organization that is registered with the
Commission as a national securities association pursuant to Exchange
Act section 15A. As such, the Exchange Act in part requires that FINRA
be organized and have the capacity to enforce the compliance of member
firms (and of persons associated with members) with requirements under
the Exchange Act and with FINRA's own rules.\16\
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\16\ See Exchange Act section 15A(b)(2); see also section
19(g)(1)(B) (in part requiring securities associations' compliance
with Exchange Act requirements and association rules).
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A. Use of the Data
FINRA states that access to security-based swap data will enhance
its ability to conduct effective reviews, examinations and
investigations into potential violations of rules by FINRA members with
respect to their security-based swap activities. Access would allow
FINRA to incorporate security-based swap data into cross-market and
cross-product surveillance, which would enhance FINRA's ability to
detect practices such as manipulation and insider trading.\17\ FINRA
also anticipates using the security-based swap data in additional ways,
including monitoring of member firms' compliance with financial
responsibility requirements.\18\
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\17\ FINRA request at 4-5.
\18\ Id. at 6.
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B. Confidentiality Considerations
FINRA's request describes policies and procedures governing data
privacy and data security that promote the appropriate safeguarding of
data. Those include policies and procedures related to data
classification guidelines, end-user practices and procedures for
safeguarding data, reporting loss, and ensuring that only authorize
users gain access. Those also include data security policies
establishing technical security controls for systems and
applications.\19\
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\19\ Id.
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For purposes of those privacy policies and procedures, FINRA states
that it will treat the security-based swap data as ``Restricted
Confidential Information,'' and that FINRA will implement special
handling guidelines that will address access to the data and its use,
handling and storage.\20\ The confidentiality arrangement that the
Commission is entering into with FINRA incorporates related
safeguards.\21\
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\20\ Id.
\21\ As noted above, see note 8, supra, and accompanying text,
the Commission is entering into a confidentiality arrangement with
FINRA, addressing the parameters of FINRA's access to security-based
swap data maintained by SDRs, as well as the confidentiality
protections that FINRA will afford to the security-based swap data.
These include provisions stating that FINRA will afford security-
based swap data the highest level of protection under its policy
framework for confidentiality procedures, and that, to the maximum
extent practicable, FINRA will afford the security-based swap data
confidentiality protections that are not less rigorous than
applicable confidentiality protections afforded to Consolidated
Audit Trail data. Confidentiality Arrangement para. 19. The
Confidentiality Arrangement further provides that FINRA may disclose
security-based swap information as required by FINRA rules related
to disciplinary complaints or disciplinary decisions, and actions
related to statutory disqualifications, suspensions, cancellations,
expulsions or bars, subject to prior written consent by the
Commission. Confidentiality Arrangement para. 20. In addition, FINRA
conducts surveillance and exercises regulatory services on behalf of
other self-regulatory organizations pursuant to Regulatory Services
Agreements (``RSAs''). The Confidentiality Arrangement provides that
FINRA may share confidential information pursuant to an RSA only if
the client itself has entered into a separate confidentiality
arrangement with the Commission, in connection with access to the
information, that specifically provides that FINRA may share the
information with the client. Confidentiality Arrangement para. 21.
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III. Determination and Associated Terms and Conditions
The Commission concludes that it is appropriate to require SDRs to
make security-based swap data available to FINRA, subject to there
being in effect a confidentiality arrangement between FINRA and the
Commission. In reaching this conclusion, the Commission recognizes that
FINRA plays an important role in promoting member firms' (and their
associated persons') compliance with the federal securities laws, and
the Commission concludes that access to security-based swap data will
facilitate effective cross-market surveillance involving security-based
swap activity.\22\ FINRA's confidentiality framework and the
confidentiality arrangement between the Commission and FINRA further
will help ensure that FINRA will afford the security-based swap data
appropriate protections--once FINRA has implemented special handling
guidelines for the data.
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\22\ In reaching this conclusion, the Commission has considered
the possibility of using more focused scopes of access, such as by
limiting FINRA's access to data involving security-based swaps in
which a member firm or associated person is a counterparty,
guarantor or underlier to a security-based swaps. The Commission
concludes, however, that this type of more limited access to
security-based swap data would not sufficiently facilitate cross-
market surveillance of improper activities such as insider trading
and front-running, particularly given the possibility that
wrongdoers may seek to avoid surveillance by using third-parties to
engage in transactions in the security-based swap market.
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Taking these factors as a whole, the Commission concludes that such
a determination is in the public interest. By virtue of this order, the
Exchange Act places an affirmative obligation upon SBSDRs to provide
FINRA with access to security-based swap data consistent with the scope
of the order, subject to the applicable terms and conditions, including
a confidentiality arrangement between the Commission and FINRA being in
effect, and FINRA implementing special handling guidelines, following
consultation with Commission staff, to address access to the data and
its use, handling and storage.\23\
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\23\ The Commission anticipates providing notice to SDRs in the
event the relevant confidentiality arrangement no longer is in
effect. Consistent with 17 CFR 240.13n-4(b)(10), this would
terminate the SDRs' obligation to provide data access pursuant to
the arrangement.
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IV. Conclusion
For the reasons discussed above, the Commission determines that it
would be appropriate to require security-based swap data repositories
to make security-based swap data available to FINRA.
It is hereby ordered, pursuant to Exchange Act section
13(n)(5)(G)(v) and
[[Page 50657]]
Exchange Act rule 13n-4(b)(9)(x), that FINRA may access security-based
swap data obtained by security-based swap data repositories. Such
access is conditioned on there being in effect an arrangement between
the Commission and FINRA to address the confidentiality of the
security-based swap information made available to FINRA. Such access
further is conditioned on FINRA developing and implementing special
handling guidelines as described above, following consultation with
Commission staff, to promote the confidentiality afforded to the
security-based swap data, prior to FINRA accessing the data.
By the Commission.
Dated: August 11, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17641 Filed 8-16-22; 8:45 am]
BILLING CODE 8011-01-P
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