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A proposed rule change filed under file number should be included on the ACTION: Notice of application for Rule 19b–4(f)(6) 16 normally does not subject line if email is used. To help the substituted compliance determination; become operative for 30 days after the Commission process and review your proposed order. date of the filing. However, pursuant to comments more efficiently, please use Rule 19b–4(f)(6)(iii),17 the Commission only one method. The Commission will SUMMARY: The Securities and Exchange may designate a shorter time if such post all comments on the Commission’s Commission (‘‘Commission’’ or ‘‘SEC’’) action is consistent with the protection internet website (http://www.sec.gov/ is soliciting public comment on an of investors and the public interest. The rules/sro.shtml). Copies of the application by the Bundesanstalt fu¨ r Exchange has asked the Commission to submission, all subsequent Finanzdienstleistungsaufsicht (‘‘BaFin’’) waive the 30-day operative delay to amendments, all written statements requesting that, pursuant to rule 3a71– allow the Exchange to make the with respect to the proposed rule 6 under the Securities Exchange Act of proposed changes to its rules without change that are filed with the 1934 (‘‘Exchange Act’’), the Commission unnecessary delay in order to be Commission, and all written determine that registered security-based consistent with those already in place communications relating to the swap dealers and registered major on BZX, its affiliate. The Commission proposed rule change between the security-based swap participants (‘‘SBS notes that the proposed rule change is Commission and any person, other than Entities’’) that are not U.S. persons and based on and substantively identical to those that may be withheld from the that are subject to certain regulation in 18 the rules of BZX. For this reason, the public in accordance with the the Federal Republic of Germany Commission believes that waiver of the provisions of 5 U.S.C. 552, will be (‘‘Germany’’) may comply with certain 30-day operative delay is consistent available for website viewing and requirements under the Exchange Act with the protection of investors and the printing in the Commission’s Public via compliance with corresponding public interest. Accordingly, the Reference Room, 100 F Street NE, requirements of Germany and the Commission waives the 30-day Washington, DC 20549 on official European Union. The Commission also operative delay and designates the is soliciting comment on a proposed 19 business days between the hours of proposal operative upon filing. 10:00 a.m. and 3:00 p.m. Copies of the Order providing for the conditional At any time within 60 days of the filing also will be available for availability of substituted compliance in filing of the proposed rule change, the inspection and copying at the principal connection with the application. Commission summarily may office of the Exchange. All comments DATES: Submit comments on or before temporarily suspend such rule change if received will be posted without change. December 8, 2020. it appears to the Commission that such Persons submitting comments are ADDRESSES: Comments may be action is necessary or appropriate in the cautioned that we do not redact or edit submitted by any of the following public interest, for the protection of methods: investors, or otherwise in furtherance of personal identifying information from comment submissions. You should the purposes of the Act. Electronic Comments submit only information that you wish IV. Solicitation of Comments to make available publicly. All • Use the Commission’s internet Interested persons are invited to submissions should refer to File comment form (http://www.sec.gov/ submit written data, views, and Number SR–CboeBYX–2020–031 and rules/proposed.shtml); or • arguments concerning the foregoing, should be submitted on or before Send an email to rule-comments@ including whether the proposed rule December 4, 2020. sec.gov. Please include File Number S7– 16–20 on the subject line. change is consistent with the Act. For the Commission, by the Division of Comments may be submitted by any of Trading and Markets, pursuant to delegated Paper Comments the following methods: authority.20 • Send paper comments to Vanessa Electronic Comments J. Matthew DeLesDernier, A. Countryman, Secretary, Securities • Use the Commission’s internet Assistant Secretary. and Exchange Commission, 100 F Street comment form (http://www.sec.gov/ [FR Doc. 2020–25056 Filed 11–12–20; 8:45 am] NE, Washington, DC 20549–1090. rules/sro.shtml); or BILLING CODE 8011–01–P All submissions should refer to File • Send an email to rule-comments@ Number S7–16–20. This file number sec.gov. Please include File Number SR– should be included on the subject line CboeBYX–2020–031 on the subject line. SECURITIES AND EXCHANGE if email is used. To help the COMMISSION Paper Comments Commission process and review your comments more efficiently, please use • Send paper comments in triplicate [Release No. 34–90378; S7–16–20] only one method. The Commission will to Secretary, Securities and Exchange post all comments on the Commission’s Commission, 100 F Street NE, Notice of Substituted Compliance internet website (http://www.sec.gov/ Washington, DC 20549–1090. Application Submitted by the rules/proposed.shtml). Comments are All submissions should refer to File Bundesanstalt fu¨ r also available for website viewing and Number SR–CboeBYX–2020–031. This Finanzdienstleistungsaufsicht in printing in the Commission’s Public Connection With Certain Requirements Reference Room, 100 F Street NE, of the proposed rule change, or such shorter time Applicable to Security-Based Swap Washington, DC 20549, on official as designated by the Commission. The Exchange has satisfied this requirement. Entities Subject to Regulation in the business days between the hours of 16 17 CFR 240.19b–4(f)(6). Federal Republic of Germany; 10:00 a.m. and 3:00 p.m. All comments 17 17 CFR 240.19b–4(f)(6)(iii). Proposed Order received will be posted without change. 18 See supra note 3. Persons submitting comments are 19 For purposes only of waiving the 30-day AGENCY: Securities and Exchange cautioned that the Commission does not operative delay, the Commission has also Commission. considered the proposed rule’s impact on redact or edit personal identifying efficiency, competition, and capital formation. See information from comment submissions. 15 U.S.C. 78c(f). 20 17 CFR 200.30–3(a)(12). You should submit only information

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that you wish to make publicly subject to the relevant requirements under rule 3a71–6 also does not extend available. under section 15F, and the Commission to certain other provisions of the FOR FURTHER INFORMATION CONTACT: would retain the authority to inspect, Exchange Act that apply to security- 12 Carol M. McGee, Assistant Director or examine and supervise those SBS based swap transactions. SBS Entities Laura Compton, Senior Special Counsel Entities’ compliance and take in Germany accordingly must comply 3 at 202–551–5870, Office of Derivatives enforcement action as appropriate. directly with those requirements, as Policy, Division of Trading and Markets, Substituted compliance potentially is applicable, regardless of whether the Securities and Exchange Commission, available in connection with section 15F Commission grants the present requirements regarding: (1) Business application. 100 F Street NE, Washington, DC 4 20549–7010. conduct and supervision; (2) chief compliance officers; 5 (3) trade 2. Prerequisites to Substituted SUPPLEMENTARY INFORMATION: The acknowledgment and verification; 6 (4) Compliance Commission is soliciting public capital; 7 (5) margin; 8 (6) recordkeeping a. Comparability of Regulatory comment on an application by BaFin and reporting; 9 and (7) portfolio Outcomes requesting that the Commission reconciliation, portfolio compression determine that SBS Entities that are not As a prerequisite to substituted and trading relationship U.S. persons and that are subject to compliance, rule 3a71–6 provides that documentation.10 certain regulation in Germany may the Commission must determine that Substituted compliance is not the analogous foreign requirements are satisfy certain requirements under the available for antifraud prohibitions and Exchange Act by complying with ‘‘comparable’’ to the applicable information-related requirements under requirements under the Exchange Act, comparable requirements in Germany section 15F.11 Substituted compliance including relevant European Union after accounting for factors that the Commission determines are appropriate, (‘‘EU’’) requirements. The Commission 3 The Commission has the authority to bring an also is soliciting comment on a enforcement action against a non-U.S. SBS Entity ‘‘such as the scope and objectives of the proposed Order, set forth in Attachment for failure to comply with applicable requirements relevant foreign regulatory requirements A, providing for the conditional under the Exchange Act if the firm has failed to . . . , as well as the effectiveness of the comply with the corresponding foreign supervisory compliance program availability of substituted compliance in requirements. See also section VII.B.3. of this connection with that application. release. administered, and the enforcement 4 See Exchange Act rule 3a71–6(d)(1) (providing authority exercised’’ by the foreign I. Background that substituted compliance generally is available in authority.13 A. Substituted Compliance Under connection with the business conduct and In making those assessments, the supervision requirements of Exchange Act sections Commission has explained that it will Exchange Act Rule 3a71–6 15F(h) and (j) and Exchange Act rules 15Fh–3 through 15Fh–6). But see note 11, infra (addressing ‘‘endeavor to take a holistic approach in 1. Potential Scope of Availability the fact that substituted compliance does not extend considering whether regulatory Exchange Act rule 3a71–6 to section 15F antifraud prohibitions and requirements are comparable . . . and conditionally provides that non-U.S. information-related requirements). will focus on the comparability of 5 See Exchange Act rule 3a71–6(d)(2) (providing regulatory outcomes rather than SBS Entities may satisfy certain that substituted compliance is available in requirements under Exchange Act connection with the chief compliance officer predicating substituted compliance on section 15F by complying with requirements of Exchange Act section 15F(k) and requirement-by-requirement comparable regulatory requirements of a Exchange Act rule 15Fk–1). similarity.’’ 14 foreign jurisdiction.1 This substituted 6 See Exchange Act rule 3a71–6(d)(3) (providing that substituted compliance is available in compliance framework does not requirements pursuant to Exchange Act sections connection with the trade acknowledgment and 15F(a) and (b). constitute exemptive relief, but instead verification requirements of Exchange Act section 12 Substituted compliance under rule 3a71–6 15F(i) and Exchange Act rule 15Fi–2). provides an alternative method by accordingly is not available in connection with 7 which non-U.S. SBS Entities may See Exchange Act rule 3a71–6(d)(4)(i) security-based swap dealer requirements such as: (providing that substituted compliance is available (a) Additional antifraud prohibitions (see Exchange comply with applicable U.S. in connection with the security-based swap dealer requirements.2 The non-U.S. SBS Act section 10(b), Exchange Act rule 10b-5, and capital requirements of Exchange Act section Securities Act of 1933 section 17(a)); (b) Entities accordingly would remain 15F(e)). requirements related to transactions with 8 See Exchange Act rule 3a71–6(d)(5)(i) counterparties that are not eligible contract 1 On August 6, 2021, market participants will (providing that substituted compliance is available participants (‘‘ECPs’’) (see Exchange Act section begin to count security-based swap positions in connection with the security-based swap dealer 6(l); Securities Act of 1933 section 5(e)); (c) toward the thresholds for registration with the margin requirements of Exchange Act section segregation of customer assets (see Exchange Act Commission as a security-based swap dealer or 15F(e)). section 3E; Exchange Act rule 18a–4); (d) required major security-based swap participant. See Capital, 9 See Exchange Act rule 3a71–6(d)(6) (providing clearing upon counterparty election (see Exchange Margin, and Segregation Requirements for Security- that substituted compliance is available in Act section 3C(g)(5)); (e) regulatory reporting and Based Swap Dealers and Major Security-Based connection with the recordkeeping and reporting public dissemination (see generally Regulation Swap Participants and Capital and Segregation requirements of Exchange Act section 15F and SBSR, 17 CFR 242.900 et seq.); and (f) registration Requirements for Broker-Dealers, 84 FR 43872, Exchange Act rules 18a–5 through 18a–9). of offerings (see Securities Act of 1933 section 5). 53954 (Aug. 22, 2019); see also Rule Amendments 10 See Exchange Act rule 3a71–6(d)(7) (providing 13 Exchange Act rule 3a71–6(a)(2)(i). and Guidance Addressing Cross-Border Application that substituted compliance is available in 14 See Business Conduct Adopting Release, 81 FR of Certain Security-Based Swap Requirements, 85 connection with the portfolio reconciliation, at 30078 (further recognizing that ‘‘different FR 6270, 6345–49 (Feb. 4, 2020). portfolio compression, and trading relationship regulatory systems may be able to achieve some or 2 ‘‘[I]n the Commission’s view, the potential for documentation requirements of Exchange Act all of those regulatory outcomes by using more or substituted compliance will help to promote the section 15F(i) and Exchange Act rules 15Fi–3 fewer specific requirements than the Commission, effective application of Title VII requirements, by through 15Fi–5). and that in assessing comparability the Commission making it less likely that certain market participants 11 See Exchange Act rule 3a71–6(d)(1) (specifying may need to take into account the manner in which that are complying with comparable foreign that substituted compliance is not available in other regulatory systems are informed by business requirements will determine that they need to connection with the antifraud provisions of and market practices in those jurisdictions’’). The choose between modifying their business conduct Exchange Act section 15F(h)(4)(A) and Exchange Commission added that its assessment of a foreign systems to reflect the requirements of U.S. rules, or Act rule 15Fh–4(a), and the information-related authority’s supervisory and enforcement else limiting or ceasing their participation in the provisions of Exchange Act sections 15F(j)(3) and effectiveness—as part of the broader comparability U.S. market.’’ Exchange Act Release No. 77617 15F(j)(4)(B)). analysis—would be expected to consider not only (Apr. 14, 2016), 81 FR 29960, 30074 (May 13, 2016) Substituted compliance also is not available for overall oversight activities, but also oversight (‘‘Business Conduct Adopting Release’’). security-based swap dealer registration Continued

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b. Memorandum of Understanding In the Commission’s preliminary view, in connection with its security-based Rule 3a71–6 also predicates BaFin has satisfied this prerequisite as swap activity. of the date of the application.18 substituted compliance on the B. Relevant Section 15F Requirements Commission entering into a supervisory B. Commission rule 0–13 and BaFin requests that the Commission and enforcement memorandum of publication of notice for comment issue an order determining that—for understanding and/or other arrangement Commission rule 0–13 addresses substituted compliance purposes— with the relevant foreign financial procedures for filing substituted applicable requirements in Germany are regulatory authority ‘‘addressing compliance applications, and provides comparable with the following supervisory and enforcement that the Commission will publish notice requirements under Exchange Act cooperation and other matters arising when a completed application has been section 15F: under the substituted compliance submitted. The rule further provides Risk control requirements— determination.’’ 15 The Commission and that any person may submit to the Requirements related to internal risk BaFin are in the process of negotiating Commission ‘‘any information that management systems, trade a memorandum of understanding to relates to the Commission action acknowledgment and verification, address cooperation matters related to 19 16 requested in the application.’’ portfolio reconciliation and dispute substituted compliance. resolution, portfolio compression and II. Germany’s Substituted Compliance c. ‘‘Adequate Assurances’’ trading relationship documentation.21 Request Internal supervision, chief compliance Finally, rule 3a71–6 states that a BaFin has submitted a completed officer and additional section 15F(j) foreign regulatory authority may submit substituted compliance application to requirements—Requirements related to a substituted compliance application the Commission.20 Pursuant to rule 0– diligent supervision and chief only if the authority provides ‘‘adequate 13, the Commission is publishing notice compliance officers, as well as assurances’’ that no law or policy would of the application together with a requirements related to conflicts of impede the ability of any entity that is proposed Order to conditionally grant interest and information gathering directly supervised by the authority and substituted compliance to certain under Exchange Act section 15F(j).22 that may register with the Commission German SBS Entities in connection with Counterparty protection ‘‘to provide prompt access to the certain requirements under the requirements—Requirements related to Commission to such entity’s books and Exchange Act. The Commission will disclosure of material risks and records or to submit to onsite inspection 17 consider public comments on BaFin’s characteristics and material incentives or examination by the Commission.’’ application and the proposed Order. or conflicts of interest, disclosure of BaFin’s application seeks substituted daily marks, fair and balanced specifically directed at conduct and activity relevant to the substituted compliance compliance for German market communications, disclosure of clearing determination. ‘‘For example, it would be difficult participants in connection with a rights, ‘‘know your counterparty’’ and for the Commission to make a comparability number of requirements under suitability of recommendations.23 determination in support of substituted compliance Exchange Act section 15F. Recordkeeping, reporting, and if oversight is directed solely at the local activities notification requirements— of foreign security-based swap dealers, as opposed A. Relevant Market Participants to the cross-border activities of such dealers.’’ Id. Requirements related to making and at 30079 (footnote omitted). The Commission will consider keeping current certain prescribed 15 Exchange Act rule 3a71–6(a)(2)(ii). The whether to make substituted compliance records, the preservation of records, Commission has explained that this prerequisite available to any entity that: (i) Is reporting, and notification.24 ‘‘should help ensure that both regulators will registered with the Commission as a cooperate with each other within the substituted C. Comparability Considerations and compliance framework, such that both regulators security-based swap dealer or major have information that will assist them in fulfilling security-based swap participant; (ii) is Proposed Order their respective regulatory mandates.’’ Business not a U.S. person; (iii) has been Because Germany is a member of the Conduct Adopting Release, 81 FR at 30074–75. authorized by BaFin as an investment European Union, market participants in 16 The Commission and BaFin will need to have in place a current memorandum of understanding firm or credit institution; and (iv) is or other arrangement addressing matters related to subject to relevant German and EU 21 See part IV, infra. substituted compliance before the Commission may financial regulatory requirements and to 22 See part V, infra. issue a final order allowing Covered Entities to use supervision and enforcement by BaFin 23 See part VI, infra. BaFin is not requesting substituted compliance to satisfy obligations under substituted compliance in connection with: Eligible the Exchange Act. The Commission expects to contract participant (‘‘ECP’’) verification publish any such memorandum of understanding or considering a substituted compliance application in requirements (Exchange Act section 15F(h)(3)(A) other arrangement on its website at www.sec.gov connection with that jurisdiction.’’ Business and Exchange Act rule 15Fh–3(a)(1)); ‘‘special under the ‘‘Substituted Compliance’’ tab located on Conduct Adopting Release, 81 FR at 30081. entity’’ provisions (Exchange Act sections the ‘‘Security-Based Swap Markets’’ page. 18 This took into account information and 15F(h)(4)–(5) and Exchange Act rules 15Fh–3(a)(2)– 17 Exchange Act rule 3a71–6(c)(3) (also stating representations that BaFin provided regarding (3), 15Fh–4(b) and 15Fh–5); and political that for applications by market participants—rather certain German and EU requirements that are contribution provisions (Exchange Act rule 15Fh– than by foreign regulatory authorities—each relevant to the Commission’s ability to inspect, and 6). applicant must provide the certification and access the books and records of, security-based 24 See part VII, infra. The application does not opinion of counsel related to Commission access swap dealers in Germany. seek substituted compliance with respect to capital that is described in the registration application 19 See Commission rule 0–13(h). That paragraph or margin requirements. The Commission does not provisions of Exchange Act rule 15Fb2–4(c)). The adds that the Commission may take final action on administer or oversee capital and margin Commission has explained that this prerequisite a substituted compliance application no earlier than requirements for prudentially regulated SBS (and its analogue for applications submitted by 25 days following publication of the notice in the Entities. The Commission has preliminarily market participants) should promote efficiency by Federal Register. determined to focus its analysis on the focusing substituted compliance assessments on 20 See Letter from Elisabeth Roegele, Chief recordkeeping, reporting, and notification those jurisdictions that are capable of allowing the Executive Director of Securities Supervision and requirements that apply to prudentially regulated Commission to have the requisite access to Deputy President, BaFin, to Vanessa Countryman, SBS entities and is deferring consideration of registered entities. ‘‘In other words, if a jurisdiction Secretary, Commission, dated Nov. 6, 2020 (‘‘BaFin requirements that apply to non-prudentially has blocking statutes or other laws or policies that Application’’). The application is available on the regulated SBS Entities until it receives an would preclude the registration of such dealers and Commission’s website at: https://www.sec.gov/files/ application seeking substituted compliance for major participants with the Commission, there germany-BaFin-complete-application-substituted- capital and margin requirements. The Commission would be no purpose to the Commission compliance-11062020.pdf. is seeking commenters’ views on this issue below.

