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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
iii. Costs The amendments to 37.1501b that authorize the senior officer to oversee the CCO could impair the independence of the CCO, and as a result, the CCOs oversight of the SEF. However, the Commission believes this concern is mitigated by the Commissions review of annual ACRs and its examination program.
The amendments eliminate requirements that the CCO identify noncompliance matters using certain specified detection methods, design procedures that detect and resolve all possible noncompliance issues, and eliminate all potential conflicts of interest. These requirements are replaced by more flexible standards, which could potentially allow for some impairment of a CCOs oversight of the SEFs compliance in some circumstances. However, the Commission believes the resulting costs in the form of potential adverse consequences will not be material because the amendments require a CCO
to focus on material aspects of the compliance program e.g., material breaches and material conflicts of interest. The Commission believes placing the focus on material compliance issues, rather than all compliance issues, will not adversely impact SEF compliance.
The amendments to 37.1501e that reduce the information required in an ACR could make it more difficult for the Commission to assess a SEFs compliance and self-regulatory programs. However, the Commission does not anticipate that these changes will materially impact the Commissions assessment, as the Commission already receives or has access to such information from other sources. For example, the Commission approves the SEFs compliance staffing and structure as part of the SEFs registration or rule submission, and annual updates provide minimal additional information, at best.
In addition, SEFs report finalized disciplinary actions to the NFA,271 and the Commission is able to access this information through its oversight of the NFA.
Finally, the amendment providing SEFs more time to submit their ACRs could delay the Commission recognizing and addressing a SEF
compliance issue. However, the 271 See 9.11 which states that whenever an exchange decision pursuant to which a disciplinary action or access denial action is to be imposed has become final, the exchange must, within 30 days thereafter, provide written notice of such action to the person against whom the action was taken and notice to the National Futures Association. 17 CFR
9.11.

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Commission anticipates that such risk is mitigated to the extent that SEFs submit ACRs on the timeline set forth in the Final Rules. The Commissions experience has not indicated that delayed reporting pursuant to Commission staff no-action relief has adversely impacted its ability to recognize and address compliance issues in a timely manner.
iv. Section 15a Factors 1 Protection of Market Participants and the Public The Commission believes the changes to the existing SEF CCO requirements are likely to better enable the Commission to protect market participants and the public.
Specifically, the Commission should be better able to assess whether a SEFs policies and procedures adversely impact a SEFs operations or its ability to comply with the core principles or Commissions regulations, which are intended in part to protect market participants.
The changes to the ACR requirements under amended 37.1501d should better enable the Commission to assess the effectiveness of a SEFs compliance and self-regulatory programs; this assessment is intended, in part, to protect market participants. The amendments will remove some of the duplicative and unnecessary content requirements and require the ACR to focus on describing material noncompliance matters. The Commission believes the new requirements will streamline the ACR and provide more useful information to the Commission.
Removing these information requirements, e.g., requirements to review all Commission regulations applicable to a SEF and to identify the written policies and procedures enacted to foster compliance, will likely reduce the amount of information in an ACR.
However, the Commission has determined, based on its experience with the existing requirements, that this information generally does not enhance the usefulness of the ACR.
2 Efficiency, Competitiveness, and Financial Integrity of Markets The Commission is promoting the efficiency and integrity of a SEFs market by allowing a more streamlined compliance approach that does not require the board of directors to assume primary oversight responsibility for the CCO. This streamlined approach should, in many circumstances, permit CCOs to more efficiently make changes to the regulatory program in response to potential trading violations, which
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should aid in protecting the financial integrity of the market. Furthermore, the focus of CCOs duties on reasonably designed procedures to address noncompliance issues and material conflicts of interest should improve CCOs effectiveness by specifying that this is the appropriate standard. This increased effectiveness should permit CCOs to better allocate resources to focus on detecting and deterring material rule violations, which otherwise may harm the markets efficiency, competitiveness, and integrity.
3 Price Discovery The Commission believes the changes to the CCO requirements will not impede a CCOs ability to ensure compliance and are unlikely to have a substantial impact on price discovery.
4 Sound Risk Management Practices The Commission believes the new CCO rules should promote sound risk management practices. The gains in this regard will depend on the quality and effective implementation of the policies and practices that SEFs currently have in place and the new policies and procedures that they will adopt due to the proposed amendments.
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 proposed changes. WMBAA supports the amendments to add a definition of senior officer,272 to amend the CCOs duties,273 to the preparation of the ACR,274 and to the ACR submission requirements.275 Refinitiv supports the amendments to the preparation of the ACR.276 The Commission did not receive any comments on the proposed amendments to the CCOs recordkeeping requirements.
The Commission also proposed to eliminate the existing enumerated conflicts of interest to avoid any inference that they are an exhaustive list of conflicts that a CCO must address.
The Commission has determined that the list of potential conflicts that a CCO
should resolve under existing 37.1500d2 does not create 272 2019

WMBAA Letter at 23.
at 25.
274 Id. at 26.
275 Id. at 27.
276 Refinitiv Letter at 14.
273 Id.

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