US Code
CHAPTER 2B— SECURITIES EXCHANGES
§ 78c–4. Security-based swap execution facilities

(a) Registration(1) In generalNo person may operate a facility for the trading or processing of security-based swaps, unless the facility is registered as a security-based swap execution facility or as a national securities exchange under this section.
(2) Dual registrationAny person that is registered as a security-based swap execution facility under this section shall register with the Commission regardless of whether the person also is registered with the Commodity Futures Trading Commission as a swap execution facility.
(b) Trading and trade processingA security-based swap execution facility that is registered under subsection (a) may—(1) make available for trading any security-based swap; and
(2) facilitate trade processing of any security-based swap.
(c) Identification of facility used to trade security-based swaps by national securities exchangesA national securities exchange shall, to the extent that the exchange also operates a security-based swap execution facility and uses the same electronic trade execution system for listing and executing trades of security-based swaps on or through the exchange and the facility, identify whether electronic trading of such security-based swaps is taking place on or through the national securities exchange or the security-based swap execution facility.
(d) Core principles for security-based swap execution facilities(1) Compliance with core principles(A) In generalTo be registered, and maintain registration, as a security-based swap execution facility, the security-based swap execution facility shall comply with—(i) the core principles described in this subsection; and
(ii) any requirement that the Commission may impose by rule or regulation.
(B) Reasonable discretion of security-based swap execution facilityUnless otherwise determined by the Commission, by rule or regulation, a security-based swap execution facility described in subparagraph (A) shall have reasonable discretion in establishing the manner in which it complies with the core principles described in this subsection.
(2) Compliance with rulesA security-based swap execution facility shall—(A) establish and enforce compliance with any rule established by such security-based swap execution facility, including—(i) the terms and conditions of the security-based swaps traded or processed on or through the facility; and
(ii) any limitation on access to the facility;
(B) establish and enforce trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules, including means—(i) to provide market participants with impartial access to the market; and
(ii) to capture information that may be used in establishing whether rule violations have occurred; and
(C) establish rules governing the operation of the facility, including rules specifying trading procedures to be used in entering and executing orders traded or posted on the facility, including block trades.
(3) Security-based swaps not readily susceptible to manipulationThe security-based swap execution facility shall permit trading only in security-based swaps that are not readily susceptible to manipulation.
(4) Monitoring of trading and trade processingThe security-based swap execution facility shall—(A) establish and enforce rules or terms and conditions defining, or specifications detailing—(i) trading procedures to be used in entering and executing orders traded on or through the facilities of the security-based swap execution facility; and
(ii) procedures for trade processing of security-based swaps on or through the facilities of the security-based swap execution facility; and
(B) monitor trading in security-based swaps to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions.
(5) Ability to obtain informationThe security-based swap execution facility shall—(A) establish and enforce rules that will allow the facility to obtain any necessary information to perform any of the functions described in this subsection;
(B) provide the information to the Commission on request; and
(C) have the capacity to carry out such international information-sharing agreements as the Commission may require.
(6) Financial integrity of transactionsThe security-based swap execution facility shall establish and enforce rules and procedures for ensuring the financial integrity of security-based swaps entered on or through the facilities of the security-based swap execution facility, including the clearance and settlement of security-based swaps pursuant to section 78c–3(a)(1) of this title.
(7) Emergency authorityThe security-based swap execution facility shall adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission, as is necessary and appropriate, including the authority to liquidate or transfer open positions in any security-based swap or to suspend or curtail trading in a security-based swap.
(8) Timely publication of trading information(A) In generalThe security-based swap execution facility shall make public timely information on price, trading volume, and other trading data on security-based swaps to the extent prescribed by the Commission.
(B) Capacity of security-based swap execution facilityThe security-based swap execution facility shall be required to have the capacity to electronically capture and transmit and disseminate trade information with respect to transactions executed on or through the facility.
