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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Notices
within a given recordkeeping, reporting, or notification rule rather than apply substituted compliance because it can utilize systems that its affiliated brokerdealer has implemented to comply with them. This proposed approach is consistent with the approach taken by the Commission in the French and UK
Substituted Compliance Orders.80
As applied to Exchange Act rules 18a5 and 18a6, this approach of providing greater flexibility results in preliminary substituted compliance determinations with respect to the different categories of records these rules require SBS Entities with a prudential regulator to make, keep current, and/or preserve. The objective of these rulestaken as a wholeis to assist the Commission in monitoring and examining for compliance with substantive Exchange Act requirements applicable to SBS Entities with a prudential regulator e.g., business conduct requirements as well as to promote the prudent operation of these firms.81 The Commission preliminarily believes the comparable Swiss recordkeeping rules achieve these outcomes with respect to compliance with substantive Swiss requirements for which preliminary positive substituted compliance determinations are being made in this proposed Order e.g., the preliminary positive substituted compliance determinations with respect to the majority of the Exchange Act business conduct requirements. At the same time, the recordkeeping rules address different categories of records through distinct requirements within the rules. Each requirement with respect to a specific category of records e.g., paragraph b1 of Exchange Act rule 18a5 addressing trade blotters can be viewed in isolation as a distinct recordkeeping rule. Therefore, it may be appropriate to make substituted compliance determinations at this level of Exchange Act rules 18a5 and 18a 6.
As discussed in more detail below, the Commissions preliminary view is that substituted compliance is appropriate for most of the requirements applicable to SBS Entities with a prudential regulator within the recordkeeping, reporting, and notification rules. However, certain of the discrete requirements in these rules are fully or partially linked to substantive Exchange Act requirements for which substituted compliance is not 80 See French Substituted Compliance Order, 86
FR at 41649; UK Substituted Compliance Order, 86
FR at 43360.
81 See, e.g., Exchange Act Release No. 71958 Apr.
17, 2014, 79 FR 25194, 25199200 May 2, 2014.

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available or for which a positive substituted compliance determination would not be made under the proposed Order. In these cases, a preliminary positive substituted compliance determination is not be made for the requirement that is fully linked to the substantive requirement or to the part of the requirement that is linked to the substantive requirement. In particular, a preliminary positive substituted compliance determination is not being made, in full or in part, for recordkeeping, reporting, or notification requirements linked to the following Exchange Act rules for which substituted compliance is not available or a preliminary positive substituted compliance determination is not being made: 1 Exchange Act rule 15Fh4
Rule15Fh4 Exclusion; 2 Exchange Act rule 15Fh5 Rule 15Fh5
Exclusion; 3 Exchange Act rule 15Fh6 Rule 15Fh6 Exclusion; 4
Exchange Act rule 18a4 Rule 18a4
Exclusion; 5 Regulation SBSR
Regulation SBSR Exclusion; 6
Form SBSE and its variations Form SBSE Exclusion; 7 Exchange Act rule 15Fh1 Exclusion Rule 15Fh1
Exclusion, 8 Exchange Act rule 15Fh2 Rule 15Fh2 Exclusion; and 9 Exchange Act rule 15Fi5 Rule 15Fi5 Exclusion. This proposed approach is consistent with the approach taken by the Commission in the French and UK Substituted Compliance Orders.82
In addition, certain of the requirements in the recordkeeping, reporting, and notification rules are expressly linked to substantive Exchange Act requirements where a preliminary positive substituted compliance determination is being made under the proposed Order. In these cases, substituted compliance with the linked requirement in the recordkeeping, reporting, or notification rule is conditioned on the Covered Entity applying substituted compliance to the linked substantive Exchange Act requirement. This is the case regardless of whether the requirement is fully or partially linked to the substantive Exchange Act requirement. The recordkeeping, reporting, and notification requirements that are linked to a substantive Exchange Act requirement are designed and tailored to assist the Commission in monitoring and examining an SBS Entitys compliance with the substantive Exchange Act requirement. Swiss recordkeeping, reporting, and 82 See French Substituted Compliance Order, 86
FR at 41650; UK Substituted Compliance Order, 86
FR at 43361.

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notification requirements are designed to perform a similar role with respect to the substantive Swiss requirements to which they are linked. Consequently, this condition is designed to ensure that the records, reports, and notifications of a Covered Entity align with the substantive Exchange Act or Swiss requirement to which they are linked.
For these reasons, under the proposed Order, substituted compliance for recordkeeping, reporting, and notification requirements linked to the following Exchange Act rules would be conditioned on the Covered Entity applying substituted compliance to the linked substantive Exchange Act rule:
1 Exchange Act rule 15Fh3h Rule 15Fh3 Condition; 2 Exchange Act rule 15Fi2 Rule 15Fi2 Condition;
3 Exchange Act rule 15Fi3 Rule 15Fi3 Condition; 4 Exchange Act rule 15Fi4 Rule 15Fi4 Condition;
and 5 Exchange Act rule 15Fk1
Rule 15Fk1 Condition. This proposed approach is consistent with the approach taken by the Commission in the French and UK Substituted Compliance Orders.83
2. Exchange Act Rule 18a5
Exchange Act rule 18a5 requires SBS
Entities to make and keep current various types of records. The requirements for SBS Entities without a prudential regulator are set forth in paragraph a of the rule.84 The requirements for SBS Entities with a prudential regulator are set forth in paragraph b of the rule.85 The Commission is making a preliminary positive substituted compliance determination for many of the requirements of paragraph b of Exchange Act rule 18a5 in the granular manner discussed above.86
However, certain of the requirements in these paragraphs are linked to substantive Exchange Act requirements for which substituted compliance is not available or a preliminary positive substituted compliance determination would not be made under the proposed Order. In these cases, a positive substituted compliance determination would not be made for the linked requirement in Exchange Act rule 18a 5 or the portion of the requirement in Exchange Act rule 18a5 that is linked 83 See French Substituted Compliance Order, 86
FR at 41650; UK Substituted Compliance Order, 86
FR at 43361.
84 See paras. a1 through 18 of Exchange Act rule 18a5.
85 See paras. b1 through 14 of Exchange Act rule 18a6.
86 See para. d1 of the proposed Order.

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