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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations c. Consent to Jurisdiction; Designation of Service of Process The Commission proposed 39.6b3 to require that an exempt DCO consent to jurisdiction in the United States and designate an agent in the United States, for notice or service of process, pleadings, or other documents issued by or on behalf of the Commission or the U.S. Department of Justice in connection with any actions or proceedings against, or any investigations relating to, the exempt DCO or any U.S. person or FCM that is a clearing member or that clears swaps through an affiliated clearing member.
The name of the designated agent would be submitted as part of the clearing organizations application for exemption. If an exempt DCO appoints another agent to accept such notice or service of process, the exempt DCO
would be required to promptly inform the Commission of this change. This is consistent with requirements currently imposed in the registration orders of DCOs that are organized outside of the United States as well as in each of the orders of exemption that the Commission has issued thus far. The Commission did not receive any comments on this provision. The Commission is adopting 39.6b3 as proposed.
d. Compliance The Commission proposed 39.6b4 as a general provision that would require an exempt DCO to comply, and demonstrate compliance as requested by the Commission, with any condition of the exempt DCOs order of exemption. The Commission did not receive any comments on this provision.
The Commission is adopting 39.6b4
as proposed.

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e. Inspection of Books and Records The Commission proposed 39.6b5 to require an exempt DCO to make all documents, books, records, reports, and other information related to its operation as an exempt DCO books and records open to inspection and copying by any Commission representative, and to promptly make its books and records available and provide them to Commission representatives upon request. This condition is consistent with section 5bh of the CEA, which provides that the Commission may exempt a DCO from registration with conditions that may include requiring that the DCO be available for inspection by the Commission and make available all information requested by the Commission.

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ISDA believes that the proposed condition is too broad and that the Commission should specify how and when it would undertake inspections of exempt DCOs. ISDA also believes, to foster cross-border regulatory cooperation, the Commission should consider obtaining consent for inspections from an exempt DCOs home country regulator prior to conducting onsite inspections. ISDA
suggested, at a minimum, the Commission should provide prior notice to an exempt DCOs home country regulator in connection with any inspection or ask the home country regulator for the required information.
ISDA argued that, not only would this promote comity and coordination, but it would also ensure that such inspections are not overly burdensome or in violation of local laws. ISDA further suggested that the Commission should consider including an exempt DCOs home country regulator during inspections, which would assist the Commission in interpreting and analyzing the exempt DCOs books and records in the context of the regulatory requirements of a particular jurisdiction.
The Commission is adopting 39.6b5 as proposed. The Commission notes that it does not anticipate conducting routine site visits to exempt DCOs. However, the Commission may request a DCOs books and records to ensure that, among other things, the exempt DCO continues to meet the eligibility requirements for an exemption as well as the conditions of its exemption. The Commission further notes that it already follows many of ISDAs recommendations in the context of examining non-U.S. DCOs, and it would expect to do the same in the context of an exempt DCO; such interactions with the home country regulator would be addressed in the MOU.
f. Observance of the PFMIs In the 2018 Proposal, the Commission proposed 39.6b6 to require that an exempt DCO provide an annual certification that it continues to observe the PFMIs in all material respects, within 60 days following the end of its fiscal year. In the 2019 Proposal, the Commission proposed to modify and renumber this condition to specify the information that an exempt DCO must provide to the Commission if it is unable to provide an unconditional certification that it continues to observe the PFMIs in all material respects.
Specifically, the exempt DCO would be required to identify the underlying material non-observance of the PFMIs and explain whether and how such non-

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observance has been or is being resolved by the exempt DCO. The Commission proposed this modification in recognition of the fact that at some point an exempt DCO may not be able to certify that it observes the PFMIs in all material respects. The exempt DCO
must disclose that information to the Commission and allow the Commission to consider its impact on the exempt DCOs standing.
The Commission did not receive comments on this provision. The Commission is adopting 39.6b6 as proposed.
g. Representation of Good Regulatory Standing The Commission proposed 39.6b7 to require that the Commission receive an annual written representation from a home country regulator that an exempt DCO is in good regulatory standing, within 60 days following the end of the exempt DCOs fiscal year. The Commission received comments on the definition of good regulatory standing, as discussed above, but did not receive comments on this provision. The Commission is adopting 39.6b7 as proposed.
h. Other Conditions Lastly, the Commission proposed 39.6b9 in the 2019 Proposal to provide that the Commission may condition an exemption from DCO
registration on any other facts and circumstances it deems relevant.32 The Commission stated that, in doing so, it would be mindful of principles of international comity. For example, the Commission could take into account the extent to which the relevant foreign regulatory authorities defer to the Commission with respect to oversight of registered DCOs organized in the United States.
CME strongly supported the Commissions retaining discretion to condition an exemption from DCO
registration on principles of international comity and the extent to which the relevant home country regulator defers to the Commission with respect to oversight of registered DCOs organized in the United States that are accessed by local participants. CME
believes the Commissions efforts to support mutual deference among regulators across the globe will foster efficient markets and cooperative behavior to the benefit of all. As a result, CME suggested that the Commission codify its ability to condition an 32 See 7 U.S.C. 7a1h stating, in relevant part, that the Commission may exempt, conditionally or unconditionally, a DCO from registration under that section for the clearing of swaps.

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