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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
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past performance will recur; not make exaggerated or unwarranted claims, opinions, or forecasts; and balance statements about potential opportunities or advantages of a security-based swap with an equally detailed statement of the corresponding risks. UK MAR article 201 would require the Covered Entity to present recommendations in a manner that ensures the information is objectively presented and to disclose interests and conflicts of interest concerning the financial instruments to which the information relates. UK MAR
Investment Recommendations Regulation article 3 would require a Covered Entity to communicate only recommendations that present facts in a way that they are clearly distinguished from interpretations, estimates, opinions, and other types of non-factual information; label clearly and prominently projections, forecasts, and price targets; indicate the relevant material assumptions and substantially material sources of information; and include only reliable information or a clear indication when there is doubt about reliability. UK MAR Investment Recommendations Regulation article 4
would require the Covered Entity to provide in its recommendation additional information about the factual basis of its recommendation. UK MAR
articles 121c and 15 would require the Covered Entity to refrain from disseminating information that gives or is likely to give false or misleading signals as to the supply of, demand for, or price of, a financial instrument or secures or is likely to secure the price of one or several financial instruments at an abnormal or artificial level, if the Covered Entity knows or ought to know that the information is false or misleading. These requirements form part of the UKs framework for fair and balanced communications, and the Commission believes that together they relate to Exchange Act rule 15Fh3gs requirements regarding presentation of factual information described above.
Accordingly, the Commission is retaining the references to these provisions.
6. Daily Mark Disclosure A commenter requested that the Commission not require a Covered Entity to be subject to and comply with UK EMIR article 112, stating that it is not related to portfolio reconciliation.402
By contrast, another commenter stated that, if the Commission makes a positive substituted compliance determination, it must at a minimum ensure that the 402 See SIFMA 5/3/2021 Letter at 21 and Appendix A part e6.

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conditions in the proposed Order are applied with full force and without exceptions or dilution. 403 UK EMIR
article 112 would require the Covered Entity to mark-to-market or mark-tomodel its noncentrally cleared contracts. Other UK portfolio reconciliation requirements contemplate that counterparties will use this valuation as an input to the reconciliation process. For example, a portfolio reconciliation must include at least the valuation attributed to each contract in accordance with UK EMIR
article 112.404 As UK EMIR article 112 sets the standards under which a Covered Entity must calculate this key input in the portfolio reconciliation process, the Commission has determined that this provision is related to portfolio reconciliation and accordingly is retaining the Orders reference to it.405
7. Clearing Rights Disclosure Because UK clearing provisions do not require disclosure of a counterpartys clearing rights under Exchange Act section 3Cg5, the Commission views those provisions as not comparable to Exchange Act clearing rights disclosure requirements.
Commenters did not address this conclusion and, consistent with the proposed Order, the Commission is not providing substituted compliance.
VIII. Substituted Compliance for Recordkeeping, Reporting and Notification Requirements A. Proposed Approach The FCA Application in part requested substituted compliance for requirements applicable to SBS Entities under the Exchange Act relating to:
Record MakingExchange Act rule 18a5 requires prescribed records to be made and kept current.406
Record PreservationExchange Act rule 18a6 requires preservation of records.407
403 See
Better Markets Letter at 2.
UK EMIR article 132.
405 See para. e6 of the Order.
406 See 17 CFR 240.18a5. The FCA Application discusses UK requirements that address firms record creation obligations related to matters such as financial condition, operations, transactions, counterparties, and their property, personnel, and business conduct. See FCA Application Appendix B category 2 at 10128, 13639.
407 See 17 CFR 240.18a6. The FCA Application discusses UK requirements that address firms record preservation obligations related to records that firms are required to create, as well as additional records such as records of communications. See FCA Application Appendix B
category 2 at 14071.
404 See
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ReportingExchange Act rule 18a 7 requires certain reports.408
NotificationExchange Act rule 18a8 requires notification to the Commission when certain financial or operational problems occur.409
Securities CountExchange Act rule 18a9 requires non-prudentially regulated security-based swap dealers to perform a quarterly securities count.410
Daily Trading Records. Exchange Act section 15Fg requires SBS Entities to maintain daily trading records.411
Taken as a whole, the recordkeeping, reporting, notification, and securities count requirements that apply to SBS
Entities are designed to promote the prudent operation of the firms securitybased swap activities, assist the Commission in conducting compliance examinations of those activities, and alert the Commission to potential financial or operational problems that could impact the firm and its customers.412
In proposing to provide conditional substituted compliance in connection with this part of the FCA Application, the Commission preliminarily concluded that the relevant UK
requirements, subject to conditions and limitations, would produce regulatory outcomes that are comparable to the outcomes associated with the vast majority of the recordkeeping, reporting, notification, and securities count requirements under the Exchange Act applicable to SBS Entities pursuant to 408 See 17 CFR 240.18a7. The FCA Application discusses UK requirements that address firms obligations to make certain reports. See FCA
Application Appendix B category 2 at 17280, 185
89.
409 See 17 CFR 240.18a8. The FCA Application discusses UK requirements that address firms obligations to make certain notifications. See FCA
Application Appendix B category 2 at 18185.
410 See 17 CFR 240.18a9. The FCA Application discusses UK requirements that address firms obligations to perform securities counts. See FCA
Application Appendix B category 2 at 12936.
411 See 15 U.S.C. 78o10g. The FCA Application discusses UK requirements that address firms record preservation obligations related to records that firms are required to create, as well as additional records such as records of communications. See FCA Application Appendix B
category 2 at 14071.
412 Rule 3a716 sets forth additional analytic considerations in connection with substituted compliance for the Commissions recordkeeping, reporting, notification, and securities count requirements. In particular, Exchange Act rule 3a716d6 provides that the Commission intends to consider in addition to any conditions imposed whether the foreign financial regulatory systems required records and reports, the timeframes for recording or reporting information, the accounting standards governing the records and reports, and the required format of the records and reports are comparable to applicable provisions under the Exchange Act, and whether the foreign provisions would permit the Commission to examine and inspect regulated firms compliance with the applicable securities laws.

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