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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations SEF alone possesses adequate financial resources.104 The Commission stated a separate SEF financial statement would more clearly demonstrate evidence of the SEFs compliance with Core Principle 13.105
The Commission also proposed revisions to 37.1306a1 to add appropriate references to amended 37.1303 and amended 37.1305. In addition to specifying the amount of financial resources necessary to comply with 37.1301, a SEFs quarterly report would have to include the amount of financial resources necessary to comply with the liquidity requirement in amended 37.1303. Further, the amounts specified in the report would have to be based on the current market value of each financial resource and computed as reasonable calculations of the SEFs projected operating costs and wind-down costs.
The Proposed Rules also posed several questions to commenters on reporting requirements for SEFs. These included whether a SEFs financial reports should be required to be audited and whether financial reporting should be required on a semiannual rather than a quarterly basis.
ii. Summary of Comments WMBAA supports requiring a SEFs financial statements be prepared in accordance with U.S. GAAP or its equivalent for non-U.S. SEFs, concurring with the Commissions view that such a requirement would promote comparability across SEFs.106
WMBAA objects to requiring a SEFs financial reports be audited, contending audited reports would not improve oversight. WMBAA reasoned that an auditing firm would not provide a complete assessment because it likely would be unable or unwilling to opine on certain unique aspects of a SEFs financial resources calculations, including projection of costs based on historical or estimated costs.107 Further, WMBAA argued the costs associated with an audited report are high and would pose a barrier to entry for new SEFs.108
WMBAA also believes the current reporting requirementquarterly financial reportsis sufficient to ensure
capital adequacy, but that a semi-annual and annual report would also be adequate to achieve the goal of Commission oversight.109 According to WMBAA, if the Commission adopts less frequent financial reporting, a SEF
should be required to maintain all related documents and support for further inspection.110 However, WMBAA asserted a SEF should not be required to maintain, in between each report, the supplemental documents required under existing 37.1306c.111
Rather, WMBAA contends a SEF should be able to maintain a balance sheet with financial resources and liquidity calculations based on the most recent filing.112
The Commission did not receive any comments on its proposal to require SEFs to submit their own financial statements rather than those of their parent entities.
iii. Final Rules The Commission is adopting the proposal requiring financial statements submitted as part of a SEFs quarterly financial reports to conform to U.S.
GAAP or comparable foreign standards.
As supported by commenters feedback, the Commission continues to believe conforming financial statements to U.S.
GAAP or comparable foreign standards will enhance the quality and transparency of SEFs financial reporting and facilitate assessments of SEFs financial conditions.
The Commission is adopting, as proposed, the requirement for a SEF to provide its own financial statements including balance sheet, rather than the financial statements of its parent.
This change will provide the Commission with a more accurate picture of the SEFs assets to ensure a SEF has adequate financial resources.113
The Commission will not adopt the requirement that financial statements be audited. As noted by commenters, the Commission has the ability to request additional information from a SEF if warranted, and the Commission does not believe the benefits of a blanket auditing requirement would justify the costs to SEF operators at this time.
109 Id.

104 Id.

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105 Id.
106 WMBAA

Letter at 23.
at 22. WMBAA also stated that an auditing firm would be unlikely to opine on whether an execution method is bona fide for purposes of the proposed acceptable practices related to 37.1303.
As noted above, the meaning of bon fide is not relevant since the Commission is not finalizing the proposed acceptable practice regarding the calculation of costs of different execution methods.
108 Id.
107 Id.

VerDate Sep<11>2014

at 2223.
at 22.
111 Existing 37.1306c requires a SEF to provide the Commission with supplemental documentation to its quarterly reports, including documentation used to calculate its financial requirements;
documentation showing the basis for financial resource valuations and liquidity requirements; and copies of relevant agreements supporting the SEFs calculations.
112 WMBAA Letter at 22.
113 The Commission is finalizing the amendments to 37.1306a1 as proposed.
110 Id.

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Finally, the Commission will retain the existing quarterly reporting requirement for SEFs, rather than moving to a semiannual reporting requirement. Quarterly reports are necessary for the Commission to remain current with the SEFs financial condition in a manner that semiannual reports would not. Timely financial information will be particularly important to the Commission as it monitors the transition to a relatively less stringent liquidity requirement for SEFs financial resources under the Final Rules.114
2. 37.1306c 115
Existing 37.1306c sets forth documentation requirements for a SEFs financial reporting obligations.116
Commission regulation 37.1306c1
requires a SEF to provide the Commission with sufficient documentation explaining the methodology used to calculate its financial resource requirements under 37.1301.117 Commission regulation 37.1306c2 requires a SEF to provide sufficient documentation explaining the basis for its valuation and liquidity determinations.118 To provide such documentation, 37.1306c3 requires SEFs to provide copies of certain agreements that evidence or otherwise support its conclusions.119
i. Proposed Rules Based on the proposed amendments to the Core Principle 13 regulations described above, the Commission proposed conforming amendments to 37.1306c that would require a SEF to specify the methodology used to compute its financial resources and liquidity requirements. Proposed 37.1306c1 requires documentation to be sufficient to enable the Commission to determine whether the SEF has made reasonable calculations of projected operating and wind-down costs under 37.1303. Proposed 37.1306c2i through iv 120
requires the SEF, at a minimum, to i list all of its expenses, without 114 See
Section III.D., supra.
37.1306b, 17 CFR 37.1306b, requires a SEF to make its financial resource calculations on the last business day of its fiscal quarter. The Commission proposed an amendment to 37.1306b adding the word applicable before fiscal quarter in the existing rule text. The Commission is finalizing this amendment as proposed.
116 17 CFR 37.1306c.
117 17 CFR 37.1306c1.
118 17 CFR 37.1306c2.
119 17 CFR 37.1306c3.
120 The Commission proposed to consolidate 37.1306c1 through 3 into 37.1306c1
through 2 and adopt the proposed requirements as described.
115 Existing
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