Notice2026-08558
Staff Report on the Definitions of “Security-Based Swap Dealer” and “Major Security-Based Swap Participant”
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Published
May 4, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission directed staff to prepare and is now publishing a report examining the effect and application of the definitions of "security-based swap dealer" and "major security-based swap participant." Those definitions include an exception from designation as a security-based swap dealer for an entity that engages in a de minimis quantity of security-based swap dealing, as well as separate thresholds below which an entity would not become a major security-based swap participant. As provided in the Commission's rules, nine months after publication of this report and after considering any public comments received, the Commission may by order either terminate the phase-in period for the de minimis thresholds, thereby allowing thresholds of $3 billion for credit default swaps that constitute security-based swaps and $150 million for non-credit default swaps that constitute security-based swaps to take effect and replace the current phase-in thresholds of $8 billion and $400 million, respectively, or propose different thresholds through rulemaking; however, the Commission has issued an order providing a temporary exemption that has the effect of continuing to apply the phase-in thresholds of $8 billion and $400 million until May 8, 2028. The public is invited to comment on all aspects of this report, which may inform the Commission's consideration of potential changes to the de minimis exception and the rules further defining the terms "security-based swap dealer" and "major security-based swap participant."
Full Text
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[Federal Register Volume 91, Number 85 (Monday, May 4, 2026)]
[Notices]
[Pages 24038-24085]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08558]
[[Page 24037]]
Vol. 91
Monday,
No. 85
May 4, 2026
Part II
Securities and Exchange Commission
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Staff Report on the Definitions of ``Security-Based Swap Dealer'' and
``Major Security-Based Swap Participant''; Notice
Federal Register / Vol. 91 , No. 85 / Monday, May 4, 2026 / Notices
[[Page 24038]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105315; File Number S7-2026-14]
Staff Report on the Definitions of ``Security-Based Swap Dealer''
and ``Major Security-Based Swap Participant''
AGENCY: Securities and Exchange Commission.
ACTION: Notice; request for comment.
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SUMMARY: The Securities and Exchange Commission directed staff to
prepare and is now publishing a report examining the effect and
application of the definitions of ``security-based swap dealer'' and
``major security-based swap participant.'' Those definitions include an
exception from designation as a security-based swap dealer for an
entity that engages in a de minimis quantity of security-based swap
dealing, as well as separate thresholds below which an entity would not
become a major security-based swap participant. As provided in the
Commission's rules, nine months after publication of this report and
after considering any public comments received, the Commission may by
order either terminate the phase-in period for the de minimis
thresholds, thereby allowing thresholds of $3 billion for credit
default swaps that constitute security-based swaps and $150 million for
non-credit default swaps that constitute security-based swaps to take
effect and replace the current phase-in thresholds of $8 billion and
$400 million, respectively, or propose different thresholds through
rulemaking; however, the Commission has issued an order providing a
temporary exemption that has the effect of continuing to apply the
phase-in thresholds of $8 billion and $400 million until May 8, 2028.
The public is invited to comment on all aspects of this report, which
may inform the Commission's consideration of potential changes to the
de minimis exception and the rules further defining the terms
``security-based swap dealer'' and ``major security-based swap
participant.''
DATES: Comments should be submitted on or before July 6, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2f5d5a434a024c4042424a415b5c6f5c4a4c01484059"><span class="__cf_email__" data-cfemail="5725223b327a34383a3a323923241724323479303821">[email protected]</span></a>. Please include
file number S7-2026-14 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-2026-14. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (<a href="https://www.sec.gov/comments/s7-2026-14/staff-report-definitions-security-based-swap-dealer-major-security-based-swap-participant">https://www.sec.gov/comments/s7-2026-14/staff-report-definitions-security-based-swap-dealer-major-security-based-swap-participant</a>). Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection.
FOR FURTHER INFORMATION CONTACT: Laura Compton, Senior Special Counsel,
Amy Butler, Financial Analyst, or Alexandra Oprea, Special Counsel,
Office of Derivatives Policy, Division of Trading and Markets, at (202)
551-5870 or <a href="/cdn-cgi/l/email-protection#1b7f7e69726d7a6f726d7e686b74777278625b687e78357c746d"><span class="__cf_email__" data-cfemail="305455425946514459465543405f5c595349704355531e575f46">[email protected]</span></a>, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: Pursuant to Rule 3a71-2A(c) \1\ under the
Securities Exchange Act of 1934,\2\ the Commission is publishing for
public comment the staff report on the definitions of ``security-based
swap dealer'' and ``major security-based swap participant.''
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\1\ 17 CFR 240.3a71-2A(c).
\2\ 15 U.S.C. 78a through 78rr.
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By the Commission.
Dated: April 29, 2026.
J. Matthew DeLesDernier,
Deputy Secretary.
Appendix A
Definitions of ``Security-Based Swap Dealer'' and ``Major Security-
Based Swap Participant'': A Report by Staff of the Securities and
Exchange Commission
Table of Contents
I. Table of Citations
II. Introduction
III. SBS Transaction Reports
IV. Staff Findings and Requests for Comment
A. Security-Based Swap Dealers
1. Definition of ``Security-Based Swap Dealer''
2. Methodology for Identifying New Trade Activity
3. Analysis of the Definition of ``Security-Based Swap Dealer''
a. Overall SBS Market Activity
i. SBS Market Activity Reviews in 2024 and 2011
ii. Estimates of Potential SBS Dealing Activity in 2024 and 2011
b. CDS De Minimis Threshold
i. CDS Market Participants' Activity
ii. Impact of Exclusions on CDS Activity
iii. $8 Billion Phase-In CDS De Minimis Threshold
iv. $3 Billion Scheduled CDS De Minimis Threshold
v. Alternative CDS De Minimis Thresholds
c. Non-CDS De Minimis Threshold
i. Non-CDS Market Participants' Activity
ii. Impact of Exclusions on Non-CDS Activity
iii. $400 Million Phase-In Non-CDS De Minimis Threshold
iv. $150 Million Scheduled Non-CDS De Minimis Threshold
v. Alternative Non-CDS De Minimis Thresholds
d. Hypothetical Total CDS and Non-CDS SBS De Minimis Thresholds
e. Special Entity SBS De Minimis Threshold
i. Market Participants' Activity With Likely Special Entities
ii. Impact of Exclusions on Activity With Likely Special
Entities
iii. $25 Million Special Entity SBS De Minimis Threshold
iv. Alternative De Minimis Thresholds for Special Entity SBS
f. Retrospective Impact Analysis
i. Effects on Competition and Market Access
ii. Effects on Investor Protection
4. Requests for Comment
B. Major Security-Based Swap Participants
1. Definition of ``Major Security-Based Swap Participant''
a. Major SBS Categories
b. Substantial Position and Substantial Counterparty Exposure
c. Hedging or Mitigating Commercial Risk
d. Financial Entity
e. Highly Leveraged
f. Attribution Rules for SBS Positions
2. Methodology for Identifying Potential MSBSP Status
a. Estimates of Open SBS Positions
b. Comparison to Safe Harbors
3. Analysis of the Definition of ``Major Security-Based Swap
Participant''
a. Characteristics of SBS Positions
b. Retrospective Impact Analysis
4. Requests for Comment
C. Scope and Quality of SBS Transaction Reports
1. Gaps in Data Elements of SBS Transaction Reports
2. Data Quality Observations Regarding SBS Transaction Reporting
3. Requests for Comment
Annex
I. Additional Methodology for Analysis of New Trade Activity
A. Identifying New Trade Activity Events
B. Determining the Notional Amount for Each New Trade Activity
Event
[[Page 24039]]
II. Additional Methodology for Analysis of Open SBS Positions
A. Identifying Open SBS Positions
B. Determining the Notional Amount of Each Open SBS Position
I. Table of Citations
Below is a table of citations to the Securities Exchange Act of
1934 (``Exchange Act'') \3\ rules referenced in this staff report:
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\3\ 15 U.S.C. 78a through 78rr.
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Commission reference CFR citation (17 CFR)
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Rule 3a67-1............................... Sec. 240.3a67-1
Rule 3a67-1(a)(1)......................... Sec. 240.3a67-1(a)(1)
Rule 3a67-1(a)(2)......................... Sec. 240.3a67-1(a)(2)
Rule 3a67-1(a)(2)(i)...................... Sec. 240.3a67-1(a)(2)(i)
Rule 3a67-1(a)(2)(ii)..................... Sec. 240.3a67-1(a)(2)(ii)
Rule 3a67-1(a)(2)(iii).................... Sec. 240.3a67-1(a)(2)(iii)
Rule 3a67-1(b)............................ Sec. 240.3a67-1(b)
Rule 3a67-2(a)............................ Sec. 240.3a67-2(a)
Rule 3a67-2(b)............................ Sec. 240.3a67-2(b)
Rule 3a67-3(a)............................ Sec. 240.3a67-3(a)
Rule 3a67-3(b)............................ Sec. 240.3a67-3(b)
Rule 3a67-3(b)(1)......................... Sec. 240.3a67-3(b)(1)
Rule 3a67-3(b)(2)......................... Sec. 240.3a67-3(b)(2)
Rule 3a67-3(b)(3)......................... Sec. 240.3a67-3(b)(3)
Rule 3a67-3(b)(4)......................... Sec. 240.3a67-3(b)(4)
Rule 3a67-3(c)............................ Sec. 240.3a67-3(c)
Rule 3a67-3(c)(1)......................... Sec. 240.3a67-3(c)(1)
Rule 3a67-3(c)(2)......................... Sec. 240.3a67-3(c)(2)
Rule 3a67-3(c)(2)(i)(A)(1)................ Sec. 240.3a67-
3(c)(2)(i)(A)(1)
Rule 3a67-3(c)(2)(i)(A)(2)................ Sec. 240.3a67-
3(c)(2)(i)(A)(2)
Rule 3a67-3(c)(2)(i)(B)................... Sec. 240.3a67-
3(c)(2)(i)(B)
Rule 3a67-3(c)(2)(i)(C)................... Sec. 240.3a67-
3(c)(2)(i)(C)
Rule 3a67-3(c)(2)(i)(D)................... Sec. 240.3a67-
3(c)(2)(i)(D)
Rule 3a67-3(c)(2)(ii)..................... Sec. 240.3a67-3(c)(2)(ii)
Rule 3a67-3(c)(3)(i)(A)................... Sec. 240.3a67-
3(c)(3)(i)(A)
Rule 3a67-3(c)(3)(i)(B)................... Sec. 240.3a67-
3(c)(3)(i)(B)
Rule 3a67-3(c)(3)(ii)..................... Sec. 240.3a67-3(c)(3)(ii)
Rule 3a67-3(d)............................ Sec. 240.3a67-3(d)
Rule 3a67-3(e)............................ Sec. 240.3a67-3(e)
Rule 3a67-4(a)(1)......................... Sec. 240.3a67-4(a)(1)
Rule 3a67-4(a)(2)......................... Sec. 240.3a67-4(a)(2)
Rule 3a67-4(b)(1)......................... Sec. 240.3a67-4(b)(1)
Rule 3a67-4(b)(2)......................... Sec. 240.3a67-4(b)(2)
Rule 3a67-5............................... Sec. 240.3a67-5
Rule 3a67-5(a)............................ Sec. 240.3a67-5(a)
Rule 3a67-6............................... Sec. 240.3a67-6
Rule 3a67-6(a)............................ Sec. 240.3a67-6(a)
Rule 3a67-6(b)............................ Sec. 240.3a67-6(b)
Rule 3a67-7............................... Sec. 240.3a67-7
Rule 3a67-7(a)............................ Sec. 240.3a67-7(a)
Rule 3a67-7(b)............................ Sec. 240.3a67-7(b)
Rule 3a67-8(b)............................ Sec. 240.3a67-8(b)
Rule 3a67-9............................... Sec. 240.3a67-9
Rule 3a67-9(a)(1)......................... Sec. 240.3a67-9(a)(1)
Rule 3a67-9(a)(1)(i)...................... Sec. 240.3a67-9(a)(1)(i)
Rule 3a67-9(a)(2)......................... Sec. 240.3a67-9(a)(2)
Rule 3a67-9(a)(2)(i)...................... Sec. 240.3a67-9(a)(2)(i)
Rule 3a67-9(a)(3)(i)(A)................... Sec. 240.3a67-
9(a)(3)(i)(A)
Rule 3a67-9(a)(3)(i)(B)................... Sec. 240.3a67-
9(a)(3)(i)(B)
Rule 3a67-9(b)............................ Sec. 240.3a67-9(b)
Rule 3a67-10(a)(1)........................ Sec. 240.3a67-10(a)(1)
Rule 3a67-10(a)(2)........................ Sec. 240.3a67-10(a)(2)
Rule 3a67-10(a)(3)........................ Sec. 240.3a67-10(a)(3)
Rule 3a67-10(a)(4)........................ Sec. 240.3a67-10(a)(4)
Rule 3a67-10(b)(1)........................ Sec. 240.3a67-10(b)(1)
Rule 3a67-10(b)(2)........................ Sec. 240.3a67-10(b)(2)
Rule 3a67-10(b)(3)........................ Sec. 240.3a67-10(b)(3)
Rule 3a67-10(b)(3)(i)(A).................. Sec. 240.3a67-
10(b)(3)(i)(A)
Rule 3a67-10(b)(3)(ii).................... Sec. 240.3a67-10(b)(3)(ii)
Rule 3a67-10(c)........................... Sec. 240.3a67-10(c)
Rule 3a67-10(c)(1)(i)..................... Sec. 240.3a67-10(c)(1)(i)
Rule 3a67-10(c)(1)(ii).................... Sec. 240.3a67-10(c)(1)(ii)
Rule 3a67-10(c)(2)........................ Sec. 240.3a67-10(c)(2)
Rule 3a71-1............................... Sec. 240.3a71-1
Rule 3a71-1(a)............................ Sec. 240.3a71-1(a)
Rule 3a71-1(b)............................ Sec. 240.3a71-1(b)
Rule 3a71-1(c)............................ Sec. 240.3a71-1(c)
Rule 3a71-1(d)............................ Sec. 240.3a71-1(d)
Rule 3a71-1(d)(1)......................... Sec. 240.3a71-1(d)(1)
Rule 3a71-1(d)(2)......................... Sec. 240.3a71-1(d)(2)
Rule 3a71-2............................... Sec. 240.3a71-2
Rule 3a71-2(a)............................ Sec. 240.3a71-2(a)
Rule 3a71-2(a)(1)......................... Sec. 240.3a71-2(a)(1)
Rule 3a71-2(a)(1)(i)...................... Sec. 240.3a71-2(a)(1)(i)
Rule 3a71-2(a)(1)(ii)..................... Sec. 240.3a71-2(a)(1)(ii)
Rule 3a71-2(a)(1)(iii).................... Sec. 240.3a71-2(a)(1)(iii)
Rule 3a71-2(a)(2)......................... Sec. 240.3a71-2(a)(2)
Rule 3a71-2(a)(2)(i)...................... Sec. 240.3a71-2(a)(2)(i)
Rule 3a71-2(a)(2)(ii)..................... Sec. 240.3a71-2(a)(2)(ii)
Rule 3a71-2(a)(2)(ii)(B).................. Sec. 240.3a71-
2(a)(2)(ii)(B)
Rule 3a71-2(a)(2)(iii).................... Sec. 240.3a71-2(a)(2)(iii)
Rule 3a71-2(a)(3)......................... Sec. 240.3a71-2(a)(3)
Rule 3a71-2A.............................. Sec. 240.3a71-2A
Rule 3a71-2A(a)(1)........................ Sec. 240.3a71-2A(a)(1)
Rule 3a71-2A(a)(2)........................ Sec. 240.3a71-2A(a)(2)
Rule 3a71-2A(a)(3)........................ Sec. 240.3a71-2A(a)(3)
Rule 3a71-2A(a)(4)........................ Sec. 240.3a71-2A(a)(4)
Rule 3a71-2A(a)(5)........................ Sec. 240.3a71-2A(a)(5)
Rule 3a71-2A(a)(6)........................ Sec. 240.3a71-2A(a)(6)
Rule 3a71-2A(b)........................... Sec. 240.3a71-2A(b)
Rule 3a71-2A(c)........................... Sec. 240.3a71-2A(c)
Rule 3a71-3(a)(1)......................... Sec. 240.3a71-3(a)(1)
Rule 3a71-3(a)(2)......................... Sec. 240.3a71-3(a)(2)
Rule 3a71-3(a)(3)......................... Sec. 240.3a71-3(a)(3)
Rule 3a71-3(a)(4)......................... Sec. 240.3a71-3(a)(4)
Rule 3a71-3(b)............................ Sec. 240.3a71-3(b)
Rule 3a71-3(b)(1)......................... Sec. 240.3a71-3(b)(1)
Rule 3a71-3(b)(1)(i)...................... Sec. 240.3a71-3(b)(1)(i)
Rule 3a71-3(b)(1)(ii)..................... Sec. 240.3a71-3(b)(1)(ii)
Rule 3a71-3(b)(1)(iii).................... Sec. 240.3a71-3(b)(1)(iii)
Rule 3a71-3(b)(1)(iii)(A)(1).............. Sec. 240.3a71-
3(b)(1)(iii)(A)(1)
Rule 3a71-3(b)(1)(iii)(B)................. Sec. 240.3a71-
3(b)(1)(iii)(B)
Rule 3a71-3(b)(2)......................... Sec. 240.3a71-3(b)(2)
Rule 3a71-3(b)(2)(i)...................... Sec. 240.3a71-3(b)(2)(i)
Rule 3a71-3(b)(2)(ii)..................... Sec. 240.3a71-3(b)(2)(ii)
Rule 3a71-3(b)(2)(iii).................... Sec. 240.3a71-3(b)(2)(iii)
Rule 3a71-3(d)............................ Sec. 240.3a71-3(d)
Rule 3a71-4............................... Sec. 240.3a71-4
Rule 3a71-5............................... Sec. 240.3a71-5
Regulation SBSR........................... Sec. Sec. 242.900 through
242.909
Rule 901(c)(1)............................ Sec. 242.901(c)(1)
Rule 901(d)(2)............................ Sec. 242.901(d)(2)
Rule 901(d)(5)............................ Sec. 242.901(d)(5)
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II. Introduction
Staff of the Securities and Exchange Commission (``Commission'')
prepared this report to examine the effect and application of the
definitions of ``security-based swap dealer'' and ``major security-
based swap participant,'' as directed in Rule 3a71-2A.\4\
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\4\ See Rule 3a71-2A. This is a report of the staff of the U.S.
Securities and Exchange Commission. This report represents the views
of Commission staff. It is not a rule, regulation, or statement of
the Commission. The Commission has neither approved nor disapproved
of its content. This report, like all staff statements, has no legal
force or effect: it does not alter or amend applicable law, and it
creates no new or additional obligations for any person.
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Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (``Title VII'' and the ``Dodd-Frank Act'')
\5\ provided the Commission with regulatory authority over security-
based swaps (``SBS''), the Commodity Futures Trading Commission (the
``CFTC'') with regulatory authority over swaps, and the Commission
and the CFTC (together, the ``Commissions'') jointly with regulatory
authority over mixed swaps.\6\ As a result, security-based swap
dealers (``SBSDs'') and major security-based swap participants
(``MSBSPs,'' and together with SBSDs, ``SBS Entities'') became
subject to regulation by the Commission.
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\5\ Public Law 111-203, 124 Stat. 1376 (2010), available at
<a href="https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf">https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf</a>.
\6\ The Commission also has anti-fraud authority over
``security-based swap agreements,'' which do not fall within the
definition of ``security-based swap.'' The Commission also has
authority to access information relating to security-based swap
agreements in the possession of the CFTC and certain CFTC-regulated
entities. See Exchange Act Sections 3(a)(78), 3A, 9(a)(2) through
(5), 9(j), 10, 15(c)(1), 15(j), 16(a) and (b), 16(g), 20(d), 20(f),
21A(a)(1), and 21A(f), 15 U.S.C. 78c(a)(78), 78c-1, 78j(a)(2)
through (5), 78i(j), 78j, 78o(c)(1), 78o(j), 78p(a) and (b), 78p(g),
78t(d), 78t(f) 78u-1(a)(1), and 78u-1(f); Dodd-Frank Act Section
712(d)(2), 15 U.S.C. 8302(d)(2); Commodity Exchange Act Section
5b(k)(3), 7 U.S.C. 7a-1(k)(3); see also 15 U.S.C. 77b-1, 77q;
Further Definition of ``Swap,'' ``Security-Based Swap,'' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping, Exchange Act Release No. 67453 (July 18,
2012), 77 FR 48208, 48210 & n.11 (Aug. 13, 2012), available at
<a href="https://www.govinfo.gov/content/pkg/FR-2012-08-13/pdf/2012-18003.pdf">https://www.govinfo.gov/content/pkg/FR-2012-08-13/pdf/2012-18003.pdf</a>
(``Product Definitions Adopting Release'').
