Notice2024-30377
Amended and Restated Order Specifying the Manner and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap Dealers and Major Security-Based Swap Participants That are not U.S. Persons and are Relying on Substituted Compliance Determinations With Respect to Rule 18a-7
Primary source
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
December 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 245 (Friday, December 20, 2024)</title>
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[Federal Register Volume 89, Number 245 (Friday, December 20, 2024)]
[Notices]
[Pages 104277-104279]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30377]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101932]
Amended and Restated Order Specifying the Manner and Format of
Filing Unaudited Financial and Operational Information by Security-
Based Swap Dealers and Major Security-Based Swap Participants That are
not U.S. Persons and are Relying on Substituted Compliance
Determinations With Respect to Rule 18a-7
I. Overview
On October 14, 2021, the U.S. Securities and Exchange Commission
(``Commission'') issued an order \1\ specifying the manner and format
of unaudited financial and operational information security-based swap
dealers and major security-based swap participants (collectively, ``SBS
Entities'') relying on a Commission substituted compliance order
(``Covered Entities'') \2\ must file if they are relying on substituted
compliance with respect to Securities Exchange Act of 1934 (``Exchange
Act'') Rule 18a-7(a)(1) or (a)(2). The 2021 Manner and Format Order
specified that these SBS Entities must complete the highlighted line
items in Parts II and IIC of Form X-17A-5 (``FOCUS Report''), which
were attached to the 2021 Manner and Format Order as appendices.\3\
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\1\ See Order Specifying the Manner and Format of Filing
Unaudited Financial and Operational Information by Security-Based
Swap Dealers and Major Security-Based Swap Participants That Are Not
U.S. Persons and Are Relying on Substituted Compliance
Determinations With Respect to Rule 18a-7, Exchange Act Release No.
93335 (Oct. 14, 2021), 86 FR 59208 (Oct. 26, 2021) (``2021 Manner
and Format Order'').
\2\ See infra n.12.
\3\ See 2021 Manner and Format Order at Apps. A and B.
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Since that time, FOCUS Report Parts II and IIC have been amended so
that the appendices to the 2021 Manner and Format Order no longer
contain the most current versions of the FOCUS Report. First, the
Commission made technical amendments to correct the formula in FOCUS
Report Part II's ``Computation of CFTC Minimum Capital Requirements''
section and to assign new box numbers to certain line items in FOCUS
Report Part IIC.\4\ Second, the Commission amended FOCUS Report Part
IIC to incorporate modifications to FFIEC Form 031.\5\ The Commission
also amended FOCUS Report Part II by: removing obsolete references to
the Commodity Futures Trading Commission's (``CFTC'') segregated funds
requirement; adding fields to report additional types of revenue;
revising the ``Computation of CFTC Minimum Capital Requirements''
section to be consistent with the CFTC's Form 1-FR; and updating the
customer and PAB (proprietary accounts of broker-dealers) reserve
computations in the form to match amendments to these computations in
Exchange Act Rule 15c3-3a.\6\
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\4\ See Recordkeeping and Reporting Requirements for Security-
Based Swap Dealers, Major Security-Based Swap Participants, and
Broker-Dealers; Correction, Exchange Act Release No. 87005D (Feb. 2,
2022), 87 FR 7934 (Feb. 11, 2022).
\5\ See Electronic Submission of Certain Materials Under the
Securities Exchange Act of 1934; Amendments Regarding the FOCUS
Report, Exchange Act Release No. 101925 (December 16, 2024) (the
``Electronic Submission Release'').
\6\ See id.
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The Commission is issuing this amended and restated manner and
format order (``2024 Manner and Format Order'' or ``this Order'') to
incorporate these amendments to FOCUS Report Parts II and IIC \7\ and
to specify that the FOCUS Report highlighting the fields required for
Covered Entities are located on the Commission's website (instead of
attaching them as appendices to this Order). This Order supersedes and
replaces the 2021 Manner and Format Order.
