2025 Rules 15Fh-1 through 15Fh-6 and 15Fk-1 Supporting Statement

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Business Conduct Standards for Security-Based Swap Dealers
and Major Security-Based Swap Participants
OMB Control No. 3235-0732
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C.
Section 3501 et seq.
A.

JUSTIFICATION
1.

Necessity of Information Collection

In 2010, Congress enacted the Dodd-Frank Act, establishing a comprehensive framework for
regulating the over-the-counter swaps markets. As required by Title VII of the Dodd-Frank Act, new
section 15F(h) of the Exchange Act established business conduct standards for security-based swap
Dealers (“SBS Dealers”) and Major security-based swap Participants (collectively “SBS Entities”) in
their dealings with counterparties, including special entities 1, and in May 2016, the Commission adopted
implementing rules. 2 The rules also establish regulations for the chief compliance officer (“CCO”)
functions within an SBS Entity. 3
Rules 15Fh-1 through 15Fh-6 and 15Fk-1 require SBS Entities to:
•

Verify whether a counterparty is an eligible contract participant (“ECP”) and whether it is a
special entity;

•

Disclose to the counterparty material information about the security-based swap, including
material risks, characteristics, incentives and conflicts of interest;

1

“Special Entity” means: a federal agency; State, State agency, city, county, municipality, other political subdivision
of a State, or any instrumentality, department, or a corporation of or established by a State or political subdivision of
a State; any employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1002); any governmental plan, as defined in Section 3 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002); any endowment, including an endowment that is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)); or any employee benefit plan defined in
Section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002), not otherwise defined as a
Special Entity, that elects to be a Special Entity by notifying a swap dealer or major swap participant of its election
prior to entering into a swap with the particular swap dealer or major swap participant. 17 CFR Part 23.401(c).

2

See Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants,
Exchange Act Release 77617 (Apr. 14, 2016), 81 FR 29959 (May 13, 2016). See also Business Conduct Standards
for Security-Based Swap Dealers and Major Security-Based Swap Participants; Correction, Exchange Act Release
77617A (May 19, 2016), 81 FR 32643 (May 24, 2016) (together, “BCS Rules Adopting Release”).

3

Rules in addition to those addressed in this supporting statement were adopted under the BCS Rules Adopting
Release. Rule 3a71-3(c) and Rule 3a71-6 address the cross-border application of the business conduct standards and
the availability of substituted compliance. The Office of Management and Budget (“OMB”) has assigned control
number 3235-0717 to Rule 3a71-3(c) and 3235-0715 to Rule 3a71-6. The remaining BCS rules are either
definitional rules, concern scope, or exempt respondents, see e.g. Rule 3a67-10, and do not have an information
collection associated with them.

•

Provide the counterparty with information concerning the daily mark of the security-based
swaps;

•

Provide the counterparty with information regarding the ability to require clearing of the
security-based swaps;

•

Communicate with counterparties in a fair and balanced manner based on principles of fair
dealing and good faith;

•

Establish a supervisory and compliance infrastructure; and

•

Designate a CCO that is required to fulfill the described duties and provide an annual compliance
report.
The rules also require SBS Dealers to:

•

Determine that recommendations they make regarding security-based swaps are suitable for their
counterparties.

•

Establish, maintain and enforce written policies and procedures reasonably designed to obtain
and retain a record of the essential facts concerning each known counterparty that are necessary
to conduct business with such counterparty; and

•

Comply with rules designed to prevent “pay-to-play.”

The rules also define what it means to “act as an advisor” to a special entity, and require an SBS
Dealer that acts as an advisor to a special entity to:
•

Make a reasonable determination that any security-based swap or trading strategy involving a
security-based swap recommended by the SBS Dealer is in the best interests of the special entity
whose identity is known at a reasonably sufficient time prior to the execution of the transaction
to permit the SBS Dealer to comply with this obligation; and

•

Make reasonable efforts to obtain such information that the SBS Dealer considers necessary to
make a reasonable determination that a security-based swap or trading strategy involving a
security-based swap is in the best interests of the known special entity.

In addition, the rules require SBS Entities acting as counterparties to special entities to reasonably
believe that the counterparty has an independent representative who meets the following requirements:
•

Has sufficient knowledge to evaluate the transaction and risks;

•

Is not subject to a statutory disqualification;

•

Undertakes a duty to act in the best interests of the special entity;

•

Makes appropriate and timely disclosures to the special entity of material information concerning
the security-based swap;
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•

Evaluates, consistent with any guidelines provided by the special entity, the fair pricing and the
appropriateness of the security-based swap;

•

Is independent of SBS Entities that is the counterparty to a proposed security-based swap.

Under the rules, the special entity’s independent representative must also be subject to pay-toplay regulations, and if the special entity is an ERISA plan, the independent representative must be an
ERISA fiduciary.
The information that must be collected pursuant to the rules is intended to increase accountability
and transparency in the market. The information should therefore help establish a framework that
protects investors and promotes efficiency, competition and capital formation.
2.

Purpose and Use of Information Collection
i.

Verification of Status

Rule 15Fh-3(a)(1) requires an SBS Entity to determine whether its counterparty is an ECP before
the execution of a security-based swap other than on a registered national securities exchange or
security-based swap execution facility (“SEF”). An SBS Entity would use this information to comply
with Section 6(l) of the Exchange Act (15 U.S.C. 78(f)(l)), which prohibits a person from entering into a
security-based swap with a counterparty that is not an ECP other than on a national securities exchange.
Rule 15Fh-3(a)(2) requires the SBS Entity to determine whether a counterparty is a special
entity, unless the transaction is executed on a registered or exempt SEF or registered national securities
exchange, and the SBS Entity does not know the identity of the counterparty at a reasonably sufficient
time prior to the transaction to permit the SBS Entity to comply with the obligations of the rule. An
SBS Entity would use this information, in turn, to determine the need to comply with the requirements
applicable to dealings with special entities under Rules 15Fh-4(b) and 15Fh-5. In the event that a
counterparty may elect to opt out of “special entity” status (as defined in Rule 15Fh-2(d)(4)), Rule 15Fh3(a)(3) requires an SBS Entity to notify such counterparty of its right to opt out of special entity status.
An SBS Entity may satisfy these verification requirements through any reasonable means including,
among other things, obtaining written representations from the counterparty as to specific facts about the
counterparty.
In addition to assisting the CCO in overseeing and administering the SBS Entity’s compliance
with relevant provisions of the Exchange Act related to its business as an SBS Entity, this collection of
information would be used by Commission staff in its examination and oversight program.
ii.

Disclosures by SBS Entities

Rule 15Fh-3(b) requires an SBS Entity, prior to entering into a security-based swap, to disclose
to a counterparty (other than an SBS Entity), swap dealer, or major swap participant (together “Swap
Entities”) material information concerning the security-based swap in a manner reasonably designed to
allow the counterparty to assess: (1) the material risks and characteristics of a particular security-based
swap; and (2) any material incentives or conflicts of interest that the SBS Entity may have in connection
with the security-based swap. These disclosure requirements do not apply unless the identity of the
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counterparty is known to the SBS Entity at a reasonably sufficient time prior to execution of the
transaction to permit the SBS Entity to comply with the obligations of the rule. The rule also requires
the SBS Entity to make a written record of any non-written disclosures made pursuant to this provision,
and timely provide a written version of these disclosures to its counterparties no later than the delivery
of the trade acknowledgement of the particular transaction.
For cleared security-based swaps, Rule 15Fh-3(c)(1) requires an SBS Entity, upon request of the
counterparty, to disclose the daily mark to the counterparty (other than an SBS Entity or Swap Entity)
that the SBS Entity receives from the appropriate clearing agency. For uncleared security-based swaps,
Rule 15Fh-3(c)(2) requires an SBS Entity to disclose the daily mark to the counterparty as specified in
the rule. Rule 15Fh-3(c)(2) also requires disclosure of the data sources and a description of the
methodology and assumptions used to prepare the daily mark for an uncleared security-based swap, as
well as promptly disclose any material changes to such data sources, methodology or assumptions
during the term of the security-based swap. Rule 15Fh-3(c)(3) also require an SBS Entity to provide the
daily mark without charge to the counterparty and without restrictions on the counterparty’s internal use
of the daily mark.
Rule 15Fh-3(d) requires an SBS Entity to disclose information regarding clearing rights to its
counterparties (other than SBS Entities or Swap Entities), so long as the identity of the counterparty is
known to the SBS Entity at a reasonably sufficient time prior to execution of the transaction to permit
the SBS Entity to comply with the obligations of the rule. Before entering into a security-based swap
that is subject to the clearing requirements of Section 3C(a) of the Exchange Act, the SBS Entity must
disclose to the counterparty the names of the clearing agencies that accept the security-based swap for
clearing, and through which of those clearing agencies the SBS Entity is authorized or permitted,
directly or through a designated clearing member, to clear the security-based swap; disclose to the
counterparty whether any of the named clearing agencies satisfy the standard for clearing under Section
3C(a)(1) of the Exchange Act; and notify the counterparty that it has the sole right to select which
clearing agency will be used to clear the security-based swap. For security-based swaps that are not
subject to the clearing requirements of Section 3C(a) of the Exchange Act, before entering into a
security-based swap, the SBS Entity must determine whether the security-based swap is accepted for
clearing by one or more clearing agencies; disclose to the counterparty the names of the clearing
agencies that accept the security-based swap for clearing, and whether the SBS Entity is authorized or
permitted, directly or through a designated clearing member, to clear the security-based swap through
such clearing agencies; and notify the counterparty that it may elect to require clearing of the securitybased swap and that it has the sole right to select the clearing agency at which the security-based swap
will be cleared, provided it is a clearing agency at which the SBS Entity is authorized or permitted,
directly or through a designated clearing member, to clear the security-based swap. To the extent that
the disclosures required by Rule 15Fh-3(d) are not provided in writing prior to the execution of the
transaction, the SBS Entity is required to make a written record of the non-written disclosures and
provide the counterparty with a written version of these disclosures no later than the delivery of the trade
acknowledgement for the transaction.
The disclosures that SBS Entities must provide to their counterparties (other than SBS Entities
and Swap Entities) are intended to help counterparties understand the material risks and characteristics
of a particular security-based swap, the counterparty’s clearing rights, as well as the material incentives
or conflicts of interest that the SBS Entity may have in connection with the security-based swap. As a
result, these disclosures should assist the counterparty in assessing the transaction. The disclosures
4

should provide counterparties with a better understanding of the expected performance of the securitybased swap under various market conditions and provide counterparties with additional transparency and
insight into the pricing and collateral requirements of security-based swaps.
iii.

