[Federal Register Volume 79, Number 58 (Wednesday, March 26, 2014)]
[Rules and Regulations]
[Pages 16672-16675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-06574]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 49
RIN 3038-AE14
Swap Data Repositories--Access to SDR Data by Market Participants
AGENCY: Commodity Futures Trading Commission.
ACTION: Interim final rule; request for comment.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is adopting an interim final rule to clarify the scope of
permissible access by market participants to swap data and information
maintained by a registered swap data repository (``SDR'').
Specifically, the interim final rule clarifies that, for a swap that is
executed anonymously on a swap execution facility or designated
contract market, and then cleared in accordance with the Commission's
straight-through processing requirements, the data and information
maintained by a registered SDR that may be accessed by either
counterparty to the swap does not include the identity of the other
counterparty to the swap, the identity of the other counterparty's
clearing member for the swap, or such counterparty's or clearing
member's legal entity identifier.
DATES: Effective date: This interim final rule is effective March 26,
2014.
Comment date: Comments on this interim final rule must be submitted
on or before April 25, 2014.
ADDRESSES: You may submit comments, identified by RIN number 3038-AE14,
by any of the following methods:
Agency Web site--via Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: Melissa D. Jurgens, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
Hand delivery/courier: Same as Mail, above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments through the portal.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Sec. 145.9 of the Commission's regulations.\1\
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\1\ See 17 CFR 145.9.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse, or remove any or all of
your submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of this action will be retained in the public comment file
and will be considered as required under the Administrative Procedure
Act and other applicable laws, and may be accessible under the Freedom
of Information Act.
FOR FURTHER INFORMATION CONTACT: Nora Flood, Attorney Advisor, (202)
418-5354, [email protected], or Laurie Gussow, Special Counsel, (202)
418-7623, [email protected], Division of Market Oversight, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Dodd-Frank Act Section 728; CEA Section 21
B. Access to SDR Data by Market Participants
II. Scope of Permissible Access to SDR Data and Information by
Counterparties to Anonymously Executed, Cleared Swaps
A. Discussion
B. Amendment to 17 CFR 49.17(f)(2)
III. Request for Comment on Interim Final Rule
IV. Related Matters
A. Administrative Procedure Act
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Cost Benefit Considerations
I. Background
A. Dodd-Frank Act Section 728; CEA Section 21
On July 21, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\2\
Title VII of the Dodd-Frank Act amended the Commodity Exchange Act
(``CEA'' or ``Act'') \3\ to establish a comprehensive new regulatory
framework for swaps. The legislation was enacted to reduce systemic
risk, increase transparency, and promote market integrity within the
financial system by, among other things: (1) Providing for the
registration and comprehensive regulation of swap dealers and major
swap participants; (2) imposing clearing and trade execution
requirements on standardized derivative products; (3) creating a
rigorous recordkeeping and data reporting regime with respect to swaps,
including real-time public reporting; and (4) enhancing the
Commission's rulemaking and enforcement authorities over all registered
entities, intermediaries and swap counterparties subject to the
Commission's oversight.
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\2\ Public Law 111-203, 124 Stat. 1376 (2010).
\3\ 7 U.S.C. 1 et seq.
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Section 728 of the Dodd-Frank Act added new section 21 to the CEA,
establishing swap data repositories, or ``SDRs'', as a new category of
Commission registered entity. The SDR
[[Page 16673]]
category was established to enhance transparency, promote
standardization, and reduce systemic risk by facilitating the
collection and maintenance of swap transaction data and information,
and making such data and information directly and electronically
available to regulators.\4\ New CEA section 21 addresses the
registration and regulation of SDRs and sets forth duties and core
principles with which an SDR must comply in order to register and
maintain registration. One of those duties, set forth in CEA section
21(c)(6), is that an SDR ``maintain the privacy of any and all swap
transaction information that [it] receives from a swap dealer,
counterparty, or any other registered entity.'' \5\
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\4\ Section 2(a)(13)(G) of the CEA, added by section 727 of the
Dodd-Frank Act, requires all swaps--whether cleared or uncleared--to
be reported to a registered SDR.
\5\ Section 21(c)(6) of the CEA.