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In 2012, as directed by the Dodd-Frank Act, the Commissions
jointly adopted rules further defining the terms ``security-based
swap dealer'' and ``major security-based swap participant.'' \7\
Those rules provided an exception from designation as an SBSD for an
entity that engages in a de minimis quantity of SBS dealing, which
the rules defined as $3 billion, subject to a phase-in level of $8
billion, with regard to credit default swaps (``CDS'') that
constitute SBS; $150 million, subject to a phase-in level of $400
million, with regard to non-CDS that constitute SBS; and $25 million
with regard to all SBS in which the counterparty is a special entity
to whom the Dodd-Frank Act extends additional protections.\8\ Those
rules also defined separate thresholds below which an entity would
not become an MSBSP, requiring a daily average aggregate
uncollateralized outward exposure of less than $1 billion in any
major SBS category (with some market participants able to deduct
from this exposure certain positions held for hedging or mitigating
risk) and less than $2 billion for all SBS positions and a daily
average aggregate uncollateralized outward exposure plus daily
average aggregate potential outward exposure of less than $2 billion
in any major SBS category
[[Page 24040]]
(again, with some market participants able to deduct from this
exposure certain positions held for hedging or mitigating risk) and
less than $4 billion for all SBS positions.\9\
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\7\ See 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. 66868 (Apr. 27, 2012), 77 FR 30596, 30596 (May 23,
2012), available at <a href="https://www.govinfo.gov/content/pkg/FR-2012-05-23/pdf/2012-10562.pdf">https://www.govinfo.gov/content/pkg/FR-2012-05-23/pdf/2012-10562.pdf</a> (``Entity Definitions Adopting Release'');
Dodd-Frank Act Section 712(d)(1), 15 U.S.C. 8302(d) (directing the
Commissions to further define the terms ``security-based swap
dealer,'' ``major security-based swap participant,'' and other
related terms); Dodd-Frank Act Section 761(a), 15 U.S.C. 78c(a)(67)
and (71) (defining ``major security-based swap participant'' and
``security-based swap dealer,'' respectively); Dodd-Frank Act
Section 761(a), 15 U.S.C. 78c(a)(71)(D) (de minimis exception to the
term ``security-based swap dealer'').
\8\ See Rule 3a71-2(a).
\9\ See Rule 3a67-1(a)(2); Rule 3a67-3(a); Rule 3a67-5.
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The Commissions adopted those rules after considering available
2011 transaction and position data for single-name CDS transactions
and estimates for non-CDS markets based on more limited 2011
position data.\10\ This available 2011 data did not yet include
information from the SBS transaction reporting that would later be
required under the Title VII regulatory framework. To help the
Commission evaluate the practical implications and effects of the
definitions of ``security-based swap dealer'' and ``major security-
based swap participant'' following implementation of the Title VII
regulatory framework, the Commission in Rule 3a71-2A directed staff
to complete and publish for public comment a report on these
definitions after additional SBS data became available pursuant to
other Title VII rules.\11\ That additional data began to become
available when market participants commenced reporting information
about their SBS transactions (the ``SBS transaction reports'') on
November 8, 2021,\12\ known as the data collection initiation date,
and in the initial phase of reporting that followed became more
consistent as market participants and the Commission implemented
this new reporting requirement.
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\10\ See also section IV.A.3.a.i, infra.
\11\ See Entity Definitions Adopting Release, 77 FR 30640,
30698; Rule 3a71-2; Rule 3a71-2A. The CFTC directed its staff to
publish a similar, narrower report on the definition of the term
``swap dealer'' and its de minimis threshold (but not on the
definition of the term ``major swap participant''). Reporting of
swap transactions to CFTC-registered swap data repositories began on
December 31, 2012, and CFTC staff published the final version of
that report in 2016. See Staff of the Commodity Futures Trading
Commission, Swap Dealer De Minimis Exception Preliminary Report
(Nov. 18, 2015), available at <a href="https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf">https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf</a>; Staff of the Commodity Futures Trading
Commission, Swap Dealer De Minimis Exception Final Staff Report
(Aug. 15, 2016), available at <a href="https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf">https://www.cftc.gov/sites/default/files/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf</a>.
\12\ See Rule 3a71-2(a)(2)(iii); see also Data Collection
Initiation Date and Contingent Phase-In Termination Date for the De
Minimis Notional Thresholds of Security-Based Dealing, Exchange Act
Release No. 94896 (May 11, 2022), 87 FR 29986, 29987 (May 17, 2022),
available at <a href="https://www.govinfo.gov/content/pkg/FR-2022-05-17/pdf/2022-10511.pdf">https://www.govinfo.gov/content/pkg/FR-2022-05-17/pdf/2022-10511.pdf</a>. The first compliance date for Regulation SBSR with
respect to an SBS asset class was the first Monday that was the
later of: (1) six months after the date on which the first security-
based swap data repository (``SBSDR'') that can accept transaction
reports in that asset class registers with the Commission; or (2)
one month after the compliance date for registration and regulatory
requirements for SBS Entities. See Cross-Border Application of
Certain Security-Based Swap Requirements, Exchange Act Release No.
87780 (Dec. 18, 2019), 85 FR 6270, 6346 (Feb. 4, 2020), available at
<a href="https://www.govinfo.gov/content/pkg/FR-2020-02-04/pdf/2019-27760.pdf">https://www.govinfo.gov/content/pkg/FR-2020-02-04/pdf/2019-27760.pdf</a>
(``Cross-Border Adopting Release''). DTCC Data Repository (U.S.),
LLC (``DTCC SBSDR'') registered as an SBSDR for the credit, equity,
and interest rate derivatives asset classes on May 7, 2021. See
Security-Based Swap Data Repositories; DTCC Data Repository (U.S.),
LLC; Order Approving Application for Registration as a Security-
Based Swap Data Repository, Exchange Act Release No. 91798 (May 7,
2021), 86 FR 26115 (May 12, 2021), available at <a href="https://www.govinfo.gov/content/pkg/FR-2021-05-12/pdf/2021-10065.pdf">https://www.govinfo.gov/content/pkg/FR-2021-05-12/pdf/2021-10065.pdf</a>.
November 8, 2021, was both the first Monday that was six months
after May 7, 2021, and the first Monday that was one month after the
October 6, 2021, compliance date for registration and regulatory
requirements for SBS Entities. See also SEC Approves Registration of
First Security-Based Swap Data Repository; Sets the First Compliance
Date for Regulation SBSR (May 7, 2021), available at <a href="https://www.sec.gov/news/press-release/2021-80">https://www.sec.gov/news/press-release/2021-80</a> (stating that November 8,
2021, is the first compliance date for Regulation SBSR).
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As directed in Rule 3a71-2A, staff prepared this report to
inform the Commission's review of the effect and application of the
rules further defining the terms ``security-based swap dealer'' and
``major security-based swap participant,'' including the SBSD de
minimis exception and the MSBSP thresholds, and to inform the
Commission's consideration of any changes to those rules.\13\ To
accomplish those goals, this report leverages the SBS market data
that has emerged from the SBS transaction reports, focusing on SBS
market activity during calendar year 2024 in analysis of the
definition of ``security-based swap dealer'' and on SBS positions as
of the end of that year in analysis of the definition of ``major
security-based swap participant.''
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\13\ See Rule 3a71-2A. This report was to be completed no later
than three years following the data collection initiation date
established pursuant to Rule 3a71-2(a)(2)(iii). Rule 3a71-2A(b).
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Section III of this report describes the SBS transaction reports
that staff analyzed to prepare this report. Section IV presents
staff's findings from its analysis of the SBS transaction reports.
This report includes several observations for consideration,
including:
<bullet> Staff estimates that in 2024 trading activity in non-
CDS was much larger, both in absolute value and as compared to
trading activity in CDS, than anticipated when the Commissions
adopted the joint definitional rules and that there may have been
less notional amount of trading activity in CDS and more notional
amount of trading activity in non-CDS in 2024 than in 2011, with the
caveat that these estimates are limited by significant differences
in the scope of data available in 2011 as compared to 2024, as well
as by issues with data quality.
[cir] In 2011, 1,084 single-name CDS market participants had
approximately $12.6 trillion in aggregate gross notional amount of
trading activity. Based on the limited information about non-CDS
available to the Commission at that time, the Commission estimated
that non-CDS trading activity would constitute approximately 1/20th
of the aggregate gross notional amount of all SBS trading activity.
[cir] In 2024, 10,962 SBS market participants had a total of
$4,621.4 trillion in notional amount of ``new trade activity,''
including 3,603 CDS market participants with approximately $8.6
trillion and 8,572 non-CDS market participants with approximately
$4,612.8 trillion.
[cir] ``New trade activity'' refers to a reported event that
appeared to be consistent with a new or modified investment
agreement or decision between the counterparties (including reports
of new trades, amendments,\14\ and terminations), as opposed to
changes reflecting predetermined criteria or predetermined self-
executing formulas, risk management or recordkeeping tasks, or
duplicates of other reports. New trade activity includes activity
that may be SBS dealing as well as activity that may not be SBS
dealing and therefore should not be measured against the de minimis
thresholds.\15\ Because each new trade activity event has two
counterparties, attributing new trade activity to market
participants doubles \16\ the total transacted notional amount of
all new trade activity events.
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\14\ Staff distinguished between reports of amendments to the
substantive terms of a transaction, which were included in new trade
activity, and reports of corrections and recordkeeping updates,
which were excluded from new trade activity. See also Annex section
I.A, infra.
\15\ For further discussion of the term ``new trade activity''
as used in this report, see note 50, infra, and accompanying text.
\16\ Though the notional amount of most new trade activity
events was attributed to both counterparties, the notional amount of
some new trade activity events was attributed to only one of the
counterparties. See Annex section I.B, infra.
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[cir] Staff compared each de minimis threshold to market
participants' ``potential SBS dealing activity,'' which refers to
new trade activity, minus excluded items, of market participants
that staff identified as having sufficient indicia of SBS dealing.
Because the SBS transaction reports did not include definitive
information about a market participant's engagement in the business
of SBS dealing for a particular transaction, staff could apply
criteria for these indicia of potential SBS dealing activity only at
the counterparty level and not at the level of individual
transactions or events. Estimates of market participants' potential
SBS dealing activity thus may be exclusively SBS dealing activity,
exclusively non-dealing activity, or a combination of the two.
Estimates that any particular market participant engaged in
potential SBS dealing activity above a de minimis threshold might
reflect these limitations of available data.
[cir] Staff observed that market participants overall submitted
significantly more substantive amendments to the terms of non-CDS
transactions included in new trade activity (approximately $4,468.6
trillion, with some market participants regularly submitting
multiple amendments of the same transaction each day) than they did
substantive amendments to the terms of CDS transactions, and,
pursuant to the methodology to measure new trade activity, each
reported amendment counted as a separate new trade activity
event.\17\ These substantial differences in reporting may reflect a
higher volume of trading in non-CDS compared to CDS markets, a
higher or lower volume of trading by individual market participants,
reporting errors or inconsistencies, or a combination of these
factors. To better understand the reports of
[[Page 24041]]
non-CDS amendments, staff confirmed through discussion with multiple
large market participants, together accounting for approximately
$2,699.9 trillion in notional amount, that their reported amendments
accurately reflected bona fide changes to the non-CDS trade
consistent with a new or modified investment agreement or decision
between the counterparties.
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\17\ For further discussion of the methodology for identifying
new trade activity in this report, see Annex I.A.
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[cir] Even apart from events reported as amendments to trade
terms, non-CDS events reported as new trades and early terminations
consistent with a new or modified investment agreement or decision
also far outpaced comparable CDS new trade activity and accounted
for approximately $105.3 trillion and approximately $38.9 trillion,
respectively, in notional amount of non-CDS new trade activity,
compared to approximately $5.3 trillion and approximately $2.5
trillion, respectively, in notional amount of CDS new trade
activity.
[cir] In contrast with this transaction-based new trade
activity, the total notional amount of all open SBS positions
attributed to market participants on December 31, 2024, was
approximately $16.7 trillion, including approximately $5.7 trillion
(34%) in CDS positions, approximately $1.2 trillion (7%) in interest
rate and other non-CDS debt SBS, and approximately $9.8 trillion
(59%) in equity SBS.
[cir] Recognizing the limitations of data scope and quality, the
SBS transaction reports nevertheless suggest that non-CDS markets
have become a far more significant part of the SBS market activity
than previously anticipated. Over 99% of 2024 new trade activity in
SBS was non-CDS, with CDS representing less than 1% of 2024 new
trade activity.
See sections IV.A.3.a ``Overall SBS Market Activity,'' IV.B.3.a
``Characteristics of SBS Positions,'' and IV.C ``Scope and Quality
of SBS Transaction Reports'' for further discussion.
<bullet> Both CDS and non-CDS SBS markets appeared to be
somewhat less concentrated in 2024 compared to 2011, based on 2024
CDS and non-CDS data and 2011 CDS data and non-CDS estimates.
[cir] In 2011, 28 single-name CDS market participants that
appeared to be engaged in SBS dealing had $11.18 trillion (89%) of
the $12.6 trillion in aggregate gross notional amount of trading
activity by all 1,084 market participants that voluntarily reported
such activity.\18\
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\18\ See Entity Definitions Adopting Release, 77 FR 30636 &
nn.476 & 479.
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[cir] In 2024, 53 registered SBSDs and 853 unregistered
potential SBS dealers \19\ were among the 10,962 SBS market
participants with new trade activity. Registered SBSDs ($2,443.1
trillion) and unregistered potential SBS dealers ($1,272.7 trillion)
had a total of approximately $3,715.8 trillion (81%) of the $4,612.8
trillion in notional amount of non-CDS new trade activity.
Registered SBSDs ($6.5 trillion) and unregistered potential SBS
dealers ($0.8 trillion) had a total of approximately $7.3 trillion
(85%) of the $8.6 trillion in notional amount of CDS new trade
activity.
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\19\ Unregistered potential SBS dealers are market participants
not registered as SBSDs and that staff identified, using uniform
filtering criteria, as having indicia of SBS dealing activity.
---------------------------------------------------------------------------
See sections IV.A.3.a ``Overall SBS Market Activity,''
IV.A.3.b.i ``CDS Market Participants' Activity,'' 0 ``Non-CDS Market
Participants' Activity,'' and III.A.3.f.i ``Effects on Competition
and Market Access'' for further discussion.
<bullet> SBS markets are cross-border, with a significant number
of non-U.S. market participants engaged in reported transactions.
[cir] Among the 53 entities registered as SBSDs on December 31,
2024, 23 (43%) were estimated to be U.S. persons and 30 (57%) were
estimated to be non-U.S. persons.
[cir] Among 853 unregistered market participants identified
(using uniform filtering criteria) as potentially engaged in SBS
dealing, 325 (38%) were estimated to be U.S. persons and 528 (62%)
were estimated to be non-U.S. persons.
See section IV.A.3.a ``Overall SBS Market Activity'' for further
discussion.
<bullet> The exclusions from the definition of ``security-based
swap dealer'' \20\ are meaningful to the de minimis thresholds for
CDS and non-CDS SBS but not to the de minimis threshold for SBS with
special entities.
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\20\ Rules 3a71-1(d), 3a71-3(b) and 3a71-5 describe the
exclusions from the definition of ``security-based swap dealer.''
For a discussion of how staff estimated the impact of these
exclusions given limitations on the scope of available data, see
notes 85 through 88 and accompanying text.
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[cir] $4.6 trillion (54%) out of $8.6 trillion in notional
amount of 2024 CDS new trade activity appeared to be eligible for
one or more exclusions from potential SBS dealing activity counted
toward the de minimis threshold for CDS.
[cir] $1,041.0 trillion (23%) out of $4,612.8 trillion in
notional amount of 2024 non-CDS new trade activity appeared to be
eligible for one or more exclusions from potential SBS dealing
activity counted toward the de minimis threshold for non-CDS.
[cir] The exclusions appeared to have no impact on market
participants' need to register or remain registered with the
Commission as SBSDs due to SBS dealing activity with special
entities.
See sections IV.A.3.b.ii ``Impact of Exclusions on CDS
Activity,'' IV.A.3.c.ii ``Impact of Exclusions on Non-CDS
Activity,'' and IV.A.3.e.ii ``Impact of Exclusions on Activity with
Likely Special Entities'' for further discussion.
<bullet> Although there appeared to be less concentration among
market participants engaged in SBS dealing in 2024 compared to 2011,
registered SBSDs nevertheless evidenced strong market participation
in 2024.
[cir] Approximately 99% of the aggregate notional amount of all
CDS new trade activity included at least one registered SBSD and
thus was subject to the Commission's regulatory framework for SBSDs.
[cir] Approximately 98% of the aggregate notional amount of all
non-CDS new trade activity included at least one registered SBSD and
thus was subject to the Commission's regulatory framework for SBSDs.
[cir] Nearly all of the aggregate notional amount of SBS new
trade activity with a market participant likely to be a special
entity had a registered SBSD on the other side of the trade.
See sections IV.A.3.b ``CDS De Minimis Threshold,'' IV.A.3.c
``Non-CDS De Minimis Threshold,'' and IV.A.3.e ``Special Entity SBS
De Minimis Threshold'' for further discussion.
<bullet> Unregistered market participants appeared to make use
of the de minimis exception to the definition of ``security-based
swap dealer'' and the majority, though possibly not all, of those
market participants appeared to have managed their SBS dealing to
remain below the de minimis thresholds.
[cir] Unregistered potential SBS dealers identified through
uniform filtering criteria accounted for approximately $0.2 trillion
(6%) of the notional amount of potential SBS dealing activity \21\
in CDS. After excluding those below the de minimis threshold and
market participants that appeared unlikely to be engaged in
significant SBS dealing after manual review of additional publicly
available information, staff identified three of these market
participants, with potential SBS dealing activity in CDS totaling
approximately $39.0 billion in notional amount, that may have
surpassed the $8 billion de minimis threshold. If these three market
participants had been registered as SBSDs throughout 2024, all CDS
new trade activity with at least one registered SBSD counterparty
would have increased by approximately $65.6 billion to approximately
$8,567.1 billion.
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\21\ Potential SBS dealing activity is the notional amount of
new trade activity of registered SBSDs and unregistered potential
SBS dealers, minus any notional amounts that appeared to be eligible
for exclusion from the de minimis counting requirements of the
definition of ``security-based swap dealer.''
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[cir] Unregistered potential SBS dealers identified through
uniform filtering criteria accounted for approximately $1,052.1
trillion (37%) of the notional amount of potential SBS dealing
activity in non-CDS. After excluding those below the de minimis
threshold and market participants that appeared unlikely to be
engaged in significant SBS dealing after manual review of additional
publicly available information, staff identified 60 of these market
participants, with potential SBS dealing activity in non-CDS
totaling approximately $31.5 trillion in notional amount, that may
have surpassed the $400 million de minimis threshold. If these 60
market participants had been registered as SBSDs throughout 2024,
all non-CDS new trade activity with at least one registered SBSD
counterparty would have increased by approximately $57.4 trillion to
approximately $4,596.6 trillion.
[cir] Because the SBS transaction reports did not include
definitive information about a market participant's engagement in
the business of SBS dealing for a particular transaction, however,
estimates of SBS dealing activity above a de minimis threshold may
not necessarily indicate that a market participant in fact surpassed
that threshold and indeed may include end-user and other non-dealing
investment activity. In particular, as the uniform filtering
criteria for potential SBS dealing activity could be
[[Page 24042]]
applied only at the counterparty level and not at the level of
individual transactions or events, all of a market participant's new
trade activity net of exclusions, plus that of affiliates estimated
to be engaged in SBS dealing, counted toward the de minimis
thresholds. The activity of unregistered potential SBS dealers may
have been exclusively SBS dealing activity, exclusively non-dealing
activity, or a combination of the two.
See sections IV.A.3.b ``CDS De Minimis Threshold,'' IV.A.3.c
``Non-CDS De Minimis Threshold,'' and IV.A.3.e ``Special Entity SBS
De Minimis Threshold'' for further discussion.