Know Your Counterparty and Recommendations

Rule 15Fh-3(e) requires an SBS Dealer to establish, maintain and enforce written policies and
procedures reasonably designed to obtain and retain a record of the essential facts concerning each
counterparty whose identity is known to the SBS Dealer that are necessary for conducting business with
such counterparty. The essential facts are: (1) facts required to comply with applicable laws, regulations
and rules; (2) facts required to implement the SBS Dealer’s credit and operational risk management
policies in connection with transactions entered into with such counterparty; and (3) information
regarding the authority of any person acting for such counterparty.
Rule 15Fh-3(f)(1) requires an SBS Dealer recommending a security-based swap or trading
strategy involving a security-based swap to a counterparty (other than an SBS Entity or a Swap Entity)
to: (i) undertake reasonable diligence to understand the potential risks and rewards associated with the
recommendation; and (ii) have a reasonable basis to believe that the recommendation is suitable for the
counterparty. To establish a reasonable basis for a recommendation, an SBS Dealer must have or obtain
relevant information regarding the counterparty, including the counterparty’s investment profile, trading
objectives, and its ability to absorb potential losses associated with the recommended security-based
swap or trading strategy involving a security-based swap.
Under Rule 15Fh-3(f)(2), an SBS Dealer may also fulfill its suitability obligations under Rule
15Fh-3(f)(1)(ii) with respect to an institutional counterparty (defined as a counterparty that is an ECP as
defined in clauses (A)(i), (ii), (iii), (iv), (viii), (ix) or (x), or clause (B)(ii) (other than a person described
in clause (A)(v)) of Section 1a(18) of the Commodity Exchange Act and the rules and regulations
thereunder, or any person (whether a natural person, corporation, partnership, trust or otherwise) with
total assets of at least $50 million) if: (i) the SBS Dealer reasonably determines that the counterparty (or
its agent) is capable of independently evaluating the investment risks with regard to the relevant
security-based swap or trading strategy involving a security-based swap; (ii) the counterparty (or its
agent) affirmatively represents in writing that it is exercising its independent judgment in evaluating the
recommendations of the SBS Dealer with regard to the relevant security-based swap or trading strategy;
and (iii) the SBS Dealer discloses to the counterparty that it is acting in its capacity as a counterparty
and is not undertaking to assess the suitability of the security-based swap or trading strategy for the
counterparty. Under Rule 15Fh-3(f)(3), an SBS Dealer will be deemed to have satisfied the
requirements of Rule 15Fh-3(f)(2)(i) if it receives written representations that: (i) in the case of a
counterparty that is not a special entity, the counterparty has complied in good faith with written policies
and procedures that are reasonably designed to ensure that the persons responsible for evaluating the
recommendation and making trading decisions on behalf of the counterparty are capable of doing so;
and (ii) in the case of a counterparty that is a special entity, satisfy the terms of the safe harbor in Rule
15Fh-5(b).
These collections of information should help an SBS Dealer comply with applicable laws,
regulations and rules. They should also assist an SBS Dealer in effectively dealing with the
counterparty, including by making recommendations that are appropriate for the counterparty, and by
collecting information from the counterparty necessary for the SBS Dealer’s credit and risk management
5

purposes. These collections of information should also assist an SBS Dealer in determining whether it
would be reasonable to rely on various representations from a counterparty and evaluating the risks of
trading with that counterparty. The information should also assist the CCO in determining that the SBS
Entity had policies and procedures reasonably designed to obtain and retain essential facts concerning
each known counterparty and to make suitable recommendations to its counterparties. The Commission
staff will also use these collections of information in its examination and oversight program.
iv.

Fair and Balanced Communications

Rule 15Fh-3(g) requires an SBS Entity to communicate with its counterparties in a fair and
balanced manner based on principles of fair dealing and good faith. The rule requires that: (1)
communications provide a sound basis for evaluating the facts with regard to a particular security-based
swap or trading strategy involving a security-based swap; (2) communications not imply that past
performance will recur or make any exaggerated or unwarranted claim, opinion, or forecast; and (3) any
statement referring to potential opportunities or advantages presented by a particular security-based
swap be balanced by an equally detailed statement of the corresponding risks.
The collection of information concerning communications involving a security-based swap
should assist an SBS Entity in communicating with counterparties in a fair and balanced manner. The
receipt of information in a fair and balanced manner should also assist the counterparty in making more
informed investment decisions. Finally, it should assist the CCO in overseeing and administering the
SBS Entity’s compliance with relevant provisions of the Exchange Act related to its business as an SBS
Entity. The Commission staff will also use this collection of information in its examination and
oversight program.
v.

Supervision

Rule 15Fh-3(h) requires an SBS Entity to establish and maintain a system to supervise, and to
diligently supervise, its business and the activities of its associated persons. Such a system must be
reasonably designed to prevent violations of the provisions of applicable federal securities laws and the
rules and regulations thereunder relating to its business as an SBS Entity. At a minimum, the
supervisory system must: (i) designate at least one person with authority to carry out supervisory
responsibilities for each type of business in which the SBS Entity engages for which registration as an
SBS Entity is required; (ii) use reasonable efforts to determine all such supervisors are qualified, either
by virtue of experience or training, to carry out their assigned responsibilities; and (iii) establish,
maintain and enforce written policies and procedures addressing the supervision of the types of securitybased swap business in which the SBS Entity is engaged and the activities of its associated persons that
are reasonably designed to prevent violations of applicable securities laws and rules and regulations
thereunder.
Rule 15Fh-3(h)(2) requires that such written policies and procedures must include, at a
minimum, procedures: (a) for the review by a supervisor of transactions for which registration as an SBS
Entity is required; (b) for the review by a supervisor of incoming and outgoing written (including
electronic) correspondence with counterparties or potential counterparties and internal written
communications relating to the SBS Entity’s security-based swap business; (c) for a periodic review, at
least annually, of the security-based swap business in which the SBS Entity engages that is reasonably
designed to assist in detecting and preventing violations of applicable federal securities laws and
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regulations; (d) to conduct a reasonable investigation regarding the good character, business repute,
qualifications, and experience of any person prior to that person’s association with the SBS Entity; (e) to
consider whether to permit an associated person to establish or maintain a securities or commodities
account or a trading relationship in the name of, or for the benefit of, such associated person at another
financial institution, and if permitted, to supervise the trading at such institution; (f) describing the
supervisory system, including the titles, qualifications and locations of supervisory persons and the
responsibilities of each supervisory person with respect to the types of business in which the SBS Entity
is engaged; (g) prohibiting an associated person who performs a supervisory function from supervising
his or her own activities or reporting to, or having his or her compensation or continued employment
determined by, a person or persons he or she is supervising; provided that if the SBS Entity determines,
with respect to any of its supervisory personnel, that compliance with this requirement is not possible
because of the firm’s size or a supervisory person’s position within the firm, then the SBS Entity must
document the factors used to reach such determination and how the supervisory arrangement otherwise
complies with this rule, and include a summary of such determination in the annual compliance report
prepared by the SBS Entity’s CCO pursuant to Rule 15Fk-1(c); (h) reasonably designed to prevent the
supervisory system from being compromised due to conflicts of interest that may be present with respect
to the associated person being supervised, including the position of such person, the revenue such person
generates for the SBS Entity, or any compensation that the associated person conducting the supervision
may derive from the associated person being supervised; and (i) reasonably designed, taking into
consideration the nature of the SBS Entity’s business, to comply with the duties set forth in Section
15F(j) of the Exchange Act.
Rule 15Fh-3(h)(3) provides that an SBS Entity (or associated person of an SBS Entity) will not
be deemed to have failed to diligently supervise another person if that person is not subject to his or her
supervision, or if: (i) the SBS Entity has established and maintained written policies and procedures (as
required in Rule15Fh-3(h)(2)(iii)), and a documented system for applying those policies and procedures
that would reasonably be expected to prevent and detect, insofar as practicable, any violation of the
federal securities laws and the rules and regulations thereunder relating to security-based swaps; and (ii)
the SBS Entity or associated person has reasonably discharged the duties and obligations required by
such written policies and procedures and documented system and did not have a reasonable basis to
believe that such written policies and procedures and documented system were not being followed.
Rule 15Fh-3(h)(3) requires an SBS Entity promptly to amend its written supervisory procedures
when material changes occur in the applicable securities law or in its business or supervisory system and
to communicate such changes to all relevant associated persons.
The collection of information in connection with the establishment, maintenance and
enforcement of a supervisory system should assist an SBS Entity in achieving compliance with all
applicable securities laws, rules and regulations. The CCO may use these collections of information in
discharging his or her duties under proposed Rule 15Fk-1 and in determining whether remediation
efforts are required. The collection of information under Rule 15Fh-3(h) should also be useful to
supervisors in understanding and carrying out their supervisory responsibilities. The Commission staff
will also use this collection of information in its examination and oversight program.
vi.

SBS Dealers Acting as Advisors to Special Entities

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Rule 15Fh-4(a) imposes anti-fraud requirements on SBS Entities and (b)(1) imposes the duty on
an SBS Dealer that acts as an advisor to a special entity regarding a security-based swap to make a
reasonable determination that any security-based swap or trading strategy involving a security-based
swap recommended by the SBS Dealer is in the best interests of the special entity. Paragraph (b)(2) also
requires an SBS Dealer acting as an advisor to a special entity to make reasonable efforts to obtain such
information as it considers necessary to make a reasonable determination that a security-based swap or
related trading strategy is in the best interests of the special entity. The information that must be
obtained to make this reasonable determination includes, but is not limited to: (i) the authority of the
special entity to enter into a security-based swap; (ii) the financial status and future funding needs of the
special entity; (iii) the tax status of the special entity; (iv) the hedging, investment, financing or other
objectives of the special entity; (v) the experience of the special entity with respect to security-based
swaps, generally, and security-based swaps of the type and complexity being recommended; (vi)
whether the special entity has the financial capability to withstand changes in market conditions during
the term of the security-based swap; and (vii) such other information as is relevant to the particular facts
and circumstances of the special entity, market conditions and the type of security-based swap or trading
strategy being recommended. However, the requirements of Rule 15Fh-4(b) do not apply to a securitybased swap if: (i) the transaction is executed on a registered or exempt SEF or a registered national
securities exchange; and (ii) the SBS Dealer does not know the identity of the counterparty at a
reasonably sufficient time prior to execution of the transaction to permit the SBS Dealer to comply with
the obligations of this rule.
Rule 15Fh-2(a) generally provides that an SBS Dealer acts as an advisor to a special entity when
it recommends a security-based swap or security-based swap trading strategy to that special entity. Rule
15Fh-2(a)(1) provides a safe harbor under which an SBS Dealer will not be deemed to act as an advisor
to a special entity that is subject to Title I of ERISA if: (i) the special entity represents in writing that it
has a fiduciary as defined in Section 3 of ERISA that is responsible for representing the special entity in
connection with the security-based swap; (ii) the fiduciary represents in writing that it acknowledges that
the SBS Dealer is not acting as an advisor; and (iii) the special entity represents in writing that (a) it will
comply in good faith with written policies and procedures reasonably designed to ensure that any
recommendation the special entity receives from the SBS Dealer involving a security-based swap
transaction is evaluated by a fiduciary before it is entered into; or (b) that any recommendation the
special entity receives from the SBS Dealer involving a security-based swap transaction will be
evaluated by a fiduciary before the transaction is entered into.
Rule 15Fh-2(a)(2) provides a safe harbor for transactions between an SBS Dealer and any special
entity. Under this rule, an SBS Dealer that recommends a security-based swap or security-based swap
trading strategy to any special entity (other than a special entity subject to Title I of ERISA) will not be
deemed to act as an advisor to that special entity if the special entity represents in writing that it
acknowledges that the SBS Dealer is not acting as an advisor, and that it will rely on advice from a
qualified independent representative, as defined in Rule 15Fh-5(a). The SBS Dealer must also disclose
to the special entity that it is not undertaking to act in the best interests of the special entity, as otherwise
required by Section 15F(h)(4) of the Exchange Act.
The information that will be collected pursuant to Rule 15Fh-4(b) should assist an SBS Dealer
that is acting as an advisor to a special entity to make a reasonable determination that any security-based
swap or trading strategy involving a security-based swap recommended by the SBS Dealer is in the best
interests of the special entity. Information collected pursuant to Rule 15Fh-2(a) should assist an SBS
8