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Germany are subject to German In the view of BaFin, German and EU Exchange Act, non-compliance with the regulations implemented pursuant to requirements taken as a whole produce applicable German and EU requirements EU directives, and to applicable EU regulatory outcomes that are comparable would lead to a violation of those regulations. Those include requirements to those of the relevant requirements requirements under the Exchange Act related to: Organization, compliance under the Exchange Act. In support, the and potential enforcement action by the and conduct; 25 risk-mitigation; 26 application incorporates and relies on a Commission (as opposed to automatic prudential matters; 27 and certain other series of European Commission analyses revocation of the substituted matters relevant to the application.28 that compare EU requirements with compliance order). applicable requirements under the III. Applicable Entities and General 25 Relevant elements of the EU’s Markets in Exchange Act, in addition to analyses Conditions Financial Instruments Directive (‘‘MiFID’’), specific to German law and practices.29 Directive 2014/65/EU, have been implemented in Germany via amendments to the Securities Trading In the Commission’s preliminary A. Entities for Which Conditional Act—Wertpapierhandelsgesetz (‘‘WpHG’’). MiFID view, requirements under the Exchange Substituted Compliance Is Available and WgHG address, inter alia, organizational, Act and German/EU requirements Under the proposed Order, compliance and conduct requirements applicable to maintain similar approaches with nonbank ‘‘investment firms.’’ In significant part, substituted compliance would be those requirements also apply to credit institutions respect to achieving regulatory goals in available to ‘‘Covered Entities’’—a term that provide investment services or perform several respects, but follow differing that limits the availability of substituted investment activities. See MiFID art. 1(3); WpHG approaches or incorporate disparate compliance to SBS Entities that are sec. 2(10) (WpHG definition of ‘‘investment services elements in certain other respects. The enterprises’’). Commission Delegated Regulation subject to applicable German and EU (EU) 2017/565 (‘‘MiFID Org Reg’’) in part Commission has considered those requirements and oversight. Consistent supplements MiFID with respect to organizational similarities and differences when with the parameters of substituted requirements for firms. The Markets in Financial analyzing comparability and developing compliance under Exchange Act rule Instruments Regulation (‘‘MiFIR’’), Regulation (EU) 648/2012, generally addresses trading venues and preliminary views in light of the 3a71–6, the proposed ‘‘Covered Entity’’ transparency. Commission Delegated Directive (EU) Commission’s holistic, outcomes- definition provides that the relevant 2017/593 (‘‘MiFID Delegated Directive’’) in part oriented framework for assessing entities must be security-based swap supplements MiFID with regard to safeguarding comparability. dealers or major security-based swap client property, and in Germany is implemented in In this context, the Commission relevant part by the WpHG. Directive (EU) 2015/849 participants registered with the (‘‘MLD’’) addresses requirements on the prevention recognizes that other regulatory regimes Commission, and that those entities of the use of the financial system for the purposes will have exclusions, exceptions and cannot be U.S. persons.30 of money laundering or terrorist financing, and in exemptions that may not align perfectly The proposed ‘‘Covered Entity’’ Germany has been implemented by the Money Laundering Act—Geldwa¨schegesetz (‘‘GwG’’). with the corresponding requirements definition further would provide that 26 The European Market Infrastructure Regulation under the Exchange Act. Where the the entities must be investment firms or (‘‘EMIR’’), Regulation (EU) 648/2012, in part Commission preliminarily has found credit institutions that BaFin has imposes certain risk-mitigation requirements on that the German regime produces authorized to provide investment counterparties in connection with uncleared OTC comparable outcomes notwithstanding transactions. Delegated Regulation (EU) 149/2013 services or perform investment activities (‘‘EMIR RTS’’) supplements EMIR with various those particular differences, the in Germany.31 This is intended to help regulatory technical standards, including standards Commission proposes to make a ensure that those entities are subject to addressing confirmations, portfolio reconciliation, positive determination on substituted relevant German and EU requirements portfolio compression and dispute resolution. Delegated Regulation (EU) 2016/2251 (‘‘EMIR compliance. Where the Commission and oversight. preliminarily has found that those Margin RTS’’) further supplements EMIR with B. General Conditions and Prerequisites regulatory technical standards related to risk exclusions, exemptions and exceptions mitigation techniques. lead to outcomes that are not Substituted compliance under the 27 The EU’s Capital Requirements Directive IV comparable, however, the proposal proposed Order would be subject to a (‘‘CRD’’), Directive 2013/36/EU has been adopted in number of conditions and other Germany via amendments to the Banking Act— would not provide for substituted Gesetz u¨ ber das Kreditwesen (‘‘KWG’’). CRD and compliance. prerequisites, in part to help ensure that KWG set forth prudential requirements and certain Accordingly, based on the the relevant German and EU related requirements applicable to credit Commission’s analysis of the requirements that form the basis for institutions and certain nonbank investment firms. substituted compliance in practice will Certain CRD requirements regarding reporting application and review of relevant obligations have been incorporated into German German and EU requirements, the apply to the SBS Entity’s security-based law by the Finanzdienstleistungsaufsichtsgesetz Commission is proposing an Order, swap business and activities. (‘‘FinDAG’’). The Capital Requirements Regulation located at Attachment A, granting (‘‘CRR’’), Regulation (EU) 575/2013 further 1. ‘‘Subject to and Complies With’’ addresses prudential requirements and related substituted compliance subject to Applicability Provisions recordkeeping requirements for credit institutions specific conditions and limitations. and certain investment firms. Commission When SBS Entities seek to rely on Each relevant section of the proposed Implementing Regulation (EU) 680/2014 (‘‘CRR substituted compliance to satisfy Order would be subject to the condition Reporting ITS’’) sets forth implementing technical particular requirements under the that the Covered Entity ‘‘is subject to standard regarding supervisory reporting. Pursuant and complies with’’ the applicable to amendments that will become effective in June 2021, the requirements of CRD and the CRR will 2016/958, supplements MAR with respect to German and EU requirements that are apply to credit institutions and to certain nonbank regulatory technical standards regarding investment needed to establish comparability.32 undertakings (that carry on activities involving recommendations. Accordingly, the proposed Order would dealing, portfolio management, investment advice 29 BaFin’s application incorporates and builds not provide substituted compliance and underwriting/placing) that meet specified upon European Commission analyses related to: thresholds (e.g., consolidated assets of Ö30 billion Risk control (see BaFin application Annex A or more). See generally Investment Firms category 1), books and records (see BaFin 30 See para. (f)(1)(i)–(ii) to the proposed Order. Regulation (‘‘IFR’’), Regulation (EU) 2019/2033, art. application Annex A category 2), internal 31 See para. (f)(1)(iii) to the proposed Order. 62 (amending certain definitions in the CRR). supervision and compliance (see BaFin application 32 E.g., para. (d)(1) to the proposed Order 28 The Market Abuse Regulation (‘‘MAR’’), Annex A category 3), and counterparty protection (providing for conditional substituted compliance Regulation (EU) 596/2014, sets forth requirements (see BaFin application Annex A category 4). These in connection with certain disclosure provisions to enhance market integrity and investor protection. analyses are available on the Commission’s website provided that the Covered Entity ‘‘is subject to and The MAR Investment Recommendations along with the remainder of BaFin’s application. complies’’ with specified German and EU Regulation, Commission Delegated Regulation (EU) See note 20, supra. requirements related to disclosure).

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when an SBS Entity is excused from and German requirements adopted prerequisites to substituted compliance compliance with relevant foreign pursuant to those provisions.36 with respect to supervision and provisions, such as, for example, would • CRD ‘‘institutions’’—The Covered enforcement are satisfied in fact, the be the case if the German or EU Entity must be an ‘‘institution’’ for proposed Order would provide requirements that the Commission has purposes of applicable provisions under substituted compliance only if one of deemed comparable for purposes of the CRD, KWG and CRR and/or other EU those authorities is BaFin.41 proposed Order do not apply to the and German requirements adopted pursuant to those provisions.37 IV. Substituted Compliance for Risk security-based swap activities of a third- Control Requirements country branch of a German SBS Entity. • Memorandum of Understanding— In that event, the Covered Entity would The Commission and BaFin have an A. BaFin Request and Associated not be ‘‘subject to’’ those requirements, applicable memorandum of Analytic Considerations understanding or other arrangement and the Covered Entity could not rely BaFin’s application in part requests addressing cooperation with respect to on substituted compliance in substituted compliance in connection 33 the substituted compliance Order at the connection with those activities. with risk control requirements under time the Covered Entity makes use of 2. Additional General Conditions 38 the Exchange Act relating to: substituted compliance. • Risk management systems—An • Notice of reliance on substituted internal risk management system is Substituted compliance under the compliance—An SBS Entity relying on required pursuant to Exchange Act proposed Order further would be the substituted compliance order must section 15F(j)(2) and relevant aspects of subject to general conditions intended provide notice of its intent to rely on the Exchange Act rule 15Fh–3(h)(2)(iii)(I).42 to help ensure the applicability of order by notifying the Commission in These provisions address the obligation relevant German and EU requirements. writing.39 In particular: of registered entities to follow policies and procedures reasonably designed to • MiFID ‘‘investment services or 3. European Union Cross-Border Matters For some EU requirements under help manage the risks associated with activities’’—The SBS Entity’s security- 43 MiFID (and other EU and German their business activities. based swap activities must constitute • Trade acknowledgment and ‘‘investment services or activities’’ for requirements adopted pursuant to MiFID), EU law allocates the verification—Trade acknowledgment purposes of applicable provisions under and verification is required pursuant to MiFID, WpHG and/or other EU and responsibility for supervising and enforcing those requirements to Exchange Act section 15F(i) and German requirements adopted pursuant Exchange Act rule 15Fi–2. These to those provisions, and must fall within authorities of the Member State in whose territory a Covered Entity provisions help avoid legal and the scope of the firm’s authorization operational risks by requiring definitive 34 provides certain services.40 To help from BaFin. written records of transactions and for ensure that the prerequisites to • MiFID ‘‘clients’’—The SBS Entity’s procedures to avoid disagreements substituted compliance with respect to counterparties (or potential regarding the meaning of transaction supervision and enforcement are counterparties) must be ‘‘clients’’ (or terms.44 satisfied in fact, the proposed Order potential ‘‘clients’’) for purposes of • Portfolio reconciliation and dispute would provide substituted compliance applicable provisions under MiFID, reporting—Portfolio reconciliation and only if BaFin is the authority WpHG and/or other EU and German dispute reporting is required pursuant responsible for supervision and requirements adopted pursuant to those to Exchange Act section 15F(i) and enforcement of those EU requirements provisions.35 Exchange Act rule 15Fi–3. These under MiFID (and other EU and German • provisions require that counterparties MiFID ‘‘financial instruments’’— requirements adopted pursuant to The relevant security-based swaps must engage in portfolio reconciliation and MiFID) in relation to the particular resolve discrepancies in connection be ‘‘financial instruments’’ for purposes service for which substituted of MiFID, the WpHG and/or other EU with uncleared security-based swaps. compliance is used. These also require prompt notification Similarly, for some of the EU of the Commission and applicable 33 A SBS Entity’s ‘‘voluntary’’ compliance with requirements under MAR (and other EU the relevant German and EU requirements would requirements adopted pursuant to not suffice for these purposes. Substituted 41 See para. (a) to the proposed Order. compliance reflects an alternative means by which MAR), EU law allocates the 42 BaFin is not requesting substituted compliance an SBS Entity may comply with applicable responsibility for supervising and in connection with Exchange Act rules 18a–1(f) and requirements under the Exchange Act, and thus enforcing those requirements to 18a–2(c), which set forth additional internal risk mandates that the SBS Entity be subject to the authorities of potentially multiple management system requirements for nonbank requirements needed to establish comparability and security-based swap dealers and nonbank major face consequences arising from any failure to Member States. For those EU security-based swap participants. comply with those requirements. Moreover, the requirements under MAR (and other EU 43 See Exchange Act Release No. 68071 (Oct. 18, comparability assessment takes into account the requirements adopted pursuant to 2012), 77 FR 70214, 70250 (Nov. 23, 2012) effectiveness of the supervisory compliance MAR), to help ensure that the (proposing capital and margin requirements for program administered and the enforcement security-based swap dealers and major security- authority exercised by BaFin, which would not be based swap participants). BaFin’s application 36 expected to promote comparable outcomes when See paragraph (a)(3) to the proposed Order discusses German and EU requirements that compliance merely is ‘‘voluntary.’’ (requirement that relevant security-based swaps be address SBS Entities’ obligations related to risk 34 See paragraph (a)(1) to the proposed Order ‘‘financial instruments’’ as defined in MiFID art. management. See BaFin application Annex A (requiring that relevant activities constitute 4(1)(15) and WpHG sec. 2(4) in connection with category 1 at 9–21. applicable provisions). ‘‘investment services’’ or ‘‘investment activities’’ as 44 Exchange Act Release No. 78011 (Jun. 8, 2016), 37 defined in MiFID art. 4(1)(2) and WpHG sec. 2(8) See para. (a)(4) to the proposed Order 81 FR 39808, 39809 & 39820 (Jun. 17, 2019) (‘‘Trade in connection with applicable provisions). (requirement that relevant Covered Entities must be Acknowledgment and Verification Adopting 35 See paragraph (a)(2) to the proposed Order ‘‘institutions’’ as defined in CRD art. 3(1)(3), CRR Release’’). BaFin’s application discusses German (requirement that relevant counterparties or art. 4(1)(3) and KWG sec. 1(1b)). and EU requirements that address SBS Entities’ potential counterparties be ‘‘clients’’ or potential 38 See para. (a)(5) to the proposed Order; see also obligations related to confirmations and to ‘‘clients’’ as defined in MiFID art. 4(1)(9) and part I.A.2.b, supra. information to be provided to clients regarding WpHG sec. 67(1) in connection with applicable 39 See para. (a)(6) to the proposed Order. executed orders. See BaFin application Annex A provisions). 40 See MiFID art. 35(8). category 1 at 22–39.

