15 USC 78c-4 - Security-based swap execution facilities

U.S Code last checked for updates: Nov 22, 2024

§ 78c–4.

Security-based swap execution facilities

(a)

Registration

(1)

In general

(2)

Dual registration

(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

(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)

(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

(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

(7)

Emergency authority

(8)

Timely publication of trading information

(A)

In general

(B)

Capacity of security-based swap execution 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

(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

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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

(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

(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

 So in original.

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

(f)

Rules

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

cite as: 15 USC 78c-4