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\7\ In particular, the FOCUS Reports highlighting the fields
required for Covered Entities are being revised to specify the
following: (1) Firms must complete new lines 1F-1H (commissions on
commodity transactions, all other commissions, total commissions) in
the Statement of Income section of FOCUS Report Part II. (2) Because
box 1754b is being renumbered box JJ34b, firms must complete box
JJ34b instead of box 1754b. (3) Firms must complete box 2143b
(intangible assets) instead of boxes 3163b (goodwill) and 0426b
(other intangible assets) since the Electronic Submission Release
replaces boxes 3163b and 0426b (which are subtypes of intangible
assets) with box 2143b. (4) Firms must complete new boxes P793b
(common equity tier 1 capital ratio--column A) and P793bb (common
equity tier 1 capital ratio--column B), as applicable, due to the
addition of this capital ratio to Basel III regulations. These
changes have the same effective date and compliance date specified
in the Electronic Submission Release.
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II. Introduction
As discussed in the 2021 Manner and Format Order, broker-dealers
are required to file on a monthly or quarterly basis the applicable
part of the FOCUS Report.\8\ Broker-dealers and SBS Entities use the
FOCUS Report to submit unaudited financial and operational information
that is used by the Commission and broker-dealer self-regulatory
organizations (if applicable) to monitor and supervise the firms.
Exchange Act Rule 18a-7 (``Rule 18a-7'') requires SBS Entities not
dually registered with the Commission as a broker-dealer to file Part
II or Part IIC of the FOCUS Report with the Commission or its
designee.\9\ The Commission has designated the Financial Industry
Regulatory Association, Inc. (``FINRA'') as the organization with which
SBS Entities must file Part II or Part IIC of the FOCUS Report.\10\
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\8\ See 17 CFR 240.17a-5(a).
\9\ See 17 CFR 240.18a-7(a).
\10\ See Order Designating Financial Industry Regulatory
Authority, Inc., to Receive Form X-17A-5 (FOCUS Report) from Certain
Security-Based Swap Dealers and Major Security-Based Swap
Participants, Exchange Release No. 34-88866 (May 14, 2020).
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As discussed in the 2021 Manner and Format Order, Exchange Act Rule
3a71-6 (``Rule 3a71-6'') conditionally provides that SBS Entities that
are not U.S. persons may satisfy certain requirements under Exchange
Act section 15F, including Rule 18a-7, by complying with comparable
regulatory requirements of the SBS Entity's home jurisdiction.\11\
Pursuant to Rule 3a71-6, the Commission has issued orders granting
conditional substituted compliance with respect to certain requirements
applicable to SBS Entities subject to regulation in France, Germany,
Switzerland, Spain, and the United Kingdom (``substituted compliance
orders'').\12\ The substituted compliance orders permit certain SBS
Entities in those jurisdictions to apply substituted compliance for
specified Exchange Act requirements.
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\11\ See 17 CFR 240.3a71-6.
\12\ See Order Granting Conditional Substituted Compliance in
Connection with Certain Requirements Applicable to Non-U.S.
Security-Based Swap Dealers and Major Security-Based Swap
Participants Subject to Regulation in the Federal Republic of
Germany, Exchange Act Release No. 90765 (Dec. 22, 2020), 85 FR 85686
(Dec. 29, 2020); Order Granting Conditional Substituted Compliance
in Connection with Certain Requirements Applicable to Non-U.S.
Security-Based Swap Dealers and Major Security-Based Swap
Participants Subject to Regulation in the French Republic, Exchange
Act Release No. 92484 (July 23, 2021), 86 FR 41612 (Aug. 2, 2021);
Order Granting Conditional Substituted Compliance in Connection with
Certain Requirements Applicable to Non-U.S. Security-Based Swap
Dealers and Major Security-Based Swap Participants Subject to
Regulation in the United Kingdom, Exchange Release No. 92529 (June
30, 2021), 86 FR 43318 (Aug. 6, 2021); Order Granting Conditional
Substituted Compliance in Connection With Certain Requirements
Applicable to Non-U.S. Security-Based Swap Dealers Subject to
Regulation in the Swiss Confederation, Exchange Act Release No.