Dealer seeking to establish that it is not acting as an advisor to a special entity. These collections of
information should also assist a CCO in overseeing and administering the SBS Entity’s compliance with
relevant provisions of the Exchange Act related to its business as an SBS Entity. The Commission staff
will also use this collection of information in its examination and oversight program.
vii.

SBS Entities Acting as Counterparties to Special Entities

Rule 15Fh-5(a)(1) requires an SBS Entity that offers to enter into or enters into a security-based
swap with a special entity (other than a special entity that is an employee benefit plan subject to Title I
of ERISA), to have a reasonable basis to believe that the special entity has a qualified independent
representative that meets certain specified qualifications. For purposes of Rule 15Fh-5(a)(1), a qualified
independent representative must: (i) have sufficient knowledge to evaluate the transaction and related
risks; (ii) not be subject to a statutory disqualification; (iii) undertake a duty to act in the best interests of
the special entity; (iv) make appropriate and timely disclosures to the special entity of material
information concerning the security-based swap; (iv) evaluate, consistent with any guidelines provided
by the special entity, the fair pricing and appropriateness of the security-based swap; (v) in the case of a
special entity defined in Rule 15Fh-2(d)(2) or (5), be subject to the pay-to-play prohibitions of the
Commission, the CFTC, or a self-regulatory organization that is subject to the jurisdiction of the
Commission or the CFTC (unless the independent representative is an employee of the special entity);
and (vii) be independent of the SBS Entity that is the counterparty to a proposed security-based swap.
Rule 15Fh-5(a)(1) also provides that a representative of a special entity will be “independent” of
an SBS Entity if the representative does not have a relationship with the SBS Entity, whether
compensatory or otherwise, that reasonably could affect the independent judgment or decision-making
of the representative. In addition, a special entity’s representative will be deemed to be “independent”
of an SBS Entity if: (1) the representative is not and was not an associated person of the SBS Entity
within one year of representing the special entity in connection with the security-based swap; (2) the
representative provides timely disclosures to the special entity of all material conflicts of interest that
could reasonably affect the judgment or decision making of the representative with respect to its
obligations to the special entity, and complies with policies and procedures reasonably designed to
manage and mitigate such material conflicts of interest; and (3) the SBS Entity did not refer,
recommend, or introduce the representative to the special entity within one year of the representative’s
representation of the special entity in connection with the security-based swap.
Rule 15Fh-5(a)(2) provides that an SBS Entity that offers to enter into or enters into a securitybased swap with a special entity as defined in Rule 15Fh-2(d)(3) (any employee benefit plan that subject
to Title I of ERISA) must have a reasonable basis to believe the special entity has a representative that is
a fiduciary as defined in Section 3 of ERISA.
Rule 15Fh-5(b) provides safe harbors for SBS Entities seeking to form a reasonable basis
regarding the qualifications of the independent representative. Under Rule 15Fh-5(b)(1), an SBS Entity
shall be deemed to have a reasonable basis to believe that a special entity (other than an ERISA special
entity) has a representative that satisfies the requirements of Rule 15Fh-5(a)(1) if: (i) the special entity
represents in writing to the SBS Entity that it has complied in good faith with written policies and
procedures reasonably designed to ensure that it has selected a representative that satisfies the
requirements of Rule 15Fh-5(a)(1), and that such policies and procedures provide for ongoing
monitoring of the performance of such representative consistent with Rule 15Fh-5(a)(1); and (ii) the
9

representative represents in writing to the special entity and the SBS Entity that the representative: (a)
has policies and procedures reasonably designed to ensure that it satisfies the applicable requirements of
Rule 15Fh-5(a)(1); (b) meets the independence requirements of Rule 15Fh-5(a)(1)(vii); and (c) is legally
obligated to comply with the requirements of Rule 15Fh-5(a)(1) by agreement, condition of
employment, law, rule, regulation, or other enforceable duty.
Under Rule 15Fh-5(b)(2), an SBS Entity shall be deemed to have a reasonable basis to believe
that an ERISA special entity has a representative that satisfies the requirements of Rule 15Fh-5(a)(2),
provided that the special entity provides in writing to the SBS Entity the representative’s name and
contact information, and represents in writing that the representative is a fiduciary as defined in Section
3 of ERISA.
Under Rule 15Fh-5(c), before initiation of a security-based swap, an SBS Dealer must disclose to
the special entity in writing the capacity in which the SBS Dealer is acting in connection with the
security-based swap, and, if the SBS Dealer engages in business with the counterparty in more than one
capacity, the SBS Dealer must disclose the material differences between such capacities and any other
financial transaction or service involving the counterparty to the special entity.
Under Rule 15Fh-5(d), formerly Rule 15Fh-5(c), the provisions of Rule 15Fh-5 do not apply
when two conditions are satisfied: (1) the transaction is executed on a registered or exempt SEF or
registered national securities exchange; and (2) the SBS Entity is unaware of the counterparty’s identity,
at a reasonably sufficient time prior to the execution of the transaction to permit the SBS Entity to
comply with the obligations of the rule.
The information collected under Rule 15Fh-5(a) should assist an SBS Entity in forming a
reasonable basis that the special entity has a qualified, independent representative that meets the
requirements of the rule. Disclosures under Rule 15Fh-5(c) regarding the capacity in which an SBS
Entity is operating should provide greater clarity to special entities regarding whether an SBS Entity is
acting in its interest, or as a counterparty or principal with interests that are potentially adverse to the
special entity. These collections of information should also assist the CCO in overseeing and
administering the SBS Entity’s compliance with relevant provisions of the Exchange Act related to its
business as an SBS Entity. The Commission staff will also use this collection of information in its
examination and oversight program.
viii.

Political Contributions

Rule 15Fh-6(b) prohibits an SBS Dealer from offering to enter into, or entering into a securitybased swap, or a trading strategy involving a security-based swap, with a municipal entity within two
years after any contribution by the SBS Dealer or its covered associates to an official of such municipal
entity, subject to certain exceptions. These prohibitions do not apply to certain contributions made by an
SBS Dealer’s covered associate if the SBS Dealer discovered the contribution within 120 calendar days
of the date of such contribution, the contribution did not exceed $350, and the covered associate
obtained a return of the contribution within 60 calendar days of the date of discovery of the contribution
by the SBS Dealer. However, an SBS Dealer may not rely on that provision more than three times in
any 12-month period if it has more than 50 covered associates, and no more than twice if it has 50 or
fewer covered associates. The Commission may also, upon application, exempt an SBS Dealer from the
prohibitions of the rule after consideration of several factors.
10

The provisions of Rule 15Fh-6 do not apply when two conditions are satisfied: (1) the
transaction is executed on a registered or exempt SEF or registered national securities exchange; and (2)
the SBS Dealer is unaware of the counterparty’s identity, at a reasonably sufficient time prior to the
execution of the transaction to permit the SBS Dealer to comply with the obligations of the rule.
Rule 15Fh-6 is intended to deter SBS Dealers from participating, even indirectly, in pay-to-play
practices. The information collected pursuant to this rule related to political contributions made by the
security-based swap dealer or its covered associates should assist the SBS Dealer and the Commission in
verifying this deterrence. The rule should also assist the CCO in overseeing and administering the SBS
Entity’s compliance with relevant provisions of the Exchange Act related to its business as an SBS
Entity. The Commission staff will also use this collection of information in its examination and
oversight program.
ix.

Chief Compliance Officer

Rule 15Fk-1 requires an SBS Entity to designate an individual to serve as CCO on its registration
form. Under Rule 15Fk-1(b)(1) the CCO must report directly to the board of directors or senior officer
of the SBS Entity. Under Rule 15Fk-1(b)(2), the CCO must take reasonable steps to ensure that the SBS
Entity establishes, maintains, and reviews written policies and procedures reasonably designed to
achieve compliance with the Exchange Act and the rules and regulations thereunder relating to its
business as an SBS Entity by: (1) reviewing the SBS Entity’s compliance with the SBS Entity
requirements described in Section 15F of the Exchange Act and the rules and regulations thereunder
(where such review must involve preparing the SBS Entity’s annual assessment of its written policies
and procedures reasonably designed to achieve compliance with Section 15F of the Exchange Act and
the rules and regulations thereunder); (2) taking reasonable steps to ensure the SBS Entity establishes,
maintains, and reviews policies and procedures reasonably designed to remediate non-compliance issues
identified by the CCO through any means, including any compliance office review, look-back, internal
or external audit finding, self-reporting to the Commission and other appropriate authorities, or
complaint that can be validated; and (3) taking reasonable steps to ensure that the SBS Entity establishes
and follows procedures reasonably designed for the handling, management response, remediation,
retesting, and resolution of non-compliance issues. Under Rule 15Fk-1(b)(3), the CCO must take
reasonable steps to resolve any material conflicts of interest that may arise, in consultation with the
board or the senior officer of the SBS Entity. Under Rule 15Fk-1(b)(4), the CCO must administer each
policy and procedure that is required to be established pursuant to Section 15F of the Exchange Act and
the rules and regulations thereunder.
Under Rule 15Fk-1(c), the CCO must also prepare and sign an annual compliance report (“CCO
Annual Report”) that must be submitted to the Commission within 30 days following the deadline for
filing the SBS Entity’s annual financial report with the Commission pursuant to Section 15F of the
Exchange Act and the rules and regulations thereunder. This CCO Annual Report must contain a
description of the written policies and procedures of the SBS Entity described in Rule 15Fk-1(b),
outlined above, including the code of ethics and conflict of interest policies. The CCO Annual Report
must also include, at a minimum, a description of: (1) the SBS Entity’s assessment of the effectiveness
of its policies and procedures relating to its business as an SBS Entity; (2) any material changes to the
policies and procedures since the date of the preceding CCO Annual Report; (3) any areas for
improvement and recommended potential or prospective changes or improvements to its compliance
program and resources devoted to compliance; (4) any material non-compliance matters identified; and
11