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prudential regulators regarding certain responsibility, risk mitigation and German and EU requirements and the valuation disputes.45 documentation practices that are applicable risk control requirements • Portfolio compression—Portfolio appropriate to the risks associated with under the Exchange Act. In the compression is required pursuant to their security-based swap businesses. Commission’s preliminary view, on Exchange Act section 15F(i) and Substituted compliance accordingly balance, those differences would not be Exchange Act rule 15Fi–4. These would be conditioned on SBS Entities inconsistent with substituted provisions require that SBS Entities being subject to the German and EU compliance for these requirements. As have procedures addressing bilateral provisions that in the aggregate establish noted, requirement-by-requirement offset, bilateral compression and a framework that produces outcomes similarity is not needed for substituted multilateral compression in connection comparable to those associated with the compliance.49 with uncleared security-based swaps.46 risk control requirements under the • Trading relationship Exchange Act.48 2. Additional Conditions documentation—Trading relationship In reaching these preliminary views, Substituted compliance in connection documentation is required pursuant to the Commission recognizes that there with these requirements would be Exchange Act section 15F(i) and are certain differences between those subject to certain additional conditions Exchange Act rule 15Fi–5. These to help ensure the comparability of provisions require that SBS Entities 48 In connection with risk management system outcomes: have procedures to execute written requirements, Covered Entities particularly must comply with: MiFID art. 16(4)–(5) and WpHG sec. security-based swap trading relationship a. Trading Relationship 80 (addressing administrative and accounting Documentation—MiFID ‘‘Eligible documentation with their counterparties procedures, internal control mechanisms, risk prior to, or contemporaneously with, assessment procedures and information processing Counterparty’’ Exception Not executing certain security-based system safeguards); MiFID Org Reg art. 21–24 Applicable (addressing risk management and internal audit); 47 swaps. CRD art. 74, 76 and 79–87 and KWG sections 25a, Under the proposed Order, Taken as a whole, these risk control 25b, 25c (other than 25c(2)), 25d (other than 25d(3) substituted compliance in connection requirements help to promote market and 25d(11)) (addressing internal governance and with the trading relationship stability by mandating that registered the treatment of various categories of risk); and documentation provisions of Exchange EMIR Margin RTS art. 2 (addressing required risk entities follow practices that are management procedures for the exchange of Act rule 15Fi–5 would be conditioned appropriate to manage the market, collateral for non-centrally cleared over-the-counter on the requirement that the non-U.S. counterparty, operational and legal risks derivatives contracts); CRR art. 286–88 and 293 firm not treat its counterparties as associated with their security-based (addressing counterparty credit risk management and risk management systems); EMIR Margin RTS ‘‘eligible counterparties’’ for purposes of swap businesses. The Commission’s art. 2 (addressing general provisions for risk the relevant MiFID provisions needed to comparability assessment accordingly management procedures). para. (b)(1) to the establish comparability.50 focuses on whether the analogous proposed Order. In connection with trade Certain of the relevant German and acknowledgement and verification requirements, foreign requirements—taken as a firms must comply with MiFID art. 25(6) and EU requirements that provide for this whole—produce comparable outcomes WpHG sec. 63(12) (addressing reports on services), type of documentation 51 do not apply with regard to providing that registered MiFID Org Reg art. 59–61 (addressing essential to investment firms’ transactions with entities follow financial responsibility, information regarding executed orders and portfolio ‘‘eligible counterparties.’’ 52 The management), EMIR art. 11(1)(a) (addressing risk mitigation and documentation required bilateral confirmations for uncleared over- Commission is concerned that a foreign practices that are appropriate to the the-counter derivatives) and EMIR RTS art. 12 framework which completely excludes risks associated with their security- (addressing timeliness of confirmations). See para. based swap businesses. (b)(2) to the proposed Order. In connection with 49 See note 14, supra, and accompanying text. portfolio reconciliation and dispute reporting 50 See para. (b)(5)(ii) to the proposed Order requirements, firms must comply with EMIR art. B. Preliminary Views and Proposed (incorporating condition that the Covered Entity 11(1)(b) (addressing required portfolio cannot treat applicable counterparties as ‘‘eligible Order reconciliation and dispute resolution for uncleared counterparties’’ for purpose of MiFID art. 30 or over-the-counter derivatives) and EMIR RTS art. 13 1. General Considerations WpHG sec. 68). Because trading relationship and 15 (addressing further requirements related to documentation is an entity-level requirement, this portfolio reconciliation and dispute resolution). See In the Commission’s preliminary view condition generally would disapply the ‘‘eligible para. (b)(3) to the proposed Order. In connection based on BaFin’s application and the counterparty’’ exception in connection with all of with portfolio compression requirements, firms the entity’s applicable counterparties, including Commission’s review of applicable must comply with EMIR RTS art. 14 (also provisions, relevant German and EU addressing portfolio protection). See para. (b)(4) to non-U.S. counterparties. Rule 15Fi–5, however, the proposed Order. In connection with trading does not apply to existing security-based swaps, or requirements in general would produce to cleared and certain security-based swaps regulatory outcomes that are comparable relationship documentation requirements, firms must comply with: MiFID art. 25(5) and WpHG sec. executed anonymously on a national security to those associated with the above risk 83(2) (addressing required records of documents exchange or a security-based swap execution control requirements, by subjecting regarding parties’ rights and obligations and other facility. See rule 15Fi–5(a)(1). German SBS Entities to financial terms on which the investment firm will provide 51 E.g., MiFID art. 25(5) (requiring that investment services); MiFID Org Reg art. 24, 56, 58, 73 and firms establish a record that includes documents applicable parts of Annex I (addressing audit ‘‘that set out the rights and obligations of the 45 See Exchange Act Release No. 87782 (Dec. 18, requirements, records related to appropriateness parties, and the other terms on which the 2019), 85 FR 6359, 6360–61 (Feb. 4, 2020) (‘‘Risk assessments, client agreements and parties’ rights investment firm will provide services to the Mitigation Adopting Release’’). BaFin’s application and obligations); and EMIR Margin RTS art. 2 client’’); WpHG sec. 83(2); MiFID Org Reg art. 58. discusses German and EU requirements that (addressing general provisions for risk management 52 See MiFID art. 30(1); WpHG sec. 68. On the address portfolio reconciliation and dispute procedures, including procedures providing for or other hand, certain relevant EU provisions are not resolution and reporting. See BaFin application specifying the terms of agreements). See para. (b)(5) subject to this ‘‘eligible counterparty’’ exclusion. Annex A category 1 at 40–53. to the proposed Order. The above EMIR See EMIR Margin RTS art. 2 (requiring risk 46 See Risk Mitigation Adopting Release, 85 FR at requirements apply only to ‘‘OTC derivatives management procedures associated with the 6361. BaFin’s application discusses EU portfolio contracts,’’ which are defined as derivatives exchange of collateral, including procedures compression requirements. See BaFin application contracts not executed on certain ‘‘regulated providing for or specifying ‘‘the terms of all Annex A category 1 at 54–56. markets’’ or equivalent ‘‘third-country markets.’’ necessary agreements to be entered into by 47 See Risk Mitigation Adopting Release, 85 FR at See EMIR art. 2(7). The EMIR-related conditions counterparties’’ in connection with non-cleared 6361. BaFin’s application discusses German and EU accordingly will not impede substituted compliance OTC derivatives including terms of netting and requirements regarding records of rights, obligations in connection with exchange-traded or market- collateral exchange agreements); MiFID art. 25(6) and terms of investment firm services. See BaFin traded security-based swaps that do not constitute and MiFID Org Reg art. 59 (addressing required application Annex A category 1 at 56–62. ‘‘OTC derivatives contracts.’’ reports of services, including confirmations).

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compliance in connection with a competent authorities pursuant to EU procedures related to conflicts of particular category of security-based law.54 This condition promotes interest. 57 swap counterparties may not promote comparability with the Exchange Act • Chief compliance officers—Chief the risk control purpose of the trading requirement, which requires reporting compliance officer requirements are set relationship documentation requirement to the Commission regarding significant out in Exchange Act section 15F(k) and sufficiently to produce a comparable valuation disputes,55 while efficiently Exchange Act rule 15Fk–1. These regulatory outcome. leveraging EU reporting provisions to provisions in general require that SBS The Commission is mindful that avoid the need for SBS Entities to create Entities designate individuals with the compliance with this condition may additional de novo reporting responsibility and authority to establish, require German SBS Entities that wish frameworks.56 administer and review compliance to rely on substituted compliance to policies and procedures, to resolve supplement their existing practices, and V. Substituted Compliance for Internal conflicts of interest, and to prepare and incur additional time and cost burdens, Supervision, Chief Compliance Officers certify an annual compliance report to to follow relevant German and EU and Additional Exchange Act Section the Commission.58 documentation requirements in 15F(j) Requirements • Additional Exchange Act section connection with their security-based 15F(j) requirements—There are certain swap business involving ‘‘eligible A. BaFin Request and Associated additional requirements related to counterparties.’’ On balance, however, Analytic Considerations information-gathering pursuant to in the Commission’s preliminary view, BaFin also requests substituted Exchange Act section 15F(j)(4)(A), and this prerequisite to substituted certain antitrust prohibitions specified compliance in connection with 59 compliance is necessary to promote requirements under the Exchange Act by Exchange Act section 15F(j)(6). comparability in light of the risk control Taken as a whole, these internal relating to: purposes of the trading relationship supervision, chief compliance officer documentation requirement, and the • Internal supervision—Diligent and additional Exchange Act section requirement’s lack of a comparable supervision is required pursuant to 15F(j) requirements help to promote carveout based on counterparty Exchange Act section 15F(h)(1)(B) and SBS Entities’ use of structures, categories. Exchange Act rule 15Fh–3(h), and processes and responsible personnel additional conflict of interest provisions reasonably designed to promote b. Trading Relationship under Exchange Act section 15F(j)(5). compliance with applicable law, to Documentation—Disclosure Regarding These provisions generally require that identify and cure instances of non- Legal and Bankruptcy Status SBS Entities establish, maintain and compliance, and to manage conflicts of Under the proposed Order, enforce supervisory policies and interest. The comparability assessment substituted compliance in connection procedures that reasonably are designed accordingly may focus on whether the with trading relationship to prevent violations of applicable law, analogous foreign requirements—taken documentation would not extend to and implement certain systems and as a whole—produce comparable disclosures required by rule 15F(b)(5) outcomes with regard to providing that regarding the status of the SBS Entity or 54 See para. (b)(3)(ii) to the proposed Order registered entities have structures and its counterparty as an insured (requiring that the Covered Entity provide the processes reasonably designed to depository institution or financial Commission with reports regarding counterparty promote compliance with applicable counterparty, and regarding the disputes on the same basis that it provides those law, identify and cure instances of non- possibility that in certain circumstances reports to competent authorities pursuant to EMIR RTS art. 15(2)). compliance, and to manage conflicts of the SBS Entity or its counterparty may 55 In proposing the notice provision, the interest, in part through the designation be subject to the insolvency regime set Commission recognized that valuation inaccuracies of an individual with responsibility and forth under Title II of the Dodd-Frank may lead to uncollaterialized credit exposure and authority over compliance matters. Act or the Federal Deposit Insurance the potential for loss in the event of default. See Exchange Act Release No. 84861 (Dec. 19, 2018), 84 Act, which may affect rights to FR 4614, 4621 (Feb. 15, 2019). It thus is important 57 BaFin’s application addresses German and EU terminate, liquidate or net security- that the Commission be informed regarding provisions that address firms’ supervisory based swaps.53 Documentation valuation disputes affecting registered entities. frameworks, persons with supervisory authority, requirements under applicable German 56 The principal difference between the two sets supervisory policies and procedures, general and EU law would not be expected to of requirements concerns the timing of notices. compliance and internal recordkeeping, Under Exchange Act rule 15Fi–3, SBS Entities must investigation of personnel, conflicts of interest, address the disclosure of information promptly report, to the Commission, valuation personal trading and remuneration. See BaFin related to insolvency procedures under disputes in excess of $20 million that have been application Annex A category 3 at 4–24, 27–64. U.S. law. outstanding for three or five business days 58 BaFin’s application discusses German and EU (depending on counterparty types). Under EMIR requirements that address compliance officers and c. Dispute Reporting—Provision of RTS art. 15(2), firms must report at least monthly, their responsibilities, compliance officer Dispute Reports Consistent With EU to competent authorities, disputes between appointment, removal and compensation, related Law counterparties in excess of Ö15 million and conflict of interest provisions, and compliance- outstanding for at least 15 business days. BaFin related reports. See BaFin application Annex A Under the proposed Order, states that these reports regarding outstanding category 3 at 65–98. substituted compliance also would be disputes must be provided on a monthly basis 59 Section 15F(j)(4)(A) particularly requires firms within 14 days of the end of the reporting period. to have systems and procedures to obtain necessary conditioned on SBS Entities having to See BaFin, ‘‘EMIR—Requirements for financial information to perform functions required under provide the Commission with reports counterparties’’ (https://www.bafin.de/EN/Aufsicht/ section 15F. BaFin’s application in turn discusses regarding disputes between BoersenMaerkte/Derivate/EMIR/ German and EU provisions generally addressing counterparties, on the same basis as the FinanzielleGegenparteien/finanziellel information gathering and disclosure. See BaFin gegenparteienlartikellen.html) The Commission application Annex A category 3 at 24–27. Section SBS Entities provide those reports to is mindful that the EU provision does not provide 15F(j)(6) prohibits firms from adopting any process for notice as quickly as rule 15Fi–3(c), but in the or taking any action that results in any 53 See Risk Mitigation Adopting Release, 85 FR at Commission’s preliminary view, on balance this unreasonable restraint of trade, or to impose any 6374 (discussing potential application of difference would not be inconsistent with the material anticompetitive burden on trading or alternatives to the liquidation schemes established conclusion that the two sets of risk control clearing. BaFin’s application addresses EU antitrust under the Securities Investor Protection Act of 1970 requirements—taken as a whole—produce requirements. See BaFin application Annex A or the U.S. Bankruptcy Code). comparable regulatory outcomes. category 3 at 28.