93284 (Oct. 8, 2021), 86 FR 57455 (Oct. 15, 2021); Order Granting
Conditional Substituted Compliance in Connection With Certain
Requirements Applicable to Non-U.S. Security-Based Swap Dealers and
Major Security-Based Swap Participants Subject to Regulation in the
Kingdom of Spain, Exchange Act Release No. 93412 (Oct. 22, 2021), 86
FR 59776 (Oct. 28, 2021).
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The substituted compliance orders permit a Covered Entity to
satisfy the requirements of Rule 18a-7 with respect to filing Part II
or Part IIC of the FOCUS Report by being subject to and complying with
specified requirements
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in the Covered Entity's home jurisdiction, subject to additional
conditions designed to help ensure comparability of regulatory
outcomes. In particular, the conditions for applying substituted
compliance with respect to Rule 18a-7 are that the Covered Entity: (1)
is subject to and complies with the relevant comparable requirements of
the home jurisdiction; (2) files periodic unaudited financial and
operational information with the Commission or its designee in the
manner and format required by Commission rule or order and presents the
financial information in the filing in accordance with generally
accepted accounting principles (``GAAP'') that the Covered Entity uses
to prepare general purpose publicly available or available to be issued
financial statements in the home jurisdiction (``manner and format
condition''); (3) applies substituted compliance for the capital
requirements of Exchange Act Rules 18a-1 through 18a-1d (collectively,
``Rule 18a-1'') if the Covered Entity does not have a prudential
regulator; \13\ and (4) applies substituted compliance for the record
preservation requirements of Exchange Act Rule 18a-6(b)(1)(viii)
(``Rule 18a-6(b)(1)(viii)'') if the Covered Entity does not have a
prudential regulator.\14\
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\13\ See 17 CFR 240.18a-1 through 18a-1d.
\14\ See 17 CFR 240.18a-6(b)(1)(viii). Rule 18a-6(b)(1)(viii)
requires SBS Entities without a prudential regulator to preserve
specified information in support of amounts included in the FOCUS
Report Part II prepared as of the audit date. Id.
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This Order specifies how a Covered Entity must meet the manner and
format condition in a substituted compliance order.\15\
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\15\ This Order applies to the manner and format condition in
the existing substituted compliance orders and to any future orders
that include the manner and format condition. If necessary to
achieve comparable regulatory outcomes, the Commission may prescribe
additional conditions in a future substituted compliance order with
respect to a particular jurisdiction to tailor a Covered Entity's
reliance on the manner and format condition to the relevant laws in
the jurisdiction.
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III. Discussion
A. Manner of Filing
i. Use Part II or IIC of the FOCUS Report and the eFOCUS System
Administered by FINRA
As discussed in the 2021 Manner and Format Order, a Covered Entity
must file the financial and operational information in the format
discussed below with the Commission through the SEC eFOCUS system
administered by FINRA (``SEC eFOCUS system'').\16\
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\16\ See paragraph (a) of the ordering language below.
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ii. Frequency and Timing of Filing
As discussed in the 2021 Manner and Format Order, a Covered Entity
without a prudential regulator must file the FOCUS Report Part II 35
calendar days after the end of the month.\17\ A Covered Entity with a
prudential regulator must file the FOCUS Report Part IIC 35 calendar
days after the end of the quarter.\18\
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\17\ See paragraph (a)(1) of the ordering language below.
\18\ See paragraph (a)(2) of the ordering language below.