(5) the financial, managerial, operational, and staffing resources set aside for compliance with the
Exchange Act and the rules and regulations thereunder relating to its business as an SBS Entity,
including any material deficiencies in such resources. The CCO Annual Report must be submitted to
the board of directors and audit committee (or equivalent bodies) and the senior officer of the SBS
Entity prior to submission to the Commission. The CCO Annual Report also must be discussed in one
or more meetings (addressing the obligations of this rule) that were conducted by the senior officer with
the CCO in the preceding 12 months, and must include a certification by the CCO or senior officer that,
to the best of his or her knowledge and reasonable belief and under penalty of law, the information
contained in the CCO Annual Report is accurate and complete in all material respects.
The rule allows an SBS Entity to incorporate by reference sections of a compliance report that
has been submitted with the current or immediately preceding reporting period to the Commission, and
allows an SBS Entity to request from the Commission an extension of time to submit its CCO Annual
Report, provided that the SBS Entity’s failure to timely submit the report could not be eliminated by the
SBS Entity without unreasonable effort or expense. Extensions of the deadline will be granted at the
discretion of the Commission. The rule also requires an SBS Entity to promptly submit an amended
CCO Annual Report if material errors or omissions in the report are identified.
Under Rule 15Fk-1(d), the compensation and removal of the CCO require the approval of a
majority of the board of directors of the SBS Entity.
The information collected under Rule 15Fk-1 should assist the CCO in overseeing and
administering the SBS Entity’s compliance with relevant provisions of the Exchange Act related to its
business as an SBS Entity. The Commission staff will also use this collection of information in its
examination and oversight program.
3.

Consideration Given to Information Technology

The rules do not currently prescribe particular forms or methods of compliance for SBS Entities.
4.

Duplication

Because security-based swaps were largely unregulated prior to these rules, the information was
not generally otherwise filed with the Commission. The Commission staff understand that
approximately 46 of these 53 SBS Entities are dually registered with the CFTC as Swap Entities. As the
rules are largely similar to those adopted by the CFTC, dually registered entities will already have
procedures and systems in place to collect the information. However, the information provided to the
CFTC will address swaps while the information provided to the Commission will address security-based
swaps. With respect to mixed swaps, duplicative information may be provided to both the CFTC and the
Commission, depending on the facts and circumstances.
5.

Effect on Small Entities

The SBS market, while broad in scope, is largely dominated by large entities and their large
institutional customers. Under current law, all SBS market participants are required to be ECPs. The
basic thresholds under the definition of ECP are currently $10 million in total assets for natural persons
12

and $25 million in total assets for corporations and other legal entities. At present, there are no SBS
Entities that qualify as small entities. Thus, the collection of information will have no impact on them.
6.

Consequences of Not Conducting Collection

The information is collected as each transaction warrants, and on an annual basis with respect to
the CCO Annual Reports, and there is no way to reduce the frequency of collection without undermining
the statutory provisions or their intended purposes.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. This information collection is consistent with the guidelines
in 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting comments on this
collection of information was published. No public comments were received.
9.

Payment of Gift

Not applicable.
10.

Confidentiality

The Commission continues to believe the information collected pursuant to Rules 15Fh-3 to
15Fh-6 and 15Fk-1 will not be publicly available. To the extent that the Commission receives
confidential information pursuant to this collection of information, such information will be kept
confidential, subject to the provisions of the Freedom of Information Act (“FOIA”).
11.

Sensitive Questions

The Information Collection does not collect information about individuals, therefore, a PIA,
SORN, and PAS are not required.
12.

Information Collection Burden

The Commission understands, based on data obtained from the CFTC and DTCC that 53 entities
have registered under the definition of SBS Dealer, and that 0 entities have registered under the
definition of Major SBS Participant. 4 Further, as stated above, the Commission staff understand that
4

List of Registered Security-Based Swap Dealers and Major Security-Based Swap Participants, available at:
https://www.sec.gov/about/divisions-offices/division-trading-markets/list-registered-security-based-swap-dealersmajor-security-based-swap-participants (providing the list of registered security-based swap dealers and major
security-based swap participants that was updated as of December 31, 2024). Information concerning Swap Entities
registered with the CFTC available at:
(https://www.cftc.gov/IndustryOversight/Intermediaries/MajorSwapParticipantMSP/index.htm).

13

approximately 46 of these 53 SBS Entities are dually registered with the CFTC as Swap Entities. The
Commission staff also estimate that there are approximately 16,061 security-based swap market
participants of which 12,406 are also swap market participants. The Commission staff estimate that
there are approximately 14,005 unique SBS Dealer and non-SBS-Dealer pairs. 5 Accordingly, the
Commission staff have used these estimates for the calculation of hour and cost burdens for the rule
provisions that the Commission staff continue to believe have a “collection of information” burden
within the meaning of the PRA of 1995.
The Commission staff estimate that the aggregate hour burden of the ongoing reporting and
disclosures required by the BCS Rules Adopting Release, as described above, is approximately 535,595
hours calculated as follows:
The Commission staff estimate that:
•

15Fh-3(a) – Verification of Status
Approximately 53 SBS Entities (of which the Commission staff understand that approximately
46 are dually registered with the CFTC as Swap Entities) will continue to be required to verify
whether a counterparty is an ECP or, is a special entity, as required by Rule 15Fh-3(a). These
verification requirements are generally the same under the business conduct standards adopted
by the CFTC. Rule 15Fh-3(a)(3) requires an SBS Entity to verify whether a counterparty is
eligible to elect not to be a special entity and if so, to notify the counterparty if its right to opt out
of special entity status. Rule 15Fh-2(d)(4) includes employee benefit plans that are defined in
Section 3 of ERISA, not otherwise defined as a special entity, within the special entity definition,
unless such employee benefit plan elects to opt out of special entity status. In contrast, the
corollary CFTC rule allows employee benefit plans defined in Section 3 of ERISA to opt in to
special entity status and requires SBS Entities to notify counterparties eligible to opt in of their
ability to do so. The Commission holds SBS Entities to a reasonable person standard with respect
to reliance on counterparty representations and required due diligence. As discussed in the BCS
Rules Adopting Release, the rule does not stipulate how SBS Entities must comply and would
permit the parties to follow industry practice whereby they agree in master agreement
documentation 6 to update any material changes or to “bring down” or renew afresh the
counterparty representations previously made for any subsequent action. 7 For such instances, the
Commission staff consider this as part of the overall SBS Entity recordkeeping requirements. 8
SBS Entities – Adherence Letter [0 hours]

5

Unless otherwise noted, estimates were derived from the DTCC-TIW data set (November 30, 2006, through
September 2022). In October 2022, DTCC-TIW transaction data went through a major structural change.
Commission staff are still in the process of resolving the consistency issue associated with this data.

6

Unless otherwise noted, “master agreement documentation” refers to current ISDA Master Agreement
Documentation.

7

BCS Rules Adopting Release at 81 FR 29979-80.

8

SBS Dealers are required to retain records and information relating to Rules 15Fh-1 through 15Fh-6 and 15Fk-1 for
the required retention periods specified in Exchange Act Rule 17a-4. See BCS Adopting Release at 81 FR 3009798.

14

The Commission staff estimate that approximately 53 SBS Entities (of which the Commission
staff understand that approximately 46 are dually registered with the CFTC as Swap Entities)
will continue to be required to verify whether a counterparty is an ECP or special entity, as
required by Rule 15Fh-3(a). As noted above, Rule 15Fh-3(a)(3) differs from the CFTC’s rule,
which instead includes an opt-in for plans “defined in” ERISA, but not subject to Title I of
ERISA. The Commission staff understand that the industry has developed protocols and
questionnaires that allow the counterparty to indicate its status, whether or not it is a special
entity and whether it elects to be treated as a special entity. As a result of these protocols and
questionnaires, the Commission staff continue to believe that these dually registered SBS
Entities will not incur any start-up or ongoing burdens in complying with Rules 15Fh-3(a)(1) and
(2) because they already adhere to the relevant protocols to obtain the information under the
CFTC’s business conduct standards. The Commission staff estimate the remaining 7 SBS
Entities will have already incurred start-up costs to adhere to the relevant protocols, including
submitting an adherence letter to ISDA, and the Commission staff continue to anticipate will not
have any ongoing burdens as well. The Commission staff does not estimate any new registrants
incurring one-time, initial burdens of one hour needed to input the data required to generate the
adherence letter. 9
SBS Market Participants – Adherence Letter [0 hours]
The Commission staff believe that approximately 12,406 of the 16,061 security-based swap
market participants (which include SBS Entities and counterparties) are also swap market
participants and likely already adhered to the relevant protocols. These 12,406 market
participants would not have any start-up burdens or ongoing burdens with respect to verification.
The remaining 3,655 market participants (less the 7 SBS Entities) would have previously
incurred one time start up burdens to comply with the relevant protocols, including submitting an
adherence letter to ISDA, and the Commission staff continue to anticipate would not have any
ongoing burdens with respect to this rule. The Commission staff does not estimate new securitybased swap market participants that will have to incur one-time, initial burdens of one hour to
input the data required to generate the adherence letter. 10
SBS Entities – Notice [0 hours]
The 53 SBS Entities would have previously incurred one-time, initial burdens in connection with
preparing the required notice under Rule 15Fh-3(a)(3) for counterparties defined in Rule 15Fh2(d)(4), and the Commission staff continue to anticipate would not have any ongoing burdens
with respect to this rule. The Commission staff does not estimate new SBS Entities that would
incur one-time, initial burdens in connection with preparing this required notice for
counterparties.
Counterparties – Representations [0 hours]
As discussed above, the BCS Rules Adopting Release states SBS Entities and counterparties may
follow industry practice and agree in master agreement documentation as to the required
9

See BCS Rules Adopting Release 81 FR at 30091.

10

Id.

