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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
Entities to comply with this requirement and with MAR Investment Recommendations Regulation article 6
when using substituted compliance for disclosure of material incentives and conflicts of interest requirements.
Accordingly, the Commission believes that MAR Investment Recommendations Regulation article 5 is less relevant to comparability of fair and balanced communications requirements and is deleting the reference to it in relation to substituted compliance for fair and balanced communications.
The Commission did not receive comments on the fair and balanced communications requirements of the counterparty protection section of the proposed Order.
6. Daily Mark Disclosure A commenter requested that the Commission not require a Covered Entity to be subject to and comply with EMIR article 112, stating that it is not related to portfolio reconciliation, but, rather, concerns the daily mark-tomarket or mark-to-model of contracts. 426 The commenter is correct that EMIR article 112 would require the Covered Entity to mark-to-market or mark-to-model its non-centrally cleared contracts. Other French portfolio reconciliation requirements contemplate that counterparties will use this valuation as an input to the reconciliation process. For example, a portfolio reconciliation must include at least the valuation attributed to each contract in accordance with EMIR
article 112.427 As EMIR article 112
sets the standards under which a Covered Entity must calculate this key input in the portfolio reconciliation process, the Commission has determined that this provision is related to portfolio reconciliation and accordingly is retaining the Orders reference to it.428

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7. Clearing Rights Disclosure In the proposed Order, the Commission preliminarily determined that French and EU requirements are not comparable to Exchange Act clearing rights disclosure requirements and proposed not to make a positive substituted compliance determination with respect to those requirements.429
Because French and EU clearing provisions do not require disclosure of a counterpartys clearing rights under Exchange Act section 3Cg5, the 426 SIFMA

Letter II at Appendix A.
EMIR RTS article 132.
428 See para. e6 of the Order.
429 French Substituted Compliance Notice and Proposed Order, 81 FR at 85730.

Commission views those provisions as not comparable to Exchange Act clearing rights disclosure requirements.
Commenters did not address this conclusion and, consistent with the proposed Order, the Commission is not providing substituted compliance.
8. Clarifications Related to Conditions A commenter asked the Commission to revise the Order to follow the approach in the UK Proposed Order, in which the Commission clarified that a Covered Entity may apply substituted compliance for Exchange Act rule 15Fh3fs suitability requirements to one or more recommendations of a security-based swap or trading strategy involving a security-based swap subject to those Exchange Act suitability requirements.430 The commenter proposed adding this same text to the Order.431 The UK Proposed Order contains similar text with respect to substituted compliance for the other counterparty protection requirements.
Because the counterparty protection requirements are transaction-level requirements, a Covered Entity may decide to apply substituted compliance for those requirements to some of its security-based swap business and decide to comply directly with the Exchange Act or to comply with another suitable substituted compliance order for other parts of its securitybased swap business. The Commission agrees that the commenters requested change would help to clarify that substituted compliance for suitability is available for one or more of a Covered Entitys recommendations and also believes that similar changes to the other counterparty protection sections of the Order, consistent with the UK
Proposed Order, would clarify those sections of the Order as well.
Accordingly, the Commission is modifying each paragraph of the counterparty protection section of the Order to clarify that substituted compliance for counterparty protection requirements is available for one or more of a Covered Entitys relevant activities.432
VIII. Substituted Compliance for Recordkeeping, Reporting, Notification, and Securities Count Requirements A. Proposed Approach The French Authorities Application in part requested substituted compliance for requirements applicable to SBS Entities under the Exchange Act relating to:

427 See
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430 SIFMA

Letter II at Appendix A.

431 Id.
432 See
paras. e1 through 6 of the Order.

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Record MakingExchange Act rule 18a5 requires prescribed records to be made and kept current.433
Record PreservationExchange Act rule 18a6 requires preservation of records.434
ReportingExchange Act rule 18a 7 requires certain reports.435
NotificationExchange Act rule 18a8 requires notification to the Commission when certain financial or operational problems occur.436
Securities CountExchange Act rule 18a9 requires non-prudentially regulated security-based swap dealers to perform a quarterly securities count.437
Daily Trading Records. Exchange Act section 15Fg requires SBS Entities to maintain daily trading records.438
Taken as a whole, the recordkeeping, reporting, notification, and securities count requirements that apply to SBS
Entities are designed to promote the prudent operation of the firms securitybased swap activities, assist the Commission in conducting compliance examinations of those activities, and alert the Commission to potential financial or operational problems that could impact the firm and its customers.439
433 See 17 CFR 240.18a5. The French Authorities Application discusses EU and French requirements that address firms record creation obligations related to matters such as financial condition, operations, transactions, counterparties and their property, personnel and business conduct.
See French Authorities Application Annex I
category 2 at 242.
434 See 17 CFR 240.18a6. The French Authorities Application discusses EU and French requirements that address firms record preservation obligations related to records that firms are required to create, as well as additional records such as records of communications. See French Authorities Application Annex I category 2
at 4381.
435 See 17 CFR 240.18a7. The French Authorities Application discusses EU and French requirements that address firms obligations to make certain reports. See French Authorities Application Annex I category 2 at 8295, 98104.
436 See 17 CFR 240.18a8. The French Authorities Application discusses EU and French requirements that address firms obligations to make certain notifications. See French Authorities Application Annex I category 2 at 9598.
437 See 17 CFR 240.18a9. The French Authorities Application discusses EU and French requirements that address firms obligations to perform securities counts. See French Authorities Application Annex I category 2 at 3238.
438 See 15 U.S.C. 78o10g. The French Authorities Application discusses EU and French requirements that address firms record preservation obligations related to records that firms are required to create, as well as additional records such as records of communications. See French Authorities Application Annex I category 2
at 4381.
439 Rule 3a716 sets forth additional analytic considerations in connection with substituted compliance for the Commissions recordkeeping, reporting, notification, and securities count requirements. In particular, Exchange Act rule 3a716d6 provides that the Commission intends
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