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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
contrast to the assertion that such provisions go beyond the general requirements of Exchange Act section 15j2, 151 the Commission concludes that compliance with the full set of French and EU internal risk management requirements listed in paragraph b1 of the Order would promote comparable regulatory outcomes.

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2. Trade Acknowledgement and Verification Under the proposed Order, substituted compliance in connection with the Exchange Act rule 15Fi2 trade acknowledgment and verification requirement would have been conditioned on firms having to comply with relevant confirmation requirements under MiFID and EMIR. Commenters expressed the view that the conditions should not incorporate MiFID
confirmation provisions, based in part on the view that EMIR requirements standing alone would be sufficient to produce regulatory outcomes comparable to those under Exchange Act trade acknowledgement and verification requirements.152 One commenter further stated that conditioning substituted compliance on SBS Entities having to comply with MiFID confirmation requirements in practice would undermine the availability of substituted compliance for SBS Entities that have branches in EU member states for which the Commission has not entered into an applicable substituted compliance memorandum of understanding.153
When the Commission reopened the comment period, it solicited additional comment on whether EMIR
requirements were sufficient to produce comparable results, such that MiFID
provisions may be removed as conditions to substituted compliance for trade acknowledgement and verification.154 Some commenters requirements, but expressed the view that those discussions address comparability in connection with Exchange Act rule 18a1f, relating to risk management systems in connection with capital requirements. See SIFMA Letter I at 5 n.9.
Regardless of applicants rationale for citing those CRD requirements as supporting comparability, the Commission believes that the appropriate comparability analysis generally should seek to compare regulatory regimes taken as a whole, and that a Covered Entitys failure to comply with the applicable CRD risk management system requirements would not lead to a regulatory outcome consistent with that established by Exchange Act internal risk management requirements.
151 SIFMA Letter II at Appendix A.
152 See SIFMA Letter I at 56; FBF Letter I at 2;
EBF Letter I providing general support for SIFMA
Letter I.
153 See SIFMA Letter I at 24.
154 See Reopening Release, 86 FR at 18343.

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generally supported the associated changes contemplated by the Commission in the Reopening Release.155 On the other hand, one commenter stated its opinion that some industry participants may not be able to take advantage of substituted compliance under the SECs proposed framework is not, in and of itself, a reason to change the framework.156
The same commenter stated that the French regulatory framework governing trade acknowledgement . . . does not satisfy the test for substituted compliance and that the Commission should certainly not weaken the trade acknowledgment conditions any further. 157
The Commission agrees that, in and of itself, the fact that some may not be able to rely on the Order is not a sufficient reason to modify the Order. On the other hand, the Commission believes that the duplicative nature of the MiFIDrelated conditions and the EMIR-related conditions in light of the implementation issues warrants the removal of the MiFID-related conditions, and the Order has been modified accordingly.158 In taking this step, the Commission has considered French and EU timely confirmation requirements. EMIR article 11 requires financial counterparties and nonfinancial counterparties to ensure appropriate procedures and arrangements are in place to achieve timely confirmation of the terms of an OTC derivative contract.159 Similarly, EMIR RTS article 12 requires noncentrally cleared OTC derivative contracts between financial counterparties and non-financial counterparties to be confirmed.160
These counterparty categories do not include entities organized outside the EU, such as U.S. persons.161
Confirmation means the documentation of the agreement of the counterparties to all the terms of the OTC derivative 155 See SIFMA Letter II at 67 stating that the EMIR requirements are sufficient, standing alone, to reach comparable outcomes to the Exchange Act trade acknowledgement and verification and trading relationship documentation requirements, and that further requiring compliance with MiFID
documentation requirements would substantially reduce the overall availability of substituted compliance in these areas because those MiFID
requirements are not necessarily applicable on an entity-wide basis like the EMIR requirements are;
see also FBF Letter II at 2.
156 Better Markets Letter at 2.
157 Id.
158 See para. b2 of the Order.
159 See EMIR article 111a.
160 See EMIR RTS articles 121 and 2.
161 See EMIR article 28 definition of financial counterparty; EMIR article 29 definition of non-financial counterparty.

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contract.162 The French and EU
requirements as a whole thus require a Covered Entity 163 to provide a confirmation that serves as a trade acknowledgment, without regard to where its counterparty is organized, and also require the Covered Entitys counterparty, when it is a financial counterparty or non-financial counterparty, to provide a confirmation that serves as the trade verification, and the Commission considers these requirements to promote regulatory outcomes comparable to Exchange Act trade acknowledgment and verification requirements for those counterparties.
The French and EU requirements in most instances do not require a Covered Entitys counterparty that is organized outside the EU to provide a French confirmation that serves as a trade verification,164 though they do require the Covered Entity to confirm the transaction.165 Confirmation is defined as documenting the agreement of the Covered Entity and its counterparties to all the terms of the OTC derivative contract.166 To ensure that a Covered 162 See
EMIR RTS article 1c.
Order defines a Covered Entity to include an investment firm or credit institution authorized by the ACPR. Investment firms and credit institutions are included in the definition of financial counterparty, so a Covered Entity is also a financial counterparty and thus is subject to EMIR article 11 and related provisions of EMIR RTS
and EMIR Margin RTS for purposes of the Order.
164 See EMIR article 28 definition of financial counterparty limited to entities defined or authorized in a manner that in most instances is reserved for EU-established entities; EMIR article 29 definition of non-financial counterparty limited to EU-established entities; EMIR articles 111a and 1112 confirmation requirement applies to financial counterparties, non-financial counterparties and third-country entities that would be subject to the confirmation requirement if established in the EU and either the relevant contract has a direct, substantial and foreseeable effect in the EU or the obligation is necessary or appropriate to prevent the evasion of any provision of EMIR.
165 As defined in paragraph g1 of the Order, a Covered Entity must be an investment firm or credit institution authorized by the ACPR to provide investment services or perform investment activities in the French Republic. These investment firms and credit institutions are limited to Frenchestablished entities and do not include thirdcountry firms. See MiFID article 457 definition of third-country firm is a firm that would be a credit institution providing investment services or performing investment activities or an investment firm if its registered office or head office were located in the EU; MFC article L. 53247 same.
Each of these investment firms and credit institutions also is among the entities that qualify as a financial counterparty. See EMIR article 28
definition of financial counterparty includes credit institutions and investment firms.
166 See EMIR RTS article 1c. In other words, the Covered Entity would be subject to the relevant requirements under EMIR even if the counterparty is not authorized pursuant to EU law as anticipated by the EMIR article 28 financial counterparty definition or if the counterparty is not an undertaking such as by virtue of being a natural 163 The
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