87 FR 158 pgs. 50655-50657 - Order Determining That the Financial Industry Regulatory Authority Conditionally May Access Certain Security-Based Swap Data Obtained by Security-Based Swap Data Repositories
Type: NOTICEVolume: 87Number: 158Pages: 50655 - 50657
Pages: 50655, 50656, 50657Docket number: [Release No. 34-95470]
FR document: [FR Doc. 2022-17641 Filed 8-16-22; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95470]
Order Determining That the Financial Industry Regulatory Authority Conditionally May Access Certain Security-Based Swap Data Obtained by Security-Based Swap Data Repositories
AGENCY:
Securities and Exchange Commission.
ACTION:
Data access determination order.
SUMMARY:
Pursuant to section 13(n)(5)(G)(v) of the Securities Exchange Act of 1934 ("Exchange Act"), and rule 13n-4(b)(9)(x) thereunder, the Securities and Exchange Commission ("Commission") is issuing an order determining that it would be appropriate to require security-based swap data repositories to make security-based swap data available to Financial Industry Regulatory Authority ("FINRA").
DATES:
This data access determination order is effective September 16, 2022.
FOR FURTHER INFORMATION CONTACT:
Carol McGee, Associate Director, Office of Derivatives Policy and Trading Practices, at (202) 551-5870, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. Background
A. Exchange Act Data Access Framework
Two entities currently are registered with the Commission as security-based swap data repositories ("SDRs"). 1 Among other responsibilities, SDRs are required to make security-based swap data available to certain recipients upon request. 2 Recipients may include certain specified entities, 3 as well as "[a]ny other person that the Commission determines to be appropriate, conditionally or unconditionally, by order" (including foreign authorities). 4 Access further is conditioned on there being in effect an arrangement between the Commission and the entity seeking access to address the confidentiality of the security-based swap data made available, 5 and on the Commission being notified of the request. 6
Footnotes:
1 ? See Exchange Act Release No. 91798, (May 7, 2021), 86 FR 26115, 26116 n.14 (May 12, 2021) (approving registration application of DTCC Data Repository (U.S.), LLC; Exchange Act Release No. 92189 (Jun. 16, 2021), 86 FR 32703 (Jun. 22, 2021) (approving registration application of ICE Trade Vault, LLC).
2 ?Exchange Act section 13(n)(5)(G); 17 CFR 240.13n-4(b)(9). Those provisions in part require that the SBSDR provide notice of the data request to the Commission, and specifies that access be "on a confidential basis pursuant to [Exchange Act] section 24." Exchange Act section 24, 15 U.S.C. 78x, generally addresses disclosures of information by the Commission and its personnel. In relevant part section 24 provides that the Commission may, "in its discretion and upon a showing that such information is needed," provide all records and other information "to such persons, both domestic and foreign, as the Commission by rule deems appropriate if the person receiving such records or information provides such assurances of confidentiality as the Commission deems appropriate." See Exchange Act section 24(c); see also 17 CFR 240.24c-1(b) (providing that the Commission may, upon "such assurances of confidentiality as the Commission deems appropriate," provide non-public information to persons such as domestic and foreign governments or their political subdivisions, authorities, agencies or instrumentalities, self-regulatory organizations and foreign financial authorities).
3 ?The following entities may access security-based swap data without the need for an additional Commission order: (i) the Board of Governors of the Federal Reserve System ("Board") and any Federal Reserve Bank; (ii) the Office of the Comptroller of the Currency; (iii) the Federal Deposit Insurance Corporation; (iv) the Farm Credit Administration; (v) the Federal Housing Finance Agency; (vi) the Financial Stability Oversight Council ("FSOC"); (vii) the Commodity Futures Trading Commission ("CFTC"); (viii) the Department of Justice ("DOJ"); and (ix) the Office of Financial Research ("OFR"). See 17 CFR 240. 13n-4(b)(9); see also Exchange Act section 13(n)(5)(G)(v) (in part identifying "each appropriate prudential regulator" as well as FSOC, CFTC and DOJ). For those entities, data access still is predicated on other conditions, including the required confidentiality arrangement.
4 ?17 CFR 240.13n-4(b)(9)(x); see also Exchange Act section 13(n)(5)(G)(v).
5 ?17 CFR 240.13n-4(b)(10) (also stating that the arrangement shall be deemed to satisfy the Exchange Act section 13(n)(5)(H) requirement that the SBSDR receive a written agreement from the entity stating that the entity shall abide with the section 24 confidentiality requirements relating to the security-based swap information provided).
6 ?Exchange Act section 13(n)(5)(G); 17 CFR 240. 13-4(b)(9). 17 CFR 240.13nc-4(d) further provides that the SBSDR shall satisfy the notification requirement by informing the Commission of its receipt of the first request for security-based swap data from a particular entity, and to maintain records of all information related to the initial and subsequent requests for data access from that entity.