(9) Recordkeeping and reporting(A) In generalA security-based swap execution facility shall—(i) maintain records of all activities relating to the business of the facility, including a complete audit trail, in a form and manner acceptable to the Commission for a period of 5 years; and
(ii) report to the Commission, in a form and manner acceptable to the Commission, such information as the Commission determines to be necessary or appropriate for the Commission to perform the duties of the Commission under this chapter.
(B) RequirementsThe Commission shall adopt data collection and reporting requirements for security-based swap execution facilities that are comparable to corresponding requirements for clearing agencies and security-based swap data repositories.
(10) Antitrust considerationsUnless necessary or appropriate to achieve the purposes of this chapter, the security-based swap execution facility shall not—(A) adopt any rules or taking 11 So in original. Probably should be “take”. any actions that result in any unreasonable restraint of trade; or
(B) impose any material anticompetitive burden on trading or clearing.
(11) Conflicts of interestThe security-based swap execution facility shall—(A) establish and enforce rules to minimize conflicts of interest in its decision-making process; and
(B) establish a process for resolving the conflicts of interest.
(12) Financial resources(A) In generalThe security-based swap execution facility shall have adequate financial, operational, and managerial resources to discharge each responsibility of the security-based swap execution facility, as determined by the Commission.
(B) Determination of resource adequacyThe financial resources of a security-based swap execution facility shall be considered to be adequate if the value of the financial resources—(i) enables the organization to meet its financial obligations to its members and participants notwithstanding a default by the member or participant creating the largest financial exposure for that organization in extreme but plausible market conditions; and
(ii) exceeds the total amount that would enable the security-based swap execution facility to cover the operating costs of the security-based swap execution facility for a 1-year period, as calculated on a rolling basis.
(13) System safeguardsThe security-based swap execution facility shall—(A) establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk, through the development of appropriate controls and procedures, and automated systems, that—(i) are reliable and secure; and
(ii) have adequate scalable capacity;
(B) establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allow for—(i) the timely recovery and resumption of operations; and
(ii) the fulfillment of the responsibilities and obligations of the security-based swap execution facility; and
(C) periodically conduct tests to verify that the backup resources of the security-based swap execution facility are sufficient to ensure continued—(i) order processing and trade matching;
(ii) price reporting;
(iii) market surveillance; and
(iv) maintenance of a comprehensive and accurate audit trail.
(14) Designation of chief compliance officer(A) In generalEach security-based swap execution facility shall designate an individual to serve as a chief compliance officer.
(B) DutiesThe chief compliance officer shall—(i) report directly to the board or to the senior officer of the facility;
(ii) review compliance with the core principles in this subsection;
(iii) in consultation with the board of the facility, a body performing a function similar to that of a board, or the senior officer of the facility, resolve any conflicts of interest that may arise;
(iv) be responsible for establishing and administering the policies and procedures required to be established pursuant to this section;
(v) ensure compliance with this chapter and the rules and regulations issued under this chapter, including rules prescribed by the Commission pursuant to this section;
(vi) establish procedures for the remediation of noncompliance issues found during—(I) compliance office reviews;
(II) look backs;
(III) internal or external audit findings;
(IV) self-reported errors; or
(V) through validated complaints; and
(vii) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues.
(C) Annual reports(i) In generalIn accordance with rules prescribed by the Commission, the chief compliance officer shall annually prepare and sign a report that contains a description of—(I) the compliance of the security-based swap execution facility with this chapter; and
(II) the policies and procedures, including the code of ethics and conflict of interest policies, of the security-based security-based 22 So in original. swap execution facility.
(ii) RequirementsThe chief compliance officer shall—(I) submit each report described in clause (i) with the appropriate financial report of the security-based swap execution facility that is required to be submitted to the Commission pursuant to this section; and
(II) include in the report a certification that, under penalty of law, the report is accurate and complete.
(e) ExemptionsThe Commission may exempt, conditionally or unconditionally, a security-based swap execution facility from registration under this section if the Commission finds that the facility is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the Commodity Futures Trading Commission.
(f) RulesThe Commission shall prescribe rules governing the regulation of security-based swap execution facilities under this section.