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B. Preliminary Views and Proposed 2. Additional Conditions and Scope requirements do not—and would not be Order Issues expected to—appear to promote SBS Entities’ compliance with requirements 1. General Considerations Substituted compliance in connection with these requirements would be under the Exchange Act that are not Based on BaFin’s application and the subject to certain additional conditions subject to substituted compliance, or Commission’s review of applicable to help ensure the comparability of promote SBS Entities’ compliance with provisions, in the Commission’s outcomes: the conditions to substituted preliminary view, the relevant German compliance. and EU requirements in general would a. Application of German and EU This condition would allow SBS produce regulatory outcomes that are Supervisory and Compliance Entities to use their existing internal comparable to those associated with the Requirements to Residual U.S. supervision and compliance frameworks above-described internal supervision, Requirements and Order Conditions to comply with the relevant Exchange chief compliance officer, conflict of Under the proposed Order, Act requirements and order conditions, interest and information-related substituted compliance with the rather than having to establish separate requirements by providing that German relevant internal supervision special-purpose supervision and SBS Entities have structures and requirements would be conditioned compliance frameworks. In practice, processes that reasonably are designed with relevant German SBS Entities compliance with this condition likely to promote compliance with applicable complying with applicable German and would require SBS Entities to law and to identify and cure instances EU supervisory and compliance comprehensively identify all applicable of non-compliance and manage conflicts provisions as if those provisions also requirements under the Exchange Act of interest. require SBS Entities to comply with with which they must comply directly This portion of the proposed Order applicable requirements under the even with substituted compliance (as would extend generally to the internal Exchange Act and the other conditions well as the other conditions to the supervision provisions of Exchange Act to the Order.63 Order), and augment their existing rule 15Fh–3(h), the information This condition addresses the fact that, internal supervision and compliance gathering provisions of Exchange Act even with substituted compliance, SBS frameworks to the extent necessary to section 15F(j)(4)(A), and the conflict of Entities still would be subject directly to incorporate reasonable policies and interest provisions of Exchange Act a number of requirements under the processes to help ensure that they section 15F(j)(5),60 and to the chief Exchange Act and to the conditions to follow those requirements.66 compliance officer provisions of the final Order. In some cases, particular b. Compliance Reports Exchange Act section 15F(k) and requirements under the Exchange Act Exchange Act rule 15Fk–1.61 are outside the ambit of substituted Under the proposed Order, In taking this proposed approach, the compliance.64 In other cases, certain substituted compliance in connection Commission recognizes that certain requirements under the Exchange Act with the compliance report differences are present between those may not have comparable German or EU requirements under Exchange Act German and EU requirements and the requirements, or may be outside the section 15F(k)(3) and Exchange Act rule applicable requirements under the scope of BaFin’s request.65 While the 15Fk–1(c) also would be conditioned on Exchange Act. In the Commission’s German and EU regulatory frameworks the requirement that the compliance preliminary view, on balance, however, in general reasonably appear to promote reports required pursuant to MiFID Org those differences would not be SBS Entities’ compliance with Reg article 22(2)(c) must: (a) Be inconsistent with substituted applicable German and EU laws, those provided to the Commission annually compliance within the relevant and in the English language, (b) include outcomes-oriented context. As organizational requirements, compliance, risk a certification under penalty of law that elsewhere, this part of the proposed management, internal audit, senior management the report is accurate and complete, and Order conditions substituted responsibility, complaints handling, remuneration (c) address the SBS Entity’s compliance policies and practices, personal transaction 67 compliance on SBS Entities complying restrictions, outsourcing, conflicts of interest and with other conditions to this Order. with specified German and EU investment research and marketing); MiFID Org Reg requirements that are necessary to 72–76 and Annex IV (addressing recordkeeping, 66 For example, MiFID Org Reg art. 22 addresses establish comparability.62 including records of orders, transactions and several aspects of firms’ compliance with communications); and CRD articles 74, 76, 79–87, requirements under MiFID, and includes provisions 88(1) and 91(1)–(2), 91(7)–(9), 92–95 and KWG that the compliance function: Monitor the adequacy 60 See proposed para. (c)(1) to the Order. This sections 25a, 25b, 25c (other than 25c(2)), 25d and effectiveness of compliance measures, policies portion of the proposed Order does not extend to (other than 25d(3) and 25d(11)), 25e and 25f and procedures; advise and assist relevant persons applicable portions of rule 15Fh–3(h) as that rule (addressing internalgovernance, recovery and in compliance with MiFID; and report on mandates supervisory policies and procedures in resolution plans, risk management policies, and implementation and effectiveness. Under the connection with: The risk management system management body and remuneration policies). proposed condition, SBS Entities would have to provisions of Exchange Act section 15F(j)(2) (which 63 See para. (c)(4) to the proposed Order. apply those article provisions in a manner that also are addressed by proposed paragraph (b)(1) to the 64 As discussed above, see notes 11 and 12, supra, promotes compliance with the applicable Order in connection with internal risk substituted compliance does not extend to certain requirements under the Exchange Act and the management); the information-related provisions of Exchange Act antifraud prohibitions and other conditions to the Order. Exchange Act sections 15F(j)(3) and (j)(4)(B) (for requirements under the Exchange Act (e.g., 67 See para. (c)(2)(ii) to the proposed Order. which substituted compliance is not available); and requirements related to transactions with non-ECPs, MiFID Org Reg art. 22(2)(c) particularly requires the antitrust provisions of Exchange Act section and segregation requirements). Substituted that a firm’s compliance function ‘‘report to the 15F(j)(6) (for which the Commission is not compliance also does not extend to requirements management body, on at least an annual basis, on proposing to provide substituted compliance). See under the Exchange Act that are outside of the the implementation and effectiveness of the overall proposed para. (c)(1)(iii) to the Order. scope of BaFin’s request (e.g., ECP verification and control environment for investment services and 61 See proposed para. (c)(2) to the Order. special entity requirements), or to requirements activities, on the risks that have been identified and 62 In connection with these internal supervision, under the Exchange Act for which the Commission on the complaints-handling reporting as well as chief compliance officer and conflict of interest and has not found comparability. remedies undertaken or to be undertaken[.]’’ Under information gathering provisions, SBS Entities 65 For example, BaFin is not requesting the proposed condition, those reports, as submitted particularly must comply with: MiFID art. 16 and substituted compliance in connection with ECP to the Commission and the firm’s management 23 and WpHG sec. 63, 80 and 83–84 (addressing verification requirements, ‘‘special entity’’ body, also would address SBS Entities’ compliance organizational requirements and conflicts of provisions and political contribution provisions. with the other conditions to the Order (in addition interest); MiFID Org Reg art. 21–37 (addressing See note 23, supra. Continued

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Although certain German and EU based swap market participants to have promote effective compliance and risk requirements address firms’ use of information that is sufficient to make management.76 internal compliance reports, the informed decisions regarding potential • Suitability—Exchange Act rule requirements do not—and would not be transactions involving particular 15Fh–3(f)requires a security-based swap expected to—require those entities to counterparties and particular financial dealer that recommends to certain submit compliance reports to the instruments.72 counterparties a security-based swap or Commission.68 Under this condition, • Daily mark disclosure—Exchange trading strategy involving a security- SBS Entities could leverage the Act rule 15Fh–3(c) requires that SBS based swap, to undertake reasonable compliance reports that they otherwise Entities provide daily mark information diligence to understand the potential are required to produce, by extending to certain counterparties. These risks and rewards associated with the those reports to address compliance provisions address the need for market recommendation and to have a with the conditions to the Order.69 participants to have effective access to reasonable basis to believe that the daily mark information necessary to recommendation is suitable for the c. Antitrust Considerations manage their security-based swap counterparty.77 This provision accounts Under the proposed Order, positions.73 for the need to guard against security- substituted compliance would not • Fair and balanced based swap dealers making unsuitable extend to Exchange Act section 15F(j)(6) communications—Exchange Act rule recommendations.78 (and related internal supervision 15Fh–3(g) requires that SBS Entities Taken as a whole, the counterparty requirements of Exchange Act rule communicate with counterparties in a protection requirements under section 15Fh–3(h)(2)(iii)(I)). Section 15F(j)(6) fair and balanced manner based on 15F of the Exchange Act help to ‘‘bring prohibits SBS Entities from adopting principles of fair dealing and good faith. professional standards of conduct to, any process or taking any action that These provisions promote complete and and increase transparency in, the results in any unreasonable restraint of honest communications as part of SBS security-based swap market and to trade, or to impose any material Entities’ security-based swap require registered [entities] to treat businesses.74 parties to these transactions fairly.’’ 79 anticompetitive burden on trading or • clearing.70 In the Commission’s Clearing rights disclosure— The comparability assessment preliminary view, allowing an Exchange Act rule 15Fh–3(d) requires accordingly may focus on whether the alternative means of compliance would that SBS Entities provide certain analogous foreign requirements—taken not lead to outcomes comparable to that counterparties with information as a whole—produce similar outcomes statutory prohibition.71 regarding clearing rights under the Exchange Act.75 76 See Business Conduct Adopting Release, 81 FR VI. Substituted Compliance for • ‘‘Know your counterparty’’— at 29993–94. BaFin’s application discusses German Counterparty Protection Requirements Exchange Act rule 15Fh–3(e) requires and EU suitability requirements regarding that SBS Entities establish, maintain information that firms must obtain regarding A. BaFin Request and Associated counterparties. See BaFin application Annex A and enforce written policies and Analytic Considerations category 4 at 71–84. procedures to obtain and retain certain 77 See Business Conduct Adopting Release, 81 FR BaFin further requests substituted information regarding a counterparty at 29994–30000. A security-based swap dealer may compliance in connection with satisfy its counterparty-specific suitability that is necessary for conducting obligation with respect to an ‘‘institutional provisions under the Exchange Act business with that counterparty. This counterparty,’’ as defined in Exchange Act rule relating to: provision accounts for the need that 15Fh–3(f)(4), if the security-based swap dealer • Disclosure of material risks and SBS Entities obtain essential reasonably determines that the counterparty or its agent is capable of independently evaluating characteristics and material incentives counterparty information necessary to relevant investment risks, the counterparty or its or conflicts of interest—Exchange Act agent represents in writing that it is exercising rule 15Fh–3(b) requires that SBS 72 See Business Conduct Adopting Release, 81 FR independent judgment in evaluating the Entities disclose to certain at 29983–86. BaFin’s application discusses German recommendation, and the security-based swap and EU requirements that address disclosure of dealer discloses that it is acting as counterparty and counterparties to a security-based swap product information and firm information. See is not undertaking to assess the suitability of the certain information about the material BaFin application Annex A category 4 at 27–47. recommendation for the counterparty. See risks and characteristics of the security- 73 See Business Conduct Adopting Release, 81 FR Exchange Act rule 15Fh–3(f)(2)–(3). based swap, as well as material at 29986–91. BaFin’s application discusses German 78 See Business Conduct Adopting Release, 81 FR and EU requirements that address valuation, at 29997. BaFin’s application discusses German and incentives or conflicts of interest that portfolio reconciliation and trade reporting. See EU suitability requirements that are more targeted the SBS Entity may have in connection BaFin application Annex A category 4 at 48–60. for transactions with ‘‘professional clients.’’ See with the security-based swap. These 74 See Business Conduct Adopting Release, 81 FR BaFin application Annex A category 4 at 71–84. provisions address the need for security- at 30000–02. BaFin’s application discusses German 79 See Business Conduct Adopting Release, 81 FR and EU requirements that address communications at 30065. These transaction-level requirements standards. See BaFin application Annex A category generally apply only to a non-U.S. SBS Entity’s to addressing those firms’ compliance with 4 at 3–26. activities involving U.S. counterparties (unless the applicable German and EU provisions). 75 Exchange Act section 3C(g)(5) [15 U.S.C. 78c– transaction is arranged, negotiated or executed in 68 The application also indicates that there is no 3(g)(5)] provides certain rights for counterparties to the United States). In particular, for non-U.S. SBS EU requirement to submit compliance reports to a select the clearing agency at which a security-based Entities, the counterparty protection requirements regulator. See EU supervision and compliance swap is cleared. For all security-based swaps that under Exchange Act section 15F(h) apply only to analysis at 75. an SBS Entity enters into with certain the SBS Entity’s transactions with U.S. 69 In practice, SBS Entities may satisfy this counterparties, the counterparty has the sole right counterparties (apart from certain transactions condition by identifying relevant Order conditions, to select the clearing agency at which the security- conducted through a foreign branch of the U.S. and reporting on the implementation and based swap is cleared. For security-based swaps counterparty), or to transactions arranged, effectiveness of their controls with regard to that are not subject to mandatory clearing (pursuant negotiated or executed in the United States. See compliance with those Order conditions. to Exchange Act sections 3C(a)–(b)) and that an SBS Exchange Act rule 3a71–3(c) [17 CFR 240.3a71– 70 See para. (c)(1)(ii) to the proposed Order. Entity enters into with certain counterparties, the 3(c)] (exception from business conduct 71 The Commission is not taking any position counterparty also may elect to require clearing of requirements for a security-based swap dealer’s regarding the applicability of the section 15F(j)(6) the security-based swap. Substituted compliance is ‘‘foreign business’’); see also Exchange Act rules antitrust prohibitions in the cross-border context. not available in connection with this provision. 3a71–3(a)(3), (8) and (9) [17 CFR 240.3a71–3(a)(3), Non-U.S. SBS Entities should assess the BaFin’s application discusses German and EU (8) and (9)] (definitions of ‘‘transaction conducted applicability of those prohibitions to their security- provisions that address clearing rights. See BaFin through a foreign branch,’’ ‘‘U.S. business’’ and based swap businesses. application Annex A category 4 at 85–92. ‘‘foreign business’’).

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with regard to promoting professional compliance in connection with these requirements because the EU standards of conduct, increasing counterparty protection requirements requirements do not require disclosure transparency and requiring SBS Entities also would be subject to specific to counterparties. In the alternative, to treat parties fairly. conditions and limitations necessary to BaFin’s application notes that certain promote consistency in regulatory derivatives counterparties must report B. Preliminary Views and Proposed outcomes. to an EU trade repository updated daily Order valuations for each OTC derivative 2. Additional Conditions and Scope contract and that all counterparties have 1. General Considerations Issues the right to access these valuations at Based on BaFin’s application and the a. Daily Mark Disclosure the relevant EU trade repository. In the Commission’s review of applicable Commission’s preliminary view, in provisions, in the Commission’s The proposed Order would provide practice U.S. counterparties may preliminary view, the relevant German substituted compliance in connection encounter challenges when attempting and EU requirements produce with daily mark disclosure requirements to access daily marks for different regulatory outcomes that are comparable pursuant to Exchange Act rule 15Fh– 3(c) to the extent that the Covered Entity security-based swaps reported to to counterparty protection requirements multiple EU trade repositories with under Exchange Act section 15F(h) participates in daily portfolio reconciliation exercises that include the which they may not otherwise have related to fair and balanced business relationships. In addition, the communications; disclosure of material relevant security-based swap pursuant to German and EU requirements. information may be less current, given risks and characteristics; disclosure of the time necessary for reporting and for material incentives or conflicts of BaFin’s application takes the view that EU requirements directing certain types the trade repository to make the interest; ‘‘know your counterparty’’; information available. For these reasons, suitability; and daily mark disclosure, of derivatives counterparties to mark-to- market (or mark-to-model) uncleared in the Commission’s preliminary view, by subjecting German SBS Entities to these EU reporting requirements also are obligations that promote standards of transactions each day are comparable to Exchange Act requirements. In the not comparable to Exchange Act professional conduct, transparency and requirements. Finally, BaFin’s the fair treatment of parties. Commission’s preliminary view, however, these EU mark-to-market (or application describes the EU’s portfolio The proposed Order accordingly reconciliation requirements for would provide conditional substituted mark-to-model) requirements are not comparable to Exchange Act uncleared OTC derivative contracts, compliance in connection with those which include a requirement to requirements.80 The proposed Order subject to and comply with either: (i) MiFID art. exchange valuations of those contracts preliminarily does not provide 23(2)–(3); WpHG section 63(2); and MiFID Org Reg directly between counterparties. The substituted compliance in connection art. 33–35; (ii) MiFID art. 24(9); WpHG section 70; required frequency of portfolio with requirements related to clearing and MiFID Delegated Directive art. 11(5); or (iii) reconciliations varies depending on the rights disclosure, however, for reasons Market Abuse Regulation art. 20(1), in each case in relation to the security-based swap for which types of counterparties and the size of addressed below. substituted compliance is applied. See para. (d)(2) the portfolio of OTC derivatives In taking this proposed approach, the to the proposed Order. In connection with ‘‘know between them, with daily reconciliation Commission recognizes that there are your counterparty’’ requirements, Covered Entities must be subject to and comply with: MiFID art. required only for the largest portfolios. certain differences between relevant 16(2); WpHG section 80(1); MiFID Org Reg art. 21– For security-based swaps to which the German and EU requirements, on the 22, 25–26 and applicable parts of Annex I; CRD art. EU’s daily portfolio reconciliation one hand, and the relevant 74(1) and 85(1); KWG section 25a; MLD art. 11 and requirements apply (i.e., security-based communications, disclosure, ‘‘know 13; GwG sections 10–11; MLD art. 8(3) and 8(4)(a) as applied to internal policies, controls and swaps of a financial counterparty or your counterparty’’ and suitability procedures regarding recordkeeping of customer non-financial counterparty subject to requirements under the Exchange Act, due diligence activities; GwG section 6(1)–(2) as the clearing obligation in EMIR, if the on the other hand. On balance, however, applied to principles, procedures and controls counterparties have 500 or more OTC in the Commission’s preliminary view, regarding recordkeeping of customer due diligence activities, in each case in relation to the security- derivatives contracts outstanding with those differences, when coupled with based swap for which substituted compliance is each other),82 the Commission the conditions in the proposed Order, applied. See para. (d)(3) to the proposed Order. In preliminarily views these requirements are not so material as to be inconsistent connection with suitability requirements, Covered as comparable to Exchange Act with substituted compliance within the Entities must be subject to and comply with: MiFID art. 24(2)–(3) and 25(1)–(2); WpHG sections 63(5)– requirements. For all other security- requisite outcomes-oriented context. As (6), 80(9)–(13) and 87(1)–(2); and MiFID Org Reg art. based swaps in portfolios that are not elsewhere, the counterparty protection 21(1)(b) and (d), 54 and 55, in each case in relation required to be reconciled on each provisions of the proposed Order in part to the recommendation for which substituted business day, the Commission condition substituted compliance on compliance is applied. See para. (d)(4)(i) to the proposed Order. In connection with fair and preliminarily views the EU’s portfolio SBS Entities being subject to, and balanced communications requirements, Covered reconciliation requirements as not complying with, specified German and Entities must be subject to and comply with: (i) comparable to Exchange Act EU requirements that are necessary to either MiFID art. 24(1), (3) and WpHG sections requirements. establish comparability.81 Substituted 63(1), (6) or MiFID art. 30(1) and WpHG section 68(1); and (ii) MiFID art. 24(4)–(5); WpHG sections b. No Substituted Compliance in 63(7) and 64(1); MiFID Org Reg art. 46–48; Market 80 See generally para. (d) to the proposed Order. Abuse Regulation art. 12(1)(c) and 15; and MAR Connection With Clearing Rights 81 In connection with requirements related to Investment Recommendations Regulation art. 5, in Disclosure disclosure of information regarding material risks each case in relation to the communication for and characteristics, Covered Entities must be which substituted compliance is applied. See para. The proposed Order would not subject to and comply with: MiFID art. 24(4); (d)(5) to the Proposed Order. In connection with provide substituted compliance in WpHG sections 63(7) and 64(1); and MiFID Org Reg daily mark disclosure requirements, Covered connection with clearing rights art. 48–50, in each case in relation to the security- Entities must be required to reconcile, and in fact disclosure requirements pursuant to based swap for which substituted compliance is reconcile, the portfolio containing the security- applied. See para. (d)(1) to the proposed Order. In based swap for which substituted compliance is Exchange Act rule 15Fh–3(d). For those connection with requirements related to disclosure applied, on each business day pursuant to EMIR of information regarding material incentives or articles 11(1)(b) and 11(2) and EMIR RTS article 13. 82 See EMIR RTS article 13(3)(a)(i); EMIR article conflicts of interest, Covered Entities must be See para. (d)(6) to the Proposed Order. 10.

