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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
expenses shared with affiliates, e.g., the costs of administrative staff or seconded employees the SEF shares with affiliates. Further, a SEF may also prorate expenses that are attributable, in part, to operational aspects of the SEF
business that are not required to comply with the SEF core principles, e.g., costs of a SEFs office space, to the extent that it is also used to house marketing personnel. In prorating any such expense, however, a SEF must document and justify those prorated expenses pursuant to proposed requirements under proposed 37.1306, discussed further below.92
2. Summary of Comments WMBAA supports the proposed acceptable practices.93 Refinitiv concurs with the Commissions understanding that many SEF expenses are shared with affiliates or are partly attributable to activities not necessary for compliance with the SEF core principles and Commission regulations and supports allowing SEFs to prorate such expenses.94

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3. Final Rules and Acceptable Practices The Commission is adopting 37.1304 and the acceptable practices as proposed. The requirement to calculate wind-down costs corresponds to the amendments the Commission is adopting in amended 37.1303
discussed above, which incorporate the calculation of a SEFs wind-down costs into the liquidity requirement. The reasonable discretion provided for calculation of wind-down costs is already provided to SEFs for their calculations of projected operating costs.
The Commission believes the acceptable practices added to Appendix B to part 37 will assist SEFs in complying with amended 37.1304.95
92 The proposed acceptable practices also allowed a SEF offering more than one bona fide execution method to include the costs of only one of those methods in calculating projected operating costs, with the goal of mitigating disincentives for SEFs to offer a multiplicity of execution methods. This proposed change was intended to be consistent with the Proposed Rules removal of existing limitations on execution methods for Required Transactions. Because the Final Rules are not implementing the Proposed Rules expansion of permissible execution methods for Required Transactions, the Commission is not finalizing this proposed acceptable practice at this time.
93 2019 WMBAA Letter at 22. WMBAA requested that the Commission clarify the meaning of bona fide execution method for purposes of calculating operating costs of SEF execution methods. As noted above, the Commission at this time is not finalizing the proposed acceptable practice regarding treatment of operating costs for multiple execution methods.
94 See Refinitiv Letter at 1314.
95 As noted, the Commission at this time is not finalizing the proposed acceptable practice allowing
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These acceptable practices are consistent with the Final Rules amendments to 37.1301, which focus a SEFs financial resource requirement on covering the costs of compliance with SEF statutory and regulatory obligations, rather than the costs of all operations of a SEF or operations of its affiliates.
F. 37.1305Valuation of Financial Resources Existing 37.1304Valuation of financial resourcesrequires a SEF, at least once each fiscal quarter, to compute the current market value of each financial resource used to meet its financial resources requirement under 37.1301.96 The requirement is designed to address the need to update valuations when there may have been material fluctuations in market value that could affect a SEFs ability to satisfy its financial resource requirement.97
When valuing a financial resource, the SEF must reduce the value, as appropriate, to reflect any market or credit risk specific to that particular resource, i.e., apply a haircut.98
1. Proposed Rules The Commission proposed to renumber existing 37.1304 as 37.1305 and amend the provision to add a reference to the liquidity requirement under amended 37.1303.
This would clarify that compliance with amended 37.1303 requires a SEF to utilize the current market value of the applicable financial resources as computed pursuant to 37.1304.
2. Summary of Comments The Commission did not receive any comments on this amendment.
3. Final Rules The Commission is adopting 37.1305 as proposed, confirming that compliance with the liquidity requirement under amended 37.1303
requires a SEF to utilize the current market value of the applicable financial resources.

a SEF offering multiple bona fide execution methods to count the costs of only one execution method toward its projected operating costs, for the reasons stated above. See note 92, supra.
96 17 CFR 37.1304.
97 SEF Core Principles Final Rule at 33539.
98 A haircut is a deduction taken from the value of an asset to reserve for potential future adverse price movement in such asset. Id. at 33539 n.772.

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G. 37.1306Reporting to the Commission 1. 37.1306a Existing 37.1306 establishes a SEFs financial reporting requirements.99
Commission regulation 37.1306a1
provides that at the end of each fiscal quarter or upon Commission request, a SEF must report to the Commission i the amount of financial resources necessary to meet the financial resources requirement of 37.1301, and ii the value of each financial resource available to meet those requirements as calculated under 37.1304.100
Commission regulation 37.1306a2
additionally requires a SEF to provide the Commission each fiscal quarter with a financial statement, including a balance sheet, income statement, and statement of the cash flows of the SEF
or its parent company.101 In lieu of submitting its own financial statements, a SEF may submit the financial statements of its parent company.102
i. Proposed Rules The Commission proposed several amendments to 37.1306a. First, the Commission proposed to require a SEF
to prepare its financial statements in accordance with U.S. GAAP. For a SEF
that is not domiciled in the U.S., and is not otherwise required to prepare its financial statements in accordance with U.S. GAAP, the Proposed Rules allowed the SEF to prepare its statements in accordance with either the International Financial Reporting Standards issued by the International Accounting Standards Board, or such comparable international standard as the Commission may accept in its discretion. The Commission noted the quality and transparency of SEF
financial reports submitted under the current reporting requirement have varied and stated the U.S. GAAP-based requirement would promote consistency and better ensure a minimum reporting standard across financial submissions.103
The Commission also proposed to require a SEF to provide its own financial statements, rather than allow a SEF the option of submitting the statements of its parent company. The Commission noted it may lack jurisdiction over a SEFs parent company or its affiliates, and in such instances, the Commission could not consider the parent companys financial resources in determining whether the 99 17

CFR 37.1306.
CFR 37.1306a1.
101 17 CFR 37.1306a2.
102 Id.
103 83 FR 62029.
100 17

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