15 U.S. Code § 78c–4 - Security-based swap execution facilities

(a) Registration
(1) In general
No person may operate a facility for the trading or processing of security-based swaps, unless the facility is registered as a security-based swap execution facility or as a national securities exchange under this section.
(2) Dual registration
Any person that is registered as a security-based swap execution facility under this section shall register with the Commission regardless of whether the person also is registered with the Commodity Futures Trading Commission as a swap execution facility.
(b) Trading and trade processing
A security-based swap execution facility that is registered under subsection (a) may—
(1) make available for trading any security-based swap; and
(2) facilitate trade processing of any security-based swap.
(c) Identification of facility used to trade security-based swaps by national securities exchanges
A national securities exchange shall, to the extent that the exchange also operates a security-based swap execution facility and uses the same electronic trade execution system for listing and executing trades of security-based swaps on or through the exchange and the facility, identify whether electronic trading of such security-based swaps is taking place on or through the national securities exchange or the security-based swap execution facility.
(d) Core principles for security-based swap execution facilities
(1) Compliance with core principles
(A) In general
To be registered, and maintain registration, as a security-based swap execution facility, the security-based swap execution facility shall comply with—
(i) the core principles described in this subsection; and
(ii) any requirement that the Commission may impose by rule or regulation.
(B) Reasonable discretion of security-based swap execution facility
Unless otherwise determined by the Commission, by rule or regulation, a security-based swap execution facility described in subparagraph (A) shall have reasonable discretion in establishing the manner in which it complies with the core principles described in this subsection.
(2) Compliance with rules
A security-based swap execution facility shall—
(A) establish and enforce compliance with any rule established by such security-based swap execution facility, including—
(i) the terms and conditions of the security-based swaps traded or processed on or through the facility; and
(ii) any limitation on access to the facility;
(B) establish and enforce trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules, including means—
(i) to provide market participants with impartial access to the market; and
(ii) to capture information that may be used in establishing whether rule violations have occurred; and
(C) establish rules governing the operation of the facility, including rules specifying trading procedures to be used in entering and executing orders traded or posted on the facility, including block trades.
(3) Security-based swaps not readily susceptible to manipulation
The security-based swap execution facility shall permit trading only in security-based swaps that are not readily susceptible to manipulation.
(4) Monitoring of trading and trade processing
The security-based swap execution facility shall—
(A) establish and enforce rules or terms and conditions defining, or specifications detailing—
(i) trading procedures to be used in entering and executing orders traded on or through the facilities of the security-based swap execution facility; and
(ii) procedures for trade processing of security-based swaps on or through the facilities of the security-based swap execution facility; and
(B) monitor trading in security-based swaps to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions.
(5) Ability to obtain information
The security-based swap execution facility shall—
(A) establish and enforce rules that will allow the facility to obtain any necessary information to perform any of the functions described in this subsection;
(B) provide the information to the Commission on request; and
(C) have the capacity to carry out such international information-sharing agreements as the Commission may require.
(6) Financial integrity of transactions
The security-based swap execution facility shall establish and enforce rules and procedures for ensuring the financial integrity of security-based swaps entered on or through the facilities of the security-based swap execution facility, including the clearance and settlement of security-based swaps pursuant to section 78c–3 (a)(1) of this title.
(7) Emergency authority
The security-based swap execution facility shall adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission, as is necessary and appropriate, including the authority to liquidate or transfer open positions in any security-based swap or to suspend or curtail trading in a security-based swap.
(8) Timely publication of trading information
(A) In general
The security-based swap execution facility shall make public timely information on price, trading volume, and other trading data on security-based swaps to the extent prescribed by the Commission.
(B) Capacity of security-based swap execution facility
The security-based swap execution facility shall be required to have the capacity to electronically capture and transmit and disseminate trade information with respect to transactions executed on or through the facility.
(9) Recordkeeping and reporting
(A) In general
A security-based swap execution facility shall—
(i) maintain records of all activities relating to the business of the facility, including a complete audit trail, in a form and manner acceptable to the Commission for a period of 5 years; and
(ii) report to the Commission, in a form and manner acceptable to the Commission, such information as the Commission determines to be necessary or appropriate for the Commission to perform the duties of the Commission under this chapter.
(B) Requirements
The Commission shall adopt data collection and reporting requirements for security-based swap execution facilities that are comparable to corresponding requirements for clearing agencies and security-based swap data repositories.