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B. Format of Filing
i. Complete a Specified Set of Line Items on the FOCUS Report
Part II and Part IIC of the FOCUS Report elicit financial and
operational information about the filer through sections consisting of
uniquely numbered line items. The information (e.g., a number or dollar
amount) is entered into the line items. Under Rule 18a-7, an SBS Entity
must use Part II or Part IIC of the FOCUS Report to submit required
financial and operational information by filling out all applicable
line items on the form.
As discussed in the 2021 Manner and Format Order and as discussed
above, Covered Entities must complete a limited set of applicable line
items on Part II or Part IIC of the FOCUS Report (as applicable).\19\
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\19\ See paragraph (b) of the ordering language below. The
minimum required line items are highlighted on Part II of the FOCUS
Report (if not prudentially regulated) or Part IIC of the FOCUS
Report (if prudentially regulated) and are available on the
Commission's website. An SBS Entity may report information elicited
in other line items on the applicable FOCUS Report if it chooses to
do so. Further, as is the case with SBS Entities, Covered Entities
must complete required line items if applicable. For example, under
this Order, Covered Entities need to complete line items linked to
Exchange Rule 18a-4 (``Rule 18a-4''). 17 CFR 240.18a-4. However, the
Commission expects most, if not all, Covered Entities will operate
under an exemption to the segregation requirements of Rule 18a-4.
Almost all the line items linked to Rule 18a-4 apply if the Covered
Entity is not operating under the exemption. Therefore, a Covered
Entity operating under the exemption need not complete these line
items (there is a line item to indicate the firm is operating under
the exemption, which will need to be completed if applicable).
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ii. Report Information on a Consolidated or Unconsolidated Basis
As discussed in the 2021 Manner and Format Order, Covered Entities
are permitted to present the information in Part II or Part IIC of the
FOCUS Report (as applicable) at the entity level of the Covered Entity
on the same basis (consolidated or unconsolidated) that the Covered
Entity presents information in the financial reports it files in its
home jurisdiction.\20\
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\20\ See paragraph (c) of the ordering language below.
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iii. Covered Entities Without a Prudential Regulator Must Complete the
Regulatory Capital Section of Part IIC of the FOCUS Report
As discussed in the 2021 Manner and Format Order, Covered Entities
without a prudential regulator must complete the Regulatory Capital
section from Part IIC of the FOCUS Report, rather than completing the
Computation of Net Capital and Computation of Minimum Regulatory
Capital Requirements sections from Part II of the FOCUS Report.\21\
Because Part II of the FOCUS Report does not include a section to
calculate capital under the Basel capital standard, the version of that
form highlighting required fields for Covered Entities includes the
capital calculation section from Part IIC of the FOCUS Report.
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\21\ See paragraph (d) of the ordering language below.
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iv. Report Basel Capital Standard Calculation Pursuant to Home Country
Requirements
As discussed in the 2021 Manner and Format Order, a Covered Entity
is permitted to complete the capital line items in the filings, if the
FOCUS Report Part IIC is used as the filing form, in a manner
consistent with its home jurisdiction's capital standards and related
reporting requirements. Consequently, even though the capital section
of Part IIC of the FOCUS Report requires SBS Entities to complete the
Regulatory Capital section using the instructions accompanying form
FFIEC 031 (``Call Report''), Covered Entities completing the capital
section of Part IIC of the FOCUS Report pursuant to this Order may rely
on local requirements to present the information on this section of the
FOCUS Report.\22\
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\22\ See paragraph (d) of the ordering language below.
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v. Report GAAP Used in Memo Field to the FOCUS Report
As discussed in the 2021 Manner and Format Order, the manner and
format condition in the Commission's substituted compliance orders
requires Covered Entities to file periodic unaudited financial and
operational information with the Commission or its designee in the
manner and format required by Commission rule or order and present the
financial information in the filing in accordance with GAAP that the
Covered Entity uses to prepare general purpose publicly available or
[[Page 104279]]
available to be issued financial statements in the home jurisdiction.