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requirements, BaFin’s application cites VII. Substituted Compliance for comparability assessment accordingly certain provisions related to clearing Recordkeeping, Reporting, and may focus on whether the analogous rights in the EU that are unrelated to the Notification Requirements foreign requirements—taken as a clearing rights provided by Exchange whole—produce comparable outcomes A. BaFin Request and Associated Act section 3C(g)(5).83 with regard to recordkeeping, reporting, The section Analytic Considerations 3C(g)(5) clearing rights are not eligible and notification and related practices for substituted compliance, and the EU BaFin’s application in part requests that support the Commission’s oversight provisions do not require disclosure of substituted compliance for requirements of these registrants. A foreign these section 3C(g)(5) clearing rights. In applicable to SBS Entities under the jurisdiction need not have analogues to Exchange Act relating to: every requirement under Commission the Commission’s preliminary view, • substituted compliance based on EU Recordmaking—Exchange Act rule rules.92 clearing provisions would not lead to 18a–5 requires prescribed records to be For certain of the recordkeeping and made and kept current.87 notification requirements, the comparable disclosure of a • counterparty’s clearing rights under the Record Preservation—Exchange Act comparability assessment also Exchange Act. rule 18a–6 requires preservation of appropriately may consider the extent to records.88 which those requirements are linked to • c. Suitability Reporting—Exchange Act rule 18a– separate requirements in the Exchange 7 requires certain reports.89 Under the proposed Order, • Act that may be subject to a substituted substituted compliance in connection Notification—Exchange Act rule compliance application. In particular, a with the suitability provisions of 18a–8 requires notification of the number of recordkeeping requirements Exchange Act rule 15Fh–3(f) in part Commission when certain financial or serve a primary purpose of promoting operational problems occur.90 would be conditioned on the and/or documenting SBS Entities’ The Commission does not administer requirement that the counterparty be a compliance with associated Exchange or oversee capital and margin Act requirements.93 When substituted per se ‘‘professional client’’ as defined requirements for prudentially regulated compliance is permitted for the in MiFID and not be a ‘‘special entity’’ SBS Entities.91 Taken as a whole, the associated Exchange Act requirements, as defined in Exchange Act section recordkeeping, reporting, and substituted compliance also may be 15F(h)(2)(C) and Exchange Act rule notification requirements that apply to 84 appropriate for the linked recordkeeping 15Fh–2(d). Accordingly, the proposed prudentially regulated SBS Entities are and notification requirements. Order would not provide substituted designed to promote the prudent Conversely, when substituted compliance for Exchange Act suitability operation of the firm’s security-based compliance is not available or requested requirements for a recommendation swap activities, assist the Commission for Exchange Act requirements, made to a counterparty that is a ‘‘retail in conducting compliance examinations substituted compliance may not be client’’ or an elective ‘‘professional of those activities, and alert the appropriate for linked recordkeeping or client,’’ as such terms are defined in Commission to potential financial or 85 notification requirements. MiFID, or for a ‘‘special entity’’ as operational problems that could impact defined in the Exchange Act. In the the firm and its customers. The B. Preliminary Views and Proposed Commission’s preliminary view, absent Order such a condition the MiFID suitability MiFID. The Commission notes that the institutional requirement would not be expected to counterparty alternative under the Exchange Act 1. General Considerations produce a counterparty protection would remain available, in accordance with its Based on BaFin’s application and outcome that is comparable with the terms, for recommendations that are not eligible for, Commission’s review of applicable or for which a Covered Entity does not rely on, outcome produced by the suitability substituted compliance. provisions, in the Commission’s 86 requirements under the Exchange Act. 87 BaFin’s application discusses German and EU preliminary view, the relevant German requirements that address firms’ record creation and EU requirements, subject to the 83 See note 75, supra. obligations related to matters such as transactions, 84 counterparties and their property, personnel and See para. (d)(4)(ii) to the proposed Order. 92 Rule 3a71–6 sets forth additional analytic business conduct. See BaFin application Annex A 85 Annex II of MiFID describes which clients are considerations in connection with substituted category 2 at 4–34. ‘‘professional clients.’’ Section I of Annex II compliance for the Commission’s recordkeeping, 88 describes the types of clients considered to be BaFin’s application discusses German and EU reporting, and notification requirements. In professional clients unless the client elects non- requirements that address firms’ record particular, Exchange Act rule 3a71–6(d)(6) provides professional treatment; these clients are per se preservation obligations related to records that that the Commission intends to consider (in professional clients. Section II of Annex II describes firms are required to create, as well as additional addition to any conditions imposed) ‘‘whether the the types of clients who may be treated as records such as records of communications. See foreign financial regulatory system’s required professional clients on request; these clients are BaFin application Annex A category 2 at 35–79. records and reports, the timeframes for recording or elective professional clients. See MiFID Annex II. 89 BaFin’s application discusses German and EU reporting information, the accounting standards 86 The Commission recognizes that Exchange Act requirements that address firms’ obligations to governing the records and reports, and the required rules permit security-based swap dealers, when make certain reports. See BaFin application Annex format of the records and reports’’ are comparable making a recommendation to an ‘‘institutional A category 2 at 80–91 and 96–102. to applicable provisions under the Exchange Act, counterparty,’’ to satisfy some elements of the 90 BaFin’s application discusses German and EU and whether the foreign provisions ‘‘would permit suitability requirement if the security-based swap requirements that address firms’ obligations to the Commission to examine and inspect regulated dealer reasonably determines that the counterparty make certain notifications. See BaFin application firms’ compliance with the applicable securities or its agent is capable of independently evaluating Annex A category 2 at 92–96 and 102. laws.’’ relevant investment risks, the counterparty or its 91 Because of the close relationship between many 93 Recordkeeping and notification rules that are agent represents in writing that it is exercising of the recordkeeping, reporting, and notification linked to other Exchange Act rules include independent judgment in evaluating requirements and the administration and oversight provisions that address: (1) Unverified security- recommendations, and the security-based swap of capital and margin requirements, the based swap transactions (Exchange Act rules 18a– dealer discloses to the counterparty that it is acting Commission preliminarily believes that it would be 5(b)(11) and 18a–6(b)(2)(i)); (2) compliance with as counterparty and is not undertaking to assess the appropriate to consider substituted compliance for business conduct requirements (Exchange Act rules suitability of the recommendation for the recordkeeping, reporting and notification 18a–5(b)(12) and (13), 18a–6(b)(2)(i), and 18a– counterparty. See Exchange Act rule 15Fh–3(f)(2). requirements applicable to nonbank SBS Entities in 6(b)(2)(vii)); (3) preservation of records relating to However, the institutional counterparties to whom connection with a potential substituted compliance certain risk mitigation requirements (Exchange Act this alternative applies are only a subset of the request for capital and margin requirements. The rules 18a–6(d)(4) and (5); and (4) segregation ‘‘professional clients’’ to whom more narrowly Commission is seeking commenters’ views on this requirements (Exchange Act Rules 18a–5(b)(9) and tailored suitability requirements apply under issue below. (10), 18a–6(b)(2)(v), and 18a–8(g)).

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conditions and limitations of the the condition that the prudentially the condition that the SBS Entity makes proposed Order, would produce regulated SBS Entity make and keep and keeps current records documenting regulatory outcomes that are comparable current the records required by rules compliance with requirements to the outcomes associated with the 18a–5(b)(9) and (10) if the firm is not referenced in Exchange Act rule 18a– recordkeeping and notification exempt from the requirements of 5(b)(13) for which substituted requirements under the Exchange Act Exchange Act rule 18a–4.94 These rules compliance is not available. Exchange applicable to prudentially regulated SBS require the SBS Entity to make a record Act rule 18a–5(b)(13) requires the firm Entities pursuant to Exchange Act rules of compliance with the possession or to document compliance with Exchange 18a–5, 18a–6, 18a–7, and 18a–8. control requirements of Exchange Act Act rules 15Fh–1 through 15Fh–5 and In reaching this preliminary rule 18a–4 and a record of the reserve Exchange Act rule 15Fk–1—which, as conclusion, the Commission recognizes computation required by Exchange Act discussed more fully in sections V and that there are certain differences rule 18a–4, respectively. Substituted VI of this notice, establish certain between those German and EU compliance is not available with respect obligations with respect to diligent requirements and the applicable to Exchange Act rule 18a–4. Instead, supervision, compliance, and recordkeeping and notification provisions of the rule address cross- counterparty protection. Under the requirements under the Exchange Act. border transactions and provide proposed Order, when substituted In the Commission’s preliminary view, exemptions from its requirements compliance is available with respect to on balance, those differences generally depending on the nature of the such an obligation, substituted would not be inconsistent with transaction.95 For example, a security- compliance also would be available substituted compliance for these based swap dealer that is a foreign bank with respect to the corresponding requirements. As noted, ‘‘requirement- is subject to the possession or control recordmaking requirement of Exchange by-requirement similarity’’ is not and reserve account requirements of Act rule 18a–5(b)(13). In circumstances needed for substituted compliance. Exchange Act rule 18a–4 with respect to where substituted compliance is not As discussed below, in select areas, a security-based swap customer that is permitted,97 has not been requested,98 substituted compliance in connection a U.S. person or, in the case of a non- or is otherwise not available under the with these requirements is subject to U.S. person, if the security-based swap proposed Order, direct compliance with specific conditions necessary to dealer holds funds or other property the relevant Exchange Act obligation promote consistency in regulatory arising out of a transaction had by such would be required, and so, too, would outcomes, or to reflect the scope of non-U.S. person with a branch or direct compliance with the substituted compliance that would be agency in the United States of the corresponding recordmaking available in connection with associated foreign security-based swap dealer. requirement of Exchange Act rule 18a– Exchange Act rules. Further, Exchange Act rule 18a–4 5(b)(13). contains a complete exemption from its 2. Additional Conditions requirements if the security-based swap ii. Additional Conditions Applicable to i. Additional Conditions Applicable to dealer limits its business activities and Exchange Act Rule 18a–6 Exchange Act Rule 18a–5 meets certain conditions.96 Prudentially Under the proposed Order, regulated security-based swap dealers substituted compliance in connection Under the proposed Order, that are not subject to the requirements substituted compliance in connection with the record preservation of Exchange Act rule 18a–4 will not requirements of Exchange Act rule 18a– with the recordmaking requirements of need to make the records required by Exchange Act rule 18a–5 is subject to 6 is subject to the condition that the Exchange Act rules 18a–5(b)(9) and (10) security-based swap dealer or major the condition that the SBS Entity: (1) under this condition in the proposed Preserves all of the data elements security-based swap participant, with Order. However, if a firm is subject to respect to a security-based swap necessary to create the records required Exchange Act rule 18a–4, it will need to by Exchange Act rules 18a–5(b)(1), (2), transaction, preserves the information make these records under this condition required by Exchange Act rule 18a– (3), and (7); and (2) upon request of the Order. furnishes promptly to representatives of 6(b)(2)(vi) if the transaction is required Under the proposed Order, to be reported to a registered security- the Commission the records required by substituted compliance in connection those rules. This condition is modeled based swap data repository pursuant to with the recordmaking requirements of Regulation SBSR (or pursuant to any on the alternative compliance Exchange Act rule 18a–5 is subject to mechanism in paragraph (c) of Exchange substituted compliance order addressing the condition that the prudentially Regulation SBSR).99 This condition is Act rule 18a–5. In effect, a firm will not regulated SBS Entity makes and keeps be required to create a record formatted designed to ensure that the firm current the records required by preserves information it reports to a pursuant to the Commission’s rules each Exchange Act rule 18a–5(b)(12). This day, but instead only when requested to security-based swap data repository rule requires the firm to document registered under the Exchange Act do so by Commission staff. The compliance with Exchange Act rule objective is to require—on a very pursuant to Regulation SBSR (or 15Fh–6, which imposes restrictions pursuant to any substituted compliance limited basis—the production of a related to political contributions to record that consolidates the information order addressing Regulation SBSR) in municipal entities. BaFin has not addition to preserving information it required by Exchange Act rule 18a– requested substituted compliance with 5(b)(1), (2), (3), or (7) in a single record respect to Exchange Act rule 15Fh–6. 97 See Exchange Act rule 3a71–6(d)(1) (specifying and, as applicable, in a blotter or ledger Finally, under the proposed Order, that substituted compliance is not available in format. This will assist the Commission substituted compliance in connection connection with the antifraud provisions of staff in reviewing the information on the with the recordmaking requirements of Exchange Act rule 15Fh–4(a)). record. Exchange Act rule 18a–5 is subject to 98 BaFin has not requested substituted Under the proposed Order, compliance in connection with the ECP verification requirements of Exchange Act rule 15Fh–3(a)(1)) or substituted compliance in connection 94 17 CFR 240.18a–4. the ‘‘special entity’’ provisions of Exchange Act with the recordmaking requirements of 95 See 17 CFR 240.18a–4(e). rules 15Fh–3(a)(2)–(3), 15Fh–4(b) and 15Fh–5. Exchange Act rule 18a–5 is subject to 96 See 17 CFR 240.18a–4(f). 99 17 CFR 242.900–909.