Pursuant to this data access framework, FINRA has requested that the Commission issue an order determining that it would be appropriate to require SDRs to make security-based swap data available to FINRA. 7 For the reasons discussed below, the Commission is issuing the order. In connection with this order, the Commission and FINRA also are entering into an arrangement addressing the parameters of FINRA's access to security-based swap data held by SDRs, and the protections afforded to the data. 8
Footnotes:
7 ?Letter from Stephanie Dumont, FINRA, to Vanessa Countryman, Secretary, Commission, dated August 11, 2022 ("FINRA request").
8 ? See Confidentiality Arrangement Between the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority Concerning Access to Security-Based Swap Data Obtained by Registered Security-Based Swap Data Repositories, dated August 11, 2022 (available at [URL]) ("Confidentiality Arrangement").
B. Criteria for Making Access Determinations
The Commission has stated that it expects to consider a variety of factors in making access determinations, and that it may impose conditions in connection with those determinations. Relevant factors include whether the data provided "would be subject to robust confidentiality safeguards, such as safeguards set forth in the relevant jurisdiction's statutes, rules or regulations with regard to disclosure of confidential information by an authority or its personnel, and/or safeguards set forth in the authority's internal policies and procedures."? 9
Footnotes:
9 ?Exchange Act Release No. 78716 (Aug. 29, 2016), 81 FR 60585 (Sep. 2, 2016) (adopting relevant amendments to 17 CFR 240.13n-4) ("Adopting Release"). The Commission also noted that it expected to consider whether there is a memorandum of understanding or other arrangement between the Commission and the relevant authority designed to protect the confidentiality of the security-based swap data provided to the authority (further noting that such a memorandum of understanding or other arrangement also would satisfy the statutory requirement that a security-based swap data repository obtain a confidentiality agreement from the authority). See id. at 60589 & n.60.
The Commission also may consider "the relevant authority's interest in access to security-based swap data based on the relevant authority's regulatory mandate or legal responsibility or authority."? 10 In addition, the Commission may take into account "any other factors that are appropriate to the determination, including whether such a determination would be in the public interest, and whether the relevant authority agrees to provide the Commission and other U.S. authorities with reciprocal assistance in matters within their jurisdiction."? 11
Footnotes:
10 ?Accordingly, determination orders "typically would incorporate conditions that specify the scope of a relevant authority's access to data, and that limit this access in a manner that reflects the relevant authority's regulatory mandate or legal responsibility or authority," including conditions that address factors such as the domiciles of the counterparties to the security-based swap or of the underlying reference entities. Limiting access to information in this manner "should be expected to help minimize the risk of unauthorized disclosure, misappropriation or misuse of security-based swap data, as each relevant authority will only have access to information within its regulatory mandate, or legal responsibility or authority." Id. at 60589. The Commission separately stated that the confidentiality arrangement between the Commission and the authority also may "incorporate conditions that specify the scope of the relevant authority's access to data, and that limit this access in a manner that reflects the relevant authority's regulatory mandate or legal responsibility or authority." Id. at 60592.
11 ? Id. at 60589.
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C. Additional Aspects to the Determinations
The Commission has explained that it may take various approaches in deciding whether to impose additional conditions in connection with determination orders, such as issuing orders of limited duration. 12 The Commission also has stated that it may revoke a determination at any time (such as if an authority fails to maintain the confidentiality of the security-based swap data it has been provided), and that, even absent a revocation, an authority's access to data would cease upon the termination of the arrangements used to satisfy the confidentiality condition. 13
Footnotes:
12 ? Id.
13 ? Id.
The Commission has expressed the expectation that SDRs would provide relevant authorities with access to security-based swap data in accordance with the determination orders, and that the Commission generally does not expect to be involved in reviewing, signing-off on or otherwise approving relevant authorities' requests for security-based swap data from repositories that are made in accordance with a determination order. 14 The Commission also has stated that it has not prescribed any specific processes to govern a repository's treatment of requests for access. 15
Footnotes:
14 ? Id.
15 ? Id.
II. FINRA'S Data Access Request
FINRA is a self-regulatory organization that is registered with the Commission as a national securities association pursuant to Exchange Act section 15A. As such, the Exchange Act in part requires that FINRA be organized and have the capacity to enforce the compliance of member firms (and of persons associated with members) with requirements under the Exchange Act and with FINRA's own rules. 16
Footnotes:
16 ? See Exchange Act section 15A(b)(2); see also section 19(g)(1)(B) (in part requiring securities associations' compliance with Exchange Act requirements and association rules).