15

representations, how to inform of material changes to representations and/or refresh such
representations by “bringing down” or renewing the representations for subsequent actions.
Once the initial diligence is conducted and counterparty representations are made, the
Commission staff consider this part of the overall SBS Entity recordkeeping requirements. As
stated above, the Commission staff believe that approximately 12,406 of the 16,061 securitybased swap market participants (which include SBS Entities and counterparties) were also swap
market participants and likely already adhered to the relevant protocol. These 12,406 market
participants would not have any start-up burdens or ongoing burdens with respect to verification.
The remaining 3,655 market participants (less the 7 SBS Entities) would have previously
incurred one time start up burdens to comply with the protocols and representations, and the
Commission staff continue to anticipate would not have any ongoing burdens with respect to this
rule. As such, the Commission staff does not estimate new security-based swap market
participants that would incur one-time, initial burdens to comply with the protocols and
representations for counterparties.
•

15Fh-3(b), (c), and (d) – Disclosure by SBS Entities:
Pursuant to Rules 15Fh-3(b), (c), and (d), SBS Entities are required to provide certain disclosures
to market participants. Based on our experience with burden estimates for similar disclosure
requirements, 11 as well as our discussions with market participants, the Commission staff
understand that the SBS Entities that are dually registered with the CFTC already provide their
counterparties with disclosures similar to those that are required under Rules 15Fh-3(b) and (c).
To the extent that the material characteristics required by Rule 15Fh-3(b)(1) are included in the
documentation of a security-based swap, such as the master agreement, credit support annex,
trade confirmation or other documents, the Commission staff do not believe that any additional
burden will be required for the disclosure of material characteristics. For other required
disclosures relating to material risks required by Rule 15Fh-3(b)(1) or disclosures relating to
material incentives or conflicts of interest required by Rule 15Fh-3(b)(2), the Commission staff
understand that certain market participants already have developed standardized disclosures for
some of these requirements. 12 For example, many SBS Dealers already provide a statement of
potential risks related to investing in certain security-based swaps to their counterparties.
However, to the extent that an SBS Entity and counterparty engage in a highly bespoke
transaction, the standardized disclosure may not satisfy all of the SBS Entities disclosure
requirements. In those cases, the SBS Entity will likely use a combination of standardized
disclosures and de novo disclosures to fulfill its obligations under Rules 15Fh-3(b)(1) and (2).

11

For disclosures similar to the disclosure of methodologies and assumptions of daily mark, see Disclosure of
Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of
Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other
Financial Instruments and Derivative Commodity Instruments, Securities Act Release No. 7386 (Jan. 31, 1997), 62
FR 6044 (Feb. 10, 1997).

12

See e.g., ISDA General Disclosure Statement for Transactions (November 2023). To the extent that disclosures of
material risks and characteristics under Rule 15Fh-3(b)(1) or disclosures of material incentives and conflicts of
interest under Rule 15Fh-3(b)(2) are initially provided orally, the additional burden of providing a written version of
the disclosure at or before delivery of the trade confirmation pursuant to Rule 15Fh-3(b)(3) will be considered in
connection with the overall reporting and recordkeeping burdens of the SBS Entity.

16

In some cases, such as disclosures about the daily mark for a cleared security-based swap, the
SBS Entity is obligated to provide the daily mark upon request. The Commission staff
understand that in the current model of clearing security-based swaps, the security-based swap
between the SBS Entity and counterparty is terminated upon novation by the clearing agency.
The SBS Entity would no longer have any obligation to provide a daily mark to the original
counterparty because a security-based swap no longer exists between them. Therefore, there
would not be any ongoing burden on the SBS Entity. Depending on how quickly the securitybased swap is cleared, there may not be an initial burden on the SBS Entity either. Unlike the
CFTC’s rule, Rule 15Fh-3(c)(1) does not require a pre-trade daily mark. Therefore, if the
security-based swap is cleared before the end of the next day and the clearing results in novation
of the original swap, the SBS Entity would not have any daily mark obligations for the cleared
swap.
For uncleared security-based swaps, the Commission staff continue to believe that SBS Entities
may need to slightly modify the models used for calculating variation margin to calculate the
daily mark. In addition, the SBS Entity will need to provide the counterparty with a description
of the methodologies and assumptions used to calculate the daily mark.
Nevertheless, existing accounting standards and other disclosure requirements under the
Exchange Act, such as FASB Accounting Standards Codification Topic 820, Fair Value
Measurements and Disclosures, or Item 305 of Regulation S-K, require disclosures similar to the
description of the methodologies and assumptions of the daily mark. To the extent that the
model it uses and methodologies and assumptions are not already prepared, the SBS Entity may
need to prepare the initial description of the data sources, methodologies and assumptions. In
addition, the SBS Entity will have an ongoing burden of updating the disclosure for any material
changes to the data sources, methodologies and assumptions.
The Commission staff continue to believe that SBS Entities will use internal staff to revise
existing disclosures to comply with Rules 15Fh-3(b) and (c), and to prepare language which Rule
15Fh-3(d) requires SBS Entities to disclose regarding the clearing options available for a
particular security-based swap. In addition, the requirements of Rule 15Fh-3(d) are not the same
as the CFTC requirements to disclose clearing options, so SBS Entities will need to develop new
disclosures.
The Commission staff estimate that from October 2021 through September 2022 there were
approximately 377,271 security-based swap transactions between an SBS Dealer and a
counterparty that was not an SBS Dealer. Of these, the Commission staff estimate that
approximately 234,654 were new and 5,559 were amended trades (totaling 240,213) that would
require these disclosures. 13 The Commission staff recognize that the time required to develop an
infrastructure to provide these disclosures will vary significantly depending on, among other
factors, the complexity and nature of the SBS Entity’s security-based swap business, its market
13

Available DTCC-TIW data from October 2021 through September 2022 indicated approximately 377,271
transactions between SBS Entities and non-SBS Entities during that time period. Of these, approximately 234,654
were new trades, and 5,559 were amendments. Of the approximately 234,654 new trades between likely SBS
Dealers and non-dealers, 169,723 trades or approximately 72% were voluntarily cleared bilateral trades during the
time period for the dataset.

17

risk management activities, its existing disclosure practices, whether the security-based swap is
cleared or uncleared and other applicable regulatory requirements. Under the rule, as adopted,
SBS Entities could make the required disclosures to their counterparties through standardized
documentation, such as a master agreement or other written agreement, if the parties so agree.
The Commission staff recognize that it will likely be necessary to prepare some disclosures that
are particular to a transaction to meet all of an SBS Entity’s disclosure obligations under Rules
15Fh-3(b), (c) and (d). The Commission staff also continue to believe that, because the reporting
burden will generally require refining or revising an SBS Entity’s existing disclosure processes,
the disclosures will be prepared internally.
Disclosure – SBS Entities [218,360 hours]
At adoption, the Commission staff conservatively estimated the initial one-time only burden of
SBS Entities for initial analysis and development of specifications, on average, would require
three persons from trading and structuring, three persons from legal, two persons from
operations, and four persons from compliance, for a total of 12 persons spending 100 hours each,
to comply with the rules. 14 These initial burdens (a total of 66,000 hours annualized at 22,000
hours per year over three years) have already been incurred. Following the initial analysis and
development of specifications, the Commission staff continue to estimate that half of these
persons, approximately 6, will still be required to spend approximately 20 hours per year (120
hours annually per SBS Entity), to re-evaluate and modify the disclosures and system
requirements as necessary, amounting to an ongoing aggregate annual total reporting burden of
6,360 hours per year. 15
The Commission staff also previously estimated that SBS Entities would incur initial, one-time
only burdens totaling 440,000 hours (annualized at 146,666.67 over three years) for the creation
of necessary information technology infrastructure. These initial burdens have already been
incurred. The Commission staff continue to estimate that once an information technology
infrastructure is created, maintenance of this system will require each SBS Entity to use two fulltime persons per year for a total ongoing reporting burden of 212,000 hours annually. 16 The total
combined annual ongoing reporting burden is thus 218,360 hours (6,360 hours + 212,000 hours).
The annual burden per respondent is 4,120 hours (218,360 ÷ 53).
Disclosure - Security-Based Swap Transactions between an SBS Dealer and a NonSBS Dealer Counterparty [234,654 hours]

14

In the BCS Rules Adopting Release, the Commission used this estimate and it recognizes the development of market
practice to comply with very similar CFTC rules. It also recognizes that given the current model used for clearing
security-based swaps, daily mark disclosures in that context are unlikely to be required. Furthermore, no comments
were received on these estimates. As a result, the Commission staff conservatively continue to use these estimates.
The Commission staff note that some SBS Entities may choose to utilize in-house counsel to review, revise and
prepare these disclosures.

15

The annual estimate is based on the following calculation: (53 SBS Entities) x (6 persons) x (20 hours) = 6,360
hours.

16

The estimate is based on the following calculation: (53 SBS Entities) x (2 persons) x (2,000 hours per year) =
212,000 hours.

18

In addition, the Commission staff estimate that, on average, the SBS Entities will require one
burden hour per security-based swap to evaluate whether more particularized disclosures are
necessary for the transaction and to develop the additional disclosures for the contemplated
transaction. As stated above, the Commission staff estimate that from October 2021 through
September 2022 there were approximately 377,271 security-based swap transactions between an
SBS Dealer and a counterparty that was not an SBS Dealer. Of these, the Commission staff
estimate that approximately 234,654 were new or amended trades requiring these disclosures.
This amounts to an ongoing reporting burden of 234,654 hours or 4,427.4 hours per
respondent. 17
•

15Fh-3(e) and (f) – Know Your Counterparty and Recommendations:
The estimates in this paragraph reflect our experience with and burden estimates for similar
collections of information, as well as data from DTCC-TIW 18 and the SEC’s publicly available
information. 19
SBS Dealers [7,003 hours]
The Commission staff continue to believe that most SBS Dealers already have policies and
procedures in place for knowing their counterparties that comply with existing CFTC and
FINRA standards (if they are also registered broker-dealers), and that they have already incurred
any initial one-time burdens associated with reviewing and revising the policies and procedures
to comply with the “know your counterparty” obligations under this rule. Going forward, the
Commission staff continue to estimate that an SBS Dealer will spend an average of
approximately 30 minutes each year per unique non-SBS Dealer counterparty 20 to assess whether
the SBS Dealer is in compliance with the rules’ “suitability” requirements under Rule 15Fh3(f)(1) – a total ongoing reporting burden of approximately 7,003 hours annually, 21 or an average
of approximately 132.1 hours annually per SBS Dealer. 22

17

The estimate is based on the following calculation: (234,654 security-based swaps that require these disclosures) x
(1 hour) = 234,654 hours. 234,654 hours ÷ 53 SBS Entities = 4,427.4 hours per SBS Entity. The Commission staff
realize that some assessments may take less time, and some may take more. In addition, to the extent that additional
disclosures are required, drafting the disclosure is likely to take more than an hour, but the Commission staff
continue to expect the vast majority of transactions will not require additional disclosures so that an average of one
hour per transaction is a reasonable estimate.