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reports to a data repository pursuant to rule requires the preservation of Entities registered with the Commission. German and EU laws. documents used to make a reasonable For example, the Commission could by Under the proposed Order, determination with respect to special order or rule require SBS Entities to file substituted compliance in connection entities, including information relating the financial and operational with the record preservation to the financial status, the tax status, information with FINRA using the requirements of Exchange Act rule 18a– and the investment or financing FOCUS Report Part IIC but permit the 6 is subject to the condition that the objectives of the special entity as information input into the form to be prudentially regulated SBS Entity required under Exchange Act sections the same information the SBS Entity preserves the records required by 15F(h)(4)(C) and (5)(A). BaFin is not reports to BaFin or other European Exchange Act rule 18a–6(b)(2)(v) if the seeking substituted compliance with supervisors.102 Further, the Commission firm is not exempt from the respect to these Exchange Act could specify that as a condition to the requirements of Exchange Act rule 18a– requirements. substituted compliance, an SBS Entity 4. Exchange Act rule 18a–6(b)(2)(v) may present the information reported in requires the preservation of detail iii. Additional Conditions Applicable to Exchange Act Rule 18a–7 the FOCUS Report Part IIC in relating to information for the accordance with generally accepted possession or control requirements of Under the proposed Order, accounting principles (‘‘GAAP’’) that Exchange Act rule 18a–4. As discussed substituted compliance with respect to the SBS Entity uses to prepare general above, substituted compliance is not Exchange Act rule 18a–7 is subject to purpose financial statements in its home available for Exchange Act rule 18a–4. the condition that the SBS Entity file jurisdiction instead of U.S. GAAP if Consequently, under this condition, a with the Commission financial and other GAAP, such as International prudentially regulated SBS Entity will operational information in the manner Financial Reporting Standards (IFRS) as need to preserve the records required by and format specified by the Commission issued by the International Accounting 100 Exchange Act rule 18a–6(b)(2)(v), but by order or rule. Rule 18a–7 requires Standards Board (IASB), is used by the only if the firm is not exempt from SBS Entities, on a quarterly basis, to file SBS Entity in preparing general purpose Exchange Act rule 18a–4. an unaudited financial and operational financial statements. Under the proposed Order, report known as FOCUS Report Part IIC. substituted compliance in connection The Commission will use the FOCUS iv. Additional Conditions Applicable to with the record preservation Report Part IIC to both monitor the Exchange Act Rule 18a–8 requirements of Exchange Act rule 18a– financial and operational condition of Under the proposed Order, 6 is subject to the condition that the individual SBS Entities and to perform substituted compliance in connection prudentially regulated SBS Entity comparisons across SBS Entities. The with the notification requirements of preserves records with respect to FOCUS Report Part IIC is a standardized Exchange Act rule 18a–8 is subject to requirements referenced in Exchange form that elicits specific information the condition that the prudentially Act rule 18a–6(b)(2)(vii) for which through numbered line items. This regulated SBS Entity: (1) substituted compliance is not available. facilitates cross-firm analysis and Simultaneously transmits to the Under Exchange Act rule 18a– comprehensive monitoring of all SBS principal office of the Commission or to 6(b)(2)(vii), the firm must preserve Entities registered with the Commission. an email address provided on the copies of documents, communications, Further, the Commission has designated Commission’s website a copy of any disclosures, and notices required the Financial Industry Regulatory notice required to be sent by the German Authority, Inc. (‘‘FINRA’’) to receive the pursuant to Exchange Act rules 15Fh–1 notification laws; and (2) includes with FOCUS reports from SBS Entities.101 through 15Fh–6 and Exchange Act rule the transmission the contact information Broker-dealers registered with the 15Fk–1—which establish certain of an individual who can provide obligations with respect to diligent Commission currently file their FOCUS further information about the matter supervision, compliance, and reports with FINRA through the that is the subject of the notice. The counterparty protection. Under the eFOCUS system it administers. FINRA’s purpose of this condition is to alert the proposed Order, when substituted eFOCUS system will enable broker- Commission to financial or operational compliance is available with respect to dealers, security-based swap dealers, problems that could adversely affect the such an obligation, substituted and major security-based swap firm—the objective of Exchange Act rule compliance also would be available participants to file FOCUS reports on 18a–8. with respect to the corresponding record the same platform using the same In addition, under the proposed preservation requirement of Exchange preexisting templates, software, and Order, substituted compliance in Act rule 18a–6(b)(2)(vii). In procedures. circumstances where substituted The Commission preliminarily connection with the notification compliance is not permitted, has not believes that it would be appropriate to requirements of Exchange Act rule 18a– been requested, or is otherwise not condition substituted compliance with 8 is subject to the condition that the available under the proposed Order, respect to rule 18a–7 on the SBS Entity prudentially regulated SBS Entity direct compliance with the relevant filing financial and operational comply with the notification information in a manner and format that Exchange Act obligation would be 102 facilitates cross-firm analysis and The Commission anticipates that it would be required, and so, too, would direct appropriate to tailor the line items required to be compliance with the corresponding comprehensive monitoring of all SBS reported pursuant to this condition and is record preservation requirement of requesting comment on which, if any, line items in Exchange Act rule 18a–6(b)(2)(vii). 100 For example, the Commission could specify FOCUS Report Part IIC the SBS Entity does not Under the proposed Order, the manner and format of the filing of the financial otherwise report or record pursuant to applicable and operational information in a final substituted laws or regulations. Further, the Commission is substituted compliance in connection compliance order. requesting comment on whether it would be with the record preservation 101 See Order Designating Financial Industry appropriate as a condition to substituted requirements of Exchange Act rule 18a– Regulatory Authority, Inc., to Receive Form X–17A– compliance for SBS Entities to file a FOCUS Report 6 is subject to the condition that the SBS 5 (FOCUS Report) from Certain Security-Based Part IIC with a limited number of the required line Swap Dealers and Major Security-Based Swap items filled out for two years. During this time, the Entity preserves the records required by Participants, Exchange Release No. 34–88866 (May Commission could further evaluate the scope of Exchange Act rule 18a–6(b)(2)(viii). This 14, 2020). information SBS Entities should file.

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requirement of Exchange Act rule 18a– VIII. Additional Considerations institutions that are classified as 8(g) if the firm is not exempt from Regarding Supervisory and significant institutions for compliance Exchange Act rule 18a–4. This rule Enforcement Effectiveness in Germany with the CRD and CRR.105 Both BaFin and the ECB are able to request records requires notification if the firm fails to A. General Considerations make in its special reserve account for needed for supervision from credit the exclusive benefit of security-based As noted above, Exchange Act rule institutions through the supervisory swap customers a deposit, as required 3a71–6 provides that the Commission’s process. In addition, both BaFin and the assessment of the comparability of the by Exchange Act rule 18a–4(c). As ECB set annual priorities and conduct requirements of the foreign financial discussed above, substituted thematic reviews that are used to regulatory system take into account ‘‘the deepen supervision in specific compliance is not available for effectiveness of the supervisory program regulatory areas. The results of these Exchange Act rule 18a–4. administered, and the enforcement thematic reviews are made public and 3. Examination and Production of authority exercised’’ by the foreign are used to provide transparency to the Records financial regulatory authority. This industry. prerequisite accounts for the 1. BaFin Supervisory Considerations Every SBS Entity registered with the understanding that substituted Commission, whether complying compliance determinations should BaFin’s supervision over credit directly with Exchange Act reflect the reality of the foreign institutions is conducted by multiple requirements or relying on substituted regulatory framework, in that rules that supervisors who are in frequent contact compliance as a means of complying appear high-quality on paper with the firms. The supervisors review with the Exchange Act, is required to nonetheless should not form the basis various reports submitted to BaFin to satisfy the inspection and production for substituted compliance if—in ensure they are complete, accurate and requirements imposed on such entities practice—market participants are timely, including the independent under the Exchange Act.103 Covered permitted to fall short of their regulatory auditor reports that are required by statute in Germany.106 Supervisors entities may make, keep, and preserve obligations. This prerequisite, however, review each report against other records, subject to the conditions also recognizes that differences among information they have about the firm to described above, in a manner prescribed the supervisory and enforcement regimes should not be assumed to look for inconsistencies. Depending on by applicable European and German the issue, BaFin’s supervisors follow up requirements. The Commission notes reflect flaws in one regime or another.104 with the firm in a variety of ways to that as an element of its substituted In connection with these ensure that the auditor’s findings have compliance application, BaFin has considerations, BaFin’s application been remedied, including document and provided the Commission with adequate includes information regarding the data requests, meetings with compliance assurances that no law or policy would German supervisory and enforcement staff, formal meetings with senior impede the ability of any entity that is framework applicable to derivatives management, onsite inspections, directly supervised by the authority and markets and market participants. This requiring a special audit, or that may register with the Commission includes information regarding the accompanying the auditors on the ‘‘to provide prompt access to the supervisory and enforcement authority annual audit or a special audit. BaFin Commission to such entity’s books and afforded to BaFin to promote requires special audits when it suspects records or to submit to onsite inspection compliance with applicable a violation of a regulatory provision. or examination by the Commission.’’ requirements, applicable supervisory During a special audit, BaFin will Consistent with those assurances and and enforcement tools and capabilities, provide the independent auditor with the requirements that apply to all consequences of non-compliance, and comprehensive and detailed registered SBS Entities under the the application of BaFin’s supervisory information on the scope of the audit Exchange Act, prudentially regulated and enforcement practices in the cross- and the issues and questions that need SBS Entities will need to keep books border context. to be addressed. BaFin staff is in close and records open to inspection by any In preliminarily concluding that the contact with the auditor and discusses representative of the Commission and to relevant supervisory and enforcement preliminary findings and the progress of furnish promptly to a representative of considerations are consistent with the audit. The auditor issues a final the Commission legible, true, complete, substituted compliance, the report to BaFin on the audit, which Commission particularly has considered serves as a basis for further regulatory and current copies of those records of the following factors: measures. the firm that these entities are required BaFin’s specialized divisions engage to preserve under Exchange Act rule B. Supervisory Framework in Germany in daily supervision of the markets. 18a–6 (which would include records for Supervision of credit institutions Should they detect misconduct, they which a positive substituted compliance located in Germany is conducted by have the authority to initiate determination is being made with both BaFin and the European Central administrative procedures in order to respect to Exchange Act rule 18a–6 Bank (‘‘ECB’’). BaFin supervises credit under this order), or any other records institutions for compliance with the 105 All credit institutions supervised under the of the firm that are subject to WpHG (the German Securities Trading ECB’s single supervision mechanism are classified examination or required to be made or Act), MiFID, and EMIR. The ECB, as significant institutions or less significant institutions. Additional information on how credit maintained pursuant to Exchange Act through joint supervisory teams institutions are classified is available at: https:// section 15F that are requested by a (‘‘JSTs’’) comprising ECB staff, BaFin www.bankingsupervision.europa.eu/press/ representative of the Commission. staff, and staff from other countries in publications/newsletter/2018/html/ssm.nl181114_ the EU where the institution has a 3.en.html. 106 Although the credit institution can choose its subsidiary or branch, supervises credit auditor, the auditor must be approved by BaFin. BaFin also has the authority to require a firm to 103 See Exchange Act section 15F(f); Exchange Act 104 See generally Business Conduct Adopting change its auditor, to direct the areas that the rule 18a–6(g). Release, 81 FR at 30079. auditor must review, or to take over the audit.

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halt it. The specialized divisions also exercising professional activity. Because • Any implementation or other may refer the misconduct to the BaFin’s general focus is to ensure practical issues that may arise due to the Division for Administrative Offence compliance with the applicable proposed conditions and limitations. Proceedings for enforcement, or, in the regulatory framework, investigations do Commenters also are invited to case of a criminal offense, must refer the not always result in a sanction process. address the references to EU directives case to the state prosecutor for criminal Misconduct detected by the JSTs is (e.g., MiFID and CRD) that are consideration. addressed primarily by the ECB. The incorporated into the conditions to the ECB has the power to enforce violations proposed Order. EU directives by 2. ECB and JST Supervisory themselves do not apply to market Considerations and to impose fines on supervised entities for breaches of directly participants, but instead require Supervision of credit institutions’ applicable European Union law. The implementation by member states (see compliance with the CRD and CRR is ECB can also ask national competent notes 25 and 27, supra). As drafted, the conducted through the ECB’s single authorities (such as BaFin) to open conditions to the proposed Order not supervisory mechanism and executed proceedings that may lead to the only would require Covered Entities to by JSTs. The head of the JST is from the imposition of certain pecuniary and comply with EU regulations (which ECB and generally is not from the non-pecuniary penalties. directly are applicable to market country where the significant institution participants) and with German laws is located. As part of its day-to-day IX. Request for Comment implementing EU directives, but also supervision, the JST analyzes the Commenters are invited to address all incorporate references to relevant EU supervisory reporting, financial aspects of the application, the directives. Commenters are invited to statements, and internal documentation Commission’s preliminary views and address the implication of those of supervised entities. The JSTs hold the proposed Order. references to EU directives, including regular and ad hoc meetings with the whether their inclusion may raise supervised entities at various levels of A. General Aspects of the Comparability questions regarding the availability of staff seniority. They conduct ongoing Assessments and Proposed Order substituted compliance. risk analyses of approved risk models, The Commission requests comment B. Risk Control Requirements and analyze and assess the recovery regarding the preliminary views and The Commission further requests plans of supervised entities. The various proposed Order in connection with each comment regarding the proposed supervisory activities typically result in of the general ‘‘regulatory outcome’’ conditions in connection with the risk supervisory measures addressed to the categories addressed above. supervised institution. Supervisory control requirements. Commenters particularly are invited to Trading relationship documentation activities and decisions result in a address, among other issues: number of routine steps such as the and MiFID ‘‘eligible counterparty’’ • Whether the relevant German and monitoring of compliance by the JST exclusion—Commenters in part are EU provisions generally are sufficient to and, if necessary, enforcement measures requested to address the potential produce regulatory outcomes that are and sanctions. In addition to ongoing impact of the condition that would comparable to the outcomes associated supervision, the JST may conduct in- disapply application of the MiFID with requirements under the Exchange depth reviews on certain topics by ‘‘eligible counterparty’’ exclusion in Act; connection with substituted compliance organizing a dedicated onsite mission • (e.g., an inspection or an internal model Whether the conditions and for the trading relationship investigation). The onsite inspections limitations of the proposed Order would documentation requirements. What are carried out by an independent adequately address potential gaps in the potential disruption may arise as a relevant regulatory outcomes; result of that condition? Is that inspection team, which works in close • cooperation with the respective JST. Whether additional or fewer condition necessary given the related conditions or limitations would be EU requirements that are not subject to C. Enforcement Authority in Germany appropriate for enhancing regulatory the MiFID ‘‘eligible counterparty’’ The Securities Trading Act empowers efficiency while promoting regulatory exclusion—i.e., EMIR Margin RTS BaFin Securities Supervision to compel outcomes that are comparable to those article 2 (regarding procedures in an investigation, via formal request, arising under the Exchange Act; providing for or specifying the terms of information from any person, including • Whether the proposed conditions agreements), EMIR article 11(1)(a) responses to questions, documents, or and limitations sufficiently guard (regarding bilateral confirmations), and other data. In addition, its Division for against comparability gaps arising from MiFID article 25(6) and MiFID Org Reg Administrative Offence Proceedings has the cross-border application of German article 59 (regarding required reports on the authority to compel unsworn or EU requirements (including when services)? Are there more targeted testimony from witnesses and subjects SBS Entities conduct security-based conditions that would effectively of an investigation, but under German swap business through branches located promote the relevant regulatory law, the subject of the investigation is in the United States or in third outcomes? not required to answer questions about countries); Trading relationship documentation the accusation. • Whether the proposed conditions disclosure provisions—In addition, When a matter has been referred for and limitations sufficiently guard commenters are requested to address enforcement proceedings, BaFin against comparability gaps arising from whether the proposal appropriately Securities Supervision is authorized to the cross-border application of German excludes the provisions of paragraph impose a range of sanctions. The main or EU requirements, including when (b)(5) of rule 15Fi–5 from the scope of sanctioning tool is imposition of SBS Entities conduct security-based substituted compliance in connection financial penalties. Other sanctions swap business through branches located with trading relationship include publishing warnings on BaFin’s in other EU jurisdictions, and when SBS documentation, on the basis that the website, prohibiting certain trading, Entities conduct that business through German and EU documentation requiring cessations of the misconduct, branches located in the United States or requirements would not be expected to and prohibiting an individual from in third countries; and subsume those disclosures. Also, should

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the proposal be modified to further requirements should be conditioned on provisions ‘‘as if’’ those provisions also exclude the clearing disclosure Covered Entities having to use promoted the SBS Entities’ compliance provisions of paragraph (b)(6) of rule electronic means to provide relevant with applicable requirements under the 15Fi–5 from the scope of substituted information to clients pursuant to Exchange Act (i.e., requirements that are compliance, for similar reasons? 107 applicable EU requirements. In this not satisfied via substituted compliance) Risk management systems— regard, the Commission notes that and the other conditions to the Order. Commenters further are requested to Exchange Act rule 15Fi–2(c) requires To what extent would this condition address the set of German and EU that trade acknowledgments be lead to implementation issues, requirements that Covered Entities must provided via ‘‘electronic means,’’ while including but not limited to issues satisfy as conditions to substituted MiFID Org Reg article 59 instead states regarding how SBS Entities—in compliance in connection with risk that applicable disclosures must be in a practice—would leverage existing management system requirements (as ‘‘durable medium’’ but does not appear supervisory and compliance frameworks well as in connection with the internal to explicitly mandate electronic to comply with this condition? Would supervision and compliance disclosure. alternative approaches, more targeted requirements addressed below), Timing of dispute reporting— conditions or further guidance promote including whether any additions to or Commenters also are requested to regulatory outcomes that are comparable subtractions from those conditions are address whether substituted compliance to outcomes under the Exchange Act, warranted. In this respect the in connection with dispute reporting while reducing implementation issues? Commission notes that although the appropriately may be satisfied by Annual reports pursuant to EU proposed conditions in connection with disclosing information to the rules—Commenters also are invited to those requirements generally Commission based on the 15 business address the proposed condition that incorporate CRD requirements related to day standard of EMIR RTS art. 15(2), in SBS Entities provide to the Commission, internal governance (CRD article 74), lieu of the three to five business day at least annually, certified English- treatment of risk (CRD article 76), standard prescribed by rule 15Fi–3(c). additional risk-related practices (CRD Applicability of relevant requirements language versions of the annual articles 79–87), governance under EMIR—Substituted compliance compliance reports required under arrangements (CRD article 88), for Exchange Act rules 15Fi–2 through MiFID Org Reg article 22(2)(c) that also management body responsibilities (CRD 15Fi–4, related to trade address compliance with other article 91) and remuneration (CRD acknowledgments and verifications, conditions to the Order. Are those articles 92–95),108 the proposed portfolio reconciliation and dispute compliance reports sufficient to provide conditions do not incorporate certain reporting, and portfolio compression, in the Commission with compliance- CRD requirements related to part are conditioned on EMIR article 11 related information that is comparable management body activities and requirements that are linked to the to the information required by Exchange recruitment.109 While the Commission presence of an ‘‘OTC derivative contract Act section 15F(k)(3) and Exchange Act is mindful that the holistic approach not cleared by a CCP.’’ 110 Those rule 15Fk–1(c)? If not, how may the toward substituted compliance Exchange Act rules similarly do not condition appropriately be modified? generally necessitates a focus on the apply to cleared security-based swaps. Could the proposed condition impose U.S. and foreign regulatory regimes as a Commenters are invited to address implementation issues? Would whole, those foreign requirements whether there are any differences alternative approaches or more targeted related to management body activities between the scope of the EMIR conditions promote regulatory outcomes and recruitment appear significantly requirements and the scope of those that are comparable to those under the different from the U.S. internal Exchange Act rules that may lead to Exchange Act while reducing supervision and compliance uncertainty or otherwise complicate the implementation issues? Should the requirements at issue. The Commission implementation of substituted condition also require SBS Entities to accordingly believes that, on balance, compliance in connection with those provide the Commission with ad hoc the conditions to substituted requirements. compliance reports required pursuant to MiFID Org Reg article 22(3)(c)? compliance should not subsume those C. Internal Supervision, Chief particular CRD requirements. The Compliance Officer and Additional D. Counterparty Protection Commission invites comment regarding Exchange Act Section 15F(j) Requirements whether this aspect of the proposal Requirements strikes the correct balance. The Commission also requests Delivery of trade The Commission also requests comment regarding the proposed acknowledgements—Commenters are comment regarding the proposed conditions in connection with invited to address whether substituted conditions in connection with the counterparty protection requirements. compliance in connection with trade internal supervision, chief compliance Commenters particularly are invited to acknowledgment and verification officer and additional Exchange Act address the Commission’s preliminary section 15F(j) requirements. view that German and EU requirements 107 Paragraph (b)(6) to rule 15Fi–5 requires that ‘‘As if’’ compliance condition— are not comparable to clearing rights trading relationship documentation include a notice Commenters particularly are invited to disclosure requirements under the containing information regarding certain address the proposed condition that consequences of a security-based swap being Exchange Act. Do any German or EU accepted by a clearing agency. SBS Entities apply relevant German and requirements compare in scope and 108 See paragraphs (b)(1) and (c)(3) to the EU supervisory and compliance objective to the clearing rights proposed Order. disclosure requirements under the 109 The proposed conditions in connection with 110 EMIR article 2(3) defines ‘‘OTC derivative Exchange Act? the risk control requirements and internal contract’’ by reference to derivatives not executed supervision and compliance requirements on a ‘‘regulated market’’ within the meaning of Commenters also are invited to particularly do not incorporate CRD articles 88(2), article 4(1)(14) of MiFID I (Directive 2004/39/EC the address the Commission’s preliminary 91(3)–(6) and 91(10) and KWG sections 25c(2), predecessor to the current version of MiFID) or on view that German and EU portfolio 25d(3) and 25d(11), which address nomination a third country market considered as equivalent to committees, outside directorships, and management a regulated market in accordance with article 19(6) reconciliation requirements are body qualities and diversity. of MiFID I. comparable to Exchange Act daily mark

