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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
or prorated in determining its projected operating costs. These changes should improve the Commissions ability to conduct its oversight responsibilities to protect market integrity.
3 Price Discovery The Commission has not identified any effects of these rules on price discovery.
4 Sound Risk Management Practices By establishing specific standards with respect to how SEFs should assess and monitor the adequacy of their financial resources, the financial resources rules should promote sound risk management practices by SEFs. As noted above, amended 37.1303
requires a SEF to identify its wind-down costs and associated timing and ensure it has sufficient liquid assets to maintain an orderly wind down. Similarly, amended 37.1306c requires a SEF to explain the basis of its determination for its estimate of its wind-down costs and timing. Amended 37.1306e requires a SEF to notify the Commission no later than 48 hours after it knows or reasonably should know it no longer satisfies its financial resources obligations. As a result, SEFs will be required to ensure they maintain the necessary procedures to identify, and to notify the Commission of, any noncompliance.
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.

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v. Consideration of Alternatives and Comments The Proposed Rule included requests for comment regarding possible alternatives to the proposed reporting requirements for SEFs. These included whether to require that a SEFs financial reports be audited, and whether financial reporting should be required on a semiannual rather than a quarterly basis.
WMBAA objected to the alternative of requiring that a SEFs financial reports be audited, contending, as discussed further above, that auditing reports would not improve oversight i.e., would not provide benefits.251
WMBAA also argued the costs associated with an audited report are high and would pose a barrier to entry for new SEFs.252 The Commission has 251 2019

WMBAA Letter at 21.

252 Id.

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determined not to adopt a requirement that SEF financial reports be audited.
Regarding the frequency of reports, WMBAA stated the current reporting requirement of quarterly financial reports is sufficient for ensuring capital adequacy, but that a semi-annual or annual report would also be adequate if a SEF is required to maintain all related documents and support for further inspection.253 The Commission received no further comments comparing the costs and benefits of quarterly reporting to those of less frequent reporting. The Commission has determined to retain the existing quarterly reporting requirement for SEFs so that the Commission can remain abreast of a SEFs financial condition in a timely manner.
As noted above, commenters generally supported the proposed financial resources rules and offered no relevant alternatives other than those discussed above.254 Accordingly, the Commission is generally finalizing the financial resources rules as proposed.
However, there are two proposed provisions that the Commission has determined not to include in the Final Rules.
First, the Proposed Rule included amendments to 37.1301b, which requires a SEF that also operates as a DCO to also comply with the financial resource requirements for DCOs under 39.11. Specifically, the Commission proposed to amend 37.1301b to permit SEFs that also operate as DCOs to file a single financial report under 39.11 that covers both the SEF and DCO. The Commission is not finalizing this proposed change as part of the Final Rules but is continuing to consider it.
Second, the proposed acceptable practices included a provision that would have 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 the burden for SEFs wishing to offer multiple execution methods.
This proposed change was intended to be consistent with the Proposed Rules removal of existing limitations on execution methods for Required Transactions. The Final Rules are not implementing the Proposed Rules expansion of permissible execution methods for Required Transactions, nor is it eliminating the minimum trading functionality requirement that a SEF
253 Id.
254 Commenters did suggest several possible rules that, as discussed above, are beyond the scope of this rulemaking. Should the Commission propose any of these alternatives in the future, it will consider their costs and benefits at that time.

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maintain an Order Book as one of its execution methods. Accordingly, the Commission is not finalizing this particular proposed acceptable practice at this time.
5. Chief Compliance Officer i. Overview The Commission is adopting several amendments to the CCO regulations.
First, the Commission is allowing the senior officer 255 of a SEF to have the same oversight responsibilities with respect to the CCO as the SEFs board of directors. Specifically, the Commission is i amending existing 37.1501b1i to allow a CCO to consult with either the board of directors or senior officer of the SEF as the CCO develops the SEFs policies and procedures; ii amending existing 37.1501c1iii 256 to allow a CCO to meet with either the senior officer of the SEF or the board of directors on an annual basis; iii amending existing 37.1501c1iv 257 to allow a CCO to provide self-regulatory program information to the SEFs senior officer or to the board of directors; and iv eliminating the restriction under existing 37.1501c3 that removal of the CCO requires approval of a majority of the board of directors or the senior officer if the SEF does not have a board of directors, and instead permitting the board of directors or the senior officer to remove the CCO under 37.1501b3i.
Second, the Commission is consolidating and amending existing 37.1501d5 and 6 258 to allow a CCO to identify noncompliance matters through any means, in addition to the currently prescribed detection methods, and to clarify that the procedures followed to address noncompliance issues must be reasonably designed by the CCO to handle, respond, remediate, retest, and resolve noncompliance issues identified by the CCO. The Commission is also amending the CCOs duty to resolve conflicts of interest under existing 37.1501d2.259 The Commission is refining the scope of the CCOs duty to take reasonable steps to resolve material conflicts of interest that may arise.
255 As discussed below, the Commission proposes to define senior officer to mean the chief executive officer or other equivalent officer of the SEF.
256 This requirement is in amended 37.1501b.
257 This requirement is in amended 37.1501b6.
258 This requirement is in amended 37.1501c5.
259 This requirement is in amended 37.1501c2.

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