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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Rules and Regulations execution facilities with the Commission.42
Security-based swap dealers must register with the Commission and comply with prudential and conduct standards of the Dodd-Frank Act.43
Security-based swap dealers are subject to a registration and regulatory framework that is tailored to the functions they serve and risks they pose.
These risks, and the corresponding Commission analysis of costs and benefits of the ensuring requirements, are discussed in the Security-Based Swap Entity Registration, SecurityBased Swap Recordkeeping and Reporting, Security-Based Swap Capital, Margin, and Segregation, and SecurityBased Swap Business Conduct Standards releases.44 Entities that engage in dealing activity in securitybased swaps below the de minimis threshold of $3 billion of notional activity in a twelve-month period are excepted from the definition of security-based swap dealer. 45 The Dodd-Frank Act also requires securitybased swap-execution facilities, as therein defined, to be registered with and comply with prudential and 42 Compare BGC Swap Execution Facility, http
www.bgcsef.com/; Bloomberg Professional Swap Execution Facility Historical Data, https
data.bloombergsef.com/; GFI Swaps Exchange Trade Data, http www.gfigroup.com/markets/gfisef/trade-data/; ICE Swap Trade, https
www.theice.com/swap-trade; MarketAxess Credit Default Swaps, https www.marketaxess.com/
trade/credit-default-swaps; tpSEF CDS Data, https www.tpinformation.com/In-Depth-Data/
Credit/Credit-Default-Swaps; Tradeweb and Dealerweb Swap Execution Facilities, https
www.tradeweb.com/our-markets/market-regulation/
sef/; TraditionSEF Daily Activity, http
www.traditionsef.com/market-activity/ which allow trading of credit default swap indices, with 360T Swap Execution Facilitiy, https
www.360t.com/trading-solutions/sef/; Cboe Swap Execution Facility, https markets.cboe.com/
global/fx/sef/; Clearmarkets CMSEF Center, https www.clear-markets.com/cm-sef-centre/;
LatAmSEF Market Activity, http latamsef.com/
marketactivity.phtml; LedgerX, https
www.ledgerx.com/; NEX SEF Data, http
www.nexsef.com/; Refinitiv SEF Volumes, https
www.refinitiv.com/en/products/sef-swap-executionfacilitysef-volumes; SwapEx, http
www.swapex.com/swapex/market-data/NDF/;
TeraExchange Instruments, https
teraexchange.com/Home/Instruments which do not host trading of credit default swap indices.
43 Id.
44 See Release Nos. 34756711 Aug. 5, 2015, 80
FR 48963 Aug. 14, 2015 Security-Based Swap Entity Registration; 3487782 Dec. 18, 2019, 85
FR 6270 Feb. 4, 2020 Risk Mitigation Techniques; 3487005 Sep. 19, 2019, 84 FR
68550 Dec. 16, 2019 Security-Based Swap Recordkeeping and Reporting; 3486175 Jun. 21, 2019, 84 FR 43872 Aug. 22, 2019 SecurityBased Swap Capital, Margin, and Segregation; 34
77617 Apr. 14, 2016, 81 FR 29959 May 13, 2016
Security-Based Swap Business Conduct Standards.
45 See Entity Definitions adopting release, supra note 13, at 30639.

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conduct standards to be set forth by the Commission.46
B. Consideration of Benefits, Costs, and the Effect on Competition, Efficiency, and Capital Formation The exemption in new Rule 17Ad24
is designed to avoid imposing requirements with marginal or no benefit to safeguarding securities and funds and protecting investors on entities engaging in dealing activity in security-based swaps and security-based swap execution facilities, which will benefit these entities since they will not be required to register as a clearing agency or comply with the Commissions requirements for clearing agencies. Since these types of entities also each have their own registration and regulatory frameworks or are exempt due to a de minimis level of activity,47 the Commission does not expect new Rule 17Ad24 to impose substantial costs, and there should be minimal impacts on transparency and financial stability. Lastly, new Rule 17Ad24 may improve competition and efficiency in the security-based swap dealer and security-based swap execution facility markets.
The cost savings to both entities engaging in dealing activity in securitybased swaps and security-based swap execution facilities under new Rule 17Ad24 are likely to be significant.
New Rule 17Ad24 will benefit entities engaging in dealing activity in securitybased swaps and security-based swap execution facilities to the extent that additional clarity regarding registration requirements reduces the costs they may incur to determine which requirements apply to their activities. Furthermore, although no entities engaging in dealing activity in security-based swaps or security-based swap execution facilities are currently registered as clearing agencies with the Commission, exempted entities engaging in dealing activity in security-based swaps and future exempted security-based swap execution facilities and security-based swap dealers will not have to incur registration and compliance costs for clearing agencies.48 Many of the costs of complying with requirements for clearing agencies involve collecting information, and the Commission has estimated the monetized burden of these standards per clearing agency at $0.5
million in initial costs and $1.2 million 46 See
15 U.S.C. 78c4.
supra notes 44, 46, and accompanying text.
48 Though a registered clearing agency may be affiliated with a security-based swap execution facility, none of the registered clearing agencies are either a registered security-based swap dealer or security-based swap execution facility.
47 See
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in annual ongoing costs, adjusted to 2020 dollars.49 Absent the exemption, entities engaging in dealing activity in security-based swaps and security-based swap execution facilities may have to incur these costs. However, as existing clearing agencies follow the Principles for Financial Market Infrastructures, many of the Commissions requirements for clearing agencies had minimal additional per-entity costs.50 Since these requirements are not common practice for entities engaging in dealing activity in security-based swaps and securitybased swap execution facilities, applying the Commissions clearing agency requirements to these entities would likely have higher per-entity costs than the Commissions past estimates for clearing agencies.51 The Commission does not expect either security-based swap execution facilities or security-based swap dealers will face new costs from relying on new Rule 17Ad24.
The Commission also does not expect new Rule 17Ad24 to impose costs on security-based swap markets. Many of the requirements that apply to registered security-based swap dealers, such as recordkeeping, governance, margin, and capital requirements, cover risks that overlap with those facing clearing agencies.52 Other aspects of clearing agency regulation, such as standards addressing settlement risk or participation requirements, are either not applicable to entities engaging in 49 See Clearing Agency Standards adopting release, supra note 4, at 66273. The estimates were updated on a per entity basis using SIFMAs Management & Professional Earnings in the Securities Industry 2013, modified to account for an 1,800-hour work year; multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.
Because the exempted activities are not among the core central counterparty or central securities depository functions of a clearing agency, securitybased swap execution facilities and security-based swap dealers would not unduly benefit from avoiding the higher standards of a covered clearing agency. See generally Release No. 3478961 Apr 9, 2020, 85 FR 28853 May 14, 2020 adopting an amendment to the definition of covered clearing agency such that covered clearing agency means a clearing agency that provides the services of a central counterparty or central securities depository.
50 See Clearing Agency Standards adopting release, supra note 4, at 66274.
51 However, many of the clearing agency requirements would not apply to entities engaging in dealing activity and security-based swap execution facilities because these entities are not likely to provide central counterparty or central securities depository services, which are the focus of the compliance costs associated with the SECs regulatory framework for registered clearing agencies.
52 The Commission has exempted entities that engage in security-based swap dealing activity below the de minimis threshold from these requirements since these entities do not implicate the concerns that these requirements address.

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