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disclosure requirements only for to mitigate those risks. Would responsibility to administer capital and transactions required to be reconciled permitting substituted compliance in margin requirements for prudentially each business day. Should the the latter scenario achieve comparable regulated SBS Entities, the FOCUS Commission instead allow substituted regulatory outcomes as the relevant Report Part IIC elicits much less compliance for daily mark disclosure Exchange Act disclosure requirements? information than the FOCUS Report Part requirements for any uncleared OTC Should the Commission limit II or the financial reports SBS Entities derivative contract that is subject to substituted compliance for Exchange file with BaFin and/or other European German and EU portfolio reconciliation Act material incentives or conflicts of authorities. Should the Commission requirements, even if reconciliation is interest disclosure requirements only to require SBS Entities to file the financial required on less than a daily basis? conflicts of interest for which German and operational information using the Should the Commission allow and EU laws require disclosure because FOCUS Report Part IIC? Are there line substituted compliance for daily mark the organizational arrangements are not items on the FOCUS Report Part IIC that disclosure requirements for any OTC sufficient as described above? Would elicit information that is not included in derivative contract for which margin is limiting substituted compliance in this the reports SBS Entities file with BaFin exchanged, even if German and EU way cause any market disruption or be and/or other European authorities? If so, portfolio reconciliation requirements do difficult to implement? Would do SBS Entities record that information not require that contract to be alternative approaches effectively in their required books and records? reconciled? Similarly, are the scope and promote the counterparty protection Please identify any information that is objectives of German and EU trade objectives of the Exchange Act elicited in the FOCUS Report Part IIC reporting requirements comparable to disclosure requirements while reducing that is not: (1) Included in the financial the scope and objectives of Exchange implementation issues? reports filed by SBS Entities with BaFin Act daily mark disclosure requirements? E. Recordkeeping, Reporting, and and/or other European authorities; or (2) Do the scope and/or objectives of those Notification recorded in the books and records German and EU requirements differ in required of SBS Entities. Would the important ways from the scope and/or The Commission also requests answer to these questions change if objectives of daily mark disclosure comment regarding the proposed references to FFIEC Form 031 were not requirements under the Exchange Act? conditions with respect to the included in the FOCUS Report Part IIC? Commenters also are invited to recordkeeping, reporting, and If so, how? As a preliminary matter, as address the proposed condition that notification requirements. Commenters a condition of substituted compliance particularly are invited to address the would require an SBS Entity’s should SBS Entities file a limited proposed condition with respect to counterparty to be a per se ‘‘professional amount of financial and operational Exchange Act rule 18a–5 that the client’’ that is not a ‘‘special entity,’’ for information on the FOCUS Report Part prudentially regulated SBS Entity: (a) substituted compliance to be available IIC for a period of two years to further Preserve all of the data elements for Exchange Act suitability evaluate the burden of requiring all necessary to create the records required requirements. Would that condition applicable line items to be filled out? If by Exchange Act rules 18a–5(b)(1), (2), appropriately limit substituted so, which line items should be required? (3), and (7); and (b) upon request furnish compliance to recommendations that To the extent that SBS Entities promptly to representatives of the are subject to German and EU suitability otherwise report or record information Commission the records required by requirements comparable to those under that is responsive to the FOCUS Report the Exchange Act? Would the absence of those rules. Do the relevant German and Part IIC, how could the information on that condition permit SBS Entities to EU laws require prudentially regulated these reports be integrated into a comply with materially narrower SBS Entities to retain the data elements database of filings the Commission or its German and EU suitability requirements necessary to create the records required designee will maintain for filers of the in lieu of broader Exchange Act by these rules? If not, please identify FOCUS Report Parts II and IIC (e.g., the suitability requirements? Would that which data elements are not preserved eFOCUS system) to achieve the condition cause any market disruption pursuant to the relevant German and EU objective of being able to perform cross- or be difficult to implement? Would laws. Further, how burdensome would form analysis of information entered alternative approaches or more targeted it be for a prudentially regulated SBS into the uniquely numbered line items conditions effectively promote the Entity to format the data elements into counterparty protection objectives of the the records required by these rules (e.g., on the forms? Exchange Act suitability requirement a blotter, ledger, or securities record, as In addition, commenters are invited to while reducing implementation issues? applicable) if the firm was requested to address the Commission’s preliminary Commenters also are invited to do so? In what formats do prudentially view that a substituted compliance address whether the Commission regulated SBS Entities in Germany determination with respect to the should allow SBS Entities to use produce this information to BaFin or recordkeeping, reporting, and substituted compliance for Exchange other European authorities? How do notification requirements applicable to Act material incentives or conflicts of those formats differ from the formats nonbank SBS Entities be made in interest disclosure requirements if the required by Exchange Act rules 18a– connection with an application for SBS Entity is subject to and complies 5(b)(1), (2), (3), and (7)? substituted compliance with respect to with German and EU laws that require Commenters also are invited to the capital and margin requirements the SBS Entity to have organizational address the proposal that a positive applicable to nonbank SBS Entities. For arrangements to prevent conflicts of substituted compliance determination example, are there recordkeeping, interest from adversely affecting the with respect to Exchange Act rule 18a– reporting, and notification requirements interest of the SBS Entity’s client and, 7 would be conditioned on the SBS applicable to nonbank SBS Entities that when those arrangements are not Entity filing financial and operational the Commission should consider for sufficient to ensure with reasonable information with the Commission in the substituted compliance in the context of confidence that risks of damage to client manner and format specified by the this application? If so, please identify interests will be prevented, to disclose Commission by order or rule. Because the requirements and explain why the a conflict of interest and the steps taken the Commission does not have Commission should consider them.

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Further, if the Commission makes a • BaFin and ECB supervisory and fall within the scope of the Covered positive substituted compliance enforcement authority, supervisory Entity’s authorization from BaFin to determination with respect to the inspection practices and the use of provide investment services and/or underlying requirements and the related alternative supervisory tools, and perform investment activities in the record making and record preservation enforcement tools and practices; Federal Republic of Germany. requirements applicable to prudentially • BaFin and ECB supervisory and (2) Counterparties as ‘‘clients.’’ For regulated SBS Entities, should the enforcement effectiveness with respect each condition in paragraphs (b) Commission also make a positive to derivatives such as security-based through (e) of this Order that requires substituted compliance determination swaps; the application of, and the Covered with respect to parallel record making • BaFin and ECB supervision and Entity’s compliance with, provisions of and record preservation requirements enforcement in the cross-border context MiFID, WpHG and/or other EU and for SBS Entities that do not have a (e.g., any differences between the German requirements adopted pursuant prudential regulator? In particular, in oversight of firms’ businesses within to those provisions, the relevant this circumstance, should the Germany and the oversight of activities counterparty (or potential counterparty) Commission make a positive substituted and branches outside of Germany, to the Covered Entity is a ‘‘client’’ (or compliance determination with respect including within the United States); and potential ‘‘client’’), as defined in MiFID to the following record making and • BaFin supervision and enforcement article 4(1)(9) and in WpHG section record preservation requirements effectiveness with respect to investment 67(1). applicable to SBS Entities that do not firms as compared to BaFin and ECB (3) Security-based swaps as ‘‘financial have a prudential regulator: Exchange supervision and enforcement instruments.’’ For each condition in Act rule 18a–5(a)(18) (regarding making effectiveness with respect to credit paragraphs (b) through (e) of this Order portfolio reconciliation records), institutions. that requires the application of, and the Covered Entity’s compliance with, Exchange Act rule 18a–6(d)(4)–(5) By the Commission. (regarding portfolio reconciliation provisions of MiFID, WpHG and/or Vanessa A. Countryman, other EU and German requirements retention), Exchange Act rule 18a– Secretary. 5(a)(16)–(17) with respect to adopted pursuant to those provisions, requirements of Exchange Act rules Attachment A the relevant security-based swap is a 15Fh–3 and 15Fk–1 to which the ‘‘financial instrument,’’ as defined in SECURITIES AND EXCHANGE MiFID article 4(1)(15) and in WpHG proposed order extends (regarding COMMISSION making records evidencing compliance section 2(4). (4) Covered Entity as ‘‘institution.’’ with business conduct standards), (Release No. 34- ) For each condition in paragraph (b) Exchange Act rule 18a–6(b)(1)(xii) with [DATE] through (e) of this Order that requires respect to requirements of Exchange Act the application of, and the Covered rules 15Fh–3 and 15Fk–1 to which the Order Providing for Conditional Entity’s compliance with, the provisions proposed order extends (regarding Substituted Compliance to Certain German Security-Based Swap Dealers of the CRD, KWG, CRR and/or other EU business conduct record retention), and and German requirements adopted Exchange Act rule 18a–5(a)(15) and Major Security-Based Swap Participants pursuant to those provisions, the (regarding making non-verified security- Covered Entity is an ‘‘institution,’’ as IT IS HEREBY ORDERED, pursuant to based swap records)? If so, explain why. defined in CRD article 3(1)(3), in CRR rule 3a71–6 under the Exchange Act, Finally, if the Commission makes a article 4(1)(3) and in KWG section 1(1b). positive substituted compliance that a Covered Entity (as defined in (5) Memorandum of Understanding. determination with respect to other paragraph (f)(1) of this Order) may The Commission and BaFin have a record making and record preservation satisfy the requirements under the supervisory and enforcement requirements applicable to prudentially Exchange Act that are addressed in memorandum of understanding and/or regulated SBS Entities where there is a paragraphs (b) through (e) of this Order other arrangement addressing parallel requirement applicable to SBS so long as the Covered Entity is subject cooperation with respect to this Order at Entities without a prudential regulator, to and complies with relevant the time the Covered Entity complies should the Commission make a requirements of the Federal Republic of with the relevant requirements under substituted compliance determination Germany and the European Union and the Exchange Act via compliance with with respect to the parallel with the conditions to this Order. one or more provisions of this Order. requirements? If so, identify the parallel (a) General conditions. (6) Notice to Commission. A Covered requirements and explain why the This Order is subject to the following Entity relying on this Order must Commission should make a positive general conditions, in addition to the provide notice of its intent to rely on substituted compliance determination. conditions specified in paragraphs (b) this Order by notifying the Commission F. Supervisory and Enforcement Issues through (e): in writing. Such notice must be sent to (1) Activities as ‘‘investment services an email address provided on the The Commission further requests or activities.’’ For each condition in Commission’s website. The notice must comment regarding how to weigh paragraphs (b) through (e) of this Order include the contact information of an considerations regarding supervisory that requires the application of, and the individual who can provide further and enforcement effectiveness in Covered Entity’s compliance with, information about the matter that is the Germany as part of the comparability provisions of MiFID, WpHG, and/or subject of the notice. assessments. Commenters particularly other EU and German requirements (7) European Union Cross-Border are invited to address relevant issues adopted pursuant to those provisions, Matters. If, in relation to a particular regarding the effectiveness of German the Covered Entity’s relevant security- service provided by a Covered Entity, supervision and enforcement over firms based swap activities constitute responsibility for ensuring compliance that may register with the Commission ‘‘investment services’’ or ‘‘investment with any provision of MiFID or any as SBS Entities, including but not activities,’’ as defined in MiFID article other EU or German requirement limited to issues regarding: 4(1)(2) and in WpHG section 2(8), and adopted pursuant to MiFID listed in