<bullet> If the phase-in de minimis thresholds expire as
scheduled, additional market participants may be required to
register as SBSDs.
[cir] If the $3 billion scheduled CDS de minimis threshold had
applied to the twelve-month period ended on December 31, 2024, four
market participants with potential SBS dealing activity in CDS more
than $3 billion and up to $8 billion, plus the three additional
market participants with potential SBS dealing activity in CDS above
$8 billion, may have been required to register as SBSDs.
[cir] If the $150 million scheduled non-CDS de minimis threshold
had applied to the twelve-month period ended on December 31, 2024,
21 market participants with potential SBS dealing activity in non-
CDS more than $150 million and up to $400 million, plus the 60
additional market participants with potential SBS dealing activity
in non-CDS above $400 million, may have been required to register as
SBSDs.
See sections IV.A.3.b.iv ``$3 Billion Scheduled CDS De Minimis
Threshold'' and IV.A.3.c.iv ``$150 Million Scheduled Non-CDS De
Minimis Threshold'' for further discussion.
<bullet> Only limited information relevant to the MSBSP
thresholds is available to the Commission.
[cir] Information about valuation and collateral, although
reported for swap transactions, is not reported for SBS transactions
and was not available to staff.\22\ That information may have
allowed staff to estimate more of market participants' progress
toward the MSBSP thresholds.
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\22\ See notes 229 & 230, infra.
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[cir] Thirty-three out of 8,715 unregistered market participants
with open positions on December 31, 2024, did not appear to be
eligible for any of the three analyzed safe harbors from the
definition of ``major security-based swap participant'' because
their positions were too large for those safe harbors, though SBS
transaction report data is insufficient to determine whether those
market participants should have registered as MSBSPs. These 33
market participants had a total of approximately $1.9 trillion in
open positions that counted toward the MSBSP thresholds.
[cir] The remaining 8,682 unregistered market participants with
open positions on that date did not appear to be ineligible for all
three analyzed safe harbors. Additional information would be
required to complete estimates of these market participants' status
as MSBSPs.
[cir] Available data about SBS positions on December 31, 2024,
did not reveal trends suggesting that market participants are
managing their SBS positions in relation to the MSBSP thresholds,
but available data also did not address significant aspects of those
thresholds.
See section IV.B.3 ``Analysis of the Definition of 'Major
Security-Based Swap Participant' '' for further discussion.
<bullet> Staff observed recurrent data quality issues, as well
as gaps between the scope of data elements that comprise the SBS
transaction reports and the definitions of ``security-based swap
dealer'' and ``major security-based swap participant,'' that could
have affected the accuracy of estimates of SBS dealing and MSBSP
activity.
See section IV.C ``Scope and Quality of SBS Transaction
Reports'' for further discussion.
This report is intended to inform the Commission's consideration
of the definitions of ``security-based swap dealer'' and ``major
security-based swap participant.'' Nine months after publication of
this report and after considering any public comments received, the
Commission may by order either terminate the phase-in period for the
de minimis thresholds, thereby allowing thresholds of $3 billion for
CDS that constitute SBS and $150 million for non-CDS that constitute
SBS to take effect and replace the current phase-in thresholds of $8
billion and $400 million, respectively, or propose different
thresholds through rulemaking.\23\ Rule 3a71-2 set a phase-in
termination date after which the scheduled thresholds of $3 billion
and $150 million would take effect, which had been November 6, 2026;
however, the Commission subsequently issued an order providing a
temporary conditional exemption that has the effect of continuing to
apply the phase-in thresholds of $8 billion and $400 million until
May 8, 2028.\24\ The public is invited to comment on all aspects of
this report, which may inform the Commission's consideration of
potential changes to the de minimis exception and the rules further
defining the terms ``security-based swap dealer'' and ``major
security-based swap participant.''
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\23\ See Rule 3a71-2(a)(2)(ii).
\24\ See Rule 3a71-2(a)(2)(ii) and (iii). Pursuant to Rule 3a71-
2(a)(2)(ii)(B), the phase-in termination date is November 8, 2026,
which is five years after the data collection initiation date of
November 8, 2021. On January 9, 2026, the Commission issued an order
providing a temporary exemption from certain aspects of Rule 3a71-
2(a)(1) that has the effect of continuing to apply the phase-in
thresholds of $8 billion for CDS that constitute SBS and $400
million for non-CDS that constitute SBS until May 8, 2028. See Order
Granting Temporary Exemptive Relief, Pursuant to Section 36(a)(1) of
the Securities Exchange Act of 1934, from Certain Aspects of Rule
3a71-2(a)(1), Exchange Act Release No. 104573 (Jan. 9, 2026), 91 FR
1576 (Jan. 14, 2026), available at <a href="https://www.govinfo.gov/content/pkg/FR-2026-01-14/pdf/2026-00523.pdf">https://www.govinfo.gov/content/pkg/FR-2026-01-14/pdf/2026-00523.pdf</a>.
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III. SBS Transaction Reports
Regulation SBSR implements Title VII's requirement that market
participants report to a security-based swap data repository
(``SBSDR'') information about their SBS transactions, some of which
is publicly disseminated.\25\ On November 8, 2021, market
participants began to report information about their SBS
transactions to SBSDRs under Regulation SBSR. Pursuant to the
Commission's 2019 and 2025 compliance statements regarding these SBS
transaction reports (``compliance statements''), market participants
temporarily are generally able to choose not to report an SBS
transaction or data element required by Regulation SBSR if the
CFTC's swap reporting requirements would not require a comparable
swap transaction or data element to be reported.\26\ Accordingly,
the SBSDRs have prepared technical specifications for SBS
transaction reports, and these SBSDR technical specifications are
consistent with CFTC swap reporting requirements,\27\ including the
CFTC's technical specification for swap reporting (the ``CFTC
Technical Specification'').\28\ Market participants prepare reports
of SBS transactions pursuant to an SBSDR technical specification and
submit those reports to an SBSDR. Each report typically consists of
a message containing information about an event related to the SBS
transaction; an SBS
[[Page 24043]]
transaction could be the subject of multiple event messages.
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\25\ See Exchange Act Section 13(m), 15 U.S.C. 78m(m);
Regulation SBSR.
\26\ See Cross-Border Adopting Release, 85 FR 6347. The
Commission stated that it provided this reporting flexibility ``in
light of the Commission's efforts to promote harmonization [between
SBS and swap reporting rules], the CFTC's announced reconsideration
of its swap reporting rules, and ongoing concerns among market
participants about incurring unnecessary burdens'' to comply with
SBS reporting rules ``that have no analog in, or are not wholly
consistent with, swap reporting rules.'' Cross-Border Adopting
Release, 85 FR 6347; see also Regulation SBSR (Reporting and
Dissemination of Security-Based Swap Information) and Security-Based
Swap Data Repository Rules; Extension, Exchange Act Release No.
102886 (Apr. 17, 2025), 90 FR 17225 (Apr. 24, 2025), available at
<a href="https://www.govinfo.gov/content/pkg/FR-2025-04-24/pdf/2025-06920.pdf">https://www.govinfo.gov/content/pkg/FR-2025-04-24/pdf/2025-06920.pdf</a>. Some elements of SBS transaction reports, however, are
not addressed in CFTC swap reporting requirements. For example,
market participants must report the product ID of an SBS pursuant to
Regulation SBSR rather than pursuant to the CFTC's swap reporting
rules, which do not address SBS product IDs. See Rule 901(c)(1).
\27\ SBS reporting does not include some trade information that
is required for swap reporting but not required under Regulation
SBSR. Where relevant, this report discusses any such differences in
SBS and swap reporting.
\28\ Version 3.1 of the CFTC Technical Specification applied to
swap transaction reports made before January 29, 2024, and Version
3.2 of the CFTC Technical Specification applied to swap transaction
reports made on or after that date. See Commodity Futures Trading
Commission, ``CFTC Technical Specification: Parts 43 and 45 Swap
Data Reporting and Public Dissemination Requirements,'' Version 3.1
(Aug. 30, 2022), available at <a href="https://www.cftc.gov/media/7626/Part43_45Technical">https://www.cftc.gov/media/7626/Part43_45Technical</a>Specification083022CLEAN/download (``CFTC
Technical Specification Version 3.1''); Commodity Futures Trading
Commission, ``CFTC Technical Specification: Parts 43 and 45 Swap
Data Reporting and Public Dissemination Requirements,'' Version 3.2
(Mar. 1, 2023), available at <a href="https://www.cftc.gov/media/8261/Part43_45TechnicalSpecification">https://www.cftc.gov/media/8261/Part43_45TechnicalSpecification</a>03012023CLEAN/download (``CFTC
Technical Specification Version 3.2'').
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IV. Staff Findings and Requests for Comment
A. Security-Based Swap Dealers
1. Definition of ``Security-Based Swap Dealer''
Section 3(a)(71)(A) of the Exchange Act and Rule 3a71-1 define
the term ``security-based swap dealer'' as any person who: (1) holds
itself out as a dealer in SBS; (2) makes a market in SBS; (3)
regularly enters into SBS with counterparties as an ordinary course
of business for its own account; or (4) engages in any activity
causing it to be commonly known in the trade as a dealer or market
maker in SBS.\29\ The term ``security-based swap dealer'' does not
include a person that enters into SBS for such person's own account,
either individually or in a fiduciary capacity, but not as a part of
regular business.\30\
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\29\ Exchange Act Section 3(a)(71)(A), 15 U.S.C. 78c(a)(71)(A);
Rule 3a71-1(a). An SBSD is deemed to be an SBSD with respect to each
SBS it enters into, though the Commission may designate an SBSD as
such for a single type, class, or category of SBS. Rule 3a71-1(c);
see also Exchange Act Section 3(a)(71)(B), 15 U.S.C. 78c(a)(71)(B).
\30\ Exchange Act Section 3(a)(71)(C), 15 U.S.C. 78c(a)(71)(C);
Rule 3a71-1(b).
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An entity that meets one of the tests in the definition of
``security-based swap dealer'' nevertheless is excepted from that
definition if it engages in a de minimis quantity of SBS
dealing.\31\ Pursuant to thresholds the Commission has adopted, a
person shall be deemed not to be an SBSD, and therefore is not
required to register with the Commission or comply with the
regulatory framework for SBSDs, if the positions connected with the
person's SBS dealing activity, together with the positions connected
with any SBS dealing activity of control affiliates,\32\ over the
immediately preceding twelve months do not exceed an aggregate gross
notional amount of:
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\31\ See Exchange Act Section 3(a)(71)(D); 15 U.S.C.
78c(a)(71)(D).
\32\ Any person that engages in its own SBS dealing activity
must also count toward the de minimis thresholds any SBS dealing
activity of its control affiliates (other than those registered or
in the process of registering as SBSDs). See Rule 3a71-3(b)(2); Rule
3a71-4. For this purpose, a control affiliate of a person is any
other entity controlling, controlled by, or under common control
with the person. See Rule 3a71-2(a)(1); Rule 3a71-3(b)(2).
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(1) $3 billion, subject to a phase-in level \33\ of $8 billion,
with regard to CDS that constitute SBS;
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\33\ The higher phase-in de minimis thresholds are not available
to persons that engage in SBS dealing activity with counterparties
that are natural persons, other than natural persons who qualify as
eligible contract participants under Section 1a(18)(A)(xi)(II) of
the Commodity Exchange Act, 7 U.S.C. 1a(18)(A)(xi)(II). Rule 3a71-
2(a)(2)(i). Persons that engage in SBS dealing activity with natural
persons who qualify as eligible contract participants under a
different provision of the Commodity Exchange Act and/or with
natural persons who are not eligible contract participants are
subject to the lower, non-phase-in de minimis thresholds.
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(2) $150 million, subject to a phase-in level of $400 million,
with regard to non-CDS that constitute SBS; and
(3) $25 million with regard to all SBS in which the counterparty
is a special entity to whom the Dodd-Frank Act extends additional
protections.\34\
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\34\ Rule 3a71-2(a). The Exchange Act defines special entity
counterparties to whom SBS Entities owe additional duties. See
Exchange Act Section 15F(h)(2)(C), 15 U.S.C. 78o-10(h)(2)(C)
(definition of ``special entity'' for purposes of the $25 million de
minimis threshold); Exchange Act Section 15F(h)(2), (4), and (5), 15
U.S.C. 78o-10(h)(2), (4), and (5) (additional requirements for SBS
Entities advising or entering into SBS transactions with special
entities).
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When adopting the definition of the term ``security-based swap
dealer,'' the Commission stated that whether a person is an SBSD
would depend on the relevant facts and circumstances.\35\ The
Commission considered the following factors relevant for identifying
SBSDs and distinguishing them from other market participants: (1)
providing liquidity to market professionals or other persons in
connection with SBS; (2) seeking to profit by providing liquidity in
connection with SBS; (3) providing advice in connection with SBS or
structuring SBS; (4) presence of regular clientele and actively
soliciting clients; (5) use of inter-dealer brokers; and (6) acting
as a market maker on an organized SBS exchange or trading
system.\36\
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\35\ Entity Definitions Adopting Release, 77 FR 30617.
\36\ Entity Definitions Adopting Release, 77 FR 30617-18. In
addition, the Commission stated that the statutory provisions
suggested the need for the Commission to apply the dealer-trader
distinction to interpret the definition of ``security-based swap
dealer'' in a way that ``identifies those persons for which
regulation is warranted either: (i) [d]ue to the nature of their
interactions with counterparties; or (ii) to promote market
stability and transparency, in light of the role those persons
occupy within the [SBS] markets.'' Entity Definitions Adopting
Release, 77 FR 30617. As a result, the Commission identified several
principles for applying the dealer-trader distinction that took into
account the unique nature of the SBS markets. For example, the
Commission stated that an entity could engage in market making by
only offering SBS on one side of the market. Entity Definitions
Adopting Release, 77 FR 30617 & n.267.
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In determining whether a person is an SBSD, certain SBS are not
considered and thus are not ``counted'' toward the de minimis
thresholds. These non-countable SBS include any of the person's SBS
with majority-owned affiliates \37\ and the SBS of any control
affiliate that is already or soon will be required to be registered
with the Commission as an SBSD.\38\
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\37\ Rule 3a71-1(d)(1); see also Rule 3a71-1(d)(2) (``[T]he
counterparties to a security-based swap are majority-owned
affiliates if one counterparty directly or indirectly owns a
majority interest in the other, or if a third party directly or
indirectly owns a majority interest in both counterparties to the
security-based swap, where `majority interest' is the right to vote
or direct the vote of a majority of a class of voting securities of
an entity, the power to sell or direct the sale of a majority of a
class of voting securities of an entity, or the right to receive
upon dissolution or the contribution of a majority of the capital of
a partnership.'').
\38\ Rule 3a71-4.
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U.S. persons, as well as non-U.S. persons that qualify as
conduit affiliates, must otherwise count toward the de minimis
thresholds all their own SBS dealing activity and any SBS dealing
activity of their control affiliates.\39\
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\39\ Rule 3a71-3(b)(1)(i) and (ii); Rule 3a71-3(b)(2)(i) and
(ii).
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Non-U.S. persons that are not conduit affiliates, on the other
hand, count only their and their control affiliates' (1) SBS entered
into with a U.S. person, except for some SBS conducted through a
registered SBSD's foreign branch; (2) SBS guaranteed by a U.S.-
person control affiliate of the non-U.S. person; and (3) SBS that
are arranged, negotiated, or executed by U.S.-located personnel of
the non-U.S. person or its agent (each, an ``ANE transaction''),
except for certain SBS that qualify for an exception to counting
these ANE transactions.\40\ However, non-U.S. persons that are not
conduit affiliates do not count certain anonymous centrally cleared
transactions that are platform-traded, even if they fall into one of
these three countable categories.\41\
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\40\ Rule 3a71-3(b)(1)(iii); Rule 3a71-3(b)(2)(iii); Rule 3a71-
3(d).
\41\ Rule 3a71-5.
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The de minimis exception strikes a balance between regulatory
goals and burdens \42\ and reflects an intention to identify persons
for whom regulation is warranted either ``[d]ue to the nature of
their interactions with counterparties'' or ``to promote market
stability and transparency, in light of the role those persons
occupy within the [SBS] markets.'' \43\ The Commission crafted the
de minimis exception to: (1) allow persons to accommodate existing
clients that have a need for SBS in conjunction with other financial
services or commercial activities without the costs of registering
as an SBSD or establishing separate relationships with registered
SBSDs; (2) promote competition in SBS dealing activity for persons
beginning to engage in SBS dealing; (3) provide an objective test
for market participants; and (4) further the interest of regulatory
efficiency when the amount of a person's SBS dealing activity does
not warrant regulation in comparison to the overall market for
SBS.\44\
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\42\ Entity Definitions Adopting Release, 77 FR 30628.
\43\ Entity Definitions Adopting Release, 77 FR 30608.
\44\ Entity Definitions Adopting Release, 77 FR 30628-29.
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2. Methodology for Identifying New Trade Activity
Staff analyzed SBS transaction events \45\ that occurred \46\
between January 1, 2024, and December 31, 2024 (the ``review
period''), and were received by an SBSDR through a
[[Page 24044]]
cutoff date \47\ of February 28, 2025.\48\ Any events associated
with an SBS transaction \49\ that was subsequently cancelled and not
reinstated by the cutoff date were excluded. Staff then identified
reported events that represented new trade activity (``new trade
activity'') \50\ and determined the gross notional amount \51\
associated with each new trade activity event.
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\45\ The ``Action type,'' ``Event type,'' ``Amendment
indicator,'' and ``Allocation indicator'' data elements of a message
together identified the type of and reason for the event reported in
that message. See CFTC Technical Specification Version 3.1 at 8-10 &
27; CFTC Technical Specification Version 3.2 at 8-10 & 27.
\46\ The ``Event timestamp'' data element of a message indicated
the time of the event in that message. See CFTC Technical
Specification Version 3.1 at 11; CFTC Technical Specification
Version 3.2 at 11.
\47\ Each SBSDR records a timestamp denoting when it received a
particular message. This timestamp may differ from the ``Reporting
timestamp'' data element of the message, which indicates the time
that the message was sent to the SBSDR, as reported by the
submitting entity. See CFTC Technical Specification Version 3.1 at
29; CFTC Technical Specification Version 3.2 at 28.
\48\ The February 28, 2025, cutoff date allowed staff to account
for SBS transaction events that occurred in 2024 but may have been
reported late, updated, or corrected (e.g., correction of a notional
amount or product identifier that was incorrectly reported in the
initial SBS transaction report). SBS transaction reports during the
review period were made to two registered SBSDRs: DTCC SBSDR and ICE
Trade Vault LLC (``ICE SBSDR''). The Commission granted a
registration application to a third SBSDR, KOR Reporting, Inc.
(``KOR SBSDR''), on November 4, 2024, but KOR SBSDR did not begin
accepting SBS transaction reports during the review period.
\49\ Each SBS transaction is identified by either a unique
transaction identifier (``UTI'') or by a unique swap identifier
(``USI''). See CFTC Technical Specification Version 3.1 at 30; CFTC
Technical Specification Version 3.2 at 30. Before December 5, 2022,
new SBS transactions were permitted to be reported with either a UTI
or a USI; after that date, new transactions were required to be
reported with a UTI rather than a USI. See Swap Data Recordkeeping
and Reporting Requirements, 85 FR 75503, 75545 (Nov. 25, 2020)
(requiring the replacement of USIs with UTIs by May 25, 2022),
available at <a href="https://www.govinfo.gov/content/pkg/FR-2020-11-25/pdf/2020-21569.pdf">https://www.govinfo.gov/content/pkg/FR-2020-11-25/pdf/2020-21569.pdf</a>; CFTC, Letter No. 22-03, 3 (Jan. 31, 2022), available
at <a href="https://www.cftc.gov/csl/22-03/download">https://www.cftc.gov/csl/22-03/download</a> (extending the compliance
date to December 5, 2022). The SBS transaction reports in-scope of
staff's review included reports of lifecycle events during the
review period that relate to transactions first reported with a USI;
these lifecycle events were reported with the original transaction's
USI rather than a UTI.
\50\ In this report, new trade activity refers to a reported
event that appeared to be consistent with a new or modified
investment agreement or decision between the counterparties, as
opposed to changes reflecting predetermined criteria or
predetermined self-executing formulas, risk management or
recordkeeping tasks, or duplicates of other reports. See Annex
section I.A, infra.
\51\ See Annex section I.B, infra.