18

See supra note 5.

19

See supra note 4.

20

Based on DTCC-TIW data from October 2021 through September 2021, there were approximately 14,005 unique
transacting SBS Dealer - non-SBS Dealer pairs.

21

The estimate is based on the following calculation: (14,005 unique transacting SBS Dealer - non-SBS Dealer pairs)
x (30 minutes) ÷ (60 minutes) = 7,002.5 hours rounded up to 7,003 hours.

22

The estimate is based on the following calculation: (7,003 hours) ÷ (53 SBS Dealers) = 132.1 hours per SBS Dealer.
To the extent that the SBS Dealer is unfamiliar with the counterparty, the Commission staff would expect a greater
time burden and as an SBS Dealer becomes more familiar with the particular counterparty, The Commission staff
would expect a lesser time burden. As a result, the Commission staff use 30 minutes as an average estimate.

19

Counterparties [0 hours]
Counterparties have already previously incurred initial one-time burdens associated with the
counterparty or its agent collecting and providing essential facts to SBS Dealers. Once
counterparties provide SBS Dealers with essential facts, we do not anticipate there are any
ongoing burdens.
Special Entities [0 hours]
The Commission staff continue to expect that, given the institutional nature of the participants
involved in security-based swaps, most SBS Dealers will obtain the representations in Rule
15Fh-3(f)(2) or Rule 15Fh-3(f)(3)(ii) to comply with Rule 15Fh-3(f). 23 For the estimated 1,542
special entities, the Commission staff continue to believe they will choose compliance with the
safe harbor Rule 15Fh-5(b) and accordingly, the burden estimates for the SBS Entities and
special entities are included in the context of the discussion for that rule, infra.
Dual Market Participants [0 hours]
For the 12,406 security-based swap market participants that are also swap market participants,
including the 46 firms that are dually registered as Swap Entities and SBS Entities, the requisite
representations have already been prepared in the swaps context. 24 The Commission staff
understand that swap market participants are currently utilizing standardized representations that
are currently in Schedule 3 of the current/applicable ISDA protocols. Any initial one-time
burdens associated with adapting these standard representations to the security-based swap
context have already been previously incurred by respondents. After respondents have made the
necessary initial modifications to adapt these standard representations to the security-based swap
context, the Commission staff do not anticipate any ongoing burden with respect to the requisite
representations because the representations in the swaps context are deemed repeated “as of the
occurrence of each Swap Communication Event” and the Commission staff would continue to
anticipate a similar construction in the security-based swap context.
SBS only Market Participants [0 hours]
The remaining 3,655 market participants not dually registered have already incurred an initial
one-time burden to draft the requisite representations to comply with the institutional suitability
analysis in Rule 15Fh-3(f)(2). The Commission staff believe that these 3,655 market participants
are likely to have modelled their representations on the representations included in the
current/applicable ISDA protocols because the SBS Entity is already familiar with those
particular representations. Given that there are various industry practices in master
documentation for renewing representations or addressing material changes to representations
23

The Commission staff base the expectation on observation and experience in the context of transactions by brokerdealers with institutional clients and the use of FINRA’s institutional suitability exception in that context.

24

Of the 12,406 market participants that engage in both swaps and security-based swaps, a proportion of them will
also be special entities. This calculation assumes all of the special entities are engaged in transactions in both
markets, leaving 10,775 market participants (12,406 market participants – 1,631 special entities) to adapt the
representations in the current/applicable ISDA protocols to the security-based swap context, as necessary.

20

made for future actions, as discussed above, the Commission staff do not believe that there will
be an ongoing burden pertaining to these representations.
•

15Fh-3(g) – Fair and Balanced Communications [106 hours]
Rule 15Fh-3(g) requires SBS Entities to communicate with counterparties “in a fair and balanced
manner, based on principles of fair dealing and good faith.” The three specific standards of Rule
15Fh-3(g) require that: (1) communications must provide a sound basis for evaluating the facts
with respect to any security-based swap or trading strategy involving a security-based swap; (2)
communications may not imply that past performance will recur, or make any exaggerated or
unwarranted claim, opinion, or forecast; and (3) any statement referring to the potential
opportunities or advantages presented by a security-based swap or trading strategy involving a
security-based swap must be balanced by an equally detailed statement of the corresponding
risks. 25 Rule 15Fh-3(g) applies to communications made before the parties enter into a securitybased swap, and continues to apply over the term of a security-based swap. The Commission
staff continue to expect that a discussion of material risks of the transaction will be included in
the documentation for the security-based swap.
The Commission staff believe that all 53 SBS Entities are required to comply with Rule 15Fh3(g), and that they have already incurred a one-time initial burden associated with sending their
existing marketing materials to outside counsel for review and comment (see discussion of
outside counsel costs in Item 13 below). After initial changes to marketing materials have been
made to comply with Rule 15Fh-3(g), the Commission staff continue to believe that the ongoing
hour burden associated with the rule will likely be limited to two hours pertaining to the review
of SBS Entities’ email communications and Bloomberg messages sent to counterparties, which
the Commission staff continue to believe will likely be done by in-house counsel or an SBS
Entity’s CCO. The Commission staff estimate that the ongoing hour burden of the rule will be
approximately two hours per year per SBS Entity, for an aggregate total of 106 hours per year
(53 SBS Entities x 2 burden hours).

•

15Fh-3(h) – Supervision [28,620 hours]
As outlined above, Rule 15Fh-3(h) requires an SBS Entity to establish and maintain a system to
supervise, and to diligently supervise, its business and the activities of its associated persons.
Such a system must be reasonably designed to prevent violations of the provisions of applicable
federal securities laws and the rules and regulations thereunder relating to its business as an SBS
Entity. The written policies and procedures required by Rule 15Fh-3(h) must include, at a
minimum, procedures for nine specific areas of supervision.
The Commission staff expect that 53 SBS Entities (of which approximately 46 are dually
registered with the CFTC as Swap Entities) will continue to be required to comply with
analogous supervision rules like those required by Rule 15Fh-3(h). The supervision requirements

25

The Commission staff estimate 3 registered broker-dealers that are FINRA members are also registered as SBS
Entities.

21

in Rule 15Fh-3(h) are largely the same under the business conduct standards and related rules
adopted by the CFTC. 26
The estimates in this paragraph reflect the foregoing information, as well as our general
experience with and understanding of the burden estimates in similar contexts, including, but not
limited to, FINRA’s analogous broker-dealer supervision rules. All 53 SBS Entities have already
incurred initial one-time burdens to initially prepare policies and procedures. The Commission
staff continue to expect that many SBS Entities will rely primarily on outside counsel for the
ongoing collection of information required under this rule and to review each policy and
procedure on an ongoing basis as discussed above. The Commission staff continue to estimate
that, on average, each SBS Entity will spend approximately 540 hours (approximately 60 hours
per policy and procedure) each year to maintain these policies and procedures, yielding a total
ongoing annual burden of approximately 28,620 burden hours annually. 27 The Commission staff
continue to believe that the maintenance of these policies and procedures will be conducted
internally.
•

15Fh-4 and 15Fh-2(a) – SBS Dealers Acting as Advisors to Special Entities
As discussed above, Rule 15Fh-4 imposes on SBS Dealers that act as advisors to special entities
a duty to make a reasonable determination that any security-based swap or related trading
strategy that the SBS Dealer recommends is in the “best interests” of the special entity. Rule
15Fh-2(a) states that an SBS Dealer “acts as an advisor” to a special entity when it recommends
a security-based swap or related trading strategy to the special entity. However, the rule
provides a safe harbor whereby an SBS Entity will not be deemed an “advisor” if an ERISA
special entity counterparty relies on advice from an ERISA fiduciary, or where any special entity
counterparty relies on advice from a qualified independent representative that acts in its best
interests. 28
Among swap dealers operating under the CFTC’s parallel safe harbor, 29 parties have generally
included representations in standard swap documentation that both counterparties are acting as
principals, and that the counterparty is not relying on any communication from the swap dealer
as investment advice. The Commission staff continue to believe that SBS Dealers and their
special entity counterparties will similarly include the requisite representations in standard
security-based swap documentation. These representations will need to be reviewed and revised
to ensure that they comply with the business conduct standards.
SBS Dealers Acting as Advisors to Special Entities [0 hours]

26

See CFTC Rule 23.602. See also CFTC Rule 23.402(a) (policies and procedures to ensure compliance); CFTC Rule
3.3(d)(1) (administration of compliance policies and procedures). Accordingly, the SBS Entities that would also be
registered as a swap dealer or major swap participant with the CFTC would have supervision policies and
procedures for engaging in swaps.

27

The estimate is based on the following calculation: (60 hours) x (9 policies and procedures) x (53 SBS Entities) =
28,620 hours annually.

28

Rule 15Fh-2(a)(1)-(2).

29

See CFTC Regulation § 23.440(b)(1)-(2).

22

The Commission staff continue to believe that the 53 SBS Dealers will primarily rely on inhouse counsel for compliance with these rules. The 53 SBS Dealers have already previously
incurred an initial one-time burden associated with reviewing and revising the representations in
their standard security-based swap documentation to comply with Rule 15Fh-2(a)(1)-(2). The
Commission staff continue to believe that once an SBS Dealer initially has revised the language
of the representations to meet the requirements of Rule 15Fh-2(a)(1)-(2), such language will
become part of the SBS Dealer’s standard security-based swap documentation and, accordingly,
there will be no further ongoing burden associated with this rule. The Commission staff does not
estimate any new registrants incurring one-time, initial burdens of five hours to review and
revise the representations in its standard security-based swap documentation to comply with Rule
15Fh-2(a)(1)-(2). 30
SBS Dealers Acting as Advisors to Special Entities (Unique Pairs)
[0 hours]
For transactions in which an SBS Dealer is not a counterparty and chooses to act as an advisor,
the SBS Dealer will have already previously incurred an initial one time burden associated with
collecting the information from each special entity required under the rule. 31 The Commission
staff continue to believe that once an SBS Dealer has initially collected the requisite information
from each special entity, there is no ongoing reporting burden associated with these rules. As
such, the Commission staff does not estimate new SBS Entities that would incur one-time, initial
burdens to collect the requisite information from each special entity.
•

15Fh-5 – SBS Entities Acting as Counterparties to Special Entities
Where a special entity is a counterparty to a security-based swap, Rule 15Fh-5(a)(1) requires an
SBS Entity to have a reasonable basis for believing that the special entity has a qualified
independent representative that meets specified requirements. Where the special entity
counterparty is an ERISA plan, under Rule 15Fh-5(a)(2), the SBS Entity must have a reasonable
basis to believe that the ERISA plan is represented by an ERISA fiduciary. The Commission
staff continue to believe that written representations will likely provide the basis for establishing
an SBS Entity’s reasonable belief regarding the qualifications of the independent representative.
Rule 15Fh-5(b) grants a safe harbor to the SBS Entities if they obtain certain representations and
information from the special entity. Furthermore, Rule 15Fh-5(c) requires the SBS Dealer to
make certain disclosures about the capacity in which they are acting with respect to the securitybased swap.
As stated in the BCS Rules Adopting Release, the Commission staff continue to believe that the
burden for determining whether an independent representative is independent of the SBS Entity
will depend on the size of the independent representative, the size of the SBS Entity, and the
volume of transactions with which each is engaged. The Commission staff further continue to
believe that each SBS Entity would initially require written representations regarding the

30

See BCS Rules Adopting Release 81 FR at 30094.