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Section 21 also directs the Commission to adopt rules governing
registered SDRs.\6\ On December 23, 2010, the Commission published in
the Federal Register a notice of proposed rulemaking (``NPRM'') to
implement the provisions of CEA section 21.\7\ After reviewing the
public comments received on the NPRM, the Commission adopted final SDR
rules as 17 CFR part 49, published in the Federal Register on September
1, 2011 (``Final SDR Rules'').\8\
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\6\ Section 21(h) of the CEA.
\7\ Swap Data Repositories, 75 FR 80897 (Dec. 23, 2010).
\8\ Swap Data Repositories: Registration Standards, Duties and
Core Principles, 76 FR 54538 (Sept. 1, 2011).
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B. Access to SDR Data by Market Participants
The Final SDR Rules contain certain provisions addressing access to
the data and information reported to and maintained by a registered
SDR. Privacy and confidentiality requirements applicable to registered
SDRs are set forth in Sec. 49.16, and access to SDR data is addressed
in Sec. 49.17.
Access to SDR data by market participants is directly addressed in
Sec. 49.17(f). In the NPRM, the Commission proposed Sec. 49.17(f) to
generally prohibit access by a market participant to swap data
maintained by a registered SDR unless, pursuant to an exception set
forth in Sec. 49.17(f)(2), the specific data was originally submitted
by such market participant.\9\ Based on comments received on the
NPRM,\10\ the Commission adopted final Sec. 49.17(f) largely as
proposed, but with a revision to the exception in Sec. 49.17(f)(2) to
provide that data and information related to a particular swap may be
accessed by either counterparty to the swap.
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\9\ Proposed Sec. 49.17(f)(1) provided that ``[a]ccess of swap
data maintained by the registered swap data repository to market
participants is generally prohibited.'' The exception set forth at
proposed Sec. 49.17(f)(2) provided that ``[d]ata and information
maintained by the registered swap data repository may be accessed by
market participants if the specific data was originally submitted by
such party.'' 75 FR at 80932.
\10\ See discussion in the preamble to the Final SDR Rules of
comments received from the American Benefits Council and the
Committee on the Investment of Employee Benefit Assets, and from the
Global Foreign Exchange Division formed in cooperation with the
Association for Financial Markets in Europe, the Securities Industry
and Financial Markets Association and the Asia Securities Industry
and Financial Markets Association, each indicating that proposed
Sec. 49.17(f) should be modified to allow both counterparties to a
swap to access data and information maintained at an SDR for that
swap. 76 FR 54555.
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Final Sec. 49.17(f)(1) provides that ``[a]ccess of swap data
maintained by the registered swap data repository to market
participants is generally prohibited.'' Final Sec. 49.17(f)(2)
provides that ``[d]ata and information related to a particular swap
that is maintained by the registered swap data repository may be
accessed by either counterparty to that particular swap.'' As noted in
the preamble to the Final SDR Rules, ``[t]he underlying basis for this
regulation was to maintain the privacy and confidentiality of the
reported data while also limiting potential access to reported swap
data to the rightful parties to a swap.'' \11\
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\11\ 76 FR 54555.
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II. Scope of Permissible Access to SDR Data and Information by
Counterparties to Anonymously Executed, Cleared Swaps
A. Discussion
Pursuant to Sec. 49.17(f)(1), access by market participants to
swap data maintained by a registered SDR is generally prohibited. An
exception to this general prohibition is set forth at Sec.
49.17(f)(2), which provides that data and information related to a
particular swap may be accessed by either counterparty to the swap.
The exception provided in Sec. 49.17(f)(2) must be read with
reference to the CEA; as a matter of construction, the exception must
fall within the bounds of statutory requirements. The exception
provided in Sec. 49.17(f)(2) thus includes an implicit condition:
counterparty access to data and information related to a particular
swap cannot be obtained in contravention of any CEA requirement or
prohibition. As discussed above, CEA section 21(c)(6) requires a
registered SDR to maintain the privacy of any and all swap transaction
information that the SDR receives from a swap dealer, counterparty or
any other registered entity. Accordingly, Sec. 49.17(f)(2) authorizes
counterparty access to data and information related to a particular
swap only to the extent that such access is consistent with an SDR's
privacy obligations under CEA section 21(c)(6).