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Next, staff determined which of the three de minimis thresholds
applied to the SBS reported in each new trade activity event. New
trade activity events with a product identifier \52\ consistent with
CDS were classified as CDS to which the de minimis thresholds in
Rule 3a71-2(a)(1)(i) apply. New trade activity events with a product
identifier consistent with any other SBS were classified as non-CDS
to which the de minimis thresholds in Rule 3a71-2(a)(1)(ii) apply.
SBS transaction reports do not contain information sufficient to
distinguish special entity counterparties from other
counterparties.\53\ Using third-party data sources, however, staff
was able to identify certain counterparties as more likely than
others to be special entities. New trade activity events with a
counterparty that appeared likely to be a special entity were
classified as the other counterparty's SBS with a special entity, to
which the de minimis threshold in Rule 3a71-2(a)(1)(iii)
applies.\54\
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\52\ Reporting of product identifier data elements changed
during the review period. From January 1, 2024, to January 26, 2024,
market participants reported product classifications consistent with
each SBSDR's technical specification for reporting. On January 27,
2024, market participants began reporting transactions with a
standardized unique product identifier (``UPI''). See generally
Order Designating the Unique Product Identifier and Product
Classification System to Be Used in Recordkeeping and Swap Data
Reporting, 88 FR 11790, 11793 (Feb. 24, 2023), available at <a href="https://www.govinfo.gov/content/pkg/FR-2023-02-24/pdf/2023-03661.pdf">https://www.govinfo.gov/content/pkg/FR-2023-02-24/pdf/2023-03661.pdf</a> (CFTC
order requiring UPIs in swap reporting no later than Jan. 29, 2024).
Product information for all UPIs is provided to the Commission by
the ANNA Derivatives Service Bureau.
\53\ See section IV.C.1, infra.
\54\ SBS with a likely special entity counterparty were also
classified as either CDS or non-CDS, as appropriate.
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Staff used these estimates of new trade activity to review
overall SBS market activity and as a starting point to identify
potential SBS dealing activity over the twelve months of the review
period ending on December 31, 2024 (the ``measurement date''). A
description of staff's methodology for identifying new trade
activity events and determining their notional amounts appears in
Annex section I.
3. Analysis of the Definition of ``Security-Based Swap Dealer''
Staff prepared descriptive analytics of SBS market activity
overall and of activity in the CDS, non-CDS and special entity SBS
markets. As directed by the Commission, these descriptive analytics
include staff's analysis of each significant element \55\ of the
definition of ``security-based swap dealer'' for which data was
available.\56\ The Commission also directed staff to assess whether
the de minimis thresholds should be increased or decreased,\57\ and
these descriptive analytics include staff's assessment of
hypothetical alternative de minimis thresholds. Finally, staff
retrospectively analyzed the impacts of the definition on
competition, market access, and investor protection.\58\
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\55\ Rule 3a71-2A(a)(2) and (6) direct staff to consider ``the
factors that are useful for identifying [SBS] dealing activity,
including the application of the dealer-trader distinction for that
purpose, and the potential use of more objective tests or safe
harbors as part of the analysis,'' as well as the impact of the
inter-affiliate exclusion. When adopting Rule 3a71-2A, the
Commission stated that staff's report should address, as practicable
with available data, a ``range of descriptive analytics that may be
helpful in characterizing the nature of the [SBS] market, as well as
entities within that market and those entities' activities.'' See
Entity Definitions Adopting Release, 77 FR 30698. The Commission
also stated that staff's report should review ``each significant
aspect'' of the definition of ``security-based swap dealer,''
including ``the factors associated with the definition,'' the inter-
affiliate exclusion, and ``the tests and thresholds used to
implement the de minimis exception.'' See Entity Definitions
Adopting Release, 77 FR 30698.
\56\ For more information about elements of the definition for
which data was not available, as well as staff's observations about
data quality, see section IV.C.
\57\ See Rule 3a71-2A(a)(1).
\58\ When adopting Rule 3a71-2A, the Commission stated that
staff's report should address, as may be practicable, the ``nature
and extent of the impact'' of the definition on certain aspects of
the SBS market. See Entity Definitions Adopting Release, 77 FR
30699.
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a. Overall SBS Market Activity
i. SBS Market Activity Reviews in 2024 and 2011
As shown in Table 1, market participants submitted to SBSDRs
before the cut-off date 1,010,669,929 SBS transaction reports about
events that occurred during the 2024 review period. These review
period events related to 200,462,390 unique SBS transactions that
involved 12,835 unique market participants and 9,191 affiliated
groups.\59\ Among these were 660,839,738 unique new trade activity
events related to 62,781,453 unique SBS transactions involving
10,962 unique market participants. These 10,962 unique SBS market
participants included 7,736 affiliated groups of one or more market
participants as of the measurement date.\60\
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\59\ Standard & Poor's Global Market Intelligence Business
Entity Cross Reference Service, Ultimate Parent Point-in-Time
package was used to determine affiliated market participants.
\60\ Of the 10,962 unique market participants, information about
affiliate relationships on the measurement date was available for
9,087 market participants, among whom were 5,861 groups of one or
more affiliated market participants. Each of the remaining 1,875
market participants without information about affiliate
relationships on the measurement date was counted as an affiliated
group of one, bringing the total number of affiliated groups of SBS
market participants as of the measurement date to 7,736. Among these
7,736 affiliated groups, 37 groups included at least one member that
was registered as an SBSD on the measurement date and 7,699 included
no registered SBSD. Affiliate relationships change over time, and
the 10,962 market participants with new trade activity during the
review period were part of 7,978 different groups in existence
during the review period.
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There was a total notional amount of approximately $2,310.7
trillion in new trade activity events during the review period. This
total reflects the transacted notional amounts of the reported new
trade activity events, providing a snapshot of the volume of new
trade activity transactions in the SBS market at large. By contrast,
when measuring market participants' progress toward the de minimis
thresholds, staff took an individualized approach, analyzing each
market participant's total notional amount of new trade activity.
Because each new trade activity event has two counterparties,
attributing new trade activity to market
[[Page 24045]]
participants doubles \61\ the total transacted notional amount of
all new trade activity events during the review period, resulting in
approximately $4,621.4 trillion of new trade activity attributed to
market participants.
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\61\ Though the notional amount of most new trade activity
events was attributed to both counterparties, the notional amount of
some new trade activity events was attributed to only one of the
counterparties. See Annex section I.B, infra.
[GRAPHIC] [TIFF OMITTED] TN04MY26.000
The information in the 2024 SBS transaction reports differs in
scope, in some cases substantially, from the 2011 data that the
Commission reviewed in 2012. For SBS that are CDS, the 2011 data
included a sample of ``all new, risk transfer, dollar-adjusted, gold
record transactions in both corporate and sovereign single-name
[CDS]'' submitted to the Depository Trust and Clearing Corporation's
Trade Information Warehouse (``DTCC-TIW'') in 2011, as well as 2011
monthly single-name CDS position data provided by DTCC-TIW.\62\
Market participants submitted this transaction and end-of-week
position data to DTCC-TIW on a voluntary basis. The transactions and
positions provided to the Commission were those where at least one
of the counterparties and/or the reference entity was a U.S. entity,
with status as a U.S. entity determined by DTCC-TIW. The 2011 CDS
data reviewed by the Commission in 2012 thus did not include
transactions or positions between two non-U.S.-entity counterparties
if the reference entity also was not a U.S. entity and did not
provide any intra-weekly position information nor any information on
the underlying security holdings of reference entities. For non-CDS
SBS, available 2011 data was limited to publicly disseminated
information about aggregate positions in credit and equity
derivatives; transaction-level non-CDS data was unavailable.\63\ By
contrast, the 2024 SBS transaction reports included all SBS reported
to an SBSDR, including both CDS and non-CDS. The scope of SBS
transaction reports submitted to SBSDRs may have been broader in
some cases and/or narrower in other cases than the scope of the
Commission's access to DTCC-TIW reports, for example because (1) the
SBS transaction reports include CDS and non-CDS SBS that are subject
to Title VII reporting requirements, whereas the reports to DTCC-TIW
are voluntary and the DTCC-TIW SBS transaction and position data
includes only single-name CDS; (2) the DTCC-TIW reports available to
the Commission are those with at least one U.S.-entity counterparty
or reference entity, whereas the Title VII reporting requirements
apply to a different set of SBS, including SBS with a U.S.-person
counterparty, SBS with a non-U.S.-person counterparty registered as
an SBSD, and SBS with other U.S. jurisdictional characteristics, but
not including SBS solely because of the U.S. character of the
reference entity; and (3) the definition of ``U.S. person'' for
purposes of the Title VII reporting requirements may differ from
DTCC-TIW's criteria for identifying U.S. entities.
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\62\ See Securities and Exchange Commission Division of Risk,
Strategy, and Financial Innovation, Information Regarding Activities
and Positions of Participants in the Single-Name Credit Default Swap
Market (Mar. 15, 2012), available at <a href="https://www.sec.gov/comments/s7-39-10/s73910-154.pdf">https://www.sec.gov/comments/s7-39-10/s73910-154.pdf</a> (cited in Entity Definitions Adopting
Release, 77 FR 30635-40).
\63\ See Entity Definitions Adopting Release, 77 FR 30636 n.476
(review of Bank for International Settlements data regarding the
global notional amount outstanding as of June 2011 in equity
forwards and swaps compared to CDS and U.S. Office of the
Comptroller data regarding U.S. commercial banks' and U.S. trust
companies' notional outstanding as of June 30, 2011, in equity
derivatives compared to credit derivatives).
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Both the number of SBS market participants and the notional
amount of SBS transactions available for review were larger in 2024
compared to 2011. In 2012, the Commission reviewed 2011 trading
activity of 1,084 single-name CDS market participants with
approximately $12.6 trillion in aggregate gross notional amount.\64\
By contrast, the non-CDS data available to the Commission in 2011
did not include trading activity. Rather, the Commission had
available to it only two limited data points about non-CDS
positions: Bank for International Settlement estimates comparing the
global notional amounts outstanding in equity forwards and swaps
compared to credit default swaps as of June 2011 and U.S. Office of
the Comptroller of the Currency data showing the notional amounts
outstanding of credit and equity derivatives as of June 30, 2011,
held by U.S. commercial banks and trust companies.\65\ Based on this
limited non-CDS position data, the Commission estimated that non-CDS
trading activity would constitute approximately 1/20th of the
aggregate gross notional amount of all SBS trading activity.\66\
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\64\ See Entity Definitions Adopting Release, 77 FR 30636, 30639
n.504.
\65\ See Entity Definitions Adopting Release, 77 FR 30636 n.476.
\66\ See Entity Definitions Adopting Release, 77 FR 30636 &
nn.476 & 479, 30639 n.504, 30641 & n.527.
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For the current analysis, staff reviewed 2024 new trade activity
of 10,962 market participants with a total of approximately $4,621.4
trillion in notional amount, as reported to SBSDRs. This amount
comprised $8.6 trillion in CDS new trade activity and $4,612.8
trillion in non-CDS new trade activity, including products such as
equity, non-CDS debt, interest rate, and other SBS. As shown in
Table 2, approximately $5.3 trillion in notional amount of 2024 CDS
new trade activity (approximately 61% of all CDS new trade activity)
represented events reported as new trades, compared to approximately
$0.8 trillion (10%) in notional amount representing events reported
as amendments to trade terms consistent with a new or modified
investment agreement or decision and approximately $2.5 trillion
(29%) in notional amount representing events reported as early
terminations consistent with a new or modified investment agreement
or decision. By contrast, a significantly larger portion of non-CDS
new trade activity, approximately
[[Page 24046]]
$4,468.6 trillion in notional amount (approximately 97% of all non-
CDS new trade activity), represented events reported as amendments
to trade terms consistent with a new or modified investment
agreement or decision, with some market participants regularly
submitting multiple amendments of the same transaction each day.
Information in the SBS transaction reports does not indicate whether
this difference may reflect actual variances in CDS and non-CDS new
trade activity; inconsistencies in reporting practices across market
participants, products, or scenarios; or a combination of factors.
To better understand these non-CDS amendment reports, staff
discussed them with multiple market participants that had reported
among the highest total notional amounts of amendments to trade
terms of non-CDS transactions. The market participants with whom
staff discussed these reports together accounted for approximately
$2,699.9 trillion of the approximately $4,468.6 trillion in notional
amount of non-CDS new trade activity representing events reported as
amendments to trade terms consistent with a new or modified
investment agreement or decision. Each of these market participants
confirmed that their reported amendments accurately reflected bona
fide changes to the non-CDS trade consistent with a new or modified
investment agreement or decision between the counterparties.
Moreover, even apart from events reported as amendments to trade
terms, non-CDS events reported as new trades and early terminations
consistent with a new or modified investment agreement or decision
also far outpaced comparable CDS new trade activity and accounted
for approximately $105.3 trillion and approximately $38.9 trillion,
respectively, in notional amount of non-CDS new trade activity,
compared to approximately $5.3 trillion and approximately $2.5
trillion, respectively, in notional amount of CDS new trade
activity.
[GRAPHIC] [TIFF OMITTED] TN04MY26.001
Staff thus estimates that trading activity in non-CDS was more
significant compared to trading activity in CDS in 2024 than
anticipated when the Commissions adopted the joint definitional
rules. In addition, there may have been less notional amount of
trading activity in CDS in 2024 than in 2011 based on comparison of
2011 and 2024 transaction data,\67\ while there may have been more
notional amount of trading activity in non-CDS in 2024 than in 2011
based on comparison of the 2011 estimate to 2024 transaction data.
Though each of these estimates is limited by the significant
differences in the scope of data available in 2011 as compared to
2024 and by the 2024 data quality issues described below, the
magnitude of the differences between 2024 CDS and non-CDS new trade
activity suggests that non-CDS trading activity is much larger, both
in absolute value and as compared to CDS trading activity, than the
limited 2011 data could have predicted at the time the Commission
adopted the de minimis thresholds.
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\67\ This estimate is consistent with public market data showing
declines in European Union single-name CDS trading activity between
2010 and 2023. See European Systemic Risk Board, Credit Default
Swaps--Analysis and Policies (Nov. 2025) 26-27, available at <a href="https://www.esrb.europa.eu/pub/pdf/reports/esrb.report250411_creditdefaultswaps.en.pdf">https://www.esrb.europa.eu/pub/pdf/reports/esrb.report250411_creditdefaultswaps.en.pdf</a> (among single-name CDS
transactions reported to or accessed by EU authorities, average
daily traded notional of CDS referencing a large EU bank decreased
from $1 billion in the fourth quarter of 2010 to $500 million in the
fourth quarter of 2023 and average daily traded notional of CDS
referencing EU sovereigns decreased from $3 billion in the fourth
quarter of 2010 to $300 million in the fourth quarter of 2023).
Because many single-name CDS markets are illiquid, changes in
trading volume may in part reflect the broader financial market
trends that affect the underlying reference entity. See, e.g., Board
of the International Organization of Securities Commissions, Single-
Name Credit Default Swaps Market (Nov. 2025) 13, 20, available at
<a href="https://www.iosco.org/library/pubdocs/pdf/IOSCOPD806.pdf">https://www.iosco.org/library/pubdocs/pdf/IOSCOPD806.pdf</a>.
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ii. Estimates of Potential SBS Dealing Activity in 2024 and 2011
As shown in Table 3, the approximately $4,621.4 trillion in
notional amount of 2024 SBS new trade activity included
approximately $2,449.6 trillion in new trade activity attributed to
53 SBSDs registered with the Commission \68\ and thus subject to the
Commission's regulatory framework for SBSDs. There was approximately
$2,171.8 trillion \69\ in notional amount of new trade activity by
unregistered market participants, including approximately $2,098.0
trillion \70\ in new trade activity with a registered SBSD.
Accordingly, approximately 98% of all new trade activity events
included at least one registered SBSD counterparty and thus was
subject to the Commission's regulatory framework for SBSDs.
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\68\ The number of registered SBSDs is taken as of the
measurement date, December 31, 2024. See Securities and Exchange
Commission, List of Registered Security-Based Swap Dealers and Major
Security-Based Swap Participants, available at <a href="https://www.sec.gov/about/divisions-offices/division-trading-markets/list-registered-security-based-swap-dealers-major-security-based-swap-participants">https://www.sec.gov/about/divisions-offices/division-trading-markets/list-registered-security-based-swap-dealers-major-security-based-swap-participants</a>.
\69\ The approximately $2,171.8 trillion in new trade activity
by unregistered market participants comprised approximately $1,273.5
trillion attributed to unregistered potential SBS dealers and
approximately $898.3 trillion attributed to other unregistered
market participants.
\70\ Unregistered potential SBS dealers had approximately
$1,230.8 trillion in new trade activity with registered SBSDs, while
all other unregistered market participants had approximately $867.2
trillion in new trade activity with registered SBSDs, for a total of
approximately $2,098.0 trillion in unregistered market participants'
new trade activity with registered SBSDs.
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[[Page 24047]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.002
The Commission's analysis of the 2011 trade activity of 1,084
participants in the single-name CDS market indicated a high degree
of concentration among those apparently engaged in SBS dealing. From
among those 1,084 market participants, 28, or approximately 3%, had
three or more non-dealer counterparties; the Commission identified
these 28 market participants as potential SBS dealers.\71\ In 2011,
the 28 potential SBS dealers engaged in single-name CDS transactions
with a total of $11.18 trillion in notional amount,\72\ or
approximately 89%, out of a total of $12.6 trillion in aggregate
gross notional amount of all single-name CDS transactions that the
Commission reviewed.\73\ Similarly, based on available 2011 position
data about other non-CDS types of SBS such as equity swaps, the
Commission estimated that the 2011 non-CDS SBS markets also had a
high degree of concentration among market participants apparently
engaged in SBS dealing.\74\ De minimis thresholds of $8 billion \75\
and $3 billion \76\ for CDS that are SBS would have covered 99.9%
and over 99.9%, respectively, of that $11.18 trillion, and would
have required 23 and 25, respectively, of the 28 potential SBS
dealers to register as SBSDs. The Commission expected the equity and
other non-CDS SBS markets to be approximately 1/20th of the overall
SBS market and set the permanent and phase-in
[[Page 24048]]
de minimis thresholds at 1/20th of the CDS thresholds.\77\
---------------------------------------------------------------------------
\71\ See Entity Definitions Adopting Release, 77 FR 30636.
\72\ See Entity Definitions Adopting Release, 77 FR 30636 n.479.
\73\ See Entity Definitions Adopting Release, 77 FR 30636
(identification of 28 out of 1,084 single-name CDS market
participants that might have transacted as dealers in 2011), 30636
n.479 (estimating that these 28 potential single-name CDS dealers
had a total of $11.18 trillion in notional amount of transactions in
2011), 30639 n.504 (estimating that all 1,084 single-name CDS market
participants had a total of $12.6 trillion in notional amount of
transactions in 2011).
\74\ See Entity Definitions Adopting Release, 77 FR 30637 &
n.485, 30642 & n.529 (identification of four market participants
that accounted for $630 billion, or approximately 93%, in notional
equity derivative positions out of $677 billion total of such
positions held by all U.S. commercial banks and trust companies as
of June 30, 2011, and 9 of the 50 largest U.S. bank holding
companies that had 99.5% of the total equity swap positions held by
such companies as of December 2011).
\75\ See Entity Definitions Adopting Release, 77 FR 30640-41 &
n.518.
\76\ See Entity Definitions Adopting Release, 77 FR 30636 &
n.480.
\77\ See Entity Definitions Adopting Release, 77 FR 30636 &
nn.476 & 479, 30639 n.504, 30641 & n.527.
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Market data available today--including SBS transaction reports
and third-party commercial sources--provides additional information
about SBS market participants that the Commission did not have in
2012. SBS transaction reports in 2024 did not, however, include
information about a market participant's engagement in the business
of SBS dealing for a particular transaction or event. Though new
trade activity events exclude activity particularly unlikely to be
SBS dealing, they may still include non-dealing activity. A market
participant's new trade activity thus may include SBS dealing
transactions and/or non-dealing transactions. For purposes of this
report, staff used the 2024 SBS transaction reports and third-party
commercial sources \78\ to identify market participants with indicia
of SBS dealing activity. Rather than limit indicia of SBS dealing
activity to the number of counterparties with which a market
participant transacted, staff used information about market
participant characteristics, independent of the number or identity
of counterparties, to identify market participants with indicia of
SBS dealing. These uniform filtering criteria allowed staff to
analyze a broader subset of market participants either known to be
engaged or potentially engaged in SBS dealing in 2024 than was
possible in 2011. Market participants with indicia of SBS dealing
activity included both registered SBSDs and unregistered market
participants, and staff refers to the latter as unregistered
``potential SBS dealers.'' Staff classified the new trade activity
of registered SBSDs and unregistered potential SBS dealers (minus
adjustments for activity that appeared to fit within exclusions from
the de minimis counting requirements, as described below) as
potential SBS dealing \79\ and thus counted that activity toward the
de minimis thresholds.