Structure US Code

US Code

Title 15— COMMERCE AND TRADE

CHAPTER 2B— SECURITIES EXCHANGES

§ 78a. Short title

§ 78b. Necessity for regulation

§ 78c. Definitions and application

§ 78c–1. Swap agreements

§ 78c–2. Securities-related derivatives

§ 78c–3. Clearing for security-based swaps

§ 78c–4. Security-based swap execution facilities

§ 78c–5. Segregation of assets held as collateral in security-based swap transactions

§ 78d. Securities and Exchange Commission

§ 78d–1. Delegation of functions by Commission

§ 78d–2. Transfer of functions with respect to assignment of personnel to chairman

§ 78d–3. Appearance and practice before the Commission

§ 78d–4. Additional duties of Inspector General

§ 78d–5. Deadline for completing enforcement investigations and compliance examinations and inspections

§ 78d–6. Report and certification of internal supervisory controls

§ 78d–7. Triennial report on personnel management

§ 78d–8. Annual financial controls audit

§ 78d–9. Report on oversight of national securities associations

§ 78e. Transactions on unregistered exchanges

§ 78f. National securities exchanges

§ 78g. Margin requirements

§ 78h. Restrictions on borrowing and lending by members, brokers, and dealers

§ 78i. Manipulation of security prices

§ 78j. Manipulative and deceptive devices

§ 78j–1. Audit requirements

§ 78j–2. Position limits and position accountability for security-based swaps and large trader reporting

§ 78j–3. Compensation committees

§ 78j–4. Recovery of erroneously awarded compensation policy

§ 78k. Trading by members of exchanges, brokers, and dealers

§ 78k–1. National market system for securities; securities information processors

§ 78l. Registration requirements for securities

§ 78l–1. Applications for unlisted trading privileges deemed filed under

§ 78m. Periodical and other reports

§ 78m–1. Reporting and recordkeeping for certain security-based swaps

§ 78m–2. Reporting requirements regarding coal or other mine safety

§ 78n. Proxies

§ 78n–1. Shareholder approval of executive compensation

§ 78n–2. Corporate governance

§ 78o. Registration and regulation of brokers and dealers

§ 78o–1. Brokers deemed to be registered

§ 78o–2. Liabilities arising prior to amendment unaffected

§ 78o–3. Registered securities associations

§ 78o–4. Municipal securities

§ 78o–4a. Commission Office of Municipal Securities

§ 78o–5. Government securities brokers and dealers

§ 78o–6. Securities analysts and research reports

§ 78o–7. Registration of nationally recognized statistical rating organizations

§ 78o–8. Universal ratings symbols

§ 78o–9. Study and rulemaking on assigned credit ratings

§ 78o–10. Registration and regulation of security-based swap dealers and major security-based swap participants

§ 78o–11. Credit risk retention

§ 78p. Directors, officers, and principal stockholders

§ 78q. Records and reports

§ 78q–1. National system for clearance and settlement of securities transactions

§ 78q–2. Automated quotation systems for penny stocks

§ 78r. Liability for misleading statements

§ 78s. Registration, responsibilities, and oversight of self-regulatory organizations

§ 78t. Liability of controlling persons and persons who aid and abet violations

§ 78t–1. Liability to contemporaneous traders for insider trading

§ 78u. Investigations and actions

§ 78u–1. Civil penalties for insider trading

§ 78u–2. Civil remedies in administrative proceedings

§ 78u–3. Cease-and-desist proceedings

§ 78u–4. Private securities litigation

§ 78u–5. Application of safe harbor for forward-looking statements

§ 78u–6. Securities whistleblower incentives and protection

§ 78u–7. Implementation and transition provisions for whistleblower protection

§ 78v. Hearings by Commission

§ 78w. Rules, regulations, and orders; annual reports

§ 78x. Public availability of information

§ 78y. Court review of orders and rules

§ 78z. Unlawful representations

§ 78aa. Jurisdiction of offenses and suits

§ 78aa–1. Special provision relating to statute of limitations on private causes of action

§ 78bb. Effect on existing law

§ 78cc. Validity of contracts

§ 78dd. Foreign securities exchanges

§ 78dd–1. Prohibited foreign trade practices by issuers

§ 78dd–2. Prohibited foreign trade practices by domestic concerns

§ 78dd–3. Prohibited foreign trade practices by persons other than issuers or domestic concerns

§ 78ee. Transaction fees

§ 78ff. Penalties

§ 78gg. Separability

§ 78hh. Effective date

§ 78hh–1. Effective date of certain sections

§ 78ii. Omitted

§ 78jj. Repealed. , ,

§ 78kk. Authorization of appropriations

§ 78ll. Requirements for the EDGAR system

§ 78mm. General exemptive authority

§ 78nn. Tennessee Valley Authority

§ 78oo. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks

§ 78pp. Investor Advisory Committee

§ 78qq. Small Business Capital Formation Advisory Committee

§ 78rr. Data standards for security-based swap reporting