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Final Rule: Trade Acknowledgment and Verification of Security-Based

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Final Rule: Trade Acknowledgment and Verification of Security-Based SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 240 [Release No. 34-78011; File No. S7-03-11] RIN 3235-AK91 Trade Acknowledgment and Verification of Security-Based Swap Transactions AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: In accordance with Section 764(a) of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Securities and Exchange Commission (“Commission”) is adopting Rules 15Fi-1 and 15Fi-2 under the Securities Exchange Act of 1934 (“Exchange Act”) requiring security-based swap dealers and major security-based swap participants to provide trade acknowledgments and to verify those trade acknowledgments in security-based swap transactions. The Commission also is amending Rule 3a71-6 under the Exchange Act to address the potential availability of substituted compliance in connection with those trade acknowledgment and verification requirements. DATES: Effective date: August 16, 2016. Compliance date: The applicable compliance date is discussed in Section V of this final rule. FOR FURTHER INFORMATION CONTACT: Paula Jenson, Deputy Chief Counsel; Joanne Rutkowski, Assistant Chief Counsel; or Darren Vieira, Special Counsel, at (202) 551-5550, Office of Chief Counsel, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-7010. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction ..............................................................................................................4 A. Trade Acknowledgment and Verification ....................................................4 B. Cross-Border Application and Availability of Substituted Compliance....10 II. Discussion of Trade Acknowledgment and Verification Rule ..............................11 A. Definitions..................................................................................................11 1. Proposed Rule ................................................................................11 2. Comments ......................................................................................13 3. Response to Comments and Final Rule .........................................14 B. Trade Acknowledgment Requirement .......................................................15 1. Proposed Rule ................................................................................15 2. Comments ......................................................................................18 3. Response to Comments and Final Rule .........................................20 C. Time to Provide a Trade Acknowledgment ...............................................22 1. Proposed Rule ................................................................................22 2. Comments ......................................................................................24 3. Response to Comments and Final Rule .........................................27 D. Form and Content of Trade Acknowledgments .........................................33 1. Proposed Rule ................................................................................33 2. Comments ......................................................................................35 3. Response to Comments and Final Rule .........................................38 E. Trade Verification ......................................................................................42 1. Proposed Rule ................................................................................42 2. Comments ......................................................................................44 3. Response to Comments and Final Rule .........................................45 F. Exception for Clearing Transactions .........................................................49 G. Exception for Transactions Executed on a Security-Based Swap Execution Facility or National Securities Exchange or Accepted for Clearing by a Clearing Agency ............................................54 1. Exception for Transactions Executed on a Security-Based Swap Execution Facility or National Securities Exchange .......................................................................57 2. Exception for Transactions Accepted for Clearing by a Clearing Agency.....................................................................60 3. Trade Acknowledgment and Verification After Notice That an SBSEF or Exchange Has Not Acknowledged and Verified a Transaction or That a Transaction Has Not Been Accepted for Clearing by a Clearing Agency.....................................................................63 H. Exemption from Rule 10b-10 ....................................................................64 III. Cross-Border Application of Trade Acknowledgment and Verification Requirements .........................................................................................................69 A. Proposed Application .................................................................................69 2 B. Commenter Views .....................................................................................71 C. Response to Comments and Final Interpretation .......................................73 IV. Availability of Substituted Compliance for Trade Acknowledgment and Verification Requirements ..............................................................................76 A. Existing Substituted Compliance Rule ......................................................76 B. Response to Comments and Final Rule .....................................................76 1. Basis for Substituted Compliance in Connection with the Trade Acknowledgment and Verification Requirements .................................................................................77 2. Comparability Criteria, and Consideration of Related Requirements .................................................................................78 V. Effective and Compliance Dates ............................................................................79 A. Trade Acknowledgment and Verification ..................................................80 B. Substituted Compliance Rule .....................................................................82 VI. Paperwork Reduction Act ......................................................................................83 A. Introduction ................................................................................................83 B. Rule 15Fi-2 ................................................................................................84 1. Summary of Collection of Information..........................................84 2. Proposed Use of Information .........................................................86 3. Respondents ...................................................................................87 4. Total Initial and Annual Reporting and Recordkeeping Burdens ..........................................................................................87 5. Retention Period of Recordkeeping Requirements ........................91 6. Collection of Information is Mandatory ........................................91 7. Confidentiality ...............................................................................91 C. Rule 3a71-6 ................................................................................................92 1. Summary of Collection of Information..........................................92 2. Proposed Use of Information .........................................................94 3. Respondents ...................................................................................94 4. Total Initial and Annual Reporting and Recordkeeping Burdens ..........................................................................................95 5. Collection of Information is Mandatory ........................................97 6. Confidentiality ...............................................................................97 VII. Economic Analysis ................................................................................................97 A. Introduction ................................................................................................97 B. Economic Baseline...................................................................................102 1. Available Data on Security-Based Swaps....................................103 2. Current Security-Based Swap Market .........................................105 3. Current Estimates of Number of SBS Dealers and Major SBS Participants...........................................................................107 4. Trade Execution ...........................................................................109 5. Clearing Activity ..........................................................................111 6. Current Trade Confirmation Practices .........................................112 a. Joint Regulatory Initiative ................................................113 b. CFTC Trade Confirmation Rules.....................................115 c. Foreign Trade Confirmation Rules ..................................116 3 C. Benefits, Costs, and Effects on Efficiency, Competition, and Capital Formation..............................................................................117 1. Effects on Efficiency, Competition, and Capital Formation .....................................................................................118 a. Broad Market Effects .......................................................118
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