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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
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definitions of security-based swap dealer and major security-based swap participant in the cross-border context, the Commission was guided by the purposes of Title VII and the applicable requirements of the Exchange Act, which include consideration of not only risk to the U.S. financial system but also other factors such as counterparty protection, transparency, prevention of evasion, economic impacts and consultation and coordination with other U.S. financial regulatory authorities and foreign financial regulatory authorities.40 In its registration rules for these SBS Entities, the Commission determined that a foreign market participant whose U.S.nexus security-based swap activity qualifies it as an SBS Entity would be required to register as such, without substituted compliance available for 40 See Cross-Border Entity Definitions Adopting Release, 79 FR at 47292 purposes of Title VII
include consideration of risk to the U.S. financial system and promotion of transparency in the U.S.
financial system; Exchange Act section 30c, 15
U.S.C. 78ddc Commission rulemaking authority to prevent evasion of Title VII; Exchange Act section 3f, 15 U.S.C. 78cf requirement to consider whether certain Commission rulemaking actions would promote efficiency, competition and capital formation; Exchange Act section 23a2, 15 U.S.C. 78wa2 requirement to consider the impact of Exchange Act rules and regulations on competition and prohibition on adopting rules or regulations that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act;
Dodd-Frank Act section 712a2, 15 U.S.C. 8302
requirement to consult and coordinate with U.S.
financial regulatory authorities on Title VII
rulemaking; Dodd-Frank Act section 752a, 15
U.S.C. 8325 requirement to consult and coordinate, as appropriate, with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation of securitybased swaps and security-based swap entities; see also Exchange Act Release No. 77104 Feb. 10, 2016, 81 FR 8598, 8599 Feb. 19, 2016 ANE
Adopting Release A key part of the Title VII
framework is the regulation of security-based swap dealers, which may transact extensively with counterparties established or located in other jurisdictions and, in doing so, may conduct sales and trading activity in one jurisdiction and book the resulting transactions in another. These market realities and the potential impact that these activities may have on U.S. persons and potentially the U.S. financial system have informed our consideration of these rules.; Exchange Act Release No. 87780 Dec. 18, 2019, 85 FR 6270, 6272
and n.26 Feb. 4, 2020 Cross-Border Adopting Release The Title VII SBS Entity requirements . . . serve a number of regulatory purposes apart from mitigating counterparty and operational risks, including enhancing counterparty protections and market integrity, increasing transparency, and mitigating risk to participants in the financial markets and the U.S. financial system more broadly. The Commissions actions to mitigate the negative consequences potentially associated with the various uses of the arranged, negotiated or executed test accordingly are designed to do so while preserving the important Title VII interests that the Commission advanced when it incorporated the test into the various cross-border rules. internal citations omitted.

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registration requirements.41 The Commission concluded that obliging these foreign persons to register serves an important regulatory function that would be significantly impaired by permitting substituted compliance for registration requirements.42 This registration requirement thus puts into practice the Commissions consideration of the purposes of Title VII and the applicable requirements of the Exchange Act in its adoption of the definitions of security-based swap dealer and major security-based swap participant in the cross-border context, and ensures that such firms will be subject to the jurisdiction of the Commission.
Moreover, the rules applicable to these registered foreign SBS Entities reflect the Commissions best judgment for how to achieve the purposes of Title VII
and satisfy the requirements of the Exchange Act, including the Commissions consideration of risk to the U.S. financial system.43
The Commissions rules for registered foreign SBS Entities thus reflect the Commissions consistent consideration of all of the purposes of Title VII and relevant parts of the Exchange Act, first in the context of its adoption of the definitions of security-based swap dealer and major security-based swap participant, then in its decision to require foreign SBS Entities to register and finally in its adoption of crossborder rules for SBS Entities pursuant to Title VII. When making a substituted compliance determination, the Commissions task, as outlined in rule 3a716, is to evaluate whether the relevant foreign requirements are comparable to these Title VII-based requirements and relevant provisions of the Exchange Act. The comparability assessments are to be based on a holistic, outcomes-oriented framework, 44 which in the Commissions viewconsistent with the commenters viewincludes inquiry regarding whether foreign requirements adequately reflect the interests and protections associated with the particular Title VII
41 See Exchange Act Release No. 75611 Aug. 5, 2015, 80 FR 48964, 4897273 Aug. 14, 2015
Registration Adopting Release.
42 See id.
43 See Cross-Border Entity Definitions Adopting Release, 79 FR at 47286 n.65 Future rulemakings that depend on the definitions of security-based swap dealer and major security-based swap participant are intended to address the transparency, risk, and customer protection goals of Title VII..
44 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85722; see also Business Conduct Adopting Release, 81 FR at 30076, 30078
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requirement. 45 Also consistent with the commenters view, the Commissions comparability assessments reflect a close reading of the relevant French and EU
requirements. In addition, the Commission recognizes that other regulatory regimes will have exclusions, exceptions and exemptions that may not align perfectly with the corresponding requirements under the Exchange Act.46
Accordingly, where French and EU
requirements produce comparable outcomeswith or without conditions as discussed in part III.B below notwithstanding those particular differences, and taking into account the scope and objectives and the effectiveness of supervision and enforcement of those requirements, the Commission has determined that the relevant French and EU requirements are comparable and has made a positive substituted compliance determination.
Conversely, where those exclusions, exemptions and exceptions lead to outcomes that are not comparable taking into account potential conditionsthe Commission has not made a positive substituted compliance determination.
The Commission also is including certain conditions in the Order. The commenter stated that the inclusion of conditions should be viewed as an indication that the requirements of substituted compliance have not been met and as creating ad hoc, custommade rules to supplement inadequate rules of other jurisdictions. 47 Pursuant to rule 3a716, the Commission may make a conditional or unconditional substituted compliance determination.48
As described in greater detail in part III.B below, many of the conditions in the Order are designed to make substituted compliance available to Covered Entities only when the relevant French and EU requirements in fact apply to the relevant security-based swap activity in a way that promotes comparable regulatory outcomes. The commenter correctly notes that the Order also employs conditions to promote comparability.49 For example, substituted compliance in connection with Exchange Act rule 15Fi3c dispute reporting provisions is conditioned in part on the Covered Entity providing the Commission with 45 See Business Conduct Adopting Release, 81 FR
at 30067.
46 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85722 n.17; see also Business Conduct Adopting Release, 81 FR at 30076, 3007879.
47 See Better Markets Letter at 4.
48 See Exchange Act rule 3a716a1.
49 See Better Markets Letter at 2.

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