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\78\ These third-party commercial data sources included Standard
& Poor's Global Market Intelligence Industry Sector Cross Reference
Service and LSEG Data & Analytics.
\79\ Registered SBSDs and unregistered market participants
identified as potential SBS dealers may have engaged in a
combination of SBS dealing and non-dealing activity. Because the
scope and size of the data set did not allow for transaction-by-
transaction analysis of indicia of SBS dealing, staff classified as
potential SBS dealing activity all new trade activity, minus
adjustments for exclusions from the de minimis counting
requirements, of registered SBSDs and unregistered potential SBS
dealers.
---------------------------------------------------------------------------
As discussed above, using the 2011 single-name CDS transaction
data, the Commission identified 28 potential dealers with three or
more non-dealer counterparties. Based on the 2024 filtering
criteria, among the 10,962 total SBS market participants with new
trade activity events during the review period, 906 had indicia of
SBS dealing, including 53 registered SBSDs and 853 unregistered
potential SBS dealers. For broad comparison with the 2011 findings,
staff reviewed the activity of these 906 market participants and
found that during the review period 57 of them had three or more
counterparties that were not among the 906 (that is, counterparties
that were neither registered SBSDs nor unregistered potential SBS
dealers).\80\ To ensure this report's broad coverage of potential
SBS dealing activity, particularly by market participants who may be
dealing under the de minimis thresholds, staff analyzed the activity
of all 906 market participants identified as having indicia of SBS
dealing.
---------------------------------------------------------------------------
\80\ Of these 57 market participants, 49 were registered SBSDs.
The remaining eight market participants either appeared to be
affiliated with a registered SBSD and/or had potential SBS dealing
activity during the review period below the relevant de minimis
thresholds.
---------------------------------------------------------------------------
Comparing the 2011 CDS transaction data and non-CDS estimates to
2024 CDS and non-CDS transaction data, both CDS and non-CDS SBS
markets appeared to be somewhat less concentrated in 2024. In 2011,
28 of 1,084 single-name CDS market participants appeared to be
engaged in SBS dealing, and these 28 potential SBS dealers accounted
for approximately 89% of the aggregate gross notional amount of
trading activity that the Commission reviewed. By contrast, the 53
registered SBSDs as of December 31, 2024, had approximately 53% and
853 unregistered potential SBS dealers had approximately 28% of all
SBS new trade activity, for a total of approximately 81% of all SBS
new trade activity in 2024. Similarly, in 2024 registered SBSDs had
approximately 76% and unregistered potential SBS dealers had
approximately 9% of CDS new trade activity, for a total of
approximately 85% of all CDS new trade activity in 2024. Registered
SBSDs had approximately 53% and unregistered potential SBS dealers
had approximately 28% of non-CDS new trade activity, for a total of
approximately 81% of all non-CDS new trade activity in 2024.
As shown in Table 4, SBS markets are cross-border, with a
significant number of market participants that did not appear to be
U.S. persons \81\ engaged in new trade activity during the 2024
review period. Among the 53 registered SBSDs on December 31, 2024,
23 appeared to be U.S. persons and 30 appeared to be non-U.S.
persons.\82\ Among 853 unregistered potential SBS dealers, 325
appeared to be U.S. persons and 528 appeared to be non-U.S. persons.
The 10,962 SBS market participants with new trade activity events
during the review period also included 1,760 market participants who
were neither registered SBSDs nor unregistered potential SBS dealers
but who were affiliated with one or more registered SBSDs and/or
unregistered potential SBS dealers (``unregistered affiliates of
dealers'').\83\ Though staff did not classify unregistered
affiliates of dealers as potential SBS dealers (unless an affiliate
independently had indicia of SBS dealing), staff reviewed their
activity separately from that of other unregistered market
participants. These unregistered affiliates of dealers included 722
that appeared to be U.S. persons and 1,038 that appeared to be non-
U.S. persons. Market participants that were not registered SBSDs,
unregistered potential SBS dealers, or unregistered affiliates of
dealers accounted for the remaining 8,296 market participants with
new trade activity events during the review period and may have been
end users and other investors.\84\ Among these 8,296 other
unregistered market participants, 3,750 appeared to be U.S. persons
and the remaining 4,546 appeared to be non-U.S. persons.
---------------------------------------------------------------------------
\81\ SBS transaction reports do not include a data element
indicating that a market participant is or is not a U.S. person for
purposes of the definition of ``security-based swap dealer,'' so
staff estimated each market participant's U.S.-person status using
Level 1 data from the Global Legal Entity Identifier Foundation.
This Level 1 data is core reference data associated with a legal
entity identifier (``LEI'') that answers the question ``Who is
who?''; it includes an entity's name, addresses, and entity type,
among other data elements. See Global Legal Entity Identifier
Foundation, Level 1 Data: LEI-CDF Format 3.1, available at <a href="https://www.gleif.org/en/about-lei/common-data-file-format/current-versions/level-1-data-lei-cdf-3-1-format">https://www.gleif.org/en/about-lei/common-data-file-format/current-versions/level-1-data-lei-cdf-3-1-format</a>. U.S. persons, as used in this
report, were market participants about whom sufficient information
was available to estimate that they were U.S. persons. Non-U.S.
persons, as used in this report, included market participants about
whom sufficient information was available to estimate that they were
non-U.S. persons, as well as market participants about whom
sufficient information was not available. See also section IV.C.1,
infra.
\82\ The information reported in these 53 registered SBSDs'
applications for registration filed with the Commission was
consistent with staff's estimates, using this report's methodology
for determining a market participant's U.S.-person status, that 23
appeared to be U.S. persons and 30 appeared to be non-U.S. persons.
\83\ Affiliates identified as central counterparties in SBS or
as special entities were excluded from unregistered affiliates of
dealers. Available data indicated that unregistered affiliates of
dealers engaged in a wide variety of industries and business
functions.
\84\ SBS transaction reports do not include a data element
indicating a market participant's industry or business activity.
Available data from third-party commercial sources indicated that
these other unregistered market participants engaged in a wide
variety of industries and business functions.
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[[Page 24049]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.003
To estimate potential SBS dealing activity, staff adjusted new
trade activity of each of the 906 market participants with indicia
of SBS dealing (i.e., the 853 unregistered potential SBS dealers and
the 53 registered SBSDs), consistent with the de minimis threshold
counting requirements in Rule 3a71-3(b)(1). Starting with a market
participant's new trade activity, staff subtracted any events where
its counterparty was either the same person or an affiliate of the
market participant on the date of the event, approximating the
inter-affiliate exclusion from the de minimis counting
requirements.\85\ For non-U.S.-person market participants only,
staff further subtracted any events where the market participant's
counterparty was also a non-U.S. person \86\ on the last day of the
review period,\87\ and any events related to a transaction that was
both traded on a platform and either actually or intended to be
centrally cleared,\88\ approximating the additional exclusions from
the de minimis counting requirements for non-U.S. persons. The
result after these adjustments was the market participant's
potential SBS dealing activity before aggregation with any potential
SBS dealing activity of its affiliates.\89\
---------------------------------------------------------------------------
\85\ See Rule 3a71-1(d).
\86\ New trade activity events between two non-U.S. persons were
assumed to be eligible for exclusion from both non-U.S. persons'
potential SBS dealing activity counted toward the de minimis
thresholds. New trade activity events between a non-U.S. person and
a U.S. person were assumed not to be eligible for exclusion. SBS
transaction reports did not include several data elements relevant
to determining whether new trade activity events between two non-
U.S. persons may not have been eligible for exclusion and,
conversely, whether new trade activity events between a non-U.S.
person and a U.S. person may have been eligible for exclusion from
the non-U.S. person's potential SBS dealing activity counted toward
the de minimis thresholds. These gaps in the data elements of SBS
transaction reports may have caused undercounts and/or overcounts in
estimates of SBS dealing activity. See also section IV.C.1, infra.
\87\ See Rule 3a71-3(b)(1)(iii).
\88\ See Rule 3a71-5. Staff estimated that a transaction was
platform-traded if it was reported with a value associated with a
trading facility in the ``Platform identifier'' data element. See
CFTC Technical Specification Version 3.1 at 29; CFTC Technical
Specification Version 3.2 at 28-29. Values associated with trading
facilities were any non-null values other than ``XOFF,'' ``XXXX,''
or ``BILT.'' See CFTC Technical Specification Version 3.1 at 29;
CFTC Technical Specification Version 3.2 at 29. Staff identified
transactions that were actually or intended to be centrally cleared
as those reported with a value of ``Y'' or ``I'' in the ``Cleared''
data element. See CFTC Technical Specification Version 3.1 at 1;
CFTC Technical Specification Version 3.2 at 1. Most reports of
centrally cleared transactions were excluded from new trade
activity, to avoid duplication of reports of related ``alpha''
transactions that were included in new trade activity. However, some
reports of simultaneous allocation and central clearing were
included in new trade activity (in lieu of the related ``alpha''
transaction) for consistency with the treatment of similar post-
allocation trades. See Annex section I.A, infra.
\89\ Of the 906 market participants with indicia of SBS dealing,
558 were non-U.S. persons (30 registered SBSDs and 528 unregistered
potential SBS dealers). Though the de minimis counting requirements
for non-U.S. persons vary depending on whether the non-U.S. person
meets the definition of a ``conduit affiliate,'' Rule 3a71-3(b)(1),
the SBS transaction reports do not contain information sufficient to
distinguish conduit affiliates from other non-U.S. persons. Staff
therefore applied the de minimis counting requirements to all non-
U.S.-person market participants as if they were not conduit
affiliates. Treating these market participants as non-U.S. persons
instead of conduit affiliates caused the notional amount of their
potential SBS dealing activity to be reduced by the notional amounts
of any new trade activity events where the market participant's
counterparty was also a non-U.S. person and any new trade activity
events related to a transaction that was both traded on a platform
and either actually or intended to be centrally cleared. After those
adjustments, the potential SBS dealing activity of those 558 non-
U.S. persons during the review period totaled $1,609.7 trillion.
Staff was, however, able to identify 79 of these non-U.S. persons as
more likely than others to be conduit affiliates because they may
have been majority-owned by a U.S. person and thus may have met one
element of the definition of ``conduit affiliate.'' When treated as
non-U.S. persons, those 79 potential conduit affiliates had
potential SBS dealing activity totaling approximately $214.9
trillion. If staff instead had treated those 79 as conduit
affiliates, their total potential SBS dealing activity would have
increased by approximately $101.4 trillion to approximately $316.3
trillion.
---------------------------------------------------------------------------
As shown in Table 5, the 23 U.S.-person registered SBSDs and 325
U.S.-person unregistered potential SBS dealers together had
approximately $332.1 trillion in notional amount that appeared to be
eligible for exclusion from the de minimis counting requirements. By
comparison, the 30 non-U.S. person registered SBSDs and the 528 non-
U.S.-person unregistered potential SBS dealers together had
approximately $570.6 trillion in notional amount that appeared to be
eligible for exclusion from the de minimis counting requirements.
Some new trade activity events of these non-U.S. persons appeared to
be eligible for more than one exclusion from these counting
requirements. Of the approximately $570.6 trillion in notional
amount of these market participants' new trade activity eligible for
exclusion, approximately $69.3 trillion in notional amount appeared
to be eligible for more than one exclusion.
[[Page 24050]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.004
To aid comparison across all market participants, staff also
adjusted the new trade activity of market participants that did not
appear to be engaged in SBS dealing to exclude activity that
appeared to be eligible for exclusion from the de minimis counting
requirements. As shown in Table 6, after excluding $1,045.7 trillion
\90\ in notional amount from new trade activity, all SBS market
participants had $3,575.7 trillion in adjusted new trade activity
during the review period that counted toward the de minimis
thresholds. Approximately 49% of that adjusted new trade activity,
or approximately $1,768.1 trillion, belonged to registered SBSDs and
thus appeared to be SBS dealing activity. Of the approximately
$1,807.6 trillion \91\ of adjusted new trade activity belonging to
unregistered market participants during the review period,
approximately $1,052.3 trillion belonged to unregistered potential
SBS dealers and appeared to be SBS dealing activity. The remaining
approximately $755.3 trillion \92\ belonged to market participants
that did not appear to be engaged in SBS dealing and thus may have
been non-dealing activity by end users and other investors. All
potential SBS dealing activity during the review period totaled
[[Page 24051]]
$2,820.4 trillion in notional amount. Registered SBSDs accounted for
approximately 63% of this potential SBS dealing activity, while
unregistered potential SBS dealers accounted for approximately 37%.
---------------------------------------------------------------------------
\90\ New trade activity eligible for exclusion from the de
minimis counting requirements was comprised of approximately $143.0
trillion in notional amount of new trade activity of unregistered
market participants not identified as potential SBS dealers plus
approximately $902.7 trillion in notional amount of new trade
activity of registered SBSDs and unregistered potential SBS dealers,
for a total of approximately $1,045.7 trillion.
\91\ Unregistered potential SBS dealers had approximately
$1,052.3 trillion in adjusted new trade activity. Approximately
$104.2 trillion in adjusted new trade activity was attributed to
unregistered affiliates of dealers. See note 83 and accompanying
text. All other unregistered market participants had approximately
$651.1 trillion in adjusted new trade activity. These amounts
together totaled approximately $1,807.6 trillion.
\92\ Approximately $104.2 trillion in adjusted new trade
activity was attributed to unregistered affiliates of dealers. See
note 83 and accompanying text. Other unregistered market
participants who were not identified as potential SBS dealers had
approximately $651.1 trillion in adjusted new trade activity. These
amounts together totaled approximately $755.3 trillion.
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BILLING CODE 8011-01-P
[[Page 24052]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.005
BILLING CODE 8011-01-C
The de minimis counting requirements also direct any person that
engages in its own SBS dealing activity to count toward the de
minimis thresholds certain SBS dealing
[[Page 24053]]
activity of the person's control affiliates.\93\ For market
participants identified as registered SBSDs or unregistered
potential SBS dealers, staff estimated aggregate SBS dealing
activity of that market participant and any of its affiliates that
were also identified as registered SBSDs or unregistered potential
SBS dealers. Staff used this estimate of aggregate SBS dealing
activity to compare each of these market participants' progress
toward the de minimis thresholds.
---------------------------------------------------------------------------
\93\ Rule 3a71-3(b)(2); Rule 3a71-4.
---------------------------------------------------------------------------
b. CDS De Minimis Threshold
As shown in Table 7, market participants submitted to SBSDRs
before the cut-off date SBS transaction reports on 707,745 unique
new trade activity events related to 515,104 unique CDS transactions
involving 3,603 unique CDS market participants.\94\
---------------------------------------------------------------------------
\94\ Of the 3,603 unique CDS market participants, information
about affiliate relationships on the measurement date was available
for 2,842 market participants, among whom were 1,635 groups of one
or more affiliated market participants. Each of the remaining 761
market participants without information about affiliate
relationships on the measurement date was counted as an affiliated
group of one, bringing the total number of affiliated groups of CDS
market participants as of the measurement date to 2,396. Affiliate
relationships change over time, and the 3,603 market participants
with CDS new trade activity during the review period were part of
2,462 different groups in existence during the review period.
[GRAPHIC] [TIFF OMITTED] TN04MY26.006
Staff evaluated the impact of the current $8 billion and
scheduled $3 billion CDS de minimis thresholds on market
participants' CDS new trade activity and potential SBS dealing
activity in CDS and also assessed hypothetical alternative de
minimis thresholds in the amounts of $1 billion, $5 billion, and $15
billion.\95\ Analysis of SBS transaction reports revealed that
market participants are using the exclusions from the definition of
``security-based swap dealer'' and that, at the current $8 billion
de minimis threshold, 43 market participants registered as SBSDs on
the measurement date were on at least one side of 99% of CDS new
trade activity in 2024. A lower de minimis threshold of $1 billion,
$3 billion, or $5 billion could add additional registered SBSDs,
while a higher $15 billion de minimis threshold may create
eligibility for some currently registered SBSDs to de-register.
---------------------------------------------------------------------------
\95\ Staff chose these three hypothetical alternative de minimis
thresholds to allow assessment of CDS activity below, between, and
above the current $8 billion and scheduled $3 billion CDS de minimis
thresholds.
---------------------------------------------------------------------------
i. CDS Market Participants' Activity
There was approximately $4.3 trillion in total notional amount
of CDS new trade activity events during the review period. This
total reflects the transacted notional amounts of the reported CDS
new trade activity events, providing a snapshot of the volume of new
trade activity transactions in the CDS market at large. After
attributing the notional amounts of these CDS new trade activity
events to market participants to measure their progress toward the
de minimis thresholds, the total notional amount of CDS new trade
activity during the review period was approximately $8.6 trillion.
As shown in Table 8, this $8.6 trillion included approximately
$6.5 trillion in notional amount of CDS new trade activity by 43
registered SBSDs and thus was subject to the Commission's regulatory
framework for SBSDs. There was approximately $2.1 trillion \96\ in
notional amount of CDS new trade activity by unregistered market
participants, including approximately $2 trillion \97\ of CDS new
trade activity with a registered SBSD and approximately $115 billion
\98\ of CDS new trade activity with another unregistered market
participant. Accordingly, approximately 99% of CDS new trade
activity events included at least one registered SBSD counterparty
and thus was subject to the Commission's regulatory framework for
SBSDs.
---------------------------------------------------------------------------
\96\ The approximately $2.1 trillion in CDS new trade activity
by unregistered market participants comprised approximately $0.81
trillion attributed to unregistered potential SBS dealers and
approximately $1.29 trillion attributed to other unregistered market
participants.
\97\ Unregistered potential SBS dealers had approximately $0.76
trillion in CDS new trade activity with registered SBSDs, while all
other unregistered market participants had approximately $1.23
trillion in CDS new trade activity with registered SBSDs, for a
total of approximately $2 trillion in unregistered market
participants' CDS new trade activity with registered SBSDs.
\98\ Unregistered potential SBS dealers had approximately $0.01
trillion in CDS new trade activity with other unregistered potential
SBS dealers and approximately $0.04 trillion in CDS new trade
activity with all other unregistered market participants.
Unregistered market participants that were not potential SBS dealers
had approximately $0.03 trillion in CDS new trade activity with
unregistered potential SBS dealers and approximately $0.03 trillion
in CDS new trade activity with all other unregistered market
participants. These amounts together totaled approximately $115
billion. For an explanation of the difference between CDS new trade
activity of unregistered potential SBS dealers and other
unregistered market participants, see note i to Table 12, infra.
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[[Page 24054]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.007
ii. Impact of Exclusions on CDS Activity
Staff adjusted CDS new trade activity to remove activity that
appeared to be eligible for an exclusion from the de minimis
counting requirements.\99\ As shown in Table 9, of the approximately
$8.6 trillion in notional amount of CDS new trade activity during
the review period, approximately $4.6 trillion \100\ represented
activity that appeared to be eligible for exclusion from the de
minimis counting requirements.\101\ This excluded activity accounted
for a higher proportion of CDS new trade activity of unregistered
potential SBS dealers than of
[[Page 24055]]
other market participants. Unregistered potential SBS dealers had
approximately $619 billion in notional amount of excluded activity,
or 77% of their approximately $809 billion total notional amount of
CDS new trade activity. Meanwhile, approximately 57% of registered
SBSDs' CDS new trade activity and 26% of all other unregistered
market participants' CDS new trade activity was excluded. These
results suggest that the exclusions from the definition of
``security-based swap dealer'' had a significant impact on CDS
market participants' need to register or remain registered as SBSDs
with the Commission during the review period.
---------------------------------------------------------------------------
\99\ See notes 85, 86, 87 & 88, supra, and accompanying text;
see also section IV.C.1, infra.
\100\ CDS new trade activity eligible for exclusion from the de
minimis counting requirements was comprised of approximately $0.3
trillion in notional amount of CDS new trade activity of
unregistered market participants not identified as potential SBS
dealers plus approximately $4.3 trillion in notional amount of CDS
new trade activity of registered SBSDs and unregistered potential
SBS dealers, for a total of approximately $4.6 trillion.