When a swap is executed anonymously on a swap execution facility
(``SEF'') or designated contract market (``DCM'') and then cleared in
accordance with the Commission's straight-through processing
requirements \12\--such that the counterparties to the swap would not
otherwise be known to one another--the identity of each counterparty to
the swap and its clearing member for the swap, as well as the legal
entity identifier (``LEI'') \13\ of such
[[Page 16674]]
counterparty and its clearing member, is information that is private
vis-[agrave]-vis the other counterparty to the swap, and this privacy
must be maintained by a registered SDR pursuant to CEA section
21(c)(6). This statutory privacy obligation now operates implicitly to
limit the scope of Sec. 49.17(f)(2)--which, accordingly, does not
permit a counterparty to a swap that is executed anonymously on a SEF
or a DCM, and then cleared in accordance with the Commission's
straight-through processing requirements, to access the identity of the
other counterparty to the swap or that counterparty's clearing member
for the swap, or the other counterparty's or its clearing member's
LEI.\14\ The Commission is adopting this interim final rule to clarify
the scope of Sec. 49.17(f)(2),\15\ by making explicit the limitation
on counterparty access to data and information related to an
anonymously executed, cleared swap that applies by virtue of the
privacy requirements of CEA section 21(c)(6).
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\12\ See 17 CFR 1.74, 23.610 and 39.12(b)(7), which set forth
rules governing the timeframe for submitting a trade to, and
subsequent acceptance of the trade by, a derivatives clearing
organization.
\13\ Part 45 of the Commission's regulations, 77 FR 2136
(January 13, 2012), which establishes swap data recordkeeping and
reporting requirements, provides in Sec. 45.6 that each
counterparty to any swap subject to the jurisdiction of the
Commission must be identified in all recordkeeping and swap data
reporting required under part 45 by means of a single legal entity
identifier, or ``LEI'', issued pursuant to Commission rules. Part 46
of the Commission's regulations, 77 FR 35200 (June 12, 2012), which
establishes swap data recordkeeping and reporting requirements for
``pre-enactment swaps'' and ``transition swaps'' (each as defined in
part 46), provides in Sec. 46.4 that each counterparty to a pre-
enactment swap or transition swap in existence on or after April 25,
2011, must obtain an LEI, which must be used for purposes of swap
data recordkeeping and reporting as prescribed in Sec. 46.4.
The Commission is a participant in an international process, now
led by an international Regulatory Oversight Committee (``ROC'') of
which the Commission is a member, to establish a global LEI system.
In response to requests from other international financial
regulators participating in this process, the Commission is, on a
transitional basis, referring to the identifier designated for use
in recordkeeping and reporting pursuant to part 45 and part 46 as
the CFTC Interim Compliant Identifier (``CICI''). See Availability
of a Legal Entity Identifier Meeting the Requirements of the
Regulations of the Commodity Futures Trading Commission and
Designation of Provider of Legal Entity Identifiers to be Used in
the Recordkeeping and Swap Data Reporting, 77 FR 53780 (September 4,
2012), as amended by Amended Order Designating the Provider of Legal
Entity Identifiers to Be Used in Recordkeeping and Swap Data
Reporting Pursuant to the Commission's Regulations, 78 FR 38954
(June 28, 2013) (the ``Amended Designation Order'').
The global LEI system is currently in the process of becoming
operational, with the ROC already in place, a number of pre-Local
Operating Units (``pre-LOUs'') already endorsed by the ROC, and a
Central Operating Unit (``COU'') in the process of being
established. The ROC now refers to the identifiers issued by the
various endorsed pre-LOUs, including the CICI, as ``pre-LEIs''.
Since specified conditions set forth in the Amended Designation
Order have now been satisfied, any ROC-endorsed pre-LEI may
currently be used for purposes of compliance with part 45 and part
46. Once the global LEI system is fully operational, ROC-endorsed
pre-LEIs, including CICIs, will transition into the global LEI
system and be referred to as LEIs.
For purposes of this interim final rule, the term legal entity
identifier, or ``LEI'', refers to an LEI, a pre-LEI or a CICI, as
the context requires.
\14\ While the name of a counterparty's clearing member for a
swap, and such clearing member's LEI, is not information regarding
the swap that is required to be reported to a registered SDR
pursuant to part 45 or part 46 of the Commission's regulations, the
Commission understands that such information may be included with
reports of required swap data, and may therefore be ``information
related to a particular swap that is maintained by the registered
[SDR]''.