(10) Antitrust considerations
Unless necessary or appropriate to achieve the purposes of this chapter, the security-based swap execution facility shall not—
(A) adopt any rules or taking  [1] any actions that result in any unreasonable restraint of trade; or
(B) impose any material anticompetitive burden on trading or clearing.
(11) Conflicts of interest
The security-based swap execution facility shall—
(A) establish and enforce rules to minimize conflicts of interest in its decision-making process; and
(B) establish a process for resolving the conflicts of interest.
(12) Financial resources
(A) In general
The security-based swap execution facility shall have adequate financial, operational, and managerial resources to discharge each responsibility of the security-based swap execution facility, as determined by the Commission.
(B) Determination of resource adequacy
The financial resources of a security-based swap execution facility shall be considered to be adequate if the value of the financial resources—
(i) enables the organization to meet its financial obligations to its members and participants notwithstanding a default by the member or participant creating the largest financial exposure for that organization in extreme but plausible market conditions; and
(ii) exceeds the total amount that would enable the security-based swap execution facility to cover the operating costs of the security-based swap execution facility for a 1-year period, as calculated on a rolling basis.
(13) System safeguards
The security-based swap execution facility shall—
(A) establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk, through the development of appropriate controls and procedures, and automated systems, that—
(i) are reliable and secure; and
(ii) have adequate scalable capacity;
(B) establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allow for—
(i) the timely recovery and resumption of operations; and
(ii) the fulfillment of the responsibilities and obligations of the security-based swap execution facility; and
(C) periodically conduct tests to verify that the backup resources of the security-based swap execution facility are sufficient to ensure continued—
(i) order processing and trade matching;
(ii) price reporting;
(iii) market surveillance; and
(iv) maintenance of a comprehensive and accurate audit trail.
(14) Designation of chief compliance officer
(A) In general
Each security-based swap execution facility shall designate an individual to serve as a chief compliance officer.
(B) Duties
The chief compliance officer shall—
(i) report directly to the board or to the senior officer of the facility;
(ii) review compliance with the core principles in this subsection;
(iii) in consultation with the board of the facility, a body performing a function similar to that of a board, or the senior officer of the facility, resolve any conflicts of interest that may arise;
(iv) be responsible for establishing and administering the policies and procedures required to be established pursuant to this section;
(v) ensure compliance with this chapter and the rules and regulations issued under this chapter, including rules prescribed by the Commission pursuant to this section;
(vi) establish procedures for the remediation of noncompliance issues found during—
(I) compliance office reviews;
(II) look backs;
(III) internal or external audit findings;
(IV) self-reported errors; or
(V) through validated complaints; and
(vii) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues.
(C) Annual reports
(i) In general In accordance with rules prescribed by the Commission, the chief compliance officer shall annually prepare and sign a report that contains a description of—
(I) the compliance of the security-based swap execution facility with this chapter; and
(II) the policies and procedures, including the code of ethics and conflict of interest policies, of the security-based security-based  [2] swap execution facility.
(ii) Requirements The chief compliance officer shall—
(I) submit each report described in clause (i) with the appropriate financial report of the security-based swap execution facility that is required to be submitted to the Commission pursuant to this section; and
(II) include in the report a certification that, under penalty of law, the report is accurate and complete.
(e) Exemptions
The Commission may exempt, conditionally or unconditionally, a security-based swap execution facility from registration under this section if the Commission finds that the facility is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the Commodity Futures Trading Commission.
(f) Rules
The Commission shall prescribe rules governing the regulation of security-based swap execution facilities under this section.


[1]  So in original. Probably should be “take”.

[2]  So in original.

Source

(June 6, 1934, ch. 404, title I, § 3D, as added Pub. L. 111–203, title VII, § 763(c),July 21, 2010, 124 Stat. 1769.)
References in Text

This chapter, referred to in subsec. (d)(9)(A)(ii), (10), (14)(B)(v), (C)(i)(I), was in the original “this title”. See References in Text note set out under section 78a of this title.
Effective Date

Section effective on the later of 360 days after July 21, 2010, or, to the extent a provision of subtitle B (§§ 761–774) of title VII of Pub. L. 111–203requires a rulemaking, not less than 60 days after publication of the final rule or regulation implementing such provision of subtitle B, see section 774 ofPub. L. 111–203, set out as an Effective Date of 2010 Amendment note under section 77b of this title.

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15 USCDescription of ChangeSession YearPublic LawStatutes at Large

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17 CFR - Commodity and Securities Exchanges

17 CFR Part 200 - ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS

17 CFR Part 249 - FORMS, SECURITIES EXCHANGE ACT OF 1934

17 CFR Part 249b - FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934

 

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