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Federal Register / Vol. 86, No. 19 / Monday, February 1, 2021 / Rules and Regulations a security-based swap execution facility that provides a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system also may provide facilities for comparison of data respecting the terms of settlement of securities transactions, to reduce the number of settlements of securities transactions, or for the allocation of securities settlement responsibilities, in a manner that could require that entity to register as a clearing agency.20
The Commission received one comment regarding the proposed rule,21
as discussed in Part II.B below. The Commission is now adopting Rule 17Ad24, as discussed in Part II.C
below.
II. New Rule 17Ad24
A. Proposed Rule Text Proposed Rule 17Ad-24 provided that a registered security-based swap dealer and a registered security-based swap execution facility shall be exempt from inclusion in the term clearing agency, as defined in section 3a23A of the Act, where such registered securitybased swap dealer or registered securitybased swap execution facility would be deemed to be a clearing agency solely by reason of functions performed by such institution as part of customary dealing activities or providing facilities for comparison of data respecting the terms of settlement of securities transactions effected on such registered securitybased swap execution facility, respectively, or acting on behalf of a clearing agency or participant therein in connection with the furnishing by the clearing agency of services to its participants or the use of services of the clearing agency by its participants.
B. Comment Received One commenter agreed with the Commissions proposed approach that a security-based swap execution facility not be required to register as a clearing agency solely because it performs trade data comparison as part of the trade execution process for security-based swaps.22 However, the commenter also stated that a security-based swap execution facility should not have a blanket exemption from clearing agency 20 Compare 15 U.S.C. 78ca77 with 15 U.S.C.
78ca23.
21 See Letter from Jeff Gooch, Chief Executive Officer, MarkitSERV Apr. 29, 2011 MarkitSERV
Letter. The comment letter is available on the Commissions website at https www.sec.gov/
comments/s7-08-11/s70811.shtml.
22 See MarkitSERV Letter.

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registration for activities related to matching or trade verification services because, in the commenters view, such an approach would result in the rule applying differently to third-party providers of such services than it would to a security-based swap execution facility.23
By its terms, proposed Rule 17Ad24
would not provide a blanket exemption from clearing agency registration to a security-based swap execution facility to provide matching or trade verification services that otherwise are clearing agency functions as defined in the Exchange Act. Rather, the Commissions approach under Rule 17Ad24 specifies that a registered security-based swap execution facility would not be required to register as a clearing agency solely based upon the fact that such an entity provides facilities for comparison of data respecting the terms of settlement of securities transactions effected on such registered security-based swap execution facility.24 As noted in the proposing release and restated here,25
were a security-based swap execution facility to engage in activity that is outside the scope of the exemption provided in Rule 17Ad24 and that falls within the definition of clearing agency under the Exchange Act, it would be required to register as a clearing agency or obtain a separate exemption from clearing agency registration.26
C. Final Rule Pursuant to the Commissions authority under Section 36 of the Exchange Act,27 the Commission is adopting Rule 17Ad24, and the Commission is making two modifications from the proposal. First, since the Commission proposed Rule 17Ad24, the Commission adopted 17
CFR 240.3a712 to provide an exception from the definition of security-based swap dealer to any entity that engages 23 See
id. at 6.
approach is consistent with the approach that applies to a national securities exchange when performing the same activity for transactions in securities that are not security-based swaps.
25 See proposing release, supra note 6, at 14495.
26 See id. For example, with respect to transactions in securities that are not security-based swaps, the Commission has explained that matching is a clearing agency function. Release No. 3439829 Apr. 6, 1998, 63 FR 17943 Apr. 13, 1998.
27 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes the Commission to conditionally or unconditionally exempt any person, security, or transaction, or any class of classes of persons, securities, or transactions, from any provision or provisions of the Exchange Act or any rule or regulation thereunder, by rule, regulation, or order, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.
24 This
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in a de minimis quantity of securitybased swap dealing activity in connection with transactions with or on behalf of its customers.28 In adopting the de minimis exception, the Commission explained that the exception should be interpreted to address amounts of dealing activity that are sufficiently small that they do not warrant registration to address concerns implicated by the regulations governing swap dealers and security-based swap dealers.29 The Commission similarly noted in proposing Rule 17Ad24 that the exemptions in the rule are intended to avoid imposing requirements with marginal or no benefit to safeguarding securities and funds and protecting investors.30 Accordingly, the Commission is adding persons eligible for this exception under 17 CFR
240.3a712 to the exemption in Rule 17Ad24 because imposing clearing agency registration on persons solely to regulate functions performed by such persons as part of customary dealing activity for security-based swaps, and where that dealing activity is sufficiently small that it does not warrant registration as a security-based swap dealer, would present only marginal or no benefit to safeguarding securities and funds and protecting investors. Second, to improve clarity and readability, the Commission is dividing the rule text into subparagraphs a and b.
Accordingly, new Rule 17Ad24
provides that a registered security-based swap dealer, a registered security-based swap execution facility, or an entity engaging in dealing activity in securitybased swaps that is eligible for an exception under 17 CFR 240.3a712a or subject to the period set forth in 17
CFR 240.3a712b 31 is exempt from inclusion in the term clearing agency, as defined in Section 3a23A of the Exchange Act, where such registered security-based swap dealer, registered security-based swap execution facility, or entity engaging in dealing activity in security-based swaps that is eligible for an exception under 17 CFR 240.3a71
2a or subject to the period set forth in 17 CFR 240.3a712b would be deemed to be a clearing agency solely by 28 See
supra notes 3 and 14 and accompanying
text.
29 See
Entity Definitions adopting release, supra note 13, at 30626.
30 See proposing release, supra note 6, at 14531.
31 See supra note 3 providing the text of 17 CFR
240.3a712a and b. Accordingly, an entity subject to the period set forth in 17 CFR 240.3a71
2b will continue to be exempt from inclusion in the term clearing agency during the period after it is no longer able to able to rely on the de minimis exception but before it is deemed to be a securitybased swap dealer.

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