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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations SEFs will continue to capture information through execution in the audit trail and the Commission has the ability to obtain post-execution allocation information from other registrants. Further, the amendments to 37.205 will not change the current status quo in the markets.
3 Price Discovery The Commission believes these rules will have no effect on price discovery because they affect only how SEFs track and audit trades and do not change what information is disclosed to market participants. Further, the amendments to 37.205 will not change the current status quo in the markets.
4 Sound Risk Management Practices The Commission believes these rules will have no material effect on sound risk management practices because they do not change the status quo and the Commission is not aware that SEFs reliance on the no-action relief from collecting post-execution allocation information has raised any regulatory concerns.
5 Other Public Interest Considerations The Commission has not identified any effects that these rules will have on public interest considerations other than those enumerated above, nor did any commenter suggest one.
v. Consideration of Alternatives and Comments Commenters support the proposal to eliminate the requirement to capture and retain post-execution allocation information because SEFs remain unable to obtain the information.239
Further, in WMBAAs view, the proposal will not lead to degradation of the ability to reconstruct a trade and the environment in which it is traded. 240
4. Financial Resources
241 37

The Final Rules improve on the existing rules to apply the existing Core Principle 13 financial resources requirements to SEF operations in a more practical manner, including through amendments to the existing sixmonth liquidity requirement and the addition of new acceptable practices khammond on DSKJM1Z7X2PROD with RULES3

CFR 37.1301.
37.1303 provides a SEF has reasonable discretion in determining the methodology used to compute its projected operating costs in order to determine the amount needed to meet its requirements under 37.1301.
Because the liquidity requirement in existing 37.1305 is based upon a SEFs financial requirement under 37.1301, the SEFs application of its reasonable discretion also implicitly determines its liquidity obligation under amended 37.1303. The Commission is adopting additional, technical changes to 37.1302. The Commission is renumbering 37.1304 to 37.1305 and is not adopting substantive changes to the provision.
243 The costs listed in this item i also include costs for travel, entertainment, events and conferences to the extent that such costs are not necessary to meet the SEFs regulatory responsibilities.
244 For example, if a SEF requires a certain number of voice brokers to run its voice/hybrid platform but hires additional voice brokers to 242 Existing
i. Overview
239 Refinitiv Letter at 11 Refinitiv SEF supports the elimination of the requirement to be able to track an order through fill, allocation or other disposition, because SEFs generally do not have access to most post-execution information.; 2019
WMBAA Letter at 1213 The WMBAA supports the Commissions proposal regarding audit trail requirements..
240 2019 WMBAA Letter at 1213.

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that provide further guidance to SEFs for making a reasonable calculation of their projected operating costs.
Amended 37.1301 requires a SEF to maintain financial resources in an amount adequate to cover only those projected operating costs necessary to enable the SEF to comply with its core principle obligations under section 5h of the Act and any applicable Commission regulation for a one-year period, calculated on a rolling basis.241
In contrast, existing 37.1301 requires a SEF to maintain sufficient financial resources to cover all of its operations for a one-year period, calculated on a rolling basis, regardless of whether such operating costs are necessary for the SEF
to comply with its core principle or other applicable Commission regulations.
Pursuant to existing 37.1303, a SEF
has reasonable discretion to determine its financial obligations under 37.1301.242 The Commission is adopting acceptable practices in Appendix B to Part 37 that offer guidance on the costs that a SEF may exclude in its reasonable discretion when determining its projected operating costs under 37.1301a. The acceptable practices are based upon financial resources guidance that was provided to the public by Commission staff and discuss the scope of a SEFs reasonable discretion for determining its obligations under 37.1301 and 37.1303, as amended.
Specifically, the financial resources guidance provides that a SEF may reasonably exclude from its projected operating costs certain expenses, including: i Costs attributable solely to sales, marketing, business development, or recruitment; 243 ii compensation and related taxes and benefits for SEF
employees whose functions are not necessary to meet the SEFs regulatory responsibilities; 244 iii costs for
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acquiring and defending patents and trademarks for SEF products and related intellectual property; iv magazine, newspaper, and online periodical subscription fees; v tax preparation and audit fees; vi to the extent not covered by item ii above, the variable commissions that a voice-based SEF
may pay to its employee-brokers, calculated as a percentage of transaction revenue generated by the voice-based SEF; and vii any non-cash costs, including depreciation and amortization. The Commission similarly is incorporating this list with certain conforming changes into the acceptable practices as costs that the Commission believes may be reasonable for a SEF to exclude from its projected operating cost calculations.245 Further, based on the financial resources guidance, the acceptable practices clarify that in order to determine its obligations under amended 37.1301a, a SEF may prorate, but not exclude, certain expenses in calculating projected operating costs.246 In prorating these expenses, however, a SEF needs to document, identify, and justify its decision to prorate such expenses.
Amended 37.1303 requires a SEF to maintain liquid assets in an amount equal to the greater of i three months of projected operating costs necessary to enable the SEF to comply with its core principle obligations and applicable Commission regulations, or ii the SEFs projected wind-down costs. In contrast, under existing rules, a SEF
provide enhanced customer service, the SEF will need to include only the minimum number of voice brokers to run its voice/hybrid platform based on its current business volume, and taking into account any projected increase or decrease in business volume, in its projected operating cost calculations.
245 In order to conform to the change to 37.1301a, the Commission is slightly altering the wording of item ii to provide that a SEF may exclude the costs of a SEFs employees that are not necessary to comply with the core principles set forth in section 5h of the Act and any applicable Commission regulations. emphasis added.
Similarly, the financial resources guidance provides that a reasonable calculation of projected operating expenses must include all expenses necessary for a SEF to discharge its responsibilities as a . . . SEF
in compliance with the CEA, the Commissions regulations, and the . . . SEFs rulebooks, which is consistent with existing 37.1301a. However, in order to conform with amended 37.1301a, the acceptable practices instead provide that a SEF
must include all expenses necessary for the SEF to comply with the core principles and any applicable Commission regulations.
246 For example, a SEF will be permitted to prorate expenses that are shared with affiliates, e.g., the costs of administrative staff or seconded employees that a SEF shares with affiliates. Further, a SEF is also permitted to prorate expenses that are attributable in part to activities that are not required to comply with the SEF core principles, e.g., costs of a SEFs office space to the extent it also houses personnel whose costs may be excludable under items i or ii.

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