31

The Commission staff have estimated approximately 63 unique pairs of SBS Dealers and US special entities without
a third-party advisor based on market data provided by DTCC and list of registered SBS Entities, supra n. 5.

23

qualifications of a special entity’s independent representative but would only require updates to
the independent representative’s qualifications in subsequent dealings with the same independent
representative throughout the duration of the swap term, provided the volume and nature of the
security-based swap transaction remain the same. The remaining representations and
disclosures are easily incorporated into standardized documentation.
SBS Entities Acting as Counterparties to Special Entities (Reporting) [16,165
hours]
Regarding the burden estimates for SBS Entities, our estimates reflect that each SBS Entity will
interact with, and continue to be required to, form a reasonable basis regarding the qualifications
of approximately 283 independent, third-party representatives and 22 in-house independent
representatives, for a total of 305 independent representatives. 32 Each of the SBS Entities has
already previously incurred a one-time initial burden associated with forming a reasonable basis
concerning and obtaining written representations regarding the qualifications of each special
entity’s independent representative.
With regard to SBS Entities’ ongoing burden, the Commission staff continue to believe that such
burden would be minimal (1 hour for each SBS Entity per independent representative), since,
once an SBS Entity forms a reasonable basis to believe that a given independent representative
meets the qualifications of Rule 15Fh-5, the SBS Entity would not likely need to reaffirm that
independent representative’s qualifications anew, but could instead rely on past representations
regarding the representative’s qualifications. Also, as discussed above, the Commission staff
consider this part of the SBS Entity’s overall recordkeeping requirement. The Commission staff
continue to estimate that SBS Entities will incur an ongoing, aggregate reporting burden of
16,165 hours per year as a result of this rule. 33
SBS Entities Acting as Counterparties to Special Entities (Third-Party
Disclosure) [16,165 hours]
In addition to the burdens imposed on SBS Entities, Rule 15Fh-5(a)(1) also imposes an ongoing
burden on special entities’ independent representatives to collect the necessary information
regarding their relevant qualifications and provide that information to the SBS Entity and/or the
special entity. The Commission staff continue to believe that the reporting burden for the
independent representative will consist of providing written representations to the SBS Entity
and/or the special entity it represents. The Commission staff continue to believe that the burden
associated with an independent representative’s obligation to assess its independence from the
SBS Entity will likely depend on the size of the independent representative, the size of the SBS
Entity, the interactions between the independent representative and the SBS Entity, the policies
and procedures of the independent representative and depend less on the number of transactions
in which the independent representative is engaged. The policies and procedures of the
independent representative will facilitate its ability to quickly assess, disclose, manage and
32

See Information About Registered Municipal Advisors as of January 1, 2025 (https://www.sec.gov/dataresearch/sec-markets-data/information-about-registered-municipal-advisors).

33

The estimate is based on the following calculation: (1 hour) x (305 independent representatives) = 305 hours per
SBS Entity. (53 SBS Entities x 305 hours) = 16,165 hours.

24

mitigate any potential material conflicts of interest. The Commission staff continue to believe
the number of transactions in which the independent representative engages is less likely to
impact this assessment.
The Commission staff continue to believe that independent representatives will rely on in-house
counsel to collect and submit the relevant documentation and information regarding its
qualifications. Each independent representative has already previously incurred a one-time
initial burden associated with collecting and submitting the relevant documentation and
information regarding its qualifications.
As with SBS Entities’ ongoing burden associated with this rule, the Commission staff continue
to believe that the ongoing burden imposed on independent representatives would be minimal (1
hour annually for each SBS Entity per independent representative), since, once the independent
representative has provided information regarding its qualifications to the SBS Entity, the
independent representative will not likely need to collect or provide that information again, but
as discussed above, could instead rely on a bring down of representations as is industry practice
that reflects past representations regarding its qualifications. The Commission staff estimate that
independent representatives will incur an ongoing, aggregate burden of 16,165 hours per year as
a result of this rule. 34
•

15Fh-6 – Political Contributions [53 hours]
As noted above, the Commission staff continue to believe that the 53 SBS Dealers subject to
these rules will provide, or will seek to provide, security-based swap services to municipal
entities. SBS Dealers, in order to supervise and assess internal compliance with Rule 15Fh-6,
will continue to need to collect information regarding the political contributions of SBS Dealers
and their covered associates. In addition, SBS Dealers’ covered associates will also need to
continue to need to collect and provide the information required by Rule 15Fh-6 to SBS Dealers.
Our estimates in this paragraph take into account the burden of the covered associates and the
SBS Dealers. These estimates also reflect our experience with and burden estimates for similar
requirements, as well as our discussions with market participants. The Commission staff
continue to believe that all SBS Dealers will primarily rely on in-house counsel for the collection
of information required under this rule and that all SBS Dealers and covered associates will
already have incurred one-time initial burdens to comply with the rule. Thereafter, the
Commission staff estimate the rule would require one burden hour per SBS Dealer per year on an
ongoing basis for an aggregate burden of 53 hours per year.

34

The estimate is based on the following calculation: (1 hour) x (305 independent representatives) = 305 hours per
SBS Entity. (53 SBS Entities) x (305 hours) = 16,165 hours. The Commission staff note that, in the BCS Rules
Adopting Release, the Commission based its burden estimates for evaluating an independent representative’s
qualifications on the underlying assumption that representations regarding an independent representative’s
qualifications must be provided prior to every transaction, and therefore the associated burden calculations were
transaction-specific. See BCS Rules Adopting Release, 81 FR at 30095. However, based on the observed practices
of security-based swap market participants, the Commission staff now believe that representations regarding an
independent representative’s qualifications need only be provided in the context of each relationship with an SBS
Entity. Our revised calculations, which are now relationship-specific, reflect this shift in our underlying assumption.

25

•

15Fk-1 – Chief Compliance Officer [14,469 hours]
Under Rule 15Fk-1, an SBS Entity’s CCO is responsible for, among other things, taking
reasonable steps to ensure that the SBS Entity establishes and maintains policies and procedures
reasonably designed to ensure compliance by the SBS Entity with the Exchange Act and the
rules and regulations thereunder relating to its business as an SBS Entity. Each SBS Entity has
already previously incurred a one-time initial burden associated with establishing the policies
and procedures. The Commission staff continue to estimate that, on average, ongoing
administration of the policies and procedures required under Rule 15Fk-1 (e.g., the SBS Entity’s
annual assessment of its written policies and procedures reasonably designed to achieve
compliance with Section 15F and the rules and regulations thereunder) will require 180 hours to
administer per year per respondent, for a total average reporting burden of 9,540 hours per
year, 35 on an ongoing basis. 36
A CCO is also required to prepare and submit annual CCO Annual Reports to the Commission
and to every member of the SBS Entity’s board of directors. The Commission staff continue to
estimate that these reports will require on average 93 hours per respondent per year, for an
ongoing annual reporting burden of 4,929. 37
The total aggregate CCO related burden is thus 14,469 hours per year (9,540 hours + 4,929
hours) and the annual related burden per SBS Entity is 273 hours.
13.

Costs to Respondents

The Commission staff estimate that the aggregate cost burden of the ongoing reporting and
disclosures required by the BCS Rules Adopting Release, as described above, is approximately
$2,522,0058, 38 calculated as follows:
•

15Fh-3(a) – Verification of Status: As discussed in Item 12, SBS Entities have already
undertaken to comply with the verification of status requirements. In addition, the Commission
staff acknowledge that the parties may utilize industry practice and protocols in the initial master
agreement documentation, to bring down or refresh representations and address material
changes. Thus, once the initial compliance is completed, The Commission staff consider
ongoing events part of the overall SBS Entities’ books and recordkeeping requirements, and the
Commission staff do not anticipate any ongoing cost burdens.
SBS Entities – Adherence Letter [$0]

35

The estimate is based on the following calculation: (53 SBS Entities) x (180 hours) = 9,540 hours.

36

See BCS Rules Adopting Release, 81 FR at 30096.

37

The estimate is based on the following calculation: (93 hours) x (53 SBS Dealers) = 4,929 hours.

38

Hourly attorney cost estimates for internal counsel time are derived from the Securities Industry and Financial
Markets Association’s Management & Professional Earnings in the Securities Industry 2013, modified by
Commission staff to account for an 1,800-hour work-year as well as inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead.

26

As indicated above, any initial one-time costs associated with this rule have already been
previously incurred and the Commission staff do not anticipate any ongoing cost burdens with
respect to this rule.
SBS Market Participants – Adherence Letter [$0]
As noted above, the Commission staff believe that approximately 12,406 of the 16,061 securitybased swap market participants (which include SBS Entities and counterparties) were also swap
market participants and likely already adhered to the relevant protocol and the remaining SBS
market participants will already have come into compliance. Thereafter, for both categories of
market participants, the Commission staff do not anticipate any ongoing cost burdens with
respect to this rule.
SBS Entities – Notice, etc. [$0]
The 53 SBS Entities would have previously incurred one-time initial cost burdens in connection
with preparing the required notice under Rule 15Fh-3(a)(3) for counterparties defined in Rule
15Fh-2(d)(4) and the Commission staff do not anticipate any ongoing cost burdens with respect
to this rule.
Counterparties – Representations [$0]
As discussed in Item 12 above, the BCS Rules Adopting Release states SBS Entities and
counterparties may follow industry practice and agree in master agreement documentation as to
the required representations, how to address material changes and or refresh such representations
by “bring down” or renewing for subsequent actions. Once the initial diligence is conducted and
counterparty representations are made, the Commission staff consider this part of the overall
SBS Entity books and recordkeeping requirements. Therefore, for counterparties, the
Commission staff do not anticipate any ongoing cost burdens with respect to this rule.
•

15Fh-3(g) – Fair and Balanced Communications [$220,374]
The Commission staff believe that all 53 SBS Entities are required to comply with Rule 15Fh3(g) and that they have already incurred an initial one-time cost associated with sending their
existing marketing materials to outside counsel for review and comment. After these initial costs
have been incurred, the Commission staff believe that each SBS Entity will likely incur $1,386
per year in legal costs thereafter ($73,458 per year in the aggregate for all SBS Entities) for
outside counsel to draft or review statements of potential opportunities and corresponding risks
in the marketing materials for single name and narrow based index credit default swaps, total
return swaps and other security-based swaps. 39

39

The Commission staff estimate that the review of marketing materials for these three categories of security-based
swaps would require 1 hour of outside counsel time, at an average cost of $462 per hour. This estimate also assumes
that each SBS Entity engages in all three categories of security-based swaps. The estimate is based on the following
calculation: (1 hour) x ($462 per hour) x (3 categories) = $1,386 per SBS Entity. (53 SBS Entities) x ($1,200) =
$73,458.