\15\ The Commission notes that it has received inquiries from
market participants regarding the scope of permissible counterparty
access to data and information maintained by a registered SDR for
swaps that are executed anonymously on SEFs and DCMs and cleared,
including a request for interpretive guidance dated February 28,
2013, from the Managed Funds Association to the Commission's
Division of Market Oversight.
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B. Amendment to 17 CFR 49.17(f)(2)
To effect the clarification described above, the Commission is
amending Sec. 49.17(f)(2) by adding language providing that the data
and information maintained by the registered swap data repository that
may be accessed by either counterparty to a particular swap shall not
include the identity or the legal entity identifier (as such term is
used in 17 CFR part 45) of the other counterparty to the swap, or the
other counterparty's clearing member for the swap, if the swap is
executed anonymously on a swap execution facility or designated
contract market, and cleared in accordance with Commission regulations
1.74, 23.610, and 37.12(b)(7).
III. Request for Comment on Interim Final Rule
The Commission invites comments on this interim final rule.
Comments must be submitted to the Commission on or before the date that
is 30 days after the date of publication of the interim final rule in
the Federal Register. Comments on the interim final rule must be
submitted pursuant to the instructions provided above.
IV. Related Matters
A. Administrative Procedure Act
The Administrative Procedure Act (``APA'') \16\ generally requires
a Federal agency to publish notice of a proposed rulemaking in the
Federal Register.\17\ This requirement does not apply, however, when an
agency ``for good cause finds . . . that notice and public procedure
thereon are impracticable, unnecessary, or contrary to the public
interest.'' \18\ Moreover, while the APA generally requires that an
agency publish an adopted rule in the Federal Register 30 days before
it becomes effective, this requirement does not apply if the agency
finds good cause to make the rule effective sooner.\19\
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\16\ 5 U.S.C. 553 et seq.
\17\ See 5 U.S.C. 553(b).
\18\ See 5 U.S.C. 553(b)(3)(B).
\19\ See 5 U.S.C. 553(d)(3).
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In this interim final rulemaking the Commission is, by amendment,
clarifying the scope of Sec. 49.17(f)(2), by making explicit a
limitation on counterparty access to SDR data and information that
applies by virtue of CEA section 21(c)(6). In the absence of such a
clarifying amendment that same limitation would continue to apply
implicitly, since the scope of Sec. 49.17(f)(2) cannot exceed the
bounds of statutory privacy requirements. Because the interim final
rule does not alter in any way substantive rights and obligations under
Sec. 49.17(f)(2)--the scope of this regulatory provision is limited in
precisely the same manner by CEA section 21(c)(6), regardless of
whether such limitation is implicit, as it is currently, or made
explicit through the clarifying amendment effected by this interim
final rule--the advance notice and public procedure that is generally
required pursuant to the APA is not necessary in the present instance.
For good cause, the Commission therefore finds that publication of a
notice of proposed rulemaking in the Federal Register is unnecessary.
Similarly, since the interim final rule simply makes explicit a
limitation on the scope of counterparty access to SDR data and
information that already applies by operation of statute, the
Commission, for good cause, finds that no transitional period, after
publication in the Federal Register, is necessary before the amendment
to Sec. 49.17(f)(2) made by this interim final rule becomes effective.
Accordingly, this interim final rule shall be effective immediately
upon publication in the Federal Register.
B. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') \20\ imposes certain
requirements on Federal agencies in connection with their conducting or
sponsoring any collection of information as defined by the PRA. Under
the PRA, an agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid control number from the Office of Management and
Budget (``OMB'').\21\ Since this interim final rule serves to clarify,
by amendment, the scope of an already existing regulatory provision,
the Commission has determined that the interim final rule will not
impose any new information collection requirements that require
approval of OMB under the PRA.
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\20\ 44 U.S.C. 3501 et seq.
\21\ See 44 U.S.C. 3507.
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C. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that Federal
agencies consider whether the rules that they issue will have a
significant economic impact on a substantial number of small entities
and, if so, to provide a regulatory flexibility analysis respecting the
impact.\22\ By clarifying the scope of Sec. 49.17(f)(2), this interim
final rule serves to clarify existing obligations and responsibilities
of registered SDRs, which the Commission has previously, in connection
with its swap data recordkeeping and reporting rules, determined are
not small entities.\23\ Therefore, the interim final rule will not have
a significant economic impact on a substantial number of small
entities.