\101\ Approximately $1.7 trillion in CDS new trade activity was
excluded from the de minimis counting requirements because it
appeared to be trades between two non-U.S. persons and did not
appear to be eligible for any other exclusion. This $1.7 trillion in
trades between two non-U.S. persons included approximately $1.3
trillion in CDS new trade activity by registered SBSDs, $164.1
billion in CDS new trade activity by unregistered potential SBS
dealers, and $238.2 billion in CDS new trade activity by other
unregistered market participants that did not appear to be engaged
in SBS dealing. Due to unavailable and/or incomplete information,
staff was unable to remove from these excluded trades any activity
involving ANE transactions and/or U.S. guarantees not eligible for
exclusion or to add to these excluded trades any activity with a
U.S.-person foreign branch that was eligible for exclusion.
Estimates of trades between two non-U.S. persons, particularly those
that did not appear to be eligible for any other exclusion, thus
relied on multiple estimates and assumptions and may have
overcounted and/or undercounted the activity eligible for exclusion
from the de minimis counting requirements. See notes 85, 86, 87 &
88, supra, and accompanying text; see also section IV.C.1, infra.
---------------------------------------------------------------------------
After subtracting activity that appeared to be eligible for
exclusion from the de minimis counting requirements, approximately
$4 trillion in notional amount remained as adjusted CDS new trade
activity during the review period, as shown in Table 9. Nearly
three-quarters of this adjusted CDS new trade activity, or
approximately $2.8 trillion, belonged to registered SBSDs and thus
appeared to be SBS dealing activity. Of the approximately $1.2
trillion \102\ in notional amount of adjusted CDS new trade activity
belonging to unregistered market participants, approximately $1
trillion \103\ belonged to market participants that did not appear
to be engaged in SBS dealing and thus may have been non-dealing
trading activity by end users and other investors. Unregistered
potential SBS dealers had the remaining $190 billion, and this
amount appeared to be SBS dealing activity. Registered SBSDs thus
accounted for approximately 94%, or approximately $2.8 trillion, of
the approximately $3 trillion total potential SBS dealing activity
in CDS during the review period, while unregistered potential SBS
dealers accounted for approximately 6%, or approximately $190
billion, of that total.
---------------------------------------------------------------------------
\102\ Unregistered potential SBS dealers had approximately $0.2
trillion in adjusted CDS new trade activity. Approximately $0.3
trillion in adjusted CDS new trade activity was attributed to
unregistered affiliates of dealers. See note 83 and accompanying
text. All other unregistered market participants had approximately
$0.7 trillion in adjusted CDS new trade activity. These amounts
together totaled approximately $1.2 trillion.
\103\ Approximately $0.3 trillion in adjusted CDS new trade
activity was attributed to unregistered affiliates of dealers. See
note 83 and accompanying text. Other unregistered market
participants who were not identified as potential SBS dealers had
approximately $0.7 trillion in adjusted CDS new trade activity.
These amounts together totaled approximately $1 trillion.
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BILLING CODE 8011-01-P
[[Page 24056]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.008
[[Page 24057]]
BILLING CODE 8011-01-C
iii. $8 Billion Phase-In CDS De Minimis Threshold
Forty-three out of a total of 53 registered SBSDs had CDS new
trade activity during the review period, meaning ten registered
SBSDs did not have any CDS new trade activity during the review
period. Twenty-seven of these 43 registered SBSDs had potential SBS
dealing activity in CDS above the $8 billion de minimis threshold,
while the remaining sixteen of these 43 registered SBSDs had
potential SBS dealing activity in CDS at or below $8 billion.
However, all 16 of these registered SBSDs had potential SBS dealing
activity in non-CDS and/or SBS with counterparties likely to be
special entities that surpassed one or both of the other de minimis
thresholds for those transactions.
Among the 853 unregistered potential SBS dealers identified
through staff's uniform filtering criteria, 374 \104\ of them, who
together were members of 279 groups of one or more affiliated market
participants, had CDS new trade activity and together had
approximately $190 billion in potential SBS dealing activity in CDS.
As shown in Table 10, twelve of these 374 unregistered potential SBS
dealers initially appeared to have potential SBS dealing activity
above the $8 billion threshold. Of these twelve, six were market
participants that staff excluded after manual review of additional
publicly available information suggested they were unlikely to be
engaged in significant SBS dealing, three were market participants
that would not have been required to register as SBSDs if an
affiliate had done so,\105\ and three were market participants that
may have been required to register as SBSDs. The six manually
excluded market participants accounted for approximately $33.5
billion of the total approximately $190 billion in notional amount
of potential SBS dealing in CDS by unregistered potential SBS
dealers. Because the SBS transaction reports did not include
sufficient information to support transaction-level estimates of SBS
dealing activity, staff could estimate that these six market
participants were unlikely to be engaged in significant SBS dealing
activity but could not estimate the notional amount of SBS dealing
activity, if any, in which they may have engaged alongside non-
dealing activity. The three market participants that would not have
been required to register as SBSDs if an affiliate had done so
accounted for approximately $65 million in notional amount of
potential SBS dealing activity in CDS. Finally, the remaining three
market participants that did not meet any of these exclusion
criteria had a total of approximately $39.0 billion in notional
amount of potential SBS dealing activity in CDS.
---------------------------------------------------------------------------
\104\ Staff did not have sufficient information to determine
whether these 374 market participants in fact were engaged in SBS
dealing activity and, if so, whether SBS dealing constituted all or
only a portion of their adjusted new trade activity.
\105\ A market participant's progress toward a de minimis
threshold includes its own SBS dealing activity and SBS dealing
activity of control affiliates. When the potential SBS dealing
activity of one or more affiliates caused a market participant to
surpass the de minimis threshold, staff excluded the less-active
market participants from estimates of potential SBSD registration
requirements. This exclusion ensured consistency with the de minimis
counting requirements. See generally Rule 3a71-2(a)(1); Rule 3a71-
3(b)(2); Rule 3a71-4.
---------------------------------------------------------------------------
Because the SBS transaction reports did not include definitive
information about a market participant's engagement in the business
of SBS dealing for a particular transaction, estimates of SBS
dealing activity above a de minimis threshold may not necessarily
indicate that a market participant in fact surpassed that threshold
and indeed may include end-user and other non-dealing investment
activity. In particular, as the criteria for indicia of potential
SBS dealing activity could be applied only at the counterparty level
and not at the level of individual transactions or events, all of
these three unregistered potential SBS dealers' new trade activity
net of exclusions, plus that of affiliates estimated to be engaged
in SBS dealing, counted as progress toward de minimis threshold.
These market participants' activity may in fact be exclusively SBS
dealing activity, exclusively non-dealing activity, or a combination
of the two, but the SBS transaction reports did not include
sufficient information to support more granular estimates. If these
three unregistered potential SBS dealers did surpass the $8 billion
de minimis threshold, they would have been required to register as
SBSDs or shift SBS dealing to a control affiliate \106\ that is a
registered SBSD. If the three had been registered as SBSDs during
the review period, all CDS new trade activity subject to the
Commission's regulatory framework for SBSDs (that is, all CDS new
trade activity with at least one registered SBSD counterparty) would
have increased by approximately $65.6 billion, to $8,567.1 billion,
and CDS new trade activity outside of that regulatory framework
(that is, all CDS new trade activity with no registered SBSD) would
have decreased by the same amount, to $49.4 billion.
---------------------------------------------------------------------------
\106\ See generally Rule 3a71-2(a)(1); Rule 3a71-3(b)(2); Rule
3a71-4.
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A small number of unregistered potential SBS dealers appeared to
have progressed more than 75% (more than $6 billion) toward the $8
billion threshold while remaining below that threshold. The
remaining unregistered potential SBS dealers had potential SBS
dealing activity at or below 75% of the $8 billion de minimis
threshold.
BILLING CODE 8011-01-P
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[GRAPHIC] [TIFF OMITTED] TN04MY26.009
[[Page 24059]]
BILLING CODE 8011-01-C
These results suggest that a small but significant minority
\107\ of unregistered CDS market participants may have engaged in
SBS dealing activity and thus relied on the de minimis exception to
the definition of ``security-based swap dealer.'' The vast majority,
though possibly not all, of those market participants appeared to
have kept their SBS dealing below the de minimis threshold, though
the data do not contain information about market participants'
intent in this regard.\108\ A significant portion of registered
SBSDs did not participate in the CDS markets during the review
period, but those that did together were counterparties to
approximately 99% of CDS new trade activity.
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\107\ The 374 unregistered potential SBS dealers represented
approximately 10% of the 3,603 CDS market participants with new
trade activity during the review period.
\108\ There was, however, a substantial amount of CDS new trade
activity between two non-U.S. persons that staff did not include in
potential SBS dealing activity because of the absence of sufficient
information to identify sub-categories of this activity involving
ANE transactions and U.S. guarantees not eligible for exclusion. The
absence of information about ANE transactions and U.S. guarantees
thus limited staff's ability to draw definitive conclusions. See
also note 101, supra.
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iv. $3 Billion Scheduled CDS De Minimis Threshold
Among the 16 registered SBSDs with potential SBS dealing
activity in CDS at or below the current $8 billion de minimis
threshold, three surpassed the scheduled $3 billion de minimis
threshold. These three registered SBSDs thus may have lost any
eligibility to de-register if a $3 billion threshold had applied
during the review period. The remaining 13 of those 16 registered
SBSDs had potential SBS dealing activity in CDS at or below $3
billion. An additional 10 registered SBSDs did not have any CDS new
trade activity during the review period. Each of these 13 registered
SBSDs, as well as the 10 registered SBSDs with no CDS new trade
activity during the review period, may already have been eligible to
de-register on the measurement date under the current $8 billion
threshold, provided that their aggregate SBS dealing activity also
fell below the other applicable de minimis thresholds. Based on
their estimated potential SBS dealing activity, any of these 23
registered SBSDs that were eligible to de-register under an $8
billion threshold also would have been eligible to de-register under
a $3 billion threshold. None of these registered SBSDs, however, did
de-register on or after the measurement date, even with a higher $8
billion threshold. Though the scheduled $3 billion de minimis
threshold would not be expected to create eligibility for any
registered SBSDs to de-register, the lower threshold would leave
less room for de minimis SBS dealing activity and thus may make it
less likely that these registered SBSDs choose to de-register.
Fifteen unregistered potential SBS dealers initially appeared to
have more than $3 billion but not more than $8 billion in potential
SBS dealing activity in CDS. Of those 15 unregistered potential SBS
dealers, nine were market participants that staff excluded after
manual review of additional publicly available information suggested
they were unlikely to be engaged in significant SBS dealing, two
were market participants that would not have surpassed a $3 billion
de minimis threshold if an affiliate had registered as an SBSD,\109\
and four were market participants that may have been required to
register as SBSDs if a $3 billion de minimis threshold had applied
during the review period. The nine manually excluded market
participants accounted for approximately $33 billion of the total
approximately $190 billion in notional amount of potential SBS
dealing in CDS by unregistered potential SBS dealers. Because the
SBS transaction reports did not include sufficient information to
support transaction-level estimates of SBS dealing activity, staff
could estimate that these nine market participants were unlikely to
be engaged in significant SBS dealing activity but could not
estimate the notional amount of SBS dealing activity, if any, in
which they may have engaged. The two market participants that would
not have surpassed a $3 billion de minimis threshold if an affiliate
had registered as an SBSD accounted for approximately $34 million in
notional amount of potential SBS dealing activity in CDS. Finally,
the remaining four market participants that did not meet any of
these exclusion criteria had a total of approximately $19.3 billion
in notional amount of potential SBS dealing activity in CDS.
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\109\ A market participant's progress toward a de minimis
threshold includes its own SBS dealing activity and SBS dealing
activity of control affiliates. When the potential SBS dealing
activity of one or more affiliates caused a market participant to
surpass the de minimis threshold, staff excluded the less-active
market participants from estimates of potential SBSD registration
requirements. This exclusion ensured consistency with the de minimis
counting requirements. See generally Rule 3a71-2(a)(1); Rule 3a71-
3(b)(2); Rule 3a71-4.
---------------------------------------------------------------------------
As with staff's analysis of potential SBS dealing activity above
the $8 billion de minimis threshold, estimates of SBS dealing
activity above the scheduled $3 billion de minimis threshold may not
necessarily indicate that a market participant in fact surpassed
that threshold. If those four unregistered potential SBS dealers did
surpass $3 billion in SBS dealing activity in CDS, and if a $3
billion de minimis threshold had applied during the review period,
they would have been required to register as SBSDs or shift SBS
dealing to a control affiliate \110\ that is a registered SBSD. If
those four market participants had been registered as SBSDs during
the review period, all CDS new trade activity subject to the
Commission's regulatory framework for SBSDs (that is, all CDS new
trade activity with at least one registered SBSD counterparty) would
have increased by approximately $7.6 billion, to approximately
$8,509.1 billion, and CDS new trade activity outside of that
regulatory framework (that is, all CDS new trade activity with no
registered SBSD) would have decreased by the same amount, to
approximately $107.4 billion.
---------------------------------------------------------------------------
\110\ See generally Rule 3a71-2(a)(1); Rule 3a71-3(b)(2); Rule
3a71-4.
---------------------------------------------------------------------------
v. Alternative CDS De Minimis Thresholds
Staff also assessed hypothetical alternative de minimis
thresholds of $1 billion, $5 billion, and $15 billion as applied to
potential SBS dealing activity in CDS. Though the alternative $1
billion and $5 billion thresholds would not be expected to create
eligibility for any registered SBSDs to de-register, a $15 billion
threshold may create eligibility for some currently registered SBSDs
to de-register and could modestly increase CDS new trade activity.
Among the 16 registered SBSDs with potential SBS dealing
activity in CDS at or below the current $8 billion de minimis
threshold, 10 surpassed $1 billion in potential SBS dealing
activity. These 10 registered SBSDs thus may have lost any
eligibility to de-register if a $1 billion threshold had applied
during the review period. The remaining six of these 16 registered
SBSDs had potential SBS dealing activity in CDS at or below $1
billion. Each of these six registered SBSDs may have retained
eligibility to de-register if a $1 billion threshold had applied and
their aggregate SBS dealing activity also fell below the other
applicable de minimis thresholds, but none of them did de-register
during the review period despite a higher $8 billion threshold.
Though a hypothetical $1 billion de minimis threshold would not be
expected to create eligibility for any registered SBSDs to de-
register, the lower threshold would leave less room for de minimis
SBS dealing activity and thus may make it less likely that these
registered SBSDs choose to de-register.
Among the 16 registered SBSDs with potential SBS dealing
activity in CDS at or below the current $8 billion de minimis
threshold, three surpassed $5 billion in potential SBS dealing
activity. These three registered SBSDs thus may have lost any
eligibility to de-register if a $5 billion threshold had applied
during the review period. The remaining 13 of these 16 registered
SBSDs had potential SBS dealing activity in CDS at or below $5
billion. Each of these 13 registered SBSDs may have retained
eligibility to de-register if a $5 billion threshold had applied and
their aggregate SBS dealing activity also fell below the other
applicable de minimis thresholds, but none of them did de-register
during the review period despite a higher $8 billion threshold. Like
the hypothetical $1 billion de minimis threshold, a hypothetical $5
billion de minimis threshold would not be expected to create
eligibility for any registered SBSDs to de-register and may make it
less likely that these registered SBSDs choose to de-register.
Among the 27 registered SBSDs with potential SBS dealing
activity in CDS above the current $8 billion de minimis threshold,
24 surpassed $15 billion in potential SBS dealing activity and may
have been required to remain registered as SBSDs during the review
period even with a higher $15 billion de minimis threshold. The
remaining three of these 27 registered SBSDs had potential SBS
dealing activity in CDS above $8 billion and at or below $15
billion. Those three registered SBSDs may have become eligible to
de-register if a $15 billion de minimis
[[Page 24060]]
threshold had applied and their aggregate SBS dealing activity also
fell below the other applicable de minimis thresholds. If those
three registered SBSDs had not been registered during the review
period, approximately $30.1 billion less CDS new trade activity
would have been subject to the Commission's regulatory framework for
SBSDs (that is, CDS new trade activity with at least one registered
SBSD counterparty).
Staff extended to the hypothetical $15 billion threshold an
assumption based on the results of its analysis of unregistered
potential SBS dealing near the $8 billion de minimis threshold
during the review period. Staff estimated that the small number of
unregistered potential SBS dealers with potential SBS dealing
activity in CDS between 75% and 100% of the $8 billion de minimis
threshold would adjust their total new trade activity in CDS so that
their potential SBS dealing activity in CDS would be at least 75%
(at least $11.25 billion) of the $15 billion threshold. This
adjustment could have added less than 1% (less than $86 billion) in
additional CDS new trade activity to the market during the review
period.
c. Non-CDS De Minimis Threshold
As shown in Table 11, market participants submitted SBS
transaction reports on 660,131,993 unique new trade activity events
related to 62,266,349 unique non-CDS transactions involving 8,572
unique non-CDS market participants.\111\
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\111\ Of the 8,572 unique non-CDS market participants,
information about affiliate relationships on the measurement date
was available for 7,281 market participants, among whom were 4,968
groups of one or more affiliated market participants. Each of the
remaining 1,291 market participants without information about
affiliate relationships on the measurement date was counted as an
affiliated group of one, bringing the total number of affiliated
groups of non-CDS market participants as of the measurement date to
6,259. Affiliate relationships change over time, and the 8,572
market participants with non-CDS new trade activity during the
review period were part of 6,450 different groups in existence
during the review period.
[GRAPHIC] [TIFF OMITTED] TN04MY26.010
Staff evaluated the impact of the current $400 million and
scheduled $150 million non-CDS de minimis thresholds on market
participants' non-CDS new trade activity and potential SBS dealing
activity in non-CDS and also assessed hypothetical alternative de
minimis thresholds in the amounts of $1 billion, $3 billion, $5
billion, $8 billion, and $15 billion.\112\ Analysis of the SBS
transaction reports revealed that non-CDS new trade activity was
much larger, both in absolute value and as compared to CDS new trade
activity,\113\ and thus suggests that non-CDS markets have become a
far more significant part of SBS market activity than anticipated
when the Commission adopted the non-CDS de minimis thresholds.
Moreover, though the current $400 million de minimis threshold for
SBS dealing activity in non-CDS is lower than the current $8 billion
de minimis threshold for SBS dealing activity in CDS, and though 53
registered SBSDs had non-CDS new trade activity compared to 43
registered SBSDs with CDS new trade activity, non-CDS new trade
activity was slightly less likely than CDS new trade activity to
include at least one registered SBSD. A higher de minimis threshold
of $1 billion would not be expected to create eligibility for any
currently registered SBSDs to de-register. Higher $3 billion, $5
billion, $8 billion, or $15 billion de minimis thresholds may create
eligibility for some currently registered SBSDs to de-register.
---------------------------------------------------------------------------
\112\ Staff chose these five hypothetical alternative de minimis
thresholds to allow assessment of non-CDS activity at the same five
thresholds against which CDS activity was assessed.
\113\ Compare Table 7 & Table 8, supra, with Table 11 & Table
12, infra.
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i. Non-CDS Market Participants' Activity
There was approximately $2,306.4 trillion in total notional
amount of non-CDS new trade activity events during the review
period. This total reflects the transacted notional amounts of the
reported non-CDS new trade activity events, providing a snapshot of
the volume of new trade activity transactions in the non-CDS market
at large. After attributing the notional amounts of these non-CDS
new trade activity events to market participants to measure their
progress toward the de minimis thresholds, the total notional amount
of non-CDS new trade activity during the review period was
approximately $4,612.8 trillion.
As shown in Table 12, this $4,612.8 trillion included
approximately $2,443.1 trillion in notional amount of non-CDS new
trade activity by 53 registered SBSDs and thus was subject to the
Commission's regulatory framework for SBSDs. Though more SBSDs
participated in the non-CDS markets than in the CDS markets,
registered SBSDs accounted for a smaller proportion of non-CDS new
trade activity (approximately 53%) than of CDS new trade activity
(approximately 76%).\114\ There was approximately $2,169.7 trillion
\115\ in notional amount of non-CDS new trade activity by
unregistered market participants, including approximately $2,096.1
trillion \116\ in non-CDS new trade activity with a registered SBSD
and approximately $73.6 trillion \117\ in non-CDS new trade activity
with another unregistered market participant. Accordingly,
approximately 98% of non-CDS new trade activity events included at
least one registered SBSD counterparty and thus was subject to the
Commission's regulatory framework for SBSDs.