27

For more bespoke transactions, however, the cost for outside counsel to review the marketing
materials will depend on the complexity, novelty and nature of the product, but the Commission
staff continue to expect a higher cost associated with the review for more novel products. The
Commission staff accordingly estimate an ongoing, annual cost for the outside review of
marketing materials relating to bespoke single name and narrow based index credit default
swaps, total return swaps and other security-based swaps of $2,772 per SBS Entity ($146,916 per
year in the aggregate for all SBS Entities). 40
Thus, the Commission staff estimate an annual aggregate cost of $220,374 ($146,916 + 73,458)
for all respondents or $4,158 per year in total outside legal costs for each of the 53 SBS Entities.
The Commission staff additionally continue to believe that compliance with Rule 15Fh-3(g)
would require a review of SBS Entities’ other communications to their counterparties, such as
emails and Bloomberg messages. However, as discussed in Section 12 above, the Commission
staff believe that such additional communications would likely be reviewed internally by inhouse legal counsel or an SBS Entity’s CCO.
•

15Fh-3(h) – Supervision [$293,832]
As discussed in Item 12 above, Rule 15Fh-3(h) requires an SBS Entity to establish and maintain
a system to supervise, and to diligently supervise, its business and the activities of its associated
persons. All 53 SBS Entities have already incurred initial one-time costs to prepare policies and
procedures. Once these policies and procedures have been established, the Commission staff
continue to expect that many SBS Entities will primarily rely on outside counsel for the
collection and review of information required under this rule at a rate of $462 per hour, for an
average of 12 hours per respondent per year, resulting in an outside ongoing cost burden of
$5,544 per respondent – or an aggregate ongoing cost of $293,832. 41

•

15Fh-6 – Political Contributions [$1,567,104]
The Commission staff believe that the 53 SBS Dealers subject to these rules provide, or will seek
to provide, security-based swap services to municipal entities. SBS Dealers, in order to
supervise and assess internal compliance with the pay-to-play rules, will need to collect
information regarding the political contributions of SBS Dealers and their covered associates. In
addition, SBS Dealers’ covered associates will also need to collect and provide the information
required by these rules to SBS Dealers. All SBS Dealers and covered associates have already
incurred one-time initial costs to comply with these rules. Once the initial supervision and

40

The Commission staff estimate the review of the marketing materials for each of these categories would require two
hours of outside counsel time at a cost of $462 per hour. This estimate also assumes that each SBS Entity engages
in all three categories of transactions. The estimate is based on the following calculation: 2 hours x $462 per hour x
3 = $2,772 per SBS Entity. (53 SBS Entities) x ($2,772) = $146,916.

41

Some SBS Entities may choose to utilize in-house counsel to prepare these policy and procedure, which would
mitigate the aggregate cost, but the estimate of $293,832 reflects a conservative assumption of SBS Entities
primarily relying on outside counsel to review these materials on an ongoing basis. The estimate is based on the
following calculation: (12 hours) x ($462 per hour) = $5,544 per SBS Entity. (53 SBS Entities) x ($5,544) =
$293,832.

28

information collection process has been established and managed by in-house counsel, the
Commission staff continue to believe there will be no ongoing cost burdens.
The rules also allow SBS Dealers to file applications for exemptive relief, and outline a list of
items to be addressed, including, whether the SBS Dealer has developed policies and procedures
to monitor political contributions; the steps taken after discovery of the contribution; and the
apparent intent in making the contribution based on the facts and circumstances of each case.
The incidence of exemptive relief related to MSRB Rule G-37 and the number of applications
the Commission staff have received under the Advisers Act Rule 206(4)-5 may be indicative of
the possible applications for exemptive relief under these rules. The Commission staff also
continue to believe that a firm that applies for an exemption will hire outside counsel to prepare
an exemptive request and estimate that the number of hours counsel will spend preparing and
submitting an application will be from 16 to 32 hours, at a rate of $462 per hour. Recognizing
that this is an estimate, the Commission staff conservatively estimate that the Commission staff
may receive up to two applications for exemptive relief per year with respect to pay-to-play
rules, 42 at a total ongoing cost of $29,568 per year per SBS Dealer and $1,567,104 per year for
all 53 SBS Dealers, assuming conservatively 32 hours for outside counsel to prepare an
exemptive request. 43 This is an ongoing cost for all SBS Dealers. 44
•

15Fk-1 – Chief Compliance Officer [$440,748]
Under Rule 15Fk-1, an SBS Entity’s CCO is responsible for, among other things, taking
reasonable steps to ensure that the SBS Entity establishes and maintains policies and procedures
reasonably designed to ensure compliance by the SBS Entity with the Exchange Act and the
rules and regulations thereunder relating to its business as an SBS Entity. Each SBS Entity has
already incurred a one-time initial cost burden associated with establishing the policies and
procedures. The Commission staff estimate that an annual total of $8,316 per SBS Entity in
outside legal costs will be incurred to, among other things, assist in the preparation of the CCO
Annual Report and the SBS Entity’s annual assessment of its written policies and procedures, for
an aggregate ongoing outside cost burden of $440,748. 45

42

FINRA has granted 23 exemptive letters related to Rule G-37 between January 2005 and April 2025 (approximately
20 years) http://www.finra.org/industry/exemptive-letters. In addition, the Commission has received 25 formally
filed applications under Adviser’s Act Rule 206(4)-5 since the 2011 compliance date (approximately 14 years).

43

Ongoing: (Outside counsel at $462 per hour) x (32 hours per application) x (2 applications) = $29,568. See Advisers
Act Pay-to-Play Release, 75 FR at 41065 (making similar estimates in connection with Advisers Act Rule 206(4)-5).

44

The estimate is based on the following calculation: (53 SBS Dealers) x ($29,568) = $1,567,104.

45

See id. This figure is the result of an estimated $462 per hour cost for outside legal services times 6 hours for 3
policies and procedures for 53 respondents. The estimate is based on the following calculation: (6 hours) x ($462
per hour) x (3 policies) = $8,316 per SBS Entity. (53 SBS Entities) x ($7,200) = $440,748.

29

SUMMARY OF HOUR AND COST BURDENS

IC Title

Type of
Burden

Respondents

Ongoing
Annual
Burden

Ongoing
Annual
Burden

Industry-wide
Annual Burden

Industry-wide
Annual
Burden

Hours

Cost

Hours

Cost

15Fh-3(b),
(c), (d)

Disclosures - SBS
Entities

Reporting

53

4,120

$0

218,360

$0

15Fh-3(b),
(c), (d)

Disclosures - SBS
Transactions
Between SBS
Dealer and NonSBSD
Counterparty

Reporting

53

4,427.4

$0

234,654

$0

15Fh-3(e),
(f)

Know Your
Counterparty and
Recommendations
(SBS Dealers)

Reporting

53

132.1

$0

7,003

$0

15Fh-3(g)

Fair and Balanced
Communications

Reporting

53

2

106

$220,374

15Fh-3(h)

Supervision

Reporting

53

540

$5,544

28,620

$293,832

15Fh-5

SBS Entities Acting
as Counterparties
to Special Entities

Reporting

53

305

$0

16,165

$0

15Fh-5

SBS Entities Acting
as Counterparties
to Special Entities

Third-Party
Disclosure

53

305

$0

16,165

$0

15Fh-6

Political
Contributions

Reporting

53

1

$29,568

53

$1,567,104

15Fk-1

Chief Compliance
Officer

Reporting

53

273

$8,316

14,469

$440,748

535,595

$2,522,058

Total

30

$4,158

14.

Costs to Federal Government

The Commission staff estimate that there is no annual cost associated with information submitted
to the Commission under the rules, other than the cost of full-time employee labor costs.
15.

Changes in Burden

The estimated annual hour burden has increased from 486,535 hours to 535,595 hours and the
estimated annual cost burden has increased from $1,812,800 to $2,522,058, an increase of
approximately 49,060 hours and $709,258 respectively. The primary reason for the increase in burdens
is the increase in the estimated number of respondents (e.g., the estimated number of SBS Entities
increased from 44 to 53). As indicated in the chart below, increases in the estimates of the number of
certain entities (e.g., decrease in the number of independent representatives but increase in the number
of respondents) and increase in the number of transactions (e.g., the number of trades requiring
disclosures) have also contributed to the increase in burdens. As discussed above, all one-time initial
burdens have already been incurred and all current burden estimates reflect only ongoing hour and cost
burdens.
SUMMARY OF CHANGES IN ANNUAL BURDEN
Rule

Increase in
Hours

Increase in
Cost

Rule 15Fh-3(b),(c),(d)
(SBS Entities)

37,080

N/A

Increase in the number of respondents

Rule 15Fh-3(b),(c),(d)
(SBS Dealer/Non SBS
Counterparty)

1,889

N/A

Increase in estimate of number of trades
requiring disclosures

Rule 15Fh-3(e)-(f)
(SBS Dealers)

1,393

N/A

Increase in estimate of number of
transactions between SBS Dealers and
non-SBS Dealer counterparties

18

$ 61,974

Increase in the number of respondents
and change in cost of legal fees.

4,860

$82,632

Increase in the number of respondents
and change in cost of legal fees.

Rule 15Fh-3(g) (Fair
and Balanced
Communications)
Rule 15Fh-3(h)
(Supervision)

31

Reason for Change

Rule 15Fh-5
(Reporting)

677

N/A

Reduction in estimate of number of
independent representatives, but increase
in number of respondents

Rule 15Fh-5 (ThirdParty Disclosure)

677

N/A

Reduction in estimate of number of
independent representatives but increase
in number of respondents

Rule 15Fh-6 (Political
Contributions)
Rule 15Fk-1(CCO)

16.

9

$440,704

Increase in the number of respondents
and change in cost of legal fees.

2,457

$123,948

Increase in the number of respondents
and change in cost of legal fees.

Information Collection Planned for Statistical Purposes

Not applicable. The Commission does not publish information collected pursuant to the Rules.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

32