A. Use of the Data
FINRA states that access to security-based swap data will enhance its ability to conduct effective reviews, examinations and investigations into potential violations of rules by FINRA members with respect to their security-based swap activities. Access would allow FINRA to incorporate security-based swap data into cross-market and cross-product surveillance, which would enhance FINRA's ability to detect practices such as manipulation and insider trading. 17 FINRA also anticipates using the security-based swap data in additional ways, including monitoring of member firms' compliance with financial responsibility requirements. 18
Footnotes:
17 ?FINRA request at 4-5.
18 ? Id. at 6.
B. Confidentiality Considerations
FINRA's request describes policies and procedures governing data privacy and data security that promote the appropriate safeguarding of data. Those include policies and procedures related to data classification guidelines, end-user practices and procedures for safeguarding data, reporting loss, and ensuring that only authorize users gain access. Those also include data security policies establishing technical security controls for systems and applications. 19
Footnotes:
19 ? Id.
For purposes of those privacy policies and procedures, FINRA states that it will treat the security-based swap data as "Restricted Confidential Information," and that FINRA will implement special handling guidelines that will address access to the data and its use, handling and storage. 20 The confidentiality arrangement that the Commission is entering into with FINRA incorporates related safeguards. 21
Footnotes:
20 ? Id.
21 ?As noted above, see note 8, supra, and accompanying text, the Commission is entering into a confidentiality arrangement with FINRA, addressing the parameters of FINRA's access to security-based swap data maintained by SDRs, as well as the confidentiality protections that FINRA will afford to the security-based swap data. These include provisions stating that FINRA will afford security-based swap data the highest level of protection under its policy framework for confidentiality procedures, and that, to the maximum extent practicable, FINRA will afford the security-based swap data confidentiality protections that are not less rigorous than applicable confidentiality protections afforded to Consolidated Audit Trail data. Confidentiality Arrangement para. 19. The Confidentiality Arrangement further provides that FINRA may disclose security-based swap information as required by FINRA rules related to disciplinary complaints or disciplinary decisions, and actions related to statutory disqualifications, suspensions, cancellations, expulsions or bars, subject to prior written consent by the Commission. Confidentiality Arrangement para. 20. In addition, FINRA conducts surveillance and exercises regulatory services on behalf of other self-regulatory organizations pursuant to Regulatory Services Agreements ("RSAs"). The Confidentiality Arrangement provides that FINRA may share confidential information pursuant to an RSA only if the client itself has entered into a separate confidentiality arrangement with the Commission, in connection with access to the information, that specifically provides that FINRA may share the information with the client. Confidentiality Arrangement para. 21.
III. Determination and Associated Terms and Conditions
The Commission concludes that it is appropriate to require SDRs to make security-based swap data available to FINRA, subject to there being in effect a confidentiality arrangement between FINRA and the Commission. In reaching this conclusion, the Commission recognizes that FINRA plays an important role in promoting member firms' (and their associated persons') compliance with the federal securities laws, and the Commission concludes that access to security-based swap data will facilitate effective cross-market surveillance involving security-based swap activity. 22 FINRA's confidentiality framework and the confidentiality arrangement between the Commission and FINRA further will help ensure that FINRA will afford the security-based swap data appropriate protections-once FINRA has implemented special handling guidelines for the data.
Footnotes:
22 ?In reaching this conclusion, the Commission has considered the possibility of using more focused scopes of access, such as by limiting FINRA's access to data involving security-based swaps in which a member firm or associated person is a counterparty, guarantor or underlier to a security-based swaps. The Commission concludes, however, that this type of more limited access to security-based swap data would not sufficiently facilitate cross-market surveillance of improper activities such as insider trading and front-running, particularly given the possibility that wrongdoers may seek to avoid surveillance by using third-parties to engage in transactions in the security-based swap market.
Taking these factors as a whole, the Commission concludes that such a determination is in the public interest. By virtue of this order, the Exchange Act places an affirmative obligation upon SBSDRs to provide FINRA with access to security-based swap data consistent with the scope of the order, subject to the applicable terms and conditions, including a confidentiality arrangement between the Commission and FINRA being in effect, and FINRA implementing special handling guidelines, following consultation with Commission staff, to address access to the data and its use, handling and storage. 23
Footnotes:
23 ?The Commission anticipates providing notice to SDRs in the event the relevant confidentiality arrangement no longer is in effect. Consistent with 17 CFR 240.13n-4(b)(10), this would terminate the SDRs' obligation to provide data access pursuant to the arrangement.
IV. Conclusion
For the reasons discussed above, the Commission determines that it would be appropriate to require security-based swap data repositories to make security-based swap data available to FINRA.
[top] It is hereby ordered, pursuant to Exchange Act section 13(n)(5)(G)(v) and
By the Commission.
Dated: August 11, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17641 Filed 8-16-22; 8:45 am]
BILLING CODE 8011-01-P