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\114\ Compare Table 8, supra, with Table 12, infra.
\115\ The approximately $2,169.7 trillion in non-CDS new trade
activity by unregistered market participants comprised approximately
$1,272.7 trillion attributed to unregistered potential SBS dealers
and approximately $897.0 trillion attributed to other unregistered
market participants.
\116\ Unregistered potential SBS dealers had approximately
$1,230.1 trillion in non-CDS new trade activity with registered
SBSDs, while all other unregistered market participants had
approximately $866.0 trillion in non-CDS new trade activity with
registered SBSDs, for a total of approximately $2,096.1 trillion in
unregistered market participants' non-CDS new trade activity with
registered SBSDs.
\117\ Unregistered potential SBS dealers had approximately $13.0
trillion in non-CDS new trade activity with other unregistered
potential SBS dealers and approximately $29.6 trillion in non-CDS
new trade activity with all other unregistered market participants.
Unregistered market participants that were not potential SBS dealers
had approximately $29.6 trillion in non-CDS new trade activity with
unregistered potential SBS dealers and approximately $1.4 trillion
in non-CDS new trade activity with all other unregistered market
participants. These amounts together totaled approximately $73.6
trillion.
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BILLING CODE 4310-10-P
[[Page 24061]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.011
BILLING CODE 4310-10-C
ii. Impact of Exclusions on Non-CDS Activity
Staff adjusted non-CDS new trade activity to remove activity
that appeared to be eligible for an exclusion from the de minimis
counting requirements.\118\ As shown in Table 13, of the
approximately $4,612.8 trillion in notional amount of non-CDS new
trade activity during the review period, approximately $1,041.0
trillion,\119\ or approximately 23%, represented activity that
appeared to be eligible for exclusion from the de minimis counting
requirements.\120\ This same activity accounted for more than twice
the share (approximately 54%) of CDS new trade activity.\121\ This
lower significance of excluded activity in non-CDS markets was
[[Page 24062]]
evident for registered SBSDs \122\ and unregistered potential SBS
dealers,\123\ as well as for all other unregistered market
participants.\124\ These results suggest that the exclusions from
the definition of ``security-based swap dealer'' had a less-
significant--albeit still material--impact on non-CDS market
participants' need to register or remain registered with the
Commission as SBSDs during the review period.
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\118\ See notes 85, 86, 87 & 88, supra, and accompanying text;
see also section IV.C.1, infra.
\119\ Non-CDS new trade activity eligible for exclusion from the
de minimis counting requirements was comprised of approximately
$142.7 trillion in notional amount of non-CDS new trade activity of
unregistered market participants not identified as potential SBS
dealers plus approximately $898.3 trillion in notional amount of
non-CDS new trade activity of registered SBSDs and unregistered
potential SBS dealers, for a total of approximately $1,041.0
trillion.
\120\ Approximately $400.5 trillion in non-CDS new trade
activity was excluded from the de minimis counting requirements
because it appeared to be trades between two non-U.S. persons and
did not appear to be eligible for any other exclusion. This $400.5
trillion in trades between two non-U.S. persons included
approximately $205.7 trillion in non-CDS new trade activity by
registered SBSDs, $62.9 trillion in non-CDS new trade activity by
unregistered potential SBS dealers, and $131.9 trillion in non-CDS
new trade activity by other unregistered market participants that
did not appear to be engaged in SBS dealing. Due to unavailable and/
or incomplete information, staff was unable to remove from these
excluded trades any activity involving ANE transactions and/or U.S.
guarantees not eligible for exclusion or to add to these excluded
trades any activity with a U.S.-person foreign branch that was
eligible for exclusion. Estimates of trades between two non-U.S.
persons, particularly those that did not appear to be eligible for
any other exclusion, thus relied on multiple estimates and
assumptions and may have overcounted and/or undercounted the
activity eligible for exclusion from the de minimis counting
requirements. See notes 85, 86, 87 & 88, supra, and accompanying
text; see also section IV.C.1, infra.
\121\ Compare Table 9, supra, with Table 13, infra.
\122\ Approximately 57% of CDS new trade activity and 28% of
non-CDS new trade activity of registered SBSDs during the review
period was excluded from the de minimis counting requirements.
\123\ Approximately 77% of CDS new trade activity and 17% of
non-CDS new trade activity of unregistered potential SBS dealers
during the review period was excluded from the de minimis counting
requirements.
\124\ Approximately 26% of CDS new trade activity and 16% of
non-CDS new trade activity of all other unregistered market
participants during the review period was excluded from the de
minimis counting requirements.
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After subtracting activity that appeared to be eligible for
exclusion from the de minimis counting requirements, $3,571.8
trillion in notional amount remained as adjusted non-CDS new trade
activity during the review period, as shown in Table 13.
Approximately $1,765.4 trillion of this adjusted non-CDS new trade
activity, or approximately 49%, belonged to registered SBSDs and
thus appeared to be SBS dealing activity. Of the approximately
$1,806.4 trillion \125\ in notional amount of adjusted non-CDS new
trade activity belonging to unregistered market participants,
approximately $754.3 trillion \126\ belonged to market participants
that did not appear to be engaged in SBS dealing and thus may have
been non-dealing activity by end users and other investors. The
remaining $1,052.1 trillion belonged to unregistered potential SBS
dealers and appeared to be SBS dealing activity. Registered SBSDs
thus accounted for approximately 63%, or approximately $1,765.4
trillion, of the approximately $2,817.5 trillion total potential SBS
dealing activity in non-CDS during the review period (compared to
94% of total potential SBS dealing activity in CDS), while
unregistered potential SBS dealers accounted for approximately 37%,
or approximately $1,052.1 trillion, of that total (compared to 6% of
total potential SBS dealing activity in CDS).\127\
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\125\ Unregistered potential SBS dealers had approximately
$1,052.1 trillion in adjusted non-CDS new trade activity.
Approximately $103.8 trillion in adjusted non-CDS new trade activity
was attributed to unregistered affiliates of dealers. See note 83
and accompanying text. All other unregistered market participants
had approximately $650.5 trillion in adjusted non-CDS new trade
activity. These amounts together totaled approximately $1,806.4
trillion.
\126\ Approximately $103.8 trillion in adjusted non-CDS new
trade activity was attributed to unregistered affiliates of dealers.
See note 83 and accompanying text. Other unregistered market
participants who were not identified as potential SBS dealers had
approximately $650.5 trillion in adjusted non-CDS new trade
activity. These amounts together totaled approximately $754.3
trillion.
\127\ Compare Table 9, supra, with Table 13, infra.
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[[Page 24063]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.012
BILLING CODE 8011-01-C
The SBS transaction reports revealed that during the review
period non-CDS new trade activity, at approximately $4,612.8
trillion, was significantly larger than CDS new trade
[[Page 24064]]
activity, at approximately $8.6 trillion.\128\ This significant size
differential persisted across registered SBSDs, unregistered
potential SBS dealers, and other unregistered market participants.
Staff observed, however, that market participants overall submitted
significantly more substantive amendments to the terms of non-CDS
transactions than they did substantive amendments to the terms of
CDS transactions,\129\ and each reported amendment counted as a
separate new trade activity event. Nevertheless, both CDS and non-
CDS markets included market participants whose substantive
amendments constituted a small proportion of their total new trade
activity and market participants whose substantive amendments
constituted a large proportion of their new trade activity. These
substantial differences in reporting may reflect a higher volume of
trading in non-CDS compared to CDS markets, a higher or lower volume
of trading by individual market participants, reporting errors or
inconsistencies, or a combination of these factors.
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\128\ Compare Table 9, supra, with Table 13, infra.
\129\ Staff distinguished between reports of amendments to the
substantive terms of a transaction, which were included in new trade
activity, and reports of corrections and recordkeeping updates,
which were excluded from new trade activity. See also Annex section
I.A, infra.
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In 2012, the Commission expected the non-CDS markets would
constitute approximately 1/20th of the aggregate gross notional
amount of all SBS trading activity.\130\ Recognizing the limitations
of data scope and quality, the SBS transaction reports nevertheless
suggest that non-CDS markets have become a more significant part of
SBS market activity than anticipated when the Commissions adopted
the joint definitional rules. Over 99% of all new trade activity in
SBS during the review period was non-CDS new trade activity, with
CDS new trade activity representing less than 1% of all SBS new
trade activity.
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\130\ See Entity Definitions Adopting Release, 77 FR 30636 &
nn.476 & 479, 30639 n.504, 30641 & n.527.
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iii. $400 Million Phase-In Non-CDS De Minimis Threshold
All 53 registered SBSDs had non-CDS new trade activity during
the review period. All but a small number of these 53 registered
SBSDs had potential SBS dealing activity in non-CDS above the $400
million de minimis threshold.
Among the 853 unregistered potential SBS dealers identified
through staff's uniform filtering criteria, 699 \131\ of them, who
together were members of 543 groups of one or more affiliated market
participants, had non-CDS new trade activity and together had
approximately $1,052.1 trillion in potential SBS dealing activity in
non-CDS. As shown in Table 14, 167 of these 699 unregistered
potential SBS dealers initially appeared to have potential SBS
dealing activity above the $400 million threshold. Of those 167
unregistered potential SBS dealers, 96 were market participants that
staff excluded after manual review of additional publicly available
information suggested they were unlikely to be engaged in
significant SBS dealing, 11 were market participants that would not
have been required to register as SBSDs if an affiliate had done
so,\132\ and 60 were market participants that may have been required
to register as SBSDs. The 96 manually excluded market participants
accounted for approximately $1,020.6 trillion of the total
approximately $1,052.1 trillion in notional amount of potential SBS
dealing in non-CDS by unregistered potential SBS dealers. Because
the SBS transaction reports did not include sufficient information
to support transaction-level estimates of SBS dealing activity,
staff could estimate that these 96 market participants were unlikely
to be engaged in significant SBS dealing activity but could not
estimate the notional amount of SBS dealing activity, if any, in
which they may have engaged. The 11 market participants that would
not have been required to register as SBSDs if an affiliate had done
so accounted for approximately $1.3 billion in notional amount of
potential SBS dealing activity in non-CDS. Finally, the remaining 60
market participants that did not meet any of these exclusion
criteria had a total of approximately $31.5 trillion in notional
amount of potential SBS dealing activity in non-CDS.
---------------------------------------------------------------------------
\131\ Staff did not have sufficient information to determine
whether these 699 market participants in fact were engaged in SBS
dealing activity and, if so, whether SBS dealing constituted all or
only a portion of their adjusted new trade activity.
\132\ A market participant's progress toward a de minimis
threshold includes its own SBS dealing activity and SBS dealing
activity of control affiliates. When the potential SBS dealing
activity of one or more affiliates caused a market participant to
surpass the de minimis threshold, staff excluded the less-active
market participants from estimates of potential SBSD registration
requirements. This exclusion ensured consistency with the de minimis
counting requirements. See generally Rule 3a71-2(a)(1); Rule 3a71-
3(b)(2); Rule 3a71-4.
---------------------------------------------------------------------------
Although the number of potential unregistered SBS dealers
engaged in potential SBS dealing activity above the de minimis
threshold appears to be high, this result might reflect limitations
of available data. Because the SBS transaction reports did not
include definitive information about a market participant's
engagement in the business of SBS dealing for a particular
transaction, estimates of SBS dealing activity above a de minimis
threshold may not necessarily indicate that a market participant in
fact surpassed the threshold and indeed may include end-user and
other non-dealing investment activity. In particular, as the
criteria for indicia of potential SBS dealing activity could be
applied only at the counterparty level and not at the level of
individual transactions or events, all of these 60 unregistered
potential SBS dealers' new trade activity net of exclusions, plus
that of affiliates estimated to be engaged in SBS dealing, counted
toward the de minimis threshold. These market participants' activity
may in fact be exclusively SBS dealing activity, exclusively non-
dealing activity, or a combination of the two, but the SBS
transaction reports did not include sufficient information to
support more granular estimates. If these 60 unregistered potential
SBS dealers did surpass the $400 million de minimis threshold, they
would have been required to register as SBSDs or shift SBS dealing
to a control affiliate \133\ that is a registered SBSD. If those 60
market participants had been registered as SBSDs during the review
period, all non-CDS new trade activity subject to the Commission's
regulatory framework for SBSDs (that is, all non-CDS new trade
activity with at least one registered SBSD counterparty) would have
increased by approximately $57.4 trillion, to approximately $4,596.6
trillion, and non-CDS new trade activity outside of that regulatory
framework (that is, all non-CDS new trade activity with no
registered SBSD) would have decreased by approximately the same
amount, to approximately $16.2 trillion.
---------------------------------------------------------------------------
\133\ See generally Rule 3a71-2(a)(1); Rule 3a71-3(b)(2); Rule
3a71-4.
---------------------------------------------------------------------------
Also as shown in Table 14, ten unregistered potential SBS
dealers appeared to have progressed more than 75% (more than $300
million) toward the $400 million de minimis threshold while
remaining below that threshold.\134\ The remaining unregistered
potential SBS dealers had potential SBS dealing activity at or below
75% of the $400 million de minimis threshold.
---------------------------------------------------------------------------
\134\ Three additional unregistered potential SBS dealers,
identified using staff's uniform filtering criteria for indicia of
SBS dealing, had potential SBS dealing activity above $300 million
but additional publicly available information suggested that they
were unlikely to be engaged in SBS dealing.
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BILLING CODE 8011-01-P
[[Page 24065]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.013
[[Page 24066]]
BILLING CODE 8011-01-C
As in the CDS markets, these results suggest that a small but
significant minority \135\ of unregistered non-CDS market
participants may have engaged in SBS dealing activity and thus
relied on the de minimis exception to the definition of ``security-
based swap dealer.'' The majority, though possibly not all, of those
market participants appeared to have managed their SBS dealing to
remain below the de minimis threshold.\136\ All 53 registered SBSDs
participated in the non-CDS markets during the review period and
together they were counterparties to approximately 98% of non-CDS
new trade activity.
---------------------------------------------------------------------------
\135\ The 699 unregistered potential SBS dealers represented
approximately 8% of the 8,572 non-CDS market participants with new
trade activity during the review period.
\136\ There was, however, a substantial amount of non-CDS new
trade activity between two non-U.S. persons that staff did not
include in potential SBS dealing activity because of the absence of
sufficient information to identify sub-categories of this activity
involving ANE transactions and U.S. guarantees not eligible for
exclusion. The absence of information about ANE transactions and
U.S. guarantees thus limited staff's ability to draw definitive
conclusions. See also note 120, supra.
---------------------------------------------------------------------------
iv. $150 Million Scheduled Non-CDS De Minimis Threshold
The small number of registered SBSDs with potential SBS dealing
activity in non-CDS at or below the current $400 million de minimis
threshold also did not surpass the scheduled $150 million de minimis
threshold. Based on their estimated potential SBS dealing activity,
these registered SBSDs could have been eligible to de-register under
both a $400 million and a $150 million non-CDS de minimis threshold,
provided that their aggregate SBS dealing activity also fell below
the other applicable de minimis thresholds. These registered SBSDs
did not, however, de-register on or after the measurement date, even
with a higher $400 million threshold. The scheduled $150 million de
minimis threshold thus would not be expected to create eligibility
for any registered SBSDs to de-register, though the lower threshold
would leave less room for de minimis SBS dealing activity and thus
may make it less likely that these registered SBSDs choose to de-
register.
Thirty-five unregistered potential SBS dealers initially
appeared to have more than $150 million but not more than $400
million in potential SBS dealing activity in non-CDS. Of those 35
unregistered potential SBS dealers, 10 were market participants that
staff excluded after manual review of additional publicly available
information suggested they were unlikely to be engaged in
significant SBS dealing, four were market participants that would
not have surpassed a $150 million de minimis threshold if an
affiliate had registered as an SBSD,\137\ and 21 were market
participants that may have been required to register as SBSDs if a
$150 million de minimis threshold had applied during the review
period. The 10 manually excluded market participants accounted for
approximately $2.3 billion of the total approximately $1,052.1
trillion in notional amount of potential SBS dealing in non-CDS by
unregistered potential SBS dealers. Because the SBS transaction
reports did not include sufficient information to support
transaction-level estimates of SBS dealing activity, staff could
estimate that these 10 market participants were unlikely to be
engaged in significant SBS dealing activity but could not estimate
the notional amount of SBS dealing activity, if any, in which they
may have engaged. The four market participants that would not have
surpassed a $150 million de minimis threshold if an affiliate had
registered as an SBSD accounted for approximately $128.0 million in
notional amount of potential SBS dealing activity in non-CDS.
Finally, the remaining 21 market participants that did not meet any
of these exclusion criteria had a total of approximately $5.7
billion in notional amount of potential SBS dealing activity in non-
CDS.
---------------------------------------------------------------------------
\137\ A market participant's progress toward a de minimis
threshold includes its own SBS dealing activity and SBS dealing
activity of control affiliates. When the potential SBS dealing
activity of one or more affiliates caused a market participant to
surpass the de minimis threshold, staff excluded the less-active
market participants from estimates of potential SBSD registration
requirements. This exclusion ensured consistency with the de minimis
counting requirements. See generally Rule 3a71-2(a)(1); Rule 3a71-
3(b)(2); Rule 3a71-4.
---------------------------------------------------------------------------
As with staff's analysis of potential SBS dealing activity above
the $400 million de minimis threshold, estimates of SBS dealing
activity above the scheduled $150 million de minimis threshold may
not necessarily indicate that a market participant in fact surpassed
that threshold. If these 21 unregistered potential SBS dealers did
surpass $150 million in SBS dealing activity in non-CDS, and if a
$150 million de minimis threshold had applied during the review
period, they would have been required to register as SBSDs or shift
SBS dealing to a control affiliate \138\ that is a registered SBSD.
If those 21 market participants had been registered as SBSDs during
the review period, all non-CDS new trade activity subject to the
Commission's regulatory framework for SBSDs (that is, all non-CDS
new trade activity with at least one registered SBSD counterparty)
would have increased by approximately $2.9 billion and non-CDS new
trade activity outside of that regulatory framework (that is, all
non-CDS new trade activity with no registered SBSD counterparty)
would have decreased by approximately the same amount.
---------------------------------------------------------------------------
\138\ See generally Rule 3a71-2(a)(1); Rule 3a71-3(b)(2); Rule
3a71-4.
---------------------------------------------------------------------------
v. Alternative Non-CDS De Minimis Thresholds
Staff also assessed hypothetical de minimis thresholds of $1
billion, $3 billion, $5 billion, $8 billion, and $15 billion as
applied to potential SBS dealing activity in non-CDS. The
alternative $1 billion threshold would not be expected to create
eligibility for any registered SBSDs to de-register, while a $3
billion, $5 billion, $8 billion, or $15 billion threshold may create
eligibility for some currently registered SBSDs to de-register and
could moderately increase non-CDS new trade activity.
Among the registered SBSDs with potential SBS dealing activity
in non-CDS above the current $400 million de minimis threshold, all
also surpassed $1 billion in potential SBS dealing activity and may
have been required to remain registered as SBSDs during the review
period even with a higher $1 billion de minimis threshold.
Among the registered SBSDs with potential SBS dealing activity
in non-CDS above the current $400 million de minimis threshold, all
but a small number surpassed $15 billion in potential SBS dealing
activity and may have been required to remain registered as SBSDs
during the review period even with a higher $1 billion, $3 billion,
$5 billion, $8 billion, or $15 billion de minimis threshold. A small
number of these registered SBSDs had potential SBS dealing activity
in non-CDS above $400 million and at or below $15 billion. Some or
all of those registered SBSDs may have become eligible to de-
register if a $1 billion, $3 billion, $5 billion, $8 billion, or $15
billion de minimis threshold had applied and their aggregate SBS
dealing activity also fell below the other applicable de minimis
thresholds. If those registered SBSDs had not been registered during
the review period, less than 0.001% (less than $46 billion) of all
non-CDS new trade activity would have moved from inside to outside
the Commission's regulatory framework for SBSDs.
Staff extended to the hypothetical $1 billion, $3 billion, $5
billion, $8 billion, and $15 billion thresholds an assumption based
on the results of its analysis of unregistered potential SBS dealing
near the $400 million de minimis threshold during the review period.