Under this Order, the Covered Entity must notify the Commission in a
memorandum field accompanying the FOCUS Report the GAAP it uses to
present the financial information in the filing.\23\
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\23\ See paragraph (e) of the ordering language below. In
particular, the Covered Entity needs to report this information in
the memorandum field for line item 12003 or 12004 (as applicable) of
the FOCUS Report Part II if not prudentially regulated or line item
12820 or 12821 (as applicable) of the FOCUS Report Part IIC if
prudentially regulated.
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vii. Follow FOCUS Report Instructions Unless Inconsistent With This
Order
Finally, as discussed in the 2021 Manner and Format Order, the
Covered Entity must follow the instructions for completing the FOCUS
Report Part II or Part IIC, as applicable, to the extent the
instructions are not inconsistent with the provisions of this
Order.\24\ This includes presenting information in U.S. dollars (not in
local currencies).\25\ However, a prudentially regulated Covered Entity
filing the FOCUS Report Part IIC need not follow instructions referring
to line items on the Call Report to the extent the Covered Entity does
not report the required information in a Call Report pursuant to that
instruction.\26\
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\24\ See paragraph (f) of the ordering language below.
\25\ Covered Entities may convert local currencies at a ``top-
line'' level to U.S. dollars at the spot rate applicable on the ``as
of'' date of the reported amount.
\26\ If the Covered Entity files a Call Report in the U.S. with
a prudential regulator pursuant to the instructions for the Call
Report, it should follow the instructions in the FOCUS Report Part
IIC to report information in that report to the extent the same
information is reported by the Covered Entity in the Call Report.
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IV. Conclusion
It Is hereby ordered that a Covered Entity must meet the manner and
format condition in a Commission order granting conditional substituted
compliance with respect to Exchange Act Rule 18a-7 by:
(a)(1) If not prudentially regulated, filing through the SEC eFOCUS
system a FOCUS Report Part II 35 calendar days after the end of each
month; or
(2) If prudentially regulated, filing through the SEC eFOCUS system
the FOCUS Report Part IIC 35 calendar days after the end of each
quarter;
(b)(1) If not prudentially regulated, entering the required
information on the line items (as applicable) highlighted on the FOCUS
Report Part II, as specified on the Commission's website, on the FOCUS
Report Part II filed pursuant to paragraph (a)(1) above; or
(2) If prudentially regulated, entering the required information on
the line items (as applicable) highlighted on the FOCUS Report Part
IIC, as specified on the Commission's website, on the FOCUS Report Part
IIC filed pursuant to paragraph (a)(2) above;
(c) Presenting the information in the FOCUS Report Part II or Part
IIC (as applicable) filed pursuant to paragraph (a) above at the entity
level of the Covered Entity on the same basis (consolidated or
unconsolidated) that the Covered Entity presents information in the
financial reports it files in its home jurisdiction;
(d) Completing the Regulatory Capital section of the FOCUS Report
Part IIC and presenting the information in that section in accordance
with the reporting requirements of the Covered Entity's home
jurisdiction;
(e) Identifying the generally accepted accounting principles being
used to present the information in the FOCUS Report Part II or Part IIC
(as applicable) filed pursuant to paragraph (a) above in the memo field
for line item 12003, 12004, 12820, or 12821 (as applicable) of the
report in the SEC eFOCUS system; and
(f) Reporting the information in the FOCUS Report Part II or Part
IIC (as applicable) filed pursuant to paragraph (a) above in accordance
with the instructions for those reports; except that the Covered Entity
can report the information:
(1) In a manner consistent with a condition of this Order, if the
instruction conflicts with the condition; or
(2) In a manner consistent with the requirements of its home
jurisdiction, if the instruction on the FOCUS Report Part IIC requires
information submitted on the Call Report and the Covered Entity does
not report the required information on a Call Report.
By the Commission.
Dated: December 16, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-30377 Filed 12-19-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 20, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.