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paragraphs (b) through (e) of this Order (i) The Covered Entity is subject to than 25c(2)), 25d (other than 25d(3) and is allocated to an authority of the and complies with the requirements of 25d(11)), 25e and 25f. Member State of the European Union in MiFID article 25(5), WpHG section (4) Additional condition to paragraph whose territory a Covered Entity 83(2), MiFID Org Reg articles 24, 56, 58, (c)(1). Paragraph (c)(1) further is provides the service, BaFin must be the 73 and applicable parts of Annex I, and conditioned on the requirement that authority responsible for supervision EMIR Margin RTS article 2; and Covered Entities comply with the and enforcement of that provision or (ii) The Covered Entity does not treat provisions specified in paragraph (c)(3) requirement in relation to the particular the applicable counterparty as an as if those provisions also require service. If responsibility for ensuring ‘‘eligible counterparty’’ for purposes of compliance with: compliance with any provision of MAR MiFID article 30 and WpHG section 68. (i) Applicable requirements under the or any other EU requirement adopted (c) Substituted compliance in Exchange Act; and pursuant to MAR listed in paragraphs connection with internal (ii) The other conditions to this Order. (b) through (e) of this Order is allocated supervision and compliance (d) Substituted compliance in to one or more authorities of a Member requirements and certain Exchange connection with counterparty State of the European Union, one of Act section 15F(j) requirements. protection requirements. such authorities must be BaFin. This Order extends to the following This Order extends to the following (b) Substituted compliance in provisions related to internal provisions related to counterparty connection with risk control supervision and compliance and protection: requirements. Exchange Act section 15F(j) (1) Disclosure of information regarding material risks and This Order extends to the following requirements: characteristics. The requirements of provisions related to risk control: (1) Internal supervision. The requirements of Exchange Act rule Exchange Act rule 15Fh-3(b) relating to (1) Internal risk management. The 15Fh-3(h) and Exchange Act sections disclosure of material risks and requirements of Exchange Act section 15F(j)(4)(A) and (j)(5), provided that: characteristics of a security-based swap, 15F(j)(2) and related aspects of (i) The Covered Entity is subject to provided that the Covered Entity is Exchange Act rule 15Fh-3(h)(2)(iii)(I), and complies with the requirements subject to and complies with the provided that the Covered Entity is identified in paragraph (c)(3); requirements of MiFID article 24(4), subject to and complies with the (ii) The Covered Entity complies with WpHG sections 63(7) and 64(1) and requirements of: MiFID articles 16(4) paragraph (c)(4) to this Order; and MiFID Org Reg articles 48–50, in each and 16(5); WpHG section 80; MiFID Org (iii) This paragraph (c) does not case in relation to that security-based Reg articles 21–24; CRD articles 74, 76 extend to the requirements of paragraph swap. and 79–87; KWG sections 25a, 25b, 25c (h)(2)(iii)(I) to rule 15Fh-3 to the extent (2) Disclosure of information (other than 25c(2)), 25d (other than those requirements pertain to regarding material incentives or 25d(3) and 25d(11)), 25(e) and 25(f); compliance with Exchange Act sections conflicts of interest. The requirements of CRR articles 286–88 and 293; and EMIR 15F(j)(2), (j)(3), (j)(4)(B) and (j)(6), or to Exchange Act rule 15Fh-3(b) relating to Margin RTS article 2. the general and supporting provisions of disclosure of material incentives or (2) Trade acknowledgement and paragraph (h) to rule 15Fh-3 in conflicts of interest that a Covered verification. The requirements of connection with those Exchange Act Entity may have in connection with a Exchange Act rule 15Fi-2, provided that sections. security-based swap, provided that the the Covered Entity is subject to and (2) Chief compliance officers. The Covered Entity, in relation to that complies with the requirements of requirements of Exchange Act section security-based swap, is subject to and MiFID article 25(6), WpHG section 15F(k) and Exchange Act rule 15Fk-1, complies with the requirements of 63(12), MiFID Org Reg articles 59–61, provided that: either: EMIR article 11(1)(a) and EMIR RTS (i) The Covered Entity complies with (i) MiFID article 23(2)-(3); WpHG article 12. the requirements identified in paragraph section 63(2); and MiFID Org Reg (3) Portfolio reconciliation and (c)(3) to this Order; articles 33–35; dispute reporting. The requirements of (ii) All reports required pursuant to (ii) MiFID article 24(9); WpHG section Exchange Act rule 15Fi-3, provided that: MiFID Org Reg article 22(2)(c) must 70; and MiFID Delegated Directive (i) The Covered Entity is subject to also: article 11(5); or and complies with the requirements of (A) Be provided to the Commission at (iii) Market Abuse Regulation article EMIR article 11(1)(b) and EMIR RTS least annually, and in the English 20(1). article 13 and 15; language; (3) ‘‘Know your counterparty.’’ The (ii) The Covered Entity provides the (B) Include a certification that, under requirements of Exchange Act rule Commission with reports regarding penalty of law, the report is accurate 15Fh-3(e), provided that the Covered disputes between counterparties on the and complete; and Entity is subject to and complies with same basis as it provides those reports (C) Address the firm’s compliance the requirements of MiFID article 16(2); to competent authorities pursuant to with the other conditions to this Order. WpHG section 80(1); MiFID Org Reg EMIR RTS article 15(2). (3) Applicable supervisory and articles 21–22, 25–26 and applicable (4) Portfolio compression. The compliance requirements. Paragraphs parts of Annex I; CRD articles 74(1) and requirements of Exchange Act rule 15Fi- (c)(1) and (c)(2) are conditioned on the 85(1); KWG section 25a; MLD articles 11 4, provided that the Covered Entity is Covered Entity being subject to and and 13; GwG sections 10–11; MLD subject to and complies with the complying with the following articles 8(3) and 8(4)(a) as applied to requirements of EMIR RTS article 14. requirements: MiFID articles 16 and 23; internal policies, controls and (5) Trading relationship WpHG sections 63, 80, 83 and 84; procedures regarding recordkeeping of documentation. The requirements of MiFID Org Reg articles 21–37, 72–76 customer due diligence activities; and Exchange Act rule 15Fi-5, other than and Annex IV; CRD articles 74, 76, 79– GwG section 6(1)-(2) as applied to paragraph (b)(5) to that rule, provided 87, 88(1), 91(1)-(2), 91(7)-(9) and 92–95; principles, procedures and controls that: and KWG sections 25a, 25b, 25c (other regarding recordkeeping of customer

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diligence activities, in each case in 25(5), and 25(6); MiFID Delegated not exempt from the requirements of relation to that security-based swap. Directive article 2; MiFID Org Reg. Exchange Act rule 18a-4; (4) Suitability. The requirements of articles 16(7), 21(1)(a), 35, 59, 72, 73, 74, (iii) Except with respect to Exchange Act rule 15Fh-3(f), provided 75, 76, and applicable parts of Annex I; requirements of Exchange Act rules that: MiFID Org Reg. Annex IV; MiFIR article 15Fh-3 and 15Fk-1 to which this Order (i) The Covered Entity is subject to 25; MLD4 articles 11 and 13; EBA/ extends pursuant to paragraphs (c)(2) and complies with the requirements of ESMA Guidelines on Management and (d), the Covered Entity preserves MiFID articles 24(2)-(3) and 25(1)-(2); Suitability guidelines 74, 75, and 172, the records required by Exchange Act WpHG sections 63(5)-(6), 80(9)-(13) and and Annex III; CRD articles 88, 91(1), rule 18a-6(b)(2)(vii); and 87(1)-(2); and MiFID Org Reg articles and 91(8); KWG sections 25c(1) and (iv) The Covered Entity preserves the 21(1)(b) and (d), 54 and 55, in each case 25d(1)-(3); WpHG section 63, section 64, records required by Exchange Act rule in relation to the recommendation that section 81 paragraph 1, section 83 18a-6(b)(2)(vi) and (b)(2)(viii). is provided by or on behalf of the paragraphs 1 through 8, and section 84; (3) File Financial and Operational Covered Entity; and and GwG section 10, paragraph 1, points Information. The reporting requirements (ii) The counterparty to which the 1 through 3; of Exchange Act rule 18a-7 applicable to Covered Entity makes the (ii)(A) The Covered Entity preserves prudentially regulated security-based recommendation is a ‘‘professional all of the data elements necessary to swap dealers and major security-based client’’ mentioned in MiFID Annex II create the records required by Exchange swap participants; provided that: section I and WpHG section 67(2) and Act rules 18a-5(b)(1), (2), (3), and (7); (i) The Covered Entity is subject to is not a ‘‘special entity’’ as defined in and and complies with the following Exchange Act section 15F(h)(2)(C) and (B) The Covered Entity upon request requirements: CRR articles 99, 104(1)(j), Exchange Act rule 15Fh-2(d). furnishes promptly to representatives of 394, 415–428, and 430; CRR Reporting (5) Fair and balanced the Commission the records required by ITS chapter 2 and Annexes I–V and VII– communications. The requirements of those rules; XIII; and Commission Delegated Exchange Act rule 15Fh-3(g), provided (iii) The Covered Entity makes and Regulation (EU) 2017/1443, as amended that the Covered Entity, in relation to keeps current the records required by from time to time; and the relevant communication, is subject Exchange Act rules 18a-5(b)(9) and (10) (ii) The Covered Entity files financial to and complies with the requirements if the Covered Entity is not exempt from and operational information with the of: the requirements of Exchange Act rule Commission or its designee in the (i) Either MiFID articles 24(1), (3) and 18a-4; manner and format required by WpHG sections 63(1), (6) or MiFID (iv) The Covered Entity makes and Commission rule or order. article 30(1) and WpHG section 68(1); keeps current the records required by (4) Provide Notification. The and Exchange Act rule 18a-5(b)(12); and notification requirements of Exchange (ii) MiFID articles 24(4)-(5); WpHG (v) Except with respect to Act rule 18a-8 applicable to sections 63(7) and 64(1); MiFID Org Reg requirements of Exchange Act rules prudentially regulated security-based articles 46–48; Market Abuse Regulation 15Fh-3 and 15Fk-1 to which this Order swap dealers and major security-based articles 12(1)(c) and 15; and MAR extends pursuant paragraphs (c)(2) and swap participants; provided that: Investment Recommendations (d), the Covered Entity makes and keeps (i) The Covered Entity is subject to Regulation article 5. current the records required by and complies with the following (6) Daily mark disclosure. The Exchange Act rule 18a-5(b)(13). requirements: CRD article 71; MiFID requirements of Exchange Act rule (2) Preserve records. The record article 73; KWG section 24 paragraph 1; 15Fh-3(c), provided that the Covered preservation requirements of Exchange and FinDAG section 4d; and Entity is required to reconcile, and does Act rule 18a-6 applicable to (ii) The Covered Entity: reconcile, the portfolio containing the prudentially regulated security-based (A) Simultaneously transmits to the relevant security-based swap on each swap dealers and major security-based principal office of the Commission or to business day pursuant to EMIR articles swap participants; provided that: an email address provided on the 11(1)(b) and 11(2) and EMIR RTS article (i) The Covered Entity is subject to Commission’s website a copy of any 13. and complies with the following notice required to be sent by the German requirements: CRD articles 88, 91(1), and EU laws referenced in paragraph (e) Substituted compliance in and 91(8); CRR articles 99, 104(1)(j), (e)(3)(i) of this order; and connection with recordkeeping, 294, 394, 415–428, and 430; CRR (B) Includes with the transmission the reporting, and notification Reporting ITS Article 14 and Annexes I– contact information of an individual requirements. V, VIII–XIII; EMIR articles 9(1) and 9(2); who can provide further information This Order extends to the following MiFID articles 9(1), 16(3), and 69(2); about the matter that is the subject of provisions related to Commission MiFID Org Reg. articles 21(1)(a), 21(2), the notice; requirements to: 35, 58, 72(1), 72(3), 73, and 76; MiFIR (iii) The Covered Entity complies with (1) Make and keep current certain articles 16(2), 16(5), 16(6), 16(7), 25(1), notification requirements of Exchange records. The requirements to make and 25(5), 31(1) and 72; MLD4 articles 11 Act rule 18a–8(g) if the Covered Entity keep current records of Exchange Act and 13; EBA/ESMA Guidelines on is not exempt from Exchange Act rule rule 18a-5 applicable to prudentially Management Suitability guidelines 74, 18a–4. regulated security-based swap dealers 75, and 172, and Annex III; EBA (4) Examination and Production of and major security-based swap Guidelines on Outsourcing section 13.3; Records. Notwithstanding the forgoing participants; provided that: KWG 25c(1) and 25d(1)-(3); WpHG provisions of paragraph (e) of this (i) The Covered Entity is subject to sections 6, 7, 63, 64, and 80 and section Order, prudentially regulated security- and complies with the following 83 paragraphs 1, 2, 3, and 8; and GwG based swap dealers and major security- requirements: CRR articles 103 and sections 10 and 11; based swap participants remains subject 103(b)(ii); EMIR articles 9(2), 11(1)(a), (ii) The Covered Entity preserves the to the requirement of Exchange Act and 39(4); EMIR RTS 148/2013; MiFID records required by Exchange Act rule section 15F(f) to keep books and records articles 9(1), 16(3), 16(6)-16(9), 25(1), 18a-6(b)(2)(v) if the Covered Entity is open to inspection by any representative

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of the Commission and the requirement (14) ‘‘CRR’’ means Regulation (EU) No Grant, Iberville, La Salle, of Exchange Act rule 18a–6(g) to furnish 575/2013, as amended from time to Natchitoches, Pointe Coupee, Saint promptly to a representative of the time. Mary, Vernon Commission legible, true, complete, and (15) ‘‘Market Abuse Regulation’’ All other information in the original current copies of those records of the means Regulation (EU) 596/2014, as declaration remains unchanged. Covered Entity that are required to be amended from time to time. (Catalog of Federal Domestic Assistance preserved under Exchange Act rule 18a- (16) ‘‘MAR Investment Number 59008) 6, or any other records of the Covered Recommendations Regulation’’ means Entity that are subject to examination or Commission Delegated Regulation (EU) Cynthia Pitts, required to be made or maintained 2016/958, as amended from time to Acting Associate Administrator for Disaster pursuant to Exchange Act section 15F time. Assistance. that are requested by a representative of (17) ‘‘FinDAG’’ means Germany’s [FR Doc. 2020–25136 Filed 11–12–20; 8:45 am] the Commission. ‘‘Finanzdienstleistungsaufsichtsgesetz,’’ BILLING CODE 8026–03–P (f) Definitions. as amended from time to time. (18) ‘‘BaFin’’ means the Bundesanstalt (1) ‘‘Covered Entity’’ means an entity fu¨ r Finanzdienstleistungsaufsicht. SMALL BUSINESS ADMINISTRATION that: (i) Is a security-based swap dealer or [FR Doc. 2020–25166 Filed 11–10–20; 8:45 am] [Disaster Declaration #16772 and #16773; major security-based swap participant BILLING CODE 8011–01–P New York Disaster Number NY–00199] registered with the Commission; Administrative Declaration of a (ii) Is not a ‘‘U.S. person,’’ as that term Disaster for the State of New York is defined in rule 3a71–3(a)(4) under the SMALL BUSINESS ADMINISTRATION Exchange Act; and [Disaster Declaration #16706 and #16707; AGENCY: U.S. Small Business (iii) Is an investment firm or credit Louisiana Disaster Number LA–00105] Administration. institution authorized by BaFin to ACTION: Notice. provide investment services or perform Presidential Declaration Amendment of investment activities in the Federal a Major Disaster for the State of SUMMARY: This is a notice of an Republic of Germany. Louisiana Administrative declaration of a disaster (2) ‘‘MiFID’’ means the ‘‘Markets in for the State of New York dated 11/6/ AGENCY: Financial Instruments Directive,’’ U.S. Small Business 2020. Incident: Severe Storms and Directive 2014/65/EU, as amended from Administration. Flooding. Incident Period: 08/24/2020. time to time. ACTION: Amendment 1. DATES: Issued on 11/6/2020. Physical (3) ‘‘WpHG’’ means Germany’s Loan Application Deadline Date: 01/05/ SUMMARY: This is an amendment of the ‘‘Wertpapierhandelsgesetz’’, as amended 2021. Economic Injury (EIDL) Loan Presidential declaration of a major from time to time. Application Deadline Date: 08/06/2021. disaster for the State of Louisiana ADDRESSES: (4) ‘‘MiFID Org Reg’’ means (FEMA–4570–DR), dated 10/16/2020. Submit completed loan Commission Delegated Regulation (EU) Incident: Hurricane Delta. applications to: U.S. Small Business 2017/565, as amended from time to Incident Period: 10/06/2020 through Administration, Processing and time. 10/10/2020. Disbursement Center, 14925 Kingsport (5) ‘‘MiFID Delegated Directive’’ Road, Fort Worth, TX 76155. DATES: Issued on 10/16/2020. means Commission Delegated Directive FOR FURTHER INFORMATION CONTACT: Physical Loan Application Deadline A. (EU) 2017/593, as amended from time to Escobar, Office of Disaster Assistance, time. Date: 12/15/2020. Economic Injury (EIDL) Loan U.S. Small Business Administration, (6) ‘‘MLD’’ means Directive (EU) Application Deadline Date: 07/16/2021. 409 3rd Street SW, Suite 6050, 2015/849, as amended from time to Washington, DC 20416, (202) 205–6734. ADDRESSES: Submit completed loan time. SUPPLEMENTARY INFORMATION: Notice is applications to: U.S. Small Business (7) ‘‘GwG’’ means Germany’s hereby given that as a result of the Administration, Processing and ‘‘Geldwa¨schegesetz,’’ as amended from Administrator’s disaster declaration, Disbursement Center, 14925 Kingsport time to time. applications for disaster loans may be Road, Fort Worth, TX 76155. (8) ‘‘MiFIR’’ means Regulation (EU) filed at the address listed above or other 600/2014, as amended from time to FOR FURTHER INFORMATION CONTACT: A. locally announced locations. time. Escobar, Office of Disaster Assistance, The following areas have been (9) ‘‘EMIR’’ means the ‘‘European U.S. Small Business Administration, determined to be adversely affected by Market Infrastructure Regulation,’’ 409 3rd Street SW, Suite 6050, the disaster: Regulation (EU) No 648/2012, as Washington, DC 20416, (202) 205–6734. Primary Counties: Washington amended from time to time. SUPPLEMENTARY INFORMATION: The notice Contiguous Counties: (10) ‘‘EMIR RTS’’ means Commission of the President’s major disaster New York: Essex, Rensselaer, Delegated Regulation (EU) No 149/2013, declaration for the State of LOUISIANA, Saratoga, Warren as amended from time to time. dated 10/16/2020, is hereby amended to Vermont: Addison, Bennington, (11) ‘‘CRR Reporting ITS’’ means include the following areas as adversely Rutland Commission Implementing Regulation affected by the disaster: The Interest Rates are: (EU) 680/2014, as amended from time to Primary Counties (Physical Damage and time. Economic Injury Loans): Percent (12) ‘‘CRD’’ means Directive 2013/36/ Beauregard, Lafayette, Rapides, For Physical Damage: EU, as amended from time to time. Saint Landry, Saint Martin Homeowners With Credit Avail- (13) ‘‘KWG’’ means Germany’s Contiguous Counties (Economic Injury able Elsewhere ...... 2.375 ‘‘Kreditwesengesetz,’’ as amended from Loans Only): Homeowners Without Credit time to time. Louisiana: Assumption, Avoyelles, Available Elsewhere ...... 1.188

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