Staff estimated that the 10 unregistered potential SBS dealers with
potential SBS dealing activity in non-CDS between 75% and 100% of
the $400 million de minimis threshold would adjust their SBS dealing
activity in non-CDS to an average of at least 75% of the higher
hypothetical threshold. If one of the higher, hypothetical de
minimis thresholds had applied during the review period, this
adjustment could have added new trade activity to the non-CDS market
in the amounts of approximately $13.6 billion at a $1 billion
threshold, $62.6 billion at a $3 billion threshold, $111.6 billion
at a $5 billion threshold, $185.2 billion at an $8 billion
threshold, and $356.7 billion at a $15 billion threshold.
d. Hypothetical Total CDS and Non-CDS SBS De Minimis Thresholds
Staff also analyzed the total SBS market to assess hypothetical
combined CDS and non-CDS de minimis thresholds of $1 billion, $3
billion, $5 billion, $8 billion, and $15 billion. Each of these
alternative combined thresholds may create eligibility for some
currently registered SBSDs to de-register. A combined $1 billion
threshold could modestly reduce combined CDS and non-CDS new trade
activity, while the other four analyzed thresholds could modestly
increase combined CDS and non-CDS new trade activity.
Three registered SBSDs had potential SBS dealing activity of $15
billion or less. Had a hypothetical $1 billion, $3 billion, $5
billion, $8 billion, or $15 billion combined CDS and non-CDS de
minimis threshold been in place
[[Page 24067]]
during the review period, some or all of those registered SBSDs may
have become eligible to de-register, provided that their aggregate
SBS dealing activity also fell below the separate de minimis
threshold for SBS with special entities. If some or all of those
registered SBSDs had not been registered during the review period,
less than 0.001% (less than $46 billion) of all new trade activity
would have moved from inside to outside the Commission's regulatory
framework for SBSDs.
Fifty registered SBSDs had potential SBS dealing activity above
$15 billion, suggesting that they may have been required to remain
registered as SBSDs during the review period even with a $15 billion
combined CDS and non-CDS de minimis threshold.
Staff extended to the hypothetical $1 billion, $3 billion, $5
billion, $8 billion, and $15 billion combined CDS and non-CDS de
minimis thresholds an assumption based on the results of its
analysis of unregistered potential SBS dealing near the $8 billion
CDS de minimis threshold and the $400 million non-CDS de minimis
threshold during the review period. Staff estimated that the 10
unregistered potential SBS dealers with potential SBS dealing
activity between 75% and 100% of the $400 million non-CDS de minimis
threshold and that the small number of unregistered potential SBS
dealers with potential SBS dealing activity between 75% and 100% of
the $8 billion CDS de minimis threshold would adjust their SBS
dealing activity up or down to an average of at least 75% of the
hypothetical combined threshold. A hypothetical $1 billion combined
CDS and non-CDS de minimis threshold thus could have subtracted
approximately $4.9 billion in new trade activity from the combined
CDS and non-CDS markets during the review period, while the higher
hypothetical combined CDS and non-CDS de minimis thresholds could
have added new trade activity of approximately $23.9 billion at a $3
billion threshold, $52.6 billion at a $5 billion threshold, $95.6
billion at an $8 billion threshold, and $196.1 billion at a $15
billion threshold.
There were 178 unregistered potential SBS dealers that had an
affiliated registered SBSD. Of these 178 unregistered potential SBS
dealers, 107 had no potential SBS dealing activity during the review
period, 50 had combined CDS and non-CDS potential SBS dealing
activity up to $15 billion, and 21 had above $15 billion.
There were 675 unregistered potential SBS dealers that had no
affiliated registered SBSD. Of these 675 unregistered potential SBS
dealers, 275 had no potential SBS dealing activity during the review
period, 360 had combined CDS and non-CDS potential SBS dealing
activity up to $15 billion, and 40 had above $15 billion.
Though these unregistered market participants were identified as
potential SBS dealers using staff's uniform filtering criteria for
indicia of SBS dealing, additional publicly available information
suggested that many of them were unlikely to be engaged in SBS
dealing. It is unclear how many of them might be required to
register as SBSDs if a combined CDS and non-CDS de minimis threshold
applied. Moreover, even if engaged in SBS dealing, these market
participants might respond to a combined CDS and non-CDS de minimis
threshold by shifting a portion of their SBS dealing activity to an
affiliate that either already is registered as an SBSD or would do
so, or they could exit the U.S. SBS market. This shifting of
activity might result in no change to the number of registered SBSDs
or in fewer additional registered SBSDs than the number of
unregistered potential SBS dealers affected by the hypothetical
combined CDS and non-CDS de minimis threshold.
e. Special Entity SBS De Minimis Threshold
As shown in Table 15, market participants submitted SBS
transaction reports on 43,610 unique new trade activity events
related to 17,849 unique SBS transactions involving fewer than 50
unique counterparties to 182 unique market participants that staff
identified as likely to be special entities.
[GRAPHIC] [TIFF OMITTED] TN04MY26.014
Staff evaluated the impact of the current $25 million de minimis
threshold on market participants' new trade activity and potential
SBS dealing activity with counterparties that appeared likely to be
special entities and also assessed hypothetical alternative de
minimis thresholds in the amounts of $1 billion, $3 billion, $5
billion, $8 billion, and $15 billion. Analysis of the SBS
transaction reports showed that 19 of the counterparties to likely
special entities were registered SBSDs, and the hypothetical
alternative de minimis thresholds may create eligibility for some
currently registered SBSDs to de-register.
i. Market Participants' Activity With Likely Special Entities
During the review period, there was approximately $781.5 billion
in total notional amount of new trade activity events involving a
counterparty likely to be a special entity. This total reflects the
transacted notional amounts of the reported new trade activity
events, providing a snapshot of the volume of new trade activity
transactions with likely special entities in the SBS market at
large. When measuring market participants' progress toward the de
minimis threshold for SBS with a special entity counterparty, staff
analyzed the notional amounts of new trade activity attributed to
each counterparty to a likely special entity. The notional amount of
new trade activity events involving a likely special entity was
attributed only to the counterparty of the likely special entity.
Staff adjusted this attributed new trade activity with likely
special entities to remove approximately $0.3 billion of activity
where the other counterparty was an unregistered market participant,
as none of those unregistered market participants appeared to be
engaged in SBS dealing. Because there also were no reports of new
trade activity events in which both counterparties appeared likely
to be special entities, attributing new trade activity to market
participants did not double any portion of the transacted notional
amounts of new trade activity during the review period. After this
$0.3 billion deduction, the remaining approximately $781.2 billion
[[Page 24068]]
represented the total notional amount of new trade activity
attributed to registered SBSDs that transacted with likely special
entities during the review period. Given the small volume of new
trade activity between likely special entities and unregistered
market participants during the review period, this report does not
publish analysis of that activity.
ii. Impact of Exclusions on Activity With Likely Special Entities
As shown in Table 16, no new trade activity with a likely
special entity appeared to be eligible for an exclusion from the de
minimis counting requirements. These results suggest that new trade
activity between registered SBSDs and likely special entities was at
arm's length rather than inter-affiliate trading. Likewise, the
other exclusions for activity between two non-U.S.-person
counterparties and for certain platform-traded and cleared
transactions were not relevant to trading with likely special
entities during the review period. The exclusion for activity
between two non-U.S. persons was not available to the non-U.S.-
person SBSDs that transacted with likely special entities because
all of the likely special entities appeared to be U.S. persons. The
exclusion for certain platform-traded and cleared transactions was
available to these non-U.S. person SBSDs but staff observed no new
trade activity with likely special entities that met these criteria.
Thus, the exclusions from the definition of ``security-based swap
dealer'' appeared to have no impact during the review period on
market participants' need to register or remain registered with the
Commission as SBSDs due to SBS dealing activity with special
entities.
[GRAPHIC] [TIFF OMITTED] TN04MY26.015
iii. $25 Million Special Entity SBS De Minimis Threshold
Nineteen out of a total of 53 registered SBSDs had new trade
activity and potential SBS dealing activity with likely special
entities during the review period. All but a small number of these
19 registered SBSDs had potential SBS dealing activity with likely
special entities above the $25 million de minimis threshold.
No unregistered potential SBS dealers had potential SBS dealing
activity with likely special entities during the review period.
Nearly all of the aggregate notional amount of SBS new trade
activity with a market participant likely to be a special entity had
a registered SBSD on the other side of the trade. This concentration
of activity with likely special entities appears to be due to the
comparatively lower $25 million de minimis threshold for SBS dealing
with special entities, though a small number of the 19 registered
SBSDs that transacted new trade activity with likely special
entities had less than $25 million in potential SBS dealing activity
with such entities. These results suggest that unregistered
potential SBS dealers may have been aware that their SBS market
activity could be SBS dealing and abstained from transacting with
likely special entities to avoid breaching the $25 million de
minimis threshold. It is unclear why these results contrast with
other results showing that several unregistered potential SBS
dealers appeared to have surpassed one of the other, higher de
minimis thresholds during the review period. The observed avoidance
by unregistered potential SBS dealers of the $25 million de minimis
threshold, particularly compared with these other results, may
signal meaningful gaps in available information about unregistered
SBS market activity.
iv. Alternative De Minimis Thresholds for Special Entity SBS
Staff also assessed hypothetical alternative de minimis
thresholds of $1 billion, $3 billion, $5 billion, $8 billion, and
$15 billion as applied to potential SBS dealing activity with likely
special entities. Each of these alternative de minimis thresholds
may create eligibility for some currently registered SBSDs to de-
register and could modestly decrease new trade activity with likely
special entities.
Among the 19 registered SBSDs with potential SBS dealing
activity with likely special entities during the review period,
eight had potential SBS dealing activity with likely special
entities above $25 million and at or below $15 billion. Of the
remaining 11 registered SBSDs, a small number had potential SBS
dealing activity with likely special entities at or below $25
million, while the rest surpassed $15 billion and may have been
required to remain registered as SBSDs during the review period even
with a higher $15 billion de minimis threshold. Some or all of the
eight registered SBSDs with potential SBS dealing activity above $25
million and at or below $15 billion may have become eligible to de-
register if a $1 billion, $3 billion, $5 billion, $8 billion, or $15
billion de minimis threshold had applied and their aggregate SBS
dealing activity also fell below the other applicable de minimis
thresholds. If all of those eight registered SBSDs had not been
registered during the review period, approximately $19.6 billion
\139\ less new trade activity with likely special entities would
have been subject to the Commission's regulatory framework for SBSDs
(that is, new trade activity with at least one registered SBSD
counterparty).
---------------------------------------------------------------------------
\139\ This amount includes only the notional amount of new trade
activity events attributed to a registered SBSD that was a
counterparty to a likely special entity.
---------------------------------------------------------------------------
f. Retrospective Impact Analysis
When it adopted Rule 3a71-2(a)(2), the Commission directed staff
to address in this report, to the extent practicable, the nature and
extent of the impact that the final Title VII rules and
interpretations implementing the definition of ``security-based swap
dealer'' have had on certain aspects of the SBS market. Since the
Commission's 2012 adoption of that rule, economic, regulatory, and
other exogeneous factors--both related and unrelated to the
implementation of Title VII--have affected the SBS markets. In
completing this report, staff considered the effects of the rules
and interpretations on competition, market access, and investor
protection.
i. Effects on Competition and Market Access
Staff considered the extent to which a market participant's
activity in the SBS
[[Page 24069]]
market during the review period correlated with its registration
status or with its approaching or crossing the de minimis thresholds
in the definition of ``security-based swap dealer.''
As shown in Table 17 and Table 18, registered SBSDs constituted
a significant portion of both CDS and non-CDS market activity during
the review period, though they played a greater role in CDS markets.
Registered SBSDs accounted for approximately 76% of CDS new trade
activity and approximately 53% of non-CDS new trade activity.
Registered SBSDs represented approximately 94% of potential SBS
dealing activity in CDS and approximately 63% of potential SBS
dealing activity in non-CDS.
Staff reviewed the activity of all unregistered potential SBS
dealers identified via staff's uniform filtering criteria that had
potential SBS dealing activity greater than 75% of the relevant de
minimis threshold. This sub-group of unregistered potential SBS
dealers represented a greater percentage of new trade activity in
proportion to their share of total market participants during the
review period. In CDS markets, these unregistered potential SBS
dealers accounted for less than 1% of market participants but
approximately 6% of new trade activity. In non-CDS markets, they
accounted for approximately 2% of market participants and
approximately 26% of new trade activity. Most unregistered potential
SBS dealers at greater than 75% of the relevant de minimis threshold
had potential SBS dealing activity over the relevant thresholds
rather than just under them, but this result might reflect
limitations of available data. Because the SBS transaction reports
did not include definitive information about a market participant's
engagement in the business of SBS dealing for a particular
transaction, estimates of SBS dealing activity above a de minimis
threshold may not necessarily indicate that a market participant in
fact surpassed the threshold and indeed may include end-user and
other non-dealing investment activity. Nevertheless, at a minimum,
these results suggest that unregistered potential SBS dealers at
greater than 75% of the relevant de minimis threshold participated
in a larger proportion of the SBS markets relative to their numbers
during the review period, whether through SBS dealing, non-dealing,
or a mixture of both. The Commission crafted the de minimis
exception in part to: (1) allow persons to accommodate existing
clients that have a need for SBS in conjunction with other financial
services or commercial activities without the costs of registering
as an SBSD or establishing separate relationships with registered
SBSDs; (2) promote competition in SBS dealing activity for persons
beginning to engage in SBS dealing; (3) provide an objective test
for market participants; and (4) further the interest of regulatory
efficiency when the amount of a person's SBS dealing activity does
not warrant regulation in comparison to the overall market for
SBS.\140\ To the extent that these unregistered potential SBS
dealers were engaged in SBS dealing, their activity during the
review period as observed in the SBS transaction reports could be
consistent with the goals that the Commission identified when
adopting the de minimis thresholds.
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\140\ Entity Definitions Adopting Release, 77 FR 30628-29.
---------------------------------------------------------------------------
Unregistered potential SBS dealers with potential SBS dealing
activity at 75% or less of the relevant de minimis threshold
accounted for a smaller proportion of new trade activity relative to
their numbers during the review period. These less-active
unregistered potential SBS dealers accounted for approximately 10%
of CDS market participants, approximately 3% of CDS new trade
activity, approximately 6% of non-CDS market participants, and
approximately 2% of non-CDS new trade activity.
Finally, Table 17 and Table 18 show that the overwhelming
majority of SBS market participants during the review period were
unregistered entities that appeared to be engaged in minimal or no
SBS dealing. These unregistered entities included unregistered
potential SBS dealers with potential SBS dealing activity below the
relevant de minimis thresholds; unregistered potential SBS dealers
that, after manual review, either appeared unlikely to be engaged in
significant SBS dealing or would not have surpassed the relevant de
minimis threshold if an affiliate had registered; unregistered
affiliates of dealers; likely special entities; CCPs in SBS; and all
other unregistered market participants without the indicia of SBS
dealing in staff's uniform filtering criteria. These end users and
other investors represented approximately 99% of CDS market
participants and approximately 99% of non-CDS market participants.
Unsurprisingly, they accounted for a significantly smaller share of
new trade activity relative to their numbers, entering into
approximately 20% of all CDS new trade activity and approximately
43% of all non-CDS new trade activity during the review period. It
is unclear whether this relatively smaller share of new trade
activity signals that these market participants were limited in
their ability to transact in SBS or, alternatively, that they
received all the liquidity that they sought.
BILLING CODE 8011-01-P
[[Page 24070]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.016
[[Page 24071]]
[GRAPHIC] [TIFF OMITTED] TN04MY26.017
ii. Effects on Investor Protection
BILLING CODE 8011-01-C
Providing regulatory protections to certain classes of
counterparties such as special entities, natural persons, small
businesses, and commercial entities, is a fundamental policy goal
advanced by the Title VII regulatory framework for the SBS market.
To meet Title VII's requirement of heightened
[[Page 24072]]
protection for special entities,\141\ Rule 3a71-2 includes a lower
notional threshold of $25 million for SBS dealing activity with
counterparties that are special entities.\142\
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\141\ See Entity Definitions Adopting Release, 77 FR 30630. For
these purposes, ``special entity'' means: (i) A Federal agency; (ii)
a State, State agency, city, county, municipality, or other
political subdivision of a State; (iii) any employee benefit plan,
as defined in Section 3 of the Employee Retirement Income Security
Act of 1974, 29 U.S.C. 1002 (``ERISA''); (iv) any governmental plan,
as defined in Section 3 of ERISA; or (v) any endowment, including an
endowment that is an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986. See Exchange Act Section
15F(h)(2)(C), 15 U.S.C. 78o-10(h)(2)(C).
\142\ See Rule3a71-2(a)(1)(iii).
---------------------------------------------------------------------------
When the Commission adopted the rules further defining the term
``security-based swap dealer,'' it estimated that in 2011 special
entities were counterparties to over $40 billion in single-name CDS
transactions.\143\ Data regarding transactions in non-CDS was not
available at that time.\144\ In 2024, market participants likely to
be special entities had total new trade activity of approximately
$782 billion,\145\ including $4 billion in CDS and $778 billion in
non-CDS. The significantly higher total notional amounts of likely
special entities' 2024 new trade activity in non-CDS compared to CDS
thus was consistent with the same pattern in the SBS market as a
whole.
---------------------------------------------------------------------------
\143\ See Entity Definitions Adopting Release, 77 FR 30642.
\144\ See note 63, supra, and accompanying text.
\145\ The approximately $782 billion in new trade activity
attributed to likely special entities was slightly more than the
approximately $781.2 billion in new trade activity attributed to
their counterparties because the notional amounts of new trade
activity events that did not appear to be SBS dealing were not
included in the $781.2 billion attributed to counterparties of
likely special entities.
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During the review period, almost exclusively registered SBSDs
engaged in new trade activity with market participants likely to be
special entities. The population of 53 registered SBSDs as of
December 31, 2024, was close to the Commission's 2012 estimate that
approximately 50 SBS market participants would register.\146\ All
but a small number of registered SBSDs had potential SBS dealing
activity above one or more de minimis thresholds during the review
period.
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\146\ See Entity Definitions Adopting Release, 77 FR 30725.
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Unregistered potential SBS dealers did not engage in new trade
activity with special entities during the review period. This result
suggests that special entities may have been generally unable and/or
unwilling to transact in SBS with market participants who were not
registered SBSDs. The relatively lower $25 million de minimis
threshold, which reflects Title VII's goal of providing special
entities with heightened SBS market protections, may explain any
absence of unregistered potential SBS dealers willing to transact
with special entities. A lower de minimis threshold for SBS dealing
with special entities thus may have little effect on the
availability of counterparties to special entities, while a higher
threshold may or may not increase available counterparties. It
remains unclear, however, whether special entities sought but were
unable to find SBS transactions with unregistered potential SBS
dealers or, alternatively, whether they preferred transacting with
registered SBSDs given their organizational responsibilities and the
special duties that registered SBSDs owe to them.\147\
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\147\ See generally Business Conduct Standards for Security-
Based Swap Dealers and Major Security-Based Swap Participants,
Release No. 34-77617 (Apr. 14, 2016), 81 FR 29959, 30010-11 (May 13,
2016), available at <a href="https://www.govinfo.gov/content/pkg/FR-2016-05-13/pdf/2016-10918.pdf">https://www.govinfo.gov/content/pkg/FR-2016-05-13/pdf/2016-10918.pdf</a>.
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4. Requests for Comment
Comments are invited on all aspects of this report's analysis of
SBS transaction reports and its assessment of the effects of the
definition of ``security-based swap dealer.'' Please provide any
supporting evidence that the Commission should consider. In
particular:
1. Are the methods for estimating new trade activity, potential
SBS dealing activity, and special entity status reasonable? Why or
why not? Would any alternative approaches to these estimates be more
appropriate for one or more asset classes? If yes, what are the
alternative approaches and why would they be more appropriate?
2. What information should the Commission use to identify market
participants more likely to be engaged in SBS dealing? Which data
elements of the SBS transaction reports, with or without
supplemental information from third-party commercial sources,
contain that information? Would different approaches be more
appropriate for different asset classes? If yes, which approaches
and which asset classes and why would they be more appropriate?
3. Are the findings in this report regarding the current de
minimis thresholds to the definition of ``security-based swap
dealer'' consistent with market participants' experience? Why or why
not? Are these thresholds affecting SBS market activity in ways that
this report does not address? If yes, what effect are they having
and why?
4. Are the findings in this report regarding the scheduled or
hypothetical alternative de minimis thresholds addressed in this
report consistent with market participants' experience? Why or why
not? Would these thresholds affect SBS market activity in ways that
this report does not address? If yes, what effect would they have
and why?
[…truncated; see source link]Indexed from Federal Register on May 4, 2026.
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