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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Notices
Act rule 18a8c and the requirements of Exchange Act rule 18a8h as applied to Exchange Act rule c.34
Exchange Act rule 18a8c generally requires every security-based swap dealer with a prudential regulator that files a notice of adjustment of its reported capital category with the Federal Reserve Board, the Office of the Comptroller of the Currency, or the Federal Deposit Insurance Corporation to give notice of this fact to the that same day by transmitting a copy to the Commission of the notice of adjustment of reported capital category in accordance with Exchange Act rule 18a 8h.35 Exchange Act rule 18a8h sets forth the manner in which every notice or report required to be given or transmitted pursuant to Exchange Act rule 18a8 must be made. While Exchange Act rule 18a8c is not linked to an Exchange Act capital requirement, it is linked to capital requirements in the U.S. promulgated by the prudential regulators. In its application, the Swiss Firms cited various Swiss provisions as providing similar outcomes to the notifications requirements of Exchange Act Rule 18a8.36 This general condition would be designed to clarify that a prudentially regulated Covered Entity must provide the Commission with copies of any notifications regarding changes in the Covered Entitys capital situation required by Swiss law. The intent is to align the notification requirement with the Swiss capital requirements applicable to the Covered Entity.
V. Substituted Compliance for Risk Control Requirements
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A. Swiss Firms Request and Associated Analytic Considerations The Swiss Application in part requests substituted compliance in connection with risk control requirements under the Exchange Act relating to:
Internal risk managementInternal risk management system requirements pursuant to Exchange Act section 15Fj2 and relevant aspects of Exchange Act rule 15Fh3h2iiiI.37
Those provisions address the obligation of SBSDs to follow policies and procedures reasonably designed to help manage the risks associated with their business activities.38
34 See
para. a10 of the proposed Order.
CFR 240.18a8c.
36 See FINMASA article 292; CAO articles 14, 423, 101, and 1304; and Liquidity Ordinance articles 17b, and 262.
37 17 CFR 240.15Fh3h2iiiI.
38 See Exchange Act Release No. 68071 Oct. 18, 2012, 77 FR 70214, 70250 Nov. 23, 2012. The 35 17

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Trade acknowledgment and verificationTrade acknowledgment and verification requirements pursuant to Exchange Act section 15Fi and Exchange Act rule 15Fi2.39 Those provisions help avoid legal and operational risks by requiring definitive written records of transactions and for procedures to avoid disagreements regarding the meaning of transaction terms.40
Portfolio reconciliation and dispute reportingPortfolio reconciliation requirements pursuant to Exchange Act section 15Fi and Exchange Act rule 15Fi3.41 Those provisions require that counterparties engage in portfolio reconciliation and resolve discrepancies in connection with uncleared securitybased swaps and promptly notify the Commission and applicable prudential regulators regarding certain valuation disputes.42
Portfolio compressionPortfolio compression requirements pursuant to Exchange Act section 15Fi and Exchange Act rule 15Fi4.43 Those provisions require that SBSDs have procedures addressing bilateral offset, bilateral compression and multilateral compression in connection with uncleared security-based swaps.44
Trading relationship documentationTrading relationship documentation requirements pursuant to Exchange Act section 15Fi and Exchange Act rule 15Fi5.45 Those provisions require that SBSDs have procedures to execute written securitybased swap trading relationship documentation with their counterparties prior to, or contemporaneously with, executing certain security-based swaps.46
Swiss Application discusses Swiss requirements that address Covered Entities obligations related to internal risk management. See Swiss Application section II.1.a at 58.
39 17 CFR 240.15Fi2.
40 See Exchange Act Release No. 78011 June 8, 2016, 81 FR 39808, 39809 & 39820 June 17, 2016
Trade Acknowledgment and Verification Adopting Release. The Swiss Application discusses Swiss requirements that address Covered Entities obligations related to confirmations. See Swiss Application section II.1.b at 916.
41 17 CFR 240.15Fi3.
42 See Exchange Act Release No. 87782 Dec. 18, 2019, 85 FR 6359, 636061 Feb. 4, 2020 Risk Mitigation Adopting Release. The Swiss Application discusses Swiss requirements that address portfolio reconciliation and dispute resolution and reporting. See Swiss Application section II.1.c at 1723.
43 17 CFR 240.15Fi4.
44 See Risk Mitigation Adopting Release, 85 FR at 6361. The Swiss Application discusses Swiss portfolio compression requirements. See Swiss Application section II.1.c at 1719, 2324.
45 17 CFR 240.15Fi5.
46 See Risk Mitigation Adopting Release, 85 FR at 6361. The Swiss Application discusses Swiss
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Taken as a whole, these risk control requirements help to promote market stability by mandating that SBSDs follow practices that are appropriate to manage the market, credit, counterparty, operational and legal risks associated with their security-based swap businesses. The Commissions comparability assessment accordingly focuses on whether the analogous foreign requirementstaken as a wholeproduce comparable outcomes with regard to providing that Covered Entities follow risk mitigation and documentation practices that are appropriate to the risks associated with their security-based swap businesses.
B. Preliminary Views and Proposed Order 1. General considerations In the Commissions preliminary view based on the Swiss Application and the Commissions review of applicable provisions, relevant Swiss requirements would produce regulatory outcomes that are comparable to those associated with the internal risk management, trade acknowledgement and verification, portfolio reconciliation, and portfolio compression risk control requirements, by subjecting Covered Entities to risk mitigation and documentation practices that are appropriate to the risks associated with those elements of their security-based swap businesses.
Substituted compliance for those risk control requirements accordingly would be conditioned on Covered Entities being subject to and complying with the Swiss provisions that in the aggregate establish a framework that produces outcomes comparable to those associated with the analogous risk control requirements under the Exchange Act.47
In connection with dispute reporting, the Commission preliminarily believes that Swiss requirements are not comparable to Exchange Act requirements.48 Paragraph c of requirements regarding records of agreements with counterparties. See Swiss Application section II.1.c at 1719, 2431.
47 See para. b1 of the proposed Order listing the requirements a Covered Entity must be subject to and comply with in connection with internal risk management; para. b2 listing the requirements a Covered Entity must be subject to and comply with in connection with trade acknowledgement and verification; para. b3 listing the requirements a Covered Entity must be subject to and comply with in connection with portfolio reconciliation; and para. b4 listing the requirements a Covered Entity must be subject to and comply with in connection with portfolio compression.
48 See para. b3 of the proposed Order excluding Exchange Act rule 15Fi3c covering reporting of security-based swap valuation disputes
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