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\22\ See 5 U.S.C. 601 et seq.
\23\ See 77 FR 2170-2171.
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D. Cost Benefit Considerations
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
[[Page 16675]]
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations.\24\ The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the
section 15(a) factors.
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\24\ CEA section 15(a).
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This interim final rule does not represent an exercise of
Commission discretion that alters substantive rights and obligations
imposed by statute and Commission rule currently. As discussed earlier,
the interim final rule merely clarifies the existing scope of Sec.
49.17(f)(2) by making explicit a statutory limitation that, absent this
clarification, applies implicitly: The exception to the general
prohibition against market participant access to SDR data does not
sanction practices that contravene the statutory privacy requirements
of CEA section 21(c)(6). As such, substantively, the interim final rule
poses no incremental costs or benefits relative to regulatory
requirements that are now operative.\25\
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\25\ Complying with these existing requirements may, however,
entail some expenditure. For example, to comply with CEA section
21(c)(6) registered SDRs may incur certain costs associated with
programming their systems to recognize swaps that are executed
anonymously on a SEF or a DCM and cleared, as described herein, and
to prevent a counterparty's access to the identity and LEI of the
other counterparty to such a swap, and such counterparty's clearing
member for the swap.
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This interim final rule is not void of any discretionary element,
however. By issuing the interim final rule, the Commission is
exercising its discretion to clarify, by amendment, the existing scope
of Sec. 49.17(f)(2), rather than leaving this regulatory provision in
its current form. By making explicit a limitation on the scope of Sec.
49.17(f)(2) that exists by virtue of the statutory privacy requirements
of CEA section 21(c)(6), the interim final rule addresses a potential
source of uncertainty for market participants,\26\ and, in so doing,
promotes the public interests in market integrity and, more generally,
in regulatory clarity and certainty. Conversely, the Commission sees no
costs resultant from this discretionary act of clarification.\27\
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\26\ See note 15, supra.
\27\ The Commission recognizes that if, to date, any market
participant has not read Sec. 49.17(f)(2) with reference to the
statutory privacy limitations of CEA section 21(c)(6), the market
participant may have developed systems and processes that require
modification to comply with these statutory limitations. In any such
case, the clarifying amendment effected by this interim final rule
should alert the market participant to the need for modification.
Such modification may entail some cost to implement. However, any
such modification costs would not arise from the Commission's
exercise of its discretion, in this interim final rule, to clarify
Sec. 49.17(f)(2) by making explicit an existing statutory
limitation on the scope of this regulatory provision. Such
modification costs would be required to achieve statutory compliance
regardless of whether or not the Commission provided such
clarification through this interim final rule.
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List of Subjects in 17 CFR Part 49
Swap data repositories, Registration and regulatory requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 49 as follows:
PART 49--SWAP DATA REPOSITORIES
0
1. The authority citation for part 49 continues to read as follows:
Authority: 7 U.S.C. 12a and 24a, as amended by Title VII of the
Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010), unless otherwise noted.
0
2. Revise Sec. 49.17(f)(2) to read as follows:
Sec. 49.17 Access to SDR data.
* * * * *
(f) * * *
(2) Exception. Data and information related to a particular swap
that is maintained by the registered swap data repository may be
accessed by either counterparty to that particular swap. However, the
data and information maintained by the registered swap data repository
that may be accessed by either counterparty to a particular swap shall
not include the identity or the legal entity identifier (as such term
is used in part 45 of this chapter) of the other counterparty to the
swap, or the other counterparty's clearing member for the swap, if the
swap is executed anonymously on a swap execution facility or designated
contract market, and cleared in accordance with Commission regulations
in Sec. Sec. 1.74, 23.610, and 37.12(b)(7) of this chapter.
* * * * *
Issued in Washington, DC, on March 20, 2014, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Swap Data Repositories--Access to SDR Data by Market
Participants--Commission Voting Summary
On this matter, Acting Chairman Wetjen and Commissioners Chilton
and O'Malia voted in the affirmative. No Commissioner voted in the
negative.
[FR Doc. 2014-06574 Filed 3-25-14; 8:45 am]
BILLING CODE 6351-01-P